Westwood Holdings Group Inc (WHG) 2010 Q4 法說會逐字稿

Thank you all for holding, and welcome to the Westwood Holdings Group Fourth Quarter 2010 Earnings Conference Call. Today's call will begin with a presentation, followed by a question-and-answer session. Instructions on that feature will follow 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 fourth quarter 2010 earnings conference call. I'd like to start by reading our 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 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 taking time out today to listen to our call. We're pleased to close out 2010 with record assets under management of approximately $12.5 billion and our highest revenue and net income in our history.

We also have completed our first sizeable acquisition with the closing of the McCarthy Advisors acquisition on November 18. We're excited to officially welcome our new team members to the Westwood family and look forward to building an even greater Company in Omaha in the years ahead.

Performance for our products in the fourth quarter was very strong in absolute sense, as most of you know the market increased over 10% [three months]. Most of our products managed to keep pace with their respective benchmarks during the fourth quarter. And peer group performance was mixed depending on the nature of the strategy. All of our performance results can be found in the commercially available databases or you can reference Morningstar for those strategies where we have the mutual fund available.

Marketing activity has picked up recently. We were very excited to win our first institutional client for our SMidCap Plus+ strategy. As we mentioned in our recent press release we launched SMidCap Plus+ last summer in anticipation of the closing of our SMidCap product to new investors.

SMidCap products utilizes the same portfolio and the same team to eliminate the capacity constrained stocks under $2 billion in market cap and expands our must sell maximum market cap from $10 billion to $15 billion. We've registered a SMidCap Plus+ mutual fund earlier this year. We've also received shareholder approval to recognize -- reorganize the McCarthy Multi-Cap Fund into a new WHG Fund called the WHG Dividend Growth Fund.

The WHG Dividend Growth Fund is currently managed by Rich Jarvis in Omaha and supported by the Westwood analyst and research department here in Dallas. We're working on an institutional roll out of this strategy to the institutional consultants later this spring.

Our mutual funds achieved record assets under management closing the year at $970 million. Our five-star SMidCap and five-star Income Opportunity Fund have seen significant inflows with SMid more than doubling in size over the past year and Income Opportunity assets up more than 50% over the past year.

And I want to specifically recognize Ragen Stienke and Mark Freeman along with all the members of those product teams for their terrific performance over the past several years and to our marketing and business management teams for getting the funds into the defined contribution channel and on to over 100 mutual fund platforms.

Westwood Trust customers were pleased with their results last year as our enhanced balanced strategy [returned over] 13% while taking significantly less risk than the broader equity market. Marketing activity has been at a high level of Westwood Trust over the past year, but prospective customers have been resonant to make any changes.

With the recent strength of the equity markets, we're pleased to see that money is in motion again. Congratulations to the entire team for some new account wins to start out the new year. If history repeats itself we may see existing customers adding to their accounts on the heels of the positive investment experience.

The Westwood Trust Omaha branch was officially approved by the Texas Department of Banking and the integration is going smoothly. More importantly clients are excited to be a part of Westwood and we received a 99% positive consent from the McCarthy customers, which is a true testament to the strength of the client relationships in Omaha.

There are many opportunities surfacing to leverage the scale and national brand that Westwood brings to the table. And we've recently begun supporting their marketing efforts to introduce new prospective customers in the Omaha area to Westwood. We're excited about the asset growth potential of the Omaha private wealth market and even more excited about the quality of our Omaha team.

Our five-person corporate development team continues to meet each week to scout for acquisition opportunities. After the closing of our Omaha transaction, we've noted a heightened level of interest from the investment banking community to show us new ideas. They have noted that our status as a public company has a distinct advantage as it allows potential sellers to research our public filings and become comfortable with Westwood during the discovery process. Later, if a transaction ensues they are more likely to want to become shareholders of WHG, instilling a continuum of ownership for founders and employees to maintain the partnership feeling that allows everyone to focus on the long-term health of the firm just as it is done with our own employees.

Our main priorities in corporate development includes continuing to identify mutual fund assets at our WHG Funds Group, identifying further ways to expand our private wealth reach geographically and to exciting growing new markets as we did with the McCarthy Group purchase and continuing to look for unique opportunities to introduce new products to our clients and consultants.

As owners, we intend to keep a very disciplined focus on funds or firms that leverage the deep research department that we've built over the last 10 years and most importantly share a complementary culture of business ethics and client focus. As we prepare for our next leg of growth, we continue to invest in our business. We upgraded our trading area and added three experienced analysts to our research department.

We added a very senior Westwood Trust asset gathering and relationship manager with the addition of Gregg Ballew. We are very pleased to add Martin Weiland to our Board of Directors. As you may recall from our recent press release, Martin was the former CEO of Northern Trust Texas and was the colleague of both Gregg Ballew and Dick Frazar. Martin brings a wealth of experience and deep relationships, we are so pleased to have him on our Board of Directors.

