Manning & Napier, Inc. Reports First Quarter 2013 Earnings Results Business Wire FAIRPORT, N.Y. -- May 1, 2013 Manning & Napier, Inc. (NYSE: MN), (“Manning & Napier” or “the Company”) today reported 2013 first quarter results for the period ended March31, 2013. Summary Highlights *Economic income and economic net income, non-GAAP measures, of $40.1 million and $24.8 million, or $0.28 per adjusted share *Assets under management ("AUM") at March31, 2013 was $48.1 billion, compared with $45.2 billion at December31, 2012 *First quarter revenue increased 6% year-over-year and increased 4% sequentially to $90.3 million *Manning& Napier Group, LLC distributed to its members $31.3 million in cash for the quarter, resulting in a $0.16 per share first quarter dividend *Accretive repurchase of 498,497 Class A units held by legacy shareholders Patrick Cunningham, Manning & Napier's Chief Executive Officer, commented, “We delivered strong absolute and competitive relative investment results for our clients during the first quarter of 2013. Our focus on growth-oriented investments in the current slow economic growth environment has been a deliberate attempt to protect investors from reinvestment rate risk, or the risk of achieving low returns by reinvesting capital in lower growth stocks with relatively high dividend yields or lower yielding government-backed bonds, both historically considered "safe" investments. Our emphasis on companies with sustainable growth was rewarded in the first quarter.” With respect to the overall business, Cunningham noted, “Fully mindful of the headwinds facing active managers, we continue to believe that active management will be critical to meeting client objectives over the long term, particularly in an environment where economic and political uncertainties remain. As a result, we continue to enhance the scope of current consultative solutions to our clients, invest in new product-and-service solution sets for the future, and expand the regional coverage of our sales and service representatives. Beyond these growth strategies, I am also pleased to announce that we finalized our new long term incentive plan for employees, continuing a long tradition of sharing equity with employees that prove to be key contributors to our growth over time, and ensuring that our incentives are aligned with those of our clients and shareholders.” First Quarter 2013 Financial Review Manning& Napier reported first quarter 2013 revenue of $90.3 million, an increase of 6% from revenue of $85.0 million reported in the first quarter of 2012, and an increase of 4% from revenue of $87.1 million reported in the fourth quarter of 2012. The changes in revenue resulted primarily from increases in average AUM. Average AUM for the quarter was $47.2 billion, which was a 10% and 6% increase from the first quarter of 2012 and the fourth quarter of 2012, when average AUM was $43.1 billion and $44.5 billion, respectively. Revenue as a percentage of average AUM was 0.78% for the first quarter of 2013 compared with 0.79% for the first quarter of 2012 and 0.78% for the previous quarter. Operating expenses were $72.2 million, or $50.4 million, excluding non-cash reorganization-related share-based compensation of $21.7 million. The $50.4 million represents an increase of $5.2 million in operating expenses compared with the first quarter of 2012, and an increase of $3.7 million in operating expenses compared with the fourth quarter of 2012, excluding reorganization-related share-based compensation. The expense increase in the current quarter compared to both the first and fourth quarter of 2012 was due primarily to higher incentive compensation costs resulting from the strong absolute and relative investment performance during the first quarter of 2013 compared to the first and fourth quarters of 2012, as well as increases in asset-based costs associated with our fund and collective products including sub-transfer agent fees, 12b-1 fees and fund fee caps. Generally Accepted Accounting Principles (“GAAP”)-based operating income was $18.1 million. Operating income, excluding non-cash reorganization-related share-based compensation, was $39.8 million for the quarter, an increase of $0.1 million over the first quarter of 2012 and a decrease of $0.6 million from the fourth quarter