Westwood Holdings Group Inc (WHG) 2014 Q1 法說會逐字稿

Thank you all for holding, and welcome to the Westwood Holdings Group first-quarter 2014 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. Good afternoon and welcome to our 2014 first-quarter 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 statement. Additional information concerning the factors that could cause such a difference is included in our press release which will be issued later today as well as in our annual report on Form 10-K for the year ended December 31, 2013 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 economic earnings and economic earnings-per-share to the most comparable GAAP measures will be included at the end of our press release which will be issued later today.

On the call today, we will have Brian Casey, our Chief Executive Officer, and Mark Wallace, our Chief Financial Officer. I would like to now turn the call over to Brian Casey, our CEO.

Thanks, Sylvia, and good afternoon everyone. We've had a little bit of a difficulty getting our earnings out today, and we apologize for that. They should be out momentarily and we will let you know just as soon as they come out.

We had a great quarter, and more importantly, we celebrated on April 1 our 31st year in business as Westwood Management. At the conclusion of this quarter, we will complete our 12 year as a public company, Westwood Holdings Group. When Westwood Holdings Group became a public company in 2002, we were essentially a niche investment management firm focused on US value equity investing, along with a small but growing trust company. Today, Westwood offers a diverse range of institutional investment strategies and an array of investment platforms, including our Westwood Funds family, our Ireland domiciled UCITS Fund, and a much larger trust business. We serve a rapidly growing non-US client base that now represents more than 10% of our assets under management.

Westwood International Advisors, known as WIA, more than doubled its assets under management in its first full year of operation. We attracted new clients in Europe and Australia and explored opportunities in select non-US markets. Last year, we grew our core US institutional business and generated a 50% organic growth rate in assets in the Westwood Funds family of mutual funds.

We would like to take a moment to thank our clients, stockholders, and employees, many of whom have been with us from the beginning, for their continued support. We appreciate your confidence in Westwood, our disciplined approach to investing, and our growth potential. We will continue our work in 2014 to deliver value to all of our stakeholders through focused growth.

Our domestic strategies began on a decidedly positive note with each strategy registering a gain for the first quarter. Relative performance was also very encouraging as most strategies either matched or outperformed their respective benchmarks. As fundamental investors, we were pleased to see that the vast majority of our portfolio holdings reported strong earnings in the first quarter. We are confident that fundamentals will play an even more significant role in the market going forward.

Our MLP strategy continued its long-term run of strong performance with a gain of almost 5% in the first quarter and well ahead of its benchmark. Our income opportunity strategy also delivered impressive performance in what was a volatile market environment, returning approximately 3% for the period. Westwood's sMidCap and sMidCap Plus strategies posted strong relative and peer results and our sMid Plus Fund completed a three-year record and we are excited about its prospects for growth.

In January, our Large-Cap value strategy once again outperformed in a down market but was not able to keep up with the ensuing rally as the quarter progressed. While the strategy outperformed the S&P 500, we slightly trailed the Russell 1000 benchmark for the first quarter but remain ahead of the index on a one-year trailing basis. We look for relative performance to continue to improve as the market becomes increasingly focused on company fundamentals.

If we look back over three decades of performance history for our large-cap products, it is clear that our best performance is earned as the business cycle matures and the market begins to seek out companies with the best fundamentals. This is an environment when solid fundamental research is rewarded and we intend to capitalize on it. After an exceptional year in 2013, our small-cap strategy underperformed in the first quarter but continues to rank well in the top quartile on both a one and three-year basis.

Westwood International Advisors turned in an impressive quarter with top quartile performance in the EM and EM Plus strategies as concerns over QE tapering and growth eased in several key markets. Most encouraging where the improved results from our portfolio holdings. The WIA philosophy is aligned with that of a long-term investor who will hold the company for five or more years and it is great to see the hard work and fundamental analysis being recognized by the market.

Our WIA team remains focused on their research with over 50 company visits throughout Asia and Latin America during the first quarter. Several members of the team attended industry conferences and closed out a very busy but productive research effort for the quarter.

