Westwood Holdings Group
Annual Report 2022

Plain-text annual report

Westwood Holdings Group, Inc. Annual Report 2022 W e s t w o o d H o d n g s G r o u p l i , I n c . A n n u a l R e p o r t 2 0 2 2 Positioned for Success Over the past four decades, we have enjoyed bull markets and weathered market down drafts by sticking firmly to our investment discipline and running our company with the same standards that we look for in the companies we invest in. In 2022, we did not allow the market “noise” to distract us from our long-term goals. We completed the acquisition of Salient Partners’ asset management business and continued to invest in our people and corporate infrastructure to enable us to thrive despite bouts of market volatility. As always, we remain committed to our mission: to deliver superior results and services to clients, energize our employees and reward shareholders by conducting our business in a manner that reflects our core values of integrity, honesty and excellence. TO OUR CLIENTS, SHAREHOLDERS AND COLLEAGUES When Westwood was founded four decades ago, it was grounded in disciplined investing principles designed to generate alpha without taking excessive risk as well as to withstand the vagaries of market cycles and provide clients with confidence as we helped them achieve their long- term financial goals. Our principles have withstood the test of time and proved their value yet again as we confronted the challenges of the past year—which were plentiful. The tightening actions of central banks across the globe as they worked to curb persistent inflation contributed to last year’s volatility, unusually affecting equity and fixed-income markets at the same time. These factors were exacerbated by serious geopolitical upheavals and fluctuations in the global energy markets, clouding the economic outlook and sparking recessionary fears. Our seasoned investment teams navigated well through this volatile macro environment, with many Westwood strategies finishing strongly in the fourth quarter and extending their solid long- term performance track records. Investment and wealth management firms often struggled to stem client losses while our disciplined investment approach and consistent interactions with clients resulted in strong client retention in 2022. In fact, in our Wealth Management channel, we once again achieved high client satisfaction ratings which helped perpetuate our relationship retention rate of ~93%. SALIENT PARTNERS ACQUISITION Most significantly, we executed the most consequential expansion of our business in Westwood’s long history: the acquisition of Salient Partners’ asset management business. This strategic acquisition, including an ownership stake in Broadmark Asset Management, is truly transformative. It increased Westwood’s total assets under management and advisement as of December 31, 2022 by $3.6 billion to $16.1 billion and should generate economic earnings per share accretion of approximately 100% in 2023—a significant value-add for our shareholders. The Salient business strengthens our platform with complementary investment capabilities in Energy Infrastructure, Tactical Absolute Return, Real Estate and Private Investments. Our expanded product portfolio will enable Westwood to meet a wider range of client needs, including alternative income, inflation protection via real asset investments and volatility mitigation. The transaction significantly strengthens our distribution capabilities across the firm, combining two intermediary teams with minimal client Westwood Holdings Group, Inc. 1 1 4 4 Letter From the CEO Salient Acquisition Executing on Our Mandates 6 Wealth Management 7 Culture | ESG 8 Company Metrics LETTER FROM THE CEO CONTINUED or channel overlap and adding a broad presence in the wirehouse channel to our deep involvement in the independent broker-dealer, RIA and institutional channels. We are beginning to realize synergies and capitalize on new growth opportunities as we bring these groups together, and we expect these opportunities to multiply as we work as one team. The dynamic combination of a broader range of product offerings, expanded distribution capabilities and a talented team of outstanding professionals will allow our clients to achieve their objectives while accelerating the growth of our business. INVESTMENT STRATEGIES We finished 2022 strongly but there was no avoiding the bear markets that prevailed in equities and bonds during the year. Our active management approach helped clients as we worked hard to mitigate downside trends while identifying the kinds of attractive investment opportunities that present themselves in volatile markets. Our investment teams performed well, with nearly all our Multi- Asset strategies and all of our U.S. Value strategies outperforming their benchmarks and several products posting top quartile peer rankings. Our U.S. Value strategies continued to focus on high-quality businesses trading at attractive prices, which enabled each strategy with a three- and five-year track record to outperform over trailing time periods. Our Multi-Asset team’s consistent investment approach yielded positive relative results for clients with our asset allocators, Income Opportunity, Total Return and High Income, all achieving solid peer rankings. Alternative Income, which invests in convertibles, was down just three basis points gross of fees for the year versus equities, which declined by double digits. The Multi-Asset team introduced its newest strategy, Systematic SmallCap Growth, which outperformed its benchmark for the year. We were very pleased with the performance of our newest Multi-Asset strategies. The Westwood Salient Energy 2 Annual Report 2022Infrastructure and Real Estate strategies beat their respective benchmarks for the year and our Tactical Absolute Return strategies, sub-advised by Broadmark Asset Management, delivered positive relative performance against most of its peer group. Notably, Global Real Estate wrapped up 2022 over 400 basis points ahead with top 10 rankings versus their mutual fund and institutional peers. Across the industry, market forces and portfolio rebalancing were the primary drivers of fund flows. Companywide, total inflows for the year were $1.5 billion offset by outflows of $2.4 billion, resulting in net outflows of $0.9 billion. In addition, we added $3.6 billion in assets via the Salient acquisition. Benefiting from our high-touch client service efforts, we were able to maintain a high client retention rate and are well positioned not only to recapture flows in a more positive market environment, but also to compete for new assets. WEALTH MANAGEMENT Amid the market tumult, our Wealth Management team delivered strong new business results for the year—gathering more than $450 million in gross new assets and adding over 50 new relationships, some with investible assets exceeding $30 million. The Texas market continues to provide significant opportunities for our Wealth Management business. The “Texas Triangle,” comprised of the Dallas-Fort Worth, Houston-Galveston and Austin-San Antonio metropolitan areas, is expected to extend its growth trajectory, with businesses expanding alongside high-net- worth individuals.* Building on investments we have made over the years, we are positioned to gain market share with a strong team and a willingness to invest more to better serve clients seeking nimble organizations with customized services like Westwood Wealth Management. FINANCIAL PERFORMANCE Turning to the firm’s overall financial performance, volatile markets led to reduced average assets under management, which led to pressure on our revenues and profitability for the year. While total revenues were down 6%, we maintained a disciplined focus on expenses, which declined 1%, excluding one-time expenses related to the Salient acquisition. As a result, our economic earnings for the year came in at $3.6 million. Our financial position continues to be strong with $39.2 million in cash and short-term investments at year-end and a debt-free balance sheet. We entered the new year with just over $16 billion in AUM and an expanded line-up of product offerings thanks to the Salient acquisition, all of which gives us confidence that we will generate significantly improved profitability in 2023. Over the past several years, we have executed our long-term strategy and remained steadfast in delivering on our vision and positioning the firm for success. Our disciplined approach to investing, our focus on developing new solutions to meet client needs, and prudent management of our business * Details are outlined in The Texas Triangle: An Emerging Power in the Global Economy by Henry Cisneros (Author), David Hendricks (Author), J. H. Cullum Clark (Author), William Fulton (Author). are hallmarks of how we operate. Our multi-year investments in talent and corporate infrastructure have prepared us for the expansive growth we anticipate going forward. In 2022, we celebrated our 20th anniversary as a public company and this year we will celebrate the 40th anniversary of Westwood’s founding. As we reflect on the past and commemorate all that we have achieved, I am confident that Westwood’s best years lie ahead. I wish to personally thank our team once again for making Westwood one of Pensions & Investments’ Best Places to Work in 2022. I am excited to begin to realize the promise that the Salient acquisition represents for Westwood and I want to thank you, our clients and shareholders who trust in us to help you achieve your financial goals. We work hard every day to make sure we are doing everything we can to generate superior returns together with a level of service that is deserving of that trust. Brian O. Casey Chief Executive Officer 3 Westwood Holdings Group, Inc.SALIENT ACQUISITION: EXPANDING SUITE OF PRODUCTS AND ENHANCING DIVERSIFICATION While 2022 was without doubt a very challenging year for the industry, our team never lost sight of its strategic goals to build future growth and improve profitability. We took advantage of our strong balance sheet to make the largest acquisition in our 20-year history as a public company by purchasing Salient Partners’ asset management business, which included a stake in Broadmark Asset Management, a San Francisco-based asset manager offering tactical absolute return strategies. In early 2023, we purchased additional shares of Broadmark, which brought our ownership to just under 80%. The Salient acquisition increased our total assets under management and advisement at year-end by $3.6 billion. The transaction strengthens our existing platform with the addition of highly complementary investment strategies that expand and diversify our investment offerings with minimal client overlap, providing strong cross-selling opportunities. “ The Salient acquisition adds meaningful scale and diversification to Westwood, both in terms of products as well as earnings and distribution channels.” Brian O. Casey, CEO, Westwood Holdings Group, Inc. Salient Partners was a Houston-based, real asset and alternative investment firm offering four distinct investment capabilities: Energy Infrastructure, Tactical Absolute Return, Real Estate and Private Investments, offerings that clearly complement and bolster Westwood’s growing Multi-Asset, Real Assets and Alternative platforms. The Salient and Broadmark strategies provide solutions increasingly sought by investors including alternative sources of income, real assets with inflation protection, low correlations to traditional asset classes and volatility mitigation. This strategic undertaking underscores Westwood’s focus on executing on its vision by making bold investments to position the firm for a successful future. Attractive valuation—significant year 1 EPS accretion is expected Structured with back-end protection through prudent growth and revenue retention hurdles Adds complementary, highly differentiated investment capabilities expanding and enhancing Westwood’s multi-asset platform Significant opportunities for product extensions and innovation across real assets and liquid alternatives Adds three seasoned and well-respected investment teams Highly regarded for their intellectual capital and thought leadership Leverages investment offerings and distribution across institutional and intermediary channels Accelerates Westwood’s ability to capitalize on substantial investment in distribution infrastructure Westwood gains immediate platform access to marquee intermediary firms Would have otherwise taken significant time and financial resources to build organically 4 INVESTMENT STRATEGIES AND PERFORMANCE: EXECUTING ON OUR MANDATES SUCCESSFULLY NAVIGATED THE BEAR MARKET OF 2022 Against the backdrop of persistent inflation and unrelenting interest rate increases, U.S. equity and fixed-income markets both experienced bear markets in 2022—a rare occurrence, as the two markets typically move in opposite directions. Given our overall investment focus on higher quality companies, many of which are considered defensive by nature, over 92% of our U.S. Value Equity and Multi-Asset strategies outperformed their respective benchmarks for the year. The investment strategies offered by our new Salient and Broadmark teams also delivered strong relative performance for the year, outperforming most of their peers. The Real Estate strategies achieved notable results for the year, earning Top 10 rankings versus their fund and institutional peers. On the Energy side, while benchmarks were up 30% last year, our new strategies closed out the year on track with their benchmarks while avoiding taking on additional risk-chasing performance. With our expanded suite of highly differentiated investment strategies, our clients can access a diverse line-up of investment options while limiting the impact of market volatility thanks to the low correlations exhibited by these asset classes historically. U.S. VALUE STRATEGIES DELIVER RELATIVE OUTPERFORMANCE Our U.S. Value Equity products extended their strong long-term track record by delivering relative outperformance amid a bear market. Our strategies ended the year on a high note with relative outperformance against their benchmarks and several posted top quartile peer Annual Report 2022rankings in their respective Morningstar universes during the fourth quarter. Our two largest U.S. Value strategies by assets—LargeCap and SmallCap— outperformed their respective benchmarks for the year by 212 and 277 basis points on a gross basis, respectively. As this period of economic and market uncertainty prevails, our quality value-based investment approach is expected to continue to outperform. Multi-Asset team employs a consistent investment approach, applying top-down and bottom-up analytical tools, with a focus on downside protection, and its strategic and tactical allocation decisions have contributed to solid long-term results. Our Income Opportunity and Total Return mutual funds rank in the top quartile of their Morningstar peer groups on a three-, five- and 10-year basis while retaining four-star and five-star ratings, respectively. MULTI-ASSET PLATFORM BUILDS UPON ITS ATTRACTIVE TRACK RECORD Within the Multi-Asset space, our largest strategy, Income Opportunity, along with our newer Total Return, High Income and Credit Opportunities strategies, all beat their benchmarks for the fourth quarter and the year as a whole. Six of our nine distinct strategies in Multi-Asset, representing over 85% of this group’s total assets managed, outperformed their respective benchmarks by an average of 355 basis points for the year. Our Given the potential for dispersion of returns across asset classes, our suite of Multi-Asset products is well-positioned to take advantage of the current market environment and deliver attractive risk-adjusted absolute returns. SALIENT AND BROADMARK STRATEGIES BRING STRONG TRACK RECORDS TO WESTWOOD The acquisition of Salient Partners’ asset management business added complementary and highly differentiated investment strategies consisting of $3.6 billion in assets under management and advisement to the Westwood platform. These strategies, including Energy Infrastructure, Tactical Absolute Return, Real Estate and Private Investments, are managed by seasoned and well-respected investment teams. The Salient and Broadmark investment strategies are designed to provide solutions that investors are increasingly seeking, such as alternative sources of income, real assets with inflation protection, low correlations to traditional asset classes and market volatility mitigation. We are energized to count these strategies in our investment product line-up and eagerly anticipate their contribution toward our strong firmwide, long-term performance track record. AUM—US Value Equity as of 12.31. 2022 AUM—Multi-Asset as of 12.31. 2022 AUM—Tactical Absolute Return as of 12.31. 2022 AUM—Energy Infrastructure as of 12.31. 2022 AUM—Real Estate as of 12.31. 2022 5 Westwood Holdings Group, Inc. WEALTH MANAGEMENT Westwood’s Wealth Management business performed well against last year’s very volatile market backdrop. The team gathered over $457 million in gross new assets, added over 50 new client relationships, including two with investible assets of more than $30 million each, and reduced gross outflows by 20%. Our Select Equity and Dividend Select strategies delivered strong relative performance for our Wealth clients and our newest strategy, EV/Clean Energy, outperformed its benchmark while letting clients invest in market segments that resonate with their personal values. We continue to be a partner of choice for families, corporate professionals and entrepreneurs including many who are deserting large banks for a more customized, holistic approach to wealth “ We have a significant opportunity to grow our footprint and increase our market share into one of the fastest growing high-net worth markets in the world—the Texas Triangle.” Leah Bennett, President of Wealth at Westwood management. They are attracted to our just right “Goldilocks” size—not too big and not too small—and our ability to provide personalized products and services. Our wealth investment solutions are designed to deliver high quality, tax efficient outcomes specifically designed to meet our clients’ needs. The sophistication of asset choices and the financial complexity of our family and institutional relationships continues to increase. To be competitive, our wealth management group needs to offer a diverse set of skills and resources to serve clients. Today, nearly half of our wealth advisors are attorneys, 15% are CFPs and 23% are CFAs. This depth of specialized knowledge enables Westwood to effectively serve our clients’ detailed financial needs. Texas continues to attract millennials, families and highly skilled business leaders and we expect the trend to extend as the state’s business leadership, population and economic power keep growing. Many people coming from other parts of the country are settling into the 6 “Texas Triangle,” comprised of Dallas- Fort Worth, Houston, San Antonio and Austin metropolitan areas. The state’s pro-business environment encourages business formation and more than 50 Fortune 500 companies are now headquartered in the Texas Triangle. We believe the growth opportunity in the Texas market is truly significant and we are very confident that we will be able to gain new clients and grow market share. Taken together, the professional expertise that we have accumulated and the investments in resources and technology that we have made over the last several years, we are poised to take full advantage of the growth prospects for our region. We are convinced that our wealth business is well-positioned for further growth and success. under management as of 12.31. 2022 Annual Report 2022 DIVERSITY AND INCLUSION | CULTURE | ESG CULTURE ESG Since its founding, Westwood has been dedicated to fostering a healthy corporate culture. Our founders recognized that a professional business culture is the glue that holds us together. Companies that maintain a culture that advances teamwork and champions respect for clients and colleagues alike increase their chances for long-term success. Westwood’s corporate culture is based heavily on Coach John Wooden’s Pyramid of Success™. This roadmap aids our people to achieve elevated levels of success by adhering to human and professional values. Skill, industriousness, integrity, adaptability, honesty and enthusiasm are among the characteristics we value and try every day to model in our behavior. Underscoring that adhering to these principles is working in practice, we were honored to be named once again to Pensions & Investments’ Best Places to Work in 2022, a distinction in which we take great pride. When evaluating the Salient acquisition, one key criterion was whether it would be a good cultural fit and we proceeded only once we determined that it truly appeared to be a great cultural fit. While working on our integration plans throughout last year, we shared Coach John Wooden’s Pyramid of Success with our prospective colleagues as a framework on which to align our cultures in service of clients and shareholders. under management as of 12.31. 2022 Westwood continues its Environmental, Social and Governance (“ESG”) journey guided by six areas of focus: Environmental Impact, Diversity, Equity and Inclusion (“DE&I”), Community, Responsible Investing, Privacy & Data Protection and Governance. As a company founded by a woman, Susan Byrne, we enthusiastically champion DE&I initiatives. Last year, 44% of new hires came from diverse backgrounds, while women make up 42% of our employees and 33% of our board of directors. GIVING BACK TO OUR COMMUNITIES Our employees engage with the communities in which we live and work via donations of money and volunteering time and effort. Giving back to our communities is an important aspect of what we believe a committed and engaged corporate leader should do. Faith a P t i e n c e Competitive Greatness Fight In 2022, our Westwood family took part in our 19th annual Habitat for Humanity Build Day, provided teachers with gift cards for classroom supplies through our Give Back to Teachers campaign, and hosted a bake sale to support the Red Nose Day campaign to combat child poverty. Westwood employees also led a successful fundraising campaign for the Bonton Farms’ Tiny Home Village project to provide affordable housing to people in need. In addition to matching employee donations to more than 25 charitable organizations during North Texas Giving Day, Westwood also hosted a “Yappy Hour” for furry friends and raised funds to support local animal shelters. We matched all employee donations, while our charitable events committee supported organizations such as the Cystic Fibrosis Bike Ride, the Covenant House Sleep Out to help children facing homelessness, and the University of Notre Dame Native American Student Association. I n t e g r i t y Resourcefulness Poise Confidence R e l i a b i l i t y Adaptability Condition Skill Team Spirit H o n e s t y Ambition Self-Control Alertness Initiative Intentness S i n c e r i t y Industriousness Friendship Loyalty Cooperation Enthusiasm 7 Westwood Holdings Group, Inc. ASSETS UNDER MANAGEMENT DIVERSIFICATION 2002 $4.1 Billion 84% Institutional Separate Accounts and Other Managed Accounts 16% Wealth Management Since 2002 2022 $16.1 Billion* 46% Institutional Separate Accounts and Other Managed Accounts 25% Wealth Management 29% Westwood Mutual Funds STRATEGY BREAKDOWN INSTITUTIONAL CLIENT TYPE 49% U.S. Value Equity 31% Multi-Asset/ Multi-Strategy 20% Wealth Management 47% Public Funds 27% Sub-Advisory 17% Corporate 8% Foundations/ Endowments 1% Taft-Hartley FEE REVENUE—HISTORICAL Annual Asset-Based Advisory and Trust Fees ($ millions) ASSETS UNDER MANAGEMENT ($ billions) 2022 - $68.4M 2021 - $70.0M 2020 - $61.6M 2019 - $82.5M 2018 - $118.5M 20 2022 - $16.1B* 2021 - $14.5B 2020 - $13.0B 2019 - $15.2B 2018 - $16.6B *December 31, 2022 AUM consisted of AUM of $14.8B and AUA of $1.3B. FINANCIAL HIGHLIGHTS (in $ thousands, except per share and % amounts) Consolidated Statements of Income (Loss) Data: Total revenues Employee compensation and benefits Employee compensation and benefits as a % of total revenues Income (loss) before income taxes Income (loss) before income taxes as a % of total revenues Net income (loss) Earnings (loss) per share – basic Earnings (loss) per share – diluted Cash dividends declared per common share Economic Earnings Economic Earnings per common share Years ended December 31, 2022 $ 68,681 40,124 58.4% (5,195) (7.6)% 2021 2020 2019 2018 $ 73,054 $ 65,111 $ 84,079 $ 122,300 42,532 58.2% 14,003 19.2% 42,141 64.7% (7,588) (11.7)% 50,152 59.6% 9,402 11.2% 59,959 49.0% 36,462 29.8% $ (4,628) $ 9,763 $ (8,947) $ 5,911 $ 26,751 (0.59) (0.59) 0.60 1.24 1.24 2.95 (1.12) (1.12) 0.43 0.70 0.70 2.88 3.20 3.13 2.76 $ 3,564 $ 17,458 $ 7,284 $ 18,179 $ 43,943 0.45 2.20 0.91 2.15 5.14 20 8 Annual Report 2022UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________________________________________________________ ____________________________________________________________________________ Form 10-K (Mark One) ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR 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 (State or other jurisdiction of incorporation or organization) 200 Crescent Court, Suite 1200 Dallas, Texas (Address of principal executive offices) 75-2969997 (I.R.S. Employer Identification No.) 75201 (Zip Code) Registrant’s telephone number, including area code: (214) 756-6900 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 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None ____________________________________________________________________________ Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No ý 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 ý 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer ¨ ý Accelerated filer Smaller reporting company Emerging growth company ¨ ý ¨ 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 financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ¨ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý The aggregate market value on June 30, 2022 of the voting and non-voting common equity held by non-affiliates of the registrant was $100,016,804. For purposes of this calculation, the registrant has assumed that stockholders that are not officers or directors of the registrant are not affiliates of the registrant. The number of shares of registrant’s Common Stock, par value $0.01 per share, outstanding as of March 1, 2023: 9,245,779. DOCUMENTS INCORPORATED BY REFERENCE Selected portions of the registrant’s definitive Proxy Statement for the 2023 Annual Meeting of Stockholders, which will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates, are incorporated by reference into Part III hereof. WESTWOOD HOLDINGS GROUP, INC. Index PART I: ....................................................................................................................................................................... Item 1. Business ................................................................................................................................................ Item 1A. Risk Factors ...................................................................................................................................... Item 1B. Unresolved Staff Comments ............................................................................................................ Item 2. Properties ............................................................................................................................................. Item 3. Legal Proceedings ................................................................................................................................ Item 4. Mine Safety Disclosures ...................................................................................................................... PART II: ...................................................................................................................................................................... Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .......................................................................................................................................... Item 6. Selected Financial Data ....................................................................................................................... Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ....... Item 7A. Quantitative and Qualitative Disclosures about Market Risk ..................................................... Item 8. Financial Statements and Supplementary Data ............................................................................... Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ....... Item 9A. Controls and Procedures ................................................................................................................. Item 9B. Other Information ............................................................................................................................ PART III: .................................................................................................................................................................... Item 10. Directors, Executive Officers and Corporate Governance ............................................................ Item 11. Executive Compensation ................................................................................................................... Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ......................................................................................................................................... Item 13. Certain Relationships and Related Transactions, and Director Independence .......................... Item 14. Principal Accounting Fees and Services .......................................................................................... PART IV: ................................................................................................................................................................... Item 15. Exhibits, Financial Statement Schedules ......................................................................................... PAGE 1 12 19 19 20 20 21 22 23 35 36 36 37 39 39 39 39 39 39 40 i Item 1. Business. PART I Unless the context otherwise requires, the term “we,” “us,” “our,” “Westwood,” or “Westwood Holdings Group” when used in this Form 10-K (“Report”) and in the Annual Report to the Stockholders refers to Westwood Holdings Group, Inc., a Delaware corporation, and its consolidated subsidiaries taken as a whole. This Report contains some forward-looking statements within the meaning of the federal securities laws. 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, those set forth under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 1A. Risk Factors.” General We manage investment assets and provide services for our clients through our subsidiaries, Westwood Management Corp., Westwood Advisors, L.L.C. and Salient Advisors LP (each of which is a registered investment adviser ("RIA") registered with the Securities and Exchange Commission and referred to hereinafter together as “Westwood Management”) and Westwood Trust. Westwood Management, founded in 1983, provides investment advisory services to institutional investors, a family of mutual funds called the Westwood Funds®, other mutual funds, individual investors and clients of Westwood Trust. Westwood Trust, founded as a state-chartered trust company in 1974, provides trust, custodial and investment management services through the use of commingled funds and individual securities to institutions and high net worth individuals. Our revenues are generally derived from fees based on a percentage of assets under management ("AUM") and assets under advisement ("AUA"). Westwood Management and Westwood Trust collectively had AUM of approximately $14.8 billion and AUA of approximately $1.3 billion at December 31, 2022. We were incorporated under the laws of the State of Delaware on December 12, 2001. Our common stock is listed on the New York Stock Exchange under the ticker symbol “WHG.” We are a holding company whose principal assets consist of the capital stock of Westwood Management and Westwood Trust. Prior to its liquidation in 2020, our wholly owned subsidiary, Westwood International Advisors, provided investment advisory services to institutional clients, the Westwood Funds®, other mutual funds, an Irish investment company authorized pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulation 2011 (as amended) (the “UCITS Fund”), individual investors and clients of Westwood Trust. The success of our business is dependent on client, institutional investment consultant and intermediary relationships. In addition to investment performance, we believe that client service is of paramount importance in the asset management business. Accordingly, a major business focus for us is to build strong relationships with clients to enhance our ability to anticipate their needs and satisfy their investment objectives. Our team approach is designed to deliver efficient, responsive service to our clients. We have focused on building our foundation in terms of personnel and infrastructure to support a larger business. We have developed investment strategies that we expect to be attractive in our target institutional, wealth management and intermediary markets. Developing new investment strategies and building the organization can result in incurring expenses before significant offsetting revenues are realized. We continue to evaluate new strategies and resources in terms of meeting actual and potential investor needs. Acquisition of Asset Management Business of Salient Partners, L.P. On November 18, 2022, we completed our acquisition (the "Salient Acquisition") of the asset management business of Salient Partners, L.P. (“Salient Partners”), a Delaware limited partnership. Salient Partners is a Houston-based real asset and investment firm offering a suite of strategies focused on energy and infrastructure, real estate and tactical alternative investments. Westwood purchased substantially all of the properties, rights and assets, and assumed certain liabilities of Salient Partners. Westwood acquired Salient Partners’ four distinct investment capabilities: Energy Infrastructure, Tactical Equity, Real Estate, and Private Investments, as defined in the Company’s Form 8- K filed on May 25, 2022. As part of the Salient Acquisition we also acquired Salient Capital LP ("SCLP"), Forward Securities LLC ("Forward") and Salient Advisors, LP ("Salient Advisors"). SCLP is an SEC-registered broker-dealer and Financial Industry Regulatory Authority ("FINRA") member, and serves as a sub-placement agent for private placements. Forward is a limited broker-dealer and FINRA member which formerly acted as the distributor of the Salient Mutual Funds and the Forward Funds. Salient Advisors is an SEC registered investment adviser, a Commodity Futures Trading Commission ("CFTC") registered Commodity Pool Operator ("CPO") and a National Futures Association ("NFA") member. Salient Advisors is an advisor to the Westwood Salient Tactical Plus Fund, which is subadvised by Broadmark Asset Management, LLC ("Broadmark"). Strategic Investments 1 Over the past several years we have made a number of strategic investments, including InvestCloud, Inc. ("InvestCloud") a digital financial services provider, Charis Bank, ("Charis") the parent company of Westwood Private Bank, and Westwood Hospitality Fund I, LLC ("Westwood Hospitality"), a private investment fund offered to clients of Westwood Trust. InvestCloud. In addition to our investment in InvestCloud, we initiated a technology transformation several years ago with InvestCloud as a core provider. This technology transformation included overhauling and streamlining our enterprise data infrastructure and investment management operating platform. We also developed and launched digital client portals with InvestCloud, offering our clients secure “anytime, anywhere” access to their financial information. Charis. Charis offers traditional banking services through Westwood Private Bank and provides clients of Westwood Trust efficient access to lines of credit secured by their investment portfolios. Our partnership provides Charis the opportunity to refer their clients needing more complex financial planning and investment services to Westwood Wealth Management. Westwood Hospitality. Our investment in Westwood Hospitality seeded a private investment fund, which was offered to clients of Westwood Trust. Available Information We maintain a website at westwoodgroup.com. Information contained on, or connected to, our website is not incorporated by reference into this Report and should not be considered part of this Report or any other filing that we make with the Securities and Exchange Commission ("SEC"). All of our filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge on our website. Our Code of Business Conduct, Corporate Governance Guidelines and Audit Committee, Compensation Committee and Human Capital Committee, Governance/Nominating Committee Charters are available without charge on our website. Stockholders may also obtain print copies of these documents free of charge by submitting a written request to Murray Forbes III, our Chief Financial Officer and Treasurer, at the address set forth on the front of this Report. The public can also obtain access to any public document we file with the SEC at www.sec.gov. Advisory General Our advisory business encompasses five distinct investment capabilities — United States ("U.S.") Value Equity, Multi- Asset, Energy and Real Assets, Tactical Absolute Return, and Income Alternatives. Prior to Sept. 30, 2020, our advisory business also included our Emerging Markets Equity team. Westwood Management provides investment advisory services to large institutions, including corporate retirement plans, public retirement plans, endowments and foundations. Institutional separate account minimums vary by investment strategy and generally range from $10 million to $25 million. Westwood Management also provides advisory services to financial advisors, individuals and the Westwood Funds®, as well as sub-advisory services to other mutual funds and pooled investment vehicles. Investment Strategies We offer high-conviction equity, outcome-oriented solutions and liquid alternatives to address a wide range of investment objectives, including three strategies each with over $1 billion in AUM: LargeCap Value, Income Opportunity and SmallCap Value. U.S. Value Equity The U.S. Value Equity team employs a value-oriented approach focused on identifying undervalued, high-quality businesses capable of generating superior risk-adjusted returns, using a fundamental, bottom-up, three-step investment process. Our team seeks well-run businesses with conservative balance sheets and strong free cash flow that can grow their business value by funding growth initiatives or by returning capital to shareholders. Identifying undervalued companies with strong fundamentals, where the outlook for future earnings growth is underestimated by the market, offers us the potential for asymmetric returns. This investment approach is intended to preserve capital during unfavorable periods and provide superior real returns over the long term. We have established a track record of delivering competitive risk-adjusted returns for our clients. The principal investment strategies currently managed by the U.S. Value Equity team are as follows: LargeCap Value: Investments in equity securities of approximately 40 to 60 companies benchmarked to the Russell 1000 Value Index. MidCap Value: Investments in equity securities of approximately 50 to 80 companies benchmarked to the Russell Midcap Value Index. SMidCap Value: Investments in equity securities of approximately 50 to 70 companies benchmarked to the Russell 2500 Value Index. 