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 summarized below under the heading "Summary of Principal Risks" and disclosed in the "Risk Factors" section, as well as other sections, of our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q. 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. Summary of Principal Risks The following factors are among the principal risks we face. For a more detailed description of the risks material to our business, see "Part II-Item 1A-Risk Factors." Some of the factors that could cause our results to differ materially from our expectations or beliefs include, without limitation; • the impact of the COVID-19 pandemic on theU.S. and global economy and our AUM; • the termination of contracts or relationships upon short or no notice or high rates of client sales and redemption activity;
• the inability to realize the expected benefits of our restructuring
plan and other operational improvement initiatives;
• difficult market conditions, like those during the COVID-19 pandemic,
impacting the performance of our strategies, impacting ourability to
obtain attractive returns, or reducing our ability to deploy capital;
• any loss of key investment and sales professionals or members of
senior management, or difficulty integrating new executives;
• concentration of our AUM in certain investment strategies or in
certain geographic areas;
• the impact on our portfolios of foreign currency exchange risk and the
impact of any foreign tax, political, social and economicuncertainty
on any non-U.S. issuers in which our portfolios have invested;
• a reduction in the fees we are able to charge, increased expenses or
reduced fee income from new products, or potential losses or failure
of new products or portfolios;
• changes in key distribution relationships that reduce our revenues or
increase the influence of third-party intermediaries on ourmutual
fund assets;
• failure to comply with investment guidelines set by our clients or
limitations imposed by law;
• the occurrence of operational or trading errors due to the failure,
interruption or cessation of our or third-party financial,accounting,
trading, custodial, clearing, compliance and other data processing
systems;
• the failure to effectively maintain, enhance and modernize our
information technology systems and develop or deploy newtechnology
platforms and upgrades;
• cybersecurity breaches impacting our operations or the failure to
implement effective information and cybersecurity policies;
• reputational harm caused by employee misconduct or the failure to
properly address conflicts of interest;
• the inability to insure our business and otherwise manage risks;
26--------------------------------------------------------------------------------
Table of Contents
• the failure to comply with extensive regulatory requirements and
changes in government policy;
• the inability to effectively compete in the investment management industry;
• catastrophic and unpredictable events, such as the COVID-19 pandemic,
terrorist attacks and natural disasters;
• our dependence on Manning & Napier Group, LLC ("Manning & Napier
Group") for distributions to pay expenses and dividends, if any, to
our stockholders;
• our obligation to make payments to holders of units of Manning &
Napier Group for tax benefits we receive as a result of our structure
pursuant to a tax receivable agreement; and
• provisions in our corporate documents, stockholder rights plan and
Delaware law that could discourage, delay or prevent a change in
control of the Company that some stockholders might consider to be in
their best interests.
Overview
Our Business
Manning & 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 in Fairport, 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
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 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
billion, an increase from
increase came on the heels of a market rebound primarily beginning in the
second quarter, with approximately
partially offset by approximately
since
to negatively impact our operational results, cash flows, and financial
position, although we cannot reasonably estimate the full impact at this
time, given the uncertainty surrounding 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.
• 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 third quarter 2020 results, with gross client inflows comparable to
prior periods and gross client outflows reduced from historical levels,
indicate that our sales strategy is gaining traction. Our ability to
adequately maintain our operations, internal controls and client
relationships has not been adversely affected by these modifications.
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."
27--------------------------------------------------------------------------------
Table of Contents
Market Developments The third quarter was fairly calm in global financial markets as the economy began recovering from the pandemic-driven shutdowns. Although the rebound in the global macroeconomy has been relatively strong, there remain areas of weakness, exacerbated by the sunsetting of key stimulus programs. The continued strength in equity markets remains extraordinary and historic, driven to a substantial degree by enormous strength in the growth style. Growth's multi-year run of outsized relative results versus value were further extended in the quarter, and the style holds a very substantial year-to-date performance edge, concentrated in technology-related equities. Amid the broad-based strength, domestic equities again outperformed international peers, and within the US specifically, small-cap stocks underperformed large-caps over the quarter. Regarding fixed income, central bank policies continued to pin interest rates at ultra-low levels, leading to little movement in yield curves over the quarter. Moving out on the risk spectrum, credit spreads continued to compress throughout the quarter, significantly aiding performance for investment grade and below investment grade securities. Falling spreads aided municipal bonds as well, leading to good results for the sector. We believe there remains a sharp divergence between underlying economic fundamentals and the historic rally in financial markets. As these two realities converge over time, we believe our truly active investment approach, powered by dynamic asset allocation, is well positioned to capitalize on potential opportunities as they present themselves. Other Business Updates During the first quarter of 2020, pursuant to the annual exchange process, approximately 60.0 million Class A Units ofManning & Napier Group, LLC ("Manning & Napier Group") were tendered for cash or shares of the Company's Class A common stock. In earlyApril 2020 , the independent directors, on behalf of the Company as managing member ofManning & Napier Group , decided to settle the transaction as a redemption, utilizing approximately$90.8 million in cash. Manning & Napier Group completed the redemption onMay 11, 2020 , with payment made from its cash, cash equivalents and proceeds from the sale of investment securities. The Class A Units were subsequently retired, and as a result, our ownership ofManning & 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 byManning & Napier Advisors, LLC ("MNA"), the Manning & Napier Fund, Inc. (the "Fund"),Exeter Trust Company , andRainier 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 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. 28
--------------------------------------------------------------------------------
Table of Contents
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$19.2 billion as ofSeptember 30, 2020 . The composition of our AUM by sales channel and portfolio is illustrated in the table below: September 30, 2020 Blended Asset Equity Fixed Income Total (dollars in millions) Total AUM Wealth Management$ 7,331.6 $ 510.5 $ 260.5 $ 8,102.6 Institutional and Intermediary 6,036.1 4,362.0 744.4 11,142.5 Total$ 13,367.7 $ 4,872.5 $ 1,004.9 $ 19,245.1 Percentage of AUM Wealth Management 38 % 3 % 1 % 42 % Institutional and Intermediary 32 % 22 % 4 % 58 % Total 70 % 25 % 5 % 100 % Percentage of portfolio by channel Wealth Management 55 % 10 % 26 % 42 % Institutional and Intermediary 45 % 90 % 74 % 58 % Total 100 % 100 % 100 % 100 % Percentage of channel by portfolio Wealth Management 91 % 6 % 3 % 100 % Institutional and Intermediary 54 % 39 % 7 % 100 % Our wealth management channel represented 42% of our total AUM as ofSeptember 30, 2020 . Blended portfolios are the most significant portion of wealth management assets, representing 91% of wealth management AUM. Equity and fixed income portfolios represent 6% and 3%, respectively, of wealth management AUM. Our institutional and intermediary channel represented 58% of our total AUM as ofSeptember 30, 2020 . Blended portfolios are also the largest portion of institutional and intermediary assets at 54% of AUM, followed by equity and fixed income portfolios at 39% and 7%, respectively. As ofSeptember 30, 2020 , blended portfolios account for 70% of our total AUM at$13.4 billion , a 2% increase fromJune 30, 2020 when blended assets were$13.1 billion . Blended portfolio AUM is similar across both distribution channels, with 55% in wealth management and 45% in institutional and intermediary. Equity portfolios account for 25% of our total AUM, at$4.9 billion , a 7% increase fromJune 30, 2020 when equity portfolios were at$4.6 billion . Of equity portfolio AUM, 90% is in the institutional and intermediary channel, and 10% is in the wealth management channel. Fixed income portfolios account for 5% of total AUM at$1.0 billion , consistent withJune 30, 2020 . Similar to 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. During the nine months endedSeptember 30, 2020 , our wealth management sales channel contributed 36% of our total gross client inflows, while our institutional and intermediary channel contributed 64%. Of the$1.8 billion in gross client inflows, blended asset portfolios represented 69%, while equity and fixed income portfolios represented 24% and 7%, respectively. Results of Operations Below is a discussion of our consolidated results of operations for the three and nine months endedSeptember 30, 2020 and 2019. 29
--------------------------------------------------------------------------------
Table of Contents
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.
