Manning & Napier, Inc. Reports First Quarter 2013 Earnings Results

  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
bschaffer@prosek.com
or
Public Relations:
Manning& Napier, Inc.
Nicole Kingsley Brunner, 585-325-6880
nbrunner@manning-napier.com
 
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