Westwood Holdings Group Inc (WHG) 2009 Q2 法說會逐字稿

Thank you all for holding and welcome to the Westwood Holdings Group Second Quarter 2009 Earnings Conference Call. (Operator Instructions) I would now like to turn the call over to your host for today's call, Sylvia Fry, Vice President and Chief Compliance Officer. Ms. Fry, your line is now open; you may begin.

Thank you. Good afternoon and welcome to our Second Quarter Earnings Conference Call. I'd like to start by reading our forward-looking statement disclaimer. The following discussion will include forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties, and other factors which may cause actual results to be materially different from those contemplated by the forward-looking statements.

Additional information concerning the factors that could cause such a difference is included in our press release issued earlier today, as well as in our annual report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. You are cautioned not to place undue reliance on forward-looking statements.

In addition, in accordance with SEC rules concerning non-GAAP financial measures, the reconciliation of our cash earnings, cash earnings per share, and cash expenses to the most comparable GAAP measures is included at the end of our press release issued earlier today.

On the call today, we will have Brian Casey, our President and Chief Executive Officer and Bill Hardcastle, our Chief Financial Officer. I will now turn the call over to Brian Casey, our CEO.

Thanks, Sylvia, and thanks to all of you for joining our call today. We know you're busy with earnings season and appreciate your taking the time to listen to our call.

Our earnings release has been out for about a half hour so if you've not seen it you can find it, along with our 10-Q, on our website, westwoodgroup.com, under the Investor Relations tab.

You'll note in the headline of our earnings release our intention to acquire the assets of the Philadelphia Fund. We've been working on this acquisition for some time and we're pleased to report that the asset purchase agreement was signed yesterday and we will proceed with the necessary filings and shareholder vote over the next few months. If all goes well, we can expect to close the transaction in the fourth quarter of 2009.

I want to recognize and thank C. J. MacDonald, Bill Hardcastle, and especially Julie [Garand] for all of their hard work during the acquisition process. They make a great team and will continue to look for attractive mutual fund acquisition candidates in the years ahead.

Assuming the Philadelphia Fund shareholder vote is successful, we will bring an additional $50 million of assets into the WHG LargeCap Value Fund. You may recall that the WHG LargeCap Value Fund was the third fund launched in the WHG Fund family of five institutional mutual funds.

The WHG LargeCap Value Fund reached a three-year milestone at the end of June; and as was the case with the first two funds in the series, the WHG SMidCap Value Fund and the WHG Income Opportunity Fund, the fund was immediately awarded a five-star rating by Morningstar. This is a terrific accomplishment -- to be in the top 10% of the peer group over a three-year period, and I commend the entire investment area for their efforts on behalf of shareholders.

Investment performance for the second quarter was excellent on an ABSOLUTE basis, with positive returns posted for all products. On a relative basis, performance remains ahead of benchmarks for most products on a year-to-date basis. The WHG Funds continue to see steady inflows and we're working with new platforms on an ongoing basis.

Westwood Trust has done an excellent job of retaining customers and is working hard to generate new customers. Prospective private wealth customers have been largely frozen, with a high preference for safety and liquidity. As markets improve and their liquidity preference changes in the years ahead, we expect that Westwood Trust will continue to gain share.

Institutional marketing activity remains high and we're pleased to report that our assets under management are nearly again at the record levels achieved in the third quarter of 2008. Our RFP pipeline is strong and many experts are predicting an even higher level of institutional searches for long-only managers in the year ahead.

Our conservative approach to managing money and managing our business has proven to be an attractive package for institutional customers. We've been told that when it comes down to an institutional finals presentation decision against worthy contenders, our model of employee ownership and ethical stewardship often pushes us over the goal line.

Institutional flows have been steady, with several new accounts funding at the end of the quarter and others funding over the balance of this year.

We've discussed our role in prior calls as that of product creator, and the execution of our ongoing plan to partner with high-quality organizations to distribute our products. We mentioned our partnerships with Principal, State Farm, Goodman, Delaware, and others, and we're pleased to report that we've added two additional partners during the quarter and pleased to extend our reach further into Canada and, for the first time, into Europe with an extremely well-respected private bank.

Some of these subadvisory opportunities are startup funds while others are established funds where we're replacing an outgoing manager. In all cases, the culture of our organization and that of our partner are highly compatible. We feel very fortunate to have the opportunity to take our products into some of these large distribution networks, and we will work hard with our partners to generate the performance and service they expect from us.

While we have no idea what the financial markets have in store for us over the next few years, we do know that we'll continue to manage our business conservatively; and as confidence improves, we are well positioned to take advantage of the flows that will follow.

I'll be happy to answer your questions at the conclusion of our call, but I'll turn it over to Bill Hardcastle, our CFO, to review our financials.

Thanks, Brian. Good afternoon, everyone. If anyone has any questions after reading our 10-Q, feel free to give me a call at the phone number listed on our website.

After I review our financial highlights for the quarter, I will review some slides with you that we have prepared and posted on the Investor Relations section of our website at westwoodgroup.com under the Events and Webcast link.

For the second quarter 2009, our total revenues were $10 million, a 3% increase compared to $9.7 million in the second quarter of 2008. Comparing second quarter revenue in 2009 versus 2008, Westwood Management posted a 9% increase in advisory fees due to higher average assets under management, primarily as a result of net asset inflows from new and existing clients partially offset by market depreciation.

Westwood Trust posted a 14% decrease in trust fees as a result of lower average assets under management primarily due to market depreciation partially offset by asset inflows from new clients.

