Waddell & Reed Financial, Inc. Reports Fourth Quarter Results
Waddell & Reed Financial, Inc. Reports Fourth Quarter Results
- Diluted earnings per share of $0.31 for the quarter; $1.25 for the
year
- Financial advisors head count growth of 7% since June 30, 2004
- Investment product sales in Advisors channel improves 18% over the
third quarter of 2004
- Sales per advisor improves 16% over the third quarter of 2004
- Non-proprietary sales reach highest level since inception; 52% higher
than third quarter of 2004
- Relative investment performance, as measured by Lipper and
MorningStar, continues to improve
OVERLAND PARK, Kan., Jan. 27 /PRNewswire-FirstCall/ -- Waddell & Reed
Financial, Inc. (NYSE: WDR) reported fourth quarter net income of
$25.7 million, or $0.31 per diluted share, compared to $23.4 million, or
$0.29 per diluted share, in the third quarter of 2004 and net income of
$28.1 million, or $0.34 per diluted share, in last year's comparable period.
Full year 2004 net income was $102.2 million, or $1.25 per diluted share,
compared to adjusted net income of $93.0 million, or $1.13 per diluted share,
in 2003. The results for 2003 were adjusted to exclude an after-tax charge of
$17.2 million ($0.21 per diluted share) taken as a result of our stock option
tender offer and an after-tax charge of $21.5 million ($0.26 per diluted
share) to recognize liabilities associated with certain legal and regulatory
matters. We believe adjusting last year's results for these special charges
provides shareholders with a more accurate comparison to this year's results.
A schedule reconciling these adjusted results from GAAP is provided on pages
5 and 6. GAAP net income for the twelve months ended December 31, 2003 was
$54.3 million, or $0.66 per diluted share.
"We finished the year in each retail distribution channel on a strong
note," said Keith A. Tucker, Chairman and Chief Executive Officer of Waddell &
Reed Financial, Inc. "After two quarters of disappointing results in our
Advisors channel, fourth quarter sales and advisor productivity showed marked
improvement over the second and third quarters of 2004. Separately, gross
sales in our non-proprietary distribution channel continued to accelerate and,
at $1.4 billion for the year, comfortably exceeded the $1.0 billion
threshold."
Channel Discussion
Waddell & Reed Advisors channel
Our wholesaling efforts have been well received by our financial advisors.
During the fourth quarter we noted significant improvement in sales and
productivity over the second and third quarters of this year. Retail
investment product sales improved 5% and 18% compared to the second and third
quarters, respectively, while productivity per advisor improved by 1% and
16% over the same time periods.
While advisor headcount increased during the quarter, the amount of the
increase was subdued somewhat by lower than anticipated licensing of new
advisors. However, the pipeline for headcount growth in 2005 is strong with
the number of licensing kits in process at year-end up 49% from a year ago.
In addition, through January 25, the number of terminations has decreased
compared to last year, and we expect this trend to continue throughout the
first quarter. We anticipate an annual growth in headcount of 10% in 2005.
Wholesale channel
Demand for our mutual funds in our non-proprietary channel continues to
accelerate. Gross and net sales during the quarter were at record levels.
Gross sales during the quarter were $460 million, and represent a compound
annual growth rate of 67% since the re-launch of our non-proprietary sales
efforts in July of 2003. Net sales for the quarter also set record levels at
$178 million, a compound annual growth rate of over 100% during the same
period. For the year ended December 31, 2004, our non-proprietary efforts
yielded an organic growth rate of 9.5%.
Management Fee Revenues
Compared to third quarter of 2004, as well as to the fourth quarter of
2003, fourth quarter 2004 revenues increased in close correlation to the
increase in average assets under management. We continue to experience an
improvement in the overall management fee rate due to a mix shift between the
Advisors, Ivy and W&R Target Funds that occurred when we acquired and merged
the Securian assets into the Ivy and W&R Target Funds in the second half of
2003. The Ivy and W&R Target Funds generally have a slightly higher
management fee rate due to scale. For the quarters ended December 2004,
September 2004 and December 2003, the overall management fee rate was
66.9 basis points, 66.1 basis points and 65.5 basis points, respectively.
Investment Product Sales (1)
Advisors Channel
($ thousands)
4Q 04 4Q 03 % 3Q 04 %
Front-load sales $391,438 $434,740 -10.0% $336,996 16.2%
Deferred-load sales 60,215 71,919 -16.3% 51,150 17.7%
Allocation Product
Sales (no-load) (2) 7,097 -- nm -- nm
Total $458,750 $506,659 -9.5% $388,146 18.2%
(1) Investment product sales exclude sales at net asset value, Class Y
sales, and sales of money market funds. Sales load is included.
(2) Includes Strategic Portfolio Allocation ("SPA") and Model Allocation
Portfolio ("MAP") products.
Underwriting and Distribution Revenues
In the current quarter, our Advisors channel generated approximately
three-quarters of revenues while the Wholesale channel earned the remainder.
On a sequential quarter basis, two-thirds of the increase in revenues is
attributable to the Advisors channel through a combination of improved sales
volume and higher financial planning fees. The remainder of the improvement
is attributable to the Wholesale channel, primarily due to an improvement in
sales volume by Legend advisors.
