000116500212/3110-Q3/31/20212021Q1FALSEfalse7,1446,4620.010.0125,000,00025,000,00010,314,30510,182,5838,906,1528,904,9021,408,1521,277,6810.10.43350,0005,398,100642,000The following table presents the total stock-based compensation expense recorded for stock-based compensation arrangements for the periods indicated (in thousands):
Three Months Ended March 31,
2021 2020
Service condition stock-based compensation expense $ 1,491  $ 2,067 
Performance condition stock-based compensation expense 231  419 
Stock-based compensation expense under the Plan 1,722  2,486 
Canadian Plan stock-based compensation expense —  130 
Total stock-based compensation expense $ 1,722  $ 2,616 
1,4912,0672314191,7222,486—1301,7222,61613.22.5
Restricted Stock Subject Only to a Service Condition
We calculate compensation cost for restricted stock grants by using the fair market value of our common stock at the date of grant, the number of shares issued and an adjustment for restrictions on dividends. This compensation cost is amortized on a straight-line basis over the applicable vesting period, with adjustments for forfeitures recorded as they occur.
The following table details the status and changes in our restricted stock grants subject only to a service condition for the three months ended March 31, 2021:
Shares Weighted Average
Grant Date Fair Value
Non-vested, January 1, 2020 396,598  $ 48.31 
Granted 262,373  $ 27.39 
Vested (140,974) $ 53.06 
Forfeited (26,372) $ 39.72 
Non-vested, March 31, 2021
491,625  $ 36.25 
396,59848.31262,37327.39140,97453.0626,37239.72491,62536.25
Restricted Stock Subject to Service and Performance Conditions
Under the Plan, certain key employees were provided agreements for grants of restricted shares that vest over multiple year periods subject to achieving annual performance goals established by the Compensation Committee of Westwood’s Board of Directors. Each year the Compensation Committee establishes specific goals for that year’s vesting of the restricted shares. The date that the Compensation Committee establishes annual goals is considered to be the grant date and the fair value measurement date to determine expense on the shares that are likely to vest. The vesting period ends when the Compensation Committee formally approves the performance-based restricted stock vesting based on the specific performance goals from the Company’s audited consolidated financial statements. If a portion of the performance-based restricted shares does not vest, no compensation expense is recognized for that portion and any previously recognized compensation expense related to shares that do not vest is reversed.
The following table details the status and changes in our restricted stock grants subject to service and performance conditions for the three months ended March 31, 2021:
Shares Weighted Average
Grant Date Fair Value
Non-vested, January 1, 2020 80,975  $ 49.73 
Vested (35,275) $ 55.11 
Non-vested, March 31, 2021
45,700  $ 45.58 
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____________________________________________________________________________________________________
 
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________________________________
FORM 10-Q
____________________________________________________________________________________________________
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2021
OR
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from              to             .
Commission file number 1-31234
____________________________________________________________________________________________________
WESTWOOD HOLDINGS GROUP, INC.
(Exact name of registrant as specified in its charter)
____________________________________________________________________________________________________
Delaware 75-2969997
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
200 CRESCENT COURT, SUITE 1200
DALLAS, Texas 75201
(Address of principal executive office) (Zip Code)
(214) 756-6900
(Registrant’s telephone number, including area code)
____________________________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol Name of Each Exchange on Which Registered
Common stock, par value $0.01 per share WHG New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐    No  ☒
Shares of common stock, par value $0.01 per share, outstanding as of April 23, 2021: 8,296,956.
____________________________________________________________________________________________________
 


WESTWOOD HOLDINGS GROUP, INC.
INDEX
 
PART I
FINANCIAL INFORMATION
PAGE
Item 1.
Financial Statements
1
2
3
4
5
Item 2.
14
Item 3.
22
Item 4.
22
PART II
23
Item 1.
23
Item 1A.
23
Item 2.
23
Item 6.
24
25
 
 
 
 

 



WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share amounts)
(Unaudited)
March 31,
2021 		December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents $ 12,989  $ 13,016 
Accounts receivable 11,744  9,450 
Investments, at fair value 73,880  69,542 
Prepaid income taxes 336  1,700 
Other current assets 2,588  2,606 
Total current assets 101,537  96,314 
Investments 4,455  8,154 
Noncurrent investments at fair value 3,981  3,527 
Goodwill 16,401  16,401 
Deferred income taxes 1,418  1,468 
Operating lease right-of-use assets 5,796  6,103 
Intangible assets, net 13,129  13,535 
Property and equipment, net of accumulated depreciation of $8,099 and $8,056 2,488  3,186 
Other long-term assets 459  464 
Total assets $ 149,664  $ 149,152 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 2,431  $ 1,627 
Dividends payable 1,109  810 
Compensation and benefits payable 2,426  7,448 
Operating lease liabilities 1,420  1,718 
Accrued stock repurchases 359  — 
Income taxes payable 2,450  191 
Total current liabilities 10,195  11,794 
Accrued dividends 230  526 
Noncurrent operating lease liabilities 5,794  6,121 
Total long-term liabilities 6,024  6,647 
Total liabilities 16,219  18,441 
Commitments and contingencies (Note 10)
Stockholders' Equity:
Common stock, $0.01 par value, authorized 25,000,000 shares, issued 10,630,452 and outstanding 8,313,003 shares at March 31, 2021; issued 10,500,549 and outstanding 8,326,948 shares at December 31, 2020
107  105 
Additional paid-in capital 211,988  210,268 
Treasury stock, at cost - 2,317,449 shares at March 31, 2021; 2,173,559 shares at December 31, 2020
(80,255) (77,967)
Retained earnings (accumulated deficit) 1,605  (1,695)
Total stockholders' equity 133,445  130,711 
Total liabilities and stockholders' equity $ 149,664  $ 149,152 
 
See Notes to Condensed Consolidated Financial Statements.

1

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data and share amounts)
(Unaudited)
 
Three Months Ended March 31,
2021 2020
REVENUES:
Advisory fees:
Asset-based $ 10,450  $ 11,102 
Performance-based 1,959  — 
Trust fees 6,065  5,951 
Other, net (155) (384)
Total revenues 18,319  16,669 
EXPENSES:
Employee compensation and benefits 11,548  12,668 
Sales and marketing 230  478 
Westwood mutual funds 391  515 
Information technology 1,992  2,031 
Professional services 1,317  1,193 
General and administrative 2,072  2,306 
(Gain) loss on foreign currency transactions —  (2,938)
Total expenses 17,550  16,253 
Net operating income 769  416 
Realized gains on private investments 8,325  — 
Net change in unrealized appreciation (depreciation) on private investments (2,326) (995)
Investment income 196  544 
Other income 50  34 
Income (loss) before income taxes 7,014  (1)
Income tax expense (benefit) 2,913  (1,103)
Net income $ 4,101  $ 1,102 
Other comprehensive income (loss):
Foreign currency translation adjustments —  (3,242)
Total comprehensive income (loss) $ 4,101  $ (2,140)
Earnings per share:
Basic $ 0.52  $ 0.13 
Diluted $ 0.52  $ 0.13 
Weighted average shares outstanding:
Basic 7,887,044  8,414,393 
Diluted 7,917,390  8,458,473 
 
See Notes to Condensed Consolidated Financial Statements.

