Market Overview

Westwood Holdings Group, Inc. Reports Second Quarter 2018 Results

Share:

Westwood SmallCap Value Strategy Selected for Inclusion in New Morningstar U.S. Equity Fund

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

  • Revenues of $32.8 million compared with $33.8 million in last year's second quarter and $33.6 million in this year's first quarter.
  • Our SmallCap strategy was selected to participate in the Morningstar U.S. Equity Fund.
  • Our LargeCap Value strategy beat its primary benchmark for the sixth quarter in a row and has remained a fixture in the top decile peer ranking since its inception.
  • We welcomed Steve Paddon as our new Head of Institutional Sales.
  • At quarter-end, Westwood had $108.8 million in cash and short-term investments, stockholders' equity of $161.1 million, and no debt.

Revenues of $32.8 million decreased $1.0 million from last year's second quarter and $0.8 million from this year's first quarter primarily due to lower average assets under management as a result of net outflows and the sale of the Omaha-based component of our Private Wealth business. These decreases were partially offset by this quarter's $1.6 million in performance-based fees versus $1.0 million earned in last year's second quarter and $1.3 million reported in the first quarter.

Assets under management at June 30, 2018 totaled $21.6 billion compared to $22.6 billion at both June 30, 2017 and March 31, 2018.

Second quarter net income of $8.0 million compared with $6.9 million in last year's second quarter. The current quarter benefited from higher performance-based fees, reductions in compensation following the sale of the Omaha-based component of our Private Wealth business and reductions in short- and long-term incentive compensation, higher foreign currency transaction gains and a lower U.S. corporate income tax rate due to tax reform. These benefits were partially offset by lower asset-based fees and higher information technology implementation costs as we continue to invest in our technology infrastructure. Diluted earnings per share of $0.94 in the second quarter of 2018 compared to $0.83 in the second quarter of 2017. Non-GAAP Economic Earnings increased from $11.7 million, or $1.41 per share, in 2017's second quarter, to $12.2 million, or $1.43 per share, in the second quarter of 2018.

Second quarter net income of $8.0 million was essentially flat with first quarter net income. The current quarter benefited from lower employee compensation and benefits due to seasonal differences, while the first quarter benefited from higher asset-based fees and foreign currency transaction gains. Diluted earnings per share for the second quarter of $0.94 compared to $0.93 for the first quarter. Non-GAAP Economic Earnings of $12.2 million, or $1.43 per share, compared to $12.6 million, or $1.48 per share, in the first quarter.

Brian Casey, Westwood's President & CEO, commented, "Market volatility continued during the second quarter as investors processed concerns over trade tariffs and their effects on U.S. and global growth. Consistent with our focus on high quality companies, we continue to monitor absolute risk in our portfolios in order to protect client capital during periods of volatility. Within our private wealth business, we continue to expand our financial planning and service offerings. We were excited to introduce two private equity offerings which have been well received by our clients and prospects. Lastly, we are proud to announce that we have become a signatory of the United Nations Principles for Responsible Investment (PRI). Our focus on transparency, corporate governance, life principles, ethical conduct and giving back to our communities has long been central to how we at Westwood conduct ourselves both personally and professionally."

Westwood's Board of Directors declared a quarterly cash dividend of $0.68 per common share, payable on October 1, 2018 to stockholders of record on September 7, 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 second 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 August 1, 2018 by dialing 855-859-2056 (domestic and Canada) or 404-537-3406 (international) and then entering the passcode 6692248.

About Westwood

Westwood Holdings Group, Inc. provides investment management services to institutional investors, private wealth clients and financial intermediaries. The firm has $21.6 billion in assets under management, of which $3.4 billion are in values-based and socially responsible investment mandates as of June 30, 2018. Westwood offers a range of investment strategies including U.S. equities, Multi-Asset, Global and Emerging Markets equities, Global Convertible securities and Master Limited Partnerships (MLPs) 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, 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 quarters ended March 31, 2018 and June 30, 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
  June 30,
 2018
  March 31,
 2018
  June 30,
 2017
REVENUES:          
Advisory fees:          
Asset-based $ 23,473     $ 24,483     $ 24,496  
Performance-based 1,649     1,335     1,031  
Trust fees 7,465     7,609     7,917  
Other, net 173     140     312  
Total revenues 32,760     33,567     33,756  
EXPENSES:          
Employee compensation and benefits 14,654     17,759     15,557  
Sales and marketing 409     443     513  
Westwood mutual funds 1,002     985     909  
Information technology 2,383     2,038     1,883  
Professional services 1,277     1,028     1,318  
General and administrative 2,099     1,351     2,993  
Total expenses 21,824     23,604     23,173  
Net operating income 10,936     9,963     10,583  
Gain on sale of operations     524      
Income before income taxes 10,936     10,487     10,583  
Provision for income taxes 2,944     2,509     3,687  
Net income $ 7,992     $ 7,978     $ 6,896  
Other comprehensive income (loss):          
Foreign currency translation adjustments (479 )   (1,199 )   934  
Total comprehensive income $ 7,513     $ 6,779     $ 7,830  
           
Earnings per share:          
Basic $ 0.95     $ 0.96     $ 0.84  
Diluted $ 0.94     $ 0.93     $ 0.83  
           
Weighted average shares outstanding:          
Basic   8,399,148       8,270,793       8,167,277  
Diluted   8,543,353       8,539,545       8,316,508  
           
Economic Earnings $ 12,245     $ 12,642     $ 11,710  
Economic EPS $ 1.43     $ 1.48     $ 1.41  
           
Dividends declared per share $ 0.68     $ 0.68     $ 0.62  


WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share and share amounts)
(unaudited)
 