of 2012. Operating margin, excluding non-cash reorganization-related share-based compensation expense, was 44% for the first quarter of 2013, compared with 47% for the first quarter of 2012 and 46% for the fourth quarter of 2012. The Company uses economic income and economic net income to provide greater clarity regarding the cash earnings of the business by removing non-cash reorganization-related share-based compensation charges, as defined in the Non-GAAP Financial Measures section below. On this basis, Manning& Napier reported first quarter 2013 economic income of $40.1 million compared with $40.1 million in the first quarter of 2012 and $40.5 million in the fourth quarter of 2012. Also for the first quarter of 2013, economic net income was $24.8 million, or $0.28 per adjusted share, compared with $24.8 million, or $0.28 per adjusted share, in the first quarter of 2012 and $25.0 million, or $0.28 per adjusted share, in the fourth quarter of 2012. On a GAAP basis, net income attributable to the controlling and noncontrolling interests for the first quarter was $16.4 million compared with net income of $34.4 million in the first quarter of 2012 and net income of $11.5 million in the fourth quarter of 2012. The decrease in net income compared to the first quarter of 2012 is attributable to the increase in non-cash reorganization-related share-based compensation expense of $18.0 million and the increase in net income compared to the fourth quarter of 2012 is due to a decrease in non-cash reorganization-related share-based compensation of $5.5 million. GAAP net income attributable to the common shareholders for the first quarter of $0.3 million, or $0.03 per basic and diluted share, reflects the public ownership of the Company’s subsidiary, Manning& Napier Group, LLC. The remaining ownership interest is attributed to the other members of Manning& Napier Group, LLC. Assets Under Management As of March31, 2013, AUM was $48.1 billion, an increase of 6% from the $45.2 billion as of December31, 2012 and 7% from the $44.7 billion as of March31, 2012. As of March31, 2013, the composition of the Company’s AUM was 55% in separate accounts and 45% in mutual funds and collective investment trusts, which is consistent with the composition as of December 31, 2012 and generally consistent with the AUM composition as of March31, 2012 of 56% in separate accounts and 44% in mutual funds and collective investment trusts. Since December31, 2012, AUM increased by $2.9 billion, including increases of 6% in both separate account and mutual fund collective investment trust AUM. The $2.9 billion increase in AUM from December31, 2012 to March31, 2013 was primarily attributable to market appreciation as our net client flows were generally flat. As it relates to the Company’s separate accounts, outflows were mainly due to withdrawals from existing client accounts, as opposed to cancellations, as the annualized separate account retention rate continues to remain strong at 97% for the first quarter of 2013. The 2012 full year retention rate was 95%. When compared to March31, 2012, AUM increased by $3.3 billion from $44.7 billion, including an increase of $1.4 billion, or 6%, in separate account AUM and an increase of $1.9 billion, or 10%, in mutual fund and collective investment trust AUM. Balance Sheet Review As of March31, 2013, cash and cash equivalents was $131.7 million, compared with $108.3 million as of December31, 2012. Summary of Classification Changes Beginning with the first fiscal quarter 2013 results, the Company changed the presentation of certain items within its consolidated statements of operations. The changes consisted of the classification of 12b-1 distribution and servicing fees ("12b-1 fees") and sub-custodian fees. The Company incurs 12b-1 fee expenses that are due to third party distributors of Manning & Napier Fund, Inc. series of mutual funds (the "Fund") based on the AUM of designated share classes of the Fund. The Company incurs sub-custodian fees due to a third party that provides custodial services for those assets where Exeter Trust Company, a subsidiary of the Company, is the named custodian. The Company changed its presentation of 12b-1 fees and sub-custodian fees from "Other operating costs" to "Sub-transfer agent and shareholder service costs" to