Westwood Holdings Group Inc (WHG) 2011 Q1 法說會逐字稿

Thank you all for holding. Welcome to the Westwood Holdings Group first quarter 2011 earnings conference call. Today's call will begin with the 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 first quarter 2011 earnings conference call. I would like to start the call 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, 2010 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 the place undue reliance on forward-looking statements. In addition in accordance with SEC rules concerning non-GAAP financial measures the reconciliation of our economic earnings, economic earnings per share, and economic expenses to the most comparable GAAP measures is included at the end of our press release issued earlier today.

On the call 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. And thanks to all of you for joining our call. It is nice to see a strong market today, and we are pleased to record assets under management and revenues for the first quarter. We also recently celebrated our 28th year in business, and I would like to take a minute to thank all of our owner employees for the terrific work that they do for our clients and shareholders. You make a meaningful difference in the lives of our customers, and we do not thank you enough for the great things that you do every day.

The market continued to advance in the first quarter, and our performance was ahead of the benchmarks for most Westwood products. Peer comparisons were also favorable with several products in the top quartile and most of the others in the top half. As a reminder, all of our performance is available in the commercially available databases or in Morningstar for those products where we offer mutual funds.

Institutional marketing activity has improved with a number of opportunities identified over the last several months. Interest has picked up specifically for the income and MLP products, and we have a number of searches in the pipeline. We closed our highly successful product SMid product to new investors some time ago, and we introduced SMid Plus last summer. The SMid Plus product is off to a great start, with several new clients and commitments for additional funding from existing SMid clients over the next few quarters.

Our All Cap product also had a great quarter, and we are seeing increased search activity for the AllCap asset class. We won a large institutional mandate for AllCap over a year ago, and we remain hopeful that we will be funded over the next quarter. Our mutual funds continue to grow nicely with the five star SMid and Income Opportunity funds seeing nice positive flows on a daily basis.

We also converted the McCarthy MultiCap Fund that we acquired last year to the WHG Dividend Growth Fund. This fund is managed by Rich Jarvis in Omaha, andsupported by our analysts in Dallas. The fund is a four-star fund that will complete a ten-year record later this summer.

We also started the WHG SMid Plus Mutual Fund, and we expect to have some of our existing SMid clients choose to utilize this fund for future cash flows. We now have seven funds in the WHG family, withtotal assets exceeding $1.2 billion. This is an 83% increase over the past year. Westwood Trust started the year with some nice wins, and we have had some excellent opportunities identified on the horizon. Prospective clients are more receptive to investing in the public markets, and we are dedicating a lot of our time to revisiting the pipeline we have been building over the past few years. We have our Westwood Trust spring event on May 5 which is always a great opportunity to reconnect with existing customers and to meet new prospective customers.

Some of our sub advisory partners are beginning to see an increase in flows to their equity products. We completed another are road show about our European partner, and we are beginning to see some positive results. They are recommending US equities to their clients for the first time in quite a while, and it is encouraging to see some strategists calling for US stocks to outperform in the next market cycle. We have a number of projects under way at Westwood to build the foundation for a much larger business. We have upgraded performance vendor, added more depth to our portfolio accounting system, moved to a paperless filing system, and we are working on the redevelopment of our website.

In addition, we are working on a new space plan to increase our productivity and enhance our communication and technology. Our Omaha team has been very busy integrating into Westwood, and we could not be more pleased with the quality of the people and clients. They have a great business and we look forward to finding ways to build on the success and the wonderful reputation they enjoy in the Omaha area. We are hosting an event in Omaha in mid-May for clients, and hope to introduce Westwood to some new prospects in the Omaha area at that time.

Our corporate development team continues to look for acquisitions and we have evaluated a number of mutual fund and private wealth firms over the past several months. So far none of these firms have met our acquisition criteria, but we learn a great deal every time we through the vetting process, which expands our skill set as a team. In closing I would like to thank our long-term shareholders for approving our stock incentive plan today at our Shareholders Meeting. We really appreciate the vote of confidence, and we will remain good stewards of shareholder capital as we strive for excellence in the years ahead.

I will now turn it over to Bill to discuss our financials, and we will be available to answer questions at the end of the call.

Thanks Brian, good afternoon everyone. As you may have seen we filed our 10-Q this afternoon. If you have any questions after reading the 10-Q, feel free to give me a call at the phone number listed on our website. After I review our financials for the 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 Webcasts link.

