MANNING & NAPIER, INC. This report contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which reflect the views ofManning & Napier, Inc. ("we," "our," or "us") with respect to, among other things, our future operations and financial performance. Words like "believes," "expects," "may," "estimates," "will," "should," "could," "intends," "likely," "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 we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know about our business and operations, there can be no assurance that our actual results will not differ materially from what we expect or believe. Some of the factors that could cause our actual results to differ materially from our expectations or beliefs are disclosed in the "Risk Factors" section, as well as other sections, of our Annual Report on Form 10-K, which include, without limitation: changes in securities or financial markets or general economic conditions; the impact of COVID-19 on theU.S. and global economy; the impact of the settlement of the exchange pursuant to the exchange agreement (the "Exchange Agreement") between the Company,M&N Group Holdings, LLC ("M&N Group Holdings ") andManning & Napier Capital Company, LLC ("MNCC"); a decline in the performance of our products; client sales and redemption activity; any loss of an executive officer or key personnel; changes in our business related to strategic acquisitions and other transactions; our ability to successfully deploy new technology platforms and upgrades; and changes of government policy or regulations. All forward-looking statements speak only as of the date on which they are made and we undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Overview Our BusinessManning & Napier, Inc. is an independent investment management firm that provides our clients with a broad range of financial solutions and investment strategies. Founded in 1970 and headquartered inFairport, New York , 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. Our investment strategies offer equity, fixed income and a range of blended asset portfolios by employing traditional and quantitative approaches. Impact of COVID-19 InMarch 2020 , theWorld Health Organization categorized COVID-19 as a pandemic, and it continues to spread throughoutthe United States and other countries. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines, causing some businesses to suspend operations, disrupting the global supply chain, creating a reduction in demand for many products, and thus having a significant impact on the global economy. We are addressing the challenges of COVID-19 by protecting the health and well-being of our employees while servicing our clients and leveraging technology to fully support our business needs in a primarily digital manner. The impact of COVID-19 on our investment performance, financial statements, capital and liquidity and our business operations are further discussed below: • Client Performance Impact: As a result of our ability to rapidly adapt to
a remote work environment, we believe we were able to minimize the impact
of COVID-19 on client performance. Additionally, due to the significant
increase in volatility throughout the first half of the year, discussed in
more detail in the next section, we were able to capitalize on the market
environment by delivering strong results for clients year-to-date.• Financial Statement Impact: Our revenues consist primarily of investment
management fees typically calculated as a percentage of the market value
of our assets under management ("AUM"), and they are dependent on the
value and composition of our AUM. As of June 30, 2020 , AUM was $18.6
billion , an increase from $17.1 billion as of March 31, 2020 . This 9%increase came on the heels of a market rebound during the second quarter,
with approximately
approximately
effects of the pandemic may negatively affect our results of operations,
cash flows, and financial position, at this time we cannot reasonably
estimate the full impact, given the uncertainty over the duration and
severity of the economic crisis.
• Capital and Liquidity Impact: Our financial condition is stable, allowing
us to effectively manage the financial impacts of COVID-19. We believe our
capital structure should provide us with sufficient resources and
flexibility to meet present and future cash needs. During the first
quarter of 2020, we suspended the quarterly cash dividend on our Class A
common stock. Given the uncertainty surrounding the current economic
environment, we will continue to assess our liquidity needs.
23--------------------------------------------------------------------------------
Table of Contents
• Business Operations Impact: For the health and well-being of our
employees, we have modified our business practices in accordance with
social distancing guidelines to encourage work-from-home arrangements and
we have restricted business-related travel. Our technology capabilities
have allowed us to maintain sales and client servicing activity through
digital collaboration platforms and digital marketing efforts. We believe
our second quarter 2020 results, with gross client inflows comparable to
prior periods and gross client outflows reduced from historical levels,
provide an indication that our sales strategy is gaining traction despite
the COVID-19 disruption. Additionally, our technology has enabled us to
support the majority of our employees' remote working arrangements. Our
ability to adequately maintain our operations, internal controls and
client relationships has not been adversely affected by these
modifications.
The extent of the impact of COVID-19 on our business, financial condition and
results of operations also depends on future developments, including the
duration of the pandemic and the volatility of the global financial markets, all
of which are highly uncertain. We continue to assess the risks associated with
COVID-19 and to mitigate them where possible. For further discussion regarding
the potential future impacts of COVID-19 and related economic conditions on the
Company's financial statements, capital and liquidity, and business operations,
see "Part II-Item 1A-Risk Factors."
Market Developments
The second quarter was characterized by a massive rebound in capital markets all
across the globe. However, this improvement came as the pandemic continued to
worsen in the western and southern portions of the United States . The continued
uncertainty related to the spread of the virus and its long-term impacts on the
economy is likely not fully known at this point and is something that investors
must consider.
From bottoming out at near-term lows in mid- to late-March, equities rallied
sharply, and in some cases, in a historic manner. Amid the broad-based strength,
domestic equities again outperformed international peers. Within the US,
small-cap stocks outperformed large-caps over the quarter, closing the
performance gap year-to-date as investors became increasingly optimistic that a
widespread reopening of business activity would aid the hard-hit group.
Additionally, growth continued its multi-year run of outsized relative results
versus value, and the style now holds a very substantial year-to-date
performance edge.
Regarding fixed income, central bank policy measures helped stabilize credit
markets, contributing to little movement in yield curves over the quarter. As a
result, domestic and international sovereign debt performance regressed toward
zero, a substantial decline from the exceptional performance last quarter.
Moving out on the risk spectrum, credit spreads materially compressed throughout
the quarter, significantly aiding performance for both investment grade and
below investment grade securities. Falling spreads aided municipal bonds as
well, leading to a bounce back in results for the sector.
We believe the stark juxtaposition in the behavior of financial markets, as well
as in our investment performance over the past six months clearly demonstrates
the value and power of a truly active investment approach. Uncertainty drives
volatility, and it is specifically during those rare moments of great
uncertainty when we believe a disciplined, selective investment process can make
a meaningful difference.
Other Business Updates
During the first quarter of 2020, pursuant to the terms of the Exchange
Agreement between the Company and the holders of its non-controlling interests,
approximately 60.0 million Class A Units of Manning & Napier Group, LLC
("Manning & Napier Group") were tendered for cash or shares of the Company's
Class A common stock. In early April 2020 , the independent directors, on behalf
of the Company, determined that the exchange would be settled in approximately
$90.8 million cash. The settlement of the exchange occurred on May 11, 2020 ,
with payment made from our cash, cash equivalents and proceeds from the sale of
investment securities. The Class A Units were subsequently retired, and as a
result, our ownership of Manning & Napier Group increased from 19.5% to 88.2%.
Our Solutions
We derive substantially all of our revenues from investment management fees
earned from providing advisory services to separately managed accounts and to
mutual funds and collective investment trusts-including those offered by Manning
& Napier Advisors, LLC ("MNA"), the Manning & Napier Fund, Inc. (the "Fund"),
Exeter Trust Company , and Rainier Investment Management, LLC ("Rainier").
