Ladies and gentlemen, thank you for standing by and welcome to the Westwood Holdings Group’s Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program may be recorded. And now, I'd like to introduce your host for today's program Julie Gerron, General Counsel and Chief Compliance Officer. Please go ahead.

Thank you and good afternoon. Welcome to our third quarter 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 in our Form 10-Q for the quarter ended September 30, 2020 filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, 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 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 Brian Casey.

Good afternoon. Thank you for taking the time to listen to our quarterly earnings call today. I hope you all are healthy and persevering in these challenging times. As we announced last quarter, we have now ceased operations of Westwood International Advisors in Toronto, and almost all of its remaining cash, over $37 million, has been repatriated to the United States, adding to our financial flexibility. We also wrote off some historical goodwill. The accounting effects of our actions were primarily noncash and nonrecurring. While the investment performance produced by Westwood International Advisors proved disappointing, it ultimately led to its demise. The financial impact of owning WIA for Westwood shareholders was positive for most of its eight years of operation. We still believe that emerging market equities is an asset class with high-potential for alpha generation, lower pressure from passive indexing and attractive fees. Institutional and retail investors are attracted to its growth profile and accordingly, search activity is robust. Westwood has the operational expertise to manage emerging markets equities with a new team, and we continue to research available opportunities. Despite September's market drop, equity markets climbed again, even as we head into the final stages of the presidential election. The divergence in performance between the indices remains wide. Mega caps are dominating the LargeCaps, which are outperforming SmallCaps and growth is outperforming value across all market caps. While the SmallCap space remained challenged and is down for the year, the larger cap dominated S&P 500 is in positive territory year-to-date after posting its best quarter since 2010. For sure, the path forward is uncertain, and volatility has begun to pick up in tandem with the election rhetoric we're hearing from both sides of the aisle. Incidences of COVID are proving equally volatile, with some parts of the country…

Thank you, Brian, and good afternoon, everyone. Today, we reported total revenues of $15.5 million for the third quarter of 2020 compared to $15.9 million in the second quarter of 2020 and $19.9 million in the third quarter of the prior year. Revenues were somewhat lower than the second quarter due to closing emerging markets strategies, which slightly reduced our average fee rate. Revenues were lower than last year's third quarter, principally as a result of lower average assets under management. The third quarter net loss of $10.3 million or $1.31 per share exceeded the net loss of $2.6 million or $0.33 per share in the second quarter. The loss primarily related to several onetime items, including a $4.2 million noncash reclassification of foreign currency translation adjustments from accumulated other comprehensive loss to net loss with no impact on stockholders' equity, following the closure of Westwood International Advisors, as well as $1.1 million in incremental Canadian withholding taxes net of federal tax deduction, paid to repatriate more than $37 million from Westwood International Advisors to the U.S., as well as a $3.4 million noncash write-off of historical advisory goodwill to reflect lower market capitalization and advisory net outflows. These onetime items were partially offset by lower operating expenses and lower foreign currency transaction losses. Non-GAAP economic loss was $1.7 million or $0.22 per share in the current quarter versus economic earnings of $0.2 million or $0.03 per share in the second quarter. Third quarter net loss of $10.3 million or $1.31 per share compared unfavorably to net income of $1.1 million or $0.13 per share in the prior year's third quarter, primarily due to the onetime items previously noted, partially offset by lower operating expenses, particularly employee compensation and benefits. Economic loss for the quarter was $1.7 million or $0.22 per share compared with economic earnings of $3.9 million or $0.46 per share in the third quarter of 2019. Firm-wide assets under management totaled $12 billion at quarter-end and consisted of institutional assets of $6 billion or 51% of the total, wealth management assets of $4.1 billion or 34% of the total, and mutual fund assets of $1.8 billion or 15% of the total. Over the year, we experienced market depreciation of $0.9 billion and net outflows of $2.4 billion. Our financial position continues to be very solid with cash and short-term investments at quarter-end totaling $77.6 million and a debt-free balance sheet. That brings our prepared comments to a close. We encourage you to review our investor presentation we have posted on our website reflecting third quarter 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 Instructions] And we have a question from Mac Sykes from Gabelli. Your question, please?

