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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________
FORM 10-Q 
_____________________________________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR 
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            

Commission file number: 001-35355
 _____________________________________________________________
MANNING & NAPIER, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________________________
Delaware 45-2609100
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
290 Woodcliff Drive
Fairport, New York
 14450
(Address of principal executive offices) (Zip Code)

(585) 325-6880
(Registrant’s telephone number, including area code)
_____________________________________________________________ 

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, $0.01 par value per shareMNNew York Stock Exchange
Common Stock Purchase RightsMNNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer ¨  Accelerated filer ¨
Non-accelerated filer x  Smaller reporting company x
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 
Class  Outstanding at May 10, 2021
Class A common stock, $0.01 par value per share  16,991,569




TABLE OF CONTENTS
 
  Page
Part I
Item 1.
Item 2.
Item 3.
Item 4.
Part II
Item 1A.
Item 2.
Item 5.
Item 6.
In this Quarterly Report on Form 10-Q, “we”, “our”, “us”, the “Company”, “Manning & Napier” and the “Registrant” refers to Manning & Napier, Inc. and, unless the context otherwise requires, its consolidated direct and indirect subsidiaries and predecessors.
 

i

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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Manning & Napier, Inc.
Consolidated Statements of Financial Condition
(U.S. dollars in thousands, except share data)
 
March 31, 2021December 31, 2020
 (unaudited) 
Assets
Cash and cash equivalents $45,195 $57,635 
Accounts receivable10,776 11,915 
Investment securities23,905 23,497 
Prepaid expenses and other assets17,731 15,711 
Total current assets97,607 108,758 
Property and equipment, net2,728 3,075 
Operating lease right-of-use assets15,859 16,405 
Net deferred tax assets, non-current18,889 19,645 
Goodwill4,829 4,829 
Other long-term assets3,294 3,373 
Total assets$143,206 $156,085 
Liabilities
Accounts payable$2,271 $1,787 
Accrued expenses and other liabilities22,156 36,439 
Deferred revenue12,116 11,476 
Total current liabilities36,543 49,702 
Operating lease liabilities, non-current15,935 16,646 
Amounts payable under tax receivable agreement, non-current13,759 13,759 
Other long-term liabilities199 221 
Total liabilities66,436 80,328 
Commitments and contingencies (Note 9)
Shareholders’ equity
Class A common stock, $0.01 par value; 300,000,000 shares authorized; 17,423,202 and 17,010,797 shares issued and outstanding at March 31, 2021, 16,989,943 shares issued and outstanding at December 31, 2020
174 170 
Treasury stock, at cost, 412,405 and zero shares at March 31, 2021 and December 31, 2020, respectively(2,987) 
Additional paid-in capital110,182 111,848 
Retained deficit(23,586)(28,826)
Accumulated other comprehensive loss(228)(235)
Total shareholders’ equity83,555 82,957 
Noncontrolling interests(6,785)(7,200)
Total shareholders’ equity and noncontrolling interests76,770 75,757 
Total liabilities, shareholders’ equity and noncontrolling interests$143,206 $156,085 
The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents
Manning & Napier, Inc.
Consolidated Statements of Operations
(U.S. dollars in thousands, except share data)
(Unaudited)
 
 Three months ended March 31,
20212020
Revenues
Management Fees
Wealth Management$15,348 $14,020 
Institutional and Intermediary14,328 12,411 
Distribution and shareholder servicing2,153 2,390 
Custodial services1,645 1,599 
Other revenue677 689 
Total revenue34,151 31,109 
Expenses
Compensation and related costs18,874 19,263 
Distribution, servicing and custody expenses2,358 2,813 
Other operating costs6,710 7,097 
Total operating expenses27,942 29,173 
Operating income6,209 1,936 
Non-operating income (loss)
Interest expense(2)(2)
Interest and dividend income123 357 
Change in liability under tax receivable agreement (2,850)
Net gains (losses) on investments337 (1,832)
Total non-operating income (loss)458 (4,327)
Income before provision for (benefit from) income taxes
6,667 (2,391)
Provision for (benefit from) income taxes703 (3,226)
Net income attributable to controlling and noncontrolling interests
5,964 835 
Less: net income (loss) attributable to noncontrolling interests
724 (23)
Net income attributable to Manning & Napier, Inc.$5,240 $858 
Net income per share available to Class A common stock
Basic$0.31 $0.05 
Diluted$0.26 $0.01 
Weighted average shares of Class A common stock outstanding
Basic17,026,500 15,812,951 
Diluted20,273,343 77,907,557 
The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents
Manning & Napier, Inc.
Consolidated Statements of Comprehensive Income
(U.S. dollars in thousands)
(Unaudited)
 
 Three months ended March 31,
20212020
Net income attributable to controlling and noncontrolling interests
$5,964 $835 
Net unrealized holding gains (losses) on investment securities, net of tax
8 (428)
Reclassification adjustment for net realized gains on investment securities included in net income
97 (33)
Comprehensive income$6,069 $374 
Less: Comprehensive income attributable to noncontrolling interests
822 (400)
Comprehensive income attributable to Manning & Napier, Inc.
$5,247 $774 

The accompanying notes are an integral part of these consolidated financial statements.

