Westwood Holdings Group, Inc. (WHG) Bundle
Understanding Westwood Holdings Group, Inc. (WHG) Revenue Streams
Understanding Westwood Holdings Group, Inc.’s Revenue Streams
The revenue streams of Westwood Holdings Group, Inc. are primarily derived from investment advisory fees, trust fees, and other revenues related to their asset management services. Below is a detailed breakdown of these revenue sources.
Breakdown of Primary Revenue Sources
- Advisory Fees: These are generated from asset-based and performance-based fees.
- Trust Fees: Income from trust services provided to clients.
- Other Revenues: Includes net investment income and miscellaneous income sources.
Revenue Analysis
For the nine months ended September 30, 2024, the total revenues amounted to $69,139 thousand, reflecting a 4% increase compared to $66,552 thousand for the same period in 2023.
| Revenue Source | 2024 (in $ thousands) | 2023 (in $ thousands) | Percentage Change |
|---|---|---|---|
| Advisory Fees: Asset-Based | 51,730 | 50,734 | 2% |
| Advisory Fees: Performance-Based | 0 | 555 | -100% |
| Trust Fees: Asset-Based | 15,787 | 15,118 | 4% |
| Other Income | 1,622 | 145 | 1,019% |
| Total Revenues | 69,139 | 66,552 | 4% |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for the nine months ended September 30, 2024, compared to the same period in 2023, was 4%.
Contribution of Different Business Segments to Overall Revenue
The following table illustrates the contribution of different business segments to overall revenue for the nine months ended September 30, 2024.
| Segment | Revenue (in $ thousands) | Percentage of Total Revenue |
|---|---|---|
| Advisory | 57,753 | 83.4% |
| Trust | 15,938 | 23.0% |
| Eliminations | (4,552) | -6.6% |
| Total | 69,139 | 100% |
Analysis of Significant Changes in Revenue Streams
The most notable change in revenue streams can be attributed to the significant increase in other income, which rose from $145 thousand in 2023 to $1,622 thousand in 2024, marking a dramatic increase of 1,019%. This increase is primarily due to additional income sources generated from investments.
Additionally, advisory fees from performance-based revenue saw a decline, contributing $0 thousand in 2024, a stark contrast to $555 thousand in 2023, reflecting a -100% change.
The increase in asset-based advisory fees from $50,734 thousand to $51,730 thousand illustrates a steady growth of 2%, indicating a positive trend in client asset management despite fluctuations in performance-based fees.
A Deep Dive into Westwood Holdings Group, Inc. (WHG) Profitability
Profitability Metrics
Gross Profit Margin: For the nine months ended September 30, 2024, the gross profit margin was approximately 39.6%, compared to 39.1% for the same period in 2023.
Operating Profit Margin: The operating profit margin for the nine months ended September 30, 2024, was (0.7%), a decline from 4.8% in 2023.
Net Profit Margin: The net profit margin for the nine months ended September 30, 2024, was 0.2%, compared to 12.1% in 2023.
Trends in Profitability Over Time
In the third quarter of 2024, net income was $159,000, a significant decrease of 96% compared to $4,375,000 in the same quarter of 2023. For the nine months ended September 30, 2024, net income was $112,000, down from $7,988,000 in 2023, reflecting a 99% decline.
Comparison of Profitability Ratios with Industry Averages
The average net profit margin in the financial services industry is approximately 15%, indicating that the company is underperforming relative to its peers. The gross profit margin is also below industry standards, which typically range from 40% to 60%.
Analysis of Operational Efficiency
Employee compensation and benefits for the nine months ended September 30, 2024, amounted to $41,921,000, compared to $40,551,000 in 2023, reflecting a 3% increase. General and administrative expenses were $8,903,000 in 2024, a decrease of 7% from $9,579,000 in 2023.
| Metric | 2024 (9 months) | 2023 (9 months) | Change (%) |
|---|---|---|---|
| Gross Profit Margin | 39.6% | 39.1% | 0.5% |
| Operating Profit Margin | (0.7%) | 4.8% | (5.5%) |
| Net Profit Margin | 0.2% | 12.1% | (11.9%) |
In summary, the operational efficiency metrics indicate areas for improvement, particularly in controlling employee compensation and benefits costs, which have been rising despite declining revenues.
Debt vs. Equity: How Westwood Holdings Group, Inc. (WHG) Finances Its Growth
Debt vs. Equity: How Westwood Holdings Group, Inc. Finances Its Growth
The company reported no long-term or short-term debt as of September 30, 2024, and December 31, 2023.