Members of the WIA team also continued to engage with clients and prospects during the quarter, including on-site prospect meetings in Boston and London. The pipeline for new business opportunities remains strong and we hope to finalize some significant mandates later this year.

We continue to support our growing customer base with the addition of an experienced operations analyst, and we are pleased to welcome Nancy Bye as the newest member of the WIA team of 14 professionals.

In the institutional marketing area, we had a slow start to the year as many institutional investors enjoyed strong returns in 2013. As we moved through the quarter, however, we saw conditions improve with search activity accelerating. We finished the first quarter with many promising developments, most in relation to our small-cap and income opportunity strategies.

Our optimism has also been reinforced by the continued interest in our MLP infrastructure renewal strategy which has performed well since its launch over a decade ago. Last year, we developed a commingled fund that provides qualified retirement assets with a vehicle that alleviates much of the administrative burden associated with investing in MLPs.

We also launched a second MLP strategy during the first quarter of 2014 called MLP Opportunities. This new strategy provides investors with an alternative way of managing the concentration risk within MLP indices and is also available as a commingled fund.

As we look to the second quarter, we have received invitations to a number of finals, and are engaged in multiple invitation-only searches. Given our historical track record of closing nearly two out of every three finals presentation, we are confident that we will earn additional clients in the months ahead.

We continue to build out our institutional distribution and we are pleased to welcome Ciaran Spillane as the newest member of the institutional sales team. Ciaran will be based in the Northeast and will be devoted to selling directly to the plan sponsor community, allowing us to improve our visibility in the marketplace and provide us with another avenue to grow, complementing our existing efforts towards consulting relations. We hope to finalize the hiring of one more institutional salesperson in the second quarter that will be based on the West Coast.

The Westwood Funds surpassed $3 billion in total assets in the first quarter. The income opportunity fund continues to garner additional flows and it was nice to see significant flows to our sMid Plus and short duration high-yield funds. The sMid Plus fund has completed a three-year record and the short duration high-yield fund will complete three years at the end of this calendar year. Achieving a competitive three-year performance record is critical, and the next meaningful milestone is to reach $100 million in assets per fund.

We are pleased to note that sMid Plus and small-cap are just shy of $100 million in assets while the short duration high-yield fund has exceeded $175 million in total assets. While the short duration high-yield fund category is not well known, it is an attractive strategy in a volatile or rising interest rate environment as the duration is much shorter than a traditional high-yield fund.

It has been an exciting quarter for our UCITS Fund. we added two new relationships to the Fund, a Canadian pension fund for $27 million and a Dutch private bank which was approximately $100 million. While the Dutch private bank's additional investment comes from their high net worth clients, there is potential for the bank's institutional clients to invest in the fund at some point in the future.

We are very encouraged to have reached $742 million in assets under management for our UCITS business in less than eight months. As we broaden our marketing efforts, we hope to have opportunities to expand the UCITS product set to include additional global or domestic strategies. We see a bright future for our UCITS business. As the expense of building the platform is now behind us, the incremental cost to opening new strategies is low and the operating leverage on incremental inflows is significant.

Westwood Trust saw activity accelerate during the first quarter, which generated substantial levels of client prospects and related professional networking. Trust clients are tuned into market returns and required much more focused attention during the first quarter. Taxes for wealthy individuals are much higher across the board and it's just now getting home as the checks to the U.S. Treasury are written by individuals. Despite all of these obstacles, the Westwood Trust team generated $73 million in new client assets for the quarter, continuing the trend of solid growth based on the combination of great client service and solid investment performance. Net cash flow, however, was negative for the quarter as certain single product clients withdrew funds to rebalance portfolios.

We are pleased to welcome Kristie Leatherberry, who was higher during the quarter to lead new business development efforts in Dallas. Kristie comes to us with extensive experience, having spearheaded the growth of the Park Cities Texas office of a regional brokerage firm. It was the best-performing branch in their system in 2012. We look forward to her contribution as she builds out and leads the private wealth sales efforts for the Dallas office.