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Manning & Napier, Inc.
Consolidated Statements of Shareholders’ Equity
(U.S. dollars in thousands, except share data)
(Unaudited) 
 Common Stock –  Class ATreasury StockAdditional
Paid in Capital
Retained
Deficit
Accumulated
Other
Comprehensive Income (Loss)
Non
Controlling
Interests
 
SharesAmountSharesAmountTotal
Three months ended March 31, 2021
Balance—December 31, 202016,989,943 $170  $ $111,848 $(28,826)$(235)$(7,200)$75,757 
Net income— — — — — 5,240 — 724 5,964 
Distributions to noncontrolling interests
— — — — — — — (295)(295)
Net changes in unrealized investment securities gains or losses
— — — — — — 7 1 8 
Common stock issued under equity compensation plan, net of forfeitures
433,259 4 — — (4)— — —  
Shares withheld to satisfy tax withholding requirements related to equity awards
— — — — (2,582)— — (322)(2,904)
Equity-based compensation— — — — 1,091 — — 136 1,227 
Purchases of treasury stock(412,405)— 412,405 (2,987)— — — — (2,987)
Impact of changes in ownership of Manning & Napier Group, LLC (Note 4)
— — — — (171)— — 171  
Balance—March 31, 202117,010,797 $174 412,405 $(2,987)$110,182 $(23,586)$(228)$(6,785)$76,770 
 Common Stock –  Class ATreasury StockAdditional
Paid in Capital
Retained
Deficit
Accumulated
Other
Comprehensive Income (Loss)
Non
Controlling
Interests
 
SharesAmountSharesAmountTotal
Three months ended March 31, 2020
Balance—December 31, 201915,956,526 $160 $ $ $198,516 $(38,478)$(50)$(10,527)$149,621 
Net income— — — — — 858 — (23)835 
Net changes in unrealized investment securities gains or losses
— — — — — — (84)(344)(428)
Common stock issued under equity compensation plan, net of forfeitures
318,833 3 — — (3)— — —  
Shares withheld to satisfy tax withholding requirements related to equity awards
— — — —  — — (2)(2)
Equity-based compensation— — — — 252 — — 1,034 1,286 
Dividends declared on Class A common stock - $0.02 per share
— — — — — (333)— — (333)
Impact of changes in ownership of Manning & Napier Group, LLC
— — — — (43)— — 43  
Balance—March 31, 202016,275,359 $163 $ $ $198,722 $(37,953)$(134)$(9,819)$150,979 
The accompanying notes are an integral part of these consolidated financial statements.
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Manning & Napier, Inc.
Consolidated Statements of Cash Flows
(U.S. dollars in thousands)
(Unaudited)
 
 Three months ended March 31,
20212020
Cash flows from operating activities:
Net income attributable to controlling and noncontrolling interests$5,964 $835 
Adjustment to reconcile net income to net cash provided by operating activities:
Equity-based compensation1,227 1,286 
Depreciation and amortization436 378 
Change in amounts payable under tax receivable agreement 2,850 
Gain on sale of intangible assets (19)
Net losses (gains) on investment securities(337)1,832 
Deferred income taxes756 (3,734)
(Increase) decrease in operating assets and increase (decrease) in operating liabilities:
Accounts receivable1,139 676 
Prepaid expenses and other assets(2,089)(2,528)
Other long-term assets627 767 
Accounts payable484 (309)
Accrued expenses and other liabilities(13,868)(9,761)
Deferred revenue640 285 
Other long-term liabilities(706)(1,534)
Net cash used in operating activities(5,727)(8,976)
Cash flows from investing activities:
Purchase of property and equipment(2)76 
Sale of investments4,001 17,518 
Purchase of investments(4,063)(10,520)
Sale of intangible assets 19 
Proceeds from maturity of investments 10,165 
Net cash (used in) provided by investing activities(64)17,258 
Cash flows from financing activities:
Distributions to noncontrolling interests(295) 
Dividends paid on Class A common stock (319)
Payment of shares withheld to satisfy withholding requirements(3,349)(2)
Purchases of treasury stock(2,987) 
Payment of capital lease obligations(18)(30)
Net cash used in financing activities(6,649)(351)
Net (decrease) increase in cash and cash equivalents(12,440)7,931 
Cash and cash equivalents:
Beginning of period57,635 67,088 
End of period$45,195 $75,019 
The accompanying notes are an integral part of these consolidated financial statements.
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Manning & Napier, Inc.
Notes to Consolidated Financial Statements

Note 1—Organization and Nature of the Business
Manning & Napier, Inc. ("Manning & Napier" or the "Company") provides a broad range of investment solutions through separately managed accounts, mutual funds, and collective investment trust funds, as well as a variety of consultative services that complement its investment process. Founded in 1970, the Company offers equity, fixed income and alternative strategies, as well as a range of blended asset portfolios, including life cycle funds. Headquartered in Fairport, New York, the Company serves a diversified client base of high-net-worth individuals and institutions, including 401(k) plans, pension plans, Taft-Hartley plans, endowments and foundations.
The Company was incorporated in 2011 as a Delaware corporation, and is the sole managing member of Manning & Napier Group, LLC and its subsidiaries (“Manning & Napier Group”), a holding company for the investment management businesses conducted by its operating subsidiaries. The diagram below depicts the Company's organizational structure as of March 31, 2021.
(1)The consolidated operating subsidiaries of Manning & Napier Group include Manning & Napier Advisors, LLC ("MNA"), Manning & Napier Investor Services, Inc., Exeter Trust Company and Rainier Investment Management, LLC ("Rainier").
Note 2—Summary of Significant Accounting Policies
Critical Accounting Policies
The Company's critical accounting policies and estimates are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020. The Company believes that the disclosures herein are adequate so that the information presented is not misleading; however, these financial statements should be read in conjunction with the financial statements and the notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. The financial data for the interim periods may not necessarily be indicative of results for future interim periods or for the full year.
Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and related rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting and include all adjustments, consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim period.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates or assumptions that affect the reported amounts and disclosures in the consolidated financial statements. Actual results could differ from these estimates or assumptions.

