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, ~~2022~~2023


☐			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 20, 2022: 8,413,223.~~July 26, 2023: 9,182,716.

WESTWOOD HOLDINGS GROUP, INC.

INDEX


PART I	FINANCIAL INFORMATION	PAGE

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of ~~September~~June 30 ~~30, 2022~~, 2023 and December 31, ~~2021~~2022	1

	Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ (Loss ) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30 ~~30,~~, 2023 and 2022 ~~and 2021~~	2

	Condensed Consolidated ~~Statement~~Statements of Stockholders’ Equity for the Three and Six ~~Nine~~Months Ended ~~September~~June 30 ~~30,~~, 2023 and 2022 ~~and 2021~~	3

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30 ~~30,~~, 2023 and 2022 ~~and 2021~~	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1517

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2226

Item 4.	Controls and Procedures	2226

PART II	OTHER INFORMATION	2428

Item 1.	Legal Proceedings	2428

Item 1A.	Risk Factors	2428

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2428

Item 6.	Exhibits	2529

Signatures		2630

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)

(Unaudited)


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	22,470	$	15,206	Cash and cash equivalents	$	15,229	$	23,859
Accounts receivable	Accounts receivable	9,290		11,152		Accounts receivable	13,609		13,900
Investments, at fair value	Investments, at fair value	51,564		65,024		Investments, at fair value	22,894		15,342
Prepaid income taxes	Prepaid income taxes	569		233		Prepaid income taxes	—		446
Other current assets	Other current assets	2,647		2,246		Other current assets	4,154		4,645
Total current assets	Total current assets	86,540		93,861		Total current assets	55,886		58,192
Investments	Investments	4,455		4,455		Investments	7,247		4,455
Equity method investments						Equity method investments	4,180		6,574
Noncurrent investments at fair value	Noncurrent investments at fair value	4,001		4,513		Noncurrent investments at fair value	259		3,027
Goodwill	Goodwill	16,401		16,401		Goodwill	39,501		35,732
Deferred income taxes	Deferred income taxes	1,097		848		Deferred income taxes	1,535		1,762
Operating lease right-of-use assets	Operating lease right-of-use assets	5,286		4,868		Operating lease right-of-use assets	3,972		4,976
Intangible assets, net	Intangible assets, net	10,693		11,911		Intangible assets, net	26,889		28,952
Property and equipment, net of accumulated depreciation of $9,096 and $8,637		1,717		2,114
Property and equipment, net of accumulated depreciation of $9,755 and $9,277						Property and equipment, net of accumulated depreciation of $9,755 and $9,277	1,718		1,828
Other long-term assets	Other long-term assets	797		634		Other long-term assets	918		929
Total long-term assets						Total long-term assets	86,219		88,235
Total assets	Total assets	$	130,987	$	139,605	Total assets	$	142,105	$	146,427
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	$	2,876	$	2,637	Accounts payable and accrued liabilities	$	5,780	$	5,678

Dividends payable	Dividends payable	1,726		1,800		Dividends payable	1,408		1,745
Compensation and benefits payable	Compensation and benefits payable	5,900		9,530		Compensation and benefits payable	5,344		8,689

Operating lease liabilities	Operating lease liabilities	1,484		1,409		Operating lease liabilities	1,276		1,502

Income taxes payable	Income taxes payable	—		466		Income taxes payable	1,044		—
Total current liabilities	Total current liabilities	11,986		15,842		Total current liabilities	14,852		17,614
Accrued dividends	Accrued dividends	554		1,133		Accrued dividends	657		701
Contingent consideration						Contingent consideration	7,763		12,901

Noncurrent operating lease liabilities	Noncurrent operating lease liabilities	4,940		4,724		Noncurrent operating lease liabilities	3,734		4,563
Total long-term liabilities	Total long-term liabilities	5,494		5,857		Total long-term liabilities	12,154		18,165
Total liabilities	Total liabilities	17,480		21,699		Total liabilities	27,006		35,779
Commitments and contingencies (Note 10)
Commitments and contingencies (Note 11)						Commitments and contingencies (Note 11)
Stockholders' Equity:	Stockholders' Equity:					Stockholders' Equity:
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 11,058,937 and outstanding 8,410,659 shares at September 30, 2022; issued 10,658,644 and outstanding 8,253,491 shares at December 31, 2021		110		107
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 11,896,226 and outstanding 9,182,770 shares at June 30, 2023; issued 11,527,544 and outstanding 8,881,831 shares at December 31, 2022						Common stock, $0.01 par value, authorized 25,000,000 shares, issued 11,896,226 and outstanding 9,182,770 shares at June 30, 2023; issued 11,527,544 and outstanding 8,881,831 shares at December 31, 2022	119		115
Additional paid-in capital	Additional paid-in capital	199,594		195,187		Additional paid-in capital	200,885		199,914
Treasury stock, at cost - 2,648,278 shares at September 30, 2022; 2,405,154 shares at December 31, 2021		(85,227)		(81,750)
Treasury stock, at cost - 2,713,456 shares at June 30, 2023; 2,645,713 shares at December 31, 2022						Treasury stock, at cost - 2,713,456 shares at June 30, 2023; 2,645,713 shares at December 31, 2022	(85,965)		(85,128)

Retained earnings (accumulated deficit)	Retained earnings (accumulated deficit)	(970)		4,362		Retained earnings (accumulated deficit)	(959)		(4,253)
Total stockholders' equity		113,507		117,906
Total Westwood Holdings Group, Inc. stockholders’ equity						Total Westwood Holdings Group, Inc. stockholders’ equity	114,080		110,648
Noncontrolling interest in consolidated subsidiary						Noncontrolling interest in consolidated subsidiary	1,019		—
Total equity						Total equity	115,099		110,648
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	130,987	$	139,605	Total liabilities and stockholders' equity	$	142,105	$	146,427

See Notes to Condensed Consolidated Financial Statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
REVENUES:	REVENUES:									REVENUES:
Advisory fees:	Advisory fees:									Advisory fees:
Asset-based	Asset-based	$	10,474	$	12,011	$	33,244	$	33,846	Asset-based	$	16,799	$	10,980	$	33,832	$	22,770
Performance-based	Performance-based	—		—		—		1,959		Performance-based	—		—		555		—
Trust fees	Trust fees	5,177		5,952		16,257		18,233		Trust fees	5,024		5,365		10,055		11,080

Other, net	Other, net	(245)		(103)		(1,276)		(375)		Other, net	122		(742)		230		(1,031)
Total revenues	Total revenues	15,406		17,860		48,225		53,663		Total revenues	21,945		15,603		44,672		32,819
EXPENSES:	EXPENSES:									EXPENSES:
Employee compensation and benefits	Employee compensation and benefits	9,526		10,268		28,993		32,053		Employee compensation and benefits	13,688		9,133		27,890		19,467
Sales and marketing	Sales and marketing	335		292		1,326		892		Sales and marketing	764		509		1,504		991
Westwood mutual funds	Westwood mutual funds	615		814		1,812		1,573		Westwood mutual funds	746		445		1,478		1,041
Information technology	Information technology	2,170		1,937		5,934		6,190		Information technology	2,566		1,847		4,949		3,676
Professional services	Professional services	1,660		726		4,655		3,471		Professional services	1,355		832		2,884		2,352
General and administrative	General and administrative	2,182		1,779		6,570		5,893		General and administrative	3,235		2,348		6,281		4,388

(Gain) loss from change in fair value of contingent consideration										(Gain) loss from change in fair value of contingent consideration	(4,078)		—		(5,138)		—
Acquisition expenses										Acquisition expenses	—		887		209		887
Total expenses	Total expenses	16,488		15,816		49,290		50,072		Total expenses	18,276		16,001		40,057		32,802
Net operating income (loss)	Net operating income (loss)	(1,082)		2,044		(1,065)		3,591		Net operating income (loss)	3,669		(398)		4,615		17
Realized gains on private investments		—		—		—		8,371

Net change in unrealized appreciation (depreciation) on private investments	Net change in unrealized appreciation (depreciation) on private investments	(249)		(13)		(511)		(2,124)		Net change in unrealized appreciation (depreciation) on private investments	24		(299)		24		(262)
Net investment income		104		131		93		562
Net investment income (loss)										Net investment income (loss)	211		5		383		(11)
Other income	Other income	206		198		598		390		Other income	239		234		611		392

Income (loss) before income taxes	Income (loss) before income taxes	(1,021)		2,360		(885)		10,790		Income (loss) before income taxes	4,143		(458)		5,633		136
Income tax provision	Income tax provision	154		481		618		3,840		Income tax provision	1,244		(80)		2,020		464
Net income (loss)	Net income (loss)	$	(1,175)	$	1,879	$	(1,503)	$	6,950	Net income (loss)	$	2,899	$	(378)	$	3,613	$	(328)

Total comprehensive income (loss)	Total comprehensive income (loss)	$	(1,175)	$	1,879	$	(1,503)	$	6,950	Total comprehensive income (loss)	$	2,899	$	(378)	$	3,613	$	(328)

Less: Comprehensive income (loss) attributable to noncontrolling interest										Less: Comprehensive income (loss) attributable to noncontrolling interest	4		—		25		—
Comprehensive income (loss) attributable to Westwood Holdings Group, Inc.										Comprehensive income (loss) attributable to Westwood Holdings Group, Inc.	$	2,895	$	(378)	$	3,588	$	(328)
Earnings (loss) per share:	Earnings (loss) per share:									Earnings (loss) per share:
Basic	Basic	$	(0.15)	$	0.24	$	(0.19)	$	0.88	Basic	$	0.36	$	(0.05)	$	0.45	$	(0.04)
Diluted	Diluted	$	(0.15)	$	0.24	$	(0.19)	$	0.88	Diluted	$	0.36	$	(0.05)	$	0.45	$	(0.04)
Weighted average shares outstanding:	Weighted average shares outstanding:									Weighted average shares outstanding:
Basic	Basic	7,794,060		7,887,259		7,867,555		7,886,359		Basic	7,991,228		7,944,212		7,922,954		7,904,911
Diluted	Diluted	7,794,060		7,956,081		7,867,555		7,933,860		Diluted	8,131,333		7,944,212		8,050,298		7,904,911

See Notes to Condensed Consolidated Financial Statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Three Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(In thousands, except share amounts)

(Unaudited)

Common Stock, Par Additional Paid-In Capital Treasury Stock Retained Earnings (Accumulated Deficit) Total
Shares Amount
Balance, June 30, 2022 8,511,014 $ 111 $ 198,084 $ (83,970) $ 1,493 $ 115,718
Net loss — — — — (1,175) (1,175)
Issuance of restricted stock, net of forfeitures (911) (1) 1 — — —
Dividends declared ($0.15 per share) — — — — (1,288) (1,288)
Stock-based compensation expense — — 1,509 — — 1,509
Purchases of treasury stock (99,444) — — (1,257) — (1,257)
Balance, September 30, 2022 8,410,659 $ 110 $ 199,594 $ (85,227) $ (970) $ 113,507


