GAMCO Investors, Inc. Reports Record Third Quarter Results

	•  Assets under Management Rise to a Record $43.5 Billion



•  Earnings Per Share increases 79% to $1.29 per share, bolstered by a $0.44 Per Share Swing in Other Income

Rye, New York, November 6, 2013 – GAMCO Investors, Inc. ("GAMCO") (NYSE: GBL) today reported its 2013 third quarter results including revenues of $96.4 million, net income of $33.1 million and earnings per diluted share of $1.29. On a comparable basis, revenues were $82.2 million, net income was $19.0 million, and earnings per diluted share were $0.72 in the third quarter of 2012.

Assets Under Management ("AUM") rose to a record $43.5 billion, up 7.5% from $40.5 billion at June 30, 2013 and up 17.8% from $36.9 billion at September 30, 2012.

Results for the first nine months of 2013 include revenues of $274.8 million, net income of $83.5 million and earnings per diluted share of $3.25, an increase of 48.4% from earnings of $2.19 in the first nine months of 2012.

 

Financial Highlights		Third Quarter																		Year-to-date
($'s in 000's except AUM and per share data)		2012					2013					%D									2012					2013				%D
AUM - end of period (in millions)		$	36,945				$	43,507					17.8	%						$	36,945				$	43,507					17.8	%
AUM - average (in millions)			36,351					42,620					17.2								35,971					40,478					12.5
Revenues			82,231					96,377					17.2								245,004					274,848					12.2
Operating income before management fee			32,068					38,357					19.6								96,246					109,694					14.0
Operating margin before management fee			39.0	%				39.8	%												39.3	%				39.9	%
Operating income after management fee			29,012					32,728					12.8								86,391					95,239					10.2
Operating margin after management fee			35.3	%				34.0	%												35.3	%				34.7	%
Extinguishment of Debt			(6,305	)				-													(6,307	)				(137	)
Other income/(expense), net			(1,446	)				17,991													2,446					34,991
Income before income taxes			27,566					50,719					84.0								88,837					130,230					46.6
Effective tax rate			30.7	%				34.5	%												34.8	%				35.7	%
Net income			19,004					33,098					74.2								57,945					83,536					44.2
Net income per share		$	0.72		(a)		$	1.29		(b)			79.2	%						$	2.19		(a)		$	3.25		(b)			48.4	%
Shares outstanding at September 30			26,606					26,017													26,606					26,017
(a) After a $0.08 per fully diluted share charge for the three and nine months ended September 30, 2012 related to the extinguishment
of debt from the Dutch Auction of the 0% Subordinated Debentures.
(b) After a $0.01 per fully diluted share charge in the third quarter of 2013 for shareholder-designated charitable contribution program
and $0.12 per fully diluted share charge for the nine months ended September 30, 2013.

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Assets Under Management

Total firm AUM increased to a record $43.5 billion at September 30, 2013, up $3.0 billion from the second quarter and $6.6 billion higher than the third quarter of 2012.  Our third quarter 2013 net inflows were $618 million, market appreciation totaled $2.6 billion and net open- and closed-end fund distributions were $146 million.

AUM in our open end funds increased $1.4 billion during the quarter to $17.3 billion at September 30, 2013. Net inflows into our open-end funds totaled $522 million, reflecting an annualized organic growth rate of 13.2%, while distributions (net of reinvestments) totaled $28 million and market appreciation added $924 million.  AUM in (y)our open-end equity funds totaled $15.6 billion, 9.8% ahead of the previous quarter end AUM and 22.1% higher than the year earlier period.

Institutional and private wealth management AUM increased 7.3% from the June 2013 quarter end to $18.6 billion and was 22.6% higher than the comparable 2012 quarter end.

Our investment partnerships' AUM increased to $805 million on September 30, 2013 from $778 million on June 30, 2013.

Firm wide, net inflows during the first nine months of 2013 were $1.4 billion, market appreciation totaled $6.2 billion and net open- and closed-end fund distributions were $436 million. This compares with net inflows of $110 million, market appreciation of $3.1 billion and net open- and closed-end fund distributions of $331 million in the first nine months of 2012.

