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 ~~September~~June 30, ~~2020~~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 ~~October 22, 2020: 8,373,143.~~July 20, 2021: 8,329,616.

WESTWOOD HOLDINGS GROUP, INC.

INDEX


PART I	FINANCIAL INFORMATION	PAGE

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of SJune 30 ~~eptember~~ ~~30, 2020~~, 2021 and December 31, ~~2019~~2020	1

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Ni ne Months Ended ~~September~~June 30 ~~30,~~, 2021 and 2020 ~~and 2019~~	2

	Condensed Consolidated Statement of Stockholders’ Equity for the Three and ~~September~~Six Months Ended ~~September~~J une 30 , 2021 and 2020 ~~and 2019~~	3

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30 ~~30,~~, 2021 and 2020 ~~and 2019~~	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1816

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2724

Item 4.	Controls and Procedures	2724

PART II	OTHER INFORMATION	2926

Item 1.	Legal Proceedings	2926

Item 1A.	Risk Factors	2926

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2927

Item 6.	Exhibits	3128

Signatures		3229

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)

(Unaudited)

September 30,
2020 December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents $ 15,593 $ 49,766
Accounts receivable 9,492 13,177
Investments, at fair value 61,993 50,324
Prepaid income taxes 511 1,150
Other current assets 2,211 2,544
Total current assets 89,800 116,961
Investments 8,154 8,154
Noncurrent investments at fair value 3,328 4,238
Goodwill 16,401 19,804
Deferred income taxes 2,398 2,216
Operating lease right-of-use assets 6,364 7,562
Intangible assets, net 13,963 15,256
Property and equipment, net of accumulated depreciation of $8,056 and $7,395 3,532 4,152
Other long-term assets 444 364
Total assets $ 144,384 $ 178,707
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 2,097 $ 2,145
Dividends payable 873 7,362
Compensation and benefits payable 5,938 9,975
Operating lease liabilities 1,695 1,584
Income taxes payable 195 289
Total current liabilities 10,798 21,355
Accrued dividends 575 1,303
Noncurrent operating lease liabilities 6,519 7,762
Total long-term liabilities 7,094 9,065
Total liabilities 17,892 30,420
Commitments and contingencies (Note 11)
Stockholders' Equity:
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 10,542,571 and outstanding 8,366,811 shares at September 30, 2020; issued 10,306,570 and outstanding 8,881,086 shares at December 31, 2019 106 103
Additional paid-in capital 209,060 203,441
Treasury stock, at cost - 2,175,758 shares at September 30, 2020; 1,425,483 shares at December 31, 2019 (78,050) (63,281)
Accumulated other comprehensive income (loss) 0 (2,943)
Retained earnings (accumulated deficit) (4,624) 10,967
Total stockholders' equity 126,492 148,287
Total liabilities and stockholders' equity $ 144,384 $ 178,707


	June 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	17,247	$	13,016
Accounts receivable	9,881		9,450
Investments, at fair value	75,066		69,542
Prepaid income taxes	262		1,700
Other current assets	2,201		2,606
Total current assets	104,657		96,314
Investments	4,455		8,154
Noncurrent investments at fair value	4,198		3,527
Goodwill	16,401		16,401
Deferred income taxes	1,459		1,468
Operating lease right-of-use assets	5,489		6,103
Intangible assets, net	12,723		13,535
Property and equipment, net of accumulated depreciation of $8,290 and $8,056	2,389		3,186
Other long-term assets	493		464
Total assets	$	152,264	$	149,152
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	3,213	$	1,627

Dividends payable	1,108		810
Compensation and benefits payable	4,512		7,448

Operating lease liabilities	1,415		1,718

Income taxes payable	1,641		191
Total current liabilities	11,889		11,794
Accrued dividends	256		526

Noncurrent operating lease liabilities	5,443		6,121
Total long-term liabilities	5,699		6,647
Total liabilities	17,588		18,441
Commitments and contingencies (Note 10)	0		0
Stockholders' Equity:
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 10,661,016 and outstanding 8,324,702 shares at June 30, 2021; issued 10,500,549 and outstanding 8,326,948 shares at December 31, 2020	108		105
Additional paid-in capital	213,362		210,268
Treasury stock, at cost - 2,336,315 shares at June 30, 2021; 2,173,559 shares at December 31, 2020	(80,551)		(77,967)

Retained earnings (accumulated deficit)	1,757		(1,695)
Total stockholders' equity	134,676		130,711
Total liabilities and stockholders' equity	$	152,264	$	149,152

See Notes to Condensed Consolidated Financial Statements.

~~WESTWOOD~~ESTWOOD 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 September 30, Nine Months Ended September 30,
2020 2019 2020 2019
REVENUES:
Advisory fees:
Asset-based $ 8,847 $ 13,164 $ 29,277 $ 44,265
Performance-based 713 154 1,408 454
Trust fees 5,787 6,281 17,395 19,264
Trust performance-based fees 37 0 77 0
Other, net 70 293 (159) 1,480
Total revenues 15,454 19,892 47,998 65,463
EXPENSES:
Employee compensation and benefits 9,515 12,072 32,970 38,060
Sales and marketing 215 506 946 1,550
Westwood mutual funds 421 916 1,370 2,423
Information technology 2,158 2,017 6,219 6,276
Professional services 1,033 940 3,217 3,258
General and administrative 2,333 2,317 6,830 7,153
Impairment expense 3,403 0 3,403 0
(Gain) loss on foreign currency transactions 419 (402) (1,196) 1,142
Total expenses 19,497 18,366 53,759 59,862
Net operating income (loss) (4,043) 1,526 (5,761) 5,601
Unrealized losses on private investments (73) 0 (909) 0
Investment income (expense) (43) 0 625 0
Other income 34 33 102 110
Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary (4,193) 0 (4,193) 0
Income (loss) before income taxes (8,318) 1,559 (10,136) 5,711
Income tax expense 1,971 442 1,626 2,341
Net income (loss) $ (10,289) $ 1,117 $ (11,762) $ 3,370
Other comprehensive income (loss):
Foreign currency translation adjustments 621 (482) (1,250) 1,084
Reclassification of cumulative foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary 4,193 0 4,193 0
Total comprehensive income (loss) $ (5,475) $ 635 $ (8,819) $ 4,454
Earnings (loss) per share:
Basic $ (1.31) $ 0.13 $ (1.46) $ 0.40
Diluted $ (1.31) $ 0.13 $ (1.46) $ 0.40
Weighted average shares outstanding:
Basic 7,829,478 8,432,598 8,040,417 8,414,317
Diluted 7,829,478 8,470,673 8,040,417 8,467,823


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
REVENUES:
Advisory fees:
Asset-based	$	11,385	$	9,328	$	21,835	$	20,430
Performance-based	0		695		1,959		695
Trust fees	6,216		5,657		12,281		11,608
Trust performance-based fees	0		40		0		40
Other, net	(117)		155		(272)		(229)
Total revenues	17,484		15,875		35,803		32,544
EXPENSES:
Employee compensation and benefits	10,237		10,787		21,785		23,455
Sales and marketing	370		253		600		731
Westwood mutual funds	368		434		759		949
Information technology	2,261		2,030		4,253		4,061
Professional services	1,428		991		2,745		2,184
General and administrative	2,042		2,191		4,114		4,497

(Gain) loss on foreign currency transactions	0		1,323		0		(1,615)
Total expenses	16,706		18,009		34,256		34,262
Net operating income	778		(2,134)		1,547		(1,718)
Realized gains on private investments	46		0		8,371		0
Net change in unrealized appreciation (depreciation) on private investments	215		159		(2,111)		(836)
Investment income	235		124		431		668
Other income	142		34		192		68

Income (loss) before income taxes	1,416		(1,817)		8,430		(1,818)
Income tax expense (benefit)	446		758		3,359		(345)
Net income (loss)	$	970	$	(2,575)	$	5,071	$	(1,473)
Other comprehensive income (loss):
Foreign currency translation adjustments	0		1,371		0		(1,871)

Total comprehensive income (loss)	$	970	$	(1,204)	$	5,071	$	(3,344)

Earnings (loss) per share:
Basic	$	0.12	$	(0.33)	$	0.64	$	(0.18)
Diluted	$	0.12	$	(0.33)	$	0.64	$	(0.18)
Weighted average shares outstanding:
Basic	7,884,771		7,879,698		7,885,901		8,147,045
Diluted	7,928,106		7,879,698		7,922,742		8,147,045

See Notes to Condensed Consolidated Financial Statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Three ~~and Nine~~ Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020

(In thousands, except share amounts)

(Unaudited)


	Common Stock, Par			Additional Paid-In Capital		Treasury Stock		Retained Earnings		Total
	Shares	Amount
Balance, March 31, 2021	8,313,003	$	107	$	211,988	$	(80,255)	$	1,605	$	133,445
Net income	—	—		—		—		970		970


Issuance of restricted stock, net of forfeitures	30,565	1		(1)		—		—		0
Dividends declared ($0.10 per share)	—	—		—		—		(818)		(818)

Stock-based compensation expense	—	—		1,375		—		—		1,375

Purchases of treasury stock	(18,866)	—		—		(296)		—		(296)


Balance, June 30, 2021	8,324,702	$	108	$	213,362	$	(80,551)	$	1,757	$	134,676

Common Stock, Par Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Total
Shares Amount
Balance, June 30, 2019 8,944,733 $ 104 $ 200,028 $ (62,883) $ (3,317) $ 20,054 $ 153,986
Net income — — — — — 1,117 1,117
Foreign currency translation adjustments — — — — (482) — (482)
Issuance of restricted stock, net of forfeitures (22,059) (1) 1 — — — 0
Dividends declared ($0.72 per share) — — — — — (6,359) (6,359)
Stock-based compensation expense — — 2,249 — — — 2,249
Purchases of treasury stock (16,522) — — (452) — — (452)
Balance, September 30, 2019 8,906,152 $ 103 $ 202,278 $ (63,335) $ (3,799) $ 14,812 $ 150,059


	Common Stock, Par			Additional Paid-In Capital		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
	Shares	Amount
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	0		0		—		—		—		0

Stock-based compensation expense	—	—		2,305		—		—		—		2,305
Dividend reversal for forfeited restricted stock	—	—		0		—		—		24		24
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

See Notes to Condensed Consolidated Financial Statements.