	Common Stock, Par			Additional Paid-In Capital		Treasury Stock		Retained Earnings (Accumulated Deficit)		Noncontrolling Interest		Total
	Shares	Amount
Balance, March 31, 2023	9,212,390	$	119	$	200,453	$	(85,965)	$	(3,752)	$	1,015	$	111,870
Net income	—	—		—		—		2,895		4		2,899



Issuance of restricted stock, net of forfeitures	(29,620)	—		—		—		—		—		—

Dividends declared ($0.15 per share)	—	—		(1,192)		—		(102)		—		(1,294)

Stock-based compensation expense	—	—		1,624		—		—		—		1,624




Balance, June 30, 2023	9,182,770	$	119	$	200,885	$	(85,965)	$	(959)	$	1,019	$	115,099

Common Stock, Par Additional Paid-In Capital Treasury Stock Retained Earnings Total
Shares Amount
Balance, June 30, 2021 8,324,702 $ 108 $ 213,362 $ (80,551) $ 1,757 $ 134,676
Net income — — — — 1,879 1,879
Issuance of restricted stock, net of forfeitures (2,336) — — — — —
Return of capital ($2.50 per share) — — (20,823) — — (20,823)
Dividends declared ($0.10 per share) — — — — (867) (867)
Stock-based compensation expense — — 1,362 — — 1,362
Purchases of treasury stock (25,502) — — (499) — (499)
Balance, September 30, 2021 8,296,864 $ 108 $ 193,901 $ (81,050) $ 2,769 $ 115,728


	Common Stock, Par			Additional Paid-In Capital		Treasury Stock		Retained Earnings (Accumulated Deficit)		Noncontrolling Interest		Total
	Shares	Amount
Balance, March 31, 2022	8,575,451	$	110	$	196,564	$	(82,576)	$	3,162	$	—	$	117,260
Net loss	—	—		—		—		(378)		—		(378)


Issuance of restricted stock, net of forfeitures	29,438	1		(1)		—		—		—		—

Dividends declared ($0.15 per share)	—	—		—		—		(1,291)		—		(1,291)
Stock-based compensation expense	—	—		1,521		—		—		—		1,521

Purchases of treasury stock	(93,875)	—		—		(1,394)		—		—		(1,394)


Balance, June 30, 2022	8,511,014	$	111	$	198,084	$	(83,970)	$	1,493	$	—	$	115,718

See Notes to Condensed Consolidated Financial Statements.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(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, 2021 8,253,491 $ 107 $ 195,187 $ (81,750) $ 4,362 $ 117,906
Net loss — — — — (1,503) (1,503)
Issuance of restricted stock, net of forfeitures 400,292 3 (3) — — —
Dividends declared ($0.45 per share) — — — — (3,829) (3,829)
Stock-based compensation expense — — 4,410 — — 4,410
Purchases of treasury stock (205,521) — — (2,851) — (2,851)
Restricted stock returned for payment of taxes (37,603) — — (626) — (626)
Balance, September 30, 2022 8,410,659 $ 110 $ 199,594 $ (85,227) $ (970) $ 113,507


	Common Stock, Par			Additional Paid-In Capital		Treasury Stock		Retained Earnings (Accumulated Deficit)		Noncontrolling Interest		Total
	Shares	Amount
Balance, December 31, 2022	8,881,831	$	115	$	199,914	$	(85,128)	$	(4,253)	$	—	$	110,648
Net income	—	—		—		—		3,588		25		3,613
Acquisition	—	—		—		—		—		994		994


Issuance of restricted stock, net of forfeitures	368,682	4		(4)		—		—		—		—

Dividends declared ($0.30 per share)	—	—		(2,397)		—		(294)		—		(2,691)
Stock-based compensation expense	—	—		3,372		—		—		—		3,372



Restricted stock returned for payment of taxes	(67,743)	—		—		(837)		—		—		(837)
Balance, June 30, 2023	9,182,770	$	119	$	200,885	$	(85,965)	$	(959)	$	1,019	$	115,099


		Common Stock, Par			Additional Paid-In Capital				Treasury Stock			Retained Earnings (Accumulated Deficit)				Total				Common Stock, Par					Additional Paid-In Capital				Treasury Stock				Retained Earnings (Accumulated Deficit)				Noncontrolling Interest				Total
		Shares	Amount								Shares								Amount
Balance, December 31, 2020		8,326,948	$	105			$	210,268						$	(77,967)			$	(1,695)		$	130,711
Balance, December 31, 2021																			Balance, December 31, 2021	8,253,491			$	107			$	195,187			$	(81,750)			$	4,362			$	—			$	117,906

Net income		—	—		—				—			6,950				6,950
Net loss																			Net loss	—			—		—				—				(328)				—				(328)
Issuance of restricted stock, net of forfeitures	Issuance of restricted stock, net of forfeitures	158,134	3		(3)				—			—				—			Issuance of restricted stock, net of forfeitures	401,203			4		(4)				—				—				—				—
Return of capital ($2.50 per share)		—	—		(20,823)				—			—				(20,823)

Dividends declared ($0.30 per share)	Dividends declared ($0.30 per share)	—	—		—				—			(2,486)				(2,486)			Dividends declared ($0.30 per share)	—			—		—				—				(2,541)				—				(2,541)
Stock-based compensation expense	Stock-based compensation expense	—	—		4,459				—			—				4,459			Stock-based compensation expense	—			—		2,901				—				—				—				2,901

Purchases of treasury stock	Purchases of treasury stock	(136,859)	—		—				(2,199)			—				(2,199)			Purchases of treasury stock	(106,077)			—		—				(1,594)				—				—				(1,594)
Restricted stock returned for payment of taxes	Restricted stock returned for payment of taxes	(51,359)	—		—				(884)			—				(884)			Restricted stock returned for payment of taxes	(37,603)			—		—				(626)				—				—				(626)
Balance, September 30, 2021		8,296,864	$	108	$	193,901			$	(81,050)		$	2,769			$	115,728
Balance, June 30, 2022																			Balance, June 30, 2022	8,511,014			$	111	$	198,084			$	(83,970)			$	1,493			$	—			$	115,718

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,					Six Months Ended June 30,
		2022		2021			2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	Net income (loss)	$	(1,503)	$	6,950	Net income (loss)	$	3,613	$	(328)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:						Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation	Depreciation	488		571		Depreciation	346		352
Amortization of intangible assets	Amortization of intangible assets	1,218		1,218		Amortization of intangible assets	2,063		811
Net change in unrealized depreciation on investments		1,822		2,425
Realized gains on private investments		—		(8,371)
Net change in unrealized (appreciation) depreciation on investments						Net change in unrealized (appreciation) depreciation on investments	(499)		1,312

Stock-based compensation expense	Stock-based compensation expense	4,410		4,459		Stock-based compensation expense	3,372		2,901
Deferred income taxes	Deferred income taxes	(252)		477		Deferred income taxes	228		(502)
Non-cash lease expense	Non-cash lease expense	800		923		Non-cash lease expense	630		490
Gain on asset disposition		—		(148)
Loss on asset disposition						Loss on asset disposition	69		—
Gain on remeasurement of lease liabilities						Gain on remeasurement of lease liabilities	(119)		—

Fair value change of contingent consideration						Fair value change of contingent consideration	(5,138)		—

Change in operating assets and liabilities:	Change in operating assets and liabilities:					Change in operating assets and liabilities:
Net sales of trading securities	Net sales of trading securities	12,149		11,191		Net sales of trading securities	(7,083)		12,370
Accounts receivable	Accounts receivable	1,862		(335)		Accounts receivable	919		1,862
Other current assets	Other current assets	(562)		(15)		Other current assets	1,141		192
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	246		1,149		Accounts payable and accrued liabilities	(796)		(314)
Compensation and benefits payable	Compensation and benefits payable	(3,622)		(430)		Compensation and benefits payable	(3,345)		(5,597)
Income taxes payable	Income taxes payable	(810)		2,191		Income taxes payable	1,490		(823)
Other liabilities	Other liabilities	(927)		(1,195)		Other liabilities	(793)		(585)
Net cash provided by operating activities		15,319		21,060
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	(3,902)		12,141
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of investments		—		9,258
Sale of property and equipment		—		501
Acquisition, net of cash acquired						Acquisition, net of cash acquired	(741)		—

Purchase of property and equipment	Purchase of property and equipment	(123)		(114)		Purchase of property and equipment	(97)		(82)
Purchase of investments		—		(15)

Net cash (used in) provided by investing activities		(123)		9,630

Net cash used in investing activities						Net cash used in investing activities	(838)		(82)
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock	Purchases of treasury stock	(2,851)		(2,164)		Purchases of treasury stock	—		(1,404)

Restricted stock returned for payment of taxes	Restricted stock returned for payment of taxes	(626)		(884)		Restricted stock returned for payment of taxes	(837)		(626)

Cash dividends paid	Cash dividends paid	(4,459)		(22,125)		Cash dividends paid	(3,053)		(3,264)
Net cash used in financing activities	Net cash used in financing activities	(7,936)		(25,173)		Net cash used in financing activities	(3,890)		(5,294)
Effect of currency rate changes on cash	Effect of currency rate changes on cash	4		(72)		Effect of currency rate changes on cash	—		4
NET CHANGE IN CASH AND CASH EQUIVALENTS	NET CHANGE IN CASH AND CASH EQUIVALENTS	7,264		5,445		NET CHANGE IN CASH AND CASH EQUIVALENTS	(8,630)		6,769
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	15,206		13,016		Cash and cash equivalents, beginning of period	23,859		15,206
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	22,470	$	18,461	Cash and cash equivalents, end of period	$	15,229	$	21,975

SUPPLEMENTAL CASH FLOW INFORMATION:	SUPPLEMENTAL CASH FLOW INFORMATION:					SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for income taxes	Cash paid during the period for income taxes	$	1,807	$	506	Cash paid during the period for income taxes	$	300	$	1,791
Accrued dividends	Accrued dividends	$	2,280	$	2,481	Accrued dividends	$	2,065	$	2,214
Accrued purchases of treasury stock						Accrued purchases of treasury stock	$	—	$	190

Additional operating lease right-of-use assets		$	1,217	$	—

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. Salient Advisors, LP ("Salient") and its majority-owned subsidiary Broadmark Asset Management LLC ("Broadmark"), (referred to hereinafter together as “Westwood Management”), and Westwood Trust.

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. 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,~~ and assets under advisement ("AUA"), and fluctuations in financial markets and in the composition of AUM and AUA impact our revenues and results of operations.

Westwood Management is registered with the Securities and Exchange Commission ("SEC") as an investment ~~advisor~~adviser ("RIA") under the Investment Advisers Act of 1940. Westwood Trust is chartered and regulated by the Texas Department of Banking.

