GAMCO Investors, Inc. Reports Record First Quarter Results

·	Assets under Management Rise to a Record $47.6 Billion

·	First Quarter Earnings Per Share Up 23.9% to $1.09 per share

Rye, New York, April 25, 2014 – GAMCO Investors, Inc. ("GAMCO") (NYSE: GBL) today reported its 2014 first quarter results including revenues of $104.5 million, net income of $28.0 million and earnings per diluted share of $1.09.  On a comparable basis, revenues were $86.2 million, net income was $22.5 million, and earnings per diluted share were $0.88 in the first quarter of 2013.

Assets under Management ("AUM") rose to a record $47.6 billion, up 1.2% from $47.0 billion at December 31, 2013 and up 18.6% from $40.1 billion at March 31, 2013.

 

Financial Highlights			Q1				Q1
($'s in 000's except AUM and per share data)			2014				2013				%D
AUM - end of period (in millions)		$	47,555			$	40,090				18.6	%
AUM - average (in millions)			46,967				38,436				22.2
Revenues			104,477				86,181				21.2
Operating income before management fee (a)			41,227				34,707				18.8
Operating margin before management fee			39.5	%			40.3	%
Other income/(expense), net			6,093				5,148
Income before income taxes			42,592				35,875				18.7
Effective tax rate			34.3	%			36.8	%
Net income			27,954				22,545				24.0
Net income per share (b)		$	1.09			$	0.88				23.9	%
Shares outstanding at March 31			25,985				25,712
(a) See GAAP to non-GAAP reconciliation on page 9.
(b) After a $0.11 per fully diluted share charge in the first quarter 2013 for our
shareholder-designated charitable contribution program.

 

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Assets Under Management

Total firm AUM increased to a record $47.6 billion at March 31, 2014, up $545 million from the fourth quarter of 2013 and $7.5 billion from March 31, 2013.  Our first quarter 2014 net inflows were $63 million.  AUMs were crimped by $143 million of net open- and closed-end fund distributions. Market appreciation added $625 million.

AUM in our open-end funds increased $0.5 billion during the quarter to $19.3 billion at March 31, 2014.  AUM in the open-end equity funds were $17.5 billion, 2.7% ahead of the previous quarter end and 26.9% higher than the year earlier period.  Average AUM were $17.1 billion, an increase of 29.5% from $13.2 billion in the comparable 2013 quarter.  Net inflows into our open-end funds totaled $331 million, reflecting an annualized organic growth rate of 7.0%, reduced by net distributions of $30 million.  Market appreciation added $229 million.  Net inflows to our open-end equity funds totaled $254 million.

Our closed-end funds had AUM of $7.0 billion on March 31, 2014, 6.3% higher than the $6.6 billion on March 31, 2013 and 0.3% above the $6.9 billion on December 31, 2013.  For 2014, market appreciation was $140 million, offset by $113 million of distributions from all closed-end funds, net of reinvestments.

Institutional and private wealth management AUM at March 31, 2014 was unchanged from December 31, 2013 at $20.3 billion but was 18.7% higher than the comparable 2013 period end.  Average AUM in the institutional and private wealth management accounts were $20.1 billion, 25.6% higher than the prior year quarter.

AUM in our investment partnerships' rose to $865 million on March 31, 2014 from $811 million on December 31, 2013.

Revenues

-	Revenues for the first quarter of 2014 were $104.5 million, up 21.2% from $86.2 million in the prior year.  Year over year revenue growth was supported by an 18.6% increase in total firm AUM, paced by a nearly 27% increase in our open-end equity funds.

-

Investment advisory and incentive fees were $87.8 million in the first quarter of 2014, an increase of $15.2 million or 20.9% from the comparable 2013 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.

-	Incentive fees earned during the 2014 quarter totaled $0.4 million versus $2.3 million in the first quarter of 2013.

