• AUM of $41.4 billion, up 6.8% year over year
  • Pretax profits of $40.1 million
  • First Quarter Earnings of $0.82 per diluted share

GAMCO Investors, Inc. (“GAMCO”) (NYSE:GBL) today reported financial results for the first quarter including revenues of $85.9 million, net income of $24.8 million and earnings of $0.82 per diluted share.

  Financial Highlights   First Quarter   ($'s in 000's except AUM and per share data) 2017     2016   AUM - end of period (in millions) $ 41,369 $ 38,721 AUM - average (in millions) 40,632 37,542   Revenues 85,917 81,385   Income before income taxes 40,120 42,127 Effective tax rate 38.1 % 38.2 %   Net income 24,820 26,025   Net income per fully diluted share $ 0.82 $ 0.88   Weighted average diluted shares outstanding 31,160 29,684   Shares outstanding at March 31 29,334 29,790    

Assets Under Management

        % Change From March 31, December 31, March 31, December 31,   March 31, 2017 2016 2016 2016 2016 Equities: Open-end Funds $ 13,708 $ 13,462 $ 13,807 1.8 % -0.7 % Closed-end Funds 7,315 7,150 6,663 2.3 9.8 Institutional & PWM - direct 13,492 13,441 13,280 0.4 1.6 Institutional & PWM - sub-advisory 5,019 (a) 3,783 3,427 32.7 46.5 SICAV   49   50   38 (2.0 ) 28.9 Total Equities   39,583   37,886   37,215 4.5 6.4 Fixed Income: Money-Market Fund 1,752 1,767 1,474 (0.8 ) 18.9 Institutional & PWM   34   31   32 9.7 6.3 Total Fixed Income   1,786   1,798   1,506 (0.7 ) 18.6 Total Assets Under Management $ 41,369 $ 39,684 $ 38,721 4.2 6.8

Institutional & PWM - direct includes $292 million, $290 million and $271 million of Money Market Fund AUM at March 31, 2017, December 31, 2016 and March 31, 2016, respectively.

 

(a) Added two sub-advisory entities as of February 27, 2017.  

Average AUM were $40.6 billion for the first quarter of 2017 versus $39.3 billion for the fourth quarter of 2016 and $37.5 billion for the first quarter of 2016.

Our first quarter 2017 AUM increased 4.2% to $41.4 from the $39.7 billion at December 31, 2016. Market appreciation of $1.7 billion and net inflows of $0.1 billion were offset by distributions of $0.1 billion. The sharp increase in Institutional & PWM – sub-advisory is largely attributable to the inclusion of the $1.2 billion from the Teton Westwood Mighty MitesSM and Teton Westwood Convertible Securities Funds following our selection (and election) as sub-advisor on February 27, 2017.

Revenues

  • Total revenues for the first quarter of 2017 were $85.9 million, compared with $81.4 million in the prior year, reflecting an increase of $4.2 million in investment advisory fees based on a higher level of assets and an increase of $0.3 million in distribution fees and other income.
  • Investment advisory fees were $75.0 million in the first quarter of 2017 versus $70.8 million in the first quarter of 2016. Revenues from our open-end and closed-end funds tracked our average AUM in the funds and were $47.9 million in the first quarter of 2017, an increase from the $44.4 million in the year ago quarter. Institutional and Private Wealth Management accounted for $26.2 million of the revenues in 2017 versus $25.9 million in 2016. SICAV revenues increased to $0.9 million in 2017 from $0.5 million in 2016.
  • Distribution fees from our open-end equity funds and other income were $10.9 million for the first quarter 2017, up from the $10.5 million in the prior year quarter.

Operating Income – First Quarter – Operating margin 49.4% vs. 55.2%

Operating income, which is net of management fee expense was $42.4 million in the first quarter of 2017 versus $44.9 million in the prior year period.

As previously reported, the Company has entered into two Restricted Stock Unit (“RSU”) agreements with our Chief Executive Officer, such that all of his compensation for 2016 (“2016 RSU”) and his compensation for the first half of 2017 (“2017 RSU”) is deferred rather than paid in cash. The 2016 RSU vests over four years, and the 2017 RSU vests over eighteen months.

The RSU agreements impact earnings as they vest. As a result, the compensation expense that would have been expensed fully in 2016 had it been paid in cash when earned is instead being amortized over four years in accordance with the vesting. Similarly, the compensation that would have been expensed fully in the first half of 2017 had it been paid in cash when earned will instead be amortized over the eighteen month vesting period.

These two RSU agreements impacted our reported operating income as follows: the RSU agreements increased operating income by $8.1 million and $12.6 million in the first quarter of 2017 and 2016, respectively.