2

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Three Months Ended March 31, 2021 and 2020
(In thousands, except share amounts)
(Unaudited)

Common Stock, Par Additional Paid-In Capital Treasury Stock Retained Earnings (Accumulated Deficit) Total
Shares Amount
Balance, December 31, 2020 8,326,948  $ 105  $ 210,268  $ (77,967) $ (1,695) $ 130,711 
Net income
—  —  —  —  4,101  4,101 
Issuance of restricted stock, net of forfeitures
129,905  2  (2) —  —  — 
Dividends declared ($0.10 per share) —  —  —  —  (801) (801)
Stock-based compensation expense
—  —  1,722  —  —  1,722 
Purchases of treasury stock
(92,491) —  —  (1,404) —  (1,404)
Restricted stock returned for payment of taxes
(51,359) —  —  (884) —  (884)
Balance, March 31, 2021 8,313,003  $ 107  $ 211,988  $ (80,255) $ 1,605  $ 133,445 

Common Stock, Par Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Total
Shares Amount
Balance, December 31, 2019 8,881,086  $ 103  $ 203,441  $ (63,281) $ (2,943) $ 10,967  $ 148,287 
Net income
—  —  —  —  —  1,102  1,102 
Foreign currency translation adjustments
—  —  —  —  (3,242) —  (3,242)
Issuance of restricted stock, net of forfeitures
241,533  3  (3) —  —  —  — 
Dividends declared ($0.43 per share)
—  —  —  —  —  (3,903) (3,903)
Stock-based compensation expense
—  —  2,616  —  —  —  2,616 
Reclassification of compensation liability to be paid in shares
—  —  213  —  —  —  213 
Purchases of treasury stock
(272,059) —  —  (4,867) —  —  (4,867)
Purchase of treasury stock under employee stock plans (27,474) —  —  (697) —  —  (697)
Restricted stock returned for payment of taxes
(43,045) —  —  (1,120) —  —  (1,120)
Balance, March 31, 2020 8,780,041  $ 106  $ 206,267  $ (69,965) $ (6,185) $ 8,166  $ 138,389 





See Notes to Condensed Consolidated Financial Statements.

3

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,101  $ 1,102 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation 207  233 
Amortization of intangible assets 406  423 
Net change in unrealized (appreciation) depreciation on investments 2,432  1,133 
Realized gains on private investments (8,325) — 
Stock based compensation expense 1,722  2,616 
Deferred income taxes 40  (1,643)
Non-cash lease expense 307  305 
Gain on asset disposition (148) — 
Change in operating assets and liabilities:
Net (purchases) sales of trading securities (4,444) 12,916 
Accounts receivable (2,295) 1,844 
Other current assets 23  326 
Accounts payable and accrued liabilities 803  (469)
Compensation and benefits payable (5,026) (7,356)
Income taxes payable 3,630  475 
Other liabilities (478) (383)
Net cash (used in) provided by operating activities (7,045) 11,522 
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of investments 9,258  — 
Sale of property and equipment 501  — 
Purchase of property and equipment (9) (16)
Purchase of investments (15) — 
Net cash provided by (used in) investing activities 9,735  (16)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock (1,045) (3,947)
Purchase of treasury stock under employee stock plans —  (697)
Restricted stock returned for payment of taxes (884) (1,120)
Cash dividends paid (801) (7,324)
Net cash used in financing activities (2,730) (13,088)
Effect of currency rate changes on cash 13  (3,068)
Net Change in Cash and Cash Equivalents (27) (4,650)
Cash and cash equivalents, beginning of period 13,016  49,766 
Cash and cash equivalents, end of period $ 12,989  $ 45,116 
Supplemental cash flow information:
Cash paid during the period for income taxes $ 769  $ 64 
Accrued dividends $ 1,339  $ 5,245 
Accrued purchases of treasury stock $ 359  $ 920 

See Notes to Condensed Consolidated Financial Statements.