Common Stock, Par Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Total
Shares Amount
Balance, December 31, 2019 8,881,086 $ 103 $ 203,441 $ (63,281) $ (2,943) $ 10,967 $ 148,287
Net loss — — — — — (11,762) (11,762)
Foreign currency translation adjustments — — — — (1,250) — (1,250)
Foreign currency translation adjustments reclassification — — — — 4,193 — 4,193
Issuance of restricted stock, net of forfeitures 236,000 3 (3) — — — 0
Dividends declared ($0.43 per share), net of forfeitures — — — — — (3,829) (3,829)
Stock-based compensation expense — — 5,409 — — — 5,409
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, September 30, 2020 8,366,811 $ 106 $ 209,060 $ (78,050) $ 0 $ (4,624) $ 126,492

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Six Months Ended June 30, 2021 and 2020

(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	—	—		—		—		5,071		5,071



Issuance of restricted stock, net of forfeitures	160,470	3		(3)		—		—		—
Dividends declared ($0.20 per share)	—	—		—		—		(1,619)		(1,619)
Stock-based compensation expense	—	—		3,097		—		—		3,097

Purchases of treasury stock	(111,357)	—		—		(1,700)		—		(1,700)

Restricted stock returned for payment of taxes	(51,359)	—		—		(884)		—		(884)
Balance, June 30, 2021	8,324,702	$	108	$	213,362	$	(80,551)	$	1,757	$	134,676

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 — — — — — 3,370 3,370
Foreign currency translation adjustments — — — — 1,084 — 1,084
Issuance of restricted stock, net of forfeitures 131,721 1 (1) — — — 0
Dividends declared ($2.16 per share) — — — — — (19,083) (19,083)
Stock-based compensation expense — — 7,932 — — — 7,932
Reclassification of compensation liability to be paid in shares — — 231 — — — 231
Purchases of treasury stock (68,435) — — (2,239) — — (2,239)
Restricted stock returned for payment of taxes (62,036) — — (2,385) — — (2,385)
Balance, September 30, 2019 8,906,152 $ 103 $ 202,278 $ (63,335) $ (3,799) $ 14,812 $ 150,059


	Common Stock, Par			Additional Paid-In Capital		Treasury Stock		Accumulated Other Comprehensive 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)		—		—		0		—
Dividends declared ($0.43 per share)	—	—		—		—		0		(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)
Purchases 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

See Notes to Condensed Consolidated Financial Statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended September 30,
2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (11,762) $ 3,370
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation 697 662
Amortization of intangible assets 1,293 1,281
Unrealized (gains) losses on investments 1,132 (501)
Stock based compensation expense 5,409 7,932
Deferred income taxes (191) 1,572
Non-cash lease expense 1,253 852
Impairment of goodwill 3,403 0
Currency translation adjustment reclassification 4,193 0
Change in operating assets and liabilities:
Net (purchases) sales of investments - trading securities (11,891) 23,438
Accounts receivable 3,634 5,673
Other current assets 246 (361)
Accounts payable and accrued liabilities (47) (482)
Compensation and benefits payable (3,769) (8,100)
Income taxes payable 492 (668)
Other liabilities (1,174) (1,057)
Net cash (used in) provided by operating activities (7,082) 33,611
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (92) (516)
Purchase of investments 0 (3,020)
Additions to internally developed software 0 (584)
Net cash used in investing activities (92) (4,120)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock (12,952) (1,258)
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) (19,979)
Net cash used in financing activities (25,812) (24,603)
Effect of currency rate changes on cash (1,187) 1,035
Net Change in Cash and Cash Equivalents (34,173) 5,923
Cash and cash equivalents, beginning of period 49,766 52,449
Cash and cash equivalents, end of period $ 15,593 $ 58,372
Supplemental cash flow information:
Cash paid during the period for income taxes $ 1,294 $ 1,431
Accrued dividends $ 1,448 $ 8,390


	Six Months Ended June 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	5,071	$	(1,473)
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation	397		465
Amortization of intangible assets	812		858
Net change in unrealized (appreciation) depreciation on investments	2,273		904
Realized gains on private investments	(8,371)		0
Stock based compensation expense	3,097		4,921
Deferred income taxes	13		(939)
Non-cash lease expense	614		615


Gain on asset disposition	(148)		0

Change in operating assets and liabilities:
Net (purchases) sales of trading securities	(5,642)		20,029
Accounts receivable	(431)		2,350
Other current assets	376		709
Accounts payable and accrued liabilities	1,585		(361)
Compensation and benefits payable	(2,942)		(5,790)
Income taxes payable	2,899		307
Other liabilities	(833)		(771)
Net cash (used in) provided by operating activities	(1,230)		21,824
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of investments	9,258		0
Sale of property and equipment	501		0
Purchase of property and equipment	(93)		(56)
Purchase of investments	(15)		0

Net cash provided by (used in) investing activities	9,651		(56)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock	(1,700)		(12,952)
Purchase of treasury stock under employee stock plans	0		(697)
Restricted stock returned for payment of taxes	(884)		(1,120)
Cash dividends paid	(1,619)		(11,043)
Net cash used in financing activities	(4,203)		(25,812)
Effect of currency rate changes on cash	13		(1,796)
Net Change in Cash and Cash Equivalents	4,231		(5,840)
Cash and cash equivalents, beginning of period	13,016		49,766
Cash and cash equivalents, end of period	$	17,247	$	43,926

Supplemental cash flow information:
Cash paid during the period for income taxes	$	447	$	288
Accrued dividends	$	1,364	$	1,498

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, 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.

As a result of the substantially completed closures and liquidation of Westwood International Advisors and our Toronto office, in the three and nine months ended September 30, 2020 we recognized $0.5 million of severance expense, $0.3 million of lease impairment expense and $0.1 million of vendor contract related costs, offset by $1.3 million of restricted stock forfeitures. The severance expense and restricted stock forfeitures were recognized within "Employee compensation and benefits," the lease impairment expense was recognized in "General and administrative," and the vendor contract costs were recognized within "Information technology" on the Condensed Consolidated Statements of Comprehensive Income (Loss).

Additionally, we repatriated previously undistributed income to the United States from Canada and incurred $1.1 million of withholding taxes (net of U.S. federal tax deduction). The withholding taxes were recognized in "Income tax expense" on the Condensed Consolidated Statements of Comprehensive Income (Loss).

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

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

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In ~~January 2017,~~December 2019, the FASB issued ASU ~~2017-04, Intangibles -~~No. 2019-12, ~~Goodwill and Other (Topic 350) -~~ Simplifying the ~~Test~~Accounting for ~~Goodwill Impairment~~Income Taxes~~. The purpose of this amendment~~, which is intended to simplify various aspects of the income tax accounting guidance, including interim-period accounting for ~~goodwill impairment~~enacted changes in tax law. ASU 2019-12 is effective for ~~all~~public business entities by requiring impairment charges to be based on the first step in the previous two-step impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the prior requirement to calculate a goodwill impairment charge using Step 2, which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount. The amendments in this ASU are effective 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 there was no significant impact on our Condensed Consolidated Financial Statements. Information regarding the impairment of goodwill related to our Advisory segment is included in Note 10 "Goodwill and Other Intangible Assets."

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework- Changes 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 3 of the fair value hierarchy. The 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 are effective for all entities for fiscal years and interim periods beginning after December 15, 2019. We adopted this ASU as of January 1, 2020, and further information is included in Note 6 "Fair Value Measurements." 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 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 was 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

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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

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

~~(Unaudited)~~

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.

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

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

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Advisory Fees:
Institutional $ 6,184 $ 8,664 $ 20,941 $ 28,475
Mutual Funds 2,541 4,375 8,005 15,452
Wealth Management 122 125 331 338
Performance-based 713 154 1,408 454
Trust Fees 5,787 6,281 17,395 19,264
Trust performance-based Fees 37 0 77 0
Other, net 70 293 (159) 1,480
Total revenues $ 15,454 $ 19,892 $ 47,998 $ 65,463
. In 2021, we recast certain prior year revenues related to performance-based fees.


