Waddell & Reed Financial, Inc. (NYSE: WDR) today reported
first quarter 2015 net income of $67.1 million, or $0.80 per
diluted share, compared to net income of $80.9 million, or $0.97
per diluted share, during the previous quarter. The fourth quarter
results included dividend and capital gain income of $6.1 million.
Net income for the first quarter of 2014 was $74.9 million, or
$0.88 per diluted share.
Operating revenues of $385 million declined 3% sequentially.
Lower average assets under management and two fewer days during the
quarter were the primary reasons for the decline in revenues.
Compared to the same period last year, operating revenues declined
1%, due primarily to a decline in average assets under management.
The operating margin during the quarter was 27.1% compared to 30.0%
during the previous quarter and 29.9% during the same period last
year.
Assets under management ended the first quarter at $123 billion,
down less than 1% sequentially as market appreciation of $2.8
billion helped to offset $3.6 billion in net outflows. Compared to
the first quarter of 2014, assets under management declined 6%. The
decline in asset levels over the past 12 months was due to net
outflows, which were partly offset by positive market action.
Average assets under management were $123 billion in the first
quarter of 2015.
Sales during the quarter were $5.4 billion, or 35% higher than
the prior quarter. Sales rose 8%, adjusting fourth quarter 2014
sales to exclude the approximately $1.0 billion of capital gain and
dividend distributions by our funds that were not reinvested by
clients and were recorded as a reduction to sales. Compared to the
record-setting first quarter of 2014, sales declined 46%. Net
outflows declined to $3.6 billion from $6.4 billion during the
fourth quarter of 2014. The first quarter of 2014 had net inflows
of $4.7 billion.
Business Discussion
“Our first quarter results reflect sequential improvements in
our business,” said Hank Herrmann, Chairman and Chief Executive
Officer of Waddell & Reed Financial, Inc. “We still have some
ground to cover before we recapture the momentum we had prior to
2014. Performance in our Asset Strategy fund has meaningfully
improved while our efforts to highlight a broad span of products
continue to gain traction.”
Our Wholesale channel saw an improvement in sales and net flows.
Sales rose 62% sequentially and 17% adjusted for the fourth quarter
impact of the capital gain and dividend distributions and
reinvestments. Net outflows were $2.2 billion compared to net
outflows of $6.1 billion in the prior quarter.
The Advisors channel continues to make gradual improvement in
productivity. Average productivity per advisor in the first quarter
was $65.9 thousand, up from $65.7 thousand during the previous
quarter and $60.9 thousand one year ago.
The loss of a significant account in our Institutional channel
resulted in increased net outflows this quarter. The redemption was
the result of a reallocation rather than manager performance.
Management Fee Revenue Analysis
Management fees declined 3% sequentially, in line with a 3%
decline in average assets under management. The effective fee rate
during the current quarter was 59.9 basis points compared to 59.0
basis points during the fourth quarter of 2014. The improvement in
the fee rate was caused by a mix-shift in the asset base; however,
the revenue benefit was offset by two fewer days in the current
period.
Compared to the first quarter of 2014, management fees declined
3% and average assets under management declined 4%. A mix-shift in
the asset base caused the effective fee rate to improve to 59.9
basis points compared to 59.2 basis points last year.
Underwriting and Distribution Analysis
Underwriting and Distribution Revenues
Revenues declined 3% sequentially due to a combination of lower
Rule 12b-1 fees from lower asset levels, two fewer days in the
first quarter and lower sales commissions on insurance and variable
annuity products. This decline was partly offset by higher
asset-based advisory fees in our Advisors channel.
Compared to the first quarter of 2014, revenues rose 1% as
higher asset-based advisory fees in our Advisors channel were
partly offset by lower Rule 12b-1 fees, and to a lesser degree,
lower front-load commission sales.
Underwriting and Distribution Costs
Sequentially, costs remained largely unchanged. Direct costs
declined 1% due to lower Rule 12b-1 fees from lower asset levels,
two fewer days in the first quarter and lower sales commissions on
insurance and variable annuity products, which were offset by
higher asset-based advisory fees in our Advisors channel and higher
commission costs in our Wholesale channel. Indirect costs rose 4%
due to higher field office expenses.
Compared to the same quarter last year, costs were largely
unchanged. Direct costs declined 2% due to a combination of lower
front-load sales commissions, lower wholesaler commissions in our
Wholesale channel and lower Rule 12b-1 fees. These were partly
offset by higher asset-based advisory fees in our Advisors channel.
Indirect costs rose 10% across both distribution channels,
primarily due to higher compensation, business meetings and travel,
advertising and sales convention costs.
Compensation and Related Expense Analysis
A 13% sequential increase in compensation costs was mainly due
to higher incentive compensation costs, and to a lesser degree,
higher base salary, payroll taxes and pension costs. Compared to
the same period last year, the 7% increase in costs is due to a
combination of higher incentive compensation and base salaries, and
to a lesser degree, higher pension costs.
