Published on May 9, 2009
Investor Presentation First Quarter 2009
NYSE: WDR • IPO March 1998 • Shares outstanding 84.7 million • Market capitalization of $1.5 billion • Annual dividend per share $0.76 • Yield 4.2% Unless otherwise noted, all data in this presentation is as of March 31, 2009. 1
For more than 70 years, we have provided proven, professional investment management and financial planning services for individuals and institutional investors • Distinct distribution channels serving Retail, Wholesale and Institutional market segments • Dedicated network of highly skilled financial advisors • Comprehensive, diversified family of managed mutual funds 2
Waddell & Reed Financial, Inc. Advisors Wholesale Institutional Channel Channel Channel Financial Retail Product • Defined benefit, Planning and Focus pensions/endowments • Subadvisory Product Focus • Third Party •Pictet & Cie • Financial advisors •Broker/Dealer •Mackenzie •Retirement providing financial • High net worth •RIA planning, principally •Strategic Partnership for middle income and •Legend Advisors mass affluent markets 3
Investment Management • Philosophy is consistent – we seek consistently competitive long-term performance with emphasis on risk control - Supports financial planning model and emerging investor preference for moderated risk • Process is unwavering - Fundamental analysis, bottom-up securities selection - Bias towards concentration – sectors and stocks • Resources are substantial - 28 Portfolio Managers – average tenure: 19 industry/13 W&R - 27 Analysts and assistant PMs – average tenure: 11 industry/4 W&R - 2 Economists – average tenure: 12 industry/7 W&R - 4 Traders – average tenure: 14 industry/15 W&R • Top notch performance Collegial meritocracy resulting in consistent, persistent investment process that yield excellent long-term performance results. 4
Strong Investment Management Performance 1 Year 3 Years 5 Years Equity Funds Top Quartile 52% 65% 68% Top Half 78% 88% 89% Fixed Income Funds Top Quartile 57% 50% 62% Top Half 79% 79% 85% All Funds Top Quartile 53% 61% 67% Top Half 78% 85% 88% Both Waddell & Reed AdvisorsFunds and Ivy Funds ranked in the top 10 of Barron's quot;The Best Mutual Funds of 2008quot; The Advisors Funds claims top spot; Ivy Funds rank third over most recent five-year period 5
Assets Under Management Equity Fixed Income Money Market Total Advisors 15,988 4,834 1,821 22,643 48% Wholesale 17,534 783 318 18,635 39% Institutional 5,712 586 0 6,298 13% Total 39,234 6,203 2,139 47,576 83% 13% 4% $ in millions 6
We have significant experience in virtually all major asset classes, several specialized asset classes and a range of investment styles International FI 0% S. Cap Growth 2% Mid‐Cap Growth 2% Value 2% Tax Exempt FI 3% High Yield FI 3% Multi‐Cap Core 3% Money Market 5% International 5% L. Cap Growth 6% Taxable Investment Grade FI 8% L. Cap Core 8% Narrowly Diversified 14% Balanced & Flexible 39% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 7
RETAIL DISTRIBUTION 8
Fund Families Mutual Funds Waddell & Reed Advisors Funds Ivy Funds Variable Annuities Ivy Funds VIP 529 Plan InvestED Portfolios 9
Retail Distribution We serve two distinct distribution channels The Advisors channel – offering a combination of financial planning and retail products The Wholesale channel – offering a comprehensive selection of top-performing funds 10
Channel Analysis Side by Side Comparison Advisors Wholesale Point of Sale Lower cost to acquire assets Higher cost to acquire assets Near breakeven at P.O.S. 1½ to 2 years breakeven Management Fees Assets retained 10-12 years Assets retained for 5+ years Redemption rate 10.5% Redemption rate 33.3% Asset Growth Moderate Robust Distribution Points 2,277 financial advisors Numerous brokers 43,000 advisors selling Ivy funds 11
Advisors Channel Through a dedicated sales force, our Advisors channel serves individual investor’s needs for high-quality advice, personal financial planning and investment strategies to meet long-term financial goals. 12
Advisors Channel • Advice driven • Financial planning focus • Supported by a comprehensive product array - Financial plans - Mutual funds • W&R – core • Subadvisors – niche - Variable annuity products - Insurance - Fee-based platforms Our unique approach yields an industry-low redemption rate and a low cost to acquire assets. Combined, these factors result in a business model with superior profitability characteristics. 13
