Westwood Holdings Group, Inc. Reports First Quarter 2019 Results

Evolving Toward Renewed Growth

Dallas, Texas, UNITED STATES

DALLAS, April 24, 2019 (GLOBE NEWSWIRE) -- Westwood Holdings Group, Inc. (NYSE: WHG) today reported first quarter 2019 earnings. Highlights from the quarter include:

  • Revenues of $23.9 million compared with $26.1 million in the fourth quarter and $33.6 million in last year's first quarter.
  • Net income of $0.4 million compared with $5.4 million in the fourth quarter and $8.0 million in last year's first quarter. Non-GAAP Economic Earnings of $4.1 million compared with $9.5 million in the fourth quarter and $12.6 million in the first quarter of 2018.
  • SmallCap Value, SMidCap, Emerging Markets, Market Neutral Income, Emerging Markets SMid, SMidCap Plus and Flexible Income all outperformed their primary benchmarks.
  • Top decile performance was achieved by our Market Neutral Income and Flexible Income teams and our SmallCap Value team posted top quartile performance.
  • We welcomed Adrian Helfert as Senior Vice President and Director of Multi-Asset Portfolios to lead our Multi-Asset and Income Portfolio teams.
  • We introduced Sensible Fees™ as part of a creative product initiative to offer clients attractive, risk-adjusted incentive fees in efficient asset classes.
  • At quarter-end, Westwood had $102 million in cash and short-term investments, stockholders’ equity of $156.1 million, and no debt.

Revenues of $23.9 million decreased $2.3 million from the prior year's fourth quarter on lower average assets under management ("AUM") resulting from net outflows. Revenues decreased $9.7 million from last year's first quarter on lower average AUM and lower performance-based fees.

AUM at March 31, 2019 totaled $16.8 billion compared to  $16.6 billion at December 31, 2018 and $22.6 billion at March 31, 2018.

First quarter net income of $0.4 million compared with $5.4 million in the fourth quarter, which benefited from higher asset-based fees and foreign currency transaction gains. The current quarter included higher seasonal payroll tax and benefit plan matching on bonuses paid during the first quarter. Diluted earnings per share for the first quarter of $0.05 compared to $0.64 for the fourth quarter. Non-GAAP Economic Earnings for the first quarter of $4.1 million, or $0.49 per share, compared to $9.5 million, or $1.12 per share, in the fourth quarter.

First quarter net income of $0.4 million compared with $8.0 million in last year's first quarter. The decrease is due to lower total revenues and a $0.6 million net foreign currency loss, partially offset by lower incentive compensation expense. Non-GAAP Economic Earnings decreased from $12.6 million, or $1.48 per share, in the first quarter of 2018, to $4.1 million, or $0.49 per share, in the current quarter.

Brian Casey, Westwood’s President & CEO, commented, "We are disappointed with the levels of outflows that began during 2018, but we firmly believe that we have established the right path forward to renewed growth. We continue to make significant investments in our portfolio management, sales, distribution and infrastructure teams to support strong business development. We are encouraged by the reception accorded our recently announced Sensible Fees™ pricing structure that will offer a thoughtful, risk-adjusted incentive fee structure to investors in efficient asset classes, and we continue to make solid progress with our digital platform transformation. We are working to implement our vision to combine deeper client engagement with superior operational and reporting efficiencies to better position us to face more industry disruption in the years to come."

Westwood’s Board of Directors declared a quarterly cash dividend of $0.72 per common share, payable on July 1, 2019 to stockholders of record on June 7, 2019.

Economic Earnings and Economic Earnings per Share ("Economic EPS") are non-GAAP performance measures and are explained and reconciled with the most comparable GAAP numbers in the attached tables.

Westwood will host a conference call to discuss first quarter 2019 results and other business matters at 4:30 p.m. Eastern time today. To join the conference call, dial 877-303-6235 (domestic and Canada) or 631-291-4837 (international). The conference call can also be accessed via our Investor Relations page at westwoodgroup.com and will be available for replay through October 31, 2018 by dialing 855-859-2056 (domestic and Canada) or 404-537-3406 (international) and then entering the passcode 9365934.