Our separate accounts are primarily distributed through our wealth management
sales channel, where our financial consultants form relationships with
high-net-worth individuals, endowments, foundations, and retirement plans. To a
lesser extent, we also obtain a portion of our separate account distribution via
third parties, either through our intermediary sales channel where national
brokerage firm representatives or independent financial advisors select our
separate account strategies for their clients, or through our
platform/sub-advisor relationships, where unaffiliated registered investment
advisors approve our strategies for their product platforms. Our separate
account strategies are a primary driver of our blended asset portfolios for
24--------------------------------------------------------------------------------
Table of Contents
high-net-worth, middle market institutional clients and financial intermediaries. In contrast, larger institutions and unaffiliated registered investment advisor platforms are a driver of our separate account equity portfolios. Our mutual funds and collective investment trusts are distributed through financial intermediaries, including brokers, financial advisors, retirement plan advisors and platform relationships. We also distribute our mutual fund and collective investment trusts through our institutional representatives, particularly within the defined contribution, Taft-Hartley, and institutional marketplace. Our mutual fund and collective investment trust strategies are an important driver of our blended asset class and single asset class portfolios. Assets Under Management During 2019, we changed our distribution strategy following a business review to better capitalize on our strengths. As part of this change, we have adjusted our sales efforts to more distinctly separate the clients to which we deliver holistic solutions, including high-net-worth families, endowments and foundations, and small and mid-sized business, from our Institutional and Intermediary clients, including third party advisors, platforms and consultants, as well as larger institutions and Taft-Hartley clients. Our AUM was$18.6 billion as ofJune 30, 2020 . The composition of our AUM by sales channel and portfolio is illustrated in the table below: June 30, 2020 Blended Asset Equity Fixed Income Total (dollars in millions) Total AUM Wealth Management$ 7,280.4 $ 798.1 $ 255.9 $ 8,334.4 Institutional and Intermediary 5,794.9 3,763.6 747.4 10,305.9 Total$ 13,075.3 $ 4,561.7 $ 1,003.3 $ 18,640.3 Percentage of AUM Wealth Management 40 % 4 % 1 % 45 % Institutional and Intermediary 31 % 20 % 4 % 55 % Total 71 % 24 % 5 % 100 % Percentage of portfolio by channel Wealth Management 56 % 17 % 26 % 45 % Institutional and Intermediary 44 % 83 % 74 % 55 % Total 100 % 100 % 100 % 100 % Percentage of channel by portfolio Wealth Management 87 % 10 % 3 % 100 % Institutional and Intermediary 56 % 37 % 7 % 100 % Our wealth management channel represented 45% of our total AUM as ofJune 30, 2020 . Blended portfolios are the most significant portion of wealth management assets, representing 87% of wealth management AUM. Equity and fixed income portfolios represent 10% and 3%, respectively, of wealth management AUM. Our institutional and intermediary channel represented 55% of our total AUM as ofJune 30, 2020 . Blended portfolios are also the largest portion of institutional and intermediary assets at 56% of AUM, followed by equity and fixed income portfolios at 37% and 7%, respectively. As ofJune 30, 2020 , blended portfolios account for 71% of our total AUM at$13.1 billion , a 8% increase fromMarch 31, 2020 when blended assets were$12.1 billion . Blended portfolio AUM is similar across both distribution channels, with 56% in wealth management and 44% in institutional and intermediary. Equity portfolios account for 24% of our total AUM, at$4.6 billion , a 16% increase fromMarch 31, 2020 when equity portfolios were at$3.9 billion . Of equity portfolio AUM, 83% is in the institutional and intermediary channel, and 17% is in the wealth management channel. Fixed income portfolios account for 5% of total AUM at$1.0 billion , consistent withMarch 31, 2020 . Consistent with equity portfolio AUM, the majority of fixed income assets come through the institutional and intermediary channel at 74%, and 26% of fixed income AUM is in the wealth management channel. 25
--------------------------------------------------------------------------------
Table of Contents
During the six months endedJune 30, 2020 , our wealth management sales channel contributed 32% of our total gross client inflows, while our institutional and intermediary channel contributed 68%. Of the$1,221.6 million in gross client inflows, blended asset portfolios represented 65%, while equity and fixed income portfolios represented 28% and 7%, respectively. Results of Operations Below is a discussion of our consolidated results of operations for the three and six months endedJune 30, 2020 and 2019. Components of Results of Operations Overview An important factor influencing inflows and outflows of our AUM is the investment performance of our various investment approaches. Our stock selection strategies, absolute pricing discipline and active asset allocation generally result in specific absolute and relative return characteristics in different market environments. For example, during a fundamental-driven bull market when prices are rising alongside improving fundamentals, we are likely to experience positive absolute returns and competitive relative returns. However, in a more momentum-driven bull market, when prices become disconnected from underlying fundamentals, or narrow market environment where a small handful of stocks outperform the average stock, we are likely to experience positive absolute returns but lagging relative returns. Similarly, during a valuation-driven bear market, when markets experience a period of price correction following a momentum-driven bull market, we are likely to experience negative absolute returns but strong relative returns. However, in a momentum-driven bear market, which is typically characterized by broad price declines in a highly correlated market, we are likely to experience negative absolute returns and potentially lagging relative returns. Essentially, our approach is likely to do well when markets are driven by fundamentals, but lag when markets are driven primarily by momentum. Other components impacting our operating results include: • asset-based fee rates and changes in those rates;
• the composition of our AUM among various portfolios, vehicles and client
types;
• changes in our variable costs, including incentive compensation and
distribution, servicing and custody expenses, which are affected by our
investment performance, level of our AUM and revenue; and
• fixed costs, including changes to base compensation, vendor-related costs
and investment spending on new products.
26--------------------------------------------------------------------------------
Table of Contents
Assets Under Management and Investment Performance
The following table reflects the indicated components of our AUM for our sales
channels for the three and six months ended
Sales Channel (3)
Institutional and Institutional and
Wealth Management Intermediary Total Wealth Management Intermediary Total
(in millions)
As of March 31, 2020 $ 7,732.9 $ 9,327.6 $ 17,060.5 45 % 55 % 100 %
Gross client inflows (1) 193.3 359.5 552.8
Gross client outflows (1) (360.7 ) (850.9 ) (1,211.6 )
Market appreciation/(depreciation)
& other (2) 768.9 1,469.7 2,238.6
As of June 30, 2020 $ 8,334.4 $ 10,305.9 $ 18,640.3 45 % 55 % 100 %
Average AUM for period $ 8,164.0 $ 9,930.2 $ 18,094.2
As of March 31, 2019 $ 9,362.6 $ 11,775.2 $ 21,137.8 44 % 56 % 100 %
Gross client inflows (1) 203.9 346.5 550.4
Gross client outflows (1) (421.3 ) (701.5 ) (1,122.8 )
Market appreciation/(depreciation)
& other (2) 252.7 432.7 685.4
As of June 30, 2019 $ 9,397.9 $ 11,852.9 $ 21,250.8 44 % 56 % 100 %
Average AUM for period $ 9,327.6 $ 11,702.9 $ 21,030.5
Institutional and Institutional and
Wealth Management Intermediary Total Wealth Management Intermediary Total
(in millions)
As of December 31, 2019 $ 8,716.4 $ 10,763.7 $ 19,480.1 45 % 55 % 100 %
Gross client inflows (1) 395.4 826.2 1,221.6
Gross client outflows (1) (736.0 ) (1,604.8 ) (2,340.8 )
Market appreciation/(depreciation)
& other (2) (41.4 ) 320.8 279.4
As of June 30, 2020 $ 8,334.4 $ 10,305.9 $ 18,640.3 45 % 55 % 100 %
Average AUM for period $ 8,486.1 $ 10,130.7 $ 18,616.8
As of December 31, 2018 $ 8,700.9 $ 11,462.7 $ 20,163.6 43 % 57 % 100 %
Gross client inflows (1) 390.1 881.0 1,271.1
Gross client outflows (1) (886.0 ) (1,809.7 ) (2,695.7 )
Market appreciation/(depreciation)
& other (2) 1,192.9 1,318.9 2,511.8
As of June 30, 2019 $ 9,397.9 $ 11,852.9 $ 21,250.8 44 % 56 % 100 %
Average AUM for period $ 9,192.8 $ 11,628.5 $ 20,821.3
________________________(1) Transfers of client assets between portfolios are included in gross client
inflows and gross client outflows.
(2) Market appreciation/(depreciation) and other includes investmentgains/(losses) on assets under management, the impact of changes in foreign
exchange rates and net flows from non-sales related activities including
net reinvested dividends.
(3) AUM and gross client flows between sales channels have been estimated based
upon preliminary data. For a limited portion of our mutual fund AUM,
reporting by sales channel is not available at the time of this report.
Such estimates have no impact on total AUM, total cash flows, or AUM by
investment portfolio reported in the table above.
27--------------------------------------------------------------------------------
Table of Contents
The following table reflects the indicated components of our AUM for our
portfolios for the three and six months ended
Blended Fixed Blended Fixed
Asset Equity Income Total Asset Equity Income Total
(in millions)
As of March 31, 2020 $ 12,096.8 $ 3,944.7 $ 1,019.0 $ 17,060.5 71 % 23 % 6 % 100 %
Gross client inflows (1) 426.5 99.4 26.9 552.8
Gross client outflows (1) (851.8 ) (292.5 ) (67.3 ) (1,211.6 )
Market
appreciation/(depreciation)
& other (2) 1,403.8 810.1 24.7 2,238.6
As of June 30, 2020 $ 13,075.3 $ 4,561.7 $ 1,003.3 $ 18,640.3 71 % 24 % 5 % 100 %
Average AUM for period $ 12,729.7 $ 4,353.7 $ 1,010.8 $ 18,094.2
As of March 31, 2019 $ 13,834.7 $ 6,227.2 $ 1,075.9 $ 21,137.8 66 % 29 % 5 % 100 %
Gross client inflows (1) 327.0 161.7 61.7 550.4
Gross client outflows (1) (745.7 ) (308.2 ) (68.9 ) (1,122.8 )
Market
appreciation/(depreciation)
& other (2) 428.3 228.8 28.3 685.4
As of June 30, 2019$ 13,844.3 $ 6,309.5 $ 1,097.0 $ 21,250.8 65 % 30 % 5 % 100 % Average AUM for period$ 13,718.9 $ 6,200.7 $ 1,110.9 $ 21,030.5 Blended Fixed Blended Fixed Asset Equity Income Total Asset Equity Income Total (in millions) As of December 31, 2019$ 13,473.3 $ 4,988.8 $ 1,018.0 $ 19,480.1 69 % 26 % 5 % 100 % Gross client inflows (1) 794.7 336.6 90.3 1,221.6 Gross client outflows (1) (1,668.2 ) (524.2 ) (148.4 ) (2,340.8 ) Market appreciation/(depreciation) 475.5 (239.5 ) 43.4 279.4 & other (2) As of June 30, 2020$ 13,075.3 $ 4,561.7 $ 1,003.3 $ 18,640.3 70 % 25 % 5 % 100 % Average AUM for period$ 12,974.6 $ 4,619.6 $ 1,022.6 $ 18,616.8 As of December 31, 2018$ 13,532.2 $ 5,501.9 $ 1,129.5 $ 20,163.6 67 % 27 % 6 % 100 % Gross client inflows (1) 629.1 541.0 101.0 1,271.1 Gross client outflows (1) (1,811.6 ) (690.9 ) (193.2 ) (2,695.7 ) Market appreciation/(depreciation) 1,494.6 957.5 59.7 2,511.8 & other (2) As of June 30, 2019$ 13,844.3 $ 6,309.5 $ 1,097.0 $ 21,250.8 65 % 30 % 5 % 100 % Average AUM for period$ 13,661.0 $ 6,048.8 $ 1,111.5 $ 20,821.3
________________________
(1) Transfers of client assets between portfolios are included in gross client
inflows and gross client outflows.