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Advisory Fees:
Institutional	$	7,225	$	7,552	$	16,083	$	15,452
Mutual Funds	4,002		2,393		7,416		5,464
Wealth Management	158		78		295		209

Trust Fees	6,216		5,697		12,281		11,648

Other, net	(117)		155		(272)		(229)
Total revenues	$	17,484	$	15,875	$	35,803	$	32,544

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):

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


Three Months Ended June 30, 2021	Advisory		Trust		Performance-based		Other		Total


Canada	$	297	$	0	$	0	$	0	$	297

United States	11,088		6,216		0		(117)		17,187
Total	$	11,385	$	6,216	$	0	$	(117)	$	17,484

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

~~(Unaudited)~~


Three Months Ended September 30, 2020		Advisory		Trust		Performance-based		Other		Total

Three Months Ended June 30, 2020												Three Months Ended June 30, 2020	Advisory		Trust		Performance-based		Other		Total
Asia												Asia	$	312	$	0	$	0	$	0	$	312

Canada	Canada	$	337	$	0	$	0	$	0	$	337	Canada	407		0		0		0		407
Europe	Europe	475		0		708		0		1,183		Europe	814		0		94		0		908
United States	United States	8,035		5,787		42		70		13,934		United States	7,795		5,657		641		155		14,248
Total	Total	$	8,847	$	5,787	$	750	$	70	$	15,454	Total	$	9,328	$	5,657	$	735	$	155	$	15,875

Three Months Ended September 30, 2019 Advisory Trust Performance-based Other Total
Asia $ 410 $ 0 $ 0 $ 0 $ 410
Canada 608 0 0 44 652
Europe 836 0 154 0 990
United States 11,310 6,281 0 249 17,840
Total $ 13,164 $ 6,281 $ 154 $ 293 $ 19,892


Six Months Ended June 30, 2021	Advisory		Trust		Performance-based		Other		Total


Canada	$	573	$	0	$	0	$	0	$	573
Europe	638		0		262		0		900
United States	20,634		12,281		1,687		(272)		34,330
Total	$	21,845	$	12,281	$	1,949	$	(272)	$	35,803

Nine Months Ended September 30, 2020 Advisory Trust Performance-based Other Total
Asia $ 729 $ 0 $ 0 $ 0 $ 729
Canada 1,234 0 0 0 1,234
Europe 2,299 0 803 0 3,102
United States 25,015 17,395 682 (159) 42,933
Total $ 29,277 $ 17,395 $ 1,485 $ (159) $ 47,998


Nine Months Ended September 30, 2019		Advisory		Trust		Performance-based		Other		Total
Six Months Ended June 30, 2020												Six Months Ended June 30, 2020	Advisory		Trust		Performance-based		Other		Total
Asia	Asia	$	1,223	$	0	$	0	$	0	$	1,223	Asia	$	729	$	0	$	0	$	0	$	729
Australia		591		0		0		0		591

Canada	Canada	2,134		0		0		128		2,262		Canada	897		0		0		0		897
Europe	Europe	2,685		0		454		0		3,139		Europe	1,824		0		94		0		1,918
United States	United States	37,632		19,264		0		1,352		58,248		United States	16,980		11,608		641		(229)		29,000
Total	Total	$	44,265	$	19,264	$	454	$	1,480	$	65,463	Total	$	20,430	$	11,608	$	735	$	(229)	$	32,544

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

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decision maker, our Chief Executive Officer, evaluates the performance of our segments based primarily on fee revenues and Economic ~~Earnings (Loss).~~Earnings. 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

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

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

~~(Unaudited)~~

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 (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.

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.

(in thousands) Advisory Trust Westwood
Holdings Eliminations Consolidated
Three Months Ended September 30, 2020
Net fee revenues from external sources $ 9,560 $ 5,824 $ 0 $ 0 $ 15,384
Net intersegment revenues 590 70 0 (660) 0
Other, net 70 0 0 0 70
Total revenues $ 10,220 $ 5,894 $ 0 $ (660) $ 15,454
Segment assets $ 201,307 $ 52,723 $ 16,892 $ (126,538) $ 144,384
Segment goodwill $ 0 $ 16,401 $ 0 $ 0 $ 16,401
Three Months Ended September 30, 2019
Net fee revenues from external sources $ 13,318 $ 6,281 $ 0 $ 0 $ 19,599
Net intersegment revenues 755 38 0 (793) 0
Net interest and dividend revenue 179 69 3 0 251
Other, net 39 3 0 0 42
Total revenues $ 14,291 $ 6,391 $ 3 $ (793) $ 19,892
Segment assets $ 236,710 $ 66,352 $ 21,541 $ (147,289) $ 177,314
Segment goodwill $ 3,403 $ 16,401 $ 0 $ 0 $ 19,804


(in thousands)	Advisory		Trust		Westwood Holdings		Eliminations		Consolidated
Three Months Ended June 30, 2021
Net fee revenues from external sources	$	11,385	$	6,216	$	0	$	0	$	17,601
Net intersegment revenues	624		87		0		(711)		0

Other, net	(117)		0		0		0		(117)
Total revenues	$	11,892	$	6,303	$	0	$	(711)	$	17,484

Segment assets	$	211,651	$	57,214	$	12,458	$	(129,059)	$	152,264
Segment goodwill	$	0	$	16,401	$	0	$	0	$	16,401

Three Months Ended June 30, 2020
Net fee revenues from external sources	$	10,023	$	5,697	$	0	$	0	$	15,720
Net intersegment revenues	595		68		0		(663)		0
Net interest and dividend revenue	10		0		0		0		10
Other, net	145		0		0		0		145
Total revenues	$	10,773	$	5,765	$	0	$	(663)	$	15,875

Segment assets	$	239,726	$	50,955	$	17,534	$	(160,794)	$	147,421
Segment goodwill	$	3,403	$	16,401	$	0	$	0	$	19,804

(in thousands) Advisory Trust Westwood Holdings Eliminations Consolidated
Nine Months Ended September 30, 2020
Net fee revenues from external sources $ 30,685 $ 17,472 $ 0 $ 0 $ 48,157
Net intersegment revenues 1,809 187 0 (1,996) 0
Net interest and dividend revenue 31 0 0 0 31
Other, net (190) 0 0 0 (190)
Total revenues $ 32,335 $ 17,659 $ 0 $ (1,996) $ 47,998
Nine Months Ended September 30, 2019
Net fee revenues from external sources $ 44,719 $ 19,264 $ 0 $ 0 $ 63,983
Net intersegment revenues 2,638 180 0 (2,818) 0
Net interest and dividend revenue 596 247 3 0 846
Other, net 645 (11) 0 0 634
Total revenues $ 48,598 $ 19,680 $ 3 $ (2,818) $ 65,463

~~5. INVESTMENTS~~

109

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(in thousands)	Advisory		Trust		Westwood Holdings		Eliminations		Consolidated
Six Months Ended June 30, 2021
Net fee revenues from external sources	$	23,794	$	12,281	$	0	$	0	$	36,075
Net intersegment revenues	1,300		168		0		(1,468)		0

Other, net	(272)		0		0		0		(272)
Total revenues	$	24,822	$	12,449	$	0	$	(1,468)	$	35,803

Six Months Ended June 30, 2020
Net fee revenues from external sources	$	21,125	$	11,648	$	0	$	0	$	32,773
Net intersegment revenues	1,218		118		0		(1,336)		0
Net interest and dividend revenue	31		0		0		0		31
Other, net	(260)		0		0		0		(260)
Total revenues	$	22,114	$	11,766	$	0	$	(1,336)	$	32,544

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 ~~September 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, 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 and six months ended ~~September~~June 30, 2021, we recorded unrealized gains of approximately $0.2 million and $0.7 million, respectively, following fair value increases from market transactions.

In the three months ended June 30, 2020, we recorded an unrealized ~~loss~~gain of ~~$0.1 million.~~$0.3 million, primarily as a result of the banking industry recovery following the previous downturn due to global macroeconomic effects of the Coronavirus disease ("COVID-19") pandemic. In the ~~nine~~six months ended ~~September~~June 30, 2020, we recorded an unrealized loss of $0.7 million, primarily as a result of the global macroeconomic effects of COVID-19.

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.

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

Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair
Value
September 30, 2020:
U.S. Government and Government agency obligations $ 57,457 $ 16 $ (3) $ 57,470
Money market funds 4,014 0 0 4,014
Equity funds 84 0 (5) 79
Equities 285 29 0 314
Exchange-traded bond funds 116 0 0 116
Total trading securities 61,956 45 (8) 61,993
Private investment fund 250 0 (163) 87
Private equity 3,420 0 (179) 3,241
Total investments carried at fair value $ 65,626 $ 45 $ (350) $ 65,321
December 31, 2019:
U.S. Government and Government agency obligations $ 39,074 $ 174 $ 0 $ 39,248
Money market funds 4,592 0 0 4,592
Equity funds 6,399 85 0 6,484
Total trading securities 50,065 259 0 50,324
Private investment fund 250 13 0 263
Private equity 3,420 555 0 3,975
Total investments carried at fair value $ 53,735 $ 827 $ 0 $ 54,562


	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
June 30, 2021:
U.S. Government and Government agency obligations	$	62,831	$	0	$	(437)	$	62,394
Money market funds	9,611		0		0		9,611
Equity funds	1,469		57		0		1,526
Equities	1,277		134		0		1,411
Exchange-traded bond funds	124		0		0		124
Total trading securities	75,312		191		(437)		75,066
Private investment fund	265		0		(154)		111
Private equity	3,420		667		0		4,087
Total investments carried at fair value	$	78,997	$	858	$	(591)	$	79,264

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

There were no corporate funds invested in Westwood Funds® as of September 30, 2020. There were $6.4 million of corporate funds invested in Westwood Funds® as of December 31, 2019. 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

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

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

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•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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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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):

Level 1 Level 2 Level 3
Investments Measured at NAV (1)
Total
As of September 30, 2020:
Investments in trading securities $ 61,993 $ 0 $ 0 $ 0 $ 61,993
Private investment fund 0 0 0 87 87
Private equity 0 0 3,241 0 3,241
Total assets measured at fair value $ 61,993 $ 0 $ 3,241 $ 87 $ 65,321
As of December 31, 2019:
Investments in trading securities $ 50,324 $ 0 $ 0 $ 0 $ 50,324
Private investment fund 0 0 0 263 263
Private equity 0 0 3,975 0 3,975
Total assets measured at fair value $ 50,324 $ 0 $ 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 June 30, 2021:
Investments in trading securities	$	75,066	$	0	$	0	$	0	$	75,066
Private investment fund	0		0		0		111		111
Private equity	0		0		4,087		0		4,087
Total assets measured at fair value	$	75,066	$	0	$	4,087	$	111	$	79,264

