July 27, 2016

Westwood Holdings Group, Inc. Reports Second Quarter 2016 Results

Assets Under Management of $21 Billion

DALLAS, July 27, 2016 (GLOBE NEWSWIRE) -- Westwood Holdings Group, Inc. (NYSE:WHG) today reported second quarter 2016 revenues of $31.0 million compared to revenues of $37.3 million in the second quarter of 2015. Asset- based advisory fees decreased $4.8 million due to lower average assets under management primarily related to net outflows and depreciation since the second quarter of 2015. We earned performance-based fees of $0.4 million in the second quarter 2016 compared to $1.9 million in the second quarter of 2015. Assets under management ("AUM") totaled $21.0 billion at June 30, 2016, excluding assets under advisement ("AUA") totaling $322 million.

Second quarter net income totaled $5.7 million compared with $9.8 million in the second quarter of 2015, primarily due to a $4.2 million decrease in advisory fees and a $0.6 million charge for one-time information technology implementation costs, both net of tax, partially offset by a decrease in incentive compensation costs related to lower results in 2016. Diluted earnings per share of $0.69 compared to $1.23 for the second quarter of 2015. Non-GAAP Economic Earnings for the quarter of $10.4 million compared with $14.4 million in the prior year's second quarter. Non-GAAP Economic Earnings per share ("Economic EPS") of $1.27 compared with $1.80 in the second quarter of 2015.

Highlights from the second quarter 2016 include:

  • Strong performance of our Emerging Markets and Multi-Asset strategies.
  • Negative flows were driven primarily by reallocations from U.S. equity mandates.
  • Unfunded mandate wins were at their highest level in over a year.

Brian Casey, Westwood's President & CEO, commented, "The current investing and business environment is one of the most unusual we have seen in a long time. Flows to low- and in some cases even negative-yielding fixed income securities are strong while equities remain out of favor despite the S&P 500 recently reaching an all-time high. So far this year, strong performance has been delivered by several of our strategies, primarily in the Emerging Markets and Multi-Asset segments, which positions us well in areas of rising long-term secular investor demand. We experienced negative flows for the quarter, primarily driven by continued reductions in U.S. equity allocations by investors. On a positive note, unfunded mandates reached their highest level in over a year, with wins coming across a number of our strategies. We expect these mandates to be funded over the remainder of this year."

Westwood's Board of Directors declared a quarterly cash dividend of $0.57 per common share, payable on October 3, 2016 to stockholders of record on September 9, 2016. At quarter-end, Westwood had $73.9 million in cash and investments, stockholders' equity of $137.6 million, and no debt.

Economic Earnings and 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 second quarter 2016 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 August 3, 2016 by dialing 855-859-2056 (domestic and Canada) or 404-537-3406 (international) and then entering the passcode 43853210.

About Westwood

Westwood Holdings Group, Inc. provides investment management services to institutional investors, private wealth clients and financial intermediaries. With $21.0 billion in assets under management*, 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 these strategies is available through separate accounts, commingled funds, the Westwood Funds® family of mutual funds, and UCITS funds. Westwood benefits from significant, broad-based employee ownership and trades on the New York Stock Exchange under the symbol "WHG." Based in Dallas, 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.

*As of June 30, 2016

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: regulations adversely affecting the financial services industry; the composition and market value of our assets under management; competition in the investment management industry; our investments in foreign companies; our ability to develop and market new investment strategies successfully; our ability to pursue and properly integrate acquired businesses; litigation risks; our ability to retain qualified personnel; our relationships with current and potential customers; our ability to properly address conflicts of interest; our ability to maintain adequate insurance coverage; our ability to maintain effective information systems; our ability to maintain effective cyber security; 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 SEC filings, including, but not limited to, its annual report on Form 10- K for the year ended December 31, 2015 and its quarterly reports on Form 10-Q for the quarters ended March 31, 2016 and June 30, 2016. 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.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share and share amounts) (unaudited)
    
 Three Months Ended 
 June 30,
  March 31,
 June 30,
   2016   2016   2015 
REVENUES:            
Advisory fees:   
Asset-based$22,666   $21,815  $27,458 
Performance-based 409      1,918 
Trust fees 7,643   7,465   7,921 
Other, net 305   (151)  14 
Total revenues 31,023   29,129   37,311 
    
 EXPENSES:    
Employee compensation and benefits$15,108  $16,494  $16,512 
Sales and marketing 687   328   496 
Westwood mutual funds 831   696   901 
Information technology 2,201   1,964   1,422 
Professional services 1,158   1,646   1,031 
General and administrative 2,526   2,355   2,197 
Total expenses 22,511   23,483   22,559 
Income before income taxes 8,512   5,646   14,752 
Provision for income taxes 2,851   2,124   4,957 
Net income$5,661  $3,522  $9,795 
Other comprehensive income (loss):    
Foreign currency translation adjustments 157   1,303   233 
Total comprehensive income$5,818  $4,825  $10,028 
    
Earnings per share:   
Basic$0.71  $0.45  $1.25 
Diluted$0.69  $0.44  $1.23 
    
Weighted average shares outstanding:  
    
Basic 8,000,214   7,862,449   7,806,031 
Diluted 8,172,923   8,047,084   7,961,406 
    
Economic Earnings$10,387  $8,093  $14,352 
Economic EPS$1.27  $1.01  $1.80 
    
Dividends declared per share$0.57  $0.57  $0.50 
    

 

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share and share amounts) (unaudited)
   
 Six Months Ended June 30, 
  2016   2015 
REVENUES:       
Advisory fees:       
Asset-based$44,481  $51,387 
Performance-based 409   2,206 
Trust fees 15,108    13,071 
Other, net 154   255 
Total revenues 60,152   66,919 
   