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Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)
Principles of Consolidation
The Company consolidates all majority-owned subsidiaries. As of March 31, 2021, Manning & Napier holds an economic interest of approximately 88.9% in Manning & Napier Group 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 on its consolidated statements of financial condition with respect to the remaining economic interest in Manning & Napier Group held by Manning & Napier Group Holdings, LLC ("M&N Group Holdings") and Manning & Napier Capital Company, LLC ("MNCC").
All material intercompany transactions have been eliminated in consolidation.
In accordance with Accounting Standards Update ("ASU") 2015-02, Consolidation (Topic 810) – Amendments to the Consolidation Analysis, the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design, a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance, and whether a company is obligated to absorb losses or receive benefits that could potentially be significant to the entity. The standard also requires ongoing assessments of whether a company is the primary beneficiary of a variable interest entity (“VIE”). When utilizing the voting interest entity ("VOE") model, controlling financial interest is generally defined as majority ownership of voting interests.
The Company provides seed capital to its investment teams to develop new strategies and services for its clients. The original seed investment may be held in a separately managed account, comprised solely of the Company's investments or within a mutual fund, where the Company's investments may represent all or only a portion of the total equity investment in the mutual fund. Pursuant to U.S. GAAP, the Company evaluates its investments in mutual funds on a regular basis and consolidates such mutual funds for which it holds a controlling financial interest. When no longer deemed to hold a controlling financial interest, the Company would deconsolidate the fund and classify the remaining investment as either an equity method investment, equity investments, at fair value, or as trading securities, as applicable. As of March 31, 2021 and December 31, 2020, the Company did not have investments classified as an equity method investment.
The Company serves as the investment adviser for Manning & Napier Fund, Inc. series of mutual funds (the “Fund”), Exeter Trust Company Collective Investment Trusts (“CIT”) and Rainier Multiple Investment Trust. The Fund, CIT and Rainier Multiple Investment Trust are legal entities, the business and affairs of which are managed by their respective boards of directors. As a result, each of these entities is a VOE. The Company holds, in limited cases, direct investments in a mutual fund (which are made on the same terms as are available to other investors) and consolidates each of these entities where it has a controlling financial interest or a majority voting interest. The Company's investments in the Fund amounted to approximately $1.1 million as of March 31, 2021 and $1.0 million as of December 31, 2020. As of March 31, 2021 and December 31, 2020, the Company did not have a controlling financial interest in any mutual fund.
Revenue
Investment Management: Investment management fees are computed as a percentage of AUM. The Company's performance obligation is a series of services that form part of a single performance obligation satisfied over time.
Separately managed accounts are paid in advance, typically for a semi-annual or quarterly period, or in arrears, typically for a monthly or quarterly period. When investment management fees are paid in advance, the Company defers the revenue as a contract liability and recognizes it over the applicable period. When investment management fees are paid in arrears, the Company estimates revenue and records a contract asset (accrued accounts receivable) based on AUM as of the most recent month end date.
Mutual funds and collective investment trust investment management revenue is calculated and earned daily based on AUM. Revenue is presented net of cash rebates and fees waived pursuant to contractual expense limitations of the funds. The Company also has agreements with third parties who provide recordkeeping and administrative services for employee benefit plans participating in the collective investment trusts. The Company is acting as an agent on behalf of the employee benefit plan sponsors, therefore, investment management revenue is recorded net of fees paid to third party service providers.
Distribution and shareholder servicing: The Company receives distribution and servicing fees for providing services to its affiliated mutual funds. Revenue is computed and earned daily based on a percentage of AUM. The performance obligation is a series of services that form part of a single performance obligation satisfied over time. The Company has agreements with third parties who provide distribution and administrative services for its mutual funds. The agreements are evaluated to determine whether revenue should be reported gross or net of payments to third-party service providers. The Company controls the services provided and acts as a principal in the relationship. Therefore, distribution and shareholder servicing revenue is recorded gross of fees paid to third parties.
Custodial services: Custodial service fees are calculated as a percentage of the client’s market value with additional fees charged for certain transactions. For the safeguarding and administrative services that are subject to a percentage of market
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Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)
value fee, the Company's performance obligation is a series of services that form part of a single performance obligation satisfied over time. Revenue for transactions assigned a stand-alone selling price is recognized in the period in which the transaction is executed. Custodial service fees are billed monthly in arrears. The Company has agreements with third parties who provide safeguarding, recordkeeping and administrative services for their clients. The Company controls the services provided and acts as a principal in the relationship. Therefore, custodial service revenue is recorded gross of fees paid to third parties.
Cash and Cash Equivalents
The Company generally considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents are primarily held in operating accounts at major financial institutions and also in money market securities. Cash equivalents are stated at cost, which approximates market value due to the short-term maturity of these investments. The fair value of cash equivalents has been classified as Level 1 in accordance with the fair value hierarchy.
Investment Securities
Investment securities are classified as either equity investments, trading, equity method investments or available-for-sale and are carried at fair value. Fair value is determined based on quoted market prices in active markets for identical or similar instruments.
Investment securities classified as equity investments, at fair value consist of equity securities and investments in mutual funds for which the Company provides advisory services. Realized and unrealized gains and losses on equity investments, at fair value or trading securities, as applicable, are recorded in net gains (losses) on investments in the consolidated statements of operations.
Investment securities classified as available-for-sale consist of U.S. Treasury notes and corporate bonds. Unrealized gains and losses on available-for-sale securities are excluded from earnings and are reported, net of deferred income tax, as a separate component of accumulated other comprehensive income in shareholders’ equity until realized. The Company periodically reviews each individual security position that has an unrealized loss, or impairment, to determine if that impairment is other-than-temporary. If impairment is determined to be other-than-temporary, the carrying value of the security will be written down to fair value and the loss will be recognized in earnings. Realized gains and losses on sales of available-for-sale securities are computed on a specific identification basis and are recorded in net gains (losses) on investments in the consolidated statements of operations.
Property, Equipment, Software and Depreciation
Property and equipment is presented net of accumulated depreciation of approximately $12.3 million and $12.6 million as of March 31, 2021 and December 31, 2020, respectively.
Capitalized implementation costs for hosting arrangements are included within prepaid expenses and other assets on the Company's statements of financial condition and totaled approximately $6.0 million and $5.3 million, net of accumulated amortization, as of March 31, 2021 and December 31, 2020, respectively.
Goodwill and Intangible Assets
Goodwill represents the excess cost over the fair value of the identifiable net assets of acquired companies. Identifiable intangible assets generally represent the cost of client relationships and investment management agreements acquired as well as trademarks. Goodwill and indefinite-lived assets are tested for impairment annually or more frequently if events or circumstances indicate that the carrying value may not be recoverable. Intangible assets subject to amortization are tested for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. Goodwill and intangible assets require significant management estimate and judgment, including the valuation and expected life determination in connection with the initial purchase price allocation and the ongoing evaluation for impairment.
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, accrued expenses and other liabilities and operating lease liabilities, non-current on its consolidated statements of financial condition. Finance leases are included in other long-term assets, accrued expenses and other liabilities, and other long-term liabilities on its consolidated statements of financial condition.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate, for each identified lease, is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term. The
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Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)
operating lease ROU asset is reduced for any lease incentives. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components, which are combined for all classes of underlying assets.
Treasury Stock
On February 3, 2021, the Board of Directors approved a share repurchase program authorizing the Company to purchase up to $10.0 million of Manning & Napier Inc. Class A common shares. As of March 31, 2021, the Company had purchased 412,405 shares of Class A common stock for an aggregate price of approximately $3.0 million.
Treasury stock is accounted for under the cost method and is included as a deduction from equity in the Shareholders' Equity section of the consolidated statements of financial condition. Upon any subsequent retirement or resale, the treasury stock account is reduced by the cost of such stock.
Operating Segments
The Company operates in one segment, the investment management industry.
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects of the income tax accounting guidance, including interim-period accounting for enacted changes in the tax law. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted. The adoption of this ASU as of January 1, 2021 did not have a material impact on the Company's consolidated financial statements.
Note 3—Revenue
Disaggregated Revenue
The following table represents the Company’s wealth management and institutional and intermediary investment management revenue by investment portfolio during the three months ended March 31, 2021 and 2020:
 Three months ended March 31, 2021Three months ended March 31, 2020
Wealth ManagementInstitutional and IntermediaryTotalWealth ManagementInstitutional and IntermediaryTotal
 (in thousands)
Blended Asset$13,634 $8,068 $21,702 $11,942 $8,186 $20,128 
Equity1,608 5,865 7,473 1,885 3,899 5,784 
Fixed Income106 395 501 193 326 519 
Total$15,348 $14,328 $29,676 $14,020 $12,411 $26,431 

