Wright Investors Service Holdings, Inc. (IWSH)·Q3 2017 Earnings Summary

Executive Summary

• Q3 revenue declined modestly year over year to $1.36M (−3.8% YoY) but improved sequentially versus Q2 ($1.32M), while net loss narrowed to $(0.21)M from $(0.40)M YoY and from $(0.48)M in Q2, reflecting disciplined cost controls .
• Adjusted EBITDA improved sharply: consolidated Adjusted EBITDA loss narrowed to $(0.02)M vs $(0.20)M YoY, and the operating segment posted $0.32M Adjusted EBITDA vs $0.23M YoY; operating loss improved to $(0.19)M from $(0.40)M YoY .
• AUM ticked up to $1.31B at 9/30 from $1.25B at year-end, driven by $110M market gains and $83M deposits offset by $130M redemptions; cash remained robust at $6.14M, supporting operations and potential acquisitions .
• Forward watch items: Wright Mutual Funds eliminated 12b-1 and shareholder service fees effective Oct 1, 2017, a structural headwind to mutual fund distribution revenue within “Other investment advisory services” going forward .

What Went Well and What Went Wrong

• What Went Well

  • Cost discipline drove narrower losses: operating loss improved to $(0.19)M from $(0.40)M YoY on lower compensation and other operating expenses (−$130k and −$131k YoY, respectively) .
  • Operating segment profitability improved: segment Adjusted EBITDA rose to $0.32M from $0.23M YoY, with consolidated Adjusted EBITDA loss narrowing to $(0.02)M from $(0.20)M YoY .
  • Management tone on execution: “Our operating results have continued to improve due to reduced operating costs. We are committed to our goal of increasing assets under management…” — CEO Harvey Eisen .

• What Went Wrong

  • Revenue pressure persisted: total revenue fell 3.8% YoY to $1.36M, driven by declines in “Other investment advisory services” (−$138k YoY in Q3), primarily from lower Wright Mutual Funds fees tied to reduced fund AUM .
  • Mix headwind: mutual fund distribution/management fees declined and will face an additional headwind from the elimination of 12b-1 and shareholder services fees effective Oct 1, 2017 .
  • Continued net losses: despite improvement, the company remained loss-making with Q3 net loss of $(0.21)M and YTD net loss of $(1.09)M .

Financial Results

Revenue mix by line of business

Non-GAAP definitions and reconciliation highlights

• EBITDA is net income plus interest, taxes, depreciation and amortization; Adjusted EBITDA further excludes non-cash equity comp and non-recurring items (software implementation, relocation and severance, impairment of investment in LLC), and the company presents both consolidated Adjusted EBITDA and operating-segment Adjusted EBITDA (before corporate expenses) .

Guidance Changes

Note: No formal quantitative revenue/EPS/margin guidance was issued in Q3 materials -.

Earnings Call Themes & Trends

Note: No Q3 2017 earnings call transcript was available; themes summarized from press releases and 10-Q.

Management Commentary

• “Our operating results have continued to improve due to reduced operating costs. We are committed to our goal of increasing assets under management in all of our business channels as well as working to improve our operating results” — Harvey Eisen, Chairman & CEO (Q3 press release) .
• Earlier in 2017: “Our operating results have improved primarily due to reduced operating costs at both the corporate level and at the operating segment… We are committed to… increasing assets under management… and will continue to identify new operating efficiencies and opportunities to invest in revenue generating activities” — Harvey Eisen (Q1 press release) .
• MD&A noted the mutual fund distribution fee elimination effective Oct 1, 2017, highlighting a structural shift in the fee model and an expected decline in mutual fund-related revenues within “Other investment advisory services” .

Q&A Highlights

No Q3 2017 earnings call transcript or Q&A was available in the document set.

Estimates Context

• Street consensus (S&P Global) for revenue/EPS was not available for Q1–Q3 2017; the company appears to have limited or no analyst coverage during this period. As a result, no versus-consensus comparisons can be presented.

KPIs and Balance Sheet

Key Takeaways for Investors

• The earnings quality improved sequentially and YoY on cost controls, with consolidated Adjusted EBITDA nearing breakeven and operating losses narrowing; watch for sustainability of expense discipline into Q4 .
• Revenue mix is shifting: investment management and research lines are stabilizing/improving, but mutual fund-related revenues declined and face a structural fee headwind post-October 1 (12b-1 elimination) .
• AUM trajectory is modestly positive YTD, aided by markets and net deposits; preserving or accelerating organic inflows is critical to re-accelerate top-line growth given mutual fund revenue pressure .
• Strong cash balance ($6.14M) provides operating runway and optionality for tuck-in acquisitions; track capital deployment and any M&A updates .
• No formal financial guidance and no visible Street coverage; near-term stock reactions likely hinge on evidence of sustained AUM growth, expense control, and clarity on replacing mutual fund fee revenues with higher-quality advisory/mandate growth .
• Monitor regulatory/legal developments (DEEP orders) though currently immaterial, and non-core investment recoveries (EGS LLC) which remain unlikely near term .

Appendices

Non-GAAP reconciliation (high level)

• Q3 2017 consolidated Adjusted EBITDA: $(0.02)M; reconciliation adds back interest, taxes, D&A ($0.11M Q3), and excludes equity comp ($0.05M); operating segment Adjusted EBITDA $0.32M before corporate costs .

Cross-references

• Q3 2017 Press Release and 8-K: revenue, EPS, net loss, segment revenue mix, Adjusted EBITDA .
• Q2 2017 8-K: revenue, EPS, Adjusted EBITDA .
• Q1 2017 8-K: revenue, EPS, Adjusted EBITDA, AUM commentary .
• Q3 2017 10-Q: comprehensive MD&A, AUM flows, cash, balance sheet, mutual fund fee change, legal/regulatory .