Westwood Holdings Group, Inc. (NYSE:WHG) Q1 2023 Earnings Convention Name April 26, 2023 4:30 PM ET
Jill Meyer – SVP, Director, Fiduciary Companies, Authorized, & Comp
Brian Casey – Chief Government Officer
Terry Forbes – Chief Monetary Officer
Convention Name Members
Mac Sykes – Gabelli
Good day and thanks for standing by. Welcome to the Westwood Holdings Group First Quarter 2023 Earnings Convention Name. Presently, all individuals are in a listen-only mode. After the audio system’ presentation, there will probably be a question-and-answer session. [Operator Instructions] Please be suggested that at this time’s convention is being recorded.
I might now like handy convention over to your speaker at this time Jill Meyer, SVP, Director of Fiduciary Companies, Authorized, and Comp. It’s possible you’ll start.
Thanks and welcome to our first quarter 2023 earnings convention name. The next dialogue will embody forward-looking statements which are topic to recognized and unknown dangers, uncertainties, and different components, which can trigger precise outcomes to be materially completely different from these contemplated by the forward-looking statements.
Further data in regards to the components that might trigger such a distinction is included in our press launch issued earlier at this time in addition to in our Type 10-Q for the quarter ended March thirty first, 2023 that will probably be filed with the Securities and Change Fee.
We undertake no obligation to publicly replace or revise any forward-looking statements whether or not on account of new data, future occasions, or in any other case. You’re cautioned to not place undue reliance on forward-looking statements.
As well as, in accordance with SEC guidelines regarding non-GAAP monetary measures, the reconciliation of our financial earnings and financial earnings per share to essentially the most comparable GAAP measures is included on the finish of our press launch issued earlier at this time.
On the decision at this time now we have Brian Casey, our Chief Government Officer; and Terry Forbes, our Chief Monetary Officer.
I’ll now flip the decision over to Brian Casey.
Good afternoon and thanks for listening to our quarterly earnings name. April 1st marked Westwood’s fortieth anniversary, which we celebrated with our founder Susan Byrne, a lot of our workers, and long-term shoppers.
Westwood was based 4 many years in the past with a bedrock of disciplined investing ideas, designed to generate alpha, with out taking extreme threat. This method has constantly allowed our shoppers to face up to the vagaries of market cycles as we assist them obtain their long-term monetary objectives.
Our ideas have withstood the check of time and have confirmed their worth year-after-year. We’re very proud to have enabled shoppers to navigate a number of the most difficult markets in historical past and we stand prepared to assist them confront and overcome market obstacles in these unsure occasions.
We accomplished the acquisition of Salient Companions final November and that is the very first full quarter for our mixed enterprise together with Salient’s vitality infrastructure, tactical absolute return, actual property, and personal funding capabilities.
Salient additionally introduced nice individuals and synergistic distribution to Westwood. Included in our first quarter outcomes have been bills of $280,000 representing the remaining Salient transaction prices.
As a part of the Salient transaction, we acquired a 47% possession stake in Broadmark Asset Administration. These taxable absolute return methods have been key to the acquisition. We actually like Broadmark’s monitor report, strong shopper base, and development potential. We’re happy to report that in the course of the quarter, we bought a majority curiosity in Broadmark and now personal almost 80%. We’re excited to accomplice with administration to develop the enterprise collectively over the following a number of years.
US equities rallied early within the quarter, however the market quickly bumped into difficulties; uneven company earnings, combined financial information, and a banking disaster slowed market momentum. Sticky inflation and a good labor market saved the Ate up the trail of further rate of interest will increase, however regardless of all this turmoil, home fairness markets ended the quarter in constructive territory.
In opposition to the backdrop of market volatility and uncertainty, 80% of our US worth methods outperformed their respective benchmarks and added to their strong long-term monitor data. For trailing one, 5, and 10-year durations, these US worth methods with monitor data extending into these durations all got here out forward.
Amongst our Morningstar friends, 60% of our US worth funds are prime quartile for one yr and considered one of our latest mutual funds, Westwood High quality AllCap landed within the ninth percentile for one yr, whereas High quality SmallCap ranked eighth percentile.
Inside the multi-asset group, our technique spot by way of fairness market volatility, fluctuating fastened revenue charges, and enormous gaps in credit score spreads. Multi-assets defensive posture led to underperformance relative to blended benchmarks, however our monitor report stays strong over the long run.
