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Share Name | Share Symbol | Market | Type |
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Waddell and Reed Financial | NYSE:WDR | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 24.98 | 0 | 01:00:00 |
Waddell & Reed Financial, Inc. (NYSE: WDR) today reported fourth quarter 2014 net income of $80.9 million, or $0.97 per diluted share, compared to net income of $74.6 million, or $0.89 per diluted share, during the previous quarter and net income of $78.8 million, or $0.92 per diluted share, during the fourth quarter of 2013. The third quarter of 2014 included a charge of $7.9 million ($5.0 million net of taxes, or $0.06 per diluted share) to recognize the impairment of an intangible asset.
Operating revenues of $397.2 million declined 3% sequentially, driven by lower management fee revenues as average assets under management declined during the fourth quarter. When compared to the same period last year, operating revenues rose 6%. The increase was due to higher average assets under management during the current quarter compared to the same quarter in 2013, which resulted in higher underwriting and distribution fees and management fee revenues. The operating margin during the quarter was 30.0% compared to 30.6% during the previous quarter and 30.2% during the same period last year.
On December 31, 2014, assets under management were $123.7 billion, down 4% during the quarter due to outflows, which were partially offset by positive market action. Compared to December 31, 2013, assets under management declined 2%. Average assets under management were $126.9 billion in the quarter.
Business Discussion
“The second half of 2014 was unusually challenging for Waddell & Reed,” said Hank Herrmann, Chairman and Chief Executive Officer of Waddell & Reed Financial, Inc. “Sales momentum meaningfully decelerated while redemptions rose. Much of this reversal in trends can be attributed to weakness in performance in one of our key funds and the loss of investors’ appetite for high yield products.”
“The investment team is working to address performance issues while the distribution staff is focused on keeping clients alert to the attractiveness of our products and their superior long-term performance records.”
The fourth quarter of 2014 included $8.9 billion in capital gain and dividend distributions by our funds, approximately $1.0 billion of which were not reinvested by clients. The net capital gain not reinvested in our funds was recorded as a reduction to sales. We reported fourth quarter sales of $4.0 billion; however, adjusting for the impact of the un-reinvested portion of capital gains, sales were $5.0 billion.
Capital gain distributions during the quarter in the Wholesale channel were $5.9 billion, $912 million of which was not reinvested in our funds. Sales during the quarter were $2.4 billion, or $3.3 billion adjusted for the net capital gains not reinvested in our funds, which was 23% lower than the previous quarter. Annual sales were $18.5 billion, a decline of 13% compared to the year ended December 31, 2013, or 9% adjusted for the capital gains not reinvested in our funds. Outflows for the quarter and year ended December 31, 2014 were $6.1 billion and $5.1 billion, respectively, or outflows of $5.2 billion and $4.2 billion for the same periods adjusted for the capital gains not reinvested in our funds.
Sales in our Advisors channel were $1.3 billion during the current quarter, or 1% higher compared to the previous quarter. Sales increased 6% year over year, for an annual total of $5.5 billion. Net inflows were $34 million during the quarter and $586 million for the full year. Capital gain distributions during the quarter in our Advisors channel were $3.0 billion, $77 million of which was not reinvested in our funds.
Sales in our Institutional channel were $317 million, or 3% lower than the previous quarter. Annual sales were $3.4 billion, or 9% higher than the previous year. We experienced $346 million of outflows during the quarter; however, this channel had annual net inflows of $957 million.
Management Fee Revenue Analysis
Management fees declined 5% sequentially, in line with the 5% decline in average assets under management. The effective fee rate remained unchanged at 59.0 basis points.
Compared to the fourth quarter of 2013, management fees rose 5% while average assets under management rose 6%. A mix-shift in the asset base caused the effective fee rate to decline to 59.0 basis points compared to 59.5 basis points last year.
Underwriting and Distribution Analysis
Wholesale channel
Revenues fell sequentially as assets under management and related Rule 12b-1 fees declined. Direct expenses also declined on lower Rule 12b-1 fees and lower wholesaler commissions. Indirect costs rose slightly due to higher IT costs.
