Waddell & Reed Financial, Inc. Reports First Quarter Results

  Waddell & Reed Financial, Inc. Reports First Quarter Results

Business Wire

OVERLAND PARK, Kan. -- April 23, 2013

Waddell & Reed Financial, Inc. (NYSE: WDR) today reported first quarter net
income of $53.9 million, or $0.63 per diluted share, compared to net income
from continuing operations $52.4 million, or $0.61 per diluted share during
the fourth quarter of 2012 and net income from continuing operations of $46.8
million, or $0.55 per diluted share during the first quarter of 2012.

Operating revenues of $316.6 million rose 5% sequentially and 10% compared to
the same period last year. The operating margin was 26.2%, or 130 basis points
lower than last quarter’s high water mark due to higher compensation and
payroll tax expenses and two fewer days of management fees in the current
quarter. When compared to the same period last year, our operating margin
expanded by 120 basis points. Unless otherwise noted, any reference to 2012’s
income statement items refers to results from continuing operations.

Assets under management broke $100 billion during the first quarter and
reached $103.8 billion at quarter-end. Sales of $6.8 billion represent a
multi-year high, having only exceeded that level once, during the first
quarter of 2008. Net inflows of $2.1 billion represent an annualized organic
growth rate of nearly 9%.

Business Discussion

Management commentary

“This year is off to a good start. Sales were solid each month with only an 8%
difference between the monthly high and low. Flows were similarly steady with
each month firmly in positive territory,” said Hank Herrmann, Chairman and
Chief Executive Officer of Waddell & Reed Financial, Inc. “While it is still
too early to tell where retail clients are along the re-risking continuum, the
first few months of this year feel decidedly more positive.”

Channelized flows discussion

Sales from our Wholesale channel were $5.0 billion during the quarter, a 40%
improvement over the previous quarter and a 12% improvement compared to the
same period last year. Net flows of $2.0 billion reflect a sharp improvement
to the slight outflows experienced during the fourth quarter of 2012 and were
twice as much as last year’s first quarter.

In our Advisors channel, sales marked a new record at $1.3 billion, an 8%
improvement compared with the previous quarter and a 19% improvement compared
to the same period last year. Net inflows were $190 million during the current
quarter, better than the outflows of $75 million last quarter and net inflows
of $158 million during the first quarter of 2012.

Our Institutional channel had sales of $430 million, a reduction compared to
both the first and fourth quarters of 2012. Despite weaker sales, this channel
saw only minor outflows in both the current and prior quarters. During the
first quarter of 2012, net inflows were $175 million.

Management Fee Revenue Analysis

Revenues rose compared to the previous quarter as well as the same period in
2012, but at a rate that was slightly below the rate of increase in average
assets under management. This was partly due to fewer days in the current
period, and a lower effective fee rate. The effective fee rate during the
quarter was 59.5 basis points, compared to 59.8 basis points and 60.2 basis
points during the fourth and first quarter of 2012, respectively.

Net Distribution Cost Analysis

Wholesale channel

Compared to the previous quarter, higher asset levels and higher sales
commissions led to an increase in both revenues and direct costs. Indirect
costs rose slightly due to an increase in compensation, which was partly
offset by lower travel and marketing costs.

Compared to the same period in 2012, higher asset levels and, to a lesser
extent, higher sales commissions caused both revenues and direct expense to
rise. Indirect costs also increased due to higher IT and marketing costs.

Advisors channel

Both sales and asset levels increased sequentially, resulting in an increase
to revenues and direct expenses. The effective payout rate remained relatively
consistent. Indirect costs rose slightly due to a combination of annual salary
increases, higher payroll tax costs and higher group health costs.

Compared to the same period last year, sales and asset levels rose, resulting
in an increase to revenues and direct expenses; however, the effective payout
rate declined slightly. Indirect expenses rose primarily on higher group
health costs.

Compensation and Related Expense Analysis

The sequential increase in compensation costs was due to a combination of
annual merit increases, higher payroll taxes and pension costs. Lower equity
compensation costs were due to the forfeiture of restricted stock by Legend
employees at the close of the company’s sale in January, offset by higher
incentive compensation costs.

Higher base salaries, due to a combination of annual merit increases and
higher head count, as well as higher incentive compensation costs were the
main contributors to the year over year increase.

General and Administrative Expense Analysis

A combination of lower consultant fees and a reduction in estimated legal
costs resulted in the sequential decline in costs. Compared to the same period
last year, lower legal costs were the primary reason for the variance.

Investment and Other Income Analysis

Compared to the fourth quarter, investment and other income rose principally
on a combination of gains realized in our available-for-sale securities and
gains in our investment portfolios, and were partly offset by partnership
losses.

Compared to the same period last year, gains on our available-for-sales
securities were partly offset by partnership losses and lower gains in our
investment portfolios.

Balance Sheet Information

As of March 31, 2013, cash and cash equivalents and investment securities were
$566 million. Long-term debt was $190 million and there was no short-term debt
outstanding. Stockholders’ equity was $553 million and there were 85.5 million
shares outstanding.

