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GAMCO Investors posts Q4 2017 results

Feb 07, 2018 (MarketLine via COMTEX) --

GAMCO Investors has reported fourth quarter 2017 revenues of $98.7 million, net income of $13.5 million, and earnings of $0.46 per diluted share.

This compares to fourth quarter 2016 revenues of $100.0 million, net income of $32.7 million, and earnings of $1.07 per diluted share. On an adjusted basis, fourth quarter 2017 net income was $23.1 million, and earnings were $0.78 per diluted share versus fourth quarter 2016 net income of $23.6 million and earnings of $0.78 per diluted share. Adjusted net income and adjusted earnings per share are non-GAAP performance measures and are explained and reconciled with the most comparable GAAP numbers starting on page 11.Our fourth quarter 2017 AUM was up 7.8% from the prior year and unchanged from $43.1 billion at September 30, 2017. Market appreciation of $1.2 billion was offset by net outflows of $1.1 billion and distributions, net of reinvestments, of $0.1 billion.Average AUM was $43.0 billion for the fourth quarter of 2017 versus $42.3 billion for the third quarter of 2017 and $39.3 billion for the fourth quarter of 2016.As previously disclosed, the Company entered into deferred compensation agreements for the Chief Executive Officer for three distinct periods: 2016 (entire year); the first half of 2017 and the fourth quarter of 2017. These agreements provided the Company with increased flexibility to pay down debt related to the spin-off of Associated Capital in November 2015. The deferred compensation expense is recognized ratably over its vesting period, resulting in a $12.7 million increase in compensation expense and management fee year-over-year. The Company also incurred expenses in the fourth quarter of 2017 relating to the revaluation of deferred tax assets and liabilities, net, related to the Tax Cuts and Jobs Act (the "Act") ($8.2 million), early extinguishment of the $110 million 4.5% convertible note ($3.3 million) and the accelerated vesting of RSAs ($1.3 million).This contributed to lowering operating income to $39.5 million in the fourth quarter of 2017 from the $52.0 million in the year-ago quarter.RevenuesTotal revenues for the fourth quarter of 2017 were $98.7 million compared with $100.0 million in the prior year.Investment advisory fees, excluding incentive fees, rose to $78.7 million in the fourth quarter of 2017 from $73.6 million in the fourth quarter of 2016 highlighted by revenues from our open-end and closed-end funds of $51.1 million, an increase from $47.5 million in the year-ago quarter. Institutional and Private Wealth Management accounted for $26.2 million of the revenues in 2017 compared to $25.3 million in 2016. SICAV revenues accelerated to $1.4 million in 2017 from $0.7 million in 2016.Incentive fees earned were $9.1 million and $15.3 million during the fourth quarter ended December 31, 2017 and December 31, 2016, respectively.Distribution fees from our open-end equity funds and other income were $10.9 million for the fourth quarter of 2017 versus $11.1 million in the prior-year quarter.Operating IncomeAs noted, there were several distinct items in both quarters that impacted our results. Operating income before management fee was $39.5 million in the fourth quarter of 2017 versus $52.0 million in the prior-year period. The cash compensation deferrals raised operating costs by $12.7 million, comprised of the absence of the $14.6 million expense in the fourth quarter of 2016 coupled with a $1.9 million expense reduction in the fourth quarter of 2017. The Company also recorded $1.3 million of compensation expense for the acceleration of most of the RSAs outstanding. Excluding these items adjusted operating income before management fee was $38.5 million in the fourth quarter of 2017 versus $37.5 million in the year-ago quarter.Other expenseWe recognized $4.6 million in net other expenses in the fourth quarter of 2017 versus net other expenses of $1.5 million in the fourth quarter of 2016. During the fourth quarter of 2017, we repurchased the $110 million convertible note at $103, resulting in a $3.3 million loss on extinguishment of debt. In the fourth quarter of 2017, we also made $0.3 million of charitable contributions. Interest expense decreased by $1.0 million year-over-year, reflecting a reduction in outstanding debt to $89.1 million at December 31, 2017 from $234.0 million at December 31, 2016. Investment income for 2017 was $0.8 million vs. $1.5 million