-	Revenues from the distribution of our open-end funds and other income were $14.9 million for the first quarter 2014, an increase of $3.5 million, or 31.0%, from the prior year quarter of $11.4 million.

 

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-	Our institutional research services revenues were $1.8 million in the first quarter 2014 versus $2.2 million in the prior year period.

Operating Income – First Quarter

Operating income, which is net of management fee expense, increased 18.8% or $5.8 million to $36.5 million in the first quarter of 2014 versus $30.7 million in the prior year period.  The operating margin was 34.9% in the first quarter of 2014 versus 35.7% in the comparable prior year period.  Operating margin slipped largely due to higher stock compensation costs as compared to the prior year quarter.  The Company issued RSAs during the second half of 2013 resulting in a $1.7 million increase in stock compensation costs in the 2014 quarter versus the prior year quarter.  Management fee expense, which is incentive based and entirely variable, is based on pre-tax income and reflects the increase in operating income.

Operating income before management fee was $41.2 million in the first quarter 2014 versus $34.7 million in the first quarter 2013.  Operating margin before management fee declined to 39.5% versus 40.3% in the first quarter of 2013 for the reasons stated above.  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 V included elsewhere herein.

Other income (expense)

Other income/(expense), net, was $6.1 million in the 2014 quarter versus $5.1 million in the first quarter of 2013.  Gains from investments in mutual funds, alternative investment products and proprietary accounts were $6.9 million in the 2014 quarter versus gains of $12.3 million in the first quarter of 2013.  Dividend and interest income totaled $1.1 million, down from $1.3 million in the prior year period.  Interest expense was $2.0 million in the 2014 first quarter versus $3.5 million in the prior year quarter due to the payment of the $99 million 5.5% senior notes on May 15, 2013.  Note that the first quarter 2013 included a charge of $5.0 million for our 2013 Shareholder Designated Charitable Contribution program.

Income Taxes

The effective tax rate ("ETR") for the quarter ended March 31, 2014 was 34.3% compared to the 2013 quarter effective tax rate of 36.8%.  We expect the ETR for the remainder of the year to more closely track our prior year ETR.

Business and Investment Highlights

-

During the first quarter of 2014, GAMCO partnered with Japan-based DIAM Co., Ltd. ("DIAM") to launch its first sub-advised relationship in Japan.  DIAM launched the "The Beikoku Wariyasukabu Fund", an All Cap Value fund, "The Value Hunter", which is sub-advised by GAMCO.  The fund will be distributed by Resona Bank, Ltd, Saitama Resona Bank Ltd., and Kinki Osaka Bank, Ltd.

 

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-	During the first quarter of 2014, G.research, Inc. hosted several conferences, including our 24th annual Pump, Valve & Motor Symposium and our 5th annual Specialty Chemicals Conference.

-

On April 15, 2014, the shareholders of The Gabelli Dividend & Income Trust ("GDV") approved the spin-off of a $100 million closed-end investment company, The Gabelli Global Small and Mid Cap Value Trust ("Global Trust") from GDV.  The Global Trust, our 11th closed-end fund, will seek long-term growth of capital by investing at least 80% of its total assets, under normal market conditions, in equity securities of companies with small or medium-sized market capitalizations and at least 40% of its total assets in the equity securities of companies located outside the United States and in at least three countries.

Balance Sheet – Over $625 million of Cash and Investments at Quarter End

We ended the quarter with cash and investments of $625.8 million, debt of $112.1 million ($113.8 million face value) and equity attributable to GAMCO shareholders of $474.1 million.  We have $400 million available on our universal shelf registration.  Together with earnings from operations, the shelf provides us with flexibility to do acquisitions, lift-outs, seed new investment strategies, and co-invest as well as fund shareholder compensation including share repurchases, and dividends.

Shareholder Compensation

During the quarter ended March 31, 2014, we returned $11.2 million of our earnings to shareholders through dividends and stock repurchases.  We repurchased 121,192 shares at an average price of $79.59 per share through our stock buyback program, for a total investment of $9.6 million. We returned $1.6 million through cash dividends.

