October 25, 2017

Westwood Holdings Group, Inc. Reports Third Quarter 2017 Results

Quarterly Dividend Increased 10%

DALLAS, Oct. 25, 2017 (GLOBE NEWSWIRE) -- Westwood Holdings Group, Inc. (NYSE:WHG) today reported third quarter 2017 revenues of $33.5 million compared to $31.8 million in the third quarter of 2016 and $33.8 million in the second quarter of 2017. The increase from the prior year quarter primarily related to higher average assets under management ("AUM") due to market appreciation. The decrease from the immediately preceding quarter was primarily due to performance fees earned in the second quarter of 2017, partially offset by higher average AUM.

AUM at September 30, 2017 totaled $23.6 billion, up from $21.3 billion and $22.6 billion at September 30, 2016 and June 30, 2017, respectively.1

During the quarter, we recorded a $2.5 million legal settlement charge, net of insurance recovery and taxes, related to resolution of litigation, which decreased third quarter 2017 diluted earnings per share by $0.30.

Third quarter net income of $4.1 million compared with $5.9 million in the third quarter of 2016. The decrease primarily related to the settlement noted above, partially offset by higher revenues. Diluted earnings per share of $0.49 in the third quarter of 2017 compared to $0.72 in the third quarter of 2016. Non-GAAP Economic Earnings for the quarter decreased from $10.6 million, or $1.30 per share, in 2016's third quarter, to $9.0 million, or $1.07 per share, in the third quarter of 2017.

Third quarter net income of $4.1 million compared with $6.9 million in the second quarter of 2017. The decrease was driven primarily by the settlement noted above. Diluted earnings per share for the quarter of $0.49 compared to $0.83 for the second quarter of 2017. Non-GAAP Economic Earnings for the quarter of $9.0 million, or $1.07 per share, compared to $11.7 million, or $1.41 per share, in the immediately preceding quarter.

Highlights related to the third quarter 2017 include:

  • Revenues of $33.5 million increased $1.7 million from the third quarter of 2016 and were relatively flat with the second quarter of 2017.

  • Top quartile performance was delivered by our SmallCap Value and LargeCap Value strategies.

  • All of our U.S. value strategies provided strong absolute and relative returns for two consecutive quarters.

  • Resolution of the AGF litigation.

  • We agreed to sell our Omaha-based Private Wealth operations, which is expected to close by year end.

Brian Casey, Westwood's President & CEO, commented, "Within our U.S. value strategies, we were very pleased that first half performance momentum continued in both absolute and relative terms into the third quarter, most notably for our SmallCap Value and LargeCap Value strategies. Recognizing that an earnings-driven market has historically supported our investment philosophy, we are optimistic that our strategies can deliver excess returns and client-specific outcomes. Additionally, we were pleased to resolve AGF's litigation and believe that the resolution was in the best interests of our company and our shareholders. Finally, this marks the fifteenth consecutive year that we have increased our dividend, and more than $165 million in dividends has been returned to shareholders over this period."

Westwood's Board of Directors declared a quarterly cash dividend of $0.68 per common share, an increase of 10% from the previous quarterly dividend rate, payable on January 2, 2018 to stockholders of record on December 8, 2017.  At quarter-end, Westwood had $99.5 million in cash and investments, stockholders' equity of $155.4 million, and no debt.

Economic Earnings and Economic Earnings per Share ("Economic EPS") are non-GAAP performance measures and are explained and reconciled with the most comparable GAAP numbers in the attached tables.

Westwood will host a conference call to discuss third quarter 2017 results and other business matters at 4:30 p.m. Eastern time today.  To join the conference call, dial 877-303-6235 (domestic and Canada) or 631-291-4837 (international).  The conference call can also be accessed via our Investor Relations page at westwoodgroup.com and will be available for replay through November 1, 2017 by dialing 855-859-2056 (domestic and Canada) or 404-537-3406 (international) and then entering the passcode 88303365.

1  Assets under advisement ("AUA") totaled $362 million compared to $1.1 billion and $1.0 billion at September 30, 2016 and June 30, 2017, respectively, reflecting the transfer of $713 million of AUA to AUM during the third quarter of 2017.

About Westwood

Westwood Holdings Group, Inc. provides investment management services to institutional investors, private wealth clients and financial intermediaries. With $23.6 billion in assets under management (as of September 30, 2017), our firm offers a range of investment strategies including U.S. equities, Master Limited Partnerships (MLPs), Multi-Asset, Global and Emerging Markets equities, and Global Convertible securities portfolios. Access to our strategies is available through separate accounts, commingled funds, the Westwood Funds® family of mutual funds, UCITS funds, and other pooled vehicles. Westwood benefits from significant, broad-based employee ownership and trades on the New York Stock Exchange under the symbol "WHG." Based in Dallas, Texas, Westwood also maintains offices in Toronto, Boston, Omaha, and Houston.

For more information on Westwood, please visit www.westwoodgroup.com.

For more information on the Westwood Funds®, please visit www.westwoodfunds.com.