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 September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Beginning balance $ 3,314 $ 0 $ 3,975 $ 0
Purchases 0 2,770 0 2,770
Unrealized losses on private investments (73) 0 (734) 0
Ending balance $ 3,241 $ 2,770 $ 3,241 $ 2,770


	Fair Value using Significant Unobservable Inputs (Level 3)
	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Beginning balance	$	3,872	$	2,980	$	3,431	$	3,975



Unrealized gains (losses) on private investments	215		334		656		(661)
Ending balance	$	4,087	$	3,314	$	4,087	$	3,314

The ~~September~~June 30, ~~2020~~2021 private investment fair value of ~~$3.2~~$4.1 million was valued using a market approach based on a price to tangible book value multiple, with unobservable book value multiples ranging from ~~$0.98~~$1.38 to ~~$1.26~~$2.28 per share, with a weighted average of ~~$1.18~~$1.51 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~~

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

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

~~(Unaudited)~~

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 September 30, 2020, approximately 642,000 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):~~

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Service condition stock-based compensation expense $ 1,511 $ 1,578 $ 5,343 $ 5,526
Performance condition stock-based compensation expense 287 491 993 1,909
Stock-based compensation expense under the Plan 1,798 2,069 6,336 7,435
Canadian Plan stock-based compensation expense (1,310) 180 (927) 497
Total stock-based compensation expense $ 488 $ 2,249 $ 5,409 $ 7,932

~~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 September 30, 2020, there was approximately $13.2 million of unrecognized compensation cost for restricted stock grants under the Plan, which we expect to recognize over a weighted-average period of 2.5 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 nine months ended September 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 (26,372) $ 39.72
Non-vested, September 30, 2020 491,625 $ 36.25

~~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.

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

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

~~(Unaudited)~~

~~The following table details the status and changes in our restricted stock grants subject to service and performance conditions for the nine months ended September 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, September 30, 2020 45,700 $ 45.58

~~Canadian Plan~~

The Share Award Plan of Westwood Holdings Group, Inc. for Service Provided in Canada to its Subsidiaries (the “Canadian Plan”) provided compensation in the form of common stock for services performed by employees of Westwood International Advisors. On July 27, 2020, Westwood’s Board of Directors approved the closure of Westwood International Advisors, effective September 30, 2020.

During the first quarter 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. The subsequent closure of the Westwood International Advisors office resulted in forfeitures of 56,625 shares, which reduced the Company's expenses by $1.3 million in the three and nine months ended September 30, 2020. As of September 30, 2020, there is no unrecognized compensation cost related to restricted stock grants under the Canadian Plan.

~~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 asset 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 September 30, 2020 and 2019, we recorded expense of approximately $9,000 and $12,000, respectively, related to mutual fund share incentive awards. For the nine months ended September 30, 2020 we recorded expense of $27,000, and for the ~~nine~~ months ended September 30, 2019, a net $100,000 credit to mutual fund expense, primarily related to the forfeiture of a mutual fund award during the first quarter of 2019. As of September 30, 2020 and December 31, 2019, we had an accrued liability of approximately $50,000 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 ~~third~~first and second quarters 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 5% incremental Canadian withholding tax (net of U.S. tax federal deduction) on repatriated funds due to the closure of our Westwood International Advisors office and the impact of certain deferred tax assets that offset thea discrete benefit adjustment ~~related~~(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~~Act) lowered our effective ~~income~~ tax ~~rate was (16.0)% for the first~~ ~~nine~~ ~~months of 2020, compared with 41.0% for the first~~ ~~nine~~ 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, INC. AND SUBSIDIARIES~~

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

~~(Unaudited)~~

Westwood Holdings Group has an 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

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

stock granted to employees and non-employee directors. There were approximately ~~623,000~~139,000 and ~~81,000~~326,000 anti-dilutive restricted shares outstanding for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~September~~June 30, ~~2019,~~2020, respectively. There were approximately ~~360,000~~186,000 and ~~87,000~~229,000 anti-dilutive restricted shares outstanding for the ~~nine~~six months ended ~~September~~June 30, 2021 and June 30, 2020, ~~and September 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 September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Net income (loss) $ (10,289) $ 1,117 $ (11,762) $ 3,370
Weighted average shares outstanding - basic 7,829,478 8,432,598 8,040,417 8,414,317
Dilutive potential shares from unvested restricted shares 0 38,075 0 53,506
Weighted average shares outstanding - diluted 7,829,478 8,470,673 8,040,417 8,467,823
Earnings (loss) per share:
Basic $ (1.31) $ 0.13 $ (1.46) $ 0.40
Diluted $ (1.31) $ 0.13 $ (1.46) $ 0.40


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income (loss)	$	970	$	(2,575)	$	5,071	$	(1,473)

Weighted average shares outstanding - basic	7,884,771		7,879,698		7,885,901		8,147,045
Dilutive potential shares from unvested restricted shares	43,335		0		36,841		0

Weighted average shares outstanding - diluted	7,928,106		7,879,698		7,922,742		8,147,045

Earnings (loss) per share:
Basic	$	0.12	$	(0.33)	$	0.64	$	(0.18)
Diluted	$	0.12	$	(0.33)	$	0.64	$	(0.18)

~~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 ~~2020.~~

~~Following a sustained decline in the Company's market capitalization, we determined that goodwill~~2020, and recorded $3.4 million of impairment expense related to our Advisory segment was impaired, and we recorded impairment charges of $3.4 million during the three and nine months ended September 30, 2020 to "Impairment expense" on the Condensed Consolidated Statements of Comprehensive Income (Loss).

We determined the fair value of each of our reporting units using a weighted average approach of the market and income approaches. As part of this current assessment, we determined that an increase in the discount rate (from the prior assessment) applied in the valuation was required to align with market-based assumptions. The higher discount rate, in conjunction with revised long-term projections resulted in a lower fair value of the Advisory segment.

~~There was no~~ No goodwill ~~impairment in the Trust segment, nor~~impairments were ~~there goodwill impairments~~ recorded during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2021 or June 30, 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

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

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

~~(Unaudited)~~

for events or circumstances that would indicate impairment. NaN intangible asset impairments were recorded during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 or ~~2019.~~June 30, 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 ~~September~~June 30, ~~2020,~~2021, aside from the ~~Toronto office lease impairment discussed in Note 1 "Description of the Business,"~~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

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

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 still outstanding as of September~~program.

During the three months ended June 30, ~~2020.~~

~~The~~2021, the Company ~~did not repurchase any~~repurchased 18,866 shares of our common stock ~~during~~at an average price of $15.63 per share, including commissions, for an aggregate purchase price of $0.3 million under our share repurchase plan. During the six months ended June 30, 2021, the Company repurchased 111,357 shares of our common stock at an average price of $15.27 per share, including commissions, for an aggregate purchase price of $1.7 million under our share repurchase plan.

During the three months ended ~~September~~June 30, ~~2020.~~2020, the Company repurchased 407,697 shares of our common stock at an average price of $19.83 per share, including commissions, for an aggregate purchase price of $8.1 million under our share repurchase plan. During the ~~nine~~six months ended ~~September~~June 30, 2020, the Company repurchased 679,756 shares of our common stock at an average price of $19.05 per share, including commissions, for an aggregate purchase price of $13.0 million under our share repurchase plan.

~~Currency Translation and Re-measurement~~

Assets and liabilities of Westwood International Advisors, our only non-U.S. dollar functional currency subsidiary, are translated at exchange rates as of applicable reporting dates. The gains and losses resulting from translating non-U.S. dollar functional currency into U.S. dollars are recorded through other comprehensive income.

Following the closure and substantially complete liquidation of Westwood International Advisors, we reclassified foreign currency translation adjustments of $4.2 million from accumulated other comprehensive income (loss) to net income (loss) in the three and nine months ended September 30, 2020.

~~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”~~ “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 ended ~~September~~June 30, ~~2020~~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.

We ~~had no seed investments in~~recognized fee revenue from the Westwood ~~Funds~~VIEs and Westwood VOEs as of September 30, 2020, and we had $6.4 million as of December 31, 2019. 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.follows (in millions):


	Three Months Ended				Six Months Ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Fee Revenues	$	5.4	$	4.5	$	10.3	$	10.2

1614

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

We have not otherwise provided any financial support that we were 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 Nine Months Ended
September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
Fee Revenues $ 4.2 $ 7.2 $ 14.4 $ 24.3

The following table displays the AUM and the risk of loss in each vehicle (in millions):

As of September 30, 2020
Assets
Under
Management Corporate
Investment Amount at Risk
VIEs/VOEs:
Westwood Funds® $ 1,824 $ 0 $ 0
Common Trust Funds 1,107 0 0
Private Funds 9 0.1 0.1
Private Equity 0 11.4 11.4
All other assets:
Wealth Management 2,977
Institutional 6,045
Total Assets Under Management $ 11,962


	As of June 30, 2021
	Assets Under Management		Corporate Investment		Amount at Risk
VIEs/VOEs:
Westwood Funds®	$	2,857	$	0	$	0
Common Trust Funds	965		0		0

Private Funds	4		0.1		0.1
Private Equity	0		8.5		8.5
All other assets:
Wealth Management	3,458
Institutional	7,123
Total Assets Under Management	$	14,407

~~14.~~13. 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 ~~September~~June 30, ~~2020~~2021 and ~~2019,~~June 30, 2020, we recorded trust fees from these accounts of $0.1 million. For both the ~~nine~~six months ended ~~months ended September~~June 30, ~~2020~~2021 and ~~2019,~~June 30, 2020, we recorded trust fees from these accounts of ~~$0.3~~$0.2 million. There were no amounts due from these accounts as of June 30, 2021, and there was $0.1 million due from these accounts as of ~~both September 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 served on the board of directors of the UCITS Fund (liquidated as of June 2020). 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. The Company earned no$0.2 million in fees from the affiliated funds for the three months ended ~~September~~June 30, 2020, and ~~earned~~ $0.7 million in fees for the ~~three~~six months ended June 30, 2020.

