UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

____________________________________________________________________________________________________


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~June 30, 2020~~March 31, 2021


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission file number 1-31234

WESTWOOD HOLDINGS GROUP, INC.

(Exact name of registrant as specified in its charter)

____________________________________________________________________________________________________

Delaware

75-2969997

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

200 CRESCENT COURT, SUITE 1200

DALLAS,

Texas

75201

(Address of principal executive office)

(Zip Code)

(214) 756-6900

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common stock, par value $0.01 per share	WHG	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒☐

Non-accelerated filer

☐☒

Smaller reporting company

☐☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ �� No ☒

Shares of common stock, par value $0.01 per share, outstanding as of ~~July 22, 2020: 8,445,149.~~April 23, 2021: 8,296,956.

WESTWOOD HOLDINGS GROUP, INC.

INDEX

PART I

FINANCIAL INFORMATION

PAGE

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets as of ~~June 30~~March 31 , ~~2020~~202 1 and December 31, ~~2019~~2 020

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three ~~and S~~ix Months Ended ~~June 30~~March 31 , ~~2020~~202 1 and ~~2019~~2 020

Condensed Consolidated Statement of Stockholders’ Equity for the Three ~~Three and~~ ~~Six~~Months Ended ~~June 30~~March 31 , ~~2020~~202 1 and ~~2019~~2 02 0

Condensed Consolidated Statements of Cash Flows for the S ixThree Months Ended ~~June 30~~March 31 , ~~2020~~202 1 and ~~2019~~2 0 20

Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

1814

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

2522

Item 4.

Controls and Procedures

PART II

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)

(Unaudited)

June 30,
2020 December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents $ 43,926 $ 49,766
Accounts receivable 10,751 13,177
Investments, at fair value 30,228 50,324
Prepaid income taxes 709 1,150
Other current assets 1,764 2,544
Total current assets 87,378 116,961
Investments 8,154 8,154
Noncurrent investments at fair value 3,401 4,238
Goodwill 19,804 19,804
Deferred income taxes 3,139 2,216
Operating lease right-of-use assets 6,981 7,562
Intangible assets, net 14,398 15,256
Property and equipment, net of accumulated depreciation of $7,827 and $7,395 3,741 4,152
Other long-term assets 425 364
Total assets $ 147,421 $ 178,707
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,781 $ 2,145
Dividends payable 1,127 7,362
Compensation and benefits payable 3,912 9,975
Operating lease liabilities 1,666 1,584
Income taxes payable 192 289
Total current liabilities 8,678 21,355
Accrued dividends 371 1,303
Noncurrent operating lease liabilities 6,943 7,762
Total liabilities 15,992 30,420
Commitments and contingencies (Note 11)
Stockholders' Equity:
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 10,558,111 and outstanding 8,382,342 shares at June 30, 2020; issued 10,306,570 and outstanding 8,881,086 shares at December 31, 2019 106 103
Additional paid-in capital 208,572 203,441
Treasury stock, at cost - 2,175,758 shares at June 30, 2020; 1,425,483 shares at December 31, 2019 (78,050) (63,281)
Accumulated other comprehensive loss (4,814) (2,943)
Retained earnings 5,615 10,967
Total stockholders' equity 131,429 148,287
Total liabilities and stockholders' equity $ 147,421 $ 178,707


	March 31, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	12,989	$	13,016
Accounts receivable	11,744		9,450
Investments, at fair value	73,880		69,542
Prepaid income taxes	336		1,700
Other current assets	2,588		2,606
Total current assets	101,537		96,314
Investments	4,455		8,154
Noncurrent investments at fair value	3,981		3,527
Goodwill	16,401		16,401
Deferred income taxes	1,418		1,468
Operating lease right-of-use assets	5,796		6,103
Intangible assets, net	13,129		13,535
Property and equipment, net of accumulated depreciation of $8,099 and $8,056	2,488		3,186
Other long-term assets	459		464
Total assets	$	149,664	$	149,152
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	2,431	$	1,627

Dividends payable	1,109		810
Compensation and benefits payable	2,426		7,448

Operating lease liabilities	1,420		1,718
Accrued stock repurchases	359		0
Income taxes payable	2,450		191
Total current liabilities	10,195		11,794
Accrued dividends	230		526

Noncurrent operating lease liabilities	5,794		6,121
Total long-term liabilities	6,024		6,647
Total liabilities	16,219		18,441
Commitments and contingencies (Note 10)	0		0
Stockholders' Equity:
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 10,630,452 and outstanding 8,313,003 shares at March 31, 2021; issued 10,500,549 and outstanding 8,326,948 shares at December 31, 2020	107		105
Additional paid-in capital	211,988		210,268
Treasury stock, at cost - 2,317,449 shares at March 31, 2021; 2,173,559 shares at December 31, 2020	(80,255)		(77,967)

Retained earnings (accumulated deficit)	1,605		(1,695)
Total stockholders' equity	133,445		130,711
Total liabilities and stockholders' equity	$	149,664	$	149,152

See Notes to Condensed Consolidated Financial Statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data and share amounts)

(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
REVENUES:
Advisory fees:
Asset-based $ 9,328 $ 14,695 $ 20,430 $ 31,101
Performance-based 695 120 695 300
Trust fees 5,657 6,444 11,608 12,983
Trust performance-based fees 40 — 40 —
Other, net 155 450 (229) 1,187
Total revenues 15,875 21,709 32,544 45,571
EXPENSES:
Employee compensation and benefits 10,787 11,378 23,455 25,988
Sales and marketing 253 514 731 1,044
Westwood mutual funds 434 661 949 1,507
Information technology 2,030 2,282 4,061 4,259
Professional services 991 1,169 2,184 2,318
General and administrative 2,191 2,402 4,497 4,836
(Gain) loss on foreign currency transactions 1,323 724 (1,615) 1,544
Total expenses 18,009 19,130 34,262 41,496
Net operating income (loss) (2,134) 2,579 (1,718) 4,075
Unrealized gains (losses) on private investments 159 — (836) —
Investment income 124 — 668 —
Other income 34 77 68 77
Income (loss) before income taxes (1,817) 2,656 (1,818) 4,152
Income tax expense (benefit) 758 795 (345) 1,899
Net income (loss) $ (2,575) $ 1,861 $ (1,473) $ 2,253
Other comprehensive income (loss):
Foreign currency translation adjustments 1,371 735 (1,871) 1,566
Total comprehensive income (loss) $ (1,204) $ 2,596 $ (3,344) $ 3,819
Earnings (loss) per share:
Basic $ (0.33) $ 0.22 $ (0.18) $ 0.27
Diluted $ (0.33) $ 0.22 $ (0.18) $ 0.27
Weighted average shares outstanding:
Basic 7,879,698 8,446,610 8,147,045 8,406,367
Diluted 7,879,698 8,476,777 8,147,045 8,467,589


	Three Months Ended March 31,
	2021		2020
REVENUES:
Advisory fees:
Asset-based	$	10,450	$	11,102
Performance-based	1,959		0
Trust fees	6,065		5,951

Other, net	(155)		(384)
Total revenues	18,319		16,669
EXPENSES:
Employee compensation and benefits	11,548		12,668
Sales and marketing	230		478
Westwood mutual funds	391		515
Information technology	1,992		2,031
Professional services	1,317		1,193
General and administrative	2,072		2,306

(Gain) loss on foreign currency transactions	0		(2,938)
Total expenses	17,550		16,253
Net operating income	769		416
Realized gains on private investments	8,325		0
Net change in unrealized appreciation (depreciation) on private investments	(2,326)		(995)
Investment income	196		544
Other income	50		34

Income (loss) before income taxes	7,014		(1)
Income tax expense (benefit)	2,913		(1,103)
Net income	$	4,101	$	1,102
Other comprehensive income (loss):
Foreign currency translation adjustments	0		(3,242)

Total comprehensive income (loss)	$	4,101	$	(2,140)

Earnings per share:
Basic	$	0.52	$	0.13
Diluted	$	0.52	$	0.13
Weighted average shares outstanding:
Basic	7,887,044		8,414,393
Diluted	7,917,390		8,458,473

See Notes to Condensed Consolidated Financial Statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Three Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~

(In thousands, except share amounts)

(Unaudited)


	Common Stock, Par			Additional Paid-In Capital		Treasury Stock		Retained Earnings (Accumulated Deficit)		Total
	Shares	Amount
Balance, December 31, 2020	8,326,948	$	105	$	210,268	$	(77,967)	$	(1,695)	$	130,711
Net income	—	—		—		—		4,101		4,101


Issuance of restricted stock, net of forfeitures	129,905	2		(2)		—		—		0
Dividends declared ($0.10 per share)	—	—		—		—		(801)		(801)

Stock-based compensation expense	—	—		1,722		—		—		1,722

Purchases of treasury stock	(92,491)	—		—		(1,404)		—		(1,404)

Restricted stock returned for payment of taxes	(51,359)	—		—		(884)		—		(884)
Balance, March 31, 2021	8,313,003	$	107	$	211,988	$	(80,255)	$	1,605	$	133,445


		Common Stock, Par					Additional Paid-In Capital		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Retained Earnings				Total	Common Stock, Par					Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
		Shares	Amount																			Shares			Amount			Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive Income (Loss)		Retained Earnings	Total
Balance, December 31, 2019															Balance, December 31, 2019	8,881,086		$	103	$	203,441		$	(63,281)		$	(2,943)		$	10,967		$	148,287
Net income															Net income	—		—		—			—			—			1,102			1,102
Foreign currency translation adjustments															Foreign currency translation adjustments	—		—		—			—			(3,242)			—			(3,242)
Issuance of restricted stock, net of forfeitures															Issuance of restricted stock, net of forfeitures	241,533		3		(3)			—			—			—			0
Dividends declared ($0.43 per share)															Dividends declared ($0.43 per share)	—		—		—			—			—			(3,903)			(3,903)
Stock-based compensation expense															Stock-based compensation expense	—		—		2,616			—			—			—			2,616
Reclassification of compensation liability to be paid in shares															Reclassification of compensation liability to be paid in shares	—		—		213			—			—			—			213
Purchases of treasury stock															Purchases of treasury stock	(272,059)		—		—			(4,867)			—			—			(4,867)
Purchase of treasury stock under employee stock plans															Purchase of treasury stock under employee stock plans	(27,474)		—		—			(697)			—			—			(697)
Restricted stock returned for payment of taxes															Restricted stock returned for payment of taxes	(43,045)		—		—			(1,120)			—			—			(1,120)
Balance, March 31, 2020	Balance, March 31, 2020	8,780,041	$	106	$	206,267	$	(69,965)	$	(6,185)	$	8,166	$	138,389	Balance, March 31, 2020	8,780,041		$	106	$	206,267		$	(69,965)		$	(6,185)		$	8,166		$	138,389
Net loss		—	—		—		—		—		(2,575)		(2,575)
Other comprehensive income		—	—		—		—		1,371		—		1,371
Issuance of restricted stock, net of forfeitures		9,998	—		—		—		—		—		—
Dividend reversal for forfeited restricted stock		—	—		—		—		—		24		24
Stock-based compensation expense		—	—		2,305		—		—		—		2,305

Purchases of treasury stock		(407,697)	—		—		(8,085)		—		—		(8,085)

Balance, June 30, 2020		8,382,342	$	106	$	208,572	$	(78,050)	$	(4,814)	$	5,615	$	131,429

Common Stock, Par Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Total
Shares Amount
Balance, March 31, 2019 8,975,865 $ 104 $ 197,598 $ (62,077) $ (4,052) $ 24,537 $ 156,110
Net income — — — — — 1,861 1,861
Other comprehensive income — — — — 735 — 735
Issuance of restricted stock, net of forfeitures (4,266) — — — — — —
Dividends declared ($0.72 per share) — — — — — (6,344) (6,344)
Stock-based compensation expense — — 2,430 — — — 2,430
Purchases of treasury stock (26,866) — — (806) — — (806)
Balance, June 30, 2019 8,944,733 $ 104 $ 200,028 $ (62,883) $ (3,317) $ 20,054 $ 153,986

See Notes to Condensed Consolidated Financial Statements.