  Six Months Ended June 30,
    2018   2017
REVENUES:        
Advisory fees:        
Asset-based   $ 47,956     $ 48,285  
Performance-based   2,984     1,417  
Trust fees   15,074     15,712  
Other, net   313     965  
Total revenues   66,327     66,379  
EXPENSES:        
Employee compensation and benefits   32,413     33,274  
Sales and marketing   852     990  
Westwood mutual funds   1,987     1,772  
Information technology   4,421     3,639  
Professional services   2,305     2,814  
General and administrative   3,450     5,537  
Total expenses   45,428     48,026  
Net operating income   20,899     18,353  
Gain on sale of operations   524      
Income before income taxes   21,423     18,353  
Provision for income taxes   5,453     5,393  
Net income   $ 15,970     $ 12,960  
Other comprehensive income (loss):        
Foreign currency translation adjustments   (1,678 )   1,141  
Total comprehensive income   $ 14,292     $ 14,101  
         
Earnings per share:        
Basic   $ 1.92     $ 1.60  
Diluted   $ 1.87     $ 1.56  
         
Weighted average shares outstanding:   8,336,923     8,118,327  
Basic   8,543,401     8,315,722  
Diluted        
         
Economic Earnings   $ 24,887     $ 22,318  
Economic EPS   $ 2.91     $ 2.68  
         
Dividends declared per share   $ 1.36     $ 1.24  


 
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
(unaudited)
 
  June 30,
 2018
  December 31,
2017
ASSETS      
Current Assets:      
Cash and cash equivalents $ 47,301     $ 54,249  
Accounts receivable 22,903     21,660  
Investments, at fair value 61,513     51,324  
Prepaid income taxes     4,269  
Other current assets 1,853     6,612  
Total current assets 133,570     138,114  
Investments 5,000      
Goodwill 19,804     27,144  
Deferred income taxes 5,007     3,407  
Intangible assets, net 16,798     19,804  
Property and equipment, net of accumulated depreciation of $6,055 and $5,673 4,088     4,190  
Total assets $ 184,267     $ 192,659  
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current Liabilities:      
Accounts payable and accrued liabilities $ 2,724     $ 3,501  
Dividends payable 7,144     7,357  
Compensation and benefits payable 9,000     19,075  
Income taxes payable 1,232     1,598  
Total current liabilities 20,100     31,531  
Accrued dividends 1,116     1,717  
Noncurrent income taxes payable     1,017  
Deferred rent 1,910     1,998  
Total liabilities 23,126     36,263  
       
Stockholders' Equity:      
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 10,204,887
and outstanding 9,026,806 shares at June 30, 2018; issued 9,980,827 and
outstanding 8,899,587 shares at December 31, 2017
102     100  
Additional paid-in capital 187,367     179,241  
Treasury stock, at cost - 1,178,081 shares at June 30, 2018; 1,081,240 shares at
December 31, 2017
(55,201 )   (49,788 )
Accumulated other comprehensive loss (3,442 )   (1,764 )
Retained earnings 32,315     28,607  
Total stockholders' equity 161,141     156,396  
Total liabilities and stockholders' equity $ 184,267     $ 192,659  


 
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
  Six Months Ended June 30,
  2018   2017
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 15,970     $ 12,960  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation 434     479  
Amortization of intangible assets 836     980  
Unrealized (gains) losses on trading investments 256     (378 )
Stock based compensation expense 7,963     8,065  
Deferred income taxes (1,631 )   437  
Gain on sale of operations (524 )    
Changes in operating assets and liabilities:      
Net sales (purchases) of investments- trading securities (10,445 )   11,198  
Accounts receivable (1,616 )   531  
Other current assets 4,637     455  
Accounts payable and accrued liabilities (442 )   266  
Compensation and benefits payable (9,844 )   (6,940 )
Income taxes payable 2,881     (1,178 )
Other liabilities (74 )   (53 )
 Net cash provided by operating activities 8,401     26,822  
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchases of property and equipment (426 )   (245 )
Proceeds from Omaha divestiture 10,013      
Purchases of investments (5,000 )    
 Net cash provided by (used in) investing activities 4,587     (245 )
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 (13,075 )   (11,674 )
 Net cash used in financing activities (18,488 )   (18,189 )
Effect of currency rate changes on cash (1,448 )   1,076  
NET CHANGE IN CASH AND CASH EQUIVALENTS (6,948 )   9,464  
Cash and cash equivalents, beginning of period 54,249     33,679  
Cash and cash equivalents, end of period $ 47,301     $ 43,143  
       
Supplemental cash flow information:      
Cash paid during the period for income taxes $ 4,169     $ 5,539  
Accrued dividends $ 8,260     $ 7,760  
Accrued purchase of property and equipment $     $ 52  


 
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
  June 30,
 2018
  March 31,
 2018
  June 30,
 2017
Net Income $ 7,992     $ 7,978     $ 6,896  
Add:  Stock based compensation expense 3,776     4,187     4,168  
Add:  Intangible amortization 418     418     490  
Add:  Tax benefit from goodwill amortization 59     59     156  
Economic Earnings $ 12,245     $ 12,642     $ 11,710  
           
Diluted weighted average shares   8,543,353       8,539,545       8,316,508  
Economic EPS $ 1.43     $ 1.48     $ 1.41  


  Six Months Ended June 30,
  2018   2017
Net Income $ 15,970     $ 12,960  
Add:  Stock based compensation expense 7,963     8,065  
Add:  Intangible amortization 836     980  
Add:  Tax benefit from goodwill amortization 118     313  
Economic Earnings $ 24,887     $ 22,318  
       
Diluted weighted average shares 8,543,401     8,315,722  
Economic EPS $ 2.91     $ 2.68  

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.

 

Primary Logo

View Comments and Join the Discussion!