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," "would," "should," "could," "intends," "likely," "outlook," "potential," 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 and this Quarterly Report on Form 10-Q, which include, without limitation: the delay in or failure to consummate the merger withCallodine Group, LLC ("Callodine"); changes in our business related to the merger with Callodine; changes in securities or financial markets or general economic conditions, including as a result of the COVID-19 pandemic or political instability and uncertainty, such as the Russian invasion ofUkraine ; inflation; changes in interest rates; a decline in the performance of our products; client sales and redemption activity; any loss of an executive officer or key personnel; 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 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 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, including life cycle funds.
Impact of COVID-19
We are continuing to address 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.
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 the "Risk Factors" section of our Annual Report on Form 10-K. Market DevelopmentsU.S. equity markets started the year from a place of all-time highs before stumbling out of the gate and hitting correction territory in early-February. Since then, further concerns regarding rising inflation, rapidly tightening financial conditions, theRussia -Ukraine invasion, energy prices, and more, have all weighed on global financial markets. Domestic equity markets fell into a bear market during the quarter, and they remain significantly below highs set at the beginning of the year. The weakness has been particularly pronounced in growth-style areas, reversing a small portion of what had been a lengthy, multi-year style trend of growth over value. Overall market valuations have softened due to the market weakness, but expectations for forward earnings growth remain excessively high in our view. We believe the economy is likely to weaken from here, and we do not yet see our outlook as being reflected in market prices at this point in time. Fixed income performance remained significantly challenged during the quarter as short- to intermediate-term rates continued their rapid ascent, inverting segments of the yield curve in the process. Additionally, inflation is adding further pressure on fixed income as it continues to measure well above levels of recent cycles. In response, theFederal Reserve has remained aggressive in its pace of interest rate hikes, and they have indicated a willingness to do what needs to be done to slow inflation. We believe that the odds are rising that theFederal Reserve tightens policy too far, potentially choking off too much demand and tipping the economy into a recession along the way. We believe theU.S. economy has progressed into a late cycle phase, representing a time when risks are particularly elevated for investors. We will continue monitoring the wide variety of key economic indicators that inform our outlook, including supply chains constraints, wage growth data as it pertains to inflation, corporate credit spreads, the trajectory of central bank policy, and more. The building risks and pressures outlined above, paired with the current state of the market and economy, have led our outlook to become cautious, and we are de-risking where applicable. 22 -------------------------------------------------------------------------------- Table of Contents Business Updates
On
Pursuant to the Merger Agreement, each outstanding share of common stock of the Company andManning & Napier Group Holdings outstanding units will be converted into the right to receive from Callodine$12.85 in cash. The Company's shareholders approved the Merger onAugust 3, 2022 . The proposed acquisition is expected to close in the third quarter of 2022, contingent upon customary closing conditions. For additional information about the proposed Merger and the Merger Agreement, please see the Company's Current Report on Form 8-K filed with theU.S. Securities and Exchange Commission onApril 1, 2022 .
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 primarily 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. 23 -------------------------------------------------------------------------------- Table of Contents Assets Under Management Our sales efforts distinctly separate the Wealth Management 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. The table below reflects the estimated composition of our assets under management ("AUM") as ofJune 30, 2022 , by sales channel and investment portfolio: June 30, 2022 Blended Asset Equity Fixed Income Total (dollars in millions) Total AUM Wealth Management$ 7,108.7 $ 801.7 $ 220.5 $ 8,130.9 Institutional and Intermediary 5,516.1 3,867.1 940.8 10,324.0 Total$ 12,624.8 $ 4,668.8 $ 1,161.3 $ 18,454.9 Percentage of AUM Wealth Management 39 % 4 % 1 % 44 % Institutional and Intermediary 30 % 21 % 5 % 56 % Total 69 % 25 % 6 % 100 % Percentage of portfolio by channel Wealth Management 56 % 17 % 19 % 44 % Institutional and Intermediary 44 % 83 % 81 % 56 % Total 100 % 100 % 100 % 100 % Percentage of channel by portfolio Wealth Management 87 % 10 % 3 % 100 % Institutional and Intermediary 54 % 37 % 9 % 100 % Our wealth management channel represented 44% of our total AUM as ofJune 30, 2022 . Blended portfolios are the most significant portion of wealth management assets, representing 87%, while equity and fixed income portfolios represent 10% and 3%, respectively.
Our institutional and intermediary channel represented 56% of our total AUM as
of
As ofJune 30, 2022 , blended portfolios account for 69% of our total AUM at$12.6 billion , a 11% decrease fromMarch 31, 2022 when blended assets were$14.1 billion . Blended portfolio AUM is split across distribution channels, with 56% in wealth management and 44% in institutional and intermediary. Equity portfolios account for 25% of our total AUM, at$4.7 billion , a 14% decrease fromMarch 31, 2022 when equity portfolios were at$5.5 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 6% of total AUM at$1.2 billion , a 7% increase fromMarch 31, 2022 . The majority of fixed income assets come through the institutional and intermediary channel at 81%, and 19% in the wealth management channel. During the six months endedJune 30, 2022 , our wealth management sales channel contributed 28% of our total gross client inflows, while our institutional and intermediary channel contributed 72%. Of the$1.5 billion in gross client inflows, blended asset portfolios represented 48%, while equity and fixed income portfolios represented 29% and 23%, respectively. 24 -------------------------------------------------------------------------------- Table of Contents Results of Operations
Below is a discussion of our consolidated results of operations for the three
and six months ended
Components of Results of Operations
Overview
One of the most significant factors influencing net flows and AUM is the investment performance of our various strategies. As an active manager, it is typical for our investment strategies to exhibit portfolio positioning that is notably divergent from benchmarks and common market indices. We believe this is a strength of our investment approach, although it can cause substantial performance deviations, both positive and negative, versus common benchmarks. In general, our investment processes have a preference for risk management, focusing heavily on fundamentals and valuations. Historically, we have tended to provide a degree of downside protection in adverse markets, while having participated somewhat less than fully in bull markets. Broadly speaking, we expect our investment approach to reduce volatility and create a smoother performance pattern over time, and we believe these characteristics are desirable and an attractive differentiator in our industry. As a result, the overall performance of our suite of investment strategies often differs from many others in the industry, potentially causing the results of our operations to, at times, also diverge.
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.
