Westwood Holdings Group, Inc. Reports Fourth Quarter and Fiscal Year 2006 Results and Announces 33% Increase in Quarterly Dividend
DALLAS, Feb 07, 2007 /PRNewswire-FirstCall via COMTEX News Network/ -- Westwood Holdings Group, Inc. (NYSE: WHG) today reported 2006 fourth quarter revenues of $7.3 million, net income of $1.3 million and earnings per diluted share of $0.22. This compares to revenues of $6.1 million, net income of $1.0 million and earnings per diluted share of $0.18 in the fourth quarter of 2005. For the fiscal year ended December 31, 2006, Westwood reported revenues of $27.4 million, net income of $4.5 million and earnings per diluted share of $0.79 compared to revenues of $21.9 million, net income of $3.6 million and earnings per diluted share of $0.66 for the 2005 fiscal year.
Cash earnings, which we define as net income plus non-cash equity-based compensation expense, for the fourth quarter of 2006 were $2.7 million, when excluding $1.4 million in non-cash equity-based compensation expense, compared to $1.7 million for the fourth quarter of 2005, when excluding $700,000 in non-cash equity-based compensation expense. Cash earnings per share, which we define as cash earnings divided by diluted weighted average shares outstanding, ("Cash EPS") for the fourth quarter of 2006 was $0.44 per diluted share compared to $0.31 per diluted share for the fourth quarter of 2005. Cash earnings for the year 2006 were $9.1 million, when excluding $4.6 million in non-cash equity-based compensation expense, compared to $6.0 million for 2005, when excluding $2.4 million in non-cash equity-based compensation expense. Cash EPS for the year 2006 was $1.60 per diluted share compared to $1.08 per diluted share for 2005. (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.)
As a result of the growth in cash earnings and our philosophy of creating a unique partnership with out stockholders, our Board of Directors today approved the payment of a quarterly cash dividend of $0.20 per common share, an increase of 33% from the previous quarterly dividend of $0.15 per share. The dividend is payable on April 2, 2007 to stockholders of record on March 15, 2007.
Revenues for the 2006 fourth quarter increased 21.0% compared to the 2005 fourth quarter and increased 24.7% for the year 2006 compared to 2005, primarily as a result of increased average assets under management. Assets under management reached the highest level in Westwood's history at $5.9 billion as of December 31, 2006, a 20.3% year-over-year increase as compared to December 31, 2005 assets under management of $4.9 billion. Average assets under management for 2006 were $5.5 billion, an increase of 25.0% compared with 2005. 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. Due to the sixth consecutive year of outperformance by value asset managers versus growth managers, we experienced a withdrawal of assets by some clients rebalancing their overall asset mix before year-end.
Total expenses for the year 2006 were $20.1 million compared to $15.9 million for 2005. Cash expenses, which exclude non-cash equity-based compensation expenses, for 2006 were $15.5 million, when excluding $4.6 million in non-cash equity-based compensation expense, compared to $13.5 million for 2005, when excluding $2.4 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 $2.4 million in non-cash restricted stock expense due to additional restricted stock grants in July 2005 and July 2006 as well as grants of performance-based restricted stock to our Chief Executive Officer and Chief Investment Officer in May 2006. In the second quarter of 2006, we concluded that it is probable that we will meet the performance goal required in order for the applicable percentage of these performance-based shares to vest for 2006. As a result, we recognized expense of approximately $470,000 in each of the second, third and fourth quarters of 2006 related to the expected vesting of these shares. The other primary 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 well as increased incentive compensation expense due to higher pretax income.
Additional items of increased expense for the year 2006 were the costs related to the recently launched WHG Funds. We launched the WHG Income Opportunity and WHG SMidCap Funds in December 2005, the WHG LargeCap Value Fund in July 2006 and the WHG Balanced Fund in September 2006. We recognized expense related to the WHG Funds of approximately $238,000 for the year 2006 compared to $14,000 for the year 2005. The largest component of these costs is fund expense reimbursements reflecting our partial subsidy of fund expenses as we have capped the expense ratios for the funds in order to competitively position them in the defined contribution marketplace.
