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Westwood Holdings Group, Inc. Reports Third Quarter 2021 Results
Source: Nasdaq GlobeNewswire / 27 Oct 2021 16:10:00 America/New_York
Strong performance delivered across multiple products
Increased regular quarterly dividend and repurchased stock
DALLAS, Oct. 27, 2021 (GLOBE NEWSWIRE) -- Westwood Holdings Group, Inc. (NYSE: WHG) today reported third quarter 2021 earnings. Significant items include:
- Improved revenues of $17.9 million vs. the second quarter's $17.5 million and $15.5 million a year ago.
- Higher net income of $1.9 million vs. the second quarter's $1.0 million and vs. a $10.3 million net loss in last year's third quarter.
- Our LargeCap Value, SmidCap, AllCap Value and Alternative Income strategies all beat their primary benchmarks for the quarter.
- In peer rankings, Alternative Income and SmidCap achieved top quintile rankings, and AllCap Value achieved a top third ranking.
- Westwood held $76.6 million in cash and short-term investments as of September 30, 2021, down $15.7 million from the second quarter after a special dividend payment of $2.50 per common share, or $20.8 million, was paid in August.
- Stockholders' equity was $115.7 million as of September 30, 2021 and we continue to have no debt.
- Non-GAAP economic earnings of $3.7 million compared favorably with the second quarter's $2.8 million and a loss of $1.7 million a year ago.
- We declared a cash dividend of $0.15 per common share, payable on January 3, 2022 to stockholders of record on December 3, 2021.
Brian Casey, Westwood’s President and CEO, commented, "This was a quarter in which we made progress across a variety of fronts. We successfully deployed the terrific mandates won by our institutional team earlier in the year and our solid performance story continued to unfold as US Value and Multi-Asset turned in good performances versus benchmarks and peer universes. As the quarter drew to a close, we launched two new mutual funds and rolled out a new client portal to provide our Wealth clients with world-class access to their investments. I’m pleased to report that our financial performance also reflected the improving business environment and, after a special dividend of $2.50 per share was paid in August, the board decided to increase our regular quarterly dividend to $0.15 per share. That action, together with our stock repurchase program, underscore our commitment to protect and enhance shareowner value while continuing to invest in our people, products and processes to generate healthy organic growth for Westwood in the months and years ahead."
Revenues were comparable to the second quarter and higher than last year's third quarter reflecting higher average assets under management ("AUM"), partially offset by lower performance fees.
AUM of $13.8 billion decreased from $14.4 billion at June 30, 2021, primarily due to net outflows and market depreciation.
Third quarter net income of $1.9 million exceeded the second quarter's $1.0 million due to the combination of somewhat higher revenues and lower operating expenses. Diluted earnings per share ("EPS") of $0.24 compared with $0.12 for the second quarter. Non-GAAP economic earnings of $3.7 million, or $0.47 per share, compared with economic earnings of $2.8 million, or $0.35 per share, in the second quarter.
Third quarter net income of $1.9 million compared favorably with last year's third quarter net loss of $10.3 million primarily due to higher revenues on higher average AUM and several non-recurring items impacting the prior third quarter. Diluted EPS of $0.24 compared with a loss of $1.31 per share for last year's third quarter. Non-GAAP economic earnings were $3.7 million, or $0.47 per share, compared with economic losses of $1.7 million, or $0.22 per share, for the third quarter of 2020.
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 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 November 3, 2021 by dialing 855-859-2056 (U.S. and Canada) or 404-537-3406 (international) and entering the passcode 2546858.
