Waddell & Reed Financial, Inc. Reports Fourth Quarter Results

  Waddell & Reed Financial, Inc. Reports Fourth Quarter Results

Business Wire

OVERLAND PARK, Kan. -- January 29, 2013

Waddell & Reed Financial, Inc. (NYSE: WDR) today reported fourth quarter
income from continuing operations of $52.4 million, or $0.61 per diluted
share, compared to $52.1 million, or $0.61 per diluted share, during the third
quarter of 2012 and $39.4 million, or $0.46 per diluted share, during the same
period last year.

As previously disclosed, in October 2012, we entered into a definitive
agreement to sell the Legend group of subsidiaries (“Legend”). As a result of
this transaction, which was effective January 1, 2013, Legend’s operations are
classified as discontinued operations in all periods presented. Net income
from Legend’s discontinued operations added $0.01 per diluted share to both
the current quarter as well as the fourth quarter of 2011. Unless stated
otherwise, any reference to financial statement items in this release refers
to results from continuing operations.

Operating income was $83.4 million during the quarter, an increase of 5%
compared to the previous quarter and 34% compared to the same period last
year. Our operating margin rose to a multi-year high of 27.5%, compared to
27.2% during the previous quarter and 22.8% during the same period last year.

At $96.4 billion, assets under management marked a new quarterly high, rising
2% during the quarter and 16% compared to December 31, 2011. Each of our
distribution channels experienced small outflows during the quarter for a
total of $165 million firm-wide, a rate of organic decay of less than 1%.

Business Discussion

Management commentary

“The uncertainty that overshadowed most of 2012 profoundly impacted investor
sentiment as evidenced by the industry’s actively managed equity outflows of
approximately $150 billion,” said Hank Herrmann, Chairman and Chief Executive
Officer of Waddell & Reed Financial, Inc. “Despite this uncertainty, we stayed
focused on executing our strategy, growing assets under management by 16% and
generating $2.3 billion of net inflows. We remain committed to our principles
of performance excellence and outstanding client service.”

Advisors channel

Sales efforts of our financial advisors totaled $1.1 billion during the
current quarter, an 18% improvement compared to the third quarter and a 24%
improvement compared to the same period last year. Sales marked the second
highest quarterly level in this channel’s history, slightly below the high
water mark set during the second quarter of 2008.

Flows were negative at $75 million during the quarter as investors apparently
sought to realize capital gains in anticipation of higher tax rates in 2013.
Still, our Advisors channel finished 2012 with inflows of $191 million for the
year, comparing favorably to 2011’s outflows of $156 million. Sales for the
year were a record $4.1 billion.

Our advisors’ productivity continued to rise, reaching an average of $44.3
thousand per advisor during the fourth quarter for an annual total of $168
thousand per advisor, an improvement of 8% compared to the year ended December
31, 2011. This productivity improvement is the combined result of our focus on
more selective recruiting as well as our clients’ increased use of fee-based
advisory products. During 2012, approximately 37% of underwriting and
distribution revenues generated by the Advisors channel came from asset-based
fees on advisory products, compared to 29% during 2011.

Wholesale channel

Sales from our Wholesale channel were $3.5 billion during the quarter, a
decline of 3% compared to the previous quarter and 7% compared to the fourth
quarter of 2011. Net flows were negative at $77 million, only the second
quarter of outflows in the channel’s 10-year history. The current quarter’s
outflows may have been influenced by investors’ desire to lock in capital
gains before the highly anticipated increase in the capital gains tax rate.

The breadth of our sales remains good with 42% of sales in fixed income
products – including 33% in our High Income product, and 58% in equities –
including 33% in the Asset Strategy fund. Concentration of assets under
management continues to diminish as seven funds are now in excess of $1
billion of assets under management. Asset Strategy, our largest fund, now
accounts for 54% of total assets under management and 32% of 2012’s sales
compared to 59% of assets under management and 47% of sales during 2011.

