News Column

Westwood Holdings Group, Inc. Reports Second Quarter 2014 Results

July 30, 2014

Total Assets Under Management Increase to Record $20.1 Billion

Westwood Funds®AUM Reaches Record $3.3 Billion

DALLAS--(BUSINESS WIRE)-- Westwood Holdings Group, Inc. (NYSE: WHG) today reported second quarter 2014 revenues of $30.9 million, 19% higher than revenues of $25.9 million recorded in the first quarter of 2014 and 32% higher than the second quarter of 2013. Non-GAAP Economic Earnings per share (“Economic EPS”) increased 28% to $1.50 compared to $1.17 in the first quarter of 2014 and were 40% higher than the $1.07 reported in the second quarter of 2013. Diluted earnings per share increased 53% to $1.14 compared to $0.75 in the first quarter of 2014 and were up 75% compared to $0.65 in the second quarter of 2013.

Highlights related to our second quarter 2014 results include:

  • Revenues increased 32% to $30.9 million compared to the same period last year.
  • Performance fees recorded for our Master Limited Partnership (“MLP”) strategies were $3.4 million compared to $2.5 million for the second quarter of 2013.
  • Assets under management (“AUM”) reached a record level of $20.1 billion.
  • Westwood International Advisors (“WIA”) net inflows aggregated $168 million for the quarter, bringing WIA’s AUM to $2.9 billion.
  • Our Emerging Markets UCITS fund AUM reached $839 million.
  • The Westwood Funds® family of mutual funds achieved quarterly net inflows of $145 million, reaching record AUM of $3.3 billion.

    Brian Casey, Westwood’s President & CEO, commented, “We are very pleased with our second quarter financial results. We benefited from strength in U.S. and global equity markets, as well as from the excellent performance delivered by our Emerging Markets, Income Opportunity and SMidCap Plus teams. Our Westwood Funds® continued to benefit from strong investor demand with $145 million of net inflows, representing annualized quarterly organic growth of 19%. Westwood’s total AUM reached a significant milestone at quarter end, exceeding $20 billion for the first time in our history.”

    Total AUM reached $20.1 billion at June 30, 2014, an increase of 5% compared to March 31, 2014 and 27% higher than June 30, 2013. Mutual fund assets, comprising ten Westwood Funds®, grew 9% to $3.3 billion compared to the prior quarter and climbed 55% compared to the prior year quarter end. Institutional assets rose 5% to $12.7 billion compared to the prior quarter and were up 26% compared to the prior year. Private wealth assets increased 3% to $4.1 billion compared to the prior quarter and increased 13% over the prior year.

    Westwood’s Board of Directors declared a quarterly cash dividend of $0.44 per common share, payable on October 1, 2014 to stockholders of record on September 15, 2014. At quarter-end, Westwood had $74 million in cash and investments, stockholders’ equity of $98 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 second quarter 2014 results and other business matters at 4:30 p.m. Eastern time today. To join the conference call, dial 877-303-6235 (domestic) 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 6, 2014 by dialing 855-859-2056 (domestic) or 404-537-3406 (international) and then entering passcode 65544878.

    About Westwood

    Westwood Holdings Group, Inc. provides investment management services to institutional investors, private wealth clients and financial intermediaries. Westwood manages a variety of investment strategies including U.S., Global, and Emerging Markets equities as well as income-oriented portfolios. These strategies are made available through separate accounts, commingled funds, the Westwood Funds® family of U.S. mutual funds, and UCITS funds. Westwood has broad-based employee ownership and trades on the New York Stock Exchange under the symbol "WHG." Based in Dallas, Westwood also has offices in Omaha and Toronto.

    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 statements about our expected future financial position, results of operations or cash flows, as well as other statements including words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” “could,” “goal,” “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: our ability to identify and successfully market services that appeal to our customers; the significant concentration of our revenues among a few customers; our relationships with investment consulting firms; our relationships with current and potential customers; our ability to retain qualified personnel; our ability to successfully develop and market new asset classes; our ability to maintain our fee structure in light of competitive fee pressures; competition in the marketplace; downturns in the financial markets; new legislation adversely affecting the financial services industries; interest rates; changes in our effective tax rate; our ability to maintain an effective system of internal controls; 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, 2013 and its quarterly report on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014. 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.

