GAMCO Investors, Inc. Reports First Quarter 2018 Results

  • Average AUM for the first quarter 2018 was $42.5 billion vs. $40.9 billion in first quarter of 2017
  • Effective income tax rate was 22.6% in first quarter 2018 vs. 38.1% in 2017 first quarter
  • First quarter 2018 diluted EPS was $0.94 compared with $0.82 a year ago

RYE, N.Y.--()--GAMCO Investors, Inc. (“GAMCO”) (NYSE: GBL) today reported first quarter 2018 revenues of $87.5 million, net income of $27.3 million, and earnings of $0.94 per diluted share. This compares to first quarter 2017 revenues of $85.9 million, net income of $24.8 million, and earnings of $0.82 per diluted share.

Average AUM was $42.5 billion for the first quarter of 2018 versus $40.9 billion for the first quarter of 2017 and $43.0 billion for the fourth quarter of 2017.

Our first quarter 2018 ending AUM was $40.9 billion as compared to $41.7 billion at March 31, 2017 and $43.1 billion at December 31, 2017. Market depreciation was $1.0 billion, outflows were $1.1 billion and distributions, net of reinvestments, were $0.1 billion.

Revenues

  • Total revenues for the first quarter of 2018 were $87.5 million compared with $85.9 million in the prior year.
  • Investment advisory fees rose to $77.3 million in the first quarter of 2018 from $75.0 million in the first quarter of 2017. Revenues from our open-end and closed-end funds were $50.1 million, an increase from $47.9 million in the year-ago quarter. Institutional and Private Wealth Management generated $25.9 million of the revenues in 2018 compared to $26.2 million in 2017. SICAV revenues grew to $1.3 million in the first quarter of 2018 from $0.9 million in the prior period.
  • Distribution fees from our open-end equity funds and other income were $10.1 million for the first quarter of 2018 versus $10.9 million in the prior-year quarter.
       
Financial Highlights
First Quarter
($'s in 000's except AUM and per share data) 2018 2017
 
AUM - average (in millions) $ 42,499 $ 40,926
AUM - end of period (in millions) 40,854 41,695
                 
 
Revenues $ 87,497 $ 85,917
 
Operating income 41,256 42,443
 
Income before income taxes 35,201 40,120
Effective tax rate 22.6% 38.1%
 
Net income 27,261 24,820
 
Net income per fully diluted share   $ 0.94       $ 0.82    
 
Weighted average diluted shares outstanding 28,916 31,160
 
Shares outstanding at March 31 28,855 29,334
 

Operating Income

There were several crosscurrents that impacted results. Operating income was $41.3 million in the first quarter of 2018 versus $42.4 million in the prior-year period. Operating costs were impacted by an incremental noncash $5.2 million related to increased amortization of deferred compensation. On the positive side, the previously announced waiver of compensation in the first quarter of 2018 boosted operating income before management fee by $4.9 million. Excluding the effects of the deferral treatment under GAAP but reflecting the reduced compensation expense, adjusted operating income before management fee was $44.1 million in the first quarter of 2018 versus $37.6 million in the year-ago quarter.

Other expense

Investment losses arising from mark to market pricing were $4.9 million in the first quarter of 2018 as compared to a gain of $0.5 million in the prior year quarter. Interest expense decreased by $1.6 million year-over-year.

Income Taxes

The Company’s effective tax rate (“ETR”) for the quarter ended March 31, 2018 was 22.6% versus 38.1% for the quarter ended March 31, 2017.

Balance Sheet

We ended the quarter with cash of $27.4 million, investments of $31.4 million, and gross debt of $64.2 million.

Debt does not include the deferred compensation payable at March 31, 2018 of $101.6 million, of which $62.5 million is included in the GAAP balance sheet. The remaining $39.1 million from the three deferral agreements will be recorded in 2018 and 2019, ratably over the vesting periods, in accordance with GAAP.

Returns to Shareholder

During the quarter ended March 31, 2018, we purchased 119,334 shares at an average price of $27.71 per share for a total investment of $3.3 million. We also distributed $0.6 million in dividends. Since our IPO in February 1999, we have returned $1.9 billion in total to shareholders consisting of $1.0 billion of spin-offs, $491.6 million in the form of dividends, and $456.4 million through stock buybacks of approximately 10.5 million shares.

On May 8, 2018, GAMCO’s Board of Directors declared a regular quarterly dividend of $0.02 per share payable on July 2, 2018 to its Class A and Class B shareholders of record on June 18, 2018. Additionally, the Board declared a $0.20 per share Designated Shareholder Charitable Contribution to shareholders of record as of June 30, 2018.

About GAMCO Investors, Inc.

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

 
The Company reported Assets Under Management as follows (in millions):
     
March 31, March 31,
2018 2017
Equities:
Open-end Funds $ 12,964 $ 13,708
Closed-end Funds 7,768 7,315
Institutional & PWM - direct (a) 12,392 13,492
Institutional & PWM - sub-advisory 5,251 5,019
SICAV (b)   527   375
Total Equities   38,902   39,909
Fixed Income:
100% U.S. Treasury Fund 1,922 1,752
Institutional & PWM   30   34
Total Fixed Income   1,952   1,786
Total Assets Under Management $ 40,854 $ 41,695

(a)

 

Includes $212 million and $292 million of 100% U.S. Treasury Fund AUM at March 31, 2018 and March 31, 2017, respectively.