Institutional channel

Sales of $562 million declined 22% compared to the previous quarter and rose
23% compared to the same period in 2011, reflecting the lumpy nature of
institutional business. The current quarter had outflows of $13 million
compared to inflows of $231 million and $3 million during the third quarter of
2012 and fourth quarter of 2011, respectively.

Core Equity, Large Cap Growth, and Asset Strategy remain major contributors to
the channel’s recent sales success. Redemption pressure on accounts we
subadvise for one client in Europe persisted through the end of the year as
European investors continued to underweight U.S. equities. Assets under
management for these accounts aggregate to approximately 5% of total assets
under management in our Institutional channel.

Management Fee Revenue Analysis

Both the sequential and year-over-year increase in quarterly revenues was due
to higher levels of assets under management. The effective fee rate remains
largely unchanged at 59.8 basis points during the current quarter, compared to
59.8 basis points during the third quarter and 60.1 basis points during the
fourth quarter of 2011.

Underwriting and Distribution Revenue and Expense Analysis

Advisors channel

Higher asset allocation fees were responsible for approximately 40% of the
increase in revenues compared to the third quarter, while higher sales
commissions from front-load products, insurance, higher Rule 12b-1 fees and
financial plans also saw meaningful sequential increases. Direct expenses as a
percentage of revenues declined due to lower payouts on client assets now
serviced by the home office and lower incentive payments on investment
products. Indirect expenses saw a small increase, mostly due to true-ups to
our sales convention costs.

Compared to the same period last year, revenues increased because of higher
asset allocation fees. A small increase in Rule 12b-1 fees was offset by lower
front-load commissions. Direct expenses rose with associated revenues.
Indirect expenses remain unchanged.

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,       2011                                                    2012
except for per
share data)
                 1st Qtr.     2nd Qtr.     3rd Qtr.     4th Qtr.        1st Qtr.     2nd Qtr.     3rd Qtr.     4th Qtr.
Operating                                                                                                     
Revenues:
Investment
management       $ 131,644     $ 138,985     $ 133,495     $ 126,476       $ 134,900     $ 134,213     $ 138,364     $ 141,754
fees
Underwriting
and                117,041       121,101       115,786       115,556         121,153       123,687       122,819       128,806
distribution
fees
Shareholder      29,750     31,109     31,060     30,530        31,818     31,786     32,182     32,323  
service fees
Total
operating        278,435    291,195    280,341    272,562       287,871    289,686    293,365    302,883 
revenues
Operating
Expenses:
Underwriting
and                138,607       142,910       138,111       140,590         144,486       148,067       147,408       150,020
distribution
Compensation
and related        39,542        40,971        36,105        40,714          44,158        41,931        42,343        43,343
costs
General and        16,087        17,854        20,979        19,190          17,764        23,634        15,774        18,160
administrative
Subadvisory        8,080         8,313         7,291         6,201           6,271         5,208         4,921         4,609
fees
Depreciation     3,483      3,725      3,866      3,690         3,359      3,329      3,188      3,335   
Total
operating        205,799    213,773    206,352    210,385       216,038    222,169    213,634    219,467 
expenses
Operating          72,636        77,422        73,989        62,177          71,833        67,517        79,731        83,416
Income
Investment and
other              948           2,459         (4,178  )     2,876           3,949         1,325         2,632         1,911
income/(loss)
Interest         (2,900  )   (2,832  )   (2,837  )   (2,839  )      (2,826  )   (2,825  )   (2,826  )   (2,834  )
expense
Income from
continuing         70,684        77,049        66,974        62,214          72,956        66,017        79,537        82,493
operations
before taxes
Provision for    26,314     27,954     27,603     22,843        26,119     24,792     27,421     30,143  
taxes
Income from
continuing         44,370        49,095        39,371        39,371          46,837        41,225        52,116        52,350
operations
Income/(loss)
from
discontinued     1,263      875        463        651           550        493        (43,590 )   971     
operations,
net of
income taxes
Net Income      $ 45,633    $ 49,970    $ 39,834    $ 40,022       $ 47,387    $ 41,718    $ 8,526     $ 53,321  
Net Income per
share from         0.52          0.57          0.46          0.46            0.55          0.48          0.61          0.61
continuing
operations
Income/(loss)
per share from   0.01       0.01       0.00       0.01          0.00       0.00       (0.51   )   0.01    
discontinued
operations
Net income per   0.53       0.58       0.46       0.47          0.55       0.48       0.10       0.62    
share
Weighted
average shares   85,836     86,275     85,782     85,286        85,606     86,095     85,755     85,459  
outstanding -
diluted
Operating        26.1    %   26.6    %   26.4    %   22.8    %    25.0    %   23.3    %   27.2    %   27.5    %
margin
                                                                                                                     