Comparing the current quarter to last year's fourth quarter, revenues in
the Advisors channel declined as the improvement in financial planning fees
was offset by weaker front-load sales volume and lower asset allocation fees.
The net decline in revenues recorded in the Advisors channel was offset by an
increase in revenues in the Wholesale channel due to higher sales volume by
Legend advisors.
Underwriting and Distribution Expenses
In the current quarter, our Advisors channel is responsible for
approximately 70% of variable and fixed expenses, while the Wholesale channel
is responsible for the remainder.
On a sequential quarter basis, the overall increase in expenses is due in
equal parts to the Advisors channel and the Wholesale channel. In the
Advisors channel, the increase in expense is due primarily to higher sales
volume and higher financial plan activity. Fixed expenses in the Advisors
channel remain practically unchanged. In the Wholesale channel, the increase
in expenses is due to a combination of higher sales volume by Legend advisors,
and higher sales volume in our non-proprietary distribution efforts. Fixed
expenses also increased in the Wholesale channel due to higher costs
associated with our wholesaling activities, advertising and sales brochures.
Compared to last year's fourth quarter, the overall increase in expenses
is due almost entirely to higher expenses in the Wholesale channel. Higher
sales volume by Legend advisors and our non-proprietary distribution efforts
accounted for approximately half of the increase in total expenses. Fixed
expenses accounted for the remainder of the increase; specifically, increases
in this channel were due to higher costs associated with our wholesaling
activities, advertising and sales brochures.
The Waddell & Reed Advisors underwriting and distribution margin, a
measure that excludes our wholesale underwriting and distribution activities,
improved to -1.6% during the quarter, from -2.9% in this year's third quarter
as sales levels in the Advisors channel increased; however, it declined
compared to -0.5% in last year's 4th quarter due to lower sales levels.
Shareholder Service Fee Revenues
Comparing the current quarter to last year's comparable period, the
increase in revenues is due primarily to the addition of the Securian accounts
in December 2003 and the addition of funds to our asset allocation product; to
a lesser degree, the growth in number of accounts contributed.
Other Operating Items
Compensation and related costs increased when compared to the third
quarter due to increased earnings related to deferred compensation plans,
headcount increases and year-end adjustments in incentive compensation.
Compared to last year's fourth quarter, expenses increased due to higher
incentive compensation and headcount growth.
Equity compensation increased compared to last year's comparable period
due to additional restricted stock grants in the current year.
General and administrative expenses declined compared to this year's third
quarter due to somewhat lower legal expenses. This decline was partially
offset by higher compliance costs associated with the Sarbanes-Oxley Act.
Compared to last year's fourth quarter, the increase is due to compliance
costs associated with the Sarbanes-Oxley Act.
In 2003, we began paying sub-advisory fees for certain Securian assets
sub-advised by other asset managers. These assets were acquired in September
and December 2003 and are reflected in subsequent periods. The sequential
quarterly increase is primarily due to strong sales and asset growth in some
of our sub-advised funds.
Other Income (Expense)
Other income increased compared to this year's third quarter primarily due
to increased appreciation on trading securities related to our deferred
compensation plans and increased dividends earned on mutual fund holdings
during the period. Compared to the same quarter last year, the decline is due
to a gain recorded in the prior year from the sale of a mutual fund investment
partially offset in part by current year gains from trading securities.
Interest expense increased compared to this year's third quarter due to
higher variable interest paid on long-term debt and higher average borrowings
and rates on short-term debt during the period. Compared to last year's
comparable period, the increase is also attributed to higher variable rates
paid on long-term debt coupled with higher average balances and rates for
short-term borrowings during the period.
Tax Rate
The effective tax rate for the quarter was 33.6% compared to 36.3% and
36.2% for the third quarter of 2004 and the fourth quarter of 2003,
respectively. The decline in the effective tax rate is due to an evaluation
of various federal and state income tax matters.
Balance Sheet Information
As of December 31, 2004
-- Cash balance of $83.9 million ($22.6 million held for the exclusive
benefit of customers in compliance with federal securities industry
regulations.)
-- Investment securities of $125.3 million.
-- Cash and investment securities of $99.4 million are restricted or
pledged as collateral pending the outcome of legal matters.
-- Long-term debt outstanding of $202.9 million.
-- Short-term debt outstanding of $35.0 million.
-- Shareholders' equity of $218.9 million.
-- Shares outstanding were 82.8 million.
Schedule of Selected Operating Data
Included in the following Schedules of Selected Operating Data is a
representation of cash earnings and cash operating margin.
We believe adjusting our results by excluding non-cash items such as
equity compensation and non-recurring items promotes comparability to the
operating results of other companies who may use options and have elected not
to expense their cost. A reconciliation from GAAP is provided at the bottom
of the schedule.
WADDELL & REED FINANCIAL, INC.