Westwood Trust contributed revenue of $8.4 million and net income of $1.2 million in 2006, compared to revenue of $7.1 million and net income of $877,000 in 2005. Westwood Trust assets under management as of December 31, 2006 were $1.6 billion, an increase of 26.6% compared to December 31, 2005. Westwood Trust continues to enjoy referrals from existing clients and local professionals.
Brian Casey, Westwood's President & CEO commented, "The year 2006 was one of multiple positive accomplishments for Westwood. We posted the highest level of assets under management, revenue and cash earnings in Westwood's history. Our LargeCap Value and Balanced products recently passed the 20-year milestone of providing clients with superior risk-adjusted returns. Our SMidCap Value, SmallCap Value, Balanced and Income Opportunity products all posted top quartile performance in their peer universes. Our recently launched WHG Funds grew to $130 million in assets as of December 31, 2006, which exceeded our expectations in terms of assets and profitability. We believe we have built a solid foundation for our new products and intend to capitalize on their strong performance with a continued marketing focus on SMidCap Value, Income Opportunity and AllCap Value. Our SmallCap Value product has completed a three-year record with top quartile results and over $100 million in assets. We have begun introducing SmallCap Value to the institutional consulting community and have received an encouraging level of interest. We would like to thank all of our employees for another terrific year. Our many accomplishments would not have been possible without their drive and enthusiasm to exceed our clients' expectations."
Westwood will host a conference call to discuss the fourth quarter and full year 2006 results 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 February 14 by dialing 888-284-7564 (domestic) or 904-596-3174 (international) and entering passcode 203756.
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 three 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; 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; 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, 2005 and its quarterly reports on Form 10-Q for the three month period ended March 31, 2006, the Form 10-Q for the six month period ended June 30, 2006 and the Form 10-Q for the nine month period ended September 30, 2006. 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 Year ended
December 31, December 31,
2006 2005 2006 2005
REVENUES:
Advisory fees $4,651 $3,902 $17,532 $13,868
Trust fees 2,214 1,887 8,240 7,031
Other revenues 454 262 1,592 1,041
Total revenues 7,319 6,051 27,364 21,940
EXPENSES:
Employee compensation and
benefits 3,941 3,238 14,920 11,566
Sales and marketing 97 106 528 443
WHG mutual funds 71 14 238 14
Information technology 243 233 925 809
Professional services 333 286 1,373 1,194
General and administrative 604 511 2,126 1,871
Total expenses 5,289 4,388 20,110 15,897
Income before income taxes 2,030 1,663 7,254 6,043
Provision for income taxes 725 653 2,785 2,407
Income before cumulative effect
of a change in accounting principle 1,305 1,010 4,469 3,636
Cumulative effect of change in
accounting principle, net of
income taxes of $21 --- --- 39 ---
Net income $1,305 $1,010 $4,508 $3,636
Earnings per share:
Basic:
Continuing operations $0.23 $0.18 $0.80 $0.67
Cumulative effect of a change
in accounting principle --- --- 0.01 ---
Net income $0.23 $0.18 $0.81 $0.67
Diluted:
Continuing operations $0.22 $0.18 $0.79 $0.66
Cumulative effect of a change
in accounting principle --- --- 0.00 ---
Net income $0.22 $0.18 $0.79 $0.66
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 2006 and December 31, 2005
(in thousands, except par value and share amounts)
(unaudited)
2006 2005
ASSETS
Current Assets:
Cash and cash equivalents $2,177 $1,897
Accounts receivable 3,111 2,452
Investments, at market value 17,933 17,878
Deferred income taxes 1,267 573
