Westwood Holdings Group Inc (WHG) 2013 Q2 法說會逐字稿

Thank you all for holding, and welcome to the Westwood Holdings Group second-quarter 2013 earnings conference call. Today's call will begin with a presentation followed by a question-and-answer session. Instructions on that feature will begin later in the program. I would now like to turn the call over to your host for today's conference, Sylvia Fry, Senior Vice President and Chief Compliance Officer. Ms. Fry, your line is now open.

Thank you. Welcome everyone to our second-quarter 2013 earnings conference call. I would 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, 2012, 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 economic earnings and economic earnings per share 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 Mark Wallace our Chief Financial Officer. I will now turn the call over to Brian Casey, our CEO.

Thanks Sylvia, and thanks to everyone for joining our call today. We appreciate you being with us. We were pleased to report record assets under management and earnings for the second quarter. And more importantly, we delivered exceptional performance for our domestic clients. Though our SMid product underperformed our peers, all of our other domestic products performed well versus the benchmark indices and our competitors. Notably, our flagship LargeCap product showed significant improvement from last quarter by performing in the top third of its LargeCap peer group. SmallCap continued a strong run of performance and is solidly in the top decile year-to-date, besting the Russell 2000 value by over 800 basis points through yesterday.

MLP had an exceptional quarter, earning a $2.5 million performance fee for the one-year period ending June 30 and performing in the top quartile year-to-date. The Income Opportunity Fund performed steadily for our clients during the quarter and is just outside the top decile year to date. Our global and emerging markets products were affected by worldwide macroeconomic events and the selling pressure that ensued around the world. This is of little concern, as the portfolios are designed for long-term investors, as we will often own companies for five to seven years in those portfolios. Valuations are even more compelling, and the recent selloff has created an excellent buying opportunity for patient investors. The Westwood International Advisors team continues to expand with the addition of an experienced and talented global technology and telecom analyst, as well as a veteran global trader. The two additional hires are expected later this year as we move to new offices early this fall.

Asset flows were positive for the quarter, and we expect more to come in the second half. We were pleased to gain our first institutional clients in the Australian and Middle East markets, which further strengthens our market position to grow our institutional business, with particular emphasis on SmallCap, MLP, income opportunity, and emerging market strategies. While interest has been strongest recently for our Income Opportunity and emerging markets strategies, we are in the RFP, or final selection stages, for all four products.

The Westwood funds had a record performance in the second quarter. The Westwood funds matched the highest level of inflows in our history, and total assets exceeded $2 billion for the first time. The five-star Income Opportunity Fund, WHGIX, had over $180 million in inflows during the quarter. We've been calling directly on a select number of broker-dealers to develop relationships and are beginning to see study results. This, of course, will take time, as we are competing against large sales forces from the big-brand fund companies. But we believe we have a compelling narrative and will see measured progress over time.

We continue to experience positive inflows in our partnership with National Bank of Canada, as their sales team has been actively working with advisers across Canada to introduce Westwood and familiarize the Canadian markets with the available Westwood National Bank Fund. Since the onset of our partnership, the fund's assets have more than doubled to more than $450 million through yesterday.

Another exciting development this quarter with respect to funds was the approval of our first use of funds for global distribution. We were approved by the Central Bank of Ireland a few weeks ago and will launch the fund with three new clients on July 31. Initial assets will be more than $500 million and will fund in several tranches over the next few months. The clients were referred to Westwood by a London-based consulting firm in need of a UCITS emerging-market strategy. We have been working diligently to create the fund, have established a Board of Directors, as well as selected several non-US professional firms to assist in the ongoing administration and distribution of the fund. We expect the fund to be very profitable as well is a good entree into the UK and broader European market for a variety of our strategies. We'll continue to develop our brand in international markets thoughtfully, where we see opportunities and are convinced that the launch of our UCITS platform will assist in this regard.

Our private wealth business, Westwood Trust, continues to grow in both Dallas and Omaha. The clients are pleased with the current strength of the market, but they are skeptical that it will continue. Most believe that bonds are a bad investment, but they're concerned about replacing income. So we recently hired Brandywine to manage a global fixed-income portfolio for our Westwood Trust clients, which has improved their overall yield and broadened their opportunity set.