For merchandise with three-year data, three of our 4 mutual funds, together with our largest technique revenue alternative ranked within the prime 20% within the Morningstar peer classes and are rated 4 or 5 stars. As well as our excessive revenue fund each six percentile Morningstar peer efficiency for trailing three years and was simply named as considered one of 2023’s finest US taxable bond mutual funds by Investor’s Enterprise Day by day.
Our multi-asset groups’ funding method applies top-down and bottom-up analytical instruments with a deal with draw back safety and its strategic and tactical allocation choices have produced strong long-term outcomes. Given the potential for dispersion of returns round asset courses, our suite of multi-asset merchandise is nicely positioned to thrive within the present market surroundings and ship engaging risk-adjusted absolute returns.
Our new Salient MLP and vitality infrastructure international actual property and choose revenue methods added to their strong efficiency data, however weren’t proof against this quarter’s volatility. Our midstream vitality portfolios needed to endure greater than a 15% swing from peak to trough for crude oil costs in the course of the quarter and a 50% drop in pure gasoline costs.
Yields and returns stay engaging throughout the asset class and supply a aggressive different significantly as provides normalize and better costs possible comply with. We have been happy with the efficiency of World Actual Property and choose revenue. After declining in 2022, REIT frequent shares and REIT preferreds rebounded early however gave again most of their constructive efficiency by quarter finish. Our Choose Earnings merchandise seeks engaging revenue with cumulative most well-liked traits increased absolute yields relative to the 10-year US treasury and traditionally low correlation to rates of interest.
We consider that these methods can present buyers with different sources of revenue actual belongings with inflation safety, low correlations to conventional asset courses and the flexibility to mitigate market volatility. Our wealth administration technique has delivered combined efficiency. Our newer excessive alpha product rebounded strongly, however our older extra defensive choose fairness methods didn’t maintain tempo with the market pushed increased primarily by the S&P 500 prime 10 shares. Widespread expectations for a unstable 2023 underscore the necessity to implement good threat administration and our wealth methods are positioned to protect capital with sturdy draw back seize and a flight to security traits.
Shifting to distribution. Institutional flows have been comparatively flat with a internet outflow of $18 million. The outflow was largely the results of a shopper rebalancing in massive cap. As we assess the outlook for shopper retention, the relative lack of terminations coupled with sturdy product efficiency signifies that we’re nicely positioned to seize flows in a greater surroundings for equities. Our efficiency in SmallCap and SMidCap will get us into guide searches and our pipeline continues to construct together with outlined contribution plan wins, because of guide approvals and the introduction a couple of years in the past of well-priced collective funds designed particularly to accommodate DC plans.
SmallCap and SMidCap each loved constructive flows this previous quarter. In 2023, we’ll proceed to leverage our know-how investments and relationships to extend direct gross sales alternatives and broaden outsourced CIO relationships. Along with rising our core US worth franchise and our multi-asset suite, we’re desirous to broaden our footprint with our new Salient vitality and actual asset capabilities in addition to Broadmark’s tactical methods.
Middleman channel gross inflows of $178 million have been absolutely offset leading to internet outflows of $171 million. Business-wide flows and threat belongings throughout most funding classes have been down and our funds skilled related tendencies. Actually redemptions within the prime 10 funds throughout the trade have been all equity-focused funds, whereas 18 of the highest 20 best-selling funds have been fastened revenue funds.
Wanting ahead, we put in processes to place our distribution professionals to reap the benefits of rebounds in investor curiosity and to generate constructive asset flows. We strongly consider that the brand new broader lineup affected by the Salient transaction will probably be a significant addition to our distribution efforts. Our middleman group is changing into absolutely built-in and is cross-training on Westwood Salient and Broadmark methods, whereas sharing one another’s gross sales successes and finest practices. We’re actively working to lift consciousness of our broader product set inside established channels and this sometimes takes a while.
Now we have seeded and are incubating a number of merchandise to increase our vitality and infrastructure experience. The technique is concentrated on vitality infrastructure revenue, international raise in infrastructure and sustainable vitality. The markets are extremely unsure, however our engagement with monetary advisers and consultants is excessive and accelerating. Our middleman distribution group accomplished over 660 distinctive conferences and most significantly executed about half a dozen nationwide adviser calls, representing interactions with actually 1000’s of monetary advisers.
Our important investments in know-how make sure that our distribution effort is concentrated and environment friendly, whereas maximizing affect with monetary advisers and serving to buyers construct higher portfolios to realize their monetary objectives. We’re laying groundwork to capitalize on gross sales alternatives throughout our suite of merchandise when the present threat antagonistic surroundings eases.