2 SmallCap Value: Investments in equity securities of approximately 50 to 70 companies benchmarked to the Russell 2000 Value Index. AllCap Value: Investments in equity securities of approximately 50 to 80 companies benchmarked to the Russell 3000 Value Index. Multi-Asset The Multi-Asset team employs an investment process that applies top-down views across asset classes along with bottom-up security selection, utilizing quantitative and fundamental tools to evaluate macro, micro and technical conditions across a range of asset classes. Our continuum of outcome-oriented solutions underpin our strategic and tactical allocations and along with a discipline geared toward managing downside risks. The team draws on the proprietary fundamental research of Westwood’s investment teams in order to identify securities with attractive risk-adjusted return profiles across a broad spectrum of income-producing securities. The principal investment strategies currently managed by the Multi-Asset team are as follows: Income Opportunity: Multi-Asset strategy that invests across multiple bond sectors, including convertibles and income- producing equity securities. Typically invests in a range of asset types with the equity component usually between 30% and 50% in the normal running of the strategy. Total Return: Multi-Asset strategy that invests across multiple bond sectors, including convertibles and income producing equity securities. Typically invests in a range of asset types with the equity component usually between 50% and 70% in the normal running of the strategy. High Income: Multi-Asset strategy that invests across multiple bond sectors, including convertibles and income- producing equity securities. Typically invests in a range of asset types with the equity component usually between 15% and 30% in the normal running of the strategy. Energy and Real Assets The Energy and Real Assets team employs an investment approach designed to provide access to a broad universe of Master Limited Partnerships ("MLPs") and MLP-related companies, including midstream and other energy infrastructure companies, with the potential to capture a range of energy infrastructure opportunities. The portfolio managers consider the primary risk factors for midstream energy infrastructure companies to be equity markets, high yield spreads, commodity prices and interest rates. The team monitors and discusses changes in these risk factors on a daily basis. The firm utilizes quantitative models to measure valuations, momentum and other risk attributes. The investment team monitors key risk factors for each company and the overall market and positions portfolios accordingly to align with their portfolio management philosophy. Clients invest in these strategies through: MLP and Energy Infrastructure: Offers access to a wide universe of MLPs and MLP-related companies with the potential to capture energy infrastructure opportunities. Tactical Absolute Return Tactical Absolute Return strategies are subadvised by our affiliate, Broadmark. We believe that it may be unwise to be fully invested in equities during periods of intense speculation and monetary tightening within an overvalued market. We also find other market environments in which investors should be fully invested and even overweight higher beta sectors and indices. Our goal is to be in concert with the overall economic/business cycle. Broadmark’s investment process is grounded in four pillars. The first three pillars – valuation, monetary policy and investor sentiment — are qualitative in nature. The fourth pillar is a quantitative assessment of volume and breadth-based momentum. Using a combination of these qualitative and quantitative metrics, Broadmark seeks to manage risk and enhance alpha by tactically phasing into and out of major equity cycles. Broadmark invests primarily in a diversified portfolio of exchange-traded funds ("ETFs") and instruments providing exposure to indices, sectors and industries based on this four-pillar process. The investment team may tactically deploy leveraged investment techniques as well as short positions that allow a net exposure ranging from net long to net short depending on the strategy. Tactical Growth: Strategy that actively manages equity market exposure through the use of ETFs and other index-based instruments. Seeks to produce above-average, risk-adjusted returns, in all market environments, while exhibiting less downside volatility than the S&P 500® Index. It is designed to help investors sidestep market downturns, while attempting to participate in its growth via continuous active management of portfolio market exposure. Tactical Plus: Strategy that actively manages equity market exposure by primarily investing in equity-based futures, ETFs and options. Seeks to produce above-average, risk-adjusted returns, in any market environment while exhibiting less downside volatility than the S&P 500® Index by investing primarily in a diversified portfolio of instruments with exposure to 3 U.S. and non-U.S. equity securities. It is designed to help investors sidestep market downturns, while attempting to participate in its growth via the continuous and active management of portfolio market exposure. Income Alternatives Our Multi-Asset team manages our Alternative Income strategy, and our Real Estate team manages our Select Income and Global Real Estate strategies. We believe alternative approaches to income investing can provide diversified sources of risk and return and potentially reduce volatility. Absolute return-oriented and yield-focused strategies for investing in securities not typically found in traditional fixed income portfolios can help investors produce returns from non-traditional sources with low correlation and enhanced portfolio diversification. Alternative Income: We believe a market-neutral approach utilizing convertible arbitrage and opportunistic fixed income can serve as a complement to bond allocations. Our framework consists of three primary sources of return that aim to neutralize systematic risk. We employ a multi-strategy process seeking to generate positive absolute returns through a short duration yield portfolio of global convertible securities, convertible arbitrage and macro-hedging. Select Income: Seeks to produce consistent high income from non-traditional publicly traded securities. Invests in senior securities and high-income equities primarily issued by real estate investment companies, (i.e., real estate investment trust preferred securities), but can also diversify among preferred stocks, common stocks and bonds to seek income and total return. Global Real Estate: Invests primarily in high-quality commercial and residential real estate companies located in the U.S. and non-U.S. countries that can potentially serve as inflation-protected income vs. traditional income-oriented securities. Approaches stock selection with an emphasis on superior property location and quality, strong prospects for appreciation in property rents and values, and management’s track record for adding value. Utilizes a rigorous, repeatable, bottom-up investment approach incorporating quantitative and qualitative analyses of company cash flows, assets and management. Our ability to grow AUM is primarily dependent on our competitive investment performance and our success in building strong relationships with our clients, investment consulting firms, financial intermediaries and RIAs. We continually seek to expand AUM by organically growing our existing investment strategies and by adding new products as evidenced by the recent Salient Acquisition in November 2022. The Salient Acquisition expands our product portfolio to serve financial intermediaries and institutional clients beyond our traditional offerings, including Energy and Real Assets, Tactical Absolute Return, and Income Alternatives. We will continue to focus on organic product initiatives to grow our investment strategies while considering new investment strategies via acquisitions or from third parties, as discussed under "Growth Strategy" below. Our growth strategy provides clients with more investment opportunities and diversifies our AUM and revenue sources, thereby reducing risk in any one area of investment and increasing our competitive ability to attract new clients. Our ten largest clients accounted for approximately 22% of our fee revenues for the year ended December 31, 2022. The loss of some or all of these large clients could have a material adverse effect on our business and our results of operations. Advisory and Sub-advisory Agreements Westwood Management manages client accounts under investment advisory and sub-advisory agreements. As is typical for the asset management industry, these agreements are usually terminable upon short notice and provide for revenues based on the market value of client AUM. 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 based on a daily or monthly average of AUM for the stated period. Certain clients have contractual performance-based fee arrangements, which generate additional revenues if we outperform a specified index over a specific period of time. Revenue for performance-based fees is recorded at the end of the measurement period. Revenue from advance payments is deferred and recognized over the period that services are performed. Pursuant to these agreements, Westwood provides overall investment management services, including directing investments in conformity with client-established investment objectives and restrictions. Unless otherwise directed in writing by clients, Westwood has the authority to vote all proxies with respect to securities in client portfolios. Westwood Management is party to sub-advisory agreements with other investment advisers under which it performs similar services under advisory agreements. Our sub-advisory fees are generally computed based upon the average daily AUM and are payable on a monthly basis. 4 Westwood Management provides investment advisory services to the Westwood Funds® family of mutual funds: ● Westwood Alternative Income (WMNIX) ● Westwood Quality SMidCap (WHGMX) ● Westwood Broadmark Tactical Plus (SBTIX) ● Westwood Quality Value (WHGLX) ● Westwood Broadmark Tactical Growth (FTGWX) ● Westwood Salient Global Real Estate (KIRYX) ● Westwood High Income (WHGHX) ● Westwood Salient MLP & Energy Infrastructure (SMLPX) ● Westwood Income Opportunity (WHGIX) ● Westwood Select Income (KIFYX) ● Westwood Quality AllCap (WQAIX) ● Westwood SmallCap Growth (WSCIX) ● Westwood Quality MidCap (WWMCX) ● Westwood Total Return (WLVIX) ● Westwood Quality SmallCap (WHGSX) As of December 31, 2022, the Westwood Funds® had AUM of $4.3 billion. Trust General Westwood Trust provides fiduciary and investment services to high net worth individuals and families, non-profit endowments and foundations, public and private retirement plans and individual retirement accounts ("IRAs"). Westwood Trust is chartered and regulated by the Texas Department of Banking. Fees charged by Westwood Trust are separately negotiated with each client and are typically based on AUM. Clients generally have at least $1 million in investable assets. Fiduciary Services Westwood Trust’s fiduciary services include but are not limited to: financial planning, wealth transfer planning, customizable trust services, trust administration and estate settlement. Westwood Trust also provides custodial services, tax reporting, accounting of trust income and principal, beneficiary and retiree distributions and safekeeping of assets. Investment Services Westwood Trust utilizes a consultative approach in developing a portfolio asset allocation for individual clients. Our approach involves examining clients' financial situations, including their current portfolio of investments, and advising clients on ways to reduce risk, enhance investment returns and strengthen their financial position based on each client’s unique objectives and constraints. Westwood Trust seeks to define and improve the risk/return profiles of client investment portfolios by offering a comprehensive investment solution or by enhancing clients’ existing investment strategies. Westwood Trust manages separate portfolios of equity and fixed income securities for certain agency and trust clients. Equity portfolios are generally patterned after the institutional strategies offered by Westwood Management or developed by our internal investment teams. Fixed income portfolios consist of targeted "laddered" portfolios of primarily high-quality municipal securities and Treasury bills. Westwood Trust also sponsors a range of commingled funds in which client assets are commingled to achieve economies of scale. Westwood Trust’s commingled funds fall within two basic categories: personal trusts (common trust funds) and employee benefit trusts (collective investment funds). Westwood Trust sponsors commingled funds for most of the investment strategies managed by Westwood Management and Westwood International Advisors (prior to its 2020 closure). Westwood Trust also develops asset allocation models for certain clients utilizing its commingled funds, mutual funds managed by Westwood Management and Westwood International Advisors (prior to its 2020 closure), and non-affiliated mutual funds. Enhanced Balanced® Portfolios Westwood Trust is a strong proponent of asset class diversification and offers its clients the ability to diversify among many different asset classes. Westwood Trust Enhanced Balanced® portfolios allocate assets among these asset classes into a customizable portfolio for clients seeking to maximize return for any given level of risk. Periodic adjustments are made to asset class weightings in Enhanced Balanced® portfolios based on historical returns, risk and correlation data, and our current capital markets outlook. Select Equity Strategy The Westwood Select Equity strategy aims to provide low-frequency turnover and tax efficiency to high net worth individuals. The offering allows individuals to own a diversified portfolio of best ideas from across Westwood's investment teams. The portfolios are diversified and include value and growth stocks, along with small-, mid- and large-cap stocks. Westwood Select Equity is also available without the tax efficiency overlay. Dividend Select Strategy 5 The Westwood Dividend Select strategy aims to provide dividend income to investors. The offering allows investors to own a diversified portfolio of dividend-producing equity securities. The portfolios primarily include value stocks, along with mid- and large-cap stocks. High Alpha Strategy The Westwood High Alpha strategy aims to provide long-term appreciation to investors. The offering allows investors to own a concentrated portfolio of securities to provide higher returns commensurate with higher volatility. The portfolios primarily include growth stocks in the mid- to large-capitalization range. Distribution Channels Westwood Management investment funds and advisory services are distributed through two primary market channels - Institutional and Intermediary. Our Distribution sales and support infrastructure supports marketing and client service in both channels. Westwood Wealth Management provides wealth and investment management solutions primarily to individuals and utilizes both Westwood Management and external investment management services. Institutional The institutional team markets Westwood funds and advisory and sub-advisory services to defined benefit and defined contribution corporate and public plan sponsors, foundations and endowments, financial institutions and investment consultants. We enjoy strong relationships with many global, national and regional investment consulting firms, which have contributed to our being considered and hired by their clients. By leveraging our relationships we are able to offer our strategies within select defined contribution and other retirement plans where clients utilize mutual fund vehicles. Sub-advising funds of other financial institutions allows us to extend our marketing reach using other firms' distribution systems. Intermediary and Retail In the intermediary and retail channel, our team directly markets our investment services, including the Westwood Funds®, to financial intermediaries, RIAs, broker-dealers, turnkey asset management programs and select mutual fund platforms. We also focus on expanding our relationships with financial intermediaries that manage discretionary mutual fund models. Our Intermediary sale team markets our mutual funds and separately managed accounts directly to select broker-dealers and RIAs. Managed accounts are similar in some ways to mutual fund relationships in that a third-party financial institution, such as a broker-dealer or RIA, trades securities using our model. The typical managed account client is a high net worth individual or small institution that prefers to own shares directly, rather than in a mutual fund. In these arrangements, the third-party financial institution is responsible to the end client for client service, operations and accounting. Wealth Management In our wealth management channel, we generate awareness of our trust fiduciary and investment services through investment consultants, centers of influence, community involvement, and targeted direct marketing to high net worth individuals, families and small to medium-sized institutions. We also seek asset growth generated by referrals from existing clients. Growth Strategy We believe we have established a strong platform to support future growth, deriving strength from the experience and capabilities of our management team and our skilled investment and client professionals. We believe opportunities for future growth will come from our ability to: • • • • • • • • • generate growth in our investment management platform from new and existing clients and consultant relationships, while expanding intermediary distribution; attract and retain key employees; grow assets in our existing investment strategies; continue to enhance our digital capabilities; foster continued growth of the wealth management platform and distribution channel; foster expanded intermediary distribution; pursue strategic corporate development opportunities; continue to strengthen our brand name; and develop or acquire new investment strategies. 6 Generate growth from new and existing clients and consultant relationships, while expanding intermediary distribution. As our primary business objective, we intend to maintain and enhance existing relationships with clients, investment consultants and intermediaries by providing value-added investment performance and client service. Over the last few years, we have expanded and restructured our distribution team to improve our proactive sales and client engagement strategy. We intend to pursue growth via targeted sales and marketing efforts that showcase our boutique offerings across our product platform with consistent investment performance and superior client service. New institutional client accounts are sourced from investment consultants or from our direct sales efforts with institutional investors. The Salient Acquisition has significantly expanded our product range and distribution capabilities. We intend to leverage this increased scale and broader product availability to enhance offerings to institutional, intermediary and wealth management clients. We believe a key factor leading to our being considered for new client mandates and platform placements is the in-depth knowledge of our firm, our people and our processes reflected in our current consultant and platform relationships and being developed in our prospective relationships. Attract and retain key employees. We believe we have created a workplace environment in which motivated, performance-driven and client-oriented individuals can thrive. As a public company, we offer our employees a compensation program that includes strong equity incentives to closely align their success with that of our clients and stockholders. We believe these factors are critical to maintaining a stable, client-focused environment that can support future growth. Grow assets in our existing investment strategies. We have significant capacity to manage additional assets across the investment strategies developed by leveraging the core competencies of our U.S. Value Equity and Multi-Asset teams. We have considerably expanded our range of investment strategies by adding Energy and Real Assets, Tactical Absolute Return and Real Estate Income as a result of the recent Salient Acquisition. Continue to enhance our digital capabilities. Over the past several years, we have invested significantly to enhance our automation and digital efficiency. We moved our technology infrastructure to secure, cloud-based access, created a data warehouse to improve our investment operations work flow, upgraded our trade order management and trade compliance systems, digitized our portfolio accounting and reconciliation system, and outsourced our trading function. We also developed digital client portals for our institutional and wealth management clients. We believe these investments position us to improve efficiencies and better respond to consumer demand for digital interaction with investment advisors. Foster continued growth of the wealth management platform and distribution channel. Westwood Trust serves high net worth individuals and families as well as small to medium-sized institutions. We anticipate continued interest from clients and prospective clients in our holistic wealth management model. A significant percentage of Westwood Trust’s asset inflows stems from referrals along with gathering additional assets from existing clients. We believe our Enhanced Balanced® strategy, which offers comprehensive, diversified exposure to multiple asset classes, our Select Equity strategy offering diversified equity exposure in a tax-efficient manner, and our separately managed portfolio offerings together provide opportunities for growth. Foster expanded intermediary distribution. Over the past several years, we have expanded our geographic approach and focused coverage for intermediary distribution, and built up our intermediary sales team to extend our reach and accelerate growth in top markets. As a result of the Salient Acquisition, we have again expanded our sales and marketing resources to accelerate growth geographically and across market segments via third-party platforms. We believe that providing investors with access to our mutual funds and separately managed accounts is a key component to achieving asset growth in the defined contribution and retirement marketplaces as well as with RIAs and select broker-dealers. Pursue strategic corporate development opportunities. We continually evaluate strategic corporate development opportunities to augment our organic growth. We may pursue a variety of transactions, including acquisitions of asset management firms, mutual funds, wealth management firms or other financial institutions, as well as hiring investment professionals or teams. We consider opportunities that can enhance our existing operations, expand our range of investment strategies and services, or further develop our distribution capabilities. By acquiring investment firms or by hiring investment professionals or teams that successfully manage investment strategies outside our current areas of expertise, we can attract new clients and provide existing clients with even more diversified investment strategies. We may also consider forging alliances with other financial services or technology firms to leverage our core competency of developing and managing investment strategies with partners that can provide enhanced distribution capabilities or additional service offerings. Continue to strengthen our brand name. We believe that the strength of our brand name has been a key component to our long-term success in the investment industry and will be instrumental to our future success. We have developed a strong brand name largely through our performance, coupled with high-profile coverage in investment publications and electronic media. Several of our investment professionals have been prominent in print and electronic media, and we will continue to use creative ways to strengthen our brand name and reputation in our target markets. Develop or acquire new investment strategies. We continue to look for opportunities to expand the range of investment strategies we offer to existing and prospective clients. We may consider internally developed strategies that extend our existing investment process to new markets, asset classes or strategies, and we may also consider externally acquired investment 7 strategies. An expanded range of investment strategies offers additional ways to serve our client base, generating more diversified revenue streams and providing asset and revenue growth potential. Competition We are subject to substantial and growing competition in all aspects of our business. Barriers to entry in the asset management business are relatively low and we expect more competitors in future. Many asset managers are larger, better known and have greater resources than us. We compete with other asset management firms on the basis of investment strategies, investment performance in absolute terms and relative to peer groups, quality of service, the levels of fees charged, attractive compensation offered to key employees and the way in which investment strategies are marketed. Many of our competitors offer more investment strategies and services than we do and many have substantially greater AUM. We compete against numerous investment dealers, banks, insurance companies, mutual fund companies, exchange- traded funds, brokerage and investment firms and others that sell equity funds, taxable income funds, tax-free investments and other investment products. The allocation of assets by many investors from active equity investing to index funds, fixed income or similar asset classes has enhanced the ability of firms offering non-equity asset classes and passive equity management to compete more effectively with us. The demand for passive strategies with low-fee structures has rapidly increased and investors frequently demand customized and personalized strategies to fit their investment needs. This shift in the marketplace may benefit competitors offering certain investment vehicles that we do not offer. In summary, our competitive landscape is intense and dynamic, which may affect our ability to compete successfully as an independent company. Additionally, most prospective clients perform a thorough review of an investment manager’s background, investment policies and performance before committing assets. In many cases, prospective clients invite competing firms to make presentations. The process of obtaining a new client typically takes twelve to eighteen months from the time of initial contact. While we have achieved success in competing for clients, it is a process to which we dedicate significant resources over an extended period with no certainty of winning. Regulation Virtually all aspects of our business are subject to federal, state and other non-U.S. jurisdictions' laws and regulations. These laws and regulations are primarily intended to protect investment advisory clients. Under such laws and regulations, agencies that regulate investment advisers have broad administrative powers, including the power to limit, restrict or prohibit advisers from carrying on their business if they fail to comply with such laws and regulations. Possible sanctions include suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of investment adviser and other registrations, censures and fines. We believe that we are in compliance with all material laws and regulations. Westwood Management Our business is subject to regulation at federal and state levels by the SEC and other regulatory bodies. Westwood Management Corp. and Westwood Advisors, L.L.C. are registered with the SEC under the Investment Advisers Act and under the laws of various states. As RIAs, Westwood Management Corp. and Westwood Advisors, L.L.C. are regulated and subject to examination by the SEC. The Investment Advisers Act imposes numerous obligations on RIAs, including fiduciary duties, record keeping, operational and marketing requirements and disclosure obligations. Westwood Management Corp. also acts as adviser to the Westwood Funds®, a family of mutual funds registered with the SEC under the Investment Company Act of 1940 (the “Investment Company Act”). As an adviser to a registered investment company, Westwood Management Corp. must comply with the Investment Company Act and related regulations. The Investment Company Act imposes numerous obligations on registered investment companies, including requirements relating to operations, fees charged, sales, accounting, record keeping, disclosure, governance, and restrictions on transactions with affiliates. Under SEC rules and regulations promulgated pursuant to the federal securities laws, we are subject to periodic SEC examinations. The SEC can institute proceedings and impose sanctions for violations of the Investment Advisers Act and the Investment Company Act, ranging from censure to termination of an investment adviser’s registration. The failure of Westwood Management Corp. and Westwood Advisors, L.L.C. to comply with SEC requirements could have a material adverse effect on Westwood. We must also comply with anti-money laundering laws and regulations, including the USA PATRIOT Act of 2001, as subsequently amended and reauthorized (the "Patriot Act"). We believe that we are in compliance with the regulations under the Investment Advisers Act, the Investment Company Act and the Patriot Act. As an investment adviser, we have a fiduciary duty to our clients. The SEC has interpreted that duty to impose standards, requirements and limitations on, among other things: trading of client accounts, allocation of investment opportunities among clients, use of soft dollars, execution of transactions and recommendations to clients. We manage accounts for our clients with the authority to buy and sell securities, select broker-dealers to execute trades and negotiate brokerage commission rates. We receive soft dollar credits from certain broker-dealers that are used to pay for brokerage and research-related products, which 8 reduces certain company operating expenses. We intend to use soft dollars to pay only for brokerage and research related products and services that fall within the safe harbor provisions of the Securities Exchange Act of 1934. If our ability to use soft dollars were reduced or eliminated as a result of the implementation of statutory amendments or new regulations, our operating expenses would increase. Westwood Trust Westwood Trust operates in a highly regulated environment and is subject to extensive supervision and examination. As a Texas chartered trust company, Westwood Trust is subject to the Texas Finance Code (the "Finance Code"), the rules and regulations promulgated under the Finance Code and supervision by the Texas Department of Banking. These laws are intended primarily for the protection of Westwood Trust’s clients and creditors rather than for the benefit of investors. The Finance Code provides for and regulates a variety of matters, such as: • minimum capital maintenance requirements; • • • • • • • • restrictions on dividends; restrictions on investments of restricted capital; lending and borrowing limitations; prohibitions against engaging in certain activities; periodic fiduciary and information technology examinations by the Texas Department of Banking Commissioner; furnishing periodic financial statements to the Texas Department of Banking Commissioner; fiduciary record keeping requirements; and prior regulatory approval for certain corporate events (such as mergers, the sale or purchase of all or substantially all trust company assets and transactions transferring control of a trust company). The Finance Code also gives the Banking Commissioner broad regulatory powers (including penalties and civil and administrative actions) if the trust company violates certain provisions of the Finance Code, including implementing conservatorship or closure if Westwood Trust is determined to be in a “hazardous condition” (as defined by applicable law). Westwood Trust’s failure to comply with the Finance Code could have a material adverse effect on Westwood. Westwood Trust is limited by the Finance Code in the payment of dividends to undivided profits, which is described as that part of equity capital equal to the balance of net profits, income, gains and losses since formation minus subsequent distributions to stockholders and transfers to surplus or capital under share dividends or appropriate board resolutions. At the discretion of its Board of Directors, Westwood Trust has made quarterly and special dividend payments, and other distributions, to Westwood Holdings Group, Inc. out of undivided profits. SEC Broker-Dealer Registration / FINRA Regulation SCLP and Forward are subject to regulation by the SEC, FINRA and various states. In addition, certain of our employees are registered with FINRA and such states and subject to SEC, state and FINRA regulation. The failure of these companies and/ or employees to comply with relevant regulation could have a material adverse effect on our business. Employee Retirement Income Security Act of 1974 We are subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and to its related regulations insofar as we are a fiduciary under ERISA with respect to some clients. ERISA and applicable provisions of the Internal Revenue Code impose certain duties on fiduciaries under ERISA or on entities that provide services to ERISA plan clients and prohibit certain transactions involving ERISA plan clients. Human Capital Resources Health and Safety The health and safety of our employees is a high priority, consistent with our operating philosophy of focusing on transparency, effective corporate governance, life principles and giving back to the communities in which we live and work. Diversity and Inclusion We believe that our culture of diversity and inclusion enables us to develop and fully utilize the strengths of our people. As of December 31, 2022, approximately 43% of our workforce was female and minorities represented approximately 32% of our workforce. Employees 9 At December 31, 2022, we had 152 full-time employees, all located in the U.S. No employees are represented by a labor union, and we believe our employee relations are favorable. As of December 31, 2022, approximately 14% of our employees held the Chartered Financial Analyst designation. Environmental, Social and Governance ("ESG") ESG Core Principles Since inception, we have known the corporate culture we wanted to foster ― one focused on core values. To keep us all motivated, we have found a lot of inspiration in Coach John Wooden’s Pyramid of Success™ which helps us to aspire to and maintain a culture of teamwork, integrity and putting client interests ahead of our own. Our ESG focus is guided by the following six pillars: 1. Environmental impact; 2. Diversity, equity and inclusion; 3. Community; 4. Responsible investing; 5. Privacy and data protection; and 6. Governance. We include ESG pillars in the way we conduct our business and measure ourselves against them because it makes sense to do so. It improves our ability to create an environment that values true diversity, inclusiveness and transparency and ultimately supports long-term employee growth. Being active is more than an approach to investing, it also underpins how we run our business as a publicly traded company. Our focus on transparency, corporate governance, life principles, ethical conduct and giving back to the communities in which we operate is core to our values. Governance Westwood is committed to the successful integration and promotion of ESG at the corporate level and the investment level. We have separate governing structures to ensure that we have the necessary leadership to create and sustain a clear corporate strategy permeating our business. The separation of responsibilities among these governing structures ensures proper accountability across our firm. Westwood’s Board of Directors (the "Board") plays an important role to ensure that the interests of shareholders are being represented and that Westwood is fulfilling its fiduciary duties. The Board regularly interacts with management to ensure that stakeholder interests are properly considered. Management provides the Board with regular updates on our ESG efforts and collaboration between the Board and those responsible for ESG is key to our implementation strategy. Our Board benefits from deep industry experience and a majority of its members are independent which enables strong oversight of our business. Westwood’s ESG Steering Committee is responsible for ensuring the effective execution of our overall ESG strategy. Along with our CEO, this group sets the strategic direction for our ESG agenda, oversees implementation, and reviews our ESG strategy with our Board of Directors. We have established two additional groups, a Responsible Investment Committee and a Corporate Responsibility Committee, to ensure we have the leadership required to create a clear corporate sustainability strategy across our business. The Responsible Investment Committee was established to consider matters related to the maintenance, development and implementation of our responsible investment practices in support of our ESG policy. The Corporate Responsibility Committee was established for the oversight and implementation of our corporate sustainability strategy and ESG policies. The Corporate Responsibility Committee governs as a cross-functional team designed to engage leadership across key corporate functions. Responsible Investment / ESG Integration Our responsible investment commitment is evident in our investment approach across our high-conviction equity and outcome-oriented solutions where we take a fundamental approach to identifying high-quality companies and sound businesses around the world. As an active asset manager, ESG issues are directly linked into our bottom-up, fundamental assessment of companies and these issues have always been considered in our fundamental analyses evaluating the merits of a company's strategy, downside risk and valuation. We take a fundamental, financial materiality-based approach to identifying high-quality companies and sound businesses around the world. Based on our research, we find sustainability plays a critical role in company selection and it has always been an input to our analysis. As ESG evaluation techniques continue to evolve, we will adapt our analyses to implement our fiduciary responsibilities. 