- First Quarter Earnings of $0.88 per
diluted share vs. $0.91
- Average AUM at $37.5
billion
GAMCO Investors, Inc. (“GAMCO” or the “Company”) (NYSE: GBL)
today reported financial results for the first quarter including
revenues of $81.4 million, net income of $26.0 million and earnings
of $0.88 per diluted share. On a comparable continuing operations
basis, revenues were $99.8 million, net income was $23.1 million,
and earnings were $0.91 per diluted share in the first quarter of
2015.
Financial Highlights
Q1 Q1 ($'s in 000's except AUM and per share data)
2016 (a) 2015 (b) AUM - end of period (in
millions) $ 38,721 $ 45,507 AUM - average (in millions) 37,542
45,756 Revenues 81,385 99,806 Operating income before
management fee (c) 46,022 42,725 Operating margin before management
fee 56.5 % 42.8 % Operating income 44,942 38,590 Operating
margin 55.2 % 38.7 % Other expense, net (2,815 ) (1,364 )
Income before income taxes 42,127 37,226 Effective tax rate
38.2 % 37.8 % Income from continuing operations 26,025
23,148 Income per share - continuing operations $ 0.88 $
0.91 Income from discontinued operations - 1,628
Discontinued operations per share - $ 0.06 Net income 26,025
24,776 Net income per share $ 0.88 $ 0.97 Shares
outstanding at March 31 (d) 29,790
25,810
(a)
See page 3 for discussion of deferred
compensation impact.
(b)
Adjusted for spin-off of AC.
(c)
See GAAP to non-GAAP reconciliation on
page 10.
(d)
Shares outstanding consist of 29,237
non-RSA shares and 553 RSA shares at March 31, 2016 and 25,103
non-RSA shares and 707 RSA shares at March 31, 2015.
Assets Under Management
% Change From March
31, December 31, March 31, December 31,
March 31, 2016 2015 2015 2015
2015 Equities: Open-end Funds $ 13,807 $ 13,811 $ 16,643
(0.0 %) (17.0 %) Closed-end Funds 6,663 6,492 7,071 2.6 (5.8 )
Institutional & PWM - direct 13,280 13,366 16,407 (0.6 ) (19.1
) Institutional & PWM - sub-advisory 3,427 3,401 3,814 0.8
(10.1 ) SICAV 38 37 - 2.7 n/m Total Equities
37,215 37,107 43,935 0.3 (15.3 ) Fixed Income:
Money-Market Fund 1,474 1,514 1,520 (2.6 ) (3.0 ) Institutional
& PWM 32 38 52 (15.8 ) (38.5 ) Total Fixed
Income 1,506 1,552 1,572 (3.0 ) (4.2 ) Total
Assets Under Management $ 38,721 $ 38,659 $ 45,507 0.2 (14.9 )
Average AUM were $37.5 billion for the first quarter of 2016
versus $40.3 billion for the fourth quarter of 2015 and $45.8
billion for the first quarter of 2015.
Our first quarter 2016 increase in AUM versus December 31, 2015
was due to market appreciation of $1.0 billion partially offset by
net outflows of $0.8 billion and net distributions of $0.1
billion.
Revenues
- Total revenues for the first quarter of
2016 were $81.4 million, compared with $99.8 million in the prior
year, reflecting fees earned in investment advisory services on a
lower level of assets and a decline in distribution and other
income.
- Investment advisory fees were $70.8
million in the first quarter of 2016 versus $86.1 million in the
first quarter of 2015. Revenues from our open-end and closed-end
funds and Institutional and Private Wealth Management accounts
tracked our decline of average AUM in the open-end and closed-end
funds as well as lower billable assets in our Institutional and
Private Wealth Management accounts.
- Distribution fees from our open-end
equity funds and other income were $10.5 million for the first
quarter 2016, down from $13.7 million in the prior year
quarter.
Operating Income – First Quarter – Operating margin 56.5% vs.
42.8%
Operating income, which is net of management fee expense,
increased 16.3% or $6.3 million, to $44.9 million in the first
quarter of 2016 versus $38.6 million in the prior year period. The
first quarter of 2016 was impacted by lower revenues of $18.4
million offset by reduced variable compensation expense of $10.4
million due to the accounting for the RSU agreement that the
Company entered into with Mr. Gabelli in December 2015 while first
quarter 2015 included a $1.0 million charge to launch a closed-end
fund and $603,000 in incremental RSA expenses. After adjusting for
removal of these non-recurring items in both the 2016 and 2015
periods, operating income was $34.5 million in the first quarter of
2016 or $5.7 million lower than the $40.2 million of the comparable
prior year period. On the same basis, operating margin improved
from 40.3% to 42.4%. See Notes to Non-GAAP measures on pages 7 for
further information.