(2) Market appreciation/(depreciation) and other includes investmentgains/(losses) on assets under management, the impact of changes in foreign
exchange rates and net flows from non-sales related activities including
net reinvested dividends.
28--------------------------------------------------------------------------------
Table of Contents
The following table summarizes the annualized returns for several of our key investment strategies and relative benchmarks. Since inception and over long-term periods, we believe these strategies have earned attractive returns on both an absolute and relative basis. We recognize, however that some key strategies have mixed track records over the past several years. These strategies are used across separate account, mutual fund and collective investment trust vehicles, and represent approximately 75% of our AUM as ofJune 30, 2020 . AUM as of
Annualized Returns as of
June 30, 2020
Key Strategies (in millions) Inception Date One Year Three Year Five Year Ten Year Inception
Long-Term Growth (30%-80% Equity $ 5,389.1 1/1/1973 11.5% 8.3% 6.7% 8.4% 9.5%
Exposure)
Blended Index (3) 6.4% 7.0% 6.6% 8.2% 8.7%
Core Non-U.S. Equity $ 570.1 10/1/1996 5.0% 3.7% 3.6% 5.2% 7.1% Benchmark: ACWIxUS Index
(4.8)% 1.1% 2.3% 5.0% 4.6%
Growth with Reduced Volatility $ 2,552.6
6.7% 6.4% 5.8% 6.9% 8.3%
Equity-Oriented (70%-100% Equity $ 1,316.2 1/1/1993 11.5% 10.8% 8.7% 10.5% 10.0%
Exposure)
Blended Benchmark: 65% Russell 3000
/ 20% ACWIxUS/ 15% Bloomberg
4.9% 7.8% 7.8% 10.6% 8.4%
Barclays
977.5 4/1/2000 12.1% 9.2% 7.4% 9.3% 7.2%
Equity Exposure)
Blended Benchmark: 53% Russell 3000
/ 17% ACWIxUS/ 30% Bloomberg
5.7% 7.4% 7.3% 9.5% 5.5%
Barclays
534.5 1/1/1995 10.4% 11.6% 9.6% 11.9% 11.1% Equity Exposure) Blended Benchmark: 80% Russell 3000
4.2% 8.3% 8.5% 12.0% 8.9%
/ 20% ACWIxUS
Core
$ 175.6 7/1/2000 13.2% 13.7% 11.5% 13.0% 8.3% Benchmark: Russell 3000
6.5% 10.0% 10.0% 13.7% 6.2% Conservative Growth (5%-35% Equity $
483.2 4/1/1992 8.4% 5.5% 4.2% 4.8% 6.0%
Exposure)
Blended Benchmark: 15% Russell 3000
/ 5% ACWIxUS / 80% Bloomberg 6.4% 5.2% 4.5% 4.9% 6.1%
Barclays U.S. Intermediate
Aggregate Bond
Aggregate Fixed Income $ 183.0 1/1/1984
9.6% 5.4% 4.2% 3.8% 7.2%
Benchmark: Bloomberg Barclays
8.7% 5.3% 4.3% 3.8% 7.1% Aggregate Bond Rainier International Small Cap $
810.4 3/28/2012 8.2% 7.5% 6.9% N/A (1) 11.3% Benchmark: MSCI ACWIxUS Small Cap
(4.3)% (0.2)% 2.5% N/A (1) 4.7% Index Disciplined Value US (5)
$ 1,069.9 1/1/2013 (4.2)% 5.7% 8.1% N/A (1) 11.9% Benchmark: Russell 1000 Value
(8.8)% 1.8% 4.6% N/A (1) 11.0%
__________________________
(1) Performance not available given the product's inception date.
(2) Key investment strategy returns are presented net of fees. Benchmark
returns do not reflect any fees or expenses.
(3) Benchmark shown uses the 55/45 Blended Index from
the 40/15/45 Blended Index from
Index is represented by 55% S&P 500 Total Return Index ("S&P 500") and 45%
Bloomberg Barclays
Blended Index is 40% Russell 3000 Index ("Russell 3000"), 15% MSCI ACWI ex
("BAB").
(4) Benchmark shown uses the 40/60 Blended Index from
the
Blended Index from 01/01/2020 to 03/31/2020 . The 40/60 Blended Index is
represented by 40% S&P 500 and 60% BGCB. The 30/10/60 Blended Index isrepresented by 30% Russell 3000, 10% ACWxUS, and 60% BAB. The 30/10/30/30
Blended Index is represented by 30% Russell 3000, 10% ACWxUS, 30% BAB, and
30% Barclays Intermediate Aggregate Bond Index.
(5) In our Annual Report, on Form 10-K for the year ended
began presenting the performance of Disciplined Value US in place of
Disciplined Value Unrestricted.
29--------------------------------------------------------------------------------
Table of Contents
Revenue
Our revenues primarily consist of investment management fees earned from managing our clients' AUM. We earn our investment management fees as a percentage of our clients' AUM either as of a specified date or on a daily basis. Our investment management fees can fluctuate based on the average fee rate for our investment management products, which are affected by the composition of our AUM among various portfolios and investment vehicles. We serve as the investment adviser for Manning & Napier Fund, Inc.,Exeter Trust Company Collective Investment Trusts andRainier Multiple Investment Trust. The mutual funds are open-end mutual funds that primarily offer no-load share classes designed to meet the needs of a range of institutional and other investors.Exeter Trust Company , an affiliatedNew Hampshire -chartered trust company andRainier Multiple Investment Trust sponsor collective investment trusts for qualified retirement plans, including 401(k) plans. These mutual funds and collective investment trusts comprised$5.5 billion , or 30%, of our AUM as ofJune 30, 2020 . MNA and Rainier also serve as the investment advisor to all of our separately managed accounts, managing$13.1 billion , or 70%, of our AUM as ofJune 30, 2020 , including assets managed as a sub-advisor to pooled investment vehicles. For the period endedJune 30, 2020 approximately 99% of our revenue was earned from clients located inthe United States . We earn distribution and servicing fees for providing services to our affiliated mutual funds. Revenue is computed and earned daily based on a percentage of AUM. We earn custodial service fees for administrative and safeguarding services performed byExeter Trust Company . Fees are calculated as a percentage of the client's market value with additional fees for certain transactions. During the first quarter of 2019, we completed the effort to restructure fees for many of our mutual fund and collective trust vehicles. The impacts on our overall revenue margins and operating expenses are described below in the discussion of results for the three and six months endedJune 30, 2020 . Operating Expenses Our largest operating expenses are employee compensation and related costs, and to a lesser degree, distribution, servicing and custody expenses, discussed further below, with a significant portion of these expenses varying in a direct relationship to our absolute and relative investment management performance, as well as AUM and revenues. We review our operating expenses in relation to the investment market environment and changes in our revenues. However, we are generally willing to make expenditures as necessary, even when faced with declining rates of growth in revenues, in order to support our investment products, our client service levels, strategic initiatives and our long-term value. • Compensation and related costs. Employee compensation and related costs
represent our largest expense, including employee salaries and benefits,
incentive compensation to investment and sales professionals, compensation
issued under our long-term incentive plan as well as equity compensation.
These costs are affected by changes in the employee headcount, the mix of
existing job descriptions, competitive factors, the addition of new skill
sets and variations in the level of our AUM and revenues. In addition,
these costs are impacted by the amount of compensation granted under our
equity plan and the amount of deferred cash awards granted under our
long-term incentive plan. Incentive compensation for our research teamconsiders the cumulative impact of both absolute and relative investment
performance over historical time periods, with more weight placed on the
recent periods. As such, incentive compensation paid to our research teamwill vary, in part, based on absolute and relative investment performance.
• Distribution, servicing and custody expenses. Distribution, servicing and
custody expenses represent amounts paid to various intermediaries for
distribution, shareholder servicing, administrative servicing and custodial
services. These expenses generally increase or decrease in line with
changes in our mutual fund and collective investment trust AUM or services
performed by these intermediaries. During the first quarter of 2019, we
completed the effort, begun in 2017, of restructuring fees across our
mutual funds. The financial impacts were a reduction in the management fees
on existing business, as well as an offsetting reduction in related
distribution, servicing and custody expenses. Given the overall pressure on
fees that all active managers are facing, we felt bringing our fund fees to
a more competitive level would enhance our ability to attract additional
assets in the future.
• Other operating costs. Other operating costs include technology costs,
accounting, legal and other professional service fees, occupancy and
facility costs, travel and entertainment expenses, insurance, market data
service expenses and all other miscellaneous costs associated with managing
the day-to-day operations of our business.