During the quarter, we repurchased 82 thousand shares on the open market or
privately at an aggregate cost of $3.4 million. On April 2^nd, we granted 1.1
million shares of restricted stock in accordance with our annual program and
repurchased 464 thousand shares to cover employee minimum income tax
withholdings in connection with the vesting of stock awards.

                                                                                                      
Unaudited Consolidated Statement                                                                 
of Income
(Amounts in
thousands,         2012                                                          2013
except for per
share data)
                   1st Qtr.      2nd Qtr.      3rd Qtr.      4th Qtr.       1st Qtr.     2nd   3rd   4th
                                                                                                     Qtr.   Qtr.   Qtr.
Operating
Revenues:
  Investment
  management         $ 134,900       $ 134,213       $ 138,364       $ 141,754         $ 148,445
  fees
  Underwriting
  and                  121,153         123,687         122,819         128,806           135,419
  distribution
  fees
 Shareholder       31,818      31,786      32,182      32,323          32,691              
  service fees
  Total
 operating         287,871     289,686     293,365     302,883         316,555             
  revenues
Operating
Expenses:
  Underwriting
  and                  144,486         148,067         147,408         150,020           161,571
  distribution
  Compensation
  and related          44,158          41,931          42,343          43,343            48,155
  costs
  General and          17,764          23,634          15,774          18,160            16,208
  administrative
  Subadvisory          6,271           5,208           4,921           4,609             4,484
  fees
 Depreciation      3,359       3,329       3,188       3,335           3,227               
  Total
 operating         216,038     222,169     213,634     219,467         233,645             
  expenses
Operating Income       71,833          67,517          79,731          83,416            82,910
Investment and         3,949           1,325           2,632           1,911             4,377
other income
Interest expense    (2,826  )    (2,825  )    (2,826  )    (2,834  )        (2,854  )            
Income from
continuing             72,956          66,017          79,537          82,493            84,433
operations
before taxes
Provision for       26,119      24,792      27,421      30,143          30,570              
taxes
Income from
continuing             46,837          41,225          52,116          52,350            53,863
operations
Income/(loss)
from
discontinued        550         493         (43,590 )    971             0                   
operations, net
of income taxes
Net Income         $ 47,387     $ 41,718     $ 8,526      $ 53,321         $ 53,863              
Net Income per
share from             0.55            0.48            0.61            0.61              0.63
continuing
operations
Income/(loss)
per share from      0.00        0.00        (0.51   )    0.01            0.00                
discontinued
operations
Net income per      0.55        0.48        0.10        0.62            0.63                
share
Weighted average
shares              85,606      86,095      85,755      85,459          85,593              
outstanding -
diluted
 Operating         25.0    %    23.3    %    27.2    %    27.5    %        26.2    %            
  margin
                                                                                                                        

                                                                                                    
Net
Distribution
Cost Analysis
(Amounts in                                                                                     
thousands)
Wholesale          1st Qtr.      2nd Qtr.      3rd Qtr.      4th Qtr.        1st Qtr.      2nd    3rd    4th
Channel                                                                                            Qtr.     Qtr.     Qtr.
U&D Revenues       $ 44,473        $ 43,908        $ 44,659        $ 45,660        $ 48,175
U&D Expenses -       (55,104 )       (55,287 )       (57,390 )       (56,963 )       (63,548 )
Direct
U&D Expenses -      (9,339  )    (10,212 )    (10,045 )    (10,333 )      (11,000 )               
Indirect
Net
Distribution       $ (19,970 )   $ (21,591 )   $ (22,776 )   $ (21,636 )     $ (26,373 )               
(Costs)
     
Advisors
Channel
U&D Revenues       $ 76,680        $ 79,779        $ 78,160        $ 83,146        $ 87,244
U&D Expenses -       (53,676 )       (55,813 )       (54,246 )       (56,375 )       (59,657 )
Direct
U&D Expenses -      (26,367 )    (26,755 )    (25,727 )    (26,349 )      (27,366 )               
Indirect
Net
Distribution       $ (3,363  )   $ (2,789  )   $ (1,813  )   $ 422          $ 221                    
(Costs)/Excess
                                                                                                                          

                                                                          
Changes in
Assets Under      2012                                                         2013
Management
(Amounts in       1st Qtr.     2nd Qtr.     3rd Qtr.     4th Qtr.         1st Qtr.      2nd    3rd    4th
millions)                                                                                       Qtr.     Qtr.     Qtr.
Wholesale                                                                                            
Channel
Beginning         $ 40,954       $ 46,738       $ 44,379       $ 47,650         $ 48,930
assets
Sales & Other       4,520          4,113          3,699          3,599            5,042
Net Inflows*
Redemptions         (3,446 )       (3,535 )       (3,088 )       (3,828 )         (3,157  )
Net Exchanges      (104   )    48         59         152            66                     
Net flows           970            626            670            (77    )         1,951
Market action      4,814      (2,985 )    2,601      1,357          2,373                  
Ending assets     $ 46,738    $ 44,379    $ 47,650    $ 48,930        $ 53,254                 
     
