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Press release from Business Wire

Westwood Holdings Group, Inc. Reports Third Quarter 2013 Results

<p class='bwalignc'> <i><b>Assets Under Management Increase to Record $17.1 Billion</b></i> </p> <p class='bwalignc'> <i><b>Westwood International AUM Surpass $2.0 Billion</b></i> </p> <p class='bwalignc'> <i><b>Quarterly Dividend Increased 10%</b></i> </p>

Thursday, October 17, 2013

Westwood Holdings Group, Inc. Reports Third Quarter 2013 Results

16:05 EDT Thursday, October 17, 2013

DALLAS (Business Wire) -- Westwood Holdings Group, Inc. (NYSE: WHG) today reported third quarter 2013 revenues of $23.0 million, a 21% increase compared to revenues of $18.9 million in the third quarter of 2012. Non-GAAP Economic Earnings per share (“Economic EPS”) were $0.97 compared to $0.76 in the same quarter of the prior year and $1.07 in the second quarter of 2013. Diluted earnings per share were $0.57 compared to $0.34 in the same quarter of 2012 and $0.65 in the second quarter of 2013. The second quarter of this year included performance fees of $2.5 million related to our MLP strategy that are recognized following the annual performance period.

Highlights and significant items related to our third quarter 2013 pretax results include:

  • Revenues increased 21% over the same quarter of 2012 driven by record AUM of $17.1 billion.
  • Westwood International Advisors (“WIA”) net inflows aggregated $440 million, including $385 million into our new Ireland domiciled UCITS Fund.
  • WIA achieved profitable operating results during the quarter for the first time following our mid-2012 launch.
  • Firmwide net inflows exceeded $554 million.

WIA's assets under management exceeded $2.0 billion at September 30, 2013, up 129% from year end. WIA contributed $2.7 million to revenues during the third quarter of 2013 and $2.4 million of related costs, compared to $1.7 million of revenues and $2.0 million of related costs in the second quarter of this year.

Brian Casey, Westwood's President & CEO, commented, “We are very pleased with our third quarter financial results, and the exceptionally strong performance generated by our MLP, SmallCap, and Income Opportunity teams. The Westwood Funds™ had record quarterly net inflows of $194 million, bringing Westwood Funds™ aggregate year to date net inflows this year to $528 million. We continue to experience strong demand for WIA's Emerging Markets strategies, and are looking to expand our UCITS products in the near future. WIA AUM now exceeds $2.0 billion with a strong pipeline of prospective clients. At quarter-end, Westwood had $67 million in cash and investments, stockholders' equity of $83 million, and no debt. Today our Board approved a 10% increase in our quarterly dividend.”

AUM reached $17.1 billion as of September 30, 2013, an increase of 21% compared to $14.2 billion as of year end, and 22% higher than a year ago. Mutual fund assets, comprising ten Westwood Funds™, stood at $2.4 billion as of September 30, 2013, 48% higher than year end, and 49% higher than September 30, 2012.

Westwood's Board of Directors today declared a quarterly cash dividend of $0.44 per common share, a 10% increase from the previous quarterly dividend rate, payable on January 2, 2014 to stockholders of record on December 13, 2013.

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 third quarter 2013 results and other business updates at 4:30 p.m. Eastern time today. To join the conference call, dial 877-303-6235 (domestic) 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 October 25, 2013 by dialing 855-859-2056 (domestic) or 404-537-3406 (international) and entering passcode 99412344.

About Westwood

Westwood Holdings Group, Inc. provides investment management services to institutional investors, private wealth clients and financial intermediaries. Westwood manages a variety of investment strategies including U.S., Global, and Emerging Markets equities as well as income-oriented portfolios. Access to these strategies is available through separate accounts, commingled funds, the Westwood FundsTM family of U.S. mutual funds, and UCITS funds. Westwood has significant, broad-based employee ownership and trades on the New York Stock Exchange under the symbol "WHG." Based in Dallas, Westwood also has offices in Omaha and Toronto.

