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Waddell & Reed Financial, Inc. Reports Fourth Quarter Results

Wholesale channel

Compared to the previous quarter, revenues rose with higher Rule 12b-1 fees. Direct expenses fell on a combination of lower wholesaler commissions and third party fees, and more than offset the increase to Rule 12b-1 fee payouts. Indirect expenses remain largely unchanged.

Compared to the fourth quarter of 2012, revenues rose with higher Rule 12b-1 fees. Direct expenses rose with higher Rule 12b-1 fees and higher third party costs. Indirect costs rose on higher IT costs.

Compensation and Related Expense Analysis

The sequential increase was largely due to higher payroll taxes on incentive bonus payments and the vesting of equity awards.

Compared to the fourth quarter of 2011, costs increased on a combination of higher base salary, payroll taxes, pension costs and group health care, and were partly offset by lower incentive compensation. Equity compensation also contributed to the increase due to the higher value of this year’s grants.

General and Administrative Expense Analysis

The third quarter included a reduction in estimated legal costs, which were partially offset by higher consultant fees. These adjustments were responsible for the sequential increase in costs in the fourth quarter.

Compared with the same period last year, expenses fell due to a combination of lower legal and IT costs, which were partly offset by higher dealer services costs.

Balance Sheet Information

As of December 31, 2012, cash and cash equivalents and investment securities were $504 million, after payment of an $85 million special dividend in December. Long-term debt was $190 million and there was no short-term debt outstanding.

Stockholders’ equity was $510 million and there were 85.7 million shares outstanding. During the quarter, we repurchased 378 thousand shares on the open market or privately, bringing our annual total to 1.5 million shares at an aggregate cost of $49 million. Separately, on December 31, we granted 467 thousand shares of restricted stock in accordance with our annual program.

 
Unaudited Consolidated Statement of Income  
(Amounts in thousands, except for per share data) 2011     2012
1st Qtr.   2nd Qtr.   3rd Qtr.   4th Qtr. 1st Qtr.   2nd Qtr.   3rd Qtr.   4th Qtr.
Operating Revenues:            
Investment management fees $ 131,644 $ 138,985 $ 133,495 $ 126,476 $ 134,900 $ 134,213 $ 138,364 $ 141,754
Underwriting and distribution fees 117,041 121,101 115,786 115,556 121,153 123,687 122,819 128,806
Shareholder service fees     29,750       31,109       31,060       30,530     31,818       31,786       32,182       32,323  
Total operating revenues     278,435       291,195       280,341       272,562     287,871       289,686       293,365       302,883  
Operating Expenses:
Underwriting and distribution 138,607 142,910 138,111 140,590 144,486 148,067 147,408 150,020
Compensation and related costs 39,542 40,971 36,105 40,714 44,158 41,931 42,343 43,343
General and administrative 16,087 17,854 20,979 19,190 17,764 23,634 15,774 18,160
Subadvisory fees 8,080 8,313 7,291 6,201 6,271 5,208 4,921 4,609
Depreciation     3,483       3,725       3,866       3,690     3,359       3,329       3,188       3,335  
Total operating expenses     205,799       213,773       206,352       210,385     216,038       222,169       213,634       219,467  
Operating Income 72,636 77,422 73,989 62,177 71,833 67,517 79,731 83,416
Investment and other income/(loss) 948 2,459 (4,178 ) 2,876 3,949 1,325 2,632 1,911
Interest expense     (2,900 )     (2,832 )     (2,837 )     (2,839 )   (2,826 )     (2,825 )     (2,826 )     (2,834 )
Income from continuing operations before taxes 70,684 77,049 66,974 62,214 72,956 66,017 79,537 82,493
Provision for taxes     26,314       27,954       27,603       22,843     26,119       24,792       27,421       30,143  
Income from continuing operations 44,370 49,095 39,371 39,371 46,837 41,225 52,116 52,350

Income/(loss) from discontinued operations, net ofincome taxes

    1,263       875       463       651     550       493       (43,590 )     971  
Net Income   $ 45,633     $ 49,970     $ 39,834     $ 40,022   $ 47,387     $ 41,718     $ 8,526     $ 53,321  
Net Income per share from continuing operations 0.52 0.57 0.46 0.46 0.55 0.48 0.61 0.61
Income/(loss) per share from discontinued operations     0.01       0.01       0.00       0.01     0.00       0.00       (0.51 )     0.01  
Net income per share     0.53       0.58       0.46       0.47     0.55       0.48       0.10       0.62  
Weighted average shares outstanding - diluted     85,836       86,275       85,782       85,286     85,606       86,095       85,755       85,459  
Operating margin     26.1 %     26.6 %     26.4 %     22.8 %       25.0 %     23.3 %     27.2 %     27.5 %
 