more appropriately reflect the nature of these costs as distribution and asset-based. The line was renamed "Distribution, servicing and custody expenses" to reflect the broader nature of the underlying expenses. Amounts for the comparative prior fiscal year periods have been reclassified to conform to the current year presentation. This reclassification had no impact on previously reported total operating expenses, net income or financial position and does not represent a restatement of any previously published financial results. The impact is illustrated below: Three months ended December 31, September 30, June 30, March 31, 2012 2012 2012 2012 (in thousands) Sub-transfer agent and shareholder $ 13,231 $ 12,830 $ 12,471 $ 12,674 service costs, as previously reported Reclassification 1,873 1,782 1,651 1,556 Distribution, servicing and custody $ 15,104 $ 14,612 $ 14,122 $ 14,230 expenses, as reclassified Other operating costs, as previously $ 10,242 $ 9,941 $ 9,259 $ 8,589 reported Reclassification (1,873 ) (1,782 ) (1,651 ) (1,556 ) Other operating costs, as $ 8,369 $ 8,159 $ 7,608 $ 7,033 reclassified Conference Call Manning& Napier will host a conference call to discuss its first quarter 2013 earnings results on Thursday, May2, 2013, at 8:00 a.m. ET. To access the teleconference, please dial 706-758-9224 (domestic and international) approximately ten minutes before the teleconference’s scheduled start time and reference ID # 36673575. A live webcast will also be available on the investor relations portion of Manning& Napier’s website at http://ir.manning-napier.com/. If you are unable to access the live teleconference, a replay will be available beginning approximately two hours after the call’s completion and available through May 9, 2013. The teleconference replay can be accessed by dialing 404-537-3406 (domestic and international) and entering the ID# 36673575. A webcast replay will also be available on the investor relations portion of Manning& Napier’s website at http://ir.manning-napier.com/. Non-GAAP Financial Measures To provide investors with greater insight, promote transparency and allow for a more comprehensive understanding of the information used by management in its financial and operational decision-making, the Company supplements its combined consolidated statements of income presented on a GAAP basis with non-GAAP financial measures of earnings. Please refer to the schedule in this release for a reconciliation of non-GAAP financial measures to GAAP measures. Management uses economic income, economic net income and economic net income per adjusted share as financial measures to evaluate the profitability and efficiency of the Company’s business model. Economic income, economic net income and economic net income per adjusted share are not presented in accordance with GAAP. Economic income excludes from income before provision for income taxes the reorganization-related share-based compensation, which results in non-cash compensation expense reported over the vesting period. In addition, upon the consummation of the initial public offering, the vesting terms related to the ownership of its employees were modified, including the Company’s named executive officers, other than William Manning. Such individuals were entitled to 15% of their pre-IPO ownership interests upon the consummation of the offering, and 15% of their pre-IPO ownership interests over the subsequent three years. The remaining ownership interests are subject to performance-based vesting over such three-year period. Such vesting terms will not result in dilution to the number of outstanding shares of the Company’s ClassA common stock. As a result of such vesting requirements, the Company will recognize non-cash compensation charges through 2014. Economic net income is a non-GAAP measure of after-tax operating performance and equals the Company’s economic income less adjusted income taxes. Adjusted income taxes are estimated assuming the exchange of all outstanding units of Manning& Napier Group, LLC into ClassA common stock on a one-to-one basis. Therefore, all income of Manning& Napier Group, LLC allocated to the units of Manning& Napier Group, LLC is treated as if it were allocated to Manning& Napier and represents an estimate of income tax expense at an effective