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

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

Business Wire

FAIRPORT, N.Y. -- October 30, 2013

Manning & Napier, Inc. (NYSE:MN), (“Manning & Napier” or “the Company”) today
reported 2013 third quarter results for the period ended September30, 2013.

Summary Highlights

  *Third quarter economic income and economic net income, non-GAAP measures,
    were $43.3 million and $26.7 million, or $0.30 per adjusted share
  *Assets under management ("AUM") at September30, 2013 was $49.1 billion,
    compared with $46.3 billion at June30, 2013
  *Revenue for the third quarter increased 11% year-over-year and increased
    2% sequentially to $94.6 million
  *Manning& Napier Group, LLC distributed to its members $31.3 million in
    cash for the quarter and $94.0 million year-to-date, resulting in a $0.16
    per share third quarter dividend
  *A fourth distribution of $46.3 million in cash was recently announced for
    2013, which will result in a $0.24 per share dividend for Class A
    shareholders

Patrick Cunningham, Manning & Napier’s Chief Executive Officer, commented,
“During the quarter, our fundamental and active investment process has
delivered strong returns for our clients. This was driven by adhering to our
time-tested stock selection strategies, our absolute return valuation
disciplines and our benchmark agnostic approach. In a slow growth global
economy, we believe that having investment flexibility is critical to success.
That flexibility is the hallmark of the way we manage risk to ultimately meet
our clients' and shareholders' objectives."

Third Quarter 2013 Financial Review

Manning& Napier reported third quarter 2013 revenue of $94.6 million, an
increase of 11% from revenue of $85.4 million reported in the third quarter of
2012, and an increase of 2% from revenue of $93.0 million reported in the
second quarter of 2013. The changes in revenue resulted primarily from
increases in average AUM. Average AUM for the quarter was $48.0 billion, an
11% increase from $43.2 billion in the third quarter 2012 and slightly higher
when compared to the $47.8 billion for the second quarter of 2013. Revenue as
a percentage of average AUM was 0.78% for the third quarter of 2013 compared
with 0.79% for the third quarter of 2012 and 0.78% for the second quarter of
2013.

Operating expenses were $70.1 million, or $51.9 million, excluding non-cash
reorganization-related share-based compensation of $18.2 million. The $51.9
million is an increase of $5.4 million in operating expenses compared with the
third quarter of 2012, and an increase of $3.1 million in operating expenses
compared with the second quarter of 2013. The expense increase in the current
quarter compared to both the third quarter of 2012 and to the second quarter
of 2013 was due primarily to higher incentive compensation costs resulting
from strong absolute investment performance in the current quarter, coupled
with increases in asset-based costs associated with our fund and collective
products including sub-transfer agent fees and 12b-1 fees consistent with
increases in mutual fund and collective investment trust AUM.

Generally Accepted Accounting Principles (“GAAP”)-based operating income was
$24.5 million. Operating income, excluding non-cash reorganization-related
share-based compensation, was $42.8 million for the quarter, an increase of
$3.8 million over the third quarter of 2012 and a decrease of $1.4 million
from the second quarter of 2013. Operating margin, excluding non-cash
reorganization-related share-based compensation expense, was 45% for the third
quarter of 2013, compared with 46% for the third quarter of 2012 and 48% for
the second quarter of 2013.

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 third quarter 2013 economic income of $43.3 million compared with
$39.6 million in the third quarter of 2012 and $44.0 million in the second
quarter of 2013. Also for the third quarter of 2013, economic net income was
$26.7 million, or $0.30 per adjusted share, compared with $24.4 million, or
$0.27 per adjusted share, in the third quarter of 2012 and $27.2 million, or
$0.30 per adjusted share, in the second quarter of 2013.

On a GAAP basis, net income attributable to the controlling and noncontrolling
interests for the third quarter was $22.8 million compared with net income of
$21.1 million in the third quarter of 2012 and net income of $18.6 million in
the second quarter of 2013. GAAP net income attributable to the common
shareholders for the third quarter of $1.3 million, or $0.10 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.

Nine-months ended September30, 2013 Financial Review

Manning& Napier reported 2013 year-to-date revenue of $277.9 million, an
increase of 10% from revenue of $251.9 million reported in 2012. The increase
in 2013 was consistent with changes in average AUM, which increased by 11%
over the prior year. Revenue as a percentage of average AUM remained
consistent with the prior year at 0.78%.

