Westwood (WHG) Q3 2025 Earnings Call Transcript

Image source: The Motley Fool.

Date

Thursday, October 30, 2025 at 4:30 p.m. ET

Call participants

Chief Executive Officer — Brian Casey

Chief Financial Officer — Terry Forbes

Need a quote from a Motley Fool analyst? Email pr@fool.com

Risks

Brian Casey said, “Certainly, the outflows this quarter were disappointing, but fortunately, concentrated in our large cap area, which is our lowest fee product.”

Terry Forbes noted institutional channel had negative net flows this quarter, primarily due to sub-advisory business rebalancing.

Takeaways

Total Revenues -- $24.3 million for Q3 2025, up from $23.1 million in the prior quarter and $23.7 million a year ago, driven by higher average assets under management.

Net Income -- $3.7 million, or $0.41 per share, compared with $1 million, or $0.12 per share, in the prior quarter, due to higher revenues and unrealized gains on private investments, partially offset by higher income tax.

Non-GAAP Economic Earnings -- $5.7 million, or $0.64 per share, versus $2.8 million, or $0.32 per share, in the second quarter.

Assets Under Management (AUM) -- $17.3 billion at quarter end, with a net outflow of $700 million offset by market appreciation of $700 million.

Assets Under Advisement (AUA) -- $1 billion, with net outflows of $3 million and market appreciation of $30 million.

Segment AUM Mix -- Institutional: $9 billion (52% of AUM); Wealth Management: $4.3 billion (25%); Mutual Fund and ETF: $4 billion (23%) as of quarter end.

Cash and Liquid Investments -- $39.2 million at quarter end, supporting a debt-free balance sheet.

Dividend -- Regular cash dividend of $0.15 per share approved, payable January 2, 2026, to stockholders of record on December 1, 2025.

Pipeline for New Business -- $1.6 billion, including a “won but not yet funded” mandate close to $450 million for SMID cap products.

ETF Milestone -- Enhanced Midstream Income ETF, MDST, surpassed $150 million in assets under management and accounted for roughly 30% of midstream product ETF flows in September 2025.

Private Fundraising -- Exceeded the 2025 annual goal by 1.5 times through September 30, expanding approval on several broker-dealer platforms.

Product Launches -- Webb’s innovation introduced 11 new sector ETFs during the quarter that utilize a defined volatility strategy for sector exposure.

Performance Metrics -- The Income Opportunity fund, WHGIX, received a Morningstar ratings upgrade to four stars, while income opportunity and multi-asset income funds ranked in the top third for the trailing three-year period and top half for the trailing five-year period in the Morningstar universe.

Volatility-Managed ETFs -- DBSP and DBQQ outperformed their underlying ETFs; DBSP outperformed SPY by 636 basis points and DBQQ outperformed QQQ by 726 basis points in Q3 2025.

Cost Control -- Achieved cost reductions versus last year, with ongoing focus on further operational efficiencies through year end.

Summary

Westwood Holdings Group (NYSE:WHG) reported notable revenue and earnings growth for Q3 2025, driven by higher average assets under management and unrealized investment gains. The firm’s ETF and private fundraising businesses continued to scale rapidly, with MDST exceeding $150 million in assets and private capital raising outpacing 2025 annual goals through September 30. Despite disappointing outflows, which were concentrated in lower-fee, large-cap strategies, momentum and significant mandate opportunities persisted within higher-fee channels. Management emphasized the strength of the forward pipeline, cost discipline, and successful expansion across ETF and private product offerings.

CEO Casey said, “we are very close to gaining access to one of the largest wirehouse platforms in the world,” highlighting near-term distribution expansion for ETFs.

Significant performance improvement in volatility-managed ETFs was documented after initial underperformance in volatile prior periods.

Income opportunity and multi-asset income funds ranked in the top third for the trailing three-year period and top half for the trailing five-year period in the Morningstar universe. The Income Opportunity fund, WHGIX, also recently received a Morningstar ratings upgrade to four stars.

Expansion in product breadth, notably through sector-based defined volatility ETFs, was achieved, providing clients more targeted risk exposures.

