Good day, ladies and gentlemen, and welcome to the Q2 2019 Westwood Holdings Group Inc. Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Mr. Julie Gerron, General Counsel, Chief Compliance Officer. Ma'am, you may begin.

Thank you, and good afternoon. Welcome to our second quarter 2019 earnings conference call. The following discussion will include forward-looking statements, which are subject to known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those contemplated by the forward-looking statements. Additional information concerning the factors that could cause such a difference is included in our press release issued earlier today as well as our Form 10-Q for the quarter ended June 30, 2019, filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. You are cautioned not to place undue reliance on forward-looking statements. In addition, in accordance with the SEC rules concerning non-GAAP financial measures, the reconciliation of our economic earnings and economic earnings per share to the most comparable GAAP measures is included at the end of our press release issued earlier today. On the call today, we have Brian Casey, our President and Chief Executive Officer; and Terry Forbes, our Chief Financial Officer. I will now turn the call over to our CEO, Brian Casey.

Good afternoon and thank you for taking the time to listen to our quarterly earnings call. As always, I'll start with comments on the investment teams and market environment and finish with comments on our business. Second quarter was volatile as markets generally rallied in April, fell sharply in May and rallied once more in June. First quarter GDP was better than expected, which helped markets early in the quarter before concerns of an escalating trade war with China sent markets lower. Fed pivot earlier in the year, which now has markets expecting multiple rate cuts, has provided some additional support for equity markets while concerns over fading growth and weakening manufacturing has pushed bond yields lower. Positive corporate earnings growth remains the most likely outcome for the full year, but it will be increasingly dependent on an acceleration at the end of the year. Volatility is continued to moderate but the risk of a spike in volatility remains high as we move into the later stages of the business cycle. Investors will be focused on company outlooks as a tight labor markets in a rebound and housing bully consumers and begin to have a positive impact on earnings and cash flows. As the economic cycle progresses, the preference for high-quality, cash-generating businesses is likely to grow. The market's focus on the underlying quality of each business will cause further dispersion in returns, as it discriminates between companies with strong fundamental strength or weakness providing a key driver of investor returns. Ultimately, we believe, that the investing landscape will continue to move toward one that allows active managers to more clearly identify winners and losers. We remain vigilant in assessing absolute risk in the securities we invest in and are striving to protect client capital during these times of potential…

Thanks, Brian, and good afternoon, everyone. Today, we reported total revenues of $21.7 million for the second quarter of 2019, compared to $23.9 million in the first quarter and $32.8 million in the prior year second quarter. The decrease from the first quarter was primarily due to lower average assets under management resulting from net outflows. The decrease from the prior year second quarter was primarily due to lower average assets under management resulting from net outflows and lower performance-based fees. Second quarter net income of $1.9 million or $0.22 per share compared to $0.4 million or $0.05 per share in the first quarter. The increase was due to higher seasonal payroll taxes and benefit matching on bonuses paid in the first quarter. Economic earnings, a non-GAAP metric, was $4.8 million or $0.56 per share in the current quarter versus $4.1 million or $0.49 per share in the first quarter. Second quarter net income of $1.9 million or $0.22 per share compared to $8 million or $0.94 per share in the prior year second quarter. The decrease primarily related to lower total revenues and a $0.6 million foreign currency loss net of tax, partially offset by lower compensation expenses for reductions in incentive compensation. Economic earnings was $4.8 million for the current quarter or $0.56 per share compared to $12.2 million or $1.43 per share in the second quarter of 2018. Firm wide assets under management totaled $15.4 billion at quarter end and consisted of institutional assets of $8.4 billion or 54% of the total, wealth management assets of $4.4 billion or 29% of the total and mutual fund assets of $2.6 billion or 17% of the total. Over the year, we had experienced net outflows of $3.3 billion and market depreciation of $2 billion. Our financial position continues to be very solid with cash and short-term investments at quarter end totaling $103.9 million and a debt-free balance sheet. I'm happy to announce that our Board of Directors approved a quarterly cash dividend of $0.72 per share payable on October 1, 2019 to stockholders of record on September 6, 2019. This represents an annualized dividend yield of 9.2% as of the closing price on July 30. That brings our prepared comments to a close. We encourage you to review our investor presentation we have posted on our website, reflecting second quarter highlights as well as a discussion of our business, product development and longer-term trends in revenues, earnings and dividends. We thank you for your interest in our company, and we'll open the lines to questions.