Schedule of Selected Operating Data
(Amounts in thousands except for per share data)
Three Months Ended Three Months Ended
December 31, Change September 30, Change
2004 2003 $ % 2004 $ %
Operating Revenues:
Investment
management fees $62,504 $57,594 4,910 8.5 $58,221 4,283 7.4
Underwriting &
distribution
fees 48,475 47,896 579 1.2 43,292 5,183 12.0
Shareholder
service fees 19,333 18,574 759 4.1 19,121 212 1.1
Total operating
revenues 130,312 124,064 6,248 5.0 120,634 9,678 8.0
Operating Expenses:
Underwriting and
distribution: 53,549 49,170 4,379 8.9 47,833 5,716 11.9
Compensation and
related costs 19,577 18,395 1,182 6.4 16,911 2,666 15.8
Equity Compensation 2,872 1,108 1,764 159.2 2,828 44 1.6
General and
administrative 9,399 8,676 723 8.3 9,937 (538) -5.4
Sub-advisory 2,774 699 2,075 296.9 1,726 1,048 60.7
Depreciation 2,313 2,035 278 13.7 2,300 13 0.6
Total operating
expense 90,484 80,083 10,401 13.0 81,535 8,949 11.0
Other Income
(Expense):
Investment &
other income 2,037 2,383 (346) -14.5 439 1,598 364.0
Interest expense (3,230) (2,419) (811) -33.5 (2,769) (461) -16.6
Income before
taxes 38,635 43,945 (5,310) -12.1 36,769 1,866 5.1
Provision for
taxes 12,974 15,887 (2,913) -18.3 13,351 (377) -2.8
Net income $25,661 $28,058 (2,397) -8.5 $23,418 2,243 9.6
Cash earnings (1) $27,490 $28,765 (1,274) -4.4 $25,219 2,271 9.0
Net income per
share - diluted $0.31 $0.34 -8.8 $0.29 6.9
Cash earnings per
share - diluted (1) $0.33 $0.35 -5.7 $0.31 6.5
Weighted average
number of shares
outstanding -
diluted 82,090 82,707 81,634
Cash operating
margin (1) 32.8% 36.3% 34.8%
Waddell & Reed
Advisors U&D
margin (2) -1.6% -0.5% -2.9%
(1) Reconciliation from GAAP provided below
(2) Excludes our wholesale underwriting and distribution activities
GAAP net income $25,661 $28,058 $23,418
Add back equity
compensation
(post-tax) 1,829 707 1,801
Cash earnings $27,490 $28,765 $25,219
GAAP net income per
share (diluted) $0.31 $0.34 $0.29
Add back equity
compensation
(post-tax) 0.02 0.01 0.02
Cash earnings per
share (diluted) * $0.33 $0.35 $0.31
GAAP operating
margin 30.6% 35.5% 32.4%
Add back equity
compensation 2.2% 0.9% 2.3%
Cash operating
margin *32.8% 36.3% 34.8%
* Column may not add due to rounding
WADDELL & REED FINANCIAL, INC.
Schedule of Selected Operating Data
(Amounts in thousands except for per share data)
Year Ended December 31, Change
2004 2003 $ %
Operating Revenues:
Investment management fees $240,282 $203,918 36,364 17.8
Underwriting & distribution fees 187,273 176,586 10,687 6.1
Shareholder service fees 76,522 70,678 5,844 8.3
Total operating revenues 504,077 451,182 52,895 11.7
Operating Expenses:
Underwriting and distribution: 203,189 184,223 18,966 10.3
Compensation and related costs 72,763 68,515 4,248 6.2
Equity Compensation
Excluding special charge 10,336 4,569 5,767 126.2
Special charge (1) - 27,113 (27,113) N/A
General and administrative
Excluding special charge 38,357 37,862 495 1.3
Special charge (2) - 32,000 (32,000) N/A
Sub-advisory 6,983 1,012 5,971 590.0
Depreciation 9,090 7,191 1,899 26.4
Total operating expense 340,718 362,485 (21,767) -6.0
Other Income (Expense):
Investment & other income 5,575 5,996 (421) -7.0
Interest expense (10,724) (9,759) (965) -9.9
Income before taxes 158,210 84,934 73,276 86.3
Provision for taxes 56,045 30,669 25,376 82.7
Net income $102,165 $54,265 47,900 88.3
Cash earnings (3) $108,749 $95,880 12,869 13.4
Net income per share - diluted $1.25 $0.66 89.4
Cash earnings per share -
diluted (3) $1.33 $1.16 14.7
Weighted avg. number of shares
outstanding - diluted 81,924 82,590
Cash operating margin (3) 34.5% 33.8%
Waddell & Reed Advisors U&D
margin (4) -0.1% -1.9%
(1) Special charge for tender
(2) Special charge for legal and
regulatory matters
(3) Reconciliation from GAAP
provided below
(4) Excludes our wholesale
underwriting and distribution
activities
GAAP net income $102,165 $54,265
Add back special charge for tender
(post-tax) - 17,200
Add back special charge for legal &
regulatory matters (post-tax) - 21,500
Add back equity compensation (post-
tax) 6,584 2,915
Cash earnings $108,749 $95,880
GAAP net income per share (diluted) $1.25 $0.66
Add back special charge for tender
(post-tax) 0.00 0.21
Add back special charge for legal &
regulatory matters (post-tax) 0.00 0.26
Add back equity compensation (post-
tax) 0.08 0.04
Cash earnings per share (diluted) * $1.33 $1.16
GAAP operating margin 32.4% 19.7%
Add back special charge for tender
(post-tax) 0.0% 6.0%
Add back special charge for legal &
regulatory matters (post-tax) 0.0% 7.1%
Add back equity compensation (post-
tax) 2.1% 1.0%
Cash operating margin * 34.5% 33.8%
* Column may not add due to rounding
WADDELL & REED FINANCIAL, INC.