     
    WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    (in thousands, except per share data and share amounts)
    (unaudited)
     
    Three Months Ended
    June 30,

    2014
      March 31,

    2014
     

    June 30,

    2013

    REVENUES:
    Advisory fees:
    Asset based $ 22,095 $ 20,389 $ 16,486
    Performance based 3,443 363 2,535
    Trust fees 5,151 5,028 4,574
    Other, net   216   169     (120 )
    Total revenues   30,905   25,949     23,475  
     
    EXPENSES:
    Employee compensation and benefits 12,502 12,543 11,907
    Sales and marketing 375 287 334
    Westwood mutual funds 722 652 462
    Information technology 1,014 715 678
    Professional services 1,189 1,382 1,077
    General and administrative   1,384   1,448     1,284  
    Total expenses   17,186   17,027     15,742  
    Income before income taxes 13,719 8,922 7,733
    Provision for income taxes   4,897   3,163     2,854  
    Net income $ 8,822 $ 5,759   $ 4,879  
    Other comprehensive income (loss):
    Foreign currency translation adjustments   332   (354 )   (158 )
    Total comprehensive income $ 9,154 $ 5,405   $ 4,721  
     
    Earnings per share:
    Basic $ 1.17 $ 0.77   $ 0.66  
    Diluted $ 1.14 $ 0.75   $ 0.65  
     
    Weighted average shares outstanding:
    Basic   7,523,347   7,474,415     7,349,868  
    Diluted   7,739,150   7,724,715     7,495,523  
     
    Economic Earnings $ 11,576 $ 9,057   $ 7,993  
    Economic EPS $ 1.50 $ 1.17   $ 1.07  
     
    Dividends declared per share $ 0.44 $ 0.44   $ 0.40  


     
    WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    (in thousands, except per share data and share amounts)
    (unaudited)
     

    Six months ended June 30,

    REVENUES:   2014       2013  
    Advisory fees:
    Asset based $ 42,484 $ 32,033
    Performance based 3,806 2,535
    Trust fees 10,179 8,791
    Other, net   385     216  
    Total revenues   56,854     43,575  
     
    EXPENSES:
    Employee compensation and benefits 25,045 23,750
    Sales and marketing 662 621
    Westwood mutual funds 1,374 866
    Information technology 1,729 1,334
    Professional services 2,571 2,079
    General and administrative   2,832     2,473  
    Total expenses   34,213     31,123  
    Income before income taxes 22,641 12,452
    Provision for income taxes   8,060     4,740  
    Net income $ 14,581   $ 7,712  
    Other comprehensive loss:
    Foreign currency translation adjustments   (22 )   (235 )
    Total comprehensive income $ 14,559   $ 7,477  
     
    Earnings per share:
    Basic $ 1.94   $ 1.05  
    Diluted $ 1.89   $ 1.03  
     
    Weighted average shares outstanding:
    Basic   7,499,016     7,318,688  
    Diluted   7,720,425     7,492,392  
     
    Economic Earnings $ 20,633   $ 13,660  
    Economic EPS $ 2.67   $ 1.82  
     
    Dividends declared per share $ .88   $ .80  


       
    WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
    CONSOLIDATED BALANCE SHEETS
    As of June 30, 2014 and December 31, 2013
    (in thousands, except par value and share amounts)
     

    June 30,

    2014

    (unaudited)

    December 31,

    2013

    ASSETS
    Current Assets:
    Cash and cash equivalents $ 16,063 $ 10,864
    Accounts receivable 16,685 14,468
    Investments, at fair value 57,772 64,554
    Deferred income taxes 1,313 3,782
    Prepaid income taxes 2,083 -
    Other current assets   1,620     2,521  
    Total current assets 95,536 96,189
    Goodwill 11,255 11,255
    Deferred income taxes 2,116 2,041
    Intangible assets, net 3,610 3,789
    Property and equipment, net of accumulated depreciation of $2,445 and $2,155   2,676     2,746  
    Total assets $ 115,193   $ 116,020  
     
    LIABILITIES AND STOCKHOLDERS’ EQUITY
    Current Liabilities:
    Accounts payable and accrued liabilities $ 1,916 $ 2,082
    Dividends payable 4,167 3,935
    Compensation and benefits payable 8,925 17,805
    Income taxes payable   -     1,031  
    Total current liabilities 15,008 24,853
    Accrued dividends 994 1,266
    Deferred rent   1,196     1,268  
    Total long-term liabilities   2,190     2,534  
    Total liabilities   17,198     27,387  
     