14. SUBSEQUENT EVENTS

Dividends Declared

On July 27, 2021, the Board of Directors declared a quarterly cash dividend of $0.10 per share of common stock payable on October 1, 2021 to stockholders of record on September ~~30, 2019. For~~3, 2021.

On July 27, 2021, the ~~nine months ended September 30, 2020 and 2019, the Company earned approximately $0.6 million and $2.3 million, respectively, in fees from the affiliated funds. As~~Board of ~~September 30, 2020, all~~Directors also declared a special cash dividend of ~~these fees had been collected. As~~$2.50 per common share, payable on August 20, 2021 to stockholders of ~~December 31, 2019, $0.2 million, of these fees were outstanding and included in “Accounts receivable”~~record on ~~our Condensed Consolidated Balance Sheets.~~August 6, 2021.

1715

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;

• ~~the impact~~our stockholder rights agreement may make it more difficult for others to obtain control over us, even if it would be beneficial to our stockholders;

•risks associated with actions of ~~the COVID-19 pandemic;~~activist stockholders;

• ~~the significant concentration~~inclusion of foreign company investments in our ~~revenues in a small number of customers;~~AUM;

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

• regulations adversely affecting the financial services industry;

• ~~competition in the investment management industry;~~our ability to maintain effective cyber security;

•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 information systems;

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

•in addition to our stockholder rights agreement, our organizational documents contain provisions that may prevent or deter another group from paying a premium over the market price to our stockholders to acquire our stock;

• ~~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 and Westwood’s office in Toronto, Canada. As a result of this closure, we incurred $0.5 million of severance expense, $0.3 million of lease impairment expense and $0.1 million of vendor contract related costs, offset by $1.3 million of restricted stock forfeitures. The severance expense and restricted stock forfeitures were recognized within "Employee compensation and benefits," the lease impairment expense was recognized in "General and administrative," and the vendor contract costs were recognized within "Information technology" on the Condensed Consolidated Statements of Comprehensive Income (Loss).

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 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”), which was liquidated in June 2020.

We began marketing our SmallCap Value product to institutional investors in early 2004. SmallCap Value approached its asset capacity in 2021, and accordingly we closed it to new institutional separate accounts and platforms. The funds remain open, and open to additions from existing clients.

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.~~homes or our offices. While our ability to meet with clients declined at the beginning of the pandemic, we were able to subsequently rebound 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.

~~Impairment expense~~

~~Impairment expense consists of long-lived asset impairments, generally goodwill or intangible assets.~~

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

~~Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary~~

Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary includes a cumulative adjustment following the substantially completed liquidation of a foreign subsidiary, Westwood International Advisors.offices.

Assets Under Management

AUM ~~decreased $3.0~~increased $2.5 billion to ~~$12.0~~$14.4 billion at ~~September~~June 30, ~~2020~~2021 compared with ~~$15.0~~$11.9 billion at ~~September~~June 30, ~~2019.~~2020. The average of beginning and ending AUM for the ~~third~~second quarter of ~~2020~~2021 was $~~11.9~~14.5 billion compared to ~~$15.2~~$11.8 billion for the third quarter of 2019. These decreases are due to net outflows primarily in our Emerging Markets (closed in the third quarter of 2020), LargeCap Value, and Income Opportunity strategies and market depreciation in the firstsecond quarter of 2020.

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


		As of September 30,							As of June 30,
		2020		2019		Change			2021		2020		Change
Institutional(1)	Institutional(1)	$	6,044	$	8,347	(28)	%	Institutional(1)	$	7,123	$	6,183	15	%
Wealth Management(2)	Wealth Management(2)	4,094		4,301		(5)		Wealth Management(2)	4,427		3,985		11
Mutual Funds(3)	Mutual Funds(3)	1,824		2,338		(22)		Mutual Funds(3)	2,857		1,740		64
Total AUM(4)	Total AUM(4)	$	11,962	$	14,986	(20)	%	Total AUM(4)	$	14,407	$	11,908	21	%

(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. 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.

(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 investors and wealth management accounts.

(4)AUM excludes ~~$240~~$280 million and ~~$266~~$222 million of assets under advisement (“AUA”) as of ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, 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

2119

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2020 2019 2020 2019
Institutional
Beginning of period assets $ 6,183 $ 8,377 $ 8,739 $ 9,327
Inflows 117 158 592 535
Outflows (655) (286) (2,554) (2,790)
Net client flows (538) (128) (1,962) (2,255)
Market appreciation (depreciation) 399 98 (733) 1,275
Net change (139) (30) (2,695) (980)
End of period assets $ 6,044 $ 8,347 $ 6,044 $ 8,347
Wealth Management
Beginning of period assets $ 3,985 $ 4,399 $ 4,438 $ 4,043
Inflows 99 87 228 326
Outflows (187) (237) (535) (576)
Net client flows (88) (150) (307) (250)
Market appreciation (depreciation) 197 52 (37) 508
Net change 109 (98) (344) 258
End of period assets $ 4,094 $ 4,301 $ 4,094 $ 4,301
Mutual Funds
Beginning of period assets $ 1,740 $ 2,612 $ 2,058 $ 3,236
Inflows 208 98 650 351
Outflows (192) (411) (754) (1,687)
Net client flows 16 (313) (104) (1,336)
Market appreciation (depreciation) 68 39 (130) 438
Net change 84 (274) (234) (898)
End of period assets $ 1,824 $ 2,338 $ 1,824 $ 2,338
Total AUM
Beginning of period assets $ 11,908 $ 15,388 $ 15,235 $ 16,606
Inflows 424 343 1,470 1,212
Outflows (1,034) (934) (3,843) (5,053)
Net client flows (610) (591) (2,373) (3,841)
Market appreciation (depreciation) 664 189 (900) 2,221
Net change 54 (402) (3,273) (1,620)
End of period assets $ 11,962 $ 14,986 $ 11,962 $ 14,986


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2021		2020		2021		2020
Institutional
Beginning of period assets	$	7,569	$	6,335	$	6,567	$	8,739
Inflows	1,001		161		1,733		474
Outflows	(1,752)		(1,168)		(1,971)		(1,899)
Net client flows	(751)		(1,007)		(238)		(1,425)
Market appreciation (depreciation)	305		855		794		(1,131)
Net change	(446)		(152)		556		(2,556)
End of period assets	$	7,123	$	6,183	$	7,123	$	6,183

Wealth Management
Beginning of period assets	$	4,360	$	3,765	$	4,335	$	4,438
Inflows	83		56		143		129
Outflows	(210)		(221)		(417)		(348)
Net client flows	(127)		(165)		(274)		(219)
Market appreciation (depreciation)	194		385		366		(234)
Net change	67		220		92		(453)
End of period assets	$	4,427	$	3,985	$	4,427	$	3,985

Mutual Funds
Beginning of period assets	$	2,564	$	1,500	$	2,143	$	2,058
Inflows	318		268		756		442
Outflows	(162)		(252)		(371)		(562)
Net client flows	156		16		385		(120)
Market appreciation (depreciation)	137		224		329		(198)
Net change	293		240		714		(318)
End of period assets	$	2,857	$	1,740	$	2,857	$	1,740

Total AUM
Beginning of period assets	$	14,493	$	11,600	$	13,045	$	15,235
Inflows	1,402		485		2,632		1,045
Outflows	(2,124)		(1,641)		(2,759)		(2,809)
Net client flows	(722)		(1,156)		(127)		(1,764)
Market appreciation (depreciation)	636		1,464		1,489		(1,563)
Net change	(86)		308		1,362		(3,327)
End of period assets	$	14,407	$	11,908	$	14,407	$	11,908

Three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020

The $0.1 billion decrease in AUM for the three months ended June 30, 2021 was due to net outflows of $0.7 billion offset by market appreciation of $0.6 billion. Net outflows were primarily related to to the outflow of $1.6 billion from the closure of two Global Convertibles accounts. In the fourth quarter of 2020, we made the decision to exit the stand-alone convertibles business and our Global Convertibles team transitioned back to Aviva Investors, the firm from which they previously joined Westwood. As a result, $1.6 billion in two sub-advised Global Convertibles mandates returned to Aviva as of April 1, 2021. These outflows were partially offset by net inflows to our SmallCap Value strategy.

The $0.3 billion increase in AUM for the three months ended ~~September~~June 30, 2020 was due to market appreciation of ~~$0.7~~$1.5 billion offset by net outflows of ~~$0.6 billion.~~ ~~Net outflows were primarily related to our Emerging Markets strategy.~~

~~The $0.4 billion decrease in AUM for the three months ended September 30, 2019 was due to net outflows of $0.6 billion partially offset by market appreciation of $0.2~~$1.2 billion. Net outflows were primarily related to our ~~Income Opportunity, LargeCap Value, and SMidCap strategies.~~

~~Nine months ended September 30, 2020 and 2019~~closed Emerging Markets strategy.