Revenues

-	Revenues for the third quarter of 2013 were $96.4 million versus $82.2 million in the prior year.

-

Investment advisory and incentive fees were $80.4 million in the third quarter of 2013, an increase of $12.6 million or 18.7% from the comparable 2012 quarter.  Revenues were generally driven by growth in average AUM in our open- and closed-end funds and higher billable assets in our institutional and private wealth management accounts.

-	Average AUM in the open-end equity funds were $15.1 billion, an increase of 19.8% from $12.6 billion in the comparable 2012 quarter.

-	Average AUM in the institutional and private wealth management accounts were $18.1 billion, 21.8% higher than the prior year period.

-	Incentive fees earned during the 2013 quarter totaled $0.5 million versus $0.8 million in the third quarter of 2012.

-	Revenues from the distribution of our open-end funds and other income were $13.5 million for the third quarter 2013, an increase of $2.4 million, or 21.6%, from the prior year quarter of $11.1 million.

 

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-	Our institutional research services generated revenues of $2.4 million in the third quarter 2013 versus $3.3 million in the prior year period.

Operating Income

Operating income before management fee was $38.4 million in the third quarter 2013 versus $32.1 million in the third quarter 2012.  Operating margin before management fee improved to 39.8% versus 39.0% in the third quarter of 2012. Management believes evaluating operating income before management fee is an important measure in analyzing the Company's operating results. Further information regarding Non-GAAP measures is included in Notes on Non-GAAP Financial Measures and Table VII included elsewhere herein.

Operating income, which is net of management fee expense, was $32.7 million in the third quarter of 2013 versus $29.0 million in the prior year period, an increase of $3.7 million, or 12.8%.  The operating margin was 34.0% in the third quarter of 2013 versus 35.3% in the comparable prior year period.  Management fee expense, which is incentive based and entirely variable, resulted in the lower operating margin quarter over quarter.

Other income (expense)

Other income/(expense), net, was $18.0 million, or $0.41 per diluted share, in the 2013 quarter versus an expense of $1.4 million, or ($0.03) per diluted share, in the third quarter of 2012.  Gains from investments in mutual funds, alternative products and proprietary accounts were $19.3 million in the 2013 quarter versus gains of $7.5 million in the third quarter of 2012. Included in the 2013 trading profits is $5.5 million, or $0.12 per diluted share, of gains from the sale of available for sale securities. Last year's results included a charge of $6.3 million related to purchases of the Company's 0% subordinated debentures.  Dividend and interest income totaled $1.1 million up from $0.9 million in the prior year period.  Interest expense was $2.2 million in the 2013 third quarter; $1.4 million lower than the prior year quarter due to the third quarter 2012 repurchase of $64.1 million (face value) in 0% subordinated debentures through a tender offer as well as the maturity of the $99 million of 5.5% senior notes on May 15, 2013.

Income Taxes

The effective tax rate for the quarter ended September 30, 2013 was 34.5% compared to the 2012 quarter effective tax rate of 30.7%.  The third quarter 2012 rate included a benefit of 5.1% resulting from the difference between the tax and book basis of the 0% debentures repurchased in the tender offer completed in July 2012.

Business and Investment Highlights

-

On September 5, 2013, GAMCO announced the final results of its Shareholder-Designated Charitable Contribution Program with 75% of all registered shareholders, comprising more than 99% of eligible shares, participating in distributing over $5.3 million to 86 different 501(c)(3) charities.  Each shareholder was eligible to direct a donation of $0.25 per registered share owned to a designated charity of their choice.

 

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-	Standard & Poor's Ratings Services issued a report on August 29, 2013 reaffirming its investment grade rating on GAMCO.

-

The Board of Trustees of The Gabelli Dividend & Income Trust (NYSE: GDV) approved, subject to shareholder and other regulatory approvals, the creation of a newly formed diversified, closed-end fund that draws upon our global research to invest in the equities of SMID (small- and mid-capitalization) value stocks within and outside the U.S. GDV would contribute approximately $100 million of its cash and/or securities and would then distribute shares of the new fund pro rata to the common shareholders of GDV.

