- 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170503006573/en/
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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