Westwood Holdings Group, Inc. Reports Second Quarter 2021 Results

Dallas, Texas, UNITED STATES


Westwood's Best Sales Quarter Since 2016

Strong Performance Across Multiple Asset Strategies

Regular Dividend of $0.10 Per Share Declared

and

Special Dividend of $2.50 Per Share Declared

DALLAS, July 27, 2021 (GLOBE NEWSWIRE) -- Westwood Holdings Group, Inc. (NYSE: WHG) today reported second quarter 2021 earnings. Significant items include:

  • Revenues of $17.5 million vs. the first quarter's $18.3 million and $15.9 million a year ago.
  • Net income of $1.0 million vs. the first quarter's $4.1 million, which included net realized and unrealized gains of $6.0 million on private investments, and vs. a $2.6 million net loss in last year's second quarter.
  • LargeCap Value, SmallCap Value, Total Return, High Income and Alternative Income strategies all beat their primary benchmarks for the quarter.
  • In peer rankings, High Income achieved a top decile ranking, Income Opportunity and Total Return were top quartile, and SmallCap Value made the top 40%.
  • Westwood held $92.3 million in cash and short-term investments as of June 30, 2021, up $5.4 million from the first quarter of 2021.
  • Stockholders' equity was $134.7 million as of June 30, 2021 and we continue to have no debt.
  • Non-GAAP economic earnings totaled $2.8 million vs. the first quarter's $6.3 million, which included the net private investment gains referred to above, and vs. $0.2 million a year ago.
  • We repurchased 18,866 shares of our common stock for an aggregate cost of $0.3 million.
  • We declared a regular cash dividend of $0.10 per common share, payable on October 1, 2021 to stockholders of record on September 3, 2021.
  • We declared a special cash dividend of $2.50 per common share, payable on August 20, 2021 to stockholders of record on August 6, 2021.

Brian Casey, Westwood’s President and CEO, commented, "I was very gratified that our strengthened sales and distribution teams succeeded in converting so many pipeline opportunities into our best sales quarter since 2016. We continually assess our capital structure against our capital allocation priorities and, in addition to investing in organic growth and maintaining a strong balance sheet, a key priority for Westwood is returning capital to our shareholders to enhance long-term value. Given the positive momentum in our business, as confirmed by this quarter’s record net sales and the company’s robust cash position and outlook, we are pleased to declare a special dividend of $2.50 per share payable August 16, 2021, supplementing the regular dividend and current share repurchase plan the Company has in place. New net inflows totaled $1 billion, excluding the effect of our decision last year to transition our Global Convertibles team managing $1.6 billion back to Aviva Investors, which took place on April 1st. A positive effect of this transition is that the fee mix of our business will benefit from the higher pricing of our new fundings versus the assets we decided to return to Aviva. Performance has remained strong in our Multi-Asset product suite and is improving across our Value strategies, where we have initiated a soft close for SmallCap. We believe that the value style’s return to favor should provide a tailwind for investor and consultant interest in our long-standing approach to investing."

Revenues were lower than the first quarter mainly due to lower performance-based fees. Revenues were higher than last year's second quarter reflecting higher average assets under management ("AUM").

AUM of $14.4 billion decreased from $14.5 billion at March 31, 2021, primarily due to our decision to shift $1.6 billion in Global Convertibles fund assets back to Aviva, offset by $1.0 billion in net inflows from strong sales activity coupled with modest market appreciation.

Second quarter net income of $1.0 million was lower than the first quarter 's $4.1 million due to realized and unrealized gains totaling $6.0 million on private investments recorded in the first quarter, partially offset by lower income taxes in the second quarter. Diluted earnings per share ("EPS") of $0.12 compared with $0.52 for the first quarter. Non-GAAP economic earnings of $2.8 million, or $0.35 per share, compared with economic earnings of $6.3 million, or $0.79 per share, in the first quarter.

Second quarter net income of $1.0 million compared favorably with 2020's second quarter net loss of $2.6 million primarily on higher revenues and lower operating expenses, particularly foreign currency transaction losses. Diluted EPS of $0.12 compared with $(0.33) for last year's second quarter. Non-GAAP economic earnings were $2.8 million, or $0.35 per share, compared with $0.2 million, or $0.03 per share for the second quarter of 2020.

Economic earnings 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 second quarter 2021 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 August 3, 2021 by dialing 855-859-2056 (U.S. and Canada) or 404-537-3406 (international) and entering the passcode 2763548.