30--------------------------------------------------------------------------------
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 nine months ended
Sales Channel (4)
Institutional and Institutional and
Wealth Management Intermediary Total Wealth Management Intermediary Total
(in millions)
As of June 30, 2020 $ 8,334.4 $ 10,305.9 $ 18,640.3 45 % 55 % 100 %
Gross client inflows (1) 250.7 343.7 594.4
Gross client outflows (1) (304.9 ) (674.8 ) (979.7 )
AUM Reclassification (3) (266.8 ) 266.8 -
Market appreciation/(depreciation)
& other (2) 89.2 900.9 990.1
As of September 30, 2020 $ 8,102.6 $ 11,142.5 $ 19,245.1 42 % 58 % 100 %
Average AUM for period $ 8,093.3 $ 11,129.6 $ 19,222.9
As of June 30, 2019 $ 9,397.9 $ 11,852.9 $ 21,250.8 44 % 56 % 100 %
Gross client inflows (1) 231.6 372.1 603.7
Gross client outflows (1) (664.7 ) (972.3 ) (1,637.0 )
Market appreciation/(depreciation)
& other (2) (589.9 ) 845.6 255.7
As of September 30, 2019 $ 8,374.9 $ 12,098.3 $ 20,473.2 41 % 59 % 100 %
Average AUM for period $ 8,559.4 $ 12,317.3 $ 20,876.7
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) 646.1 1,169.9 1,816.0
Gross client outflows (1) (1,040.9 ) (2,279.6 ) (3,320.5 )
Market appreciation/(depreciation)
& other (2) (219.0 ) 1,488.5 1,269.5
As of September 30, 2020 $ 8,102.6 $ 11,142.5 $ 19,245.1 42 % 58 % 100 %
Average AUM for period $ 7,903.8 $ 10,869.2 $ 18,773.0
As of December 31, 2018 $ 8,700.9 $ 11,462.7 $ 20,163.6 43 % 57 % 100 %
Gross client inflows (1) 621.7 1,253.1 1,874.8
Gross client outflows (1) (1,550.7 ) (2,782.0 ) (4,332.7 )
Market appreciation/(depreciation)
& other (2) 603.0 2,164.5 2,767.5
As of September 30, 2019 $ 8,374.9 $ 12,098.3 $ 20,473.2 41 % 59 % 100 %
Average AUM for period $ 8,515.5 $ 12,301.4 $ 20,816.9
________________________(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) During the third quarter of 2020, the Company identified certain
Institutional and Intermediary assets that were incorrectly allocated to
the Wealth Management Sales Channel as of
no impact to total AUM or AUM by Portfolio as of
reclassified to the appropriate Sales Channel during the third quarter of
2020.
31--------------------------------------------------------------------------------
Table of Contents
(4) 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.
The following table reflects the indicated components of our AUM for our
portfolios for the three and nine months ended
Blended Fixed Blended Fixed
Asset Equity Income Total Asset Equity Income Total
(in millions)
As of June 30, 2020 $ 13,075.3 $ 4,561.7 $ 1,003.3 $ 18,640.3 71 % 23 % 6 % 100 %
Gross client inflows (1) 461.3 104.2 28.9 594.4
Gross client outflows (1) (756.6 ) (191.4 ) (31.7 ) (979.7 )
Market
appreciation/(depreciation)
& other (2) 587.7 398.1 4.3 990.1
As of September 30, 2020 $ 13,367.7 $ 4,872.6 $ 1,004.8 $ 19,245.1 70 % 25 % 5 % 100 %
Average AUM for period $ 13,432.5 $ 4,785.3 $ 1,005.1 $ 19,222.9
As of June 30, 2019 $ 13,844.3 $ 6,309.5 $ 1,097.0 $ 21,250.8 65 % 30 % 5 % 100 %
Gross client inflows (1) 433.8 107.1 62.8 603.7
Gross client outflows (1) (1,116.7 ) (396.4 ) (123.9 ) (1,637.0 )
Market
appreciation/(depreciation)
& other (2) 226.1 12.0 17.6 255.7
As of September 30, 2019$ 13,387.5 $ 6,032.2 $ 1,053.5 $ 20,473.2 65 % 30 % 5 % 100 % Average AUM for period$ 13,619.9 $ 6,177.2 $ 1,079.6 $ 20,876.7 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) 1,256.0 440.8 119.2 1,816.0 Gross client outflows (1) (2,424.8 ) (715.6 ) (180.1 ) (3,320.5 ) Market appreciation/(depreciation) 1,063.2 158.6 47.7 1,269.5 & other (2) As of September 30, 2020$ 13,367.7 $ 4,872.6 $ 1,004.8 $ 19,245.1 69 % 26 % 5 % 100 % Average AUM for period$ 13,124.9 $ 4,635.3 $ 1,012.8 $ 18,773.0 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) 1,062.9 648.1 163.8 1,874.8 Gross client outflows (1) (2,928.3 ) (1,087.3 ) (317.1 ) (4,332.7 ) Market appreciation/(depreciation) 1,720.7 969.5 77.3 2,767.5 & other (2) As of September 30, 2019$ 13,387.5 $ 6,032.2 $ 1,053.5 $ 20,473.2 65 % 30 % 5 % 100 % Average AUM for period$ 13,640.1 $ 6,077.6 $ 1,099.2 $ 20,816.9
________________________
(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.