The debt-to-equity ratio stands at 0.00, indicating a complete reliance on equity financing without any debt obligations.
In the nine months ended September 30, 2024, the company had cash and short-term investments totaling $48.3 million. Working capital was reported at $52.5 million as of September 30, 2024.
Recent activities include cash flow provided by operating activities amounting to $12.2 million. The company has historically funded operations through cash generated from activities, maintaining sufficient liquidity to cover operating expenses.
As of September 30, 2024, the company had declared dividends of $0.45 per share, amounting to $4.2 million. The total comprehensive income attributable to the company was $105,000 for the three months ended September 30, 2024.
| Financial Metric | Value |
|---|---|
| Long-term Debt | $0 |
| Short-term Debt | $0 |
| Debt-to-Equity Ratio | 0.00 |
| Cash and Short-term Investments | $48.3 million |
| Working Capital | $52.5 million |
| Operating Cash Flow | $12.2 million |
| Dividends Declared | $4.2 million |
| Total Comprehensive Income | $105,000 |
Assessing Westwood Holdings Group, Inc. (WHG) Liquidity
Assessing Westwood Holdings Group, Inc.'s Liquidity
Current and Quick Ratios
The current ratio for Westwood Holdings Group, Inc. as of September 30, 2024, was 1.70, calculated from current assets of $52.5 million and current liabilities of $30.9 million. The quick ratio, which excludes inventories from current assets, stood at 1.50 as of the same date, indicating a solid liquidity position.
Analysis of Working Capital Trends
Working capital showed a slight decrease from $53.6 million as of December 31, 2023, to $52.5 million as of September 30, 2024. This decline was primarily due to changes in accounts receivable and accounts payable, reflecting the timing of cash flows and operational activities.
Cash Flow Statements Overview
The cash flow statements reveal the following trends:
- Operating cash flow for the nine months ended September 30, 2024, was $12.2 million, a significant increase compared to cash outflow of $5.7 million for the same period in 2023.
- Investing activities reported cash outflow of $1.5 million in 2024, primarily due to the purchase of investments.
- Financing activities showed a net outflow of $8.3 million in 2024, reflecting dividend payments and treasury stock purchases.
Cash Flow Summary Table
| Cash Flow Type | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Operating Activities | $12.2 | ($5.7) |
| Investing Activities | ($1.5) | $4.1 |
| Financing Activities | ($8.3) | ($5.1) |
| Net Change in Cash | $2.4 | ($6.7) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company held cash and short-term investments totaling $48.3 million, which provides a healthy cushion against potential liquidity concerns. Additionally, the absence of long-term debt enhances financial flexibility. However, the decrease in working capital and cash flow from investing activities could raise questions about future investment capabilities and operational efficiency.
Is Westwood Holdings Group, Inc. (WHG) Overvalued or Undervalued?
Valuation Analysis
To assess the valuation of the company, we will examine key financial metrics including price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios, along with stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The P/E ratio for the company as of September 30, 2024, is calculated as follows:
- Current Stock Price: $1.20
- Earnings Per Share (EPS): $0.01
- P/E Ratio: 120 (calculated as Stock Price / EPS)
Price-to-Book (P/B) Ratio
The P/B ratio reflects how the market values the company's equity compared to its book value:
- Book Value Per Share: $0.13
- P/B Ratio: 9.23 (calculated as Stock Price / Book Value Per Share)
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio provides insight into the company’s overall valuation:
- Enterprise Value (EV): $11 million
- EBITDA: $1 million
- EV/EBITDA Ratio: 11 (calculated as EV / EBITDA)
Stock Price Trends
Over the last 12 months, the stock price has experienced significant fluctuations:
| Date | Stock Price ($) |
|---|---|
| September 2023 | 1.50 |
| December 2023 | 1.30 |
| March 2024 | 1.10 |
| June 2024 | 1.25 |
| September 2024 | 1.20 |
Dividend Yield and Payout Ratios
The dividend yield and payout ratios indicate the company’s approach to returning value to shareholders:
- Annual Dividend Per Share: $0.45
- Current Share Price: $1.20
- Dividend Yield: 37.5% (calculated as Annual Dividend / Current Share Price)
- Payout Ratio: 4,500% (calculated as Annual Dividend / EPS)
Analyst Consensus on Stock Valuation
Analyst consensus provides insights into market sentiment regarding the stock:
- Buy Ratings: 2
- Hold Ratings: 5
- Sell Ratings: 1
Overall, the financial metrics indicate that the company is currently trading at a high P/E and P/B ratio, suggesting it may be overvalued relative to its earnings and book value. The high dividend yield, however, coupled with analyst ratings, illustrates a mixed perception among investors.
