GAMCO Investors, Inc. Reports Results for the Second Quarter 2020
GAMCO Investors, Inc. (“GAMCO”) (NYSE: GBL) today reported its operating results for the quarter ended June 30, 2020.
Over the past several months, our business contingency plans have functioned well, allowing teammates to stay close to the companies we invest in and, at the same time, to focus on our clients. Our investment in technology has enabled the majority of our teammates to work-from-home to ensure their safety and health while allowing us to meet our clients’ needs.
Giving Back to Society
Since the inception of GAMCO’s shareholder designated charitable contribution (“SDCC”) program in 2013, shareholders have designated contributions of over $31 million to over 280 501(c)(3) initiatives, including $4.5 million paid in 2020.
This program underscores our commitment to managing socially responsible portfolios since 1987, which has evolved to include integrating ESG (environmental, social, and governance) factors into the analysis of companies and the structuring of portfolios.
Approximately $57 million has been donated to charities by GAMCO, including through our SDCC program, since our initial public offering in February 1999.
Second Quarter Results
Revenues
Financial Highlights (Unaudited) Three Months Ended (In thousands, except per share data) June 30,2020 June 30,
2019 U.S. GAAP Basis Revenues
$
57,559
$
76,407
Operating income
18,763
26,760
Net income
11,290
24,017
Diluted earnings per common share$
0.42
$
0.88
Weighted average diluted shares outstanding
26,656
27,413
Shares outstanding
27,630
27,743
Assets Under Management AUM - average (in millions)$
29,135
$
37,011
AUM - end of period (in millions)
29,356
36,924
- Total revenues for the second quarter of 2020 were $57.6 million compared with $76.4 million in the second quarter of 2019.
- Investment advisory fees were $51.5 million in the second quarter of 2020 versus $68.0 million in the second quarter of 2019:
Gabelli Funds’ revenues were $35.8 million compared to $44.2 million in the second quarter of 2019. Institutional and Private Wealth Management revenues, which are generally billed on portfolio values at the beginning of the quarter, were $14.5 million compared to $22.2 million in the year ago quarter. SICAV revenues were $1.2 million versus $1.6 million in last year’s second quarter.- Distribution fees from our equity mutual funds and other income were $6.1 million for the quarter versus $8.4 million in 2019.
Operating Income
For the quarter, operating income was $18.8 million versus $26.8 million in the year ago quarter. Amortization of deferred compensation, which includes the change in GBL share price, a non-cash charge, increased operating costs by $0.4 million in the second quarter of 2019.
Non-Operating Income
Mark to market investment gains were $0.4 million in the second quarter of 2020 versus gains of $6.0 million in the second quarter of 2019. Interest expense was $0.6 million in the second quarter of 2020 versus $0.7 million in the second quarter of 2019.
Income Taxes
GAMCO’s effective tax rate (“ETR”) for the quarter ended June 30, 2020 was 39.1% versus 25.1% for the quarter ended June 30, 2019. The ETR for the second quarter of 2020 was higher by 14.0%, primarily as a result of a 10.6% increase due to the non-deductibility of certain expenses as a result of the 2017 Tax Cuts and Jobs Act.
Business Highlights
- As a result of the COVID-19 pandemic, the majority of our teammates are working remotely. However, there has been no material impact of remote work arrangements on our operations, including our financial reporting systems, internal control over financial reporting, and disclosure controls and procedures, and there has been no material challenge in implementing our business continuity plan.
- On April 2nd, we hosted our 6th Annual Waste & Environmental Services Symposium via webcast. The timely conference featured presentations by leading companies.
- Gabelli Funds filed the registration statement for the Gabelli ActiveShares ETFs in May. These actively managed ETFs will have the same tax and operating cost advantages of mindless ETFs and will be priced intraday.
- On May 15th, we hosted our 35th GAMCO Investor Client Symposium with over 500 clients and prospects attending on a virtual basis.
- On June 4th, the 12th Annual Entertainment & Broadcasting Symposium hosted virtual presentations from more than a dozen companies in media and entertainment.
Balance Sheet
GAMCO ended the quarter with cash and investments of $128.7 million and short-term debt of $24.2 million.
Return to Shareholders
GAMCO paid $0.6 million in dividends during the second quarter of 2020 and purchased 65,704 shares at an average price of $11.74 per share, or $0.8 million in total.
On August 4, 2020, GAMCO’s board of directors declared a regular quarterly dividend of $0.02 per share, which is payable on September 29, 2020 to class A and class B shareholders of record on September 15, 2020.
About GAMCO Investors, Inc.
Since inception in 1977, GAMCO has been identified with its research driven approach to equity investing and Private Market Value (PMV) with a CatalystTM investment approach.
GAMCO conducts its investment advisory business principally through two registered investment advisor subsidiaries: Gabelli Funds, LLC (mutual and closed-end funds) and GAMCO Asset Management Inc. (Institutional and Private Wealth Management).
GAMCO provides investment advisory services through 24 mutual funds, 16 closed-end funds, a SICAV and approximately 1,600 institutional and private wealth management accounts, principally in the U.S. The investments are generally in value, growth, gold, utilities, and convertible securities.