4

WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF THE BUSINESS
Westwood Holdings Group, Inc. (“Westwood”, “the Company”, “we”, “us” or “our”) was incorporated under the laws of the State of Delaware on December 12, 2001. Westwood manages investment assets and provides services for its clients through its wholly-owned subsidiaries, Westwood Management Corp. and Westwood Advisors, L.L.C. (referred to hereinafter together as “Westwood Management”), Westwood Trust and Westwood International Advisors Inc. (“Westwood International Advisors”). On July 27, 2020, Westwood’s Board of Directors approved the liquidation of Westwood International Advisors, which occurred effective September 30, 2020.
Westwood Management provides investment advisory services to institutional clients, a family of mutual funds called the Westwood Funds®, other mutual funds, individual investors and clients of Westwood Trust. Prior to its liquidation, our wholly owned subsidiary, Westwood International Advisors, provided investment advisory services to institutional clients, the Westwood Funds®, other mutual funds, the UCITS Fund (which was liquidated in June 2020), individual investors and clients of Westwood Trust. Westwood Trust provides trust and custodial services and participation in self-sponsored common trust funds (“CTFs”) to institutions and high net worth individuals. Revenue is largely dependent on the total value and composition of assets under management ("AUM"). Accordingly, fluctuations in financial markets and in the composition of AUM impact our revenues and results of operations.
Westwood Management is registered with the Securities and Exchange Commission ("SEC") as an investment advisor ("RIA") under the Investment Advisers Act of 1940. Westwood Trust is chartered and regulated by the Texas Department of Banking.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
The accompanying Condensed Consolidated Financial Statements are unaudited and are presented in accordance with the requirements for quarterly reports on Form 10-Q and consequently do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).  The Company’s Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal recurring adjustments) necessary in the opinion of management to present fairly our interim financial position and results of operations and cash flows for the periods presented. The accompanying Condensed Consolidated Financial Statements are presented in accordance with GAAP and the rules and regulations of the SEC.
The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements, and notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC. Operating results for the periods in these Condensed Consolidated Financial Statements are not necessarily indicative of results for any future period. The accompanying Condensed Consolidated Financial Statements include the accounts of Westwood and its subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation.
Recent Accounting Pronouncements
Recently Adopted
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects of the income tax accounting guidance, including interim-period accounting for enacted changes in tax law. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted. We adopted this ASU as of January 1, 2021 and it did not have a significant effect on our Condensed Consolidated Financial Statements.
3. REVENUE
Revenue Recognition
Revenues are recognized when the performance obligation (the investment management and advisory or trust services provided to the client) defined by the investment advisory or sub-advisory agreement is satisfied. For each performance obligation, we determine at contract inception whether the revenue satisfies over time or at a point in time. We derive our
5
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
revenues from investment advisory fees, trust fees and other sources of revenues. Advisory and trust fees are calculated based on a percentage of AUM and the performance obligation is realized over the current calendar quarter. Once clients receive our investment advisory services we have an enforceable right to payment.
Advisory Fee Revenues
Our advisory fees are generated by Westwood Management and Westwood International Advisors (prior to its closure, effective September 30, 2020), which manage client accounts under investment advisory and sub-advisory agreements. Advisory fees are typically calculated based on a percentage of AUM and are paid in accordance with the terms of the agreements. Advisory fees are paid quarterly in advance based on AUM on the last day of the preceding quarter, quarterly in arrears based on AUM on the last day of the quarter just ended or are based on a daily or monthly analysis of AUM for the stated period. We recognize advisory fee revenues as services are rendered. Since our advance paying clients' billing periods coincide with the calendar quarter to which such payments relate, revenue is recognized within the quarter and our Condensed Consolidated Financial Statements contain no deferred advisory fee revenues. Advisory clients typically consist of institutional and mutual fund accounts.
Institutional investors include separate accounts of (i) corporate pension and profit sharing plans, public employee retirement funds, Taft-Hartley plans, endowments, foundations and individuals; (ii) subadvisory relationships where Westwood provides investment management services for funds offered by other financial institutions; (iii) pooled investment vehicles, including the UCITS Fund and collective investment trusts; and (iv) managed account relationships with brokerage firms and other registered investment advisors that offer Westwood products to their customers. The UCITS Fund was liquidated in June 2020.
Mutual funds include the Westwood Funds®, a family of mutual funds for which Westwood Management serves as advisor. These funds are available to individual investors, as well as offered as part of our investment strategies for institutional investors and wealth management accounts.
Arrangements with Performance-Based Obligations
A limited number of our advisory clients have a contractual performance-based fee component in their contracts, which generates additional revenues if we outperform a specified index over a specific period of time, and a limited number of our mutual fund offerings have fees that generate additional revenues if we outperform specified indices over specific periods of time.
The revenue is based on future market performance and is subject to factors outside our control. We cannot conclude that a significant reversal in the cumulative amount of revenue recognized will not occur during the measurement period, and therefore the revenue is recorded at the end of the measurement period when the performance obligation has been satisfied.
Trust Fee Revenues
Our trust fees are generated by Westwood Trust pursuant to trust or custodial agreements. Trust fees are separately negotiated with each client and are generally based on a percentage of AUM. Westwood Trust also provides trust services to a small number of clients on a fixed fee basis. The fees for most of our trust clients are calculated quarterly in arrears, based on a daily average of AUM for the quarter, or monthly, based on the month-end value of AUM. Since billing periods for most of Westwood Trust’s clients coincide with the calendar quarter, revenue is fully recognized within the quarter and our Condensed Consolidated Financial Statements contain no deferred advisory fee revenues.
Revenue Disaggregated
6
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Sales taxes are excluded from revenues. The following table presents our revenue disaggregated by account type (in thousands):
Three Months Ended March 31,
2021 2020
Advisory Fees:
Institutional $ 8,858  $ 7,900 
Mutual Funds 3,414  3,071 
Wealth Management 137  131 
Trust Fees 6,065  5,951 
Other, net (155) (384)
Total revenues $ 18,319  $ 16,669 

We serve clients primarily in the United States, but also in various locations around the world. The following table presents our revenue disaggregated by our clients' geographical locations (in thousands):
Three Months Ended March 31, 2021 Advisory Trust Performance-based Other Total
Canada $ 276  $ —  $ —  $ —  $ 276 
Europe 638  —  262  —  900 
United States 9,546  6,065  1,687  (155) 17,143 
Total $ 10,460  $ 6,065  $ 1,949  $ (155) $ 18,319 
Three Months Ended March 31, 2020 Advisory Trust Performance-based Other Total
Asia $ 417  $ —  $ —  $ —  $ 417 
Canada 490  —  —  —  490 
Europe 1,009  —  —  —  1,009 
United States 9,186  5,951  —  (384) 14,753 
Total $ 11,102  $ 5,951  $ —  $ (384) $ 16,669 

4. SEGMENT REPORTING
We operate two segments: Advisory and Trust. These segments are managed separately based on the types of products and services offered and their related client bases. The Company’s segment information is prepared on the same basis that management reviews the financial information for operational decision-making purposes. The Company’s chief operating decision maker, our Chief Executive Officer, evaluates the performance of our segments based primarily on fee revenues and Economic Earnings (Loss). Refer to the "Supplemental Financial Information" section in Item 2. "Management Discussion and Analysis of Financial Conditions and Results" for the Economic Earnings (Loss) calculation. Westwood Holdings Group, Inc., the parent company of Advisory and Trust, does not have revenues and is the entity in which we record typical holding company expenses including employee compensation and benefits for holding company employees, directors’ fees and investor relations costs. All segment accounting policies are the same as those described in the summary of significant accounting policies. Intersegment balances that eliminate in consolidation have been applied to the appropriate segment.
Advisory
Our Advisory segment provides investment advisory services to (i) corporate pension and profit sharing plans, public employee retirement funds, Taft-Hartley plans, endowments, foundations and individuals, (ii) subadvisory relationships where Westwood provides investment management services to the Westwood Funds®, funds offered by other financial institutions and funds offered by our Trust segment and (iii) pooled investment vehicles, including the UCITS Fund (liquidated in June 2020) and collective investment trusts. Westwood Management and Westwood International Advisors (prior to its closure, effective September 30, 2020), which provide investment advisory services to similar clients, are included in our Advisory segment.
7
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Trust
Trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals. Westwood Trust is included in our Trust segment.
(in thousands) Advisory Trust Westwood
Holdings 		Eliminations Consolidated
Three Months Ended March 31, 2021
Net fee revenues from external sources $ 12,409  $ 6,065  $ —  $ —  $ 18,474 
Net intersegment revenues 676  81  —  (757) — 
Other, net (155) —  —  —  (155)
Total revenues $ 12,930  $ 6,146  $ —  $ (757) $ 18,319 
Segment assets $ 207,193  $ 54,143  $ 12,603  $ (124,275) $ 149,664 
Segment goodwill $ —  $ 16,401  $ —  $ —  $ 16,401 
Three Months Ended March 31, 2020
Net fee revenues from external sources $ 11,102  $ 5,951  $ —  $ —  $ 17,053 
Net intersegment revenues 624  50  —  (674) — 
Net interest and dividend revenue 20  —  —  —  20 
Other, net (404) —  —  —  (404)
Total revenues $ 11,342  $ 6,001  $ —  $ (674) $ 16,669 
Segment assets $ 236,817  $ 49,606  $ 21,962  $ (150,583) $ 157,802 
Segment goodwill $ 3,403  $ 16,401  $ —  $ —  $ 19,804 


