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Waddell & Reed Financial, Inc. Q1 2010 Earnings Call Transcript

Waddell & Reed Financial, Inc. Q1 2010 Earnings Call Transcript

Waddell & Reed Financial, Inc. (WDR)

Q1 2010 Earnings Conference Call

April 27, 2010 10:00 AM ET


Hank Herrmann – CEO

Nicole McIntosh – Director, IR

Dan Connealy – CFO

Tom Butch – Chief Marketing Officer

Mike Strohm – COO


Cynthia Mayer – Bank of America

Jeff Hopson – Stifel Nicolaus

William Katz – Citigroup

Michael Kim – Sandler O'Neill

Craig Siegenthaler – Credit Suisse

Robert Lee – KBW

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Roger Freeman – Barclays Capital

Alex Blostein – Goldman Sachs

Mac Sykes – Gabelli and Company

Cynthia Mayer – Bank of America



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Good morning. My name is (Christie) and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter earnings conference 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)

I would now like to hand the program over to Hank Herrmann, Chairman and Chief Executive Officer of Waddell & Reed.

Hank Herrmann

Thank you (Christie). Good morning everyone. With me today are Tom Butch, our Chief Marketing Officer, Mike Strohm, our Chief Operations Officer, Dan Connealy, our Chief Financial Officer, Mike Avery, our Chief Investment Officer and Nicole McIntosh, Assistant Vice President and Investor Relations.

Nicole, would you read the forward looking statements, please?

Nicole McIntosh

During this call some of our comments and responses will including 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 today’s call including a copy of today’s press release as well as supplemental schedules have been posted on our website at under the corporate tab.

Hank Herrmann

Thank you, Nicole. A good morning again. Earlier today we announced our first quarter results, the highlights of the quarter included 8% sequential growth in income per diluted share, operating margin of 23.3% despite the influence of a number of restraining factors including two fewer days of management revenues and three fewer days of sales versus the fourth quarter. A trading error of $1.3 million. The annual reset of higher payroll taxes and the reinstatement of the companies 401K match. Gross sales and net flows increased, gross sales of $6.1 billion increased 9% sequential quarterly. This level of sales has been exceeded only twice during the company’s history during the first and second quarters of 2008, just prior to the market’s decline.

Net loss of $2.8 billion represent yet again likely and industry leading organic growth rate of 16%. These achievements are all the more notable when compared to the industries weak equity flows. Long term investment performance remains solid. Now looking at the individual parts of our business, net flows in the advisory channel were positive at $146 million comparing favorably to the previous year and year ago quarters and amongst the best in the channels recent history.

Sales of $886 million was 4% below the sales volume in previous quarter and 27% above the same period last year. As you went through our release you might have noted a larger than usual decline in advisor headcounts for the fourth to the first quarter. Our annual process of terminating licenses of the advisors who did not meet the annual productivity requirement was accentuated this year by a new internal process. We now include only fully license financial advisors in our headcount figure versus the previous inclusion upon receipt of their first license.

This change has been incorporated in our calculation for productivity. Sales on the wholesale channel were $4.4 billion, a 6% sequential increase and 85% increase compared to the same period a year ago. At $2.4 billion, net flows remained robust. The Asset Strategy Fund and to a lesser extent global natural resources front remained sales leaders, taking in a combined $3.5 billion of the $4.4 billion generated in this channel.

Sales at the other fronts were up to $885 million compared to $814 million during the previous quarter and $562 million in the same period last year. Sales diversification remains a top priority. Gross sales of $819 million in the institutional channel marked a multiyear quarterly high. More than half of the volumes come from our sub-advise relationships. We continue to capitalize on our ability to act a sub-advisory for a variety of distributors who may not have the scale or record to manage internally and appreciate our approach and process.

In summary, our first quarter results were quite positive, net income and diluted earnings per share grew 8%, the operating margin expanded, sales increased 9% and net flows of $2.8 billion represent organic growth of 16% one of the best in the industry. Operator at this time, I would like to open the call up for questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from the line of Cynthia Mayer with Bank of America.

Cynthia Mayer

Bank of America

Very good morning.

Hank Herrmann

Good morning, Cynthia.

Cynthia Mayer

Bank of America

Just to clarify on the advisor headcount, what would the headcount be on an apples-to-apples basis in terms of decline or number?

Daniel Connealy

This is Dan Connealy. I believe it would be close to 200 different.

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