ABOUT WESTWOOD HOLDINGS GROUP

Westwood Holdings Group, Inc. is an 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 the following distinct investment capabilities: U.S. Value Equity, Multi-Asset, and Liquid Alternatives, 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 offices 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; our stockholder rights agreement may make it more difficult for others to obtain control over us, even if it would be beneficial to our stockholders; risks associated with actions of activist stockholders; inclusion of foreign company investments in our AUM; regulations adversely affecting the financial services industry; our ability to maintain effective cyber security; litigation risks; our ability to develop and market new investment strategies successfully; our reputation and our relationships with current and potential customers; our ability to attract and retain qualified personnel; our ability to perform operational tasks; our ability to select and oversee third-party vendors; our dependence on the operations and funds of our subsidiaries; our ability to maintain effective information systems; our ability to prevent misuse of assets and information in the possession of our employees and third-party vendors, which could damage our reputation and result in costly litigation and liability for our clients and us; our stock is thinly traded and may be subject to volatility; in addition to our stockholder rights agreement, 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; competition in the investment management industry; our ability to avoid termination of client agreements and the related investment redemptions; the significant concentration of our revenues in a small number of customers; our relationships with investment consulting firms; the impact of the COVID-19 pandemic; our ability to identify and execute on our strategic initiatives; 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; 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, 2020 and its quarterly report on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021. 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
 June 30, 2021 March 31, 2021 June 30, 2020
REVENUES:     
Advisory fees:     
Asset-based$11,385  $10,450  $9,328 
Performance-based  1,959  695 
Trust fees6,216  6,065  5,657 
Trust performance-based fees    40 
Other, net(117) (155) 155 
Total revenues17,484  18,319  15,875 
      
EXPENSES:     
Employee compensation and benefits10,237  11,548  10,787 
Sales and marketing370  230  253 
Westwood mutual funds368  391  434 
Information technology2,261  1,992  2,030 
Professional services1,428  1,317  991 
General and administrative2,042  2,072  2,191 
Loss on foreign currency transactions    1,323 
Total expenses16,706  17,550  18,009 
Net operating income (loss)778  769  (2,134)
Realized gains on private investments46  8,325   
Net change in unrealized appreciation (depreciation) on private
investments
215  (2,326) 159 
Investment income235  196  124 
Other income142  50  34 
Income (loss) before income taxes1,416  7,014  (1,817)
Income tax expense446  2,913  758 
Net income (loss)$970  $4,101  $(2,575)
Other comprehensive income (loss):     
Foreign currency translation adjustments    1,371 
Total comprehensive income (loss)$970  $4,101  $(1,204)
      
Earnings (loss) per share:     
Basic$0.12  $0.52  $(0.33)
Diluted$0.12  $0.52  $(0.33)
      
Weighted average shares outstanding:     
Basic7,884,771  7,887,044  7,879,698 
Diluted7,928,106  7,917,390  7,879,698 
      
Economic Earnings$2,810  $6,288  $224 
Economic EPS$0.35  $0.79  $0.03 
      
Dividends declared per share$0.10  $0.10  $0.00 


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

 Six Months Ended
 June 30, 2021 June 30, 2020
REVENUES:   
Advisory fees:   
Asset-based$21,835  $20,430 
Performance-based1,959  695 
Trust fees12,281  11,608 
Trust performance-based fees  40 
Other, net(272) (229)
Total revenues35,803  32,544 
    
EXPENSES:   
Employee compensation and benefits21,785  23,455 
Sales and marketing600  731 
Westwood mutual funds759  949 
Information technology4,253  4,061 
Professional services2,745  2,184 
General and administrative4,114  4,497 
Gain on foreign currency transactions  (1,615)
Total expenses34,256  34,262 
Net operating income (loss)1,547  (1,718)
Realized gains on private investments8,371   
Net change in unrealized appreciation (depreciation) on private investments(2,111) (836)
Investment income431  668 
Other income192  68 
Income (loss) before income taxes8,430  (1,818)
Income tax expense (benefit)3,359  (345)
Net income (loss)$5,071  $(1,473)
Other comprehensive income (loss):   
Foreign currency translation adjustments  (1,871)
Total comprehensive income (loss)$5,071  $(3,344)
    
Earnings (loss) per share:   
Basic$0.64  $(0.18)
Diluted$0.64  $(0.18)
    
Weighted average shares outstanding:   
Basic7,885,901  8,147,045 
Diluted7,922,742  8,147,045 
    