Changes in Assets Under Management
For the quarter ended
(Amounts in millions)
Waddell &
Reed
Advisors Wholesale
December 31, 2004 Channel Channel Total
Beginning Assets $23,484 $12,119 $35,603
Sales 555 735 1,290
Redemptions (813) (654) (1,467)
Net Sales (258) 81 (177)
Net Exchanges and Adjustments (15) 12 (3)
Reinvested Dividends and Capital
Gains 75 56 131
Net Flows (198) 149 (49)
Market Appreciation 2,011 1,093 3,104
Ending Assets $25,297 $13,361 $38,658
December 31, 2003
Beginning Assets $22,549 $10,327 $32,876
Securian Assets (1) - 481 481
Sales 604 890 1,494
Redemptions (866) (496) (1,362)
Net Sales (262) 394 132
Net Exchanges and Adjustments (23) 19 (4)
Reinvested Dividends and Capital
Gains 39 32 71
Net Flows (246) 445 199
Market Appreciation 2,034 983 3,017
Ending Assets $24,337 $12,236 $36,573
September 30, 2004
Beginning Assets $24,173 $12,185 $36,358
Sales 495 813 1,308
Redemptions (834) (628) (1,462)
Net Sales (339) 185 (154)
Net Exchanges and Adjustments (16) 13 (3)
Reinvested Dividends and Capital
Gains 31 32 63
Net Flows (324) 230 (94)
Market Appreciation/(Depreciation) (365) (296) (661)
Ending Assets $23,484 $12,119 $35,603
(1) Assets acquired in connection with the strategic alliance with
Securian Financial Group, Inc.
WADDELL & REED FINANCIAL, INC.
Supplemental Information
Other Items
4Q04 4Q03 % change 3Q04 % change
Redemption
rates -
long-term
assets
Waddell & Reed
Advisors
channel l10.9% 11.0% 11.6%
Wholesale
channel l20.0% 17.2% 21.1%
Total 14.1% 13.0% 14.9%
Sales per
advisor
(000s) (1)
Total 178 173 2.9% 154 15.6%
2+ Years 264 247 6.9% 222 18.9%
0 to 2 Years 45 57 -21.1% 42 7.1%
Gross production
per advisor
(000s) (2) 13.2 12.2 8.2% 12.3 7.3%
Number of
advisors (3) 2,623 2,929 -10.5% 2,566 2.2%
Number of
shareholder
accounts
(000s) 2,423 2,339 3.6% 2,387 1.5%
(1) Average commissionable sales per Waddell & Reed Advisor
(2) Average gross commission generated per Waddell & Reed Advisor
(3) Excludes Legend retirement advisors
Lipper Ranking
1 Year 3 Years 5 Years
Percentage of funds
Equity Funds
Top Quartile 36% 48% 54%
Top Half 64% 74% 71%
All Funds
Top Quartile 29% 38% 43%
Top Half 59% 64% 65%
MorningStar Ranking
Overall 3 Years 5 Years
Percentage of funds with 4 or 5 stars
Equity Funds 43% 40% 46%
All Funds 34% 32% 35%
Earnings Conference Call
Members of the investment community and the general public are invited to
listen to a live webcast of our earnings release conference call today,
January 27, 2005 at 11:00 a.m. Eastern. During this call, Keith A. Tucker,
Chairman and CEO, will review our fourth quarter results. Live access to the
teleconference will be available on the "Corporate" section of our website at
http://www.waddell.com . A webcast replay will be made available shortly
after the call through February 2nd.
Website Resources
We invite you to visit the "Corporate" section of our website at
http://www.waddell.com under the caption "Data Tables" to review supplemental
information schedules on asset flows and average assets under management &
management fee rates.
Mutual Fund Investor Contact:
Call (888) WADDELL, or visit http://www.waddell.com or
http://www.ivyfunds.com .
Past performance is no guarantee of future results. Please invest
carefully.
Forward-looking Statements
The statements in this press release relating to matters that are not
historical facts are forward-looking statements based on management's belief
and assumptions using currently available information and expectations as of
the date hereof, are not guarantees of future performance and involve certain
risks, uncertainties and assumptions that are difficult to predict. Although
we believe that the expectations reflected in such forward-looking statements
are reasonable, we cannot give any assurances that these expectations will
prove to be correct. Therefore, actual outcomes and results could materially
differ from what is expressed, implied or forecast in such statements. Such
differences could be caused by a number of factors including, but not limited
to, a risk that the expected benefits from the expansion of our distribution
channels may not be as beneficial as anticipated, unexpected and adverse
results of litigation or regulation, acts of terrorism and/or war, less
favorable economic and market conditions including our cost to finance the
Company, the risk that the intended results of our changes to long-term
incentive compensation may not meet our expectations, and other risks as set
out in the reports we have filed with the SEC. Should one or more of these
risks materialize or should the underlying assumptions prove incorrect, actual
results could differ materially from those forecasted or expected. We assume
no duty to publicly update or revise such statements, whether as a result of
new information, future events or otherwise.
SOURCE Waddell & Reed Financial, Inc.