 EXPENSES:   
Employee compensation and benefits$31,602  $31,821 
Sales and marketing 1,015   891 
Westwood mutual funds 1,527   1,728 
Information technology 4,165   2,459 
Professional services 2,804   3,103 
General and administrative 4,881   3,787 
Total expenses 45,994   43,789 
Income before income taxes 14,158   23,130 
Provision for income taxes 4,975   7,725 
Net income$9,183  $15,405 
Other comprehensive income (loss):  
Foreign currency translation adjustments 1,460   (1,155)
Total comprehensive income$10,643  $14,250 
   
Earnings per share:  
Basic$1.16  $2.00 
Diluted$1.13  $1.93 
   
Weighted average shares outstanding:  
Basic 7,931,331   7,701,707 
Diluted 8,132,941   7,976,790 
   
Economic Earnings$18,480  $23,768 
Economic EPS$2.27   $2.98 
   
Dividends declared per share$1.14  $1.00 
   

 

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts) (unaudited)
   
  June 30, December 31,
 
  2016   2015 
ASSETS       
Current Assets:       
Cash and cash equivalents$29,124  $22,740 
Accounts receivable 21,376   19,618 
Investments, at fair value 44,800    72,320 
Other current assets 2,159   2,926 
Total current assets 97,459   117,604 
Goodwill 27,144   27,144 
Deferred income taxes 11,143   11,042 
Intangible assets, net 22,374   23,354 
Property and equipment, net of accumulated depreciation of $4,133 and $3,687 3,908    2,192 
Total assets$162,028  $ 181,336 
        
LIABILITIES AND STOCKHOLDERS' EQUITY       
 Current Liabilities:        
Accounts payable and accrued liabilities$3,545  $3,549 
Dividends payable  5,924   5,749 
Compensation and benefits payable 8,754    20,264 
Contingent consideration    9,023 
Income taxes payable 3,109   6,268 
Total current liabilities 21,332   44,853 
Accrued dividends 1,236   1,699 
Deferred rent 1,844   817 
Total liabilities 24,412   47,369 
        
Stockholders' Equity:       
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 9,823,881 and outstanding 8,847,754 shares at June 30, 2016; issued       
   9,425,309 and outstanding 8,630,687 shares at December 31, 2015 98   94  
Additional paid-in capital 155,525   143,797 
Treasury stock, at cost - 976,127 shares at June 30, 2016; 794,622 shares        
   at December 31, 2015 (43,641)   (34,910)
Accumulated other comprehensive loss (3,228)  (4,688)
Retained earnings 28,862   29,674 
Total stockholders' equity 137,616   133,967 
Total liabilities and stockholders' equity $  162,028  $  181,336 
        

 

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
   
 Six Months Ended June 30,
  2016  2015 
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income$9,183 $15,405 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation 494  325 
Amortization of intangible assets 980  552 
Unrealized losses (gains) on trading investments (425)  (81)
Stock based compensation expense 8,083  7,695 
Deferred income taxes (72) (612)
Excess tax benefits from stock based compensation (165) (1,396)
Net sales (purchases) of investments - trading securities 27,945  33,506 
Other non-cash, net 276   
Changes in operating assets and liabilities:  
Accounts receivable (1,188) (6,773)
Other current assets 981  288 
Accounts payable and accrued liabilities (375) 810 
Compensation and benefits payable (11,384) (6,522)
Income taxes payable (3,889) 1,673 
Other liabilities 166  (18)
Net cash provided by operating activities 30,610  44,852 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Purchases of property and equipment (994) (564)
Acquisition of Woodway, net of cash acquired   (24,133)
Net cash used in investing activities (994) (24,697)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Purchases of treasury stock (4,421)  
Issuance of treasury stock under employee stock plans (614) (1,327)
Restricted stock returned for payment of taxes (3,696) (5,576)
Excess tax benefits from stock based compensation 165  1,396 
Payment of contingent consideration in acquisition (5,562)  
Cash dividends (10,282) (8,743)
Net cash used in financing activities (24,410) (14,250)
Effect of currency rate changes on cash 1,178  (1,269)
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,384  4,636 
Cash and cash equivalents, beginning of period 22,740  18,131 
Cash and cash equivalents, end of period$29,124 $22,767 
       
Supplemental cash flow information:      
Cash paid during the period for income taxes$8,783 $6,675 
Common stock issued for acquisition$3,734 $5,669 
Non-cash accrued contingent consideration$ $9,257 
Accrued dividends$7,160 $6,071 
Accrued purchase of property and equipment$332 $ 
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 
 June 30, March 31, June 30, 
  2016  2016   2015 
Net Income$5,661 $3,522 $9,795 
Add:  Stock based compensation expense 4,080  4,003  4,017 
Add:  Intangible amortization 490  490  462 
Add:  Tax benefit from goodwill amortization  156  78  78 
Economic Earnings$10,387 $8,093 $14,352 
          
Diluted weighted average shares 8,172,923  8,047,084  7,961,406 
Economic EPS$1.27 $1.01 $1.80 
 
  Six Months Ended June 30,
   2016   2015 
Net Income $9,183 $15,405 
Add:  Stock based compensation expense  8,083  7,695 
Add:  Intangible amortization  980  552 
Add:  Tax benefit from goodwill amortization  234  116 
Economic Earnings $18,480 $23,768 
        
Diluted weighted average shares  8,132,941  7,976,790 
Economic EPS $2.27 $2.98 
        

As supplemental information, we are providing non-GAAP performance measures that we refer to as Economic Earnings and Economic Earnings per share ("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 the 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. 

CONTACT:

Westwood Holdings Group, Inc.

Tiffany B. Kice

Chief Financial Officer and Treasurer

(214) 756-6900

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