About Westwood

Westwood Holdings Group, Inc. provides investment management services to institutional investors, private wealth clients and financial intermediaries. The firm has $16.8 billion in assets under management, of which $2.7 billion are in values-based and socially responsible investment mandates as of March 31, 2019. Westwood offers a range of investment strategies including U.S. equities, Multi-Asset, Emerging Markets equities, Global Convertible securities and Master Limited Partnerships (MLPs) portfolios. Access to these strategies is available through separate accounts, the Westwood Funds® family of mutual funds, UCITS funds and other pooled vehicles. Westwood benefits from significant, broad-based employee ownership and trades on the New York Stock Exchange under the symbol “WHG.” Based in Dallas, Texas, Westwood also maintains offices in Toronto, Boston and Houston.

 For more information on Westwood, please visit westwoodgroup.com.

Forward-looking Statements

Statements in this press release that are not purely historical facts, including, without limitation, statements about our expected future financial position, results of operations or cash flows, as well as other statements including without limitation, words such as “anticipate,” “forecast,” “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” “could,” “goal,” “may,” “target,” “designed,” “on track,” “comfortable with,” “optimistic” and other similar expressions, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results and the timing of some events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, without limitation: the composition and market value of our assets under management; regulations adversely affecting the financial services industry; competition in the investment management industry; our assets under management includes investments in foreign companies; our ability to develop and market new investment strategies successfully; our reputation and relationships with current and potential customers; our ability to attract and retain qualified personnel; our ability to maintain effective cyber security; our ability to perform operational tasks; our ability to identify and execute on our strategic initiatives; our ability to maintain effective information systems; our ability to select and oversee third-party vendors; litigation risks; our ability to properly address conflicts of interest; our ability to maintain adequate insurance coverage; our ability to maintain an effective system of internal controls; our ability to maintain our fee structure in light of competitive fee pressures; our relationships with investment consulting firms; the significant concentration of our revenues in a small number of customers; and the other risks detailed from time to time in Westwood’s Securities and Exchange Commission filings, including, but not limited to, its annual report on Form 10-K for the year ended December 31, 2018 and its quarterly report on Form 10-Q for the quarter ended March 31, 2019. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, Westwood is not obligated to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

SOURCE:  Westwood Holdings Group, Inc.

Westwood Holdings Group, Inc.
Terry Forbes
SVP, Chief Financial Officer and Treasurer
(214) 756-6900

(in thousands, except per share and share amounts)

 Three Months Ended
 March 31,
 December 31,
 March 31,
Advisory fees:     
Asset-based$16,406  $19,388  $24,483 
Performance-based180    1,335 
Trust fees6,539  6,688  7,609 
Other, net737  43  140 
Total revenues23,862  26,119  33,567 
Employee compensation and benefits14,610  13,102  17,759 
Sales and marketing530  535  443 
Westwood mutual funds846  842  985 
Information technology1,977  2,350  2,038 
Professional services1,149  1,106  1,028 
General and administrative2,434  2,264  2,414 
(Gain) loss on foreign currency transactions820  (1,968) (1,063)
Total expenses22,366  18,231  23,604 
Net operating income1,496  7,888  9,963 
Gain on sale of operations    524 
Income before income taxes1,496  7,888  10,487 
Provision for income taxes1,104  2,475  2,509 
Net income$392  $5,413  $7,978 
Other comprehensive income (loss):     
Foreign currency translation adjustments831  (2,057) (1,199)
Total comprehensive income$1,223  $3,356  $6,779 
Earnings per share:     
Basic$0.05  $0.65  $0.96 
Diluted$0.05  $0.64  $0.93 
Weighted average shares outstanding:     
Basic 8,363,109   8,383,972   8,270,793 
Diluted 8,455,386   8,503,522   8,539,545 
Economic Earnings$4,116  $9,515  $12,642 
Economic EPS$0.49  $1.12  $1.48 
Dividends declared per share$0.72  $0.72  $0.68 

(in thousands, except par value and share amounts)