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; distributions to our common stockholders have included and may in the future include a return of capital; 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, June 30, 2021 and September 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 September 30, 2021 June 30, 2021 September 30, 2020 REVENUES: Advisory fees: Asset-based $ 12,011 $ 11,385 $ 8,847 Performance-based — — 713 Trust fees 5,952 6,216 5,787 Trust performance-based fees — — 37 Other, net (103 ) (117 ) 70 Total revenues 17,860 17,484 15,454 EXPENSES: Employee compensation and benefits 10,268 10,237 9,515 Sales and marketing 292 370 215 Westwood mutual funds 814 368 421 Information technology 1,937 2,261 2,158 Professional services 726 1,428 1,033 General and administrative 1,779 2,042 2,333 Impairment expense — — 3,403 Loss on foreign currency transactions — — 419 Total expenses 15,816 16,706 19,497 Net operating income (loss) 2,044 778 (4,043 ) Realized gains on private investments — 46 — Net change in unrealized appreciation (depreciation) on private investments (13 ) 215 (73 ) Investment income 131 235 (43 ) Other income 198 142 34 Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary — — (4,193 ) Income (loss) before income taxes 2,360 1,416 (8,318 ) Income tax expense 481 446 1,971 Net income (loss) $ 1,879 $ 970 $ (10,289 ) Other comprehensive income (loss): Foreign currency translation adjustments — — 621 Reclassification of cumulative foreign currency translation adjustments to net income upon liquidation of a foreign subsidiary — — 4,193 Total comprehensive income (loss) $ 1,879 $ 970 $ (5,475 ) Earnings (loss) per share: Basic $ 0.24 $ 0.12 $ (1.31 ) Diluted $ 0.24 $ 0.12 $ (1.31 ) Weighted average shares outstanding: Basic 7,887,259 7,884,774 7,829,478 Diluted 7,956,081 7,928,106 7,829,478 Economic Earnings (Loss) $ 3,706 $ 2,810 $ (1,711 ) Economic EPS $ 0.47 $ 0.35 $ (0.22 ) Dividends declared per share $ 2.60 $ 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)Nine Months Ended September 30, 2021 September 30, 2020 REVENUES: Advisory fees: Asset-based $ 33,846 $ 29,277 Performance-based 1,959 1,408 Trust fees 18,233 17,395 Trust performance-based fees — 77 Other, net (375 ) (159 ) Total revenues 53,663 47,998 EXPENSES: Employee compensation and benefits 32,053 32,970 Sales and marketing 892 946 Westwood mutual funds 1,573 1,370 Information technology 6,190 6,219 Professional services 3,471 3,217 General and administrative 5,893 6,830 Impairment expense — 3,403 Gain on foreign currency transactions — (1,196 ) Total expenses 50,072 53,759 Net operating income (loss) 3,591 (5,761 ) Realized gains on private investments 8,371 — Net change in unrealized appreciation (depreciation) on private investments (2,124 ) (909 ) Investment income 562 625 Other income 390 102 Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary — (4,193 ) Income (loss) before income taxes 10,790 (10,136 ) Income tax expense 3,840 1,626 Net income (loss) $ 6,950 $ (11,762 ) Other comprehensive income (loss): Foreign currency translation adjustments — (1,250 ) Reclassification of cumulative foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary — 4,193 Total comprehensive income (loss) $ 6,950 $ (8,819 ) Earnings (loss) per share: Basic $ 0.88 $ (1.46 ) Diluted $ 0.88 $ (1.46 ) Weighted average shares outstanding: Basic 7,886,359 8,040,417 Diluted 7,933,860 8,040,417 Economic Earnings $ 12,804 $ 2,713 Economic EPS $ 1.61 $ 0.34 Dividends declared per share $ 2.70 $ 0.43 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
