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GAMCO Investors, Inc. Reports First Quarter Results

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GAMCO Investors, Inc. (GAMCO) (NYSE:GBL) today reported its 2015 first quarter results including revenues of $103.8 million, net income of $24.8 million and earnings of $0.97 per diluted share. On a comparable basis, revenues were $104.5 million, net income was $28.0 million, and earnings were $1.09 per diluted share in the first quarter of 2014.

Assets Under Management (AUM) were $46.5 billion at March 31, 2015 versus $47.5 billion at December 31, 2014 and $47.6 billion at March 31, 2014.

Financial Highlights Q1 Q1
($’s in 000’s except AUM and per share data) 2015 2014

%

AUM – end of period (in millions) $ 46,540 $ 47,555 (2.1 %)
AUM – average (in millions) 46,772 46,967 (0.4 )
Revenues 103,845 104,477 (0.6 )
Operating income before management fee (a) 38,382 (b) 41,227 (6.9 )
Operating margin before management fee 37.0 % 39.5 %
Operating income 33,945 (b) 36,499 (7.0 )
Operating margin 32.7 % 34.9 %
Other income/(expense), net 5,993 6,093
Income before income taxes 39,938 42,592 (6.2 )
Effective tax rate 38.0 % 34.3 %
Net income 24,776 27,954 (11.4 )
Net income per share $ 0.97 $ 1.09 (11.0 %)
Shares outstanding at March 31 25,810 25,985
(a) See GAAP to non-GAAP reconciliation on page 9.
(b) First quarter 2015 included $2.5 million of incremental costs as compared to first quarter 2014:
$1.0 million for the launch of new closed-end fund; $0.9 million for potential firm restructuring;
and $0.6 million in non-cash RSA expense.

Assets Under Management

% Change From
March 31, December 31, March 31, December 31, March 31,
2015 2014 2014 2014 2014
Equities:
Open-end Funds $ 16,643 $ 17,684 $ 17,531 (5.9 %) (5.1 %)
Closed-end Funds 7,071 6,949 6,967 1.8 1.5
Institutional & PWM – direct 16,407 16,597 16,403 (1.1 ) 0.0
Institutional & PWM – sub-advisory 3,814 3,704 3,822 3.0 (0.2 )
Investment Partnerships 928 905 865 2.5 7.3
SICAV (a) 105 135 91 (22.2 ) 15.4
Total Equities 44,968 45,974 45,679 (2.2 ) (1.6 )
Fixed Income:
Money-Market Fund 1,520 1,455 1,812 4.5 (16.1 )
Institutional & PWM 52 58 64 (10.3 ) (18.8 )
Total Fixed Income 1,572 1,513 1,876 3.9 (16.2 )
Total Assets Under Management $ 46,540 $ 47,487 $ 47,555 (2.0 ) (2.1 )
(a) Includes $40 million, $71 million and $88 million of seed capital at March 31, 2015, December 31, 2014 and March 31, 2014, respectively.

Our first quarter 2015 decrease in AUM was due to net outflows of $1.4 billion and open- and closed-end fund net distributions of $143 million partially offset by market appreciation of $604 million.

Revenues

  • Total revenues for the first quarter of 2015 were $103.8 million, down 0.6% from $104.5 million in the prior year reflecting lower fees earned in distribution and other income partially offset by an increase in investment advisory and institutional research services.
  • Investment advisory fees increased to $88.0 million in the first quarter of 2015 from $87.8 million in the comparable 2014 quarter. Revenues in our investment partnerships and closed-end funds rose on higher levels of average AUM which were partially offset by a decline of average AUM in our open-end funds and lower billable assets in our institutional and private wealth management accounts.
  • Incentive fees earned were $0.5 million during the 2015 quarter, slightly ahead of the $0.4 million reported in the first quarter of 2014.
  • Distribution fees from our open-end equity mutual funds and other income were $13.7 million for the first quarter 2015, a decrease of $1.2 million, or 7.6%, from $14.9 million in the prior year quarter. Driving this decrease is a shift to Class I shares, typically available to institutional investors and retirement plan participants, for which we do not collect a distribution fee. Average AUM in other classes of open-end equity funds, for which we do collect a distribution fee, declined 8.3% quarter over quarter.
  • Our institutional research services revenues were $2.1 million in the first quarter 2015, rising 14.3% from $1.8 million in the prior year period.