5. INVESTMENTS
During 2018, we made a $5.4 million strategic investment in InvestCloud, a digital financial services provider ("InvestCloud"), which is included in “Investments” on our Condensed Consolidated Balance Sheets. This investment represents an equity interest in a private company without a readily determinable fair value. The Company has elected to apply the measurement alternative of cost minus impairment, if any, plus or minus changes resulting from observable price changes.
Following observable price changes for this investment in the year ended December 31, 2019, we recorded an unrealized gain of $2.8 million. Following InvestCloud's recapitalization in the first quarter of 2021, we recorded a realized gain of approximately $8.3 million when our originally purchased shares were redeemed. Following this redemption we re-invested $4.4 million of our proceeds into newly issued shares of InvestCloud.
Our investment in Charis, the parent company of Westwood Private Bank ("Charis"), is included in “Noncurrent investments at fair value” on our Condensed Consolidated Balance Sheets and is measured at fair value on a recurring basis. In the three months ended March 31, 2021, we recorded an unrealized gain of $0.4 million following fair values increases from market transactions. In the three months ended March 31, 2020, we recorded an unrealized loss of $1.0 million, primarily as a result of the global macroeconomic effects of the COVID-19 pandemic.
In 2019 we made a $0.3 million investment in Westwood Hospitality Fund I, LLC, a private investment fund. Our investment is included in “Noncurrent investments at fair value” on our Condensed Consolidated Balance Sheets and is measured at fair value on a recurring basis using net asset value (“NAV”) as a practical expedient.
All other investments are carried at fair value on a recurring basis and are accounted for as trading securities.
8
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Investments carried at fair value are presented in the table below (in thousands):
Cost Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Estimated
Fair
Value
March 31, 2021:
U.S. Government and Government agency obligations $ 59,722  $ —  $ (298) $ 59,424 
Money market funds 12,552  —  —  12,552 
Equity funds 95  —  —  95 
Equities 307  114  —  421 
Exchange-traded bond funds 1,394  —  (6) 1,388 
Total trading securities 74,070  114  (304) 73,880 
Private investment fund 265  —  (156) 109 
Private equity 3,420  452  —  3,872 
Total investments carried at fair value $ 77,755  $ 566  $ (460) $ 77,861 
December 31, 2020:
U.S. Government and Government agency obligations $ 65,132  $ 2  $ (180) $ 64,954 
Money market funds 4,003  —  —  4,003 
Equity funds 90  —  (5) 85 
Equities 288  94  —  382 
Exchange-traded bond funds 115  3  —  118 
Total trading securities 69,628  99  (185) 69,542 
Private investment fund 250  —  (154) 96 
Private equity 3,420  11  —  3,431 
Total investments carried at fair value $ 73,298  $ 110  $ (339) $ 73,069 
 
6. FAIR VALUE MEASUREMENTS
ASC 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value and requires disclosures regarding certain fair value measurements. ASC 820 establishes a three-tier hierarchy for measuring fair value, as follows:
•Level 1 – quoted market prices in active markets for identical assets
•Level 2 – inputs other than quoted prices that are directly or indirectly observable
•Level 3 – significant unobservable inputs where there is little or no market activity
Our strategic investment in InvestCloud, discussed in Note 5 “Investments,” is excluded from the recurring fair value table shown below because we have elected to apply the measurement alternative for this investment.
9
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
The following table summarizes the values of our investments measured at fair value on a recurring basis within the fair value hierarchy as of the dates indicated (in thousands):
Level 1 Level 2 Level 3
Investments Measured at NAV (1)
Total
As of March 31, 2021:
Investments in trading securities $ 73,880  $ —  $ —  $ —  $ 73,880 
Private investment fund —  —  —  109  109 
Private equity —  —  3,872  —  3,872 
Total assets measured at fair value $ 73,880  $ —  $ 3,872  $ 109  $ 77,861 
As of December 31, 2020:
Investments in trading securities $ 69,542  $ —  $ —  $ —  $ 69,542 
Private investment fund —  —  —  96  96 
Private equity —  —  3,431  —  3,431 
Total assets measured at fair value $ 69,542  $ —  $ 3,431  $ 96  $ 73,069 
(1) Comprised of certain investments measured at fair value using net asset value ("NAV") as a practical expedient. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented on our Condensed Consolidated Balance Sheets.
Our investment in Charis is included within Level 3 of the fair value hierarchy as we value that investment utilizing inputs not observable in the market. Our investment is measured at fair value on a recurring basis using a market approach based on a price to tangible book value multiple range that is determined to be reasonable in the current environment, or market transactions. Management believes this valuation methodology is consistent with the banking industry and we will reevaluate our methodology and inputs on a quarterly basis.
The following table summarizes the changes in Level 3 investments measured at fair value on a recurring basis for the periods presented (in thousands):
Fair Value using Significant Unobservable Inputs (Level 3)
Three Months Ended March 31,
2021 2020
Beginning balance $ 3,431  $ 3,975 
Unrealized gains (losses) on private investments 441  (995)
Ending balance $ 3,872  $ 2,980 

The March 31, 2021 private investment fair value of $3.9 million was valued using a market approach based on a price to tangible book value multiple, with unobservable book value multiples ranging from $1.26 to $2.29 per share, with a weighted average of $1.45 per share. Significant increases (decreases) in book value multiples in isolation would have resulted in a significantly higher (lower) fair value measurement.
7. INCOME TAXES
Our effective income tax rate differed from the 21% statutory rate for the first quarter of 2021 and 2020 due to permanent differences between book and tax restricted stock expense based on a decrease in our stock price between the restricted stock grant and vesting dates. In addition, in the first quarter of 2020, a discrete benefit adjustment related to the remeasurement of certain deferred taxes following the enactment of the Coronavirus Aid, Relief, and Economic Security Act lowered our effective tax rate.
8. EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding for the applicable period. Diluted earnings per share is computed based on the weighted average number of shares outstanding plus the effect of any dilutive shares of restricted stock granted to
10
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
employees and non-employee directors. There were approximately 234,000 and 131,000 anti-dilutive restricted shares outstanding for the three months ended March 31, 2021 and March 31, 2020, respectively.
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share and share amounts):
Three Months Ended March 31,
2021 2020
Net income $ 4,101  $ 1,102 
Weighted average shares outstanding - basic 7,887,044  8,414,393 
Dilutive potential shares from unvested restricted shares 30,346  44,080 
Weighted average shares outstanding - diluted 7,917,390  8,458,473 
Earnings per share:
Basic $ 0.52  $ 0.13 
Diluted $ 0.52  $ 0.13 

9. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Goodwill represents the excess of the cost of acquired assets over the fair value of the underlying identifiable assets at the date of acquisition. Goodwill is not amortized but is tested for impairment at least annually. We completed our most recent annual goodwill impairment assessment during the third quarter of 2020, and recorded $3.4 million of impairment expense related to our Advisory segment. No impairments on goodwill were recorded during the three months ended March 31, 2021 or 2020.
Other Intangible Assets
Our intangible assets represent the acquisition date fair value of acquired client relationships, trade names, non-compete agreements and internally developed software and are reflected net of amortization. In valuing these assets, we made significant estimates regarding their useful lives, growth rates and potential attrition. We periodically review intangible assets for events or circumstances that would indicate impairment. No intangible asset impairments were recorded during the three months ended March 31, 2021 or 2020.
10. LEASES
In February 2021, we sublet approximately 10,000 square feet of our Dallas, Texas office space to a third party. The agreement began in the first quarter of 2021 and provides for monthly rent of approximately $20,000 through the fourth quarter of 2025.
In February 2021, we terminated our Toronto, Ontario office space lease, originally expiring in October 2021.
As of March 31, 2021, aside from the above, there have been no material changes outside the ordinary course of business to our leases since December 31, 2020. For information regarding our leases, refer to Note 11 “Leases” in Part IV, Item 15. “Exhibits, Financial Statement Schedules” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

11. STOCKHOLDERS' EQUITY
Share Repurchase Program
In February 2020, our Board of Directors authorized management to repurchase up to an additional $10.0 million of our outstanding common stock on the open market or in privately negotiated transactions. In April 2020, our Board of
11
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Directors authorized management to repurchase up to an additional $10.0 million of share repurchases under our share repurchase program.
During the three months ended March 31, 2021, the Company repurchased 92,491 shares of our common stock at an average price of $15.19 per share, including commissions, for an aggregate purchase price of $1.4 million under our share repurchase plan. During the three months ended March 31, 2020, the Company repurchased 272,059 shares of our common stock at an average price of $17.89 per share, including commissions, for an aggregate purchase price of $4.9 million under our share repurchase plan.

12. VARIABLE INTEREST ENTITIES
We evaluated (i) our relationship as sponsor of the Common Trust Funds (“CTFs”) and managing member of the private equity funds Westwood Hospitality Fund I, LLC and Westwood Technology Opportunities Fund I, LP (collectively the “Private Funds”), (ii) our advisory relationships with the Westwood Funds®, and (iii) our investments in InvestCloud and Charis discussed in Note 5 “Investments” (“Private Equity”) to determine whether each of these entities is a variable interest entity (“VIE”) or voting ownership entity (“VOE”).
Based on our analyses, we determined that the CTFs and Private Funds were VIEs, as the at-risk equity holders do not have the ability to direct the activities that most significantly impact the entities' economic performance, and the Company and its representatives have a majority control of the entities' respective boards of directors and can influence the respective entities' management and affairs.
Based on our analyses, we determined the Westwood Funds® and Private Equity (i) have sufficient equity at risk to finance the entities' activities independently, (ii) have the obligation to absorb losses, the right to receive residual returns and the right to direct the activities of the entities that most significantly impact the entities' economic performance, and (iii) are not structured with disproportionate voting rights.
Based on our analyses of our investments in these entities for the periods ended March 31, 2021 and December 31, 2020, we have not consolidated the CTFs or Private Funds under the VIE method or the Westwood Funds® or Private Equity under the VOE method.
We recognized fee revenue from the Westwood VIEs and Westwood VOEs as follows (in millions):
Three Months Ended
March 31, 2021 March 31, 2020
Fee Revenues $ 4.9  $ 5.7 

The following table displays the AUM and the risk of loss in each vehicle (in millions):
As of March 31, 2021
Assets
Under
Management 		Corporate
Investment 		Amount at Risk
VIEs/VOEs:
Westwood Funds® $ 2,564  $ —  $ — 
Common Trust Funds 1,014  —  — 
Private Funds 4  0.1  0.1 
Private Equity —  8.3  8.3 
All other assets:
Wealth Management 3,342 
Institutional 7,569 
Total Assets Under Management $ 14,493 

13. RELATED PARTY TRANSACTIONS
12
WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Some of our directors, executive officers and their affiliates invest personal funds directly in trust accounts that we manage. For both the three months ended March 31, 2021 and March 31, 2020, we recorded trust fees from these accounts of $0.1 million. There were no amounts due from these accounts as of March 31, 2021, and there was $0.1 million due from these accounts as of December 31, 2020.
The Company engages in transactions with its affiliates in the ordinary course of business. Westwood International Advisors (prior to its closure, effective September 30, 2020) and Westwood Management provide investment advisory services to the UCITS Fund and the Westwood Funds®. Certain members of our management served on the board of directors of the UCITS Fund (liquidated as of June 2020). Under the terms of the investment advisory agreements, the Company earns quarterly fees paid by clients of the fund or by the funds directly. The fees are based on negotiated fee schedules applied to AUM. The Company earned no fees from the affiliated funds for the three months ended March 31, 2021, and earned $0.5 million for the three months ended March 31, 2020.
14. SUBSEQUENT EVENTS
Dividends Declared
On April 28, 2021, the Board of Directors declared a quarterly cash dividend of $0.10 per share of common stock payable on July 1, 2021 to stockholders of record on June 4, 2021.
13

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Statements in this report and the Annual Report to Stockholders that are not purely historical facts, including, without limitation, statements about our expected future financial position, results of operations or cash flows, as well as other statements including, without limitation, words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” “could,” “goal,” “potentially,” “may,” “designed” and other similar expressions, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results and the timing of some events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, without limitation, the risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC, and those risks set forth below:
•the composition and market value of our AUM;
•our ability to maintain our fee structure in light of competitive fee pressures
•inclusion of foreign company investments in our AUM;
•regulations adversely affecting the financial services industry;
•litigation risks;
•our ability to develop and market new investment strategies successfully;
•our reputation and our relationships with current and potential customers;
•our ability to attract and retain qualified personnel;
•our ability to perform operational tasks;
•our ability to select and oversee third-party vendors;
•our dependence on the operations and funds of our subsidiaries;
•our ability to maintain effective cyber security;
•our ability to maintain effective information systems;
•our ability to prevent misuse of assets and information in the possession of our employees and third-party vendors, which could damage our reputation and result in costly litigation and liability for our clients and us;
•our stock is thinly traded and may be subject to volatility;
•our organizational documents contain provisions that may prevent or deter another group from paying a premium over the market price to our stockholders to acquire our stock;
•competition in the investment management industry;
•our ability to avoid termination of client agreements and the related investment redemptions;
•the significant concentration of our revenues in a small number of customers;
•our relationships with investment consulting firms;
•the impact of the COVID-19 pandemic;
•our ability to identify and execute on our strategic initiatives;
•our ability to declare and pay dividends;
•our ability to fund future capital requirements on favorable terms;
•our ability to properly address conflicts of interest;
•our ability to maintain adequate insurance coverage; and
•our ability to maintain an effective system of internal controls.
14