-	On July 25, 2013, The Gabelli Healthcare & WellnessRx Trust (NYSE: GRX) completed a rights offering raising $33 million of new equity.  The offering was heavily over-subscribed.

-

Our "In the News" and "On the Air" section of our website features interviews with Portfolio Managers including Barbara Marcin, Howard Ward, Chris Marangi, Jeff Jonas, Kevin Dreyer, Caesar Bryan and Dan Miller as they address world markets, industries, and portfolio specifics.  Please visit the Gabelli website at www.gabelli.com/inthenews.html.

-	Sergey Dluzhevskiy was named the #2 stock picker in the Diversified Telecommunications Services sector by Thomson Reuters for their 2013 annual The Financial Times/StarMine Analyst Awards.

Balance Sheet – $624.6 million of Cash and Investments at Quarter End

We ended the quarter with cash and investments of $624.6 million, debt of $117.3 million ($120.5 million face value) and equity attributable to GAMCO shareholders of $435.9 million.  We have $400 million available on our universal shelf registration which allows us the flexibility to issue any combination of senior and subordinated debt securities, convertible debt securities and common and preferred equity. Together with earnings from operations, the shelf provides us with opportunities to do acquisitions, lift-outs, seed new investment strategies, co-invest as well as shareholder compensation including share repurchase and dividends.

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Shareholder Compensation

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NOTES ON NON-GAAP FINANCIAL MEASURES

 

 

		3rd Quarter								YTD September
		2012				2013				2012				2013
Operating income before management fee		$	32,068			$	38,357			$	96,246			$	109,694
Management fee expense			(3,201	)			(3,836	)			(9,610	)			(10,956	)
Tax expense			(8,867	)			(11,921	)			(30,143	)			(35,205	)
Noncontrolling interest expense			(189	)			5				242				201
Operating income (after management fee and taxes)			19,811				22,605				56,735				63,734
Per fully diluted share		$	0.75			$	0.88			$	2.14			$	2.48
Other income/(expense), net		$	(1,446	)		$	17,991			$	2,446			$	34,991
Management fee (expense)/benefit			145				(1,793	)			(245	)			(3,499	)
Tax (expense)/benefit			400				(5,594	)			(766	)			(11,229	)
Noncontrolling interest (expense)/benefit			94				(111	)			(225	)			(461	)
Other income/(expense), net (after management fee and taxes)		$	(807	)		$	10,493			$	1,210			$	19,802
Per fully diluted share		$	(0.03	)		$	0.41			$	0.05			$	0.77
Net income per fully diluted share		$	0.72			$	1.29			$	2.19			$	3.25
Diluted weighted average shares outstanding			26,439				25,700				26,480				25,717

 

 

		3rd Quarter				YTD
(in thousands, except per share data)		2013				2013
Shareholder-designated charitable contribution program		$	313			$	5,313
Management fee and tax benefit			135				2,291
Net expense		$	178			$	3,022
Shareholder-designated charitable contribution program charge per share		$	0.01			$	0.12
Diluted weighted average shares outstanding			25,700				25,717

 

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		3rd Quarter				YTD
(in thousands, except per share data)		2013				2013
Realized gains from sales of available for sale securities		$	5,539			$	15,116
Management fee and tax benefit			2,398				6,545
Net gain		$	3,141			$	8,571
Realized gains from sales of available for sale securities per share		$	0.12			$	0.33
Diluted weighted average shares outstanding			25,700				25,717

 

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

Our disclosure and analysis in this press release contain some forward-looking statements.  Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements because they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning. They also appear in any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and financial results.  Although we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know about our business and operations, there can be no assurance that our actual results will not differ materially from what we expect or believe.  Some of the factors that could cause our actual results to differ from our expectations or beliefs include, without limitation: the adverse effect from a decline in the securities markets; a decline in the performance of our products; a general downturn in the economy; changes in government policy or regulation; changes in our ability to attract or retain key employees; and unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations.  We also direct your attention to any more specific discussions of risk contained in our Form 10-K and other public filings.  We are providing these statements as permitted by the Private Litigation Reform Act of 1995.  We do not undertake to update publicly any forward-looking statements if we subsequently learn that we are unlikely to achieve our expectations or if we receive any additional information relating to the subject matters of our forward-looking statements.