Industry glossary

SMID Cap: Refers to investment strategies targeting companies with small- to mid-sized market capitalizations.

Income Opportunity Fund (WHGIX): A mutual fund managed by Westwood Holdings Group, Inc., focused on generating income from diverse asset classes.

Defined Volatility Strategy: An investment method adjusting portfolio exposure based on real-time market volatility using predefined rules.

OCIO: Outsourced Chief Investment Officer, a service model where an external firm manages all or a portion of an institution's investment functions.

Full Conference Call Transcript

Brian Casey: Good afternoon, and thank you for joining us for Westwood Holdings Group, Inc.'s third quarter 2025 earnings call. I'm pleased to share this quarter's results and key developments as well as our outlook for the remainder of the year. Before we dive into the details, I'd like to highlight several key points from the quarter. Our enhanced midstream income ETF, MDS, surpassed $150 million in AUM. We recorded positive net flows in energy and real assets. Our private fundraising continues to exceed our annual goal by a significant margin. Webb's launched 11 new sector ETFs. Income opportunity maintained its top decile since inception ranking and earned a Morningstar ratings upgrade to four stars.

We've all witnessed a broad market rally this quarter driven by sustained enthusiasm for artificial intelligence, strong corporate earnings, and a pivotal interest rate cut by the Federal Reserve. Strength in cyclical areas like industrials and consumer discretionary all pointed to widespread confidence in economic growth. However, large cap gains remain highly concentrated in a handful of mega cap stocks. For small caps, the long-awaited rotation of leadership from large cap giants to smaller companies finally showed up. And once the Fed cuts rates in September, the bond market responded by sending treasury yields lower.

High yield and corporate credit outperformed government bonds as recession fears eased, and gold broke through $4,000 given the prospect of lower real yield and global US dollar weakness. Turning to our long-term performance, our investment professionals delivered solid results across multiple strategies and asset classes. In our US value strategies, our SMID cap strategy continues to post strong ranking and is firmly positioned in the top third over trailing three-year periods. Our multi-asset strategies continue to deliver compelling results. Our income opportunity and multi-asset income funds achieved top third rankings for the trailing three-year period and top half over the trailing five-year period in the Morningstar universe.

Our income opportunity fund, WHGIX, also recently received a Morningstar ratings upgrade to four stars. Within our salient strategies, our energy products continue to perform very well. Our MLP SMA strategy remains ahead of the Illyrian midstream index across trailing three-year and five-year periods. Enhanced midstream income MBST and Enhanced Energy Income, WEEI, have delivered solid yields to income-focused investors, with MDST maintaining an annualized indicated dividend yield exceeding 10% while WEEI has an indicated dividend yield of over 13%. As seasoned value investors, we seek to unlock opportunities in mispriced, misunderstood, and often less popular names. In times like these, fundamentals are often brushed aside, allowing for emotion and momentum to dominate.

But as students of market history know, this stage of the current market cycle typically precedes periods when quality and value regain momentum. On balance, we remain cautiously optimistic with below-trend growth, sticky inflation, and elevated market valuations concentrated in a handful of mega cap tech stocks. We believe that investment opportunities are shifting. Undervalued segments, especially small cap stocks, and the broader value style, are beginning to look more attractive. As markets evolve and investors rotate away from the most expensive segment, our focus on high-quality business with attractive relative valuations positions us well. Quality and attractive relative value have consistently outperformed across market cycles, and we fully expect this dynamic to reassert itself as the market environment matures.

Our distribution channels delivered impressive results in the third quarter, building on the momentum we've established throughout the year. Year-to-date net sales through September 30 improved versus last year by 17%, and by 57% versus 2023. Our intermediary and institutional channels have contributed equally to this performance. Our institutional channel had negative net flows this quarter, primarily driven by sub-advisory business rebalancing. Our pipeline remains robust across value and energy strategies, with several new opportunities added during the quarter. Looking ahead in the institutional space, we anticipate winning more mandates in SMidCap for defined contribution plans supported by the largest national.