10 Westwood is a signatory of the United Nations Principles for Responsible Investment ("UNPRI") and is committed to adopting and implementing responsible investment principles in a manner consistent with our fiduciary duties to clients. We support the UNPRI and recognize the importance of considering ESG issues as an element in our overall investment process. Engagement As part of our fundamental investment research process, our analysts conduct meetings with target company management and investor relations to understand strategy, execution and financial strength throughout the life of our investment. Meetings inform our investment analysis and amplify our understanding of a business’s ability to adapt to changing business environments. Meetings can happen in person, during investment conferences, video links and calls and build on long- standing relationships. Our understanding of material issues affecting the company is captured and shared in our valuation analysis and recommendations made by our Research Analysts. Westwood does not set and track engagement objectives. We engage on specific topics on a case-by-case basis and when ESG or other issues are of specific concern, our team seeks purposeful dialogue to understand how the company plans to address the issues which will then be viewed from a "tracking" perspective over time. Our engagement is generally conducted through direct dialogue between our investment professionals and company managements which provides a more constructive approach toward understanding issues and encouraging solutions that provide value to stakeholders. Proxy Voting Westwood views proxy voting rights as valuable portfolio assets. Our overarching principle is to exercise voting responsibilities solely in the best interests of our clients. We use proxy voting as a means of addressing corporate governance issues and identifying corporate actions that enhance shareholder value. Our process benefits from multiple inputs and directly involves our investment professionals. Westwood uses guidelines from a third-party proxy research service, Glass-Lewis, that we believe create value for our clients and cover most proxy issues. The Investment Operations Team, including the head of data governance, oversees the implementation of our proxy voting policy. Westwood’s Corporate Responsibility Committee, together with our investment team’s bi-monthly review of ballots, considers the proxy voting guidelines on environmental and social issues laid out by Glass-Lewis’s policy to be in alignment with our financial-materiality-based view of ESG integration. Glass-Lewis’s policy states that it will vote in when there is a clear link between the proposal and value enhancement or risk mitigation. Our goal is to vote all proxies and, in most cases, we agree with and follow the recommendations of our proxy research service however our Research Analysts review proxies bi-monthly and occasionally recommend a vote that differs from Glass-Lewis. We vote against recommendations when we believe that it is in our clients’ best interests to do so. A summary of voting is sent to each client for whom proxies are voted on an annual basis. Social Impact and Corporate Giving Westwood has a long history of community involvement and support of local charitable causes. This involvement is a cornerstone of our culture, drives employee engagement and makes employees proud to work at Westwood. In honoring Westwood’s history of community involvement and support of local charitable causes, Westwood supports and partners with organizations that embrace activities that align with Westwood’s core values of teamwork, excellence, integrity and placement of client and stakeholder interests above our own. Every year, Westwood supports several charitable organizations financially and through employee volunteer efforts focused on issues that include education, children’s needs, homelessness, food insecurity and disaster relief. Environment At Westwood, we embrace caring for our communities and work hard to take care of the world around us. Westwood is committed to the responsible use, and protection of, our natural environment through conservation and sustainable practices that enhance ecosystem resilience, human well-being and ultimately our company’s strength and resiliency. Through our initiative to calculate our travel-related carbon footprint and buy offset carbon credits, we have begun to measure and offset greenhouse gas emissions. We are committed to offsetting our carbon emissions generated through air travel, a substantial portion of our emissions as an asset manager. Diversity, Equity and Inclusion Diversity is an important part of our culture and identity; approximately 43% of our employees are women — many in senior positions — and approximately 32% of our employees self-identify as members of minority communities. Diversity, Equity and Inclusion concepts are an integral part of our history, culture and identity. Westwood was founded by a woman — a remarkable feat in 1983, when the finance industry had only a small percentage of women in the workforce. We embrace opportunity for individuals from all backgrounds and are committed to fostering an environment that values 11 unique ideas, perspectives and experiences. We believe that, in such an environment, our employees feel valued, involved and empowered to do their best work, deliver the best possible service to our clients and meet their full potential. Item 1A. Risk Factors. We believe these represent the material risks currently facing our business. Our business, financial condition or results of operations could be materially adversely affected by these risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. You should carefully consider the risks described below before making an investment decision. You should also refer to the other information included or incorporated by reference in this Report, including our financial statements and related notes. Risks Related to the Investment Industry Our results of operations depend upon the market value and composition of AUM and AUA, which can fluctuate significantly based on various factors, some of which are beyond our control. Our revenues are primarily generated from fees derived as a percentage of AUM and AUA. The value of our AUM and AUA can be negatively impacted by several factors, including: • Market performance: Performance of the securities markets could be impacted by a number of factors beyond our control, including, among others, general economic downturns, political uncertainty, acts of terrorism or natural disasters. Negative performance within the securities markets or short-term volatility within the securities markets could result in investors withdrawing assets, decreasing their rates of investment or shifting assets to cash or other asset classes or strategies that we do not manage, all of which could reduce our revenues. In addition, during periods of slowing growth or declining revenues, profits and profit margins are adversely affected because certain expenses remain relatively fixed. • Investment performance: Because we compete with many asset management firms on the basis of our investment strategies, the maintenance and growth of AUM and AUA is dependent, to a significant extent, on the investment performance of the assets that we manage. Poor performance may result in the loss or reduction of client accounts, which decreases revenues. Underperformance relative to peer groups and/or relevant benchmarks for our various investment strategies could adversely affect our results of operations, especially if such underperformance continues for an extended period of time. The historical returns of our strategies and the ratings and rankings we, or the mutual funds that we advise, have received in the past should not be considered indicative of the future results of these strategies or of any other strategies that we may develop in the future. The investment performance we achieve for our customers varies over time and variances can be wide. In addition, certain of our investment strategies have capacity constraints, as there may be a limit to the number of securities available for certain strategies to operate effectively. In those instances, we may choose to limit access to new or existing investors. The investment management and wealth management industry is highly competitive and innovative. The investment management and wealth management industry is highly competitive based on a variety of factors, including investment performance, fee rates, continuity of investment professionals and client relationships, the quality of services provided to clients, corporate positioning, business reputation and differentiated products. A number of factors increase our competitive risks, including the following: • Potential competitors have a relatively low cost of entering the investment management industry; • Many competitors have greater financial, technological, marketing and other resources, more comprehensive name recognition and more personnel than we do; • • • • • • The continuing trend toward consolidation in the investment management industry, and the securities business in general, has served to increase the size and strength of some of our competitors; Recent changes in consumer demand for technological capabilities, including the enhanced ability for firms to offer lower fees for passive management strategies, has increased competition in our industry; Shifts in demand for alternative investment styles, asset classes and distribution vehicles may cause our competitors to be perceived as more attractive; Other industry participants, hedge funds and alternative asset managers may seek to recruit our investment professionals; Some competitors charge lower fees for their investment management services than we do; Some competitors may provide more comprehensive client services, including banking, financial planning and tax planning at levels beyond those we currently provide; and 12 • Some competitors may have more sophisticated, innovative or advanced distribution networks than we do. In particular, we have faced significant competition from competitors with lower fee, passive investment strategies. Investment advisors that emphasize passive products have gained, and may continue to gain, significant market share from active managers like us, which could have a material adverse effect on our business. If we are unable to compete effectively, our earnings could be reduced and our business could be adversely affected. Some of our strategies invest in the securities of non-U.S. companies, which involve foreign currency exchange, tax, political, social and economic uncertainties and risks. We have recently invested in strategies offering access to global markets with significant exposure to non-U.S. companies. Fluctuations in foreign currency exchange rates could negatively affect the returns of clients invested in these strategies. Investments in non-U.S. issuers may also be affected by tax positions taken in countries or regions in which we are invested, as well as political, social and economic uncertainty or other diplomatic developments. Many financial markets are less developed or efficient than U.S. financial markets with limited liquidity and higher price volatility, and may lack an established regulatory framework. Liquidity and price volatility may be adversely affected by political or economic events, government policies and social or civil unrest within a particular country. These risks, among others, could adversely affect the performance of our strategies invested in securities of non-U.S. issuers and may be particularly acute in emerging or less developed markets. As a result, we may be unable to attract or retain client investments in these strategies, or assets invested in these strategies may experience significant declines in value and our results of operations may be negatively affected. Legal and Regulatory Risks Our business is subject to extensive regulation, which is subject to frequent change, with attendant compliance costs and serious consequences for violations; expansion into international markets and introduction of new products and services increases our regulatory and operational risks. Virtually all aspects of our business are subject to laws and regulations, including the Investment Advisers Act, the Investment Company Act, the Patriot Act, the Finance Code and anti-money laundering laws. These laws and regulations generally grant regulatory agencies broad administrative powers, including the power to limit or restrict us from operating our business, as well as powers to place us under conservatorship or closure if we fail to comply with such laws and regulations. Violations of such laws or regulations could subject us or our employees to disciplinary proceedings and civil or criminal liability, including revocation of licenses, censures, fines or temporary suspensions, permanent barring from the conduct of business, conservatorship or closure. Any such proceeding or liability could have a material adverse effect upon our business, financial condition, results of operations and business prospects. In addition, the regulatory environment in which we operate is subject to change. We may be adversely affected as a result of new or revised legislation or regulations or by changes in the interpretation or enforcement of existing laws and regulations. In recent years, regulators have increased their oversight of the financial services industry. Some regulations are focused directly on the investment management industry, while others are more broadly focused but affect our industry as well. The Dodd-Frank Act of 2010 significantly increased and revised the federal rules and regulations governing the financial services industry and, in addition to other regulations, has generally resulted in increased compliance and administrative requirements. For example, the SEC’s adoption of Form PF and revisions to Form ADV impose additional reporting requirements for SEC-registered investment advisors. Additionally, ERISA Section 408(b)(2) and related regulations require additional information to be provided to ERISA-governed retirement plans. While we believe that changes in laws, rules and regulations, including those discussed above, have increased our administrative and compliance costs, we are unable to quantify the increased costs attributable to such changes. See “Item 1. Business — Regulation.” We engage in product offerings and international business activities through our global multi-asset securities product offerings that are available to our international and domestic clients. As of December 31, 2022, approximately 1% of our AUM is managed for clients who are domiciled outside the U. S. As a result, we face increased operational, regulatory, compliance, marketing, client service, reputational and foreign exchange rate risks. In particular, rapid regulatory change is occurring internationally with respect to financial institutions, including, but not limited to, anticipated revisions to the European Communities (Undertakings for Collective Investment in Transferable Securities, or "UCITS") Regulations 2011 and the Markets in Financial Instruments Directive. The failure of our compliance and internal control systems to properly identify and mitigate such additional risks, or of our operating infrastructure to support international activities, could result in operational failures and actions by regulatory agencies, which could have a material adverse effect on our business. We devote considerable time and resources to both domestic and international compliance; however, we may fail to timely and properly identify regulatory requirements or modify our compliance procedures for changes in our regulatory environment, which may subject us to legal proceedings, domestic and foreign government investigations, penalties and fines. 13 Our business involves risks of being engaged in litigation and liability that could increase our expenses and reduce our results of operations. Many aspects of our business involve substantial risks of liability. We could be named as defendants or co-defendants in lawsuits or could be involved in disputes that involve the threat of lawsuits seeking substantial damages. As an SEC-RIA, mutual fund adviser, trustee to certain Trust clients and publicly-traded entity, we are subject to governmental and self- regulatory organization examinations, investigations and proceedings. Similarly, the investment strategies that we manage could be subject to actual or threatened lawsuits and governmental and self-regulatory organization investigations and proceedings, any of which could harm the investment returns or reputation of the applicable fund or result in our being liable for any resulting damages. There has been an increased incidence of litigation and regulatory investigations in the asset management industry in recent years, including customer claims, as well as class action suits seeking substantial damages. While customers do not have legal recourse against us solely on the basis of poor investment results, if our investment strategies perform poorly or we provide poor financial advice, we are more likely to become subject to litigation brought by dissatisfied clients. In addition, to the extent customers are successful in claiming that their losses resulted from fraud, negligence, willful misconduct, breach of contract or other similar misconduct, these clients may have remedies against us, the mutual funds and other funds we advise or our investment professionals under the federal securities laws or state law. See the discussion of legal proceedings in Item 3. "Legal Proceedings". Business and Operational Risks Due to the substantial cost and time required to introduce new investment strategies or expand the market for current strategies, we may not be able to successfully introduce investment strategies in a timely manner, or at all. We have incurred significant costs to develop new investment strategies, launch new mutual funds under the Westwood Funds® name, and upgrade our business infrastructure. We expect to continue to incur significant costs related to such improvements. The development of new investment strategies, whether through acquisition or internal development, requires a substantial amount of time and significant financial resources, including expenses related to compensation, sales and marketing, information technology, legal counsel and other professional services. Our ability to market and sell a new investment strategy depends on our financial resources, the investment performance of the specific strategy, the timing of the offering, the timing of regulatory approvals and our marketing strategies. Once an investment strategy is developed, we must effectively introduce the strategy to existing and prospective clients. Our ability to sell new investment strategies to existing and prospective clients may depend on our ability to meet or exceed the performance of our competitors offering the same or a similar strategy. We may not be able to manage the assets within a given investment strategy profitably, and it may take years before we produce the kind of results that will attract clients. If we are unable to realize the benefits of the costs and expenses incurred in developing new investment strategies, we may experience losses as a result of our management of these investment strategies, and our ability to introduce further new investment strategies and compete in our industry may be hampered. To introduce new investment strategies, we may seek to add new investment teams. To the extent we are unable to recruit and retain investment teams to complement our existing business model, we may not be successful in diversifying and increasing our investment strategies and client assets, which could have a material adverse effect on our business and future prospects. The addition of a new team using an investment strategy with which we may have limited or no experience may require additional resources to update our operational platform and could strain our operational resources and increase the possibility of operational errors. Additional investments may be required to improve our operational platform. If any new teams or strategies perform poorly and fail to attract sufficient assets, our results of operations and reputation may be adversely affected. Damage to our reputation could harm our business and have a material adverse effect on our results of operations. Our brand is a valuable intangible asset that could be vulnerable to threats that can be difficult or impossible to anticipate or control. Regulatory inquiries and rumors could damage our reputation, even if they are unfounded or satisfactorily addressed. Our reputation could also be negatively affected by employees and third parties acting on our behalf, who may circumvent our controls or act in a manner inconsistent with our policies and procedures. Public perception of our brand could be negatively affected by decreases in our profitability, AUM or stock price. Damage to our brand could impede our ability to attract and retain customers and key employees and could reduce our AUM, which could have a material adverse effect on our results of operations. Our success depends on certain key employees and our ability to attract and develop new, talented professionals. Our inability to attract and retain key employees could compromise our future success. Our future success depends upon our ability to attract and retain professional and executive employees, including investment, marketing, client service and management personnel. There is substantial competition for skilled personnel within 14 the asset management business, and the failure to attract, develop, retain and motivate qualified personnel could negatively impact our business, financial condition, results of operations and future prospects. In order to retain or replace key personnel, we may be required to increase compensation, which would decrease net income. Investment and sales professionals often maintain strong relationships with their clients, and their departure may cause us to lose client accounts, which could have a material impact on our revenues and results of operations. Failure to perform operational tasks or the misrepresentation of products and services could have an adverse effect on our reputation and our business, financial condition and results of operations. Our operations are complex, and our failure to properly perform portfolio responsibilities, including security pricing, corporate actions, investment restrictions compliance, daily net asset value calculations, account reconciliations, tax reporting, investment performance calculations and portfolio oversight could result in reputational harm or subject us to regulatory sanctions, fines, penalties and litigation. We use advertising materials, public relations information and other external communications to market and sell our investment products. Failure to accurately calculate and present investment performance data within established guidelines and regulations could result in reputational harm or subject us to regulatory sanctions, fines, penalties and litigation. Damage to our reputation could impede our ability to attract and retain customers and key employees and could reduce our AUM, which could have a material adverse effect on our results of operations. Significant regulatory sanctions, fines, penalties, and litigation could also materially adversely affect our financial condition and results of operations. Failure to select appropriate third-party vendors and apply appropriate oversight of third-party vendors could disrupt our operations and have a material adverse effect on our business, financial condition and results of operations. We rely on third-party vendors to perform important portions of our operations, and there is no assurance that our third- party vendors will properly perform or follow our processes, policies and procedures. There is no assurance that our plans for transition or delegation to a third-party vendor will be successful or that there will not be interruptions in service from these third parties. A third-party vendor's failure to accurately perform important operations or follow our processes, policies and procedures could result in the loss of clients, significant regulatory sanctions, fines, penalties and litigation, which could have a material adverse effect on our business, financial condition and results of operations. We are a holding company dependent on the operations and funds of our subsidiaries. We are a holding company, with no revenue-generating operations or assets other than our ownership interests in Westwood Management and Westwood Trust. Accordingly, we are dependent on the cash flow generated by these operating subsidiaries and rely on dividends or other intercompany transfers from our operating subsidiaries to generate the funds necessary to meet our obligations. Technology and Privacy Risks Failure to implement and maintain effective cyber security controls could disrupt our operations and have a material adverse effect on our results of operations, reputation and stock price. Our business is dependent on information technology systems and the cyber security controls we and our third party vendors have in place to protect those systems and the information contained therein. Despite the implementation of protective measures and endeavoring to modify them as circumstances warrant, our computer systems, software, networks and vendors may be vulnerable to human error, natural disasters, power loss, spam attacks, unauthorized access, distributed denial of service attacks, computer viruses and other malicious code, and other events that could result in significant liability and damage to our reputation, and have an ongoing impact on the security and stability of our operations. The techniques used in these attacks are increasingly sophisticated, change frequently and are often not recognized until launched. A failure of our and our third party vendors' controls to protect our information technology from an external or internal attack or to prevent a breach of confidential client or competitive information could materially interrupt our operations and expose us to regulatory and legal actions, which could have a material adverse effect on our operating results, reputation and stock price. As attempted attacks continue to evolve in scope and sophistication, we may be required to expend substantial additional resources to modify or enhance our protective measures, to investigate and remediate vulnerabilities or other exposures or to communicate about cyber attacks to our customers. Additionally, the SEC issued guidance in February 2018 stating that, as a public company, we are expected to have controls and procedures that relate to cyber security disclosure, and are required under the federal securities laws to disclose information relating to certain cyber attacks or other information security breaches. Successful cyber attacks at other asset management companies or other market participants, whether or not we are affected, could lead to a general loss of customer confidence in the industry that could negatively affect us, including harming the market perception of the effectiveness of our security measures, which could result in a loss of business. 15 Our business is vulnerable to systems failures that could have a material adverse effect on our business, financial condition and results of operations. Any delays or inaccuracies in securities pricing information or information processing could give rise to claims that could have a material adverse effect on our business, financial condition and results of operations. We are highly dependent on information systems and third-party vendors for securities pricing information, information processing and updates for certain software. We, or our third-party vendors, may suffer a systems failure or interruption, whether caused by an earthquake, fire, other natural disaster, power or telecommunications failure, unauthorized access, force majeure, act of war or otherwise, and our back-up procedures and capabilities may be inadequate to prevent the risk of extended interruptions in operations. Misuse of assets and information in the possession of our employees and third-party vendors could damage our reputation and result in costly litigation and liability for our clients and us. Our employees and certain third-party vendors handle significant amounts of assets along with financial and personal information for our clients. Our employees or third party vendors could misuse or improperly disclose such information, either inadvertently or intentionally, which could harm our reputation. We have implemented a system of controls to minimize the risk of fraudulent use of assets and information; however, our controls may be insufficient to prevent fraudulent actions by employees or third party vendors. If our controls are ineffective, we could be subject to costly litigation, which could consume financial resources, distract management, damage our reputation and result in regulatory sanctions. Such fraudulent actions could also adversely affect clients, causing them to seek redress. Risks Related to Ownership of Stock and Corporate Governance Our stock is thinly traded and may be subject to volatility. Although our common stock is traded on the New York Stock Exchange, it may be relatively illiquid, or “thinly traded,” which can increase share price volatility and make it difficult for larger investors to buy or sell shares in the public market without affecting the share price. Investors may be unable to buy or sell a certain quantity of our shares in the public market within one or more trading days. If any such limited trading in our stock continues, it may be difficult for holders to sell their shares in the public market at any given time at prevailing prices. The prevailing market price of our common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control, including actual or anticipated fluctuations in operating results; changes in market valuations of other similar companies; additions or departures of key personnel; future sales of common stock; deviations in net revenues or in losses from levels expected by the investment community; and trading volume fluctuations. Distributions to our common stockholders have included and may in the future include a return of capital. Future distributions to our common stockholders may include a return of capital. To the extent that we distribute amounts that exceed our accumulated earnings, these distributions would constitute a return of capital to the extent of the common stockholder’s adjusted tax basis in its shares of our common stock. A return of capital represents a return of a common stockholder’s original investment in shares of our common stock and should not be confused with a distribution from earnings. Although return of capital distributions may not be taxable, such distributions may increase an investor’s tax liability for capital gains upon the sale of our common stock by reducing the investor’s tax basis in its shares of our common stock. Such returns of capital reduce our asset base and could result in future needs for debt or capital infusions, which could have a material adverse impact on our business. Actions of activist stockholders could cause us to incur substantial costs, divert the attention and resources of our management and the Board of Directors, and have an adverse effect on our business and stock price. We have been and may continue to be subject to proposals by stockholders urging us to take certain corporate actions or seeking to acquire control over the Company. If activist stockholder activities continue or new activities arise, our business could be adversely affected as responding to actions by activist stockholders can be costly and time-consuming, disrupt our operations, and divert the attention of management and our Board of Directors, all of which could interfere with our ability to execute our strategic plan. We have retained, and may be required to continue to retain, the services of various professionals to advise us on activist stockholder matters, including legal, financial and communications advisors, the costs of which may adversely affect our financial results. In addition, the perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist stockholder initiatives may result in the loss of potential business opportunities, result in the loss of key personnel, harm our ability to attract new investors, clients and employees, and cause our stock price to experience periods of volatility or stagnation. Risks Related to our Clients Competitive fee pressures could reduce revenues and profit margins. 