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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 (4)
Wealth Institutional and Institutional and
Management Intermediary Total Wealth Management Intermediary Total
(in millions)
As of March 31, 2022 $ 9,174.8 $ 11,474.4 $ 20,649.2 44 % 56 % 100 %
Gross client inflows (1) 173.7 572.3 746.0
Gross client outflows (1) (389.5) (489.4) (878.9)
Market appreciation/(depreciation) & other (2) (828.1) (1,233.3) (2,061.4)
As of June 30, 2022 $ 8,130.9 $ 10,324.0 $ 18,454.9 44 % 56 % 100 %
Average AUM for period $ 8,617.5 $ 10,904.4 $ 19,521.9
As of March 31, 2021 $ 9,217.5 $ 11,922.3 $ 21,139.8 44 % 56 % 100 %
Gross client inflows (1) 216.6 570.7 787.3
Gross client outflows (1) (295.2) (553.8) (849.0)
Market appreciation/(depreciation) & other (2) 474.6 708.8 1,183.4
As of June 30, 2021 $ 9,613.5 $ 12,648.0 $ 22,261.5 43 % 57 % 100 %
Average AUM for period $ 9,467.4 $ 12,373.0 $ 21,840.4
Wealth Institutional and Institutional and
Management Intermediary Total Wealth Management Intermediary Total
(in millions)
As of December 31, 2021 $ 9,776.9 $ 12,765.7 $ 22,542.6 43 % 57 % 100 %
Gross client inflows (1) 415.7 1,058.7 1,474.4
Gross client outflows (1) (719.5) (1,497.2) (2,216.7)
Market appreciation/(depreciation) & other (2) (1,342.2) (2,003.2) (3,345.4)
As of June 30, 2022 $ 8,130.9 $ 10,324.0 $ 18,454.9 44 % 56 % 100 %
Average AUM for period $ 8,974.6 $ 11,420.0 $ 20,394.6
As of December 31, 2020 $ 8,906.4 $ 11,213.0 $ 20,119.4 44 % 56 % 100 %
Gross client inflows (1) 441.4 972.3 1,413.7
Gross client outflows (1) (600.5) (1,007.3) (1,607.8)
Market appreciation/(depreciation) & other (2)(3) 866.2 1,470.0 2,336.2
As of June 30, 2021 $ 9,613.5 $ 12,648.0 $ 22,261.5 43 % 57 % 100 %
Average AUM for period $ 9,232.0 $ 11,929.7 $ 21,161.7
________________________
(1)Transfers of client assets between portfolios are included in gross client
inflows and gross client outflows.
(2)Market appreciation/(depreciation) and other includes investment
gains/(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)Beginning in March 2021 , AUM includes assets associated with our
model-delivery business, previously classified as assets under advisement. These
assets totaled $429.9 million at December 31, 2020 , comprised of $62.5 million
in our wealth management channel and $367.4 million in our institutional and
intermediary channel. These amounts are included above in market appreciation
(depreciation) and other for the six months ended June 30, 2021 .
(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.
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The following table reflects the indicated components of our AUM for our
portfolios for the three and six months ended
Portfolio
Blended Fixed Blended Fixed
Asset Equity Income Total Asset Equity Income Total
(in millions)
As of March 31, 2022 $ 14,112.3 $ 5,452.0 $ 1,084.9 $ 20,649.2 69 % 26 % 5 % 100 %
Gross client inflows (1) 286.4 248.2 211.4 746.0
Gross client outflows (1) (504.5) (266.8) (107.6) (878.9)
Market appreciation/(depreciation) & other (2) (1,269.4) (764.6) (27.4) (2,061.4)
As of June 30, 2022 $ 12,624.8 $ 4,668.8 $ 1,161.3 $ 18,454.9 69 % 25 % 6 % 100 %
Average AUM for period $ 13,331.2 $ 5,058.1 $ 1,132.6 $ 19,521.9
As of March 31, 2021 $ 14,138.5 $ 5,982.6 $ 1,018.7 $ 21,139.8 67 % 28 % 5 % 100 %
Gross client inflows (1) 543.7 183.2 60.4 787.3
Gross client outflows (1) (572.5) (242.7) (33.8) (849.0)
Market appreciation/(depreciation) & other (2) 758.9 410.8 13.7 1,183.4
As of June 30, 2021 $ 14,868.6 $ 6,333.9 $ 1,059.0 $ 22,261.5 67 % 28 % 5 % 100 %
Average AUM for period $ 14,562.2 $ 6,240.3 $ 1,037.9 $ 21,840.4
Blended Fixed Blended Fixed
Asset Equity Income Total Asset Equity Income Total
(in millions)
As of December 31, 2021 $ 15,074.1 $ 6,374.4 $ 1,094.1 $ 22,542.6 67 % 28 % 5 % 100 %
Gross client inflows (1) 712.4 424.6 337.4 1,474.4
Gross client outflows (1) (1,068.9) (947.4) (200.4) (2,216.7)
Market appreciation/(depreciation) & other (2) (2,092.8) (1,182.8) (69.8) (3,345.4)
As of June 30, 2022 $ 12,624.8 $ 4,668.8 $ 1,161.3 $ 18,454.9 69 % 25 % 6 % 100 %
Average AUM for period $ 13,863.0 $ 5,419.0 $ 1,112.6 $ 20,394.6
As of December 31, 2020 $ 13,558.8 $ 5,545.3 $ 1,015.3 $ 20,119.4 67 % 28 % 5 % 100 %
Gross client inflows (1) 923.5 370.8 119.4 1,413.7
Gross client outflows (1) (1,073.7) (442.8) (91.3) (1,607.8)
Market appreciation/(depreciation) & other (2)(3) 1,460.0 860.6 15.6 2,336.2
As of June 30, 2021 $ 14,868.6 $ 6,333.9 $ 1,059.0 $ 22,261.5 67 % 28 % 5 % 100 %
Average AUM for period $ 14,159.4 $
5,967.4
