Waddell & Reed Financial, Inc. CEO Discusses Q1 2012 Earnings Call Transcript

Waddell & Reed Financial, Inc. (WDR)

Q1 2012 Earnings Call Transcript

April 30, 2012 10:00 a.m. ET


Hank Herrmann - Chairman and CEO

Mike Avery - President

Tom Butch - Chief Marketing Officer

Dan Connealy - CFO

Mike Strohm - COO

Phil Sanders - CIO

Nicole McIntosh - VP, IR


Jeff Hopson - Stifel Nicolaus

Cynthia Mayer - Banc of America - Merrill Lynch

Bill Katz - Citigroup

Michael Kim - Sandler O’Neill

Robert Lee - KBW

Daniel Fannon - Jefferies

Craig Siegenthaler - Credit Suisse

Mac Sykes - Gabieli & Company

Marc Irizarry - Goldman Sachs

Roger Freeman - Barclays



Good morning. My name is Tabitha and I will be your conference operator today. At this time I would like to welcome everyone to the Waddell & Reed Financial First Quarter 2012 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) Thank you.

I will now turn the call over to Mr. Hank Herrmann, Chairman and Chief Executive Officer of Waddell & Reed. Please go ahead sir.

Hank Herrmann

With me today are Mike Avery, President; Tom Butch, our Chief Marketing Officer; Dan Connealy, Chief Financial Officer; Mike Strohm, our Chief Operations Officer; Phil Sanders, 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

The year is off to a solid start, and the stock market rally obviously provided a strong tailwind for our results. The US economy is showing additional signs of improvement, but the financial crisis in Europe, slowing growth in China and election issues here continue to create uncertainty.

Specifics from the ICI shows great [key inflows] for our industry in what historically has been a seasonally strong quarter. In contrast we experienced solid net flows in all three channels during the quarter. Earnings of $0.55 rose 17% compared to the previous quarter.

Operating income of 73 million rose 15% sequentially and our operating margin is 23%, represented a 190 basis points sequential improvement. Assets under management rose 13% to 94 billion, a quarter ended record high.

Redemption rates continue to improve but remained somewhat elevated in retail channels. Thus far in April, we have seen some moderation in flows. They are positives but less so in the first quarter. I would characterize flows as tepid at the present time.

Looking at the contribution of each channel; advisors had sales of 1 billion and in flows of 158 million. Productivity rose again and now stands at an average of about 41,000 per advisor, a new high.

Our wholesale channel had gross sales of 4.4 billion and inflows of 970 million. Our flagship Asset Strategy Fund remains our top selling product, but several other funds are making important contributions.

We reckon that growing balance in our wholesale sale roughly a third of the sales were as a strategy in a third world fixed income products. We believe this balance provides a strong platform for ongoing growth.

Our institutional channel had sales of 652 million and inflows of a 175 million. The outlook here remains quite favorable. Institutional assets currently stand at a record high of 12 billion.

Our long-term investment performance remained solid with 78% of our fund and 86% of assets outperforming their benchmarked on a five year basis. Shorter term performance has 47% of our funds and 67% of our assets feeding the benchmark for 12 months. First quarter relative performance had two-thirds of assets above benchmark median.

Operator, at this time I would like to open the call for questions.

Question-and-Answer Session


(Operator Instruction). Your first question comes from the line of Jeff Hopson with Stifel.

Jeff Hopson - Stifel Nicolaus

Any capacity issues in regards to the high yield product, and in regards to the flows or sales in April, any change or any further commentary of equity versus fixed income. For Tom, anything new in terms of product; may be on the radar screen that you’d like to focus or are focusing or that up till now you haven’t really seen much traction yet.

Hank Herrmann

Let me go first on the high income fund. At the present time, I don’t think capacity is a constraint. We are beefing up our analytical support staff on that product and we are in the process of [firing] at least one additional person. Looking at AUMs, I’ve seen several funds that continue to perform very well that have assets that are double our size. So I think it’s a nice problem I have, but we are not constrained at the present time.

With the second question was mostly about tepid flows commentary. I am going to let Tom deal with both the question.

Tom Butch

Hi Jeff, if you look at April there’s no one thing that stands out. I would call it a fairly modest downshift across the funds and I think a little bit of the flattening in the markets just caused a pause in sentiments. But nothing really stands out on a gross sales basis.

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