In the area of marketing and branding, we produced several quality thought leadership pieces, including an analysis of the EM economic issues that impacted investor confidence in January, a video and written piece on the attractiveness of small-cap value stocks, and a piece on the opportunities available in the US healthcare sector today. An ongoing key objective is to increase the Firm's profile in the community through more proactive PR opportunities. Plans include providing insights on the current state of the US energy industry, producing a video that outlines our views on Federal Reserve policy and the interest rate environment, and distributing a primer on EM sMidCap investing. Be on the lookout for commentary from a number of the Westwood thought leaders participating in key media outlets such as CNBC and Bloomberg Television.

Finally, we will launch an updated and upgraded website. All of this is a part of a larger effort to improve the visibility of the brand. Westwood has a compelling story, and we are committed to sharing it.

On the corporate development front, we have continued to actively evaluate opportunities to expand our company through the acquisition of private wealth companies in strong geographic markets. We feel that our private wealth business is a strong diversifier of our overall company as our superior client service efforts have led to loyal long-term customers and relationships.

We are evaluating a number of established private wealth firms as business acquisition candidates. We are interested in firms with a strong reputation and client base that enables us to expand our geographic reach into strategic markets in which we currently do not have a presence. Although the acquisition marketplace is a competitive one, we feel that we are an ideal partner to business owners that want to continue to grow their business while partnering with a company with a trusted reputation, a long history of customer satisfaction, and a liquid publicly traded stock. Attractive private wealth firm acquisitions that fit well with our culture and business are difficult to find and they require a long lead time in order to develop into merger opportunities. We are always looking for ways to improve our private wealth management model, but we remain convinced of its value and profitability. We continue to remain patient and thoughtful in locating opportunities to grow our company in the future and will always use our corporate capital in a shareholder friendly way.

I will now turn the call over to Mark Wallace and will remain on the line to take your questions at the conclusion of Mark's remarks.

Thanks, Brian, and good afternoon everyone.

Today, we reported solid financial results for the first quarter of 2014. Revenues were up 29% to $25.9 million from the same period in 2013. Diluted earnings per share for the quarter at $0.75 was 97% higher than last year and economic EPS was up 54% to $1.17.

Firm-wide assets under management increased to over $19 billion. Net inflows were concentrated in our emerging markets, MLP, and short duration high-yield strategies, while large-cap experienced outflows due to rebalancing from existing clients. Institutional assets under management at quarter end were $12.1 billion, representing 63% of total AUM. Private wealth now stands at $4 billion, or 21%, and mutual funds at $3 billion, or 16% of total AUM. Westwood International strategies now comprise over 14% of our total assets under management with clients diversified across multiple countries.

Our balance sheet continues to be in great shape, allowing us to continue to invest in our business. Cash and investments at quarter end were $63 million, up $9 million from the first quarter of last year, and we continue to be debt-free.

Today, our mortgage directors approved a quarterly cash dividend of $0.44 per share payable on July 1 to stockholders of record on June 13. This represents an annualized dividend yield of 3% at yesterday's closing price. We encourage you to review the presentation posted on our website which reflects first-quarter highlights and longer-term trends.

Over the past five years, we have achieved a compound annual growth rate exceeding 21% in AUM, net inflows of over $1 billion, a strong rate of internal growth in earnings per share on both a GAAP and economic basis, and consistent growth in dividends for shareholders.

Last, I want to again express our appreciation for your support at our annual shareholder meeting today and your continued interest in Westwood. I will now turn the call back over to Brian.

Thanks, Mark. If anybody has any questions, we'd be happy to try to answer them.

(Operator Instructions). And pardon me, speakers, I am not showing any questions in the queue.

Okay, very good. Well, we apologize again for the delay in getting the earnings out. I didn't realize they were so backed up. But if you haven't had a lot of time to take a look, the earnings were terrific and our business is doing really well. So if you have any questions after you have had a chance to digest the first-quarter 10-Q, please give me a call. You can always visit our Westwood Group website for more information in our filings.

Thanks for your time, and we appreciate it.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect.