Q4 2022 Westwood Holdings Group Inc Earnings Call
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Good day and welcome to the fourth quarter 2022, Westwood Holdings Group earnings Conference call. At this time, all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will then.
We're an automated message advising your hand is raised to withdraw your question. Please press star one one again please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker Ms. Julie Gerron General Counsel Council. Please go ahead.
Good afternoon, and thanks for listening to our quarterly earnings call before I jump into the details of the fourth quarter and the full year 2022. After celebrating 20 years as a public company last year. This year, we're celebrating yet another important milestone our 40th anniversary since we began back in <unk>.
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Western was founded by Susan Byrne, and New York with two colleagues, who had worked together at bankers Trust in the 19 seventies.
Westwood is from Westwood, California, which is the home of the UCLA Bruins and the legendary coach John wooden Susan.
Susan Graf gone to those games and always admired coaches sense of fairness integrity and teamwork. We have embraced coach was this pyramid is SaaS and strive to live the principles. He has bounced to his players and their pursuit of 10 NCAA basketball Championships.
Over the past four decades, we've enjoyed market ups have weathered market downs by sticking firmly to our investment discipline and running our company with the same standards that we look for in companies, where we invest our unquiet phones.
What's the experience gained over market cycles, our teams have embraced change navigated through business and market challenges and they have persevered and I couldnt be prouder of our team and my colleagues I've had the pleasure to work with over the past 30 years of our 40 year history.
I would also like to congratulate two of my long term colleagues Jackie family and Kim Count.
Who have retired from Westwood after more than 25 years of terrific service to our clients serving in many roles over their tenure.
We are rightfully on training both of these talented women and of the Westwood Hall of Fame or they will join the best of the best and Westwood's history. Thank.
Thank you both for your commitment to Westwood and best of luck to you and your next chapter.
Today's Westwood drive so much strength from years of investing in people and products, new technology, and M&A that enhance our ability to serve clients across multiple distribution channels and solidify our competitive position going forward.
One of our most significant investments with the acquisition of salient partners asset management business, which we completed last November we are all very enthusiastic about the opportunity ahead with our combined firm's future growth potential and I'll elaborate further towards the end of this call.
As for our investment performance many of Westwood's strategies closed out the year with strong fourth quarter results, including some notable highlights.
Several of our U S value strategies outperformed their benchmarks and personal top quartile peer rankings in their Morningstar universes.
Select equity strategies managed by our wealth team outperformed their benchmarks.
All of our multi asset strategies outperformed with several posting top quartile peer rankings.
This past year witnessed a rare feat bear markets roiling, both stocks and bonds, meaning that blended portfolios were hit both ways rather than say by diversification.
Fortunately in the fourth quarter delivered positive results to partially offset a tough 2022 for both equity and fixed income markets.
The S&P 500 was positive while the nasdaq's continued to set created attempting environment for stock pickers like US fixed income returns were helped by tightening credit spreads moderating inflation and a decline in future interest rate expectations against this backdrop I am pleased to report that all our strategies maintained solid performance.
For the quarter within our multi asset team our largest strategy income opportunity along with our newer total return high income and credit opportunity strategies finished ahead of their benchmarks for the quarter and the year the.
The multi asset team are poised our consistent investment approach that has yielded positive results for clients over multiple periods.
As of December 31, our primary multi asset strategies had earned four or five stars and the Westwood income opportunity fund <unk> landed in the 11th percentile for the quarter and morningstar's, 30% to 50% equity universe.
Longer term 357, and 10 year performance prices this strategy firmly in the top quartile.
Last year as a whole our total return mutual fund <unk> finished in the top third and for the last three years total return has ranked in the top 5% in Morningstar and top 2% any institutional investment database truly great numbers.
High income fund <unk> finished in the top decile for the quarter.
Starz high yield bond peers and shown in the top 2% for the trailing three years.
Our alternative income mutual fund <unk>, and IX, which has a large allocation of convertible securities often paired with short equity positions posted positive returns for the quarter amid a positive equity market and finished the quarter on the top quartile of Morningstar peers, and a relative value arbitrage category and posted nine.
<unk> percentile for the year.
This quarter multi asset teams newest strategy systematic large cap and small cap growth underperformed their benchmarks, the Russell 1000, and Russell 2000 growth indexes.