~~Pending~~ Acquisition of Broadmark Asset Management LLC

~~On May 26, 2022,~~In January 2023 we ~~announced~~acquired an additional 32% interest in Broadmark for $1.2 million (net of cash acquired), increasing our ~~acquisition~~ownership of ~~Salient Partners' ("Salient") asset management business~~Broadmark to approximately 80%, which represents a controlling interest for an upfront payment of $35.0 million on closing, with deferred payments of up to $25.0 million over several years, subject to satisfaction of certain revenue retention and growth targets. The transaction is subject to customary closing conditions, including fund shareholder and other client approvals.

~~Salient~~financial statement consolidation purposes (the "Broadmark Acquisition"). Broadmark is a ~~real asset~~San Francisco-based RIA managing and/or sub-advising mutual funds, retail and ~~alternative investment firm that offers a suite of strategies focused on energy and infrastructure, real estate and tactical alternative investments.~~institutional separately managed accounts.

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, ~~2021.~~2022. 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.

3. BUSINESS COMBINATIONS

Broadmark

Westwood completed the Broadmark Acquisition in January 2023, giving Westwood a controlling interest and requiring an allocation of the Broadmark Acquisition purchase price. The total consideration recorded for accounting purposes consisted of $1.2 million in cash (net of cash acquired).

Prior to the Broadmark Acquisition, Westwood had a $2.4 million equity method investment in Broadmark, the fair value of which was estimated using recent market transactions. Westwood's equity method investment was derecognized without gain or loss following the Broadmark Acquisition, however there was a corresponding increase to goodwill.

The Broadmark Acquisition was accounted for using the acquisition method of accounting. Accordingly, the purchase price was allocated to tangible assets acquired and liabilities assumed based on their estimated fair values as of the

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

acquisition date. The total consideration of $1.6 million has been allocated based on valuations of acquired assets and assumed liabilities in connection with the acquisition.

The allocation of the Broadmark Acquisition purchase price was as follows (in thousands):


	(in thousands)
Cash consideration	$	1,570
Cash acquired	(402)
Total consideration, net of cash acquired	$	1,168

Fair value of Westwood's investment in Broadmark before the business combination	2,417
Fair value of noncontrolling interest in Broadmark	994

Assets
Accounts receivable	$	629
Other current assets	150
Property and equipment	11
Other long-term assets	511
Liabilities
Accounts payable and accrued liabilities	919
Total Identifiable Net Assets	$	382

Goodwill	$	4,197

3.Westwood owns approximately 80% of Broadmark's equity and accordingly we recognized $1.0 million of a noncontrolling interest in a consolidated subsidiary. Fair value of this interest was estimated using recent market transactions.

At the time of the Broadmark Acquisition, the Company believed that its expanded operational opportunities, enhanced range of investment strategies and expected realization of synergies were the primary factors that contributed to a total purchase price that resulted in the recognition of goodwill. Goodwill arising from the Broadmark acquisition is not expected to be deductible for tax purposes.

For the three months ended June 30, 2023, the Company has included $1.1 million of revenue and $0.1 million of net income related to Broadmark in its Condensed Consolidated Statements of Comprehensive Income (Loss). For the six months ended June 30, 2023, the Company has included $2.3 million of revenue and $0.1 million of net income related to Broadmark in its Condensed Consolidated Statements of Comprehensive Income (Loss).

Pro Forma Financial Information

The following unaudited pro forma results of operations for the three and six months ended June 30, 2023 and 2022 assume the Broadmark Acquisition had occurred as of January 1, 2022. This unaudited pro forma information should not be relied upon as being necessarily indicative of the historical results that would have been obtained if the Broadmark Acquisition had actually occurred on that date, nor of results that may be obtained in the future.


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Total revenues	$	21,945	$	16,725	$	44,672	$	35,121
Net income (loss)	$	2,899	$	(344)	$	3,613	$	(608)

4. 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 revenues from investment advisory fees, trust fees and other sources of revenues such as gains and losses from our seed

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

money investments into new investment strategies. The "Other, net” revenues on our Condensed Consolidated Statements of Comprehensive Income (Loss)are the unrealized gains and losses on our seed money investments, and our seed money investments are included in "Investments, at fair value" on our Condensed Consolidated Balance Sheets. Advisory and trust

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

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

~~(Unaudited)~~

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

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

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 suite of 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 many 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 ifwhen 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

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Sales taxes are excluded from revenues. The following table presents our revenue disaggregated by account type (in thousands). ~~In 2021, we recast certain prior year revenues related to performance-based fees.~~


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Advisory Fees:	Advisory Fees:									Advisory Fees:
Institutional	Institutional	$	6,247	$	7,579	$	19,928	$	23,662	Institutional	$	9,443	$	6,632	$	19,046	$	13,681
Mutual Funds	Mutual Funds	4,029		4,232		12,718		11,648		Mutual Funds	7,093		4,140		14,279		8,689
Wealth Management	Wealth Management	198		200		598		495		Wealth Management	263		208		507		400

Performance-based										Performance-based	—		—		555		—
Trust Fees	Trust Fees	5,177		5,952		16,257		18,233		Trust Fees	5,024		5,365		10,055		11,080

Other, net	Other, net	(245)		(103)		(1,276)		(375)		Other, net	122		(742)		230		(1,031)
Total revenues	Total revenues	$	15,406	$	17,860	$	48,225	$	53,663	Total revenues	$	21,945	$	15,603	$	44,672	$	32,819

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

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

~~(Unaudited)~~

We serve clients primarily in the United States, as well as in certain international locations. The following table presents our revenue disaggregated by our clients' geographical locations (in thousands):


Three Months Ended September 30, 2022		Advisory		Trust		Other		Total
Three Months Ended June 30, 2023										Three Months Ended June 30, 2023	Advisory		Trust		Other		Total

Canada	Canada	$	285	$	—	$	—	$	285	Canada	$	276	$	—	$	—	$	276

United States	United States	10,189		5,177		(245)		15,121		United States	16,523		5,024		122		21,669
Total	Total	$	10,474	$	5,177	$	(245)	$	15,406	Total	$	16,799	$	5,024	$	122	$	21,945


Three Months Ended September 30, 2021		Advisory		Trust		Other		Total
Three Months Ended June 30, 2022										Three Months Ended June 30, 2022	Advisory		Trust		Other		Total

Canada	Canada	$	293	$	—	$	—	$	293	Canada	$	303	$	—	$	—	$	303

United States	United States	11,718		5,952		(103)		17,567		United States	10,677		5,365		(742)		15,300
Total	Total	$	12,011	$	5,952	$	(103)	$	17,860	Total	$	10,980	$	5,365	$	(742)	$	15,603


Nine Months Ended September 30, 2022		Advisory		Trust		Other		Total
Six Months Ended June 30, 2023										Six Months Ended June 30, 2023	Advisory		Trust		Other		Total

Canada	Canada	$	879	$	—	$	—	$	879	Canada	$	568	$	—	$	—	$	568

United States	United States	32,365		16,257		(1,276)		47,346		United States	33,819		10,055		230		44,104
Total	Total	$	33,244	$	16,257	$	(1,276)	$	48,225	Total	$	34,387	$	10,055	$	230	$	44,672


Nine Months Ended September 30, 2021		Advisory		Trust		Performance-based		Other		Total
Six Months Ended June 30, 2022												Six Months Ended June 30, 2022	Advisory		Trust		Other		Total

Canada	Canada	$	866	$	—	$	—	$	—	$	866	Canada	$	594	$	—	$	—	$	594
Europe		638		—		262		—		900

United States	United States	32,352		18,233		1,687		(375)		51,897		United States	22,176		11,080		(1,031)		32,225
Total	Total	$	33,856	$	18,233	$	1,949	$	(375)	$	53,663	Total	$	22,770	$	11,080	$	(1,031)	$	32,819

4.5. SEGMENT REPORTING

We operate two segments: Advisory and Trust. These segments are managed separately based on the types of products and services offered and their related client bases. The Company’s segment information is prepared on the same basis that management reviews the financial information for operational decision-making purposes.

The Company’s chief operating decision maker, our Chief Executive Officer, evaluates the performance of our segments based primarily on fee revenues and Economic Earnings, a non-GAAP measurement. We define Economic Earnings as net income (loss) plus non-cash equity-based compensation expense, amortization of intangible assets and deferred taxes related to goodwill. Although depreciation on fixed assets is a non-cash expense, we do not add it back when calculating Economic Earnings because depreciation charges represent an allocation of the decline in the value of the related

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

assets that will ultimately require replacement. In addition, we do not adjust Economic Earnings for tax deductions related to restricted stock expense or amortization of intangible assets.

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~~sub-advisory relationships where Westwood provides investment management services to the Westwood Funds®, funds offered by other financial institutions and funds offered by our Trust segment and (iii) pooled investment vehicles, including collective investment

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

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

~~(Unaudited)~~

trusts. Westwood Management, ~~provides~~Salient and Broadmark provide investment advisory services to similar clients and isare 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)	(in thousands)	Advisory		Trust		Westwood Holdings		Eliminations		Consolidated		(in thousands)	Advisory		Trust		Westwood Holdings		Eliminations		Consolidated
Three Months Ended September 30, 2022
Three Months Ended June 30, 2023												Three Months Ended June 30, 2023
Net fee revenues from external sources	Net fee revenues from external sources	$	10,474	$	5,177	$	—	$	—	$	15,651	Net fee revenues from external sources	$	16,799	$	5,024	$	—	$	—	$	21,823
Net intersegment revenues	Net intersegment revenues	450		83		—		(533)		—		Net intersegment revenues	1,587		77		—		(1,664)		—

Other, net	Other, net	(245)		—		—		—		(245)		Other, net	122		—		—		—		122
Total revenues	Total revenues	$	10,679	$	5,260	$	—	$	(533)	$	15,406	Total revenues	$	18,508	$	5,101	$	—	$	(1,664)	$	21,945

September 30, 2022 segment assets		$	227,781	$	48,600	$	28,676	$	(174,070)	$	130,987
September 30, 2022 segment goodwill		$	—	$	16,401	$	—	$	—	$	16,401
June 30, 2023 segment assets												June 30, 2023 segment assets	$	268,184	$	44,412	$	14,831	$	(185,322)	$	142,105
June 30, 2023 segment goodwill												June 30, 2023 segment goodwill	$	23,100	$	16,401	$	—	$	—	$	39,501

Three Months Ended September 30, 2021
Three Months Ended June 30, 2022												Three Months Ended June 30, 2022
Net fee revenues from external sources	Net fee revenues from external sources	$	12,011	$	5,952	$	—	$	—	$	17,963	Net fee revenues from external sources	$	10,980	$	5,365	$	—	$	—	$	16,345
Net intersegment revenues	Net intersegment revenues	576		93		—		(669)		—		Net intersegment revenues	536		88		—		(624)		—

Other, net	Other, net	(103)		—		—		—		(103)		Other, net	(742)		—		—		—		(742)
Total revenues	Total revenues	$	12,484	$	6,045	$	—	$	(669)	$	17,860	Total revenues	$	10,774	$	5,453	$	—	$	(624)	$	15,603