Web Site: http://www.waddell.com
- Diluted earnings per share of $0.31 for the quarter; $1.25 for the
year
- Financial advisors head count growth of 7% since June 30, 2004
- Investment product sales in Advisors channel improves 18% over the
third quarter of 2004
- Sales per advisor improves 16% over the third quarter of 2004
- Non-proprietary sales reach highest level since inception; 52% higher
than third quarter of 2004
- Relative investment performance, as measured by Lipper and
MorningStar, continues to improve
OVERLAND PARK, Kan., Jan. 27 /PRNewswire-FirstCall/ -- Waddell & Reed
Financial, Inc. (NYSE: WDR) reported fourth quarter net income of
$25.7 million, or $0.31 per diluted share, compared to $23.4 million, or
$0.29 per diluted share, in the third quarter of 2004 and net income of
$28.1 million, or $0.34 per diluted share, in last year's comparable period.
Full year 2004 net income was $102.2 million, or $1.25 per diluted share,
compared to adjusted net income of $93.0 million, or $1.13 per diluted share,
in 2003. The results for 2003 were adjusted to exclude an after-tax charge of
$17.2 million ($0.21 per diluted share) taken as a result of our stock option
tender offer and an after-tax charge of $21.5 million ($0.26 per diluted
share) to recognize liabilities associated with certain legal and regulatory
matters. We believe adjusting last year's results for these special charges
provides shareholders with a more accurate comparison to this year's results.
A schedule reconciling these adjusted results from GAAP is provided on pages
5 and 6. GAAP net income for the twelve months ended December 31, 2003 was
$54.3 million, or $0.66 per diluted share.
"We finished the year in each retail distribution channel on a strong
note," said Keith A. Tucker, Chairman and Chief Executive Officer of Waddell &
Reed Financial, Inc. "After two quarters of disappointing results in our
Advisors channel, fourth quarter sales and advisor productivity showed marked
improvement over the second and third quarters of 2004. Separately, gross
sales in our non-proprietary distribution channel continued to accelerate and,
at $1.4 billion for the year, comfortably exceeded the $1.0 billion
threshold."
Channel Discussion
Waddell & Reed Advisors channel
Our wholesaling efforts have been well received by our financial advisors.
During the fourth quarter we noted significant improvement in sales and
productivity over the second and third quarters of this year. Retail
investment product sales improved 5% and 18% compared to the second and third
quarters, respectively, while productivity per advisor improved by 1% and
16% over the same time periods.
While advisor headcount increased during the quarter, the amount of the
increase was subdued somewhat by lower than anticipated licensing of new
advisors. However, the pipeline for headcount growth in 2005 is strong with
the number of licensing kits in process at year-end up 49% from a year ago.
In addition, through January 25, the number of terminations has decreased
compared to last year, and we expect this trend to continue throughout the
first quarter. We anticipate an annual growth in headcount of 10% in 2005.
Wholesale channel
Demand for our mutual funds in our non-proprietary channel continues to
accelerate. Gross and net sales during the quarter were at record levels.
Gross sales during the quarter were $460 million, and represent a compound
annual growth rate of 67% since the re-launch of our non-proprietary sales
efforts in July of 2003. Net sales for the quarter also set record levels at
$178 million, a compound annual growth rate of over 100% during the same
period. For the year ended December 31, 2004, our non-proprietary efforts
yielded an organic growth rate of 9.5%.
Management Fee Revenues
Compared to third quarter of 2004, as well as to the fourth quarter of
2003, fourth quarter 2004 revenues increased in close correlation to the
increase in average assets under management. We continue to experience an
improvement in the overall management fee rate due to a mix shift between the
Advisors, Ivy and W&R Target Funds that occurred when we acquired and merged
the Securian assets into the Ivy and W&R Target Funds in the second half of
2003. The Ivy and W&R Target Funds generally have a slightly higher
management fee rate due to scale. For the quarters ended December 2004,
September 2004 and December 2003, the overall management fee rate was
66.9 basis points, 66.1 basis points and 65.5 basis points, respectively.
Investment Product Sales (1)
Advisors Channel
($ thousands)
4Q 04 4Q 03 % 3Q 04 %
Front-load sales $391,438 $434,740 -10.0% $336,996 16.2%
Deferred-load sales 60,215 71,919 -16.3% 51,150 17.7%
Allocation Product
Sales (no-load) (2) 7,097 -- nm -- nm
Total $458,750 $506,659 -9.5% $388,146 18.2%
(1) Investment product sales exclude sales at net asset value, Class Y
sales, and sales of money market funds. Sales load is included.
(2) Includes Strategic Portfolio Allocation ("SPA") and Model Allocation
Portfolio ("MAP") products.
Underwriting and Distribution Revenues
In the current quarter, our Advisors channel generated approximately
three-quarters of revenues while the Wholesale channel earned the remainder.
On a sequential quarter basis, two-thirds of the increase in revenues is
attributable to the Advisors channel through a combination of improved sales
volume and higher financial planning fees. The remainder of the improvement
is attributable to the Wholesale channel, primarily due to an improvement in
sales volume by Legend advisors.
Comparing the current quarter to last year's fourth quarter, revenues in
the Advisors channel declined as the improvement in financial planning fees
was offset by weaker front-load sales volume and lower asset allocation fees.
