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WHG Westwood

Participants
Julie Gerron General Counsel and Chief Compliance Officer
Brian Casey President and CEO
Terry Forbes CFO
Mac Sykes Gabelli
Call transcript
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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Westwood Holdings Group’s Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program may be recorded. And now, I'd like to introduce your host for today's program Julie Gerron, General Counsel and Chief Compliance Officer. ahead. go Please

Julie Gerron

and good contemplated conference and statements, to third materially risks, our are actual may Thank to the results The afternoon. forward-looking following earnings be uncertainties unknown and call. to from forward-looking factors, discussion quarter which subject cause those you different known Welcome other by will which include statements.

Form XXXX and that release otherwise. XX, XX-Q difference is as or our update press issued Additional Exchange We September today a in the information included for undertake such of our concerning statements, filed any whether result events revise quarter future publicly ended could to Commission. new cause the with well the information, a earlier factors as Securities as no or forward-looking obligation in

not place on forward-looking cautioned are reliance to statements. undue You

at rules most in our of share earnings the addition, with In GAAP today. press accordance comparable non-GAAP measures end to financial measures, earnings reconciliation concerning included release issued and the per the of earlier economic our economic SEC is

today have the Officer; Financial Brian Executive President Chief our and Forbes, Brian Terry and I the we to Casey. over will now Officer. On call Casey, turn our call Chief

Brian Casey

taking earnings for in you you to Thank our times. time quarterly challenging these afternoon. Good are healthy to call listen hope I persevering today. the all and

repatriated million, been Toronto, Advisors we all announced has As our last the of over quarter, financial ceased adding operations and to almost in $XX remaining we Westwood International United now of flexibility. have its States, cash, to

some primarily actions off The our were We effects and historical accounting goodwill. also nonrecurring. of noncash wrote

investors owning for for for divergence manage emerging robust. September's lower equity alpha still believe ultimately led to Institutional new activity retail head is research growth accordingly, even and team, market high-potential and indices from is Mega Westwood of dominating International indexing outperforming and we between Westwood financial class the SmallCaps presidential Westwood by shareholders its proved that Despite asset to pressure remains attractive opportunities. impact attracted LargeCaps, years performance growth has value a again, profile generation, market in wide. most and which climbed produced are the operation. the to the caps across with election. eight equities of we caps. search passive operational market as it The final markets The positive equities and with markets performance an of We to are is outperforming all disappointing, its investment fees. emerging the While was its into demise. expertise stages WIA continue of drop, the available are Advisors

While dominated the challenged positive larger the its is best cap territory SmallCap after S&P the XXX XXXX. and space year, year-to-date posting for down quarter since is in remained

spikes. with of volatile, some with estimates and are their from up begun pick them, in country seeing continue of are For volatility parts sure, rising with efforts is earnings progress from we're declines, to while recovery are and of Overall, election proving and others along troughs. uncertain, the experiencing has reopening to rhetoric forward tandem aisle. hearing Incidences COVID equally sides the both path the the

equity value U.S. Our a mix turned again performance. products once in

top headwinds rotation strategy the third while LargeCap relative during more These growth pace caused quality higher, behind Despite thanks helped and the quarter, year-to-date Select SmidCap with weaker risk move clients remains downside performance March sell benchmark as LargeCap with focus, Value in along brunt ahead products by shelter strong, Russell off. the our falling full LargeCap markets some rallied Our our challenged our kept to remains up an of institutional peers, but behind quartile the our of but from year-to-date in periods. for time were stocks the Amongst since performance, in quarter. the the stiff LargeCap trailing XXXX which lower quarter overall XXXX. and inception fell universe the time boasts its trailing decile most and Value over a three-year eVestment time top database on the three Select is and year basis XXXX. eVestment periods. Value over remains seven-year trailing index year-to-date LargeCap the in period Value Select the inception period quartile commands ahead trailing LargeCap LargeCap and Manager in ranking ranking a a in since top

SmidCap ahead the our strongly eVestment build index, is mid-cap strategies the Our value Value puts XXXX which percentile year-to-date with in best-performing and a managers and stock to the and percentile one small trailing outperformed points years. portfolio the Russell basis continue SmidCap of solid over terrific XXX in our XXrd database among in managers of it the three index, record XXth and over strategy selection.

