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Westwood Holdings Group, Inc. Reports Fourth Quarter and Fiscal Year 2018 Results

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  • WHG

DALLAS, Feb. 06, 2019 (GLOBE NEWSWIRE) -- Westwood Holdings Group, Inc. (WHG) today reported fourth quarter earnings. Highlights from the quarter include:

  • Revenues of $26.1 million compared with $33.9 million a year ago and $29.9 million in the third quarter.

  • Net income of $5.4 million compared with $2.9 million in 2017's fourth quarter and was flat with the third quarter.

  • Our LargeCap, SMidCap, Emerging Markets, Emerging Markets Plus and Emerging Markets SMid strategies beat their primary benchmarks.

  • Repurchased 108,289 shares of our common stock for an aggregate purchase price of $4.0 million.

  • At year-end, Westwood had $118.2 million in cash and short-term investments, stockholders' equity of $161.1 million and no debt.

Revenues of $26.1 million decreased $7.8 million from last year's fourth quarter on lower average assets (AUM) due to net outflows, market depreciation and the sale of the Omaha-based component of our Private Wealth business. Revenues decreased $3.7 million from the third quarter on lower average AUM.

AUM at December 31, 2018 totaled $16.6 billion, compared to $24.2 billion at December 31, 2017 and $20.8 billion at September 30, 2018.

Fourth quarter net income of $5.4 million compared with $2.9 million in 2017's fourth quarter primarily due to non-recurrence of a $3.4 million incremental tax expense as a result of tax reform, and current quarter foreign currency transaction gains, lower incentive compensation costs and a lower federal tax rate, partially offset by lower revenues. Diluted earnings per share (EPS) of $0.64 compared to $0.34 for the fourth quarter of 2017. Non-GAAP Economic Earnings increased from $7.6 million, or $0.89 per share, in 2017's fourth quarter to $9.5 million, or $1.12 per share.

Fourth quarter net income of $5.4 million was flat with the third quarter. The current quarter benefited from foreign currency transaction gains and lower incentive compensation expense, offset by lower revenues. Diluted EPS of $0.64 compared to $0.62 for the third quarter. Non-GAAP Economic Earnings were flat at $9.5 million, or $1.12 per share, compared with $1.11 per share for the third quarter.

Total revenues for 2018 of $122.3 million compared with $133.8 million in 2017 due to a $9.8 million decrease in asset-based advisory fees and a $2.7 million decrease in Trust fees reflecting lower average AUM, partially offset by a $1.6 million increase in performance-based advisory fees earned in 2018.

Net income for 2018 of $26.8 million compared with $20.0 million in 2017. The current year benefited from foreign currency transaction gains, lower incentive compensation expense and a lower federal tax rate as a result of tax reform, partially offset by lower revenues. Diluted EPS was $3.13 compared with $2.38 for 2017. Economic EPS was $5.14 compared with $4.63 in 2017.

Brian Casey, Westwood’s President & CEO, commented, “Our long-standing focus on holding high-quality companies that are better positioned to withstand severe downturns proved rewarding for our clients. The fourth quarter turned out to be one of the worst on record for nearly all asset classes. Of course, our actively managed strategies were not immune to downward market pressure; however, they held up relatively well when compared to the performance of purely passive funds.

Naturally we are disappointed with the net outflows this year, but we are not standing still. Our investment teams are working hard to deliver competitive results in all market environments, and we continue to build our retail and institutional distribution teams. We are excited to introduce our LargeCap Select product this quarter following five years of incubation, and our Flexible Income product was launched as a new mutual fund late last year.”

Westwood’s Board of Directors declared a quarterly cash dividend of $0.72 per common share, payable on April 1, 2019 to stockholders of record on March 8, 2019.

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 2018 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 13, 2019 by dialing 855-859-2056 (U.S. and Canada) or 404-537-3406 (international) and entering the passcode 7483568.