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NOTES ON NON-GAAP FINANCIAL MEASURES

		1st Quarter
		2013				2014
Operating income before management fee		$	34,707			$	41,227
Management fee expense			(3,471	)			(4,119	)
Tax expense			(11,489	)			(12,734	)
Noncontrolling interest expense			41				117
Operating income (after management fee and taxes)			19,788				24,491
Per fully diluted share		$	0.77			$	0.95
Other income, net		$	5,148			$	6,093
Management fee expense			(509	)			(609	)
Tax expense			(1,706	)			(1,882	)
Noncontrolling interest (expense)/benefit			(176	)			(139	)
Other income, net (after management fee and taxes)		$	2,757			$	3,463
Per fully diluted share		$	0.11			$	0.14
Net income per fully diluted share		$	0.88			$	1.09
Diluted weighted average shares outstanding			25,758				25,684

 

 

 

		1st Quarter				1st Quarter
(in thousands, except per share data)		2013				2014
Shareholder-designated charitable contribution program		$	5,000			$	-
Management fee and tax benefit			2,156				-
Net expense		$	2,844			$	-
Shareholder-designated charitable contribution program charge per share		$	0.11			$	-
Diluted weighted average shares outstanding			25,758				25,684

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

The financial results set forth in this press release are preliminary. Our disclosure and analysis in this press release, which do not present historical information, contain "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.  Forward-looking statements convey 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, the economy and other conditions, there can be no assurance that our actual results will not differ materially from what we expect or believe.  Therefore, you should proceed with caution in relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance.

Forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors, some of which are listed below, that are difficult to predict and could cause actual results and outcomes to differ materially from any future results or outcomes expressed or implied by such forward-looking statements.  Some of the factors that could cause our actual results to differ from our expectations or beliefs include a decline in the securities markets that adversely affect our assets under management, negative performance of our products, the failure to perform as required under our investment management agreements, a general downturn in the economy that negatively impacts our operations. We also direct your attention to the more specific discussions of these and other risks, uncertainties and other important factors  contained in our Form 10-K and other public filings.  Other factors that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We do not undertake to update publicly any forward-looking statements if we subsequently learn that we are unlikely to achieve our expectations whether as a result of new information, future developments or otherwise, except as may be required by law.

 

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The Company reported Assets Under Management as follows (in millions):
Table I: Fund Flows - 1st Quarter 2014
														Fund
						Market								distributions,
		December 31,				appreciation/				Net cash				net of				March 31,
		2013				(depreciation)				flows				reinvestments				2014
Equities:
Open-end Funds		$	17,078			$	229			$	254			$	(30	)		$	17,531
Closed-end Funds			6,945				140				(5	)			(113	)			6,967
Institutional & PWM - direct			16,486				196				(279	)			-				16,403
Institutional & PWM - sub-advisory			3,797				52				(27	)			-				3,822
Investment Partnerships			811				7				47				-				865
SICAV (a)			96				1				(6	)			-				91
Total Equities			45,213				625				(16	)			(143	)			45,679
Fixed Income:
Money-Market Fund			1,735				-				77				-				1,812
Institutional & PWM			62				-				2				-				64
Total Fixed Income			1,797				-				79				-				1,876
Total Assets Under Management		$	47,010			$	625			$	63			$	(143	)		$	47,555

 

Table II: Assets Under Management
		March 31,				March 31,				%
		2013				2014				Inc.(Dec.)
Equities:
Open-end Funds		$	13,813			$	17,531				26.9	%
Closed-end Funds			6,557				6,967				6.3
Institutional & PWM - direct			13,690				16,403				19.8
Institutional & PWM - sub-advisory			3,299				3,822				15.9
Investment Partnerships			796				865				8.7
SICAV (a)			113				91				(19.5	)
Total Equities			38,268				45,679				19.4
Fixed Income:
Money-Market Fund			1,758				1,812				3.1
Institutional & PWM			64				64				-
Total Fixed Income			1,822				1,876				3.0
Total Assets Under Management		$	40,090			$	47,555				18.6	%