[Operator Instructions] Our first question comes from Mac Sikes of Gabelli. Your line is open.

Brian, on the ESG rating, maybe you could talk a little bit more about the importance of the BBB for engagement with clients and driving growth.

Sure. Well, thanks for your question, Mac. So really it's become an important part of not only how you're viewed as a company but whether or not you're incorporated into your investment process. So we started a few years ago and really building out what we hope to be a sustainable ESG footprint that will improve over the years. There's about four things that really matter. We're working hard on all 4 of those and what we expect to see in the years ahead is continued improvement as we work on it. It's particularly popular in Europe and is becoming a criteria that you must be a signatory of the UN PRI in order to really compete effectively in Europe.

And congratulations on the pipeline. Could you provide some more color though on that expected timing of the fundings potentially average fee rates? Any more color around that would be very helpful.

Sure. Well, the pipeline is pretty broad-based. Our SmallCap is seeing a lot of interest. And as you know, the SmallCap product carries probably the highest fee rate of any of the products that we have. The 5-star upgrade in MorningStar was helpful this quarter, and we already have a number of new prospects in the pipeline. But it's been really good to see that the breadth of prospect activity has increased such that we're seeing looks in AllCap for the first time in a long time, we're seeing maybe our first ever opportunity in Market Neutral Income. It's been more broad-based, and it's been primarily from our institutional team. I'm super excited to see what our intermediary team is going to do. As you know, those guys have only been on board for less than 30 days, but when you look at their pipeline of activity over the next few months, I think we have over 600 meetings booked for the month of August and early September. So it will be exciting to see what they are able to produce.

My last question on the Income Opportunity, it does seem like a decent space, I understand the management turnover there. But anymore color kind of on - I now the performance has been good and it's really consistent, but just a little bit more color on, sort of, the churn there?

Well, it's - we think it's a great product. It's a product we started really about 17 years ago. Susan Byrne, our founder, and I sat down to really solve a problem for an existing client who felt like interest rates couldn't go any lower. But we came up with a product construct that had 8 different asset classes that was designed to provide a level of income with high quality and low volatility, and it's never wavered from that. All of the ideas come up through our research department that are well vetted by each of our analysts, make it to the buy list and then a team puts together the portfolio. One of the things that we did to improve the product is we enhanced the duration of the fixed income portion to be more in line with the benchmark and that helped out a lot as interest rates came down. It added about 40 or 50 basis points to the performance, and we're excited to continue to build out our Multi-Asset franchise. As I've said in the past, I believe Multi-Asset is an area where clients and consultants value skill and judgment and they will pay for it. And so you'll see additional versions of income opportunity in the years ahead, and as we continue to enhance and refine that process.

[Operator Instructions] I'm showing no further questions at this time. I would like turn the conference back over to Mr. Brian Casey for any closing remarks.

Okay. Well, thank you very much. Well, in closing I'd just like to reiterate that it's sometimes tough to see improvement when you are measuring in short, quarterly time periods. And we've been working for nearly four years to build a firm that can withstand the industry disruption and thrive in the new world of asset management. We've invested millions in technology. We've streamlined our work processes from top to bottom. We're the very first customer on the InvestCloud portfolio accounting platform, and we are already seeing immediate improvements in time and efficiency and we believe we'll see significant cost savings in the years ahead. We've built a highly experienced distribution team for both institutional and intermediary. We're using data and analytics to improve our prospecting and our pipeline of new business opportunity is nearly 4x where it was this time last year. The UN PRI treaty we signed, we've incorporated responsible investing into our investment practices, and we've improved our ESG rating in each of the past two years. We're aligning our pricing on some products with customer outcomes with an innovative fees construct known as Sensible Fees, and we've opened Westwood Private Bank to better serve our private wealth clients. Our Dallas and Houston private wealth offices are well ahead of plan, both in terms of new clients and retention for 2019. And finally, I just remind everybody that this is a stair-step business where you have to stand against the wind and make investments ahead of what you hope will be sustainable growth. We've done it before and we intend to do it again. Thanks for taking time to listen to the call. Please visit our website or give us a call if you have further questions.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and have wonderful day. You may all disconnect.