Compared to the same period last year, revenues and direct expenses fell slightly due to lower asset-based Rule 12b-1 fees. Indirect costs rose due to higher IT costs and to a lesser degree, higher compensation costs.
Advisors channel
Sequentially, revenues rose due to a combination of higher asset-based advisory fees and commissions on variable annuity sales and insurance products. Direct costs rose with revenues and indirect costs rose slightly.
Compared to the fourth quarter of 2013, the increase in revenues was primarily due to higher advisory fees. Higher asset-based Rule 12b-1 fees and, to a lesser degree, higher commissions on insurance products also contributed to the increase in revenues. Direct costs rose with revenues, while indirect costs rose slightly.
Compensation and Related Expense Analysis
The sequential decline in compensation costs was mainly due to lower incentive compensation costs and was partly offset by higher payroll taxes associated with the vesting of restricted stock, higher equity compensation and higher base salaries.
Compared to the same quarter in 2013, costs declined due to lower incentive compensation costs and, to a lesser degree, a decline in pension costs. An increase in base compensation costs partially offset these items.
General and Administrative Expense Analysis
Costs rose sequentially due to higher IT, consulting and advertising costs. Compared to the fourth quarter of 2013, higher consulting was primarily responsible for the increase in costs.
Unaudited Balance Sheet Information Schedule of Selected Items Dec. 31, 2014 (Amounts in millions) Cash & cash equivalents (unrestricted) $ 566.6 Investment securities 243.3 Total assets 1,511.9 Long-term debt 190.0 Total liabilities 725.8 Stockholders' equity 786.1 Shares outstanding 83.7 million shares Quarter ended Year-to-Date Dec. 31, 2014 Dec. 31, 2014 ($ in thousands) Shares repurchased Number of shares 729,882 2,252,152 Total cost $ 34,885 $ 131,030 Dividend paid Rate per share $ 0.34 $ 1.36 Total paid $ 28,509 $ 115,263 Capital returned to stockholders $ 63,394 $ 246,293 On December 31 2014, we granted 323,000 shares of restricted stock in accordance with our executive compensation program. Unaudited Consolidated Statement of Income (Amounts in thousands, except for per share data) 2013 2014 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Operating Revenues: Investment management fees $ 148,445 $ 156,219 $ 165,559 $ 180,219 $ 188,037 $ 193,624 $ 197,783 $ 188,658 Underwriting and distribution fees 135,419 141,597 146,863 158,940 165,267 169,001 173,047 171,363 Shareholder service fees 32,691 33,890 34,667 35,845 37,112 38,009 38,728 37,130 Total operating revenues 316,555 331,706 347,089 375,004 390,416 400,634 409,558 397,151 Operating Expenses: Underwriting and distribution 161,571 164,844 169,046 181,252 194,951 195,608 197,246 195,522 Compensation and related costs 48,155 47,376 49,472 52,594 50,009 48,589 48,375 47,437 General and administrative 16,208 26,938 20,462 22,811 23,756 27,183 24,924 28,774 Subadvisory fees 4,484 4,291 1,667 1,778 1,877 2,069 2,203 2,287 Depreciation 3,227 3,222 3,172 3,213 3,249 3,541 3,786 4,058 Intangible asset impairment - - - - - - 7,900 - Total operating expenses 233,645 246,671 243,819 261,648 273,842 276,990 284,434 278,078 Operating Income 82,910 85,035 103,270 113,356 116,574 123,644 125,124 119,073 Investment and other income/(loss) 4,377 1,002 5,212 9,313 3,900 6,100 (1,205 ) 7,995 Interest expense (2,854 ) (2,858 ) (2,832 ) (2,700 ) (2,755 ) (2,755 ) (2,769 ) (2,763 ) Income