16 To the extent we have to compete on the basis of price, we may not be able to maintain a profitable fee structure. In recent years, there has been a trend toward lower fees in the investment management industry driven in large part by low-cost, passive strategies, and we are actively marketing lower fee structures to stay competitive. We cannot be assured that we will succeed in providing investment returns and service levels that will allow us to maintain a profitable fee structure. Continued fee reductions on existing or future new business could have an adverse effect on our profit margins and results of operations. In addition, we have performance fee agreements with certain clients, who pay a fee if we outperform a specified index over predetermined periods of time. We may not be able to outperform such indexes, and failure to do so would cause us to earn none or only part of those potential revenues, which could have a material adverse effect on our revenues and results of operations. Our revenues from performance-based fees can fluctuate significantly between measurement periods, depending on how we perform relative to the indexes specified in these agreements. For example, we earned performance fees of $1.0 million in 2022, $3.4 million in 2021 and $3.2 million in 2020. Our business is dependent on investment advisory, sub-advisory, and trust agreements that are subject to termination or non-renewal and investments we manage under such agreements may be redeemed. As a result, we could lose clients on very short notice. Substantially all of our revenues are derived pursuant to investment advisory, sub-advisory and trust agreements with our clients that are subject to termination without advance notice. Investors in funds that we advise or sub-advise may redeem their investments at any time without prior notice, thereby reducing our AUM. These investors may redeem for any reason, including general financial market conditions, our absolute or relative investment performance or their own financial condition and requirements. In a declining stock market, the pace of redemptions could accelerate. Substantial additional redemptions or a termination or failure to renew a material number of these agreements would adversely affect our revenues and have a material adverse effect on our earnings and financial condition. A small number of clients account for a substantial portion of our business, and a reduction or loss of business with any of these clients could have a material adverse effect on our business, financial condition and results of operations. We are dependent to a significant degree on our ability to maintain our relationships with clients, consultants, managed account platforms and other intermediaries. Our ten largest clients accounted for approximately 22%, 22% and 24% of our fee revenues for the years ended December 31, 2022, 2021 and 2020, respectively. There can be no assurance that we will be successful in maintaining existing relationships, securing additional relationships or achieving the superior investment performance necessary to earn performance-based advisory fees. Our failure to retain one or more of these large relationships or to establish additional profitable relationships could have a material adverse effect on our business, financial condition and results of operations. General Risk Factors We have made and may continue to make business combinations as a part of our business strategy, which may present certain risks and uncertainties. We may continue to seek business acquisitions as a means of broadening our offerings and capturing additional opportunities. However, there is no guarantee that we will be successful in identifying target companies that meet our criteria for acquisition. Additionally, future acquisitions may require us to obtain additional equity or debt financing, which may not be available on attractive terms, if at all. The success of our historical and future business combinations also depends on our ability to integrate the operations of the acquired businesses efficiently and effectively with our existing operations and realize the anticipated benefits from them. The potential risks associated with successful integration and realization of benefits include, but are not limited to the following: • • • • • our due diligence may not identify or fully assess valuation issues, potential liabilities or other acquisition risks; acquired entities may not achieve anticipated revenue targets, cost savings or other synergies or benefits, or acquisitions may not result in improved operating performance, which could adversely affect our earnings, and we may be unable to recover investments in any such acquisitions; we may have difficulty integrating acquired businesses, resulting in unforeseen difficulties and greater expenses than expected; we may have difficulty entering into new markets in which we are not experienced in an efficient and cost-effective manner while maintaining adequate standards, controls and procedures; key personnel within an acquired organization may resign from their related positions resulting in a significant loss to our strategic and operational efficiency associated with the acquired company; 17 • • • • the effectiveness of our daily operations may be reduced by the redirection of employees and other resources to acquisition and integration activities; we may assume liabilities of an acquired business (including litigation, tax liabilities, and other contingent liabilities), including liabilities that were unknown at the time of the acquisition, that pose future risks to our working capital needs, cash flows and the profitability of related operations; we may assume unprofitable projects that pose future risks to our working capital needs, cash flows and the profitability of related operations; or business acquisitions may include substantial transactional costs to complete the acquisition that exceed the estimated financial and operational benefit. Failure to effectively execute our strategic growth plan could result in damage to our reputation and could have a material adverse effect on our business, financial condition and results of operations. We believe that we have established a strong platform to support future growth, but there is no assurance that we will appropriately execute our strategic plans, including but not limited to acquisitions, divestitures or other strategic transactions. As part of our long-term business strategy, we may pursue corporate development transactions including the acquisition of asset management firms, mutual funds, wealth management firms and investment professionals or teams. Acquisitions involve inherent risks that could compromise the success of the combined business and dilute the holdings of current stockholders. See “Item 1. Business — Growth Strategy.” If we are incorrect when assessing the value, strengths, weaknesses, liabilities and potential profitability of such transactions, or if we fail to adequately integrate the acquired businesses or individuals, the success of the combined business could be compromised. Business acquisitions are subject to the risks commonly associated with such transactions including, among others, potential exposure to unknown liabilities of acquired companies and to acquisition costs and expenses, the difficulty and expense of integrating the operations and personnel of the acquired companies, potential disruptions to the business of the combined company and potential diversion of management’s time and attention, the impairment of relationships with and the possible loss of key employees and clients as a result of changes in management, potential litigation or other legal risks, potential write-downs related to goodwill impairments in connection with acquisitions and dilution to the stockholders of the combined company if the acquisition is made for stock of the combined company. In addition, investment strategies, technologies or businesses of acquired companies may not be effectively assimilated into our business or may have a negative effect on the combined company’s revenues or earnings. The combined company may also incur significant expenses to complete acquisitions and support acquired investment strategies and businesses. Further, any such acquisitions may be funded with cash, debt or equity, which could dilute the holdings or limit the rights of stockholders. Finally, we may not be successful in identifying attractive acquisition candidates or completing acquisitions on favorable terms. Divestitures involve inherent risks that could compromise the success of our business. Risks related to divestitures can include difficulties in the separation of the divested business, loss of clients, retention or obligation to indemnify certain liabilities, the failure of counterparties to satisfy payment obligations, unfavorable market conditions that may impact any earnout or contingency payment due to us, unexpected difficulties in losing employees of the divested business or asset impairments. As consumer demand for digital interaction with investment advisors and portfolios continues to grow, we are exploring opportunities to develop digital solutions to enhance services to our clients. If we are incorrect in assessing the value, strengths, weaknesses and potential profitability of such solutions, or if we fail to adequately integrate the solutions, the success of our overall business could be compromised. The initial investment in the necessary technological capabilities and the potential diversion of management’s time and attention could have a material impact to our business, financial condition and results of operations. There is no assurance that we will be successful in overcoming these or other risks encountered with acquisitions, divestitures and other strategic transactions. These risks may prevent us from realizing the expected benefits from acquisitions or divestitures and could result in the failure to realize the full economic value of a strategic transaction. Various factors may hinder the declaration and payment of dividends. We have historically paid a quarterly dividend; however, payment of future dividends is subject to the discretion of our Board of Directors, and various factors may impact our ability to maintain the current dividend or pay dividends at all. We reinstated a 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 the COVID-19 pandemic. Such factors include our financial position, capital requirements and liquidity, tax regulations, stock repurchase plans, state corporate and banking law restrictions, results of operations and other factors that our Board of Directors may consider relevant. As a holding company, our ability to pay dividends is dependent on the dividends and income we receive from our subsidiaries. Currently, 18 our primary source of cash consists of dividends from Westwood Management or Westwood Trust. The payment of dividends by Westwood Trust is subject to the discretion of its Board of Directors and compliance with applicable laws, including the provisions of the Finance Code applicable to Westwood Trust. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We may not be able to fund future capital requirements on favorable terms, if at all. We cannot be certain that financing to fund our working capital or other cash requirements, if needed, will be available on favorable terms, if at all. Our capital requirements may vary greatly from quarter to quarter depending on, among other things, capital expenditures, technological investments and fluctuations in our operating results and financing activities. If financing becomes necessary, we may or may not be able to obtain financing on favorable terms, if at all. Further, any future equity financings could dilute the relative percentage ownership of then existing common stockholders, and any future debt financings could involve restrictive covenants that limit our ability to take certain actions. Failure to properly identify and address conflicts of interest could harm our reputation or cause clients to withdraw funds, which could adversely affect our business and results of operations. The SEC and other regulators have increased their scrutiny of potential conflicts of interest, and we have implemented procedures and controls that we believe are reasonably designed to address these issues. However, appropriately dealing with conflicts of interest is complex, and if we fail, or appear to fail, to deal appropriately with conflicts of interest, we could face reputational damage, litigation or regulatory proceedings, any of which may adversely affect our results of operations. As we expand the scope of our business and our client base, we must also continue to monitor and address any potential new conflicts between the interests of our stockholders and those of our clients. Our clients may withdraw funds if they perceive conflicts of interest between the investment decisions we make for strategies in which they have invested and our obligations to our stockholders. For example, we may limit the growth of assets in or close strategies or otherwise take action to slow the flow of assets when we believe it is in the best interest of our clients, even though our AUM and investment management fees may be negatively impacted. Similarly, we may establish or add new investment teams or expand operations into other geographic areas or jurisdictions if we believe such actions are in the best interest of our clients, even though our results of operations may be adversely affected in the short term. Although we believe such actions enable us to retain client assets and maintain our profit margins, if clients perceive a change in our investment or operational decisions favors a strategy to maximize short term results, they may withdraw funds, which could adversely affect our revenues and results of operations. Insurance coverage may be inadequate to cover legal and regulatory proceedings. We maintain insurance coverage in amounts and on terms we believe appropriate to cover legal and regulatory matters and potential cyber security attacks; however, we can make no assurance that there will be adequate coverage or that a specific claim will be covered by our insurance policies. Additionally, insurance premiums may rise for substantially the same coverage amounts and terms, which will increase our expenses and reduce net income. Failure to maintain effective internal controls could have a material adverse effect on our business and stock price. Effective internal controls are necessary to provide reliable financial reports. If we cannot provide reliable financial reports, our brand and operating results could be harmed. All internal control systems, no matter how well designed, contain inherent limitations, and systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. We cannot be certain that the measures we take to evaluate and improve our internal controls will ensure that we implement and maintain adequate controls over our financial processes and reporting. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended, we may not be able to ensure that we can conclude that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Failure to achieve and maintain an effective internal control environment could cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price. Item 1B. Unresolved Staff Comments. None. Item 2. Properties. 19 Westwood, Westwood Management and Westwood Trust conduct their principal operations using approximately 32,000 square feet of leased office space in Dallas, Texas pursuant to a lease with an initial term that expires in March 2026. In addition, we lease approximately 11,000 square feet of office space in Houston, Texas pursuant to a lease that expires in September 2029, and we lease a limited amount of office space in San Francisco, California on a month-to-month basis. We continue to assess these facilities to ensure their adequacy to serve our anticipated business needs. Item 3. Legal Proceedings. We are subject from time to time to certain claims and legal proceedings arising in the ordinary course of our business. Item 4. Mine Safety Disclosures. Not applicable. 20 Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity PART II Securities. Market Information Our common stock trades on the New York Stock Exchange under the symbol “WHG.” At December 31, 2022, there were approximately 200 record holders of our common stock, although we believe that the number of beneficial owners of our common stock is substantially greater. Dividends We reinstated a dividend in the first quarter of 2021, following its suspension in the second quarter of 2020 as we preserved financial flexibility amid the uncertainties of COVID-19. Declarations of cash dividends is at the discretion of the Board of Directors and is subject to limitations under the Delaware General Corporation Law. Westwood Holdings Group is the sole stockholder of Westwood Management and Westwood Trust. Westwood Trust is limited in the payment of dividends under applicable Texas law to the amount of undivided profits, which is defined as that part of equity capital equal to the balance of net profits, income, gains and losses since formation minus subsequent distributions to stockholders and transfers to surplus or capital under share dividends or appropriate Board resolutions. Issuer Purchases of Equity Securities 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. The Board 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. Between January 1, 2022 and December 31, 2022, under the share repurchase program, the Company repurchased 169,630 shares of our common stock at an average price of $13.47 per share, including commissions, for an aggregate purchase price of $2.3 million. Between January 1, 2022 and December 31, 2022, the Company repurchased, on the open market, 35,891 shares of our common stock at an average price of $15.75 per share, including commissions, for an aggregate purchase price of $0.6 million. The following table displays information with respect to the treasury shares we purchased during the year ended December 31, 2022: Repurchase program(1) ................................................. Period 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) $ 1,900,000 February ................................................................... June .......................................................................... July .......................................................................... August ...................................................................... 12,202 $ 93,875 $ 82,749 $ 16,695 $ Total ............................................................................. 205,521 $ 16.39 14.85 12.60 12.86 13.87 12,202 57,984 82,749 16,695 169,630 (1) These purchases relate to the share repurchase program and were authorized in April 2020. 21 Performance Graph The following graph compares total stockholder returns of Westwood since December 31, 2017 with the total return of the Russell 2000 Index and the S&P U.S. BMI Asset Management & Custody Banks Index, a composite of various publicly- traded asset management companies. Index 2017 2018 2019 2020 2021 2022 Westwood Holdings Group, Inc. ................... $ 100.00 $ 54.24 $ 51.85 $ 25.85 $ 34.12 $ 23.40 Russell 2000 Index ......................................... 100.00 88.99 111.70 134.00 153.85 122.41 Period ended December 31, Cumulative Five-Year Total Return (76.60) % 22.41 % S&P U.S. BMI Asset Management & Custody Banks Index ..................................... 100.00 74.85 94.16 109.10 161.06 120.66 20.66 % The total return for our stock and for each index assumes $100 invested on December 31, 2017 in our common stock, the Russell 2000 Index, and the S&P U.S. BMI Asset Management & Custody Banks Index, including reinvestment of dividends. The closing price of our common stock on the last trading day of the year ended December 31, 2022 was $11.13 per share. Historical stock price performance is not necessarily indicative of future price performance. Item 6. Reserved. 22 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis in conjunction with “Selected Financial Data” included in this Report, as well as our Consolidated Financial Statements and related notes thereto appearing elsewhere in this Report. 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,” “forecast”, “explore,” “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” "potentially," “could,” “goal,” “may,” “target,” “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 Exchange Act. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Actual results, our financial condition, and the timing of some events could differ materially from those projected in or contemplated by the forward-looking statements. Therefore you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others: • • • • • • • • • • • • • • • • • • • • • • • • • • • the composition and market value of our AUM; our ability to maintain our fee structure in light of competitive fee pressures; risks associated with actions of activist stockholders; distributions to our common stockholders have included and may in the future include a return of capital; inclusion of foreign company investments in our AUM; regulations adversely affecting the financial services industry; our ability to maintain effective cyber security; 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 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; 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; we have made and may continue to make business combinations as a part of our business strategy, which may present certain risks and uncertainties; our relationships with investment consulting firms; 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 23 • our ability to maintain an effective system of internal controls. Additional factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements are discussed under the section entitled “Item 1A. Risk Factors” and elsewhere in this Report. The forward-looking statements are based only on currently available information and 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., Westwood Advisors, L.L.C. and Salient Advisors, LP (each of which is an SEC-registered investment advisor and referred to hereinafter together as “Westwood Management”) 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. 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. Salient Capital LP ("SCLP") serves as a sub-placement agent for private placements, and Forward Securities LLC ("Forward") provides investment advisory services to mutual funds and other investment products. Our revenues are generally derived from fees based on a percentage of AUM and AUA, and Westwood Management and Westwood Trust collectively had AUM of approximately $14.8 billion and AUA of approximately $1.3 billion at December 31, 2022. We have established a track record of delivering competitive, risk-adjusted returns for our clients. With respect to most of our client AUM, we utilize a “value” investment style focused on achieving superior long-term, risk-adjusted returns by investing in companies with high levels of free cash flow, improving returns on equity and strengthening balance sheets that are well positioned for growth but whose value is not fully recognized in the marketplace. This investment approach is designed to limit downside during unfavorable periods and provide superior real returns over the long term. Our investment teams have significant industry experience. Our investment team members have average investment experience of over twenty years. We have built a foundation in terms of personnel and infrastructure to support a much larger business and we have developed investment strategies that we believe will be sought after within our target institutional, wealth management and intermediary markets. Developing new products and growing the organization has resulted in our incurring expenses that, in some cases, have not yet generated significant offsetting revenues. We believe that investors will recognize the potential for new revenue streams inherent in these products and services however there is no guarantee that they will occur. 2022 Highlights The following items were reported for the year ended December 31, 2022: • • • • • • • Closed our strategic acquisition of Salient's asset management business on November 18, 2022, adding $2.7 billion of AUM and $0.9 billion of AUA to firm-wide assets under management. AUM as of December 31, 2022 was $14.8 billion, a 2% increase compared to December 31, 2021. Quarterly average AUM decreased 9% to $13.1 billion for 2022 versus 2021, which contributed to a 6% decrease in total revenue from 2021. AUA of $1.3 billion at December 31, 2022 rose from $0.3 billion in the prior year principally due to $0.9 billion of AUA acquired from Salient. Our LargeCap Value, SMidCap Value, SmallCap Value, AllCap Value, MidCap Value, Platinum, Select Equity, Dividend Select, Income Opportunity, Total Return, High Income, Alternative Income and Enhanced Balance strategies all performed strongly by beating their primary benchmarks for the year. We paid $5.6 million of dividends to our common stockholders. We repurchased 205,521 shares of our common stock for an aggregate purchase price of $2.9 million. Our financial position remains strong with liquid cash and short-term investments of $39.2 million and no debt as of December 31, 2022. 24 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 sub-advisory agreements. Advisory fees are typically calculated based on a percentage of AUM and AUA 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 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 Consolidated Financial Statements contain no deferred advisory fee revenues. Our other revenues primarily consist of investment income from seed money investments into new investment strategies. Employee Compensation and Benefits Employee compensation and benefits costs generally consist of salaries, sales commissions, incentive compensation, stock-based compensation expense and benefits. Sales and Marketing Sales and marketing costs relate to our marketing efforts, including travel and entertainment, direct marketing and advertising costs. Westwood Mutual Funds Expenses for Westwood mutual funds relate to our marketing, distribution and administration of the Westwood Funds®. Information Technology Information technology expenses include 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 sub-advisory fees, audit, 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, Directors' fees, investor relations, licenses and fees, office supplies and other miscellaneous expenses. Acquisition expense Acquisition expense consists of costs related to the Salient Acquisition. Impairment expense Impairment expense consists of long-lived asset impairments, typically goodwill or intangible assets. Gain (loss) on foreign currency transactions Gain (loss) on foreign currency transactions consist 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 25 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 primarily consists of income from the sublease of a portion of our corporate offices. Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary includes a cumulative adjustment following the substantially completed liquidation of a foreign subsidiary, Westwood International Advisors. Firm-wide Assets Under Management Firm-wide assets under management of $16.1 billion at December 31, 2022 consisted of $14.8 billion of AUM and $1.3. billion of AUA. AUM increased $0.3 billion, or 2%, to $14.8 billion at December 31, 2022 compared to $14.5 billion at December 31, 2021. Quarterly average AUM decreased $1.2 billion, down 9%, to $13.1 billion compared with $14.3 billion for 2021. The decrease in average AUM was primarily due to $1.5 billion of market depreciation in 2022. AUM increased $1.5 billion, or 11%, to $14.5 billion at December 31, 2021 compared to $13.0 billion at December 31, 2020. Quarterly average AUM increased $1.9 billion, up 15%, to $14.3 billion for 2021 compared with $12.4 billion for 2020. The increase in average AUM was primarily due to $2.2 billion of market appreciation in 2021. AUA of $1.3 billion at December 31, 2022 rose from $0.3 billion at December 31, 2021 principally due to $0.9 billion of AUA acquired as part of the Salient transaction. AUA relates to our model portfolios for which we provide investment advice on a fee basis without having investment management authority. The following table presents our AUM (in millions, except percentages): Institutional(1) Wealth Management(2) Mutual Funds(3) Total AUM(4) ................................................................... $ ..................................................... ................................................................ ................................................................... $ As of December 31, 2022 Change 2021 Change 2020 6,785 3,666 4,328 14,779 (4) % $ (17) % 42 % 7,037 4,420 3,046 7 % $ 2 % 42 % 6,567 4,335 2,143 2 % $ 14,503 11 % $ 13,045 (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) sub-advisory 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. (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 sub-advisory services are provided for the common trust funds by Westwood Management, Westwood International Advisors (prior to its closure, effective September 30, 2020) and unaffiliated sub-advisors. For certain assets in this category Westwood Trust provides limited custodial 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, institutional investors and wealth management accounts. (4) AUM for 2022, 2021 and 2020 excludes approximately $1.3 billion, $292 million and $267 million of assets under advisement, respectively, related to our model portfolios for which we provide investment advice on a fee basis without having investment management authority. We added $0.9 billion of AUA from the Salient Acquisition. 26 Roll-Forward of Assets Under Management AUM (in millions) Year Ended December 31, 2022 Institutional Wealth Management Mutual Funds Total Beginning of period assets ............................................................ $ 7,037 $ 4,420 $ 3,046 $ 14,503 Client flows: .................................................................................. Inflows .................................................................................... Outflows ................................................................................. Net client flows ............................................................................. Salient Acquisition ................................................................. Market depreciation ....................................................................... Net change ..................................................................................... 286 (698) (412) 788 (628) (252) 457 (714) (257) — (497) (754) 800 1,543 (1,029) (2,441) (229) 1,873 (898) 2,661 (362) (1,487) 1,282 276 End of period assets ....................................................................... $ 6,785 $ 3,666 $ 4,328 $ 14,779 The increase in AUM for the year ended December 31, 2022 was due to $2.7 billion of AUM from the Salient Acquisition, offset by market depreciation of $1.5 billion and net outflows of $0.9 billion. Net outflows were primarily related to our LargeCap Value, Income Opportunity and Enhanced Balance strategies. AUM (in millions) Year Ended December 31, 2021 Institutional Wealth Management Mutual Funds Total Beginning of period assets ............................................................ $ 6,567 $ 4,335 $ 2,143 $ 13,045 Client flows: .................................................................................. Inflows .................................................................................... Outflows ................................................................................. Net client flows ............................................................................. 1,901 (1,062) 839 Global Convertibles transition ....................................................... (1,593) Market appreciation ....................................................................... Net change ..................................................................................... 1,224 470 413 (896) (483) — 568 85 1,461 (996) 465 — 438 903 3,775 (2,954) 821 (1,593) 2,230 1,458 End of period assets ....................................................................... $ 7,037 $ 4,420 $ 3,046 $ 14,503 The increase in AUM for the year ended December 31, 2021 was due to market appreciation of $2.2 billion and net inflows of $0.8 billion, partially offset by the transition of our Global Convertibles team. Net inflows were primarily related to our SmallCap Value strategy, partially offset by net outflows in our Enhanced Balance strategy. In late 2020 we decided to exit the stand-alone convertibles business and our Global Convertibles team transitioned back to Aviva Investors, from which they had joined Westwood. As a result, $1.6 billion in two sub-advised Global Convertibles mandates returned to Aviva as of April 1, 2021. 27 AUM (in millions) Year Ended December 31, 2020 Institutional Wealth Management Mutual Funds Total Beginning of period assets ............................................................ $ 8,739 $ 4,438 $ 2,058 $ 15,235 Client flows: .................................................................................. Inflows ................................................................................. Outflows .............................................................................. Net client flows ............................................................................. Market appreciation ....................................................................... 937 (3,178) (2,241) 69 Net change ..................................................................................... (2,172) 335 (766) (431) 328 (103) 967 (1,024) (57) 142 85 2,239 (4,968) (2,729) 539 (2,190) End of period assets ....................................................................... $ 6,567 $ 4,335 $ 2,143 $ 13,045 The decrease in AUM for the year ended December 31, 2020 was due to net outflows of $2.7 billion, partially offset by market appreciation of $0.5 billion. Net client flows were primarily related to our Emerging Markets, SMidCap and LargeCap Value strategies. Results of Operations The following table and discussion of our results of operations is based upon data derived from our Consolidated Statements of Comprehensive Income (Loss) contained in our Consolidated Financial Statements and should be read in 28 conjunction with these statements included elsewhere in this Report. Years ended December 31, (in thousands, except percentages) 2022 Change 2021 Change 2020 Revenues: ........................................................................ Advisory fees: ........................................................... Asset-based ........................................................... $ Performance-based ............................................... Trust fees ................................................................... Trust performance-based fees ................................... Other revenues, net ................................................... Total revenues ................................................. Expenses: ......................................................................... Employee compensation and benefits ....................... Sales and marketing .................................................. Westwood mutual funds ............................................ Information technology ............................................. Professional services ................................................. General and administrative ....................................... Acquisition expenses ................................................. Impairment expense .................................................. (Gain) loss on foreign currency transactions ............ Total expenses ................................................. Net operating income (loss) ............................................. Realized gains on private investments ...................... Net change in unrealized appreciation (depreciation) on private investments ....................... Investment income .................................................... Other income ............................................................. Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary .................................................................. Income (loss) before income taxes ................................. $ Provision for income taxes ............................................... Net income (loss) ............................................................. $ NM - Not meaningful 46,685 1,018 21,686 — (708) 68,681 40,124 2,003 2,201 7,719 5,357 9,057 7,093 — — 73,554 (4,873) — (1,495) 266 907 — (5,195) (567) (4,628) 2 % $ 45,927 21 % $ 38,028 (69) (10) NM 109 (6) (6) 56 (17) (5) 22 12 NM NM NM 10 (182) NM (17) (69) 51 3,335 24,030 101 (339) 73,054 42,532 1,280 2,657 8,161 4,391 8,074 — — — 67,095 5,959 8,371 (1,797) 868 602 19 2 (72) (198) 12 1 7 58 1 3 (10) NM NM NM (2) (273) 2,808 23,563 366 346 65,111 42,141 1,194 1,681 8,111 4,271 8,941 — 3,403 (1,184) 68,558 (3,447) NM — 153 44 346 (711) 604 135 NM — NM (4,169) (137) % $ 14,003 (285) % $ (7,588) (113) (147) % $ 4,240 9,763 212 1,359 (209) % $ (8,947) Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Total Revenues. Total revenues decreased $4.4 million, or 6%, to $68.7 million compared with $73.1 million for 2021. The decrease was attributable to a $2.3 million decrease in Trust fees due to lower average AUM, and a decrease in performance fees, partially offset by a $0.8 million increase in asset-based advisory fees. Employee Compensation and Benefits. Employee compensation and benefits expenses decreased due to lower commissions and incentive compensation, partially offset by higher salaries following an increase in headcount from the Salient Acquisition. Sales and Marketing. Sales and marketing expenses increased as in-person sales activities returned to pre-COVID-19 levels. 29 Professional Services. Professional services expenses increased primarily due to higher subadvisory expenses and various legal costs. General and administrative. General and administrative expenses increased 12% to $9.1 million compared to $8.9 million in 2021 primarily due to higher rent expense following our Houston, Texas office space expansion. Acquisition expenses. Acquisition expenses are related to the Salient Acquisition and consisted primarily of investment banking fees, legal fees, information technology expenses related to systems integrations, mutual fund costs related to proxy solicitations and information technology integration costs. $1.8 million of acquisition expenses incurred in the nine months ended September 30, 2022 were included in Professional Services ($1.0 million), Westwood Mutual Funds ($0.5 million) and Information Technology ($0.3 million) before being reclassified to acquisition expenses upon consummation of the Salient Acquisition. Net change in unrealized appreciation (depreciation) on private investments. We recorded a $1.6 million net change in unrealized depreciation to reflect a market transaction related to our investment in Charis. Provision for Income Taxes. The effective tax rate was 10.9% for 2022 compared to 30.3% for 2021. Our income tax rate differed from the 21% statutory tax rate 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 date, along with the impact of state and local taxes. Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 Total Revenues. Total revenues increased $7.9 million, or 12%, to $73.1 million compared with $65.1 million for 2020. The increase was attributable to a $7.9 million increase in asset-based advisory fees and a $0.5 million increase in Trust fees, both primarily due to higher average AUM compared to 2020. Westwood Mutual Funds. Westwood mutual funds expenses increased 58% to $2.7 million compared to $1.7 million for 2020 primarily due to one-time costs related to the reorganization of our mutual funds and a change in mutual fund administrator. General and administrative. General and administrative expenses decreased 9.7% to $8.1 million compared to $8.9 million in 2020 primarily due to lower rent expense following recent office space reductions. Realized gains on private investments. We recorded a realized gain of approximately $8.3 million in connection with InvestCloud's recapitalization in the first quarter of 2021. Net change in unrealized appreciation (depreciation) on private investments. We recorded a $2.8 million net change in unrealized depreciation to reflect the recognition of previously recorded unrealized gains in connection with InvestCloud's recapitalization in the first quarter of 2021, partially offset by $0.9 million of fair value increases from market transactions related to our investment in Charis. Provision for Income Taxes. The effective tax rate was 30.3% for 2021 compared to (17.9)% for 2020. Our income tax rate differed from the 21% statutory tax rate 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 date, along with the impact of state and local taxes. Supplemental Financial Information As supplemental information, we are providing non-GAAP performance measures that we refer to as Economic Earnings and Economic earnings per share ("EPS"). We provide these measures in addition to, but not as a substitute for, net income (loss) and earnings (loss) per share, which are reported on a generally accepted accounting principles ("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 (loss) or earnings (loss) 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 (loss) plus non-cash stock-based compensation expense, impairment expense, amortization of intangible assets, currency translation adjustment reclassification 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. 30 For the year ended December 31, 2022, our Economic Earnings decreased by 80% to $3.6 million compared with $17.5 million for the year ended December 31, 2021. 