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| 8-K - 8-K Q416 EARNINGS RELEASE - WESTWOOD HOLDINGS GROUP INC | a4q16earningsrelease8-k.htm |
Westwood Holdings Group, Inc. Reports Fourth Quarter and Fiscal Year 2016 Results
Launches Tax-Efficient Strategy
Dallas, TX, February 8, 2017 – Westwood Holdings Group, Inc. (NYSE: WHG) today reported fourth quarter revenues of $31.1 million, down $0.5 million compared with revenues of $31.6 million in the fourth quarter of 2015, primarily as a result of lower quarter-over-quarter performance-based advisory fees. Assets Under Management ("AUM") totaled $21.2 billion at December 31, 2016 versus $20.8 billion at December 31, 2015.
Fourth quarter net income was $7.6 million compared with $4.7 million for the fourth quarter of 2015, which included a net non-cash charge of $1.0 million related to acceleration of stock-based compensation expense for a particular grant and a $0.8 million tax charge for uncertain tax positions related to prior years. Diluted earnings per share ("Diluted EPS") of $0.92 compared to $0.58 for the fourth quarter of 2015. Non-GAAP Economic Earnings for the quarter increased 16% to $12.0 million, up from $10.4 million in the fourth quarter of 2015. Non-GAAP Economic Earnings per share ("Economic EPS") rose 13% to $1.45 from $1.28 in the fourth quarter of 2015.
Total revenues for fiscal 2016 were $123.0 million, 6% lower than $130.9 million in 2015. The decrease was primarily due to a $7.8 million decline in asset-based advisory fees reflecting lower average AUM in 2016 coupled with a $2.1 million decrease in performance-based advisory fees, partially offset by a $1.5 million increase in Trust fees due to a full year of revenue reported by Woodway.
Net income for 2016 totaled $22.6 million, a 17% decrease from the prior year's $27.1 million, primarily due to the decrease in total revenues. Diluted EPS of $2.77 compared with $3.33 for 2015. Economic EPS of $5.03 decreased 12% from $5.71 in 2015.
Highlights of our fourth quarter include:
▪ | Launch of a new tax-efficient, high conviction select equity strategy for high-net-worth individuals. |
▪ | Strong performance of our Emerging Markets and Global Convertible Securities strategies. |
▪ | Declaration of a 9% increase in the quarterly cash dividend rate to $0.62 per common share. |
Brian Casey, Westwood’s President & CEO, commented, “We were very pleased with the performance of our Emerging Markets products, especially our Emerging Markets SmidCap product, which outperformed its benchmark by over 700 basis points in 2016, and we celebrated the three-year anniversary of our LargeCap concentrated strategy with performance well ahead of its benchmark over the three-year period. We are optimistic about the year ahead as weaker market correlations signal a shift to an environment that favors active management. At the end of the year, we introduced a new strategy for our private wealth clients that includes our highest conviction ideas and is designed to be tax efficient. We have high expectations for this strategy and remain committed to our time-tested investment philosophy of focusing on quality businesses with strong balance sheets and attractive valuations, which we believe will produce superior risk-adjusted returns over the long term.”
Westwood’s Board of Directors declared a quarterly cash dividend of $0.62 per common share, payable on April 3, 2017 to stockholders of record on March 10, 2017. At year end, Westwood had $90.2 million in cash and investments, stockholders’ equity of $146.1 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 fourth quarter and fiscal year 2016 results and other business matters at 4:30 p.m. Eastern time today. To join the conference call, dial 877-303-6235 (U.S. 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 February 15, 2017 by dialing 855-859-2056 (U.S. and Canada) or 404-537-3406 (international) and entering the passcode 53551712.
About Westwood
Westwood Holdings Group, Inc. provides investment management services to institutional investors, private wealth clients and financial intermediaries. With $21.2 billion in assets under management (as of December 31, 2016), 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, 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, 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: 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, June 30, 2016, and September 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.
# # # #
SOURCE: Westwood Holdings Group, Inc.
