By a News Reporter-Staff News Editor at Investment Weekly News -- Manning & Napier, Inc. (NYSE:MN), ("Manning & Napier" or "the Company") reported 2014 first quarter results for the period ended March 31, 2014. Summary Highlights Economic income and economic net income, non-GAAP measures, were $44.7 million and $27.6 million, or $0.31 per adjusted share, inclusive of a $0.02 per adjusted share one-time benefit from changes in enacted tax laws
Assets under management ("AUM") at March 31, 2014 were $52.2 billion, compared with $50.8 billion at December 31, 2013
Revenue for the first quarter increased 9% year-over-year to $98.5 million and was virtually unchanged from the prior quarter
Manning & Napier Group, LLC distributed to its members $31.3 million in cash for the quarter, resulting in a $0.16 per share first quarter dividend
The Company announced the acquisition of 2100 Xenon Group, LLC, an alternative investment manager, to enhance product diversification and provide additional investment solutions to clients
Patrick Cunningham, Manning & Napier's Chief Executive Officer, commented, "Continuing the momentum we saw in the second half of 2013, our first quarter results are characteristic of our active approach to security selection, which delivered strong absolute and relative performance across our equity and life cycle strategies. This commitment to active management is strengthened by our planned acquisition of 2100 Xenon Group, providing our clients with an offering in the alternatives sector that can address current market risks such as the potential for rising interest rates and continued market volatility. As we look ahead, we remain focused on the same core principles you have heard us address since our IPO. These include pursuing strong risk-adjusted results, continuous product development and diversification, and ongoing investments in client services and infrastructure, all designed to drive long-term growth for our clients and shareholders." First Quarter 2014 Financial Review Manning & Napier reported first quarter 2014 revenue of $98.5 million, an increase of 9% from revenue of $90.3 million reported in the first quarter of 2013, and virtually unchanged from revenue of $98.2 million reported in the fourth quarter of 2013. The changes in revenue resulted primarily from increases in average AUM. Average AUM for the quarter was $51.1 billion, an 8% and 2% increase over average AUM for the first quarter of 2013 and the fourth quarter of 2013, when average AUM was $47.2 billion and $50.0 billion, respectively. Revenue as a percentage of average AUM was 0.78% for the first quarter of 2014, which is consistent with both the first and fourth quarters of 2013.
Operating expenses were $78.2 million, or $56.2 million excluding non-cash reorganization-related share-based compensation of $21.9 million. The $56.2 million is an increase of $5.8 million, or 12%, in operating expenses compared with the first quarter of 2013, and a decrease of $2.5 million, or 4%, in operating expenses compared with the fourth quarter of 2013. The expense increase in the current quarter compared to the first quarter of 2013 was due primarily to higher incentive compensation costs for our analyst team resulting from strong relative and absolute investment performance, as well as increases in asset-based costs associated with our fund and collective products including sub-transfer agent fees and 12b-1 fees consistent with increases in mutual fund and collective investment trust AUM. The expense decrease compared to the fourth quarter of 2013 is primarily attributed to a reduction in compensation and related costs. Compensation and related costs decreased by approximately $2.6 million in the first quarter 2014 as equity market returns have moderated since the start of the new year, though the Company continues to earn strong absolute and relative investment returns. As a percentage of revenue, compensation and related costs for the first quarter of 2014 was 30%, compared with 30% for the first quarter of 2013 and 33% for the fourth quarter of 2013.
Generally Accepted Accounting Principles ("GAAP")-based operating income was $20.3 million. Operating income, excluding non-cash reorganization-related share-based compensation, was $42.2 million for the quarter, an increase of $2.4 million, or 6%, from the first quarter of 2013 and an increase of $2.8 million, or 7%, from the fourth quarter of 2013. Operating margin, excluding non-cash reorganization-related share-based compensation expense, was 43% for the first quarter of 2014, compared with 44% for the first quarter of 2013 and 40% for the fourth quarter of 2013.