The net decline in revenues recorded in the Advisors channel was offset by an
increase in revenues in the Wholesale channel due to higher sales volume by
Legend advisors.
Underwriting and Distribution Expenses
In the current quarter, our Advisors channel is responsible for
approximately 70% of variable and fixed expenses, while the Wholesale channel
is responsible for the remainder.
On a sequential quarter basis, the overall increase in expenses is due in
equal parts to the Advisors channel and the Wholesale channel. In the
Advisors channel, the increase in expense is due primarily to higher sales
volume and higher financial plan activity. Fixed expenses in the Advisors
channel remain practically unchanged. In the Wholesale channel, the increase
in expenses is due to a combination of higher sales volume by Legend advisors,
and higher sales volume in our non-proprietary distribution efforts. Fixed
expenses also increased in the Wholesale channel due to higher costs
associated with our wholesaling activities, advertising and sales brochures.
Compared to last year's fourth quarter, the overall increase in expenses
is due almost entirely to higher expenses in the Wholesale channel. Higher
sales volume by Legend advisors and our non-proprietary distribution efforts
accounted for approximately half of the increase in total expenses. Fixed
expenses accounted for the remainder of the increase; specifically, increases
in this channel were due to higher costs associated with our wholesaling
activities, advertising and sales brochures.
The Waddell & Reed Advisors underwriting and distribution margin, a
measure that excludes our wholesale underwriting and distribution activities,
improved to -1.6% during the quarter, from -2.9% in this year's third quarter
as sales levels in the Advisors channel increased; however, it declined
compared to -0.5% in last year's 4th quarter due to lower sales levels.
Shareholder Service Fee Revenues
Comparing the current quarter to last year's comparable period, the
increase in revenues is due primarily to the addition of the Securian accounts
in December 2003 and the addition of funds to our asset allocation product; to
a lesser degree, the growth in number of accounts contributed.
Other Operating Items
Compensation and related costs increased when compared to the third
quarter due to increased earnings related to deferred compensation plans,
headcount increases and year-end adjustments in incentive compensation.
Compared to last year's fourth quarter, expenses increased due to higher
incentive compensation and headcount growth.
Equity compensation increased compared to last year's comparable period
due to additional restricted stock grants in the current year.
General and administrative expenses declined compared to this year's third
quarter due to somewhat lower legal expenses. This decline was partially
offset by higher compliance costs associated with the Sarbanes-Oxley Act.
Compared to last year's fourth quarter, the increase is due to compliance
costs associated with the Sarbanes-Oxley Act.
In 2003, we began paying sub-advisory fees for certain Securian assets
sub-advised by other asset managers. These assets were acquired in September
and December 2003 and are reflected in subsequent periods. The sequential
quarterly increase is primarily due to strong sales and asset growth in some
of our sub-advised funds.
Other Income (Expense)
Other income increased compared to this year's third quarter primarily due
to increased appreciation on trading securities related to our deferred
compensation plans and increased dividends earned on mutual fund holdings
during the period. Compared to the same quarter last year, the decline is due
to a gain recorded in the prior year from the sale of a mutual fund investment
partially offset in part by current year gains from trading securities.
Interest expense increased compared to this year's third quarter due to
higher variable interest paid on long-term debt and higher average borrowings
and rates on short-term debt during the period. Compared to last year's
comparable period, the increase is also attributed to higher variable rates
paid on long-term debt coupled with higher average balances and rates for
short-term borrowings during the period.
Tax Rate
The effective tax rate for the quarter was 33.6% compared to 36.3% and
36.2% for the third quarter of 2004 and the fourth quarter of 2003,
respectively. The decline in the effective tax rate is due to an evaluation
of various federal and state income tax matters.
Balance Sheet Information
As of December 31, 2004
-- Cash balance of $83.9 million ($22.6 million held for the exclusive
benefit of customers in compliance with federal securities industry
regulations.)
-- Investment securities of $125.3 million.
-- Cash and investment securities of $99.4 million are restricted or
pledged as collateral pending the outcome of legal matters.
-- Long-term debt outstanding of $202.9 million.
-- Short-term debt outstanding of $35.0 million.
-- Shareholders' equity of $218.9 million.
-- Shares outstanding were 82.8 million.
Schedule of Selected Operating Data
Included in the following Schedules of Selected Operating Data is a
representation of cash earnings and cash operating margin.
We believe adjusting our results by excluding non-cash items such as
equity compensation and non-recurring items promotes comparability to the
operating results of other companies who may use options and have elected not
to expense their cost. A reconciliation from GAAP is provided at the bottom
of the schedule.
WADDELL & REED FINANCIAL, INC.
