Westwood(WHG) - 2024 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements The company's unaudited financials show slightly lower assets and a significant drop in nine-month net income Condensed Consolidated Financial Statements Financials show a slight asset decrease, higher revenue, a sharp net income decline, and improved operating cash flow Condensed Consolidated Balance Sheet Data (in thousands) | Account | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $68,622 | $72,238 | | Total assets | $151,501 | $155,167 | | Total current liabilities | $16,171 | $18,647 | | Total liabilities | $31,117 | $32,721 | | Total stockholders' equity | $120,384 | $122,446 | Condensed Consolidated Income Statement Data (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Total revenues | $69,139 | $66,552 | | Total expenses | $70,870 | $63,390 | | Net income | $112 | $7,988 | | Diluted EPS | $0.02 | $0.86 | Condensed Consolidated Cash Flow Data (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash from operating activities | $12,214 | $(5,684) | | Net cash from investing activities | $(1,534) | $4,140 | | Net cash from financing activities | $(8,312) | $(5,137) | | Net change in cash | $2,368 | $(6,681) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, acquisitions, revenue sources, and significant subsequent events - In January 2023, the company acquired an additional 32% interest in Broadmark Asset Management LLC for $1.2 million (net of cash acquired), increasing its ownership to a controlling interest of approximately 80%[15][19] - As part of the Salient Acquisition, the company paid contingent consideration of $1.8 million in the first nine months of 2024, with the remaining liability revalued to $12.0 million[24][45] Revenue by Type (Nine Months Ended Sep 30, in thousands) | Revenue Type | 2024 | 2023 | | :--- | :--- | :--- | | Institutional | $29,490 | $28,365 | | Mutual Funds | $20,619 | $21,554 | | Wealth Management | $1,621 | $815 | | Trust Fees | $15,787 | $15,118 | | Total Revenues | $69,139 | $66,552 | - In 2024, the company made a new strategic investment of $1.5 million in the Texas Stock Exchange[38] - Subsequent to the quarter end, on October 30, 2024, the Board declared a quarterly cash dividend of $0.15 per share[59] - On October 28, 2024, Westwood entered a partnership to form Westwood Engineered Beta ("WEBs") to develop and market new ETF strategies, involving a $4 million investment for a non-controlling interest[60] Management's Discussion and Analysis of Financial Condition and Results of Operations AUM and revenues grew, but net income fell sharply due to non-recurring items and contingent consideration loss Assets Under Management (AUM) AUM increased 16% to $16.8 billion, driven by market appreciation despite net client outflows AUM by Category (in millions) | Category | As of Sep 30, 2024 | As of Sep 30, 2023 | Change | | :--- | :--- | :--- | :--- | | Institutional | $8,454 | $6,697 | 26% | | Wealth Management | $4,386 | $3,791 | 16% | | Mutual Funds | $3,912 | $3,924 | 0% | | Total AUM | $16,752 | $14,412 | 16% | Roll-Forward of Total AUM (Nine Months Ended Sep 30, 2024, in millions) | Description | Amount | | :--- | :--- | | Beginning AUM (Jan 1, 2024) | $15,459 | | Inflows | $1,723 | | Outflows | $(2,321) | | Net Client Flows | $(598) | | Market Appreciation | $1,891 | | Ending AUM (Sep 30, 2024) | $16,752 | Results of Operations Revenues increased due to higher AUM, but net income plummeted due to contingent consideration loss and non-recurring items Financial Performance Summary (in thousands) | Metric | Q3 2024 | Q3 2023 | Change | Nine Months 2024 | Nine Months 2023 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $23,719 | $21,880 | 8% | $69,139 | $66,552 | 4% | | Total Expenses | $24,213 | $23,333 | 4% | $70,870 | $63,390 | 12% | | Net Income (WHG) | $105 | $3,356 | (97)% | $158 | $6,944 | (98)% | - The significant drop in net income was primarily due to a loss on the remeasurement of contingent consideration ($1.8M in Q3, $3.7M YTD) and the non-recurrence of a $5.0 million life insurance proceed received in Q3 2023[80][81] - Employee compensation and benefits increased by $1.4 million for the nine-month period due to higher incentive compensation tied to increased AUM and additional headcount[81] Liquidity and Capital Resources The company maintains a strong, debt-free liquidity position with significantly improved operating cash flow - The company had cash and short-term investments of $48.3 million and no debt as of September 30, 2024[85] - For the nine months ended September 30, 2024, cash flow provided by operating activities was $12.2 million, compared to cash used in operating activities of $5.7 million in the same period of 2023[85] - Westwood Trust is required to maintain minimum restricted capital of $4.0 million and had approximately $12.3 million in excess of this requirement at quarter-end[86] Quantitative and Qualitative Disclosures About Market Risk No significant changes in market risk disclosures were reported from the previous year-end filing - There have been no significant changes in market risk disclosures since the Annual Report on Form 10-K for the year ended December 31, 2023[89] Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting remain effective - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[90] - There were no changes in internal controls over financial reporting during the quarter ended September 30, 2024, that materially affected, or are reasonably likely to materially affect, internal control[91] PART II OTHER INFORMATION This part covers legal proceedings, risk factors, share repurchases, and filed exhibits Legal Proceedings The company reports no legal proceedings for the period - None[92] Risk Factors No material changes to risk factors from the 2023 Annual Report on Form 10-K are reported - There have been no material changes to the risk factors previously disclosed in the Form 10-K for the year ended December 31, 2023[93] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased $0.3 million of its common stock in Q3 2024 under its authorized plan - During the three months ended September 30, 2024, the Company repurchased 21,879 shares of its common stock for an aggregate purchase price of $0.3 million[55][94] Share Repurchases in Q3 2024 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2024 | 6,919 | $12.30 | | August 2024 | 9,924 | $12.52 | | September 2024 | 5,036 | $12.73 | - As of September 30, 2024, there is $0.5 million of shares that may yet be repurchased under the company's plan[54] Exhibits This section lists filed exhibits, including SOX certifications and iXBRL financial data - Exhibits filed include CEO and CFO certifications pursuant to Exchange Act Rule 13a-14(a) and Section 1350 of the Sarbanes-Oxley Act of 2002[98] - The filing includes financial information formatted in iXBRL, including the Condensed Consolidated Balance Sheets, Statements of Comprehensive Income, Stockholders' Equity, Cash Flows, and Notes[98]