Our wealth administration enterprise began the yr slowly posting detrimental general flows however shopper retention was sturdy right here too. Westwood Belief confronted headwinds as excessive internet value buyers delayed choices, pending clear alerts concerning the well being of the economic system. Many purchasers and potential shoppers are entrepreneurs, who intend to promote their corporations and the mix of upper rates of interest and a difficult financing surroundings has slowed down many transactions. Regardless of these roadblocks, our excessive internet value pipeline stays wholesome with greater than one-third rated as late-stage alternatives.
I am happy to report that we have initiated a brand new relationship with Vista Financial institution which lately acquired Charis Financial institution our accomplice at Westwood Personal Financial institution. Vista Financial institution enjoys a strong fame as an entrepreneur’s financial institution and serves North Central and West Texas by way of its 14 banking areas. Vista Financial institution has a 111-year historical past and we look ahead to constructing a strategic partnership in sustaining our shareholder relationship with them.
Within the spirit of our revolutionary tradition, as we hunt for tactics so as to add worth to shoppers in periods of market misery or dislocation. Now we have launched a regional financial institution technique for our excessive internet value shoppers. Our sturdy elementary analysis capabilities enabled us to launch the technique in a short time, on condition that many sturdy regional banks all of a sudden started buying and selling at very sharp reductions to their intrinsic values.
Earlier than the collapse of Silicon Valley Financial institution, our funding methods have been nicely underway within the banking sector, however as inventory costs went by way of a direct dramatic correction. Our funding group began buying shares of banks we consider will probably be long-term winners. This new technique gives shoppers with concentrated manner for our shoppers to reap the benefits of this chance.
In abstract, regardless of final yr’s tough market spilling into this yr, Westwood stays laser-focused on execution. Stable funding efficiency, wonderful shopper service and quickly integrating the Salient acquisition are elementary to our plan. Our funding groups proceed their disciplined funding processes. Our distribution and shopper service people are centered on retaining and including shoppers, and our whole enterprise is tough at work integrating Salient Companions.
It stays to be seen what the markets ship over the approaching yr. We anticipate volatility to proceed, and we consider our disciplined processes centered on high quality put us in an incredible place to draw new shoppers because the economic system improves. We’re trying ahead to our newly expanded suite of merchandise serving us nicely this yr and recognize your assist.
Thanks Brian and good afternoon everybody. In the present day we reported whole revenues of $22.7 million for the primary quarter of 2023, in comparison with $20.5 million within the fourth quarter and $17.2 million within the prior yr’s first quarter. Revenues have been increased than the fourth quarter and final yr’s first quarter, reflecting increased common belongings beneath administration following our 2022 acquisition of Salient Companions asset administration enterprise.
First quarter internet revenue of $0.7 million, or $0.09 per share, in contrast favorably with a internet lack of $3.1 million, or $0.40 per share within the fourth quarter as a result of increased revenues and decrease bills, primarily associated to our 2022 acquisition of Salient Companions asset administration enterprise, together with roughly $5.3 million of acquisition-related bills within the prior yr quarter.
Non-GAAP financial earnings have been $3.6 million, or $0.45 per share within the present quarter versus a lack of $0.7 million, or $0.09 per share within the fourth quarter. First quarter internet revenue of $0.7 million, or $0.09 per share in contrast favorably with final yr’s first quarter internet revenue of $0.1 million, or $0.01 per share totally on increased revenues partially offset by increased bills primarily worker compensation and advantages bills following our 2022 acquisition of Salient Companions asset Administration enterprise.
Financial earnings for the quarter have been $3.6 million or $0.45 per share in contrast with $1.9 million or $0.24 per share within the first quarter of 2022. Agency-wide belongings beneath administration and advisement totaled $16.2 billion at quarter finish, consisting of belongings beneath administration of $15 billion and belongings beneath advisement of $1.2 billion.
Belongings beneath administration consisted of institutional belongings of $7 billion or 47% of the full, wealth administration belongings of $3.8 billion or 25% of the full and mutual fund belongings of $4.1 billion or 28% of the full.
Over the quarter, we skilled market appreciation of $0.3 billion and internet outflows of $145 million. Belongings beneath advisement remained comparatively flat at $1.2 billion quarter-over-quarter. Our monetary place continues to be very strong with money and short-term investments at quarter finish totaling $32.3 million and a debt-free steadiness sheet.