Brian, I saw in your comments, you talked about finals for several large mandates, so obviously, showing some continued good business momentum there. Maybe you could just put some more color around those opportunities. What's driving them in terms of strategies that are in demand? And perhaps, where are you seeing the opportunities? Is that institutional, RIAs consult driven? Just a little more color on what you are seeing in terms of distribution.

Sure. Well, thanks for your question, Mac. As I've talked about for the last several quarters, we have worked really hard to build a robust distribution team and the work that they've been doing is starting to really pay off, both in terms of institutional consultant approvals that are happening at two of the largest consulting firms in the world, where we are buy rated in a couple of strategies. We complemented that with a couple of initiatives that we have done. One was reviewing all of our products to make sure that our fees were positioned in a way that they were attractive, and so that anybody doing a search, looking for our products will find our -- not only our performance to be attractive, but our fees to be attractive. In addition, we have added share classes to some of our funds that are designed for smaller to medium-sized institutional customers. So, we have a share class that has essentially no other fees that is for $10 million or above, and then we have another share class that is designed for defined contribution plans. As I noted in my comments, the intermediary distribution team was really gaining a lot of momentum through the first quarter. And then, COVID hit and all of the wire houses shut their offices, and it was difficult for our guys to make contact and to get into see people. And they have worked really hard to be creative about how to make new touch points with folks and do meetings outside the office. And some of that momentum has begun to pick up. September was particularly promising. And we have a number of searches on the horizon that we're excited about. And one of the things that is really appealing to us is the income opportunity fund where we lost a lot of clients a year and half, two years ago. A number of those clients put money with other managers that have underperformed, and some of those are starting to come back. The performance has been exceptional. As I noted, income opportunity is now a 5-star fund and we think going to be very attractive in this type of environment, where we have lots of volatility. This is a fund that's designed to produce some income, a nice total return with low volatility.

Okay. And then, your balance sheet continues to be a source of strength. Maybe you could just update us on how you think about using that in the next year around repurchases or potential nonorganic M&A? I think, you've talked about in the past potentially looking at wealth managers.

Yes. Well, thanks for your question there. I can't even begin to understand how our stock is trading where it is today when we have $77.6 million in short-term investments and $11.5 million, in long-term investments, which includes our investment in InvestCloud and our investment in a bank, Westwood private bank, which are both doing exceptionally well and growing, and our stock is actually trading below those levels today. As I indicated in my comments, the asset management industry has been under significant pressure. And so, we are seeing more opportunities than we've ever seen in our entire history as a public company, both proactively looking for opportunities, but also having opportunities presented to us. So, we want to make a really good decision with our capital, and we think there's an opportunity to buy a firm if it makes sense to do so and it's the right thing to do. But we talk about it every quarter at our directors meeting. We talked about it today. And one of the things that you see when you have markets like today and the last couple of days, is you're really glad that you've been conservative over the years that you have a fortress-like balance sheet and no debt. The other thing I would mention too from investors that I've noticed recently is that there is a lot of cash on the sidelines. There is a lot of cash in banks. Some of our clients are starting to tiptoe back in during this pullback. In fact, just before I got on this call, one of our clients indicated they're going to send another $100 million on Monday to add to their account, and we have some of our wealth customers who are also taking advantage of this pullback to add to the market. With all told, to answer the top of your question, some of the opportunities we're seeing, there's roughly $300 million to $350 million of accounts that we've won that have not yet funded that will fund between now and the end of the year or into the first quarter.

Our next question comes from the line of Daphne Armstrong from UNC.

Hello. My question is, how has the recent influx of retail investors due to COVID-19 affected your Company and the asset management industry as a whole?

Okay. The recent influx of retail investors, for us, when we think about retail investors, we're typically trying to reach retail investors through advisors. And we spend about half of our time calling on advisors who would have the retail customers, and then, the other half of our time are spent calling on the wire houses where we're trying to get our products approved. So, as far as -- if you were to think about private wealth as retail, I guess, you could think of it that way, but that tends to be higher average assets under management.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Brian Casey for any further remarks.

Well, thanks, and we appreciate you listening to our call today. If you have any further questions, please feel free to call. If you'd like to set up a shareholder call, we'd be happy to do that. Terry and I can make ourselves available and address your questions. So, have a great day. Stay safe. Stay healthy.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.