32--------------------------------------------------------------------------------
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 76% of our AUM as ofSeptember 30, 2020 . AUM as of
Annualized Returns as of
September 30, 2020
Key Strategies (in millions) Inception Date One Year Three Year Five Year Ten Year Inception
Long-Term Growth (30%-80% Equity $ 5,553.3 1/1/1973 14.7% 8.7% 9.1% 7.9% 9.5%
Exposure)
Blended Index (3) 10.3% 7.6% 8.6% 7.8% 8.8%
Core Non-U.S. Equity $ 614.7 10/1/1996 18.5% 5.8% 8.8% 4.8% 7.5% Benchmark: ACWIxUS Index
3.0% 1.2% 6.2% 4.0% 4.8%
Growth with Reduced Volatility $ 2,603.6
9.2% 6.8% 7.2% 6.6% 8.4%
Equity-Oriented (70%-100% Equity $ 1,325.7 1/1/1993 17.6% 11.8% 12.4% 9.9% 10.2%
Exposure)
Blended Benchmark: 65% Russell 3000
/ 20% ACWIxUS/ 15% Bloomberg
11.7% 8.8% 10.9% 10.2% 8.6%
Barclays
962.7 4/1/2000 16.0% 9.7% 10.2% 8.8% 7.4%
Equity Exposure)
Blended Benchmark: 53% Russell 3000
/ 17% ACWIxUS/ 30% Bloomberg
11.1% 8.3% 9.8% 9.1% 5.8%
Barclays
562.7 1/1/1995 17.5% 12.9% 13.8% 11.5% 11.3% Equity Exposure) Blended Benchmark: 80% Russell 3000
12.6% 9.5% 12.2% 11.6% 9.2% / 20% ACWIxUS Core U.S. Equity $ 175.6 7/1/2000 20.1% 15.2% 15.7% 12.6% 8.6% Benchmark: Russell 3000
15.0% 11.7% 13.7% 13.5% 6.5% Conservative Growth (5%-35% Equity $
516.8 4/1/1992 9.4% 5.8% 5.3% 4.5% 6.0%
Exposure)
Blended Benchmark: 15% Russell 3000
/ 5% ACWIxUS / 80% Bloomberg 7.4% 5.4% 5.1% 4.7% 6.2%
Barclays U.S. Intermediate
Aggregate Bond
Aggregate Fixed Income $ 189.5 1/1/1984
8.1% 5.5% 4.3% 3.6% 7.2%
Benchmark: Bloomberg Barclays
7.0% 5.2% 4.2% 3.6% 7.1% Aggregate Bond Rainier International Small Cap $
920.2 3/28/2012 32.1% 9.2% 10.9% N/A (1) 13.0% Benchmark: MSCI ACWIxUS Small Cap
7.0% 0.9% 6.8% N/A (1) 5.8% Index Disciplined Value US (5)
$ 1,133.1 1/1/2013 (2.8)% 5.6% 10.3% N/A (1) 12.2% Benchmark: Russell 1000 Value
(5.0)% 2.6% 7.7% N/A (1) 11.4%
__________________________
(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 09/30/2020 . 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.
33--------------------------------------------------------------------------------
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$5.6 billion , or 29%, of our AUM as ofSeptember 30, 2020 . MNA and Rainier also serve as the investment advisor to all of our separately managed accounts, managing$13.6 billion , or 71%, of our AUM as ofSeptember 30, 2020 , including assets managed as a sub-advisor to pooled investment vehicles. For the period endedSeptember 30, 2020 approximately 98% 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 nine months endedSeptember 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
&
34--------------------------------------------------------------------------------
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 ofSeptember 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. Revision of Previously Reported Consolidated Statements of Operations In the quarter endedSeptember 30, 2020 , we revised our sales channel classification of certain 2020 and 2019 investment management revenues to properly present these revenues as either wealth management or institutional and intermediary investment management revenues. The reclassification had no impact on total revenue, operating income, or net income. See Note 2, "Summary of Significant Accounting Policies - Revision of Previously Reported Consolidated Statements of Operations" to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information. 35
--------------------------------------------------------------------------------
Table of Contents
Three Months EndedSeptember 30, 2020 Compared to Three Months EndedSeptember 30, 2019 Assets Under Management The following table reflects changes in our AUM for the three months endedSeptember 30, 2020 and 2019: Three months ended September 30, Period-to-Period 2020 2019 $ % (in millions) Wealth Management (4) Beginning assets under management$ 8,334.4 $ 9,397.9 $ (1,063.5 ) (11 )% Gross client inflows (1) 250.7 231.6 19.1 8 % Gross client outflows (1) (304.9 ) (664.7 ) 359.8 (54 )% AUM Reclassification (3) (266.8 ) - (266.8 ) NM Market appreciation (depreciation) & other (2) 89.2 (589.9 ) 679.1 (115 )% Ending assets under management$ 8,102.6 $ 8,374.9 $ (272.3 ) (3 )% Average AUM for period$ 8,093.3 $
8,559.4
Institutional and Intermediary (4) Beginning assets under management$ 10,305.9 $ 11,852.9 $ (1,547.0 ) (13 )% Gross client inflows (1) 343.7 372.1 (28.4 ) (8 )% Gross client outflows (1) (674.8 ) (972.3 ) 297.5 (31 )% AUM Reclassification (3) 266.8 - 266.8 NM Market appreciation (depreciation) & other (2) 900.9 845.6 55.3 7 % Ending assets under management$ 11,142.5 $ 12,098.3 $ (955.8 ) (8 )% Average AUM for period$ 11,129.6 $
12,317.3
Total assets under management Beginning assets under management$ 18,640.3 $ 21,250.8 $ (2,610.5 ) (12 )% Gross client inflows (1) 594.4 603.7 (9.3 ) (2 )% Gross client outflows (1) (979.7 ) (1,637.0 ) 657.3 (40 )% Market appreciation (depreciation) & other (2) 990.1 255.7 734.4 287 % Ending assets under management$ 19,245.1 $ 20,473.2 $ (1,228.1 ) (6 )% Average AUM for period$ 19,222.9 $ 20,876.7 ________________________
NM - Percentage change not meaningful (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) During the third quarter of 2020, the Company identified certain
Institutional and Intermediary assets that were incorrectly allocated to
the Wealth Management Sales Channel as of
no impact to total AUM or AUM by Portfolio as of
reclassified to the appropriate Sales Channel during the third quarter of
2020.
