Westwood Holdings Group, Inc. (NYSE: WHG) today reported 2010 third quarter revenues of $13.5 million, net income of $2.6 million and earnings per diluted share of $0.38. This compares to revenues of $11.6 million, net income of $2.3 million and earnings per diluted share of $0.32 in the third quarter of 2009. Economic Earnings were $5.0 million compared to $4.3 million for the third quarter of 2009. Economic Earnings per share (“Economic EPS”) were $0.73 per diluted share compared to $0.67 per diluted share for the third quarter of 2009. (Non-GAAP performance measures Cash earnings and Cash EPS have been renamed Economic Earnings and Economic EPS, respectively, and are explained and reconciled with the most comparable GAAP numbers in the attached tables.)

Assets under management were $10.6 billion as of September 30, 2010, an increase of 12% compared to assets under management of $9.5 billion as of September 30, 2009. The increase in assets under management was primarily due to market appreciation of assets under management and asset inflows from new and existing clients, partially offset by the withdrawal of assets by certain clients. The WHG Funds had assets of $760 million as of September 30, 2010, an increase of 66% compared to assets of $458 million as of September 30, 2009.

Westwood’s Board of Directors declared a quarterly cash dividend of $0.33 per common share as well as a special dividend of $0.33 per share. Both dividends are payable on December 15, 2010 to stockholders of record on December 1, 2010.

Brian Casey, Westwood’s President & CEO, commented, “We are pleased to have achieved record assets under management of $10.6 billion at September 30, 2010 and to report that the planned acquisition of McCarthy Group Advisors is proceeding as planned. We expect the McCarthy transaction to close during the fourth quarter, resulting in over $1 billion in additional client assets. As McCarthy clients and employees learn more about Westwood, they have expressed confidence in our business model and reputation for excellence. We are excited to deliver a quality experience to McCarthy’s clients and employees and to work together to identify growth opportunities.”

For the nine months ended September 30, 2010, Westwood reported revenues of $39.9 million, net income of $8.0 million and earnings per diluted share of $1.11, compared to revenues of $29.8 million, net income of $5.2 million and earnings per diluted share of $0.70, for the same 2009 period. Economic Earnings for the nine months ended September 30, 2010 were $15.1 million compared to $10.9 million for the same period in 2009, while Economic EPS for the nine months ended September 30, 2010 were $2.24 per diluted share compared to $1.71 per diluted share for the same period in 2009.

Total expenses for the third quarter were $9.4 million compared with $8.0 million for the third quarter of 2009. Economic Expenses were $6.9 million compared with $6.1 million for the third quarter of 2009. (An explanation and reconciliation of Economic Expenses to total expenses is included in the attached tables.)

Westwood Trust contributed revenue of $2.8 million and net income of $217,000 compared to revenue of $2.6 million and net income of $410,000 in the third quarter of 2009. As of September 30, 2010, Westwood Trust’s assets under management were $1.93 billion compared to $1.87 billion as of September 30, 2009. The increase in assets under management was primarily due to market appreciation.

Westwood will host a conference call to discuss third quarter 2010 results and other business updates at 4:30 p.m. Eastern time today. To join the conference call, dial 866-337-6663 (domestic) or 904-520-5771 (international). The conference call can also be accessed at www.westwoodgroup.com under the Investor Relations tab and will be available for replay through October 28 by dialing 888-284-7564 (domestic) or 904-596-3174 (international) and entering passcode 2428161.

About Westwood

Westwood Holdings Group, Inc. manages investment assets and provides services for its clients through two subsidiaries, Westwood Management Corp. and Westwood Trust. Westwood Management Corp. is a registered investment advisor and provides investment advisory services to corporate pension funds, public retirement plans, endowments, foundations, the WHG Funds, other mutual funds and clients of Westwood Trust. Westwood Trust provides trust services and participation in common trust funds that it sponsors to institutions and high net worth individuals. Westwood Holdings Group, Inc. trades on the New York Stock Exchange under the symbol “WHG.”

For more information on Westwood, please visit www.westwoodgroup.com.

For more information on the WHG Funds, please visit www.whgfunds.com.

Note on 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 concentration of our revenues in a small number of our 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; the passage of 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, 2009 and its quarterly report on Form 10-Q for the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010. 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 INCOME

(in thousands, except per share data)

(unaudited)
 
  Three months ended

September 30,
  Nine months ended

September 30,
2010   2009 2010   2009
REVENUES:
Advisory fees
Asset-based $ 10,157 $ 8,773 $ 30,457 $ 22,118
Trust fees 2,834 2,642 8,950 7,366
Other revenues, net   482   226   476   346
Total revenues   13,473   11,641   39,883   29,830
 
EXPENSES:
Employee compensation and benefits 7,296 6,381 21,447 16,965
Sales and marketing 181 154 569 448
WHG mutual funds 83 145 344 425
Information technology 328 309 977 925
Professional services 817 376 1,916 1,130
General and administrative   657   678   2,026   1,906
Total expenses   9,362   8,043   27,279   21,799
Income before income taxes 4,111 3,598 12,604 8,031
Provision for income taxes   1,512   1,284   4,579   2,857
Net income $ 2,599 $ 2,314 $ 8,025 $ 5,174
 
Earnings per share:
Basic $ 0.39 $ 0.32 $ 1.13 $ 0.71
Diluted $ 0.38 $ 0.32 $ 1.11 $ 0.70

 

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of September 30, 2010 and December 31, 2009

(in thousands, except par value and share amounts)
 
  September 30, 2010

(unaudited)
 

