Financial Performance Overview

Westwood Holdings Group, Inc. is an investment management firm that provides services to institutional investors, mutual funds, individuals, and high net worth clients. The company’s revenues are primarily derived from fees based on a percentage of assets under management (AUM) and assets under advisement (AUA).

In 2024, Westwood reported total revenues of $94.7 million, a 6% increase from the prior year. This was driven by a 9% increase in average AUM to $16.3 billion. The company’s net income attributable to Westwood Holdings Group, Inc. declined 77% to $2.2 million, primarily due to a $4.9 million loss from changes in the fair value of contingent consideration related to a previous acquisition.

Westwood’s financial position remains strong, with $44.6 million in liquid cash and investments and no debt as of December 31, 2024. The company paid $5.4 million in dividends to common stockholders during the year.

Revenue and Profit Trends

Westwood’s revenues are primarily generated from asset-based advisory fees, which accounted for 73.5% of total revenues in 2024. Trust fees made up another 22.6% of revenues. The company also earns performance-based fees and other revenues.

Average AUM increased 9% in 2024 to $16.3 billion, driven by $1.9 billion in market appreciation. However, the company experienced net outflows of $772 million, primarily from its LargeCap Value and SmallCap Value strategies. AUA decreased by $119 million to $960 million.

While revenues grew 6% in 2024, net income attributable to Westwood Holdings Group, Inc. declined 77% to $2.2 million. This was largely due to a $4.9 million loss from changes in the fair value of contingent consideration related to Westwood’s 2022 acquisition of Salient Partners’ asset management business. Excluding this non-cash item, the company’s Economic Earnings (a non-GAAP measure) decreased 62% to $7.0 million.

The decline in profitability was also impacted by a 6% increase in employee compensation and benefits expenses, which make up the largest portion of Westwood’s cost structure.

Strengths and Weaknesses

Westwood’s key strengths include:

• Strong investment performance, with several strategies outperforming their benchmarks in 2024
• Diversified client base across institutional, wealth management, and mutual fund channels
• Solid financial position with ample liquidity and no debt
• Experienced investment teams with an average of over 20 years of experience

Weaknesses and challenges include:

• Net client outflows, particularly in the LargeCap Value and SmallCap Value strategies
• Decline in profitability due to contingent consideration adjustments and rising expenses
• Concentration of revenues in a small number of clients, with the top 5 clients accounting for 36% of total revenues
• Competition in the investment management industry, which can pressure fee levels

Outlook and Future Prospects

Looking ahead, Westwood is focused on several strategic initiatives to drive growth and improve profitability:

• Launching new ETFs and developing innovative investment strategies through a partnership with WEBs Investments Inc.
• Continuing to build out its wealth management and institutional channels to diversify the client base
• Carefully managing expenses and seeking operational efficiencies
• Integrating the Salient acquisition to capture synergies and cross-selling opportunities

The company’s strong investment performance, experienced teams, and solid financial foundation provide a solid base for future growth. However, Westwood will need to address net client outflows, rising expenses, and competitive fee pressures to improve profitability and deliver value for shareholders.

Overall, Westwood remains a well-established investment management firm with a diversified business model. While 2024 was a challenging year financially, the company is taking steps to position itself for long-term success in a competitive industry.