About Westwood

Westwood Holdings Group, Inc. provides investment management services to institutional investors, private wealth clients and financial intermediaries. The firm has $16.6 billion in assets under management, of which $3.0 billion are in values-based and socially responsible investment mandates as of December 31, 2018. Westwood offers a range of investment strategies including U.S. equities, Multi-Asset, 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, 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 include investments in foreign companies; our ability to develop and market new investment strategies successfully; our relationships with current and potential customers; our ability to 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 SEC filings, including, but not limited to, its annual report on Form 10-K for the year ended December 31, 2017 and its quarterly reports on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018, and September 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.

(WHG-G)

CONTACT:
Westwood Holdings Group, Inc.
Terry Forbes
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,
2018

September 30,
2018

December 31,
2017

REVENUES:

Advisory fees:

Asset-based

$

19,388

$

22,023

$

25,576

Performance-based

Trust fees

6,688

7,191

8,051

Other, net

43

640

287

Total revenues

26,119

29,854

33,914

EXPENSES:

Employee compensation and benefits

13,102

14,444

16,080

Sales and marketing

535

549

595

Westwood mutual funds

842

979

1,189

Information technology

2,350

2,332

2,291

Professional services

1,106

1,372

1,421

General and administrative

2,264

2,431

2,506

(Gain) loss on foreign currency transactions

(1,968

)

596

44

Total expenses

18,231

22,703

24,126

Income before income taxes

7,888

7,151

9,788

Provision for income taxes

2,475

1,783

6,891

Net income

$

5,413

$

5,368

$

2,897

Other comprehensive income (loss):

Foreign currency translation adjustments

(2,057

)

616

85

Total comprehensive income

$

3,356

$

5,984

$

2,982

Earnings per share:

Basic

$

0.65

$

0.64

$

0.35

Diluted

$

0.64

$

0.62

$

0.34

Weighted average shares outstanding:

Basic

8,383,972

8,402,697

8,181,546

Diluted

8,503,522

8,598,230

8,546,936

Economic Earnings

$

9,515

$

9,541

$

7,609

Economic EPS

$

1.12

$

1.11

$

0.89

Dividends declared per share

$

0.72

$

0.68

$

0.68

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,

2018

2017

REVENUES:

Advisory fees:

Asset-based

$

89,367

$

99,201

Performance-based

2,984

1,411

Trust fees

28,953

31,621

Other, net

996

1,552

Total revenues

122,300

133,785

EXPENSES:

Employee compensation and benefits

59,959

64,955

Sales and marketing

1,936

2,042

Westwood mutual funds

3,808

3,938

Information technology

9,103

7,785

Professional services

4,783

5,916

Legal settlement

4,009

General and administrative

9,564

9,652

(Gain) loss on foreign currency transactions

(2,791

)

1,595

Total expenses

86,362

99,892

Net operating income

35,938

33,893

Gain on sale of operations

524

Income before income taxes

36,462

33,893

Provision for income taxes

9,711

13,904

Net income

$

26,751

$

19,989

Other comprehensive income (loss):

Foreign currency translation adjustments

(3,119

)

2,523

Total comprehensive income

$

23,632

$

22,512

Earnings per share:

Basic

$

3.20

$

2.45

Diluted

$

3.13

$

2.38

Weighted average shares outstanding:

Basic

8,365,360

8,147,742

Diluted

8,547,370

8,400,022

Economic Earnings

$

43,943

$

38,917

Economic EPS

$

5.14

$

4.63

Dividends declared per share

$

2.76

$

2.54

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

December 31, 2018

December 31, 2017

ASSETS

Current Assets:

Cash and cash equivalents

$

52,449

$

54,249

Accounts receivable

18,429

21,660

Investments, at fair value

65,781

51,324

Prepaid income taxes

349

4,269

Other current assets

2,731

6,612

Total current assets

139,739

138,114

Investments

5,425

Goodwill

19,804

27,144

Deferred income taxes

5,102

3,407

Intangible assets, net

15,961

19,804

Property and equipment, net of accumulated depreciation of $6,462 and $5,673

4,454

4,190

Total assets

$

190,485

$

192,659

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Accounts payable and accrued liabilities