We have a strong brand and a unique business, where we offer private wealth customers a customized portfolio, attentive personal service, and attractive fees. We need more professionals telling our story, and we've engaged a recruiter for both Dallas and Omaha in search of new business development talent. We are pleased with the quality of the introductions we've seen, and we are encouraged with the prospects of adding two to three private wealth professionals before year end.

We continue to evaluate opportunities to expand our Company through acquisitions of innovative products or strong private wealth markets. Attractive private wealth opportunities are hard to find, and they are slow to develop. But we feel that we are an ideal partner to business owners that want to join a Company with a strong brand name, liquidity in a publicly traded stock, and an entrepreneurial culture that respects the desire of private wealth managers to do what they do best -- namely, serve clients and attract new ones. We are always looking for ways to improve our model, but we remain convinced of its utility and profitability. We thus continue to remain patient, and we are committed to utilizing our corporate capital in a shareholder-friendly way.

Thanks for being a Westwood Holdings Group shareholder. I'll turn the call now over to Mark Wallace and stay on the line if you have questions at the end.

Thanks Brian, and good afternoon everyone. We reported a 17% revenue increase this quarter to $23.5 million, compared to $20.1 million in both the second quarter of last year and the first quarter of 2013. Compared to 2012, asset-based advisory fees for the second quarter were up 17% to $16.5 million, with trustees up 21% to $4.6 million. Sequentially, asset-based advisory fees were up 6%, while trustees were up 8%. Revenues this quarter were primarily driven by a $2.5 million performance fee related to our MLP strategy. That inflows into our income opportunity and emerging-market strategy, strengthen the US equity markets partially offset by withdrawals on the rebalancing from certain clients.

In comparison, the second quarter of 2012 included a nonrecurring gain of approximately $900,000 from the sale of 100,000 shares of Teton Advisors and 1.4 million of recruiting costs to the hiring of the Westwood International team. Longer-term trends in revenues and assets under management are included in the slides we post -- we posted today on the investor relations section of our website. We encourage you to review that information, which reflects a compound annual growth rate over the past five years exceeding 15% in both assets under management and recurring fee revenue.

Westwood International contributed $1.7 million to revenue in the second quarter, or $1.9 million of related costs. With net inflows this year exceeding $700 million, our Canadian operations turned solidly profitable during the second quarter. And we expect Westwood International's contribution to continue to grow, especially as assets flow into our new-usage fund that Brian mentioned.

Economic EPS of $1.07 was 48% higher than the $0.72 we reported in the same quarter of 2012, while GAAP EPS was $0.65 per diluted share versus $0.30 for the second quarter of 2012, more than double the year-ago period. Our balance sheet continues to be in great shape. We finished the quarter with $58 million in cash equivalents and investments, $79 million of stockholders equity, and no debt. Today, our Board of Directors approved a quarterly cash dividend of $0.40 per share payable on October 1; to shareholders of record on September 13. Annual rate of $1.60 per share represents a dividend yield of 3.4% at yesterday's closing price.

Last, you'll notice that we added sequential financial information to our press release this quarter to enhance our disclosures and will continue to make improvements as we go forward. As always, we welcome your suggestions. And with that, I'll turn the call back over to Brian.

Thanks Mark. Great job. If anybody has any questions, they'll hit star one.

(operator instructions). Mac Sykes, Gabelli and Company.

Congratulations on the great news this quarter, especially the launch of that Ireland (inaudible) UCITS. It's terrific. And thanks for giving me the color on the AUM for that. Just how should we think about that fee rate from that impacting your overall fee rate at the firm?

From the UCITS?

Correct.

Our average fee for the firm now is in the high 50s. I would say, to guess, Mark, 57 basis points. Would that be fair?

I think that's right.

And you can expect that the UCITS fee will be higher than our current average fee of 57.

Great, thank you very much.

At this time, I'm showing no further questions. I'll remind everyone again (operator instructions). There appear to be no further questions.

Okay. Well, if you have any questions, press star one. If not, we appreciate you listening to our call today. Please visit WestwoodGroup.com, where you can see all of our filings and more information about our firm. If you have any additional questions, please feel free to call me or Mark Wallace at any time. We appreciate your time. Thanks very much.

Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may all disconnect.