Accounts Receivable
Accounts receivable as of March 31, 2021 and December 31, 2020 consisted of the following:
 March 31, 2021December 31, 2020
 (in thousands)
Accounts receivable - third parties$6,174 $7,315 
Accounts receivable - affiliated mutual funds and collective investment trusts4,602 4,600 
Total accounts receivable$10,776 $11,915 
Accounts receivable represents the Company's unconditional rights to consideration arising from its performance under separately managed account, mutual fund and collective investment trust, distribution and shareholder servicing, and custodial service contracts. Accounts receivable balances do not include an allowance for doubtful accounts nor has any significant bad debt expense attributable to accounts receivable been recorded during the three months ended March 31, 2021 or 2020.
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Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)
Advisory and Distribution Agreements
The Company earns investment advisory fees, distribution fees and administrative service fees under agreements with affiliated mutual funds and collective investment trusts. Fees earned for advisory and distribution services provided were approximately $9.9 million for the three months ended March 31, 2021, respectively, and approximately $8.9 million for the three months ended March 31, 2020, respectively, which represents greater than 25% of revenue in each period. The following provides amounts due from affiliated mutual funds and collective investment trusts reported within accounts receivable in the consolidated statements of financial condition as of March 31, 2021 and December 31, 2020:
 March 31, 2021December 31, 2020
 (in thousands)
Affiliated mutual funds $3,270 $3,275 
Affiliated collective investment trusts1,332 1,325 
Accounts receivable - affiliated mutual funds and collective investment trusts$4,602 $4,600 

