Westwood Holdings Group, Inc. Reports First Quarter 2018 Results

Active Management Prevails as all U.S. Value and Multi-asset Strategies Exceed Primary Benchmarks


DALLAS, April 25, 2018 (GLOBE NEWSWIRE) -- Westwood Holdings Group, Inc. (NYSE:WHG) today reported first quarter 2018 earnings. Highlights from the quarter include:

  • Revenues of $33.6 million increased $1.0 million from the first quarter of 2017. Current quarter revenues include $1.3 million of performance-based fees compared to $0.4 million in the prior year quarter.

  • All of our U.S. value and multi-asset strategies outperformed their primary benchmarks for the quarter.

  • Top quartile performance was achieved by our SmallCap Value, SMidCap Plus, SMidCap Value and LargeCap Value teams.

  • We closed on the sale of our Omaha-based Private Wealth operations, received net proceeds of $10.0 million and recognized a $0.5 million gain on sale.

  • At quarter-end, Westwood had $100.5 million in cash and investments, stockholders’ equity of $156.0 million, and no debt.

First quarter 2018 revenues of $33.6 million compared to $32.6 million in the first quarter of 2017 and $33.9 million in the fourth quarter of 2017. The increase from the prior year quarter primarily related to performance-based fees of $1.3 million earned in the current quarter. The decrease from the immediately preceding quarter was primarily due to net outflows.

Assets under management at March 31, 2018 totaled $22.6 billion, compared to $22.1 billion and $24.2 billion at March 31, 2017 and December 31, 2017, respectively.

First quarter net income of $8.0 million compared with $6.1 million in the first quarter of 2017. The increase primarily related to higher revenues and a $0.9 million foreign currency transaction gain, net of tax, recorded in the current quarter. Diluted earnings per share of $0.93 in the first quarter of 2018 compared to $0.73 in the first quarter of 2017. Non-GAAP Economic Earnings increased from $10.6 million, or $1.28 per share, in 2017's first quarter, to $12.6 million, or $1.48 per share, in the first quarter of 2018.

First quarter net income of $8.0 million compared with $2.9 million in the fourth quarter of 2017. The increase was driven primarily by a $3.4 million incremental income tax expense recorded during the fourth quarter of 2017 as a result of the tax reform enacted in December 2017, as well as the current quarter foreign currency transaction gain noted above. Diluted earnings per share for the quarter of $0.93 compared to $0.34 for the fourth quarter of 2017. Non-GAAP Economic Earnings of $12.6 million, or $1.48 per share, compared to $7.6 million, or $0.89 per share, in the immediately preceding quarter.

Brian Casey, Westwood’s President & CEO, commented, "The first quarter saw a return to volatility as worldwide politics took center stage. We were pleased to see the benefits of active management on display as all of our U.S. Value and multi-asset products outperformed their primary passive benchmarks. We believe that continued political uncertainty and interest rate fears will lead to higher volatility and provide more opportunities for active managers with disciplined investment processes to outperform passive strategies."

Westwood’s Board of Directors declared a quarterly cash dividend of $0.68 per common share, payable on July 2, 2018 to stockholders of record on June 8, 2018.

Economic Earnings and Economic Earnings per Share ("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 first quarter 2018 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 May 2, 2018 by dialing 855-859-2056 (domestic and Canada) or 404-537-3406 (international) and then entering the passcode 7395078.

About Westwood

Westwood Holdings Group, Inc. provides investment management services to institutional investors, private wealth clients and financial intermediaries. With $22.6 billion in assets under management (as of March 31, 2018), 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 our 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, Texas, Westwood also maintains offices in Toronto, Boston, and Houston.

 For more information on Westwood, please visit westwoodgroup.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: the composition and market value of our assets under management; regulations adversely affecting the financial services industry; competition in the investment management industry; our assets under management includes investments in foreign companies; our ability to develop and market new investment strategies successfully; our reputation and relationships with current and potential customers; our ability to attract and retain qualified personnel; our ability to perform operational tasks; our ability to maintain effective cyber security; our ability to identify and execute on our strategic initiatives; our ability to select and oversee third-party vendors; our ability to maintain effective information systems; litigation risks; our ability to properly address conflicts of interest; our ability to maintain adequate insurance coverage; 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 Securities and Exchange Commission filings, including, but not limited to, its annual report on Form 10-K for the year ended December 31, 2017 and its quarterly report on Form 10-Q for the quarter ended March 31, 2018. 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
 March 31,
 2018
 December 31,
 2017
 March 31,
 2017
REVENUES:     
Advisory fees:     
      Asset-based$24,483  $25,576  $23,789 
      Performance-based1,335    386 
Trust fees7,609  8,051  7,795 
Other, net140  287  653 
      Total revenues33,567  33,914  32,623 
EXPENSES:     
Employee compensation and benefits$17,759  $16,080  $17,717 
Sales and marketing443  595  477 
Westwood mutual funds985  1,189  863 
Information technology2,038  2,291  1,756 
Professional services1,028  1,421  1,496 
General and administrative1,351  2,550  2,544 
      Total expenses23,604  24,126  24,853 
Net operating income9,963  9,788  7,770 
Gain on sale of operations524     
Income before income taxes10,487  9,788  7,770 
Provision for income taxes2,509  6,891  1,706 
Net income$7,978  $2,897  $6,064 
Other comprehensive income (loss):     
      Foreign currency translation adjustments(1,199) 85  207 
Total comprehensive income$6,779  $2,982  $6,271 
      