Table I: Assets Under Management and Fund Flows - 2nd Quarter 2020 (in millions) Fund Market distributions, March 31, appreciation/ Net cash net of June 30,2020
(depreciation) flows reinvestments2020
Equities: Mutual Funds$
7,798
$
1,171
$
(310
)
$
(8
)
$
8,651
Closed-end Funds
6,084
1,005
(97
)
(133
)
6,859
Institutional & PWM (a)
10,185
1,518
(1,248
)
-
10,455
SICAV
480
37
(66
)
-
451
Total Equities
24,547
3,731
(1,721
)
(141
)
26,416
Fixed Income: 100% U.S. Treasury Fund
2,938
4
(21
)
-
2,921
Institutional & PWM
20
-
(1
)
-
19
Total Fixed Income
2,958
4
(22
)
-
2,940
Total Assets Under Management$
27,505
$
3,735
$
(1,743
)
$
(141
)
$
29,356
(a) Includes $263 and $252 of 100% U.S. Treasury Fund AUM at March 31, 2020 and June 30, 2020, respectively.
Table II GAMCO INVESTORS, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Three Months Ended Six Months Ended June 30 June 30
2020
2019
2020
2019
Investment advisory and incentive fees
$
51,470
$
67,990
$
113,743
$
133,878
Distribution fees and other income
6,089
8,417
13,383
16,865
Total revenues
57,559
76,407
127,126
150,743
Compensation costs (a) (b)
25,516
30,216
54,766
60,563
Management fee expense (a)
2,060
4,709
3,725
6,158
Distribution costs
6,634
8,605
14,264
17,275
Other operating expenses
4,586
6,117
10,288
11,374
Total expenses
38,796
49,647
83,043
95,370
Operating income
18,763
26,760
44,083
55,373
Investment income / (loss)
424
5,979
(9,269
)
4,808
Interest expense
(647
)
(655
)
(1,294
)
(1,310
)
Non-operating income / (loss)
(223
)
5,324
(10,563
)
3,498
Income before income taxes
18,540
32,084
33,520
58,871
Provision for income taxes
7,250
8,067
10,985
14,962
Net income
$
11,290
$
24,017
$
22,535
$
43,909
Net income: Basic
$
0.42
$
0.88
$
0.85
$
1.57
Diluted
$
0.42
$
0.88
$
0.84
$
1.57
Weighted average shares outstanding: Basic
26,629
27,357
26,658
27,929
Diluted
26,656
27,413
26,713
27,973
Actual shares outstanding (c)
27,630
27,743
27,630
27,743
(a) For the six months ended June 30, 2019, the CEO waiver reduced compensation costs and management fee expense by $12,178 and $1,689, respectively. (b) For the six months ended June 30, 2020, compensation costs were reduced by $1,409 due to indexing of deferred compensation to the GBL stock price. (c) Includes 1,031 RSA shares at June 30, 2020 and 668 RSA shares at June 30, 2019. Table III GAMCO INVESTORS, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands, except per share data) June 30, December 31, June 30,
2020
2019
2019
ASSETS Cash and cash equivalents$
58,117
$
86,136
$
52,008
Investments in U.S. Treasury Bills
49,963
-
-
Investments in securities
20,669
34,273
36,811
Receivable from brokers
4,677
989
4,188
Other receivables
22,501
41,557
28,176
Deferred tax asset and income tax receivable
9,032
16,389
18,250
Other assets
9,353
10,542
10,923
Total assets$
174,312
$
189,886
$
150,356
LIABILITIES AND STOCKHOLDERS' EQUITY Payable to brokers$
-
$
-
$
99
Income taxes payable and deferred tax liabilities
4,740
757
1,935
Compensation payable
30,947
64,279
65,335
Accrued expenses and other liabilities
37,978
45,942
36,189
Sub-total
73,665
110,978
103,558
Senior Notes (due June 1, 2021)
24,203
24,191
24,180
Total liabilities
97,868
135,169
127,738
Stockholders' equity (a)
76,444
54,717
22,618
Total liabilities and stockholders' equity$
174,312
$
189,886
$
150,356
(a) Shares outstanding of 27,630, 27,380, and 27,743, respectively.Non-GAAP information and reconciliation:
Management believes the use of non-GAAP measures provides relevant information to allow investors to view operating trends, perform analytical comparisons and benchmark performance between periods for its core operating results. Management uses non-GAAP measures in its financial, investing and operational decision-making process, for internal reporting and as part of its forecasting and budgeting processes. GAMCO’s calculation of non-GAAP measures may not be comparable to other companies due to potential differences between companies in the method of calculation. Non-GAAP measures should not be considered a substitute for related U.S. GAAP measures.
The following table reconciles the U.S. GAAP basis amounts, as reported, to the non-GAAP measures:
Three Months Ended(Unaudited)
(In thousands, except per share data)
June 30, 2019 Net income, U.S. GAAP basis$
24,017
Impact of DCCAs on expenses and taxes (a): Compensation costs
(603
)
Management fee expense
1,030
Provision for income taxes
(102
)
Total impact of DCCAs on expenses and taxes
325
Net income, as adjusted
$
24,342
Per fully diluted share: Net income, U.S. GAAP basis
$
0.88
Impact of DCCAs
$
0.01
Net income, as adjusted
$
0.89
(a) The non-GAAP adjustments relate to multiple DCCAs.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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 may cause our actual results to differ from our expectations include risks associated with the duration and scope of the ongoing coronavirus pandemic resulting in volatile market conditions, 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 named executive officer compensation. We also direct your attention to the more specific discussions of these and other risks, uncertainties and other important factors contained in our Annual Report on 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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