General and Administrative Expense Analysis
Costs declined 11% sequentially due to lower consulting and
advertising costs. Compared to the first quarter of 2014, expenses
rose 8% due to higher consulting, dealer services and IT costs.
Unaudited Balance Sheet Information
Schedule of Selected Items
Mar. 31, 2015
(Amounts in millions) Cash & cash equivalents
(unrestricted) $610.8 Investment securities 245.4
Total
assets 1,477.4 Long-term debt 190.0
Total
liabilities 648.8 Stockholders' equity
828.6 Shares outstanding 83.6
million shares
Quarter ended Year-to-Date Mar. 31, 2015
Apr. 2, 2015 ($ in thousands) Shares
repurchased Number of shares 106,058 412,591 Total cost $4,599
$19,980
Dividend paid Rate per share $0.43 $0.43
Total paid $35,979 $35,979
Capital returned to
stockholders $40,578 $55,959
On April 2, 2015, we granted 1,028,523 shares of restricted
stock pursuant to our stock incentive plan.
Unaudited Consolidated Statement of Income
(Amounts in thousands, except for per share data)
2014
2015 1st Qtr.
2nd Qtr. 3rd Qtr. 4th
Qtr. 1st Qtr. 2nd Qtr. 3rd
Qtr. 4th Qtr. Operating Revenues:
Investment management fees $ 188,037 $ 193,624 $ 197,783 $ 188,658
$ 182,105 Underwriting and distribution fees 165,267 169,001
173,047 171,363 166,978 Shareholder service fees
37,112 38,009
38,728 37,130
36,375
Total operating revenues 390,416
400,634 409,558
397,151 385,458
Operating Expenses:
Underwriting and distribution 194,951 195,608 197,246 195,522
195,420 Compensation and related costs 50,009 48,589 48,375 47,437
53,495 General and administrative 23,756 27,183 24,924 28,774
25,678 Subadvisory fees 1,877 2,069 2,203 2,287 2,387 Depreciation
3,249 3,541 3,786 4,058 4,034 Intangible asset impairment
- -
7,900 - -
Total operating expenses
273,842 276,990
284,434
278,078 281,014
Operating Income 116,574 123,644 125,124
119,073 104,444 Investment and other income/(loss) 3,900 6,100
(1,205 ) 7,995 3,972 Interest expense (2,755 )
(2,755 ) (2,769 )
(2,763 ) (2,766 )
Income before taxes 117,719 126,989 121,150 124,305
105,650 Provision for taxes 42,855
44,001 46,564
43,412 38,537
Net Income
$ 74,864 $ 82,988
$ 74,586 $ 80,893 $ 67,113
Net income per share,
basic and diluted: 0.88
0.98 0.89
0.97 0.80
Weighted average shares outstanding - basic and
diluted 85,019
85,073 84,242
83,623 83,581
Operating margin 29.9 %
30.9 % 30.6 %
30.0 % 27.1 %
Net Distribution Cost Analysis (Amounts in thousands)
Wholesale Channel 1st Qtr. 2nd
Qtr. 3rd Qtr. 4th
Qtr. 1st Qtr. 2nd Qtr. 3rd
Qtr. 4th Qtr. U&D Revenues $59,564 $60,237
$59,807 $55,331 $52,142 U&D Expenses - Direct (79,700) (76,834)
(75,775) (70,150) (68,595) U&D Expenses - Indirect (11,535)
(12,791) (13,317)
(14,032) (14,029) Net
Distribution (Costs) ($31,671) ($29,388)
($29,285) ($28,851) ($30,482)
Advisors Channel
U&D Revenues $105,703 $108,764 $113,240 $116,032 $114,836
U&D Expenses - Direct (74,697) (76,867) (79,700) (82,231)
(82,022) U&D Expenses - Indirect (29,019)
(29,116) (28,454) (29,109) (30,774)
Net Distribution Excess
$1,987 $2,781 $5,086
$4,692 $2,040
Changes in Assets Under
Management 2014 2015
(Amounts in millions)
1st Qtr. 2nd Qtr.
3rd Qtr. 4th Qtr. 1st
Qtr. 2nd Qtr. 3rd Qtr.
