GAMCO Investors, Inc. Reports Fourth Quarter Results

GAMCO Investors, Inc. (“GAMCO” or the “Company”) (NYSE:GBL) today reported financial results for the fourth quarter and full year ended December 31, 2015. These results reflect, on a continuing operations basis, the operations of our Funds and Institutional and Private Wealth Management businesses and, on a discontinued basis, the operations of the alternative asset management and institutional research services businesses, which were spun-off on November 30, 2015 as part of Associated Capital Group, Inc. (“AC”).

Fourth quarter 2015 results from continuing operations included revenues of $90.3 million, income of $17.9 million and earnings of $0.67 per diluted share. On a comparable basis, revenues were $109.8 million, income was $26.5 million, and earnings were $1.04 per diluted share in the fourth quarter of 2014.

Average AUM were $40.3 billion for the fourth quarter of 2015 versus $41.6 billion for the third quarter of 2015 and $46.3 billion for the fourth quarter of 2014.

Associated Capital - Spin-off

AC was spun-off effective November 30, 2015. In connection with the spin-off, GAMCO, simply stated, issued a $250 million five year 4% promissory note (the “GAMCO Note”) to AC. Also as part of the spin-off, AC now owns 4.4 million shares of GAMCO Class A common stock through its majority-owned subsidiary, Gabelli Securities, Inc.

The historical Assets under Management (“AUM”) within this release exclude the AUM that are now managed by AC.

Assets Under Management

Our fourth quarter 2015 increase in AUM versus September 30, 2015 was due to market appreciation of $1.1 billion and the initial inclusion of the Dinsmore Group’s two closed-end funds of $0.2 billion partially offset by net outflows of $1.0 billion and net distributions of $0.2 billion.

Revenues

• Total revenues for the fourth quarter of 2015 were $90.3 million, compared with $109.8 million in the prior year, reflecting fees earned in investment advisory services on reduced assets and a decline in distribution and other income.
• Investment advisory fees, excluding incentive fees, were $75.0 million in the fourth quarter of 2015 versus $86.9 million in the final quarter of 2014. 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.
• Incentive fees earned were $3.7 million and $8.0 million during the fourth quarters ending December 31, 2015 and December 31, 2014, respectively.
• Distribution fees from our open-end equity funds and other income were $11.6 million for the fourth quarter 2015, down from $14.9 million in the prior year quarter.

Operating Income – Fourth Quarter – Adjusted operating margin 44.0% vs. 44.6%

Operating income, which is net of management fee expense, decreased 25.1% or $11.1 million, to $33.1 million in the fourth quarter of 2015 versus $44.2 million in the prior year period. The fourth quarter of 2015 was impacted by lower revenues and $3.5 million of incremental non-cash expenses related to RSAs (primarily due to the acceleration of vesting of 130,650 shares during the fourth quarter of 2015). Excluding those incremental costs identified above, adjusted operating income was $36.6 million in the fourth quarter of 2015, a decline of $7.6 million, from the $44.2 million in the fourth quarter of 2014.

Operating income before management fee was $36.2 million in the fourth quarter 2015 versus $48.9 million in the fourth quarter 2014. Operating margin before management fee was 40.1% versus 44.6% in the fourth quarter of 2014. Excluding the incremental $3.5 million of RSA expense, adjusted operating income before management fee was $39.7 million in the fourth quarter of 2015 as compared to $48.9 million in the fourth quarter of 2014. Adjusted operating margins, before management fee, was 44.0% in the 2015 quarter as compared to 44.6% in the 2014 quarter. 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 V included elsewhere herein.

Other income (expense)

We recognized net other expense of $5.2 million in the 2015 quarter versus an expense of $1.2 million in the fourth quarter of 2014. This is comprised of investment gains of $3.7 million in the 2015 quarter versus $0.2 million in the 2014 quarter, dividend and interest income of $0.6 million in the 2015 quarter versus $0.5 million in the 2014 quarter, and interest expense of $3.1 million in the 2015 quarter versus $2.0 million in the 2014 quarter.

Other items in the fourth quarter 2015 included:

(a) $6.4 million related to our 501(c)(3) program,
(b) $0.4 million from the repurchase of $75.8 million of the 5.875% Senior Note debt, and
(c) $0.8 million of non-cash interest expense for one month related to the GAMCO Note.

Income Taxes

The Company’s effective tax rate (“ETR”) for the quarter ended December 31, 2015 was 35.9% versus 38.3% for the quarter ended December 31, 2014. The current quarter’s ETR benefitted from the donation of securities to fund the Shareholder Designated Charitable Contribution Program. On a full year basis, the ETR for 2015 was 37.2% versus 36.7% for 2014.

Business and Investment Highlights

• On October 13, 2015, GAMCO announced that its Board of Directors had again adopted a $0.25 per share contribution under its existing Shareholder Designated Charitable Contribution Program created in 2013 for all registered shareholders. As a result of our shareholders participation in the 2015 program, GAMCO will donate $6.4 million. Under the two previous programs, GAMCO donated $10.8 million to eligible 501(c)(3) organizations on behalf of its shareholders.
• On November 1, 2015, Gabelli Funds, LLC became the advisor to the Bancroft and Ellsworth Growth and Income Funds. Tom Dinsmore, Jane O’Keeffe, and James Dinsmore will continue to manage the Bancroft and Ellsworth Growth and Income closed-end funds as well as join our convertible team.
• On December 21, 2015, GAMCO announced that the Compensation Committee of the Board of Directors had unanimously approved a deferred compensation agreement with Mario J. Gabelli, Chief Executive Officer of GAMCO. Mr. Gabelli’s variable compensation for 2016 will be in the form of Restricted Stock Units (“RSUs”) determined by the volume-weighted average price of the Company’s Class A stock during 2016. The RSU will vest 100% on January 1, 2020. As a result, in 2016, Mr. Gabelli will not be paid any cash compensation that he is entitled to under the Employment Agreement approved by shareholders on May 5, 2015, and consistent with Mr. Gabelli’s agreement since 1977. The Board decided that deferring Mr. Gabelli’s 2016 variable compensation will provide the Company with greater financial flexibility. For GAAP reporting, the Company will recognize the RSU expense ratably over the four-year vesting period, and accordingly, this reduced compensation expense will materially enhance 2016 earnings and cash flows, and reduce earnings in 2017 - 2019.
• In connection with the spin-off of AC, GAMCO entered into a tender offer for up to all of its $100 million 5.875% Senior Notes due June 1, 2021. Approximately $75.8 million of the Notes were tendered pursuant to the Offer. In connection with the Offer, GAMCO borrowed $35 million from an affiliate. The loan has a term of one year and bears interest at 90 day-LIBOR plus 3.25%, reset quarterly.

Balance Sheet

We ended the year with cash and investments of $46.7 million and debt of $309.2 million. 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 December 31, 2015, we returned $7.8 million of our earnings to shareholders through dividends and stock repurchases. We repurchased 105,140 shares, 91,740 shares at an average price of $57.53 per share prior to the spin-off of AC and 13,400 shares at an average price of $32.56 subsequent to the spin-off of AC, for a total investment of $5.7 million and distributed $2.1 million in dividends. Since our IPO, in February 1999, we have returned $914 million in total to shareholders comprised of $486 million in the form of dividends and $428 million through stock buybacks of 9,552,653.

On February 17, 2016, GAMCO’s Board of Directors declared a regular quarterly dividend of $0.02 per share payable on March 29, 2016 to its Class A and Class B shareholders of record on March 15, 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

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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