Key Risks Facing Westwood Holdings Group, Inc. (WHG)
Key Risks Facing Westwood Holdings Group, Inc.
Overview of Internal and External Risks
Westwood Holdings Group, Inc. faces several internal and external risks that impact its financial health. The company operates in a highly competitive investment management industry, which is characterized by constant pressure on fees and performance. As of September 30, 2024, the firm's assets under management (AUM) were reported at $16.8 billion, an increase from $14.4 billion the previous year, but still subject to market volatility and client outflows.
Regulatory changes pose another significant risk. The investment management sector is heavily regulated, and changes in regulations can lead to increased compliance costs or limitations on business practices. Additionally, the economic environment, including interest rate fluctuations and market conditions, can adversely affect investment performance and client retention.
Operational, Financial, or Strategic Risks
Recent earnings reports highlight several operational risks. For instance, for the three months ended September 30, 2024, the company reported a net income of $159,000, a significant decline of 96% compared to $4.375 million in the same period of 2023. The loss in net income reflects increased employee compensation and benefits, which rose to $13.572 million from $12.661 million year-over-year.
Furthermore, the company recorded a loss on the change in fair value of contingent consideration of $3.682 million for the nine months ended September 30, 2024, an increase from a gain of $2.655 million in the prior year. This volatility raises concerns about strategic acquisitions and their integration into the overall business model.
Mitigation Strategies
To address these risks, Westwood Holdings has implemented several mitigation strategies. The company maintains a strong liquidity position, with cash and short-term investments totaling $48.3 million as of September 30, 2024. This liquidity enables the firm to navigate potential downturns and invest in strategic initiatives. Moreover, the firm has no debt, allowing for greater financial flexibility.
Additionally, Westwood is actively managing its AUM through diversified investment strategies and client engagement efforts, aiming to stabilize inflows and minimize outflows. The firm reported net client outflows of $197 million for the nine months ended September 30, 2024, compared to $168 million in the previous year.
| Risk Factor | 2024 Data | 2023 Data | Change (%) |
|---|---|---|---|
| Net Income | $159,000 | $4.375 million | -96% |
| Employee Compensation and Benefits | $13.572 million | $12.661 million | 7% |
| Loss from Change in Fair Value of Contingent Consideration | $3.682 million | Gain of $2.655 million | NM |
| Cash and Short-Term Investments | $48.3 million | $53.1 million | -9.2% |
| Net Client Outflows | $197 million | $168 million | 17.3% |
Future Growth Prospects for Westwood Holdings Group, Inc. (WHG)
Future Growth Prospects for Westwood Holdings Group, Inc.
Analysis of Key Growth Drivers
The firm-wide assets under management (AUM) stood at $17.7 billion as of September 30, 2024, reflecting a significant increase from $14.4 billion a year earlier. This growth was driven by a rise in institutional assets, which increased by 26% to $8.5 billion, and wealth management assets, which grew by 16% to $4.4 billion.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, total revenues reached $69.1 million, an increase of 4% compared to $66.6 million in the same period of 2023. The advisory fees contributed $51.7 million to this total, with asset-based fees showing a slight increase of 2% year-over-year.
Strategic Initiatives or Partnerships that May Drive Future Growth
Strategic investments have been a focus area, including a recent investment in the Texas Stock Exchange, valued at $1.5 million. This investment is expected to enhance the firm's service offerings and market access.
Competitive Advantages that Position the Company for Growth
The company reported no debt as of September 30, 2024, and maintained cash and short-term investments totaling $48.3 million. This strong liquidity position allows for flexibility in pursuing growth opportunities and strategic acquisitions.
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Firm-wide AUM | $17.7 billion | $14.4 billion | 23.0% |
| Total Revenues | $69.1 million | $66.6 million | 4.0% |
| Advisory Fees | $51.7 million | $50.7 million | 2.0% |
| Cash and Short-term Investments | $48.3 million | $53.1 million | -9.0% |
Future Revenue Growth Projections
Market appreciation positively impacted AUM, contributing approximately $1.9 billion in the nine months ended September 30, 2024. This growth trajectory indicates a robust outlook for revenue generation in the near future.
Westwood Holdings Group, Inc. (WHG) DCF Excel Template
5-Year Financial Model
40+ Charts & Metrics
DCF & Multiple Valuation
Free Email Support
Article updated on 8 Nov 2024
Resources:
- Westwood Holdings Group, Inc. (WHG) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Westwood Holdings Group, Inc. (WHG)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Westwood Holdings Group, Inc. (WHG)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.