Non-Operating Income (Loss)
Non-operating income (loss) includes interest expense, interest and dividend
income, changes in liability under the tax receivable agreement ("TRA") entered
into between Manning & Napier and the other holders of Class A units of Manning
&
30--------------------------------------------------------------------------------
Table of Contents
Napier Group, LLC ("Manning & Napier Group"), gains (losses) related to investment securities sales as well as changes in values of those investment securities designated as equity securities, at fair value. We expect the interest and investment components of non-operating income (loss) to fluctuate based on market conditions, the performance of our investments and the overall amount of our investments held by the Company to provide initial cash seeding for product development purposes and short-term investment for cash management opportunities. Provision for Income Taxes The Company is comprised of entities that have elected to be treated as either a limited liability company ("LLC") or a "C-Corporation". As such, the entities functioning as LLCs are not liable for or able to benefit fromU.S. federal or most state and local income taxes on their earnings, and their earnings (losses) will be included in the personal income tax returns of each entity's unit holders. The entities functioning as C-Corporations are liable for or able to benefit fromU.S. federal and state and local income taxes on their earnings and losses, respectively. Noncontrolling InterestsManning & Napier, Inc. holds an economic interest of approximately 88.2% inManning & Napier Group as ofJune 30, 2020 and, as managing member, controls all of the business and affairs ofManning & Napier Group . As a result, the Company consolidates the financial results ofManning & Napier Group and records a noncontrolling interest in our consolidated financial statements. Net income attributable to noncontrolling interests on the consolidated statements of operations represents the portion of earnings attributable to the economic interest inManning & Napier Group held by the noncontrolling interests. Critical Accounting Policies and Estimates Our critical accounting policies and estimates are disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . This management's discussion and analysis should be read in conjunction with the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 together with the consolidated financial statements and related notes and the other financial information that appear elsewhere in this report. Recent Accounting Pronouncements See Note 2, "Summary of Significant Accounting Policies - Recent Accounting Pronouncements" to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information. 31
--------------------------------------------------------------------------------
Table of Contents
Three Months EndedJune 30, 2020 Compared to Three Months EndedJune 30, 2019 Assets Under Management The following table reflects changes in our AUM for the three months endedJune 30, 2020 and 2019: Three months ended June 30, Period-to-Period 2020 2019 $ % (in millions) Wealth Management (3) Beginning assets under management$ 7,732.9 $ 9,362.6 $ (1,629.7 ) (17 )% Gross client inflows (1) 193.3 203.9 (10.6 ) (5 )% Gross client outflows (1) (360.7 ) (421.3 ) 60.6 (14 )% Market appreciation (depreciation) & other (2) 768.9 252.7 516.2 204 % Ending assets under management$ 8,334.4 $ 9,397.9 $ (1,063.5 ) (11 )% Average AUM for period$ 8,164.0 $ 9,327.6 Institutional and Intermediary (3) Beginning assets under management$ 9,327.6 $ 11,775.2 $ (2,447.6 ) (21 )% Gross client inflows (1) 359.5 346.5 13.0 4 % Gross client outflows (1) (850.9 ) (701.5 ) (149.4 ) 21 % Market appreciation (depreciation) & other (2) 1,469.7 432.7 1,037.0 240 % Ending assets under management$ 10,305.9 $ 11,852.9 $ (1,547.0 ) (13 )% Average AUM for period$ 9,930.2 $ 11,702.9 Total assets under management Beginning assets under management$ 17,060.5 $ 21,137.8 $ (4,077.3 ) (19 )% Gross client inflows (1) 552.8 550.4 2.4 - % Gross client outflows (1) (1,211.6 ) (1,122.8 ) (88.8 ) 8 % Market appreciation (depreciation) & other (2) 2,238.6 685.4 1,553.2 227 % Ending assets under management$ 18,640.3 $ 21,250.8 $ (2,610.5 ) (12 )% Average AUM for period$ 18,094.2 $ 21,030.5 ________________________
(1) Transfers of client assets between portfolios are included in gross client
inflows and gross client outflows.
(2) Market appreciation/(depreciation) and other includes investmentgains/(losses) on assets under management, the impact of changes in foreign
exchange rates and net flows from non-sales related activities including
net reinvested dividends.
(3) AUM and gross client flows between sales channels have been estimated based
upon preliminary data. For a limited portion of our mutual fund AUM,
reporting by sales channel is not available at the time of this report.
Such estimates have no impact on total AUM, total cash flows, or AUM by
investment portfolio reported in the table above.
Our total AUM decreased by $2.6 billion from $21.3 billion at June 30, 2019 to
$18.6 billion at June 30, 2020 . The decrease was attributable to net client
outflows of $4.2 billion , partially offset by market appreciation of $1.6
billion . Net client outflows consisted of approximately $1.2 billion of net
outflows for wealth management and $3.0 billion for institutional and
intermediary. By portfolio, the rates of change in AUM from June 30, 2019 to
June 30, 2020 consisted of a $1.7 billion , or 28% decrease in our equity
portfolio, a $0.8 billion , or 6% decrease in our blended asset portfolio, and a
decrease of approximately $0.1 billion , or 9% in our fixed income portfolio.
We have experienced a slight increase in the overall rate of outflows with gross
outflows of approximately $1.2 billion during the quarter ended June 30, 2020 , a
8% increase from the quarter ended June 30, 2019 . Gross outflows annualized as a
percentage of our AUM, or turnover rate, for the three months ended June 30,
2020 was 28%.
32--------------------------------------------------------------------------------
Table of Contents
The rate of gross client inflows was approximately$0.6 billion during the three months endedJune 30, 2020 , consistent with the quarter endedJune 30, 2019 . We believe that COVID related travel restrictions, coupled with the changes in our organization and macro trends towards passive investing have all played a role in this trend. We believe that by demonstrating stability in client AUM and in our organization, and modernizing our platform, we will provide a foundation from which we can grow. The total AUM increase of approximately$1.6 billion , to$18.6 billion atJune 30, 2020 from$17.1 billion atMarch 31, 2020 was attributable to market appreciation of$2.2 billion , partially offset by net client outflows of$0.7 billion . Net client outflows consisted of approximately$0.2 billion for wealth management while net client outflows in institutional and intermediary were$0.5 billion . The blended investment gain was 9.9% in wealth management accounts and 15.8% in institutional and intermediary. By portfolio in the period, our AUM increased by$1.0 billion in our blended asset portfolio,$0.6 billion in our equity portfolio, and decreased by$15.7 million in our fixed income portfolio. As ofJune 30, 2020 , the composition of our AUM was 45% in wealth management and 55% in institutional and intermediary, compared to 44% in wealth management and 56% in institutional and intermediary atJune 30, 2019 . The composition of our AUM across portfolios atJune 30, 2020 was 71% in blended assets, 24% in equity, and 5% in fixed income, compared to 65% in blended assets, 30% in equity, 5% in fixed income atJune 30, 2019 . For our wealth management channel, gross client inflows of approximately$0.2 billion were offset by$0.4 billion of gross client outflows during the three months endedJune 30, 2020 . The$0.2 billion gross client inflows include approximately$0.2 billion into our blended asset portfolio and less than$0.1 billion into both our equity and fixed income portfolios. Outflows during the quarter were$0.2 billion , or 58% from blended portfolios,$0.1 billion , or 29% from equity, and less than$0.1 billion , or 13% from fixed income portfolios, respectively. Gross client inflows of$0.4 billion were offset by gross client outflows of$0.9 billion within our institutional and intermediary channel during the three months endedJune 30, 2020 . Gross client inflows include approximately$0.3 billion into our blended asset portfolios and less than$0.1 billion into both our equity and fixed income portfolios. With regard to gross client outflows,$0.6 billion , or 75% was from our blended asset portfolios,$0.2 billion or 22% was from our equity portfolios, and less than$0.1 billion , or 3% was from our fixed income portfolios. 33
--------------------------------------------------------------------------------
Table of Contents
The following table sets forth our results of operations and related data for
the three months ended
Three months ended June 30, Period-to-Period
2020 2019 $ %
(in thousands, except share data)
Revenues
Management Fees
Wealth management $ 13,740 $ 16,209 $ (2,469 ) (15 )%
Institutional and intermediary 12,142 12,932 (790 ) (6 )%
Distribution and shareholder servicing 2,303 2,566 (263 ) (10 )%
Custodial services 1,463 1,750 (287 ) (16 )%
Other revenue 698 837 (139 ) (17 )%
Total revenue 30,346 34,294 (3,948 ) (12 )%
Expenses
Compensation and related costs 17,379 20,161 (2,782 ) (14 )%
Distribution, servicing and custody
expenses 2,425 3,019 (594 ) (20 )%
Other operating costs 7,489 8,639 (1,150 ) (13 )%
Total operating expenses 27,293 31,819 (4,526 ) (14 )%
Operating income 3,053 2,475 578 23 %
Non-operating income (loss)
Non-operating income (loss), net 2,690 1,075 1,615 150 %
Income before provision for income taxes 5,743 3,550 2,193 62 %
Provision for income taxes 1,460 331 1,129 341 %
Net income attributable to controlling
and noncontrolling interests 4,283 3,219 1,064 33 %
Less: net income attributable to
noncontrolling interests 2,737 2,805 (68 ) (2 )%
Net income attributable to Manning &
Napier, Inc. $ 1,546 $ 414 $ 1,132 273 %
Per Share Data
Net income per share available to
Class A common stock
Basic $ 0.09 $ 0.03
Diluted $ 0.06 $ 0.03
Weighted average shares of Class A
common stock outstanding
Basic 16,132,667 15,267,762
Diluted 46,296,214 15,613,939
Other financial and operating data
Economic income (loss) (1) $ 6,701 $ 4,224 $ 2,477 59 %
Economic net income (1) $ 3,971 $ 2,999 $ 972 32 %
Economic net income per adjusted share
(1) $ 0.08 $ 0.04
Weighted average adjusted Class A common
stock outstanding(1) 48,309,400 79,570,059
_______________________
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Supplemental Non-GAAP Financial Information" for
accordance with accounting principles generally accepted in the United
States of America ("GAAP") in this report in addition to a reconciliation
of non-GAAP financial measures to GAAP measures for the periods indicated.