You should not unduly rely on these forward-looking statements, which speak only as of the date of this report. We are not obligated and do not undertake an obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events or otherwise.
Overview
We manage investment assets and provide services for our clients through our subsidiaries, Westwood Management Corp. and Westwood Advisors, L.L.C. (each of which is an SEC-registered investment advisor and referred to hereinafter together as “Westwood Management”), Westwood International Advisors Inc. (“Westwood International Advisors”) and Westwood Trust. Westwood Management provides investment advisory services to institutional investors, a family of mutual funds called the Westwood Funds®, other mutual funds, individuals and clients of Westwood Trust.
On July 27, 2020, Westwood’s Board of Directors approved the closure of Westwood International Advisors and Westwood’s office in Toronto, Canada.
Westwood Trust provides trust and custodial services and participation in common trust funds to institutions and high net worth individuals. Our revenues are generally derived from fees based on a percentage of AUM. Westwood International Advisors provided investment advisory services to an Irish investment company authorized pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulation 2011 (as amended) (the “UCITS Fund”), which was liquidated in June 2020.
We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, particularly the impact on global stock markets. Beginning in 2020, we have taken a number of precautionary measures designed to help minimize the risk of the spread of the virus to our employees, including suspending all non-essential travel for our employees and encouraging our employees to work remotely. The investments we have made in technology over the past several years, particularly our significant investments in cloud-based systems and business continuity planning, have allowed our entire team to serve our clients from their homes. While our ability to meet with clients declined at the beginning of the pandemic, we were able to rebound in the second half of the year as our clients embraced digital interactions.
Revenues
We derive our revenues from investment advisory fees, trust fees and other revenues. Our advisory fees are generated by Westwood Management and Westwood International Advisors (prior to its closure, effective September 30, 2020), which manage client accounts under investment advisory and subadvisory agreements. Advisory fees are typically calculated based on a percentage of AUM and are paid in accordance with the terms of the agreements. Advisory fees are paid quarterly in advance based on AUM on the last day of the preceding quarter, quarterly in arrears based on AUM on the last day of the quarter just ended or are based on a daily or monthly analysis of AUM for the stated period. We recognize advisory fee revenues as services are rendered. Certain of our clients have a contractual performance-based fee component in their contracts, which generates additional revenues if we outperform a specified index over a specific period of time. We record revenue for performance-based fees at the end of the measurement period. Since our advance paying clients’ billing periods coincide with the calendar quarter to which such payments relate, revenue is recognized within the quarter, and our Condensed Consolidated Financial Statements contain no deferred advisory fee revenues.
Our trust fees are generated by Westwood Trust pursuant to trust or custodial agreements. Trust fees are separately negotiated with each client and are generally based on a percentage of AUM. Westwood Trust also provides trust services to a small number of clients on a fixed fee basis. Trust fees are primarily calculated quarterly in arrears based on a daily average of AUM for the quarter. Since billing periods for most of Westwood Trust's clients coincide with the calendar quarter, revenue is fully recognized within the quarter, and our Condensed Consolidated Financial Statements contain no deferred advisory fee revenues.
Our other revenues primarily consist of investment income from our seed money investments into new investment strategies.
Employee Compensation and Benefits
Employee compensation and benefits expenses generally consist of salaries, incentive compensation, equity-based compensation and benefits.
Sales and Marketing
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Sales and marketing expenses relate to our marketing efforts, including travel and entertainment, direct marketing and advertising costs.
Westwood Mutual Funds
Westwood Mutual Funds expenses relate to our marketing, distribution and administration of the Westwood Funds®.
Information Technology
Information technology expenses are generally costs associated with proprietary investment research tools, maintenance and support, computing hardware, software licenses, telecommunications and other related costs.
Professional Services
Professional services expenses generally consist of costs associated with subadvisory fees, audit, tax, legal and other professional services.
General and Administrative
General and administrative expenses generally consist of costs associated with the lease of office space, amortization, depreciation, insurance, custody expense, Board of Directors fees, investor relations, licenses and fees, office supplies and other miscellaneous expenses.
Gain (Loss) on Foreign Currency Transactions
Gain (loss) on foreign currency transactions consists of foreign currency transactions primarily related to Westwood International Advisors.
Realized Gains on Private Investments
Realized gains on private investments includes amounts by which the net proceeds from the sale or redemption of our private investments exceeded costs.
Net change in unrealized appreciation (depreciation) on Private Investments
Net change in unrealized appreciation (depreciation) on private investments includes changes in the value of our private equity investments.
Investment Income
Investment income primarily includes interest and dividend income on fixed income securities and money market funds.
Other Income
Other income consists of income from the sublease of a portion of our corporate offices.
Assets Under Management
AUM increased $2.9 billion to $14.5 billion at March 31, 2021 compared with $11.6 billion at March 31, 2020. The average of beginning and ending AUM for the first quarter of 2021 was $13.8 billion compared to $13.4 billion for the first quarter of 2020.
The following table displays AUM as of March 31, 2021 and 2020 (in millions):
As of March 31,
2021 2020 Change
Institutional(1)
$ 7,569  $ 6,335  19  %
Wealth Management(2)
4,360  3,765  16 
Mutual Funds(3)
2,564  1,500  71 
Total AUM(4)
$ 14,493  $ 11,600  25  %

(1)Institutional includes (i) separate accounts of corporate pension and profit sharing plans, public employee retirement funds, Taft-Hartley plans, endowments, foundations and individuals; (ii) subadvisory relationships where Westwood provides investment management services for funds offered by other financial institutions; (iii) pooled investment vehicles, including the UCITS Fund and collective investment trusts; and (iv) managed account
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relationships with brokerage firms and other registered investment advisors that offer Westwood products to their customers. The UCITS Fund was liquidated in June 2020.
(2)Wealth Management includes assets for which Westwood Trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals pursuant to trust or agency agreements and assets for which Westwood Advisors, L.L.C. provides advisory services to high net worth individuals. Investment subadvisory services are provided for the common trust funds by Westwood Management, Westwood International Advisors (prior to its closure, effective September 30, 2020) and external unaffiliated subadvisors. For certain assets in this category Westwood Trust currently provides limited custody services for a minimal or no fee, viewing these assets as potentially converting to fee-generating managed assets in the future.
(3)Mutual Funds include the Westwood Funds®, a family of mutual funds for which Westwood Management serves as advisor. These funds are available to individual investors, as well as offered as part of our investment strategies for institutional and wealth management accounts.
(4)AUM excludes $272 million and $222 million of assets under advisement (“AUA”) as of March 31, 2021 and 2020, respectively, related to our model portfolios for which we provided consulting advice but for which we did not have direct discretionary investment authority.