After adjusting for removal of these items in the 2017 and 2016 periods, operating income was $34.3 million and $32.3 million in the first quarter of 2017 and 2016, respectively. Operating margin after these adjustments increased to 39.9% versus 39.7% in the prior year period.

Operating income before management fee was $44.6 million in the first quarter 2017 versus $46.0 million in the first quarter 2016. Operating margin before management fee was 51.9% versus 56.5% in the first quarter of 2016.

See Notes to Non-GAAP measures on page 8 for further information. Further information regarding Non-GAAP measures is provided in Notes on Non-GAAP Financial Measures and Table III included elsewhere herein.

Other expense

We recognized $2.3 million in net other expenses in the 2017 quarter versus net other expenses of $2.8 million in the first quarter of 2016. Interest expense decreased by $0.6 million year over year as debt declined from $294.2 million at March 31, 2016 to $224.2 million at March 31, 2017. Investment income for 2017 was $0.5 million vs. $0.6 million in 2016.

Income Taxes

The Company’s effective tax rate (“ETR”) for the quarter ended March 31, 2017 was 38.1% versus 38.2% for the quarter ended March 31, 2016.

Deferred compensation

To enhance our liquidity and provide greater financial flexibility GAMCO entered into two deferred compensation agreements with its Chief Executive Officer which had a material impact on our GAAP financial statements. Under GAAP, the total compensation expense is amortized over the vesting periods, which for the 2016 RSU is four years and for the 2017 RSU is eighteen months. As a result, for the 2016 RSU for GAAP, we recognized only 25% of the 2016 RSU expense in 2016 with the remaining 75% to be amortized as expense over 2017, 2018 and 2019.

For the 2017 RSU, the GAAP expense for the first quarter of 2017 is only 33% of the total 2017 RSU expense with the remainder to be amortized as expense over the next fifteen months.

The following table further illustrates the effect that the GAAP accounting for the compensation deferral has had to date and will continue to have on our results for 2017 through 2019. Please see the note regarding forward-looking information on page 13 of this release.

Effect on compensation and management fee expense of recording RSU on a GAAP basis:

      Full Year Q1 2016 Q1 2017 2016   2017   2018   2019   2016 RSU agreement (12,611 ) 3,279 (53,516 ) 12,842 17,123 17,123 2017 RSU agreement - (11,405 ) - (11,405 ) 11,405 -  

On an economic basis, there was $18.6 million of compensation subject to the 2017 RSU deferred compensation agreement for the first quarter of 2017. Of this amount, only $6.2 million was recorded under GAAP, with the remaining $12.4 million to be expensed over the vesting period.

Conversely, on an economic basis, the 2016 RSU agreement had the impact of decreasing expense in the first quarter of 2016 by $12.6 million while increasing expense in the first quarter of 2017 by $3.5 million.

In addition, in accordance with the deferred compensation agreement, we note that our liability will fluctuate with the price of the GBL stock, with a floor set at the actual compensation expense amount otherwise payable. We recorded a $1.2 million reduction to the deferred compensation liability at March 31, 2017.

Impact on Balance Sheet from the RSUs

The balance sheet is also impacted; the compensation payable at March 31, 2017 is not reflective of the full amount of the 2016 or 2017 deferred compensation that will be due once the RSUs are fully vested. At March 31, 2017, the amount of unrecognized compensation, which is not reflected on our balance sheet, was $59.4 million.

The following tables show a reconciliation of our results for the first quarters of 2017 and 2016 and our balance sheet at March 31, 2017 between the GAAP basis and the non-GAAP adjusted basis of the deferred compensation (the RSU grants) described above. We believe this adjusted measure, which removes the impact of the deferred compensation agreements, may be helpful in evaluating the ongoing operating results and increases the comparability of the results with prior periods.

 

Deferred Compensation Table I:

    For the three months ended March 31, 2017   Impact of   Impact of   2017 RSU 2016 RSU Reported Deferred Deferred GAAP Compensation Compensation Non-GAAP   Total revenues $ 85,917 $ - $ - $ 85,917   Compensation costs 25,278 9,540 (2,499 ) 32,319 Distribution costs 10,913 - - 10,913 Other operating expenses   5,119     -     -     5,119   Total expenses 41,310 9,540 (2,499 ) 48,351   Operating income before management fee 44,607 (9,540 ) 2,499 37,566   Other expense, net (2,323 ) - - (2,323 )   Income before management fee and income taxes 42,284 (9,540 ) 2,499 35,243 Management fee expense   2,164     1,865     (780 )   3,249   Income before income taxes 40,120 (11,405 ) 3,279 31,994 Income tax expense   15,300     (4,349 )   1,250     12,201   Net income attributable to GAMCO Investors, Inc. $ 24,820   $ (7,056 ) $ 2,029   $ 19,793     Net income per share attributable to GAMCO Investors, Inc.: Basic $ 0.86   $ (0.24 ) $ 0.07   $ 0.68   Diluted $ 0.82   $ (0.23 ) $ 0.07   $ 0.66      