2220

Six months ended June 30, 2021 and 2020

The $1.4 billion increase in AUM for the six months ended June 30, 2021 was due to market appreciation of $1.5 billion offset by net outflows of $0.1 billion.

The $3.3 billion decrease in AUM for the ~~nine~~six months ended ~~September~~June 30, 2020 was due to net outflows of ~~$2.4~~$1.8 billion and market depreciation of ~~$0.9 billion. Net outflows were primarily related to our~~ ~~Emerging Markets and LargeCap Value~~ ~~strategies.~~

~~The~~ $1.6 ~~billion decrease in AUM for the nine months ended September 30, 2019 was due to net outflows of $3.8 billion partially offset by market appreciation of $2.2~~ billion. Net outflows were primarily related to our LargeCap Value, Income Opportunity and 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 Nine Months Ended
September 30, September 30,
2020 2019 Change 2020 2019 Change
Revenues:
Advisory fees: asset-based $ 8,847 $ 13,164 (33) % $ 29,277 $ 44,265 (34) %
Advisory fees: performance-based 713 154 363 1,408 454 210
Trust fees: asset-based 5,787 6,281 (8) 17,395 19,264 (10)
Trust fees: performance-based 37 — NM 77 — NM
Other, net 70 293 (76) (159) 1,480 (111)
Total revenues 15,454 19,892 (22) 47,998 65,463 (27)
Expenses:
Employee compensation and benefits 9,515 12,072 (21) 32,970 38,060 (13)
Sales and marketing 215 506 (58) 946 1,550 (39)
Westwood mutual funds 421 916 (54) 1,370 2,423 (43)
Information technology 2,158 2,017 7 6,219 6,276 (1)
Professional services 1,033 940 10 3,217 3,258 (1)
General and administrative 2,333 2,317 1 6,830 7,153 (5)
Impairment expense 3,403 — NM 3,403 — NM
(Gain) loss on foreign currency transactions 419 (402) (204) (1,196) 1,142 (205)
Total expenses 19,497 18,366 6 53,759 59,862 (10)
Net operating income (loss) (4,043) 1,526 (5,761) 5,601
Unrealized losses on private investments (73) — NM (909) — NM
Investment income (43) — NM 625 — NM
Other income 34 33 3 102 110 (7)
Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary (4,193) — NM (4,193) — NM
Income (loss) before income taxes (8,318) 1,559 (10,136) 5,711
Income tax expense 1,971 442 346 1,626 2,341 (31)
Net income (loss) $ (10,289) $ 1,117 (1,021) % $ (11,762) $ 3,370 (449) %



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021		2020		Change		2021		2020		Change
Revenues:
Advisory fees: asset-based	$	11,385	$	9,328	22	%	$	21,835	$	20,430	7	%
Advisory fees: performance-based	—		695		(100)		1,959		695		182
Trust fees: asset-based	6,216		5,657		10		12,281		11,608		6
Trust fees: performance-based	—		40		(100)		—		40		(100)
Other, net	(117)		155		(175)		(272)		(229)		19
Total revenues	17,484		15,875		10		35,803		32,544		10
Expenses:
Employee compensation and benefits	10,237		10,787		(5)		21,785		23,455		(7)
Sales and marketing	370		253		46		600		731		(18)
Westwood mutual funds	368		434		(15)		759		949		(20)
Information technology	2,261		2,030		11		4,253		4,061		5
Professional services	1,428		991		44		2,745		2,184		26
General and administrative	2,042		2,191		(7)		4,114		4,497		(9)

(Gain) loss on foreign currency transactions	—		1,323		(100)		—		(1,615)		(100)
Total expenses	16,706		18,009		(7)		34,256		34,262		0
Net operating income (loss)	778		(2,134)				1,547		(1,718)
Realized gains on private investments	46		—		NM		8,371		—		NM
Net change in unrealized appreciation (depreciation) on private investments	215		159		35		(2,111)		(836)		153
Investment income	235		124		90		431		668		(35)
Other income	142		34		318		192		68		182

Income (loss) before income taxes	1,416		(1,817)				8,430		(1,818)
Income tax expense (benefit)	446		758		(41)		3,359		(345)		(1,074)
Net income (loss)	$	970	$	(2,575)	(138)	%	$	5,071	$	(1,473)	(444)	%

_________________________

NM Not meaningful

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

Total ~~Revenues~~revenues. Total revenues ~~decreased $4.4~~increased $1.6 million, or ~~22%~~10%, to ~~$15.5~~$17.5 million for the three months ended ~~September~~June 30, ~~2020~~2021 compared with ~~$19.9~~$15.9 million for the three months ended ~~September~~June 30, ~~2019.~~2020. Asset-based advisory fees ~~decreased $4.4~~increased $2.1 million, or ~~33%~~22%, and Trust ~~fees decreased $0.5 million, or 8%, both primarily due to lower average AUM. Performance-based advisory~~ fees increased $0.5 million, or ~~363%, primarily~~10%. Performance-based advisory fees decreased $0.7 million due to ~~higher~~lower realization of performance fees in the three months ended ~~September~~June 30, ~~2020.~~2021.

2321

Employee ~~Compensation~~compensation and ~~Benefits.~~benefits. Employee compensation and benefits decreased ~~$2.6~~$0.6 million, or ~~21%~~5%, to ~~$9.5~~$10.2 million for the three months ended ~~September~~June 30, ~~2020~~2021 compared with ~~$12.1~~$10.8 million for the three months ended ~~September~~June 30, ~~2019.~~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 from the prior year, stock forfeitures related to the closure of Westwood International Advisors, and lower headcount, partially offset by severance costs following the closure of Westwood International Advisors.expense.

~~Sales and marketing.~~Professional services. ~~Sales and marketing expenses decreased $0.3~~Professional services increased $0.4 million, or ~~58%~~44%, to ~~$0.2 for the three months ended September 30, 2020 compared with $0.5~~$1.4 million for the three months ended ~~September~~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 $0.5 million, or 54%, to $0.4~~2021 compared with $1.0 million for the three months ended ~~September~~June 30, ~~2020 compared with $0.9 million for the three months ended September 30, 2019.~~2020. The ~~decrease~~increase was primarily due to ~~lower service fees following declines in market values for the Westwood funds.~~

~~Impairment expense.~~ We recorded $3.4 million of impairment expense related to our Advisory segment goodwill in the three months ended September 30, 2020. No impairment expense was recorded in the three months ended September 30, 2019.legal expenses.

(Gain) loss on foreign currency transactions. We recorded ~~$0.4 million in~~ foreign currency gains and losses ~~in the current quarter~~ as a result of fluctuations in the Canadian dollar exchange ~~rate.~~

~~Foreign currency translation adjustments~~rate, prior to ~~net income (loss) upon liquidation of a foreign subsidiary.~~ ~~We recorded a cumulative foreign currency translation adjustment of $4.2 million following the substantially completed liquidation of~~closing Westwood International Advisors in 2020.

Other Income. Other income increased to $0.1 million for the three months ended ~~September~~June 30, ~~2020.~~2021. The increase was primarily due to sublease income.

Income ~~Tax Expense (Benefit)~~tax expense (benefit)~~.Our~~. Our effective tax rate of ~~(23.7)%~~31.5% differed from the 21% statutory rate for the ~~third~~second 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 income tax rate differed from the 21% statutory rate for the second quarter of 2020 primarily due to ~~the 5% incremental Canadian withholding tax (net of U.S. federal tax deduction) paid on repatriated funds due to the closure of Westwood International Advisors, effective September 30, 2020, and~~ the impact of certain deferred tax assets that offset the 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 28.4% for the three~~

Six months ended ~~September~~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.

~~Nine~~2021 compared to six months ended ~~September~~June 30, 2020 ~~compared to nine months ended September 30, 2019~~

Total ~~Revenues~~revenues. Total revenues ~~decreased $17.5~~increased $3.3 million, or ~~27%~~10%, to ~~$48.0~~$35.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared with ~~$65.5~~$32.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. Asset-based advisory fees ~~decreased $15.0~~increased $1.4 million, or ~~34%,~~7% and Trust fees ~~decreased $1.9~~increased $0.7 million, or ~~10%~~6%, both primarily due to ~~lower~~higher average AUM. Performance-based advisory fees increased ~~$0.9~~$1.3 million, or ~~210%~~182%, primarily due to higher realization of performance fees in the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

Employee ~~Compensation~~compensation and ~~Benefits~~benefits. Employee compensation and benefits costs decreased ~~$5.1~~$1.7 million, or ~~13%~~7%, to ~~$33.0~~$21.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared with ~~$38.1~~$23.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~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.~~Professional services. ~~Sales and marketing expenses decreased $0.7~~Professional services increased $0.5 million, or ~~39.0%~~26%, to ~~$0.9~~$2.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared with ~~$1.6~~$2.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~decrease~~increase was primarily due to ~~lower travel costs as a result of COVID-19.~~legal expenses.

~~Westwood Mutual Funds~~. Westwood mutual funds expenses decreased $1.0 million or 43% to $1.4 million for the nine months ended September 30, 2020 compared to $2.4 million for the nine months ended September 30, 2019. The decrease was primarily due to lower service fees following declines in market values for the Westwood funds.

~~Impairment expense.~~ We recorded $3.4 million of impairment expense related to our Advisory segment goodwill in the nine months ended September 30, 2020. No impairment expense was recorded in the nine months ended September 30, 2019.