Common Stock, Par Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Total
Shares Amount
Balance, December 31, 2019 8,881,086 $ 103 $ 203,441 $ (63,281) $ (2,943) $ 10,967 $ 148,287
Net loss — — — — — (1,473) (1,473)
Other comprehensive loss — — — — (1,871) — (1,871)
Issuance of restricted stock, net of forfeitures 251,531 3 (3) — — — —
Dividends declared ($0.43 per share), net of forfeitures — — — — — (3,879) (3,879)
Stock-based compensation expense — — 4,921 — — — 4,921
Reclassification of compensation liability to be paid in shares — — 213 — — — 213
Purchases of treasury stock (679,756) — — (12,952) — — (12,952)
Purchase of treasury stock under employee stock plans (27,474) — — (697) — — (697)
Restricted stock returned for payment of taxes (43,045) — — (1,120) — — (1,120)
Balance, June 30, 2020 8,382,342 $ 106 $ 208,572 $ (78,050) $ (4,814) $ 5,615 $ 131,429
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Common Stock, Par Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Total
Shares Amount
Balance, December 31, 2018 8,904,902 $ 102 $ 194,116 $ (58,711) $ (4,883) $ 30,525 $ 161,149
Net income — — — — — 2,253 2,253
Other comprehensive income — — — — 1,566 — 1,566
Issuance of restricted stock, net of forfeitures 153,780 2 (2) — — — —
Dividends declared ($1.44 per share) — — — — — (12,724) (12,724)
Stock-based compensation expense — — 5,683 — — — 5,683
Reclassification of compensation liability to be paid in shares — — 231 — — 231
Purchases of treasury stock (51,913) — — (1,787) — — (1,787)
Restricted stock returned for payment of taxes (62,036) — — (2,385) — — (2,385)
Balance, June 30, 2019 8,944,733 $ 104 $ 200,028 $ (62,883) $ (3,317) $ 20,054 $ 153,986


	Three Months Ended March 31,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	4,101	$	1,102
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation	207		233
Amortization of intangible assets	406		423
Net change in unrealized (appreciation) depreciation on investments	2,432		1,133
Realized gains on private investments	(8,325)		0
Stock based compensation expense	1,722		2,616
Deferred income taxes	40		(1,643)
Non-cash lease expense	307		305


Gain on asset disposition	(148)		0

Change in operating assets and liabilities:
Net (purchases) sales of trading securities	(4,444)		12,916
Accounts receivable	(2,295)		1,844
Other current assets	23		326
Accounts payable and accrued liabilities	803		(469)
Compensation and benefits payable	(5,026)		(7,356)
Income taxes payable	3,630		475
Other liabilities	(478)		(383)
Net cash (used in) provided by operating activities	(7,045)		11,522
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of investments	9,258		0
Sale of property and equipment	501		0
Purchase of property and equipment	(9)		(16)
Purchase of investments	(15)		0

Net cash provided by (used in) investing activities	9,735		(16)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock	(1,045)		(3,947)
Purchase of treasury stock under employee stock plans	0		(697)
Restricted stock returned for payment of taxes	(884)		(1,120)
Cash dividends paid	(801)		(7,324)
Net cash used in financing activities	(2,730)		(13,088)
Effect of currency rate changes on cash	13		(3,068)
Net Change in Cash and Cash Equivalents	(27)		(4,650)
Cash and cash equivalents, beginning of period	13,016		49,766
Cash and cash equivalents, end of period	$	12,989	$	45,116

Supplemental cash flow information:
Cash paid during the period for income taxes	$	769	$	64
Accrued dividends	$	1,339	$	5,245
Accrued purchases of treasury stock	$	359	$	920

See Notes to Condensed Consolidated Financial Statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(In thousands)~~

~~(Unaudited)~~

Six Months Ended June 30,
2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,473) $ 2,253
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation 465 425
Amortization of intangible assets 858 836
Unrealized (gains) losses on investments 904 (600)
Stock based compensation expense 4,921 5,683
Deferred income taxes (939) 763
Non-cash lease expense 615 561
Change in operating assets and liabilities:
Net sales of investments - trading securities 20,029 18,779
Accounts receivable 2,350 4,891
Other current assets 709 (589)
Accounts payable and accrued liabilities (361) (604)
Compensation and benefits payable (5,790) (10,357)
Income taxes payable 307 (288)
Other liabilities (771) (692)
Net cash provided by operating activities 21,824 21,061
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (56) (402)
Purchase of investments — (250)
Net cash used in investing activities (56) (652)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock (12,952) (806)
Purchase of treasury stock under employee stock plans (697) (981)
Restricted stock returned for payment of taxes (1,120) (2,385)
Cash dividends paid (11,043) (13,860)
Net cash used in financing activities (25,812) (18,032)
Effect of currency rate changes on cash (1,796) 1,484
Net Change in Cash and Cash Equivalents (5,840) 3,861
Cash and cash equivalents, beginning of period 49,766 52,449
Cash and cash equivalents, end of period $ 43,926 $ 56,310
Supplemental cash flow information:
Cash paid during the period for income taxes $ 288 $ 1,417
Accrued dividends $ 1,498 $ 8,150
Accrued purchase of property and equipment $ — $ 203

~~See Notes to Condensed Consolidated Financial Statements.~~

~~WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. DESCRIPTION OF THE BUSINESS

Westwood Holdings Group, Inc. (“Westwood”, “the Company”, “we”, “us” or “our”) was incorporated under the laws of the State of Delaware on December 12, 2001. Westwood manages investment assets and provides services for its clients through its wholly-owned subsidiaries, Westwood Management Corp. and Westwood Advisors, L.L.C. (referred to hereinafter together as “Westwood Management”), Westwood Trust and Westwood International Advisors Inc. (“Westwood International Advisors”). On July 27, 2020, Westwood’s Board of Directors approved the liquidation of Westwood International Advisors, which occurred effective September 30, 2020.

Westwood Management provides investment advisory services to institutional clients, a family of mutual funds called the Westwood Funds®, other mutual funds, individual investors and clients of Westwood Trust. Prior to its liquidation, our wholly owned subsidiary, Westwood International Advisors, ~~provides~~provided investment advisory services to institutional clients, the Westwood Funds®, other mutual funds, the UCITS Fund (which was liquidated in June 2020), individual investors and clients of Westwood Trust. Westwood Trust provides trust and custodial services and participation in self-sponsored common trust funds (“CTFs”) to institutions and high net worth individuals. Revenue is largely dependent on the total value and composition of assets under management ("AUM"). Accordingly, fluctuations in financial markets and in the composition of AUM impact our revenues and results of operations.

Westwood Management is registered with the Securities and Exchange Commission ("SEC") as an investment advisor ("RIA") under the Investment Advisers Act of 1940. Westwood Trust is chartered and regulated by the Texas Department of Banking. ~~Westwood International Advisors is registered as a portfolio manager and exempt market dealer with the Ontario Securities Commission and the Autorité des marchés financiers in Québec.~~

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements are unaudited and are presented in accordance with the requirements for quarterly reports on Form 10-Q and consequently do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The Company’s Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal recurring adjustments) necessary in the opinion of management to present fairly our interim financial position and results of operations and cash flows for the periods presented. The accompanying Condensed Consolidated Financial Statements are presented in accordance with GAAP and the rules and regulations of the SEC.

The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements, and notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC. Operating results for the periods in these Condensed Consolidated Financial Statements are not necessarily indicative of results for any future period. The accompanying Condensed Consolidated Financial Statements include the accounts of Westwood and its subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation.

Recent Accounting Pronouncements

Recently Adopted

In ~~August 2018,~~December 2019, the FASB issued ASU ~~2018-13,~~No. 2019-12, ~~Fair Value Measurement (Topic 820): Disclosure Framework- Changes~~Simplifying the Accounting for Income Taxes, which is intended to ~~the Disclosure Requirements for Fair Value Measurement~~. The purpose of this amendment is to modify, remove and add certain disclosure requirements for fair value measurements. Under ASU 2018-13, entities are required to disclose the amount of total gains or losses recognized in other comprehensive income attributable to assets and liabilities categorized within Level 3simplify various aspects of the ~~fair value hierarchy. The~~income tax accounting guidance, including interim-period accounting for enacted changes in tax law. ASU includes an incremental requirement about significant unobservable inputs for Level 3 fair value measurements. The requirement to disclose reasons for transfers between Level 1 and Level 2 was removed. Various requirements for Level 3 disclosure were also modified. The amendments in this ASU are2019-12 is effective for ~~all~~public business entities for fiscal years ~~and interim periods~~ beginning after December 15, ~~2019.~~2020, including interim periods within those fiscal years, and early adoption is permitted. We adopted this ASU as of January 1, ~~2020, and further information is included in Note 6 "Fair Value." There was no significant impact on our Condensed Consolidated Financial Statements.~~

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~Intangibles - Goodwill and Other - Internal-Use Software (Topic 350): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.~~ ~~The purpose of this amendment is to align the requirements for capitalizing implementation costs incurred in a~~

~~WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments in this update are effective for public companies for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. We adopted this ASU as of January 1, 2020 under the prospective transition method. Incremental costs related to hosting arrangements will be recorded on the Condensed Consolidated Balance Sheets in either other current or other long-term assets, instead of intangible assets, net. Related amortization will be recorded in information technology expense on the Condensed Consolidated Statements of Comprehensive Income (Loss), amortization of previously capitalized costs were recorded in general and administrative expense.

~~In May 2019, the FASB issued ASU 2019-05,~~ ~~Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief.~~ ~~The purpose of this amendment is to amend ASU 2016-13,~~ ~~Financial Instruments—Credit Losses (Topic 326)~~: ~~Measurement of Credit Losses on Financial Instruments~~, to allow companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that were previously recorded at amortized cost and are within the scope of ASC 326-20, ~~Financial Instruments-Credit Losses: Amortization Cost, if the instruments are eligible for the fair value option under Accounting Standards Codification 825 -~~ ~~Financial Instruments~~. The fair value option election does not apply to held-to-maturity debt securities. The amendments in this update are effective for public companies for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. We adopted this ASU as of January 1, 2020,2021 and it did not have a significant ~~impact~~effect on our Condensed Consolidated Financial Statements.

3. REVENUE

Revenue Recognition

Revenues are recognized when the performance obligation (the investment management and advisory or trust services provided to the client) defined by the investment advisory or sub-advisory agreement is satisfied. For each performance obligation, we determine at contract inception whether the revenue satisfies over time or at a point in time. We derive our

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

revenues from investment advisory fees, trust fees and other sources of revenues. Advisory and trust fees are calculated based on a percentage of AUM and the performance obligation is realized over the current calendar quarter. Once clients receive our investment advisory services we have an enforceable right to payment.

Advisory Fee Revenues

Our advisory fees are generated by Westwood Management and Westwood International Advisors (prior to its closure, effective September 30, 2020), which manage client accounts under investment advisory and sub-advisory agreements. Advisory fees are typically calculated based on a percentage of AUM and are paid in accordance with the terms of the agreements. Advisory fees are paid quarterly in advance based on AUM on the last day of the preceding quarter, quarterly in arrears based on AUM on the last day of the quarter just ended or are based on a daily or monthly analysis of AUM for the stated period. We recognize advisory fee revenues as services are rendered. Since our advance paying clients' billing periods coincide with the calendar quarter to which such payments relate, revenue is recognized within the quarter and our Condensed Consolidated Financial Statements contain no deferred advisory fee revenues. Advisory clients typically consist of institutional and mutual fund accounts.

Institutional investors include separate accounts of (i) corporate pension and profit sharing plans, public employee retirement funds, Taft-Hartley plans, endowments, foundations and individuals; (ii) subadvisory relationships where Westwood provides investment management services for funds offered by other financial institutions; (iii) pooled investment vehicles, including the UCITS Fund and collective investment trusts; and (iv) managed account relationships with brokerage firms and other registered investment advisors that offer Westwood products to their customers. The UCITS Fund was liquidated in June 2020.

Mutual funds include the Westwood Funds®, a family of mutual funds for which Westwood Management serves as advisor. These funds are available to individual investors, as well as offered as part of our investment strategies for institutional investors and wealth management accounts.

Arrangements with Performance-Based Obligations

A limited number of our advisory clients have a contractual performance-based fee component in their contracts, which generates additional revenues if we outperform a specified index over a specific period of time, and a limited number of our mutual fund offerings have fees that generate additional revenues if we outperform specified indices over specific periods of time.

The revenue is based on future market performance and is subject to factors outside our control. We cannot conclude that a significant reversal in the cumulative amount of revenue recognized will not occur during the measurement period, and therefore the revenue is recorded at the end of the measurement period when the performance obligation has been satisfied.