Contract assets and liabilities
Accrued accounts receivable: Accrued accounts receivable represents the Company's contract asset for revenue that has been recognized in advance of billing separately managed account contracts. Consideration for the period billed in arrears is dependent on the client’s AUM on a future billing date and therefore conditional as of the reporting period end. During the three months ended March 31, 2021, revenue was increased by less than $0.1 million for changes in transaction price. Accrued accounts receivable of approximately $0.3 million is reported within prepaid expenses and other assets in the consolidated statements of financial condition for both March 31, 2021 and December 31, 2020.
Deferred revenue: Deferred revenue is recorded when consideration is received or unconditionally due in advance of providing services to the Company's customer. Revenue recognized during the three months ended March 31, 2021 that was included in deferred revenue at the beginning of the period was approximately $8.8 million.
Costs to obtain a contract: Under compensation plans in effect for periods prior to January 1, 2020, certain incremental first year commissions directly associated with new customer contracts were capitalized and amortized on a straight-line basis over an estimated customer contract period of 3 to 7 years. The total net asset as of both March 31, 2021 and December 31, 2020 was approximately $0.7 million. The related amortization expense, which is included in compensation and related costs, totaled less than $0.1 million for the three months ended March 31, 2021 and $0.1 million for the three months ended March 31, 2020. An impairment loss is recorded for contract acquisition costs related to client contracts that cancel during the period. There were no impairment losses for the three months ended March 31, 2021 and less than $0.1 million for the three months ended March 31, 2020.
Note 4—Noncontrolling Interests
Manning & Napier holds an economic interest of approximately 88.9% in Manning & Napier Group, 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 on its consolidated statements of financial condition with respect to the remaining approximately 11.1% economic interest in Manning & Napier Group held by M&N Group Holdings and MNCC. Net income attributable to noncontrolling interests on the statements of operations represents the portion of earnings attributable to the economic interest in Manning & Napier Group held by the noncontrolling interests.
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Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table provides a reconciliation from “Income before provision for (benefit from) income taxes” to “Net income attributable to Manning & Napier, Inc.”:
Three months ended March 31,
20212020
 (in thousands)
Income (loss) before provision for (benefit from) income taxes
$6,667 $(2,391)
Less: income (loss) before provision for (benefit from) income taxes of Manning & Napier, Inc. (1)
7 (2,866)
Income before provision for (benefit from) income taxes, as adjusted
6,660 475 
Controlling interest percentage (2)
88.9 %19.5 %
Net income attributable to controlling interest5,921 93 
Plus: income (loss) before provision for (benefit from) income taxes of Manning & Napier, Inc. (1)
7 (2,866)
Income (loss) before provision for (benefit from) income taxes attributable to Manning & Napier, Inc.
5,928 (2,773)
Less: provision for (benefit from) income taxes of Manning & Napier, Inc.(3)
688 (3,631)
Net income attributable to Manning & Napier, Inc.$5,240 $858 
________________________
(1)Manning & Napier, Inc. incurs certain income or expenses that are only attributable to it and are therefore excluded from the net income attributable to noncontrolling interests.
(2)Income before provision for (benefit from) income taxes is allocated to the controlling interest based on the percentage of units of Manning & Napier Group held by Manning & Napier, Inc. The amount represents the Company's weighted ownership of Manning & Napier Group's income for the respective periods.
(3)The consolidated provision for (benefit from) income taxes is equal to the sum of (i) the provision for (benefit from) income taxes for entities other than Manning & Napier, Inc. and (ii) the provision for (benefit from) income taxes of Manning & Napier, Inc. which includes all U.S. federal and state income taxes. The consolidated provision for (benefit from) income taxes was a provision of $0.7 million and a benefit of $3.2 million for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, a total of 2,021,781 units of Manning & Napier Group were held by the noncontrolling interests. Pursuant to the terms of the exchange agreement entered into at the time of the Company's initial public offering ("Exchange Agreement"), such units may be tendered for exchange or redemption. For any units exchanged, the Company may (i) pay an amount of cash equal to the number of tendered units multiplied by the value of one share of the Company's Class A common stock less a market discount and expected expenses, or, at the Company's election, (ii) issue shares of the Company's Class A common stock on a one-for-one basis, subject to customary adjustments. As the Company receives units of Manning & Napier Group that are exchanged, the Company's ownership of Manning & Napier Group will increase.
On March 15, 2021, the Company received notice that 1,592,969 of Class A units of Manning & Napier Group were tendered for redemption or exchange. The independent directors, on behalf of the Company, decided that such exchange will be settled in 1,592,969 shares of unregistered Class A Common Stock of the Company. The Company expects the settlement of the exchange to occur later in the year.
During the three months ended March 31, 2021, Class A common stock was issued under the Company's 2011 Equity Compensation Plan (the "Equity Plan") for which Manning & Napier, Inc. acquired an equivalent number of Class A units of Manning & Napier Group.
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Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)
The following is the impact to the Company's equity ownership interest in Manning & Napier Group for the three months ended March 31, 2021:
Manning & Napier Group Class A Units Held
 