Operating income before management fee was $46.0 million in the
first quarter 2016 versus $42.7 million in the first quarter 2015.
Operating margin before management fee was 56.5% versus 42.8% in
the first quarter of 2015. After adjusting for the removal of the
non-recurring items in both the 2016 and 2015 periods, operating
income before management fee was $35.6 million in the first quarter
of 2016 as compared to $44.3 million in the first quarter of 2015
while operating margins before management fee declined from 44.4%
to 43.8%. See Notes on Non-GAAP measures on page 7 for further
information. Management believes evaluating operating income before
management fee is an important measure in analyzing the Company’s
operating results. Further information regarding Non-GAAP measures
is included in Notes on Non-GAAP Financial Measures and Table III
included elsewhere herein.
Other expense
We recognized $2.8 million in net other expenses in the 2016
quarter versus an expense of $1.4 million in the first quarter of
2015. This is comprised of investment income of $0.6 million in the
2016 quarter versus $0.5 million in the 2015 quarter offset by
interest expense of $3.4 million in the 2016 quarter versus $1.9
million in the first quarter of 2015, reflective of the AC 4% PIK
Note being outstanding for the entire first quarter of 2016
partially offset by the reduction in the Senior Notes.
Income Taxes
The Company’s effective tax rate (“ETR”) for the quarter ended
March 31, 2016 was 38.2% versus 37.8% for the quarter ended March
31, 2015.
Deferred compensation
The first quarter 2016 results were materially bolstered by the
GAAP-mandated treatment of the December 2015 deferred compensation
agreement whereby certain variable compensation for 2016 will be
paid in the form of Restricted Stock Units determined by the
volume-weighted average price of the Company’s Class A Stock during
2016. Margins for the first quarter 2016 therefore are not
comparable with prior periods. Under GAAP, only 25% of this
deferred compensation expense is being recognized in the current
year with the remainder amortized as expense in 2017, 2018, and
2019. Expressed another way, the 2016 first quarter as well as the
remainder of 2016 benefit from a reduction of 75% of the
compensation, and 2017, 2018, and 2019 will, in turn, be impacted
by an additional 25% of the compensation from 2016 in each year.
The Board’s decision to grant these RSUs in December 2015 and
thereby defer the cash payment of certain 2016 variable
compensation until January 1, 2020 was to provide the Company with
greater financial flexibility. No decision has been made regarding
whether the RSU will be repeated for 2017.
The balance sheet is also impacted; the compensation payable at
March 31, 2016 and in each future period-end of 2016 is only 25% of
the full amount of the 2016 compensation that will be due once the
RSUs are fully vested. At March 31, 2016, the amount of
unrecognized compensation was $12.6 million.
The following tables show a reconciliation of our results for
the first quarter of 2016 and our balance sheet at March 31, 2016
between the GAAP basis and a non-GAAP adjusted basis of the
deferred compensation (the RSU grant) in 2016. We believe this
adjusted measure is useful in evaluating the ongoing operating
results of the Company absent the material adjustment related to
the treatment of the deferred compensation agreement.
For the three months ended March 31, 2016
Impact of 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
March 31, 2016 Impact
of Reported Deferred GAAP
Compensation Non-GAAP ASSETS
Total assets $ 115,925 $ - $ 115,925
LIABILITIES AND EQUITY Income taxes payable and
deferred tax liabilities $ 13,032 $ (4,820 ) $ 8,212 Compensation
payable 19,218 12,611 31,829 Accrued expenses and other liabilities
37,775 - 37,775 Sub-total
70,025 7,791 77,816 5.875% Senior notes (due June 1, 2021)
24,103 - 24,103 4% PIK note (due November 30, 2020) 250,000 -
250,000 Loan from GGCP (due December 28, 2016) 20,000
- 20,000 Total debt 294,103
- 294,103 Total liabilities
364,128 7,791 371,919 GAMCO Investors, Inc.'s stockholders'
equity (deficit) (248,203 ) (7,791 ) (255,994
) Total liabilities and equity $ 115,925 $ - $
115,925
The following table further illustrates the effect that the GAAP
accounting for the compensation deferral will have on our results
for 2016 through 2019 under certain assumptions. For simplicity in
arriving at the 2016 through 2019 illustrative effects, we have
assumed that the first quarter RSU expense is predictive of the
full year results but there is no assurance that this will be the
case. Please see the note regarding forward-looking information on
page 12 of this release.
Effect of recording RSU on a GAAP basis:
2016
2017
2018
2019
RSU expense
(50,444 ) 16,815 16,815 16,815
Business and Investment Highlights
- On March 31, 2016, Gabelli Equity Trust
completed the offering of $80 million of 5.45% Series J Cumulative
Preferred Stock. The preferred stock is perpetual, non-callable for
five years, and was issued at $25 per share.