4th Qtr. Wholesale Channel
Beginning assets $ 67,055 $
70,467 $ 71,671 $ 66,375 $ 60,335 Sales* 7,017 4,864 4,269 2,383
3,870 Redemptions (3,562 ) (4,363 ) (7,008 ) (8,592 ) (6,259 ) Net
Exchanges 112 (397 )
112 74 224
Net flows
3,567 104 (2,627 ) (6,135 ) (2,165 ) Market action (155 )
1,100 (2,669 )
95 1,242
Ending assets $ 70,467
$ 71,671 $ 66,375
$ 60,335 $ 59,412
Advisors Channel Beginning assets $
43,667 $ 44,224 $ 45,797 $ 44,908 $ 45,517 Sales* 1,435 1,457 1,322
1,332 1,270 Redemptions (1,106 ) (1,098 ) (1,146 ) (1,224 ) (1,279
) Net Exchanges (112 ) (88 )
(112 ) (74 ) (224 )
Net flows 217 271
64 34 (233 ) Market action 340
1,302 (953 ) 575
1,101
Ending assets $ 44,224 $ 45,797
$ 44,908 $ 45,517 $
46,385
Institutional Channel Beginning assets $ 15,821 $ 16,692 $
18,165 $ 17,603 $ 17,798 Sales* 1,554 1,193 328 317 300 Redemptions
(679 ) (851 ) (727 ) (663 ) (1,460 ) Net Exchanges -
485 -
- -
Net flows 875 827 (399 ) (346 ) (1,160
) Market action (4 ) 646
(163 ) 541 459
Ending assets $
16,692 $ 18,165 $ 17,603
$ 17,798 $ 17,097
Consolidated Total
Beginning assets $ 126,543 $ 131,383 $ 135,633 $ 128,886 $ 123,650
Sales* 10,006 7,514 5,919 4,032 5,440 Redemptions (5,347 ) (6,312 )
(8,881 ) (10,479 ) (8,998 ) Net Exchanges -
- -
- -
Net flows 4,659 1,202 (2,962 ) (6,447 ) (3,558 )
Market action 181 3,048
(3,785 ) 1,211
2,802
Ending assets $ 131,383 $ 135,633
$ 128,886 $ 123,650 $
122,894 *
Sales is primarily gross sales (net of sales commissions). This
amount also includes net reinvested dividends & capital gains
and investment income.
Supplemental Information 2014 2015
1st Qtr. 2nd Qtr. 3rd
Qtr. 4th Qtr. 1st Qtr.
2nd Qtr. 3rd Qtr. 4th Qtr.
Channel highlights Number of Wholesalers 60 60 59 59 61
Number of Advisors 1,737 1,740 1,759 1,766 1,745 Advisors'
Productivity * 60.9 62.4 64.6 65.7 65.9
Redemption rates
- long term assets Wholesale 21.1% 25.1% 40.3% 53.8% 42.9%
Advisors 8.2% 7.9% 8.2% 8.9% 9.0% Institutional 17.0% 19.9% 16.1%
14.7% 33.7% Total 16.2% 18.7% 26.1% 32.4% 29.0%
Operating
highlights Organic growth/(decay) annualized 14.7% 3.7% -8.7%
-20.0% -11.5% Total assets under management (in millions) 131,383
135,633 128,886 123,650 122,894
Diversification (Company
Total) As % of Sales Asset Strategy 33.4% 26.3% 24.9%
4.2% 17.1% Fixed Income 23.3% 25.4% 28.8% 28.1% 23.8% Other 43.3%
48.3% 46.3% 67.7% 59.1%
As % of Assets Under Management
Asset Strategy 33.9% 32.9% 32.0% 28.8% 27.0% Fixed Income 18.6%
18.7% 18.2% 17.8% 17.7% Other 47.5% 48.4% 49.8% 53.4% 55.3%
Operating margin 29.9% 30.9%
30.6% 30.0% 27.1%
Lipper Fund Rankings 1 Year 3
Years 5 Years Funds ranked in top quartile
31% 29% 30% Funds ranked in top half 50% 58% 52% Assets
ranked in top quartile 18% 61% 66% Assets ranked in top half 25%
76% 79% * Advisors' productivity
is calculated by dividing U&D revenues for the Advisors channel
by the average number of advisors during the period.
Earnings Conference Call
Stockholders, members of the investment community and the
general public are invited to listen to a live Web cast of
our earnings release conference call today 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
be made 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.
Contacts
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 and internationally. 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 and investment advisor and
global distributor to the Selector Management Fund SICAV, an
umbrella UCITS fund range domiciled in Luxembourg. 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 us or on our behalf 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, 2014, which include, without limitation:
- 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;
- 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 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;
- 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;
- The ability of mutual fund and other
investors to redeem their investments without prior notice or on
short notice;
- Non-compliance with applicable laws or
regulations and changes in current legal, regulatory, accounting,
tax or compliance requirements or governmental policies;
- Our inability to attract and retain
senior executive management and other key personnel to conduct our
broker/dealer, fund management and investment advisory
business;
- A failure in, or breach of, our
operational or security systems or our technology infrastructure,
or those of third parties on which we rely; and
- Our inability to implement new
information technology and systems, or our inability to complete
such implementation in a timely or cost effective manner.
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, 2014 and as updated in our
quarterly reports on Form 10-Q for the year ending December 31,
2015. All forward-looking statements speak only as of 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, except to the extent
required by law.
Waddell & Reed Financial, Inc.Investor Contact:Nicole Russell, 913-236-1880VP,
Investor Relationsnrussell@waddell.comorMutual
Fund Investor Contact:Call (888) WADDELLorvisit
www.waddell.com or www.ivyfunds.com
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