________________________
(1)Transfers of client assets between portfolios are included in gross client inflows and gross client outflows. (2)Market appreciation/(depreciation) and other includes investment gains/(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)Beginning inMarch 2021 , AUM includes assets associated with our model-delivery business, previously classified as assets under advisement. These assets totaled$429.9 million atDecember 31, 2020 , comprised of$281.3 million in our blended asset portfolio and$148.6 million in our equity portfolio. These amounts are included above in market appreciation (depreciation) and other for the six months endedJune 30, 2021 . 27 -------------------------------------------------------------------------------- Table of Contents The following table summarizes the annualized returns for several of our key investment strategies and relative benchmarks. Since inception and over long-term periods, we believe these strategies have earned attractive returns on both an absolute and relative basis. These strategies are used across separate account, mutual fund and collective investment trust vehicles, and represent approximately 80% of our AUM as ofJune 30, 2022 . AUM as of June Annualized Returns as of June 30, 2022 (1) 30, 2022 Key Strategies (in millions) Inception Date One Year Three Year Five Year Ten Year Inception Long-Term Growth (30%-80% Equity Exposure)$ 5,119.4 1/1/1973 (11.6)% 6.5% 6.6% 7.1% 9.3% Blended Index (2) (12.9)% 4.0% 5.3% 6.6% 8.5% Core Non-U.S. Equity$ 390.5 10/1/1996 (26.8)% 4.1% 3.7% 5.0% 6.8% Benchmark: ACWIxUS Index (19.4)% 1.4% 2.5% 4.8% 4.6% Growth with Reduced Volatility$ 2,552.9 1/1/1973 (10.7)% 5.1% 5.3% 5.6% 8.4% (20%-60% Equity Exposure) Blended Index (3) (11.4)% 2.9% 4.2% 5.3% 8.0% Equity-Oriented (70%-100% Equity Exposure)$ 1,346.8 1/1/1993 (15.3)% 8.6% 9.3% 9.8% 9.8% Blended Benchmark: 65% Russell 3000 / 20% ACWIxUS/ (14.3)% 6.7% 7.7% 9.5% 8.4%
15% Bloomberg
(11.9)% 7.8% 7.8% 8.3% 7.1%
Blended Benchmark: 53% Russell 3000 / 17% ACWIxUS/ (13.6)% 5.4% 6.6% 8.1% 5.5%
30% Bloomberg
(15.7)% 9.1% 10.3% 11.4% 10.9%
Blended Benchmark: 80% Russell 3000 / 20% ACWIxUS (15.0)% 8.1% 9.0% 11.0% 9.0%
Core U.S. Equity $ 263.4 7/1/2000 (12.1)% 12.0% 12.8% 13.0% 8.6%
Benchmark: Russell 3000 (13.9)% 9.8% 10.6% 12.6% 6.6%
Conservative Growth (5%-35% Equity Exposure)
(8.6)% 2.6% 3.2% 3.4% 5.5%
Blended Benchmark: 15% Russell 3000 / 5% ACWIxUS / (9.3)% 1.3% 2.6% 3.3% 5.6%
80% Bloomberg U.S. Intermediate Aggregate Bond
Aggregate Fixed Income $ 172.1 1/1/1984 (8.8)% 0.2% 1.4% 1.8% 6.5%
Benchmark: Bloomberg U.S. Aggregate Bond (10.3)% (0.9)% 0.9% 1.5% 6.4%
Rainier International Small Cap $ 938.8 3/28/2012 (28.4)% 4.9% 5.8% 10.3% 9.7%
Benchmark: MSCI ACWIxUS Small Cap Index (22.5)% 2.9% 2.6% 6.2% 5.1%
Disciplined Value US $ 1,186.8 1/1/2013 (5.8)% 7.0% 8.5% 11.1% 12.1%
Benchmark: Russell 1000 Value (6.8)% 6.9% 7.2% 10.5% 11.9%
__________________________
(1)Key investment strategy returns are presented net of fees. Benchmark returns
do not reflect any fees or expenses.
(2)Benchmark shown uses the 55/45 Blended Index from 01/01/1973-12/31/1987 and
the 40/15/45 Blended Index from 01/01/1988- 6/30/2022 . The 55/45 Blended Index
is represented by 55% S&P 500 Total Return Index ("S&P 500") and 45% Bloomberg
U.S. Government /Credit Bond Index ("BGCB"). The 40/15/45 Blended Index is 40%
Russell 3000 Index ("Russell 3000"), 15% MSCI ACWI ex USA Index ("ACWxUS"), and
45% Bloomberg U.S. Aggregate Bond Index ("BAB").
(3)Benchmark shown uses the 40/60 Blended Index from 01/01/1973-12/31/1987 , the
30/10/60 Blended Index from 01/01/1988-12/31/2019 , and the 30/10/30/30 Blended
Index from 01/01/2020 to 6/30/2022 . The 40/60 Blended Index is represented by
40% S&P 500 and 60% BGCB. The 30/10/60 Blended Index is represented 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% Intermediate
Aggregate Bond Index.
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.
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We serve as the investment adviser for Manning & Napier Fund, Inc., Exeter Trust
Company Collective Investment Trusts and Rainier 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 affiliated New Hampshire -chartered trust
company and Rainier Multiple Investment Trust sponsor collective investment
trusts for qualified retirement plans, including 401(k) plans. These mutual
funds and collective investment trusts comprised $5.1 billion , or 28%, of our
AUM as of June 30, 2022 . MNA and Rainier also serve as the investment advisor to
all of our separately managed accounts, managing $13.3 billion , or 72%, of our
AUM as of June 30, 2022 , including assets managed as a sub-advisor to pooled
investment vehicles. For the period ended June 30, 2022 approximately 98% of our
revenue was earned from clients located in the 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 by
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, the strength of our balance sheet has historically provided us the flexibility to make the expenditures necessary 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. 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 team considers 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 team will 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.
•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
& 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 from U.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 from U.S. federal and state and local income taxes on their earnings and
losses, respectively.