Manning & Napier
 
Noncontrolling Interests
TotalManning & Napier Ownership %
As of December 31, 2020
15,783,638 2,021,781 17,805,419 88.6%
Class A Units issued433,259 — 433,259 0.3%
As of March 31, 202116,216,897 2,021,781 18,238,678 88.9%
Manning & Napier Inc., as managing member, controls all of the business and affairs of Manning & Napier Group. Since the Company continues to have a controlling interest in Manning & Napier Group, the aforementioned changes in ownership of Manning & Napier Group were accounted for as equity transactions under ASC Topic 810, Consolidation. Additional paid-in capital and noncontrolling interests in the consolidated statements of financial position are adjusted to reallocate the Company's historical equity to reflect the change in ownership of Manning & Napier Group.
At both March 31, 2021 and December 31, 2020, the Company had recorded a liability of $19.0 million, representing the estimated payments due to the selling unit holders under the tax receivable agreement ("TRA") entered into between Manning & Napier and the other holders of Class A Units of Manning & Napier Group. Of these amounts, approximately $5.2 million were included in accrued expenses and other liabilities at both March 31, 2021 and December 31, 2020. The Company made no payments pursuant to the TRA during either of the three months ended March 31, 2021 and 2020.
Obligations pursuant to the TRA are obligations of Manning & Napier. They do not impact the noncontrolling interests. These obligations are not income tax obligations. Furthermore, the TRA has no impact on the allocation of the provision for income taxes to the Company’s net income.
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Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)
Note 5—Investment Securities
The following represents the Company’s investment securities holdings as of March 31, 2021 and December 31, 2020:
March 31, 2021
CostUnrealized
Gains
Unrealized
Losses
Fair
Value
 (in thousands)
Available-for-sale securities
U.S. Treasury notes$11,089 $ $(130)$10,959 
Fixed income securities5,952  (45)5,907 
16,866 
Equity investments, at fair value
Equity securities5,980 
Mutual funds1,059 
7,039 
Total investment securities$23,905 
December 31, 2020
CostUnrealized
Gains
Unrealized
Losses
Fair
Value
 (in thousands)
Available-for-sale securities
U.S. Treasury notes$10,587 $ $(89)$10,498 
Fixed income securities6,497  (94)6,403 
16,901 
Equity investments, at fair value
Equity securities5,592 
Mutual funds1,004 
6,596 
Total investment securities$23,497 
Investment securities are classified as either equity investments or available-for-sale and are carried at fair value. Fair value is determined based on quoted market prices in active markets for identical or similar instruments.
Investment securities classified as equity investments, at fair value consist of equity securities and investments in mutual funds for which the Company provides advisory services. At March 31, 2021 and December 31, 2020, equity investments, at fair value consist of investments held by the Company to provide initial cash seeding for product development purposes and investments in mutual funds to hedge economic exposure to market movements on its deferred compensation plan. The Company recognized approximately $0.3 million of net unrealized gains and $1.8 million of net unrealized losses related to investments classified as equity investments, at fair value during the three months ended March 31, 2021 and 2020, respectively.
Investment securities classified as available-for-sale consist of U.S. Treasury notes and corporate bonds to optimize cash management opportunities and for compliance with certain regulatory requirements. As of March 31, 2021 and December 31, 2020, approximately $0.6 million of these securities was considered restricted. The Company periodically reviews each individual security position that has an unrealized loss, or impairment, to determine if that impairment is other-than-temporary. No other-than-temporary impairment charges have been recognized by the Company during the three months ended March 31, 2021 and 2020.
Note 6—Fair Value Measurements
Fair value is defined as the price that the Company would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. A fair value hierarchy is applied that gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
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Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)
The following three-tier fair value hierarchy prioritizes the inputs used in measuring fair value:
Level 1—observable inputs such as quoted prices in active markets for identical securities;
Level 2—other significant observable inputs (including but not limited to quoted prices for similar securities, interest rates, prepayment rates, credit risk, etc.); and
Level 3—significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).
The following table summarizes the hierarchy of inputs used to derive the fair value of the Company’s assets as of March 31, 2021 and December 31, 2020: 
March 31, 2021
Level 1Level 2Level 3Totals
 (in thousands)
Equity securities$5,980 $ $ $5,980 
Fixed income securities 5,907  5,907 
Mutual funds1,059   1,059 
U.S. Treasury notes 10,959  10,959 
Total assets at fair value$7,039 $16,866 $ $23,905 
December 31, 2020
Level 1Level 2Level 3Totals
 (in thousands)
Equity securities$5,592 $ $ $5,592 
Fixed income securities 6,403  6,403 
Mutual funds1,004   1,004 
U.S. Treasury notes 10,498  10,498 
Total assets at fair value$6,596 $16,901 $ $23,497 