(4) 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 $1.2 billion from $20.5 billion at September 30, 2019
to $19.2 billion at September 30, 2020 . The decrease was attributable to net
client outflows of $3.5 billion , partially offset by market appreciation of $2.3
billion . Net client outflows consisted of approximately $0.8 billion of net
outflows for wealth management and $2.7 billion for institutional and
intermediary. By portfolio, the rates of change in AUM from September 30, 2019
to September 30, 2020 consisted of a $1.2 billion , or 19% decrease in our equity
portfolio, a $19.8 million , or 0.1% decrease in our blended asset portfolio, and
a decrease of approximately $48.7 million , or 5% in our fixed income portfolio.
36--------------------------------------------------------------------------------
Table of Contents
We have experienced a decrease in the overall rate of outflows with gross outflows of approximately$1.0 billion during the quarter endedSeptember 30, 2020 , a 40% decrease from the quarter endedSeptember 30, 2019 . Gross outflows annualized as a percentage of our AUM, or turnover rate, for the three months endedSeptember 30, 2020 was 12%. The rate of gross client inflows was approximately$0.6 billion during the three months endedSeptember 30, 2020 , consistent with the quarter endedSeptember 30, 2019 . 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$0.6 billion , to$19.2 billion atSeptember 30, 2020 from$18.6 billion atJune 30, 2020 was attributable to market appreciation of$1.0 billion , partially offset by net client outflows of$0.4 billion . Net client outflows consisted of less than$0.1 billion for wealth management while net client outflows in institutional and intermediary were$0.3 billion . The blended investment gain was 1.1% in wealth management accounts and 8.7% in institutional and intermediary. By portfolio in the period, our AUM increased by$0.3 billion in our blended asset portfolio,$0.3 billion in our equity portfolio, and increased by$1.5 million in our fixed income portfolio. As ofSeptember 30, 2020 , the composition of our AUM was 42% in wealth management and 58% in institutional and intermediary, compared to 41% in wealth management and 59% in institutional and intermediary atSeptember 30, 2019 . The composition of our AUM across portfolios atSeptember 30, 2020 was 70% in blended assets, 25% in equity, and 5% in fixed income, compared to 65% in blended assets, 30% in equity, 5% in fixed income atSeptember 30, 2019 . For our wealth management channel, gross client inflows of less than$0.3 billion were offset by$0.3 billion of gross client outflows during the three months endedSeptember 30, 2020 . The$0.3 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$0.3 billion , or 86% from blended portfolios, less than$0.1 billion , or 12% from equity, and less than$0.1 billion , or 2% from fixed income portfolios, respectively. Gross client inflows of$0.3 billion were offset by gross client outflows of$0.7 billion within our institutional and intermediary channel during the three months endedSeptember 30, 2020 . Gross client inflows include approximately$0.2 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,$0.5 billion , or 73% was from our blended asset portfolios,$0.2 billion or 23% was from our equity portfolios, and less than$0.1 billion , or 4% was from our fixed income portfolios. 37
--------------------------------------------------------------------------------
Table of Contents
The following table sets forth our results of operations and related data for
the three months ended
Three months ended September 30, Period-to-Period
2020 2019 $ %
(in thousands, except share data)
Revenues
Management Fees
Wealth management $ 13,743 $ 14,181 $ (438 ) (3 )%
Institutional and intermediary 13,534 14,815 (1,281 ) (9 )%
Distribution and shareholder servicing 2,424 2,570 (146 ) (6 )%
Custodial services 1,577 1,763 (186 ) (11 )%
Other revenue 789 849 (60 ) (7 )%
Total revenue 32,067 34,178 (2,111 ) (6 )%
Expenses
Compensation and related costs 18,605 19,504 (899 ) (5 )%
Distribution, servicing and custody
expenses 2,596 2,959 (363 ) (12 )%
Other operating costs 6,611 8,286 (1,675 ) (20 )%
Total operating expenses 27,812 30,749 (2,937 ) (10 )%
Operating income 4,255 3,429 826 24 %
Non-operating income (loss)
Non-operating income (loss), net 550 3,298 (2,748 ) (83 )%
Income before provision for income taxes 4,805 6,727 (1,922 ) (29 )%
Provision for income taxes 1,738 150 1,588 1,059 %
Net income attributable to controlling
and noncontrolling interests 3,067 6,577 (3,510 ) (53 )%
Less: net income attributable to
noncontrolling interests 560 5,753 (5,193 ) (90 )%
Net income attributable to Manning &
Napier, Inc. $ 2,507 $ 824 $ 1,683 204 %
Per Share Data
Net income per share available to
Class A common stock
Basic $ 0.15 $ 0.05
Diluted $ 0.13 $ 0.05
Weighted average shares of Class A
common stock outstanding
Basic 16,176,280 15,290,595
Diluted 18,928,954 15,600,686
Other financial and operating data
Economic income (1) $ 5,219 $ 5,177 $ 42 1 %
Economic net income (1) $ 3,170 $ 3,676 $ (506 ) (14 )%
Economic net income per adjusted share
(1) $ 0.14 $ 0.05
Weighted average adjusted Class A common stock outstanding(1) 22,395,521 79,033,403 _______________________
(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.