34
--------------------------------------------------------------------------------
Table of Contents
Revenues
Wealth management revenue decreased by$2.5 million , or 15%, to$13.7 million for the three months endedJune 30, 2020 from$16.2 million for the three months endedJune 30, 2019 . This decrease is driven primarily by a 12%, or$1.2 billion , decrease in our average wealth management AUM for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 . AtJune 30, 2020 the concentration of investments in our wealth management assets were 87% blended assets, 10% equity and 3% fixed income, compared to 79% blended assets, 18% equity and 3% fixed income as ofJune 30, 2019 . Institutional and intermediary revenue decreased by$0.8 million , or 6%, to$12.1 million for the three months endedJune 30, 2020 from$12.9 million for the three months endedJune 30, 2019 . This decrease is driven primarily by a 15%, or$1.8 billion , decrease in our average institutional and intermediary AUM for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 . As ofJune 30, 2020 , the concentration of assets in our institutional and intermediary was 56% blended assets, 37% equity and 7% fixed income, compared to 54% blended assets, 39% equity and 7% fixed income as ofJune 30, 2019 . Distribution and shareholder servicing revenue decreased by$0.3 million , or 10%, to$2.3 million for the three months endedJune 30, 2020 from$2.6 million for the three months endedJune 30, 2019 . This decrease was driven by a reduction in mutual fund and collective investment trust average AUM of 17% for the same period. Custodial services revenue decreased by$0.3 million , or 16%, to$1.5 million for the three months endedJune 30, 2020 from$1.8 million for the three months endedJune 30, 2019 . The decrease primarily relates to decreases in our collective investment trust AUM. Operating Expenses Our operating expenses decreased by$4.5 million , or 14%, to$27.3 million for the three months endedJune 30, 2020 from$31.8 million for the three months endedJune 30, 2019 . Compensation and related costs decreased by$2.8 million , or 14%, to$17.4 million for the three months endedJune 30, 2020 from$20.2 million for the three months endedJune 30, 2019 . This decrease in the current quarter compared to the second quarter of 2019 was driven by a decrease in our workforce. When considered as a percentage of revenue, compensation and related costs for both the three months endedJune 30, 2020 and 2019 was 57%. Given the declines in our revenue, we anticipate that our compensation ratio as a percentage of revenue will remain elevated in the near term compared to prior periods. Distribution, servicing and custody expenses decreased by$0.6 million , or 20%, to$2.4 million for the three months endedJune 30, 2020 from$3.0 million for the three months endedJune 30, 2019 . The decrease was generally driven by a 17% reduction in mutual fund and collective investment trust average AUM for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 . As a percentage of mutual fund and collective investment trust average AUM, distribution, servicing and custody expense was 0.18% for the three months endedJune 30, 2020 , compared to 0.19% for the three months endedJune 30, 2019 . Other operating costs for the three months endedJune 30, 2020 were$7.5 million , as compared to$8.6 million for the three months endedJune 30, 2019 . During the second quarter of 2020, we recognized an impairment charge of approximately$0.6 million in connection with a leased asset for which the carrying value was deemed not fully recoverable. As a percentage of revenue, other operating costs were 25% for both the three months endedJune 30, 2020 and 2019. 35
--------------------------------------------------------------------------------
Table of Contents
Non-Operating Income (Loss) Non-operating income for the three months endedJune 30, 2020 was$2.7 million , an increase of$1.6 million , from non-operating income of$1.1 million for the three months endedJune 30, 2019 . The following table reflects the components of non-operating income (loss) for the three months endedJune 30, 2020 and 2019: Three months ended June 30, Period-to-Period 2020 2019 $ % (in thousands) Non-operating income (loss) Interest expense $ (3 )$ (10 ) $ 7 (70 )% Interest and dividend income (1) 363 837 (474 ) (57 )% Change in liability under tax receivable agreement (2) 914 - 914 * Net gains (losses) on investments (3) 1,416 248 1,168 471 % Total non-operating income (loss)$ 2,690 $ 1,075 $ 1,615 150 % __________________________
(*) Variance not calculable (1) The decrease in interest and dividend income for the three months ended
investments, including
other short-term investments to optimize cash management opportunities,
coupled with a decrease in interest rates.
(2) The change in the liability under the tax receivable agreement for the
three months ended
expected tax benefits under the tax receivable agreement with the other
holders of units of
the payment of such benefits. The change during the three months ended June
30, 2020 is driven by a reduction in the Company's estimated 2020 net
operating loss. This change will reduce the favorable rate of applying 2020
net operating losses to prior years with the enactment of the Coronavirus
Aid, Relief, and Economic Security Act ("CARES Act").
(3) The amount of net gain (loss) on investments held by us, to provide initial
cash seeding for product development purposes and to hedge economic
exposure to market movements on our deferred compensation plan, will vary
depending on the performance and overall amount of our investments.
Provision for Income Taxes
Our provision for income taxes was $1.5 million for the three months ended June
30, 2020 , compared to a provision of $0.3 million for the three months ended
June 30, 2019 . During the first quarter of 2020, we recognized a benefit from
income taxes of $3.2 million , driven primarily from the enactment of the CARES
Act which includes, among other things, the ability to carry back net operating
losses from 2018, 2019 and 2020. As a result, we recognized an income tax
benefit during the first quarter of 2020 related to the favorable rate applied
to our net operating losses. During the second quarter of 2020, we reduced the
benefit by approximately $1.2 million due to the decrease in our estimated 2020
net operating loss.
36--------------------------------------------------------------------------------
Table of Contents
Six Months EndedJune 30, 2020 Compared to Six Months EndedJune 30, 2019 Assets Under Management The following table reflects changes in our AUM for the six months endedJune 30, 2020 and 2019: Six months ended June 30, Period-to-Period 2020 2019 $ % (in millions) Wealth Management (3) Beginning assets under management$ 8,716.4 $ 8,700.9 $ 15.5 - % Gross client inflows (1) 395.4 390.1 5.3 1 % Gross client outflows (1) (736.0 ) (886.0 ) 150.0 (17 )% Market appreciation (depreciation) & other (2) (41.4 ) 1,192.9 (1,234.3 ) (103 )% Ending assets under management$ 8,334.4 $ 9,397.9 $ (1,063.5 ) (11 )% Average AUM for period$ 8,486.1 $ 9,192.8 Institutional and Intermediary (3) Beginning assets under management$ 10,763.7 $ 11,462.7 $ (699.0 ) (6 )% Gross client inflows (1) 826.2 881.0 (54.8 ) (6 )% Gross client outflows (1) (1,604.8 ) (1,809.7 ) 204.9 (11 )% Market appreciation (depreciation) & other (2) 320.8 1,318.9 (998.1 ) (76 )% Ending assets under management$ 10,305.9 $ 11,852.9 $ (1,547.0 ) (13 )% Average AUM for period$ 10,130.7 $ 11,628.5 Total assets under management Beginning assets under management$ 19,480.1 $ 20,163.6 $ (683.5 ) (3 )% Gross client inflows (1) 1,221.6 1,271.1 (49.5 ) (4 )% Gross client outflows (1) (2,340.8 ) (2,695.7 ) 354.9 (13 )% Market appreciation (depreciation) & other (2) 279.4 2,511.8 (2,232.4 ) (89 )% Ending assets under management$ 18,640.3 $ 21,250.8 $ (2,610.5 ) (12 )% Average AUM for period$ 18,616.8 $ 20,821.3 ________________________
(1) Transfers of client assets between portfolios are included in gross client
inflows and gross client outflows.
(2) Market appreciation/(depreciation) and other includes investmentgains/(losses) on assets under management, the impact of changes in foreign
exchange rates and net flows from non-sales related activities including
net reinvested dividends.
(3) AUM and gross client flows between sales channels have been estimated based
upon preliminary data. For a limited portion of our mutual fund AUM,
reporting by sales channel is not available at the time of this report.
Such estimates have no impact on total AUM, total cash flows, or AUM by
investment portfolio reported in the table above.
Our total AUM decreased by $2.6 billion from $21.3 billion at June 30, 2019 to
$18.6 billion at June 30, 2020 . The decrease was attributable to net client
outflows of $4.2 billion , partially offset by market appreciation of $1.6
billion . Net client outflows consisted of approximately $1.2 billion of net
outflows for wealth management and $3.0 billion for institutional and
intermediary. By portfolio, the rates of change in AUM from June 30, 2019 to
June 30, 2020 consisted of a $1.7 billion , or 28% decrease in our equity
portfolio, a $0.8 billion , or 6% decrease in our blended asset portfolio, and a
decrease of $0.1 billion , or 9% in our fixed income portfolio.