~~WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

Trust Fee Revenues

Our trust fees are generated by Westwood Trust pursuant to trust or custodial agreements. Trust fees are separately negotiated with each client and are generally based on a percentage of AUM. Westwood Trust also provides trust services to a small number of clients on a fixed fee basis. The fees for most of our trust clients are calculated quarterly in arrears, based on a daily average of AUM for the quarter, or monthly, based on the month-end value of AUM. Since billing periods for most of Westwood Trust’s clients coincide with the calendar quarter, revenue is fully recognized within the quarter and our Condensed Consolidated Financial Statements contain no deferred advisory fee revenues.

Revenue Disaggregated

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Sales taxes are excluded from revenues. The following table presents our revenue disaggregated by account type (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Advisory Fees:
Institutional $ 6,857 $ 9,372 $ 14,757 $ 19,811
Mutual Funds 2,393 5,212 5,464 11,077
Wealth Management 78 111 209 213
Performance-based 695 120 695 300
Trust Fees 5,657 6,444 11,608 12,983
Trust performance-based Fees 40 — 40 —
Other, net 155 450 (229) 1,187
Total revenues $ 15,875 $ 21,709 $ 32,544 $ 45,571


	Three Months Ended March 31,
	2021		2020
Advisory Fees:
Institutional	$	8,858	$	7,900
Mutual Funds	3,414		3,071
Wealth Management	137		131

Trust Fees	6,065		5,951

Other, net	(155)		(384)
Total revenues	$	18,319	$	16,669

We serve clients primarily in the United States, but also in various locations around the world. The following table presents our revenue disaggregated by our clients' geographical locations (in thousands):


Three Months Ended March 31, 2021	Advisory		Trust		Performance-based		Other		Total


Canada	$	276	$	0	$	0	$	0	$	276
Europe	638		0		262		0		900
United States	9,546		6,065		1,687		(155)		17,143
Total	$	10,460	$	6,065	$	1,949	$	(155)	$	18,319

Three Months Ended June 30, 2020 Advisory Trust Performance-based Other Total
Asia $ 312 $ — $ — $ — $ 312
Canada 407 — — — 407
Europe 814 — 94 — 908
United States 7,795 5,657 641 155 14,248
Total $ 9,328 $ 5,657 $ 735 $ 155 $ 15,875

Three Months Ended June 30, 2019 Advisory Trust Performance-based Other Total
Asia $ 407 $ — $ — $ — $ 407
Canada 702 — — 44 746
Europe 872 — 120 — 992
United States 12,714 6,444 — 406 19,564
Total $ 14,695 $ 6,444 $ 120 $ 450 $ 21,709

~~WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

Six Months Ended June 30, 2020 Advisory Trust Performance-based Other Total
Asia $ 729 $ — $ — $ — $ 729
Canada 897 — — — 897
Europe 1,824 — 94 — 1,918
United States 16,980 11,608 641 (229) 29,000
Total $ 20,430 $ 11,608 $ 735 $ (229) $ 32,544


Six Months Ended June 30, 2019		Advisory		Trust		Performance-based		Other		Total
Three Months Ended March 31, 2020												Three Months Ended March 31, 2020	Advisory		Trust		Performance-based		Other		Total
Asia	Asia	$	813	$	—	$	—	$	—	$	813	Asia	$	417	$	0	$	0	$	0	$	417
Australia		591		—		—		—		591

Canada	Canada	1,526		—		—		84		1,610		Canada	490		0		0		0		490
Europe	Europe	1,849		—		300		—		2,149		Europe	1,009		0		0		0		1,009
United States	United States	26,322		12,983		—		1,103		40,408		United States	9,186		5,951		0		(384)		14,753
Total	Total	$	31,101	$	12,983	$	300	$	1,187	$	45,571	Total	$	11,102	$	5,951	$	0	$	(384)	$	16,669

4. SEGMENT REPORTING

We operate 2 segments: Advisory and Trust. These segments are managed separately based on the types of products and services offered and their related client bases. The Company’s segment information is prepared on the same basis that management reviews the financial information for operational decision-making purposes. The Company’s chief operating decision maker, our Chief Executive Officer, evaluates the performance of our segments based primarily on fee revenues and Economic ~~Earnings.~~Earnings (Loss). Refer to the "Supplemental Financial Information" section in Item 2. "Management Discussion and Analysis of Financial Conditions and Results" for the Economic Earnings (Loss) calculation. Westwood Holdings Group, Inc., the parent company of Advisory and Trust, does not have revenues and is the entity in which we record typical holding company expenses including employee compensation and benefits for holding company employees, directors’ fees and investor relations costs. All segment accounting policies are the same as those described in the summary of significant accounting policies. Intersegment balances that eliminate in consolidation have been applied to the appropriate segment.

Advisory

Our Advisory segment provides investment advisory services to (i) corporate pension and profit sharing plans, public employee retirement funds, Taft-Hartley plans, endowments, foundations and individuals, (ii) subadvisory relationships where Westwood provides investment management services to the Westwood Funds®, funds offered by other financial institutions and funds offered by our Trust segment and (iii) pooled investment vehicles, including the UCITS Fund ~~(which was liquidated~~(liquidated in June 2020) and collective investment trusts. Westwood Management and Westwood International Advisors (prior to its closure, effective September 30, 2020), which provide investment advisory services to similar clients, are included in our Advisory segment.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Trust

Trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals. Westwood Trust is included in our Trust segment.

~~WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

(in thousands) Advisory Trust Westwood
Holdings Eliminations Consolidated
Three Months Ended June 30, 2020
Net fee revenues from external sources $ 10,023 $ 5,697 $ — $ — $ 15,720
Net intersegment revenues 595 68 — (663) —
Net interest and dividend revenue 10 — — — 10
Other, net 145 — — — 145
Total revenues $ 10,773 $ 5,765 $ — $ (663) $ 15,875
Segment assets $ 239,726 $ 50,955 $ 17,534 $ (160,794) $ 147,421
Segment goodwill $ 3,403 $ 16,401 $ — $ — $ 19,804
Three Months Ended June 30, 2019
Net fee revenues from external sources $ 14,815 $ 6,444 $ — $ — $ 21,259
Net intersegment revenues 866 71 — (937) —
Net interest and dividend revenue 192 91 — — 283
Other, net 174 (7) — — 167
Total revenues $ 16,047 $ 6,599 $ — $ (937) $ 21,709
Segment assets $ 232,380 $ 64,771 $ 19,338 $ (137,003) $ 179,486
Segment goodwill $ 3,403 $ 16,401 $ — $ — $ 19,804


(in thousands)	Advisory		Trust		Westwood Holdings		Eliminations		Consolidated
Three Months Ended March 31, 2021
Net fee revenues from external sources	$	12,409	$	6,065	$	0	$	0	$	18,474
Net intersegment revenues	676		81		0		(757)		0

Other, net	(155)		0		0		0		(155)
Total revenues	$	12,930	$	6,146	$	0	$	(757)	$	18,319

Segment assets	$	207,193	$	54,143	$	12,603	$	(124,275)	$	149,664
Segment goodwill	$	0	$	16,401	$	0	$	0	$	16,401

Three Months Ended March 31, 2020
Net fee revenues from external sources	$	11,102	$	5,951	$	0	$	0	$	17,053
Net intersegment revenues	624		50		0		(674)		0
Net interest and dividend revenue	20		0		0		0		20
Other, net	(404)		0		0		0		(404)
Total revenues	$	11,342	$	6,001	$	0	$	(674)	$	16,669

Segment assets	$	236,817	$	49,606	$	21,962	$	(150,583)	$	157,802
Segment goodwill	$	3,403	$	16,401	$	0	$	0	$	19,804

(in thousands) Advisory Trust Westwood Holdings Eliminations Consolidated
Six Months Ended June 30, 2020
Net fee revenues from external sources $ 21,125 $ 11,648 $ — $ — $ 32,773
Net intersegment revenues 1,218 118 — (1,336) —
Net interest and dividend revenue 31 — — — 31
Other, net (260) — — — (260)
Total revenues $ 22,114 $ 11,766 $ — $ (1,336) $ 32,544
Six Months Ended June 30, 2019
Net fee revenues from external sources $ 31,401 $ 12,983 $ — $ — $ 44,384
Net intersegment revenues 1,883 142 — (2,025) —
Net interest and dividend revenue 417 178 — — 595
Other, net 606 (14) — — 592
Total revenues $ 34,307 $ 13,289 $ — $ (2,025) $ 45,571

5. INVESTMENTS

During 2018, we made a $5.4 million strategic investment in InvestCloud, a digital financial services provider ("InvestCloud"), which is included in “Investments” on our Condensed Consolidated Balance Sheets. This investment represents an equity interest in a private company without a readily determinable fair value. The Company has elected to apply the measurement alternative of cost minus impairment, if any, plus or minus changes resulting from observable price changes.

Following observable price changes for this investment in the year ended December 31, 2019, we recorded aan unrealized gain of $2.8 million. AsFollowing InvestCloud's recapitalization in the first quarter of ~~June 30, 2020, there~~2021, we recorded a realized gain of approximately $8.3 million when our originally purchased shares were ~~no additional observable price changes or indicators~~redeemed. Following this redemption we re-invested $4.4 million of ~~impairment for this investment.~~our proceeds into newly issued shares of InvestCloud.

Our investment in Charis, ~~a private bank,~~the parent company of Westwood Private Bank ("Charis"), is included in “Noncurrent investments at fair value” on our Condensed Consolidated Balance Sheets and is measured at fair value on a recurring basis. In the three months ended ~~June 30, 2020,~~March 31, 2021, we recorded an unrealized gain of ~~$0.3~~$0.4 million ~~primarily as a result of the banking industry recovery~~ following ~~the previous~~

~~WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

~~downturn due to global macroeconomic effects of the Coronavirus Disease 2019 ("COVID-19") pandemic.~~fair values increases from market transactions. In the ~~six~~three months ended ~~June 30,~~March 31, 2020, we recorded an unrealized loss of ~~$0.7~~$1.0 million, primarily as a result of the global macroeconomic effects of ~~COVID-19.~~the COVID-19 pandemic.

In 2019 we made a $0.3 million investment in Westwood Hospitality Fund I, LLC, a private investment fund. Our investment is included in “Noncurrent investments at fair value” on our Condensed Consolidated Balance Sheets and is measured at fair value on a recurring basis using net asset value (“NAV”) as a practical expedient.

All other investments are carried at fair value on a recurring basis and are accounted for as trading securities.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Investments carried at fair value are presented in the table below (in thousands):

Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair
Value
June 30, 2020:
U.S. Government and Government agency obligations $ 16,234 $ 165 $ — $ 16,399
Money market funds 9,150 — — 9,150
Equity funds 4,254 40 (9) 4,285
Equities 261 — (4) 257
Exchange-traded bond funds 137 — — 137
Total trading securities 30,036 205 (13) 30,228
Private investment fund 250 — (163) 87
Private equity 3,420 — (106) 3,314
Total investments carried at fair value $ 33,706 $ 205 $ (282) $ 33,629
December 31, 2019:
U.S. Government and Government agency obligations $ 39,074 $ 174 $ — $ 39,248
Money market funds 4,592 — — 4,592
Equity funds 6,399 85 — 6,484
Total trading securities $ 50,065 $ 259 $ — $ 50,324
Private investment fund 250 13 — 263
Private equity 3,420 555 — 3,975
Total investments carried at fair value $ 53,735 $ 827 $ — $ 54,562


	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2021:
U.S. Government and Government agency obligations	$	59,722	$	0	$	(298)	$	59,424
Money market funds	12,552		0		0		12,552
Equity funds	95		0		0		95
Equities	307		114		0		421
Exchange-traded bond funds	1,394		0		(6)		1,388
Total trading securities	74,070		114		(304)		73,880
Private investment fund	265		0		(156)		109
Private equity	3,420		452		0		3,872
Total investments carried at fair value	$	77,755	$	566	$	(460)	$	77,861

December 31, 2020:
U.S. Government and Government agency obligations	$	65,132	$	2	$	(180)	$	64,954
Money market funds	4,003		0		0		4,003
Equity funds	90		0		(5)		85
Equities	288		94		0		382
Exchange-traded bond funds	115		3		0		118
Total trading securities	69,628		99		(185)		69,542
Private investment fund	250		0		(154)		96
Private equity	3,420		11		0		3,431
Total investments carried at fair value	$	73,298	$	110	$	(339)	$	73,069

As of June 30, 2020 and December 31, 2019, approximately $4.2 million and $6.4 million, respectively, in corporate funds were invested in Westwood Funds®. See Note 13 “Variable Interest Entities.”

6. FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value and requires disclosures regarding certain fair value measurements. ASC 820 establishes a three-tier hierarchy for measuring fair value, as follows:

•Level 1 – quoted market prices in active markets for identical assets

•Level 2 – inputs other than quoted prices that are directly or indirectly observable

•Level 3 – significant unobservable inputs where there is little or no market activity

Our strategic investment in InvestCloud, discussed in Note 5 “Investments,” is excluded from the recurring fair value table shown below because we have elected to apply the measurement alternative for this investment.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The following table summarizes the values of our investments measured at fair value on a recurring basis within the fair value hierarchy as of the dates indicated (in thousands):

~~WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

Level 1 Level 2 Level 3
Investments Measured at NAV ⁽¹⁾
Total
As of June 30, 2020:
Investments in trading securities $ 30,228 $ — $ — $ — $ 30,228
Private investment fund — — — 87 87
Private equity — — 3,314 — 3,314
Total assets measured at fair value $ 30,228 $ — $ 3,314 $ 87 $ 33,629
As of December 31, 2019:
Investments in trading securities $ 50,324 $ — $ — $ — $ 50,324
Private investment fund — — — 263 263
Private equity — — 3,975 — 3,975
Total assets measured at fair value $ 50,324 $ — $ 3,975 $ 263 $ 54,562
(1) Comprised of certain investments measured at fair value using net asset value ("NAV") as a practical expedient. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented on our Condensed Consolidated Balance Sheets.


	Level 1		Level 2		Level 3		Investments Measured at NAV (1)		Total
As of March 31, 2021:
Investments in trading securities	$	73,880	$	0	$	0	$	0	$	73,880
Private investment fund	0		0		0		109		109
Private equity	0		0		3,872		0		3,872
Total assets measured at fair value	$	73,880	$	0	$	3,872	$	109	$	77,861

As of December 31, 2020:
Investments in trading securities	$	69,542	$	0	$	0	$	0	$	69,542
Private investment fund	0		0		0		96		96
Private equity	0		0		3,431		0		3,431
Total assets measured at fair value	$	69,542	$	0	$	3,431	$	96	$	73,069

(1) Comprised of certain investments measured at fair value using net asset value ("NAV") as a practical expedient. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented on our Condensed Consolidated Balance Sheets.

Our investment in Charis is included within Level 3 of the fair value hierarchy as we value that investment utilizing inputs not observable in the market. Our investment is measured at fair value on a recurring basis using a market approach based on a price to tangible book value multiple range that is determined to be reasonable in the current environment, or market transactions. Management believes this valuation methodology is consistent with the banking industry and we will reevaluate our methodology and inputs on a quarterly basis.

The following table summarizes the changes in Level 3 investments measured at fair value on a recurring basis for the periods presented (in thousands):

Fair Value using Significant Unobservable Inputs (Level 3)
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Beginning balance $ 2,980 $ — $ 3,975 $ —
Unrealized gains (losses) on private investments 334 — (661) —
Ending balance $ 3,314 $ — $ 3,314 $ —


	Fair Value using Significant Unobservable Inputs (Level 3)
	Three Months Ended March 31,
	2021		2020
Beginning balance	$	3,431	$	3,975



Unrealized gains (losses) on private investments	441		(995)
Ending balance	$	3,872	$	2,980

The ~~June 30, 2020~~March 31, 2021 private investment fair value of ~~$3.3~~$3.9 million was valued using a market approach based on a price to tangible book value multiple, with unobservable book value multiples ranging from ~~$1.06~~$1.26 to ~~$1.31~~$2.29 per share, with a weighted average of ~~$1.20~~$1.45 per share. Significant increases (decreases) in book value multiples in isolation would have resulted in a significantly higher (lower) fair value measurement.

7. ~~LONG-TERM INCENTIVE COMPENSATION~~

~~Restricted Stock Awards~~

We have issued restricted shares to our employees and non-employee directors. The Seventh Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan (the “Plan”) reserves shares of Westwood common stock for issuance to eligible employees, directors and consultants of Westwood or its subsidiaries in the form of restricted stock and stock options. In April 2020, stockholders approved an additional 350,000 shares to be authorized under the Plan, increasing the total number of shares issuable under the Plan (including predecessor plans to the Plan) to 5,398,100 shares. In the event of a change in control of Westwood, the Plan contains provisions providing for the acceleration of the vesting of restricted stock. At June 30, 2020, approximately 626,000 shares remain available for issuance under the Plan.

~~The following table presents the total stock-based compensation expense recorded for stock-based compensation arrangements for the periods indicated (in thousands):~~

~~WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Service condition stock-based compensation expense $ 1,765 $ 1,760 $ 3,832 $ 3,948
Performance condition stock-based compensation expense 287 490 706 1,418
Stock-based compensation expense under the Plan 2,052 2,250 4,538 5,366
Canadian Plan stock-based compensation expense 253 180 383 317
Total stock-based compensation expense $ 2,305 $ 2,430 $ 4,921 $ 5,683

~~Restricted Stock~~

Under the Plan, we have granted to employees and non-employee directors restricted stock subject to service conditions and to certain key employees restricted stock subject to both service and performance conditions.

As of June 30, 2020, there was approximately $15.6 million of unrecognized compensation cost for restricted stock grants under the Plan, which we expect to recognize over a weighted-average period of 2.8 years. Our two types of restricted stock grants under the Plan are discussed below.

~~Restricted Stock Subject Only to a Service Condition~~

We calculate compensation cost for restricted stock grants by using the fair market value of our common stock at the date of grant, the number of shares issued and an adjustment for restrictions on dividends. This compensation cost is amortized on a straight-line basis over the applicable vesting period, with adjustments for forfeitures recorded as they occur.

~~The following table details the status and changes in our restricted stock grants subject only to a service condition for the six months ended June 30, 2020:~~

Shares Weighted Average
Grant Date Fair Value
Non-vested, January 1, 2020 396,598 $ 48.31
Granted 262,373 $ 27.39
Vested (140,974) $ 53.06
Forfeited (10,832) $ 42.72
Non-vested, June 30, 2020 507,165 $ 36.29

~~Restricted Stock Subject to Service and Performance Conditions~~

Under the Plan, certain key employees were provided agreements for grants of restricted shares that vest over multiple year periods subject to achieving annual performance goals established by the Compensation Committee of Westwood’s Board of Directors. Each year the Compensation Committee establishes specific goals for that year’s vesting of the restricted shares. The date that the Compensation Committee establishes annual goals is considered to be the grant date and the fair value measurement date to determine expense on the shares that are likely to vest. The vesting period ends when the Compensation Committee formally approves the performance-based restricted stock vesting based on the specific performance goals from the Company’s audited consolidated financial statements. If a portion of the performance-based restricted shares does not vest, no compensation expense is recognized for that portion and any previously recognized compensation expense related to shares that do not vest is reversed.

~~The following table details the status and changes in our restricted stock grants subject to service and performance conditions for the six months ended June 30, 2020:~~

Shares Weighted Average
Grant Date Fair Value
Non-vested, January 1, 2020 80,975 $ 49.73
Vested (35,275) $ 55.11
Non-vested, June 30, 2020 45,700 $ 45.58

~~WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(Unaudited)~~

~~Canadian Plan~~

The Share Award Plan of Westwood Holdings Group, Inc. for Service Provided in Canada to its Subsidiaries (the “Canadian Plan”) provides compensation in the form of common stock for services performed by employees of Westwood International Advisors. Under the Canadian Plan, no more than $10 million CDN ($7.4 million in U.S. Dollars using the exchange rate on June 30, 2020) may be funded to the plan trustee for purchases of common stock with respect to awards granted under the Canadian Plan. At June 30, 2020, approximately $1.4 million CDN ($1.0 million in U.S. Dollars using the exchange rate on June 30, 2020) remains available for issuance under the Canadian Plan, or approximately 63,000 shares based on the closing share price of our stock of $15.75 as of June 30, 2020. During the first six months of 2020, the trust formed pursuant to the Canadian Plan purchased 27,474 Westwood common shares in the open market for approximately $0.7 million. As of June 30, 2020, the trust hold~~s 63,712 s~~hares of Westwood common stock. As of June 30, 2020, unrecognized compensation cost related to restricted stock grants under the Canadian Plan totaled $0.8 million, which we expect to recognize over a weighted-average period of 1.8 years.

~~Mutual Fund Share Incentive Awards~~

We may grant mutual fund incentive awards, which are bonus awards based on our mutual funds achieving specific performance goals, annually to certain employees. Awards granted are notionally credited to a participant account maintained by us that contains a number of mutual fund shares equal to the award amount divided by the net closing value of a fund share on the date the amount is credited to the account. We maintain the award in a corporate investment account until vesting. The investment may increase or decrease based on changes in the value of the mutual fund shares awarded, including reinvested income from the mutual funds during the vesting period. Unvested mutual fund awards are included under “Investments, at fair value” on our Condensed Consolidated Balance Sheets.

Awards vest over approximately two years of service following the year in which the participant earned the award. We begin accruing a liability for mutual fund incentive awards when we believe it is probable that the award will be earned and record expense for these awards over the service period of the award, which is three years. During the year in which the amount of the award is determined, we record expense based on the expected value of the award. After the award is earned, we record expense based on the value of the shares awarded and the percentage of the vesting period that has elapsed. Our liability under these awards may increase or decrease based on changes in the value of the mutual fund shares awarded, including reinvested income from the mutual funds during the vesting period. Upon vesting, participants receive the value of the mutual fund share awards adjusted for earnings or losses attributable to the underlying mutual funds. For the three months ended June 30, 2020 and 2019, we recorded expense of approximately $9,000 and $14,000, respectively, related to mutual fund share incentive awards. For the six months ended June 30, 2020 we recorded expense of $17,000, and for the six months ended June 30, 2019, a net $112,000 credit to mutual fund expense, primarily related to the forfeiture of a mutual fund award during the first quarter of 2019. As of June 30, 2020 and December 31, 2019, we had an accrued liability of approximately $37,000 and $79,000, respectively, related to mutual fund share incentive awards.

8. INCOME TAXES

Our effective income tax rate differed from the 21% statutory rate for the ~~second~~first quarter of 2021 and 2020 due to permanent differences between book and tax restricted stock expense based on a decrease in our stock price between the restricted stock grant and vesting dates. In addition, in the first quarter of 2020, ~~primarily due to the impact of certain deferred tax assets that offset the~~a discrete benefit adjustment related to the remeasurement of certain deferred taxes following the enactment of the Coronavirus Aid, Relief, and Economic Security Act ~~("CARES Act") recorded in the first quarter of 2020. Our~~lowered our effective ~~income~~ tax ~~rate was 19.0% for the first six months of 2020, compared with 45.7% for the~~

~~first six months of 2019. The 2019 year-to-date rate was negatively impacted by a $0.6 million discrete tax expense~~

~~related to a permanent difference between book and tax restricted stock expense based on a decrease in our stock price~~

~~between the grant and vesting dates.~~

~~Tax Audit~~

Westwood Holdings Group has a Texas margin tax audit underway in reaction to a refund claim submitted to the state of Texas for the reporting years 2014 to 2019. We do not expect the results of the audit to have a material impact on our Condensed Consolidated Financial Statements.rate.

9.8. EARNINGS ~~(LOSS)~~ PER SHARE

Basic earnings ~~(loss)~~ per common share is computed by dividing net income ~~(loss)~~ available to common stockholders by the weighted average number of shares outstanding for the applicable period. Diluted earnings ~~(loss)~~ per share is computed based on the weighted average number of shares outstanding plus the effect of any dilutive shares of restricted stock granted to employees and non-employee directors. There were approximately 326,000 and 131,000 anti-dilutive restricted shares outstanding for the three months ended June 30, 2020 and June 30, 2019, respectively. There were

1410

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

employees and non-employee directors. There were approximately ~~229,000~~234,000 and ~~91,000~~131,000 anti-dilutive restricted shares outstanding for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019,~~ respectively.