We continue to have constructive meetings regarding our managed investment solutions capability, and there's continued interest in our energy offerings for both public and private strategies. We anticipate continued stability with our existing clients as we expand our presence with public plans, OCIOs, and single multifamily offices. The intermediary channel had particular success with our private fundraising initiative, which has so far exceeded our 2025 annual goal by 1.5 times through September 30. And our private funds have earned approval on several broker-dealer platforms, further expanding our distribution capabilities.

Our energy and real asset strategies continue to lead Westwood Holdings Group, Inc. in both gross and net sales in 2025, and our enhanced midstream income ETF, MBST, continues to gain approvals for major national platforms. Putting it all together, the tailwinds in energy combined with the breadth of Westwood Holdings Group, Inc.'s offerings are appealing to intermediary clients, particularly in the family office and RIA space. Our well-rounded offerings within the multi-asset and tech suite of products are well-positioned to ride out equity market volatility. Our wealth management business is on track to meet our client retention goals for the calendar year. We've reduced costs versus last year, and this trend will continue throughout the rest of the year.

The operational efficiencies we're building will underpin early wins in 2026, and we're continuing to evaluate the best path to enhance our services as we move into 2026. Beyond our core business performance, several transformative initiatives and milestones demonstrate our continued commitment to innovation and strategic growth. Our ETF platform expansion, our MBST ETF reached a significant milestone, surpassing $150 million in assets under management. MDST was the second best-selling fund compared to peer midstream funds in September, accounting for approximately 30% of midstream product ETF flows. Since inception, MDST has consistently delivered on its objective to provide a steady stream of monthly income with an annualized distribution rate exceeding 10%.

The fund's rapid growth and enthusiastic investor engagement underscore the increasing demand for innovative income-generating strategies in today's evolving market environment. Webb's innovation Westwood and Webb's investments launched 11 new sector funds during the quarter. The new WEB's defined volatility sector ETF, a suite of 11 funds which apply the defined volatility strategy to individual sectors within the S&P 500. By expanding this suite, we can offer investors more precise control over risk and sector exposure using a transparent framework that adjusts portfolio exposure based on real-time market volatility. Each fund tracks a defined volatility index created by Syntax, with each index providing investment exposure to an underlying select sector spider ETF.

The web's flagship ETF DBSP and DBQQ, which launched late last year, demonstrated the effectiveness of a volatility-managed approach this past quarter. These ETFs also implement a rules-based strategy of volatility-adjusted exposure, adding market exposure when volatility is low and reducing market exposure when volatility is high. After underperforming their underlying ETFs, SPY and QQQ, during a very choppy first half that experienced elevated market volatility, our defined volatility approach really proved its worth this quarter. As volatility calmed down, DBSP outperformed SPY by 636 basis points, and DBQQ outperformed the triple Q by 726 basis points. In summary, we remain confident in our strategic positioning and the value we provide to our clients.

Our year-to-date performance demonstrates meaningful progress with net sales improving. Our diversified platform, spanning traditional value strategies, innovative ETF products, energy and real asset solutions, custom index solutions, private investments, and wealth management services, positions us to take advantage quickly of evolving market dynamics. With strong long-term performance rankings across our multi-asset and energy strategies, growing momentum in both institutional and intermediary channels, and innovative new products gaining marketplace traction, we believe Westwood Holdings Group, Inc. is well-positioned to deliver value to our clients and shareholders. Thank you for your continued support and confidence in Westwood Holdings Group, Inc. I will now turn the call over to CFO, Terry Forbes.

Terry Forbes: Thanks, Brian, and good afternoon, everyone. Today, we reported total revenues of $24.3 million for the third quarter 2025 compared to $23.1 million in the second quarter and $23.7 million in the prior year's third quarter. Revenues were higher than both periods due to higher average assets under management. Our third quarter income of $3.7 million or $0.41 per share compared with $1 million or $0.12 per share in the second quarter on higher revenues and unrealized appreciation on private investments partially offset by higher income tax. Non-GAAP economic earnings were $5.7 million or $0.64 per share in the current quarter versus $2.8 million or $0.32 per share in the second quarter.