Both outperformed for the year, however, in our mutual fund the Westwood small cap growth fund Ws <unk> ranked in the top third out of 622 Morningstar small cap growth peers.
We're pleased to report for the first time on the salient energy and real estate strategies, and the hedged equity strategies and broad Mark.
The Westwood salient MLP SMA global real estate and real estate income strategies, all beat their respective benchmarks for the quarter and full year of 2022.
The global real estate mutual fund or.
<unk> X Y ranked in the 18th percentile among global real estate peers in Morningstar and achieve fifth percentile for the year.
Our two tactical equity strategies tactical growth in tactical plus sub advised by our majority owned subsidiary broad Mark asset management also performed well and delivered positive performance for the quarter.
Within our U S value team nearly all our strategies outperformed this quarter equity market shifted momentum from bearish or bullish and favorite companies with lower valuations and exposure to select and cyclical sectors.
Many large technology and higher quality companies underperformed and furthered our large cap strategy, which felt the drag of holdings in these areas.
However, trailing time periods for large cap value remain ahead of the Russell 1000 value index.
Our U S value strategies maintain our high quality bias in their portfolios.
With similar exposures to our large cap strategy mid cap has trailed for the quarter, but strongly outperformed the Russell midcap value index in 2022, our smid cap small cap and all cap strategies beat their benchmarks this quarter and for the year, our smid cap mutual fund Westwood quality Smid cap fund that'd be IHG amex.
Ranked in the 14th percentile on the Morningstar small blend category and our Smallcap mutual fund Westwood quality small cap that BHG FX ranked in the third percentile in the same category for the quarter.
Both strategies also posted strong 2022, Morningstar rankings with temps and 17th percentile rankings respectively.
Our all cap value mutual fund Westwood quality, all cap Con WQ AI ex finished in the 16 percentile for the quarter among morningstar's large value universe, which holds more than 200 funds and was in the top third for the year.
And investments institutional all cap value equity universe quality, all cap ranked in the 10th percentile for the quarter and finished in the top quartile for the year.
In addition, overall strong fourth quarter performance, all our U S value strategies with three and five year track records are outperforming over those trailing time periods as well.
Our wealth management strategies delivered mixed performance for the quarter as high Alpha underperformed, while dividends select and select equity outperformed the Russell 1000 value and Russell 3000 indices, respectively.
With a dividend yield thats, 40% higher than the S&P 500, and a strong three year track record dividends select remains an attractive alternative for high net worth clients seeking income and long term capital appreciation.
These two strategies select equity in dividends collect ranked in the 15th and 26 percentile for the quarter and their respective investment categories, all cap core equity and dividend focus both made it into the top quartile for the year in their respective categories as well sure.
Shifting now to distribution market forces and selected re balances primarily in large cap were the main drivers of institutional flows in the fourth quarter and 2022.
This quarter's institutional inflows of $187 million were offset by outflows of $329 million netting to outflows of $142 million with few terminations and outperforming in terms of client AUM retention, we are poised to recapture client flows and a positive rebalanced environment.
At the institutional strategy level Smid cap enjoyed positive flows this quarter driven primarily by the funding of our new outsourced CIO client account.
Small cap client rebalancing pushed quarterly flows negative two new consultant driven client wins funded in the quarter and our large cap value strategy also had a big client product.
Overall with few search opportunities in 2022, our team progressed with an improved sales win ratio over 2021.
We'll continue to focus on maintaining client AUM and pursuing new business activity with key consultant wherever and whenever U S value strategies are approved for new searches looking forward, we're driving toward positive institutional flows based on continued strong investment performance high client retention and improved sales and a more stable market.
Environment.
In the intermediary channel.
Firmly believe that the salient transaction will prove to be extremely meaningful to our intermediary distribution efforts with our new broader product lineup and enhanced platform availability we.
We envision significant synergies and opportunities emerging as we meld. The two legacy distribution groups together, we will provide updates on our progress in future earnings calls.
Turning to wealth management, our team had a strong fourth quarter in terms of new inflows for the quarter. The team had inflows of $109 million, which were offset by outflows of $257 million gross sales of $456 million for the full year represented an 11% increase over 2021 while growth.
Outflows declined 19%.
This past year, our team added several new client relationships, including two with assets exceeding $30 million. We believe we are uniquely positioned to gain share in our industry as people continue to flee the large banks in favor of more nimble organizations with a range of client oriented customized services.