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Noncontrolling Interests
Manning & Napier, Inc. holds an economic interest of approximately 97.8% in
Manning & Napier Group as of June 30, 2022 and, as managing member, controls all
of the business and affairs of Manning & Napier Group . As a result, the Company
consolidates the financial results of Manning & 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 in Manning & 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 ended
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, 2021 together with the consolidated financial statements and related notes and the other financial information that appear elsewhere in this report. 30
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Three Months Ended
Assets Under Management
The following table reflects changes in our AUM for the three months endedJune 30, 2022 and 2021: Three months ended June 30, Period-to-Period 2022 2021 $ % (in millions) Wealth Management (3) Beginning assets under management$ 9,174.8 $ 9,217.5 $ (42.7) - % Gross client inflows (1) 173.7 216.6 (42.9) (20) % Gross client outflows (1) (389.5) (295.2) (94.3) 32 % Market appreciation (depreciation) & other (2) (828.1) 474.6 (1,302.7) (274) % Ending assets under management$ 8,130.9 $ 9,613.5 $ (1,482.6) (15) % Average AUM for period$ 8,617.5 $ 9,467.4 (849.9) (9) % Institutional and Intermediary (3) Beginning assets under management$ 11,474.4 $ 11,922.3 $ (447.9) (4) % Gross client inflows (1) 572.3 570.7 1.6 - % Gross client outflows (1) (489.4) (553.8) 64.4 (12) % Market appreciation (depreciation) & other (2) (1,233.3) 708.8 (1,942.1) (274) % Ending assets under management$ 10,324.0 $ 12,648.0 $ (2,324.0) (18) % Average AUM for period$ 10,904.4 $ 12,373.0 $ (1,468.6) (12) % Total assets under management Beginning assets under management$ 20,649.2 $ 21,139.8 $ (490.6) (2) % Gross client inflows (1) 746.0 787.3 (41.3) (5) % Gross client outflows (1) (878.9) (849.0) (29.9) 4 % Market appreciation (depreciation) & other (2) (2,061.4) 1,183.4 (3,244.8) (274) % Ending assets under management$ 18,454.9 $ 22,261.5 $ (3,806.6) (17) % Average AUM for period$ 19,521.9 $ 21,840.4 $ (2,318.5) (11) % ________________________ (1)Transfers of client assets between portfolios are included in gross client inflows and gross client outflows. (2)Market appreciation/(depreciation) and other includes investment gains/(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$3.8 billion from$22.3 billion atJune 30, 2021 to$18.5 billion atJune 30, 2022 . The decrease was attributable to market depreciation of$2.6 billion and net client outflows of$1.2 billion . Net client outflows consisted of approximately$0.4 billion of net outflows for wealth management and$0.8 billion for institutional and intermediary. By portfolio, the rates of change in AUM fromJune 30, 2021 toJune 30, 2022 consisted of a$1.7 billion , or 26% decrease in our equity portfolio, a$2.2 billion , or 15% decrease in our blended asset portfolio, and an increase of approximately$102.3 million , or 10% in our fixed income portfolio. We have experienced a slight increase in the overall rate of outflows with gross outflows of approximately$0.9 billion during the quarter endedJune 30, 2022 , a 4% increase from the quarter endedJune 30, 2021 . Gross outflows annualized as a percentage of our AUM, or turnover rate, for the three months endedJune 30, 2022 was 17%
Gross client inflows were approximately
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The total AUM decrease of approximately $2.2 billion , to $18.5 billion at
June 30, 2022 from $20.6 billion at March 31, 2022 was attributable to market
depreciation of $2.1 billion , and net client outflows of $0.1 billion . Net
client outflows consisted of $215.8 million for wealth management while net
client inflows in institutional and intermediary were $82.9 million . The blended
investment loss was 9.0% in wealth management accounts and 10.7% in
institutional and intermediary. By portfolio in the period, our AUM decreased by
$1.5 billion in our blended asset portfolio and $0.8 billion in our equity
portfolio, and increased $0.1 billion in our fixed income portfolio.
As of June 30, 2022 , the composition of our AUM was 44% in wealth management and
56% in institutional and intermediary, compared to 43% in wealth management and
57% in institutional and intermediary at June 30, 2021 . The composition of our
AUM across portfolios at June 30, 2022 was 69% in blended assets, 25% in equity,
and 6% in fixed income, compared to 67% in blended assets, 28% in equity, 5% in
fixed income at June 30 , 2021.For our wealth management channel, gross client
inflows of $0.2 billion were offset by $0.4 billion of gross client outflows
during the three months ended June 30, 2022 . Gross client inflows include
approximately $0.1 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 $0.4 billion , or $0.3 billion from blended portfolios, and less
than $0.1 billion from both equity and fixed income portfolios.
Gross client inflows of $0.6 billion overcame the gross client outflows of $0.5
billion within our institutional and intermediary channel during the three
months ended June 30, 2022 . Gross client inflows include approximately $0.2
billion into our blended asset, equity, and fixed income portfolios
respectively. With regard to gross client outflows, $0.2 billion , or 43% was
from our blended asset portfolios, $0.2 billion or 41% was from our equity
portfolios, and less than $0.1 billion , or 15% was from our fixed income
portfolios.
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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
2022 2021 $ %
(in thousands, except share data)
Revenues
Investment management fees $ 29,292 $ 31,252 $ (1,960) (6) %
Distribution and shareholder servicing 1,945 2,236 (291) (13) %
Custodial services 1,588 1,721 (133) (8) %
Other revenue 972 868 104 12 %
Total revenue 33,797 36,077 (2,280) (6) %
Expenses
Compensation and related costs 14,542 18,347 (3,805) (21) %
Distribution, servicing and custody expenses 2,177 2,497 (320) (13) %
Other operating costs 9,973 7,463 2,510 34 %
Total operating expenses 26,692 28,307 (1,615) (6) %
Operating income 7,105 7,770 (665) (9) %
Non-operating income (loss)
Non-operating income (loss), net (2,601) 256 (2,857) (1,116) %
Income before provision for income taxes 4,504 8,026 (3,522) (44) %
Provision for income taxes 2,064 1,285 779 61 %
Net income attributable to controlling and
noncontrolling interests 2,440 6,741 (4,301) (64) %
Less: net income attributable to noncontrolling
interests 96 816 (720) (88) %
Net income attributable to
$ 5,925 $ (3,581) (60) % Per Share Data Net income per share available to Class A common stock Basic $ 0.12$ 0.35 Diluted $ 0.11$ 0.29 Weighted average shares of Class A common stock outstanding Basic 19,124,332 16,956,265 Diluted 21,833,563 20,314,285 Other financial and operating data Adjusted EBITDA (1)$ 5,208 $ 8,674 _______________________ (1)See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Supplemental Non-GAAP Financial Information" forManning & Napier's reasons for including these measures not calculated in accordance with accounting principles generally accepted inthe 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.
