Westwood Holdings Group, Inc. Reports Third Quarter 2020 Results
Strong investment performance across multiple strategies
Earnings impacted by non-cash and non-recurring items
U.S. cash position strengthened with funds repatriated from Canadian operation
Dallas, TX, October 28, 2020 – Westwood Holdings Group, Inc. (NYSE: WHG) today reported third quarter 2020 earnings. Significant items include:
▪Income Opportunity, AllCap Value, SmidCap, Total Return, High Income, Alternative Income, and Global Convertibles strategies all beat their primary benchmarks for the quarter.
▪Total Return strategy achieved a top quartile peer ranking while our SmidCap, AllCap Value, and High Income strategies posted top 40% peer rankings.
▪Westwood held $77.6 million in cash and short-term investments at September 30, 2020, up $3.4 million from June 30, 2020. Stockholders' equity was $126.5 million and no debt.
▪Revenues of $15.5 million compared with $15.9 million in the second quarter of 2020 and $19.9 million a year ago.
▪Net loss of $10.3 million compared with a net loss of $2.6 million in the second quarter of 2020 and net income of $1.1 million a year ago.
▪The third quarter was negatively impacted by several one-time items, including:
•$4.2 million non-cash reclassification of foreign currency translation adjustments from Accumulated Other Comprehensive Income (Loss) to Net Income (Loss), with no impact on Stockholder's Equity, following the closure of Westwood International Advisors.
•$1.1 million in incremental Canadian withholding taxes (net of U.S. federal tax deduction) paid to repatriate more than $37.0 million from Westwood International Advisors to the U.S.
•$3.4 million non-cash write-off of historical Advisory goodwill to reflect lower market capitalization and Advisory net outflows.
▪Non-GAAP economic loss of $1.7 million, compared with economic earnings of $0.2 million in the second quarter of 2020 and $3.9 million a year ago.
Brian Casey, Westwood’s President and CEO, commented, "As part of the ongoing execution of our strategic plan that we communicated to you last quarter, Westwood International Advisors has now ceased operations and a significant amount of cash has been moved from Canada to the U.S. for deployment in business initiatives that we consider more attractive over the long-term. These decisive actions, along with the write-off of historical goodwill in our Advisory business, contributed to a loss for the quarter, however the associated accounting effects were primarily non-cash and non-recurring in nature. We have recently celebrated several institutional and retail wins that will fund later this year or early in the New Year.
Consultant approval ratings continue to move up, our pipeline for new business opportunities is at its highest level in over five years and we have recently been invited to present in finals for several large mandates. Our investment performance is competitive across our wide range of strategies and I am particularly pleased to report that our investment teams weathered the recent market volatility very well. Our new client portal, developed in partnership with InvestCloud, will be released to Westwood Wealth clients over the next few weeks. We are excited to bring this digital experience to our customers and look forward to announcing additional technology platform ventures in the months ahead."
Revenues were somewhat lower than the second quarter due to closing Emerging Markets strategies, which slightly reduced our average fee rate. Revenues were lower than last year's third quarter principally as a result of lower average assets under management ("AUM").
AUM of $12.0 billion at September 30, 2020 rose slightly from $11.9 billion at June 30, 2020. The increase reflected market appreciation offset by net outflows mainly in our closed Emerging Markets products while our MLP strategies experienced drawdowns.
The third quarter net loss of $10.3 million exceeded the second quarter's $2.6 million net loss primarily due to the one-time items noted above, partially offset by lower operating expenses and lower foreign currency transaction losses. Diluted earnings per share ("EPS") was a loss of $1.31 compared with a loss of $0.33 for the second quarter. Non-GAAP economic losses of $1.7 million, or $0.22 per share, compared with earnings of $0.2 million, or $0.03 per share, in the second quarter.