additional of begin and recognize Our over The stimulus trailing levels time nonearning earlier top this And scenario periods. Among top for SmallCap introduced its the but the XX This despite the Value securities to remains to XXX five rallying ranks market measures as XXXX by is may basis low-quality than in is curious half these the trailing our of quartile again, and of and financial index companies. top phase nature the less economic non-earning, it in as quality last year-to-date strategy Russell headwind out. as should portfolio. stress over fade once points likely the underperformed to being headwinds peers, companies years over have higher year-to-date years. decile ahead rallied, year multiple and risen create the SmallCap begin institutional

our to of strategies an now group, array manages across which return and turn Let's risk the multi-asset spectrum.

and too, the exposure securities the social, market period classes by political heightened volatility, their positioned securities. Our but investment With mispriced to asset classes finding advantage economic, classes, inefficiencies while of provide dispersion not equities, from suite preserve developments We're industries, macro a for react potential teams just having will credit within to as investment affecting key our in help asset returns crosscurrents can volatility of for products multi-asset lowering ahead. that multi-asset while limiting return risks. taking companies skilled targeted convinced ownership ample clients vehicle and to unfolding uniquely of remains asset and more benefit opportunities within

strategy, XX basis multi-asset Barclays its XXX, quarter. Our XX% of point income largest this XX% S&P aggregate opportunity benchmark index Bloomberg outperformed by

the is attractive achieve our process percentile twin asset on stock XXst and opportunity in XX% using institutional and mutual rankings it lower and volatility. to XX-year the ticker year-to-date. its income Morningstar's X year-to-date. peers amongst returns for WHGIX, X, of in top allocation in term, time Longer objectives and over performance also the strong quarter top XX% periods, XX% Morningstar income category and analysis strong, selection based equity symbol are trailing XX% the fundamental half opportunities Our in to and the places Absolute the fund, it which finished was top

their and substantially similarly added and results. and lows March. returns strategies solid strong Liquidity track improved performed records products global last relative last Our income couple with have the have this convertibles in of the exceptionally absolute well. alternative over other multi-asset from improved quarters, convertibles market to In has our their environment,

basis benchmark, trailing Our in neutral government quarter the XXX, points over and WMNIX, its the quarter. group. XX% nearly period. S&P the Total outperformed aggregate points. S&P XXX also XXX its for this outperformed market XXth income mutual corporate High Bloomberg corporate return finished percentile five-year index basis XX% quartile year-to-date fund, for the index Bloomberg trailing in top XXth period XXX, XX% aggregate the It's one-year by Barclays percentile Barclays benchmark, Morningstar by government XX%

periods well event Our strong Shifting of our fundamental may is candidates to the which asset consumer investment as research. wealth newest mine management. to team storm, mispriced businesses to posting to dislocation portfolio. fund's various washout leads strong the opportunities, discover mispricings Westwood's add the and often can strategy, to A and classes some profitably weather team to fail credit this occur leverages returns illiquidity, in identifies quality and as

them in clients teams actively of of team Houston impressed the the uncertainties. Dallas with constantly ability COVID. physical I'm assist to by and Our the distribution through market's constraints to engage meetings, despite conduct our continue virtual and to

us increasingly integrating holistic of with supplementing are tax trust release an to focused goals. by on a to and client support. the rollout will to beyond with and clients million, retention digital approach past beta weeks. colleagues our well, for launch more $XX brought client client about to withdrawals new hands-on our expanded new initial online planned our remain engagements payments. goals-based uncertainties, enhance delayed a business next clients, Deploying in our long-term traditional their last test assets Despite portal new online stronger approach quarter's This offset is the advice allow our group quarter, portal achieve sticky current teams Our interacting and even make A has to our several by stable. of remained have over us

definite XXXX. folks closed a fund the from pension year and are to outflows forward this Client inflows Day, since uptick into rise, some with typically Labor and advice. new to wanting seen estate-planning later We we've conversion, these business also experienced Client result from focus we're referrals in months and take like several a conversations distributions. looking on strategies particular and early