38
--------------------------------------------------------------------------------
Table of Contents
Revenues
Wealth management revenue decreased by$0.4 million , or 3%, to$13.7 million for the three months endedSeptember 30, 2020 from$14.2 million for the three months endedSeptember 30, 2019 . This decrease is driven primarily by a 5%, or$0.5 billion , decrease in our average wealth management AUM for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 . AtSeptember 30, 2020 the concentration of investments in our wealth management assets were 91% blended assets, 6% equity and 3% fixed income, compared to 79% blended assets, 18% equity and 3% fixed income as ofSeptember 30, 2019 . Institutional and intermediary revenue decreased by$1.3 million , or 9%, to$13.5 million for the three months endedSeptember 30, 2020 from$14.8 million for the three months endedSeptember 30, 2019 . This decrease is driven primarily by a 10%, or$1.2 billion , decrease in our average institutional and intermediary AUM for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 . As ofSeptember 30, 2020 , the concentration of assets in our institutional and intermediary was 54% blended assets, 39% equity and 7% fixed income, compared to 56% blended assets, 38% equity and 6% fixed income as ofSeptember 30, 2019 . Distribution and shareholder servicing revenue decreased by$0.1 million , or 6%, to$2.4 million for the three months endedSeptember 30, 2020 from$2.6 million for the three months endedSeptember 30, 2019 . This decrease was driven by a reduction in mutual fund and collective investment trust average AUM of 8% for the same period. Custodial services revenue decreased by$0.2 million , or 11%, to$1.6 million for the three months endedSeptember 30, 2020 from$1.8 million for the three months endedSeptember 30, 2019 . The decrease primarily relates to decreases in our collective investment trust AUM. Operating Expenses Our operating expenses decreased by$2.9 million , or 10%, to$27.8 million for the three months endedSeptember 30, 2020 from$30.7 million for the three months endedSeptember 30, 2019 . Compensation and related costs decreased by$0.9 million , or 5%, to$18.6 million for the three months endedSeptember 30, 2020 from$19.5 million for the three months endedSeptember 30, 2019 . This decrease in the current quarter compared to the third quarter of 2019 was driven by a decrease in our workforce and a reduction in employee severance costs, partially offset by an increase in the estimated incentive compensation for our investment team resulting from investment performance. When considered as a percentage of revenue, compensation and related costs was 58% for the three months endedSeptember 30, 2020 and 57% for the three months endedSeptember 30, 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$0.4 million , or 12%, to$2.6 million for the three months endedSeptember 30, 2020 from$3.0 million for the three months endedSeptember 30, 2019 . The decrease was generally driven by a 8% reduction in mutual fund and collective investment trust average AUM for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 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 endedSeptember 30, 2020 , compared to 0.19% for the three months endedSeptember 30, 2019 . Other operating costs for the three months endedSeptember 30, 2020 were$6.6 million , as compared to$8.3 million for the three months endedSeptember 30, 2019 . We recognized a$1.2 million gain, which offset other operating costs, in the third quarter of 2020 related to the reimbursement of prior expenses paid on behalf of our affiliated mutual funds and collective investment trusts ("the Funds and CITs") upon the settlement of the Funds and CITs claim against a third party. As a percentage of revenue, other operating costs were 21% for the three months endedSeptember 30, 2020 and 24% for the three months endedSeptember 30, 2019 . 39
--------------------------------------------------------------------------------
Table of Contents
Non-Operating Income (Loss) Non-operating income for the three months endedSeptember 30, 2020 was$0.6 million , a decrease of$2.7 million , from non-operating income of$3.3 million for the three months endedSeptember 30, 2019 . The following table reflects the components of non-operating income (loss) for the three months endedSeptember 30, 2020 and 2019: Three months ended September 30, Period-to-Period 2020 2019 $ % (in thousands) Non-operating income (loss) Interest expense $ -$ (13 ) $ 13 (100 )% Interest and dividend income (1) 115 782 (667 ) (85 )% Change in liability under tax receivable agreement (2) 24 (394 ) 418 (106 )% Net gains (losses) on investments (3) 411 40 371 928 % Gain on sale of business (4) - 2,883 (2,883 ) (100 )% Total non-operating income (loss)$ 550 $ 3,298 $
(2,748 ) (83 )%
__________________________
(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 both the
three month periods ended
change in our effective tax rate during the period and the corresponding
increase in the payment of expected tax benefit under the tax receivable
agreement.
(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.
(4) The gain on sale of business during the three months ended September 30 ,2019 is due to the completion of the sale of our wholly-owned subsidiary
Provision for Income Taxes Our provision for income taxes was$1.7 million for the three months endedSeptember 30, 2020 , compared to a provision of$0.2 million for the three months endedSeptember 30, 2019 . The increase in the provision for income taxes during the current quarter compared to the third quarter of 2019 is due to the redemption and subsequent retirement of Class A units ofManning & Napier Group during the second quarter of 2020. The redemption resulted in an increase ofManning & Napier, Inc.'s ownership ofManning & Napier Group from 19.5% to 88.2%. Accordingly, a higher portion ofManning & Napier Group's earnings are subject to taxation at the C-Corporation level. 40
--------------------------------------------------------------------------------
Table of Contents
Nine Months EndedSeptember 30, 2020 Compared to Nine Months EndedSeptember 30, 2019 Assets Under Management The following table reflects changes in our AUM for the nine months endedSeptember 30, 2020 and 2019: Nine months ended September 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) 646.1 621.7 24.4 4 % Gross client outflows (1) (1,040.9 ) (1,550.7 ) 509.8 (33 )% Market appreciation (depreciation) & other (2) (219.0 ) 603.0 (822.0 ) (136 )% Ending assets under management$ 8,102.6 $ 8,374.9 $ (272.3 ) (3 )% Average AUM for period$ 7,903.8 $
8,515.5
Institutional and Intermediary (3) Beginning assets under management$ 10,763.7 $ 11,462.7 $ (699.0 ) (6 )% Gross client inflows (1) 1,169.9 1,253.1 (83.2 ) (7 )% Gross client outflows (1) (2,279.6 ) (2,782.0 ) 502.4 (18 )% Market appreciation (depreciation) & other (2) 1,488.5 2,164.5 (676.0 ) (31 )% Ending assets under management$ 11,142.5 $ 12,098.3 $ (955.8 ) (8 )% Average AUM for period$ 10,869.2 $
12,301.4
Total assets under management Beginning assets under management$ 19,480.1 $ 20,163.6 $ (683.5 ) (3 )% Gross client inflows (1) 1,816.0 1,874.8 (58.8 ) (3 )% Gross client outflows (1) (3,320.5 ) (4,332.7 ) 1,012.2 (23 )% Market appreciation (depreciation) & other (2) 1,269.5 2,767.5 (1,498.0 ) (54 )% Ending assets under management$ 19,245.1 $ 20,473.2 $ (1,228.1 ) (6 )% Average AUM for period$ 18,773.0 $ 20,816.9 ________________________
(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 $1.2 billion from $20.5 billion at September 30, 2019
to $19.2 billion at September 30, 2020 . The decrease was attributable to net
client outflows of $3.5 billion , partially offset by market appreciation of $2.3
billion . Net client outflows consisted of approximately $0.8 billion of net
outflows for wealth management and $2.7 billion for institutional and
intermediary. By portfolio, the rates of change in AUM from September 30, 2019
to September 30, 2020 consisted of a $1.2 billion , or 19% decrease in our equity
portfolio, a $19.8 million , or 0.1% decrease in our blended asset portfolio, and
a decrease of $48.7 million , or 5% in our fixed income portfolio.