(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 | |||||||||||
December 31, 2016 | September 30, 2016 | December 31, 2015 | |||||||||
REVENUES: | |||||||||||
Advisory fees: | |||||||||||
Asset-based | $ | 23,564 | $ | 23,447 | $ | 22,948 | |||||
Performance-based | — | 226 | 492 | ||||||||
Trust fees | 7,515 | 7,690 | 7,751 | ||||||||
Other, net | 13 | 414 | 375 | ||||||||
Total revenues | 31,092 | 31,777 | 31,566 | ||||||||
EXPENSES: | |||||||||||
Employee compensation and benefits | $ | 14,270 | $ | 15,637 | $ | 16,055 | |||||
Sales and marketing | 496 | 408 | 529 | ||||||||
Westwood mutual funds | 873 | 755 | 842 | ||||||||
Information technology | 1,696 | 1,874 | 1,647 | ||||||||
Professional services | 915 | 1,903 | 1,336 | ||||||||
General and administrative | 2,043 | 2,147 | 2,569 | ||||||||
Total expenses | 20,293 | 22,724 | 22,978 | ||||||||
Income before income taxes | 10,799 | 9,053 | 8,588 | ||||||||
Provision for income taxes | 3,222 | 3,166 | 3,901 | ||||||||
Net income | $ | 7,577 | $ | 5,887 | $ | 4,687 | |||||
Other comprehensive income (loss): | |||||||||||
Foreign currency translation adjustments | (606 | ) | (453 | ) | (916 | ) | |||||
Total comprehensive income | $ | 6,971 | $ | 5,434 | $ | 3,771 | |||||
Earnings per share: | |||||||||||
Basic | $ | 0.95 | $ | 0.74 | $ | 0.60 | |||||
Diluted | $ | 0.92 | $ | 0.72 | $ | 0.58 | |||||
Weighted average shares outstanding: | |||||||||||
Basic | 7,988,558 | 7,995,680 | 7,813,142 | ||||||||
Diluted | 8,261,274 | 8,179,956 | 8,124,268 | ||||||||
Economic Earnings | $ | 12,014 | $ | 10,615 | $ | 10,391 | |||||
Economic EPS | $ | 1.45 | $ | 1.30 | $ | 1.28 | |||||
Dividends declared per share | $ | 0.62 | $ | 0.57 | $ | 0.57 | |||||
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share and share amounts)
(unaudited)
Year Ended December 31, | |||||||
2016 | 2015 | ||||||
REVENUES: | |||||||
Advisory fees: | |||||||
Asset-based | $ | 91,492 | $ | 99,275 | |||
Performance-based | 635 | 2,698 | |||||
Trust fees | 30,313 | 28,795 | |||||
Other, net | 581 | 168 | |||||
Total revenues | 123,021 | 130,936 | |||||
EXPENSES: | |||||||
Employee compensation and benefits | 61,509 | 63,562 | |||||
Sales and marketing | 1,919 | 1,839 | |||||
Westwood mutual funds | 3,155 | 3,435 | |||||
Information technology | 7,735 | 5,732 | |||||
Professional services | 5,622 | 5,617 | |||||
General and administrative | 9,071 | 8,531 | |||||
Total expenses | 89,011 | 88,716 | |||||
Income before income taxes | 34,010 | 42,220 | |||||
Provision for income taxes | 11,363 | 15,115 | |||||
Net income | $ | 22,647 | $ | 27,105 | |||
Other comprehensive income (loss): | |||||||
Foreign currency translation adjustments | 401 | (3,457 | ) | ||||
Total comprehensive income | $ | 23,048 | $ | 23,648 | |||
Earnings per share: | |||||||
Basic | $ | 2.84 | $ | 3.49 | |||
Diluted | $ | 2.77 | $ | 3.33 | |||
Weighted average shares outstanding: | |||||||
Basic | 7,961,891 | 7,756,647 | |||||
Diluted | 8,165,475 | 8,149,399 | |||||
Economic Earnings | $ | 41,108 | $ | 46,496 | |||
Economic EPS | $ | 5.03 | $ | 5.71 | |||
Dividends declared per share | $ | 2.33 | $ | 2.07 | |||
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
(unaudited)
December 31, 2016 | December 31, 2015 | ||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 33,679 | $ | 22,740 | |||
Accounts receivable | 23,429 | 19,618 | |||||
Investments, at fair value | 56,485 | 72,320 | |||||
Other current assets | 2,364 | 2,926 | |||||
Total current assets | 115,957 | 117,604 | |||||
Goodwill | 27,144 | 27,144 | |||||
Deferred income taxes | 10,903 | 11,042 | |||||
Intangible assets, net | 21,394 | 23,354 | |||||
Property and equipment, net of accumulated depreciation of $4,590 and $3,687 | 4,280 | 2,192 | |||||
Total assets | $ | 179,678 | $ | 181,336 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current Liabilities: | |||||||
Accounts payable and accrued liabilities | $ | 2,641 | $ | 3,549 | |||
Dividends payable | 6,679 | 5,749 | |||||
Compensation and benefits payable | 17,200 | 20,264 | |||||
Contingent consideration | — | 9,023 | |||||
Income taxes payable | 3,148 | 6,268 | |||||
Total current liabilities | 29,668 | 44,853 | |||||
Accrued dividends | 1,767 | 1,699 | |||||
Deferred rent | 2,174 | 817 | |||||
Total liabilities | 33,609 | 47,369 | |||||
Stockholders’ Equity: | |||||||