Advisors
Channel
Beginning         $ 31,709       $ 35,073       $ 33,846       $ 35,374         $ 35,660
assets
Sales & Other       1,097          1,193          1,004          1,209            1,303
Net Inflows*
Redemptions         (1,042 )       (961   )       (1,019 )       (1,132 )         (1,047  )
Net Exchanges      103        (49    )    (60    )    (152   )        (66     )               
Net flows           158            183            (75    )       (75    )         190
Market action      3,206      (1,410 )    1,603      361            2,065                  
Ending assets     $ 35,073    $ 33,846    $ 35,374    $ 35,660        $ 37,915                 
                                                                                                                       
Institutional
Channel
Beginning         $ 10,494       $ 11,981       $ 10,894       $ 11,785         $ 11,775
assets
Sales & Other       682            625            763            649              430
Net Inflows*
Redemptions         (507   )       (1,058 )       (532   )       (662   )         (469    )
Net Exchanges      0          0          0          0              0                      
Net flows           175            (433   )       231            (13    )         (39     )
Market action      1,312      (654   )    660        3              890                    
Ending assets     $ 11,981    $ 10,894    $ 11,785    $ 11,775        $ 12,626                 
                                                                                                                       
Consolidated
Total
Beginning         $ 83,157       $ 93,792       $ 89,119       $ 94,809         $ 96,365
assets
Sales & Other       6,299          5,931          5,466          5,457            6,775
Net Inflows*
Redemptions         (4,995 )       (5,554 )       (4,639 )       (5,622 )         (4,673  )
Net Exchanges      (1     )    (1     )    (1     )    0              0                      
Net flows           1,303          376            826            (165   )         2,102
Market action      9,332      (5,049 )    4,864      1,721          5,328                  
Ending assets     $ 93,792    $ 89,119    $ 94,809    $ 96,365        $ 103,795                

* Sales & Other Net Inflows is primarily gross sales (net of sales
commissions). This amount also includes net reinvested dividends & capital
gains and investment income.

                                                            
Supplemental         2012                                        2013
Information
                   1st      2nd      3rd      4th        1st       2nd    3rd    4th
                     Qtr.       Qtr.       Qtr.       Qtr.       Qtr.        Qtr.     Qtr.     Qtr.
Channel                                                                           
highlights
  Number of          49         50         50         50         50
  Wholesalers
  Number of          1,778      1,764      1,753      1,763      1,717
  Advisors
  Gross revenue
  per advisor        40.3       42.2       41.4       44.3       47.3
  (in Thousands)
                                                                                                    
Redemption rates
- long term
assets
  Wholesale          30.7%      31.5%      26.6%      31.9%      24.6%
  Advisors           10.1%      9.1%       9.7%       10.6%      9.4%
  Institutional      18.2%      37.3%      18.4%      22.8%      15.5%
  Total              21.5%      23.9%      19.3%      22.9%      18.0%
                                                                                                    
Operating
highlights
  Organic
  growth/(decay)     6.3%       1.6%       3.7%       -0.7%      8.7%
  Annualized
  Total assets
  under              93,792     89,119     94,809     96,365     103,795
  management (in
  Millions)
                                                                                                    
Diversification
(CompanyTotal)
As % of Sales
  Asset Strategy     27.7%      28.6%      21.1%      25.7%      33.6%
  Fixed Income       32.3%      30.9%      39.4%      34.6%      30.7%
  Other              40.0%      40.5%      39.5%      39.7%      35.7%
As % of Assets
Under Management
  Asset Strategy     35.3%      34.2%      33.6%      33.8%      33.7%
  Fixed Income       16.9%      19.4%      20.2%      21.0%      20.7%
  Other              47.8%      46.4%      46.2%      45.2%      45.6%
                                                                                                    
Operating margin     25.0%    23.3%    27.2%    27.5%    26.2%                 
                                                                                                    

Lipper Fund Rankings             1 Year   3 Years   5 Years
 Funds ranked in top quartile    26%      33%       48%
  Funds ranked in top half        44%        52%         62%
  
  Assets ranked in top quartile   24%        64%         41%
  Assets ranked in top half       65%      77%       75%

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, April 23^rd at 11:00 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 Wholesale channel (encompassing broker/dealer,
retirement, and registered investment advisors), our Advisors channel (our
network of financial advisors), 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, 2012, 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, 2012 and as updated in our quarterly reports on Form 10-Q for the
year ending December 31, 2013. 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, Inc.
Investor Contact:
Nicole McIntosh-Russell, 913-236-1880
VP, Investor Relations
nrussell@waddell.com
or
Mutual Fund Investor Contact:
888-WADDELL, or visit www.waddell.com  or www.ivyfunds.com.
 
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