Happy to announce that, our Board of Administrators permitted a quarterly money dividend of $0.15 per share payable on July 3, 2023 to stockholders of report on June 2, 2023. That brings our ready feedback to a detailed.
We encourage you to overview our investor presentation now we have posted on our web site reflecting quarterly highlights, in addition to a dialogue of our enterprise product improvement and longer-term tendencies in revenues and earnings.
We thanks to your curiosity in our firm, and we’ll open the road to questions.
Thanks. [Operator Instructions] Our first query comes from Mac Sykes with Gabelli. It’s possible you’ll proceed.
Hello, Brian. Good afternoon, everybody.
I simply — if I have been to consider the development of margins this yr, may you perhaps speak about it from maybe if AUM simply stays flat for the remainder of the yr? After which that is one state of affairs after which perhaps maybe one other state of affairs natural development and the markets are just a little extra favorable. How do you see the margins progressing sort of a greater prime line surroundings? Thanks.
Yeah. So Mac, I might say with AUM staying the place it’s I might anticipate that we might see some margin enlargement as we deal with prices particularly within the compensation and advantages line merchandise. And natural development, once more, I might anticipate to see some margin enlargement as we’re in a position to reap the benefits of the size that our platform affords along with what we acquired with Salient, which was once more anticipated to leverage off of our present platform.
And I might simply comply with on with that Mac and level out that within the first quarter we had almost $1 million of non-recurring gadgets that impacted our earnings specifically the aforementioned $280,000 of deal price, authorized bills of $421,000 a headcount discount and pressure expense of $205,000 after which a small loss on a seed cash funding of $91,000.
I might additionally prefer to report that we held our Annual Shareholders Assembly at this time and all gadgets have been permitted. I wish to thank our loyal long-term shareholders to your assist and we’ll endeavor to ship outcomes for you within the yr forward. And eventually, I need to shut with a couple of feedback on efficiency gross sales and gross sales know-how.
Efficiency for our US worth has been wonderful. They’ve actually delivered particularly within the development areas of SmallCap and SMidCap. Not solely did each of those merchandise have nice quarters, however their trailing one yr efficiency is over 1,100 foundation factors forward for SmallCap and over 600 foundation factors forward for SMidCap. So this units us up very well for elevated search exercise in each merchandise, and we do hope to see extra flows from the OCIO channel for our SMid product.
And with respect to gross sales most CIOs and strategists on the market are calling for a recession and decrease fairness market ranges from right here and patrons of equities have retreated from shopping for equities in favor of brokered CDs, high-yield money administration, fastened revenue. And most of our merchandise are equity-oriented so gross sales have been slower on this fairness threat off surroundings.
However our inside work suggests a shallow recession and our gross sales group is outlaying the good groundwork for when flows and purchaser preferences shift again in the direction of equities. So our prospect and adviser engagement is increased than it is ever been. And our gross sales know-how has improved remarkably with the mixing of Salient. Salient actually spent hundreds of thousands implementing a gross sales force-driven system. And it permits us to see primary all our flows from mutual funds to SMA, UMA, personal funds, separate accounts multi function place. It permits us to see centered rep lifts and assembly tags to enhance our effectivity and our monitoring, gross sales lead era instruments like Dakota Magnifi and AMP and a dashboard for exercise by area and by rep in actual time on daily basis.
So this improved information set has allowed us to be extra collaborative in attacking institutional middleman in a brand new class, which we name InstaMediary, which is de facto the massive RIAs or asset homeowners who behave extra like institutional allocators than one-off product gross sales. And we have put in a firm-wide journey calendar now to assist our gross sales and shopper service groups maximize their assembly alternatives by making extra environment friendly use of our portfolio managers journey time away from the workplace.
And what now we have ended up with collectively now is a chance set that is extra diversified than it is ever been cut up between wirehouse, broker-dealer, RIA, clearing corporations, TAMP and establishments. And now we have the most important gross sales pressure in our historical past. We’re excited to see how this unfolds within the years forward. April has been a greater institutional movement month. We’re now constructive year-to-date on institutional flows. And we have lately uncovered some new search alternatives.
So we recognize your time. I do not know if there’s some other questions operator?
No extra within the queue for questions.
Okay, superb. Nicely thanks all to your time. And please name myself or Terry if in case you have any additional questions or go to westwoodgroup.com. Thanks.
Thanks. This concludes at this time’s convention name. Thanks for taking part. It’s possible you’ll now disconnect.