Valuations of investments in fixed income securities and U.S. Treasury notes can generally be obtained through independent pricing services. For most bond types, the pricing service utilizes matrix pricing, which considers one or more of the following factors: yield or price of bonds of comparable quality, coupon, maturity, current cash flows, type and current day trade information, as well as dealer supplied prices. These valuations are categorized as Level 2 in the hierarchy.
The Company’s policy is to recognize transfers in and transfers out of the valuation levels as of the beginning of the reporting period. There were no transfers between valuation levels during the three months ended March 31, 2021.
Note 7—Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities as of March 31, 2021 and December 31, 2020 consisted of the following:
March 31, 2021December 31, 2020
 (in thousands)
Accrued bonus and sales commissions$6,427 $19,999 
Accrued payroll and benefits3,736 4,629 
Accrued sub-transfer agent fees436 437 
Amounts payable under tax receivable agreement5,220 5,220 
Short-term operating lease liabilities
2,902 2,854 
Other accruals and liabilities3,435 3,300 
Total accrued expenses and other liabilities$22,156 $36,439 
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Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)
Note 8—Leases
The Company has operating and finance leases for office space and certain equipment. For these leases, the office space or equipment is an explicitly identified asset within the contract. The Company has determined that it has obtained substantially all of the economic benefits from the use of the underlying asset and directs how and for what purpose the asset is used during the term of the contract.
Certain of the Company's operating leases have been subleased for which the Company will receive cash totaling approximately $3.6 million over the remaining term of such leases. The lease terms for the three subleased operating leases end in 2025, 2027 and 2028.
The components of lease expense for the three months ended March 31, 2021 and 2020 were as follows:
Three months ended March 31,
20212020
(in thousands)
Finance lease expense
Amortization of right-of-use assets$24 $25 
Interest on lease liabilities2 2 
Operating lease expense826 792 
Short-term lease expense 1 
Variable lease expense41 75 
Sublease income(165)(166)
Total lease expense$728 $729 


Supplemental cash flow information related to leases for the three months ended March 31, 2021 and 2020 were as follows:
Three months ended March 31,
20212020
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases$2 $2 
Finance cash flows from finance leases$16 27 
Operating cash flows from operating leases$946 720 
Right-of-use assets obtained in exchange for new lease obligations:
Finance leases$  
Operating leases$38 $136 
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Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)
Supplemental balance sheet information related to leases as of March 31, 2021 was as follows:
(in thousands, except lease term and discount rate)March 31, 2021
Finance Leases
Finance lease right-of-use assets (1)
$130 
Accrued expenses and other liabilities$67 
Other long-term liabilities71 
Total finance lease liabilities$138 
Operating Leases
Operating lease right-of-use assets$15,859 
Accrued expenses and other liabilities$2,902 
Operating lease liabilities, non-current15,935 
Total operating lease liabilities$18,837 
Weighted average remaining lease term
Finance leases2.29 Years
Operating leases6.27 Years
Weighted average discount rate
Finance leases4.38 %
Operating leases5.14 %
_______________________
(1)Amounts included in other long-term assets within the consolidated statements of financial condition.

Maturities of lease liabilities were as follows:
Twelve month period ending March 31,Finance LeasesOperating Leases
(in thousands)
2022$72 $3,793 
202346 3,705 
202427 3,359 
2025 3,235 
2026 2,966 
Thereafter 4,970 
Total lease payments145 22,028 
Less imputed interest(7)(3,191)
Total lease liabilities$138 $18,837 
Note 9—Commitments and Contingencies
The Company may from time to time enter into agreements that contain certain representations and warranties and which provide general indemnifications. The Company may also serve as a guarantor of such obligations. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. The Company expects any risk of liability associated with such guarantees to be remote.
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Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)
Regulation
As an investment adviser to a variety of investment products, the Company and its affiliated broker-dealer are subject to routine reviews and inspections by the SEC and the Financial Industry Regulatory Authority, Inc. Additionally, the Company could be subject to non-routine reviews and inspections by the National Futures Association and U.S. Commodity Futures Trading Commission in regards to the Company’s de minimis exposure to commodity interest investments in the mutual funds and collective investment trust vehicles it operates. From time to time the Company may also be subject to claims, or be involved in various legal proceedings, arising in the ordinary course of its business and other contingencies. The Company does not believe that the outcome of any of these reviews, inspections or other legal proceedings will have a material impact on its consolidated financial statements; however, litigation is subject to many uncertainties, and the outcome of individual litigated matters is difficult to predict. The Company will establish accruals for matters that are probable, can be reasonably estimated, and may take into account any related insurance recoveries to the extent of such recoveries. As of March 31, 2021 and December 31, 2020, the Company has not accrued for any such claims, legal proceedings, or other contingencies.
Note 10—Earnings per Common Share
Basic earnings per share (“basic EPS”) is computed using the two-class method to determine net income available to Class A common stock. The two-class method includes an earnings allocation formula that determines earnings per share for each participating security according to dividends declared and undistributed earnings for the period. The Company's restricted Class A common shares granted under the Equity Plan have non-forfeitable dividend rights during their vesting period and are therefore considered participating securities under the two-class method. Under the two-class method, the Company's net income available to Class A common stock is reduced by the amount allocated to the unvested restricted Class A common stock. Basic EPS is calculated by dividing net income available to Class A common stock by the weighted average number of common shares outstanding during the period.
Diluted earnings per share (“diluted EPS”) is computed under the more dilutive of either the treasury method or the two-class method. For the diluted calculation, the weighted average number of common shares outstanding during the period is increased by the assumed conversion into Class A common stock of unvested restricted stock units, unvested restricted stock awards, and outstanding stock options (collectively, "outstanding equity awards"), as well as the exchangeable Class A units of Manning & Napier Group, to the extent that such conversion would dilute earnings per share.
Net income attributable to noncontrolling interests on the statements of operations represents the portion of earnings attributable to the economic interest of Manning & Napier Group held by the noncontrolling interests (Note 4). For periods in which the outstanding Class A Units of Manning & Napier Group are dilutive to the Company's earnings per share, the calculation of diluted earnings per share also takes into account the incremental net income that would be available to Class A common stock upon the conversion of Class A Units into Class A common stock.
17

Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)
The following is a reconciliation of the income and share data used in the basic and diluted EPS computations for the three months ended March 31, 2021 and 2020 under the two-class method:
Three months ended March 31,
20212020
 (in thousands, except share data)
Numerator:
Net income attributable to controlling and noncontrolling interests
$5,964 $835 
Less: net income attributable to noncontrolling interests724 (23)
Net income attributable to Manning & Napier, Inc.$5,240 $858 
Less: allocation to participating securities38 13 
Net income available to Class A common stock for basic EPS
$5,202 $845 
Plus: reallocation of net income attributable to participating securities
5  
Plus: incremental net income as a result of conversion of Class A Units of Manning & Napier Group to Class A common stock
 215 
Net income available to Class A common stock for diluted EPS
$5,207 $1,060 
Denominator:
Weighted average shares of Class A common stock outstanding - basic
17,026,500 15,812,951 
Dilutive effect of outstanding equity awards
3,246,843 60,406 
Dilutive effect of exchangeable Class A Units
 62,034,200 
Weighted average shares of Class A common stock outstanding - diluted
20,273,343 77,907,557 
Net income available to Class A common stock per share - basic
$0.31 $0.05 
Net income available to Class A common stock per share - diluted
$0.26 $0.01 
Performance-based stock options are excluded from the calculation of diluted EPS for periods in which the associated market condition has not yet been achieved. As such, for the three months ended March 31, 2021, 288,000 unvested performance-based stock options were excluded, and for the three months ended March 31, 2020, 3,000,000 unvested performance-based stock options were excluded from the calculation of diluted EPS.
For the three months ended March 31, 2021 and 2020, 232,216 and 1,276,391, respectively, unvested equity awards were excluded from the calculation of diluted EPS because the effect would have been anti-dilutive.
At March 31, 2021, there were 2,021,781 Class A Units of Manning & Napier Group outstanding, which, subject to certain restrictions, may be exchangeable for up to an equivalent number of shares of the Company's Class A common stock. These units were not included in the calculation of diluted earnings per common share for the three months ended March 31, 2021 because the effect would have been anti-dilutive.
Note 11—Equity-Based Compensation
The Equity Plan was adopted by the Company's board of directors and approved by shareholders prior to the consummation of the Company's 2011 initial public offering. Under the Equity Plan, a total of 13,142,813 equity interests are authorized for issuance, and may be issued in the form of Class A common stock, restricted stock units, stock options, units of Manning & Napier Group, or certain classes of membership interests in the Company which may convert into units of Manning & Napier Group. At March 31, 2021, a total of 1,998,367 equity interests were available for issuance pursuant to the Equity Plan.
The following table summarizes activity related to awards of restricted stock and restricted stock units (collectively, "stock awards") under the Equity Plan for the three months ended March 31, 2021:
Stock AwardsWeighted Average Grant Date Fair Value
Outstanding at January 1, 20213,044,981 $2.03 
Granted1,152,369 $6.04 
Vested(67,439)$6.56 
Forfeited(26,316)$1.57 
Outstanding at March 31, 20214,103,595 $3.08 
18

Manning & Napier, Inc.
Notes to Consolidated Financial Statements (Continued)
The weighted average fair value of stock awards granted during the three months ended March 31, 2021 was $6.04, based on the closing sale price of the Company's Class A common stock as reported on the New York Stock Exchange on the date of grant, and, if not entitled to dividends or dividend equivalents during the vesting period, reduced by the present value of such amounts expected to be paid on the underlying shares during the requisite service period.
For the three months ended March 31, 2021 and 2020, the Company recorded approximately $1.2 million and $1.1 million, respectively, of compensation expense related to stock awards under the Equity Plan. The aggregate intrinsic value of stock awards that vested during each of the three months ended March 31, 2021 and 2020 was approximately $0.5 million. As of March 31, 2021, there was unrecognized compensation expense of approximately $10.0 million related to stock awards, which the Company expects to recognize over a weighted average period of approximately 4.2 years.
A summary of activity under the Equity Plan related to stock option awards during the three months ended March 31, 2021 is presented below:
Stock Option AwardsWeighted Average Exercise PriceWeighted Average Contractual Term
(years)
Aggregate
Intrinsic
 Value
 (in thousands)
Outstanding at January 1, 2021