$

2,518

$

3,501

Dividends payable

7,710

7,357

Compensation and benefits payable

15,102

19,075

Income taxes payable

365

1,598

Total current liabilities

25,695

31,531

Accrued dividends

1,576

1,717

Noncurrent tax payable

1,017

Deferred rent

2,065

1,998

Total liabilities

29,336

36,263

Stockholders’ Equity:

Common stock, $0.01 par value, authorized 25,000,000 shares, issued 10,182,583 and outstanding 8,904,902 shares at December 31, 2018; issued 9,980,827 and outstanding 8,899,587 shares at December 31, 2017

102

100

Additional paid-in capital

194,116

179,241

Treasury stock, at cost – 1,277,681 shares at December 31, 2018; 1,081,240 shares at December 31, 2017

(58,711

)

(49,788

)

Accumulated other comprehensive loss

(4,883

)

(1,764

)

Retained earnings

30,525

28,607

Total stockholders’ equity

161,149

156,396

Total liabilities and stockholders’ equity

$

190,485

$

192,659

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

Year ended December 31,

2018

2017

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

26,751

$

19,989

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

867

1,044

Amortization of intangible assets

1,672

1,872

Unrealized (gains) losses on trading investments

737

(617

)

Stock-based compensation expense

15,283

16,430

Deferred income taxes

(1,749

)

7,542

Gain on sale of operations

(524

)

Changes in operating assets and liabilities:

Net (purchases) sales of investments – trading securities

(15,194

)

5,778

Accounts receivable

2,678

2,161

Other current assets

3,755

(4,234

)

Accounts payable and accrued liabilities

(644

)

763

Compensation and benefits payable

(3,636

)

2,262

Income taxes payable

1,643

(4,816

)

Other liabilities

(155

)

(165

)

Net cash provided by operating activities

31,484

48,009

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property, equipment and other

(991

)

(1,167

)

Proceeds from Omaha divestiture

10,013

Purchases of investments

(5,425

)

Net cash provided by (used in) investing activities

3,597

(1,167

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Purchases of treasury stock

(4,000

)

Purchases of treasury stock for employee stock plans

(726

)

(1,326

)

Restricted stock returned for payment of taxes

(4,769

)

(5,328

)

Cash dividends

(24,620

)

(21,923

)

Net cash used in financing activities

(34,115

)

(28,577

)

Effect of currency rate changes on cash

(2,766

)

2,305

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(1,800

)

20,570

Cash and cash equivalents, beginning of period

54,249

33,679

Cash and cash equivalents, end of period

$

52,449

$

54,249

Supplemental cash flow information:

Cash paid during the period for income taxes

$

9,766

$

10,770

Accrued dividends

$

9,286

$

9,074

Tenant allowance included in Property and equipment

$

237

$

Non-cash accrued Property and equipment

$

$

69

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,
2018

September 30,
2018

December 31,
2017

Net Income

$

5,413

$

5,368

$

2,897

Add: Stock-based compensation expense

3,625

3,695

4,132

Add: Intangible amortization

417

419

423

Add: Tax benefit from goodwill amortization

60

59

157

Economic Earnings

$

9,515

$

9,541

$

7,609

Diluted weighted average shares

8,503,522

8,598,230

8,546,936

Economic EPS

$

1.12

$

1.11

$

0.89


Year Ended December 31,

2018

2017

Net Income

$

26,751

$

19,989

Add: Stock-based compensation expense

15,283

16,430

Add: Intangible amortization

1,672

1,872

Add: Tax benefit from goodwill amortization

237

626

Economic Earnings

$

43,943

$

38,917

Diluted weighted average shares

8,547,370

8,400,022

Economic EPS

$

5.14

$

4.63

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.