The following table sets forth the computation of basic and diluted earnings ~~(loss)~~ per share (in thousands, except per share and share amounts):

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Net income (loss) $ (2,575) $ 1,861 $ (1,473) $ 2,253
Weighted average shares outstanding - basic 7,879,698 8,446,610 8,147,045 8,406,367
Dilutive potential shares from unvested restricted shares — 30,167 — 61,222
Weighted average shares outstanding - diluted 7,879,698 8,476,777 8,147,045 8,467,589
Earnings (loss) per share:
Basic $ (0.33) $ 0.22 $ (0.18) $ 0.27
Diluted $ (0.33) $ 0.22 $ (0.18) $ 0.27


	Three Months Ended March 31,
	2021		2020
Net income	$	4,101	$	1,102

Weighted average shares outstanding - basic	7,887,044		8,414,393
Dilutive potential shares from unvested restricted shares	30,346		44,080

Weighted average shares outstanding - diluted	7,917,390		8,458,473

Earnings per share:
Basic	$	0.52	$	0.13
Diluted	$	0.52	$	0.13

~~10.~~9. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of the cost of acquired assets over the fair value of the underlying identifiable assets at the date of acquisition. Goodwill is not amortized but is tested for impairment at least annually. We completed our most recent annual goodwill impairment assessment during the third quarter of ~~2019~~2020, and ~~determined that no~~recorded $3.4 million of impairment ~~loss was required. NaN~~expense related to our Advisory segment. No impairments on goodwill were recorded during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 or ~~2019.~~

A continued trend of weaker than anticipated Company financial performance, significant net outflows of AUM, a decline in the Company’s share price for a sustained period of time, or an increase in the market-based weighted average cost of capital, any of which could be caused or exacerbated in the future by the effects of COVID-19, among other factors, could significantly impact our annual impairment analysis and may result in future goodwill impairment charges that, if incurred, could have a material adverse effect on the Company’s financial condition and results of operations.2020.

Other Intangible Assets

Our intangible assets represent the acquisition date fair value of acquired client relationships, trade names, non-compete agreements and internally developed software and are reflected net of amortization. In valuing these assets, we made significant estimates regarding their useful lives, growth rates and potential attrition. We periodically review intangible assets for events or circumstances that would indicate impairment. NaN intangible asset impairments were recorded during the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 or ~~2019.~~2020.

~~11.~~10. LEASES

In February 2021, we sublet approximately 10,000 square feet of our Dallas, Texas office space to a third party. The agreement began in the first quarter of 2021 and provides for monthly rent of approximately $20,000 through the fourth quarter of 2025.

In February 2021, we terminated our Toronto, Ontario office space lease, originally expiring in October 2021.

As of ~~June 30, 2020,~~March 31, 2021, aside from the above, there have been no material changes outside the ordinary course of business to our leases since December 31, ~~2019.~~2020. For information regarding our leases, refer to Note 1511 “Leases” in Part IV, Item 15. “Exhibits, Financial Statement Schedules” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019.~~2020.

~~12.~~11. STOCKHOLDERS' EQUITY

Share Repurchase Program

In February 2020, our Board of Directors authorized management to repurchase up to an additional $10.0 million of our outstanding common stock on the open market or in privately negotiated transactions. In April 2020, our Board of ~~Directors authorized management to repurchase up to an additional $10.0 million of share repurchases under our share repurchase program, which is outstanding as of June 30, 2020.~~

1511

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Directors authorized management to repurchase up to an additional $10.0 million of share repurchases under our share repurchase program.

During the three months ended ~~June 30, 2020,~~March 31, 2021, the Company repurchased ~~407,697~~92,491 shares of our common stock at an average price of ~~$19.83~~$15.19 per share, including commissions, for an aggregate purchase price of ~~$8.1~~$1.4 million under our share repurchase plan. During the ~~six~~three months ended ~~June 30,~~March 31, 2020, the Company repurchased ~~679,756~~272,059 shares of our common stock at an average price of ~~$19.05~~$17.89 per share, including commissions, for an aggregate purchase price of ~~$13.0 million.~~$4.9 million under our share repurchase plan.

~~13.~~12. VARIABLE INTEREST ENTITIES

We evaluated (i) our relationship as sponsor of the Common Trust Funds (“CTFs”) and managing member of the private equity funds Westwood Hospitality Fund I, LLC and Westwood Technology Opportunities Fund I, LP (collectively the “Private Funds”), (ii) our advisory relationships with the Westwood Funds®, and (iii) our investments in InvestCloud and Charis discussed in Note 5 “Investments”(“ (“Private Equity”) to determine whether each of these entities is a variable interest entity (“VIE”) or voting ownership entity (“VOE”).

Based on our analyses, we determined that the CTFs and Private Funds were VIEs, as the at-risk equity holders do not have the ability to direct the activities that most significantly impact the entities' economic performance, and the Company and its representatives have a majority control of the entities' respective boards of directors and can influence the respective entities' management and affairs.

Based on our analyses, we determined the Westwood Funds®, and Private Equity (i) have sufficient equity at risk to finance the entities' activities independently, (ii) have the obligation to absorb losses, the right to receive residual returns and the right to direct the activities of the entities that most significantly impact the entities' economic performance, and (iii) are not structured with disproportionate voting rights.

Based on our analyses of our investments in these entities for the periods ~~ending June 30, 2020~~ended March 31, 2021 and December 31, ~~2019,~~2020, we have not consolidated the CTFs or Private Funds under the VIE method or the Westwood Funds® or Private Equity under the VOE method.

As of June 30, 2020 and December 31, 2019, our seed investments in the Westwood Funds aggregated approximately $4.2 million and $6.4 million, respectively. The seed investments were provided for the sole purpose of showing the economic substance needed to establish the funds and are included in “Investments, at fair value” on our Condensed Consolidated Balance Sheets.

We have not otherwise provided any financial support not previously contractually obligated to provide, and there are no arrangements that would require us to provide additional financial support to any of these entities. Our seed investments in the above-mentioned Westwood Funds® ~~are accounted for as investments consistent with our other investments described in Note 5 “Investments.”~~ We recognized fee revenue from the Westwood VIEs and Westwood VOEs as follows (in millions):

Three Months Ended Six Months Ended
June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Fee Revenues $ 4.5 $ 8.4 $ 10.2 $ 17.1


	Three Months Ended
	March 31, 2021		March 31, 2020
Fee Revenues	$	4.9	$	5.7

The following table displays the AUM ~~the amounts of our seed investments included in “Investments” on our consolidated balance sheets,~~ and the risk of loss in each vehicle (in millions):


	As of March 31, 2021
	Assets Under Management		Corporate Investment		Amount at Risk
VIEs/VOEs:
Westwood Funds®	$	2,564	$	0	$	0
Common Trust Funds	1,014		0		0

Private Funds	4		0.1		0.1
Private Equity	0		8.3		8.3
All other assets:
Wealth Management	3,342
Institutional	7,569
Total Assets Under Management	$	14,493

13. RELATED PARTY TRANSACTIONS

1612

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

As of June 30, 2020
Assets
Under
Management Corporate
Investment Amount at Risk
VIEs/VOEs:
Westwood Funds® $ 1,740 $ 4.2 $ 4.2
Common Trust Funds 1,118 — —
Private Funds 9 0.1 0.1
Private Equity — 11.5 11.5
All other assets:
Wealth Management 2,858
Institutional 6,183
Total Assets Under Management $ 11,908

~~14. RELATED PARTY TRANSACTIONS~~

Some of our directors, executive officers and their affiliates invest personal funds directly in trust accounts that we manage. For both the three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and 2019,~~ we recorded trust fees from these accounts of $0.1 million. ~~For both the six months ended June 30, 2020 and 2019, we recorded trust fees~~There were no amounts due from these accounts as of ~~$0.2 million. There~~March 31, 2021, and there was ~~approximately~~ $0.1 million due from these accounts as of ~~both June 30, 2020 and~~ December 31, ~~2019.~~2020.

The Company engages in transactions with its affiliates in the ordinary course of business. Westwood International Advisors (prior to its closure, effective September 30, 2020) and Westwood Management provide investment advisory services to the UCITS Fund and the Westwood Funds®. Certain members of our management ~~serve~~served on the board of directors of the UCITS Fund ~~(the fund has been liquidated~~(liquidated as of June 2020)~~, and we have capital invested in three of the Westwood Funds®~~. Under the terms of the investment advisory agreements, the Company earns quarterly fees paid by clients of the fund or by the funds directly. The fees are based on negotiated fee schedules applied to AUM. ~~For~~The Company earned no fees from the affiliated funds for the three months ended ~~June 30, 2020~~March 31, 2021, and ~~2019,~~earned $0.5 million for the ~~Company earned approximately $0.2 million and $0.8 million, respectively, in fees from the affiliated funds. As of June 30, 2020, all of these fees had been collected. As of December~~three months ended March 31, ~~2019, $0.2 million, of these fees were outstanding and included in “Accounts receivable” on our Condensed Consolidated Balance Sheets.~~2020.

~~15.~~14. SUBSEQUENT EVENTS

~~Westwood International Advisors~~Dividends Declared

On ~~July 27, 2020, our~~April 28, 2021, the Board of Directors ~~approved the closure~~declared a quarterly cash dividend of ~~Westwood International Advisors and our Toronto office. As a result~~$0.10 per share of ~~those closures, we currently expect~~common stock payable on July 1, 2021 to ~~incur net expenses~~stockholders of ~~approximately $0.4 million in the second half of 2020.~~record on June 4, 2021.

1713

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Statements in this report and the Annual Report to Stockholders 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,” “plan,” “estimate,” “expect,” “intend,” “should,” “could,” “goal,” “potentially,” “may,” “designed” 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 risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC, and those risks set forth below:

•the composition and market value of our AUM;

•our ability to maintain our fee structure in light of competitive fee ~~pressures;~~pressures

• ~~the impact~~inclusion of ~~the COVID-19 pandemic;~~foreign company investments in our AUM;

• ~~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;~~litigation risks;

•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 dependence on the operations and funds of our subsidiaries;

• ~~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;~~effective cyber security;

•our ability to maintain an effective ~~system~~information systems;

•our ability to prevent misuse of ~~internal controls;~~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;

•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~~competition in the ~~operations~~investment management industry;

•our ability to avoid termination of client agreements and ~~funds~~the related investment redemptions;

•the significant concentration of our ~~subsidiaries; and~~revenues in a small number of customers;

•our relationships with investment consulting ~~firms.~~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; and

•our ability to maintain an effective system of internal controls.

You should not unduly rely on these forward-looking statements, which speak only as of the date of this report. We are not obligated and do not undertake an obligation to publicly release any revisions to these forward-looking statements to

reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events or otherwise.

Overview

We manage investment assets and provide services for our clients through our subsidiaries, Westwood Management Corp. and Westwood Advisors, L.L.C. (each of which is an SEC-registered investment advisor and referred to hereinafter together as “Westwood Management”), Westwood International Advisors Inc. (“Westwood International Advisors”) and Westwood Trust. Westwood Management provides investment advisory services to institutional investors, a family of mutual funds called the Westwood Funds®, other mutual funds, individuals and clients of Westwood Trust.

On July 27, 2020, Westwood’s Board of Directors approved the closure of Westwood International Advisors ~~provides investment advisory services to institutional clients, the Westwood Funds®, other mutual funds~~ and ~~clients of Westwood Trust.~~ Westwood’s office in Toronto, Canada.

Westwood Trust provides trust and custodial services and participation in common trust funds to institutions and high net worth individuals. Our revenues are generally derived from fees based on a percentage of AUM. Westwood ~~Management~~International Advisors provided investment advisory services to an Irish investment company authorized pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulation 2011 (as amended) (the “UCITS Fund”), ~~but the UCITS Fund~~which was liquidated in June 2020.

We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, particularly the impact on global stock markets. InBeginning in 2020, we have taken a number of precautionary measures designed to help minimize the risk of the spread of the virus to our employees, including suspending all non-essential travel for our employees and encouraging our employees to work remotely. The investments we have made in technology over the past several years, particularly our significant investments in cloud-based systems and business continuity planning, have allowed our entire team to serve our clients ~~seamlessly~~ from their homes. While our ability to meet with clients declined at the beginning of the pandemic, we were able to rebound in the second half of the year as our clients embraced digital interactions.

