Westwood Holdings Group, Inc. Reports Fourth Quarter and Fiscal Year 2020 Results

Dallas, Texas, UNITED STATES


Earnings improving and balance sheet remains strong

Westwood reinstates dividend

DALLAS, Feb. 10, 2021 (GLOBE NEWSWIRE) -- Westwood Holdings Group, Inc. (NYSE: WHG) today reported fourth quarter earnings. Significant items include:

  • Income Opportunity, AllCap Value, Total Return, High Income and Alternative Income strategies beat their primary benchmarks for the quarter.
  • Westwood held $82.6 million in cash and short-term investments at December 31, 2020, up $5.0 million from September 30, 2020 following repatriation of cash held in Canada.
  • Stockholders' equity at December 31, 2020 was $130.7 million and we had no debt.
  • Revenues of $17.1 million compared with $15.5 million in the third quarter and $18.6 million a year ago.
  • Net income of $2.8 million compared with a net loss of $10.3 million in the third quarter and net income of $2.5 million in the fourth quarter of 2019.
  • Non-GAAP economic earnings of $4.6 million, compared with a non-GAAP economic loss of $1.7 million in the third quarter and non-GAAP economic earnings of $5.4 million in the fourth quarter of 2019.

Brian Casey, Westwood’s President and CEO, commented, “we are pleased, along with many others, in bidding farewell to 2020, a year that tested us all in such unexpected ways. We are proud of the way our Westwood team stepped up, delivering strong performance across many products, serving our customers well in creative, socially-distant ways, and leading Westwood to win another “Best Places to Work” award.  We had to make a number of hard decisions last year, suspending our dividend, closing our Canadian operations, and discontinuing other non-strategic activities and many of them negatively impacted earnings. These decisions were painful but they have enabled us to clear the decks for a brighter future in 2021 and beyond. We are seeing increasingly positive interest in our institutional and retail products and consultant approval ratings are growing. Our focus on investing in technology is paying off in two ways: with improvements in the way we manage our business and communicate with customers, and also the financial returns from our investment in InvestCloud. Our solid financial position continues to be a source of strength, allowing us to approach business growth opportunities with confidence. Finally, we thank our investors for the continued faith placed in us and accordingly, we are pleased to reinstate a cash dividend of $0.10 per common share, payable on April 1, 2021 to stockholders of record on March 2, 2021."

Revenues of $17.1 million decreased $1.5 million from last year's fourth quarter principally as a result of lower average assets under management ("AUM"). Revenues were higher than the third quarter of 2020 principally as a result of higher advisory performance-based fees, trust fees and other revenues.

AUM of $13.0 billion at December 31, 2020 rose from $12.0 billion at September 30, 2020. The increase reflected market appreciation, partially offset by net outflows mainly in SMidCap.

Fourth quarter net income of $2.8 million compared to a third quarter net loss of $10.3 million due to several non-recurring items impacting the third quarter, higher revenues, lower operating expenses and lower income taxes. Diluted earnings per share ("EPS") of $0.36 compared to a $1.31 per share loss for the third quarter. Non-GAAP Economic Earnings were $4.6 million, or $0.58 per share, compared to the third quarter's non-GAAP economic losses of $1.7 million, or $0.22 per share.

Fourth quarter net income of $2.8 million was higher than fourth quarter 2019 net income of $2.5 million principally as a result of lower operating expenses, particularly employee compensation and benefits, and lower income taxes, partially offset by lower revenues. Diluted EPS of $0.36 compared to $0.30 for the fourth quarter of 2019. Non-GAAP Economic Earnings were $4.6 million, or $0.58 per share, down from $5.4 million, or $0.64 per share, in 2019's fourth quarter.

2020 net loss of $8.9 million compared to 2019's net income of $5.9 million of net income due to lower revenues, several non-recurring items impacting the third quarter and unrealized losses on private investments, partially offset by lower operating expenses, foreign currency transaction gains and lower income taxes. Diluted EPS was a loss of $1.12 per share compared with income of $0.70 per share for 2019. Economic EPS of $0.91 compared with $2.15 in 2019.

Economic Earnings (Loss) and 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 fourth quarter and fiscal year 2020 results and other business matters at 4:30 p.m. Eastern time today.  To join the conference call, dial 877-303-6235 (U.S. 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 February 22, 2021 by dialing 855-859-2056 (U.S. and Canada) or 404-537-3406 (international) and entering the passcode 7381748.

About Westwood

Westwood Holdings Group, Inc. is a focused investment management boutique and wealth management firm. 