Operating expenses were $213.8 million, or $151.1 million, excluding non-cash
reorganization-related share-based compensation of $62.8 million. The $151.1
million represents an increase of $15.1 million from 2012, due to increases in
asset-based costs associated with our fund and collective products including
sub-transfer agent fees and 12b-1 fees, coupled with higher incentive
compensation costs resulting from the strong absolute and relative investment
performance for the nine-months ended September 30, 2013 compared to the prior
year. GAAP-based operating income was $64.0 million for the year, and $126.8
million of operating income after excluding non-cash reorganization-related
share-based compensation charges. The $126.8 million represents a $10.8
million increase over 2012. Operating margin for 2013 year-to-date, excluding
non-cash reorganization-related share-based compensation expense, remained
consistent with the prior year at 46%.

Manning& Napier reported 2013 year-to-date economic income of $127.4 million,
compared with $116.4 million in 2012. Also for the nine-months ended
September30, 2013, economic net income was $78.7 million, or $0.88 per
adjusted share, compared with $71.9 million, or $0.80 per adjusted share in
2012.

On a GAAP basis, net income attributable to the controlling and noncontrolling
interests for the nine-months ended September30, 2013 was $57.8 million,
compared with net income of $64.9 million in 2012. The decrease in the 2013
net income is mainly attributed to an increase in non-cash
reorganization-related share-based compensation of $17.8 million when compared
to 2012. GAAP net income attributable to the common shareholders for the
nine-months ended September30, 2013 was $1.9 million, or $0.14 per basic and
diluted share.

Assets Under Management

As of September30, 2013, AUM was $49.1 billion, an increase of 6% from the
$46.3 billion as of June30, 2013 and an increase of 11% from the $44.3
billion as of September30, 2012. As of September30, 2013, the composition of
the Company’s AUM was 53% in separate accounts and 47% in mutual funds and
collective investment trusts, which is generally consistent with the
composition of 54% and 55% in separate accounts and 46% and 45% in mutual
funds and collective investment trusts as of June30, 2013 and September30,
2012, respectively.

Since June30, 2013, AUM increased by $2.8 billion, including increases of 4%
in separate accounts and 8% in mutual fund collective investment trust AUM.
The $2.8 billion increase in AUM from June30, 2013 to September30, 2013 was
attributable to market appreciation of $3.2 billion offset by net client
outflows of $0.4 billion. As it relates to the Company’s separate accounts,
outflows were mainly due to withdrawals from existing clients. The annualized
separate account retention rate is 93% for 2013 compared to the 2012 full year
retention rate of 95%.

When compared to September30, 2012, AUM increased by $4.8 billion from $44.3
billion, including an increase of $1.5 billion, or 6%, in separate account AUM
and an increase of $3.3 billion, or 17%, in mutual fund and collective
investment trust AUM.

Balance Sheet Review

As of September30, 2013, cash and cash equivalents was $126.3 million,
compared with $126.1 million as of June30, 2013.

Conference Call

Manning& Napier will host a conference call to discuss its 2013 third quarter
earnings results on Thursday, October 31, 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 # 77105848. 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 November 7, 2013. The teleconference replay can be accessed
by dialing 404-537-3406 (domestic and international) and entering the ID#
77105848. A webcast replay will also be available on the investor relations
portion of Manning& Napier’s website at http://ir.manning-napier.com/.

Expense Classification Changes

As described in our press release on May 1, 2013, this earnings release
reflects the change in presentation of 12b-1 distribution and servicing fees
and sub-custodian fees from other operating expenses to distribution,
servicing and custody expenses. The Company changed its presentation to more
appropriately reflect the nature of these as distribution and asset-based.
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.

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
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. 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 an increase to
the number of outstanding shares of the Company’s ClassA common stock or the
adjusted share count. 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 and
unvested Restricted Stock Units (RSUs) 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 509 employees as of
September30, 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                               Nine Months Ended
                     September      June 30,         September        September      September
                     30,                             30,              30,            30,
                                    2013
                     2013                            2012             2013           2012
Revenues
Investment
management           $ 94,647       $ 92,973         $ 85,382         $ 277,876      $ 251,925
services
revenue
Expenses
Compensation
and related            44,935         47,321           40,922           140,739        115,224
costs
Distribution,
servicing and          17,459         16,495           14,612           49,869         42,964
custody
expenses
Other
operating             7,706         7,750          8,174           23,235        22,776
costs
Total
operating             70,100        71,566         63,708          213,843       180,964
expenses
Operating              24,547         21,407           21,674           64,033         70,961
income
Non-operating
income (loss)
Non-operating
income (loss),         468            (230       )     610              548            392
net
Income before
provision for          25,015         21,177           22,284           64,581         71,353
income taxes
Provision for         2,222         2,580          1,220           6,799         6,409
income taxes
Net income
attributable
to the
controlling            22,793         18,597           21,064           57,782         64,944
and the
noncontrolling
interests
Less: net
income
attributable          21,479        18,337         19,410          55,864        62,223
to the
noncontrolling
interests
Net income
attributable         $ 1,314        $ 260           $ 1,654          $ 1,918        $ 2,721
to Manning &
Napier, Inc.
                                                                                     