Deferred Compensation Table II:

    For the three months ended March 31, 2016   Impact of   2016 RSU Reported Deferred GAAP Compensation Non-GAAP   Total revenues $ 81,385 $ - $ 81,385   Compensation costs 20,274 10,412 30,686 Distribution costs 10,717 - 10,717 Other operating expenses   4,372     -     4,372   Total expenses 35,363 10,412 45,775   Operating income before management fee 46,022 (10,412 ) 35,610   Other expense, net (2,815 ) - (2,815 )   Income before management fee and income taxes 43,207 (10,412 ) 32,795 Management fee expense   1,080     2,199     3,279   Income before income taxes 42,127 (12,611 ) 29,516 Income tax expense   16,102     (4,820 )   11,282   Net income attributable to GAMCO Investors, Inc. $ 26,025   $ (7,791 ) $ 18,234     Net income per share attributable to GAMCO Investors, Inc.: Basic $ 0.89   $ (0.27 ) $ 0.62   Diluted $ 0.88   $ (0.26 ) $ 0.61      

Deferred Compensation Table III:

    March 31, 2017   Impact of   2016 & 2017 RSU Reported Deferred GAAP Compensation Non-GAAP   ASSETS   Cash and cash equivalents $ 88,230 $ - $ 88,230 Investments 33,190 - 33,190 Receivable from brokers 523 - 523 Other receivables 36,554 - 36,554 Income tax receivable 12,829 22,293 35,122 Other assets   11,196     -     11,196   Total assets $ 182,522   $ 22,293   $ 204,815     LIABILITIES AND EQUITY   Compensation payable $ 42,295 $ 59,447 $ 101,742 Accrued expenses and other liabilities   64,317     -     64,317   Sub-total 106,612 59,447 166,059   5.875% Senior notes (due June 1, 2021) 24,126 - 24,126 4.5% Convertible note (due August 15, 2021) 109,844 - 109,844 4% PIK note (due November 30, 2020)   90,000     -     90,000   Total debt $ 223,970     -   $ 223,970   Total liabilities 330,582 59,447 390,029   GAMCO Investors, Inc.'s stockholders' deficit   (148,060 )   (37,154 )   (185,214 )   Total liabilities and equity $ 182,522   $ 22,293   $ 204,815    

Business and Investment Highlights

  • On February 14, 2017, the Company launched the Gabelli Food of all NationsTM, its second actively managed, non-transparent exchange traded managed fund (“ETMF”). The fund will invest primarily in domestic and foreign companies in the food and beverage industry, which is a consolidating sector that includes many strong cash generators with pricing power. The fund will capitalize on a segment where we have accumulated and compounded knowledge. Consumer companies have long been a core competency at GAMCO.
  • During the first quarter of 2017, the shareholders of the TETON Westwood Mighty MitesSM Fund and the TETON Convertible Securities Fund voted to approve Gabelli Funds, LLC as the sub-advisor. These assets are now included in the Institutional & PWM – sub-advisory segment of our AUM.
  • Net debt was reduced from $194.1 million at December 31, 2016 to $135.7 million at March 31, 2017.

Balance Sheet

We ended the quarter with cash of $88.2 million and investments of $33.2 million and gross debt of $224 million (excluding RSU payable). We have $500 million available on our universal shelf registration. Together with earnings from operations, the shelf provides us with flexibility to do acquisitions, lift-outs, seed new investment strategies, and co-invest, as well as to fund shareholder compensation, including share repurchases and dividends.

Shareholder Compensation

During the quarter ended March 31, 2017, we returned $4.4 million of our earnings to shareholders through dividends and stock repurchases. We repurchased 125,410 shares at an average price of $30.25 per share for a total investment of $3.8 million and distributed $0.6 million in dividends. Since our IPO, in February 1999, we have returned $1.9 billion in total to shareholders comprised of $1.0 billion of spin-offs, $489.2 million in the form of dividends and $442.6 million through stock buybacks of 10,026,750 shares.

