Westwood Holdings Group, Inc. Reports Fourth Quarter and 2012 Results

Westwood Holdings Group, Inc. Reports Fourth Quarter and 2012 Results

Quarterly Revenues Increase 21% Year-over-Year;

Assets Under Management Increase to Record $14.2 Billion


DALLAS--(BUSINESS WIRE)-- Westwood Holdings Group, Inc. (NYSE: WHG) today reported 2012 fourth quarter revenues of $20.6 million, a 21.4% increase compared to revenues of $17.0 million in the same period of 2011. Economic Earnings were $6.6 million in the fourth quarter of 2012 compared to $6.7 million for the last quarter of 2011. Economic Earnings per share ("Economic EPS") were $0.89 in the fourth quarter of 2012 compared to $0.92 in the last quarter of 2011. Diluted earnings per share for the fourth quarter of 2012 were $0.49 compared to $0.57 in the same period in 2011. Net income in the fourth quarter of 2012 was $3.6 million compared to $4.1 million in the prior year period.

Westwood's 2012 fourth quarter results include a pre-tax gain of $1.0 million related to the sale of 100,000 shares of Teton Advisors. Fourth quarter 2012 costs continued to reflect our significant up-front investment in Westwood International Advisors, Inc. ("WIA"), our Toronto-based subsidiary launched in mid-2012. WIA costs aggregated $3.0 million in the fourth quarter of 2012 while revenues totaled less than $2 million. Excluding WIA related items, fourth quarter Economic EPS and diluted earnings per share would have been $1.05 and $0.64, respectively.

Brian Casey, Westwood's President & CEO, commented, "We are very pleased with our fourth quarter results which provided an excellent finish to a successful year for Westwood. WIA's Emerging Markets and Global Equity strategies have experienced strong demand with assets under management now approaching $1 billion, and WIA has built a robust pipeline of prospective new customers. We are confident that WIA offers attractive investment opportunities and will drive significant long term growth for Westwood. We experienced significant cash inflows to our Income Opportunity strategy last year, and benefited from improved equity markets. Income Opportunity recently completed its 10 year track record finishing in the top decile of its peer group. Our strong financial position enables us to continue to make disciplined investments that enhance client service and grow our platform. At December 31, 2012 Westwood had over $63.7 million of cash and investments, with stockholders' equity of $76.5 million and no debt."

Aggregate assets under management reached a record $14.2 billion as of December 31, 2012, an increase of 8.3% compared to $13.1 billion as of December 31, 2011. The increase was primarily due to market appreciation and asset inflows from new and existing clients which were partially offset by withdrawals of assets by certain clients. Mutual fund assets, now comprising ten Westwood Funds, stood at $1.6 billion as of December 31, 2012, an increase of 24% compared to $1.3 billion as of December 31, 2011. As of December 31, 2012, WIA had total assets under management of $888 million.

For the 2012 full year, Westwood reported revenues of $77.5 million, an increase of 12.5% compared to 2011 revenues of $68.9 million. Our 2012 full year results include a pre-tax gain of $1.9 million related to the sale of 200,000 shares of Teton Advisors. Economic EPS for 2012 was $3.17 compared to $3.52 for 2011, while diluted earnings per share for 2012 were $1.65 compared to $2.04 for 2011.

Total expenses for the fourth quarter of 2012 were $14.8 million compared with $10.7 million in the same quarter of 2011, while Economic Expenses were $11.8 million compared with $8.2 million for the fourth quarter of 2011. Full year 2012 results include WIA related costs of $10.3 million while WIA contributed less than $2 million in revenue. WIA costs include one-time recruiting related fees of $1.4 million. Excluding WIA related items, full year 2012 Economic EPS and diluted earnings per share would have been $3.98 and $2.46 respectively.

Westwood's Board of Directors declared a quarterly cash dividend of $0.40 per common share, payable on April 1, 2013 to stockholders of record on March 15, 2013.

Economic Earnings, Economic EPS, and Economic Expenses are non-GAAP performance measures and are explained and reconciled with the most comparable GAAP numbers in the attached tables.

Westwood will host a conference call to discuss 2012 results and other business updates at 4:30 p.m. Eastern time today. To join the conference call, dial 866-548-2699 (domestic) or 904-271-2009 (international). The conference call can also be accessed via our Investor Relations page at westwoodgroup.com and will be available for replay through February 14 by dialing 888-284-7564 (domestic) or 904-596-3174 (international) and entering passcode 2973091.

About Westwood

Westwood Holdings Group, Inc. provides investment management services to institutional investors, private wealth clients and financial intermediaries. Westwood manages a variety of investment strategies including U.S., Global, and Emerging Markets equities as well as income-oriented portfolios. Access to these strategies is available through separate accounts, commingled funds and the Westwood FundsTM family of mutual funds. Westwood has significant, broad-based employee ownership and trades on the New York Stock Exchange under the symbol "WHG." Based in Dallas, Westwood also has offices in Omaha and Toronto.

