GAMCO Investors, Inc. Reports First Quarter Results

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.

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 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 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 firm’s 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 £100 million. The Trust is the firm’s 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, GAMCO’s 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

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.