September 30, 2021 segment assets		$	215,903	$	57,503	$	12,261	$	(150,405)	$	135,262
September 30, 2021 segment goodwill		$	—	$	16,401	$	—	$	—	$	16,401
June 30, 2022 segment assets												June 30, 2022 segment assets	$	223,773	$	52,105	$	28,586	$	(174,539)	$	129,925
June 30, 2022 segment goodwill												June 30, 2022 segment goodwill	$	—	$	16,401	$	—	$	—	$	16,401

(in thousands) Advisory Trust Westwood Holdings Eliminations Consolidated
Nine Months Ended September 30, 2022
Net fee revenues from external sources $ 33,244 $ 16,257 $ — $ — $ 49,501
Net intersegment revenues 1,563 261 — (1,824) —
Other, net (1,276) — — — (1,276)
Total revenues $ 33,531 $ 16,518 $ — $ (1,824) $ 48,225
Nine Months Ended September 30, 2021
Net fee revenues from external sources $ 35,805 $ 18,233 $ — $ — $ 54,038
Net intersegment revenues 1,876 261 — (2,137) —
Other, net (375) — — — (375)
Total revenues $ 37,306 $ 18,494 $ — $ (2,137) $ 53,663

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)


(in thousands)	Advisory		Trust		Westwood Holdings		Eliminations		Consolidated
Six Months Ended June 30, 2023
Net fee revenues from external sources	$	34,387	$	10,055	$	—	$	—	$	44,442
Net intersegment revenues	3,249		154		—		(3,403)		—

Other, net	230		—		—		—		230
Total revenues	$	37,866	$	10,209	$	—	$	(3,403)	$	44,672

Six Months Ended June 30, 2022
Net fee revenues from external sources	$	22,770	$	11,080	$	—	$	—	$	33,850
Net intersegment revenues	1,113		178		—		(1,291)		—

Other, net	(1,031)		—		—		—		(1,031)
Total revenues	$	22,852	$	11,258	$	—	$	(1,291)	$	32,819

5.6. INVESTMENTS

The Company has made strategic investments to enhance the services we provide to our customers.Each of these investments is discussed below.

InvestCloud. 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.

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

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

~~(Unaudited)~~

Following InvestCloud's recapitalization in the first quarter of 2021, ~~we recorded a realized gain of approximately $8.3 million when our originally purchased shares were redeemed. Following this redemption~~ we re-invested $4.4 million of our proceeds into newly-issued shares of InvestCloud.

Charis. Our investment in Charis ~~the parent company of Westwood Private Bank ("Charis"), is~~was included in “Noncurrent investments at fair value” on our December 31, 2022 Condensed Consolidated Balance Sheets and iswas measured at fair value on a recurring basis. On April 3, 2023, Charis was acquired by Vista Bank ("Vista") in a transaction in which the Company traded its shares in Charis for shares in Vista.

InVista. Our investment in Vista 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 ~~nine months ended September 30, 2022, we reported unrealized losses~~measurement alternative of ~~approximately $0.6 million following fair value decreases~~cost minus impairment, if any, plus or minus changes resulting from ~~market transactions. In the nine months ended September 30, 2021, we recorded unrealized gains of approximately $0.7 million, following fair value increases resulting from market transactions.~~observable price changes.

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

Zarvona Energy Fund GP, L.P. and Zarvona Energy Fund II-A, L.P. These investments represent ownership interests in non-controlled partnerships. These investments are included in “Equity method investments” on our Condensed Consolidated Balance Sheets and are measured based on our share of the net earnings or losses of the investees.

Broadmark Asset Management LLC. This investment represented a 47.5% ownership interest in a non-controlled corporation prior to the Broadmark Acquisition in 2023. This investment is included in “Equity method investments” on our Condensed Consolidated Balance Sheets at December 31, 2022. In January 2023, as a result of the Broadmark Acquisition, we acquired additional equity interests in Broadmark and accounted for that investment as a consolidated subsidiary.

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

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

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


		Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2022:
June 30, 2023:										June 30, 2023:
U.S. Government and Government agency obligations										U.S. Government and Government agency obligations	$	14,776	$	—	$	(256)	$	14,520
Money market funds										Money market funds	4,194		111		—		4,305
Equity funds										Equity funds	3,639		81		(274)		3,446
Equities										Equities	490		—		(13)		477
Exchange-traded bond funds										Exchange-traded bond funds	160		—		(14)		146
Total trading securities										Total trading securities	23,259		192		(557)		22,894
Private investment fund										Private investment fund	265		7		(13)		259

Total investments carried at fair value										Total investments carried at fair value	$	23,524	$	199	$	(570)	$	23,153

December 31, 2022:										December 31, 2022:
U.S. Government and Government agency obligations	U.S. Government and Government agency obligations	$	33,931	$	—	$	(557)	$	33,374	U.S. Government and Government agency obligations	$	5,728	$	—	$	(389)	$	5,339
Money market funds	Money market funds	12,760		128		—		12,888		Money market funds	4,093		111		—		4,204
Equity funds	Equity funds	4,861		—		(779)		4,082		Equity funds	4,863		32		(446)		4,449
Equities	Equities	1,276		—		(188)		1,088		Equities	1,278		—		(65)		1,213
Exchange-traded bond funds	Exchange-traded bond funds	155		—		(23)		132		Exchange-traded bond funds	159		—		(22)		137
Total trading securities	Total trading securities	52,983		128		(1,547)		51,564		Total trading securities	16,121		143		(922)		15,342
Private investment fund	Private investment fund	265		—		(40)		225		Private investment fund	265		—		(30)		235
Private equity	Private equity	3,420		356		—		3,776		Private equity	3,475		—		(683)		2,792
Total investments carried at fair value	Total investments carried at fair value	$	56,668	$	484	$	(1,587)	$	55,565	Total investments carried at fair value	$	19,861	$	143	$	(1,635)	$	18,369

December 31, 2021:
U.S. Government and Government agency obligations		$	39,926	$	—	$	(491)	$	39,435
Money market funds		19,661		—		—		19,661
Equity funds		4,135		158		(7)		4,286
Equities		1,296		206		—		1,502
Exchange-traded bond funds		140		—		—		140
Total trading securities		65,158		364		(498)		65,024
Private investment fund		265		—		(121)		144
Private equity		3,420		949		—		4,369
Total investments carried at fair value		$	68,843	$	1,313	$	(619)	$	69,537

The investments shown below are included in our Condensed Consolidated Balance Sheets as Equity method investments, as follows (in thousands):


	June 30, 2023				December 31, 2022
	Carrying value		Ownership		Carrying value		Ownership
Zarvona Energy Fund GP, L.P.	$	3,461	50.0	%	$	3,438	50.0	%
Zarvona Energy Fund II-A, L.P.	700		0.5	%	700		0.5	%
Broadmark Asset Management LLC	—		—	%	2,417		47.5	%
Salient MLP Total Return Fund, L.P.	11		—	%	11		—	%
Salient MLP Total Return TE Fund, L.P.	8		0.2	%	8		0.2	%
Total	$	4,180			$	6,574

6.7. FAIR VALUE MEASUREMENTS

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

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

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

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

Our strategic investments in InvestCloud and Vista, discussed in Note 6 “Investments,” are excluded from the recurring fair value table shown below because we have elected to apply the measurement alternative for those investments=.

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

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.

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			Level 1		Level 2		Level 3		Investments Measured at NAV (1)		Total
As of September 30, 2022:
As of June 30, 2023:												As of June 30, 2023:
Investments in trading securities												Investments in trading securities	$	22,894	$	—	$	—	$	—	$	22,894
Private investment fund												Private investment fund	—		—		—		259		259

Total assets measured at fair value												Total assets measured at fair value	$	22,894	$	—	$	—	$	259	$	23,153
Salient Acquisition contingent consideration												Salient Acquisition contingent consideration	$	—	$	—	$	7,763	$	—	$	7,763
Total liabilities measured at fair value												Total liabilities measured at fair value	$	—	$	—	$	7,763	$	—	$	7,763

As of December 31, 2022:												As of December 31, 2022:
Investments in trading securities	Investments in trading securities	$	51,564	$	—	$	—	$	—	$	51,564	Investments in trading securities	$	15,342	$	—	$	—	$	—	$	15,342
Private investment fund	Private investment fund	—		—		—		225		225		Private investment fund	—		—		—		235		235
Private equity	Private equity	—		—		3,776		—		3,776		Private equity	—		—		2,792		—		2,792
Total assets measured at fair value	Total assets measured at fair value	$	51,564	$	—	$	3,776	$	225	$	55,565	Total assets measured at fair value	$	15,342	$	—	$	2,792	$	235	$	18,369

As of December 31, 2021:
Investments in trading securities		$	65,024	$	—	$	—	$	—	$	65,024
Private investment fund		—		—		—		144		144
Private equity		—		—		4,369		—		4,369
Total assets measured at fair value		$	65,024	$	—	$	4,369	$	144	$	69,537

(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.
Salient Acquisition contingent consideration												Salient Acquisition contingent consideration	$	—	$	—	$	12,901	$	—	$	12,901
Total liabilities measured at fair value												Total liabilities measured at fair value	$	—	$	—	$	12,901	$	—	$	12,901
(1) Comprised of certain investments measured at fair value using 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.												(1) Comprised of certain investments measured at fair value using 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~~Prior to our exchange of shares in Charis for shares in Vista, our investment in Charis iswas included within Level 3 of the fair value hierarchy as we ~~value that investment~~valued it utilizing inputs not observable in the market. ~~Our~~Historically, our investment iswas measured at fair value on a recurring basis using a market approach based on either a price to tangible book value multiple range ~~that is~~ determined to be reasonable in the current environment, or on market transactions. ~~Management believes this valuation methodology is consistent with~~On April 3, 2023, Charis was acquired by Vista in a transaction in which the ~~banking industry and we reevaluate our methodology and inputs on a quarterly basis.~~Company exchanged its shares in Charis for shares in Vista.