    Stockholders’ Equity:
    Common stock, $0.01 par value, authorized 25,000,000 shares, issued 8,989,877 and outstanding 8,288,414 shares at June 30, 2014; issued 8,778,613 and outstanding 8,176,417 shares at December 31, 2013 90 88
    Additional paid-in capital 108,846 100,955
    Treasury stock, at cost – 701,463 shares at June 30, 2014; 602,196 shares at December 31, 2013 (29,008 ) (23,169 )
    Accumulated other comprehensive loss (279 ) (257 )
    Retained earnings   18,346     11,016  
    Total stockholders’ equity   97,995     88,633  
    Total liabilities and stockholders’ equity $ 115,193   $ 116,020  


     
    WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (in thousands)
    (unaudited)
     
    Six Months Ended June 30,
      2014       2013  
    CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income $ 14,581 $ 7,712
    Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation 288 187
    Amortization of intangible assets 180 180
    Unrealized (gains) losses on trading investments (134 ) 639
    Restricted stock amortization 5,796 5,692
    Deferred income taxes 2,389 937
    Excess tax benefits from stock based compensation (1,916 ) (684 )
    Net purchases of investments – trading securities 6,927 7,880
    Changes in operating assets and liabilities:
    Accounts receivable (2,236 ) (4,003 )
    Other current assets 919 (864 )
    Accounts payable and accrued liabilities (166 ) (71 )
    Compensation and benefits payable (8,683 ) (5,931 )
    Income taxes payable and prepaid income taxes (1,189 ) (1,991 )
    Other liabilities   (29 )   18  
    Net cash provided by operating activities   16,727     9,701  
     
    CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property and equipment   (302 )   (313 )
    Net cash used in investing activities   (302 )   (313 )
     
    CASH FLOWS FROM FINANCING ACTIVITIES:
    Purchases of treasury stock (5,839 ) (4,637 )
    Excess tax benefits from stock based compensation 1,916 684
    Cash dividends   (7,291 )     (2,988 )
    Net cash used in financing activities   (11,214 )     (6,941 )
    Effect of currency rate changes on cash (12 ) (131 )
    NET INCREASE IN CASH AND CASH EQUIVALENTS 5,199 2,316
    Cash and cash equivalents, beginning of period   10,864     3,817  
    Cash and cash equivalents, end of period $ 16,063   $ 6,133  
     
    Supplemental cash flow information:
    Cash paid during the period for income taxes $ 6,978   $ 5,723  


       
    WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
    Reconciliation of Net Income to Economic Earnings
    (in thousands, except per share data and share amounts)
    (unaudited)
     
    Three Months Ended
    June 30,

    2014

    March 31,

    2014

      June 30,

    2013

    Net Income $ 8,822 $ 5,759 $ 4,879
    Add: Restricted stock expense 2,626 3,170 2,986
    Add: Intangible amortization 90 90 90
    Add: Tax benefit from goodwill amortization   38 38   38
    Economic earnings $ 11,576 $9,057 $ 7,993
     
    Diluted weighted average shares 7,739,150 7,724,715 7,495,523
    Economic EPS $ 1.50 $1.17 $ 1.07
     

     

    Six Months Ended

    June 30,

    2014

      June 30,

    2013

    Net Income $ 14,581 $ 7,712
    Add: Restricted stock expense 5,796 5,692
    Add: Intangible amortization 180 180
    Add: Tax benefit from goodwill amortization   76 76
    Economic earnings $ 20,633 $ 13,660
     
    Diluted weighted average shares 7,720,425 7,492,392
    Economic EPS $ 2.67 $ 1.82
     


    As supplemental information, we are providing non-GAAP performance measures that we refer to as Economic Earnings and Economic Earnings per share (or “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 dividend policy. We believe that these non-GAAP performance measures, while not substitutes for GAAP net income or earnings per share, are useful for both 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 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.

    (WHG-G)



    Westwood Holdings Group, Inc.

    William R. Hardcastle, Jr., 214-756-6900

    Chief Financial Officer


    Source: Westwood Holdings Group, Inc.


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