Revenues
Our total investment management fee revenue decreased by$2.0 million , or 6%, to$29.3 million for the three months endedJune 30, 2022 from$31.3 million for the three months endedJune 30, 2021 . This decrease was driven primarily by a 10.6% decrease in our average AUM to$19.5 billion for the three months endedJune 30, 2022 from$21.8 billion for the three months endedJune 30, 2021 . Investment management fee revenue and average AUM decreased quarter over quarter within each of our sales channels as discussed below. 33 -------------------------------------------------------------------------------- Table of Contents For our wealth management sales channel, investment management fee revenue decreased by$0.5 million , or 3%, to$15.7 million for the three months endedJune 30, 2022 from$16.1 million for the three months endedJune 30, 2021 . This decrease was driven primarily by a 9%, or$0.8 billion , decrease in our average wealth management AUM for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . As ofJune 30, 2022 and 2021 the concentration of investments in our wealth management assets were 87% blended assets, 10% equity and 3% fixed income. For our institutional and intermediary sales channel, investment management fee revenue decreased by$1.5 million , or 10%, to$13.6 million for the three months endedJune 30, 2022 from$15.1 million for the three months endedJune 30, 2021 . This decrease was driven primarily by a 12%, or$1.5 billion , decrease in our average institutional and intermediary AUM for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . As ofJune 30, 2022 , the concentration of assets in our institutional and intermediary channel was 54% blended assets, 37% equity and 9% fixed income, compared to 52% blended assets, 42% equity and 6% fixed income as ofJune 30, 2021 . Distribution and shareholder servicing revenue decreased by$0.3 million , or 13%, to$1.9 million for the three months endedJune 30, 2022 from$2.2 million for the three months endedJune 30, 2021 . This decrease was driven by a change in business mix within our mutual funds as well as a decrease in average mutual fund assets. Custodial services decreased by$0.1 million , or 8%, to$1.6 million for the three months endedJune 30, 2022 from$1.7 million for the three months endedJune 30, 2021 , in line with changes in our collective investment trust AUM for each period. Operating Expenses Our operating expenses decreased by$1.6 million , or 6%, to$26.7 million for the three months endedJune 30, 2022 from$28.3 million for the three months endedJune 30, 2021 . Compensation and related costs decreased by$3.8 million , or 21%, to$14.5 million for the three months endedJune 30, 2022 from$18.3 million for the three months endedJune 30, 2021 . This decrease in the current quarter compared to the second quarter of 2021 was driven by our response to the year to date market volatility and its impacts to AUM and revenue. This decrease, when compared to the second quarter of 2021, is partially offset by the savings realized in the prior year resulting from the implementation of our deferred compensation program in 2021. When considered as a percentage of revenue, compensation and related costs was 43% for the three months endedJune 30, 2022 and 51% for the three months endedJune 30, 2021 . Distribution, servicing and custody expenses decreased by$0.3 million , or 13%, to$2.2 million for the three months endedJune 30, 2022 from$2.5 million for the three months endedJune 30, 2021 . The expense decreased due to a decrease in average mutual fund and collective trust AUM and as a result of business mix generally trending towards asset classes that do not have a distribution fee attached. As a percentage of mutual fund and collective investment trust average AUM, distribution, servicing and custody expense was 0.16% for the three months endedJune 30, 2022 , compared to 0.17% for the three months endedJune 30, 2021 . Other operating costs for the three months endedJune 30, 2022 were$10.0 million , an increase of approximately$2.5 million , or 34%, compared to the three months endedJune 30, 2021 . As a percentage of revenue, other operating costs were 30% for the three months endedJune 30, 2022 and 21% for the three months endedJune 30, 2021 . The increase during the current quarter as compared to the prior period includes costs to support our technology initiatives as well as increased professional fees and other merger related costs.
Non-Operating Income (Loss)
Non-operating loss for the three months endedJune 30, 2022 was approximately$2.6 million , a decrease of$2.9 million , from non-operating income of$0.3 million for the three months endedJune 30, 2021 . The following table reflects the components of non-operating income (loss) for the three months endedJune 30, 2022 and 2021: Three months ended June 30, Period-to-Period 2022 2021 $ % (in thousands) Non-operating income (loss) Interest expense$ (2) $ (1) $ (1) 100 % Interest and dividend income (41) 108 (149) (138) % Change in liability under tax receivable agreement 11 (228) 239 (105) % Net gains (losses) on investments (1) (2,569) 377 (2,946) (781) % Total non-operating income (loss)$ (2,601) $ 256 $ (2,857) (1,116) % 34 -------------------------------------------------------------------------------- Table of Contents __________________________ (1)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 and long-term incentive plan, will vary depending on the performance and overall amount of our investments.
Provision for Income Taxes
Our provision for income taxes was$2.1 million for the three months endedJune 30, 2022 , compared to a provision of$1.3 million for the three months endedJune 30, 2021 . This increase is attributed to the discrete tax benefits recognized in the 2021 period as a result of stock option exercises, coupled with a higher portion ofManning & Napier Group's earnings subject to taxation at the C-Corporation level during the three months endedJune 30, 2022 compared to the same period in 2021.Manning & Napier Inc.'s weighted ownership ofManning & Napier Group was 97.8% for the three months endedJune 30, 2022 compared to 90.1% for the same period in 2021. This increase in weighted ownership is primarily the result of the annual exchange process between the Company and the holders of its non-controlling interests. 35
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Six Months Ended
Assets Under Management
The following table reflects changes in our AUM for the six months endedJune 30, 2022 and 2021: Six months ended June 30, Period-to-Period 2022 2021 $ % (in millions) Wealth Management (4) Beginning assets under management$ 9,776.9 $ 8,906.4 $ 870.5 10 % Gross client inflows (1) 415.7 441.4 (25.7) (6) % Gross client outflows (1) (719.5) (600.5) (119.0) 20 % Market appreciation (depreciation) & other (2) (3) (1,342.2) 866.2 (2,208.4) (255) % Ending assets under management$ 8,130.9 $ 9,613.5 $ (1,482.6) (15) % Average AUM for period$ 8,974.6 $ 9,232.0 $ (257.4) (3) % Institutional and Intermediary (4) Beginning assets under management$ 12,765.7 $ 11,213.0 $ 1,552.7 14 % Gross client inflows (1) 1,058.7 972.3 86.4 9 % Gross client outflows (1) (1,497.2) (1,007.3) (489.9) 49 % Market appreciation (depreciation) & other (2) (3) (2,003.2) 1,470.0 (3,473.2) (236) % Ending assets under management$ 10,324.0 $ 12,648.0 $ (2,324.0) (18) % Average AUM for period$ 11,420.0 $ 11,929.7 $ (509.7) (4) % Total assets under management Beginning assets under management$ 22,542.6 $ 20,119.4 $ 2,423.2 12 % Gross client inflows (1) 1,474.4 1,413.7 60.7 4 % Gross client outflows (1) (2,216.7) (1,607.8) (608.9) 38 % Market appreciation (depreciation) & other (2) (3) (3,345.4) 2,336.2 (5,681.6) (243) % Ending assets under management$ 18,454.9 $ 22,261.5 $ (3,806.6) (17) % Average AUM for period$ 20,394.6 $ 21,161.7 $ (767.1) (4) % ________________________ (1)Transfers of client assets between portfolios are included in gross client inflows and gross client outflows. (2)Market appreciation/(depreciation) and other includes investment gains/(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)Beginning inMarch 2021 , AUM includes assets associated with our model-delivery business, previously classified as assets under advisement. These assets totaled$429.9 million atDecember 31, 2020 , comprised of$62.5 million in our wealth management channel and$367.4 million in our institutional and intermediary channel. These amounts are included above in market appreciation (depreciation) and other for the six months endedJune 30, 2021 . (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$3.8 billion from$22.3 billion atJune 30, 2021 to$18.5 billion atJune 30, 2022 . The decrease was attributable to market depreciation of$2.6 billion , coupled with net client outflows of$1.2 billion . Net client outflows consisted of approximately$0.4 billion of net outflows for wealth management and$0.8 billion for institutional and intermediary. By portfolio, the rates of change in AUM fromJune 30, 2021 toJune 30, 2022 consisted of a$1.7 billion , or 26% decrease in our equity portfolio, a$2.2 billion , or 15% decrease in our blended asset portfolio, and an increase of$0.1 billion , or 10% in our fixed income portfolio.