rate of 38.25% on economic income for each respective period, reflecting assumed federal, state and local income taxes. Economic net income per adjusted share is equal to economic net income divided by the total number of adjusted ClassA common shares outstanding. The number of adjusted ClassA common shares outstanding for all periods presented is determined by assuming the weighted average exchangeable units of Manning& Napier Group, LLC are converted into the Company’s outstanding ClassA common stock as of the respective reporting date, on a one-to-one basis. The Company’s management uses economic net income, among other financial data, to determine the earnings available to distribute as dividends to holders of its ClassA common stock and to the holders of the units of Manning& Napier Group, LLC. Investors should consider the non-GAAP measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. Additionally, the Company’s non-GAAP measures may differ from similar measures used by other companies, even if similar terms are used to identify such measures. About Manning& Napier, Inc. Manning& Napier (NYSE: MN) provides a broad range of investment solutions through separately managed accounts, mutual funds, and collective investment trust funds, as well as a variety of consultative services that complement our investment process. Founded in 1970, we offer equity and fixed income portfolios as well as a range of blended asset portfolios, such as life cycle funds, that use a mix of stocks and bonds. We serve a diversified client base of high-net-worth individuals and institutions, including 401(k) plans, pension plans, Taft-Hartley plans, endowments and foundations. For many of these clients, our relationship goes beyond investment management and includes customized solutions that address key issues and solve client-specific problems. We are headquartered in Fairport, NY and had 498 employees as of March31, 2013. Safe Harbor Statement This press release and other statements that the Company may make may contain forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and Section21E of the Securities Exchange Act of 1934, which reflect the Company’s current views with respect to, among other things, its operations and financial performance. Words like “believes,” “expects,” “may,” “estimates,” “will,” “should,” “intends,” “plans,” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, are used to identify forward-looking statements, although not all forward-looking statements contain these words. Although the Company believes that it is basing its expectations and beliefs on reasonable assumptions within the bounds of what it currently knows about its business and operations, there can be no assurance that its actual results will not differ materially from what the Company expects or believes. Some of the factors that could cause the Company’s actual results to differ from its expectations or beliefs include, without limitation: changes in securities or financial markets or general economic conditions; a decline in the performance of the Company’s products; client sales and redemption activity; changes of government policy or regulations; and other risks discussed from time to time in the Company’s filings with the Securities and Exchange Commission. Manning & Napier, Inc. Consolidated Statements of Operations (in thousands, except share data) (unaudited) Three Months Ended March 31, December 31, March 31, 2013 2012 2012 Revenues Investment management $ 90,256 $ 87,130 $ 85,014 services revenue Expenses Compensation and related 48,483 50,474 27,732 costs Distribution, servicing and 15,915 15,104 14,230 custody expenses Other operating 7,779 8,369 7,033 costs Total operating 72,177 73,947 48,995 expenses Operating 18,079 13,183 36,019 income Non-operating income (loss) Non-operating 310 43 395 income, net Income before provision for 18,389 13,226 36,414 income taxes Provision for 1,997 1,751 1,990 income taxes Net income attributable to the controlling 16,392 11,475 34,424 and the noncontrolling interests Less: net income attributable 16,048 11,727 31,521 to the noncontrolling interests Net income (loss) attributable $ 344 $ (252 ) $ 2,903 to Manning & Napier, Inc. Net income (loss) per share available to Class A common stock Basic $ 0.03 $ (0.02 ) $ 0.21 