Roll-Forward of Assets Under Management
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Three Months Ended March 31,
(in millions) 2021 2020
Institutional
Beginning of period assets $ 6,567  $ 8,739 
Inflows 732  313 
Outflows (219) (731)
Net client flows 513  (418)
Market appreciation (depreciation) 489  (1,986)
Net change 1,002  (2,404)
End of period assets $ 7,569  $ 6,335 
Wealth Management
Beginning of period assets $ 4,335  $ 4,438 
Inflows 60  73 
Outflows
(207) (127)
Net client flows (147) (54)
Market appreciation (depreciation) 172  (619)
Net change 25  (673)
End of period assets $ 4,360  $ 3,765 
Mutual Funds
Beginning of period assets $ 2,143  $ 2,058 
Inflows 438  174 
Outflows (209) (310)
Net client flows 229  (136)
Market appreciation (depreciation) 192  (422)
Net change 421  (558)
End of period assets $ 2,564  $ 1,500 
Total AUM
Beginning of period assets $ 13,045  $ 15,235 
Inflows 1,230  560 
Outflows (635) (1,168)
Net client flows 595  (608)
Market appreciation (depreciation) 853  (3,027)
Net change 1,448  (3,635)
End of period assets $ 14,493  $ 11,600 

Three months ended March 31, 2021 and 2020
The $1.4 billion increase in AUM for the three months ended March 31, 2021 was due to market appreciation of $0.9 billion and net inflows of $0.6 billion. Net inflows were primarily related to our SmallCap strategy.
The $3.6 billion decrease in AUM for the three months ended March 31, 2020 was due to market depreciation of $3.0 billion and net outflows of $608 million. Net outflows were primarily related to our LargeCap Value and Income Opportunity strategies, partially offset by net inflows to our SmallCap Value strategies.
Results of Operations
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The following table (dollars in thousands) and discussion of our results of operations are based upon data derived from the Condensed Consolidated Statements of Comprehensive Income (Loss) contained in our Condensed Consolidated Financial Statements and should be read in conjunction with those statements included elsewhere in this report.
Three Months Ended
March 31,
2021 2020 Change
Revenues:
Advisory fees: asset-based $ 10,450  $ 11,102  (6) %
Advisory fees: performance-based 1,959  —  NM
Trust fees: asset-based 6,065  5,951  2 
Other, net (155) (384) (60)
Total revenues 18,319  16,669  10 
Expenses:
Employee compensation and benefits 11,548  12,668  (9)
Sales and marketing 230  478  (52)
Westwood mutual funds 391  515  (24)
Information technology 1,992  2,031  (2)
Professional services 1,317  1,193  10 
General and administrative 2,072  2,306  (10)
Gain on foreign currency transactions —  (2,938) (100)
Total expenses 17,550  16,253  8 
Net operating income 769  416 
Realized gains on private investments 8,325  —  NM
Net change in unrealized appreciation (depreciation) on private investments (2,326) (995) 1
Investment income 196  544  -1
Other income 50  34  47 
Income (loss) before income taxes 7,014  (1)
Income tax expense (benefit) 2,913  (1,103) (364)
Net income (loss) $ 4,101  $ 1,102  272  %
_________________________
NM    Not meaningful
Three months ended March 31, 2021 compared to three months ended March 31, 2020
Total Revenues. Total revenues increased $1.6 million, or 10%, to $18.3 million for the three months ended March 31, 2021 compared with $16.7 million for the three months ended March 31, 2020. Asset-based advisory fees decreased $0.6 million, or 6%, and Trust fees increased $0.1 million, or 2%. Performance-based advisory fees increased $2.0 million, due to higher realization of performance fees in the three months ended March 31, 2021.
Employee Compensation and Benefits. Employee compensation and benefits decreased $1.2 million, or 9%, to $11.5 million for the three months ended March 31, 2021 compared with $12.7 million for the three months ended March 31, 2020. The decrease was primarily due to reductions in headcount and stock-based compensation expense.
Sales and marketing. Sales and marketing expenses decreased $0.3 million, or 52%, to $0.2 million for the three months ended March 31, 2021 compared with $0.5 million for the three months ended March 31, 2020. The decrease was primarily due to lower travel costs as a result of COVID-19.
(Gain) loss on foreign currency transactions. We recorded foreign currency gains and losses as a result of fluctuations in the Canadian dollar exchange rate, prior to closing WIA in 2020.
Realized gains on private investments. Following InvestCloud's recapitalization in the first quarter of 2021, we recorded a realized gain of approximately $8.3 million.
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Income Tax Expense (Benefit). Our effective tax rate of 41.5% differed from the 21% statutory rate for the first quarter of 2021 primarily due to permanent differences between book and tax restricted stock expense based on a decrease in our stock price between the restricted stock grant and vesting dates. Our effective income tax rate differed from the 21% statutory rate for the first quarter of 2020 primarily due to a similar restricted stock impact, and a discrete benefit adjustment related to the remeasurement of certain deferred taxes following the enactment of the Coronavirus Aid, Relief, and Economic Security Act.
Supplemental Financial Information
As supplemental information, we are providing non-GAAP performance measures that we refer to as Economic Earnings and Economic EPS. We provide these measures in addition to, not as a substitute for, net income and earnings per share, which are reported on a GAAP basis. Our management and Board of Directors review Economic Earnings and Economic EPS to evaluate our ongoing performance, allocate resources, and review our dividend policy. We believe that these non-GAAP performance measures, while not substitutes for GAAP net income or earnings per share, are useful for management and investors when evaluating our underlying operating and financial performance and our available resources. We do not advocate that investors consider these non-GAAP measures without also considering financial information prepared in accordance with GAAP.
We define Economic Earnings as net income plus non-cash equity-based compensation expense, amortization of intangible assets, and deferred taxes related to goodwill. Although depreciation on fixed assets is a non-cash expense, we do not add it back when calculating Economic Earnings because depreciation charges represent an allocation of the decline in the value of the related assets that will ultimately require replacement. In addition, we do not adjust Economic Earnings for tax deductions related to restricted stock expense or amortization of intangible assets. Economic EPS represents Economic Earnings divided by diluted weighted average shares outstanding.
The following tables provide a reconciliation of Net income to Economic Earnings and Economic Earnings by segment (in thousands, except share and per share amounts):
Three Months Ended March 31, Change
2021 2020
Net income $ 4,101  $ 1,102  272  %
Add: Stock-based compensation expense 1,722  2,616  (34)
Add: Intangible amortization 406  423  (4)
Add: Tax benefit from goodwill amortization 59  59  — 
Economic Earnings $ 6,288  $ 4,200  50  %
Diluted weighted average shares outstanding 7,917,390  8,458,473 
Economic Earnings per share $ 0.79  $ 0.50 
Economic Earnings by Segment:
Advisory $ 6,550  $ 4,293  53  %
Trust 2,984  992  201 
Westwood Holdings (3,246) (1,085) 199 
Consolidated $ 6,288  $ 4,200  50  %