Revenues

We derive our revenues from investment advisory fees, trust fees and other revenues. Our advisory fees are generated by Westwood Management and Westwood International Advisors (prior to its closure, effective September 30, 2020), which manage client accounts under investment advisory and subadvisory agreements. Advisory fees are typically calculated based on a percentage of AUM and are paid in accordance with the terms of the agreements. Advisory fees are paid quarterly in advance based on AUM on the last day of the preceding quarter, quarterly in arrears based on AUM on the last day of the quarter just ended or are based on a daily or monthly analysis of AUM for the stated period. We recognize advisory fee revenues as services are rendered. Certain of our clients have a contractual performance-based fee component in their contracts, which generates additional revenues if we outperform a specified index over a specific period of time. We record revenue for performance-based fees at the end of the measurement period. Since our advance paying clients’ billing periods coincide with the calendar quarter to which such payments relate, revenue is recognized within the quarter, and our Condensed Consolidated Financial Statements contain no deferred advisory fee revenues.

Our trust fees are generated by Westwood Trust pursuant to trust or custodial agreements. Trust fees are separately negotiated with each client and are generally based on a percentage of AUM. Westwood Trust also provides trust services to a small number of clients on a fixed fee basis. Trust fees are primarily calculated quarterly in arrears based on a daily average of AUM for the quarter. Since billing periods for most of Westwood Trust's clients coincide with the calendar quarter, revenue is fully recognized within the quarter, and our Condensed Consolidated Financial Statements contain no deferred advisory fee revenues.

Our other revenues primarily consist of investment income from our seed money investments into new investment strategies.

Employee Compensation and Benefits

Employee compensation and benefits expenses generally consist of salaries, incentive compensation, equity-based compensation and benefits.

Sales and Marketing

Sales and marketing expenses relate to our marketing efforts, including travel and entertainment, direct marketing and advertising costs.

Westwood Mutual Funds

Westwood Mutual Funds expenses relate to our marketing, distribution and administration of the Westwood Funds®.

Information Technology

Information technology expenses are generally costs associated with proprietary investment research tools, maintenance and support, computing hardware, software licenses, telecommunications and other related costs.

Professional Services

Professional services expenses generally consist of costs associated with subadvisory fees, audit, tax, legal and other professional services.

General and Administrative

General and administrative expenses generally consist of costs associated with the lease of office space, amortization, depreciation, insurance, custody expense, Board of Directors fees, investor relations, licenses and fees, office supplies and other miscellaneous expenses.

Gain (Loss) on Foreign Currency Transactions

Gain (loss) on foreign currency transactions consists of foreign currency transactions primarily related to Westwood International Advisors.

~~Unrealized~~Realized Gains ~~(Losses)~~ on Private Investments

~~Unrealized~~Realized gains ~~(losses)~~on private investments includes amounts by which the net proceeds from the sale or redemption of our private investments exceeded costs.

Net change in unrealized appreciation (depreciation) on Private Investments

Net change in unrealized appreciation (depreciation) on private investments includes changes in the value of our private equity investments.

Investment Income

Investment income primarily includes interest and dividend income on fixed income securities and money market funds.

Other Income

Other income consists of income from the sublease of a portion of our corporate ~~headquarters office.~~offices.

Assets Under Management

AUM ~~decreased $3.5~~increased $2.9 billion to ~~$11.9~~$14.5 billion at ~~June 30, 2020~~March 31, 2021 compared with ~~$15.4~~$11.6 billion at ~~June 30, 2019.~~March 31, 2020. The average of beginning and ending AUM for the ~~second~~first quarter of ~~2020~~2021 was $~~11.8~~13.8 billion compared to ~~$16.1~~$13.4 billion for ~~the second quarter of 2019. These decreases are due to net outflows primarily in our Income Opportunity, Emerging Markets, and LargeCap Value strategies and market depreciation in~~ the first quarter of ~~2020, partially offset by net inflows to our SmallCap Value strategies.~~2020.

The following table displays AUM as of ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in millions):


		As of June 30,									As of March 31,
		2020		2019		Change			2021		2020		Change
Institutional⁽¹⁾	Institutional⁽¹⁾	$	6,183	$	8,377	(26)	%	Institutional(1)	$	7,569	$	6,335	19	%
Wealth Management⁽²⁾	Wealth Management⁽²⁾	3,985		4,399		(9)		Wealth Management(2)	4,360		3,765		16
Mutual Funds⁽³⁾	Mutual Funds⁽³⁾	1,740		2,612		(33)		Mutual Funds(3)	2,564		1,500		71
Total AUM⁽⁴⁾	Total AUM⁽⁴⁾	$	11,908	$	15,388	(23)	%	Total AUM(4)	$	14,493	$	11,600	25	%

(1)Institutional includes (i) separate accounts of corporate pension and profit sharing plans, public employee retirement funds, Taft-Hartley plans, endowments, foundations and individuals; (ii) subadvisory relationships where Westwood provides investment management services for funds offered by other financial institutions; (iii) pooled investment vehicles, including the UCITS Fund and collective investment trusts; and (iv) managed account

relationships with brokerage firms and other registered investment advisors that offer Westwood products to their customers. The UCITS Fund was liquidated in June 2020.

(2)Wealth Management includes assets for which Westwood Trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals pursuant to trust or agency agreements and assets for which Westwood Advisors, L.L.C. ~~provided~~provides advisory services to high net worth individuals. Investment subadvisory services are provided for the common trust funds by Westwood Management, Westwood International Advisors (prior to its closure, effective September 30, 2020) and external unaffiliated subadvisors. For certain assets in this category Westwood Trust currently provides limited custody services for a minimal or no fee, viewing these assets as potentially converting to fee-generating managed assets in the future. As an example, some assets in this category consist of low-basis stock currently held in custody for clients where we believe such assets may convert to fee-generating managed assets following an intergenerational transfer of wealth.

(3)Mutual Funds include the Westwood Funds®, a family of mutual funds for which Westwood Management serves as advisor. These funds are available to individual investors, as well as offered as part of our investment strategies for institutional and wealth management accounts.

(4)AUM excludes ~~$222 million~~$272 million and ~~$261~~$222 million of assets under advisement (“AUA”) as of ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively, related to our model portfolios for which we provided consulting advice but for which we did not have direct discretionary investment authority.

Roll-Forward of Assets Under Management

Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2020 2019 2020 2019
Institutional
Beginning of period assets $ 6,335 $ 9,235 $ 8,739 $ 9,327
Inflows 161 123 474 377
Outflows (1,168) (1,302) (1,899) (2,504)
Net client flows (1,007) (1,179) (1,425) (2,127)
Market appreciation (depreciation) 855 321 (1,131) 1,177
Net change (152) (858) (2,556) (950)
End of period assets $ 6,183 $ 8,377 $ 6,183 $ 8,377
Wealth Management
Beginning of period assets $ 3,765 $ 4,368 $ 4,438 $ 4,043
Inflows 56 138 129 239
Outflows (221) (222) (348) (339)
Net client flows (165) (84) (219) (100)
Market appreciation (depreciation) 385 115 (234) 456
Net change 220 31 (453) 356
End of period assets $ 3,985 $ 4,399 $ 3,985 $ 4,399
Mutual Funds
Beginning of period assets $ 1,500 $ 3,168 $ 2,058 $ 3,236
Inflows 268 88 442 253
Outflows (252) (750) (562) (1,276)
Net client flows 16 (662) (120) (1,023)
Market appreciation (depreciation) 224 106 (198) 399
Net change 240 (556) (318) (624)
End of period assets $ 1,740 $ 2,612 $ 1,740 $ 2,612
Total AUM
Beginning of period assets $ 11,600 $ 16,771 $ 15,235 $ 16,606
Inflows 485 349 1,045 869
Outflows (1,641) (2,274) (2,809) (4,119)
Net client flows (1,156) (1,925) (1,764) (3,250)
Market appreciation (depreciation) 1,464 542 (1,563) 2,032
Net change 308 (1,383) (3,327) (1,218)
End of period assets $ 11,908 $ 15,388 $ 11,908 $ 15,388


	Three Months Ended March 31,
(in millions)	2021		2020
Institutional
Beginning of period assets	$	6,567	$	8,739
Inflows	732		313
Outflows	(219)		(731)
Net client flows	513		(418)
Market appreciation (depreciation)	489		(1,986)
Net change	1,002		(2,404)
End of period assets	$	7,569	$	6,335

Wealth Management
Beginning of period assets	$	4,335	$	4,438
Inflows	60		73
Outflows	(207)		(127)
Net client flows	(147)		(54)
Market appreciation (depreciation)	172		(619)
Net change	25		(673)
End of period assets	$	4,360	$	3,765

Mutual Funds
Beginning of period assets	$	2,143	$	2,058
Inflows	438		174
Outflows	(209)		(310)
Net client flows	229		(136)
Market appreciation (depreciation)	192		(422)
Net change	421		(558)
End of period assets	$	2,564	$	1,500

Total AUM
Beginning of period assets	$	13,045	$	15,235
Inflows	1,230		560
Outflows	(635)		(1,168)
Net client flows	595		(608)
Market appreciation (depreciation)	853		(3,027)
Net change	1,448		(3,635)
End of period assets	$	14,493	$	11,600

Three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~

The ~~$0.3~~$1.4 billion increase in AUM for the three months ended ~~June 30, 2020~~March 31, 2021 was due to market appreciation of ~~$1.5~~$0.9 billion ~~offset by~~and net ~~outflows~~inflows of ~~$1.2~~$0.6 billion. Net ~~outflows~~inflows were primarily related to our ~~Emerging Markets~~SmallCap strategy.

The ~~$1.4~~$3.6 billion decrease in AUM for the three months ended June 30, 2019 was due to net outflows of $1.9 billion partially offset by market appreciation of $0.5 billion. Net outflows were primarily related to our Income Opportunity, LargeCap Value and SMidCap strategies.

~~Six months ended June 30, 2020 and 2019~~

~~The $3.3 billion decrease in AUM for the six months ended June 30,~~March 31, 2020 was due to market depreciation of ~~$1.6~~$3.0 billion and net outflows of ~~$1.8 billion. Market depreciation was primarily related to our LargeCap Value and SmallCap Value strategies~~$608 million. Net~~. Net~~ outflows were primarily related to our LargeCap Value and Income Opportunity ~~and Emerging Markets Strategies,~~strategies, partially offset by net inflows to our SmallCap Value strategies.

The $1.2 billion decrease in AUM for the six months ended June 30, 2019 was due to net outflows of $3.3 billion partially offset by market appreciation of $2.0 billion. Net outflows were primarily related to our Income Opportunity, Emerging Markets, LargeCap Value and SMidCap strategies, partially offset by net inflows to our SmallCap Value strategy.

Results of Operations

The following table (dollars in thousands) and discussion of our results of operations are based upon data derived from the Condensed Consolidated Statements of Comprehensive Income (Loss) contained in our Condensed Consolidated Financial Statements and should be read in conjunction with those statements included elsewhere in this report.

Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 Change 2020 2019 Change
Revenues:
Advisory fees: asset-based $ 9,328 $ 14,695 (37) % $ 20,430 $ 31,101 (34) %
Advisory fees: performance-based 695 120 479 695 300 132
Trust fees: asset-based 5,657 6,444 (12) 11,608 12,983 (11)
Trust fees: performance-based 40 — NM 40 — NM
Other, net 155 450 (66) (229) 1,187 (119)
Total revenues 15,875 21,709 (27) 32,544 45,571 (29)
Expenses:
Employee compensation and benefits 10,787 11,378 (5) 23,455 25,988 (10)
Sales and marketing 253 514 (51) 731 1,044 (30)
Westwood mutual funds 434 661 (34) 949 1,507 (37)
Information technology 2,030 2,282 (11) 4,061 4,259 (5)
Professional services 991 1,169 (15) 2,184 2,318 (6)
General and administrative 2,191 2,402 (9) 4,497 4,836 (7)
(Gain) loss on foreign currency transactions 1,323 724 83 % (1,615) 1,544 (205)
Total expenses 18,009 19,130 (6) 34,262 41,496 (17)
Net operating income (loss) (2,134) 2,579 (1,718) 4,075
Unrealized gains (losses) on private investments 159 — NM (836) — NM
Investment income 124 — NM 668 — NM
Other income 34 77 (56) % 68 77 (12)
Income (loss) before income taxes (1,817) 2,656 (1,818) 4,152
Income tax expense (benefit) 758 795 (5) % (345) 1,899 (118)
Net income (loss) $ (2,575) $ 1,861 (238) % $ (1,473) $ 2,253 (165) %



	Three Months Ended
	March 31,
	2021		2020		Change
Revenues:
Advisory fees: asset-based	$	10,450	$	11,102	(6)	%
Advisory fees: performance-based	1,959		—		NM
Trust fees: asset-based	6,065		5,951		2

Other, net	(155)		(384)		(60)
Total revenues	18,319		16,669		10
Expenses:
Employee compensation and benefits	11,548		12,668		(9)
Sales and marketing	230		478		(52)
Westwood mutual funds	391		515		(24)
Information technology	1,992		2,031		(2)
Professional services	1,317		1,193		10
General and administrative	2,072		2,306		(10)

Gain on foreign currency transactions	—		(2,938)		(100)
Total expenses	17,550		16,253		8
Net operating income	769		416
Realized gains on private investments	8,325		—		NM
Net change in unrealized appreciation (depreciation) on private investments	(2,326)		(995)		1
Investment income	196		544		-1
Other income	50		34		47

Income (loss) before income taxes	7,014		(1)
Income tax expense (benefit)	2,913		(1,103)		(364)
Net income (loss)	$	4,101	$	1,102	272	%

_________________________

NM Not meaningful

Three months ended ~~June 30, 2020~~March 31, 2021 compared to three months ended ~~June 30, 2019~~March 31, 2020

Total Revenues. Total revenues ~~decreased $5.8~~increased $1.6 million, or ~~27%~~10%, to ~~$15.9~~$18.3 million for the three months ended ~~June 30, 2020~~March 31, 2021 compared with ~~$21.7~~$16.7 million for the three months ended ~~June 30, 2019.~~March 31, 2020. Asset-based advisory fees decreased ~~$5.4~~$0.6 million, or ~~37%~~6%, and Trust fees ~~decreased $0.7~~increased $0.1 million, or ~~12%, both primarily~~2%. Performance-based advisory fees increased $2.0 million, due to ~~lower average AUM.~~higher realization of performance fees in the three months ended March 31, 2021.