Underwriting and Distribution                                
(Amounts in thousands) 2011 2012
Advisors Channel 1st Qtr.   2nd Qtr.   3rd Qtr.   4th Qtr. 1st Qtr.   2nd Qtr.   3rd Qtr.   4th Qtr.
Revenues $ 72,555 $ 74,018 $ 70,088 $ 73,416 $ 76,680 $ 79,779 $ 78,160 $ 83,146
Expenses
Direct 50,872 52,422 49,748 51,316 53,676 55,813 54,246 56,375
Indirect   22,791       23,724       24,761       26,138     26,367       26,755       25,727       26,349  
Total expenses $ 73,663     $ 76,146     $ 74,509     $ 77,454   $ 80,043     $ 82,568     $ 79,973     $ 82,724  
Wholesale Channel
Revenues $ 44,486 $ 47,083 $ 45,698 $ 42,140 $ 44,473 $ 43,908 $ 44,659 $ 45,660
Expenses
Direct 56,498 58,425 55,502 53,664 55,104 55,287 57,390 56,963
Indirect   8,446       8,339       8,100       9,472     9,339       10,212       10,045       10,333  
Total expenses $ 64,944     $ 66,764     $ 63,602     $ 63,136   $ 64,443     $ 65,499     $ 67,435     $ 67,296  
Total
Revenues $ 117,041 $ 121,101 $ 115,786 $ 115,556 $ 121,153 $ 123,687 $ 122,819 $ 128,806
Expenses
Direct 107,370 110,847 105,250 104,980 108,780 111,100 111,636 113,338
Indirect   31,237       32,063       32,861       35,610     35,706       36,967       35,772       36,682  
Total expenses $ 138,607     $ 142,910     $ 138,111     $ 140,590   $ 144,486     $ 148,067     $ 147,408     $ 150,020  
Margin   -18.4 %     -18.0 %     -19.3 %     -21.7 %       -19.3 %     -19.7 %     -20.0 %     -16.5 %
 
Changes in Assets Under Management                                
(Amounts in millions) 2011   2012
1st Qtr.   2nd Qtr.   3rd Qtr.   4th Qtr. 1st Qtr.   2nd Qtr.   3rd Qtr.   4th Qtr.
Advisors Channel            
Beginning assets $ 33,181 $ 34,922 $ 34,843 $ 29,760 $ 31,709 $ 35,073 $ 33,846 $ 35,374
Sales (net of commissions) 1,064 1,011 867 858 1,030 1,046 906 1,067
Redemptions   (990 )     (1,059 )     (1,004 )     (994 )   (1,042 )     (961 )     (1,019 )     (1,132 )
Net sales 74 (48 ) (137 ) (136 ) (12 ) 85 (113 ) (65 )
Net exchanges (62 ) (55 ) (79 ) (66 ) 103 (49 ) (60 ) (152 )
Reinvested dividends & capital gains   54       128       83       88     67       147       98       142  
Net flows 66 25 (133 ) (114 ) 158 183 (75 ) (75 )
Market action   1,675       (104 )     (4,950 )     2,063     3,206       (1,410 )     1,603       361  
Ending assets $ 34,922     $ 34,843     $ 29,760     $ 31,709   $ 35,073     $ 33,846     $ 35,374     $ 35,660  
 
Wholesale Channel
Beginning assets $ 40,883 $ 44,742 $ 46,558 $ 38,138 $ 40,954 $ 46,738 $ 44,379 $ 47,650
Sales (net of commissions) 4,719 4,211 3,957 3,707 4,433 3,864 3,563 3,466
Redemptions   (3,162 )     (2,566 )     (3,515 )     (3,752 )   (3,446 )     (3,535 )     (3,088 )     (3,828 )
Net sales 1,557 1,645 442 (45 ) 987 329 475 (362 )
Net exchanges 62 55 79 65 (104 ) 48 59 152
Reinvested dividends & capital gains   0       117       29       133     87       249       136       133  
Net flows 1,619 1,817 550 153 970 626 670 (77 )
Market action   2,240       (1 )     (8,970 )     2,663     4,814       (2,985 )     2,601       1,357  
Ending assets $ 44,742     $ 46,558     $ 38,138     $ 40,954   $ 46,738     $ 44,379     $ 47,650     $ 48,930  
 