2022 Economic Earnings was impacted by lower revenues, including lower performance fees, and higher expenses related to the Salient Acquisition. The following table provides a reconciliation of net income (loss) to Economic Earnings: For the years ended December 31, (in thousands, except percentages and per share data) Net Income (Loss) ........ $ (4,628) (147) % $ 9,763 (209) % $ (8,947) (251) % $ 5,911 (78) % $ 26,751 2022 Change 2021 Change 2020 Change 2019 Change 2018 Add: Stock-based compensation expense ...................... Add: Impairment expense ...................... Add: Intangible amortization .............. Add: Currency translation adjustment reclassification .......... Add: Tax benefit from goodwill amortization .............. 6,001 3 5,834 (13) 6,701 (35) 10,305 (33) 15,283 — NM — NM 3,403 NM — NM — 1,889 16 1,624 (6) 1,721 — 1,726 3 1,672 — NM — NM 4,169 NM — NM — 302 27 237 — 237 — 237 — 237 Economic Earnings ...... $ 3,564 (80) % $ 17,458 140 % $ 7,284 (60) % $ 18,179 (59) % $ 43,943 Economic Earnings per Share ....................... $ 0.45 (80) % $ 2.20 142 % $ 0.91 (58) % $ 2.15 (58) % $ 5.14 The following table provides Economic Earnings by segment: For the years ended December 31, (in thousands, except percentages) 2022 Change 2021 Change 2020 Change 2019 Change 2018 Economic Earnings by Segment: ........................ Advisory .................... $ 15,288 (25) % $ 20,259 133 % $ 8,713 (55) % $ 19,186 (60) % $ 47,574 Trust .......................... 3,087 Westwood Holdings .. (14,811) (61) 37 8,018 (10,819) 41 52 5,668 (7,097) (24) (16) 7,487 (8,494) 31 (9) 5,737 (9,368) Total .............................. $ 3,564 (80) % $ 17,458 140 % $ 7,284 (60) % $ 18,179 (59) % $ 43,943 Liquidity and Capital Resources Balance Sheet Data (in thousands) As of December 31, 2022 2021 Cash and cash equivalents ............................................................................................................ $ 23,859 $ Accounts receivable ...................................................................................................................... 13,900 Total liquid assets .................................................................................................................. $ 37,759 $ Investments, at fair value .............................................................................................................. $ 15,342 $ 15,206 11,152 26,358 65,024 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 a dividend in the first quarter of 2021, following its suspension in the second quarter of 2020 as we preserved financial flexibility amid the uncertainties created by the COVID-19 pandemic. We had no debt as of December 31, 2022 and 2021. 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 accounts receivable and accounts payable, are generally the result of timing differences between collection of fees billed and payment of operating expenses. We had cash and short-term investments of $39.2 million and $80.2 million as of December 31, 2022 and 2021, respectively. At December 31, 2022 and 2021, working capital aggregated $40.6 million and $78.0 million, respectively. 31 The Salient Acquisition required an upfront cash payment of $35.0 million upon closing, with expected subsequent payments of up to $25.0 million over several years, upon satisfaction of certain revenue retention and growth targets. Those payments are expected to be made from a combination of cash on hand, cash flows from operations and equity. Westwood Trust is required by the Texas Finance Code to maintain cash and investments in an amount equal to the minimum restricted capital of $4.0 million. Restricted capital is included in Investments in the accompanying Consolidated Balance Sheets. At December 31, 2022, Westwood Trust had approximately $21.2 million in excess of its minimum capital requirement. Cash Flow Data (in thousands) Operating cash flows .............................................................................................. $ Investing cash flows ............................................................................................... For the years ended December 31, 2022 2021 2020 51,490 $ 19,385 $ (9,770) (33,739) 9,566 (4) Financing cash flows .............................................................................................. (9,103) (26,806) (25,812) Historically we have funded our operations and cash requirements with cash generated from operating activities. We may also use cash from operations to pay dividends to our stockholders. 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. Changes in working capital, especially accounts receivable and accounts payable, generally result from timing differences between collection of fees billed and payment of operating expenses. During 2022, cash flow provided by operating activities was $51.5 million, compared to cash used in operating activities of $19.4 million during 2021, and cash flow provided by operating activities of $9.8 million during 2020. The increase of $32.1 million from 2021 to 2022 primarily reflected the net sales of investments to fund the Salient Acquisition. The increase of $29.2 million from 2020 to 2021 primarily reflected net sales of investments and net income in 2021. Cash flow used in investing activities in 2022 was primarily related to the Salient Acquisition. Cash flow provided by investing activities in 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 was insignificant in 2020. Cash used in financing activities was $9.1 million in 2022 compared to $26.8 million and $25.8 million in 2021 and 2020, respectively. The change from 2021 to 2022 primarily related to lower dividends in 2022. The change from 2020 to 2021 primarily related to higher dividends following the reinstatement of dividends in 2021 and repurchases of common stock under our share repurchase plan. Our future liquidity and capital requirements will depend upon numerous factors, including results of operations, the timing and magnitude of capital expenditures or strategic initiatives, our dividend policy and other business and risk factors described under “Item 1A. Risk Factors” in this Report. We believe that current cash and short-term investment balances plus cash generated from operations will be sufficient to meet 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. 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. Cash Dividends The following table summarizes dividends declared during 2022 and 2021: 2022 Dividends Declaration Date February 9, 2022 April 27, 2022 July 27, 2022 October 26, 2022 (1) Record Date March 4, 2022 June 3, 2022 September 2, 2022 December 22, 2023 Paid Date April 1, 2022 July 1, 2022 October 1, 2022 January 23, 2023 Dividend Per Share $0.15 $0.15 $0.15 $0.15 $0.60 32 2021 Dividends Declaration Date February 10, 2021 April 8, 2021 July 27, 2021 (1) July 27, 2021 October 27, 2021 Record Date March 2, 2021 June 4, 2021 August 6, 2021 September 3, 2021 December 3, 2021 Paid Date April 1, 2021 July 1, 2021 August 20, 2021 October 1, 2021 January 3, 2022 Dividend Per Share $0.10 $0.10 $2.50 $0.10 $0.15 $2.95 (1) This dividend was treated for accounting purposes as a return of capital. Contractual Obligations Purchase commitments Our purchase commitments primarily consist of outsourced information technology services, software licenses and commitments for financial research tools. As of December 31, 2022, our purchase commitments for the next five years and thereafter were as follows (in thousands): Purchase commitments(1) .................... $ 7,944 $ 4,654 $ 3,290 $ — $ — Total Less than 1 year 1-3 years 4-5 years Thereafter Payments due in: A “purchase commitment” is defined as an agreement to purchase goods or services that is enforceable and legally binding and (1) that specifies all significant terms, including (a) fixed or minimum quantities to be purchased; (b) fixed, minimum or variable price provisions; and (c) the approximate timing of the transaction. The above purchase commitments exclude agreements that are cancelable without significant penalty. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements. Critical Accounting Policies and Estimates The preparation of our Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent losses and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. In applying accounting principles, we often must make individual estimates and assumptions regarding expected outcomes or uncertainties. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. We believe the following are areas where the degree of judgment and complexity in determining amounts recorded in our Consolidated Financial Statements make accounting policies critical. Business Combinations Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities assumed. In a business combination, we allocate the purchase price to the acquired business’ identifiable assets and liabilities at their acquisition date fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. The assets acquired and liabilities assumed in our business combinations consist of acquired working capital and finite- lived and indefinite-lived intangible assets. The carrying value of acquired working capital approximates its fair value, given the short-term nature of these assets and liabilities. We estimated the fair value of finite-lived and indefinite-lived intangible assets acquired using a discounted cash flow approach, which included an analysis of the future cash flows expected to be generated by such assets and the risk associated with achieving such cash flows. The key assumptions used in the discounted cash flow model include the discount rate that is applied to the discretely forecasted future cash flows to calculate the present value of those cash flows and the estimate of future cash flows attributable to the acquired intangible assets, which include revenues, operating expenses and taxes. Our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of assets acquired and liabilities assumed, with the corresponding offset to goodwill. 33 Consolidation We assess each legal entity that we manage to determine whether consolidation is appropriate at the onset of the relationship. We first determine whether the entity is a variable interest entity (“VIE”), or a voting interest entity (“VOE”), under GAAP and whether we have a controlling financial interest in the entity. Assessing whether or not an entity is a VOE or VIE and if it requires consolidation involves judgment and analysis. Factors considered in this assessment include, but are not limited to, the legal organization of the entity, our equity ownership and contractual involvement with the entity and any related party or de facto agent implications of our involvement with the entity. We reconsider whether entities are a VIE or VOE whenever contractual arrangements change, the entity receives additional equity or returns equity to its investors or changes in facts and circumstances occur that change the investors' abilities to direct the activities of the entity. A VIE is an entity in which (i) the total equity investment at risk is not sufficient to enable the entity to finance its activities without subordinated financial support, (ii) the at-risk equity holders, as a group, lack the characteristics of a controlling financial interest or (iii) the entity is structured with disproportionate voting rights, and substantially all of the activities are conducted on behalf of an investor with disproportionately few voting rights. That is, the at-risk equity holders do not have the obligation to absorb significant losses, the right to receive residual returns and the right to direct the activities of the entity that most significantly impact the entity’s economic performance. An enterprise must consolidate all VIEs of which it is the primary beneficiary. We determine if a sponsored investment meets the definition of a VIE by considering whether the fund’s equity investment at risk is sufficient to finance its activities without additional subordinated financial support and whether the fund’s at-risk equity holders absorb any losses, have the right to receive residual returns and have the right to direct the activities of the entity most responsible for the entity’s economic performance. The primary beneficiary of a VIE is defined as the party that, considering the involvement of related parties and de facto agents, has (i) the power to direct the activities of the VIE that most significantly affect its economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. This evaluation is updated on a continuing basis. A VOE is an entity that is outside the scope of the guidance for VIEs. Consolidation of a VOE is required when a reporting entity owns a controlling financial interest in a VOE. Ownership of a majority of the voting interests is the usual condition for a controlling financial interest. We evaluated (i) our relationship as sponsor of the Common Trust Funds ("CTFs") and managing member of the private equity funds Westwood Hospitality 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, Charis, Broadmark, Zarvona Energy Fund GP and Zarvona Energy Fund II-A as discussed in Note 6 “Investments” to our Consolidated Financial Statements included in Part II. Item 8 “Financial Statements and Supplementary Data” 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, Private Funds and Zarvona Energy Fund II-A 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. As we do not qualify as primary beneficiaries for those entities we have not consolidated our investments in those entities for the periods ending December 31, 2022 and 2021. Based on our analyses, we determined the Westwood Funds®, InvestCloud, Charis, Zarvona Energy Fund GP and Broadmark (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 and are VOEs. As we do not own controlling financial interests in those entities we have not consolidated our investments in those entities for the periods ending December 31, 2022 and 2021. Goodwill Goodwill is tested at least annually for impairment. We assess the recoverability of the carrying amount of goodwill either qualitatively or quantitatively as of July 1 of each fiscal year, or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. We test more frequently if indicators are present or changes in circumstances suggest that impairment may exist. These indicators include declines in revenues, earnings or cash flows, or the development of a material adverse change in the business climate. We assess goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, which is referred to as a component. We have identified two reporting units, which are consistent with our reporting segments: Advisory and Trust. The Company is not required to calculate the fair value of a reporting unit unless we determine that it is more likely than not that its fair value is less than the carrying amount. We assess goodwill for impairment using either a qualitative or quantitative assessment. 34  The qualitative goodwill impairment assessment requires evaluating factors, based on the weight of evidence, to determine whether a reporting unit's carrying value would more likely than not exceed its fair value. As part of our goodwill qualitative testing process, we evaluate various factors that are specific to the reporting unit as well as industry and macroeconomic factors in order to determine whether they are reasonably likely to have a material impact on the fair value of our reporting units. Based on the qualitative analysis performed in 2022, we concluded that there were no changes that were reasonably likely to cause the fair value of the Trust reporting unit to be less than the reporting unit's carrying value and determined that there was no impairment of our goodwill. In the event we were to determine that a reporting unit's carrying value would more likely than not exceed its fair value, quantitative testing would be performed comparing carrying values to estimated fair values. The quantitative analysis requires a comparison of each reporting unit’s carrying value to the fair value of the respective unit. If the carrying value exceeds the fair value, an impairment charge is recorded based on that difference. We completed our annual assessment of Trust goodwill in the third quarter of 2022 using a qualitative approach. There was no goodwill impairment in the Trust segment during the years ended December 31, 2022, 2021 or 2020. Following a sustained decline in the Company's market capitalization, we determined that the entire goodwill related to our Advisory segment was impaired, and accordingly we recorded charges of $3.4 million during the year ended December 31, 2020 to "Impairment expense" on the Consolidated Statements of Comprehensive Income (Loss). Accounting for Income Taxes We operate in several states and countries and are required to allocate our income, expenses and earnings under the various laws and regulations of these tax jurisdictions. Accordingly, our provision for income taxes reflects the statutory tax obligations of the jurisdictions in which we operate. Significant judgment and complex calculations are used when determining our tax liability and in evaluating our tax positions, and we are subject to audits by taxing authorities in each of the jurisdictions in which we operate. We adjust our income tax provision in the period in which we determine that actual outcomes will likely be different from our estimates. Changes in tax laws may result in changes to our tax position and effective tax rates. We include penalties and interest on income-based taxes in the “General and administrative” line on our Consolidated Statements of Comprehensive Income (Loss). We are required to assess whether a valuation allowance should be established against our deferred tax assets based on consideration of all available evidence, using a more-likely-than-not standard. As of December 31, 2022 and 2021, we have not recorded a valuation allowance on any deferred tax assets. In the event that sufficient taxable income does not result in future years, a valuation allowance may be required. We account for uncertain tax positions by recognizing the impact of a tax position in our Consolidated Financial Statements when we believe it is more likely than not that the tax position would not be sustained upon examination by the appropriate tax authority based on the merits of the position. We periodically review our tax positions and adjust the balances as new information becomes available. In making these assessments, we often must analyze complex tax laws of multiple domestic and international jurisdictions. The actual outcome of our tax positions, if significantly different from our estimates, could materially impact the financial statements. Further information on uncertain tax positions is included in Note 9 “Income Taxes” to our Consolidated Financial Statements included in Part II. Item 8 “Financial Statements and Supplementary Data.” Accounting Developments See Note 2 “Summary of Significant Accounting Policies” to our Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for a description of any new accounting standards and their anticipated effects on our Consolidated Financial Statements. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. Our revenues are primarily generated from fees derived as a percentage of our AUM, which is subject to market risks. Additionally, we invest corporate capital in various financial instruments, including U. S. treasury bills and equity funds, all of which present inherent market risks. We do not currently participate in any hedging activities, nor do we utilize any derivative financial instruments. The following information describes key aspects of certain financial instruments that involve market risks. Securities Markets and Interest Rates The value of AUM is affected by fluctuations in securities markets and changes in interest rates. Since we derive a substantial portion of our revenues from investment advisory and trust fees based on the value of AUM, our revenues may be adversely affected by a decline in the prices of securities or changing interest rates. A hypothetical 10% decrease in our average AUM during the year ended December 31, 2022 would have reduced our reported consolidated total revenue by approximately $7 million. 35 Our cash equivalents and other investment instruments are exposed to financial market risk due to fluctuations in interest rates, which may affect interest income. We do not expect interest income to be significantly affected by sudden changes in market interest rates. Item 8. Financial Statements and Supplementary Data The independent registered public accounting firm's report and our Consolidated Financial Statements listed in the accompanying index are included in Item 15 of this Report. See “Index to Financial Statements” on page F-1. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. During 2022, the Audit Committee of the Board of Directors (the "Audit Committee") of the Company completed a comprehensive process to determine which audit firm would serve as the Company's independent registered public accounting firm. As a result of that process and following careful deliberation, the Company,with the approval of the Audit Committee, dismissed Deloitte & Touche LLP (“Deloitte") as the Company's independent registered public accounting firm on April 26, 2022, which was effective immediately upon filing of the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022. On and effective as of April 26, 2022, the Company appointed BDO USA LLP ("BDO") as the Company's new independent registered public accounting firm. The Audit Committee approved the appointment. Deloitte’s reports on the Company’s consolidated financial statements for the years ended December 31, 2021 and December 31, 2020 contained no disagreements (within the meaning of Item 304(a)(1)(iv) of Regulation S-K) with Deloitte on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Deloitte, would have caused it to make reference to the subject matter of the disagreements in its reports on the consolidated financial statements of the Company; and no reportable events (as such term is defined in Item 304(a)(1)(v) of Regulation S-K. The Company had no disagreements with its current or former independent registered public accounting firms. 36 Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures We performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2022 to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act was (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Management excluded Salient Partners, which was acquired by the Company on November 18, 2022, from its assessment of the effectiveness of internal control over financial reporting as the Company may omit an assessment of an acquired business’s internal control over financial reporting from its assessment of the registrant’s internal control for up to one year from the acquisition date. As of December 31, 2022, Salient represents approximately 5% of total revenues and approximately 33% of total assets of our consolidated financial statement amounts. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Changes in Internal Control over Financial Reporting During the quarterly period ended December 31, 2022, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 37 REPORT OF WESTWOOD HOLDINGS GROUP, INC.’S MANAGEMENT ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING To the Board of Directors and Stockholders of Westwood Holdings Group, Inc.: The management of Westwood Holdings Group, Inc. (“Westwood”) is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Westwood’s internal control system was designed to provide reasonable assurance to the company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, contain inherent limitations. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The management of Westwood assessed the effectiveness of Westwood’s internal control over financial reporting as of December 31, 2022. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control — Integrated Framework. Based on our assessment, we believe that, as of December 31, 2022, Westwood’s internal control over financial reporting is effective based on those criteria. Westwood is not required to, nor did it, engage an independent registered public accounting firm to issue an audit report on our assessment of Westwood's internal control over financial reporting. By: /s/ Brian O. Casey Brian O. Casey, Chief Executive Officer /s/ Murray Forbes III Murray Forbes III, Chief Financial Officer & Treasurer March 13, 2023 Dallas, Texas 38 Item 9B. Other Information. None. Item 10. Directors, Executive Officers and Corporate Governance. PART III The information required by this item is, or will be, set forth in the definitive proxy statement relating to the 2023 Annual Meeting of Stockholders of Westwood Holdings Group, Inc., which is to be filed with the SEC pursuant to Regulation 14A under the Exchange Act (the “Proxy Statement”). The Proxy Statement relates to a meeting of stockholders involving the election of directors, and the portions therefrom required to be set forth in this Report by this item are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K. Item 11. Executive Compensation. The information required by this item is, or will be, set forth in the Proxy Statement. The Proxy Statement relates to a meeting of stockholders involving the election of directors, and the portions therefrom required to be set forth in this Report by this item are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Equity Compensation Plan Information The following table gives information as of December 31, 2022 about shares of our common stock that may be issued upon the exercise of options, warrants and rights under our Eighth Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan and the Share Award Plan of Westwood Holdings Group, Inc. for Service Provided in Canada to its Subsidiaries, which are our only equity compensation plans in effect at that time. The material terms of these plans were approved by our stockholders and are discussed in Note 8 “Employee Benefits” to our Consolidated Financial Statements included in Part II. Item 8 “Financial Statements and Supplementary Data." Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted- average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by security holders ....... — $ — 157,000 (1) (1) 157,000 shares are available under our First Amendment to the Eighth Amended and Restated Stock Incentive Plan. Our Share Award Plan of Westwood Holdings Group, Inc. for Service Provided in Canada to its Subsidiaries was effectively terminated following the closure of Westwood International Advisors. The other information required by this item is, or will be, set forth in the Proxy Statement. The Proxy Statement relates to a meeting of stockholders involving the election of directors, and the portions therefrom required to be set forth in this Report by this item are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item is, or will be, set forth in the Proxy Statement. The Proxy Statement relates to a meeting of stockholders involving the election of directors, and the portions therefrom required to be set forth in this Report by this item are incorporated herein by reference. Item 14. Principal Accounting Fees and Services. The information required by this item is, or will be, set forth in the Proxy Statement. The Proxy Statement relates to a meeting of stockholders involving the election of directors, and the portions therefrom required to be set forth in this Report by this item are incorporated herein by reference. 39 Item 15. Exhibits, Financial Statement Schedules. Financial Statement Schedules PART IV The financial statements included in this Report are listed in the Index to Financial Statements on page 1 of this Report. Schedules for which provision is made in the applicable accounting regulations of the SEC are either not required under the related instructions or are not applicable. Exhibits The exhibits required to be furnished pursuant to Item 15 are listed in the Index to Exhibits filed herewith, which Index to Exhibits is incorporated herein by reference. 40 Pursuant to the requirements of Section 13 or 15(d) 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. SIGNATURES WESTWOOD HOLDINGS GROUP, INC. By: /s/ Brian O. Casey Brian O. Casey Chief Executive Officer and Director Dated: March 13, 2023 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each of Westwood Holdings Group, Inc., a Delaware corporation, and the undersigned directors and officers of Westwood Holdings Group, Inc. hereby constitutes and appoints Brian O. Casey its, his or her true and lawful attorney-in-fact and agent, for it, him or her and in its, his or her name, place and stead, in any and all capacities, with full power to act alone, to sign any and all amendments to this Report, and to file each such amendment to the Report, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorney-in-fact and agent full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as it, he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures /s/ Brian O. Casey Brian O. Casey /s/ Murray Forbes III Murray Forbes III /s/ Richard M. Frank Richard M. Frank /s/ Susan M. Byrne Susan M. Byrne /s/ Ellen H. Masterson Ellen H. Masterson /s/ Geoffrey R. Norman Geoffrey R. Norman /s/ Randy A. Bowman Randy A. Bowman Title Chief Executive Officer and Director (Principal Executive Officer) Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) Chairman of the Board of Directors Vice Chairman of the Board of Directors Director Director Director 41 INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm ......... BDO USA, LLP; Dallas, TX USA; PCAOB ID: 243 Consolidated Balance Sheets as of December 31, 2022 and 2021 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022, 2021 and 2020 .................... Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, 2021 and 2020 ................................... Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 .............................................. Notes to Consolidated Financial Statements ................................. Page 2 5 6 7 7 9 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Stockholders and Board of Directors Westwood Holdings Group, Inc. Dallas, Texas Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Westwood Holdings Group, Inc. and subsidiaries (the “Company”) as of December 31, 2022, the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which it relates. Acquisition of Salient – Valuation of Contingent Consideration Liabilities As described in Note 3 to the consolidated financial statements, the Company consummated a business combination on November 18, 2022, for total purchase consideration of $46.3 million, net of cash acquired. The total purchase consideration includes the estimated fair value of contingent consideration subject to the acquired business’s achievement of certain revenue targets. The transaction was accounted for as a business combination using the acquisition method of accounting. Accordingly, the consideration paid was recorded at fair value at the acquisition date. In connection with the business combination, the Company recorded contingent consideration liabilities of $10.6 million and $2.3 million, related to revenue retention and growth earnout payments, respectively. We identified the estimation of the acquisition date fair value of the contingent consideration liabilities as a critical audit matter. The Company estimated the fair value of the contingent consideration liabilities using Monte Carlo simulation models, which are complex valuation models that required management’s use of a third-party specialist as well as required management to make significant estimates and assumptions related to revenue growth projections, revenue volatility and discount rates. Changes to the assumptions utilized could have had a significant impact on the fair value of the contingent consideration liabilities. Auditing these assumptions involved especially subjective and complex auditor judgment, including the use of valuation professionals with specialized skills and knowledge. The primary procedures we performed to address this critical audit matter included: 2 • • Evaluating the reasonableness of the revenue growth projections used in the estimation of the fair value of the contingent consideration liabilities involved including considering the consistency with external economic and market data. Utilizing personnel with specialized knowledge and skills in valuation to assist in evaluating the appropriateness of the Company’s valuation models and the reasonableness of the revenue volatility and discount rates and performing sensitivity analyses for certain revenue growth projections used in the models and comparing those results to the Company’s estimates. Acquisition of Salient – Valuation of Certain Intangible Assets As described in Note 3 to the consolidated financial statements, the Company consummated a business combination on November 18, 2022, for total purchase consideration of $46.3 million, net of cash acquired. The transaction was accounted for as a business combination using the acquisition method of accounting. Accordingly, the assets acquired were recorded at their fair values at the acquisition date. In connection with the business combination, the Company recorded intangible assets, which primarily included client relationships and a tradename with acquisition-date fair values of $14.0 million and $3.8 million, respectively. We identified the estimation of the acquisition date fair value of the client relationships and tradename intangible assets as a critical audit matter. The Company estimated the fair value of the client relationships intangible asset using the multi-period excess earnings method, which required management to make significant estimates and assumptions related to revenue growth projections, earnings growth rates, contributory asset charges, and the selection of discount rates. The Company estimated the fair value of tradename intangible asset using the relief-from-royalty method which required management to make significant estimates and assumptions related to revenue growth projections, earnings growth rates, royalty rates, and the selection of discount rates. Changes to the assumptions utilized could have had a significant impact on the fair value of the intangible assets. Auditing these assumptions involved especially subjective and complex auditor judgment, including the use of valuation professionals with specialized skills and knowledge. The primary procedures we performed to address the critical audit matter included: • • Evaluating the reasonableness of the revenue growth projections and earnings growth rates used in the determination of the fair value of the client relationships and tradename intangible assets involved including considering the consistency with historical data as well as consistency with external economic and market data. Utilizing personnel with specialized knowledge and skills in valuation to assist in evaluating the appropriateness of the Company’s valuation models and the reasonableness of the contributory asset charges and discount rates used in the valuation of the client relationships and the royalty rates and discount rates used in the valuation of the tradename intangible asset. We have served as the Company's auditor since 2022. /s/ BDO USA, LLP Dallas, Texas March 13, 2023 3 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Westwood Holdings Group, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Westwood Holdings Group, Inc. and subsidiaries (the "Company") as of December 31, 2021, the related consolidated statement of comprehensive income (loss), stockholders' equity, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/Deloitte & Touche LLP Dallas, Texas March 4, 2022 We began serving as the Company’s auditor in 2015. In 2022 we became the predecessor auditor. 