Westwood Holdings Group, Inc. Reports Second Quarter 2007 Results and Announces 25% Increase in Quarterly Dividend and Special Dividend of $0.25
DALLAS, July 26, 2007 /PRNewswire-FirstCall via COMTEX News Network/ --
Westwood Holdings Group, Inc. (NYSE: WHG) today reported 2007 second quarter revenues of $8.0 million, net income of $1.5 million and earnings per diluted share of $0.24. This compares to revenues of $6.6 million, net income of $1.0 million and earnings per diluted share of $0.18 in the second quarter of 2006. For the six months ended June 30, 2007, Westwood reported revenues of $15.3 million and net income of $3.0 million, or $0.49 per diluted share, compared to revenues of $13.2 million and net income of $2.3 million, or $0.41 per diluted share, for the same 2006 period.
Cash earnings, which we define as net income plus non-cash equity-based compensation expense, for the second quarter of 2007 were $2.8 million, when adding back $1.4 million in non-cash equity-based compensation expense, compared to $2.2 million for the second quarter of 2006, when adding back $1.2 million in non-cash equity-based compensation expense. Cash earnings per share ("Cash EPS"), which we define as cash earnings divided by diluted weighted average shares outstanding, for the second quarter of 2007 was $0.46 per diluted share compared to $0.39 per diluted share for the second quarter of 2006. Cash earnings for the six months ended June 30, 2007 were $5.2 million compared to $4.1 million for the same period in 2006, while Cash EPS for the six months ended June 30, 2007 was $0.86 per diluted share compared to $0.74 per diluted share for the same period in 2006. (Cash earnings and Cash EPS are non-GAAP financial measures that are explained and reconciled with the most comparable GAAP financial measures in the attached tables.)
Revenues for the 2007 second quarter increased 19.9% compared to the 2006 second quarter, primarily as a result of increased average assets under management. Assets under management were $6.8 billion as of June 30, 2007, a 26.4% year-over-year increase as compared to June 30, 2006 assets under management of $5.4 billion. Average assets under management for the 2007 second quarter were $6.5 billion, an increase of 20.4% compared with $5.4 billion for the 2006 second quarter. The increase in period ending assets under management was primarily due to the market appreciation of assets under management and inflows of assets from new clients. Second quarter investment performance for all of our equity products exceeded the respective benchmarks used by our clients.
Total expenses for the 2007 second quarter were $5.7 million compared to $5.0 million for the 2006 second quarter. Cash expenses for the 2007 second quarter were $4.4 million, which excludes $1.4 million in non-cash equity-based compensation expense, compared to $3.8 million for the 2006 second quarter, which excludes $1.2 million in non-cash equity-based compensation expense. (An explanation and reconciliation of cash expenses to total expenses are included in the attached tables.) The primary driver of the increase in total expenses was higher employee compensation and benefits costs, most of which was due to an increase of approximately $236,000 in non-cash restricted stock expense due to additional restricted stock grants in July 2006 and an increase of $220,000 in incentive compensation expense due to higher pre-tax income. The other significant components of the increase in employee compensation and benefits costs were increased salary expense due to salary increases for certain employees and increased headcount.
As previously disclosed, in May 2006, our Chief Executive Officer and Chief Investment Officer received grants of performance-based restricted stock that are subject to a performance goal in order for the applicable percentage of shares to vest in any given year. The annual performance goal is set by the Compensation Committee of our Board of Directors during the first quarter of each year. The associated compensation expense related to these shares cannot be recognized until we conclude that it is probable that the performance goal will be met. During the second quarter of 2007, we reached this conclusion and, as a result, recorded $470,000 of performance-based restricted stock expense in the second quarter of 2007 related to these shares. We expect to record the same amount in the third and fourth quarters of 2007. No expense was recognized for these shares in the first quarter of 2007. The annual expense related to the vesting of these shares, which is based on the 2006 grant date fair value, would be approximately $1.4 million.
Westwood Trust contributed revenue of $2.6 million and net income of $421,000 in the 2007 second quarter, compared to revenue of $2.1 million and net income of $290,000 in the 2006 second quarter. Westwood Trust's assets under management as of June 31, 2007 were $1.7 billion, an increase of 29.8% compared to $1.3 billion as of June 31, 2006.
The WHG Funds, which now consists of five funds, WHG LargeCap Value, WHG SMidCap, WHG SmallCap Value, WHG Income Opportunity and WHG Balanced, have grown to $223 million in assets as of June 30, 2007. This represents an increase of approximately 266% compared to June 30, 2006 and 45% compared to March 31, 2007.
Westwood also announced today that its Board of Directors declared a quarterly cash dividend of $0.25 per common share, an increase of 25% from the previous quarterly dividend of $0.20 per share. The Board also declared a special cash dividend of $0.25 per share. The dividends are payable on October 1, 2007 to stockholders of record on September 14, 2007. With a quarterly dividend now at a $1.00 annual rate, we have increased our quarterly dividend per share at a compounded annual rate of over 65% since we initiated a quarterly dividend in 2002. Our dividend yield is now well above the average yield of companies in the SNL Asset Manager Index. As we have indicated over the last year, our dividend policy has evolved to place more emphasis on a higher quarterly dividend with less emphasis on special dividends to reflect the underlying growth and strengthening fundamentals of our business. The special dividend of $0.25 per share payable in October represents the return of excess cash to our stockholders. The Board will continue to periodically review our excess cash position in the future.
Brian Casey, Westwood's President & CEO commented, "In the second quarter we posted another record level of assets under management due to the continued strong performance of our products as well as several meaningful new account wins in the quarter. The list of consultant approvals of our new products is expanding and our new business opportunity pipeline is encouraging. We are especially gratified to have reached an annual rate of $1.00 per share on our quarterly dividend within five years as a public company. As we reflect back on the accomplishments we have achieved over the past five years, we would like to thank our clients for entrusting their assets to Westwood, our stockholders for their patience during the formative years and our owner-employees for their dedication and outstanding effort."
Westwood will host a conference call to discuss the 2007 second quarter results and other business updates at 4:30 p.m. Eastern time today. To listen to the conference call, dial 866-903-1348 (domestic) or 904-596-2360 (international). The conference call will also be available via webcast and can be accessed at Westwood's website, http://www.westwoodgroup.com under the Investor Relations tab. The conference call will be available for replay through August 2 by dialing 888-284-7564 (domestic) or 904-596-3174 (international) and entering passcode 203758.
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, a family of institutional mutual funds, other mutual funds and clients of Westwood Trust. Westwood Trust provides trust and custodial 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, please visit Westwood's website at http://www.westwoodgroup.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 significant concentration of our revenues in four 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; downturn 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; our ability to capitalize on the performance of our marketing efforts; the acceptance of our new products with our existing and new clients; changes in our dividend policy and uses of our cash; 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, 2006 and its quarterly report on Form 10-Q for the three month period ended March 31, 2007 and June 30, 2007. 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 the 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 amounts)
(unaudited)
Three months ended Six months ended
June 30, June 30,
2007 2006 2007 2006
REVENUES:
Advisory fees $5,003 $4,311 $9,586 $8,490
Trust fees 2,516 2,042 4,892 3,940
Other revenues 438 286 832 720
Total revenues 7,957 6,639 15,310 13,150
EXPENSES:
Employee compensation and
benefits 4,266 3,730 7,975 6,921
Sales and marketing 147 157 268 283
WHG mutual funds 66 15 101 87
Information technology 249 225 482 457
Professional services 379 375 779 728
General and administrative 609 520 1,125 1,014
Total expenses 5,716 5,022 10,730 9,490
Income before income taxes 2,241 1,617 4,580 3,660
Provision for income taxes 768 631 1,600 1,417
Income before cumulative effect
of accounting change 1,473 986 2,980 2,243
Cumulative effect of change in
accounting principle, net of
income taxes of $21 - - - 39
Net income $1,473 $986 $2,980 $2,282
Earnings per share:
Basic:
Continuing operations $0.26 $0.18 $0.52 $0.41
Cumulative effect of an
accounting change - - - -
Net income $0.26 $0.18 $0.52 $0.41
Diluted:
Continuing operations $0.24 $0.18 $0.49 $0.40
Cumulative effect of an
accounting change - - - 0.01
Net income $0.24 $0.18 $0.49 $0.41
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 30, 2007 and December 31, 2006
(in thousands, except par value and share amounts)
June 30,
2007 December 31,
(unaudited) 2006
ASSETS
Current Assets:
Cash and cash equivalents $3,946 $2,177
Accounts receivable 2,754 3,111
Investments, at market value 19,349 17,933
Deferred income taxes 1,724 1,267
Other current assets 366 465
Total current assets 28,139 24,953
Goodwill 2,302 2,302
Deferred income taxes 15 214
Property and equipment, net of
accumulated depreciation of $898 and $774 1,111 1,253
Total assets $31,567 $28,722