Advisors Channel - Gross Sales & Net Flows CAGR: 13.8% $4,000 $3,000 $2,000 $1 ,000 $0 ($1 ,000) ($2,000) 2004 2005 2006 2007 2008 Sales Net Flows $ in millions Outflow Trends Improve 14
Advisors Channel - Gross Sales & Net Flows $1 ,200 $1 ,000 $800 $600 $400 $200 $0 ($200) ($400) 1 Q 2008 2Q 2008 3Q 2008 4Q 2008 1 Q 2009 $ in millions Sales Net Flows Recent markets have proven to be challenging 15
Platform Choices • Classic Platform Transfer agency system – direct to mutual fund (check & application) • Upgraded technology, including ability to provide consolidated • statements • Choice Platform Full-service, open-architecture brokerage platform • One-stop-shop for all clients’ needs • Robust suite of products • • Choice gives Waddell Competitive platform to compete in full-service brokerage world • Ability to recruit experienced advisors with existing (larger) books of • business 16
Wholesale Channel The Wholesale channel brings our solid investment expertise to market through the Ivy Funds, allowing us to accelerate our asset growth. 17
Wholesale Channel • Comprehensive multi-manager product line • Focus on building traction through targeted wholesaling efforts • 36 external wholesalers; 6 hybrid wholesalers; 26 internal wholesalers • Distribution through: - Broker/dealer - Strategic partners - Retirement & RIA 18
Wholesale Channel - Gross Sales & Net Flows $1 8,000 $1 6,000 $1 4,000 CAGR: 83.5% $1 2,000 $1 0,000 $8,000 $6,000 $4,000 $2,000 $0 2004 2005 2006 2007 2008 Sales Net Flows $ in millions Excellent Sales Traction 19
Wholesale - Gross Sales & Net Flows $6,000 $5,000 $4,000 $3,000 $2,000 $1 ,000 $0 ($1 ,000) ($2,000) ($3,000) 1 Q 2008 2Q 2008 3Q 2008 4Q 2008 1 Q 2009 Sales Net Flows $ in millions Despite challenging backdrop, only one quarter of outflows 20
Well Embedded at Key Distributors Rank Firm 7 Merrill Lynch 3 Wachovia Securities 9 UBS 4 Smith Barney 9 LPL 10 Morgan Stanley 5 Raymond James 5 Commonweath Financial 10 RBC Capital Markets 3 Securian 21
Sales by Dealer Classification YTD 2009 2008 2007 2006 2005 Wirehouse $1,031 44% $8,164 54% $5,116 54% $2,323 51% $922 40% Independent 525 23% 2,763 18% 1,822 19% 862 19% 441 19% Platform 462 20% 2,132 14% 1,300 14% 585 13% 315 14% Regional 143 6% 1,259 8% 664 7% 331 7% 263 12% Insurance 133 6% 560 4% 397 4% 380 8% 319 14% Bank 23 1% 231 2% 151 2% 63 1% 22 1% Total $2,317 $15,109 $9,450 $4,544 $2,282 $ in millions 22
INSTITUTIONAL DISTRIBUTION 23
Institutional Channel Through the Institutional channel, we manage the investments of defined benefit plans, pensions, endowments and high net worth individuals. We also serve as subadvisor for other investment management companies. 24
Institutional Channel • Market segment emphasis - Mutual funds subadvisory - Corporate and pubic pension plan sponsors - Foundations and endowments • Most actively marketed product - Large capitalization growth • Phil Sanders – Tenure: 20 industry/10 W&R • Dan Becker – Tenure: 20 industry/19 W&R - Core Equity • Erik Becker – Tenure: 10 industry/9 W&R • Gus Zinn – Tenure: 10 industry/10 W&R 25
Institutional Channel - Gross Sales & Net Flows CAGR: 16.6% $3,000 $2,500 $2,000 $1 ,500 $1 ,000 $500 $0 ($500) ($1 ,000) ($1 ,500) ($2,000) 2004 2005 2006 2007 2008 Sales Net Flows $ in millions Demand for alternative investment styles hurt traditional asset managers; trend seems to have stabilized 26
Institutional - Gross Sales & Net Flows $800 $7 00 $600 $500 $400 $300 $200 $1 00 $0 1 Q 2008 2Q 2008 3Q 2008 4Q 2008 1 Q 2009 Sales Net Flows $ in millions Sales and flows have stabilized, thanks in part to a solid relationship with Pictet & Cie 27
ENHANCING SHAREHOLDER VALUE 28
Enhancing Shareholder Value – Use of Cash • Free cash flow from operations $120-130 million • Dividend payments of $65 million • Capital expenditures $15-17 million • Shares repurchased 1.2-1.5 million for a total of $20-30 million Projected for the fiscal year ended December 31, 2009 29
Preserving Profitability Return to 20% operating margin during 2009 • Major underlying assumptions Flat market • Sales • • Advisors channel: $13-$15 million per day, redemption rate 10% • Wholesale channel: $37-$43 million per day, redemption rate 25% • Institutional channel: $4 million per day, redemption rate 15% Careful expense management • • Reduced compensation – voluntary severance program (Dec. ’08) • Expense management opportunity – distribution support and G&A 30