Liquidity and Capital Resources
We fund our operations and cash requirements with cash generated from operating activities. We may also use cash from operations to pay dividends to our stockholders. We reinstated our dividend in the first quarter of 2021, following a suspension in the second quarter of 2020 as we preserved capital and provided additional financial flexibility amid the uncertainties created by COVID-19. As of March 31, 2021 and December 31, 2020, we had no debt. The changes in net cash provided by operating activities generally reflect changes in earnings plus the effects of non-cash items and changes in working capital, including liquidation of investments used to cover current liabilities. Changes in working capital, especially
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accounts receivable and accounts payable, are generally the result of timing differences between collection of fees billed and payment of operating expenses.
During the three months ended March 31, 2021, cash flow used in operating activities was $7.0 million, which included net purchases of $4.4 million of current investments, a reduction in compensation and benefits payable of $5.0 million, and a $2.3 million change in accounts receivable, partially offset by income taxes payable and positive adjustments to net income. During the three months ended March 31, 2020, cash flow provided by operating activities was $11.5 million, which included a $12.9 million net liquidation of investments partially offset by an $7.4 million decrease in compensation and benefits payables.
Cash flow provided by investing activities during the three months ended March 31, 2021 was related to realized gains on private investments and the sale of property and equipment following the sublease of a portion of our Dallas, Texas corporate office space. Cash flow used in investing activities during the three months ended March 31, 2020 was related to purchases of property and equipment.
Cash flows used in financing activities of $2.7 million for the three months ended March 31, 2021 reflected treasury stock repurchases, the payment of dividends and restricted stock returned for the payment of taxes. Cash flow used in financing activities of $13.1 million for the three months ended March 31, 2020 reflected the payment of dividends, purchases of treasury shares, restricted stock returned for payment of taxes and purchases of treasury stock under employee stock plans.
We had cash and short-term investments of $86.9 million as of March 31, 2021 and $82.6 million as of December 31, 2020. At March 31, 2021 and December 31, 2020, working capital aggregated $91.3 million and $84.5 million, respectively.
Westwood Trust must maintain cash and investments in an amount equal to the minimum restricted capital of $4.0 million, as required by the Texas Finance Code. Restricted capital is included in Investments in the accompanying Condensed Consolidated Balance Sheets. At March 31, 2021, Westwood Trust had approximately $13.7 million in excess of its minimum capital requirement.
Our future liquidity and capital requirements will depend upon numerous factors, including our results of operations, the timing and magnitude of capital expenditures or strategic initiatives, our dividend policy and other business and risk factors described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC. We believe that current cash and short-term investment balances plus cash generated from operations will be sufficient to meet both the operating and capital requirements of our ordinary business operations through at least the next twelve months. However, there can be no assurance that we will not require additional financing within this time frame. The failure to raise needed capital on attractive terms, if at all, could have a material adverse effect on our business, financial condition and results of operations.
Contractual Obligations
As of March 31, 2021, there have been no material changes outside of the ordinary course of business to our contractual obligations since December 31, 2020. For information regarding our contractual obligations, refer to “Contractual Obligations” in Part II, Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Critical and Significant Accounting Policies and Estimates
There have been no significant changes in our critical or significant accounting policies and estimates since December 31, 2020. Information with respect to our critical accounting policies and estimates that we believe could have the most significant effect on our reported consolidated results and require difficult, subjective or complex judgment by management is described under “Critical Accounting Policies and Estimates” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Accounting Developments
Refer to Note 2 “Summary of Significant Accounting Policies” in our Condensed Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for a description of recently issued accounting guidance.
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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in our Quantitative and Qualitative Disclosures about Market Risk from those previously reported in our Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 4.    CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure. An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
During the quarter ended March 31, 2021, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Due to our significant investments in cloud-based systems, the impact of our workforce working remotely did not hinder the execution of our internal control processes and procedures.
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PART II. OTHER INFORMATION
 
ITEM 1.    LEGAL PROCEEDINGS
None.
ITEM 1A.    RISK FACTORS
Our business and future results may be affected by a number of risks and uncertainties that should be considered carefully. In addition, this report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including the risks described in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and the risks set forth below.
The Company believes that there has been no material change in its risk factors as previously disclosed in the Form 10-K.
ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 20, 2012, our Board of Directors authorized management to repurchase up to $10.0 million of our outstanding common stock on the open market or in privately negotiated transactions. Westwood's Board of Directors authorized an additional $5.0 million of repurchases under the share repurchase program in July 2016, an additional $10.0 million in February 2020, and an additional $10.0 million in April 2020. The share repurchase program has no expiration date and may be discontinued at any time by the Board of Directors.
The following table displays information with respect to the treasury shares we purchased during the three months ended March 31, 2021:
Total
number of
shares
purchased 		Average
price paid
per share 		Total number of shares purchased as part of publicly announced plans or programs Maximum number (or
approximate dollar value)
of shares that may yet be
purchased under the
plans or programs (1)
Repurchase program (1)
$ 10,000,000 
March 2021 92,491  $ 15.19  92,491 

(1)These purchases relate to the share repurchase program and were authorized in April 2020.

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ITEM 6.    EXHIBITS
31.1*
31.2*
32.1**
32.2**
101* The following financial information from Westwood Holdings Group, Inc.'s Quarterly Report on Form 10-Q for the period ended March 31, 2021, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020; (ii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2021 and 2020; (iii) Condensed Consolidated Statements of Stockholders' Equity; (iv) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020; and (v) Notes to the Condensed Consolidated Financial Statements.
104* Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101)
*    Filed herewith.
**    Furnished herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Dated: April 28, 2021 WESTWOOD HOLDINGS GROUP, INC.
By: /s/ Brian O. Casey
Brian O. Casey
President and Chief Executive Officer
By: /s/ Murray Forbes III
Murray Forbes III
Chief Financial Officer and Treasurer

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