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)									Fair Value using Significant Unobservable Inputs (Level 3)
		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Beginning balance	Beginning balance	$	4,024	$	4,087	$	4,369	$	3,431	Beginning balance	$	2,792	$	4,326	$	2,792	$	4,369

Exchange of shares										Exchange of shares	(2,792)		—		(2,792)		—

Unrealized gains (losses) on private investments	Unrealized gains (losses) on private investments	(248)		(13)		(593)		643		Unrealized gains (losses) on private investments	—		(302)		—		(345)
Ending balance	Ending balance	$	3,776	$	4,074	$	3,776	$	4,074	Ending balance	$	—	$	4,024	$	—	$	4,024

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


	Fair Value using Significant Unobservable Inputs (Level 3)
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Beginning balance	$	11,841	$	—	$	12,901	$	—



Total (gains) losses included in earnings	(4,078)		—		(5,138)		—
Ending balance	$	7,763	$	—	$	7,763	$	—

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The ~~September~~June 30, ~~2022 private investment~~2023 contingent consideration fair value of ~~$3.8~~$7.8 million was valued based upon updated revenue growth projections following AUM outflows in 2023 and current volatility inputs. The fair value of contingent consideration related to both the revenue retention earn-out and the growth earn-out is measured using the Monte Carlo simulation model, which considered assumptions including revenue growth projections, revenue volatility, risk free rates and discount rates. The projected contingent payment is discounted back to the current period using a ~~market approach based on a price to tangible book value multiple, with unobservable book value multiples ranging from $1.47 to $1.99 per share, with a weighted average~~discounted cash flow model. Increases or decreases in projected revenues, probabilities of ~~$1.66 per share. Significant increases (decreases)~~payment, discount rates, projected payment dates and other inputs may result in ~~book value multiples in isolation would have resulted in a~~ significantly higher ~~(lower)~~or lower fair value ~~measurement.~~measurements.

The following table represents the range of the unobservable inputs utilized in the fair value measurement of the contingent consideration classified as level 3:


		Range
Earn-out	Unobservable Input	Low	High	Weighted Average Rate
Revenue Retention earn-out	Discount rate	13.0%	13.5%	13.25%
	Volatility	15.0%	25.0%	20.00%

Growth earn-out	Discount rate	13.0%	13.5%	13.25%
	Volatility	15.0%	25.0%	20.00%

7.8. INCOME TAXES

Our effective income tax rate differed from the 21% statutory rate for the three and ~~nine~~six months ended ~~2022~~2023 and ~~2021~~2022 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.

8.9. EARNINGS (LOSS) PER SHARE

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

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

~~(Unaudited)~~

Basic earnings (loss) per common share is computed by dividing ~~net~~comprehensive income (loss) ~~available~~attributable to ~~common stockholders~~Westwood Holdings Group, Inc. by the weighted average number of shares outstanding for the applicable period. Diluted earnings (loss) per share is computed based on the weighted average number of shares outstanding plus the effect of any dilutive shares of restricted stock granted to employees and non-employee directors.

There were approximately ~~150,000~~106,000 and ~~40,000~~89,000 anti-dilutive restricted shares outstanding for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021,~~2022, respectively. There were approximately 108,000 and ~~138,000~~87,000 anti-dilutive restricted shares outstanding for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021,~~2022, 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,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Net income (loss)		$	(1,175)	$	1,879	$	(1,503)	$	6,950

Comprehensive income (loss) attributable to Westwood Holdings Group, Inc.										Comprehensive income (loss) attributable to Westwood Holdings Group, Inc.	$	2,895	$	(378)	$	3,588	$	(328)
Weighted average shares outstanding - basic	Weighted average shares outstanding - basic	7,794,060		7,887,259		7,867,555		7,886,359		Weighted average shares outstanding - basic	7,991,228		7,944,212		7,922,954		7,904,911
Dilutive potential shares from unvested restricted shares	Dilutive potential shares from unvested restricted shares	—		68,822		—		47,501		Dilutive potential shares from unvested restricted shares	140,105		—		127,344		—

Weighted average shares outstanding - diluted	Weighted average shares outstanding - diluted	7,794,060		7,956,081		7,867,555		7,933,860		Weighted average shares outstanding - diluted	8,131,333		7,944,212		8,050,298		7,904,911

Earnings (loss) per share:	Earnings (loss) per share:									Earnings (loss) per share:
Basic	Basic	$	(0.15)	$	0.24	$	(0.19)	$	0.88	Basic	$	0.36	$	(0.05)	$	0.45	$	(0.04)
Diluted	Diluted	$	(0.15)	$	0.24	$	(0.19)	$	0.88	Diluted	$	0.36	$	(0.05)	$	0.45	$	(0.04)

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

10. 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~~reviewed for impairment ~~at least annually.~~annually, or between annual assessments if a triggering event occurs or circumstances change that would more likely than not result in the fair value of a reporting unit below its carrying amount. We completed our most recent annual goodwill impairment assessment during the third quarter of 2022 and determined that no goodwill impairment related to the Trust segment was required. There was no goodwill impairment ~~in the Trust segment~~ during the three and six months ended ~~September~~June 30, 2023 or June 30, 2022.

Changes in goodwill were as follows (in thousands):


	Three Months Ended		Six Months Ended
	June 30, 2023
Beginning balance	$	39,929	$	35,732
Broadmark Acquisition1	—		4,197
Salient Acquisition Adjustment2	(428)		(428)
Ending balance	$	39,501	$	39,501

1 The $4.2 million of acquired goodwill is attributable to the Advisory segment.

2 Represents subsequent purchase price adjustments for the 2022 ~~or September 30, 2021.~~Salient Acquisition.

Other Intangible Assets

Our intangible assets represent the acquisition date fair value of acquired client relationships, trade names, non-compete agreements and internally developed software and are reflected net of amortization. In valuing these assets, we made significant estimates regarding their useful lives, growth rates and potential attrition. We periodically review intangible assets for events or circumstances that would indicate impairment. No intangible asset impairments were recorded during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 or ~~September~~June 30, ~~2021.~~2022.

~~10.~~11. LEASES

~~In the third quarter of 2022 we recorded additional right-of-use assets of $1.2 million as we have expanded our Houston, Texas office space and extended one of our leases.~~ As of ~~September~~June 30, ~~2022~~2023 there have been no ~~other~~ material changes outside the ordinary course of business to our leases since December 31, ~~2021.~~2022. For information regarding our leases, refer to Note 1112 “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, ~~2021.~~2022.

~~11.~~12. STOCKHOLDERS' EQUITY

Share Repurchase Program

As of ~~September~~June 30, ~~2022, we have~~2023, there are $1.9 million of shares that may yet be repurchased under our plan.

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

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

~~(Unaudited)~~

During the three and six months ended June 30, 2023, the Company did not repurchase any shares of our common stock. During the three months ended ~~September~~June 30, 2022, the Company repurchased ~~99,444~~57,984 shares of our common stock at an average price of ~~$12.64~~$14.29 per share, including commissions, for an aggregate purchase price of ~~$1.3~~$0.8 million under our share repurchase plan. During the ~~three~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company repurchased ~~25,502~~70,186 shares of our common stock at an average price of ~~$19.57~~$14.65 per share, including commissions, for an aggregate purchase price of ~~$0.5~~$1.0 million under our share repurchase plan.

During the nine months ended September 30, 2022, the Company repurchased 169,630 shares of our common stock at an average price of $13.47 per share, including commissions, for an aggregate purchase price of $2.3 million under our share repurchase plan. During the nine months ended September 30, 2021, the Company repurchased 136,859 shares of our common stock at an average price of $16.07 per share, including commissions, for an aggregate purchase price of $2.2 million under our share repurchase plan.

~~Open Market Repurchases~~

During the nine months ended September 30, 2022, the Company repurchased 35,891 shares of our common stock on the open market at an average price of $15.75 per share, including commissions, for an aggregate purchase price of $0.6 million.

~~12.~~13. 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, Vista, Zarvona Energy Fund GP and ~~Charis~~Zarvona Energy Fund II-A as discussed in Note 56 “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 and Zarvona Energy Fund II-A were VIEs, as the at-risk equity holders do not have the ability to direct the activities that most significantly impact the entities' economic

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

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. As we do not qualify as primary beneficiaries for those entities, we have not consolidated our investments in those entities for the periods ending June 30, 2023 and December 31, 2022.

Based on our analyses, we determined the Westwood Funds®, InvestCloud, Vista and ~~Private Equity~~Zarvona Energy Fund GP (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~~rights and are VOEs. As we do not own controlling financial interests in those entities, we have not consolidated our investments in ~~these~~those entities for the periods ~~ended September~~ending June 30, ~~2022~~2023 and December 31, ~~2021, we have not consolidated the CTFs or Private Funds under the VIE method or the Westwood Funds® or Private Equity under the VOE method.~~2022.

We recognized fee revenue from the Westwood VIEs and Westwood VOEs as follows (in millions):
Three Months Ended Nine Months Ended
September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
Fee Revenues $ 4.9 $ 5.5 $ 15.7 $ 15.8


	Three Months Ended				Six Months Ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Fee Revenues	$	7.9	$	5.1	$	15.9	$	10.8

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

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

~~(Unaudited)~~

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


		As of September 30, 2022							As of June 30, 2023
		Assets Under Management		Corporate Investment		Amount at Risk			Assets Under Management		Corporate Investment		Amount at Risk
VIEs/VOEs:	VIEs/VOEs:							VIEs/VOEs:
Westwood Funds®	Westwood Funds®	$	2,428	$	—	$	—	Westwood Funds®	$	4,169	$	—	$	—
Common Trust Funds	Common Trust Funds	674		—		—		Common Trust Funds	634		—		—

Private Funds	Private Funds	11		0.2		0.2		Private Funds	13		11.4		11.4
Private Equity	Private Equity	—		8.2		8.2		Private Equity	—		0.3		0.3
All other assets:	All other assets:							All other assets:
Wealth Management	Wealth Management	2,843						Wealth Management	3,204
Institutional	Institutional	5,510						Institutional	6,969
Total Assets Under Management	Total Assets Under Management	$	11,466					Total Assets Under Management	$	14,989

~~13.~~14. RELATED PARTY TRANSACTIONS

The Company engages in transactions with its affiliates in the ordinary course of business. Westwood Management provides investment advisory services to the Westwood Funds®. Under the terms of the investment advisory agreements, the Company earns quarterly fees paid by clients of the fund or by the funds directly. The fees are based on negotiated fee schedules applied to AUM. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021,~~2022, the Company earned immaterial fees from the affiliated funds.

One of our directors serves as a consultant to the Company under a consulting agreement. We recorded immaterial expenses related to this agreement for ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021.~~2022.

~~14.~~15. SUBSEQUENT EVENTS

~~Dividends~~Dividend Declared

On ~~October 26, 2022,~~August 2, 2023, the Board of Directors declared a quarterly cash dividend of $0.15 per share of common stock payable on ~~January 3,~~October 2, 2023 to stockholders of record on ~~December 2, 2022.~~September 1, 2023.

1416

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, ~~2021~~2022 and those risks set forth below:

•the composition and market value of our ~~AUM;~~AUM and AUA;

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

•risks associated with actions of activist stockholders;

•distributions to our common stockholders have included and may in the future include a return of capital;

•inclusion of foreign company investments in our AUM;

•regulations adversely affecting the financial services industry;

•our ability to maintain effective cyber security;

•litigation risks;

•our ability to develop and market new investment strategies successfully;

•our reputation and our relationships with current and potential customers;

•our ability to attract and retain qualified personnel;

•our ability to perform operational tasks;

•our ability to select and oversee third-party vendors;

•our dependence on the operations and funds of our subsidiaries;

•our ability to maintain effective information systems;

•our ability to prevent misuse of assets and information in the possession of our employees and third-party vendors, which could damage our reputation and result in costly litigation and liability for our clients and us;

•our stock is thinly traded and may be subject to volatility;

•~~our organizational documents contain provisions that may prevent or deter another group from paying a premium over the market price to our stockholders to acquire our stock;~~

•competition in the investment management industry;

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

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

•we have made and may continue to make business combinations as a part of our business strategy, which may present certain risks and uncertainties;

•our relationships with investment consulting firms;

•~~the continuing effects 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., Salient Advisors, LP and Broadmark Asset Management LLC (each of which is an SEC-registered investment advisor ("RIA") and referred to hereinafter together as “Westwood Management”) 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. Westwood Trust provides trust and custodial services and participation in common trust funds to institutions and high net worth individuals.