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The Company reported Assets Under Management as follows (in millions):
Table I: Fund Flows - 3rd Quarter 2013
														Fund
						Market								distributions,
		June 30,				appreciation/				Net cash				net of				September 30,
		2013				(depreciation)				flows				reinvestments				2013
Equities:
Open-end Funds		$	14,188			$	924			$	497			$	(28	)		$	15,581
Closed-end Funds			6,409				374				56				(118	)			6,721
Institutional & PWM - direct			14,069				946				11				-				15,026
Institutional & PWM - sub-advisory			3,185				294				24				-				3,503
Investment Partnerships			778				17				10				-				805
SICAV (a)			93				2				(1	)			-				94
Total Equities			38,722				2,557				597				(146	)			41,730
Fixed Income:
Money-Market Fund			1,689				-				25				-				1,714
Institutional & PWM			67				-				(4	)			-				63
Total Fixed Income			1,756				-				21				-				1,777
Total Assets Under Management		$	40,478			$	2,557			$	618			$	(146	)		$	43,507

The Company reported Assets Under Management as follows (in millions):
Table II: Fund Flows - Nine months ended September 30, 2013
														Fund
						Market								distributions,
		December 31,				appreciation/				Net cash				net of				September 30,
		2012				(depreciation)				flows				reinvestments				2013
Equities:
Open-end Funds		$	12,502			$	2,053			$	1,116			$	(90	)		$	15,581
Closed-end Funds			6,288				627				152				(346	)			6,721
Institutional & PWM - direct			12,030				2,789				207				-				15,026
Institutional & PWM - sub-advisory			2,924				679				(100	)			-				3,503
Investment Partnerships			801				30				(26	)			-				805
SICAV (a)			119				4				(29	)			-				94
Total Equities			34,664				6,182				1,320				(436	)			41,730
Fixed Income:
Money-Market Fund			1,681				-				33				-				1,714
Institutional & PWM			60				-				3				-				63
Total Fixed Income			1,741				-				36				-				1,777
Total Assets Under Management		$	36,405			$	6,182			$	1,356			$	(436	)		$	43,507

 

 

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Table III: Assets Under Management
		September 30,				September 30,				%
		2012				2013				Inc.(Dec.)
Equities:
Open-end Funds		$	12,758			$	15,581				22.1	%
Closed-end Funds			6,365				6,721				5.6
Institutional & PWM - direct			12,189				15,026				23.3
Institutional & PWM - sub-advisory			2,912				3,503				20.3
Investment Partnerships			785				805				2.5
SICAV (a)			121				94				(22.3	)
Total Equities			35,130				41,730				18.8
Fixed Income:
Money-Market Fund			1,752				1,714				(2.2	)
Institutional & PWM			63				63				-
Total Fixed Income			1,815				1,777				(2.1	)
Total Assets Under Management		$	36,945			$	43,507				17.8	%

 

Table IV: Assets Under Management by Quarter
																							%D
			9/12				12/12				3/13				6/13				9/13				9/12				6/13
Equities:
Open-end Funds		$	12,758			$	12,502			$	13,813			$	14,188			$	15,581				22.1	%			9.8	%
Closed-end Funds			6,365				6,288				6,557				6,409				6,721				5.6				4.9
Institutional & PWM - direct			12,189				12,030				13,690				14,069				15,026				23.3				6.8
Institutional & PWM - sub-advisory			2,912				2,924				3,299				3,185				3,503				20.3				10.0
Investment Partnerships			785				801				796				778				805				2.5				3.5
SICAV (a)			121				119				113				93				94				(22.3	)			1.1
Total Equities			35,130				34,664				38,268				38,722				41,730				18.8				7.8
Fixed Income:
Money-Market Fund			1,752				1,681				1,758				1,689				1,714				(2.2	)			1.5
Institutional & PWM			63				60				64				67				63				-				(6.0	)
Total Fixed Income			1,815				1,741				1,822				1,756				1,777				(2.1	)			1.2
Total Assets Under Management		$	36,945			$	36,405			$	40,090			$	40,478			$	43,507				17.8	%			7.5	%
(a) Includes $102 million, $104 million, $99 million, $90 million and $92 million of proprietary seed capital at September 30, 2012,
December 31, 2012, March 31, 2013, June 30, 2013 and September 30, 2013, respectively.