We have extended and expanded our (inaudible) and we are pleased to have negotiated very favorable terms for the next 10 years. We are upgrading our technology platform and reinventing our website later this year. All these expenditures are designed to support what we hope will be a significant growth in assets in the years ahead. We are as excited as ever about our business and the opportunities that lie ahead.

I'll be available at the end of the call to answer your questions and I'll turn it over now to Bill to discuss our financials.

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.

As you know, we completed the acquisition of McCarthy Group Advisors in mid-November for a combination of cash and stock totaling approximately $12 million. Our 2010 financial results include approximately one and a half months of results from the acquired business.

For the fourth quarter 2010, our total revenues were $15.4 million compared to $12.7 million in the fourth quarter 2009. For the full-year 2010, our total revenues were $55.3 million compared to $42.6 million in 2009. Comparing full-year 2010 revenue versus 2009, advisory fees increased by 33% as a result of increased average assets under management primarily due to market appreciation.

Advisory fees from assets acquired in the McCarthy transaction were approximately $540,000 from mid-November through December. Trust fees increased 17% as a result of increased assets under management primarily due to market appreciation.

GAAP net income for the fourth quarter 2010 was $3.3 million compared to $2.7 million for the fourth quarter of 2009 and $11.3 million for the full-year 2010 compared to $7.9 million for 2009. GAAP EPS was $0.46 per diluted share for the fourth quarter and $1.58 for the full-year 2010 versus $0.38 and $1.09 for the fourth quarter and full-year 2009 respectively.

Economic earnings for the fourth quarter 2010 were $5.7 million compared to $4.7 million for the fourth quarter 2009 and full-year 2010 economic earnings were $20.8 million compared to $15.6 million for 2009.

Total expenses for the fourth quarter and full-year 2010 were $10.3 million and $37.6 million compared to $8.4 million and $30.2 million for the fourth quarter and full-year 2009 respectively. Economic expenses were $28.2 million for the full-year 2010 compared to $22.6 million for 2009. The primary drivers of the increase in total GAAP expenses for 2010 compared to 2009 were as follows.

Incentive compensation expense increased by approximately $2.6 million primarily due to a significant increase in pre-tax income. Non-cash restricted stock expense increased by approximately $1.6 million. We also incurred approximately $465,000 in professional services and legal expenses related to the McCarthy acquisition and reorganization of the McCarthy Multi-Cap Stock Fund into the WHG Dividend Growth Fund.

Assets under management were $12.5 billion as of December 31, 2010, compared to $10.2 billion at December 31, 2009. Average assets under management for 2010 were $10.7 billion, compared with $8.5 billion for 2009. The year-over-year increase in assets under management was due to market appreciation and the acquisition of $1.1 billion in assets in the McCarthy transaction. Assets under management of the mutual funds that we advise, which includes the five WHG funds and the McCarthy Multi-Cap Stock Fund were $970 million at December 31, 2010, compared to $566 million at December 31, 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 the McCarthy Fund assets in November 2010.

Also today, our Board of Directors approved the payment of a quarterly cash dividend of $0.35 per share, representing an increase from the previous quarterly dividend rate of $0.33 per share. The dividend is payable April 1, 2011, to shareholders of record on March 15, 2011.The new quarterly dividend of $0.35 per share or an annual rate of $1.40 per share results in a dividend yield at today's closing price of 3.9%.

As I mentioned earlier, we have again prepared a few slides to review with you. And again the slides are available on our website. The first slide includes a bar graph with our assets under management over the last five years as well as a line graph comparing the growth of our assets over this time frame to the value of the S&P 500 Index.

From year-end 2005, our AUM has increased from just under $5 billion to $12.5 billion, a compound annual growth rate of 20%, while the market, as represented by the price level of the S&P 500 has had a cumulative increase of just 1%.

The second slide is a bar graph with our quarterly asset-based fee revenue and a line graph of the S&P 500 over the same time period. In the fourth quarter 2005, our asset-based fee revenue was just under $6 million and in the fourth quarter 2010 was over $15 million. Again, this growth was achieved against the backdrop of a flat market environment over this period.

The third slide is a bar graph showing economic earnings, total dividends paid, and the growth in cash and investments on our balance sheet from 2005 to 2010. Cash and investments grew from [under] $20 million at year-end 2005 to $43.6 million at the end of 2010. In 2010, we paid out $12 million in dividends to shareholders and also paid $5 million as the cash component of the McCarthy transaction and our cash and investments still increased year-over-year.

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

Thanks, Bill. Great job. If anybody has any questions, if they wan to press 1 on their phones we'll be happy to answer them.

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

Okay. We want to thank everybody for their time today. And if you have any questions for Bill or for me, please feel free to call us. You can find all of our information on the website and all of our quarterly filings. We'll be happy to talk to you. Appreciate your time. Have a great day.

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