Forward-looking Statements

Statements in this press release that are not purely historical facts, including, without limitation, statements about our expected future financial position, results of operations or cash flows, as well as other statements including without limitation, words such as "anticipate," "forecast," "believe," "plan," "estimate," "expect," "intend," "should," "could," "goal," "may," "target," "designed," "on track," "comfortable with," "optimistic" and other similar expressions, constitute 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. Actual results and the timing of some events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, without limitation: the composition and market value of our assets under management; regulations adversely affecting the financial services industry; competition in the investment management industry; our assets under management includes investments in foreign companies; our ability to develop and market new investment strategies successfully; our relationships with current and potential customers; our ability to retain qualified personnel; our ability to maintain effective cyber security; our ability to maintain effective information systems; our ability to pursue and properly integrate acquired businesses; litigation risks; our ability to properly address conflicts of interest; our ability to maintain adequate insurance coverage; our ability to maintain an effective system of internal controls; our ability to maintain our fee structure in light of competitive fee pressures; our relationships with investment consulting firms; the significant concentration of our revenues in a small number of customers; and the other risks detailed from time to time in Westwood's Securities and Exchange Commission filings, including, but not limited to, its annual report on Form 10-K for the year ended December 31, 2016 and its quarterly reports on Form 10-Q for the quarters ended March 31, 2017, June 30, 2017 and September 30, 2017. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, Westwood is not obligated to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

(WHG-G)

CONTACT:
Westwood Holdings Group, Inc.
Tiffany B. Kice
Chief Financial Officer and Treasurer
(214) 756-6900


WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share and share amounts)
(unaudited)
 
 Three Months Ended
 September 30,
 2017
 June 30,
 2017
 September 30,
 2016
REVENUES:     
Advisory fees:      
Asset-based$25,334  $24,496  $23,447 
Performance-based  1,031  226 
Trust fees7,858  7,917  7,690 
Other, net300  312  414 
Total revenues33,492  33,756  31,777 
      
EXPENSES:     
Employee compensation and benefits$15,601  $15,557  $15,637 
Sales and marketing457  513  408 
Westwood mutual funds977  909  755 
Information technology1,855  1,883  1,874 
Professional services1,681  1,318  1,903 
Legal settlement4,009     
General and administrative3,160   2,993  2,147 
Total expenses27,740  23,173  22,724 
Income before income taxes5,752  10,583  9,053 
Provision for income taxes1,620  3,687  3,166 
Net income$4,132  $6,896  $5,887 
Other comprehensive income (loss):     
Foreign currency translation adjustments1,297  934  (453)
Total comprehensive income$5,429  $7,830  $5,434 
      
Earnings per share:     
Basic$0.51  $0.84  $0.74 
Diluted$0.49  $0.83  $0.72 
      
Weighted average shares outstanding:     
Basic8,171,809  8,167,277  7,995,680 
Diluted8,420,749  8,316,508  8,179,956 
      
Economic Earnings$8,990  $11,710  $10,615 
Economic EPS$1.07  $1.41  $1.30 
      
Dividends declared per share$0.62  $0.62  $0.57 


WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share and share amounts)
(unaudited)
 
 Nine Months Ended September 30,
 2017 2016
REVENUES:   
Advisory fees:   
Asset-based$73,619  $67,928 
Performance-based 1,417  635 
Trust fees23,570  22,798 
Other, net1,265   568 
Total revenues99,871  91,929 
    
EXPENSES:   
Employee compensation and benefits$48,875  $47,239 
Sales and marketing1,447  1,423 
Westwood mutual funds2,749  2,282 
Information technology5,494  6,039 
Professional services4,495  4,707 
Legal settlement4,009   
General and administrative8,697  7,028 
Total expenses75,766  68,718 
Income before income taxes24,105  23,211 
Provision for income taxes(1)7,013  8,141 
Net income$17,092  $15,070 
Other comprehensive income:   
Foreign currency translation adjustments2,438  1,007 
Total comprehensive income$19,530  $16,077 
    
Earnings per share:   
Basic$2.10  $1.89 
Diluted$2.05  $1.84 
    
Weighted average shares outstanding:   
Basic8,136,350  7,952,938 
Diluted8,350,926  8,212,468 
    
Economic Earnings$31,308  $29,094 
Economic EPS$3.75  $3.54 
    
Dividends declared per share$1.86  $1.71 

_____________________
(1)  Our as adjusted tax rate for the first nine months of 2017 of 29.1% included a $1.0 million discrete tax benefit associated with the adoption of new accounting guidance related to stock-based compensation awards that vested during the first quarter of 2017.


WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
(unaudited)
 
 September 30,
2017
 December 31,
2016
ASSETS   
Current Assets:   
Cash and cash equivalents$51,436  $33,679 
Accounts receivable22,163  23,429 
Investments, at fair value48,093  56,485 
Income taxes receivable 2,744   
Other current assets6,261  2,364 
Total current assets130,697  115,957 
Goodwill27,144  27,144 
Deferred income taxes9,473   10,903 
Intangible assets, net19,945  21,394 
Property and equipment, net of accumulated depreciation of $5,354 and $4,5904,103  4,280 
Total assets$191,362  $179,678 
    
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current Liabilities:   
Accounts payable and accrued liabilities$2,851  $2,641 
Accrued litigation settlement8,018   
Dividends payable6,666  6,679 
Compensation and benefits payable14,126  17,200 
Income taxes payable722  3,148 
Total current liabilities32,383  29,668 
Accrued dividends1,495  1,767 
Deferred rent2,055  2,174 
Total liabilities35,933  33,609 
    
Stockholders' Equity:   
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 9,986,076 and outstanding 8,884,421 shares at September 30, 2017; issued 9,801,938 and outstanding 8,810,375 shares at December 31, 2016100  98 
Additional paid-in capital176,329   162,730 
Treasury stock, at cost - 1,101,655 shares at September 30, 2017; 991,563 shares at December 31, 2016(50,910) (44,353)
Accumulated other comprehensive loss(1,849 ) (4,287)
Retained earnings31,759  31,881 
Total stockholders' equity 155,429  146,069 
Total liabilities and stockholders' equity$191,362  $179,678 


WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 Nine Months Ended September 30,
 2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income$17,092  $15,070 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation722  732 
Amortization of intangible assets1,449  1,470 
Unrealized gains on trading investments(539) (676)
Stock based compensation expense12,298  12,164 
Deferred income taxes1,481  114 
Excess tax benefits from stock based compensation  (165)
Other  275 
Changes in operating assets and liabilities:   
Net sales of investments- trading securities8,931  23,147 
Accounts receivable1,686  (2,711)
Other current assets(3,881) 900 
Accounts payable and accrued liabilities178  (82)
Accrued litigation settlement8,018   
Compensation and benefits payable(2,696) (6,758)
Income taxes payable(5,181) (4,637)
Other liabilities(111) 154 
Net cash provided by operating activities39,447  38,997 
CASH FLOWS FROM INVESTING ACTIVITIES:   
Purchases of property and equipment(537) (1,680)
Net cash used in investing activities(537) (1,680)
CASH FLOWS FROM FINANCING ACTIVITIES:   
Purchases of treasury stock   (5,629)
Purchase of treasury stock under employee stock plans(1,326) (614)
Restricted stock returned for payment of taxes(5,231) (3,710)
Excess tax benefits from stock based compensation  165 
Payment of contingent consideration in acquisition  (5,562)
Cash dividends(16,787) (14,827)
Net cash used in financing activities(23,344) (30,177)
Effect of currency rate changes on cash2,191  812 
NET CHANGE IN CASH AND CASH EQUIVALENTS17,757  7,952 
Cash and cash equivalents, beginning of period33,679  22,740 
Cash and cash equivalents, end of period$51,436  $30,692 
    
Supplemental cash flow information:    
Cash paid during the period for income taxes$10,245  $12,632 
Common stock issued for acquisition$   $3,734 
Accrued dividends$8,161  $7,682 
Tenant allowance included in Property and equipment$   $1,128 


WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
Reconciliation of Net Income to Economic Earnings
(in thousands, except per share and share amounts)
(unaudited)
 
 Three Months Ended
 September 30,
 2017
 June 30,
 2017
 September 30,
 2016
Net Income$4,132  $6,896  $5,887 
Add:  Stock based compensation expense4,233  4,168  4,082 
Add:  Intangible amortization469  490  490 
Add:  Tax benefit from goodwill amortization156  156  156 
Economic Earnings$8,990  $11,710   $10,615 
      
Diluted weighted average shares8,420,749  8,316,508  8,179,956 
Economic EPS$1.07  $1.41  $1.30 


 Nine Months Ended
September 30,
 2017 2016
Net Income$17,092  $15,070 
Add:  Stock based compensation expense12,298  12,164 
Add:  Intangible amortization1,449  1,470 
Add:  Tax benefit from goodwill amortization469  390 
Economic Earnings$31,308   $29,094 
    
Diluted weighted average shares8,350,926  8,212,468 
Economic EPS$3.75  $3.54 

As supplemental information, we are providing non-GAAP performance measures that we refer to as Economic Earnings and Economic EPS. We provide these measures in addition to, not as a substitute for, net income and earnings per share, which are reported on a GAAP basis. Management reviews Economic Earnings and Economic EPS to evaluate Westwood's ongoing performance, allocate resources, and review our dividend policy. We believe that these non-GAAP performance measures, while not substitutes for GAAP net income or earnings per share, are useful for management and investors when evaluating Westwood's underlying operating and financial performance and its available resources. We do not advocate that investors consider these non-GAAP measures without also considering financial information prepared in accordance with GAAP.

We define Economic Earnings as net income plus non-cash equity-based compensation expense, amortization of intangible assets, and deferred taxes related to goodwill. Although depreciation on fixed assets is a non-cash expense, we do not add it back when calculating Economic Earnings because depreciation charges represent an allocation of the decline in the value of the related assets that will ultimately require replacement. In addition, we do not adjust Economic Earnings for tax deductions related to restricted stock expense or amortization of intangible assets. Economic EPS represents Economic Earnings divided by diluted weighted average shares outstanding.

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Source: Westwood Holdings Group Inc

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