For the first quarter 2011, our total revenues were $17 million compared to $13.2 million for the first quarter of 2010. Comparing first quarter revenue in 2011 versus 2010 Westwood Management posted a 32% increase in advisory fees as a result of increased average assets under management, due to market appreciation and inflows from new and existing clients. Westwood Trust posted a 12% increase in trust fees as a result of increased assets under management primarily due to market appreciation and inflows from new clients.

GAAP net income for the first quarter 2011 was $3.5 million compared to $2.9 million for the first quarter 2010. GAAP EPS was $0.50 per diluted share for the first quarter 2011, versus $0.40 for the first quarter 2010. Economic earnings for the first quarter 2011 were $6.1 million, compared to $4.9 million for the first quarter 2010. Economic EPS was $0.85 per diluted share for the first quarter 2011, versus $0.74 for the first quarter 2010.

Total expenses for the quarter $11.4 million compared to $8.7 million for the first quarter 2010. Economic expenses were $8.9 million compared to $6.7 million for the first quarter 2010. The primary drivers of the increase in total GAAP expenses for the first quarter 2011 compared to 2010 were as follows, incentive compensation expense increased by approximately $635,000 due to a significant increase in pretax income. Noncash restricted stock expense increased by approximately $493,000 related to additional annual grants in February of 2010 and 2011, as well as the higher market price at which these grants were granted compared to prior grants.

In addition we recognized expense in the first quarter related to the expected vesting of performance based restricted stock for our Chief Investment Officer and Chief Executive Officer, as we have concluded that it is probably that the performance goal for 2011 established by the Compensation Committee will be met. Salary expense increased by approximately $441,000 due primarily to increased head count from the acquisition of McCarthy Group Advisors in November of 2010. Assets under management was a record $13.3 billion as of March 31, 2011, compared to $10.6 billion at March 31, 2010. The year-over-year increase in assets was due to market appreciation, the acquisition of $1.1 billion of client assets in the McCarthy transaction, and inflows from new and existing clients over the past 12 months, partially offset by the withdrawal of assets by certain clients.

Assets under management in the WHG Fund was $1.2 billion at March 31, 2011, compared to $652 million at March 31, 2010. This increase was due to significant net inflows into the funds over the last 12 months as well as market appreciation. Also today our Board of Directors approved the payment of a quarterly cash dividend of $0.35 per share payable on July 1, 2011 to stockholders of record on June 15, 2011. The 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 3.7%.

As I mentioned earlier we have prepared a few slides to review with you. Again, the slides are available on our website. The first slide includes graphs of assets under management by channel over the last five years, as well as a line graph comparing the growth of our AUM over this timeframe to the value of the S&P 500 Index. Over the last five years, our AUM has increased from $5.4 billion to $13.3 billion. 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 2%.

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 last five years. Our asset based fee revenue has grown from $6 million in the first quarter of 2006 to $16.7 million in the first quarter of 2011, representing a Compound Annual Growth Rate of 22%. This graph illustrates the consistent growth in our asset based fee revenue against a back drop of an essentially flat market environment.

The third slide is a bar graph showing economic earnings, total dividends declared, and the growth in cash and liquid investments on our balance sheet for the years 2006 through 2010, as well as year-to-date totals for the first quarter of 2011. Cash and liquid investments grew from $20 million at year end 2006 to $42 million at the end of the first quarter 2011.

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

Thanks, Bill. Great job. And we are available to answer any questions if you have them.

If anybody does have any questions, please press one on your phone. (Operator Instructions). Our first question is from Mac Sykes. Your line is open.

Hi, Brian. Could you just remind us about how much the funding for the AllCap would be? And I think you said the second quarter would be the funding you expect?

Sure. Hey, Mac. I can't disclose the fee but I can tell you it was a matter of public record that we won a nice piece of business from a state retirement fund a year ago.

I am sorry, Brian. Not the fee, the total amount of funding?

That was also not disclosed in the press, other than to say it was a nice win. I would categorize a nice win as anything over $100 million. The fund itself has gone through a number of changes at the executive level, and it has delayed our funding. So I can't promise that we will be funded, but I can certainly say that it looks a lot better than it did six months ago when they went through their CIO change, and their consultant change.

Thanks, Brian.

Sure.

Thank you. (Operator Instructions). And I have no further questions in queue.

Okay. Well, thanks again to everybody for joining our call today. If you have any questions please feel free to contact either me or Bill directly. You can also find all of our filings and information at Westwoodgroup.com. Have a great day.

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