Earnings per share:     
Basic$0.96  $0.35  $0.75 
Diluted$0.93  $0.34  $0.73 
      
Weighted average shares outstanding:     
 Basic8,270,793  8,181,546  8,065,825 
Diluted8,539,545  8,546,936  8,311,382 
      
Economic Earnings$12,642  $7,611  $10,607 
Economic EPS$1.48  $0.89  $1.28 
      
Dividends declared per share$0.68  $0.68  $0.62 
            


WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
(unaudited)

 
 March 31,
2018
 December 31,
2017
ASSETS   
Current Assets:   
Cash and cash equivalents$51,550  $54,249 
Accounts receivable23,945  21,660 
Investments, at fair value48,917  51,324 
Prepaid income taxes1,752  4,269 
Other current assets3,465  6,612 
      Total current assets129,629  138,114 
Goodwill19,804  27,144 
Deferred income taxes4,247  3,407 
Intangible assets, net17,216  19,804 
Property and equipment, net of accumulated depreciation of $5,848 and $5,6734,220  4,190 
      Total assets$175,116  $192,659 
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current Liabilities:   
Accounts payable and accrued liabilities$3,192  $3,501 
Dividends payable6,980  7,357 
Compensation and benefits payable5,164  19,075 
Income taxes payable977  1,598 
      Total current liabilities16,313  31,531 
Accrued dividends856  1,717 
Noncurrent income taxes payable  1,017 
Deferred rent1,927  1,998 
        Total liabilities19,096  36,263 
    
Stockholders’ Equity:   
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 10,195,216
     and outstanding 9,017,274 shares at March 31, 2018; issued 9,980,827 and
     outstanding 8,899,587 shares at December 31, 2017
102  100 
Additional paid-in capital183,591  179,241 
Treasury stock, at cost - 1,177,942 shares at March 31, 2018; 1,081,240 shares at
     December 31, 2017
(55,201) (49,788)
Accumulated other comprehensive loss(2,963) (1,764)
Retained earnings30,491  28,607 
        Total stockholders’ equity156,020  156,396 
        Total liabilities and stockholders’ equity$175,116  $192,659 
 


WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

  
 Three Months Ended March 31,
 2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income$7,978  $6,064 
Adjustments to reconcile net income to net cash provided by operating activities:   
      Depreciation213  240 
     Amortization of intangible assets418  490 
     Unrealized (gains) losses on trading investments232  (303)
     Stock based compensation expense4,187  3,897 
     Deferred income taxes(859) 26 
     Gain on sale of operations(524)  
     Other  (7)
Changes in operating assets and liabilities:   
     Net sales of investments- trading securities2,175  12,002 
     Accounts receivable(2,575) (1,721)
     Other current assets3,027  (18)
     Accounts payable and accrued liabilities(22) (161)
     Compensation and benefits payable(13,712) (11,394)
     Income taxes payable871  859 
     Other liabilities(57) (33)
         Net cash provided by operating activities1,352  9,941 
CASH FLOWS FROM INVESTING ACTIVITIES:   
Purchases of property and equipment(299) (150)
Proceeds from Omaha divestiture10,013   
         Net cash provided by (used in) investing activities9,714  (150)
CASH FLOWS FROM FINANCING ACTIVITIES:   
Purchase of treasury stock under employee stock plans(726) (1,326)
Restricted stock returned for payment of taxes(4,687) (5,189)
Cash dividends(7,332) (6,564)
         Net cash used in financing activities(12,745) (13,079)
Effect of currency rate changes on cash(1,020) 235 
NET CHANGE IN CASH AND CASH EQUIVALENTS(2,699) (3,053)
Cash and cash equivalents, beginning of period54,249  33,679 
Cash and cash equivalents, end of period$51,550  $30,626 
    
Supplemental cash flow information:   
Cash paid during the period for income taxes$  $828 
Accrued dividends$7,836  $7,358 
Accrued purchase of property and equipment$29  $ 
        


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
 March 31,
2018
 December 31,
2017
 March 31,
2017
Net Income$7,978  $2,897  $6,064 
Add:  Stock based compensation expense4,187  4,132  3,897 
Add:  Intangible amortization418  423  490 
Add:  Tax benefit from goodwill amortization59  157  156 
Economic Earnings$12,642  $7,609  $10,607 
      
Diluted weighted average shares8,539,545  8,546,936  8,311,382 
Economic EPS$1.48  $0.89  $1.28 
            

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