Employee Compensation and Benefits. Employee compensation and benefits decreased ~~$0.6~~$1.2 million, or 5%9%, to ~~$10.8~~$11.5 million for the three months ended ~~June 30, 2020~~March 31, 2021 compared with ~~$11.4~~$12.7 million for the three months ended ~~June 30, 2019.~~March 31, 2020. The decrease was primarily due to reductions in headcount and stock-based compensation ~~relating to short- and long-term incentive compensation as a result of lower asset-based revenues as compared to the prior year and lower headcount.~~expense.

Sales and marketing. Sales and marketing expenses decreased ~~$0.2~~$0.3 million, or ~~51%~~52%, to ~~$0.3~~$0.2 million for the three months ended ~~June 30, 2020~~March 31, 2021 compared with $0.5 million for the three months ended ~~June 30, 2019.~~March 31, 2020. The decrease was primarily due to lower travel costs as a result of COVID-19.

~~Westwood Mutual Funds.~~ Westwood mutual funds expenses decreased $0.3 million, or 34%, to $0.4 million for the three months ended June 30, 2020 compared with $0.7 million for the three months ended June 30, 2019. The decrease was primarily due to lower service fees following declines in market values for the Westwood funds.

~~General and Administrative~~. General and administrative expense decreased $0.2 million, or 9%, to $2.2 million for the three months ended June 30, 2020 compared with $2.4 million for the three months ended June 30, 2019. The decrease was primarily due to lower employee-related travel expenses as a result of COVID-19.

(Gain) loss on foreign currency transactions. We recorded ~~$1.3 million in~~ foreign currency gains and losses ~~in the current quarter~~ as a result of fluctuations in the Canadian dollar exchange ~~rate.~~rate, prior to closing WIA in 2020.

Realized gains on private investments. Following InvestCloud's recapitalization in the first quarter of 2021, we recorded a realized gain of approximately $8.3 million.

Income Tax Expense (Benefit). Our effective tax rate of 41.5% differed from the 21% statutory rate for the first quarter of 2021 primarily due to permanent differences between book and tax restricted stock expense based on a decrease in our stock price between the restricted stock grant and vesting dates. Our effective income tax rate differed from the 21% statutory rate for the ~~second~~first quarter of 2020 primarily due to ~~the~~a similar restricted stock impact, ~~of certain deferred tax assets that offset the~~and a discrete benefit adjustment related to the remeasurement of certain deferred taxes following the enactment of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") recorded in the first quarter of 2020. The effective tax rate was 29.9% for the three months ended June 30, 2019. The 2019 quarterly tax rate was negatively impacted by increased permanent differences between book and tax compensation expense as a result of additional compensation limitations under the Tax Cuts and Jobs Act.

~~Six months ended June 30, 2020 compared to six months ended June 30, 2019~~

~~Total Revenues~~. Total revenues decreased $13.1 million, or 29%, to $32.5 million for the six months ended June 30, 2020 compared with $45.6 million for the six months ended June 30, 2019. Asset-based advisory fees decreased $10.7 million, or 34%, and Trust fees decreased $1.4 million, or 11%, both primarily due to lower average AUM.

~~Employee Compensation and Benefits~~. Employee compensation and benefits costs decreased $2.5 million, or 10%, to $23.5 million for the six months ended June 30, 2020 compared with $26.0 million for the six months ended June 30, 2019. The decrease was primarily due to reductions in compensation relating to short- and long-term incentive compensation as a result of lower asset-based revenues as compared to the prior year and lower headcount.

~~Sales and marketing.~~ Sales and marketing expenses decreased $0.3 million, or 30.0%, to $0.7 million for the six months ended June 30, 2020 compared with $1.0 million for the six months ended June 30, 2019. The decrease was primarily due to lower travel costs as a result of COVID-19.

~~Westwood Mutual Funds~~. Westwood mutual funds expenses decreased $0.6 million or 37% to $0.9 million for the six months ended June 30, 2020 compared to $1.5 million for the six months ended June 30, 2019. The decrease was primarily due to lower service fees following declines in market values for the Westwood funds.

~~General and Administrative~~. General and administrative expense decreased $0.3 million, or 7.0%, to $4.5 million for the six months ended June 30, 2020 compared with $4.8 million for the six months ended June 30, 2019. The decrease was primarily due to lower employee-related travel expenses as a result of COVID-19.

~~(Gain) loss on foreign currency transactions.~~ ~~We recorded $1.6 million in foreign currency gains for the six months ended June 30, 2020 as a result of fluctuations in the Canadian dollar exchange rate.~~

~~Unrealized gains (losses) on private investments. We recorded a net unrealized loss of $0.8 million, primarily related to our investment in Charis, a private bank, as a result of the global macroeconomic effects of COVID-19.~~

~~Provision for Income Taxes~~. The effective tax rate decreased to 19.0% for the six months ended June 30, 2020 from 45.7% for the six months ended June 30, 2019. The current year rate is primarily due to a discrete benefit adjustment related to the remeasurement of certain deferred ta~~xes following the enactment of the CARES Act recorded in the first quarter, offset~~

by the remeasurement of current deferred taxes on a nondiscrete basis. The 2019 rate was negatively impacted by a $0.6 million discrete tax expense related to a permanent difference between book and tax restricted stock expense based on a decrease in our stock price between grant and vesting dates, as well as limitations on the ability to deduct additional compensation under the Tax Cuts and Jobs Act.

Supplemental Financial Information

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.

The following tables provide a reconciliation of Net income ~~(loss)~~ to Economic Earnings and Economic Earnings by segment (in thousands, except share and per share amounts):

Three Months Ended June 30, Change Six Months Ended June 30, 2020
2020 2019 2020 2019 Change
Net income (loss) $ (2,575) $ 1,861 (238) % $ (1,473) $ 2,253 (165) %
Add: Stock-based compensation expense 2,305 2,430 (5) 4,921 5,682 (13)
Add: Intangible amortization 435 423 3 858 836 3
Add: Tax benefit from goodwill amortization 59 59 — 118 118 —
Economic Earnings $ 224 $ 4,773 (95) % $ 4,424 $ 8,889 (50) %
Diluted weighted average shares outstanding 7,879,698 8,476,777 8,147,045 8,467,589
Economic Earnings per share $ 0.03 $ 0.56 $ 0.54 $ 1.05
Economic Earnings by Segment:
Advisory $ 1,013 $ 5,211 (81) % $ 5,306 $ 10,091 (47) %
Trust 1,333 1,564 (15) 2,325 2,817 (17)
Westwood Holdings (2,122) (2,002) 6 (3,207) (4,019) (20)
Consolidated $ 224 $ 4,773 (95) % $ 4,424 $ 8,889 (50) %


	Three Months Ended March 31,				Change
	2021		2020
Net income	$	4,101	$	1,102	272	%
Add: Stock-based compensation expense	1,722		2,616		(34)

Add: Intangible amortization	406		423		(4)

Add: Tax benefit from goodwill amortization	59		59		—
Economic Earnings	$	6,288	$	4,200	50	%

Diluted weighted average shares outstanding	7,917,390		8,458,473
Economic Earnings per share	$	0.79	$	0.50

Economic Earnings by Segment:
Advisory	$	6,550	$	4,293	53	%
Trust	2,984		992		201
Westwood Holdings	(3,246)		(1,085)		199
Consolidated	$	6,288	$	4,200	50	%

Liquidity and Capital Resources

We fund our operations and cash requirements with cash generated from operating activities. We may also use cash from operations to pay dividends to our stockholders. We ~~suspended~~reinstated our dividend in the first quarter of 2021, following a suspension in the second quarter of 2020 ~~dividend in order to preserve~~as we preserved capital and ~~provide~~provided additional financial flexibility amid the uncertainties created by COVID-19. As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we had no debt. The changes in net cash provided by operating activities generally reflect changes in earnings plus the effects of non-cash items and changes in working capital, including liquidation of investments used to cover current liabilities. Changes in working capital, especially

accounts receivable and accounts payable, are generally the result of timing differences between collection of fees billed and payment of operating expenses.

During the ~~six~~three months ended ~~June 30,~~March 31, 2021, cash flow used in operating activities was $7.0 million, which included net purchases of $4.4 million of current investments, a reduction in compensation and benefits payable of $5.0 million, and a $2.3 million change in accounts receivable, partially offset by income taxes payable and positive adjustments to net income. During the three months ended March 31, 2020, cash flow provided by operating activities was ~~$21.8~~$11.5 million, which included ~~liquidation of $20.0~~a $12.9 million of current investments and accounts receivable collections of $2.4 million, partially offset by a $5.8 million reduction in compensation and benefits payable. During the six months ended June 30, 2019, cash flow provided by operating activities was $21.1 million, which included an $18.8 millionnet liquidation of investments partially offset by ~~a $10.4~~an $7.4 million decrease in compensation and benefits payables.

Cash flow provided by investing activities during the three months ended March 31, 2021 was related to realized gains on private investments and the sale of property and equipment following the sublease of a portion of our Dallas, Texas corporate office space. Cash flow used in investing activities during the ~~six~~three months ended ~~June 30,~~March 31, 2020 was related to purchases of property and ~~equipment, while the prior year quarter was related to purchases of property and equipment and our investment in a private investment fund.~~equipment.

Cash flows used in financing activities of ~~$25.8~~$2.7 million for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 reflected treasury stock repurchases, the payment of dividends and restricted stock returned for the payment of taxes. Cash flow used in financing activities of ~~$18.0~~$13.1 million for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 reflected the payment of dividends, purchases of treasury shares, restricted stock returned for payment of taxes and purchases of treasury ~~shares.~~stock under employee stock plans.

We had cash and short-term investments of ~~$74.2~~$86.9 million as of ~~June 30, 2020~~March 31, 2021 and ~~$100.1~~$82.6 million as of December 31, ~~2019. Cash and cash equivalents included approximately $31 million of undistributed income from Westwood International Advisors as of both June 30, 2020~~2020. At March 31, 2021 and December 31, 2019, respectively. If these funds were needed for our U.S. operations, we would be required to accrue and subsequently pay a 5% incremental Canadian withholding tax to repatriate all or a portion of these funds. Our current forecasts do not demonstrate a need to repatriate them to fund our U.S. operations. At June 30, 2020, ~~and December 31, 2019,~~ working capital aggregated ~~$78.7~~$91.3 million and ~~$95.6~~$84.5 million, respectively.

Westwood Trust must maintain cash and investments in an amount equal to the minimum restricted capital of $4.0 million, as required by the Texas Finance Code. Restricted capital is included in Investments in the accompanying Condensed Consolidated Balance Sheets. At ~~June 30, 2020,~~March 31, 2021, Westwood Trust had approximately ~~$9.0~~$13.7 million in excess of its minimum capital requirement.