(b)

Adjusted to include Merger Arbitrage assets of $326 million at March 31, 2017.

 
         
Table I: Fund Flows - 1st Quarter 2018
Fund
Market distributions,
December 31, appreciation/ Net cash net of March 31,
2017 (depreciation) flows reinvestments 2018
Equities:
Open-end Funds $ 13,747 $ (308 ) $ (466 ) $ (9 ) $ 12,964
Closed-end Funds 8,053 (184 ) 11 (112 ) 7,768
Institutional & PWM - direct 13,420 (304 ) (724 ) - 12,392
Institutional & PWM - sub-advisory 5,432 (158 ) (23 ) - 5,251
SICAV   510   (4 )   21     -     527
Total Equities   41,162   (958 )   (1,181 )   (121 )   38,902
Fixed Income:
100% U.S. Treasury Fund 1,870 7 45 - 1,922
Institutional & PWM   31   -     (1 )   -     30
Total Fixed Income   1,901   7     44     -     1,952
Total Assets Under Management $ 43,063 $ (951 ) $ (1,137 ) $ (121 ) $ 40,854
 
   
Table II
 
GAMCO INVESTORS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
 
For the Quarter Ended
March 31,
2018 2017
 
Investment advisory and incentive fees $ 77,348 $ 74,989
Distribution fees and other income   10,149     10,928  
Total revenues 87,497 85,917
 
Compensation costs 25,950 25,278
Distribution costs 10,204 10,913
Other operating expenses   5,453     5,119  
Total expenses 41,607 41,310
 
Operating income before management fee 45,890 44,607
 
Investment income (4,855 ) 509
Interest expense   (1,200 )   (2,832 )
Other expense, net   (6,055 )   (2,323 )
 
Income before management fee and income taxes 39,835 42,284
Management fee expense   4,634     2,164  
Income before income taxes 35,201 40,120
Income tax expense   7,940     15,300  
Net income attributable to GAMCO Investors, Inc. $ 27,261   $ 24,820  
 
Net income per share attributable to GAMCO Investors, Inc.:
Basic $ 0.94   $ 0.86  
 
Diluted $ 0.94   $ 0.82  
 
Weighted average shares outstanding:
Basic   28,916     28,970  
 
Diluted   28,916     31,160  
 
Actual shares outstanding (a)   28,855     29,334  
 
Notes:
(a) Includes 0 and 420,240 of RSAs, respectively.
 
See GAAP to non-GAAP reconciliation on page 6.
 
           
Table III
GAMCO INVESTORS, INC.
UNAUDITED QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
 
2018 2017
1st 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Full Year
Income Statement Data:
 
Revenues $ 87,497 $ 85,917 $ 87,600 $ 88,341 $ 98,666 $ 360,524
 
Expenses   41,607     41,310     45,584     60,013     54,931     201,838  
 

Operating income before management fee

45,890 44,607 42,016 28,328 43,735 158,686
 
Investment income (4,855 ) 509 537 (271 ) (2,747 ) (1,972 )
Interest expense   (1,200 )   (2,832 )   (2,749 )   (2,688 )   (1,891 )   (10,160 )
Other expense, net (6,055 ) (2,323 ) (2,212 ) (2,959 ) (4,638 ) (12,132 )
 

Income before management fee and income taxes

39,835 42,284 39,804 25,369 39,097 146,554
Management fee expense   4,634     2,164     2,356     4,935     4,211     13,666  
Income before income taxes 35,201 40,120 37,448 20,434 34,886 132,888
Income tax expense   7,940     15,300     14,554     3,834     21,391     55,079  

Net income attributable to GAMCO Investors, Inc.

$ 27,261   $ 24,820   $ 22,894   $ 16,600   $ 13,495   $ 77,809  
 

Net income per share attributable to GAMCO Investors, Inc.:

Basic $ 0.94   $ 0.86   $ 0.79   $ 0.57   $ 0.46   $ 2.68  
 
Diluted $ 0.94   $ 0.82   $ 0.76   $ 0.55   $ 0.46   $ 2.60  
 
Weighted average shares outstanding:
Basic   28,916     28,970     28,896     28,926     29,103     28,980  
 
Diluted   28,916     31,160     31,100     31,173     30,336     30,947  
 

Reconciliation of non-GAAP financial measures to GAAP:

Operating income before management fee

45,890 44,607 42,016 28,328 43,735 158,686
Deduct: management fee expense   4,634     2,164     2,356     4,935     4,211     13,666  
Operating income $ 41,256   $ 42,443   $ 39,660   $ 23,393   $ 39,524   $ 145,020  
 

Operating margin before management fee

  52.4 %   51.9 %   48.0 %   32.1 %   44.3 %   44.0 %

Operating margin after management fee

  47.2 %   49.4 %   45.3 %   26.5 %   40.1 %   40.2 %
 
Notes on Non-GAAP Financial Measures:
Operating income before management fee 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.
 