Underwriting
and                                                                                                   
Distribution
(Amounts in      2011                                                      2012
thousands)
Advisors         1st Qtr.     2nd Qtr.     3rd Qtr.     4th Qtr.        1st Qtr.     2nd Qtr.     3rd Qtr.     4th Qtr.
Channel
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     2011                                                2012
millions)
                1st Qtr.    2nd Qtr.    3rd Qtr.     4th Qtr.     1st Qtr.    2nd Qtr.    3rd Qtr.    4th Qtr.
Advisors                                                                                             
Channel
Beginning       $ 33,181     $ 34,922     $ 34,843      $ 29,760     $ 31,709     $ 35,073     $ 33,846     $ 35,374
assets
Sales (net of     1,064        1,011        867           858          1,030        1,046        906          1,067
commissions)
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 &      54        128       83         88         67        147       98        142    
capital gains
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       $ 40,883     $ 44,742     $ 46,558      $ 38,138     $ 40,954     $ 46,738     $ 44,379     $ 47,650
assets
Sales (net of     4,719        4,211        3,957         3,707        4,433        3,864        3,563        3,466
commissions)
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 &      0         117       29         133        87        249       136       133    
capital gains
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       $ 9,609      $ 10,407     $ 10,346      $ 9,558      $ 10,494     $ 11,981     $ 10,894     $ 11,785
assets
Sales (net of     776          556          1,625         456          652          567          721          562
commissions)
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 &      16        28        18         50         30        58        42        87     
capital gains
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       $ 83,673     $ 90,071     $ 91,747      $ 77,456     $ 83,157     $ 93,792     $ 89,119     $ 94,809
assets
Sales (net of     6,559        5,778        6,449         5,021        6,115        5,477        5,190        5,095
commissions)
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 &      70        273       130        271        184       454       276       362    
capital gains
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    2011                                   2012
Information
                1st      2nd      3rd      4th       1st      2nd      3rd      4th
                Qtr.      Qtr.      Qtr.      Qtr.      Qtr.      Qtr.      Qtr.      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     39.2      40.2      37.6      38.7      40.3      42.2      41.4      44.3
(000s)
                                                                                      
Number of       1,732     1,751     1,758     1,816     1,778     1,764     1,753     1,763
advisors
                                                                                      
Number of
shareholder     3,988     4,087     4,118     4,155     4,082     4,139     4,179     4,077
accounts
(000s)
                                                                                      
Number of
shareholders    803     819     827     825     832     824     793     785   
(000s)
                                                                                            

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 ourearnings 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 bemade 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.

About the Company

Waddell & Reed, Inc., founded in 1937, is one of the oldest mutual fund
complexes in the United States, having introduced the Waddell & Reed Advisors
Group of Mutual Funds in 1940. Today, we distribute our investment products
through the Waddell & Reed Advisors channel (our network of financial
advisors), our Wholesale channel (encompassing broker/dealer, retirement,
registered investment advisors as well as the activities of our Legend
subsidiary), and our Institutional channel (including defined benefit plans,
pension plans and endowments and our subadvisory partnership with Mackenzie in
Canada).