Our future liquidity and capital requirements will depend upon numerous factors, including our results of operations, the timing and magnitude of capital expenditures or strategic initiatives, our dividend policy and other business and risk factors described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC. We believe that current cash and short-term investment balances plus cash generated from operations will be sufficient to meet both the operating and capital requirements of our ordinary business operations through at least the next twelve months. However, there can be no assurance that we will not require additional financing within this time frame. The failure to raise needed capital on attractive terms, if at all, could have a material adverse effect on our business, financial condition and results of operations.

Contractual Obligations

As of ~~June 30, 2020,~~March 31, 2021, there have been no material changes outside of the ordinary course of business to our contractual obligations since December 31, ~~2019.~~2020. For information regarding our contractual obligations, refer to “Contractual Obligations” in Part II, Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019.~~2020.

Critical and Significant Accounting Policies and Estimates

There have been no significant changes in our critical or significant accounting policies and estimates since December 31, ~~2019.~~2020. Information with respect to our critical accounting policies and estimates that we believe could have the most significant effect on our reported consolidated results and require difficult, subjective or complex judgment by management is described under “Critical Accounting Policies and Estimates” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019.~~2020.

Accounting Developments

Refer to Note 2 “Summary of Significant Accounting Policies” in our Condensed Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for a description of recently issued accounting guidance.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes in our Quantitative and Qualitative Disclosures about Market Risk from those previously reported in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure. An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

During the quarter ended ~~June 30, 2020,~~March 31, 2021, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Due to our significant investments in cloud-based systems, the impact of our workforce working remotely did not hinder the execution of our internal control processes and procedures.

2622

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

Our business and future results may be affected by a number of risks and uncertainties that should be considered carefully. In addition, this report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including the risks described in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 and the risks set forth below.

The Company believes that there has been no material change in its risk factors as previously disclosed in the Form ~~10-K other than as set forth below.~~

~~Risks Related to the Investment Industry~~

~~The recent COVID-19 pandemic, and other potential outbreaks, could negatively impact our businesses, financial condition and results of operations.~~

We may face risks related to the outbreak of COVID-19, which has been declared a pandemic by the World Health Organization. The full impact of COVID-19 is unknown and rapidly evolving. The outbreak and any preventative or protective actions that governments, we or our clients may take in respect of this virus may result in a period of disruption, including with respect to our financial reporting capabilities and our operations generally, and could potentially impact our clients and third party vendors. Any resulting financial impact cannot be reasonably estimated at this time, but the COVID-19 pandemic could have a material adverse effect on the Company’s business, prospects, results of operations, reputation, financial condition, cash flows or ability to continue current operations without any direct or indirect impairment or disruption.

The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity and spread of COVID-19 and the actions to contain the virus or treat its impact, among others.10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~The following table displays information with respect to the treasury shares we purchased during the three months ended June 30, 2020:~~

Total
number of
shares
purchased Average
price paid
per share Total number of shares purchased as part of publicly announced plans or programs Maximum number (or
approximate dollar value)
of shares that may yet be
purchased under the
plans or programs (1)
Repurchase program ⁽¹⁾
— $ 10,000,000
April 2020 407,697 $ 19.83
Canadian Plan ⁽²⁾
— $ 994,530
Employee transactions ⁽³⁾

~~(1)~~On July 20, 2012, our Board of Directors authorized management to repurchase up to $10.0 million of our outstanding common stock on the open market or in privately negotiated transactions. Westwood's Board of Directors authorized an additional $5.0 million of repurchases under the share repurchase program in July 2016, an additional $10.0 million in February 2020, and an additional $10.0 million in April 2020. The share repurchase program has no expiration date and may be discontinued at any time by the Board of Directors.

~~(2)On April 18, 2013, our stockholders approved~~The following table displays information with respect to the Share Award Plan of Westwood Holdings Group, Inc. for Service Provided in Canada to its Subsidiaries (the “Canadian Plan”), which contemplates a trustee purchasing up to $10.0 million CDN of our outstanding common stock ontreasury shares we purchased during the ~~open market for the purpose of making share~~three months ended March 31, 2021:


	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs (1)
Repurchase program (1)					$	10,000,000
March 2021	92,491	$	15.19	92,491

~~awards~~(1)These purchases relate to ~~our Canadian employees. The Canadian Plan has no expiration date~~the share repurchase program and ~~may be discontinued at any time by the Board of Directors.~~

~~(3)Consists of shares of common stock tendered by an employee at the market close price on the date of vesting~~were authorized in ~~order to satisfy the employee’s minimum tax withholding obligations from vested restricted shares. We anticipate having additional shares tendered in subsequent periods for the same purpose.~~April 2020.

2823

ITEM 6. EXHIBITS



31.1*						Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a)

31.2*						Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a)

32.1**						Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**						Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101*						The following financial information from Westwood Holdings Group, Inc.'s Quarterly Report on Form 10-Q for the period ended ~~June 30, 2020,~~March 31, 2021, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Balance Sheets as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019;~~2020; (ii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019;~~2020; (iii) Condensed Consolidated Statements of Stockholders' Equity; (iv) Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019;~~2020; and (v) Notes to the Condensed Consolidated Financial Statements.

104*						Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith.

2924

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated:

~~July 29, 2020~~April 28, 2021

WESTWOOD HOLDINGS GROUP, INC.

By:

/s/ Brian O. Casey

Brian O. Casey

President and Chief Executive Officer

By:

/s/ Murray Forbes III

Murray Forbes III

Chief Financial Officer and Treasurer

3025


	June 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	43,926	$	49,766
Accounts receivable	10,751		13,177
Investments, at fair value	30,228		50,324
Prepaid income taxes	709		1,150
Other current assets	1,764		2,544
Total current assets	87,378		116,961
Investments	8,154		8,154
Noncurrent investments at fair value	3,401		4,238
Goodwill	19,804		19,804
Deferred income taxes	3,139		2,216
Operating lease right-of-use assets	6,981		7,562
Intangible assets, net	14,398		15,256
Property and equipment, net of accumulated depreciation of $7,827 and $7,395	3,741		4,152
Other long-term assets	425		364
Total assets	$	147,421	$	178,707
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	1,781	$	2,145

Dividends payable	1,127		7,362
Compensation and benefits payable	3,912		9,975

Operating lease liabilities	1,666		1,584

Income taxes payable	192		289
Total current liabilities	8,678		21,355
Accrued dividends	371		1,303

Noncurrent operating lease liabilities	6,943		7,762

Total liabilities	15,992		30,420
Commitments and contingencies (Note 11)
Stockholders' Equity:
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 10,558,111 and outstanding 8,382,342 shares at June 30, 2020; issued 10,306,570 and outstanding 8,881,086 shares at December 31, 2019	106		103
Additional paid-in capital	208,572		203,441
Treasury stock, at cost - 2,175,758 shares at June 30, 2020; 1,425,483 shares at December 31, 2019	(78,050)		(63,281)
Accumulated other comprehensive loss	(4,814)		(2,943)
Retained earnings	5,615		10,967
Total stockholders' equity	131,429		148,287
Total liabilities and stockholders' equity	$	147,421	$	178,707


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
REVENUES:
Advisory fees:
Asset-based	$	9,328	$	14,695	$	20,430	$	31,101
Performance-based	695		120		695		300
Trust fees	5,657		6,444		11,608		12,983
Trust performance-based fees	40		—		40		—
Other, net	155		450		(229)		1,187
Total revenues	15,875		21,709		32,544		45,571
EXPENSES:
Employee compensation and benefits	10,787		11,378		23,455		25,988
Sales and marketing	253		514		731		1,044
Westwood mutual funds	434		661		949		1,507
Information technology	2,030		2,282		4,061		4,259
Professional services	991		1,169		2,184		2,318

General and administrative	2,191		2,402		4,497		4,836
(Gain) loss on foreign currency transactions	1,323		724		(1,615)		1,544
Total expenses	18,009		19,130		34,262		41,496
Net operating income (loss)	(2,134)		2,579		(1,718)		4,075
Unrealized gains (losses) on private investments	159		—		(836)		—
Investment income	124		—		668		—
Other income	34		77		68		77
Income (loss) before income taxes	(1,817)		2,656		(1,818)		4,152
Income tax expense (benefit)	758		795		(345)		1,899
Net income (loss)	$	(2,575)	$	1,861	$	(1,473)	$	2,253
Other comprehensive income (loss):
Foreign currency translation adjustments	1,371		735		(1,871)		1,566
Total comprehensive income (loss)	$	(1,204)	$	2,596	$	(3,344)	$	3,819

Earnings (loss) per share:
Basic	$	(0.33)	$	0.22	$	(0.18)	$	0.27
Diluted	$	(0.33)	$	0.22	$	(0.18)	$	0.27
Weighted average shares outstanding:
Basic	7,879,698		8,446,610		8,147,045		8,406,367
Diluted	7,879,698		8,476,777		8,147,045		8,467,589


Three Months Ended June 30, 2020	Advisory		Trust		Performance-based		Other		Total
Asia	$	312	$	—	$	—	$	—	$	312

Canada	407		—		—		—		407
Europe	814		—		94		—		908
United States	7,795		5,657		641		155		14,248
Total	$	9,328	$	5,657	$	735	$	155	$	15,875


Three Months Ended June 30, 2019	Advisory		Trust		Performance-based		Other		Total
Asia	$	407	$	—	$	—	$	—	$	407

Canada	702		—		—		44		746
Europe	872		—		120		—		992
United States	12,714		6,444		—		406		19,564
Total	$	14,695	$	6,444	$	120	$	450	$	21,709


Six Months Ended June 30, 2020	Advisory		Trust		Performance-based		Other		Total
Asia	$	729	$	—	$	—	$	—	$	729

Canada	897		—		—		—		897
Europe	1,824		—		94		—		1,918
United States	16,980		11,608		641		(229)		29,000
Total	$	20,430	$	11,608	$	735	$	(229)	$	32,544


	Shares	Weighted Average Grant Date Fair Value
Non-vested, January 1, 2020	396,598	$	48.31
Granted	262,373	$	27.39
Vested	(140,974)	$	53.06
Forfeited	(10,832)	$	42.72
Non-vested, June 30, 2020	507,165	$	36.29


	Three Months Ended						Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Fee Revenues	$	4.5	$	8.4	$	10.2	$	17.1


	As of June 30, 2020
	Assets Under Management		Corporate Investment		Amount at Risk
VIEs/VOEs:
Westwood Funds®	$	1,740	$	4.2	$	4.2
Common Trust Funds	1,118		—		—

Private Funds	9		0.1		0.1
Private Equity	—		11.5		11.5
All other assets:
Wealth Management	2,858
Institutional	6,183
Total Assets Under Management	$	11,908



	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2020		2019		Change		2020		2019		Change
Revenues:
Advisory fees: asset-based	$	9,328	$	14,695	(37)	%	$	20,430	$	31,101	(34)	%
Advisory fees: performance-based	695		120		479		695		300		132
Trust fees: asset-based	5,657		6,444		(12)		11,608		12,983		(11)
Trust fees: performance-based	40		—		NM		40		—		NM
Other, net	155		450		(66)		(229)		1,187		(119)
Total revenues	15,875		21,709		(27)		32,544		45,571		(29)
Expenses:
Employee compensation and benefits	10,787		11,378		(5)		23,455		25,988		(10)
Sales and marketing	253		514		(51)		731		1,044		(30)
Westwood mutual funds	434		661		(34)		949		1,507		(37)
Information technology	2,030		2,282		(11)		4,061		4,259		(5)
Professional services	991		1,169		(15)		2,184		2,318		(6)
General and administrative	2,191		2,402		(9)		4,497		4,836		(7)
(Gain) loss on foreign currency transactions	1,323		724		83	%	(1,615)		1,544		(205)
Total expenses	18,009		19,130		(6)		34,262		41,496		(17)
Net operating income (loss)	(2,134)		2,579				(1,718)		4,075
Unrealized gains (losses) on private investments	159		—		NM		(836)		—		NM
Investment income	124		—		NM		668		—		NM
Other income	34		77		(56)	%	68		77		(12)
Income (loss) before income taxes	(1,817)		2,656				(1,818)		4,152
Income tax expense (benefit)	758		795		(5)	%	(345)		1,899		(118)
Net income (loss)	$	(2,575)	$	1,861	(238)	%	$	(1,473)	$	2,253	(165)	%