 

 

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Table V
GAMCO INVESTORS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
		For the Quarter Ended September 30,
										% Inc.
		2012				2013				(Dec.)
Investment advisory and incentive fees		$	67,790			$	80,438				18.7	%
Distribution fees and other income			11,139				13,545				21.6
Institutional research services			3,302				2,394				(27.5	)
Total revenues			82,231				96,377				17.2
Compensation costs			32,948				39,803				20.8
Distribution costs			10,386				12,769				22.9
Other operating expenses			6,829				5,448				(20.2	)
Total expenses			50,163				58,020				15.7
Operating income before management fee			32,068				38,357				19.6
Investment income			8,445				20,468
Extinguishment of debt			(6,305	)			-
Interest expense			(3,586	)			(2,164	)
Shareholder-designated contribution			-				(313	)
Other income/(expense), net			(1,446	)			17,991
Income before management fee and income taxes			30,622				56,348				84.0
Management fee expense			3,056				5,629
Income before income taxes			27,566				50,719				84.0
Income tax expense			8,467				17,515
Net income			19,099				33,204				73.9
Net income/(loss) attributable to noncontrolling interests			95				106
Net income attributable to GAMCO Investors, Inc.		$	19,004			$	33,098				74.2
Net income per share attributable to GAMCO Investors, Inc.:
Basic		$	0.72			$	1.29				79.2
Diluted		$	0.72			$	1.29				79.2
Weighted average shares outstanding:
Basic			26,250				25,625				(2.4	)
Diluted			26,439				25,700				(2.8	)
Actual shares outstanding (a)			26,606				26,017				(2.2	%)
Notes:
(a) Includes 371,500 and 427,700 of RSAs, respectively.
See GAAP to non-GAAP reconciliation on page 12.

 

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Table VI
GAMCO INVESTORS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
		For the Nine Months Ended September 30,
										% Inc.
		2012				2013				(Dec.)
Investment advisory and incentive fees		$	202,783			$	230,488				13.7	%
Distribution fees and other income			33,768				37,420				10.8
Institutional research services			8,453				6,940				(17.9	)
Total revenues			245,004				274,848				12.2
Compensation costs			100,423				113,214				12.7
Distribution costs			30,575				35,650				16.6
Other operating expenses			17,760				16,290				(8.3	)
Total expenses			148,758				165,154				11.0
Operating income before management fee			96,246				109,694				14.0
Investment income			21,172				48,889
Extinguishment of debt			(6,307	)			(137	)
Interest expense			(12,419	)			(8,448	)
Shareholder-designated contribution			-				(5,313	)
Other income, net			2,446				34,991
Income before management fee and income taxes			98,692				144,685				46.6
Management fee expense			9,855				14,455
Income before income taxes			88,837				130,230				46.6
Income tax expense			30,909				46,434
Net income			57,928				83,796				44.7
Net income attributable to noncontrolling interests			(17	)			260
Net income attributable to GAMCO Investors, Inc.		$	57,945			$	83,536				44.2
Net income per share attributable to GAMCO Investors, Inc.:
Basic		$	2.20			$	3.25				47.7
Diluted		$	2.19			$	3.25				48.4
Weighted average shares outstanding:
Basic			26,309				25,682				(2.4	)
Diluted			26,480				25,717				(2.9	)
Actual shares outstanding (a)			26,606				26,017				(2.2	%)
Notes:
(a) Includes 371,500 and 427,700 of RSAs, respectively.
See GAAP to non-GAAP reconciliation on page 12.