Economic Earnings$9,098  $4,424 
Economic EPS$1.15  $0.54 
    
Dividends declared per share$0.20  $0.43 


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

 June 30, 2021 December 31, 2020
ASSETS   
Current Assets:   
Cash and cash equivalents$17,247  $13,016 
Accounts receivable9,881  9,450 
Investments, at fair value75,066  69,542 
Prepaid income taxes262  1,700 
Other current assets2,201  2,606 
Total current assets104,657  96,314 
Investments4,455  8,154 
Noncurrent investments at fair value4,198  3,527 
Goodwill16,401  16,401 
Deferred income taxes1,459  1,468 
Operating lease right-of-use assets5,489  6,103 
Intangible assets, net12,723  13,535 
Property and equipment, net of accumulated depreciation of $8,290 and $8,0562,389  3,186 
Other long-term assets493  464 
Total long-term assets47,607  52,838 
Total assets$152,264  $149,152 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current Liabilities:   
Accounts payable and accrued liabilities$3,213  $1,627 
Dividends payable1,108  810 
Compensation and benefits payable4,512  7,448 
Operating lease liabilities1,415  1,718 
Income taxes payable1,641  191 
Total current liabilities11,889  11,794 
Accrued dividends256  526 
Noncurrent operating lease liabilities5,443  6,121 
Total long-term liabilities5,699  6,647 
Total liabilities17,588  18,441 
Stockholders’ Equity:   
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 10,661,016
  and outstanding 8,324,702 shares at June 30, 2021; issued 10,500,549 and
  outstanding 8,326,948 shares at December 31, 2020
108  105 
Additional paid-in capital213,362  210,268 
Treasury stock, at cost - 2,336,315 shares at June 30, 2021; 2,173,559 shares at
  December 31, 2020
(80,551) (77,967)
Retained earnings (accumulated deficit)1,757  (1,695)
Total stockholders’ equity134,676  130,711 
Total liabilities and stockholders’ equity$152,264  $149,152 


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

 Six Months Ended June 30,
 2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income (loss)$5,071  $(1,473)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:   
Depreciation397  465 
Amortization of intangible assets812  858 
Net change in unrealized (appreciation) depreciation on investments2,273  904 
Realized gains on private investments(8,371)  
Stock-based compensation expense3,097  4,921 
Deferred income taxes13  (939)
Non-cash lease expense614  615 
Gain on asset disposition(148)  
Changes in operating assets and liabilities:   
Net (purchases) sales of trading securities(5,642) 20,029 
Accounts receivable(431) 2,350 
Other current assets376  709 
Accounts payable and accrued liabilities1,585  (361)
Compensation and benefits payable(2,942) (5,790)
Income taxes payable2,899  307 
Other liabilities(833) (771)
Net cash (used in) provided by operating activities(1,230) 21,824 
CASH FLOWS FROM INVESTING ACTIVITIES:   
Sale of investments9,258   
Sale of property and equipment501   
Purchases of property and equipment(93) (56)
Purchases of investments(15)  
Net cash provided by (used in) investing activities9,651  (56)
CASH FLOWS FROM FINANCING ACTIVITIES:   
Purchases of treasury stock(1,700) (12,952)
Purchases of treasury stock for employee stock plans  (697)
Restricted stock returned for payment of taxes(884) (1,120)
Cash dividends(1,619) (11,043)
Net cash used in financing activities(4,203) (25,812)
Effect of currency rate changes on cash13  (1,796)
NET CHANGE IN CASH AND CASH EQUIVALENTS4,231  (5,840)
Cash and cash equivalents, beginning of period13,016  49,766 
Cash and cash equivalents, end of period$17,247  $43,926 
    
Supplemental cash flow information:   
Cash paid during the period for income taxes$447  $288 
Accrued dividends$1,364  $1,498 


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
 June 30, 2021 March 31, 2021 June 30, 2020
Net income (loss)$970  $4,101  $(2,575)
Add: Stock-based compensation expense1,375  1,722  2,305 
Add: Intangible amortization406  406  435 
Add: Tax benefit from goodwill amortization59  59  59 
Economic Earnings$2,810  $6,288  $224 
      
Diluted weighted average shares7,928,106  7,917,390  7,879,698 
Economic EPS$0.35  $0.79  $0.03 
      
   Six Months Ended
   June 30, 2021 June 30, 2020
Net income (loss)  $5,071  $(1,473)
Add: Stock-based compensation expense  3,097  4,921 
Add: Intangible amortization  812  858 
Add: Tax benefit from goodwill amortization  118  118 
Economic Earnings  $9,098  $4,424 
      
Diluted weighted average shares  7,922,742  8,147,045 
Economic EPS  $1.15  $0.54 

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 (loss) and earnings (loss) per share, which are reported on a GAAP basis. Our management and Board of Directors review Economic Earnings 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 as net income (loss) 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.