Balance Sheet
We ended the quarter with cash and investments of $64.5 million
and debt of $294.1 million. During the first quarter of 2016 we
paid down $15 million of the loan to GGCP. 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, 2016, we returned $1.5
million of our earnings to shareholders through dividends and stock
repurchases. We repurchased 30,503 shares at an average price of
$29.42 per share for a total investment of $0.9 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, $487 million in the form of
dividends and $429 million through stock buybacks of 9,583,156
shares.
On May 3, 2016, GAMCO’s Board of Directors declared a regular
quarterly dividend of $0.02 per share payable on June 28, 2016 to
its Class A and Class B shareholders of record on June 14,
2016.
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 measures are useful in evaluating the ongoing operating
results of the Company absent any of these adjustments.
1st Quarter 2016 2015 Operating
income before management fee $ 46,022 $ 42,725 Adjustments: Add
back: Incremental RSA expense - 603 Costs to launch Closed-end fund
- 1,000 Deduct: Variable compensation reduction from RSU
(10,412 ) - Adjusted operating income before
management fee 35,610 44,328
Adjusted operating margin before
management fee
43.8%
44.4%
1st Quarter 2016 2015 Operating income
$ 44,942 $ 38,590 Adjustments: Add back: Incremental RSA expense -
603 Costs to launch Closed-end fund - 1,000 Deduct: Variable
compensation reduction from RSU (10,412 ) -
Adjusted operating income 34,530 40,193
Adjusted operating margin
42.4%
40.3%
The Company reported Assets Under Management as follows (in
millions):
Table I: Fund
Flows - 1st Quarter 2016 Fund Market
distributions, December 31, appreciation/
Net cash net of March 31, 2015
(depreciation) flows reinvestments 2016
Equities: Open-end Funds $ 13,811 $ 465 $ (458) $ (11) $ 13,807
Closed-end Funds 6,492 213 70 (112) 6,663 Institutional & PWM -
direct 13,366 241 (327) - 13,280 Institutional & PWM -
sub-advisory 3,401 67 (41) - 3,427 SICAV 37 1
- - 38 Total Equities 37,107 987
(756) (123) 37,215 Fixed Income: Money-Market Fund
1,514 - (40) - 1,474 Institutional & PWM 38 -
(6) - 32 Total Fixed Income 1,552
- (46) - 1,506 Total Assets Under
Management $ 38,659 $ 987 $ (802) $ (123) $ 38,721
Table II
GAMCO INVESTORS, INC. UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands,
except per share data) For the Quarter Ended March
31, 2016 2015 Investment advisory
and incentive fees $ 70,848 $ 86,068 Distribution fees and other
income 10,537 13,738 Total revenues
81,385 99,806 Compensation costs 20,274 37,977 Distribution
costs 10,717 14,441 Other operating expenses 4,372
4,663 Total expenses 35,363 57,081 Operating
income before management fee 46,022 42,725 Investment income
591 541 Interest expense (3,406 ) (1,905 ) Other
expense, net (2,815 ) (1,364 ) Income before
management fee and income taxes 43,207 41,361 Management fee
expense 1,080 4,135 Income before
income taxes 42,127 37,226 Income tax expense 16,102
14,078 Income from continuing operations 26,025
23,148 Income from discontinued operations, net of taxes -
1,628 Net income attributable to GAMCO
Investors, Inc. $ 26,025 $ 24,776 Net income
per share attributable to GAMCO Investors, Inc.: Basic - Continuing
operations $ 0.89 $ 0.92 Basic - Discontinued operations -
0.07 Basic - Total $ 0.89 $ 0.99
Diluted - Continuing operations $ 0.88 $ 0.91 Diluted -
Discontinued operations - 0.06 Diluted
- Total $ 0.88 $ 0.97 Weighted average shares
outstanding: Basic 29,247 25,132
Diluted 29,684 25,414 Actual
shares outstanding (a) 29,790 25,810
Notes: (a) Includes 553,100 and 707,050 of RSAs,
respectively. See GAAP to non-GAAP reconciliation on page 8.