 

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Table VII
GAMCO INVESTORS, INC.
UNAUDITED QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
		2012																											2013
		1st				2nd				3rd					YTD					4th					Full				1st				2nd				3rd				YTD
		Quarter				Quarter				Quarter					2012					Quarter					Year				Quarter				Quarter				Quarter				2013
Income Statement Data:
Revenues		$	81,749			$	81,024			$	82,231				$	245,004				$	99,277				$	344,281			$	86,181			$	92,290			$	96,377			$	274,848
Expenses			50,553				48,042				50,163					148,758					71,375		(a)			220,133				51,474				55,660				58,020				165,154
Operating income before
management fee			31,196				32,982				32,068					96,246					27,902					124,148				34,707				36,630				38,357				109,694
Investment income/(loss)			15,114				(2,389	)			2,140		(b)			14,865		(b)			7,220					22,085				13,636				14,648				20,468				48,752
Interest expense			(4,404	)			(4,429	)			(3,586	)				(12,419	)				(3,480	)				(15,899	)			(3,488	)			(2,796	)			(2,164	)			(8,448	)
Shareholder-designated contribution			-				-				-					-					-					-				(5,000	)			-				(313	)			(5,313	)
Other income/(expense), net			10,710				(6,818	)			(1,446	)				2,446					3,740					6,186				5,148				11,852				17,991				34,991
Income before management
fee and income taxes			41,906				26,164				30,622					98,692					31,642					130,334				39,855				48,482				56,348				144,685
Management fee expense			4,184				2,615				3,056					9,855					3,163					13,018				3,980				4,846				5,629				14,455
Income before income taxes			37,722				23,549				27,566					88,837					28,479					117,316				35,875				43,636				50,719				130,230
Income tax expense			13,756				8,686				8,467					30,909					10,812					41,721				13,195				15,724				17,515				46,434
Net income			23,966				14,863				19,099					57,928					17,667					75,595				22,680				27,912				33,204				83,796
Net income/(loss) attributable
to noncontrolling interests			130				(242	)			95					(17	)				73					56				135				19				106				260
Net income attributable to
GAMCO Investors, Inc.		$	23,836			$	15,105			$	19,004				$	57,945				$	17,594				$	75,539			$	22,545			$	27,893			$	33,098			$	83,536
Net income per share
attributable to GAMCO
Investors, Inc.:
Basic		$	0.90			$	0.58			$	0.72				$	2.20				$	0.67				$	2.87			$	0.88			$	1.09			$	1.29			$	3.25
Diluted		$	0.90			$	0.57			$	0.72				$	2.19				$	0.67				$	2.86			$	0.88			$	1.09			$	1.29			$	3.25
Weighted average shares outstanding:
Basic			26,415				26,258				26,250					26,309					26,208					26,283				25,742				25,679				25,625				25,682
Diluted			26,533				26,426				26,439					26,480					26,305					26,436				25,758				25,689				25,700				25,717
Reconciliation of non-GAAP
financial measures to GAAP:
Operating income before
management fee		$	31,196			$	32,982			$	32,068				$	96,246				$	27,902				$	124,148			$	34,707			$	36,630			$	38,357			$	109,694
Deduct: management fee expense			4,184				2,615				3,056					9,855					3,163					13,018				3,980				4,846				5,629				14,455
Operating income		$	27,012			$	30,367			$	29,012				$	86,391				$	24,739				$	111,130			$	30,727			$	31,784			$	32,728			$	95,239
Operating margin before
management fee			38.2	%			40.7	%			39.0	%				39.3	%				28.1	%				36.1	%			40.3	%			39.7	%			39.8	%			39.9	%
Operating margin after
management fee			33.0	%			37.5	%			35.3	%				35.3	%				24.9	%				32.3	%			35.7	%			34.4	%			34.0	%			34.7	%
(a) Includes $10.1 million in expenses from the acceleration of RSAs.
(b) Includes $6.3 million loss on extinguishment of $64.6 million (face value) of 0% Subordinated Debentures.