While many of our key strategies achieved recent competitive relative returns,
we attribute our net cash outflows during the six months ended June 30, 2020 in
part to challenging three and five year annualized returns in many of the
strategies included in our blended asset and equity portfolios. We have
experienced a decrease in the overall rate of outflows with gross outflows of
approximately $2.3 billion during the six months ended June 30, 2020 , a 13%
improvement from the same period through June 30, 2019 .
37--------------------------------------------------------------------------------
Table of Contents
While we have experienced an improvement in the rate of outflows, the rate of gross client inflows has slowed to approximately$1.2 billion during the six months endedJune 30, 2020 , a 4% decrease compared to the same period in 2019. We believe that changes in our organization and macro trends towards passive investing have all played a role in this trend. We believe that by demonstrating stability in client AUM and in our organization, along with continuing to improve long-term track records and modernizing our platform, we will provide a foundation from which we can grow. The total AUM decrease of$0.8 billion , or 4%, to$18.6 billion atJune 30, 2020 from$19.5 billion atDecember 31, 2019 was attributable to net client cash outflows of$1.1 billion , partially offset by market appreciation of$0.3 billion . Included in net client flows during the six months endedJune 30, 2020 were net client outflows in wealth management of approximately$0.3 billion and institutional and intermediary of approximately$0.8 billion . The blended investment loss was 0.5% in wealth management and the blended investment gain was 3.0% in institutional and intermediary. By portfolio, our net$0.8 billion AUM decrease was derived from decreases of$0.4 billion , or 9%, in our equity portfolio,$0.4 billion , or 3%, in our blended asset portfolio and$14.7 million , or 1%, in our fixed income portfolio. As ofJune 30, 2020 , the composition of our AUM was 45% in wealth management and 55% in institutional and intermediary, compared to 44% in wealth management and 56% in institutional and intermediary atJune 30, 2019 . The composition of our AUM across portfolios atJune 30, 2020 was 71% in blended assets, 24% in equity, and 5% in fixed income, consistent with composition atJune 30, 2019 . With regard to our wealth management channel, gross client inflows of$0.4 billion were offset by approximately$0.7 billion of gross client outflows during the six months endedJune 30, 2020 . The$0.4 billion of gross client inflows included$0.3 billion into our blended asset portfolios, and less than$0.1 billion into both our equity portfolios and fixed income portfolios. Outflows during the six months endedJune 30, 2020 were$0.7 billion , with 66% from blended portfolios, 21% from equity, and 13% from fixed income portfolios, respectively. The annualized separate account retention rate was 94% for the six months endedJune 30, 2020 , up from 85% for the rolling twelve months endedJune 30, 2020 . We believe the improvement is further support that our overall servicing efforts, importantly including our value-added advisory services, are effective in supporting long-term relationships. Net client outflows of$0.8 billion from our institutional and intermediary included gross client inflows of$0.8 billion offset by gross client outflows of$1.6 billion during the six months endedJune 30, 2020 . Gross client inflows into our blended asset portfolios, represented$0.5 billion , or 57%, of institutional and intermediary gross client inflows during the six months endedJune 30, 2020 . With regard to gross client outflows,$1.2 billion , or 74%, of institutional and intermediary gross client outflows were from blended asset institutional and intermediary products. 38
--------------------------------------------------------------------------------
Table of Contents
The following table sets forth our results of operations and other data for the
six months ended
Six months ended June 30, Period-to-Period
2020 2019 $ %
(in thousands, except share data)
Revenues
Management Fees
Wealth management $ 28,040 $ 32,678 $ (4,638 ) (14 )%
Institutional and intermediary 24,273 26,166 (1,893 ) (7 )%
Distribution and shareholder servicing 4,693 5,190 (497 ) (10 )%
Custodial services 3,062 3,495 (433 ) (12 )%
Other revenue 1,387 1,562 (175 ) (11 )%
Total revenue 61,455 69,091 (7,636 ) (11 )%
Expenses
Compensation and related costs 36,642 41,609 (4,967 ) (12 )%
Distribution, servicing and custody
expenses 5,238 6,777 (1,539 ) (23 )%
Other operating costs 14,586 16,946 (2,360 ) (14 )%
Total operating expenses 56,466 65,332 (8,866 ) (14 )%
Operating income 4,989 3,759 1,230 33 %
Non-operating income (loss)
Non-operating income (loss), net (1,637 ) 2,950 (4,587 ) (155 )%
Income before provision for income taxes 3,352 6,709 (3,357 ) (50 )%
Provision for income taxes (1,766 ) 573 (2,339 ) (408 )%
Net income attributable to controlling and
noncontrolling interests 5,118 6,136 (1,018 ) (17 )%
Less: net income attributable to
noncontrolling interests 2,714 5,161 (2,447 ) (47 )%
Net income attributable to Manning &
Napier, Inc. $ 2,404 $ 975 $ 1,429 147 %
Per Share Data
Net income per share available to Class A
common stock
Basic $ 0.15 $ 0.07
Diluted $ 0.06 $ 0.06
Weighted average shares of Class A common
stock outstanding
Basic 15,972,809 15,098,454
Diluted 61,851,067 78,317,986
Other financial and operating data
Economic income (1) $ 5,029 $ 8,043 $ (3,014 ) (37 )%
Economic net income (1) $ 5,537 $ 5,711 $ (174 ) (3 )%
Economic net income per adjusted share (1) $ 0.09 $ 0.07
Weighted average adjusted Class A common
stock outstanding (1) 64,534,522 79,817,987
________________________
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Supplemental Non-GAAP Financial Information" for
Manning & Napier's reasons for including these non-GAAP measures in this
report in addition to a reconciliation of non-GAAP financial measures to
GAAP measures for the periods indicated.
Revenues
Wealth management revenue decreased by$4.6 million , or 14%, to$28.0 million for the six months endedJune 30, 2020 from$32.7 million for the six months endedJune 30, 2019 . This decrease is driven primarily by an 8% decrease in our average wealth management AUM for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 . As of 39
--------------------------------------------------------------------------------
Table of Contents
June 30, 2020 , the concentration of assets in our wealth management channel was 87% blended assets, 10% equity and 3% fixed income, compared to 79% blended assets, 18% equity and 3% fixed income as ofJune 30, 2019 . Institutional and intermediary revenue decreased by$1.9 million , or 7%, to$24.3 million for the six months endedJune 30, 2020 from$26.2 million for the six months endedJune 30, 2019 . This decrease is driven primarily by a 13%, or$1.5 billion , decrease in average institutional and intermediary AUM for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 . As ofJune 30, 2020 the concentration of assets in our institutional and intermediary channel was 56% blended assets, 37% equity and 7% fixed income, compared to 54% blended assets, 39% equity and 7% fixed income as ofJune 30, 2019 . Distribution and shareholder servicing revenue decreased by$0.5 million , or 10%, to$4.7 million for the six months endedJune 30, 2020 from$5.2 million for the six months endedJune 30, 2019 . This decrease is driven by a reduction in mutual fund and collective investment trust average AUM of 13% for the same period. Custodial services revenue decreased by$0.4 million , or 12%, to$3.1 million for the six months endedJune 30, 2020 from$3.5 million for the six months endedJune 30, 2019 . The decrease primarily relates to decreases in our collective trust AUM. Operating Expenses Our operating expenses decreased by$8.9 million , or 14%, to$56.5 million for the six months endedJune 30, 2020 from$65.3 million for the six months endedJune 30, 2019 . Compensation and related costs decreased by$5.0 million , or 12%, to$36.6 million for the six months endedJune 30, 2020 from$41.6 million for the six months endedJune 30, 2019 . The decrease was driven by a decrease in our workforce as well as lower variable incentive costs for our sales team as a result of the reduction in AUM and revenue, coupled with a reduction in employee severance costs and equity based compensation. When considered as a percentage of revenue, compensation and related costs was 60% for both the six months endedJune 30, 2020 and 2019. Given the declines in our revenue, we anticipate that our compensation ratio as a percentage of revenue will remain elevated in the near term compared to prior periods. Distribution, servicing and custody expenses decreased by$1.5 million , or 23%, to$5.2 million for the six months endedJune 30, 2020 from$6.8 million for the six months endedJune 30, 2019 . The decrease was generally attributable to a 13% decrease in mutual fund and collective investment trust average AUM for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 , coupled with the completion of MNA's mutual fund fee restructure initiative during the first quarter of 2019, where a portion of these expenses are now borne by the mutual funds directly. As a percentage of mutual fund and collective investment trust average AUM, distribution, servicing and custody expense was 0.38% for the six months endedJune 30, 2020 , compared to 0.43% for the six months endedJune 30, 2019 . Other operating costs decreased by$2.4 million , or 14%, to$14.6 million for the six months endedJune 30, 2020 from$16.9 million for the six months endedJune 30, 2019 . During the second quarter of 2020, we recognized an impairment charge of approximately$0.6 million in connection with a leased asset for which the carrying value was deemed not fully recoverable. As a percentage of revenue, other operating costs for the six months endedJune 30, 2020 was 24% compared to 25% for six months endedJune 30, 2019 . 40
--------------------------------------------------------------------------------
Table of Contents
Non-Operating Income (Loss) Non-operating loss for the six months endedJune 30, 2020 was$1.6 million , a decrease of$4.6 million , from non-operating income of$3.0 million for the six months endedJune 30, 2019 . The following table reflects the components of non-operating income (loss) for the six months endedJune 30, 2020 and 2019: Six months ended June 30, Period-to-Period 2020 2019 $ % (in thousands) Non-operating income (loss) Interest expense $ (5 )$ (13 ) $ 8 (62 )% Interest and dividend income (1) 720 1,646 (926 ) (56 )% Change in liability under tax receivable agreement (2) (1,936 ) 195 (2,131 ) (1,093 )% Net gains (losses) on investments (3) (416 ) 1,122 (1,538 ) (137 )% Total non-operating income$ (1,637 ) $ 2,950 $ (4,587 ) (155 )% __________________________ (*) Variance not calculable.