Net income per
share
available to
Class A common
stock
Basic                $ 0.10         $ 0.02          $ 0.12           $ 0.14         $ 0.20
Diluted              $ 0.10         $ 0.02          $ 0.12           $ 0.14         $ 0.20
Weighted
average shares
of Class A
common stock
outstanding
Basic                 13,634,246    13,618,193     13,583,873      13,612,289    13,583,873
Diluted               13,690,641    13,718,182     13,583,873      13,673,499    13,583,873
                                                                                     

                                                                                          
Manning & Napier, Inc.
Reconciliation of Non-GAAP Financial Measures to GAAP Measures
(in thousands, except share data)
(unaudited)
                                                                                                   
                             Three Months Ended                                   Nine Months Ended
                             September 30,    June 30,         September 30,      September 30,    September 30,

                             2013             2013             2012               2013             2012
Net income
attributable to              $ 1,314          $ 260            $ 1,654            $ 1,918          $ 2,721
Manning & Napier, Inc.
Plus: net income
attributable to the           21,479         18,337        19,410           55,864         62,223     
noncontrolling
interests
Net income
attributable to the
controlling and the            22,793           18,597           21,064             57,782           64,944
noncontrolling
interests
Provision for income          2,222          2,580          1,220            6,799          6,409      
taxes
Income before
provision for income           25,015           21,177           22,284             64,581           71,353
taxes
Reorganization-related
share-based                   18,237         22,816         17,290           62,793         45,036     
compensation
Economic income                43,252           43,993           39,574             127,374          116,389
Adjusted income taxes         16,545         16,827         15,137           48,721         44,519     
Economic net income          $ 26,707        $ 27,166        $ 24,437          $ 78,653        $ 71,870     
                                                                                                   
Reconciliation of
non-GAAP per share
financial measures:
Net income available
to Class A common            $ 0.10           $ 0.02           $ 0.12             $ 0.14           $ 0.20
stock per basic share
Plus: net income
attributable to the
noncontrolling                1.57           1.34           1.43             4.11           4.58       
interests per basic
share
Net income
attributable to the
controlling and the            1.67             1.36             1.55               4.25             4.78
noncontrolling
interests per basic
share
Provision for income          0.16           0.19           0.09             0.50           0.47       
taxes per basic share
Income before
provision for income           1.83             1.55             1.64               4.75             5.25
taxes per basic share
Reorganization-related
share-based                   1.34           1.68           1.27             4.61           3.32       
compensation per basic
share
Economic income per            3.17             3.23             2.91               9.36             8.57
basic share
Adjusted income taxes         1.21           1.24           1.11             3.58           3.28       
per basic share
Economic net income            1.96             1.99             1.80               5.78             5.29
per basic share
Less: Impact of
Manning & Napier
Group, LLC units and
unvested restricted           (1.66      )    (1.69      )    (1.53      )      (4.90      )    (4.49      )
stock units converted
to publicly traded
shares
Economic net income          $ 0.30          $ 0.30          $ 0.27            $ 0.88          $ 0.80       
per adjusted share
Weighted average
shares of Class A              13,634,246       13,618,193       13,583,873         13,612,289       13,583,873
common stock
outstanding - Basic
Weighted average
exchangeable units of          75,861,023       75,873,923       76,400,000         76,037,530       76,400,000
Manning & Napier
Group, LLC
Weighted average
Restricted Stock Units        416,917        284,053        —                235,184        —          
(RSUs)
Weighted average
adjusted Class A              89,912,186     89,776,169     89,983,873       89,885,003     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
                                    collective     Total                           Equity                       Total
                     accounts                                       Asset                         Income
                                    investment
                                    trusts
As of June 30,       $ 24,791.5     $ 21,526.2     $ 46,317.7       $ 21,723.4     $ 23,405.4     $ 1,188.9     $ 46,317.7
2013
Gross client           484.9          1,414.8        1,899.7          1,093.9        791.0          14.8          1,899.7
inflows
Gross client           (1,036.5 )     (1,271.8 )     (2,308.3 )       (1,026.4 )     (1,202.2 )     (79.7   )     (2,308.3 )
outflows
Market
appreciation          1,583.7      1,622.1      3,205.8        1,053.2      2,142.5      10.1        3,205.8  
(depreciation)
As of
September 30,        $ 25,823.6     $ 23,291.3     $ 49,114.9       $ 22,844.1     $ 25,136.7     $ 1,134.1     $ 49,114.9
2013
                                                                                                                