GAAP operating income for the quarter was $2.5 million, a 4% decrease compared to $2.6 million for the second quarter 2008. GAAP net income was $1.6 million, a 6% decrease compared to $1.7 million for the second quarter of 2008. GAAP EPS was $0.25 per diluted share compared to $0.27 for the second quarter 2008.

Cash earnings, which we define as net income plus noncash equity-based compensation expense, was $3.9 million, a 5% increase, compared to $3.7 million for the second quarter 2008. Cash EPS was $0.58 per diluted share compared to $0.57 for the second quarter of 2008.

These non-GAAP financial measures are defined, explained, and reconciled with the most comparable GAAP financial measures in tables included at the end of our earnings release, which is available on our website.

Total expenses for the quarter were $7.5 million, a 6% increase, compared to $7.1 million for the second quarter 2008. Cash expenses, which exclude noncash equity-based compensation expense, increased by 2% to $5.2 million, compared to $5.1 million for the second quarter 2008.

The primary drivers of the increase in total GAAP expenses for the second quarter 2009 compared with the first quarter of 2008 were as follows -- noncash restricted stock expense increased by approximately $297,000 related to additional annual grants in February 2009 as well as the higher market price at which these shares were granted compared to prior grants. Salary and incentive compensation expense increased by approximately $242,000, due primarily to increased headcount. At June 30, 2009, we had 63 full-time employees compared to 57 full-time employees at June 30, 2008.

Legal expenses related to the planned acquisition of the Philadelphia Fund by the WHG LargeCap Value Fund increased by approximately $46,000.

These increases were offset by a decrease in financial advisory expense of approximately $119,000 due to lower subadvised assets at Westwood Trust and a decrease of approximately $75,000 in other miscellaneous expenses.

We recognized a noncash expense of approximately $470,000 in the second quarter of 2009 and 2008 related to the expected vesting of performance-based restricted stock awarded to our Chief Executive Officer and Chief Investment Officer in May 2006. As we have discussed before, the compensation expense related to these shares is not recognized until we conclude that it is probable that the performance goal, which is set annually by our Compensation Committee, will be met.

In the second quarter of 2009, we concluded that it is probable that we will meet the 2009 performance goal, and thus we began to recognize the related expense. We expect to recognize a similar amount expense in third and fourth quarters of 2009 related to these performance-based restricted stock grants. There was no expense recognized in the first quarter of 2009 related to the grants.

Assets under management were $8.2 billion as of June 30, 2009, a increase of 6% compared to $7.7 billion as of June 30, 2008. The year-over-year increase was primarily due to net inflows from new and existing clients over the past 12 months, partly offset by market depreciation.

Assets under management at June 30, 2009, rose by 14% sequentially from $7.2 billion at March 31, 2009, primarily due to market appreciation as well as net inflows in the second quarter. We continue to generate organic growth in assets that has exceeded significant market declines over the last 12 months.

Assets under management in the WHG Funds grew to $372 million as of June 30, 2009, an increase of 17% compared to $319 million at June 30, 2008, and a 31% sequential increase from $285 million at March 31, 2009.

Our Board of Directors today approved the payment of a quarterly cash dividend of $0.30 per share payable on October 1, 2009, to stockholders of record on September 15, 2009.

As I mentioned earlier, we have prepared a few slides that we wanted to go through to highlight the growth of our business. The slides are available on the Investor Relations Section of our website under the Webcast and Events link.

The first slide includes a bar graph with quarterly assets under management over the last five-plus years, as well as a line graph that compares the growth of our assets under management over this time period versus the value of the S&P 500 Index. Both values have been indexed to 100 as of March 31, 2004. While our assets under management have risen 111% over this time period, the S&P 500 is down 18%.

The second slide is a bar graph of quarterly revenue over the same time period. Revenue in the second quarter of 2009 of $10 million was nearly double first quarter 2004 revenue of approximately $5 million. This represents a compound annual growth rate of 14%.

The 21% sequential revenue growth compared to first quarter 2009 revenue of $8.2 million represents our largest quarterly sequential revenue growth in a quarter without a performance fee.

The third slide is a bar graph with quarterly cash earnings over the same time period. Cash earnings for the second quarter 2009 were 180% higher than cash earnings in the first quarter of 2004, representing a compound annual growth rate of 22%.

The fourth slide is a bar graph showing annual cash earnings over this time period, as well as the growth in cash and investments on our balance sheet. Cash and investments at June 30, 2009, were 80% higher than at year-end 2004. As we have stated many times before, we seek to manage our business conservatively and currently maintain well in excess of one year's cash expenses on our balance sheet, invested primarily in Treasury bills.

The fifth slide is a bar graph that shows our quarterly dividend since we have been public. The dividend declared today maintains an annual dividend rate of $1.20 per share, resulting in a yield of 3% at yesterday's closing price. Since we went public in 2002, we have declared over $50 million in dividends to shareholder.

That concludes my discussion of our financials and I'll now turn the call back over to Brian.

Thanks, Bill; great job. If anybody has any questions, if you want to press 1 on your phone, we'd be happy to try to answer them.

(Operator Instructions) At this time, there are no questions in queue.

Okay. One last chance -- if anybody has any questions, please press 1.

There are no questions in queue at this time.

Okay, very good. Well, thank you again for listening to our call, and please feel free to follow up with Bill or I if you have any questions after you've gone through the 10-Q. We look forward to talking to you next quarter. Thanks a lot.

That concludes today's conference. Thank you for your participation. You may now disconnect.