Schedule of Selected Operating Data
(Amounts in thousands except for per share data)
Three Months Ended Three Months Ended
December 31, Change September 30, Change
2004 2003 $ % 2004 $ %
Operating Revenues:
Investment
management fees $62,504 $57,594 4,910 8.5 $58,221 4,283 7.4
Underwriting &
distribution
fees 48,475 47,896 579 1.2 43,292 5,183 12.0
Shareholder
service fees 19,333 18,574 759 4.1 19,121 212 1.1
Total operating
revenues 130,312 124,064 6,248 5.0 120,634 9,678 8.0
Operating Expenses:
Underwriting and
distribution: 53,549 49,170 4,379 8.9 47,833 5,716 11.9
Compensation and
related costs 19,577 18,395 1,182 6.4 16,911 2,666 15.8
Equity Compensation 2,872 1,108 1,764 159.2 2,828 44 1.6
General and
administrative 9,399 8,676 723 8.3 9,937 (538) -5.4
Sub-advisory 2,774 699 2,075 296.9 1,726 1,048 60.7
Depreciation 2,313 2,035 278 13.7 2,300 13 0.6
Total operating
expense 90,484 80,083 10,401 13.0 81,535 8,949 11.0
Other Income
(Expense):
Investment &
other income 2,037 2,383 (346) -14.5 439 1,598 364.0
Interest expense (3,230) (2,419) (811) -33.5 (2,769) (461) -16.6
Income before
taxes 38,635 43,945 (5,310) -12.1 36,769 1,866 5.1
Provision for
taxes 12,974 15,887 (2,913) -18.3 13,351 (377) -2.8
Net income $25,661 $28,058 (2,397) -8.5 $23,418 2,243 9.6
Cash earnings (1) $27,490 $28,765 (1,274) -4.4 $25,219 2,271 9.0
Net income per
share - diluted $0.31 $0.34 -8.8 $0.29 6.9
Cash earnings per
share - diluted (1) $0.33 $0.35 -5.7 $0.31 6.5
Weighted average
number of shares
outstanding -
diluted 82,090 82,707 81,634
Cash operating
margin (1) 32.8% 36.3% 34.8%
Waddell & Reed
Advisors U&D
margin (2) -1.6% -0.5% -2.9%
(1) Reconciliation from GAAP provided below
(2) Excludes our wholesale underwriting and distribution activities
GAAP net income $25,661 $28,058 $23,418
Add back equity
compensation
(post-tax) 1,829 707 1,801
Cash earnings $27,490 $28,765 $25,219
GAAP net income per
share (diluted) $0.31 $0.34 $0.29
Add back equity
compensation
(post-tax) 0.02 0.01 0.02
Cash earnings per
share (diluted) * $0.33 $0.35 $0.31
GAAP operating
margin 30.6% 35.5% 32.4%
Add back equity
compensation 2.2% 0.9% 2.3%
Cash operating
margin *32.8% 36.3% 34.8%
* Column may not add due to rounding
WADDELL & REED FINANCIAL, INC.
Schedule of Selected Operating Data
(Amounts in thousands except for per share data)
Year Ended December 31, Change
2004 2003 $ %
Operating Revenues:
Investment management fees $240,282 $203,918 36,364 17.8
Underwriting & distribution fees 187,273 176,586 10,687 6.1
Shareholder service fees 76,522 70,678 5,844 8.3
Total operating revenues 504,077 451,182 52,895 11.7
Operating Expenses:
Underwriting and distribution: 203,189 184,223 18,966 10.3
Compensation and related costs 72,763 68,515 4,248 6.2
Equity Compensation
Excluding special charge 10,336 4,569 5,767 126.2
Special charge (1) - 27,113 (27,113) N/A
General and administrative
Excluding special charge 38,357 37,862 495 1.3
Special charge (2) - 32,000 (32,000) N/A
Sub-advisory 6,983 1,012 5,971 590.0
Depreciation 9,090 7,191 1,899 26.4
Total operating expense 340,718 362,485 (21,767) -6.0
Other Income (Expense):
Investment & other income 5,575 5,996 (421) -7.0
Interest expense (10,724) (9,759) (965) -9.9
Income before taxes 158,210 84,934 73,276 86.3
Provision for taxes 56,045 30,669 25,376 82.7
Net income $102,165 $54,265 47,900 88.3
Cash earnings (3) $108,749 $95,880 12,869 13.4
Net income per share - diluted $1.25 $0.66 89.4
Cash earnings per share -
diluted (3) $1.33 $1.16 14.7
Weighted avg. number of shares
outstanding - diluted 81,924 82,590
Cash operating margin (3) 34.5% 33.8%
Waddell & Reed Advisors U&D
margin (4) -0.1% -1.9%
(1) Special charge for tender
(2) Special charge for legal and
regulatory matters
(3) Reconciliation from GAAP
provided below
(4) Excludes our wholesale
underwriting and distribution
activities
GAAP net income $102,165 $54,265
Add back special charge for tender
(post-tax) - 17,200
Add back special charge for legal &
regulatory matters (post-tax) - 21,500
Add back equity compensation (post-
tax) 6,584 2,915
Cash earnings $108,749 $95,880
GAAP net income per share (diluted) $1.25 $0.66
Add back special charge for tender
(post-tax) 0.00 0.21
Add back special charge for legal &
regulatory matters (post-tax) 0.00 0.26
Add back equity compensation (post-
tax) 0.08 0.04
Cash earnings per share (diluted) * $1.33 $1.16
GAAP operating margin 32.4% 19.7%
Add back special charge for tender
(post-tax) 0.0% 6.0%
Add back special charge for legal &
regulatory matters (post-tax) 0.0% 7.1%
Add back equity compensation (post-
tax) 2.1% 1.0%
Cash operating margin * 34.5% 33.8%
* Column may not add due to rounding
WADDELL & REED FINANCIAL, INC.