Average AUM          $ 25,362.0     $ 22,634.3     $ 47,996.3       $ 22,374.6     $ 24,466.3     $ 1,155.4     $ 47,996.3
for period
                                                                                                                           
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
Gross client           474.8          1,401.5        1,876.3          989.5          840.4          46.4          1,876.3
inflows
Gross client           (1,808.1 )     (1,505.0 )     (3,313.1 )       (960.3   )     (2,282.0 )     (70.8   )     (3,313.1 )
outflows
Market
appreciation          (106.4   )    (219.5   )    (325.9   )      (214.4   )    (86.6    )    (24.9   )    (325.9   )
(depreciation)
As of June 30,       $ 24,791.5     $ 21,526.2     $ 46,317.7       $ 21,723.4     $ 23,405.4     $ 1,188.9     $ 46,317.7
2013
                                                                                                                
Average AUM          $ 25,833.2     $ 21,991.0     $ 47,824.2       $ 22,004.7     $ 24,575.3     $ 1,244.2     $ 47,824.2
for period
                                                                                                                           
As of June 30,       $ 23,550.5     $ 18,821.0     $ 42,371.5       $ 19,450.7     $ 21,695.9     $ 1,224.9     $ 42,371.5
2012
Gross client           507.0          1,306.5        1,813.5          857.7          922.5          33.3          1,813.5
inflows
Gross client           (1,084.1 )     (1,343.4 )     (2,427.5 )       (816.5   )     (1,551.2 )     (59.8   )     (2,427.5 )
outflows
Market
appreciation          1,349.9      1,160.6      2,510.5        1,005.9      1,485.7      18.9        2,510.5  
(depreciation)
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
                                                                                                                
Average AUM          $ 23,862.7     $ 19,387.2     $ 43,249.9       $ 19,943.0     $ 22,086.7     $ 1,220.2     $ 43,249.9
for period
                                                                                                                
For the
nine-months          Investment Vehicle                             Portfolio
ended:
                                    Mutual funds

                     Separate       and                             Blended                       Fixed
                                    collective     Total                           Equity                       Total
                     accounts                                       Asset                         Income
                                    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           1,939.8        4,564.0        6,503.8          3,383.3        3,017.3        103.2         6,503.8
inflows
Gross client           (3,999.5 )     (4,369.5 )     (8,369.0 )       (3,084.1 )     (5,064.8 )     (220.1  )     (8,369.0 )
outflows
Market
appreciation          3,199.7      2,571.5      5,771.2        2,074.2      3,711.7      (14.7   )    5,771.2  
(depreciation)
As of
September 30,        $ 25,823.6     $ 23,291.3     $ 49,114.9       $ 22,844.1     $ 25,136.7     $ 1,134.1     $ 49,114.9
2013
                                                                                                                
Average AUM          $ 25,684.1     $ 22,014.3     $ 47,698.4       $ 21,921.2     $ 24,566.9     $ 1,210.3     $ 47,698.4
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           2,365.4        4,603.1        6,968.5          2,904.6        3,901.8        162.1         6,968.5
inflows
Gross client           (3,217.2 )     (4,238.0 )     (7,455.2 )       (2,530.7 )     (4,672.2 )     (252.3  )     (7,455.2 )
outflows
Market
appreciation          2,517.0      2,037.6      4,554.6        2,001.4      2,511.3      41.9        4,554.6  
(depreciation)
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
                                                                                                                
Average AUM          $ 23,884.2     $ 19,106.0     $ 42,990.2       $ 19,467.4     $ 22,283.4     $ 1,239.4     $ 42,990.2
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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