As we emerge from a difficult market environment. Our wealth group is energized for what 2023 holds in store, we have recruited some great talent and have a strong team in place to gain market share. We continue to work aggressively as we invest in statewide marketing activities and increased our presence at an external facing organization.
Overall for the fourth quarter client flows generated by our institutional intermediary and wealth teams, including the addition of salient assets.
Wanted to a positive $3 1 billion with outflows of $816 million for.
For the year total flows, including the addition of salient assets aggregated $4 2 billion, partially offset by $2 4 billion in outflows.
Those markets are notoriously difficult to navigate last year Western remained focused on executing our plan, which included the strategic acquisition of salient partners asset management business. This transaction clearly strengthens our platform with the addition of highly complementary investment capabilities across energy infrastructure real estate tactical.
And private investments.
It's fastest access to more desirable investment strategies. This acquisition also significantly expands our distribution capabilities with little channel or client overlap.
In addition, we are adding a broad presence in the wire house channel to westwood's existing strong presence in the independent broker dealer RIAA and institutional channels are.
Our sales teams met last week and identified several large prospects to add to the pipeline.
Many of those opportunities will take a few meetings for closure, but there are some real positive momentum building.
Our expanded distribution team will leverage increased scale and broader private product availability.
Long with technical and marketing support to enhance our suite of offerings to a wide range of institutional intermediary and wealth management clients.
Integration efforts, which were carefully planned throughout 2022 are continuing across investments distribution operations and enterprise support functions. The integration has touch most areas of our expanded company and is proceeding on schedule. Thanks to the tremendous efforts of our many talented and dedicated professionals.
Deal related costs exceeded $7 million of which approximately $5 5 million in one time costs impacted the fourth quarter.
We also spent $1 6 million in the first quarter of 2023 to rationalize the broad Mark shareholder base and increased westwood's ownership and broad mark to nearly 80%.
Transaction is expected to result in significant accretion to our economic earnings per share by as much as 100% this year.
I believe this will prove to be one of the most impactful transactions in westwood's history for benefits to stakeholders are numerous including immediate accretion to economic earnings added breadth to our range of investment strategies.
Complementary distribution footprint with almost no overlap with westwood's existing distribution presence and a strong cultural and geographical fit well.
While much work remains to integrate our teams into the new Westwood, we eagerly anticipate the many benefits of this transaction and the opportunities that lie ahead of this call with january's market balance and a potential performance fee to be earned later this month, we can foresee revenues exceeding $95 million. This year provided we don't have another market down.
<unk> like we saw in 2022.
Also encouraging is that the salient products that carry higher fee rates, which will improve our overall Phoenix.
Salient.
Our assets under advisement are much bigger than we've historically seen at Westwood. So we've highlighted that for clarity.
To sum up our teams have spent a lot of time integrating the Spanish acquisition, and we're all meshing well as we get to know each other better we were pleased with our investment team's performance to close out 2022, and our wealth business is well positioned for growth in Texas, we like the business opportunities presented by our current strategies and can't wait to see what lies in store for us.
Over the next 40 years.
I'll now turn it over to Terry Forbes our CFO .
Thanks, Brian and good afternoon, everyone. Today, we reported total revenues of $20 5 million for the fourth quarter of 2022 compared to $19 4 million in the prior year's fourth quarter and $15 4 million in the third quarter of 2022.
The increase from the prior year was principally due to higher average assets under management.
The increase from the prior quarter was the result of higher average assets under management and higher performance fees.
Fourth quarter net loss of $3 1 million compared to the third quarter's net loss of $1 2 million due to higher expenses, primarily related to the acquisition of $5 3 million.
Unrealized depreciation on private investments, partially offset by higher revenues economic earnings or loss and non-GAAP metric was a loss of <unk> 7 million or <unk> <unk> per share compared to the third quarter's economic earnings of $8 million or <unk> 10 per share.
Fourth quarter net loss of $3 1 million or <unk> 40 per share compared to the prior year's fourth quarter net income of $2 8 million or <unk> 36 per share on a higher expenses, primarily related to the acquisition of $5 3 million and unrealized depreciation on private investments, partially offset by higher revenues.
Economic earnings or loss and non-GAAP metric was a loss of <unk> 7 million for the current quarter or <unk> <unk> per share.