Changes in Assets Under Management
For the quarter ended
(Amounts in millions)
Waddell &
Reed
Advisors Wholesale
December 31, 2004 Channel Channel Total
Beginning Assets $23,484 $12,119 $35,603
Sales 555 735 1,290
Redemptions (813) (654) (1,467)
Net Sales (258) 81 (177)
Net Exchanges and Adjustments (15) 12 (3)
Reinvested Dividends and Capital
Gains 75 56 131
Net Flows (198) 149 (49)
Market Appreciation 2,011 1,093 3,104
Ending Assets $25,297 $13,361 $38,658
December 31, 2003
Beginning Assets $22,549 $10,327 $32,876
Securian Assets (1) - 481 481
Sales 604 890 1,494
Redemptions (866) (496) (1,362)
Net Sales (262) 394 132
Net Exchanges and Adjustments (23) 19 (4)
Reinvested Dividends and Capital
Gains 39 32 71
Net Flows (246) 445 199
Market Appreciation 2,034 983 3,017
Ending Assets $24,337 $12,236 $36,573
September 30, 2004
Beginning Assets $24,173 $12,185 $36,358
Sales 495 813 1,308
Redemptions (834) (628) (1,462)
Net Sales (339) 185 (154)
Net Exchanges and Adjustments (16) 13 (3)
Reinvested Dividends and Capital
Gains 31 32 63
Net Flows (324) 230 (94)
Market Appreciation/(Depreciation) (365) (296) (661)
Ending Assets $23,484 $12,119 $35,603
(1) Assets acquired in connection with the strategic alliance with
Securian Financial Group, Inc.
WADDELL & REED FINANCIAL, INC.
Supplemental Information
Other Items
4Q04 4Q03 % change 3Q04 % change
Redemption
rates -
long-term
assets
Waddell & Reed
Advisors
channel l10.9% 11.0% 11.6%
Wholesale
channel l20.0% 17.2% 21.1%
Total 14.1% 13.0% 14.9%
Sales per
advisor
(000s) (1)
Total 178 173 2.9% 154 15.6%
2+ Years 264 247 6.9% 222 18.9%
0 to 2 Years 45 57 -21.1% 42 7.1%
Gross production
per advisor
(000s) (2) 13.2 12.2 8.2% 12.3 7.3%
Number of
advisors (3) 2,623 2,929 -10.5% 2,566 2.2%
Number of
shareholder
accounts
(000s) 2,423 2,339 3.6% 2,387 1.5%
(1) Average commissionable sales per Waddell & Reed Advisor
(2) Average gross commission generated per Waddell & Reed Advisor
(3) Excludes Legend retirement advisors
Lipper Ranking
1 Year 3 Years 5 Years
Percentage of funds
Equity Funds
Top Quartile 36% 48% 54%
Top Half 64% 74% 71%
All Funds
Top Quartile 29% 38% 43%
Top Half 59% 64% 65%
MorningStar Ranking
Overall 3 Years 5 Years
Percentage of funds with 4 or 5 stars
Equity Funds 43% 40% 46%
All Funds 34% 32% 35%
Earnings Conference Call
Members of the investment community and the general public are invited to
listen to a live webcast of our earnings release conference call today,
January 27, 2005 at 11:00 a.m. Eastern. During this call, Keith A. Tucker,
Chairman and CEO, will review our fourth quarter results. Live access to the
teleconference will be available on the "Corporate" section of our website at
http://www.waddell.com . A webcast replay will be made available shortly
after the call through February 2nd.
Website Resources
We invite you to visit the "Corporate" section of our website at
http://www.waddell.com under the caption "Data Tables" to review supplemental
information schedules on asset flows and average assets under management &
management fee rates.
Mutual Fund Investor Contact:
Call (888) WADDELL, or visit http://www.waddell.com or
http://www.ivyfunds.com .
Past performance is no guarantee of future results. Please invest
carefully.
Forward-looking Statements
The statements in this press release relating to matters that are not
historical facts are forward-looking statements based on management's belief
and assumptions using currently available information and expectations as of
the date hereof, are not guarantees of future performance and involve certain
risks, uncertainties and assumptions that are difficult to predict. Although
we believe that the expectations reflected in such forward-looking statements
are reasonable, we cannot give any assurances that these expectations will
prove to be correct. Therefore, actual outcomes and results could materially
differ from what is expressed, implied or forecast in such statements. Such
differences could be caused by a number of factors including, but not limited
to, a risk that the expected benefits from the expansion of our distribution
channels may not be as beneficial as anticipated, unexpected and adverse
results of litigation or regulation, acts of terrorism and/or war, less
favorable economic and market conditions including our cost to finance the
Company, the risk that the intended results of our changes to long-term
incentive compensation may not meet our expectations, and other risks as set
out in the reports we have filed with the SEC. Should one or more of these
risks materialize or should the underlying assumptions prove incorrect, actual
results could differ materially from those forecasted or expected. We assume
no duty to publicly update or revise such statements, whether as a result of
new information, future events or otherwise.
SOURCE Waddell & Reed Financial, Inc.
Web Site: http://www.waddell.com
0 Comments:
Post a Comment
<< Home