in 2016.Income TaxesThe Company's effective tax rate ("ETR") for the quarter ended December 31, 2017 was 61.3% versus 35.4% for the quarter ended December 31, 2016. The Act that was enacted in December 2017 resulted in an $8.2 million, or $0.27 per fully diluted share, write down of net deferred tax assets. Absent this change the effective rate for the quarter would have been 37.8%.Included in the fourth quarter 2017 income tax expense relating to the Act enacted in the United States in December 2017 were the following:$10.7 million tax expense related to the revaluation of certain deferred income tax assets;$2.5 million non-cash tax benefit related to the revaluation of certain deferred income tax liabilitiesThese amounts, which are based on reasonable estimates, may require further adjustments as additional guidance from the U.S. Department of Treasury is provided, as changes in GAMCO's assumptions occur, and as further information and interpretations become available.In addition, the fourth quarter income tax expense included a $0.5 million discrete tax expense related to the acceleration of stock-based compensation awards.We previously disclosed an estimated ETR for 2018 of between 33% and 36%. We now expect the 2018 ETR to be lower than that range, but we continue to evaluate the impact of the Act's provisions.Balance SheetGAMCO made substantial progress in reducing its debt since the November 2015 spin-off of Associated Capital Group, Inc. from $357 million to $89.1 million as of December 31, 2017. As a result, Standard & Poor's recently revised its outlook to stable from negative and reaffirmed our debt rating at BBB-.During the quarter, we fully extinguished the $110 million 4.5% convertible note and prepaid $20 million of the amount outstanding on the 4% PIK note.Total deferred compensation payable at December 31, 2017 was $120.5 million, of which $61.5 million is included in the GAAP balance sheet and $59.0 million of which will be recorded in 2018 and 2019, ratably over the vesting periods of each of the three deferral agreements, in accordance with GAAP.We ended the quarter with cash of $17.8 million, investments of $36.8 million, and gross debt of $89.1 million. We have $500 million available on our universal shelf registration. Together with earnings from operations, the shelf provides us with flexibility to pay down debt, do acquisitions, perform lift-outs, seed new investment strategies, and co-invest, as well as to fund shareholder compensation, including share repurchases and dividends.Deferred CompensationGAMCO entered into a third agreement with its Chief Executive Officer on September 30, 2017, which deferred his cash compensation for the fourth quarter of 2017 until April 2019 under similar terms to the prior two deferrals.Total deferred compensation payable at December 31, 2017 was $120.5 million, of which $61.5 million is included in the GAAP balance sheet and $59.0 million of which will be recorded in 2018 and 2019, ratably over the vesting periods of each of the three deferral agreements, in accordance with GAAP.Returns to ShareholderDuring the quarter ended December 31, 2017, we repurchased 194,226 shares at an average price of $29.33 per share for a total investment of $5.7 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, $491.0 million in the form of dividends, and $453.1 million through stock buybacks of approximately 10.4 million shares.On February 6, 2018, GAMCO's Board of Directors declared a regular quarterly dividend of $0.02 per share payable on March 27, 2018 to its Class A and Class B shareholders of record on March 13, 2018.Business HighlightsOn October 26, 2017, the GAMCO Natural Resources, Gold & Income Trust completed its offering of $30 million of 5.2% Series A Cumulative Preferred Stock. The preferred stock is perpetual, non-callable for five years, and was issued at $25 per share.During December 2017, the Company completed two rights offerings for two of its closed-end funds, The Gabelli Equity Trust Inc. and The Gabelli Global Small and Mid Cap Value Trust, which raised a combined $203 million. Both offerings were heavily oversubscribed.We will be launching our third exchange traded managed fund, the Gabelli RBINextSharesTrust (the "Fund"). The Fund will invest primarily in equity securities, such as common stock of domestic and foreign services and equipment companies focused on physical asset development, including roads, bridges, and infrastructure ("RBI").

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