<unk> to earnings of $4 7 million or <unk> 59 per share in the fourth quarter of 2021.
For fiscal 2022 total revenues of $68 7 million compared to $73 1 million in 2021. The decrease was attributable to a decrease in trust fees, primarily due to lower average assets under management and lower performance fees.
2022, net loss of $4 6 million compared to 2021 net income of $9 8 million on lower revenues higher expenses, primarily related to the acquisition of $7 1 million and higher realized gains on private investments in 2021.
Diluted EPS was a loss of <unk> 59 per share compared with earnings of $1 23 per share for 2021.
Economic EPS of <unk> 45 per share compared with $2 20 per share in 2021.
Firm wide assets under management and advisement totaled $16 1 billion at quarter end consisted of assets under management of $14 8 billion in assets under advisement of one 3 billion.
Assets under management consisted of institutional assets of $6 8 billion or 46% of the total private wealth assets of $3 7 billion or 25% of the total and mutual fund assets of $4 3 billion or 29% of the total.
Over the year, we experienced net inflows of $1 8 billion and market depreciation of one 5 billion.
Net inflows for print.
Due to $2 7 billion of AUM from the acquisition of saline.
Assets under advisement rose from <unk> 3 billion prior quarter, principally due to $9 billion of AUO.
<unk> acquired in the salient transaction.
Our financial position continues to be very solid with cash and short term investments at quarter end totaling $39 2 million and a debt free balance sheet.
I'm happy to announce that our board of directors approved a quarterly cash dividend of <unk> 15 per share payable on April three 2023 to stockholders of record on March one 2023.
This represents an annualized dividend yield of five 1% as of the closing price on February 14th.
That brings our prepared comments to a close we encourage you to review our investor presentation, we have posted on our website.
Reflecting fourth quarter and fiscal 'twenty, two highlights as well as the discussion of our business product development and longer term trends in revenues earnings and dividends.
Thank you for your interest in our company and we'll open the line to questions.
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Operator are there are no questions Im showing no questions. At this time I will turn the call back over to management for any further remarks.
Okay somehow the conference call team here left out.
Amble that Julian Garen normally reed, so I feel as I need to read this.
So.
Thanks.
Sure listen to our fourth quarter call.
The preceding discussion included forward looking statements are subject to known and unknown risks uncertainties and other factors, which may cause actual results to be materially different from those contemplated by the forward looking statements additional information concerning the factors that could cause such a difference is included in our press release issued earlier today as well.
And our Form 10-K for the year end December 31, 2022 that is filed with the Securities and Exchange Commission.
Undertake no obligation to publicly update or revise any forward looking statements whether as a result of new information future events or otherwise you are cautioned not to place undue reliance on forward looking statements. In addition in accordance with SEC rules concerning non-GAAP financial measures. The reconciliation of our economic earnings and economics earnings per share to the most.
The comparable GAAP measures is included at the end of our press release issued earlier today.
Somehow got left off the front of the call. So wanted to make sure I included it.
And I'll just conclude with a few remarks since we have no questions.
This was an unusual quarter for us for sure.
Had significant deal costs associated with the salient transaction, which were over $7 million for the year and about $5 $5 million of that hit in the fourth quarter. We also took a write down on our ownership interest in <unk> Bank.
<unk> Bank is in the process of being acquired by Vista Bank.
Which is 100 Euro bank with great financials, we're excited to partner with Vista Bank going forward and in fact.
They are subleasing, some of our space and we'll be sharing some of our common areas. So we anticipate a much higher level of engagement and expect to have a great opportunity to cross refer business to each other.
The good news on revenues for the salient transaction is that they came in as expected with over $3 million in revenues for the brief period from end of November 18th to December 31.
Our pipeline looks good in that institutional theres about $350 million of late stage and early stage opportunities. The wealth business has over $100 million of near term opportunities.
And the intermediary team is very excited they met last week in Florida had a sales meeting.
I went to New York and met with one of the wire houses spent a whole week there.
They are truly fans of salient in broad market.
So the team is really excited about the prospects going forward.
Added some interesting technology to help us better identify leads and improve our success rate.
So that concludes our call for today, if you have any further questions and you want to reach out directly to myself or Terry. Please do so or visit our website at Westwood Green Dot com.
Thanks for your time.
Thank you all for participating. This concludes today's program you may now disconnect.
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