Other current assets 465 410
Total current assets 24,953 23,210
Goodwill 2,302 2,302
Deferred income taxes 214 244
Property and equipment, net of accumulated
depreciation of $774 and $523 1,253 1,554
Total assets $28,722 $27,310
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $778 $715
Dividends payable 996 539
Compensation and benefits payable 2,801 2,980
Income taxes payable 689 694
Other current liabilities 10 7
Total current liabilities 5,274 4,935
Deferred rent 713 816
Total liabilities 5,987 5,751
Stockholders' Equity:
Common stock, $0.01 par value, authorized
10,000,000 shares, issued and outstanding
6,638,525 shares at December 31, 2006;
issued and outstanding 5,986,647 shares
at December 31, 2005 66 60
Additional paid-in capital 20,289 21,459
Unamortized stock compensation --- (6,572)
Retained earnings 2,380 6,612
Total stockholders' equity 22,735 21,559
Total liabilities and stockholders' equity $28,722 $27,310
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
2006 2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,508 $3,636
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 266 272
Unrealized gains on investments (143) (64)
Stock option expense 126 250
Restricted stock amortization 4,500 2,114
Deferred income taxes (685) (300)
Cumulative effect of change in accounting
principle (39)
Net purchases of investments - trading
securities (889) (1,846)
Change in operating assets and liabilities:
Accounts receivable (659) (620)
Other assets (58) (18)
Accounts payable and accrued liabilities 63 86
Compensation and benefits payable (179) 277
Income taxes payable and prepaid taxes 405 830
Other liabilities 8 109
Net cash provided by operating activities 7,224 4,726
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of money market funds - available
for sale (7,869) (6,055)
Sales of money market funds - available for sale 8,846 8,719
Purchase of property and equipment (70) (75)
Net cash provided by investing activities 907 2,589
CASH FLOWS FROM FINANCING ACTIVITIES:
Excess tax benefits from stock based compensation 30 ---
Proceeds from exercise of stock options 402 271
Cash dividends (8,283) (6,409)
Net cash used in financing activities (7,851) (6,138)
NET INCREASE IN CASH 280 1,177
Cash, beginning of year 1,897 720
Cash, end of year $2,177 $1,897
Supplemental cash flow information:
Cash paid during the year for income taxes $3,034 $1,878
Issuance of restricted stock 11,507 3,865
Tax benefit allocated directly to equity 440 113
Dividends declared and not paid until
the subsequent year 996 539
Reconciliation of Net Income to Cash Earnings and Total Expenses to Cash
Expenses
Three Months Ended Three Months Ended %
December 31, 2006 December 31, 2005 Change
Net Income $1,305,000 $1,010,000 29.2 %
Restricted stock expense 1,348,000 657,000 105.2
Stock option expense 4,000 63,000 (93.7)
Cash earnings $2,657,000 $1,730,000 53.6
Diluted weighted average
shares 5,999,121 5,664,683 5.9
Cash earnings per share $0.44 $0.31 41.9
Total expenses $5,289,000 $4,388,000 19.4
Less: Restricted stock
expense (1,348,000) (657,000) 105.2
Less: Stock option
expense (4,000) (63,000) (93.7)
Cash expenses $3,937,000 $3,668,000 6.0 %
Year Ended Year Ended %
December 31, 2006 December 31, 2005 Change
Net Income $4,508,000 $3,636,000 24.0 %
Restricted stock expense 4,500,000 2,114,000 112.9
Stock option expense 126,000 250,000 (49.6)
Less: Cumulative effect of
change in accounting
principle (39,000) --- ---
Cash earnings $9,095,000 $6,000,000 51.6
Diluted weighted average
shares 5,690,455 5,540,342 2.7
Cash earnings per share $1.60 $1.08 48.1
Total expenses $20,110,000 $15,897,000 26.5
Less: Restricted stock
expense (4,500,000) (2,114,000) 112.9
Less: Stock option expense (126,000) (250,000) (49.6)
Cash expenses $15,484,000 $13,533,000 14.4 %
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 year ended December 31, 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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