(1) The decrease in interest and dividend income for the six months ended June
30, 2020 compared to 2019 is attributable to a decrease in investments,
including
short-term investments to optimize cash management opportunities, coupled
with a decrease in interest rates.
(2) The change in the liability under the tax receivable agreement for the six
months ended
expected tax benefits under the tax receivable agreement with the other
holders of units of
the payment of such benefits. The change during the six months ended June
30, 2020 is driven by the tax benefits realized with the enactment of the
CARES Act.
(3) The amount of net gain (loss) on investments held by us, to provide initial
cash seeding for product development purposes and to hedge economic
exposure to market movements on our deferred compensation plan, will vary
depending on the performance and overall amount of our investments.
Provision for Income Taxes
Our benefit from income taxes was $1.8 million for the six months ended June 30,
2020 , compared to a provision for income taxes of $0.6 million for the six
months ended June 30, 2019 . The benefit recognized during the six months ended
June 30, 2020 was attributable to the enactment of the CARES Act during the
first quarter of 2020 which includes, among other things, the ability to carry
back net operating losses from 2018, 2019 and 2020 to prior years. As a result,
we recognized an income tax benefit related to the favorable rate applied to our
net operating losses.
Supplemental Non-GAAP Financial Information
Beginning with the release of our operating results for the third quarter of
2019, as supplemental information we began providing a new non-GAAP measure,
economic income. Management uses economic income, economic net income and
economic net income per adjusted share as financial measures to evaluate the
profitability and efficiency of our business as a whole in the ordinary, ongoing
and customary course of its operations. Economic income, economic net income and
economic net income per adjusted share are not presented in accordance with
GAAP.
Economic income, for periods beginning in and subsequent to January 1, 2019 ,
presents a non-GAAP financial measure of the controlling and non-controlling
interests of Manning & Napier Group and excludes from income before provision
for income taxes strategic restructuring and transaction costs, net. We define
strategic restructuring and transaction costs, net, as items related to our
ongoing strategic review focused on the evolution of our distribution strategy
and technology initiatives. These costs include severance-related costs, certain
consulting and other professional service fees, lease and other contract
termination costs, and gain or loss on sale of a business. Non-GAAP measures for
the first and second quarters of 2019 have been restated to conform to the
current period presentation.
41--------------------------------------------------------------------------------
Table of Contents
Economic net income is a non-GAAP measure of after-tax operating performance and equals the Company's income before provision for income taxes less adjusted income taxes. Adjusted income taxes are estimated assuming the exchange of all outstanding units ofManning & Napier Group into Class A common stock on a one-to-one basis. Therefore, all income ofManning & Napier Group allocated to the units ofManning & Napier Group is treated as if it were allocated to us and represents an estimate of income tax expense (benefit) at an effective rate of 40.7% and 29.0% for the three months endedJune 30, 2020 and 2019, respectively, and (10.1)% and 29.0% for the six months endedJune 30, 2020 and 2019, respectively, reflecting assumed federal, state and local income taxes. Economic net income per adjusted share is a non-GAAP measure and is equal to economic net income divided by the weighted average adjusted Class A common shares outstanding. The number of weighted average adjusted Class A common shares outstanding for all periods presented is determined by assuming the weighted average exchangeable units ofManning & Napier Group , weighted average unvested stock units, weighted average unvested restricted stock awards, and weighted average vested stock options are converted into our outstanding Class A common stock as of the respective reporting date, on a one-to-one basis. Our management uses economic net income, among other financial data, to determine the earnings available to distribute as dividends to holders of its Class A common stock and to the holders of the units ofManning & Napier Group . Non-GAAP measures are not a substitute for financial measures prepared in accordance with GAAP and therefore should not be used in isolation of, but in conjunction with, GAAP measures. Additionally, our non-GAAP measures may differ from similar measures used by other companies, even if similar terms are used to identify such measures. The following table sets forth, for the periods indicated, our other financial and operating data: Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 (in thousands, except share data) Economic income (loss) (Non-GAAP) $ 6,701$ 4,224 $ 5,029 $ 8,043 Economic net income (Non-GAAP) $ 3,971$ 2,999 $ 5,537 $ 5,711 Economic net income per adjusted share (Non-GAAP) $ 0.08$ 0.04 $ 0.09 $ 0.07 Weighted average adjusted Class A common stock outstanding (Non-GAAP) 48,309,400 79,570,059 64,534,522 79,817,987 42
--------------------------------------------------------------------------------
Table of Contents
The following table sets forth, for the periods indicated, a reconciliation of non-GAAP financial measures to GAAP measures:
Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
(in thousands, except share data)
Net income attributable to Manning &
Napier, Inc. $ 1,546 $ 414 $ 2,404 $ 975
Add back: Net income (loss)
attributable to noncontrolling
interests 2,737 2,805 2,714 5,161
Add back: Provision for (benefit
from) income taxes 1,460 331 (1,766 ) 573
Income (loss) before provision for
(benefit from) income taxes $ 5,743 $ 3,550 $ 3,352 $ 6,709
Add back: Strategic restructuring and
transaction costs, net (1) 958 674 1,677 1,334
Economic income (loss) (Non-GAAP) $ 6,701 4,224 5,029 8,043
Adjusted income taxes (Non-GAAP) 2,730 1,225 (508 ) 2,332
Economic net income (Non-GAAP) $ 3,971
Weighted average shares of Class A common stock outstanding - Basic 16,132,667 15,267,762 15,972,809 15,098,454 Assumed vesting, conversion or exchange of: Weighted averageManning & Napier Group , LLC units outstanding (noncontrolling interest) 28,400,866 62,482,345 45,217,533 62,913,637 Weighted average unvested restricted stock units and share awards 3,609,201 1,819,952 3,177,514 1,805,896 Weighted average vested stock options 166,666 - 166,666 - Weighted average adjusted shares (Non-GAAP) 48,309,400 79,570,059
64,534,522 79,817,987
Economic net income per adjusted share (Non-GAAP) $ 0.08$ 0.04
__________________________
(1) Strategic restructuring and transaction costs, net, are included in the
following financial statement line items of our Consolidated Statements of
Operations:
Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
(in thousands)
Compensation and related costs $ 154
840 $ 1,110
Other operating costs 804 108 837 224
Total strategic restructuring and
transaction costs $ 958 $ 674 $ 1,677 $ 1,334
43--------------------------------------------------------------------------------
Table of Contents
Liquidity and Capital Resources Historically, our cash and liquidity needs have been met primarily through cash generated by our operations and cash and cash equivalents on hand. Our financial condition atJune 30, 2020 was highly liquid, with a significant amount of our assets comprised of cash and cash equivalents, accounts receivable and investment securities held by us for the purpose of optimizing short-term cash management and providing initial cash seeding for product development purposes. The following table sets forth certain key financial data relating to our liquidity and capital resources as ofJune 30, 2020 andDecember 31, 2019 : June 30, 2020 December 31, 2019 (in thousands) Cash and cash equivalents$ 40,577 $ 67,088 Accounts receivable$ 11,373 $ 10,182 Investment securities$ 24,169 $ 90,467
Amounts payable under tax receivable agreement (1)
17,521
________________________
(1) In light of numerous factors affecting our obligation to make such
payments, the timing and amounts of any such actual payments are based on
our best estimate as of
ability to realize the expected tax benefits. Actual payments may
significantly differ from estimated payments.