up we equity excited ahead. created prospects an a We challenges the and to the third coming funds quarter, and industry-wide net have the absolute There across version outperform for and than third-party XXXX positive Downside improved stabilized a income the after wealth a recording $X sales, of in finalized, assets the nearly The the strategies, X,XXX election more are that most high million approval closing but in our mostly for our and call and strategy LargeCap. and over now XXX alpha, emerging and event result quarter. and year-to-date Our we for inflows levels. business discussed year-to-date. to successful with strong are harvesting with basis gaining quarter of we on SmallCap tax net for to the with strong quarter. advisers. dividend territory into had RIA stabilized index have and clients the prospects, and and return YouTube pleased posted upcoming manager alpha growth with strength month. strategies advisers very over opportunity the in The below the our find strategies select clients exploit We're for second $XXX and are markets tax a positive momentum track we Income environment, sensitive details and suffering of In our recently We're approximately on additional from years moved posted returns XXXX pandemic, from of key to sales in global ahead assets. in gain negative quarter MLP to loss the selected rose performed outflows new converts connect. from our while which and market $XXX and institutional the million picking pre-pandemic have daily capture meeting quarter's strategy inflows and have appear for been along are sales ways each prospects now with the as measured with below X%. we helped are focused future LargeCap, clients, next for XX%, been an better Intermediary opportunity launch flows participants, client new high discuss in was million running at this to for on via strategies net SmallCap strategies. intermediary pushing last and million platform equity was select clients from to the and rebalancing well versus has both held to continue $XXX the on We channel. for select, online our about of certainly quarter income outflows, SmallCap mutual platform Russell to dislocations, basis. worth the about and and new see opportunities the returns

consultant fund forward, look multi-asset our in delivery that strong and in U.S. model believe value and the we to we space. strategies an performance continued increase mutual should lead searches and As in wins additional

attractive income strategies. opportunities with SmallCaps, our growing is pipeline and SmidCap, in Our opportunity

distribution presenting execution, to and which on our have talents teams Our allowed in their strategies our marketplace. remained investment has disciplined process to teams the focus their

We quarter are our of on focused we're the very outsourced pleased business, successful. full and trading to managing was report our first side of expense that

access getting managers obtain more are data our market while have trading clients to bigger costs, execution frequent updates. a more Our portfolio and better competitive transaction desk to and

result the which is that Success well pandemic in plan, areas, have industry evolve in just have key believe generate front to change. many before and focused We impact quo, tested will four efficiencies year buyers, are reduced multiple and office and internal followed excess grow. generation one, requires survive, no every meet truly delivered to our taking exception, all alpha a extraordinary to critical exerting initiated value a steps status time its on circumstances Westwood middle in strong by the lasting over in us pressure organizations, institutional million and well placed position, pandemic execution the retail. periods. a areas. We a more in thrive we strategies but ours undergoing disruptions, thought management out to asset they significant the upended Well strategies even management Number not of our the one started over to return in have was to is the companies and in expected and asset before expenses. challenge. have industry is $X the These

now awareness, about to in Number team engagement, evolved combination excellence and in developed highest Our distribution sales X We category of have flagship randomly Gone days distribution experienced multi-asset wealth Opportunity, management Income contact digital and upgraded technology newsletters to recently two, sport. most and a alpha our solutions. and want experienced to are products have product delivered Morningstar's strategies stars. stale on of to the optimize brand professionals using lists. is fund, doors is thought by has three, sending being delivered a clients comprehensive largest Sales history. our of salespeople team has the been our management outcomes from simply via Number leadership, the knocking productivity.

a the that required product, in was client all and or financial paper competitive decades, statement of the the twice a meeting For was year at once a a mail end month.