 

Table III: Assets Under Management by Quarter
																							%D
			3/13				6/13				9/13				12/13				3/14				3/13				12/13
Equities:
Open-end Funds		$	13,813			$	14,188			$	15,581			$	17,078			$	17,531				26.9	%			2.7	%
Closed-end Funds			6,557				6,409				6,721				6,945				6,967				6.3				0.3
Institutional & PWM - direct			13,690				14,069				15,026				16,486				16,403				19.8				(0.5	)
Institutional & PWM - sub-advisory			3,299				3,185				3,503				3,797				3,822				15.9				0.7
Investment Partnerships			796				778				805				811				865				8.7				6.7
SICAV (a)			113				93				94				96				91				(19.5	)			(5.2	)
Total Equities			38,268				38,722				41,730				45,213				45,679				19.4				1.0
Fixed Income:
Money-Market Fund			1,758				1,689				1,714				1,735				1,812				3.1				4.4
Institutional & PWM			64				67				63				62				64				-				3.2
Total Fixed Income			1,822				1,756				1,777				1,797				1,876				3.0				4.4
Total Assets Under Management		$	40,090			$	40,478			$	43,507			$	47,010			$	47,555				18.6	%			1.2	%
(a) Includes $99 million, $90 million, $92 million, $94 million and $88 million of proprietary seed capital at March 31, 2013,
June 30, 2013, September 30, 2013, December 31, 2013 and March 31, 2014, respectively.

 

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Table IV
GAMCO INVESTORS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
		For the Quarter Ended March 31,
										% Inc.
		2013				2014				(Dec.)
Investment advisory and incentive fees		$	72,607			$	87,797				20.9	%
Distribution fees and other income			11,353				14,873				31.0
Institutional research services			2,221				1,807				(18.6	)
Total revenues			86,181				104,477				21.2
Compensation costs			35,652				43,897				23.1
Distribution costs			11,010				13,963				26.8
Other operating expenses			4,812				5,390				12.0
Total expenses			51,474				63,250				22.9
Operating income before management fee			34,707				41,227				18.8
Investment income			13,636				8,090
Extinguishment of debt			-				(5	)
Interest expense			(3,488	)			(1,992	)
Shareholder-designated contribution			(5,000	)			-
Other income, net			5,148				6,093
Income before management fee and income taxes			39,855				47,320				18.7
Management fee expense			3,980				4,728
Income before income taxes			35,875				42,592				18.7
Income tax expense			13,195				14,616
Net income			22,680				27,976				23.4
Net income attributable to noncontrolling interests			135				22
Net income attributable to GAMCO Investors, Inc.		$	22,545			$	27,954				24.0
Net income per share attributable to GAMCO Investors, Inc.:
Basic		$	0.88			$	1.10				25.0
Diluted		$	0.88			$	1.09				23.9
Weighted average shares outstanding:
Basic			25,742				25,481				(1.0	)
Diluted			25,758				25,684				(0.3	)
Actual shares outstanding (a)			25,712				25,985				1.1	%
Notes:
(a) Includes 0 and 566,850 of RSAs, respectively.
See GAAP to non-GAAP reconciliation on page 9.