Institutional Channel
Beginning assets $ 9,609 $ 10,407 $ 10,346 $ 9,558 $ 10,494 $ 11,981 $ 10,894 $ 11,785
Sales (net of commissions) 776 556 1,625 456 652 567 721 562
Redemptions   (530 )     (709 )     (737 )     (503 )   (507 )     (1,058 )     (532 )     (662 )
Net sales 246 (153 ) 888 (47 ) 145 (491 ) 189 (100 )
Net exchanges 0 0 0 0 0 0 0 0
Reinvested dividends & capital gains   16       28       18       50     30       58       42       87  
Net flows 262 (125 ) 906 3 175 (433 ) 231 (13 )
Market action   536       64       (1,694 )     933     1,312       (654 )     660       3  
Ending assets $ 10,407     $ 10,346     $ 9,558     $ 10,494   $ 11,981     $ 10,894     $ 11,785     $ 11,775  
 
Consolidated Total
Beginning assets $ 83,673 $ 90,071 $ 91,747 $ 77,456 $ 83,157 $ 93,792 $ 89,119 $ 94,809
Sales (net of commissions) 6,559 5,778 6,449 5,021 6,115 5,477 5,190 5,095
Redemptions   (4,682 )     (4,334 )     (5,256 )     (5,249 )   (4,995 )     (5,554 )     (4,639 )     (5,622 )
Net sales 1,877 1,444 1,193 (228 ) 1,120 (77 ) 551 (527 )
Net exchanges 0 0 0 (1 ) (1 ) (1 ) (1 ) 0
Reinvested dividends & capital gains   70       273       130       271     184       454       276       362  
Net flows 1,947 1,717 1,323 42 1,303 376 826 (165 )
Market action   4,451       (41 )     (15,614 )     5,659     9,332       (5,049 )     4,864       1,721  
Ending assets $ 90,071     $ 91,747     $ 77,456     $ 83,157     $ 93,792     $ 89,119     $ 94,809     $ 96,365  
       
Supplemental Information 2011   2012
1st Qtr.   2nd Qtr.   3rd Qtr.   4th Qtr. 1st Qtr.   2nd Qtr.   3rd Qtr.   4th Qtr.
Redemption rates - long term assets            
Advisors 9.6 % 10.1 % 10.0 % 10.4 % 10.1 % 9.1 % 9.7 % 10.6 %
Wholesale 29.7 % 22.3 % 31.0 % 35.7 % 30.7 % 31.5 % 26.6 % 31.9 %
Institutional 21.3 % 27.1 % 27.8 % 19.0 % 18.2 % 37.3 % 18.4 % 22.8 %
Total 21.0 % 18.2 % 22.9 % 24.1 % 21.5 % 23.9 % 19.3 % 22.9 %
 
Gross Revenue per advisor (000s) 39.2 40.2 37.6 38.7 40.3 42.2 41.4 44.3
 
Number of advisors 1,732 1,751 1,758 1,816 1,778 1,764 1,753 1,763
 
Number of shareholder accounts (000s) 3,988 4,087 4,118 4,155 4,082 4,139 4,179 4,077
 
Number of shareholders (000s) 803     819     827     825     832     824     793     785  
 
Fund Rankings      
Lipper          
Equity funds 1 Year   3 Years   5 Years
Top quartile 29 % 28 % 42 %
Top half 39 % 50 % 58 %
 
Equity assets
Top quartile 63 % 24 % 31 %
Top half 67 % 73 % 81 %
 
Fixed income funds
Top quartile 32 % 35 % 60 %
Top half 42 % 53 % 60 %
 
Fixed income assets
Top quartile 53 % 54 % 69 %
Top half 57 % 65 % 69 %
 
All funds
Top quartile 30 % 30 % 46 %
Top half 40 % 51 % 59 %
 
All assets
Top quartile 61 % 31 % 40 %
Top half 64 % 71 % 78 %
 
MorningStar
% of funds with 4 or 5 stars
Equity funds 32 % 20 % 39 %
All funds 28 % 16 % 39 %
 
% of assets with 4 or 5 stars
Equity assets 27 % 11 % 30 %
All assets 31 % 9 % 39 %
 

Earnings Conference Call

Stockholders, members of the investment community and the general public are invited to listen to a live Web cast of our earnings release conference call today, January 29 th at 10:00 a.m. Eastern. During this call, Henry J. Herrmann, Chairman and CEO, will review our quarterly results. Live access to the teleconference will be available on the “Investor Relations” section of our Web site at www.waddell.com. A Web cast replay will be made available shortly after the conclusion of the call and accessible for seven days.

Web site Resources

We invite you to visit the “Investor Relations” section of our Web site at www.waddell.com under the caption “Data Tables” to review supplemental information schedules.

Past performance is no guarantee of future results. Please invest carefully.

Stock quotes in this article: WDR 

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