On May 3, 2017, GAMCO’s Board of Directors declared a regular quarterly dividend of $0.02 per share payable on July 11, 2017 to its Class A and Class B shareholders of record on June 27, 2017.

About GAMCO Investors, Inc.

GAMCO Investors, Inc., through its subsidiaries, manages private advisory accounts (GAMCO Asset Management Inc.) and open-end funds and closed-end funds (Gabelli Funds, LLC).

NOTES ON NON-GAAP FINANCIAL MEASURES

A.   Operating income before management fee expense is used by management to evaluate its business operations. We believe this measure is useful in illustrating the operating results of GAMCO Investors, Inc. (the “Company”) as management fee expense is based on pre-tax income before management fee expense, which includes non-operating items including investment gains and losses from the Company’s proprietary investment portfolio and interest expense. The reconciliation of operating income before management fee expense to operating income is provided in Table III.   B.   Adjusted operating income and adjusted operating income before management fee expense are used by management to evaluate its ongoing business operations. We believe these adjusted measures, which remove these items, are useful in evaluating the ongoing operating results of the Company as the nature of these items reduces the comparability of the results with prior periods and is not indicative of results for future periods.   1st Quarter 2017   2016 Operating income before management fee $ 44,607 $ 46,022 Adjustments: Add back: Variable compensation expense from prior year RSU 2,499 - Deduct: Variable compensation expense from current year RSU   (9,540 )   (10,412 ) Adjusted operating income before management fee   37,566     35,610   Adjusted operating margin before management fee   43.7 %   43.8 %     1st Quarter 2017   2016 Operating income $ 42,443 $ 44,942 Adjustments: Add back: Variable compensation expense from prior year RSU 3,279 - Deduct: Variable compensation expense from current year RSU   (11,405 )   (12,611 ) Adjusted operating income   34,317     32,331   Adjusted operating margin   39.9 %   39.7 %  

The Company reported Assets Under Management as follows (in millions):