Through its subsidiaries, Waddell & Reed Financial, Inc. provides investment
management and financial planning services to clients throughout the United
States. Waddell & Reed Investment Management Company serves as investment
advisor to the Waddell & Reed Advisors Group of Mutual Funds, Ivy Funds
Variable Insurance Portfolios and Waddell & Reed InvestEd Portfolios, while
Ivy Investment Management Company serves as investment advisor to Ivy Funds.
Waddell & Reed, Inc. serves as principal underwriter and distributor to the
Waddell & Reed Advisors Group of Mutual Funds, Ivy Funds Variable Insurance
Portfolios and Waddell & Reed InvestEd Portfolios, while Ivy Funds
Distributor, Inc. serves as principal underwriter and distributor to Ivy
Funds.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which reflect the current views
and assumptions of management with respect to future events regarding our
business and industry in general. These forward-looking statements include all
statements, other than statements of historical fact, regarding our financial
position, business strategy and other plans and objectives for future
operations, including statements with respect to revenues and earnings, the
amount and composition of assets under management, distribution sources,
expense levels, redemption rates and the financial markets and other
conditions. These statements are generally identified by the use of such words
as "may," "could," "should," "would," "believe," "anticipate," "forecast,"
"estimate," "expect," "intend," "plan," "project," "outlook," "will,"
"potential" and similar statements of a future or forward-looking nature.
Readers are cautioned that any forward-looking information provided by or on
behalf of the Company is not a guarantee of future performance. Actual results
may differ materially from those contained in these forward-looking statements
as a result of various factors, including but not limited to those discussed
below. If one or more events related to these or other risks, contingencies or
uncertainties materialize, or if our underlying assumptions prove to be
incorrect, actual results may differ materially from those forecasted or
expected. Certain important factors that could cause actual results to differ
materially from our expectations are disclosed in the "Risk Factors" section
of our Annual Report on Form 10-K for the year ended December 31, 2011, which
include, without limitation:

  *The introduction of legislative or regulatory proposals or judicial
    rulings that change the independent contractor classification of our
    financial advisors at the federal or state level for employment tax or
    other employee benefit purposes;
  *The adverse ruling or resolution of any litigation, regulatory
    investigations and proceedings, or securities arbitrations by a federal or
    state court or regulatory body;
  *The loss of existing distribution channels or inability to access new
    distribution channels;
  *A reduction in assets under our management on short notice, through
    increased redemptions in our distribution channels or our Funds,
    particularly those Funds with a high concentration of assets, or investors
    terminating their relationship with us or shifting their funds to other
    types of accounts with different rate structures;
  *Our inability to implement new information technology and systems, or
    inability to complete such implementation in a timely or cost effective
    manner;
  *Non-compliance with applicable laws or regulations and changes in current
    legal, regulatory, accounting, tax or compliance requirements or
    governmental policies;
  *A decline in the securities markets or in the relative investment
    performance of our Funds and other investment portfolios and products as
    compared to competing funds; and
  *Our inability to hire and retain senior executive management and other key
    personnel.

The foregoing factors should not be construed as exhaustive and should be read
together with other cautionary statements included in this and other reports
and filings we make with the Securities and Exchange Commission, including the
information in Item 1 "Business" and Item 1A "Risk Factors" of Part I and Item
7 "Management's Discussion and Analysis of Financial Condition and Results of
Operations" of Part II to our Annual Report on Form 10-K for the year ended
December 31, 2011 and as updated in our quarterly reports on Form 10-Q for the
year ending December 31, 2012. All forward-looking statements speak only as
the date on which they are made and we undertake no duty to update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.

Contact:

Waddell & Reed Financial, Inc.
Investor Contact:
Nicole McIntosh-Russell, 913-236-1880
VP, Investor Relations
nrussell@waddell.com
or
Mutual Fund Investor Contact:
888-WADDELL
www.waddell.com
www.ivyfunds.com