We have experienced a decrease in the overall rate of outflows with gross
outflows of approximately $3.3 billion during the nine months ended
September 30, 2020 , a 23% improvement from the same period through September 30,
2019 . While we have experienced an improvement in the rate of outflows, gross
client inflows were approximately $1.8 billion during the nine months ended
September 30, 2020 , a 3% 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
41--------------------------------------------------------------------------------
Table of Contents
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$0.2 billion , or 1%, to$19.2 billion atSeptember 30, 2020 from$19.5 billion atDecember 31, 2019 was attributable to net client cash outflows of$1.5 billion , partially offset by market appreciation of$1.3 billion . Included in net client flows during the nine months endedSeptember 30, 2020 were net client outflows in wealth management of approximately$0.4 billion and institutional and intermediary of approximately$1.1 billion . The blended investment loss was 2.5% in wealth management and the blended investment gain was 13.8% in institutional and intermediary. By portfolio, our$0.2 billion AUM decrease was derived from decreases of$116.2 million , or 2%, in our equity portfolio,$105.6 million , or 1%, in our blended asset portfolio and$13.2 million , or 1%, in our fixed income portfolio. As ofSeptember 30, 2020 , the composition of our AUM was 42% in wealth management and 58% in institutional and intermediary, compared to 41% in wealth management and 59% in institutional and intermediary atSeptember 30, 2019 . The composition of our AUM across portfolios atSeptember 30, 2020 was 70% in blended assets, 25% in equity, and 5% in fixed income, compared to 65% in blended assets, 30% in equity, and 5% in fixed income as ofSeptember 30, 2019 . With regard to our wealth management channel, gross client inflows of$0.6 billion were offset by approximately$1.0 billion of gross client outflows during the nine months endedSeptember 30, 2020 . The$0.6 billion of gross client inflows included$0.5 billion into our blended asset portfolios, and less than$0.1 billion into both our equity portfolios and fixed income portfolios. Outflows during the nine months endedSeptember 30, 2020 were$1.0 billion , with 71% from blended portfolios, 19% from equity, and 10% from fixed income portfolios, respectively. The annualized separate account retention rate was 95% for the nine months endedSeptember 30, 2020 , up from 87% for the rolling twelve months endedSeptember 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$1.1 billion from our institutional and intermediary channel included gross client inflows of$1.2 billion offset by gross client outflows of$2.3 billion during the nine months endedSeptember 30, 2020 . Gross client inflows into our blended asset portfolios, represented$0.7 billion , or 61%, of institutional and intermediary gross client inflows during the nine months endedSeptember 30, 2020 . With regard to gross client outflows,$1.7 billion , or 74%, of institutional and intermediary gross client outflows were from blended asset institutional and intermediary products. 42
--------------------------------------------------------------------------------
Table of Contents
The following table sets forth our results of operations and other data for the
nine months ended
Nine months ended September 30, Period-to-Period
2020 2019 $ %
(in thousands, except share data)
Revenues
Management Fees
Wealth management $ 41,335 $ 42,913 $ (1,578 ) (4 )%
Institutional and intermediary 38,255 44,927 (6,672 ) (15 )%
Distribution and shareholder servicing 7,117 7,760 (643 ) (8 )%
Custodial services 4,639 5,258 (619 ) (12 )%
Other revenue 2,176 2,411 (235 ) (10 )%
Total revenue 93,522 103,269 (9,747 ) (9 )%
Expenses
Compensation and related costs 55,247 61,113 (5,866 ) (10 )%
Distribution, servicing and custody
expenses 7,834 9,736 (1,902 ) (20 )%
Other operating costs 21,197 25,232 (4,035 ) (16 )%
Total operating expenses 84,278 96,081 (11,803 ) (12 )%
Operating income 9,244 7,188 2,056 29 %
Non-operating income (loss)
Non-operating income (loss), net (1,087 ) 6,248 (7,335 ) (117 )%
Income before provision for income taxes 8,157 13,436 (5,279 ) (39 )%
Provision for (benefit from) income taxes (28 ) 723 (751 ) (104 )%
Net income attributable to controlling and
noncontrolling interests 8,185 12,713 (4,528 ) (36 )%
Less: net income attributable to
noncontrolling interests 3,274 10,914 (7,640 ) (70 )%
Net income attributable to Manning &
Napier, Inc. $ 4,911 $ 1,799 $ 3,112 173 %
Per Share Data
Net income per share available to Class A
common stock
Basic $ 0.30 $ 0.12
Diluted $ 0.15 $ 0.12
Weighted average shares of Class A common
stock outstanding
Basic 16,041,128 15,163,205
Diluted 48,339,759 15,466,339
Other financial and operating data
Economic income (1) $ 10,248 $ 13,220 $ (2,972 ) (22 )%
Economic net income (1) $ 8,707 $ 9,386 $ (679 ) (7 )%
Economic net income per adjusted share (1) $ 0.17 $ 0.12
Weighted average adjusted Class A common stock outstanding (1) 50,460,114 79,553,585 ________________________
(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$1.6 million , or 4%, to$41.3 million for the nine months endedSeptember 30, 2020 from$42.9 million for the nine months endedSeptember 30, 2019 . This decrease is driven primarily by a 7% decrease in our average wealth management AUM for the nine months endedSeptember 30, 2020 compared to the nine months ended 43
--------------------------------------------------------------------------------
Table of Contents
September 30, 2019 . As ofSeptember 30, 2020 , the concentration of assets in our wealth management channel was 91% blended assets, 6% equity and 3% fixed income, compared to 79% blended assets, 18% equity and 3% fixed income as ofSeptember 30, 2019 . Institutional and intermediary revenue decreased by$6.7 million , or 15%, to$38.3 million for the nine months endedSeptember 30, 2020 from$44.9 million for the nine months endedSeptember 30, 2019 . This decrease is driven primarily by a 12%, or$1.4 billion , decrease in average institutional and intermediary AUM for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 . As ofSeptember 30, 2020 the concentration of assets in our institutional and intermediary channel was 54% blended assets, 39% equity and 7% fixed income, compared to 56% blended assets, 38% equity and 6% fixed income as ofSeptember 30, 2019 . Distribution and shareholder servicing revenue decreased by$0.6 million , or 8%, to$7.1 million for the nine months endedSeptember 30, 2020 from$7.8 million for the nine months endedSeptember 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$0.6 million , or 12%, to$4.6 million for the nine months endedSeptember 30, 2020 from$5.3 million for the nine months endedSeptember 30, 2019 . The decrease primarily relates to