The third quarter net loss of $10.3 million compared unfavorably with net income of $1.1 million in the third quarter of 2019 primarily due to the one-time items noted above, partially offset by lower operating expenses, particularly employee compensation and benefits. Diluted EPS was a loss of $1.31 compared with earnings of $0.13 for the third quarter of 2019. Non-GAAP economic losses were $1.7 million, or $0.22 per share, compared with earnings of $3.9 million, or $0.46 per share for the third quarter of 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 third quarter 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 November 5, 2020 by dialing 855-859-2056 (U.S. and Canada) or 404-537-3406 (international) and entering the passcode 2732349.
ABOUT WESTWOOD HOLDINGS GROUP
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 several distinct investment capabilities: U.S. Value Equity, Multi-Asset, Convertibles 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 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,” “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
September 30, 2020
June 30, 2020
September 30, 2019
REVENUES:
Advisory fees:
Asset-based
$
8,847
$
9,328
$
13,164
Performance-based
713
695
154
Trust fees
5,787
5,657
6,281
Trust performance-based fees
37
40
—
Other, net
70
155
293
Total revenues
15,454
15,875
19,892
EXPENSES:
Employee compensation and benefits
9,515
10,787
12,072
Sales and marketing
215
253
506
Westwood mutual funds
421
434
916
Information technology
2,158
2,030
2,017
Professional services
1,033
991
940
General and administrative
2,333
2,191
2,317
Impairment expense
3,403
—
—
(Gain) loss on foreign currency transactions
419
1,323
(402)
Total expenses
19,497
18,009
18,366
Net operating income (loss)
(4,043)
(2,134)
1,526
Unrealized gains (losses) on private investments
(73)
159
—
Investment income (expense)
(43)
124
—
Other income
34
34
33
Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary
(4,193)
—
—
Income (loss) before income taxes
(8,318)
(1,817)
1,559
Income tax expense
1,971
758
442
Net income (loss)
$
(10,289)
$
(2,575)
$
1,117
Other comprehensive income (loss):
Foreign currency translation adjustments
621
1,371
(482)
Reclassification of cumulative foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary
4,193
—
—
Total comprehensive income (loss)
$
(5,475)
$
(1,204)
$
635
Earnings (loss) per share:
Basic
$
(1.31)
$
(0.33)
$
0.13
Diluted
$
(1.31)
$
(0.33)
$
0.13
Weighted average shares outstanding:
Basic
7,829,478
7,879,698
8,432,598
Diluted
7,829,478
7,879,698
8,470,673
Economic Earnings (Loss)
$
(1,711)
$
224
$
3,871
Economic EPS
$
(0.22)
$
0.03
$
0.46
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)
Nine Months Ended
September 30, 2020
September 30, 2019
REVENUES:
Advisory fees:
Asset-based
$
29,277
$
44,265
Performance-based
1,408
454
Trust fees
17,395
19,264
Trust performance-based fees
77
—
Other, net
(159)
1,480
Total revenues
47,998
65,463
EXPENSES:
Employee compensation and benefits
32,970
38,060
Sales and marketing
946
1,550
Westwood mutual funds
1,370
2,423
Information technology
6,219
6,276
Professional services
3,217
3,258
General and administrative
6,830
7,153
Impairment expense
3,403
—
(Gain) loss on foreign currency transactions
(1,196)
1,142
Total expenses
53,759
59,862
Net operating income (loss)
(5,761)
5,601
Unrealized losses on private investments
(909)
—
Investment income
625
—
Other income
102
110
Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary
(4,193)
—
Income (loss) before income taxes
(10,136)
5,711
Income tax expense
1,626
2,341
Net income (loss)
$
(11,762)
$
3,370
Other comprehensive income (loss):
Foreign currency translation adjustments
(1,250)
1,084
Reclassification of cumulative foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary
4,193
—
Total comprehensive income (loss)
$
(8,819)
$
4,454
Earnings (loss) per share:
Basic
$
(1.46)
$
0.40
Diluted
$
(1.46)
$