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 statements about our expected future financial position, results of operations or cash flows, as well as other statements including words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” “could,” “goal,” “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: our ability to identify and successfully market services that appeal to our customers; the significant concentration of our revenues among a few customers; our relationships with investment consulting firms; our relationships with current and potential customers; our ability to retain qualified personnel; our ability to successfully develop and market new asset classes; our ability to maintain our fee structure in light of competitive fee pressures; competition in the marketplace; downturns in the financial markets; new legislation adversely affecting the financial services industries; interest rates; changes in our effective tax rate; our ability to maintain an effective system of internal controls; 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, 2012 and its quarterly reports on Form 10-Q for the quarters ended March 31, 2013, June 30, 2013 and September 30, 2013. 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
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
 
Three Months Ended
September 30,
2013
   

June 30,
2013

   

September 30,
2012

REVENUES:
Advisory fees:
Asset based $ 17,956 $ 16,486 $ 14,485
Performance based 26 2,535 69
Trust fees 4,672 4,574 3,715
Other, net   344   (120 )   672
Total revenues   22,998   23,475     18,941
 
EXPENSES:
Employee compensation and benefits 12,480 11,907 11,397
Sales and marketing 326 334 350
Westwood mutual funds 599 462 292
Information technology 690 678 649
Professional services 887 1,077 739
General and administrative   1,250   1,284     1,183
Total expenses   16,232   15,742     14,610
Income before income taxes 6,766 7,733 4,331
Provision for income taxes   2,447   2,854     1,827
Net income $ 4,319 $ 4,879   $ 2,504
Other comprehensive income:
Foreign currency translation adjustments   104   (158 )   78
Other comprehensive income   104   (158 )   78
Total comprehensive income $ 4,423 $ 4,721   $ 2,582
 
Earnings per share:
Basic $ 0.59 $ 0.66   $ 0.35
Diluted $ 0.57 $ 0.65   $ 0.34
 
Weighted average shares outstanding:
Basic   7,374,600   7,349,868     7,166,020
Diluted   7,558,136   7,495,523     7,323,245
 
Economic Earnings $ 7,334 $ 7,993   $ 5,559
Economic EPS $ 0.97 $ 1.07   $ 0.76
 
Dividends declared per share $ 0.40 $ 0.40   $ 0.37
 

   
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
 

Nine months ended
September 30,

REVENUES: 2013     2012
Advisory fees:
Asset based $ 49,989 $ 42,677
Performance based 2,561 1,251
Trust fees 13,463 10,943
Other, net   560     2,000  
Total revenues   66,573     56,871  
 
EXPENSES:
Employee compensation and benefits 36,230 32,196
Sales and marketing 947 823
Westwood mutual funds 1,465 776
Information technology 2,024 1,874
Professional services 2,966 3,681
General and administrative   3,723     3,354  
Total expenses   47,355     42,704  
Income before income taxes 19,218 14,167
Provision for income taxes   7,187     5,680  
Net income $ 12,031   $ 8,487  
Other comprehensive income:
Available-for-sale investments:
Change in unrealized gain on investment securities - (401 )
Less: reclassification adjustment for net gains included in earnings   -     (908 )
Net change (net of income taxes of $0, and $(714), respectively) - (1,309 )
Foreign currency translation adjustments   (131 )   60  
Other comprehensive income   (131 )   (1,249 )
Total comprehensive income $ 11,900   $ 7,238  
 
Earnings per share:
Basic $ 1.64   $ 1.19  
Diluted $ 1.59   $ 1.16  
 
Weighted average shares outstanding:
Basic   7,347,376     7,138,878  
Diluted   7,586,488     7,301,014  
 
Economic Earnings $ 20,994   $ 16,630  
Economic EPS $ 2.77   $ 2.28  
 
Dividends declared per share $ 1.20   $ 1.11  
 

       
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 30, 2013 and December 31, 2012
(in thousands, except par value and share amounts)
 

September 30,
2013
(unaudited)

December 31,
2012

ASSETS
Current Assets:
Cash and cash equivalents $ 12,009 $ 3,817
Accounts receivable 12,097 8,920
Investments, at fair value 55,268 59,906
Deferred income taxes 2,917 3,362
Prepaid income taxes 1,213 -
Other current assets   1,906     1,365  
Total current assets 85,410 77,370
Goodwill 11,255 11,255
Deferred income taxes 2,010 1,696
Intangible assets, net 3,879 4,149
Property and equipment, net of accumulated depreciation of $2,034 and $1,747   2,372     2,145  
Total assets $ 104,926   $ 96,615  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 2,004 $ 1,650
Dividends payable 3,559 1,201
Compensation and benefits payable 13,638 14,537
Income taxes payable   -     1,438  

