Waddell & Reed Financial, Inc. (



Q4 2011 Earnings Conference Call

January 31, 2012, 10:00 a.m. ET




Nicole McIntosh - VP, IR

Hank Herrmann - Chairman and CEO

Mike Avery - President, Portfolio Manager

Tom Butch - EVP and CMO

Dan Connealy - SVP and CFO

Mike Strohm - SVP and COO

Phil Sanders - CIO



Cynthia Mayer - Banc of America Securities/Merrill Lynch

Jeff Hopson - Stifel Nicolaus

Bill Katz - Citigroup

Michael Kim - Sandler O’Neill

Steven Truong - Barclays Capital

Daniel Fannon - Jefferies

Marc Irizarry - Goldman Sachs

Mac Sykes - Gabelli & Company



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Good morning. My name is Jodi, and I will be your conference operator today. At this time I’d like to welcome everyone to the Waddell & Reed Financial Fourth Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions) Thank you.

I’d now like to introduce Mr. Hank Herrmann, Chairman and Chief Executive Officer of Waddell & Reed. Please go ahead sir.

Hank Herrmann

Thank you, Jodi, good morning everyone. With me today are Mike Avery, President; Tom Butch, our Chief Marketing Officer; Dan Connealy, our Chief Financial Officer; Mike Strohm, our Chief Operations Officer; and Phil Sanders, our Chief Investment Officer; and Nicole McIntosh, our VP of Investor Relations. Nicole would you read the forward-looking statements, please?

Nicole McIntosh

During this call, some of our comments and responses will include forward-looking statements, while we believe these statements to be reasonable based on information that is currently available to us, actual results could materially differ from those expressed or implied due to a number of factors including but not limited to those referenced in our public filing with the Securities and Exchange Commission. We assume no duty to update any forward-looking statements.

Materials relevant to todays call including a copy of today’s press release as well as supplemental schedule has been posted on our website at Waddell.com under the Corporate tab.

Hank Herrmann

Thank you, Nicole. Good morning again everybody. Reflecting on our results for the most recent quarter, I’m reminded what a challenge the whole year was. Hike in volatility in our financial markets led to broad risk aversion resulting in equity mutual fund outflows of 67 billion industry-wide. Despite the backdrop Waddell & Reed achieved many significant successes.

Sales improved 10% over the 2010 levels in recent all time high of 24 billion. We experienced positive flows of 5 billion including record flows of 3.1 billion from fixed income products as well as equity inflows of 2.8 billion.

Assets under management peaked at 92 billion in June before falling back to 77 during a summer’s big decline, then rebound into 83 billion as the year close. As of Friday, the assets under management were 88.6 billion.

Net income of 175 million and earnings per diluted share of 205 rose 12% compared to the last year also a record high. Operating margin rose to 24.4 compared to 24.0 during 2010.

We returned 134 million to our shareholders through a combination of dividends and share repurchases. Our dividend was increased in December reflecting strong cash flow and solid balance sheet.

Focusing on the fourth quarter net income was 40 million or $0.47 per diluted share essentially flat compared to the third quarter. Compared to the same quarter in 2010, net income declined 14% while earnings per diluted share fell to 13. Assets under management rose 7% during the quarter. Sales of 5 billion fell 1.4 billion sequentially recall that the third quarter included 800 million of an institutional mandate.

Fixed income products were 1.4 billion in the fourth quarter, 70% improved compared to the previous quarter and an all time high for the company. Current market conditions combined with a public negative perception of equities have provided an excellent opportunity to showcase our strengths in the fixed income space.

The breadth of our product line continues to enable us to create positive flows across various market environments and changes in investor sentiment. So far in January, sales were approximately 1.6 billion inflows are positive.

Our advisors channel had sales of 858 million in the quarter, 9 million below the 867 million captured during the previous quarter. Redemptions declined slightly but not enough to produce positive flows. As stated in our release, an important focus for our advisors channel has been improving the productivity of our FAs and closing the gap on industry averages. In 2010, our advisors average productivities approximately 30% below the industry. Given the meaningful improvement in productivity experienced by our sales force this year, we have closed that gap materially.

Gross sales of 3.7 billion in our wholesale channel declined 6%, compared with the third quarter, while flows were a positive 153 million. As I noted earlier, the strength of our fixed income products has helped broaden sales through a wide range of funds. Sales of Asset Strategy Fund continued to become a lesser percentage of total sales.

Our institutional channel had 456 million during the quarter, modest positive flows, more than 90% of sales were made in sub-advisory accounts. Recent changes to repackage certain strategies in different product structures has been well-received by plan consultants and plan benefit participants and should lead to additional opportunities.

2012 marks our 75th anniversary. 75 years of steady growth has been the product of studying, understanding, and monitoring the various factors that impact the financial markets around the globe. Competitive investment management expertise, combined with breadth of our product lines and distribution channels, underpin our optimism for the future.

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