Westwood offers high-conviction equity and outcome-oriented solutions to institutional investors, private wealth clients and financial intermediaries. The firm specializes in two distinct investment capabilities: U.S. Value Equity and Multi-Asset, available through separate accounts, the Westwood Funds® family of mutual 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, Westwood also maintains an office in 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,” “believe,” “expect,” “could,” 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 AUM; our ability to maintain our fee structure in light of competitive fee pressures; the impact of the COVID-19 pandemic; the significant concentration of our revenues in a small number of customers; our ability to avoid termination of client agreements and the related investment redemptions; regulations adversely affecting the financial services industry; competition in the investment management industry; our ability to develop and market new investment strategies successfully; our AUM include investments in foreign companies; our reputation and our 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 declare and pay dividends; our ability to fund future capital requirements on favorable terms; 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 stock is thinly traded and may be subject to volatility; our organizational documents contain provisions that may prevent or deter another group from paying a premium over the market price to our stockholders to acquire our stock; we are a holding company dependent on the operations and funds of our subsidiaries; our relationships with investment consulting firms; and the other risks detailed from time to time in Westwood’s SEC filings, including, but not limited to, its annual report on Form 10-K for the year ended December 31, 2019 and its quarterly report on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020. 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.

(WHG-G)

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

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share and share amounts)
(unaudited)

 Three Months Ended
 December 31, 2020 September 30, 2020 December 31, 2019
REVENUES:     
Advisory fees:     
Asset-based$8,751   $8,847   $12,768  
Performance-based1,400   713   310  
Trust fees6,168   5,787   6,219  
Trust performance-based289   37     
Other, net505   70   (681) 
Total revenues17,113   15,454   18,616  
      
EXPENSES:     
Employee compensation and benefits9,171   9,515   12,092  
Sales and marketing248   215   518  
Westwood mutual funds311   421   674  
Information technology1,892   2,158   2,150  
Professional services1,054   1,033   1,064  
General and administrative2,111   2,333   2,363  
Impairment expense   3,403     
(Gain) loss on foreign currency transactions12   419   712  
Total expenses14,799   19,497   19,573  
Net operating income (loss)2,314   (4,043)  (957) 
Unrealized gains (losses) on private investments198   (73)  3,296  
Investment income(21)  (43)  1,318  
Other income33   34   34  
Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary24   (4,193)    
Income (loss) before income taxes2,548   (8,318)  3,691  
Provision for income taxes(267)  1,971   1,150  
Net income (loss)$2,815   $(10,289)  $2,541  
Other comprehensive income (loss), net of tax:     
Foreign currency translation adjustments24   621   856  
Reclassification of cumulative foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary(24)  4,193     
Total comprehensive income (loss)$2,815   $(5,475)  $3,397  
      
Earnings (loss) per share:     
Basic$0.36   $(1.31)  $0.30  
Diluted$0.36   $(1.31)  $0.30  
      
Weighted average shares outstanding:     
Basic7,830,115   7,829,478   8,389,322  
Diluted7,838,504   7,829,478   8,449,689  
      
Economic Earnings (Loss)$4,571   $(1,711)  $5,418  
Economic EPS$0.58   $(0.22)  $0.64  
      
Dividends declared per share$0.00   $0.00   $0.72  


WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share and share amounts)
(unaudited)

 Year Ended December 31,
 2020 2019
REVENUES:   
Advisory fees:   
Asset-based$38,028   $57,033 
Performance-based2,808   764 
Trust fees23,563   25,483 
Trust performance-based366    
Other, net346   799 
Total revenues65,111   84,079 
    
EXPENSES:   
Employee compensation and benefits42,141   50,152 
Sales and marketing1,194   2,068 
Westwood mutual funds1,681   3,097 
Information technology8,111   8,426 
Professional services4,271   4,322 
General and administrative8,941   9,516 
Impairment expense3,403    
(Gain) loss on foreign currency transactions(1,184)  1,854 
Total expenses68,558   79,435 
Net operating income (loss)(3,447)  4,644 
Unrealized gains (losses) on private investments(711)  3,296 
Investment income604   1,318 
Other income135   144 
Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary(4,169)   
Income (loss) before income taxes(7,588)  9,402 
Provision for income taxes1,359   3,491 
Net income (loss)$(8,947)  $5,911 
Other comprehensive income (loss), net of tax:   
Foreign currency translation adjustments(1,226)  1,940 
Reclassification of cumulative foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary4,169    
Total comprehensive income (loss)$(6,004)  $7,851 
    
Earnings (loss) per share:   
Basic$(1.12)  $0.70 
Diluted$(1.12)  $0.70 
    
Weighted average shares outstanding:   
Basic7,987,554   8,408,017 
Diluted7,987,554   8,463,239 
    
Economic Earnings$7,284   $18,179 
Economic EPS$0.91   $2.15 
    
Dividends declared per share$0.43   $2.88 


WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)z
(unaudited)