(Gain) loss on foreign currency transactions. We recorded ~~$1.2 million in~~ foreign currency gains ~~for the nine months ended September 30, 2020~~and losses as a result of fluctuations in the Canadian dollar exchange ~~rate.~~

~~Unrealized losses on private investments. We recorded a net unrealized loss of $0.9 million, primarily related~~rate, prior to ~~our investment in Charis, a private bank, as a result of the global macroeconomic effects of COVID-19.~~

~~Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary.~~ ~~We recorded a cumulative foreign currency translation adjustment of $4.2 million following the substantially completed liquidation of~~closing Westwood International Advisors in 2020.

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

Other Income. Other income increased $0.1 million to $0.2 million for the six months ended ~~September~~June 30, ~~2020.~~2021. The increase was primarily due to sublease income.

~~Provision for~~ Income ~~Taxes~~Tax Expense (Benefit). The effective tax rate was ~~(16.0)%~~39.8% for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to ~~41.0%~~19.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~ 2020. Our income tax rate differed from the 21% statutory rate for ~~2020~~2021 primarily due to ~~the 5% incremental Canadian withholding tax (net of federal deduction) paid on repatriated funds due to the closure of Westwood International Advisors office, effective September 30, 2020, and~~ 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. The ~~2019 year-to-date~~effective tax rate decreased to 19.0% for the six months ended June 30, 2020. The effective tax rate for the six months ended June 30, 2020 was ~~negatively impacted by~~primarily due to a ~~$0.6 million~~ discrete ~~tax expense~~benefit adjustment related to ~~a permanent difference between book and tax restricted stock expense based~~the remeasurement of certain deferred taxes following the enactment of the CARES Act recorded in the first quarter of 2020, offset by the remeasurement of current deferred taxes on a ~~decrease in our stock price between the grant and vesting dates.~~nondiscrete basis.

Supplemental Financial Information

As supplemental information, we are providing non-GAAP performance measures that we refer to as Economic Earnings ~~(Loss)~~ and Economic EPS. We provide these measures in addition to, not as a substitute for, net income (loss) and earnings (loss) per share, which are reported on a GAAP basis. Our management and Board of Directors review Economic Earnings ~~(Loss)~~

and Economic EPS to evaluate our ongoing performance, allocate resources, and review our dividend policy. We believe that these non-GAAP performance measures, while not substitutes for GAAP net income (loss) or earnings (loss) per share, are useful for management and investors when evaluating our underlying operating and financial performance and our available resources. We do not advocate that investors consider these non-GAAP measures without also considering financial information prepared in accordance with GAAP.

We define Economic Earnings ~~(Loss)~~ as net income (loss) plus non-cash equity-based compensation expense, ~~impairment expense,~~ amortization of intangible assets, ~~currency translation adjustment reclassification~~ and deferred taxes related to goodwill. Although depreciation on fixed assets is a non-cash expense, we do not add it back when calculating Economic Earnings ~~(Loss)~~ because depreciation charges represent an allocation of the decline in the value of the related assets that will ultimately require replacement. In addition, we do not adjust Economic Earnings ~~(Loss)~~ for tax deductions related to restricted stock expense or amortization of intangible assets. Economic EPS represents Economic Earnings ~~(Loss)~~ divided by diluted weighted average shares outstanding.

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


		Three Months Ended September 30,				Change				Nine Months Ended September 30, 2020											Three Months Ended June 30,								Change				Six Months Ended June 30,
		2020		2019				2020				2019				Change			2021				2020								2021				2020				Change
Net income (loss)	Net income (loss)	$	(10,289)	$	1,117			(1,021)	%			$	(11,762)			$	3,370			(449)	%	Net income (loss)	$	970			$	(2,575)			(138)	%			$	5,071			$	(1,473)			(444)	%
Add: Stock-based compensation expense	Add: Stock-based compensation expense	488		2,249		(78)				5,409				7,932				(32)		Add: Stock-based compensation expense	1,375				2,305				(40)				3,097				4,921				(37)
Add: Impairment expense		3,403		—		NM				3,403				—				NM

Add: Intangible amortization	Add: Intangible amortization	435		445		(2)				1,293				1,281				1		Add: Intangible amortization	406				435				(7)				812				858				(5)
Add: Currency translation adjustment reclassification		4,193		—		NM				4,193				—				NM

Add: Tax benefit from goodwill amortization	Add: Tax benefit from goodwill amortization	59		60		(2)				177				178				(1)		Add: Tax benefit from goodwill amortization	59				59				—				118				118				—
Economic Earnings (Loss)		$	(1,711)	$	3,871	(144)	%			$	2,713			$	12,761			(79)	%
Economic Earnings																				Economic Earnings	$	2,810			$	224			1,154	%			$	9,098			$	4,424			106	%

Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	7,829,478		8,470,673						8,040,417				8,467,823						Diluted weighted average shares outstanding	7,928,106				7,879,698								7,922,742				8,147,045
Economic Earnings (Loss) per share		$	(0.22)	$	0.46					$	0.34			$	1.51
Economic Earnings per share																				Economic Earnings per share	$	0.35			$	0.03							$	1.15			$	0.54

Economic Earnings (Loss) by Segment:
Economic Earnings by Segment:																				Economic Earnings by Segment:
Advisory	Advisory	$	1,244	$	3,574	(65)	%			$	6,550			$	13,665			(52)	%	Advisory	$	3,919			$	1,013			287	%			$	10,469			$	5,306			97	%
Trust	Trust	1,458		2,055		(29)				3,783				4,872				(22)		Trust	1,508				1,333				13				4,492				2,325				93
Westwood Holdings	Westwood Holdings	(4,413)		(1,758)		151				(7,620)				(5,776)				32		Westwood Holdings	(2,617)				(2,122)				23				(5,863)				(3,207)				83
Consolidated	Consolidated	$	(1,711)	$	3,871	(144)	%			$	2,713			$	12,761			(79)	%	Consolidated	$	2,810			$	224			1,154	%			$	9,098			$	4,424			106	%

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 2021, following a suspension in the second quarter of 2020 ~~in order to preserve~~as we preserved capital and ~~provide~~provided additional financial flexibility amid the uncertainties created by COVID-19. As of ~~September~~June 30, ~~2020~~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 ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, cash flow used in operating activities was ~~$7.1~~$1.2 million, which included net purchases of ~~$11.9~~$5.6 million of current investments, ~~and~~a reduction in compensation and benefits payable of ~~$3.8~~$2.9 million, ~~partially offset by~~ a ~~$3.6~~$0.4 million change in accounts receivable and ~~positive~~ adjustments to net ~~income.~~income, partially offset by income taxes payable, accounts payable and accrued liabilities. During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, cash flow provided by operating activities was ~~$33.6~~$21.8 million, which included ~~a $23.4 million net~~ liquidation of $20.0 million of current investments and accounts receivable collections of $2.4 million, partially offset by an ~~$8.1~~$5.8 million decrease in compensation and benefits ~~payables.~~payable.

Cash flow provided by investing activities during the six months ended June 30, 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 ~~nine~~six months ended ~~September~~June 30, 2020 was related to purchases of property and ~~equipment, while the prior year was related to purchases of property and equipment and our investments in private equity and Westwood Hospitality Fund I, LLC.~~equipment.

Cash flows used in financing activities of ~~$25.8~~$4.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~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 ~~$24.6~~$25.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 reflected treasury stock repurchases, the payment of dividends, ~~purchases of~~ 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 ~~$77.6~~$92.3 million as of ~~September~~June 30, ~~2020~~2021 and ~~$100.1~~$82.6 million as of December 31, ~~2019. On July 27, 2020, Westwood’s Board of Directors~~ ~~approved the closure of Westwood International Advisors, effective September~~2020. At June 30, ~~2020. Following that decision by the Board of Directors, we repatriated over $37.0 million to the United States and primarily invested the cash in short-term investments.~~ ~~At September 30, 2020~~2021 and December 31, ~~2019,~~2020, working capital aggregated ~~$79.0~~$92.8 million and ~~$95.6~~$84.5 million, respectively.

Westwood Trust ~~must~~is required to 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 ~~September~~June 30, ~~2020,~~2021, Westwood Trust had approximately ~~$11.3~~$17.6 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.

The United States Department of Labor released its regulatory agenda in the Spring of 2021, which confirmed that a fiduciary rule rewrite is in progress. This rewrite is expected to address the definition of fiduciary. At this time, we cannot predict the content or form of any such rule or its impact on our business, results of operations and financial condition. Our business is highly regulated, and changes in regulation and in supervisory and enforcement policies may materially impact our capitalization or cash flows, reduce our profitability and limit our growth. We will continue to monitor the potential impact of this development on our business.

Contractual Obligations

As of ~~September~~June 30, ~~2020,~~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 ~~September~~June 30, ~~2020,~~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.

2825

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~~Except as discussed below, there ~~has~~have been no material ~~change in its~~changes to the risk factors as previously disclosed in the Form 10-K. You should carefully consider the following risks and the risks included in the Company’s Annual Report on Form 10-K, together with all of the other ~~than as set forth below.~~information in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. The occurrence of any single risk or any combination of risks could materially and adversely affect our business, financial condition, results of operations, cash flows and the trading price of our common stock.

Risks Related to Ownership of Stock and Corporate Governance

Our stockholder rights agreement (“Rights Agreement”) may make it more difficult for others to obtain control over us, even if it would be beneficial to our stockholders.

In May of 2021, our Board of Directors adopted a stockholder rights agreement. Pursuant to its terms, we have distributed a dividend of one right for each outstanding share of common stock of the ~~Investment Industry~~

~~The recent COVID-19 pandemic,~~Company to stockholders of record at the close of business on May 12, 2021. These rights would cause substantial dilution to the ownership of any person or group that attempts to acquire us on terms not approved by our Board of Directors and ~~other potential outbreaks,~~may have the effect of deterring hostile takeover attempts. These provisions could ~~negatively impact our businesses, financial condition and results of operations.~~discourage a future takeover attempt which individual stockholders might deem to be in their best interests or in which stockholders could receive a premium for their shares over current prices.

