Westwood Holdings Group Inc (WHG) 2010 Q2 法說會逐字稿

Thank you all for holding, and welcome to the Westwood Holdings Group's Second Quarter 2010 Earnings Conference Call. Today's call will begin with a presentation, followed by a Q&A session. Instructions on that feature will be given later in the program.

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.

Thank you. Good afternoon, and welcome to our second quarter earnings conference call.

I'd like to start by reading the forward-looking statements 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, 2009 filed with the Securities and Exchange Commission.

We undertake no obligation to publicly update or revise any forward-looking statements, whether it's 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 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. I appreciate everybody in joining our conference call today, as I know there's a ton of companies reporting.

Well, the market started the quarter with renewed optimism and ended with extreme pessimism. Our performance on a relative basis was excellent for our Small, SMid, and MidCap products, while our AllCap and LargeCap lagged behind the passive indices.

As the market struggles to determine whether we're heading for moderate growth or a double-dip recession, our LargeCap and AllCap portfolios are responding as one would expect. When low quality, high beta is preferred, we lag. And, on days like today, when many of the high-quality companies that we own reported positive earnings, we're well ahead.

If history is any guide, we're nearing the end of the high-beta period in favor of a period where investors prefer high-quality companies and discernable top-line growth. It is in these environments that Westwood portfolios perform best.

Performance for our Westwood Trust clients was excellent on a risk-adjusted basis with our trademark-enhanced balanced model performing in the top decile relative to peers for both the quarter and year to date. The addition of our global strategic diversification fund to our asset allocation mix enhanced returns in a tough market, as we had hoped that it would.

Our marketing activity in the institutional space was slow, but we are seeing our pipeline of RFPs pick up somewhat, and we have recently identified some new sub-advisory opportunities.

Our WHG Funds, led by our five-star SMidCap Fund and four-star Income and LargeCap Funds, continue to see nice flows. As noted in our press release, our assets under management at WHG Funds are up 75% over last year. We are also seeing interest in the defined contribution area, where smaller 401(k)s are looking for high-quality mutual funds, and larger plan sponsors are creating comingled funds and employing high-quality managers like us. We see growing interest in our Income Opportunity Fund in a world continually searching for yield.

Our road trip to Europe with our European partner, Pictet & Cie, was successful, and we're scheduled to do another road show this fall.

Last month, we made a presentation to the Merrill Lynch Bank of America conference in Boston, which is available for viewing under the Investor Relations tab on our Website. We mentioned that, while our growth up to this point has been primarily organic, we're finding the current environment to be one where we're seeing unique opportunities to capture both talent and new products. As a public company with cash and stock on hand, we're in a position to respond should special situations arise. We see a number of first-generation money management business owners pondering retirement and considering what to do with their businesses. All of the policymaking going on in Washington is making it increasingly difficult for these small business owners to tolerate.

We're also finding that our Westwood Trust model, combined with our culture of excellence, is a preferred path over the traditional exit to a large bank. We happen to operate in Texas, a state where we have a growing population, a vibrant economy, and no state income tax. And the convergence of all these factors creates a terrific opportunity for us to capitalize on.

In closing, it's hard to believe that the second quarter marks our eighth year as a public company. To think that we would have entered the public arena during the aftershocks of the tech bubble and then go through the worst financial crisis since the Great Depression and emerge with higher customer assets under management, cash on our balance sheet, a higher stock price, and no debt is truly a blessing.

And I would like to take a moment to thank all of our loyal shareholders. And it would not have been possible without the terrific work of all of our employee owners, who work every day to provide attentive service to our customers.

I'll now turn it over to Bill to discuss our financials, and I'll be available at the end of the call if you have any more questions.

Thanks, Brian. Good afternoon, everyone.

After I review our financial highlights for this quarter, I will review some slides with you that we have posted on the Investor Relations section of our Website at WestwoodGroup.com under the events and Webcast link.

For the second quarter 2010, our total revenues were $13.2 million, compared to $10 million in the second quarter of 2009. Comparing second quarter revenue in 2010 versus 2009, Westwood Management posted a 42% increase in advisory fees as a result of increased average assets under management due to market appreciation and positive net inflows. Westwood Trust posted a 35% increase in trust fees as a result of increased assets under management, primarily due to market appreciation, partially offset by net outflows.

GAAP operating income for the second quarter of 2010 was $3.9 million, compared to $2.5 million for the second quarter of 2009. GAAP net income for the second quarter of 2010 was $2.5 million, compared to $1.6 million for the second quarter of 2009. GAAP EPS was $0.36 per diluted share for the second quarter of 2010 versus $0.25 for the second quarter of 2009. Cash earnings for the second quarter of 2010 were $5.2 million, compared to $3.9 million for the second quarter of 2009.

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.

Total expenses for the quarter were $9.3 million, compared to $7.5 million for the second quarter of 2009. Cash expenses were $6.6 million, compared to $5.2 million for the second quarter of 2009. Primary drivers of the increase in total GAAP expenses for the second quarter of 2010 compared to the second quarter of 2009 were as follows. Incentive compensation expense increased by $813,000, primarily due to the significant increase in pretax income. Noncash restricted stock expense increased by approximately $410,000, related to an award of performance-based restricted stock to our CEO in April, as well as additional annual grants to employees in February 2010 and the higher price at which these shares were granted compared to prior grants. Salary expense increased by approximately $145,000 due to salary increases for certain employees and increased headcount.

Assets under management were $9.7 billion as of June 30, 2010, compared to $8.2 billion at June 30, 2009. Average assets under management for the quarter were $10.1 billion, compared with $7.7 billion for the second quarter of 2009. The year-over-year increase in assets was due to market appreciation of assets and asset inflows from new and existing clients, partially offset by the withdrawal of assets by certain clients.

Assets under management at WHG Funds were $652 million at June 30, 2010, compared to $372 million at June 30, 2009. This increase was due to significant net inflows into the funds over the last 12 months, as well as market appreciation, and the acquisition of Philadelphia Fund assets in November 2009.

Also, today, our board of directors approved the payment of a quarterly cash dividend of $0.33 per share, payable on October 1, 2010 to stockholders of record on September 15, 2010.

As I mentioned earlier, we have prepared a few slides to review with you. Again, the slides are available on our Website under the webcast and events link.

The first slide includes a bar graph with quarterly assets under management over the last five years, as well as a line graph comparing the growth of our assets under management over this time to the value of the S&P 500 index. As the graph illustrates, from March 31, 2005 to June 30, 2010, our assets under management have increased by 137%, representing a compound annual growth rate of 17%, while the market, as represented by the price level of the S&P 500, declined by 13% over this period.

The second slide is a bar graph with our quarterly asset-based fee revenue and a line graph of the S&P 500 over this same time period. The revenue represented here excludes significant performance fees earned in 2007 and 2008. As you can see, our asset-based fees reached another record level in the second quarter.

The third slide is a bar graph showing 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, 2010 were 129% higher than at yearend 2005.

The fourth slide is a bar graph that shows our quarterly dividend since we have been public. Our current quarterly dividend of $0.33 per share, or an annual rate of $1.32 per share, results in a dividend yield at yesterday's closing price of 3.8%.

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

Bill, thanks a lot. Great job. Does anybody have any questions for us?

(Operator instructions).

Okay. Well, we appreciate you listening to our call today. If anybody has any questions and you want to follow up with me or Bill, we'd be happy to try to answer them. It was great to see many of you in Boston last month. Have a great day. Thanks.

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