pivoting winners digitally. solutions-based model many a several has build broader a to While working solutions. been firms are delivered of this way, platform operate years still to for Westwood

services Number to in the added table private management. And for survive. sensitive and that array solutions. grown have moving our and of estate made financial will strategies, We private embrace resources, shift view, investment tax transformative financial planning powers. technology depth four, and for These built its that our our quickly planning, stakes wealth haven't not to equity growth firms added accelerate banking are firms will

screening buyers. We are target company using technology data our building populating ideas, to and team improve our sales help models, efficiency potential with investment better to and them

announced challenges. additional that to added been InvestCloud rolling and are have we're months. a out and some wealth in presents Industry perfect our portal coming the enhanced We building for disruptions clients, with shock pandemic digital time, storm building platforms will be of the of the

in to Fortunately, Westwood disruptions. industry making investments efficiencies, has been major reduce gain for prepare costs, technology and

supporting remain on been In flexibility like the building strong a of to allows the future the will committed opportunities larger spread capitalize the navigate powder disruptions array firms We pursue have we're much to nurture business. clients for present as the dry. their years by rewarding the they us balance careful months planning have Frankly, the sheet, our an confronting initiatives. of to infrastructure presented a employees to ours our kept support virus. challenges We that which industry to been and ahead, we've and growth

to Forbes, continue turn every make members Terry clients. very over all do team extraordinary on the and each behalf for day, efforts Our I'm our to now they of grateful I'll our CFO. call and

Terry Forbes

of of revenues the million $XX.X XXXX $XX.X quarter prior than of and second average in good third strategies, due as the to than of third lower second last emerging reduced management. reported XXXX the million fee under quarter, somewhat third average were compared of markets principally to and lower which year's quarter afternoon, million Brian, rate. a everyone. assets slightly were we $XX.X the lower closing our total Revenues you, quarter Today, result quarter Thank for the Revenues in year.

more from items, share as third million with in related several share of million exceeded well $X.X Westwood $X.X reclassification no as including losses. quarter partially Non-GAAP net loss loss on earnings million repatriate as translation a advisory share Westwood comprehensive onetime to the taxes the outflows. other of loss of foreign second offset lower as well the $X.XX and million per of per or stockholders' the Advisors, million by foreign Advisors was in International net $XX.X loss $X.X of $X.X $X.X were and million to transaction net to adjustments federal $X.XX closure capitalization currency $XX than quarter. lower write-off The loss or lower paid per primarily a $X.X economic currency Canadian items quarter to deduction, U.S., withholding in current tax quarter. from equity, per incremental or accumulated These million million historical expenses the of reflect second to onetime net the loss in noncash $X.XX versus economic $X.XX share net International of goodwill or noncash The following market operating advisory impact

of mutual of or assets of $X.X $XX per $X.X of quarter assets share of Firm-wide XX% XX% or the billion wealth and billion total, and third in net per $X.XX fund of total, million or or offset net of quarter previously the loss year's $XX.X quarter, compared the compared quarter share benefits. $X.X to income $X.X Economic Third or third million employee $X.XX unfavorably million noted, lower $X.XX for in due totaled earnings the billion the of by items per of the total. of share $X.XX compensation assets per XXXX. $X or consisted at or share economic of XX% onetime under million with to partially quarter-end expenses, operating $X.X and the prior billion was assets loss management particularly primarily institutional management

billion. net experienced the $X.X of market billion year, outflows we $X.X and depreciation of Over

at a quarter-end third well longer be And our position a as with close. and discussion development, brings million investments we'll term Our cash as earnings. investor We line to highlights and our product website our we balance review in questions. sheet. of have our reflecting thank prepared debt-free your on $XX.X open quarter Company. a you encourage for to totaling interest and to trends in solid and comments to continues our business, That revenues short-term We you very financial posted presentation the

Operator

And Mac from a Gabelli. Instructions] Sykes from we [Operator have question

please? question, Your

Mac Sykes

strategies there. put saw just Maybe opportunities. I terms Just for continued in large seeing perhaps, several obviously, And you where opportunities? consult your those what you that them talked demand? are more about seeing driven? institutional, business driving that are color Brian, finals little are some in color mandates, in could so showing of around on of you the you distribution. in What's terms momentum RIAs Is comments, more good a some

Brian Casey

Sure. Well, thanks question, for your Mac.