before taxes 84,433 83,179 105,650 119,969 117,719 126,989 121,150 124,305 Provision for taxes 30,570 31,222 37,231 41,210 42,855 44,001 46,564 43,412 Net Income $ 53,863 $ 51,957 $ 68,419 $ 78,759 $ 74,864 $ 82,988 $ 74,586 $ 80,893 Net income per share, basic and diluted: 0.63 0.61 0.80 0.92 0.88 0.98 0.89 0.97 Weighted average shares outstanding - basic and diluted 85,593 85,869 85,603 85,294 85,019 85,073 84,242 83,623 Operating margin 26.2 % 25.6 % 29.8 % 30.2 % 29.9 % 30.9 % 30.6 % 30.0 % 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 $ 48,175 $ 49,846 $ 52,472 $ 56,926 $ 59,564 $ 60,237 $ 59,807 $ 55,331 U&D Expenses - Direct (63,548 ) (64,694 ) (67,107 ) (72,698 ) (79,700 ) (76,834 ) (75,775 ) (70,150 ) U&D Expenses - Indirect (11,000 ) (11,229 ) (10,409 ) (11,285 ) (11,535 ) (12,791 ) (13,317 ) (14,032 ) Net Distribution (Costs) ($26,373 ) ($26,077 ) ($25,044 ) ($27,057 ) ($31,671 ) ($29,388 ) ($29,285 ) ($28,851 ) Advisors Channel U&D Revenues $ 87,244 $ 91,751 $ 94,391 $ 102,014 $ 105,703 $ 108,764 $ 113,240 $ 116,032 U&D Expenses - Direct (59,657 ) (62,794 ) (64,550 ) (69,023 ) (74,697 ) (76,867 ) (79,700 ) (82,231 ) U&D Expenses - Indirect (27,366 ) (26,127 ) (26,980 ) (28,246 ) (29,019 ) (29,116 ) (28,454 ) (29,109 ) Net Distribution Excess $ 221 $ 2,830 $ 2,861 $ 4,745 $ 1,987 $ 2,781 $ 5,086 $ 4,692 Changes in Assets Under Management 2013 2014 (Amounts in millions) 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Wholesale Channel Beginning assets $ 48,930 $ 53,254 $ 53,860 $ 59,661 $ 67,055 $ 70,467 $ 71,671 $ 66,375 Sales* 5,042 5,030 5,191 6,148 7,017 4,864 4,269 2,383 Redemptions (3,157 ) (3,983 ) (3,723 ) (3,449 ) (3,562 ) (4,363 ) (7,008 ) (8,592 ) Net Exchanges 66 61 83 91 112 (397 ) 112 74 Net flows 1,951 1,108 1,551 2,790 3,567 104 (2,627 ) (6,135 ) Market action 2,373 (502 ) 4,250 4,604 (155 ) 1,100 (2,669 ) 95 Ending assets $ 53,254 $ 53,860 $ 59,661 $ 67,055 $ 70,467 $ 71,671 $ 66,375 $ 60,335 Advisors Channel Beginning assets $ 35,660 $ 37,915 $ 38,172 $ 40,767 $ 43,667 $ 44,224 $ 45,797 $ 44,908 Sales* 1,303 1,404 1,242 1,283 1,435 1,457 1,322 1,332 Redemptions (1,047 ) (1,083 ) (1,071 ) (1,104 ) (1,106 ) (1,098 ) (1,146 ) (1,224 ) Net Exchanges (66 ) (62 ) (83 ) (92 ) (112 ) (88 ) (112 ) (74 ) Net flows 190 259 88 87 217 271 64 34 Market action 2,065 (2 ) 2,507 2,813 340 1,302 (953 ) 575 Ending assets $ 37,915 $ 38,172 $ 40,767 $ 43,667 $ 44,224 $ 45,797 $ 44,908 $ 45,517 Institutional Channel Beginning assets $ 11,775 $ 12,626 $ 12,312 $ 13,316 $ 15,821 $ 16,692 $ 18,165 $ 17,603 Sales* 430 379 386 1,913 1,554 1,193 328 317 Redemptions (469 ) (811 ) (550 ) (792 ) (679 ) (851 ) (727 ) (663 ) Net Exchanges - - - - - 485 - - Net flows (39 ) (432 ) (164 ) 1,121 875 827 (399 ) (346 ) Market action 890 118 1,168 1,384 (4 ) 646 (163 ) 541 Ending assets $ 12,626 $ 12,312 $ 13,316 $ 15,821 $ 16,692 $ 18,165 $ 17,603 $ 17,798 Consolidated Total Beginning assets $ 96,365 $ 103,795 $ 104,344 $ 113,744 $ 126,543 $ 131,383 $ 135,633 $ 128,886 Sales* 6,775 6,813 6,819 9,344 10,006 7,514 5,919 4,032 Redemptions (4,673 ) (5,877 ) (5,344 ) (5,345 ) (5,347 ) (6,312 ) (8,881 ) (10,479 ) Net Exchanges - (1 ) - (1 ) - - - - Net flows 2,102 935 1,475 3,998 4,659 1,202 (2,962 ) (6,447 ) Market action 5,328 (386 ) 7,925 8,801 181 3,048 (3,785 ) 1,211 Ending assets $ 103,795 $ 104,344 $ 113,744 $ 126,543 $ 131,383 $ 135,633 $ 128,886 $ 123,650* Sales is primarily gross sales (net of sales commissions). This amount also includes net reinvested dividends & capital gains and investment income.