December 31, 2009
ASSETS
Current Assets:
Cash and cash equivalents $ 3,839 $ 2,879
Accounts receivable 6,587 6,406
Investments, at fair value 46,001 42,246
Deferred income taxes 2,169 2,187
Prepaid income taxes 1,013 -
Other current assets   538     625  
Total current assets 60,147 54,343
Goodwill 3,915 3,915
Intangible assets, net 971 1,050
Property and equipment, net of accumulated depreciation of $1,488 and $1,315   335     578  
Total assets $ 65,368   $ 59,886  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,348 $ 995
Dividends payable 2,463 2,359
Compensation and benefits payable 6,751 6,273
Income taxes payable - 823
Deferred acquisition liability 924 900
Other current liabilities   11     11  
Total current liabilities 11,497 11,361
Deferred acquisition liability 818 796
Deferred income taxes 58 238
Deferred rent   133     273  
Total long-term liabilities   1,009     1,307  
Total liabilities   12,506     12,668  
Stockholders’ Equity:
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 7,692,112 and outstanding 7,462,917 shares at September 30, 2010; issued 7,308,812 and outstanding 7,151,472 shares at December 31, 2009

 

77

 

73
Additional paid-in capital 56,095 47,741
Treasury stock, at cost – 229,195 shares at September 30, 2010; 157,340 shares at December 31, 2009

(8,749

)

(6,026

)
Accumulated other comprehensive income 877 1,559
Retained earnings   4,562     3,871  
Total stockholders’ equity   52,862     47,218  
Total liabilities and stockholders’ equity $ 65,368   $ 59,886  

 

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)
 
  For the nine months ended September 30,
2010   2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,025 $ 5,174
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 206 180
Amortization of intangible assets 79 -
Fair market valuation of deferred acquisition liabilities 46 -
Unrealized gains on trading investments (312 ) (528 )
Restricted stock amortization 6,927 5,694
Deferred income taxes 205 764
Excess tax benefits from equity-based compensation (979 ) (1,504 )
Net purchases of investments – trading securities (3,872 ) (5,955 )
Change in operating assets and liabilities:
Accounts receivable (181 ) 6,991
Other assets 86 210
Accounts payable and accrued liabilities 354 554
Compensation and benefits payable 478 (3,247 )
Income taxes payable and prepaid income taxes (588 ) (1,098 )
Other liabilities   (59 )   (41 )
Net cash provided by operating activities   10,415     7,194  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of money market funds – available for sale (39,877 ) (46,738 )
Sales of money market funds – available for sale 39,257 46,996
Purchase of property and equipment   (43 )   (54 )
Net cash (used in)/provided by investing activities   (663 )   204  
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (2,723 ) (2,526 )
Excess tax benefits from equity-based compensation 979 1,504
Cash dividends (7,231 ) (6,386 )
Proceeds from exercise of stock options   183     7  
Net cash used in financing activities   (8,792 )   (7,401 )
 
NET INCREASE (DECREASE) IN CASH 960 (3 )
Cash and cash equivalents, beginning of period   2,879     3,498  
Cash and cash equivalents, end of period $ 3,839   $ 3,495  
 
Supplemental cash flow information:
Cash paid during the period for income taxes $ 4,961 $ 3,191
Issuance of restricted stock, net 14,699 7,263

 

Reconciliation of Net Income to Economic Earnings and Total Expenses to Economic Expenses

(in thousands, except per share data and share amounts)

(unaudited)
 
  Three Months Ended

September 30
 

%
2010   2009 Change
Net Income $ 2,599 $ 2,314 12 %
Add: Restricted stock expense 2,387 1,972 21
Add: Intangible amortization 26 - -
Add: Deferred taxes on goodwill   9     -   -  
Economic earnings $ 5,021   $ 4,286   17  
 
Diluted weighted average shares 6,866,528 6,430,219 7
Economic earnings per share $ 0.73 $ 0.67 9
 
Total expenses $ 9,362 $ 8,043 16
Less: Restricted stock expense (2,387 ) (1,972 ) 21
Less: Intangible amortization   (26 )   -   -  
Economic expenses $ 6,949   $ 6,071   14 %
 
Nine Months Ended

September 30

%
2010 2009 Change
Net Income $ 8,025 $ 5,174 55 %
Add: Restricted stock expense 6,927 5,694 22
Add: Intangible amortization 79 - -
Add: Deferred taxes on goodwill   28     -   -  
Economic earnings $ 15,059   $ 10,868   39  
 
Diluted weighted average shares 6,710,716 6,341,655 6
Economic earnings per share $ 2.24 $ 1.71 31
 
Total expenses $ 27,279 $ 21,799 25
Less: Restricted stock expense (6,927 ) (5,694 ) 22
Less: Intangible amortization   (79 )   -   -  
Economic expenses $ 20,273   $ 16,105   26 %
 

As supplemental information, we are providing non-GAAP performance measures that we refer to as Economic Earnings, Economic Earnings per share (or Economic EPS), and Economic Expenses. In the third quarter, we renamed our non-GAAP performance measures to Economic Earnings, Economic Expenses and Economic Earnings Per Share from Cash Earnings, Cash Expenses and Cash Earnings Per Share, respectively. We provide these measures in addition to, not as a substitute for, net income, earnings per share and total expenses, which are reported on a GAAP basis. Management and our Board of Directors review Economic Earnings, Economic EPS and Economic Expenses 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, earnings per share and total expenses, 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. We define Economic Expenses as total expenses less non-cash equity-based compensation expense and amortization of intangible assets. Although depreciation on fixed assets is a non-cash expense, we do not add it back when calculating Economic Earnings or deduct it when calculating Economic Expenses because depreciation charges represent a 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)

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