Diluted $ 0.03 $ (0.02 ) $ 0.21 Weighted average shares of Class A common stock outstanding Basic 13,583,873 13,583,873 13,583,873 Diluted 13,583,873 13,583,873 13,583,873 Manning & Napier, Inc. Reconciliation of Non-GAAP Financial Measures to GAAP Measures (in thousands, except share data) (unaudited) Three Months Ended March 31, 2013 December 31, March 31, 2012 2012 Reconciliation of non-GAAP financial measures: Net income (loss) attributable to $ 344 $ (252 ) $ 2,903 Manning & Napier, Inc. Plus: net income attributable to the 16,048 11,727 31,521 noncontrolling interests Net income attributable to the controlling and the 16,392 11,475 34,424 noncontrolling interests Provision for income 1,997 1,751 1,990 taxes Income before provision for income 18,389 13,226 36,414 taxes Reorganization-related share-based 21,740 27,238 3,709 compensation Economic income 40,129 40,464 40,123 Adjusted income taxes 15,349 15,477 15,347 Economic net income $ 24,780 $ 24,987 $ 24,776 Reconciliation of non-GAAP per share financial measures: Net income (loss) available to Class A common stock per basic $ 0.03 $ (0.02 ) $ 0.21 share Plus: net income attributable to the noncontrolling 1.17 0.86 2.32 interests per basic share Net income attributable to the controlling and the noncontrolling 1.20 0.84 2.53 interests per basic share Provision for income 0.15 0.13 0.15 taxes per basic share Income before provision for income 1.35 0.97 2.68 taxes per basic share Reorganization-related share-based 1.60 2.01 0.27 compensation per basic share Economic income per 2.95 2.98 2.95 basic share Adjusted income taxes 1.13 1.14 1.13 per basic share Economic net income 1.82 1.84 1.82 per basic share Less: Impact of Manning & Napier Group, LLC units converted (1.54 ) (1.56 ) (1.54 ) to publicly traded shares Economic net income $ 0.28 $ 0.28 $ 0.28 per adjusted share Weighted average shares of Class A 13,583,873 13,583,873 13,583,873 common stock outstanding Weighted average exchangeable units of Manning & Napier 76,383,383 76,400,000 76,400,000 Group, LLC Weighted average adjusted Class A 89,967,256 89,983,873 89,983,873 common stock outstanding Manning & Napier, Inc. Assets Under Management ("AUM") (in millions) (unaudited) For the three-months Investment Vehicle Portfolio ended: Mutual funds Separate and Blended Fixed accounts collective Total Asset Equity Income Total investment trusts As of December $ 24,683.6 $ 20,525.3 $ 45,208.9 $ 20,470.7 $ 23,472.5 $ 1,265.7 $ 45,208.9 31, 2012 Gross client 980.1 1,747.7 2,727.8 1,299.9 1,385.9 42.0 2,727.8 inflows Gross client (1,154.9 ) (1,592.7 ) (2,747.6 ) (1,097.4 ) (1,580.6 ) (69.6 ) (2,747.6 ) outflows Market 1,722.4 1,168.9 2,891.3 1,235.4 1,655.8 0.1 2,891.3 appreciation As of March $ 26,231.2 $ 21,849.2 $ 48,080.4 $ 21,908.6 $ 24,933.6 $ 1,238.2 $ 48,080.4 31, 2013 Average AUM $ 25,770.8 $ 21,417.4 $ 47,188.2 $ 21,371.6 $ 24,579.8 $ 1,236.8 $ 47,188.2 for period As of September 30, $ 24,323.3 $ 19,944.7 $ 44,268.0 $ 20,497.8 $ 22,552.9 $ 1,217.3 $ 44,268.0 2012 Gross client 962.4 1,568.9 2,531.3 943.1 1,529.4 58.8 2,531.3 inflows Gross client (1,182.0 ) (1,620.3 ) (2,802.3 ) (1,219.3 ) (1,550.5 ) (32.5 ) (2,802.3 ) outflows Market 579.9 632.0 1,211.9 249.1 940.7 22.1 1,211.9 appreciation As of December $ 24,683.6 $ 20,525.3 $ 45,208.9 $ 20,470.7 $ 23,472.5 $ 1,265.7 $ 45,208.9 31, 2012 Average AUM $ 24,423.3 $ 20,082.7 $ 44,506.0 $ 20,346.4 $ 22,913.1 $ 1,246.5 $ 44,506.0 for period As of December $ 22,658.1 $ 17,542.0 $ 40,200.1 $ 18,122.5 $ 20,812.0 $ 1,265.6 $ 40,200.1 31, 2011 Gross client 879.2 1,853.1 2,732.3 1,031.3 1,613.6 87.4 2,732.3 inflows Gross client (939.3 ) (1,472.2 ) (2,411.5 ) (820.2 ) (1,494.5 ) (96.8 ) (2,411.5 ) outflows Market appreciation 2,229.7 1,981.4 4,211.1 1,324.5 2,887.9 (1.3 ) 4,211.1 (depreciation) As of March $ 24,827.7 $ 19,904.3 $ 44,732.0 $ 19,658.1 $ 23,819.0 $ 1,254.9 $ 44,732.0 31, 2012 Average AUM $ 23,972.9 $ 19,103.7 $ 43,076.6 $ 19,134.9 $ 22,683.2 $ 1,258.5 $ 43,076.6 for period Contact: Investor Relations: Prosek Partners Brian Schaffer, 212-279-3115 firstname.lastname@example.org or Public Relations: Manning& Napier, Inc. Nicole Kingsley Brunner, 585-325-6880 email@example.com
Manning & Napier, Inc. Reports First Quarter 2013 Earnings Results
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