In January 2023 we acquired an additional 32% interest in Broadmark for $1.6 million, increasing our ownership of Broadmark to approximately 80%. Broadmark's tactical absolute return strategies offer us an established client base and provide future growth potential. Prior to the Broadmark acquisition, we had a $2.4 million equity method investment in Broadmark, which we derecognized upon acquiring a controlling interest in January 2023.

Our revenues are generally derived from fees based on a percentage of ~~AUM.~~AUM and AUA, and Westwood Management and Westwood Trust collectively had AUM of approximately $15.0 billion and AUA of approximately $1.2 billion at June 30, 2023. We have established a track record of delivering competitive, risk-adjusted returns for our clients.

~~Pending Acquisition~~With respect to most of our client AUM, we utilize a “value” investment style focused on achieving superior long-term, risk-adjusted returns by investing in companies with high levels of free cash flow, improving returns on equity and strengthening balance sheets that are well positioned for growth but whose value is not fully recognized in the marketplace. This investment approach is designed to limit downside during unfavorable periods and provide superior real returns over the long term. Our investment teams have significant industry experience, with an average of over twenty years of investment experience among members.

~~On May 26, 2022, we announced our acquisition~~We have built a foundation in terms of ~~Salient's asset management~~personnel and infrastructure to support a much larger business for an upfront payment of $35.0 million on closing, with deferred payments of up to $25.0 million over several years, subject to satisfaction of certain revenue retention and growth targets. The transaction is subject to customary closing conditions, including fund shareholder and other client approvals, and we ~~currently expect to close~~have developed investment strategies that we believe will be sought after within our target institutional, wealth management and intermediary markets. Developing new products and growing the ~~transaction~~organization has resulted in our incurring expenses that, in some cases, have not yet generated significant offsetting revenues. We believe that investors will recognize the ~~fourth quarter of 2022.~~

~~Salient~~potential for new revenue streams inherent in these products and services; however, there is ~~a real asset and alternative investment firm~~no guarantee that offers a suite of strategies focused on energy and infrastructure, real estate and tactical alternative investments. The acquisition would add complementary, highly differentiated investment capabilities to us, and expand and enhance our multi-asset program, and we also foresee many opportunities to collaborate on new strategies.they will occur.

Revenues

We derive our revenues from investment advisory fees, trust fees and other revenues. Our advisory fees are generated by Westwood Management, which manages client accounts under investment advisory and ~~subadvisory~~sub-advisory agreements. Advisory fees are typically calculated based on a percentage of AUM and AUA 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 ~~gains and losses~~income from ~~our~~ seed money investments into new investment strategies.

Employee ~~compensation~~Compensation and ~~benefits~~Benefits

Employee compensation and benefits ~~expenses~~costs generally consist of salaries, sales commissions, incentive compensation, ~~equity-based~~stock-based compensation expense and benefits.

Sales and ~~marketing~~Marketing

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

Westwood ~~mutual funds~~Mutual Funds

Expenses for Westwood mutual funds ~~expenses~~ relate to our marketing, distribution and administration of the Westwood Funds®.

Information ~~technology~~Technology

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

Professional ~~services~~Services

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

General and ~~administrative~~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.

~~Realized gains on private investments~~(Gain) loss from change in fair value of contingent consideration

~~Realized gains on private investments includes amounts by which the net proceeds~~(Gain) loss from ~~the sale or redemption~~change in fair value of contingent consideration consists of fair value adjustments related to contingent consideration from our ~~private investments exceeded costs.~~2022 acquisition of Salient.

Acquisition Expense

Acquisition expense consists of costs related to our 2022 acquisition of Salient.

Net change in unrealized appreciation (depreciation) on ~~private investments~~Private Investments

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

~~Net investment income~~Investment Income

~~Net investment~~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 offices.

Firm-wide Assets Under Management

Firm-wide assets under management of $16.2 billion at June 30, 2023 consisted of $15.0 billion of AUM ~~decreased $2.3~~and $1.2 billion of AUA.

AUM increased $2.9 billion to ~~$11.5~~$15.0 billion at ~~September~~June 30, ~~2022~~2023 compared with ~~$13.8~~$12.1 billion at ~~September~~June 30, ~~2021.~~2022. The average of beginning and ending AUM for the ~~third~~second quarter of ~~2022~~2023 was ~~$11.8~~$15.0 billion compared to ~~$14.1~~$13.0 billion for the ~~third~~second quarter of ~~2021.~~2022.

The following table displays AUM as of ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (in millions):


		As of September 30,							As of June 30,
		2022		2021		Change			2023		2022		Change
Institutional(1)	Institutional(1)	$	5,510	$	6,701	(18)	%	Institutional(1)	$	6,969	$	5,889	18	%
Wealth Management(2)	Wealth Management(2)	3,528		4,236		(17)		Wealth Management(2)	3,851		3,676		5
Mutual Funds(3)	Mutual Funds(3)	2,428		2,863		(15)		Mutual Funds(3)	4,169		2,570		62
Total AUM(4)	Total AUM(4)	$	11,466	$	13,800	(17)	%	Total AUM(4)	$	14,989	$	12,135	24	%

(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~~sub-advisory relationships where Westwood provides investment management services for funds offered by other financial institutions; (iii) pooled investment vehicles, including collective investment trusts; and (iv) managed account relationships with brokerage firms and other ~~registered investment advisors~~RIAs that offer Westwood products to their customers.

(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~~sub-advisory services are provided for the common trust funds by Westwood Management and ~~external~~ unaffiliated ~~subadvisors.~~sub-advisors. For certain assets in this category Westwood Trust ~~currently~~ provides limited custodial 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, institutional investors and wealth management accounts.

(4)AUM excludes ~~$298 million~~$1.2 billion and ~~$283~~$246 million of ~~assets under advisement (“AUA”)~~AUA as of ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, related to our model portfolios for which we ~~provided consulting~~provide investment advice ~~but for which we did not have direct discretionary~~on a fee basis without having investment management authority.

Roll-Forward of Assets Under Management

1720


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	(in millions)	2022		2021		2022		2021		(in millions)	2023		2022		2023		2022
Institutional	Institutional									Institutional
Beginning of period assets		$	5,889	$	7,123	$	7,037	$	6,567
Beginning of period assets*										Beginning of period assets*	$	7,039	$	6,716	$	6,968	$	7,037
Inflows	Inflows	60		64		175		1,797		Inflows	109		36		239		115
Outflows	Outflows	(216)		(401)		(476)		(779)		Outflows	(415)		(105)		(576)		(260)
Net client flows	Net client flows	(156)		(337)		(301)		1,018		Net client flows	(306)		(69)		(337)		(145)
Global Convertibles transition		—		—		—		(1,593)

Market appreciation (depreciation)	Market appreciation (depreciation)	(223)		(85)		(1,226)		709		Market appreciation (depreciation)	236		(758)		338		(1,003)
Net change	Net change	(379)		(422)		(1,527)		134		Net change	(70)		(827)		1		(1,148)
End of period assets	End of period assets	$	5,510	$	6,701	$	5,510	$	6,701	End of period assets	$	6,969	$	5,889	$	6,969	$	5,889

Wealth Management	Wealth Management									Wealth Management
Beginning of period assets	Beginning of period assets	$	3,676	$	4,427	$	4,420	$	4,335	Beginning of period assets	$	3,765	$	4,181	$	3,666	$	4,420
Inflows	Inflows	145		98		341		241		Inflows	88		87		178		196
Outflows	Outflows	(177)		(238)		(466)		(655)		Outflows	(146)		(143)		(276)		(289)
Net client flows	Net client flows	(32)		(140)		(125)		(414)		Net client flows	(58)		(56)		(98)		(93)
Market appreciation (depreciation)	Market appreciation (depreciation)	(116)		(51)		(767)		315		Market appreciation (depreciation)	144		(449)		283		(651)
Net change	Net change	(148)		(191)		(892)		(99)		Net change	86		(505)		185		(744)
End of period assets	End of period assets	$	3,528	$	4,236	$	3,528	$	4,236	End of period assets	$	3,851	$	3,676	$	3,851	$	3,676

Mutual Funds	Mutual Funds									Mutual Funds
Beginning of period assets		$	2,570	$	2,857	$	3,046	$	2,143
Beginning of period assets*										Beginning of period assets*	$	4,147	$	2,957	$	4,145	$	3,046
Inflows	Inflows	182		248		592		1,004		Inflows	218		142		522		410
Outflows	Outflows	(219)		(194)		(637)		(565)		Outflows	(336)		(200)		(714)		(418)
Net client flows	Net client flows	(37)		54		(45)		439		Net client flows	(118)		(58)		(192)		(8)
Market appreciation (depreciation)	Market appreciation (depreciation)	(105)		(48)		(573)		281		Market appreciation (depreciation)	140		(329)		216		(468)
Net change	Net change	(142)		6		(618)		720		Net change	22		(387)		24		(476)
End of period assets	End of period assets	$	2,428	$	2,863	$	2,428	$	2,863	End of period assets	$	4,169	$	2,570	$	4,169	$	2,570

Total AUM	Total AUM									Total AUM
Beginning of period assets	Beginning of period assets	$	12,135	$	14,407	$	14,503	$	13,045	Beginning of period assets	$	14,951	$	13,854	$	14,779	$	14,503
Inflows	Inflows	387		410		1,108		3,042		Inflows	415		265		939		721
Outflows	Outflows	(612)		(833)		(1,579)		(1,999)		Outflows	(897)		(448)		(1,566)		(967)
Net client flows	Net client flows	(225)		(423)		(471)		1,043		Net client flows	(482)		(183)		(627)		(246)
Global Convertibles transition		—		—		—		(1,593)

Market appreciation (depreciation)	Market appreciation (depreciation)	(444)		(184)		(2,566)		1,305		Market appreciation (depreciation)	520		(1,536)		837		(2,122)
Net change	Net change	(669)		(607)		(3,037)		755		Net change	38		(1,719)		210		(2,368)
End of period assets	End of period assets	$	11,466	$	13,800	$	11,466	$	13,800	End of period assets	$	14,989	$	12,135	$	14,989	$	12,135

* Certain assets under management acquired from Salient were reclassified from Mutual Funds to Institutional as of December 31, 2022 to be consistent with the classification of existing assets.