 

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Table V
GAMCO INVESTORS, INC.
UNAUDITED QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
		2013																				2014
		1st				2nd				3rd				4th								1st
		Quarter				Quarter				Quarter				Quarter				Full Year				Quarter
Income Statement Data:
Revenues		$	86,181			$	92,290			$	96,377			$	122,714			$	397,562			$	104,477
Expenses			51,474				55,660				58,020				71,167				236,321				63,250
Operating income before
management fee			34,707				36,630				38,357				51,547				161,241				41,227
Investment income/(loss)			13,636				14,648				20,468				13,524				62,276				8,085
Interest expense			(3,488	)			(2,796	)			(2,164	)			(2,063	)			(10,511	)			(1,992	)
Shareholder-designated contribution			(5,000	)			-				(313	)			(5,313	)			(10,626	)			-
Other income/(expense), net			5,148				11,852				17,991				6,148				41,139				6,093
Income before management
fee and income taxes			39,855				48,482				56,348				57,695				202,380				47,320
Management fee expense			3,980				4,846				5,629				4,374				18,829				4,728
Income before income taxes			35,875				43,636				50,719				53,321				183,551				42,592
Income tax expense			13,195				15,724				17,515				19,752				66,186				14,616
Net income			22,680				27,912				33,204				33,569				117,365				27,976
Net income/(loss) attributable
to noncontrolling interests			135				19				106				252				512				22
Net income attributable to
GAMCO Investors, Inc.		$	22,545			$	27,893			$	33,098			$	33,317			$	116,853			$	27,954
Net income per share
attributable to GAMCO
Investors, Inc.:
Basic		$	0.88			$	1.09			$	1.29			$	1.30			$	2.87			$	1.10
Diluted		$	0.88			$	1.09			$	1.29			$	1.29			$	2.86			$	1.09
Weighted average shares outstanding:
Basic			25,742				25,679				25,625				25,567				26,283				25,481
Diluted			25,758				25,689				25,700				25,733				26,436				25,684
Reconciliation of non-GAAP
financial measures to GAAP:
Operating income before
management fee		$	34,707			$	36,630			$	38,357			$	51,547			$	161,241			$	41,227
Deduct: management fee expense			3,980				4,846				5,629				4,374				18,829				4,728
Operating income		$	30,727			$	31,784			$	32,728			$	47,173			$	142,412			$	36,499
Operating margin before
management fee			40.3	%			39.7	%			39.8	%			42.0	%			40.6	%			39.5	%
Operating margin after
management fee			35.7	%			34.4	%			34.0	%			38.4	%			35.8	%			34.9	%

 

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Table VI
GAMCO INVESTORS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
		March 31,				December 31,				March 31,
		2013				2013				2014
ASSETS
Cash and cash equivalents		$	273,353			$	210,451			$	243,142
Investments (a)			387,840				371,262				382,696
Receivable from brokers			44,583				49,461				54,084
Other receivables			38,340				60,390				41,650
Income tax receivable			917				445				445
Other assets			15,596				17,477				17,803
Total assets		$	760,629			$	709,486			$	739,820
LIABILITIES AND EQUITY
Payable to brokers		$	15,059			$	10,765			$	11,370
Income taxes payable and deferred tax liabilities			34,292				39,846				41,427
Compensation payable			34,676				34,663				41,447
Securities sold short, not yet purchased			6,377				6,178				10,788
Accrued expenses and other liabilities			40,794				39,190				37,303
Sub-total			131,198				130,642				142,335
5.5% Senior notes (repaid May 15, 2013)			99,000				-				-
5.875% Senior notes (due June 1, 2021)			100,000				100,000				100,000
0% Subordinated Debentures (due December 31, 2015) (b)			17,688				11,911				12,098
Total debt			216,688				111,911				112,098
Total liabilities			347,886				242,553				254,433
Redeemable noncontrolling interests			16,414				6,751				8,464
GAMCO Investors, Inc.'s stockholders' equity			392,999				457,331				474,112
Noncontrolling interests			3,330				2,851				2,811
Total equity			396,329				460,182				476,923
Total liabilities and equity		$	760,629			$	709,486			$	739,820
(a) Includes investments in sponsored registered investment companies of $64.3 million, $44.0 million and $42.4 million, respectively.
(b) The 0% Subordinated Debentures due December 31, 2015 have a face value of $21.7 million, $13.8 million and $13.8 million, respectively.

 

 

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