We have no material assets other than our ownership of Class A units ofManning & Napier Group and, accordingly, will depend on distributions fromManning & Napier Group to pay taxes and operating expenses, as well as any dividends we may pay. As managing member ofManning & Napier Group , we will determine the timing and amount of any distributions to be paid to its members. We intend to causeManning & Napier Group to distribute cash to its members, including us, in an amount sufficient to cover taxes and operating expenses, including dividends, if any, declared by us. If we do causeManning & Napier Group to make such distributions,M&N Group Holdings , MNCC and any other holders of units ofManning & Napier Group will be entitled to receive equivalent distributions on a pari passu basis. OnApril 22, 2020 the Board of Directors determined to suspend our quarterly cash dividend on our Class A common stock due to the market volatility and ongoing uncertainty resulting from the COVID-19 pandemic. In determining the sufficiency of liquidity and capital resources to fund our business, we regularly monitor our liquidity position, including among other things, cash, working capital, long-term liabilities, lease commitments and operating company distributions. OnMarch 27, 2020 , theU.S. government enacted the CARES Act which includes, among other things, the ability to carryback net operating losses from 2018, 2019 and 2020 to prior years. We expect to carryback net operating losses generated in 2018, 2019 and 2020 to prior years and claim refunds when the federal corporate tax rate was 34% compared to the current statutory rates of 21%. During the six months endedJune 30, 2020 , we recognized an income tax benefit of approximately$2.2 million , related to the favorable rate applied to our net operating losses. As a result, we increased the amounts payable under the tax receivable agreement by$1.9 million , representing 85% of the applicable cash savings. As ofJune 30, 2020 , we have recorded an estimated tax refund of approximately$4.5 million within our prepaid expenses and other assets and a corresponding amounts payable under tax receivable agreement of approximately$4.0 million within our accrued expenses and other liabilities. At this time, we do not anticipate the enactment of the CARES Act to have any other material impacts to our short- and long-term liquidity. A state is currently auditing the Company's 2016, 2017 and 2018 corporate tax returns. The audit is expected to be completed in 2020. As ofJune 30, 2020 , the audit is in process and the state is collecting and evaluating the data for which the Company has not recorded a liability for uncertain tax positions under ASC 740. The Company believes any potential increases to this liability, which could be up to approximately$1.3 million , would not result in a material change to its financial position. As ofJune 30, 2020 , a total of 2,021,781 units ofManning & Napier Group were held by the noncontrolling interests, includingM&N Group Holdings and MNCC. Pursuant to the terms of the Exchange Agreement, such units may be tendered for exchange. OnMarch 15, 2020 , certain legacy shareholders andWilliam Manning , the former Chairman of our Board of Directors, provided notice to us that they would tender a total of 60,012,419 Class A units, including 59,957,419 units held byWilliam Manning , for cash or shares of our Class A common stock pursuant to the terms of the Exchange Agreement. Subsequent toMarch 31, 2020 , the independent directors, on behalf of the Company, decided to settle the exchange utilizing approximately$90.8 million in cash, including approximately$90.7 million paid toMr. Manning .Manning & Napier Group completed the redemption onMay 11, 2020 , with payment made from its cash, cash equivalents and proceeds from the 44
--------------------------------------------------------------------------------
Table of Contents
sale of investment securities. Subsequent to the exchange, the Class A units were retired and as a result,Manning & Napier's ownership ofManning & Napier Group increased from 19.5% to 88.2%. Following the settlement of the redemption of Class A units ofManning & Napier Group , we have significantly less cash and cash equivalents to meet working capital requirements and liquidity needs. With approximately$64.7 million in cash and investment securities on hand as ofJune 30, 2020 , we expect that we have sufficient liquidity available to meet our needs for the foreseeable future. During the six months endedJune 30, 2020 we did not generate net cash from operations, which was driven by implementation costs related to our technology enhancements and the timing of accrued incentive compensation payments during the first quarter. In the future, we will need to either generate cash from operations or seek additional financing to fund our operations. We believe cash on hand and cash generated from operations will be sufficient over the next twelve months to meet our working capital requirements. Cash Flows The following table sets forth our cash flows for the six months endedJune 30, 2020 and 2019. Operating activities consist primarily of net income subject to adjustments for changes in operating assets and liabilities, equity-based compensation expense, changes in the liability under the TRA, deferred income tax expense, gain on sale of intangible assets and gains on sale of business and depreciation and amortization. Investing activities consist primarily of the purchase and sale of investments for the purpose of providing initial cash seeding for product development and cash management purposes, gain on sale of intangible assets, gain on sale business and purchases of property and equipment. Financing activities consist primarily of distributions to noncontrolling interests, dividends paid on our Class A common stock, and purchases of Class A units held by noncontrolling interests ofManning & Napier Group . Six months endedJune 30, 2020 2019 (in thousands)
Net cash (used in) provided by operating activities
2,052
Net cash provided by investing activities 65,450
1,957
Net cash used in financing activities (91,471 ) (6,230 ) Net change in cash and cash equivalents$ (26,511 ) $
(2,221 )
Six Months EndedJune 30, 2020 Compared to Six Months EndedJune 30, 2019 Operating Activities Operating activities used$0.5 million and provided$2.1 million of net cash for the six months endedJune 30, 2020 and 2019, respectively. This overall$2.5 million increase in net cash used in operating activities for the six months endedJune 30, 2020 compared to 2019 was attributed to an increase in operating assets and operating liabilities of approximately$3.5 million driven by implementation costs during the six months endedJune 30, 2020 related to our technology enhancements. This change was partially offset by an increase in net income after adjustment for non-cash items of approximately$1.0 million driven by net losses on investment securities during the six months endedJune 30, 2020 compared to net gains in the same period of 2019. Investing Activities Investing activities provided$65.5 million and$2.0 million of net cash for the six months endedJune 30, 2020 and 2019, respectively. This change was driven by an increase in cash from investing activities of$62.7 million due to our funding of and timing of activity within our investment securities, primarily related to the sale of investment securities in order help fund the redemption of Class A units during the six months endedJune 30, 2020 . During the six months endedJune 30, 2020 , we received approximately$64.4 million , net, from the purchase and sale of certain securities for cash management purposes compared to$3.0 million in the same period of 2019. In addition, we received approximately$1.2 million and less than$0.1 million , net from seeding and redemption activity of certain seeded portfolios in the six months endedJune 30, 2020 and 2019, respectively. Our purchases of property and equipment was approximately$0.2 million during the six months endedJune 30, 2020 compared to$1.1 million in the same period of 2019. Financing Activities Financing activities used$91.5 million and$6.2 million of net cash for the six months endedJune 30, 2020 and 2019, respectively. This overall$85.2 million increase in net cash used in financing activities was primarily the result of an increase in cash used for the purchase of Class A units ofManning & Napier Group pursuant to the exchange agreement entered into at the time of our IPO of$90.8 million in 2020 compared to$3.1 million in 2019. This increase of$87.7 million in 2020 45
--------------------------------------------------------------------------------
Table of Contents
compared to the prior year was due to a high number of units exchanged in 2020. The overall increase in cash used for financing activities was partially offset by a reduction in distributions to noncontrolling interests of$2.4 million . This decrease was due to lower net income during the six months endedJune 30, 2020 compared to the same period in 2019, coupled with the impact of the redemption of Class A units ofManning & Napier Group during 2020 that resulted in the increase in our ownership ofManning & Napier Group from 19.5% to 88.2%. Dividends OnOctober 22, 2019 , the Board of Directors declared a$0.02 per share dividend to the holders of Class A common stock. The dividend was paid onFebruary 3, 2020 to shareholders of record as ofJanuary 15, 2020 . OnMarch 3, 2020 , the Board of Directors declared a$0.02 per share dividend to the holders of Class A common stock. The dividend was paid onMay 1, 2020 to shareholders of record as ofApril 1, 2020 . We have funded our historical quarterly cash dividends on our Class A common stock, and we believe any future dividends would be funded from our portion of distributions made byManning & Napier Group , from its available cash generated from operations. OnApril 22, 2020 , the Board of Directors determined to suspend our quarterly cash dividend on our Class A common stock due to the market volatility and ongoing uncertainty resulting from the COVID-19 pandemic. Company management and the Board of Directors will continue to monitor our ability to declare and pay future dividends on a quarter-by-quarter basis. The declaration and payment of all future dividends, if any, will be at the sole discretion of our Board of Directors. In determining the amount of any future dividends, our Board of Directors will take into account: • the financial results ofManning & Napier Group ;
• our available cash, as well as anticipated cash requirements, including any
debt servicing and payments required under the tax receivable agreement or
the Exchange Agreement;
• our capital requirements and the capital requirements of our subsidiaries,
including
• contractual, legal, tax and regulatory restrictions on, and implications
of, the payment of dividends by us to our shareholders or distributions by
Manning & Napier Group to us, including the obligation of
Group to make tax distributions to its unitholders, including us;
• general economic and business conditions, including the impact of the
COVID-19 pandemic and state and regional stay-at-home orders; and
• any other factors that our Board of Directors may deem relevant.
We have no material assets other than our ownership of Class A units ofManning & Napier Group and, accordingly, will depend on distributions fromManning & Napier Group to fund any dividends we may pay. As managing member ofManning & Napier Group , we will determine the timing and amount of any distributions to be paid to its members, other than mandatory tax distributions required underManning & Napier Group's operating agreement. We intend to causeManning & Napier Group to distribute cash to its members, including us, in an amount sufficient to cover dividends, if any, declared by us. If we do causeManning & Napier Group to make such distributions,M&N Group Holdings , MNCC and any other holders of units ofManning & Napier Group will be entitled to receive equivalent distributions on a pari passu basis. OnMarch 2, 2020 , the Company's Board of Directors had declared a$2.0 million distribution fromManning & Napier Group to its unitholders. Subsequent toMarch 3, 2020 , there was significant disruption to global commercial activity as a result of the spread of COVID-19, which contributed to significant volatility and a decline in the value of many securities in the financial markets. As a result, the Company's Board of Directors determined onMarch 24, 2020 to withdraw its approval of that distribution fromManning & Napier Group . InJuly 2020 , the Board of Directors approved a$1.5 million distribution fromManning & Napier Group toManning & Napier Inc. and the noncontrolling interests ofManning & Napier Group , of which approximately$0.2 million was paid to the noncontrolling interests ofManning & Napier Group . Off Balance Sheet Arrangements We did not have any off-balance sheet arrangements as ofJune 30, 2020 . Item 3. Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," we are not required to provide this information. 46
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