We have experienced an increase in the overall rate of outflows with gross
outflows of approximately
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mainly driven by a large termination as well as a few larger withdrawals from
institutional relationships. Gross client inflows were approximately $1.5
billion during the six months ended June 30, 2022 , a 4% increase compared to the
same period in 2021.
The total AUM decrease of $4.1 billion , or 18%, to $18.5 billion at June 30,
2022 from $22.5 billion at December 31, 2021 was attributable to market
depreciation of $3.3 billion , as well as net client cash outflows of $0.7
billion . Included in net client flows during the six months ended June 30, 2022
were net client outflows in wealth management of approximately $0.3 billion and
net client outflows of $0.4 billion in institutional and intermediary. The
blended investment depreciation was 13.7% in wealth management and approximately
15.7% in institutional and intermediary. By portfolio, our $4.1 billion AUM
decrease was derived from decreases of $1.7 billion , or 27%, in our equity
portfolio, and $2.4 billion , or 16%, in our blended asset portfolio offset by an
increase of $67.2 million , or 6%, in our fixed income portfolio.
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 ended June 30, 2022 . 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 ended June 30, 2022 were $0.7 billion , with 78% from blended portfolios,
15% from equity, and 7% from fixed income portfolios, respectively. The
annualized separate account retention rate was 93% for the six months ended June
30, 2022 , a decrease from the 97% for the rolling twelve months ended June 30,
2022 .
Net client flows from our institutional and intermediary channel consisted of
gross client inflows of $1.1 billion , offset by gross client outflows of $1.5
billion during the six months ended June 30, 2022 . Gross client inflows included
$0.4 billion , or 39% into our blended asset portfolios, $0.4 billion or 33% into
our equity portfolios and $0.3 billion or 28% into our fixed income portfolios
during the six months ended June 30, 2022 . With regard to institutional and
intermediary client outflows, $0.5 billion , or 34%, were from blended asset
portfolios, $0.8 billion or 56% were from our equity portfolios and $0.1
billion , or 10%, was from our fixed income portfolios during the six months
ended June 30, 2022 .
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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
2022 2021 $ %
(in thousands, except share data)
Revenues
Investment management fees $ 60,119 $ 60,928 $ (809) (1) %
Distribution and shareholder servicing 4,027 4,389 (362) (8) %
Custodial services 3,265 3,366 (101) (3) %
Other revenue 1,935 1,545 390 25 %
Total revenue 69,346 70,228 (882) (1) %
Expenses
Compensation and related costs 35,249 37,221 (1,972) (5) %
Distribution, servicing and custody expenses 4,457 4,855 (398) (8) %
Other operating costs 21,450 14,173 7,277 51 %
Total operating expenses 61,156 56,249 4,907 9 %
Operating income 8,190 13,979 (5,789) (41) %
Non-operating income (loss)
Non-operating income (loss), net (3,208) 714 (3,922) (549) %
Income before provision for income taxes 4,982 14,693 (9,711) (66) %
Provision for income taxes 1,318 1,988 (670) (34) %
Net income attributable to controlling and
noncontrolling interests 3,664 12,705 (9,041) (71) %
Less: net income attributable to noncontrolling
interests 134 1,540 (1,406) (91) %
Net income attributable to Manning & Napier, Inc. $ 3,530 $ 11,165 $ (7,635) (68) %
Per Share Data Net income per share available to Class A common stock Basic
$ 0.19 $ 0.65 Diluted$ 0.16 $ 0.55 Weighted average shares of Class A common stock outstanding Basic 19,056,827 16,991,188 Diluted 21,730,594 20,290,914 Other financial and operating data Adjusted EBITDA (1)$ 8,288 $ 15,607 ________________________ (1)See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Supplemental Non-GAAP Financial Information" forManning & Napier's reasons for including this non-GAAP measure in this report in addition to a reconciliation of non-GAAP financial measures to GAAP measures for the periods indicated.
Revenues
Our total investment management fee revenue decreased by$0.8 million , or 1%, to$60.1 million for the six months endedJune 30, 2022 from$60.9 million for the six months endedJune 30, 2021 . This decrease was driven primarily by a 4% decrease in our average AUM to$20.4 billion for the six months endedJune 30, 2022 from$21.2 billion for the six months endedJune 30, 2021 . For our wealth management sales channel, investment management fee revenue increased by$0.3 million , or 1%, to$31.8 million for the six months endedJune 30, 2022 from$31.5 million for the six months endedJune 30, 2021 . This increase was driven primarily by timing of invoicing cycles, offset by a 3% decrease in our average wealth management AUM for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . As ofJune 30, 2022 and 2021, the concentration of assets in our wealth management channel was 87% blended assets, 10% equity and 3% fixed income. 38 -------------------------------------------------------------------------------- Table of Contents For our institutional and intermediary sales channel, investment management fee revenue decreased by$1.1 million , or 4%, to$28.3 million for the six months endedJune 30, 2022 from$29.5 million for the six months endedJune 30, 2021 . This decrease was driven primarily by a 4%, or$0.5 billion , decrease in average institutional and intermediary AUM for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . As ofJune 30, 2022 the concentration of assets in our institutional and intermediary channel was 54% blended assets, 37% equity and 9% fixed income, compared to 52% blended assets, 42% equity and 6% fixed income as ofJune 30, 2021 . Distribution and shareholder servicing revenue decreased by$0.4 million , or 8%, to$4.0 million for the six months endedJune 30, 2022 from$4.4 million for the six months endedJune 30, 2021 . This decrease was driven by a change in business mix within our mutual funds. Custodial services revenue decreased by$0.1 million , or 3%, to$3.3 million for the six months endedJune 30, 2022 from$3.4 million for the six months endedJune 30, 2021 . The increase primarily relates to a corresponding increase in our collective investment trust AUM for each period.
Operating Expenses
Our operating expenses increased by$4.9 million to$61.2 million for the six months endedJune 30, 2022 from$56.2 million for the six months endedJune 30, 2021 . Compensation and related costs decreased by$2.0 million , or 5%, to$35.2 million for the six months endedJune 30, 2022 from$37.2 million for the six months endedJune 30, 2021 . This change was mainly driven by our response to the year to date market volatility and its impact to AUM and revenue stemming offset by the savings realized in the prior year resulting from the implementation of our deferred compensation program in 2021. When considered as a percentage of revenue, compensation and related costs was 51% for the six months endedJune 30, 2022 and 53% for the six months endedJune 30, 2021 . Distribution, servicing and custody expenses decreased by$0.4 million , or 8%, to$4.5 million for the six months endedJune 30, 2022 from$4.9 million for the six months endedJune 30, 2021 . The expense decreased as a result of a 15% decrease in mutual fund and collective investment trust average AUM for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . AUM increases were concentrated in fund share classes where the company does not incur distribution and servicing fees. As a percentage of mutual fund and collective investment trust average AUM, distribution, servicing and custody expense was 0.16% for the six months endedJune 30, 2022 , compared to 0.17% for the six months endedJune 30, 2021 . Other operating costs increased by$7.3 million to$21.5 million for the six months endedJune 30, 2022 from$14.2 million for the six months endedJune 30, 2021 . The increase was driven primarily by a$1.9 million non-cash charge recorded in the current period for the impairment of capitalized costs in connection with hosted software arrangements as well as by increased professional fees and other merger related costs. We incurred the impairment charge after determining we would terminate portions of a software license agreement with a third-party service provider. The terminated services relate to the creation of an advisor portal and enhancement of our portfolio accounting and performance reporting functions, but do not represent a change in our strategic efforts to advance our digital transformation. We do not expect to incur future cash expenditures in connection with terminating these services. As a percentage of revenue, other operating costs for the six months endedJune 30, 2022 was 31% compared to 20% for the six months endedJune 30, 2021 . 39 -------------------------------------------------------------------------------- Table of Contents Non-Operating Income (Loss) Non-operating loss for the six months endedJune 30, 2022 was$3.2 million , a decrease of$3.9 million , from non-operating income of$0.7 million for the six months endedJune 30, 2021 . The following table reflects the components of non-operating income (loss) for the six months endedJune 30, 2022 and 2021: Six months ended June 30, Period-to-Period 2022 2021 $ % (in thousands) Non-operating income (loss) Interest expense$ (3) $ (3) $ - - % Interest and dividend income (1) (1) 231 (232) (100) % Change in liability under tax receivable agreement 11 (228) 239 105 % Net gains (losses) on investments (2) (3,215) 714 (3,929) (550) % Total non-operating income (loss)$ (3,208) $ 714 $ (3,922) (549) %
__________________________
(1)The decrease in interest and dividend income for the six months ended
(2)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 and long-term incentive plan, will vary depending on the performance and overall amount of our investments.
Provision for Income Taxes
We recognized a provision for income taxes of$1.3 million for the six months endedJune 30, 2022 , compared to a provision of$2.0 million for the six months endedJune 30, 2021 . In each period, we recognized a benefit for incremental tax benefits realized from the vesting of restricted stock units and, in the 2021 period, for the exercise of stock options. This change in income taxes is attributed primarily to a reduction in earnings before income taxes during the six months endedJune 30, 2022 compared to 2021. This decrease in income taxes for the six months endedJune 30, 2022 compared to 2021 was partially offset by a higher portion ofManning & Napier Group's earnings subject to taxation at the C-Corporation level compared to the same period in 2021.Manning & Napier Inc.'s weighted ownership ofManning & Napier Group was 97.8% for the six months endedJune 30, 2022 , compared to 89.6% during the same period in 2021. This ownership increase is primarily the result of the annual exchange process between the Company and the holders of its non-controlling interests.
Supplemental Non-GAAP Financial Information
To provide investors with greater insight into operating results, promote transparency, facilitate comparison of period-to-period results, and to allow a more comprehensive understanding of information used by management in its financial and operational decision-making, the Company supplements its consolidated statements of operations presented in accordance with accounting principles generally accepted inthe United States of America ("GAAP") with non-GAAP financial measures of earnings. Please refer to the schedule in this release for a reconciliation of non-GAAP financial measures to GAAP measures. Beginning with the release of our operating results for the first quarter of 2022, we have moved away from economic income, economic net income and economic net income per adjusted share as supplemental non-GAAP measures. Given our current organizational structure and that the strategic restructuring efforts initiated in 2019 are substantially complete, we believe that the non-GAAP measure of Adjusted EBITDA is a more representative supplemental measure of our results. Management uses Adjusted EBITDA as a financial measure to evaluate the profitability and efficiency of the Company's business in the ordinary, ongoing and customary course of its operations. Adjusted EBITDA is not presented in accordance with GAAP, and removes the impact of interest, taxes, depreciation, amortization, and net gain (loss) on the tax receivable agreement (if any). Adjusted EBITDA also adds back net income (loss) attributable to the noncontrolling interests and assumes all income ofManning & Napier Group, LLC is allocated to the Company. Non-GAAP measures for prior periods have been revised to conform to the current period presentation. Investors should consider this non-GAAP financial measure in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. Additionally, the Company's non-GAAP financial measures may differ from similar measures used by other companies, even if similar terms are used to identify such measures. 40 -------------------------------------------------------------------------------- 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, 2022 2021 2022 2021 (in thousands, except share data) Net income attributable to Manning & Napier, Inc.$ 2,344
96 816 134 1,540
Add back: Provision for income taxes 2,064 1,285 1,318 1,988
Income before provision for income taxes $ 4,504
84 (74) 65 (183)
Add back: Depreciation 185 246 432 517
Add back: Amortization (1) 446 248 2,820 352
EBITDA 5,219 8,446 8,299 15,379
Add back: Change in liability under tax receivable
agreement (11) 228 (11) 228
Adjusted EBITDA $ 5,208 $ 8,674 $ 8,288 $ 15,607
________________________
(1)Amortization for the six months ended
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, 2022 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 of
June 30, 2022 December 31, 2021
(in thousands)
Cash and cash equivalents $ 61,582 $ 73,489
Accounts receivable 9,499 13,851
Investment securities 34,814 24,608
Amounts payable under tax receivable agreement (1) $ 17,211 $ 17,772
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(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 June 30, 2022 and December 31, 2021 , including 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 of
Manning & Napier Group and, accordingly, will depend on distributions from
Manning & Napier Group to pay taxes and operating expenses, as well as any
dividends we may pay. As managing member of Manning & Napier Group , we will
determine the timing and amount of any distributions to be paid to its members.