4 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except par values and share amounts) December 31, 2022 2021 ASSETS Current Assets: ............................................................................................................................................. Cash and cash equivalents ................................................................................................................ Accounts receivable .......................................................................................................................... Investments, at fair value .................................................................................................................. Income taxes receivable .................................................................................................................... Other current assets ........................................................................................................................... Total current assets ................................................................................................................... Investments .................................................................................................................................................. Equity method investments .......................................................................................................................... Noncurrent investments at fair value ........................................................................................................... Goodwill ...................................................................................................................................................... Deferred income taxes ................................................................................................................................. Operating lease right-of-use assets .............................................................................................................. Intangible assets, net .................................................................................................................................... Property and equipment, net of accumulated depreciation of $9,277 and $8,637 ....................................... Other long-term assets ................................................................................................................................. Total long-term assets ............................................................................................................... Total assets ............................................................................................................................... LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: ....................................................................................................................................... Accounts payable and accrued liabilities .......................................................................................... Dividends payable ............................................................................................................................. Compensation and benefits payable .................................................................................................. Operating lease liabilities .................................................................................................................. Income taxes payable ........................................................................................................................ Total current liabilities .............................................................................................................. Accrued dividends ....................................................................................................................................... Contingent consideration ............................................................................................................................. Noncurrent operating lease liabilities .......................................................................................................... Total long-term liabilities ......................................................................................................... Total liabilities ......................................................................................................................... Commitments and contingencies (Note 14) ................................................................................................. Stockholders’ Equity: ................................................................................................................................... $ 23,859 $ 13,900 15,342 446 4,645 58,192 4,455 6,574 3,027 35,732 1,762 4,976 28,952 1,828 929 88,235 $ 146,427 $ $ 5,678 $ 1,745 8,689 1,502 — 17,614 701 12,901 4,563 18,165 35,779 15,206 11,152 65,024 233 2,246 93,861 4,455 — 4,513 16,401 848 4,868 11,911 2,114 634 45,744 139,605 2,637 1,800 9,530 1,409 466 15,842 1,133 — 4,724 5,857 21,699 Common stock, $0.01 par value, authorized 25,000,000 shares, issued 11,527,544 and outstanding 8,881,831 shares at December 31, 2022; issued 10,658,644 and outstanding 8,253,491 shares at December 31, 2021 ........................................................................................... Additional paid-in capital ................................................................................................................. Treasury stock, at cost – 2,645,713 shares at December 31, 2022; 2,405,154 shares at December 31, 2021 ............................................................................................................................................ Retained earnings (accumulated deficit) ........................................................................................... Total stockholders’ equity ...................................................................................................... Total liabilities and stockholders’ equity .............................................................................. $ 115 199,914 (85,128) (4,253) 110,648 146,427 $ 107 195,187 (81,750) 4,362 117,906 139,605 See Notes to Consolidated Financial Statements. 5 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands, except shares and per share data) Years ended December 31, 2021 2020 2022 Revenues: .............................................................................................................................. Advisory fees: ............................................................................................................. Asset-based .......................................................................................................... $ 46,685 $ 45,927 $ 38,028 Performance-based .............................................................................................. Trust fees ..................................................................................................................... Trust performance-based ............................................................................................. Other, net ..................................................................................................................... 1,018 21,686 — (708) 3,335 24,030 101 (339) 2,808 23,563 366 346 Total revenues ..................................................................................................... 68,681 73,054 65,111 Expenses: ............................................................................................................................... Employee compensation and benefits ......................................................................... 40,124 42,532 42,141 Sales and marketing .................................................................................................... Westwood mutual funds .............................................................................................. Information technology ............................................................................................... Professional services ................................................................................................... General and administrative .......................................................................................... Acquisition expense .................................................................................................... Impairment expense .................................................................................................... (Gain) loss on foreign currency transactions ............................................................... Total expenses ..................................................................................................... Net operating income (loss) ................................................................................................. Realized gains on private investments ........................................................................ Net change in unrealized appreciation (depreciation) on private investments ............ Investment income ...................................................................................................... Other income ............................................................................................................... Foreign currency translation adjustments to net income (loss) upon liquidation of a foreign subsidiary ........................................................................................................ Income (loss) before income taxes ....................................................................................... Provision for income taxes .......................................................................................... 2,003 2,201 7,719 5,357 9,057 7,093 — — 73,554 (4,873) — (1,495) 266 907 — (5,195) (567) 1,280 2,657 8,161 4,391 8,074 — — — 67,095 5,959 8,371 (1,797) 868 602 — 14,003 4,240 1,194 1,681 8,111 4,271 8,941 — 3,403 (1,184) 68,558 (3,447) — (711) 604 135 (4,169) (7,588) 1,359 Net income (loss) ................................................................................................................... $ (4,628) $ 9,763 $ (8,947) Other comprehensive income (loss), net of tax: ..................................................................... Foreign currency translation adjustments ................................................................... Reclassification of cumulative foreign currency translation adjustments to net income (loss) upon liquidation of a foreign currency ................................................. Total comprehensive income (loss) ..................................................................................... — — — — (1,226) 4,169 $ (4,628) $ 9,763 $ (6,004) Earnings (loss) per share: .................................................................................................... Basic .......................................................................................................................... Diluted ....................................................................................................................... $ $ (0.59) $ (0.59) $ 1.24 $ 1.23 $ (1.12) (1.12) Weighted average shares outstanding: ............................................................................... Basic .......................................................................................................................... Diluted ....................................................................................................................... 7,844,363 7,844,363 7,875,395 7,927,972 7,987,554 7,987,554 See Notes to Consolidated Financial Statements. 6 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share data) BALANCE, December 31, 2019 .......................... 8,881,086 $ 103 $ 203,441 $ (63,281) $ (2,943) $ 10,967 $ 148,287 Westwood Holdings Group, Inc. Common Stock, Par Shares Amount Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Total Net loss ................................................................... Other comprehensive income ................................. Foreign currency translation adjustments reclassification ...................................................... — — — Issuance of restricted stock, net of forfeitures ........ 193,968 Stock-based compensation expense ....................... Reclassification of compensation liability to be paid in shares ........................................................ Dividends declared ($0.43 per share) ..................... — — — Purchases of treasury stock .................................... (679,756) Purchase of treasury stock under employee stock plans ..................................................................... Issuance of treasury stock under employee stock plans ..................................................................... (27,474) 2,169 Restricted stock returned for payment of taxes ...... (43,045) — — — 2 — — — — — — — — — — (2) 6,701 212 — — — — — — — — — — (12,952) (697) (84) 83 (1,120) — (8,947) (1,226) 4,169 — — — — — — — — (8,947) (1,226) 4,169 — 6,701 212 — — — — — (3,715) (3,715) — — — — (12,952) (697) (1) (1,120) BALANCE, December 31, 2020 .......................... 8,326,948 $ 105 $ 210,268 $ (77,967) $ — $ (1,695) $ 130,711 Net income .............................................................. — Issuance of restricted stock, net of forfeitures ........ 158,098 Stock-based compensation expense ....................... Return of capital ($2.50 per share) ......................... Dividends declared ($0.45 per share), net of forfeitures ............................................................... — — — Purchases of treasury stock .................................... (182,549) — 2 — — — — — (2) 5,835 (20,823) — — — — — — — (2,990) Issuance of treasury stock under employee stock plans ..................................................................... 2,353 — $ (91) $ 91 Restricted stock returned for payment of taxes ...... (51,359) — — (884) — — — — — — — — 9,763 — — — (3,706) — — — 9,763 — 5,835 (20,823) (3,706) (2,990) — (884) BALANCE, December 31, 2021 .......................... 8,253,491 $ 107 $ 195,187 $ (81,750) $ — $ 4,362 $ 117,906 Net loss ................................................................... — Issuance of restricted stock, net of forfeitures ........ 868,900 Stock-based compensation expense ....................... Return of capital ($0.15 per share) ......................... Dividends declared ($0.45 per share), net of forfeitures ............................................................... — — — Purchases of treasury stock .................................... (205,521) Issuance of treasury stock under employee stock plans ..................................................................... 2,564 Restricted stock returned for payment of taxes ...... (37,603) — 8 — — — — — — — (8) 6,001 (1,166) — — (100) — — — — — — (2,851) 100 (627) — — — — — — — — (4,628) (4,628) — — — (3,987) — — — — 6,001 (1,166) (3,987) (2,851) — (627) BALANCE, December 31, 2022 .......................... 8,881,831 $ 115 $ 199,914 $ (85,128) $ — $ (4,253) $ 110,648 See Notes to Consolidated Financial Statements. 7 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Cash flows from operating activities: ............................................................................................................. Net income (loss) ....................................................................................................................................... $ (4,628) $ 9,763 $ (8,947) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: ........ Years ended December 31, 2022 2021 2020 Depreciation ..................................................................................................................................... Amortization of intangible assets ..................................................................................................... Net change in unrealized (appreciation) depreciation on investments ............................................. Realized gains on private investments ............................................................................................. Stock-based compensation expense ................................................................................................. Deferred income taxes ...................................................................................................................... Loss on asset disposition .................................................................................................................. Gain on asset disposition .................................................................................................................. Non-cash lease expense .................................................................................................................... Impairment of goodwill .................................................................................................................... Currency translation adjustment reclassification .............................................................................. Changes in operating assets and liabilities: ............................................................................................... Net (purchases) sales of investments – trading securities ................................................................ Accounts receivable ......................................................................................................................... Other current assets .......................................................................................................................... Accounts payable and accrued liabilities ......................................................................................... Compensation and benefits payable ................................................................................................. Income taxes payable ....................................................................................................................... Other liabilities ................................................................................................................................. Net cash provided by (used in) operating activities ................................................................ 687 1,889 2,136 — 6,001 (916) — — 1,110 — — 48,977 (313) (1,842) 1,251 (861) (687) (1,314) 51,490 Cash flows from investing activities: .............................................................................................................. Acquisition, net of cash acquired .............................................................................................................. (33,419) Sale of investments .................................................................................................................................... Purchases of investments ........................................................................................................................... Purchases of property and equipment ....................................................................................................... Proceeds on sale of property and equipment ............................................................................................. — — (320) — Net cash provided by (used in) investing activities ................................................................. (33,739) Cash flows from financing activities: .............................................................................................................. 750 1,624 1,845 (8,371) 5,835 620 — (148) 1,235 — — 4,513 (1,702) 189 1,009 2,042 1,750 (1,569) 19,385 — 9,258 (15) (178) 501 9,566 921 1,721 1,056 — 6,701 754 48 — 1,500 3,403 4,169 (19,562) 3,683 (170) (526) (2,270) (690) (1,561) (9,770) — — — (93) 89 (4) Purchases of treasury stock ....................................................................................................................... (2,851) (2,990) (12,952) Purchases of treasury stock under employee stock plans .......................................................................... Restricted stock returned for payment of taxes ......................................................................................... Cash dividends .......................................................................................................................................... Net cash used in financing activities ....................................................................................... Effect of currency rate changes on cash ............................................................................................................. Net increase (decrease) in cash and cash equivalents .................................................................................... Cash and cash equivalents, beginning of year ............................................................................................... — (627) (5,625) (9,103) 5 8,653 15,206 — (884) (22,932) (26,806) 45 2,190 13,016 Cash and cash equivalents, end of year .......................................................................................................... $ 23,859 $ 15,206 $ Supplemental cash flow information: ................................................................................................................. Cash paid during the year for income taxes .............................................................................................. $ Right-of-use assets obtained in exchange for operating lease liabilities ................................................... $ Accrued dividends ..................................................................................................................................... $ 1,858 $ 1,217 $ 2,446 $ Acquired contingent consideration ............................................................................................................ $ 12,901 $ 1,858 — 2,933 — $ $ $ $ (697) (1,120) (11,043) (25,812) (1,164) (36,750) 49,766 13,016 1,271 — 1,336 — See Notes to Consolidated Financial Statements. 8 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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., Westwood Advisors, L.L.C. and Salient Advisors, LP (referred to hereinafter together as “Westwood Management”), and Westwood Trust. 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 AUM and 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 adviser under the Investment Advisers Act of 1940. Westwood Trust is chartered and regulated by the Texas Department of Banking. Acquisition of Asset Management Business of Salient Partners, L.P. On November 18, 2022, we completed our acquisition (the "Salient Acquisition") of the asset management business of Salient Partners, L.P., a Delaware limited partnership (“Salient Partners”). Salient Partners is a Houston-based real asset and investment firm that offered a suite of strategies focused on energy and infrastructure, real estate and tactical alternative investments. Westwood purchased substantially all of the properties, rights and assets and assumed certain liabilities of Salient Partners. Westwood acquired Salient Partners’ four distinct investment capabilities: Energy Infrastructure, Tactical Absolute Return, Real Estate, and Private Investments. As part of the Salient Acquisition we also acquired Salient Capital LP ("SCLP"), Forward Securities LLC ("Forward") and Salient Advisors, LP ("Salient Advisors"). SCLP is an SEC-registered broker-dealer and Financial Industry Regulatory Authority ("FINRA") member and serves as a sub-placement agent for private placements. Forward is a limited broker-dealer and FINRA member which formerly acted as the distributor of the Salient Mutual Funds and the Forward Funds. Salient Advisors is an SEC registered investment adviser, a Commodity Futures Trading Commission ("CFTC") registered Commodity Pool Operator ("CPO") and a National Futures Association ("NFA") member. Salient Advisors is an advisor to the Westwood Salient Tactical Plus Fund, which is subadvised by Broadmark Asset Management, LLC ("Broadmark"). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation and Principles of Consolidation The accompanying Consolidated Financial Statements include the accounts of Westwood and its subsidiaries. All intercompany accounts and transactions have been eliminated upon consolidation. We assess each legal entity that we manage to determine whether consolidation is appropriate at the onset of the relationship. We first determine whether the entity is a variable interest entity (“VIE”), or a voting interest entity (“VOE”), under GAAP and whether we have a controlling financial interest in the entity. Assessing whether or not an entity is a VOE or VIE and if it requires consolidation involves judgment and analysis. Factors considered in this assessment include, but are not limited to, the legal organization of the entity, our equity ownership and contractual involvement with the entity and any related party or de facto agent implications of our involvement with the entity. We reconsider whether entities are a VIE or VOE whenever contractual arrangements change, the entity receives additional equity or returns equity to its investors or changes in facts and circumstances occur that change investors’ abilities to direct the activities of the entity. A VIE is an entity in which (i) the total equity investment at risk is not sufficient to enable the entity to finance its activities without subordinated financial support, (ii) the at-risk equity holders, as a group, lack the characteristics of a controlling financial interest or (iii) the entity is structured with disproportionate voting rights, and substantially all of the activities are conducted on behalf of an investor with disproportionately few voting rights. That is, the at-risk equity holders do not have the obligation to absorb significant losses, the right to receive residual returns and the right to direct the activities of the entity that most significantly impact the entity’s economic performance. An enterprise must consolidate all VIEs of which it is the primary beneficiary. We determine if a sponsored investment meets the definition of a VIE by considering whether the 9 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) fund’s equity investment at risk is sufficient to finance its activities without additional subordinated financial support and whether the fund’s at-risk equity holders absorb any losses, have the right to receive residual returns and have the right to direct the activities of the entity most responsible for the entity’s economic performance. The primary beneficiary of a VIE is defined as the party that, considering the involvement of related parties and de facto agents, has (i) the power to direct the activities of the VIE that most significantly affect its economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. This evaluation is updated on a continuing basis. A VOE is an entity that is outside the scope of the guidance for VIEs. Consolidation of a VOE is required when a reporting entity owns a controlling financial interest in a VOE. Ownership of a majority of the voting interests is the usual condition for a controlling financial interest. We evaluated (i) our relationship as sponsor of the Common Trust Funds (“CTFs”) and managing member of the private equity funds Westwood Hospitality 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, Charis, Broadmark, Zarvona Energy Fund GP and Zarvona Energy Fund II-A as discussed in Note 6 “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, Private Funds and Zarvona Energy Fund II-A 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. As we do not qualify as primary beneficiaries for those entities we have not consolidated our investments in those entities for the periods ending December 31, 2022 and 2021. Based on our analyses, we determined the Westwood Funds®, InvestCloud, Charis, Zarvona Energy Fund GP and Broadmark (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 and are VOEs. As we do not own controlling financial interests in those entities we have not consolidated our investments in those entities for the periods ending December 31, 2022 and 2021. Use of Estimates The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents consist of money market accounts and other short-term, highly liquid investments with maturities of three months or less, other than pooled investment vehicles that are considered investments. We maintain some cash and cash equivalents balances with financial institutions that are in excess of Federal Deposit Insurance Corporation insurance limits. The Company has not experienced losses on uninsured cash accounts. Accounts Receivable Accounts receivable represents balances arising from services provided to customers and are recorded on an accrual basis, net of any allowance for doubtful accounts. Accounts receivable are written off when they are determined to be uncollectible. Any allowance for doubtful accounts is estimated based on the Company’s historical amounts written off, existing conditions in the industry, and the financial stability of the customer. The majority of our accounts receivable balances consist of advisory and trust fees receivable from customers that we believe are, and have experienced to be, fully collectible. Accordingly, our Consolidated Financial Statements include neither an allowance for bad debt, nor bad debt expense. Investments With the exception of our investment in Charis, discussed below under "Fair Value of Financial Instruments", investments that are measured at fair market value are classified as trading securities and are carried at quoted market values on the accompanying Consolidated Balance Sheets. Net unrealized holding gains or losses on investments classified as trading securities are reflected as a component of other revenues. We measure realized gains and losses on investments using the specific identification method. For an investment 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. The Company will reassess whether such an investment qualifies for the measurement alternative at each reporting period. In evaluating an 10 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) investment for impairment or observable price changes, we will use inputs including recent financing events, as well as other available information regarding the investee's historical and forecasted performance. Fair Value of Financial Instruments We determined the estimated fair values of our financial instruments using available information. The fair value amounts discussed in Notes 6 “Investments” and 7 “Fair Value Measurements” are not necessarily indicative of either the amounts realizable upon disposition of these instruments or of our intent or ability to dispose of these assets. The estimated fair value of cash and cash equivalents, accounts receivable, prepaid income taxes, other current assets, accounts payable and accrued liabilities, dividends payable, compensation and benefits payable and income taxes payable approximates their carrying value due to their short-term maturities. The carrying amount of investments designated as “trading” securities, primarily U.S. Government and Government agency obligations, money market funds, equity funds, equities and exchange-traded bond funds, equals fair value based on prices quoted in active markets and, with respect to funds, the reported net asset value (“NAV”) of the shares held. Market values of our money market holdings generally do not fluctuate. Our investment in Westwood Hospitality is measured at fair value using NAV as a practical expedient. Our investment in Charis is measured at fair value on a recurring basis using a market approach based on a price to tangible book value multiple 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 will reevaluate our methodology and inputs on a quarterly basis. Goodwill and Other Intangible Assets 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 tested at least annually for impairment. We test more frequently if indicators are present or changes in circumstances suggest that impairment may exist. These indicators include declines in revenues, earnings or cash flows, or the development of a material adverse change in the business climate. We assess goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, which is referred to as a component. We have identified two reporting units, which are consistent with our reporting segments: Advisory and Trust. The Company is not required to calculate the fair value of a reporting unit unless we determine that it is more likely than not that its fair value is less than the carrying amount. We assess goodwill for impairment using either a qualitative or quantitative assessment. The qualitative assessment includes consideration of the current trends in the industry in which we operate, macroeconomic conditions and recent financial performance of our reporting units. The quantitative analysis requires a comparison of each reporting unit’s carrying value to the fair value of the respective unit. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The fair value of each reporting unit is estimated using a market multiple approach and an income approach. Following a sustained decline in the Company's market capitalization, we determined in 2020 that the entire goodwill related to our Advisory segment was impaired, and accordingly we recorded charges of $3.4 million to "Impairment expense" on the Consolidated Statements of Comprehensive Income (Loss). As part of our evaluation, we determined the fair value of each of our reporting units using a weighted average approach of the market and income approaches. As part of the 2020 Advisory reporting unit assessment, we determined that an increase in the discount rate (from the prior assessment) applied in the valuation was required to align with market-based assumptions. The higher discount rate, in conjunction with revised long- term projections, resulted in a lower fair value of the Advisory segment. We completed our most recent annual goodwill impairment assessment during the third quarter of 2022, and determined that no goodwill impairment related to the Trust segment was required. There was no goodwill impairment in the Trust segment during the years ended December 31, 2022, 2021 or 2020. Our intangible assets represent the acquisition date fair value of the acquired client relationships, trade names, non- compete agreements and the cost of internally-developed software, each of which is reflected net of amortization. In valuing these assets, we made significant estimates regarding their useful lives, growth rates and potential attrition. We periodically review our intangible assets for events or circumstances that would indicate impairment. See Note 11 “Goodwill and Other Intangible Assets.” Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation of furniture and equipment is provided over the estimated useful lives of the assets (from 3 to 7 years), and depreciation on leasehold improvements is provided over the lesser of the estimated useful life or lease term using the straight-line method. We capitalize leasehold improvements, furniture and fixtures, computer hardware and most office equipment purchases. 11 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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 revenues from investment advisory fees, trust fees and other sources of revenues such as gains and losses from our seed money investments into net investment strategies. The "Other, net” revenues on our Consolidated Statements of Comprehensive Income (Loss) are the unrealized gains and losses on our seed money investments, and our seed money investments are included in "Investments, at fair value" on our Consolidated Balance Sheets. Our seed money investments were $7.3 million and $57.2 million at December 31, 2022 and 2021, respectively. Advisory and Trust fees are calculated based on a percentage of AUM and AUA, and the performance obligation is realized over the then-current calendar quarter. Once clients receive our investment advisory services we have an enforceable right to payment. Incremental costs to obtain a contract are eligible to be capitalized if the costs are expected to be recovered over the service period. We incur certain incremental costs in obtaining new business and continually evaluate whether costs should be capitalized and amortized over the expected period of benefit of the asset. Certain costs used to fulfill a contract such as the distribution services utilized to sell our Westwood Funds® are expensed as incurred. We recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. Stock-Based Compensation We have issued restricted stock to certain U.S. employees and Board of Directors in accordance with our Eighth Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan (the “Plan”). We account for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation and adopted Accounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting effective January 1, 2017. Under ASC 718, stock-based compensation expense reflects the fair value of stock-based awards measured at grant date and is recognized over the relevant service period. We expense the fair value of stock-based compensation awards granted to our employees and directors in our Consolidated Financial Statements on a straight-line basis over the period that services are required to be provided in exchange for the award (“requisite service period”), which is typically the period over which the award vests. Stock-based compensation is recognized only for awards that vest. We measure the fair value of compensation cost related to restricted stock awards based on the closing market price of our common stock on the grant date. For performance- based share awards, we assess actual performance versus the predetermined performance goals and record compensation expense once we conclude it is probable that we will meet the performance goals required to vest the applicable performance- based awards. The Share Award Plan of Westwood Holdings Group, Inc. for Service Provided in Canada to its Subsidiaries (the “Canadian Plan”) provided compensation in the form of common stock for services performed by employees of Westwood International Advisors, prior to its 2020 closure. We recorded compensation costs for these awards on a straight-line basis over the vesting period once we determined it was probable that the award would be earned. Awards expected to be settled in shares were funded into a trust pursuant to an established Canadian employee benefit plan. Generally, the Canadian trust subsequently acquired Westwood common shares in market transactions and held such shares until the shares were vested and distributed, or forfeited. Shares held in the trust were shown on our Consolidated Balance Sheet as treasury shares. Until shares were acquired by the trust, we recorded compensation costs and measured the liability as a cash-based award, which was included in “Compensation and benefits payable” on our Consolidated Balance Sheets. For the years ended December 31, 2022, 2021 and 2020 there was no compensation expense recorded for these awards. When the number of shares related to an award was determinable, the award became an equity award accounted for in a manner similar to restricted stock, which is described in Note 8 “Employee Benefits.” Currency Translation and Re-measurement Assets and liabilities of Westwood International Advisors, our non-U.S. dollar functional currency subsidiary, are translated at exchange rates as of applicable reporting dates. The gains and losses resulting from translating non-U.S. dollar functional currency into U.S. dollars are recorded through other comprehensive income (loss). Following the closure and liquidation of Westwood International Advisors, we reclassified foreign currency translation adjustments of $4.2 million from accumulated other comprehensive income (loss) to net income (loss) in the year ended December 31, 2020. Revenue and expense transactions are recorded at the rates of exchange prevailing on the dates of the transactions. Gains and losses resulting from transactions in foreign currencies are included in “(Gain) loss on foreign currency transactions” in our 12 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Consolidated Statements of Comprehensive Income (Loss). For the year ended December 31, 2020, we recorded a gain of $1.2 million. Income Taxes We file a U. S. federal income tax return as a consolidated group for Westwood and its U.S.