Manning & Napier, Inc.
Q1 2020 Earnings Call Transcript

Published: 8 May 2020

[Operator:]

Good evening. My name is Angie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Manning & Napier First Quarter 2020 Earnings Conference Call. Our hosts for today’s call are Nicole Kingsley Brunner, Chief Marketing Officer; Marc Mayer, Chief Executive Officer; and Paul Battaglia, Chief Financial Officer.Today’s call is being recorded and will be available for replay beginning at 7

[Nicole Kingsley Brunner:]

Thank you, Angie, and thank you, everyone, for joining us today to discuss Manning & Napier’s first quarter 2020 results.Before we begin, I would like to remind everyone that certain statements made during this call not based on historical facts, including any statements relating to financial guidance, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Manning & Napier assumes no obligation or responsibility to update any forward-looking statements.During this call, some comments may include reference to non-GAAP financial measures. Full GAAP reconciliations can be found in our earnings release and related SEC filings. With that, allow me to introduce our Chief Executive Officer, Mr. Marc Mayer. Marc?

[Marc Mayer:]

Thank you, Nicole. I’ll note that our remarks will be somewhat longer than usual, as there is a great deal for us to cover

[Paul Battaglia:]

Thanks, Marc. Good afternoon, everyone, and thanks for joining us today.Before going through our results, I would like to pick up where Marc left off, by acknowledging Bill Manning. Last week, amid today’s unique circumstances, we celebrated the 50th anniversary of the firm’s inception, April 27, 1970. Everyone here is indebted to Bill for his guidance and vision over the years. As someone who has been with the firm for over 16 years, it was great to take a moment to celebrate this shared milestone. We appreciate all that has been accomplished over our first 50 years, and we are excited to have the opportunity to further grow the business that Bill pioneered over the next 50.I’ve organized my remarks to first address our results for the quarter, followed by further discussion of the upcoming transaction to close the annual shareholder exchange and then wrapping up with some thoughts on our outlook for the rest of 2020.As Nicole mentioned earlier, some of my remarks will make reference to non-GAAP financial measures

[Operator:]

[Operator Instructions] Your first question comes from the line of Ken Worthington, of J.P. Morgan.

[Ken Worthington:]

I guess I’d like to dig a little bit into the expenses for the current quarter and to see to what extent they provide a good base or run rate as we look to expenses over the next couple of quarters. So on compensation, respect your comments about payroll taxes and the changes in headcount, but was there anything else in the $19.3 million?I don’t think there was any severance, but just in case, I’ll throw that little part into the question, as well. But $19.3 million, is that sort of where we should see expenses, plus or minus, accounting for I think it’s the 14 people and the payroll taxes 3Q and 4Q?And then the other operating costs, at $7.1 million, again same thing. There’s a number of initiatives. There is cost savings initiatives that you’ve been employing. So again is that sort of the right base to work off of for the rest of the year?

[Paul Battaglia:]

Ken, this is Paul. I’ll take a first shot at it and Marc can follow up if he thinks there’s anything that I missed. Thanks for the question. And just to I guess put a fine point on it, there was approximately $650,000 of severance in the quarter, and that was part of one of the items in the strategic restructuring add-back. So it’s down from the fourth quarter, but there was still some there.I think that as you look at payroll or compensation, specifically, the biggest wildcard is market performance and how that translates to the research team incentive comp which is based on both absolute and relative performance. So for the quarter ended March 31, our accrual is representative of what had happened through March 31.Now we have seen obviously quite a good recovery since then, and that will come through both in the form of revenue as well as in the form of analyst compensation. But that is the single biggest driver of any variation that we see from this point forward. We’re here on May 7. We have not seen substantial changes in any of the fixed compensation costs so far in the second quarter. And as we mentioned on our remarks, right now our priority is keeping the team intact and keeping everyone focused on executing for clients.With regard to other operating expenses, I think that that’s a pretty good number, especially when you take it as a percentage of revenue. Revenue, obviously, is a wildcard there. But with the way the technology enhancements are rolling in, a lot of those costs can be capitalized. They’re either license fees or they’re implementation costs that are capitalized and spread over the term of the contract.So it should be pretty smooth from another operating perspective as it relates to the things that we know right now. I think that we may have some savings in the amount that we spend on travel, for example, but I don’t know that it’s enough that I would change your model at this point.So I’ll stop there and take any other follow-up you may have.

[Operator:]

[Operator Instructions] There are no further questions. Thank you for participating in today’s conference call. You may now disconnect your lines at this time, and have a wonderful day.

[Paul Battaglia:]

Thanks, everyone.

[Marc Mayer:]

Thank you, everyone, and stay well, please.