Table III GAMCO INVESTORS, INC. UNAUDITED
QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
2016 2015 1st
1st 2nd 3rd 4th Quarter
Quarter Quarter Quarter Quarter Full
Year Income Statement Data: Revenues $ 81,385 $ 99,806 $
98,693 $ 92,160 $ 90,317 $ 380,976 Expenses 35,363
57,081 55,518 50,828
54,097 217,524 Operating
income before management fee 46,022 42,725 43,175 41,332 36,220
163,452 Investment income 591 541 638 625 4,304 6,108
Interest expense (3,406 ) (1,905 ) (1,855 ) (1,815 ) (3,061 )
(8,636 ) Shareholder-designated contribution -
- - - (6,396 )
(6,396 ) Other expense, net (2,815 ) (1,364 ) (1,217 ) (1,190 )
(5,153 ) (8,924 ) Income before management fee and income
taxes 43,207 41,361 41,958 40,142 31,067 154,528 Management fee
expense 1,080 4,135 4,194
4,056 3,118 15,503 Income
before income taxes 42,127 37,226 37,764 36,086 27,949 139,025
Income tax expense 16,102 14,078
13,989 13,635 10,024
51,726 Income from continuing operations 26,025 23,148
23,775 22,451 17,925 87,299 Income/(loss) from discontinued
operations, net of taxes - 1,628
326 (7,483 ) 1,642 (3,887 ) Net
income attributable to GAMCO Investors, Inc. $ 26,025 $
24,776 $ 24,101 $ 14,968 $ 19,567 $
83,412 Net income per share attributable to GAMCO
Investors, Inc.: Basic - Continuing operations $ 0.89 $ 0.92 $ 0.95
$ 0.90 $ 0.68 $ 3.43 Basic - Discontinued operations -
0.07 0.01 (0.30 )
0.06 (0.15 ) Basic - Total $ 0.89 $ 0.99
$ 0.96 $ 0.60 $ 0.74 $ 3.28
Diluted - Continuing operations $ 0.88 $ 0.91 $ 0.94 $ 0.89
$ 0.67 $ 3.40 Diluted - Discontinued operations -
0.06 0.01 (0.30 ) 0.06
(0.15 ) Diluted - Total $ 0.88 $ 0.97 $
0.95 $ 0.59 $ 0.73 $ 3.24
Weighted average shares outstanding: Basic 29,247
25,132 25,065 24,947
26,547 25,425 Diluted
29,684 25,414 25,358
25,241 26,813 25,711
Reconciliation of non-GAAP financial measures to GAAP: Operating
income before management fee 46,022 42,725 43,175 41,332 36,220
163,452 Deduct: management fee expense 1,080
4,135 4,194 4,056 3,118
15,503 Operating income $ 44,942 $
38,590 $ 38,981 $ 37,276 $ 33,102 $
147,949 Operating margin before management fee
56.5 % 42.8 % 43.7 % 44.8 % 40.1 %
42.9 % Operating margin after management fee 55.2 %
38.7 % 39.5 % 40.4 % 36.7 % 38.8
%
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION (Dollars in thousands, except per share data)
March 31, December 31, March
31, 2016 2015 2015 ASSETS
Cash and cash equivalents $ 28,045 $ 13,719 $ 11,261
Investments 36,422 32,979 37,954 Receivable from brokers 1,135
1,091 2,100 Other receivables 35,961 37,252 61,539 Income tax
receivable 2,452 6,787 2,433 Other assets 11,910 12,071 10,755
Assets of discontinued operations - -
673,263 Total assets $ 115,925 $ 103,899
$ 799,305
LIABILITIES AND EQUITY
Payable to brokers $ - $ 12 $ 46 Income taxes payable and deferred
tax liabilities 13,032 4,823 23,133 Compensation payable 19,218
24,426 38,823 Securities sold short, not yet purchased - 129 -
Accrued expenses and other liabilities 37,775 41,739 37,333
Liabilities of discontinued operations - -
35,782 Sub-total 70,025 71,129 135,117 5.875%
Senior notes (due June 1, 2021) 24,103 24,097 99,398 4% PIK note
(due November 30, 2020) 250,000 250,000 - Loan from GGCP (due
December 28, 2016) 20,000 35,000 - 0% Subordinated Debentures (due
December 31, 2015) (a) - - 9,936
Total debt 294,103 309,097
109,334 Total liabilities 364,128 380,226 244,451 Redeemable
noncontrolling interests of discontinued operations - - 5,519
GAMCO Investors, Inc.'s stockholders' equity (deficit)
(248,203 ) (276,327 ) 546,609 Noncontrolling interests -
- 2,726 Total equity (deficit)
(248,203 ) (276,327 ) 549,335 Total
liabilities and equity $ 115,925 $ 103,899 $ 799,305
(a) The 0% Subordinated Debentures due
December 31, 2015 have a face value of $0.0 million, $0.0 million
and $10.4 million, respectively.
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/20160505006014/en/
GAMCO InvestorsDouglas R. JamiesonPresident and Chief Operating
Officer914-921-5020orFor further information please
visitwww.gabelli.com
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