-based subsidiaries. We file a Canadian income tax return for Westwood International Advisors. Deferred income tax assets and liabilities are determined based on temporary differences between the financial statements and income tax bases of assets and liabilities as measured at enacted income tax rates. Deferred income tax expense is generally the result of changes in deferred tax assets and liabilities. Deferred taxes relate primarily to incentive compensation and stock-based compensation expense. We record net deferred tax assets to the extent we believe such assets will more likely than not be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax- planning strategies, and results of recent operations. In the event we were to determine that we would not be able to realize our deferred income tax assets in the future, we would record a valuation allowance. No such valuation allowance has been recorded in our Consolidated Financial Statements. We account for uncertain tax positions by recognizing the impact of a tax position in our Consolidated Financial Statements when we believe it is more likely than not that the tax position would not be sustained upon examination by the appropriate tax authority based on the merits of the position. We include penalties and interest on income-based taxes, if any, in the “General and administrative” line on our Consolidated Statements of Comprehensive Income (Loss). See Note 9 “Income Taxes.” Business Combinations In allocating the purchase price of a business combination, the Company records all assets acquired and liabilities assumed at fair value, with the excess of the purchase price over the aggregate fair values recorded as goodwill. ASC 820, Fair Value Measurements ("ASC 820") defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values as of the date of acquisition. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill. The Company determines the estimated fair values after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management. The fair value assigned to identifiable intangible assets acquired is based on estimates and assumptions made by management at the time of the acquisition. The Company adjusts the preliminary purchase price allocation, as necessary, during the measurement period of up to one year after the acquisition closing date as it obtains more information as to facts and circumstances existing as of the acquisition date. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred. The acquired client relationships, trade names and non-compete agreements are subject to fair value measurements based primarily on significant inputs not observable in the market and thus represent level 3 measurements. The valuation of an acquired client relationship utilizes an income approach, which provides an estimate of the fair value of an asset based on discounted cash flows and management estimates, including the estimated growth associated with existing clients, market growth and client attrition. The valuation of acquired trade names uses a relief from royalty method in which the fair value of the intangible asset is estimated to be the present value of royalties saved because the Company owns the intangible asset. Revenue projections and estimated useful lives are used in estimating the fair value of the trade names. The non-compete agreements are calculated using the differential cash flow method (with-or-without method), which utilizes the probability of certain employees competing with the Company and revenue projections to calculate the valuation of non-competition agreements. When an acquisition includes future contingent consideration on achieving certain milestones, the Company estimates the earn-out fair value using Monte Carlo simulation models. The Monte Carlo simulations considered assumptions including revenue volatility, risk free rates, discount rates and additional revenue discount rates. The projected contingent payment is discounted back to the current period using a discounted cash flow model. Increases or decreases in projected revenues, probabilities of payment, discount rates or projected payment dates may result in higher or lower fair value measurements. Fluctuations in any of the inputs may result in a significantly lower or higher fair value measurement. A liability is recorded for the estimated fair value of the contingent consideration on the acquisition date, and the fair value of the contingent consideration is remeasured at each subsequent reporting period with any change in fair value recognized as income or expense within the Consolidated Statements of Comprehensive Income (Loss). Equity Method Investments 13 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Investments in entities where we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in "Equity method investments" on our Consolidated Balance Sheets. Significant influence typically exists if we have a 20% to 50% ownership interest in the investee. We evaluate our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period. 3. BUSINESS COMBINATIONS Salient Westwood completed the Salient Acquisition on November 18, 2022. The total consideration recorded for accounting purposes consisted of (i) $33.4 million in cash (net of cash acquired) and (ii) estimated contingent consideration of $12.9 million. The Salient Acquisition was accounted for using the acquisition method of accounting. Accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values as of the acquisition date. The total consideration of $46.3 million has been allocated using Salient’s historical balance sheet at November 18, 2022 based on valuations of acquired assets and assumed liabilities in connection with the acquisition. The allocation of the Salient Acquisition purchase price is as follows (in thousands): (in thousands) Cash consideration Estimated contingent consideration Cash acquired Total consideration, net of cash acquired Assets Current assets: Accounts receivable Other current assets Total current assets Equity method investments Property and equipment Intangible assets Total Assets Liabilities Accounts payable and accrued liabilities Total Liabilities Less: Net Assets Acquired Goodwill $ $ $ $ $ $ $ $ 33,953 12,901 (534) 46,320 2,435 850 3,285 6,519 81 18,900 28,785 1,796 1,796 26,989 19,331 The estimated $12.9 million of contingent consideration relates to two separate earn-outs: 1. Revenue retention earn-out The Salient Acquisition contains contingent consideration related to revenue retention, which has a maximum payment amount of $15.0 million. The gross amount is based on the retention of a minimum level of net revenue in the fifteen, eighteen, twenty-one and twenty-four months following the close of the Salient Acquisition. As this earn-out is expected to be settled with cash it was accounted for as a liability on our Consolidated Balance Sheets. The fair value of the revenue retention earn-out was estimated by using overall revenue growth projections combined with existing customer base revenues, both discounted and probability-weighted. The fair value measurement of the revenue retention earn-out was estimated using Monte Carlo simulation models and was based primarily on significant inputs not observable in the market and thus represents a level 3 measurement as defined in ASC 820. See further discussion in Note 7 "Fair Value Measurements." 2. Growth earn-out 14 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Salient Acquisition contains contingent consideration related to growth, which has a maximum payment amount of $10.0 million. The growth earn-out payment is based on growth in net revenue in the second and third years following the close of the Salient Acquisition. The growth earn-out payment, if any, would be paid in shares of the Company’s common stock in amounts equivalent to the dollar value of the earn-out. As this earn-out did not satisfy the equity classification criteria of ASC 805, Business Combinations it was accounted for as a liability on our Consolidated Balance Sheets. The fair value of the growth earn-out was estimated by using overall revenue growth projections combined with existing customer base revenues, both discounted and probability-weighted. The fair value measurement of the growth earn-out was estimated using Monte Carlo simulation models and was based primarily on significant inputs not observable in the market and thus represents a level 3 measurement as defined in ASC 820. See further discussion in Note 7 "Fair Value Measurements." The following are the identifiable intangible assets acquired (in thousands) and their respective useful lives: Client relationships Trade name Non-compete agreements Total Preliminary Estimated Fair Value (in thousands) Weighted Average Amortization Period (in years) $ $ 14,000 3,800 1,100 18,900 11.1 0.6 0.2 11.9 The client relationships asset was valued using the income approach (multi-period excess earnings method) and is amortized to “General and administrative” expense on our Consolidated Statements of Comprehensive Income (Loss) over an estimated useful life of fifteen years. Significant assumptions and estimates utilized in the model include the revenue growth projections, earnings growth rates, contributory asset charges and the selection of discount rates. The trade name asset was valued using the relief-of-royalty method and is amortized to to “General and administrative” expense on our Consolidated Statements of Comprehensive Income (Loss) over an estimated useful life of three years. Significant assumptions and estimates utilized in the model include the revenue growth projections, earnings growth rates, royalty rates and the selection of discount rates. The non-compete agreements asset was valued using the differential discounted cash flow method (with and without method) and is amortized to "General and administrative” expense on our Consolidated Statements of Comprehensive Income (Loss) over an estimated useful life of three years. Significant assumptions and estimates utilized in the model include the revenue growth projections, earnings growth rates, length of the non-compete agreements, ability to compete, the impact of competition and the selection of discount rates. At the time of the acquisition, the Company believed that its enhanced size, expanded range of investment strategies and expected realization of synergies were the primary factors that contributed to a total purchase price that resulted in the recognition of goodwill. As of December 31, 2022, $5.9 million of the goodwill arising from the acquisition is expected to be deductible for tax purposes. Through December 31, 2022, the Company has included $3.1 million of revenue and $0.1 million of net loss related to Salient in its Consolidated Statements of Comprehensive Income (Loss). Pro Forma Financial Information The following unaudited pro forma results of operations for the twelve months ended December 31, 2022 and 2021 assume the Salient Acquisition had occurred on January 1, 2021, after giving effect to acquisition accounting adjustments relating to amortization of the valued intangible assets and to record additional compensation costs related to restricted stock granted as a result of the acquisition. These unaudited pro forma results exclude one-time, non-recurring costs related to the acquisition, including $7.1 million of acquisition expenses in 2022. This unaudited pro forma information should not be relied upon as being necessarily indicative of the historical results that would have been obtained if the Salient Acquisition had actually occurred on that date, nor of the results that may be obtained in the future. 15 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands) Total revenues Net loss 4. REVENUE Advisory Fee Revenues Year Ended December 31, 2022 2021 $ $ 95,094 $ (2,310) $ 99,467 (1,664) Our advisory fees are generated by Westwood Management and Westwood International Advisors (prior to its closure, effective September 30, 2020), for managing client accounts under investment advisory and sub-advisory agreements. Advisory fees are typically calculated based on a percentage of AUM and AUA, 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 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) sub-advisory 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 suite of 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 many 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 Consolidated Financial Statements contain no deferred fee revenues. Revenue Disaggregated 16 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Sales taxes are excluded from revenues. The following table presents our revenue disaggregated by account type (in thousands). In 2021, we recast certain prior year revenues related to performance fees. Year Ended December 31, 2022 2021 2020 Advisory Fees: ........................................................................................................... Institutional ......................................................................................................... $ 26,653 $ 31,069 $ 28,878 Mutual Funds ...................................................................................................... Wealth Management ........................................................................................... Trust Fees ................................................................................................................... 20,245 805 21,686 17,507 686 24,131 Other ........................................................................................................................... (708) (339) 11,488 470 23,929 346 Total revenues ..................................................................................................... $ 68,681 $ 73,054 $ 65,111 We have clients in various locations around the world. The following table presents our revenue disaggregated by our clients' geographical locations (in thousands): Year Ended December 31, 2022 Advisory Trust Performance-based Other Total Canada ............................................................. $ 1,171 $ — $ — $ — $ 1,171 U.S. .................................................................. 45,514 21,686 1,018 (708) 67,510 Total ................................................................. $ 46,685 $ 21,686 $ 1,018 $ (708) $ 68,681 Year Ended December 31, 2021 Advisory Trust Performance-based Other Total Canada ............................................................. Europe ............................................................. U.S. .................................................................. 1,163 638 45,512 — — 24,131 — 262 1,687 — — 1,163 900 (339) 70,991 Total ................................................................. $ 47,313 $ 24,131 $ 1,949 $ (339) $ 73,054 Year Ended December 31, 2020 Advisory Trust Performance-based Other Total Asia .................................................................. $ 696 $ — $ — $ — $ Canada ............................................................. Europe ............................................................. U.S. .................................................................. 1,505 2,707 33,120 — — 23,563 — 1,570 1,604 — — 346 696 1,505 4,277 58,633 Total ................................................................. $ 38,028 $ 23,563 $ 3,174 $ 346 $ 65,111 5. 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 uses to review 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, a non-GAAP measurement. We define Economic Earnings as net income (loss) plus non-cash stock-based compensation expense, impairment expense, amortization of intangible assets, currency translation adjustment reclassification 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. 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 17 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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) sub-advisory 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. Salient and Westwood Management, which provide investment advisory services to similar clients, are included in our Advisory segment. Westwood International Advisors (prior to its closure, effective September 30, 2020), is included in our Advisory segment. Trust Westwood 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) Year Ended December 31, 2022 .......................................... Revenues: ............................................................................... Advisory Trust Westwood Holdings Eliminations Consolidated Net fee revenues from external sources ......................... $ 47,703 $ 21,686 $ — $ — $ 69,389 Net intersegment revenues ............................................. Other revenue ................................................................. 2,080 (708) 336 — Total revenues ........................................................ 49,075 22,022 — — — (2,416) — — (708) (2,416) 68,681 Expenses: ................................................................................ Depreciation and amortization ....................................... Other operating expenses ............................................... Total expenses ........................................................... Net change in unrealized appreciation on private investments ..................................................................... Investment income ......................................................... Other income .................................................................. Income (loss) before income taxes ......................................... Income tax expense (benefit) ................................................. Net income (loss) ................................................................... Segment assets ........................................................................ Segment goodwill ................................................................... Expenditures for long-lived assets ......................................... Year Ended December 31, 2021 .......................................... Revenues: ............................................................................... $ $ $ $ 394 33,249 33,643 (640) 310 — 15,102 4,040 1,603 18,336 19,939 (460) (44) — 1,579 574 579 21,809 22,388 (395) — 907 (21,876) (5,181) — (2,416) (2,416) — — — — — 2,576 70,978 73,554 (1,495) 266 907 (5,195) (567) 11,062 $ 1,005 $ (16,695) $ — $ (4,628) 283,027 $ 53,644 $ 30,308 $ (220,552) $ 146,427 19,331 $ 16,401 $ 137 $ 84 $ — $ 99 $ — $ — $ 35,732 320 Net fee revenues from external sources ......................... $ 49,262 $ 24,131 $ — $ — $ 73,393 Net intersegment revenues ............................................. Other revenue ................................................................. 2,415 (339) 356 — Total revenues ........................................................... 51,338 24,487 — — — (2,771) — (339) (2,771) 73,054 Expenses: ................................................................................ Depreciation and amortization ....................................... Other operating expenses ............................................... Total expenses ........................................................... Realized gains on private investments ........................... Net change in unrealized appreciation (depreciation) on private investments .................................................... Investment income ......................................................... Other income .................................................................. Income (loss) before income taxes ......................................... Income tax expense (benefit) ................................................. 1,614 18,092 19,706 2,731 (587) (7) — 6,918 1,262 615 16,129 16,744 2,116 (453) — 602 (14,479) (1,806) — (2,771) (2,771) — — — — — — 2,396 64,699 67,095 8,371 (1,797) 868 602 14,003 4,240 167 33,249 33,416 3,524 (757) 875 — 21,564 4,784 18 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (in thousands) Net income (loss) ................................................................... Segment assets ........................................................................ Segment goodwill ................................................................... Expenditures for long-lived assets ......................................... $ $ $ $ Year Ended December 31, 2020 .......................................... Revenues: ............................................................................... Advisory Trust Westwood Holdings Eliminations Consolidated 16,780 $ 5,656 $ (12,673) $ — $ 9,763 222,335 $ 56,965 $ 12,784 $ (152,479) $ 139,605 — $ 66 $ 16,401 $ 61 $ — $ 51 $ — $ — $ 16,401 178 Net fee revenues from external sources ............................ $ 40,836 $ 23,929 $ — $ — $ 64,765 Net intersegment revenues ................................................ Net interest and dividend revenue ..................................... Other revenue .................................................................... 2,338 35 311 263 — — Total revenues ............................................................. 43,520 24,192 — — — — (2,601) — — — 35 311 (2,601) 65,111 Expenses: ................................................................................ Depreciation and amortization .......................................... Impairment expense .......................................................... Other operating expenses .................................................. Total expenses ............................................................. Net change in unrealized appreciation (depreciation) on private investments ............................................................ Investment income ............................................................ Other income ..................................................................... Income before income taxes ................................................... Income tax expense (benefit) ................................................. Net income (loss) ................................................................... Segment assets ........................................................................ Segment goodwill ................................................................... Expenditures for long-lived assets ......................................... $ $ $ $ 322 3,403 34,675 38,400 (311) 552 — 5,361 3,456 1,656 — 17,398 19,054 (222) 52 — 4,968 1,977 664 — 13,041 13,705 (178) — 135 (17,917) (4,074) — — (2,601) (2,601) — — — — — 2,642 3,403 62,513 68,558 (711) 604 135 (7,588) 1,359 1,905 $ 2,991 $ (13,843) $ — $ (8,947) 204,827 $ 54,749 $ 17,247 $ (127,671) $ 149,152 — $ 20 $ 16,401 $ 24 $ — $ 49 $ — $ — $ 16,401 93 Geographical information Refer to Note 4, “Revenue” for our revenue disaggregated by our clients' geographical location. As of December 31, 2022 and 2021, all of our property and equipment was in the United States. 6. INVESTMENTS: Since 2018, the company has made strategic investments to enhance the services we provide our customers. Each of these investments is discussed below. InvestCloud. During 2018, we made a $5.4 million strategic investment in InvestCloud, which is included in “Investments” on our 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 InvestCloud's recapitalization in the first quarter of 2021, we recorded a realized gain of approximately $8.4 million when our originally purchased shares were redeemed. This gain was recorded as "realized gains on private investments" on our Consolidated Statements of Comprehensive Income (Loss). Following this redemption, we re-invested $4.4 million of our proceeds into newly-issued shares of InvestCloud. Charis. Our investment in Charis is included in “Noncurrent investments at fair value” on our Consolidated Balance Sheets and is measured at fair value on a recurring basis. In the year ended December 31, 2022, we recorded an unrealized loss of $1.6 million for Charis to reflect a market transaction announced in January 2023. In the year ended December 31, 2021, we recorded an unrealized gain of $0.9 million 19 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) for Charis following fair value increases from observed market transactions. In the year ended December 31, 2020, we recorded an unrealized loss of $0.5 million, primarily as a result of the global macroeconomic effects of the COVID-19 pandemic. These adjustments were recorded to "Net change in unrealized appreciation (depreciation) on private investments" on our Consolidated Statements of Comprehensive Income (Loss). Private Equity Funding. In 2019 we made a $0.3 million investment in Westwood Hospitality. Our investment is included in “Noncurrent investments at fair value” on our Consolidated Balance Sheets, and it is measured at fair value on a recurring basis using NAV as a practical expedient. Zarvona Energy Fund GP, L.P. and Zarvona Energy Fund II-A, L.P. These investments, acquired with Salient, represent ownership interests in non-controlled partnerships. These investment are included in “Equity method investments” on our Consolidated Balance Sheets, and are measured based on our share of the net earnings or losses of the investees. Broadmark Asset Management LLC. This investment, acquired with Salient, represents a 47.5% ownership interest in a non-controlled corporation. This investment is included in “Equity method investments” on our Consolidated Balance Sheets, and it is measured based on our share of the net earnings or losses of Broadmark. All other investments are carried at fair value on a recurring basis and are accounted for as trading securities. Investments carried at fair value are presented in the table below (in thousands): Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Cost December 31, 2022: .............................................................................. U.S. Government and Government agency obligations ........................ $ 5,728 $ — $ (389) $ Money market funds .............................................................................. Equity funds ........................................................................................... Equities .................................................................................................. Exchange-traded bond funds ................................................................. 4,093 4,863 1,278 159 111 32 — — — (446) (65) (22) 5,339 4,204 4,449 1,213 137 Total trading securities ................................................................... $ 16,121 $ 143 $ (922) $ 15,342 Private investment fund ......................................................................... Private equity ......................................................................................... 3,475 265 — — (683) (30) 2,792 235 Total investments carried at fair value ............................................ $ 19,861 $ 143 $ (1,635) $ 18,369 December 31, 2021: .............................................................................. U.S. Government and Government agency obligations ........................ $ 39,926 $ — $ (491) $ 39,435 Money market funds .............................................................................. 19,661 Equity funds ........................................................................................... Equities .................................................................................................. Exchange-traded bond funds ................................................................. 4,135 1,296 140 — 158 206 — — (7) — — 19,661 4,286 1,502 140 Total trading securities ................................................................... $ 65,158 $ 364 $ (498) $ 65,024 Private investment fund ......................................................................... Private equity ......................................................................................... 265 3,420 — 949 (121) — 144 4,369 Total investments carried at fair value ............................................ $ 68,843 $ 1,313 $ (619) $ 69,537 The investments shown below were acquired from Salient and are included in our Consolidated Balance Sheets as Equity method investments, as follows (in thousands): 20 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) December 31, 2022 December 31, 2021 Carrying value Ownership Carrying value Ownership Zarvona Energy Fund GP , L.P . .............................. $ Zarvona Energy Fund II-A, L.P . ............................. Broadmark Asset Management LLC ....................... Salient MLP Total Return Fund, L.P. ...................... Salient MLP Total Return TE Fund, L.P. ................ 3,438 700 2,417 11 8 Total ......................................................................... $ 6,574 50.0 % $ 0.5 % 47.5 % — % 0.2 % $ — — — — — — — % — % — % — % — % The following amounts represent income from all investments, except for income tax amounts, are included in our Consolidated Statements of Comprehensive Income (Loss) under the headings “Other revenues, net," "Net change in unrealized appreciation (depreciation) on private investments," or "Investment Income" (in thousands): For the Years Ended December 31, 2022 2021 2020 Realized gains ................................................................................................................. $ 1 $ 41 $ Realized losses ............................................................................................................... (363) (212) Net realized gains (losses) .............................................................................................. $ Income tax expense from gains (losses) ......................................................................... $ Interest income – trading ................................................................................................ $ Dividend income ............................................................................................................ $ (362) $ (171) $ (76) $ 414 $ 90 $ (36) $ 716 $ 35 $ 110 (116) (6) (1) 786 101 Unrealized gains/(losses) ................................................................................................ $ (2,131) $ 923 $ (1,056) 7. FAIR VALUE MEASUREMENTS: ASC 820 defines fair value, establishes a framework for measuring fair value and requires additional 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 and liabilities Level 2 – inputs other than quoted prices that are directly or indirectly observable Level 3 – unobservable inputs where there is little or no market activity Our strategic investment in InvestCloud discussed in Note 6 "Investments" is excluded from the recurring fair value table shown below, as we have elected to apply the measurement alternative for that investment. 21 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table summarizes the values of our assets and liabilities as of the dates indicated within the fair value hierarchy (in thousands): Level 1 Level 2 Level 3 Measured at NAV (1) Total As of December 31, 2022 ....................................... Investments in trading securities ............................. $ 15,342 $ — $ — $ — $ 15,342 Private investment fund ........................................... Private equity ........................................................... — — — — — 2,792 235 — 235 2,792 Total assets measured at fair value ................... $ 15,342 $ — $ 2,792 $ 235 $ 18,369 Salient Acquisition contingent consideration .......... $ Total liabilities measured at fair value ............. $ — $ — $ — $ — $ 12,901 $ 12,901 $ — $ — $ 12,901 12,901 As of December 31, 2021 ....................................... Investments in trading securities ............................. $ 65,024 $ Private investment fund ........................................... — Private equity ........................................................... Total assets measured at fair value ................... $ — 65,024 $ — $ — — — $ — $ — 4,369 4,369 $ — $ 65,024 144 — 144 $ 144 4,369 69,537 (1) Comprised of certain investments measured at fair value using NAV as a practical expedient. The fair value amounts presented in this table are intended to allow reconciliation of the fair value hierarchy to the amounts presented on our Consolidated Balance Sheets. Our investment in Charis is included within Level 3 of the fair value hierarchy because we value it utilizing inputs not observable in the market. Historically our investment was measured at fair value on a recurring basis using a market approach based on a price to tangible book value multiple range determined to be reasonable in the current environment, or market transactions. As of December 31, 2022, our investment was valued based upon an expected market transaction. The following table summarizes the changes in Level 3 investments measured at fair value on a recurring basis for the periods presented (in thousands): Beginning balance ............................................................................................................................ $ 4,369 $ 3,431 Net change in unrealized appreciation (depreciation) on private investments .................................. (1,577) 938 Ending balance ................................................................................................................................. $ 2,792 $ 4,369 Years ended December 31, 2022 2021 The December 31, 2022 private investment fair value of $2.8 million was valued using a market transaction announced in January 2023. Contingent consideration categorized as a level 3 liability is related to the Salient Acquisition (see Note 3 "Business Combinations"). As of the acquisition date, the Company estimated that the combined value of the two earn-out amounts totaled $12.9 million, based on then-existing facts and circumstances. The fair value of contingent consideration related to the revenue retention earn-out is measured using the Monte Carlo simulation model. The Monte Carlo simulation considered assumptions including revenue growth projections, revenue volatility, risk free rates and discount rates. The fair value of contingent consideration related to the growth earn-out is measured using the Monte Carlo simulation model. The Monte Carlo simulation considered assumptions including revenue growth projections, revenue volatility, risk free rates and discount rates. The projected contingent payment is discounted back to the current period using a discounted cash flow model. Increases or decreases in projected revenues, probabilities of payment, discount rates or projected payment dates may result in higher or lower fair value measurements. Fluctuations in any of the inputs may result in a significantly lower or higher fair value measurement. The following table represents the range of the unobservable inputs utilized in the fair value measurement of the contingent consideration classified as level 3: 22 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Unobservable Input Discount rate Volatility Discount rate Volatility Range Low 12.5% 6.1% 12.5% 6.1% High 13.0% 16.1% 13.0% 16.1% Weighted Average Rate 12.75% 11.10% 12.75% 11.10% Earn-out Revenue Retention earn-out Growth earn-out 8. EMPLOYEE BENEFITS: Restricted Stock Awards We have issued restricted shares to certain employees and non-employee directors. The Eighth Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan ("the Plan") reserves shares of Westwood common stock for issuance to eligible employees, directors and consultants of Westwood or its subsidiaries in the form of restricted stock and stock options. In April 2022, stockholders approved an additional 250,000 shares to be authorized under the Plan, increasing the total number of shares issuable under the Plan (including predecessor plans to the Plan) to 5,898,100 shares. In the event of a change in control of Westwood, the Plan contains provisions providing for the acceleration of the vesting of restricted stock. At December 31, 2022, approximately 157,000 shares remain available for issuance under the Plan. The following table presents the total stock-based compensation expense recorded and the total income tax benefit recognized for stock-based compensation arrangements for the years indicated (in thousands): For the years ended December 31, 2022 2021 2020 Service condition restricted stock expense ................................................................... $ 5,729 $ 5,253 $ Performance-based restricted stock expense ................................................................ Restricted stock expense under the Plan ....................................................................... Canadian Plan restricted stock expense ........................................................................ 272 6,001 — 581 5,834 — 6,348 1,280 7,628 (927) Total stock-based compensation expense ..................................................................... $ 6,001 $ 5,834 $ 6,701 Total income tax benefit recognized related to stock-based compensation ................. $ 672 $ 804 $ 953 Restricted Stock Under the Plan, we have granted to certain employees and non-employee directors restricted stock subject to service conditions and to certain key employees restricted stock subject to both service and performance conditions. We accrue dividends on unvested restricted stock, which are due and payable upon vesting of restricted stock. Accrued dividends coming due within the next twelve months are included in “Dividends payable” on the Consolidated Balance Sheets, with the remaining noncurrent portion of accrued dividends included in “Accrued dividends” on the Consolidated Balance Sheets. At December 31, 2022, we had $1.7 million and $0.7 million in "Dividends payable" and "Accrued dividends", respectively, and the Dividends payable were related to unvested restricted stock. At December 31, 2021, we had $1.8 million and $1.1 million in Dividends payable and Accrued dividends, respectively. As of December 31, 2022, there was approximately $12.1 million of unrecognized compensation cost for restricted stock grants under the Plan, which we expect to recognize over a weighted-average period of 1 year. In order to satisfy tax liabilities that employees will owe on shares that vest, we may withhold a sufficient number of vested shares from employees on the date vesting occurs to cover minimum tax withholding requirements. We withheld 37,603 shares in 2022 for this purpose. Our two types of restricted stock grants under the Plan are discussed below. Restricted Stock Subject Only to a Service Condition For the years ended December 31, 2022, 2021 and 2020, we granted restricted stock to certain employees and non- employee directors. Employee shares generally vest over three years and Director shares vest over one year. We calculate compensation cost for restricted stock grants 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. 