  Table I: Fund Flows - 1st Quarter 2017         Fund   Market distributions, December 31, appreciation/ Net cash net of March 31, 2016 (depreciation) flows reinvestments 2017 Equities: Open-end Funds $ 13,462 $ 622 $ (365 ) $ (11 ) $ 13,708 Closed-end Funds 7,150 291 (4 ) (122 ) 7,315 Institutional & PWM - direct 13,441 676 (625 ) - 13,492 Institutional & PWM - sub-advisory 3,783 74 1,162 (a) - 5,019 SICAV   50   2   (3 )   -     49 Total Equities   37,886   1,665   165     (133 )   39,583 Fixed Income: Money-Market Fund 1,767 1 (16 ) - 1,752 Institutional & PWM   31   -   3     -     34 Total Fixed Income   1,798   1   (13 )   -     1,786 Total Assets Under Management $ 39,684 $ 1,666 $ 152   $ (133 ) $ 41,369   (a) Includes $1.2 billion from being approved as the sub-advisor on two sub-advisory entities as of February 27, 2017.     Table II   GAMCO INVESTORS, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data)     For the Quarter Ended March 31, 2017   2016   Investment advisory and incentive fees $ 74,989 $ 70,848 Distribution fees and other income   10,928     10,537   Total revenues 85,917 81,385   Compensation costs 25,278 20,274 Distribution costs 10,913 10,717 Other operating expenses   5,119     4,372   Total expenses 41,310 35,363   Operating income before management fee 44,607 46,022   Investment income 509 591 Interest expense   (2,832 )   (3,406 ) Other expense, net   (2,323 )   (2,815 )   Income before management fee and income taxes 42,284 43,207 Management fee expense   2,164     1,080   Income before income taxes 40,120 42,127 Income tax expense   15,300     16,102   Net income attributable to GAMCO Investors, Inc. $ 24,820   $ 26,025     Net income per share attributable to GAMCO Investors, Inc.: Basic $ 0.86   $ 0.89     Diluted $ 0.82   $ 0.88     Weighted average shares outstanding: Basic   28,970     29,247     Diluted   31,160     29,684     Actual shares outstanding (a)   29,334     29,790     Notes: (a) Includes 420,240 and 553,100 of RSAs, respectively.   See GAAP to non-GAAP reconciliation on page 11.     Table III   GAMCO INVESTORS, INC. UNAUDITED QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data)     2017   2016 1st 1st   2nd   3rd   4th   Quarter Quarter Quarter Quarter Quarter Full Year Income Statement Data:   Revenues $ 85,917 $ 81,385 $ 83,944 $ 87,721 $ 99,950 $ 353,000   Expenses   41,310     35,363     36,064     38,482     44,777     154,686     Operating income before management fee 44,607 46,022 47,880 49,239 55,173 198,314   Investment income 509 591 605 426 1,483 3,105 Interest expense   (2,832 )   (3,406 )   (3,168 )   (3,155 )   (2,945 )   (12,674 ) Other expense, net (2,323 ) (2,815 ) (2,563 ) (2,729 ) (1,462 ) (9,569 )   Income before management fee and income taxes 42,284 43,207 45,317 46,510 53,711 188,745 Management fee expense   2,164     1,080     1,133     1,163     3,142     6,518   Income before income taxes 40,120 42,127 44,184 45,347 50,569 182,227 Income tax expense   15,300     16,102     16,641     14,486     17,877     65,106   Net income attributable to GAMCO Investors, Inc. $ 24,820   $ 26,025   $ 27,543   $ 30,861   $ 32,692   $ 117,121     Net income per share attributable to GAMCO Investors, Inc.: Basic $ 0.86   $ 0.89   $ 0.94   $ 1.06   $ 1.12   $ 4.01     Diluted $ 0.82   $ 0.88   $ 0.93   $ 1.03   $ 1.07   $ 3.92     Weighted average shares outstanding: Basic   28,970     29,247     29,234     29,185     29,062     29,182     Diluted   31,160     29,684     29,522     30,406     31,241     30,170     Reconciliation of non-GAAP financial measures to GAAP: Operating income before management fee 44,607 46,022 47,880 49,239 55,173 198,314 Deduct: management fee expense   2,164     1,080     1,133     1,163     3,142     6,518   Operating income $ 42,443   $ 44,942   $ 46,747   $ 48,076   $ 52,031   $ 191,796     Operating margin before management fee   51.9 %   56.5 %   57.0 %   56.1 %   55.2 %   56.2 % Operating margin after management fee   49.4 %   55.2 %   55.7 %   54.8 %   52.1 %   54.3 %     Table IV   GAMCO INVESTORS, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands, except per share data)     March 31,   December 31,   March 31, 2017 2016 2016   ASSETS   Cash and cash equivalents $ 88,230 $ 39,812 $ 28,045 Investments 33,190 37,285 36,422 Receivable from brokers 523 453 1,135 Other receivables 36,554 50,756 35,961 Income tax receivable 12,829 9,349 2,452 Other assets   11,196     11,574     11,910     Total assets $ 182,522   $ 149,229   $ 115,925     LIABILITIES AND EQUITY   Payable to brokers $ 10,022 $ 66 $ - Income taxes payable and deferred tax liabilities 19,787 3,815 12,198 Compensation payable 42,295 42,384 19,218 Accrued expenses and other liabilities   34,508     35,656     38,609   Sub-total 106,612 81,921 70,025   5.875% Senior notes (due June 1, 2021) 24,126 24,120 24,103 4.5% Convertible note (due August 15, 2021) 109,844 109,835 - 4% PIK note (due November 30, 2020) 90,000 100,000 250,000 Loan from GGCP (due December 28, 2016)   -     -     20,000   Total debt   223,970     233,955     294,103   Total liabilities 330,582 315,876 364,128   GAMCO Investors, Inc.'s stockholders' deficit   (148,060 )   (166,647 )   (248,203 )   Total liabilities and equity $ 182,522   $ 149,229   $ 115,925    

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

The financial results set forth in this press release are preliminary. Our disclosure and analysis in this press release, which do not present historical information, contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements convey our current expectations or forecasts of future events. You can identify these statements because they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning. They also appear in any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and financial results. Although we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know about our business and operations, the economy and other conditions, there can be no assurance that our actual results will not differ materially from what we expect or believe. Therefore, you should proceed with caution in relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance.

Forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors, some of which are listed below, that are difficult to predict and could cause actual results and outcomes to differ materially from any future results or outcomes expressed or implied by such forward-looking statements. Some of the factors that could cause our actual results to differ from our expectations or beliefs include a decline in the securities markets that adversely affect our assets under management, negative performance of our products, the failure to perform as required under our investment management agreements, a general downturn in the economy that negatively impacts our operations. We also direct your attention to the more specific discussions of these and other risks, uncertainties and other important factors contained in our Form 10-K and other public filings. Other factors that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We do not undertake to update publicly any forward-looking statements if we subsequently learn that we are unlikely to achieve our expectations whether as a result of new information, future developments or otherwise, except as may be required by law.

GAMCO Investors, Inc.Kieran Caterina or Diane M. LaPointeSVPs and Co-Chief Accounting Officers(914) 921-5149 or 7763www.gabelli.com

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