We intend to cause Manning & 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 cause Manning & Napier
Group to make such distributions, Manning & Napier Group Holdings, LLC ("M&N
Group Holdings ") and any other holders of units of Manning & Napier Group will
be entitled to receive equivalent distributions on a pari-passu basis.
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.
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OnFebruary 6, 2022 , the Board of Directors approved a share repurchase program authorizing the purchase of up to$10.0 million ofManning & Napier Inc. Class A common shares. The authority to repurchase shares will be exercised from time to time as market conditions warrant, is subject to regulatory considerations and will expire onDecember 31, 2022 . The timing, amount, and other terms and conditions of any repurchases will be determined by management at its discretion based on a variety of factors, including the market price of shares, general market and economic conditions, and legal requirements. It is possible that no shares will be repurchased. The repurchase program may be modified, discontinued or suspended at any time. The Company currently intends to fund the program through cash on hand and future cash flow. As ofJune 30, 2022 , the Company has not purchased any shares under the program. OnMarch 2, 2022 , the Company's Board of Directors declared a$0.05 per share dividend to the holders of Class A common stock. The dividend was paid onMarch 30, 2022 to shareholders of record as ofMarch 16, 2022 . OnApril 20, 2022 the Company's Board of Directors declared a$0.05 per share dividend to the holders of Class A common stock. The dividend was paid onMay 20, 2022 to shareholders of record as ofMay 6, 2022 . OnJuly 20, 2022 , the Board of Directors declared a$0.05 per share dividend to the holders of Class A common stock. The dividend is payable on or aboutAugust 19, 2022 to shareholders of record as ofAugust 5, 2022 . These cash dividends on our Class A common stock were, and any future dividends would be, funded from our portion of distributions made byManning & Napier Group , from its available cash generated from operations. As ofJune 30, 2022 , a total of 428,812 units ofManning & Napier Group were held by the noncontrolling interests, includingM&N Group Holdings . Pursuant to the terms of the annual exchange process, such units may be tendered for exchange or redemption. With approximately$96.4 million in cash and investment securities on hand as ofJune 30, 2022 , we expect that we have sufficient liquidity available to meet our needs for the foreseeable future. We believe cash on hand and cash generated from operations will be sufficient over the next twelve months to meet our working capital requirements.
Cash Flows
The following table sets forth our cash flows for the six months endedJune 30, 2022 and 2021. Operating activities consist primarily of net income subject to adjustments for changes in operating assets and liabilities, equity-based compensation expense, deferred income tax expense and depreciation and amortization. Investing activities consist primarily of the purchase and sale of investments for the purpose of providing initial cash seeding for product development and cash management purposes and purchases of property and equipment. Financing activities consist primarily of distributions to noncontrolling interests, purchases of treasury stock, dividends paid on our Class A common stock and payment of shares withheld to satisfy withholding requirements. Six months ended June 30, 2022 2021 (in thousands) Net cash provided by operating activities$ 5,629 $ 9,257 Net cash (used in) provided by investing activities (13,823) 409 Net cash used in financing activities (3,713) (11,585) Net change in cash and cash equivalents $
(11,907)
Six Months Ended
Operating Activities
Operating activities provided$5.6 million and$9.3 million of net cash for the six months endedJune 30, 2022 and 2021, respectively. This overall$3.6 million decrease in net cash provided by operating activities for the six months endedJune 30, 2022 compared to 2021 was attributed to a decrease in net income after adjustment for non-cash items of approximately$3.8 million during the six months endedJune 30, 2022 compared to the same period of 2021. The decrease in net income after adjustment for non-cash items of$12.6 million during the six months endedJune 30, 2022 compared to$16.5 million during the same period in 2021 was driven by lower revenues resulting from a decrease in our average AUM. This decrease in net cash provided by operating activities was partially offset by changes in operating assets and operating liabilities of approximately$0.2 million . 42 -------------------------------------------------------------------------------- Table of Contents Investing Activities Investing activities used$13.8 million and provided$0.4 million of net cash for the six months endedJune 30, 2022 and 2021, respectively. This change was driven by a decrease in cash from investing activities of$13.9 million due to our funding of and timing of activity within our investment securities. During the six months endedJune 30, 2022 , we used approximately$13.4 million , net, from the purchase, sale and maturity of investment securities compared to receiving$0.5 million in the same period of 2021, primarily related to the funding of long term incentive awards and deferred compensation granted during the six months endedJune 30, 2022 and invested in selectedManning & Napier mutual funds. We used approximately$0.4 million and$0.1 million of cash for the purchases of property and equipment during the six months endedJune 30, 2022 and 2021, respectively.
Financing Activities
Financing activities used$3.7 million and$11.6 million of net cash for the six months endedJune 30, 2022 and 2021, respectively. This overall$7.9 million decrease in cash used is primarily the result of a decrease in the purchase of treasury shares under the share repurchase program. We used cash of$5.3 million during the six months endedJune 30, 2021 to repurchase shares whereas we did not purchase any shares during the six months endedJune 30, 2022 . In addition, we used cash of$1.7 million and$5.6 million during the six months endedJune 30, 2022 and 2021, respectively, for the payment of shares withheld to satisfy withholding requirements in connection with the vesting of restricted stock units and exercise of stock options. This decrease in cash used is attributed to the timing and amount of restricted stock units vesting and stock options exercised during the respective periods. This decrease in cash used was partially offset by an increase in cash used of approximately$1.9 million for dividends paid on Class A common stock as we did not pay cash dividends during the six months endedJune 30, 2021 .
Dividends
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. Due to the market volatility and corresponding earnings volatility that could occur stemming from the COVID-19 pandemic, the Board of Directors did not approve any cash dividends on our Class A common stock after the dividend paid onMay 1, 2020 untilJuly 2021 . Given the continued strength of our balance sheet, along with the renewed stability of our earnings, our Board of Directors reinstated the cash dividends on our Class A common stock. OnMarch 2, 2022 , the Company's Board of Directors declared a$0.05 per share dividend to the holders of Class A common stock. The dividend was paid onMarch 30, 2022 to shareholders of record as ofMarch 16, 2022 . OnApril 20, 2022 , the Board of Directors declared a$0.05 per share dividend to the holders of Class A common stock. The dividend was paid onMay 20, 2022 to shareholders of record as ofMay 6, 2022 .
On
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 of
•our available cash, as well as anticipated cash requirements, including any debt servicing and payments required under the TRA 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 byManning & Napier Group to us, including the obligation ofManning & Napier Group to make tax distributions to its unitholders, including us;
•general economic and business conditions, including the impact of the COVID-19 pandemic; 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 and any other holders of units ofManning & Napier Group will be entitled to receive equivalent distributions on a pari passu basis. 43
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