Forward Looking Statements From time-to-time, information or statements provided by or on behalf of the Company, including those within this Presentation may contain certain quot;forward-looking statements,quot; including information relating to anticipated growth in our revenues or earnings, anticipated changes in the amount and composition of assets under management, our anticipated expense levels, and our expectations regarding financial markets and other conditions. 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. Further, such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update or revise any forward- looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events, whether as a result of new information, future developments or otherwise. Although we believe that the assumptions and expectations reflected in such forward looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct or that we will take any actions that may presently be planned. Certain important factors that could cause actual results to differ materially from our expectations are also disclosed in our periodic filings with the Securities and Exchange Commission. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by such factors. Our future revenues will fluctuate due to many factors, such as the total value and composition of assets under our management and related cash inflows or outflows in the Advisors, Ivy and W&R Target mutual funds, InvestEd (collectively the quot;Fundsquot;) and other investment portfolios; fluctuations in national and worldwide financial markets resulting in appreciation or depreciation of assets under our management; the relative investment performance of the Funds and other investment portfolios as compared to competing offerings; the risk that the expected benefits from the expansion of our distribution channels may not be as beneficial as expected, the expense ratios of the Funds; acts of terrorism and/or war; investor sentiment and investor confidence; the ability to maintain our investment management and administrative fees at appropriate levels; competitive conditions in the mutual fund, asset management, and broader financial services sectors; our introduction of new mutual funds, investment portfolios and new financial products; our ability to contract with the Funds for payment for investment advisory-related administrative services provided to the Funds and their shareholders; the continuation of trends in the retirement plan marketplace favoring defined contribution plans and participant-directed investments; potential misuse of client funds and information in the possession of our financial advisors; and the risk that the restructuring of our mutual fund products and development of additional distribution channels may not be successful. Our revenues are substantially dependent on fees earned under contracts with the Funds and could be adversely affected if the independent directors of one or more of the Funds determined to terminate or significantly alter the terms of the investment management or related administrative services agreements. Our future operating results are also dependent upon the level of our operating expenses, which are subject to fluctuation for the following or other reasons: variations in the level of compensation expense due to, among other things, performance-based bonuses, changes in our employee count and mix, and competitive factors; unanticipated costs that may be incurred to protect investor accounts and the goodwill of our clients; less favorable economic and market conditions, including our cost to finance the Company and disruptions of services, including those provided by third parties such as communications, power, and the mutual fund transfer agent system. In addition, our future operating results may also be impacted by our ability to incur additional debt, regulatory enforcement actions, adverse litigation and/or arbitration. The Company's business is also subject to substantial governmental regulation, and changes in legal, regulatory, accounting, tax, and compliance requirements or their interpretations may have a substantial effect on our operations and results, including but not limited to effects on costs we incur and effects on investor interest in mutual funds and investing in general or in particular classes of mutual funds or other investments. 31
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