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 9,801,938 and outstanding 8,810,375 shares at December 31, 2016; issued 9,425,309 and outstanding 8,630,687 shares at December 31, 2015 | 98 | 94 | |||||
Additional paid-in capital | 162,730 | 143,797 | |||||
Treasury stock, at cost – 991,563 shares at December 31, 2016; 794,622 shares at December 31, 2015 | (44,353 | ) | (34,910 | ) | |||
Accumulated other comprehensive loss | (4,287 | ) | (4,688 | ) | |||
Retained earnings | 31,881 | 29,674 | |||||
Total stockholders’ equity | 146,069 | 133,967 | |||||
Total liabilities and stockholders’ equity | $ | 179,678 | $ | 181,336 | |||
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Year ended December 31, | |||||||
2016 | 2015 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 22,647 | $ | 27,105 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation | 969 | 1,050 | |||||
Amortization of intangible assets | 1,960 | 1,546 | |||||
Unrealized losses (gains) on trading investments | (510 | ) | 613 | ||||
Stock-based compensation expense | 15,954 | 17,574 | |||||
Deferred income taxes | 149 | (3,285 | ) | ||||
Excess tax benefits from stock based compensation | (165 | ) | (1,455 | ) | |||
Net sales (purchases) of investments – trading securities | 16,345 | 6,684 | |||||
Other | 269 | (58 | ) | ||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (3,493 | ) | (5,192 | ) | |||
Other current assets | 567 | (375 | ) | ||||
Accounts payable and accrued liabilities | (926 | ) | 1,174 | ||||
Compensation and benefits payable | (2,848 | ) | 2,912 | ||||
Income taxes payable | (3,655 | ) | 6,890 | ||||
Other liabilities | 129 | 25 | |||||
Net cash provided by operating activities | 47,392 | 55,208 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Acquisition of Woodway, net of cash acquired | — | (24,133 | ) | ||||
Purchases of property, equipment and other | (1,819 | ) | (951 | ) | |||
Proceeds on sale of property and equipment | 9 | — | |||||
Net cash used in investing activities | (1,810 | ) | (25,084 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Purchases of treasury stock | (5,634 | ) | — | ||||
Purchases of treasury stock for employee stock plans | (614 | ) | (1,327 | ) | |||
Restricted stock returned for payment of taxes | (3,857 | ) | (5,648 | ) | |||
Excess tax benefits from stock-based compensation | 165 | 1,455 | |||||
Payment of contingent consideration in acquisition | (5,562 | ) | — | ||||
Cash dividends | (19,442 | ) | (16,619 | ) | |||
Net cash used in financing activities | (34,944 | ) | (22,139 | ) | |||
Effect of currency rate changes on cash | 301 | (3,376 | ) | ||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 10,939 | 4,609 | |||||
Cash and cash equivalents, beginning of period | 22,740 | 18,131 | |||||
Cash and cash equivalents, end of period | $ | 33,679 | $ | 22,740 | |||
Supplemental cash flow information: | |||||||
Cash paid during the period for income taxes | $ | 14,860 | $ | 11,639 | |||
Common stock issued for acquisition | $ | 3,734 | $ | 5,292 | |||
Non-cash accrued contingent consideration | $ | — | $ | 9,023 | |||
Accrued dividends | $ | 8,446 | $ | 7,448 | |||
Tenant allowance included in Property and equipment | $ | 1,236 | $ | — | |||
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 | |||||||||||
December 31, 2016 | September 30, 2016 | December 31, 2015 | |||||||||
Net Income | $ | 7,577 | $ | 5,887 | $ | 4,687 | |||||
Add: Stock-based compensation expense | 3,790 | 4,082 | 5,014 | ||||||||
Add: Intangible amortization | 490 | 490 | 595 | ||||||||
Add: Tax benefit from goodwill amortization | 157 | 156 | 95 | ||||||||
Economic Earnings | $ | 12,014 | $ | 10,615 | $ | 10,391 | |||||
Diluted weighted average shares | 8,261,274 | 8,179,956 | 8,124,268 | ||||||||
Economic EPS | $ | 1.45 | $ | 1.30 | $ | 1.28 | |||||
Year Ended December 31, | |||||||
2016 | 2015 | ||||||
Net Income | $ | 22,647 | $ | 27,105 | |||
Add: Stock-based compensation expense | 15,954 | 17,574 | |||||
Add: Intangible amortization | 1,960 | 1,546 | |||||
Add: Tax benefit from goodwill amortization | 547 | 271 | |||||
Economic Earnings | $ | 41,108 | $ | 46,496 | |||
Diluted weighted average shares | 8,165,475 | 8,149,399 | |||||
Economic EPS | $ | 5.03 | $ | 5.71 | |||
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 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.