Supplemental Information 2013 2014 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Channel highlights Number of Wholesalers 50 50 49 50 60 60 59 59 Number of Advisors 1,717 1,734 1,784 1,746 1,737 1,740 1,759 1,766 Advisors' Productivity * 50.5 53.1 53.7 57.4 60.9 62.4 64.6 65.7 Redemption rates - long term assets Wholesale 24.6 % 29.4 % 25.7 % 21.7 % 21.1 % 25.1 % 40.3 % 53.8 % Advisors 9.4 % 9.1 % 8.7 % 8.5 % 8.2 % 7.9 % 8.2 % 8.9 % Institutional 15.5 % 25.5 % 17.0 % 21.6 % 17.0 % 19.9 % 16.1 % 14.7 % Total 18.0 % 21.7 % 18.6 % 17.1 % 16.2 % 18.7 % 26.1 % 32.4 % Operating highlights Organic growth/(decay) annualized 8.7 % 3.6 % 5.7 % 14.1 % 14.7 % 3.7 % -8.7 % -20.0 % Total assets under management (in millions) 103,795 104,344 113,744 126,543 131,383 135,633 128,886 123,650 Diversification (Company Total) As % of Sales Asset Strategy 33.6 % 28.5 % 25.9 % 27.6 % 33.4 % 26.3 % 24.9 % 4.2 % Fixed Income 30.7 % 30.4 % 31.8 % 24.4 % 23.3 % 25.4 % 28.8 % 28.1 % Other 35.7 % 41.1 % 42.3 % 48.0 % 43.3 % 48.3 % 46.3 % 67.7 % As % of Assets Under Management Asset Strategy 33.7 % 33.4 % 33.8 % 34.3 % 33.9 % 32.9 % 32.0 % 28.8 % Fixed Income 20.7 % 19.9 % 19.0 % 18.1 % 18.6 % 18.7 % 18.2 % 17.8 % Other 45.6 % 46.7 % 47.2 % 47.6 % 47.5 % 48.4 % 49.8 % 53.4 % Operating margin 26.2 % 25.6 % 29.8 % 30.2 % 29.9 % 30.9 % 30.6 % 30.0 % Lipper Fund Rankings 1 Year 3 Years 5 Years Funds ranked in top quartile 18 % 32 % 37 % Funds ranked in top half 56 % 65 % 63 % Assets ranked in top quartile 9 % 62 % 68 % Assets ranked in top half 40 % 78 % 86 % * Advisors' productivity is calculated by dividing U&D revenues for the Advisors channel
by the average number of advisors during the period.