Three months ended ~~September~~June 30, ~~2022~~2023 compared to the three months ended ~~September~~June 30, ~~2021~~2022

The ~~$0.7~~change in AUM for the three months ended June 30, 2023 was due to market appreciation of $0.5 billion and net outflows of $0.5 billion. Net outflows were primarily related to our Income Opportunity strategy.

The $1.7 billion decrease in AUM for the three months ended ~~September~~June 30, 2022 was due to market depreciation of ~~$0.4~~$1.5 billion and net outflows of $0.2 billion. Net outflows were primarily related to our SmallCap strategy.

Six months ended June 30, 2023 compared to the six months ended June 30, 2022

The $0.2 billion increase in AUM for the six months ended June 30, 2023 was due to market appreciation of $0.8 billion and net outflows of $0.6 billion. Net outflows were primarily related to our Income Opportunity and Quality AllCap strategies.

The $2.4 billion decrease in AUM for the six months ended June 30, 2022 was due to market depreciation of $2.1 billion and net outflows of $0.2 billion. Net outflows were primarily related to our ~~LargeCap Value strategy.~~SmallCap and Enhanced Balance strategies.

~~The $0.6 billion decrease~~

Roll-Forward of Assets Under Advisement

AUA has historically been disclosed in ~~AUM for the three months ended September 30, 2021 was~~totality due to ~~net outflows of $0.4 billion and market depreciation of $0.2 billion. Net outflows were primarily related~~its relative insignificance to our ~~LargeCap Value and SmallCap Value strategies.~~business. However, following our 2022 acquisition of Salient's asset management business, AUA is now a more meaningful component of our business. Accordingly, we will present further AUA details going forward:

~~Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021~~

The $3.0 billion decrease in AUM for the nine months ended September 30, 2022 was due to market depreciation of $2.6 billion and net outflows of $0.5 billion. Net outflows were primarily related to our LargeCap Value and Income Opportunity strategies.

The $0.8 billion increase in AUM for the nine months ended September 30, 2021 was due to market appreciation of $1.3 billion offset by net outflows of $0.6 billion. Net outflows were primarily related 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 reverted to Aviva Investors, the firm from which they had 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.


	Three Months Ended June 30,		Six Months Ended June 30,
(in millions)	2023		2023
Assets Under Advisement
Beginning of period assets	$	1,180	$	1,255
Inflows	38		84
Outflows	(94)		(189)
Net client flows	(56)		(105)
Market appreciation (depreciation)	46		20
Net change	(10)		(85)
End of period assets	$	1,170	$	1,170

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,
2022 2021 Change 2022 2021 Change
Revenues:
Advisory fees: asset-based $ 10,474 $ 12,011 (13) % $ 33,244 $ 33,846 (2) %
Advisory fees: performance-based — — NM — 1,959 (100)
Trust fees: asset-based 5,177 5,952 (13) 16,257 18,233 (11)
Other, net (245) (103) 138 (1,276) (375) 240
Total revenues 15,406 17,860 (14) 48,225 53,663 (10)
Expenses:
Employee compensation and benefits 9,526 10,268 (7) 28,993 32,053 (10)
Sales and marketing 335 292 15 1,326 892 49
Westwood mutual funds 615 814 (24) 1,812 1,573 15
Information technology 2,170 1,937 12 5,934 6,190 (4)
Professional services 1,660 726 129 4,655 3,471 34
General and administrative 2,182 1,779 23 6,570 5,893 11
Total expenses 16,488 15,816 4 49,290 50,072 (2)
Net operating income (loss) (1,082) 2,044 (1,065) 3,591
Realized gains on private investments — — NM — 8,371 (100)
Net change in unrealized appreciation (depreciation) on private investments (249) (13) 1,815 (511) (2,124) (76)
Net investment income 104 131 (21) 93 562 (83)
Other income 206 198 4 598 390 53
Income (loss) before income taxes (1,021) 2,360 (885) 10,790
Income tax provision 154 481 (68) 618 3,840 (84)
Net income (loss) $ (1,175) $ 1,879 (163) % $ (1,503) $ 6,950 (122) %



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2023		2022		Change		2023		2022		Change
Revenues:
Advisory fees: asset-based	$	16,799	$	10,980	53	%	$	33,832	$	22,770	49	%
Advisory fees: performance-based	—		—		NM		555		—		NM
Trust fees: asset-based	5,024		5,365		(6)		10,055		11,080		(9)

Other, net	122		(742)		(116)		230		(1,031)		(122)
Total revenues	21,945		15,603		41		44,672		32,819		36
Expenses:
Employee compensation and benefits	13,688		9,133		50		27,890		19,467		43
Sales and marketing	764		509		50		1,504		991		52
Westwood mutual funds	746		445		68		1,478		1,041		42
Information technology	2,566		1,847		39		4,949		3,676		35
Professional services	1,355		832		63		2,884		2,352		23
General and administrative	3,235		2,348		38		6,281		4,388		43
(Gain) loss from change in fair value of contingent consideration	(4,078)		—		NM		(5,138)		—		NM
Acquisition expenses	—		887		NM		209		887		(76)

Total expenses	18,276		16,001		14		40,057		32,802		22
Net operating income (loss)	3,669		(398)				4,615		17

Net change in unrealized appreciation (depreciation) on private investments	24		(299)		(108)		24		(262)		(109)
Net investment income	211		5		4,120		383		(11)		(3,582)
Other income	239		234		2		611		392		56

Income (loss) before income taxes	4,143		(458)				5,633		136
Income tax provision	1,244		(80)		(1655)		2,020		464		335
Net income (loss)	$	2,899	$	(378)	(867)	%	$	3,613	$	(328)	(1,202)	%
Less: Comprehensive income (loss) attributable to noncontrolling interest	4		—		NM		25		—		NM
Comprehensive income (loss) attributable to Westwood Holdings Group, Inc.	$	2,895	$	(378)	(866)	%	$	3,588	$	(328)	(1,194)	%

_________________________

NM Not meaningful

Three months ended ~~September~~June 30, ~~2022~~2023 compared to three months ended ~~September~~June 30, ~~2021~~2022

Total revenues. Total revenues ~~decreased $2.5~~increased $6.3 million, or ~~14%~~41%, to ~~$15.4~~$21.9 million for the three months ended ~~September~~June 30, ~~2022~~2023 compared with ~~$17.9~~$15.6 million for the three months ended ~~September~~June 30, ~~2021.~~2022. Asset-based advisory fees ~~decreased $1.5~~increased $5.8 million, or ~~13%~~53%, ~~and Trust fees decreased $0.8 million, or 13%, both primarily related to lower~~reflecting higher average ~~AUM.~~AUM following our 2022 acquisition of Salient.

Employee compensation and benefits. Employee compensation and benefits ~~decreased $0.8~~increased $4.6 million to ~~$9.5~~$13.7 million compared with ~~$10.3~~$9.1 million for ~~2021~~2022 due to ~~lower commissions~~additional headcount resulting from the Salient acquisition.

Information Technology. Information technology expenses increased $0.8 million, or 39%, to $2.6 million compared with $1.8 million for 2022 primarily due to additional software licenses and ~~incentive compensation.~~investment research expenses.

Professional services. Professional services increased ~~$1.0~~$0.6 million, or ~~129%~~63%, to ~~$1.7~~$1.4 million compared with ~~$0.7~~$0.8 million for ~~2021~~2022 primarily due to an increase in legal and advisory costs.

General and Administrative. General and administrative expenses increased $0.9 million, or 38%, to $3.2 million compared with $2.3 million for 2022 primarily due to increased intangible asset amortization following the Salient acquisition.

(Gain) loss from change in fair value of contingent consideration. We recorded a gain of approximately ~~$0.6~~$4.1 million ~~in expenses related to our pending acquisition~~upon the remeasurement of ~~Salient.~~contingent consideration of the 2022 Salient acquisition.

1923

Income tax provision. Our effective tax rate differed from the 21% statutory rate for the ~~third~~second quarter of ~~2022~~2023 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.

~~Nine~~Six months ended ~~September~~June 30, ~~2022~~2023 compared to ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022

Total revenues. Total revenues ~~decreased $5.5~~increased $11.9 million, or ~~10%~~36%, to ~~$48.2~~$44.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared with ~~$53.7~~$32.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. Asset-based advisory fees ~~decreased $0.6~~increased $11.0 million, or ~~2% and~~49%, reflecting higher average AUM following our 2022 acquisition of Salient. Trust fees decreased ~~$1.9~~$1.0 million, or ~~11%~~9%, ~~both~~ primarily related to lower average AUM. ~~Performance-based advisory fees decreased $2.0 million due to reflecting lower performance fees in the nine months ended September 30, 2022.~~

Employee compensation and benefits. Employee compensation and benefits ~~decreased $3.1~~increased $8.4 million to ~~$29.0~~$27.9 million compared with ~~$32.1~~$19.5 million for ~~2021~~2022 due to ~~lower incentive compensation and commissions.~~additional headcount resulting from the Salient acquisition.

Sales and marketing. Sales and marketing expenses increased ~~$0.4~~$0.5 million, or ~~49%~~52%, to ~~$1.3~~$1.5 million compared with ~~$0.9~~$1.0 million for ~~2021 as in-person sales activities continued~~2022 due to ~~return to pre-COVID-19 levels.~~higher product placement fees.

~~Professional services.~~Information Technology. ~~Professional services~~Information technology expenses increased $1.2 million, or ~~34%~~35%, to ~~$4.7~~$4.9 million compared with ~~$3.5~~$3.7 million for ~~2021~~2022 primarily due to ~~approximately $1.3 million in expenses related to our pending acquisition of Salient.~~additional software licenses and investment research expenses.

~~Realized gains on private investments.~~General and Administrative. General and administrative expenses increased $1.9 million, or 43%, to $6.3 million compared with $4.4 million for 2022 primarily due to increased intangible asset amortization following the Salient acquisition.

(Gain) loss from change in fair value of contingent consideration. We recorded a ~~realized~~ gain of approximately ~~$8.4~~$5.2 million ~~following InvestCloud's recapitalization in~~upon the ~~first quarter~~remeasurement of ~~2021.~~

~~Net change in unrealized appreciation (depreciation) on private investments.~~ ~~We recorded a $2.8 million net change in unrealized depreciation to reflect~~contingent consideration of the recognition of previously recorded unrealized gains in connection with InvestCloud's recapitalization in the first quarter of 2021, partially offset by $0.7 million of fair value increases related to our investment in Charis.2022 Salient acquisition.

Income tax provision. The effective tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 differed from the 21% statutory rate for ~~2022~~2023 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.