decreases in our collective trust AUM. Operating Expenses Our operating expenses decreased by$11.8 million , or 12%, to$84.3 million for the nine months endedSeptember 30, 2020 from$96.1 million for the nine months endedSeptember 30, 2019 . Compensation and related costs decreased by$5.9 million , or 10%, to$55.2 million for the nine months endedSeptember 30, 2020 from$61.1 million for the nine months endedSeptember 30, 2019 . This change was primarily driven by a decrease in our workforce, coupled with a reduction in employee severance costs. This decrease was partially offset by an increase in the estimated incentive compensation for our investment team resulting from investment performance. When considered as a percentage of revenue, compensation and related costs was 59% for both the nine months endedSeptember 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$1.9 million , or 20%, to$7.8 million for the nine months endedSeptember 30, 2020 from$9.7 million for the nine months endedSeptember 30, 2019 . The decrease was generally attributable to a 13% decrease in mutual fund and collective investment trust average AUM for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 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 0.19% for the nine months endedSeptember 30, 2020 , compared to 0.21% for the nine months endedSeptember 30, 2019 . Other operating costs decreased by$4.0 million , or 16%, to$21.2 million for the nine months endedSeptember 30, 2020 from$25.2 million for the nine months endedSeptember 30, 2019 . This decrease was driven primarily by a$1.2 million gain recognized during the third quarter of 2020, which offset other operating costs, related to the reimbursement of prior expenses paid on behalf the Funds and CITs upon the settlement of their claim against a third party. This gain was coupled with an overall reduction in operational costs resulting from COVID-19, including a decrease in travel and facility costs. As a percentage of revenue, other operating costs for the nine months endedSeptember 30, 2020 was 23% compared to 24% for nine months endedSeptember 30, 2019 . 44
--------------------------------------------------------------------------------
Table of Contents
Non-Operating Income (Loss) Non-operating loss for the nine months endedSeptember 30, 2020 was$1.1 million , a decrease of$7.3 million , from non-operating income of$6.2 million for the nine months endedSeptember 30, 2019 . The following table reflects the components of non-operating income (loss) for the nine months endedSeptember 30, 2020 and 2019: Nine months ended September 30, Period-to-Period 2020 2019 $ % (in thousands) Non-operating income (loss) Interest expense $ (5 ) $ (26 )$ 21 (81 )% Interest and dividend income (1) 835 2,428 (1,593 ) (66 )% Change in liability under tax receivable agreement (2) (1,912 ) (199 ) (1,713 ) 861 % Net gains (losses) on investments (3) (5 ) 1,162 (1,167 ) (100 )% Gain on sale of business (4) -$ 2,883 $ (2,883 ) (100 )% Total non-operating income$ (1,087 ) $
6,248
__________________________
(1) The decrease in interest and dividend income for the nine 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 nine
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 nine months ended
September 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.
(4) The gain on sale of business during the nine months ended September 30 ,2019 is due to the completion of the sale of our wholly-owned subsidiary
Provision for Income Taxes We recognized a benefit from income taxes of less than$0.1 million for the nine months endedSeptember 30, 2020 , compared to a provision for income taxes of$0.7 million for the nine months endedSeptember 30, 2019 . The change is attributed to the enactment of the CARES Act which includes, among other things, the elimination of certain restrictions on net operating losses. As a result, we recognized an income tax benefit related to the favorable rate applied to our net operating losses. This decrease is partially offset by a higher portion ofManning & Napier Group's earnings subject to taxation at the C-Corporation level due toManning & Napier Inc.'s increased ownership ofManning & Napier Group as a result of the redemption completed onMay 11, 2020 . 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 toJanuary 1, 2019 , presents a non-GAAP financial measure of the controlling and non-controlling interests ofManning & 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. 45
--------------------------------------------------------------------------------
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 39.3% and 29.0% for the three months endedSeptember 30, 2020 and 2019, respectively, and 15.0% and 29.0% for the nine months endedSeptember 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 September 30, Nine months ended September 30, 2020 2019 2020 2019 (in thousands, except share data) Economic income (loss) (Non-GAAP) $ 5,219$ 5,177 $ 10,248$ 13,220 Economic net income (Non-GAAP) $ 3,170$ 3,676 $ 8,707$ 9,386 Economic net income per adjusted share (Non-GAAP) $ 0.14$ 0.05 $ 0.17$ 0.12 Weighted average adjusted Class A common stock outstanding (Non-GAAP) 22,395,521 79,033,403 50,460,114 79,553,585 46
--------------------------------------------------------------------------------
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 September 30, Nine months ended September 30,
2020 2019 2020 2019
(in thousands, except share data)
Net income attributable to Manning &
Napier, Inc. $ 2,507 $ 824 $ 4,911 $ 1,799
Add back: Net income (loss)
attributable to noncontrolling
interests 560 5,753 3,274 10,914
Add back: Provision for (benefit
from) income taxes 1,738 150 (28 ) 723
Income (loss) before provision for
(benefit from) income taxes $ 4,805 $ 6,727 $ 8,157 $ 13,436
Add back: Strategic restructuring and
transaction costs, net (1) 414 (1,550 ) 2,091 (216 )
Economic income (loss) (Non-GAAP) $ 5,219 5,177 10,248 13,220
Adjusted income taxes (Non-GAAP) 2,049 1,501 1,541 3,834
Economic net income (Non-GAAP) $ 3,170
Weighted average shares of Class A common stock outstanding - Basic 16,176,280 15,290,595 16,041,128 15,163,205 Assumed vesting, conversion or exchange of: Weighted averageManning & Napier Group , LLC units outstanding (noncontrolling interest) 2,021,781 62,034,200 30,713,850 62,617,270 Weighted average unvested restricted stock units and share awards 3,562,979 1,708,608 3,306,941 1,773,110 Weighted average vested stock options 634,481 - 398,195 - Weighted average adjusted shares (Non-GAAP) 22,395,521 79,033,403 50,460,114 79,553,585 Economic net income per adjusted share (Non-GAAP) $ 0.14$ 0.05 $ 0.17 $ 0.12 __________________________
(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 September
30 ,
Nine months ended
2020 2019 2020 2019
(in thousands)
Compensation and related costs $ 63
903 $ 1,787
Other operating costs 351 656 1,188 880