Unaudited Consolidated Statement of Income (Amounts in thousands, except for per share data) Year to Date Dec-14 Dec-13 % Change Operating Revenues: Investment management fees $ 768,102 $ 650,442 18.1 % Underwriting and distribution fees 678,678 582,819 16.4 % Shareholder service fees 150,979 137,093 10.1 % Total operating revenues 1,597,759 1,370,354 16.6 % Operating Expenses: Underwriting and distribution 783,327 676,713 15.8 % Compensation and related costs 194,410 197,597 -1.6 % General and administrative 104,637 86,419 21.1 % Subadvisory fees 8,436 12,220 -31.0 % Depreciation 14,634 12,834 14.0 % Intangible asset impairment 7,900 - N/M Total operating expenses 1,113,344 985,783 12.9 % Operating Income 484,415 384,571 26.0 % Investment and other income 16,790 19,904 -15.6 % Interest expense (11,042 ) (11,244 ) -1.8 % Income before taxes 490,163 393,231 24.7 % Provision for taxes 176,832 140,233 26.1 % Net Income $ 313,331 $ 252,998 23.8 % Net income per share, basic and diluted 3.71 2.96 25.5 % Weighted average shares outstanding - basic and diluted 84,485 85,589 -1.3 % Operating margin 30.3 % 28.1 % 8.0 % Net Distribution Cost Analysis (Amounts in thousands) Year to Date Wholesale Channel Dec-14 Dec-13 % Change U&D Revenues $ 234,939 $ 207,419 13.3 % U&D Expenses - Direct (302,459 ) (268,047 ) 12.8 % U&D Expenses - Indirect (51,675 ) (43,923 ) 17.6 % Net Distribution (Costs) ($119,195 ) ($104,551 ) 14.0 % Advisors Channel U&D Revenues $ 443,739 $ 375,400 18.2 % U&D Expenses - Direct (313,495 ) (256,024 ) 22.4 % U&D Expenses - Indirect (115,698 ) (108,719 ) 6.4 % Net Distribution Excess $ 14,546 $ 10,657 36.5 % Changes in Assets Under Management Year to Date (Amounts in millions) Dec-14 Dec-13 % Change Wholesale Channel Beginning assets $ 67,055 $ 48,930 37.0 % Sales* 18,534 21,411 -13.4 % Redemptions (23,524 ) (14,313 ) 64.4 % Net Exchanges (101 ) 303 N/M Net flows (5,091 ) 7,401 -168.8 % Market action (1,629 ) 10,724 -115.2 % Ending assets $ 60,335 $ 67,055 -10.0 % Advisors Channel Beginning assets $ 43,667 $ 35,660 22.5 % Sales* 5,545 5,232 6.0 % Redemptions (4,575 ) (4,304 ) 6.3 % Net Exchanges (384 ) (306 ) N/M Net flows 586 622 -5.8 % Market action 1,264 7,385 -82.9 % Ending assets $ 45,517 $ 43,667 4.2 % Institutional Channel Beginning assets $ 15,821 $ 11,775 34.4 % Sales* 3,392 3,108 9.1 % Redemptions (2,920 ) (2,622 ) 11.4 % Net Exchanges 485 - N/M Net flows 957 486 -96.9 % Market action 1,020 3,560 -71.3 % Ending assets $ 17,798 $ 15,821 12.5 % Consolidated Total Beginning assets $ 126,543 $ 96,365 31.3 % Sales* 27,471 29,751 -7.7 % Redemptions (31,019 ) (21,239 ) 46.0 % Net Exchanges - (3 ) N/M Net flows (3,548 ) 8,509 -141.7 % Market action 655 21,669 -97.0 % Ending assets $ 123,650 $ 126,543 -2.3 % * Sales is primarily gross sales (net of sales commissions). This amount also includesnet reinvested dividends & capital gains and investment income.
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
Investor Contact:Nicole Russell, VP, Investor Relations, (913) 236-1880, nrussell@waddell.com
Mutual Fund Investor Contact:Call (888) WADDELL, or visit www.waddell.com or www.ivyfunds.com.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 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 and global distributor to Selector Management Fund SICAV.
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, 2013, which include, without limitation:
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, 2013 and as updated in our quarterly reports on Form 10-Q for the year ending December 31, 2014. 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:(888) WADDELLwww.waddell.comwww.ivyfunds.com
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