Total current liabilities

19,201 18,826
Accrued dividends 1,053 -
Deferred rent   1,194     1,238  
Total long-term liabilities   2,247     1,238  
Total liabilities   21,448     20,064  
 
Stockholders' Equity:
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 8,789,725 and outstanding 8,187,529 shares at September 30, 2013; issued 8,526,598 and outstanding 8,031,045 shares at December 31, 2012 88

 

85

Additional paid-in capital 97,928 88,483
Treasury stock, at cost – 602,196 shares at September 30, 2013; 495,553 shares at December 31, 2012 (23,169 )

(18,502

)

Accumulated other comprehensive income (loss) (101 ) 30
Retained earnings   8,732     6,455  
Total stockholders' equity   83,478     76,551  
Total liabilities and stockholders' equity $ 104,926   $ 96,615  
 

   
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 

Nine months ended
September 30,

2013     2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,031 $ 8,487
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 288 257
Amortization of intangible assets 270 366
Fair value adjustment of liabilities - (96 )
(Gain) on sale of available for sale investment - (803 )
Unrealized (gains) losses on trading investments 430 (164 )
Loss on disposal of property - 1
Restricted stock amortization 8,579 7,635
Deferred income taxes 51 931
Excess tax benefits from stock based compensation (694 ) (676 )
Net purchases of investments – trading securities 4,202 96
Changes in operating assets and liabilities:
Accounts receivable (3,241 ) (495 )
Other current assets (480 ) (684 )
Accounts payable and accrued liabilities 369 (2,691 )
Compensation and benefits payable (668 ) (1,996 )
Income taxes payable and prepaid income taxes (1,922 ) (961 )
Other liabilities   20     (69 )
Net cash provided by operating activities   19,235     9,138  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of available for sale investment - 950
Purchases of property and equipment   (651 )   (238 )
Net cash (used in) provided by investing activities   (651 )   712  
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock (4,667 ) (3,796 )
Excess tax benefits from stock based compensation 694 676
Proceeds from exercise of stock options - 210
Cash dividends   (6,346 )     (5,475 )
Net cash used in financing activities   (10,319 )     (8,385 )
Effect of currency rate changes on cash (73 ) 48
NET INCREASE IN CASH AND CASH EQUIVALENTS 8,192 1,513
Cash and cash equivalents, beginning of period   3,817     5,264  
Cash and cash equivalents, end of period $ 12,009   $ 6,777  
 
Supplemental cash flow information:
Cash paid during the period for income taxes $ 9,093   $ 5,708  
 

     
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
Reconciliation of Net Income to Economic Earnings
(in thousands, except per share data and share amounts)
(unaudited)
 
Three Months Ended

September 30,
2013

 

June 30,
2013

   

September 30,
2012

Net Income $ 4,319 $ 4,879 $ 2,504
Add: Restricted stock expense 2,887 2,986 2,886
Add: Intangible amortization 90 90 122
Add: Tax benefit from goodwill amortization   38   38   47
Economic earnings $ 7,334 $ 7,993 $ 5,559
 
Diluted weighted average shares 7,558,136 7,495,523 7,323,245
Economic EPS $ 0.97 $ 1.07 $ 0.76
 
 

 

Nine Months Ended

September 30,
2013

 

September 30,
2012

Net Income $ 12,031 $ 8,487
Add: Restricted stock expense 8,579 7,635
Add: Intangible amortization 270 366
Add: Tax benefit from goodwill amortization   114   142
Economic earnings $ 20,994 $ 16,630
 
Diluted weighted average shares 7,586,488 7,301,014
Economic EPS $ 2.77 $ 2.28
 

As supplemental information, we are providing non-GAAP performance measures that we refer to as Economic Earnings and Economic Earnings per share (or 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 dividend policy. We believe that these non-GAAP performance measures, while not substitutes for GAAP net income or earnings per share, are useful for both 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 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.

(WHG-G)

Westwood Holdings Group, Inc.
Mark A. Wallace, 214-756-6900
Chief Financial Officer

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