Our third quarter income of $3.7 million or $0.41 per share compared favorably to last year's third quarter income of $100,000 due to 2025's higher revenues and unrealized appreciation on private investment and changes in the fair value of contingent consideration in 2024, all partially offset by higher income taxes in 2025. Economic earnings for the quarter were $5.7 million or $0.14 per share compared with $1.1 million or $0.13 per share in the third quarter 2024. Firm-wide assets under management and advisement totaled $18.3 billion at quarter end, consisting of assets under management of $17.3 billion and assets under advisement of $1 billion.

Assets under management consisted of institutional assets of $9 billion or 52% of the total, wealth management assets of $4.3 billion or 25% of the total, and mutual fund and ETF assets of $4 billion or 23% of the total. Over the quarter, our assets under management experienced net outflows of $700 million and market appreciation of $700 million, and our assets under advisement experienced market appreciation of $30 million and net outflows of $3 million. Our financial position continues to be solid with cash and liquid investments at quarter end totaling $39.2 million and a debt-free balance sheet.

Happy to announce that our board of directors approved a regular cash dividend of 15¢ per common share, payable on January 2, 2026, to stockholders of record on December 1, 2025. That brings our prepared comments to a close. We encourage you to review our investor presentation we have posted on our website reflecting quarterly highlights as well as a discussion of our business, product development, and longer-term trends in revenues and earnings. We thank you for your interest in our company. And we'll open the line to questions.

Operator: Thank you. You will need to press star one to ask a question. To remove yourself from the queue, you may press star one again. Our first question comes from the line of Macrae Sykes of Gamco. Your line is open, Macrae.

Macrae Sykes: Oh, good afternoon, gentlemen, and congratulations on the ETF success. My question is, if you could just talk about how you're leaning into the success to leverage it further at this point? It seems like you're accelerating your inflows. So what are you doing to make that even more fruitful? And is there any capacity constraint with respect to the capital coming in and investing it?

Brian Casey: Good afternoon, Macrae. Thanks for your question. Yeah, so we have worked really hard to grow our ETF business, and we've done it through a lot of the traditional channels. And as you know, each of the various platforms have different thresholds that you have to meet in order to get your ETF onto the platform. And some of them have fairly low bars where you need $25 million in assets, a certain number of shares traded per day. And some have very high bars with a high level of assets and a lot of shares traded per day.

So we've been doing it that way, and we've got, of course, our distribution team is out calling on both RIAs and the platforms. So we've had some success there, and I'm really pleased to report that we are very close to gaining access to one of the largest wirehouse platforms in the world. And we've worked really hard to get there, and we feel confident that will happen over the next month or two.

Operator: Thank you. I would now like to turn the conference back to Brian Casey for closing remarks. Sir?

Brian Casey: Alrighty. Well, thanks everyone for listening to our call today. Certainly, the outflows this quarter were disappointing, but fortunately, concentrated in our large cap area, which is our lowest fee product. Our pipeline for new business remains very strong at $1.6 billion. We have a won but not yet funded mandate of close to $450 million for our SMID cap products. Our private fundraising is going exceptionally well, and we'll have more to report to you early next year. And we continue to look for opportunities to launch ETFs that are income-focused and leverage our broad investment capabilities. And performance for our MIS client in real assets and infrastructure products has been excellent.

And our prospect list has really grown, and we feel really close to landing our first institutional client. And then in closing, I do want to acknowledge the passing of our dear friend and colleague, Rolando Williams. Rolando joined Westwood Holdings Group, Inc. twenty-six years ago as our receptionist. And through her unwavering dedication, sharp intellect, and warm spirit, she rose to lead support for our sub-advisory client business, and her journey was a testament to her strength, resilience, and commitment to excellence. And Rolando was really more than a colleague. She was a force. Her presence lit up every room. Her laughter was contagious. And her kindness touched everyone who had the privilege of knowing her.

She was deeply loved, and her legacy will live on in the hearts of all of us at Westwood Holdings Group, Inc. And we extend our heartfelt condolences to her family and loved ones. Rolando will be profoundly missed, never forgotten. Thanks for listening to our call today. Please reach out to me or Terry if you need anything.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.