Operating Income First Quarter

Operating income, which is net of management fee expense decreased 7.0%, or $2.6 million, to $33.9 million in the first quarter of 2015 versus $36.5 million in the prior year period. The first quarter of 2015 was impacted by $2.5 million of incremental costs: $1.0 million of costs incurred to launch a new London Stock Exchange closed-end fund; $0.9 million related to a potential firm restructuring; and $0.6 million in incremental non-cash expenses related to RSAs issued subsequent to the first quarter of 2014. The 2014 quarter also benefitted from $0.4 million in insurance reimbursements for expenses incurred and reported in prior years. Excluding those costs identified above, adjusted operating income was $36.4 million in the first quarter of 2015, an increase of $0.3 million, from the $36.1 million in the first quarter of 2014. Management fee expense, which is entirely variable, is based on pre-tax income.

Operating income before management fee was $38.4 million in the first quarter 2015 versus $41.2 million in the first quarter 2014. Operating margin before management fee was 37.0% versus 39.5% in the first quarter of 2014. Excluding those costs identified above, adjusted operating income before management fee was $40.8 million in both the first quarters of 2015 and 2014. Operating margins, before management fee and adjusted for those items identified above, increased to 39.3% versus 39.0% in the first quarter of 2014. Management believes evaluating operating income before management fee is an important measure in analyzing the Companys operating results. Further information regarding Non-GAAP measures is included in Notes on Non-GAAP Financial Measures and Table III included elsewhere herein.

Other income (expense)

We recognized other income of $6.0 million in the 2015 quarter versus $6.1 million in the first quarter of 2014. Investment gains were $7.0 million in the 2015 quarter versus $6.9 million in the 2014 quarter. Dividend and interest income remained the same at $1.1 million in the 2015 and 2014 quarters.

Income Taxes

The firms effective tax rate (ETR) for the quarter ended March 31, 2015 was 38.0% versus 34.3% for the quarter ended March 31, 2014 and 37.3% for the full year 2014. The first quarter 2014 ETR reflected a benefit related to donated appreciated securities which did not occur in the 2015 quarter.

Business and Investment Highlights

  • On February 19, 2015, we completed the offering of The Gabelli Value Plus+ Trust (the Trust), a London Stock Exchange listed closed-end fund, raising over lb100 million. The Trust is the firms first direct closed-end fund in the U.K. investment community. The Trust invests in U.S. equities.
  • During the first quarter, G.research, Inc. hosted several conferences, including our 25th annual Pump, Valve & Motor Symposium, our 9th Annual Omaha Research Trip, our 6th Annual Specialty Chemicals Conference and our inaugural Waste & Environmental Services Symposium.
  • On April 10, 2015, we announced that our Board of Directors approved the next step in the process of splitting the Company into two separate public companies.
  • The GAMCO Global Growth Fund (GGGIX) received top honors from Lipper in the Global Large-Cap Growth Fund category for the second year in a row for its three-year and five-year risk-adjusted returns.

Balance Sheet

We ended the quarter with cash and investments, excluding noncontrolling interests, of $710.0 million, debt of $109.9 million ($110.4 million face value) and equity attributable to GAMCO shareholders of $546.6 million. We renewed our universal shelf registration for $500 million which will expire in May 2018. 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, 2015, we returned $5.0 million of our earnings to shareholders through dividends and stock repurchases. We repurchased 41,393 shares at an average price of $77.19 per share, for a total investment of $3.2 million and distributed $1.8 million in dividends. Since our IPO, in February 1999, we have returned nearly $885 million in total to shareholders of which $481 million was in the form of dividends and $404 million was through stock buybacks of 9,167,418 shares at an average investment of $44.07 per share.

On May 5, 2015, GAMCOs Board of Directors declared a regular quarterly dividend of $0.07 per share payable on June 30, 2015 to its Class A and Class B shareholders of record on June 16, 2015.

About GAMCO Investors, Inc.