For more information on Westwood, please visit www.westwoodgroup.com.

For more information on the Westwood Funds, please visit www.westwoodfunds.com.

Forward-looking Statements

Statements in this press release that are not purely historical facts, including statements about our expected future financial position, results of operations or cash flows, as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend," "should," "could," "goal," "target," "designed," "on track," "comfortable with," "optimistic" and other similar expressions, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results and the timing of some events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, without limitation: our ability to identify and successfully market services that appeal to our customers; the significant concentration of our revenues among a few customers; our relationships with investment consulting firms; our relationships with current and potential customers; our ability to retain qualified personnel; our ability to successfully develop and market new asset classes; our ability to maintain our fee structure in light of competitive fee pressures; competition in the marketplace; downturns in the financial markets; new legislation adversely affecting the financial services industries; interest rates; changes in our effective tax rate; our ability to maintain an effective system of internal controls; and the other risks detailed from time to time in Westwood's SEC filings, including but not limited to, its annual report on Form 10-K for the year ended December 31, 2011 and its quarterly report on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2012. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, Westwood is not obligated to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

Three months ended

Year ended

December 31,

December 31,

2012

2011

2012

2011

REVENUES:

Advisory fees

Asset-based

$

15,259

$

13,212

$

57,936

$

54,246

Performance-based

-

-

1,251

991

Trust fees

4,026

3,156

14,969

13,453

Other revenues, net

1,339

625

3,339

219

Total revenues

20,624

16,993

77,495

68,909

EXPENSES:

Employee compensation and benefits

11,496

7,997

43,692

35,081

Sales and marketing

309

328

1,132

994

WHG mutual funds

377

267

1,153

790

Information technology

681

551

2,555

2,054

Professional services

739

543

4,420

2,981

General and administrative

1,163

1,030

4,517

3,900

Total expenses

14,765

10,716

57,469

45,800

Income before income taxes

5,859

6,277

20,026

23,109

Provision for income taxes

2,256

2,160

7,936

8,423

Net income

$

3,603

$

4,117

$

12,090

$

14,686

Other comprehensive income:

Available-for-sale investments:

Change in unrealized gain on investment securities

361

297

(40

)

1,014

Less: reclassification adjustment for net gains included in earnings

(992

)

-

(1,900

)

-

Net change (net of income taxes of $(344), $174, $(1,058) and $560, respectively)

(631

)

297

(1,940

)

1,014

Foreign currency translation adjustments

(30

)

-

30

-

Other comprehensive income

(661

)

297

(1,910

)

1,014

Total comprehensive income

$

2,942

$

4,414

$

10,180

$

15,700

Earnings per share:

Basic

$

0.50

$

0.59

$

1.69

$

2.11

Diluted

$

0.49

$

0.57

$

1.65

$

2.04

Weighted average shares outstanding:

Basic

7,166,020

6,950,779

7,145,701

6,970,382

Diluted

7,424,890

7,211,526

7,338,104

7,208,515

Economic Earnings

$

6,627

$

6,656

$

23,231

$

25,342

Economic EPS

$

.89

$

.92

$

3.17

$

3.52

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of December 31, 2012 and 2011

(in thousands, except par value and share amounts)

2012

2011

ASSETS

Current Assets:

Cash and cash equivalents

$

3,817

$

5,264

Accounts receivable

8,920

7,707

Investments, at fair value

59,906

54,868

Deferred income taxes

3,362

3,142

Other current assets

1,365

1,501

Total current assets

77,370

72,482

Goodwill

11,255

11,255

Deferred income taxes

1,696

-

Intangible assets, net

4,149

4,621

Property and equipment, net of accumulated depreciation of $1,747 and $1,647

2,145

2,239

Total assets

$

96,615

$

90,597

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable and accrued liabilities

$

1,636

$

1,674

Dividends payable

1,201

3,074

Compensation and benefits payable

14,537

12,677

Income taxes payable

1,438

85

Other current liabilities

14

13

Total current liabilities

18,826

17,523

Deferred income taxes

-

969

Deferred rent

1,238

1,348

Total long-term liabilities

1,238

2,317

Total liabilities

20,064

19,840

Stockholders' Equity:

Common stock, $0.01 par value, authorized 25,000,000 shares, issued 8,526,598 and outstanding 8,031,045 shares at December 31, 2012; issued 8,105,018 and outstanding 7,707,189 shares at December 31, 2011

85

81

Additional paid-in capital

88,483

76,969

Treasury stock, at cost - 495,553 shares at December 31, 2012; 397,829 shares at December 31, 2011

(18,502

)

(14,706

)

Accumulated other comprehensive income

30

1,940

Retained earnings

6,455

6,473

Total stockholders' equity

76,551

70,757

Total liabilities and stockholders' equity

$

96,615

$

90,597

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

2012

2011

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

12,090

$

14,686

Adjustments to reconcile net income to net cash provided by operating activities, net of business combinations:

Depreciation

349

264

Amortiz