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued
liabilities $699 $778
Dividends payable 1,330 996
Compensation and benefits payable 2,210 2,801
Income taxes payable 883 689
Other current liabilities 11 10
Total current liabilities 5,133 5,274
Deferred rent 655 713
Total liabilities 5,788 5,987
Stockholders' Equity:
Common stock, $0.01 par value,
authorized 10,000,000 shares, issued
6,659,356 and outstanding 6,653,859 shares
at June 30, 2007; issued and outstanding
6,638,525 shares at December 31, 2006 67 66
Additional paid-in capital 23,141 20,289
Treasury stock, at cost - 5,497 shares
at June 30, 2007; 0 shares at December 31,
2006 (131) -
Retained earnings 2,702 2,380
Total stockholders' equity 25,779 22,735
Total liabilities and stockholders' equity $31,567 $28,722
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the six
months ended June 30,
2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,980 $2,282
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 124 138
Unrealized gains on investments (20) (110)
Stock option expense - 122
Restricted stock amortization 2,260 1,765
Deferred income taxes (258) (630)
Cumulative effect of change in accounting
principle - (39)
Excess tax benefits from stock based
compensation (176) (7)
Net purchases of investments - trading
securities (778) (129)
Change in operating assets and liabilities:
Accounts receivable 357 41
Other current assets 102 55
Accounts payable and accrued
liabilities (79) (94)
Compensation and benefits payable (591) (1,173)
Income taxes payable 476 114
Other liabilities (3) 9
Net cash provided by operating activities 4,394 2,344
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of money market funds - available for
sale (3,986) (2,775)
Sales of money market funds - available for sale 3,368 2,423
Purchase of property and equipment (39) (40)
Net cash used in investing activities (657) (392)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (131) -
Excess tax benefits from stock based compensation 176 7
Proceeds from exercise of stock options 311 72
Cash dividends (2,324) (1,078)
Net cash used in financing activities (1,968) (999)
NET INCREASE IN CASH 1,769 953
Cash and cash equivalents, beginning of period 2,177 1,897
Cash and cash equivalents, end of period $3,946 $2,850
Supplemental cash flow information:
Cash paid during the period for income taxes $1,381 $1,934
Cancellation of restricted stock (59) -
Tax benefit allocated directly to equity 282 37
Reconciliation of Net Income to Cash Earnings and Total Expenses to Cash
Expenses
(in thousands, except share and per share amounts)
Three Months Ended Three Months Ended %
June 30, 2007 June 30, 2006 Change
Net Income $1,473,000 $986,000 49.4%
Add: Restricted
stock expense 1,362,000 1,126,000 21.0
Add: Stock
option expense - 61,000 N/A
Cash earnings $2,835,000 $2,173,000 30.5
Diluted weighted
average shares 6,140,425 5,566,819 10.3
Cash earnings per
share $0.46 $0.39 17.9
Total expenses $5,716,000 $5,022,000 13.8
Less: Restricted
stock expense (1,362,000) (1,126,000) 21.0
Less: Stock
option expense - (61,000) N/A
Cash expenses $4,354,000 $3,835,000 13.5%
Six Months Ended Six Months Ended %
June 30, 2007 June 30, 2006 Change
Net Income $2,980,000 $2,282,000 30.6%
Add: Restricted
stock expense 2,260,000 1,765,000 28.0
Add: Stock
option expense - 122,000 N/A
Less: Cumulative
effect of change in
accounting principle - (39,000) N/A
Cash earnings $5,240,000 $4,130,000 26.9
Diluted weighted
average shares 6,123,231 5,565,728 10.0
Cash earnings per
share $0.86 $0.74 16.2
Total expenses $10,730,000 $9,490,000 13.1
Less: Restricted
stock expense (2,260,000) (1,765,000) 28.0
Less: Stock option
expense - (122,000) N/A
Cash expenses $8,470,000 $7,603,000 11.4%
As supplemental information, we are providing non-GAAP performance measures that we refer to as cash earnings, cash earnings per share (or Cash EPS), and cash expenses. We provide these measures in addition to, but 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 cash earnings, Cash EPS and cash 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 to evaluate 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 cash earnings as net income plus the non-cash expense associated with equity-based compensation awards of restricted stock and stock options. In calculating cash earnings for the six months ended June 30, 2006, we also eliminate the non-cash cumulative effect of change in accounting principle associated with our implementation of SFAS 123R. We define cash expenses as total expenses less non-cash equity-based compensation expense. Although depreciation on fixed assets is a non-cash expense, we do not add it back when calculating cash earnings or deduct it when calculating cash expenses because depreciation charges represent a decline in the value of the related assets that will ultimately require replacement. Cash EPS represents cash earnings divided by diluted weighted average shares outstanding.
CONTACT:
Westwood Holdings Group, Inc.
Bill Hardcastle
(214) 756-6900
(WHG-G)
SOURCE Westwood Holdings Group, Inc.
Bill Hardcastle of Westwood Holdings Group, Inc., +1-214-756-6900
http://www.westwoodgroup.com
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