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

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 Companys proprietary investment portfolio and interest expense. The reconciliation of operating income before management fee expense to operating income is provided in Table III.
B. Operating income before management fee expense per share and other income/(expense), net per share are used by management for purposes of evaluating its business operations. We believe these measures are useful in comparing the operating and non-operating results of the Company for the purposes of understanding the composition of net income per fully diluted share. The swings in other income/(expense), net of ($0.02) per fully diluted share for the quarter was derived by making certain necessary adjustments, as shown in the table below, to arrive at a net impact for each period and then calculating the difference. The reconciliation of operating income before management fee expense per share and other income/(expense), net per share to net income per fully diluted share, is provided below.
1st Quarter
2015 2014
Operating income before management fee $ 38,382 $ 41,227
Management fee expense (3,838 ) (4,119 )
Tax expense (13,129 ) (12,734 )
Noncontrolling interest expense 61 117
Operating income (after management fee and taxes) 21,476 24,491
Per fully diluted share $ 0.85 $ 0.95
Other income, net $ 5,993 $ 6,093
Management fee expense (599 ) (609 )
Tax expense (2,050 ) (1,882 )
Noncontrolling interest (expense)/benefit (44 ) (139 )
Other income, net (after management fee and taxes) $ 3,300 $ 3,463
Per fully diluted share $ 0.12 $ 0.14
Net income per fully diluted share $ 0.97 $ 1.09
Diluted weighted average shares outstanding 25,414 25,684
C.

Adjusted operating income and adjusted operating income before management fee expense is used by management to evaluate its ongoing business operations. We believe this measure is useful in evaluating the ongoing operating results of the Company absent any of these adjustments..

