SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 6, 2019
WESTWOOD HOLDINGS GROUP, INC.
(Exact name of registrant as specified in charter)
Delaware 001-31234 75-2969997
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
200 Crescent Court, Suite 1200
Dallas, Texas 75201
(Address of principal executive offices)
(214) 756-6900
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.02: RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In accordance with Securities and Exchange Commission Release No. 34-47583, the following information, which is being furnished pursuant to the requirements of Item 2.02, “Results of Operations and Financial Condition,” is being reported under Item 7.01, “Regulation FD Disclosure.”
On February 6, 2019, Westwood Holdings Group, Inc. (“Westwood”) issued a press release entitled “Westwood Holdings Group, Inc. Reports Fourth Quarter and Fiscal Year 2018 Results”, a copy of which is furnished with this Current Report on Form 8-K as Exhibit 99.1.
The information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, or otherwise subject to the liabilities of that Section, nor shall it be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise expressly stated in such filing.
ITEM 7.01: REGULATION FD DISCLOSURE
Westwood announced today that its Board of Directors has approved the payment of a quarterly cash dividend of $0.72 per common share, payable on April 1, 2019 to stockholders of record on March 8, 2019.
ITEM 9.01: FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits: The following exhibit is furnished with this report:
Exhibit Number Description
99.1 | Press Release dated February 6, 2019, entitled “Westwood Holdings Group, Inc. Reports Fourth Quarter and Fiscal Year 2018 Results”. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: February 6, 2019
WESTWOOD HOLDINGS GROUP, INC.
By: /s/ Murray Forbes III
Murray Forbes III
Chief Financial Officer and Treasurer
EXHIBIT INDEX
Exhibit Number Description
99.1 |
Westwood Holdings Group, Inc. Reports Fourth Quarter and Fiscal Year 2018 Results
Dallas, TX, February 6, 2019 – Westwood Holdings Group, Inc. (NYSE: 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 pressures; 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.
# # # #
SOURCE: Westwood Holdings Group, Inc.
(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 | (4,768 | ) | (5,328 | ) | |||
Cash dividends | (24,621 | ) | (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.