0.40
Weighted average shares outstanding:
Basic
8,040,417
8,414,317
Diluted
8,040,417
8,467,823
Economic Earnings
$
2,713
$
12,761
Economic EPS
$
0.34
$
1.51
Dividends declared per share
$
0.43
$
2.16
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
(unaudited)
September 30, 2020
December 31, 2019
ASSETS
Current Assets:
Cash and cash equivalents
$
15,593
$
49,766
Accounts receivable
9,492
13,177
Investments, at fair value
61,993
50,324
Prepaid income taxes
511
1,150
Other current assets
2,211
2,544
Total current assets
89,800
116,961
Investments
8,154
8,154
Noncurrent investments at fair value
3,328
4,238
Goodwill
16,401
19,804
Deferred income taxes
2,398
2,216
Operating lease right-of-use assets
6,364
7,562
Intangible assets, net
13,963
15,256
Property and equipment, net of accumulated depreciation of $8,056 and $7,395
3,532
4,152
Other long-term assets
444
364
Total assets
$
144,384
$
178,707
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued liabilities
$
2,097
$
2,145
Dividends payable
873
7,362
Compensation and benefits payable
5,938
9,975
Operating lease liabilities
1,695
1,584
Income taxes payable
195
289
Total current liabilities
10,798
21,355
Accrued dividends
575
1,303
Noncurrent operating lease liabilities
6,519
7,762
Total long-term liabilities
7,094
9,065
Total liabilities
17,892
30,420
Stockholders’ Equity:
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 10,542,571 and outstanding 8,366,811 shares at September 30, 2020; issued 10,306,570 and outstanding 8,881,086 shares at December 31, 2019
106
103
Additional paid-in capital
209,060
203,441
Treasury stock, at cost - 2,175,758 shares at September 30, 2020; 1,425,483 shares at December 31, 2019
(78,050)
(63,281)
Accumulated other comprehensive (income) loss
—
(2,943)
Retained earnings (accumulated deficit)
(4,624)
10,967
Total stockholders’ equity
126,492
148,287
Total liabilities and stockholders’ equity
$
144,384
$
178,707
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30,
2020
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
(11,762)
$
3,370
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation
697
662
Amortization of intangible assets
1,293
1,281
Unrealized (gains) losses on investments
1,132
(501)
Stock-based compensation expense
5,409
7,932
Deferred income taxes
(191)
1,572
Non-cash lease expense
1,253
852
Impairment of goodwill
3,403
—
Currency translation adjustment reclassification
4,193
—
Changes in operating assets and liabilities:
Net (purchases) sales of investments – trading securities
(11,891)
23,438
Accounts receivable
3,634
5,673
Other current assets
246
(361)
Accounts payable and accrued liabilities
(47)
(482)
Compensation and benefits payable
(3,769)
(8,100)
Income taxes payable
492
(668)
Other liabilities
(1,174)
(1,057)
Net cash (used in) provided by operating activities
(7,082)
33,611
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
(92)
(516)
Purchases of investments
—
(3,020)
Additions to internally developed software
—
(584)
Net cash used in investing activities
(92)
(4,120)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock
(12,952)
(1,258)
Purchases of treasury stock for employee stock plans
(697)
(981)
Restricted stock returned for payment of taxes
(1,120)
(2,385)
Cash dividends
(11,043)
(19,979)
Net cash used in financing activities
(25,812)
(24,603)
Effect of currency rate changes on cash
(1,187)
1,035
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(34,173)
5,923
Cash and cash equivalents, beginning of period
49,766
52,449
Cash and cash equivalents, end of period
$
15,593
$
58,372
Supplemental cash flow information:
Cash paid during the period for income taxes
$
1,294
$
1,431
Accrued dividends
$
1,448
$
8,390
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
Reconciliation of Net Income (Loss) to Economic Earnings (Loss)
(in thousands, except per share and share amounts)
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.
