Waddell & Reed Financial, Inc. (NYSE:WDR) Q4 2014 Earnings Conference Call - Final Transcript

Feb 03, 2015 • 10:00 am ET


Waddell & Reed Financial, Inc. (NYSE:WDR) Q4 2014 Earnings Conference Call - Final Transcript


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Good morning, and welcome to the Waddell & Reed Financial's Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Mr. Hank Herrmann, Chairman and CEO. Please go ahead.

Hank Herrmann

Thank you, Amy. Good morning. With me today are Mike Avery, President; Tom Butch, Chief Marketing Officer; Brent Bloss, Chief Financial Officer; Mike Strohm, Chief Operating Officer; Phil Sanders, Chief Investment Officer; and Nicole Russell, our VP of Investor Relations. Nicole, would you read the forward-looking statements, please?

Nicole Russell

(Forward-Looking Cautionary Statements)

Hank Herrmann

Thank you, Nicole. Good morning, again, everyone. Early today, we reported our fourth quarter results. Net income was 80.9 million or $0.97 per diluted share and represents a small increase over last year's fourth quarter and this year's adjusted third quarter. For comparative purposes, the third quarter excludes an impairment charge of 7.9 million.

Operating income of 119.1 million rose 5% compared to the fourth quarter of 2013 on higher average assets under management and capital control of expenses. Compared to the adjusted results of the previous quarter, operating income declined 10%, lower average assets under management responsible for the decline in revenues, while expenses remain largely unchanged. The operating margin during the quarter was 30.0% compared to 30.2% in the fourth quarter of 2013 and on adjusted 32.5% during the third quarter of 2014.

During the fourth quarter, we generated 84 million of operating cash flow for an annual total of 345 million, a 20% increase compared with the previous year. In 2014, we returned a total of 246 million to our shareholders through a combination of dividends and share buybacks. This represents $2.92 per diluted share in total. We reduced our share count by 1.6 million net shares. We raised our regular quarterly dividend to $0.43 per share a quarter for 2015. This represents a 26.5% increase over 2014's rate.

We started 2014 with strong sales momentum but then experienced significant headwinds caused by weak performance in our flagship assets strategy fund and a loss of consumer fees hedging for high yield products. We are disappointed by the substantial outflows in assets trading for high-income fund while our commitment to reversing these is unwavering.

Prospects beyond the two funds are notable and 2014 funds other than assets strategy and high income had sales of 15.3 billion and net inflows of 2.9 billion. While massed by the magnitude of our outflows in our two largest funds, these results indicate the success we have had in broadening sales among asset classes and products.

While recent trends are improving, fresher outflows is likely to persist until we see some improvement and relative performance of asset strategy. We are very focused on improving performance and believe we have the right talent in place to achieve our goal.

Operator, at this time, I would like to open the call for