 December 31, 2020 December 31, 2019
ASSETS   
Current Assets:   
Cash and cash equivalents$13,016  $49,766 
Accounts receivable9,450  13,177 
Investments, at fair value69,542  50,324 
Income taxes receivable1,700  1,150 
Other current assets2,606  2,544 
Total current assets96,314  116,961 
Investments8,154  8,154 
Noncurrent investments at fair value3,527  4,238 
Goodwill16,401  19,804 
Deferred income taxes1,468  2,216 
Operating lease right-of-use assets6,103  7,562 
Intangible assets, net13,535  15,256 
Property and equipment, net of accumulated depreciation of $8,056 and $7,3953,186  4,152 
Other long-term assets464  364 
Total long-term assets52,838  61,746 
Total assets$149,152  $178,707 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current Liabilities:   
Accounts payable and accrued liabilities$1,627  $2,145 
Dividends payable810  7,362 
Compensation and benefits payable7,448  9,975 
Operating lease liabilities1,718  1,584 
Income taxes payable191  289 
Total current liabilities11,794  21,355 
Accrued dividends526  1,303 
Noncurrent operating lease liabilities6,121  7,762 
Total long-term liabilities6,647  9,065 
Total liabilities18,441  30,420 
Stockholders’ Equity:   
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 10,500,549 and outstanding 8,326,948 shares at December 31, 2020; issued 10,306,570 and outstanding 8,881,086 shares at December 31, 2019105  103 
Additional paid-in capital210,268  203,441 
Treasury stock, at cost – 2,173,559 shares at December 31, 2020; 1,425,483 shares at December 31, 2019(77,967) (63,281)
Accumulated other comprehensive loss  (2,943)
Retained earnings (accumulated deficit)(1,695) 10,967 
Total stockholders’ equity130,711  148,287 
Total liabilities and stockholders’ equity$149,152  $178,707 


WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 Year ended December 31,
 2020 2019
Cash flows from operating activities:   
Net income (loss)$(8,947) $5,911 
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:   
Depreciation921  898 
Amortization of intangible assets1,721  1,726 
Unrealized (gains) losses on investments1,056  (3,650)
Stock-based compensation expense6,701  10,305 
Deferred income taxes754  2,906 
Loss on asset disposition48   
Non-cash lease expense1,500  1,151 
Impairment of goodwill3,403   
Currency translation adjustment reclassification4,169   
Changes in operating assets and liabilities:   
Net (purchases) sales of investments – trading securities(19,562) 15,811 
Accounts receivable3,683  5,404 
Other current assets(170) (608)
Accounts payable and accrued liabilities(526) (382)
Compensation and benefits payable(2,270) (5,018)
Income taxes payable(690) (849)
Other liabilities(1,561) (1,433)
Net cash (used in) provided by operating activities(9,770) 32,172 
Cash flows from investing activities:   
Purchases of property and equipment(93) (593)
Purchases of investments  (3,671)
Additions to internally developed software  (584)
Proceeds on sale of property and equipment89   
Net cash used in investing activities(4) (4,848)
Cash flows from financing activities:   
Purchases of treasury stock(12,952) (2,414)
Purchases of treasury stock for employee stock plans(697) (980)
Restricted stock returned for payment of taxes(1,120) (2,387)
Cash dividends(11,043) (26,089)
Net cash used in financing activities(25,812) (31,870)
Effect of currency rate changes on cash(1,164) 1,863 
Net decrease in cash and cash equivalents(36,750) (2,683)
Cash and cash equivalents, beginning of period49,766  52,449 
Cash and cash equivalents, end of period$13,016  $49,766 
    
Supplemental cash flow information:   
Cash paid during the period for income taxes$1,271  $1,431 
Accrued dividends$1,336  $8,666 


WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

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

 Three Months Ended
 December 31,
2020
 September 30,
2020
 December 31,
2019
Net Income (Loss)$2,815   $(10,289)  $2,541 
Add:  Stock-based compensation expense1,292   488   2,373 
Add:  Impairment expense   3,403    
Add:  Intangible amortization428   435   445 
Add:  Currency translation adjustment reclassification(24)  4,193    
Add:  Tax benefit from goodwill amortization60   59   59 
Economic Earnings (Loss)$4,571   $(1,711)  $5,418 
      
Diluted weighted average shares7,838,504   7,829,478   8,449,689 
Economic EPS$0.58   $(0.22)  $0.64 


 Year Ended December 31,
 2020 2019
Net Income (Loss)$(8,947)  $5,911 
Add:  Stock-based compensation expense6,701   10,305 
Add:  Impairment expense3,403    
Add:  Intangible amortization1,721   1,726 
Add:  Currency translation adjustment reclassification4,169    
Add:  Tax benefit from goodwill amortization237   237 
Economic Earnings$7,284   $18,179 
    
Diluted weighted average shares7,987,554   8,463,239 
Economic EPS$0.91   $2.15 

As supplemental information, we are providing non-GAAP performance measures that we refer to as Economic Earnings (Loss) and Economic EPS. We provide these measures in addition to, not as a substitute for, net income (loss) and earnings (loss) per share, which are reported on a GAAP basis. Our management and Board of Directors review Economic Earnings (Loss) and Economic EPS to evaluate our ongoing performance, allocate resources, and review our dividend policy. We believe that these non-GAAP performance measures, while not substitutes for GAAP net income (loss) or earnings (loss) per share, are useful for management and investors when evaluating our underlying operating and financial performance and our 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 (Loss) as net income (loss) plus non-cash equity-based compensation expense, impairment expense, amortization of intangible assets, currency translation adjustment reclassification 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 (Loss) 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 (Loss) for tax deductions related to restricted stock expense or amortization of intangible assets. Economic EPS represents Economic Earnings (Loss) divided by diluted weighted average shares outstanding.