Supplemental Financial Information

As supplemental information, we are providing non-GAAP performance measures that we refer to as Economic Earnings and Economic EPS. We provide these measures in addition to, not as a substitute for, ~~net~~comprehensive income (loss) attributable to Westwood Holdings Group, Inc. and earnings (loss) per share, which are reported on a GAAP basis. Our management and Board of Directors review Economic Earnings and Economic EPS to evaluate our ongoing performance, allocate resources, and review our dividend policy. We believe that these non-GAAP performance measures, while not substitutes for GAAP ~~net~~comprehensive income (loss) attributable to Westwood Holdings Group, Inc. or earnings (loss) per share, are useful for management and investors when evaluating our underlying operating and financial performance and our available resources. We do not advocate that investors consider these non-GAAP measures without also considering financial information prepared in accordance with GAAP.

We define Economic Earnings as ~~net~~comprehensive income (loss) attributable to Westwood Holdings Group, Inc. plus non-cash equity-based compensation expense, amortization of intangible assets and deferred taxes related to goodwill. Although depreciation on fixed assets is a non-cash expense, we do not add it back when calculating Economic Earnings because depreciation charges represent an allocation of the decline in the value of the related assets that will ultimately require replacement. Although gains and losses from changes in the fair value of contingent consideration are non-cash, we do not add or subtract those back when calculating Economic Earnings because gains and losses on changes in the fair value of contingent consideration are considered regular following an acquisition. In addition, we do not adjust Economic Earnings for tax deductions related to restricted stock expense or amortization of intangible assets. Economic EPS represents Economic Earnings divided by diluted weighted average shares outstanding.

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

Three Months Ended September 30, Change Nine Months Ended September 30,
2022 2021 2022 2021 Change
Net income (loss) $ (1,175) $ 1,879 (163) % $ (1,503) $ 6,950 (122) %
Stock-based compensation expense 1,509 1,362 11 4,410 4,459 (1)
Intangible amortization 407 406 — 1,218 1,218 —
Tax benefit from goodwill amortization 59 59 — 177 177 —
Economic Earnings $ 800 $ 3,706 (78) % $ 4,302 $ 12,804 (66) %
Earnings (loss) per share $ (0.15) $ 0.24 (163) % $ (0.19) $ 0.88 (122) %
Stock-based compensation expense 0.19 0.17 12 0.57 0.56 2
Intangible amortization 0.05 0.05 — 0.15 0.15 —
Tax benefit from goodwill amortization 0.01 0.01 — 0.02 0.02 —
Economic Earnings per share $ 0.10 $ 0.47 (79) % $ 0.55 $ 1.61 (66) %
Diluted weighted average shares outstanding 7,794,060 7,956,081 7,867,555 7,933,860
Economic Earnings by Segment:
Advisory $ 3,590 $ 4,416 (19) % $ 11,428 $ 14,885 (23) %
Trust 769 2,015 (62) 2,396 6,507 (63)
Westwood Holdings (3,559) (2,725) 31 (9,522) (8,588) 11
Consolidated $ 800 $ 3,706 (78) % $ 4,302 $ 12,804 (66) %


	Three Months Ended June 30,				Change		Six Months Ended June 30,
	2023		2022				2023		2022		Change
Comprehensive income (loss) attributable to Westwood Holdings Group, Inc.	$	2,895	$	(378)	(866)	%	$	3,588	$	(328)	(1,194)	%
Stock-based compensation expense	1,624		1,521		7		3,372		2,901		16

Intangible amortization	1,042		406		157		2,063		811		154

Tax benefit from goodwill amortization	125		59		112		250		118		112
Economic Earnings	$	5,686	$	1,608	254	%	$	9,273	$	3,502	165	%
Earnings (loss) per share	$	0.36	$	(0.05)	(820)	%	$	0.45	$	(0.04)	(1225)	%
Stock-based compensation expense	0.19		0.19		0		0.41		0.37		11

Intangible amortization	0.13		0.05		160		0.26		0.10		160

Tax benefit from goodwill amortization	0.02		0.01		100		0.03		0.01		200
Economic Earnings per share	$	0.70	$	0.20	250	%	$	1.15	$	0.44	161	%
Diluted weighted average shares outstanding	8,131,333		7,944,212				8,050,298		7,904,911

Economic Earnings by Segment:
Advisory	$	4,733	$	3,494	35	%	$	9,740	$	7,838	24	%
Trust	1,183		839		41		1,665		1,627		2
Westwood Holdings	(222)		(2,725)		(92)		(2,124)		(5,963)		(64)
Consolidated	$	5,694	$	1,608	254	%	$	9,281	$	3,502	165	%

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 ~~reinstated a dividend in the first quarter~~had no debt as of ~~2021, following a suspension in the second quarter of 2020 as we preserved capital and enhanced our financial flexibility amid the uncertainties created by the COVID-19 pandemic.~~

Our announced acquisition of Salient's asset management business will require an upfront cash payment of $35.0 million upon closing, and subsequent deferred payments of up to $25.0 million over several years, upon satisfaction of certain revenue retention and growth targets. Those payments are expected to be made from a combination of cash on hand, cash flows from operations and equity.

~~As of September~~June 30, ~~2022~~2023 and December 31, ~~2021, we had no debt.~~2022. 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.

We had cash and short-term investments of $38.1 million and $39.2 million as of June 30, 2023 and December 31, 2022, respectively. At June 30, 2023 and December 31, 2022, working capital aggregated $41.0 million and $40.6 million, respectively.

During the ~~nine~~six months ended ~~September~~June 30, 2023, cash flow used in operating activities was $3.9 million, which included net sales of current investments of $7.1 million and a reduction in compensation and benefits payable of $3.3 million. During the six months ended June 30, 2022, cash flow provided by operating activities was ~~$15.3~~$12.1 million, which included net sales of ~~$12.1~~$12.4 million of current investments and a $1.9 million change in accounts receivable, partially offset by a reduction in compensation and benefits payable of ~~$3.6~~$5.6 million. During the nine months ended September 30, 2021, cash flow provided by operating activities was $21.1 million, which included net sales of $11.2 million of current investments, a $2.2 million change in income taxes payable, and a $1.1 million change in accounts payable and accrued liabilities, partially offset by decreases of $1.2 million in other liabilities and $0.4 million in compensation and benefits payable.

Cash flow used in investing activities during the ~~nine~~six months ended ~~September~~June 30, 2023 was primarily for the Broadmark Acquisition. Cash flow used in investing activities during the six months ended June 30, 2022 was ~~for~~related to purchases of property and equipment. ~~Cash flow provided by investing activities during the nine months ended September 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 flows used in financing activities of ~~$7.9~~$3.9 million for the ~~nine~~six months ended ~~September~~June 30, 2023 reflected the payment of dividends and restricted stock returned for the payment of taxes. Cash flows used in financing activities of $5.3 million for the six months ended June 30, 2022 reflected the payment of dividends, treasury stock repurchases and restricted stock returned for the payment of taxes. Cash flows used in financing activities of $25.2 million for the nine months ended September 30, 2021 reflected the payment of dividends, including those treated as a return of capital for accounting purposes, treasury stock repurchases and restricted stock returned for the payment of taxes

We had cash and short-term investments of $74.0 million as of September 30, 2022 and $80.2 million as of December 31, 2021. At September 30, 2022 and December 31, 2021, working capital aggregated $74.6 million and $78.0 million, respectively.

Westwood Trust 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, ~~2022,~~2023, Westwood Trust had approximately ~~$15.6~~$7.9 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, ~~2021.~~2022. 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. Failure to raise needed capital on attractive terms, if at all, could have a material adverse effect on our business, financial condition and results of operations.

Contractual Obligations

As of ~~September~~June 30, ~~2022,~~2023, there have been no material changes outside of the ordinary course of business to our contractual obligations since December 31, ~~2021.~~2022. 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, ~~2021.~~2022.

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, ~~2021.~~2022. 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, ~~2021.~~2022.

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, ~~2021.~~2022.

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, ~~2022,~~2023, 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 employees working remotely did not hinder the execution of our internal control processes and procedures.

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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, ~~2021~~2022 and the risks set forth below.

There have been no material changes to the risk factors 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 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.

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

Our share repurchase program has no expiration date and may be discontinued at any time by the Board of Directors. ~~Between July 1, 2022 and September~~During the three months ended June 30, ~~2022, under the share repurchase program,~~2023, the Company ~~repurchased 99,444~~did not repurchase any shares of our common ~~stock at an average price of $12.64 per share, including commissions, for an aggregate purchase price of $1.3 million.~~

~~The following table displays information with respect to the treasury shares we purchased during the three months ended September 30, 2022:~~

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)
$ 1,900,000
July 2022 82,749 $ 12.60 82,749
August 2022 16,695 $ 12.86 16,695

~~(1)These purchases relate to the share repurchase program and were authorized in April 2020.~~

stock.

2428

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, ~~2022,~~2023, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021;~~2022; (ii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021;~~2022; (iii) Condensed Consolidated Statements of Stockholders' Equity; (iv) Condensed Consolidated Statements of Cash Flows for the ~~three and nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021;~~2022; 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.

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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 26, 2022~~August 2, 2023

WESTWOOD HOLDINGS GROUP, INC.

By:

/s/ Brian O. Casey

Brian O. Casey

Chief Executive Officer

By:

/s/ Murray Forbes III

Murray Forbes III

Chief Financial Officer and Treasurer

2630


	Three Months Ended				Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Fee Revenues	$	4.9	$	5.5	$	15.7	$	15.8



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022		2021		Change		2022		2021		Change
Revenues:
Advisory fees: asset-based	$	10,474	$	12,011	(13)	%	$	33,244	$	33,846	(2)	%
Advisory fees: performance-based	—		—		NM		—		1,959		(100)
Trust fees: asset-based	5,177		5,952		(13)		16,257		18,233		(11)

Other, net	(245)		(103)		138		(1,276)		(375)		240
Total revenues	15,406		17,860		(14)		48,225		53,663		(10)
Expenses:
Employee compensation and benefits	9,526		10,268		(7)		28,993		32,053		(10)
Sales and marketing	335		292		15		1,326		892		49
Westwood mutual funds	615		814		(24)		1,812		1,573		15
Information technology	2,170		1,937		12		5,934		6,190		(4)
Professional services	1,660		726		129		4,655		3,471		34
General and administrative	2,182		1,779		23		6,570		5,893		11


Total expenses	16,488		15,816		4		49,290		50,072		(2)
Net operating income (loss)	(1,082)		2,044				(1,065)		3,591
Realized gains on private investments	—		—		NM		—		8,371		(100)
Net change in unrealized appreciation (depreciation) on private investments	(249)		(13)		1,815		(511)		(2,124)		(76)
Net investment income	104		131		(21)		93		562		(83)
Other income	206		198		4		598		390		53

Income (loss) before income taxes	(1,021)		2,360				(885)		10,790
Income tax provision	154		481		(68)		618		3,840		(84)
Net income (loss)	$	(1,175)	$	1,879	(163)	%	$	(1,503)	$	6,950	(122)	%


	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)					$	1,900,000
July 2022	82,749	$	12.60	82,749
August 2022	16,695	$	12.86	16,695