(unaudited)September 30, 2021 December 31, 2020 ASSETS Current Assets: Cash and cash equivalents $ 18,461 $ 13,016 Accounts receivable 9,785 9,450 Investments, at fair value 58,094 69,542 Prepaid income taxes 79 1,700 Other current assets 2,451 2,606 Total current assets 88,870 96,314 Investments 4,455 8,154 Noncurrent investments at fair value 4,185 3,527 Goodwill 16,401 16,401 Deferred income taxes 991 1,468 Operating lease right-of-use assets 5,180 6,103 Intangible assets, net 12,317 13,535 Property and equipment, net of accumulated depreciation of $8,456 and $8,056 2,229 3,186 Other long-term assets 634 464 Total long-term assets 46,392 52,838 Total assets $ 135,262 $ 149,152 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 2,775 $ 1,627 Dividends payable 1,333 810 Compensation and benefits payable 6,991 7,448 Operating lease liabilities 1,410 1,718 Accrued stock repurchases 36 — Income taxes payable 752 191 Total current liabilities 13,297 11,794 Accrued dividends 1,148 526 Noncurrent operating lease liabilities 5,089 6,121 Total long-term liabilities 6,237 6,647 Total liabilities 19,534 18,441 Stockholders’ Equity: Common stock, $0.01 par value, authorized 25,000,000 shares, issued 10,658,681 and outstanding 8,296,864 shares at September 30, 2021; issued 10,500,549 and outstanding 8,326,948 shares at December 31, 2020 108 105 Additional paid-in capital 193,901 210,268 Treasury stock, at cost - 2,361,817 shares at September 30, 2021; 2,173,559 shares at December 31, 2020 (81,050 ) (77,967 ) Retained earnings (accumulated deficit) 2,769 (1,695 ) Total stockholders’ equity 115,728 130,711 Total liabilities and stockholders’ equity $ 135,262 $ 149,152 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)Nine Months Ended September 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 6,950 $ (11,762 ) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation 571 697 Amortization of intangible assets 1,218 1,293 Net change in unrealized (appreciation) depreciation on investments 2,425 1,132 Realized gains on private investments (8,371 ) — Stock-based compensation expense 4,459 5,409 Deferred income taxes 477 (191 ) Non-cash lease expense 923 1,253 Gain on asset disposition (148 ) — Impairment of goodwill — 3,403 Currency translation adjustment reclassification — 4,193 Changes in operating assets and liabilities: Net (purchases) sales of trading securities 11,191 (11,891 ) Accounts receivable (335 ) 3,634 Other current assets (15 ) 246 Accounts payable and accrued liabilities 1,149 (47 ) Compensation and benefits payable (430 ) (3,769 ) Income taxes payable 2,191 492 Other liabilities (1,195 ) (1,174 ) Net cash (used in) provided by operating activities 21,060 (7,082 ) CASH FLOWS FROM INVESTING ACTIVITIES: Sale of investments 9,258 — Sale of property and equipment 501 — Purchases of property and equipment (114 ) (92 ) Purchases of investments (15 ) — Net cash provided by (used in) investing activities 9,630 (92 ) CASH FLOWS FROM FINANCING ACTIVITIES: Purchases of treasury stock (2,164 ) (12,952 ) Purchases of treasury stock for employee stock plans — (697 ) Restricted stock returned for payment of taxes (884 ) (1,120 ) Cash dividends (22,125 ) (11,043 ) Net cash used in financing activities (25,173 ) (25,812 ) Effect of currency rate changes on cash (72 ) (1,187 ) NET CHANGE IN CASH AND CASH EQUIVALENTS 5,445 (34,173 ) Cash and cash equivalents, beginning of period 13,016 49,766 Cash and cash equivalents, end of period $ 18,461 $ 15,593 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for income taxes $ 506 $ 1,294 Accrued dividends $ 2,481 $ 1,448 Accrued purchases of treasury stock $ 36 $ — WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
Reconciliation of Net Income (Loss) to Economic Earnings (Loss)
(in thousands, except per share and share amounts)
(unaudited)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.
Three Months Ended September 30, 2021 June 30, 2021 September 30, 2020 Net income (loss) $ 1,879 $ 970 $ (10,289 ) Add: Stock-based compensation expense 1,362 1,375 488 Add: Impairment expense — — 3,403 Add: Intangible amortization 406 406 435 Add: Currency translation adjustment reclassification — — 4,193 Add: Tax benefit from goodwill amortization 59 59 59 Economic Earnings (Loss) $ 3,706 $ 2,810 $ (1,711 ) Diluted weighted average shares 7,956,081 7,928,106 7,829,478 Economic EPS $ 0.47 $ 0.35 $ (0.22 ) Nine Months Ended September 30, 2021 September 30, 2020 Net income (loss) $ 6,950 $ (11,762 ) Add: Stock-based compensation expense 4,459 5,409 Add: Impairment expense — 3,403 Add: Intangible amortization 1,218 1,293 Add: Currency translation adjustment reclassification — 4,193 Add: Tax benefit from goodwill amortization 177 177 Economic Earnings $ 12,804 $ 2,713 Diluted weighted average shares 7,933,860 8,040,417 Economic EPS $ 1.61 $ 0.34 