Non-operating income was $2.4 million, an increase of $2.1 million from income of $0.3 million reported in the first quarter of 2013 and an increase of $1.8 million from income of $0.7 million reported in the fourth quarter of 2013, primarily the result of a $2.1 million decrease in the amounts payable under the tax receivable agreement. This decrease is the result of changes in enacted tax laws during the first quarter of 2014, which reduced expected tax benefits and subsequent payment of such benefits under the tax receivable agreement.
The Company uses economic income and economic net income to provide greater clarity regarding the cash earnings of the business by removing non-cash reorganization-related share-based compensation charges, as defined in the Non-GAAP Financial Measures section below. On this basis, Manning & Napier reported first quarter 2014 economic income of $44.7 million compared with $40.1 million in the first quarter of 2013, an 11% increase, and $40.1 million in the fourth quarter of 2013, an 11% increase. Also for the first quarter of 2014, economic net income was $27.6 million, or $0.31 per adjusted share, compared with $24.8 million, or $0.28 per adjusted share, in the first quarter of 2013 and $24.8 million, or $0.28 per adjusted share, in the fourth quarter of 2013.
On a GAAP basis, net income attributable to the controlling and noncontrolling interests for the first quarter was $17.6 million compared with net income of $16.4 million in the first quarter of 2013 and net income of $19.2 million in the fourth quarter of 2013. GAAP net income attributable to the common shareholders for the first quarter of $0.1 million, or $0.01 per basic and diluted share, reflects the public ownership of the Company's subsidiary, Manning & Napier Group, LLC. The remaining ownership interest is attributed to the other members of Manning & Napier Group, LLC. Assets Under Management As of March 31, 2014, AUM was $52.2 billion, an increase of 3% from the $50.8 billion as of December 31, 2013 and an increase of 9% from the $48.1 billion as of March 31, 2013. As of March 31, 2014, the composition of the Company's AUM was 52% in separate accounts and 48% in mutual funds and collective investment trusts, which is generally consistent with the composition of 53% and 55% in separate accounts and 47% and 45% in mutual funds and collective investment trusts as of December 31, 2013 and March 31, 2013, respectively.
Since December 31, 2013, AUM increased by $1.4 billion, including increases of 1% in separate accounts and 4% in mutual fund collective investment trust AUM. The $1.4 billion increase in AUM from December 31, 2013 to March 31, 2014 was attributable to market appreciation of $1.3 billion and net client inflows of $0.1 billion. The annualized separate account retention rate is 98% for the first quarter of 2014 compared to 94% for the full year 2013.
When compared to March 31, 2013, AUM increased by $4.1 billion from $48.1 billion, including an increase of $1.0 billion, or 4%, in separate account AUM and an increase of $3.1 billion, or 14%, in mutual fund and collective investment trust AUM. The $4.1 billion increase in AUM from March 31, 2013 to March 31, 2014 was primarily attributable to market appreciation of $6.5 billion. Balance Sheet Review As of March 31, 2014, cash and cash equivalents was $118.7 million, compared with $125.3 million as of December 31, 2013.
On March 31, 2014, the Company completed the accretive repurchase and retirement of 2,098,837 Class A units held by legacy shareholders for approximately $30.3 million in cash. The retired shares are expected to be partially offset during the second quarter of 2014 by a maximum of one million unvested restricted stock units to be awarded under the Company's Long-Term Incentive Plan. Other Events On April 10, 2014, Manning & Napier announced that it will acquire the business and operations of 2100 Xenon Group, LLC, an alternative investment manager specializing in managed futures and global macro strategies for institutional and individual clients. The acquisition will enhance Manning & Napier's alternative capabilities and provide increased product diversification to clients. The transaction is subject to certain regulatory approvals and is expected to close within the second quarter. Financial terms of the transaction were not disclosed. Full details of the announcement can be found on the investor relations portion of Manning & Napier's website at http://ir.manning-napier.com/. Conference Call Manning & Napier will host a conference call to discuss its 2014 first quarter financial results on Thursday, May 1, 2014, at 8:00 a.m. ET. To access the teleconference, please dial 706-758-9224 (domestic and international) approximately ten minutes before the teleconference's scheduled start time and reference ID # 27640061. A live webcast will also be available on the investor relations portion of Manning & Napier's website at http://ir.manning-napier.com/.
Keywords for this news article include: Investment and Finance, Manning & Napier.
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