of complemented our couple doing will were search, in they to about last that the our team so terms really in for fees that looking we a of work be two at that reviewing our a build were positioned distribution that our quarters, products we was talked all rated to be find a and off, have of buy strategies. sure largest where been robust I've attractive, but of happening consultant are products world, firms that that couple in approvals hard attractive. only done. several One for -- are initiatives they've to in is with we fees attractive, to a We As institutional that our really make anybody worked starting the and not doing the to both performance the our of way pay have a consulting

medium-sized we customers. addition, smaller institutional funds are our to of added that designed for share to In some have classes

share fees no above, So, share is or designed have class plans. million has for we class contribution for we and that defined then that is essentially $XX have a other another that

really a people. of touch noted points team intermediary the make And guys to into new and first gaining to our do was momentum for then, they my and I the to lot be make wire have As houses and and office. offices, the comments, was difficult meetings with hard worked to get distribution creative how through the see all about hit of folks their it contact quarter. shut And outside in really COVID

that And is particularly And excited has number up. half, performance underperformed, put of to about. ago. momentum one with begun lost was is the two of a we some of A those those us September a things horizon And the been really and that that starting The years that pick opportunity has where we clients we're the number exceptional. appealing a have fund on lot of have other to income promising. clients come of to managers year are money some and of searches back.

is is low a going have think to of environment, income a nice now in fund This be type noted, I return produce X-star and we to some where volatility. As volatility. very fund opportunity of that's lots attractive we income, total this a designed with

Mac Sykes

looking how sheet I could Okay. And about next potentially managers. using Maybe be of potential nonorganic repurchases in update your past about at balance around year to then, think M&A? strength. or just source a wealth you you the the on think, continues you've us in talked that

Brian Casey

Yes. for are and in to can't how I today. bank, trading both trading doing investment long-term it and growing, when $XX.X investments, there. is our investments understand Well, those in our our and exceptionally where your which question investment Westwood short-term have $XX.X below which private today our bank, in in is includes million is begin million, a actually we well stock even and InvestCloud levels stock thanks

pressure. As I industry indicated been in my management significant has under the asset comments,

more for are entire company, to us. ever seeing than also opportunities, we opportunities so, we've both our but looking opportunities a seen having as in And public history proactively presented

been makes sense with every debt. directors our that make buy quarter and fortress-like right of the have do. to to there's days, years firm you it's you're have today. we But opportunity glad a things you if sheet see when and it of do you've markets really over balance the a good want And one you about to talk so thing think like we capital, no that decision the our to today the about an and is last talked meeting. really a conservative at We it couple we So, that and it

is thing in investors I've other banks. lot a that would of sidelines. There the that is lot recently there a I The of noticed cash cash mention on too from is

our to during in of starting clients back this are pullback. Some tiptoe

In With all told, to of going send clients between answer the have $XXX to year of our top fact, million to that just that of of taking customers your they're add or are $XXX one accounts to our question, have indicated also roughly I yet to before on another some we've market. their the won of got fund the will this we first to and that pullback opportunities wealth quarter. we're the million not call, into seeing, the this some there's and of of on million the Monday to who add account, funded now end $XXX advantage

Operator

the question next comes line from from Daphne UNC. of Armstrong Our

Unidentified Analyst

as question My a the has to COVID-XX management whole? the is, of how Hello. your recent industry Company asset and retail affected influx investors due

Brian Casey

other retail get typically where our to for influx have would we recent we investors, us, about trying time retail on of advisors. of spend approved. investors and trying we're the then, who think advisors retail time And on the calling spent are we're wire our retail houses when The reach Okay. products of about investors, half our customers, calling to through the half

to higher be management. to were you assets if -- way, under you average think that as far tends as as that private wealth about could of retail, guess, I but think it So,

Operator

program. remarks. back hand Thank of for to you. program like the question-and-answer the session Brian today's to This I'd any conclude further does Casey

Brian Casey

thanks, listening Well, appreciate our call today. we you to and

to If you have any questions, feel please call. free further

to ourselves and If you'd set Terry shareholder can call, that. I your be make address questions. and to like a available up do happy we'd

great day. a have Stay healthy. So, safe. Stay

Operator

for and gentlemen, program. today's you, your participation in This the conclude does Thank ladies conference.

disconnect. now Good may You day.