     
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,
2018 2017 2017
 
ASSETS
 
Cash and cash equivalents $ 27,383 $ 17,821 $ 88,230
Investments 31,407 36,790 33,190
Receivable from brokers 1,876 1,578 523
Other receivables 33,014 45,621 36,554
Income tax receivable and deferred tax asset 12,878 15,615 12,829
Other assets   10,435     10,861     11,196  
 
Total assets $ 116,993   $ 128,286   $ 182,522  
 
LIABILITIES AND EQUITY
 
Payable to brokers $ 164 $ 14,926 $ 10,022
Income taxes payable and deferred tax liabilities 7,491 3,128 19,787
Compensation payable (a) 84,333 82,907 42,295
Accrued expenses and other liabilities   33,477     34,454     34,508  
Sub-total 125,465 135,415 106,612
 
5.875% Senior notes (due June 1, 2021) 24,150 24,144 24,126
4.5% Convertible note (due August 15, 2021) - - 109,844
4% PIK note (due November 30, 2020) 40,000 50,000 90,000
1.6% AC Note (due February 28, 2018)   -     15,000     -  
Total debt   64,150     89,144     223,970  
Total liabilities 189,615 224,559 330,582
 
GAMCO Investors, Inc.'s stockholders' deficit   (72,622 )   (96,273 )   (148,060 )
 
Total liabilities and equity $ 116,993   $ 128,286   $ 182,522  
 

(a)

 

Excludes $39.1 million, $59.0 million and $59.4 million of DCCA expense that is not yet recorded under GAAP as of March 31, 2018, December 31, 2017 and March 31, 2017, respectively.

 

Non-GAAP information and reconciliation:

GAMCO’s non-GAAP measures include adjusted operating income, adjusted income before taxes, adjusted effective tax rate, adjusted net income and adjusted net income per fully diluted share. GAMCO’s calculation of these non-GAAP measures may not be comparable to similarly titled measures of other companies due to potential differences between companies in the method of calculation. As a result, the use of these non-GAAP measures has limitations and should not be considered superior to, in isolation from, or a substitute for, related U.S. GAAP measures.

These non-GAAP measures allow management and investors to view operating trends, perform analytical comparisons and benchmark performance between periods to understand operating performance without regard to items that we do not consider to be a component of our core operating performance. Management uses these measures in its financial, investment and operational decision-making processes, for internal reporting and as part of its forecasting and budgeting processes. For these reasons we believe these non-GAAP measures are useful for our investors.

Adjusted operating income, adjusted income before taxes, adjusted effective tax rate, adjusted net income and adjusted net income per fully diluted share can be used by investors to review our results on a consistent basis. Examples of adjustments to these measures include the GAAP impact of the 2016 Deferred Cash Compensation Agreement (“DCCA”), First Half 2017 DCCA, and the Fourth Quarter 2017 DCCA that were put in place to enable the Company to more quickly pay down its debt.

The following tables reconcile adjusted income before taxes, adjusted effective tax rate, adjusted net income and adjusted net income per share to their closest GAAP equivalent:

         
For the three months ended March 31, 2018
Impact of Impact of
Reported Fourth Quarter First Half Impact of
GAAP 2017 DCCA 2017 DCCA 2016 DCCA Adjusted
 
Total revenues $ 87,497 $ - $ - $ - $ 87,497
 
Compensation costs 25,950 (1,391 ) 213 3,016 27,788
Distribution costs 10,204 - - - 10,204
Other operating expenses   5,453     -     -     -     5,453  
Total expenses 41,607 (1,391 ) 213 3,016 43,445
 
Operating income before management fee 45,890 1,391 (213 ) (3,016 ) 44,052
 
Other expense, net (6,055 ) - - - (6,055 )
 
Income before management fee and income taxes 39,835 1,391 (213 ) (3,016 ) 37,997
Management fee expense   4,634     (419 )   (1,368 )   (1,030 )   1,817  
Income before income taxes 35,201 1,810 1,155 (1,986 ) 36,180
Income tax expense   7,940     409     261     (449 )   8,161  
Net income attributable to GAMCO Investors, Inc. $ 27,261   $ 1,401   $ 894   $ (1,537 ) $ 28,019  
 
Net income per share attributable to GAMCO Investors, Inc.:
Basic $ 0.94   $ 0.05   $ 0.03   $ (0.05 ) $ 0.97  
Diluted $ 0.94   $ 0.05   $ 0.03   $ (0.05 ) $ 0.97  
 
   
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  
 

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, the effects of the Tax Cuts and Jobs Act, 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, and the ongoing impacts of the Tax Cuts and Jobs Act with respect to tax rates and the non-deductibility of certain portions of NEO compensation. 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.

Contacts

GAMCO Investors, Inc.
Kieran Caterina or Diane M. LaPointe
SVPs and Co-Chief Accounting Officers
914-921-5149 or 7763
or
For further information please visit
www.gabelli.com

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