Gain on sale of business - (2,883 ) - (2,883 )
Total strategic restructuring and
transaction costs $ 414 $ (1,550 ) $ 2,091 $ (216 )
47--------------------------------------------------------------------------------
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 atSeptember 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 ofSeptember 30, 2020 andDecember 31, 2019 : September 30, 2020 December 31, 2019 (in thousands) Cash and cash equivalents $ 52,175 $ 67,088 Accounts receivable $ 10,866 $ 10,182 Investment securities $ 23,439 $ 90,467 Amounts payable under tax receivable agreement (1) $ 19,433 $ 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
our 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 and 2019 to prior years and claim refunds when the federal corporate tax rate was 34% compared to the current statutory rate of 21%. During the nine months endedSeptember 30, 2020 , we recognized an income tax benefit of approximately$2.3 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 ofSeptember 30, 2020 , we have recorded an estimated income tax refund of approximately$4.3 million within our prepaid expenses and other assets, of which we expect to pay out 85% under our tax receivable agreement. 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 ofSeptember 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 Topic 740, Income Taxes. 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 ofSeptember 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 annual exchange process, such units may be tendered for exchange or redemption. OnMarch 15, 2020 , certain legacy shareholders andWilliam Manning , the former Chairman of our Board of Directors, tendered 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 annual exchange process. The independent directors, on behalf of the Company, decided to settle the transaction 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 sale of investment 48
--------------------------------------------------------------------------------
Table of Contents
securities. Subsequent to the redemption, 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$75.6 million in cash and investment securities on hand as ofSeptember 30, 2020 , we expect that we have sufficient liquidity available to meet our needs for the foreseeable future. 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 nine months endedSeptember 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, and purchases of property and equipment. Financing activities consist primarily of distributions to noncontrolling interests, dividends paid on our Class A common stock, payment of shares withheld to satisfy withholding requirements and purchases of Class A units held by noncontrolling interests ofManning & Napier Group . Nine months endedSeptember 30, 2020 2019 (in thousands)
Net cash provided by operating activities $ 11,199
66,597 29,289
Net cash used in financing activities (92,709 )
(9,209 )
Net change in cash and cash equivalents
Nine Months EndedSeptember 30, 2020 Compared to Nine Months EndedSeptember 30, 2019 Operating Activities Operating activities provided$11.2 million and$8.7 million of net cash for the nine months endedSeptember 30, 2020 and 2019, respectively. This overall$2.5 million increase in net cash provided in operating activities for the nine months endedSeptember 30, 2020 compared to 2019 was attributed to changes in operating assets and operating liabilities of approximately$1.7 million driven by the timing of payments, including compensation and benefits and other accrued costs, partially offset by increased implementation costs during the nine months endedSeptember 30, 2020 related to our technology enhancements. The increase in net cash provided was also attributed to an increase in net income after adjustment for non-cash items of approximately$0.8 million during the nine months endedSeptember 30, 2020 compared to the same period of 2019. Investing Activities Investing activities provided$66.6 million and$29.3 million of net cash for the nine months endedSeptember 30, 2020 and 2019, respectively. This change was driven by an increase in cash from investing activities of$38.9 million due to our funding of and timing of activity within our investment securities, primarily related to the sale of investment securities in order facilitate the redemption of Class A units during the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 2020 , we received approximately$64.2 million , net, from the purchase and sale of certain securities for cash management purposes compared to$28.2 million in the same period of 2019. In addition, we received approximately$2.4 million and less than$0.1 million , net from seeding and redemption activity of certain seeded portfolios in the nine months endedSeptember 30, 2020 and 2019, respectively. Our purchases of property and equipment was approximately$0.2 million during the nine months endedSeptember 30, 2020 compared to$1.7 million in the same period of 2019. Financing Activities Financing activities used$92.7 million and$9.2 million of net cash for the nine months endedSeptember 30, 2020 and 2019, respectively. This overall$83.5 million increase in net cash used in financing activities was primarily the result of an increase in cash used for the redemption of Class A units ofManning & Napier Group pursuant to the annual exchange process, existing since 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 compared to the prior year was due to a high number of units redeemed in 2020. The overall increase in cash used for financing activities was partially offset by a reduction in distributions to noncontrolling interests of$4.9 million . This decrease was due to lower net income during the nine months endedSeptember 30, 2020 compared to the same period in 2019, coupled 49
--------------------------------------------------------------------------------
Table of Contents
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%. In addition, during the nine months endedSeptember 30, 2020 we used approximately$1.0 million for payment of shares withheld to satisfy withholding requirements on vested equity awards, compared to approximately$0.1 million during the same period in 2019. 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 unit holders. 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 . InOctober 2020 , the Board of Directors approved a$1.3 million distribution fromManning & Napier Group toManning & Napier Inc. and the noncontrolling interests ofManning & Napier Group , of which approximately$0.1 million was paid to the noncontrolling interests ofManning & Napier Group . Off Balance Sheet Arrangements We did not have any off-balance sheet arrangements as ofSeptember 30, 2020 . Item 3. Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," we are not required to provide this information. 50
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