1st Quarter
2015 2014
Operating income $ 33,945 $ 36,499
Adjustments:
Add back: Incremental RSA expense 577
Costs to launch Closed-end fund 1,000
Costs related to firm restructuring 850
Deduct: Reimbursement of prior year expense (438 )
Adjusted operating income 36,372 36,061
Adjusted operating margin 35.0 % 34.5 %
1st Quarter
2015 2014
Operating income before management fee $ 38,382 $ 41,227
Adjustments:
Add back: Incremental RSA expense 577
Costs to launch Closed-end fund 1,000
Costs related to firm restructuring 850
Deduct: Reimbursement of prior year expense (438 )
Adjusted operating income before management fee 40,809 40,789
Adjusted operating margin before management fee 39.3 % 39.0 %
The Company reported Assets Under Management as follows (in millions):
Table I: Fund Flows – 1st Quarter 2015
Fund
Market distributions,
December 31, appreciation/ Net cash net of March 31,
2014 (depreciation) flows reinvestments 2015
Equities:
Open-end Funds $ 17,684 $ 185 $ (1,199 ) $ (27 ) $ 16,643
Closed-end Funds 6,949 93 145 (116 ) 7,071
Institutional & PWM – direct 16,597 140 (330 ) 16,407
Institutional & PWM – sub-advisory 3,704 172 (62 ) 3,814
Investment Partnerships 905 19 4 928
SICAV (a) 135 (5 ) (25 ) 105
Total Equities 45,974 604 (1,467 ) (143 ) 44,968
Fixed Income:
Money-Market Fund 1,455 65 1,520
Institutional & PWM 58 (6 ) 52
Total Fixed Income 1,513 59 1,572
Total Assets Under Management $ 47,487 $ 604 $ (1,408 ) $ (143 ) $ 46,540
(a) Includes $40 million, $71 million and $88 million of seed capital at March 31, 2015, December 31, 2014 and March 31, 2014, respectively.
Table II
GAMCO INVESTORS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
For the Quarter Ended March 31,
% Inc.
2015 2014 (Dec.)
Investment advisory and incentive fees $ 88,037 $ 87,797 0.3 %
Distribution fees and other income 13,743 14,873 (7.6 )
Institutional research services 2,065 1,807 14.3
Total revenues 103,845 104,477 (0.6 )
Compensation costs 44,494 43,897 1.4
Distribution costs 14,283 13,963 2.3
Other operating expenses 6,686 5,390 24.0
Total expenses 65,463 63,250 3.5
Operating income before management fee 38,382 41,227 (6.9 )
Investment income 8,012 8,085
Interest expense (2,019 ) (1,992 )
Other income, net 5,993 6,093
Income before management fee and income taxes 44,375 47,320 (6.2 )
Management fee expense 4,437 4,728
Income before income taxes 39,938 42,592 (6.2 )
Income tax expense 15,179 14,616
Net income 24,759 27,976 (11.5 )
Net income (loss) attributable to noncontrolling interests (17 ) 22
Net income attributable to GAMCO Investors, Inc. $ 24,776 $ 27,954 (11.4 )
Net income per share attributable to GAMCO Investors, Inc.:
Basic $ 0.99 $ 1.10 (10.0 )
Diluted $ 0.97 $ 1.09 (11.0 )
Weighted average shares outstanding:
Basic 25,132 25,481 (1.4 )
Diluted 25,414 25,684 (1.1 )
Actual shares outstanding (a) 25,810 25,985 (0.7 )
Notes:
(a) Includes 707,050 and 566,850 of RSAs, respectively.
See GAAP to non-GAAP reconciliation on page 9.
Table III
GAMCO INVESTORS, INC.
UNAUDITED QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
2015 2014
1st 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Full Year
Income Statement Data:
Revenues $ 103,845 $ 104,477 $ 108,296 $ 110,858 $ 116,751 $ 440,382
Expenses 65,463 63,250 65,615 63,516 69,848 262,229
Operating income before
management fee 38,382 41,227 42,681 47,342 46,903 178,153
Investment income/(loss) 8,012 8,085 11,076 (8,002 ) 5,119 16,278
Interest expense (2,019 ) (1,992 ) (2,021 ) (1,987 ) (2,049 ) (8,049 )
Shareholder-designated contribution (134 ) (134 )
Other income/(expense), net 5,993 6,093 8,921 (9,989 ) 3,070 8,095
Income before management
fee and income taxes 44,375 47,320 51,602 37,353 49,973 186,248
Management fee expense 4,437 4,728 5,144 3,756 4,999 18,627
Income before income taxes 39,938 42,592 46,458 33,597 44,974 167,621
Income tax expense 15,179 14,616 17,135 13,045 17,709 62,505
Net income 24,759 27,976 29,323 20,552 27,265 105,116
Net income/(loss) attributable
to noncontrolling interests (17 ) 22 373 (3,113 ) (1,556 ) (4,274 )
Net income attributable to
GAMCO Investors, Inc. $ 24,776 $ 27,954 $ 28,950 $ 23,665 $ 28,821 $ 109,390
Net income per share
attributable to GAMCO
Investors, Inc.:
Basic $ 0.99 $ 1.10 $ 1.14 $ 0.94 $ 1.14 $ 4.32
Diluted $ 0.97 $ 1.09 $ 1.13 $ 0.93 $ 1.13 $ 4.28
Weighted average shares outstanding:
Basic 25,132 25,481 25,381 25,296 25,184 25,335
Diluted 25,414 25,684 25,586 25,517 25,449 25,558
Reconciliation of non-GAAP
financial measures to GAAP:
Operating income before
management fee 38,382 41,227 42,681 47,342 46,903 178,153
Deduct: management fee expense 4,437 4,728 5,144 3,756 4,999 18,627
Operating income $ 33,945 $ 36,499 $ 37,537 $ 43,586 $ 41,904 $ 159,526
Operating margin before
management fee 37.0 % 39.5 % 39.4 % 42.7 % 40.2 % 40.5 %
Operating margin after
management fee 32.7 % 34.9 % 34.7 % 39.3 % 35.9 % 36.2 %
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,
2015 2014 2014
ASSETS
Cash and cash equivalents $ 331,634 $ 298,224 $ 243,142
Investments (a) 386,562 406,711 382,696
Receivable from brokers 21,615 76,079 54,084
Other receivables 41,231 67,228 41,650
Income tax receivable 2,443 2,477 445
Other assets 16,422 15,711 17,803
Total assets $ 799,907 $ 866,430 $ 739,820
LIABILITIES AND EQUITY
Payable to brokers $ 10,174 $ 43,409 $ 11,370
Income taxes payable and deferred tax liabilities 32,830 27,939 41,427
Compensation payable 43,394 39,983 41,447
Securities sold short, not yet purchased 8,569 10,595 10,788
Accrued expenses and other liabilities 40,150 36,212 37,303
Sub-total 135,117 158,138 142,335
5.875% Senior notes (due June 1, 2021) 100,000 100,000 100,000
0% Subordinated Debentures (due December 31, 2015) (b) 9,936 12,163 12,098
Total debt 109,936 112,163 112,098
Total liabilities 245,053 270,301 254,433
Redeemable noncontrolling interests 5,519 68,334 8,464
GAMCO Investors, Inc.’s stockholders’ equity 546,609 525,061 474,112
Noncontrolling interests 2,726 2,734 2,811
Total equity 549,335 527,795 476,923
Total liabilities and equity $ 799,907 $ 866,430 $ 739,820
(a) Includes investments in sponsored registered investment companies of $120.8 million, $39.5 million and $42.4 million, respectively.
(b) The 0% Subordinated Debentures due December 31, 2015 have a face value of $10.4 million, $13.1 million and $13.8 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.

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