 March 31,
 December 31,
Current Assets:   
Cash and cash equivalents$52,421  $52,449 
Accounts receivable15,563  18,429 
Investments, at fair value49,601  65,781 
Prepaid income taxes864  349 
Other current assets3,622  2,731 
Total current assets122,071  139,739 
Investments5,675  5,425 
Goodwill19,804  19,804 
Deferred income taxes4,838  5,102 
Operating lease right-of-use assets8,472  8,698 
Intangible assets, net15,549  15,961 
Property and equipment, net of accumulated depreciation of $6,689 and $6,4624,740  4,454 
Total assets$181,149  $199,183 
Current Liabilities:   
Accounts payable and accrued liabilities$2,672  $2,518 
Dividends payable7,232  7,710 
Compensation and benefits payable2,646  15,102 
Operating lease liabilities1,538  1,432 
Income taxes payable1,254  365 
Total current liabilities15,342  27,127 
Accrued dividends748  1,576 
Noncurrent operating lease liabilities8,949  9,331 
Total liabilities25,039  38,034 
Stockholders’ Equity:   
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 10,340,629 and outstanding 8,975,865 shares at March 31, 2019; issued 10,182,583 and outstanding 8,904,902 shares at December 31, 2018104  102 
Additional paid-in capital197,598  194,116 
Treasury stock, at cost - 1,364,764 shares at March 31, 2019; 1,277,681 shares at December 31, 2018(62,077) (58,711)
Accumulated other comprehensive loss(4,052) (4,883)
Retained earnings24,537  30,525 
Total stockholders’ equity156,110  161,149 
Total liabilities and stockholders’ equity$181,149  $199,183 

(in thousands)

 Three Months Ended March 31,
 2019 2018
Net income$392  $7,978 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation212  213 
Amortization of intangible assets413  418 
Unrealized (gains) losses on trading investments(374) 232 
Stock based compensation expense3,252  4,187 
Non-cash lease expense242  270 
Deferred income taxes273  (859)
Gain on sale of operations  (524)
Changes in operating assets and liabilities:   
Net sales (purchases) of investments- trading securities16,554  2,175 
Accounts receivable2,981  (2,575)
Other current assets(886) 3,027 
Accounts payable and accrued liabilities(275) (22)
Compensation and benefits payable(12,305) (13,712)
Income taxes payable379  871 
Other liabilities(293) (327)
Net cash provided by operating activities10,565  1,352 
Purchases of property and equipment(71) (299)
Proceeds from Omaha divestiture  10,013 
Purchases of investments(250)  
Net cash provided by (used in) investing activities(321) 9,714 
Purchase of treasury stock under employee stock plans(981) (726)
Restricted stock returned for payment of taxes(2,385) (4,687)
Cash dividends(7,686) (7,332)
Net cash used in financing activities(11,052) (12,745)
Effect of currency rate changes on cash780  (1,020)
Cash and cash equivalents, beginning of period52,449  54,249 
Cash and cash equivalents, end of period$52,421  $51,550 
Supplemental cash flow information:   
Cash paid during the period for income taxes$453  $ 
Accrued dividends$7,980  $7,836 
Accrued purchase of property and equipment$425  $29 

Reconciliation of Net Income to Economic Earnings
(in thousands, except per share and share amounts)

 Three Months Ended
 March 31,
 December 31,
 March 31,
Net Income$392  $5,413  $7,978 
Add:  Stock based compensation expense3,252  3,625  4,187 
Add:  Intangible amortization413  417  418 
Add:  Tax benefit from goodwill amortization59  60  59 
Economic Earnings$4,116  $9,515  $12,642 
Diluted weighted average shares 8,455,386   8,503,522   8,539,545 
Economic EPS$0.49  $1.12  $1.48 

As supplemental information, we are providing non-GAAP performance measures that we refer to as Economic Earnings and Economic EPS. We provide these measures in addition to, not as a substitute for, net income and earnings per share, which are reported on a GAAP basis. Management reviews Economic Earnings and Economic EPS to evaluate Westwood’s ongoing performance, allocate resources, and review our dividend policy. We believe that these non-GAAP performance measures, while not substitutes for GAAP net income or earnings per share, are useful for management and investors when evaluating Westwood’s underlying operating and financial performance and its available resources. We do not advocate that investors consider these non-GAAP measures without also considering financial information prepared in accordance with GAAP.

We define Economic Earnings as net income plus non-cash equity-based compensation expense, amortization of intangible assets, and deferred taxes related to goodwill. Although depreciation on fixed assets is a non-cash expense, we do not add it back when calculating Economic Earnings because depreciation charges represent an allocation of the decline in the value of the related assets that will ultimately require replacement. In addition, we do not adjust Economic Earnings for tax deductions related to restricted stock expense or amortization of intangible assets. Economic EPS represents Economic Earnings divided by diluted weighted average shares outstanding.