We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by effectively requiring those who seek to obtain control of the Company to negotiate with our Board of Directors and by providing our Board with more time to assess any acquisition of control. However, these provisions could apply even if an acquisition of control of the Company may ~~face risks related~~be considered beneficial by some stockholders and could delay or prevent an acquisition of control that our Board of Directors determines is not in the best interests of our Company and our stockholders.

Actions of activist stockholders could cause us to incur substantial costs, divert the ~~outbreak~~attention and resources of ~~COVID-19,~~our management and the Board of Directors, and have an adverse effect on our business and stock price.

We have been and may continue to be subject to proposals by stockholders urging us to take certain corporate actions or seeking to acquire control over the Company. If activist stockholder activities continue or new activities arise, our business could be adversely affected as responding to actions by activist stockholders can be costly and time-consuming, disrupt our operations, and divert the attention of management and our Board of Directors, all of which ~~has been declared~~could interfere with our ability to execute our strategic plan. We have retained, and may be required to continue to retain, the services of various professionals to advise us on activist stockholder matters, including legal, financial and communications advisors, the costs of which may adversely affect our financial results. In addition, the perceived uncertainties as to our future direction, strategy or leadership created as a ~~pandemic by the World Health Organization. The full impact~~consequence 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~~activist stockholder initiatives may result in ~~a period~~the loss of ~~disruption, including with respect~~potential business opportunities, result in the loss of key personnel, harm our ability to attract new investors, clients and employees, and cause our stock price to experience periods of volatility or stagnation.

In addition to our ~~financial reporting capabilities~~Rights Agreement, our organizational documents contain provisions that may prevent or deter another group from paying a premium over the market price to our stockholders to acquire our stock.

Our organizational documents currently contain provisions that establish that stockholders cannot act by written consent, and that authorize our ~~operations generally, and~~Board of Directors to issue, without shareholder approval, blank check preferred stock. In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law relating to business combinations. These provisions could ~~potentially impact~~delay, deter or prevent a merger, consolidation, tender offer or other business

combination or change of control involving us that could include a premium over the market price of our ~~clients and third party vendors. Any resulting financial impact cannot~~common stock that some or a majority of our stockholders might consider to 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.in their best interests.

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 September 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~~

~~Third quarter 2020~~

—

~~Canadian Plan~~ ~~(2)~~

—

~~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~~treasury shares we purchased during the three months ended June 30, 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)					$	8,300,000
April 2021	18,866	$	15.63	18,866

up(1)These purchases relate to ~~$10.0 million CDN of our outstanding common stock on~~ the ~~open market for the purpose of making~~ share ~~awards to our Canadian employees. On July 27, 2020, Westwood’s Board of Directors approved the closure of Westwood International Advisors, effective September 30,~~repurchase program and were authorized in April 2020. ~~The Canadian Plan going forward will not be accessed, and will be discontinued 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 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.

3027

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 ~~September~~June 30, ~~2020,~~2021, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019;~~2020; (ii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019;~~2020; (iii) Condensed Consolidated Statements of Stockholders' Equity; (iv) Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~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.

3128

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:

~~October 28, 2020~~July 27, 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

3229


	September 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	15,593	$	49,766
Accounts receivable	9,492		13,177
Investments, at fair value	61,993		50,324
Prepaid income taxes	511		1,150
Other current assets	2,211		2,544
Total current assets	89,800		116,961
Investments	8,154		8,154
Noncurrent investments at fair value	3,328		4,238
Goodwill	16,401		19,804
Deferred income taxes	2,398		2,216
Operating lease right-of-use assets	6,364		7,562
Intangible assets, net	13,963		15,256
Property and equipment, net of accumulated depreciation of $8,056 and $7,395	3,532		4,152
Other long-term assets	444		364
Total assets	$	144,384	$	178,707
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	2,097	$	2,145

Dividends payable	873		7,362
Compensation and benefits payable	5,938		9,975

Operating lease liabilities	1,695		1,584

Income taxes payable	195		289
Total current liabilities	10,798		21,355
Accrued dividends	575		1,303

Noncurrent operating lease liabilities	6,519		7,762
Total long-term liabilities	7,094		9,065
Total liabilities	17,892		30,420
Commitments and contingencies (Note 11)
Stockholders' Equity:
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 10,542,571 and outstanding 8,366,811 shares at September 30, 2020; issued 10,306,570 and outstanding 8,881,086 shares at December 31, 2019	106		103
Additional paid-in capital	209,060		203,441
Treasury stock, at cost - 2,175,758 shares at September 30, 2020; 1,425,483 shares at December 31, 2019	(78,050)		(63,281)
Accumulated other comprehensive income (loss)	0		(2,943)
Retained earnings (accumulated deficit)	(4,624)		10,967
Total stockholders' equity	126,492		148,287
Total liabilities and stockholders' equity	$	144,384	$	178,707


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
REVENUES:
Advisory fees:
Asset-based	$	8,847	$	13,164	$	29,277	$	44,265
Performance-based	713		154		1,408		454
Trust fees	5,787		6,281		17,395		19,264
Trust performance-based fees	37		0		77		0
Other, net	70		293		(159)		1,480
Total revenues	15,454		19,892		47,998		65,463
EXPENSES:
Employee compensation and benefits	9,515		12,072		32,970		38,060
Sales and marketing	215		506		946		1,550
Westwood mutual funds	421		916		1,370		2,423
Information technology	2,158		2,017		6,219		6,276
Professional services	1,033		940		3,217		3,258
General and administrative	2,333		2,317		6,830		7,153
Impairment expense	3,403		0		3,403		0
(Gain) loss on foreign currency transactions	419		(402)		(1,196)		1,142
Total expenses	19,497		18,366		53,759		59,862
Net operating income (loss)	(4,043)		1,526		(5,761)		5,601
Unrealized losses on private investments	(73)		0		(909)		0
Investment income (expense)	(43)		0		625		0
Other income	34		33		102		110
Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary	(4,193)		0		(4,193)		0
Income (loss) before income taxes	(8,318)		1,559		(10,136)		5,711
Income tax expense	1,971		442		1,626		2,341
Net income (loss)	$	(10,289)	$	1,117	$	(11,762)	$	3,370
Other comprehensive income (loss):
Foreign currency translation adjustments	621		(482)		(1,250)		1,084
Reclassification of cumulative foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary	4,193		0		4,193		0
Total comprehensive income (loss)	$	(5,475)	$	635	$	(8,819)	$	4,454

Earnings (loss) per share:
Basic	$	(1.31)	$	0.13	$	(1.46)	$	0.40
Diluted	$	(1.31)	$	0.13	$	(1.46)	$	0.40
Weighted average shares outstanding:
Basic	7,829,478		8,432,598		8,040,417		8,414,317
Diluted	7,829,478		8,470,673		8,040,417		8,467,823


Three Months Ended September 30, 2019	Advisory		Trust		Performance-based		Other		Total
Asia	$	410	$	0	$	0	$	0	$	410

Canada	608		0		0		44		652
Europe	836		0		154		0		990
United States	11,310		6,281		0		249		17,840
Total	$	13,164	$	6,281	$	154	$	293	$	19,892


	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	(26,372)	$	39.72
Non-vested, September 30, 2020	491,625	$	36.25


	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Fee Revenues	$	4.2	$	7.2	$	14.4	$	24.3


	As of September 30, 2020
	Assets Under Management		Corporate Investment		Amount at Risk
VIEs/VOEs:
Westwood Funds®	$	1,824	$	0	$	0
Common Trust Funds	1,107		0		0

Private Funds	9		0.1		0.1
Private Equity	0		11.4		11.4
All other assets:
Wealth Management	2,977
Institutional	6,045
Total Assets Under Management	$	11,962



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020		2019		Change		2020		2019		Change
Revenues:
Advisory fees: asset-based	$	8,847	$	13,164	(33)	%	$	29,277	$	44,265	(34)	%
Advisory fees: performance-based	713		154		363		1,408		454		210
Trust fees: asset-based	5,787		6,281		(8)		17,395		19,264		(10)
Trust fees: performance-based	37		—		NM		77		—		NM
Other, net	70		293		(76)		(159)		1,480		(111)
Total revenues	15,454		19,892		(22)		47,998		65,463		(27)
Expenses:
Employee compensation and benefits	9,515		12,072		(21)		32,970		38,060		(13)
Sales and marketing	215		506		(58)		946		1,550		(39)
Westwood mutual funds	421		916		(54)		1,370		2,423		(43)
Information technology	2,158		2,017		7		6,219		6,276		(1)
Professional services	1,033		940		10		3,217		3,258		(1)
General and administrative	2,333		2,317		1		6,830		7,153		(5)
Impairment expense	3,403		—		NM		3,403		—		NM
(Gain) loss on foreign currency transactions	419		(402)		(204)		(1,196)		1,142		(205)
Total expenses	19,497		18,366		6		53,759		59,862		(10)
Net operating income (loss)	(4,043)		1,526				(5,761)		5,601
Unrealized losses on private investments	(73)		—		NM		(909)		—		NM
Investment income	(43)		—		NM		625		—		NM
Other income	34		33		3		102		110		(7)
Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary	(4,193)		—		NM		(4,193)		—		NM
Income (loss) before income taxes	(8,318)		1,559				(10,136)		5,711
Income tax expense	1,971		442		346		1,626		2,341		(31)
Net income (loss)	$	(10,289)	$	1,117	(1,021)	%	$	(11,762)	$	3,370	(449)	%