23 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table details the status and changes in our restricted stock grants that are subject only to a service condition for the year ended December 31, 2022: Non-vested, January 1, 2022 .......................................................................................... Granted ................................................................................................................... Vested ..................................................................................................................... Forfeited .................................................................................................................. 415,494 $ 878,150 (186,386) (9,250) Non-vested, December 31, 2022 .................................................................................... 1,098,008 $ 26.29 13.26 28.32 30.42 15.49 Number of Shares Weighted Average Grant Date Fair Value The 2022 grants include approximately 468,000 restricted stock grants on November 18, 2022, which were issued to certain former Salient employees that we retained following the Salient Acquisition. The following table shows the weighted-average grant date fair value for shares granted and the total fair value of shares vested during the years indicated: Weighted-average grant date fair value ........................................................................ $ 13.26 $ 17.10 $ Fair value of shares vested (in thousands) .................................................................... $ 5,278 $ 7,630 $ 27.39 7,480 Years ended December 31, 2022 2021 2020 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 year ended December 31, 2022: Non-vested, January 1, 2022 ....................................................................................................... 16,738 $ Vested ................................................................................................................................... (10,495) Non-vested, December 31, 2022 ................................................................................................. 6,243 $ 41.97 22.43 37.42 Number of Shares Weighted Average Grant Date Fair Value The following table shows the total fair value of shares vested during the years indicated: Fair value of shares vested (in thousands) ................................................................... $ 235 $ 913 $ 1,944 Canadian Plan As discussed in Note 2, the Canadian Plan provided compensation in the form of common stock for services performed by employees of Westwood International Advisors. On July 27, 2020, Westwood’s Board of Directors approved the closure of Westwood International Advisors, effective September 30, 2020. Years ended December 31, 2022 2021 2020 24 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) During the year ended December 31, 2020, the trust formed pursuant to the Canadian Plan purchased 27,474 Westwood common shares in the open market for approximately $0.7 million. The subsequent closure of the Westwood International Advisors office resulted in forfeitures of 56,625 shares, which reduced the Company's expenses by $1.3 million in the year ended December 31, 2020. As of December 31, 2022 and 2021, there is no unrecognized compensation cost related to restricted stock grants under the Canadian Plan. Mutual Fund Share Incentive Awards We may grant mutual fund incentive awards, which are annual bonus awards based on our mutual funds achieving specific performance goals, to specific employees. Awards granted are notionally credited to a participant account maintained by us that contains a number of mutual fund shares equal to the award amount divided by the net closing value of a fund share on the date the amount is credited to the account. We maintain the award in a corporate investment account until vesting. The investment may increase or decrease based on changes in the value of the mutual fund shares awarded, including reinvested income from the mutual funds during the vesting period. Unvested mutual fund awards are included under "Investments, at fair value" on our Consolidated Balance Sheets. Awards vest after approximately two years of service following the year in which the participant earned the award. We begin accruing a liability for mutual fund incentive awards when we believe it is probable that the award will be earned and record expense for these awards over the service period of the award. During the year in which the amount of the award is determined, we record expense based on its expected value. After the award is earned, we record expense based on the value of the shares awarded and the percentage of the vesting period that has elapsed. Our liability under these awards may increase or decrease based on changes in the value of the mutual fund shares awarded, including reinvested income from the mutual funds during the vesting period. Upon vesting, participants receive the value of the mutual fund share awards adjusted for earnings or losses attributable to the underlying mutual funds. For the year ended December 31, 2022, we recorded expense of $0.6 million related to mutual fund share incentive awards, and we had a corresponding accrued liability of $0.4 million at December 31, 2022. For the years ended December 31, 2021 and 2020, mutual fund share incentive award activity was insignificant. Benefit Plans Westwood has a defined contribution and profit-sharing plan that was established in July 2002 and covers substantially all employees. Discretionary employer profit-sharing contributions become fully vested after four years of service by the participant. For U.S. employees, Westwood provides a 401(k) match of up to 6% of eligible compensation. For Westwood International Advisors employees, Westwood provided a Registered Retirement Savings Plan match of up to 6% of eligible compensation. Westwood International Advisors was closed effective September 30, 2020. Both retirement plan matching contributions vest immediately. The following table displays our profit-sharing and retirement plan contributions for the periods presented (in thousands): Years ended December 31, 2021 2020 2022 Profit-sharing contributions, net ....................................................................................... $ Retirement plan matching contributions .......................................................................... — $ 13 $ (233) 1,295 1,256 1,410 9. INCOME TAXES: Income Tax Provision Income (loss) before income taxes by jurisdiction was as follows (in thousands): U.S. ........................................................................................................................ $ Canada ................................................................................................................... Total ...................................................................................................................... $ (5,112) $ 13,989 $ (83) 14 (5,195) $ 14,003 $ (5,861) (1,727) (7,588) Years ended December 31, 2022 2021 2020 Income tax expense differs from the amount that would otherwise have been calculated by applying the U.S. Federal corporate tax rate of 21% to income before income taxes. The difference between the Federal corporate tax rate and the 25 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) effective tax rate is comprised of the following (in thousands). Income tax provision computed at US federal statutory rate ......... $ (1,091) 21.0 % $ 2,935 21.0 % $ (1,593) 21.0 % Years ended December 31, 2022 2021 2020 Canadian rate differential ............................................................... 87 (1.7) — State and local income taxes, net of federal income taxes ............. 128 (2.5) 372 Amended state returns .................................................................... — — — Stock-based compensation ............................................................. 319 (6.1) 859 Tax on repatriation ......................................................................... — Nondeductible currency losses ....................................................... — Impairment expense ....................................................................... — Compensation subject to Section 162(m) ...................................... — Other, net ........................................................................................ (10) Total income tax expense .............................................................. $ (567) Effective income tax rate ............................................................... 10.9 % — — — — 0.2 — — — 180 (106) — 2.7 — 6.1 — — — 1.3 (0.8) — 91 (555) 683 1,378 910 398 42 5 — (1.2) 7.3 (9.0) (18.1) (12.0) (5.2) (0.6) (0.1) 10.9 % $ 4,240 30.3 % $ 1,359 (17.9) % 30.3 % (17.9) % We include penalties and interest on income-based taxes in the “General and administrative” line on our Consolidated Statements of Comprehensive Income (Loss). Penalties and interest were insignificant for the years ended December 31, 2022, 2021 and 2020. Income tax provision as set forth in the Consolidated Statements of Comprehensive Income (Loss) consisted of the following components (in thousands): Current taxes: ...................................................................................................... U.S. Federal ................................................................................................... $ State and local ................................................................................................ Foreign ........................................................................................................... Total current taxes ................................................................................................. Deferred taxes: .................................................................................................... U.S. Federal ................................................................................................... State and local ................................................................................................ Foreign ........................................................................................................... Total deferred taxes ............................................................................................... Total income tax provision ................................................................................. $ Deferred Income Taxes Years ended December 31, 2022 2021 2020 14 $ 3,482 $ 1,350 237 98 349 (888) (44) 16 (916) (567) $ 356 (218) 3,620 446 30 144 620 4,240 $ (534) (211) 605 500 44 210 754 1,359 26 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are presented below (in thousands). Deferred tax assets: Stock-based compensation expense ............................................................................................. $ Deferred rent ................................................................................................................................ Compensation and benefits payable ............................................................................................ Federal unrecognized tax benefit ................................................................................................. Deferred compensation ................................................................................................................ Acquisition expenses ................................................................................................................... Other ............................................................................................................................................ Total deferred tax assets ........................................................................................................................ Deferred tax liabilities: ........................................................................................................................ Property and equipment ............................................................................................................... Intangibles ................................................................................................................................... Unrealized gains on investments ................................................................................................. Leases .......................................................................................................................................... Other ............................................................................................................................................ As of December 31, 2022 2021 1,138 $ 1,330 1,328 4 446 841 9 893 1,344 1,946 5 171 — 11 5,096 4,370 (186) (223) (1,593) (1,256) (318) (790) (1,214) (1,232) (23) (21) Total deferred tax liabilities ................................................................................................................... Net deferred tax assets ........................................................................................................................ $ (3,334) (3,522) 1,762 $ 848 The Company is subject to taxation in the U. S. and various state and foreign jurisdictions. As of December 31, 2022, the Company’s 2019, 2020 and 2021 tax years are open for examination by the Internal Revenue Service, and various state and foreign jurisdiction tax years remain open to examination. At December 31, 2022 and 2021, the Company's gross liability related to uncertain tax positions was de minimis. At December 31, 2020, the Company's gross liability related to uncertain tax positions was $0.2 million. A number of years may elapse before an uncertain tax position is finally resolved. To the extent that the Company has favorable tax settlements, or determines that accrued amounts are no longer needed due to a lapse in the applicable statute of limitations or other changes in circumstances, such liabilities, as well as the related interest and penalties, are reversed as a reduction of income tax expense, net of federal tax effects, in the period such determination is made. A reconciliation of the change in recorded uncertain tax positions during the years ended December 31, 2022 and 2021 follows (in thousands): Balance at December 31, 2020 ............................................................................................................................... $ Additions for tax positions related to the current year ........................................................................................ Reductions for tax positions related to prior years .............................................................................................. Balance at December 31, 2021 ............................................................................................................................... Reductions for tax positions related to prior years .............................................................................................. Balance at December 31, 2022 ............................................................................................................................... $ 179 10 (164) 25 (4) 21 It is reasonably possible that the liability for uncertain tax positions could be eliminated within the next twelve months as a result of settlements with certain taxing authorities that, if recognized, would decrease our provision for income taxes accordingly. 10. EARNINGS (LOSS) PER SHARE: Basic earnings (loss) per common share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares outstanding. Diluted EPS is computed based on the weighted average shares of common stock outstanding plus the effect of any dilutive shares of restricted stock granted to employees and non- 27 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) employee directors. There were approximately 120,000, 116,000 and 381,000 anti-dilutive restricted shares as of December 31, 2022, 2021 and 2020, respectively. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share and share amounts): Years ended December 31, 2022 2021 2020 Net income (loss) ..................................................................................................... $ (4,628) $ 9,763 $ (8,947) Weighted average shares outstanding – basic ..................................................... Dilutive potential shares from unvested restricted shares ................................. 7,844,363 7,875,395 7,987,554 — 52,577 — Weighted average shares outstanding – diluted .................................................. 7,844,363 7,927,972 7,987,554 Earnings (loss) per share: ...................................................................................... Basic .................................................................................................................. $ Diluted ............................................................................................................... $ (0.59) $ (0.59) $ 1.24 $ 1.23 $ (1.12) (1.12) 11. 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. Changes in goodwill were as follows (in thousands): Beginning balance ....................................................................................................................... $ Salient Acquisition1 Ending balance ............................................................................................................................ $ ..................................................................................................................... 16,401 $ 16,401 19,331 — 35,732 $ 16,401 1 The $19.3 million of goodwill acquired is attributable to the Advisory segment. As of December 31, 2022 2021 Goodwill is not amortized but is tested for impairment at least annually. We completed our annual goodwill impairment assessment during the third quarter of 2022 and determined that no impairment loss was required. No impairments were recorded during the years ended December 31, 2022 or 2021. Other Intangible Assets Our intangible assets represent the acquisition date fair value of acquired client relationships, internally-developed software, non-compete agreements and trade names, and are reflected net of amortization. In valuing these assets, we made significant estimates regarding their useful lives, growth rates and potential attrition. The following is a summary of intangible assets at December 31, 2022 and 2021 (in thousands, except years): 2022 ..................................................................................... Client relationships ......................................................... Internally developed software ......................................... Trade name ..................................................................... Non-compete agreements ............................................... 2021 ..................................................................................... Client relationships ......................................................... Internally developed software ......................................... Weighted Average Amortization Period (years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount $ 34,397 $ (10,636) $ 23,761 1,439 3,800 1,100 (1,012) (105) (31) 427 3,695 1,069 $ 40,736 $ (11,784) $ 28,952 $ 21,431 $ (10,216) $ 11,215 1,439 (743) 696 $ 22,870 $ (10,959) $ 11,911 15.0 5.8 3.0 3.0 14.8 5.8 28 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Amortization expense, which is included in “General and administrative” expense on our Consolidated Statements of Comprehensive Income (Loss), was $1.9 million, $1.6 million and $1.7 million for the years ended December 31, 2022, 2021 and 2020, respectively. Estimated amortization expense for intangible assets over the next five years, and thereafter, is as follows (in thousands): For the year ending December 31, 2023 ....................................................................................................................................................................... $ 2024 ....................................................................................................................................................................... 2025 ....................................................................................................................................................................... 2026 ....................................................................................................................................................................... 2027 ....................................................................................................................................................................... Thereafter .............................................................................................................................................................. Estimated Amortization Expense 4,171 4,095 3,939 2,293 2,293 12,161 12. LEASES: We have operating leases for corporate offices and certain office equipment. The lease terms of our corporate offices vary and have remaining lease terms ranging from one to six years. The corporate office lease payments are fixed and are based upon contractual monthly rates. The majority of our corporate office leases do not include options to extend or terminate the leases. We lease office equipment for a period of two years. We analyzed our weighted average discount rate during the calculation of our lease liability and evaluated the corporate debt environment in 2019 to determine a collateralized discount rate of 5%. In 2022, we expanded our Houston, Texas office space and extended that lease through September 2029. We evaluated the corporate debt environment in 2022 to determine a collateralized discount rate of 7%. In 2021, we sublet approximately 15,000 square feet of our Dallas, Texas office space to third parties. Those agreements began in 2021 and provide for monthly rent of approximately $40,000 through the fourth quarter of 2025. In February 2021 we terminated our Toronto, Ontario office space lease that was originally expiring in October 2021. The following table presents the components of lease costs related to our leases (amounts in thousands): Operating lease costs ...................................................................................................... $ 1,682 $ 1,655 $ 2,033 Sublease income ............................................................................................................. 771 602 135 Years Ended December 31, 2022 2021 2020 The following table presents supplemental cash flow information related to our leases (amounts in thousands): Years Ended December 31, 2022 2021 2020 Operating cash flows from operating leases .................................................................. $ 1,762 $ 1,990 $ 2,091 Right-of-use assets obtained in exchange for lease obligations ..................................... $ 1,217 $ — $ 59 Operating lease costs are included in "General and administrative" expense on our Consolidated Statements of Comprehensive Income (Loss). We lease our offices under non-cancelable operating lease agreements with expiration dates that run through 2029. 29 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table presents information regarding our operating leases (in thousands, except years and rates): December 31, 2022 2021 Operating lease right-of-use assets ....................................................................................................... $ 4,976 $ 4,868 Operating lease liabilities ...................................................................................................................... $ 1,502 $ 1,409 Non-current lease liabilities .................................................................................................................. 4,563 4,724 Total lease liabilities ............................................................................................................................. $ 6,065 $ 6,133 Weighted-average remaining lease term (in years) ............................................................................... Weighted-average discount rate ............................................................................................................ 4.1 5.6 % 4.1 5.0 % The maturities of lease liabilities are as follows (in thousands): Year ending December 31, Operating Leases 2023 .................................................................................................................................................................. $ 2024 .................................................................................................................................................................. 2025 .................................................................................................................................................................. 2026 .................................................................................................................................................................. 2027 .................................................................................................................................................................. Thereafter .......................................................................................................................................................... Total undiscounted lease payments ................................................................................................................ $ Less: discount .................................................................................................................................................... Total lease liabilities ....................................................................................................................................... $ 1,858 1,821 1,886 662 337 606 7,170 (1,105) 6,065 13. BALANCE SHEET COMPONENTS: Property and Equipment The following table reflects information about our property and equipment as of December 31, 2022 and 2021 (in thousands): Leasehold improvements ............................................................................................................... $ Furniture and fixtures ..................................................................................................................... Computer hardware and office equipment ..................................................................................... Accumulated depreciation .............................................................................................................. Property and equipment, net ................................................................................................... $ As of December 31, 2022 2021 4,921 $ 2,786 3,317 (9,196) 1,828 $ 4,956 2,590 3,205 (8,637) 2,114 14. COMMITMENTS AND CONTINGENCIES: Purchase commitments Our purchase commitments primarily consist of outsourced information technology services, software licenses and commitments for financial research tools. As of December 31, 2022, our purchase commitments for the next five years and thereafter were as follows (in thousands): 30 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Purchase obligations ........................... $ 7,944 $ 4,654 $ 3,290 $ — $ — Total Less than 1 year 1-3 years 4-5 years Thereafter Payments due in: As of December 31, 2022, we did not have any material off-balance sheet arrangements. 15. REGULATORY CAPITAL REQUIREMENTS: Westwood Trust must maintain cash and investments in an amount equal to the required minimum restricted capital of $4.0 million as required by the Texas Finance Code. Restricted capital is included in Investments in the accompanying Consolidated Balance Sheets. At December 31, 2022, Westwood Trust had approximately $21.2 million in excess of its minimum capital requirement. Westwood Trust is limited under applicable Texas law in the payment of dividends of undivided profits, which is that part of equity capital equal to the balance of net profits, income, gains and losses since formation minus subsequent distributions to stockholders and transfers to surplus or capital under share dividends or appropriate Board resolutions. At the discretion of its Board of Directors, Westwood Trust may make quarterly and special dividend payments, or other distributions, to Westwood out of its undivided profits. No dividend payments were made in 2022, 2021 or 2020. 16. VARIABLE INTEREST ENTITIES: As discussed in Note 2 “Summary of Significant Accounting Policies,” the CTFs and Private Funds (together the “Westwood VIEs”) are considered VIEs, and the Westwood Funds® and Private Equity are considered VOEs (together the “Westwood VOEs”). We receive fees for managing assets in these entities commensurate with market rates. As of December 31, 2022 and 2021, we evaluated all of the Westwood VIEs and Westwood VOEs to determine whether or not we should consolidate the entities into our Consolidated Financial Statements. For the Westwood VIEs, we evaluated whether or not we qualify as the primary beneficiary based on whether we have the obligation to absorb significant losses, the right to receive residual returns and the right to direct the activities of the entity that most significantly impact the entity’s economic performance, and concluded that we do not qualify as a primary beneficiary for those entities. For the Westwood VOEs, we evaluated whether or not we own a controlling financial interest in the entities, and we concluded that we do not. Based on our analyses, we have not consolidated the Westwood VIEs or Westwood VOEs into our Consolidated Financial Statements for the years ended December 31, 2022 or 2021. We have not otherwise provided any financial support that we were not previously contractually obligated to provide and there are no arrangements that would require us to provide additional financial support to any of these entities. Our seed investments in the Westwood Funds® are accounted for as investments in accordance with our other investments described in Note 6 “Investments.” We recognized fee revenue from the Westwood VIEs and Westwood VOEs of approximately $23.2 million, $22.8 million and $19.3 million for the years ended December 31, 2022, 2021 and 2020, respectively. The following table displays the AUM, the amount of our seed investments that are included in “Investments” and “Investments, at fair value” on the Consolidated Balance Sheets, and the financial risk of loss in each vehicle (in millions): As of December 31, 2022 Assets Under Management Corporate Investment Amount at Risk VIEs/VOEs: ......................................................................................................... Westwood Funds® ....................................................................................... $ 4,328 $ Common Trust Funds ................................................................................... Private Funds ................................................................................................ Private Equity ............................................................................................... 715 $ 11 $ — $ — $ — $ 0.3 $ 7.2 $ — — 0.3 7.2 All other assets: ................................................................................................... Wealth Management ..................................................................................... Institutional ................................................................................................... 2,940 6,785 Total AUM ............................................................................................ $ 14,779 31 WESTWOOD HOLDINGS GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 17. RELATED PARTY TRANSACTIONS: Some of our directors, executive officers and their affiliates invest personal funds directly in trust accounts that we manage. At both December 31, 2022 and at December 31, 2021, there was approximately $0.1 million in fees due from these accounts. For the year ended December 31, 2022, we recorded trust fees from these accounts of $0.3 million. For both of the years ended December 31, 2021 and 2020, we recorded trust fees from these accounts of $0.4 million. One director serves as a consultant to the Company under a consulting agreement for which we recorded expenses of $0.1 million for each of the years ended December 31, 2022, 2021 and 2020. The Company engages in transactions with its affiliates as part of its operations. Westwood International Advisors (prior to its closure, effective September 30, 2020) and Westwood Management provide investment advisory services to the UCITS Fund (prior to its liquidation in June 2020) and the Westwood Funds®. Certain members of our management served on the board of directors of the UCITS Fund before its liquidation. Under the terms of the investment advisory agreements, the Company earned quarterly fees paid by clients of the fund or by the funds directly. The fees are based on negotiated fee schedules applied to AUM. For the years ended December 31, 2022 and 2021, we did not record any fees from the affiliated Funds. For the year ended December 31, 2020, we recorded fees from the affiliated Funds of $0.9 million, which are included in “Asset-based advisory fees” on our Consolidated Statement of Comprehensive Income (Loss). As of December 31, 2022 and 2021, all of these fees had been collected. 18. CONCENTRATION: For the years ended December 31, 2022 and 2021, our ten largest clients accounted for approximately 22% of our fee revenue. For the year ended December 31, 2020, our ten largest clients accounted for approximately 24% of our fee revenue. No single customer accounted for 10% or more of our fee revenues in any of these years. The following table presents advisory fee revenue received from our single largest client in each year (in thousands): Advisory fees from our largest client: ...................................................................... Asset-based fees ................................................................................................... $ 2,582 Performance-based fees ........................................................................................ — Percent of fee revenue .......................................................................................... 3.7 % $ 2,682 $ 1,940 — 3.7 % 1,607 5.5 % Years ended December 31, 2022 2021 2020 19. SUBSEQUENT EVENTS: Broadmark Asset Management On January 1, 2023, we acquired an additional 31.2% interest in Broadmark Asset Management LLC for $1.6 million, increasing our ownership of Broadmark to 78.7%, representing a controlling interest for financial statement consolidation purposes ("Broadmark Acquisition"). Due to the timing of the Broadmark Acquisition we have not finalized the accounting for this business combination. The primary areas of business combination accounting that have not been finalized relate to fair value adjustments for acquired assets and liabilities, deferred income taxes and residual goodwill. The business combination accounting for the Broadmark Acquisition will be updated as we obtain additional information during the measurement period (up to one year from the Broadmark Acquisition date). Dividends Declared On February 15, 2023, the Board of Directors declared a quarterly cash dividend of $0.15 per share of common stock payable on April 3, 2023 to stockholders of record on March 1, 2023. Restricted Stock Grants On March 2, 2023 we issued approximately $5.7 million of restricted stock to employees, or approximately 468,000 shares based on the closing price of our stock on February 23, 2022. The shares are subject to vesting conditions described in Note 8 “Employee Benefits” of our Consolidated Financial Statements in this Report. 32 Exhibit Number INDEX TO EXHIBITS Description of Exhibits 2.1 2.2 2.3 3.1 3.2 4.1 10.1 10.2 10.3 10.3.1 10.3.2 10.3.3 10.3.4 10.3.5 10.3.6 10.3.7 10.3.8 Securities Purchase Agreement by and among Westwood Holdings Group, Inc., McCarthy Group Advisors, LLC, MGA Holdings, LLC, and The Members of MGA Holdings, LLC (incorporated by reference from the Form 10-K filed with the SEC on February 28, 2013) Reorganization Agreement and Agreement and Plan of Merger dated as of January 15, 2015 by and among Westwood Holdings Group, Inc., Westwood Trust, Woodway Financial Advisors, A Trust Company and the Shareholders of Woodway Financial Advisors, A Trust Company (incorporated by reference from the Form 8-K filed with the SEC on January 16, 2015) Purchase Agreement, dated May 25, 2022, by and among Westwood Holdings Group, Inc., Salient Capital Management, LLC, Salient Partners, L.P. and the other Seller parties identified on Annex I (incorporated by reference from the Form 8-K filed with the SEC on May 26, 2022) Amended and Restated Certificate of Incorporation of Westwood Holdings Group, Inc. (incorporated by reference from the Form S-8 filed with the SEC on September 28, 2022) Amended and Restated Bylaws of Westwood Holdings Group, Inc. (incorporated by reference from the Form 8-K filed with the SEC on November 2, 2021) Form of Common Stock Certificate of Westwood Holdings Group, Inc. (incorporated by reference from Amendment No. 2 to Registration Statement on Form 10/A filed with the SEC on April 30, 2002) Eighth Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan, as amended (incorporated by reference from the Schedule 14A filed with the SEC on March 22, 2022) Tax Separation Agreement between SWS Group, Inc. and Westwood Holdings Group, Inc. (incorporated by reference from Amendment No. 5 to Registration Statement on Form 10/A filed with the SEC on June 6, 2002) Office Lease between Westwood Management Corp. and Crescent Real Estate Funding I, L.P., dated as of April 4, 1990, and amendment thereto (incorporated by reference from the Registration Statement on Form 10 filed with the SEC on February 8, 2002) Ninth Modification of Office Lease between Westwood Management Corp. and Crescent Real Estate Funding I, dated as of November 25, 2003 (incorporated by reference from the Form 10-K filed with the SEC on February 27, 2004) Tenth Modification of Office Lease between Westwood Management Corp. and Crescent Real Estate Funding I, dated as of February 23, 2004 (incorporated by reference from the Form 10-K filed with the SEC on February 27, 2004) Eleventh Modification of Office Lease between Westwood Management Corp. and Crescent Real Estate Funding I, dated as of December 9, 2010 (incorporated by reference from the Form 10-K filed with the SEC on February 25, 2011) Twelfth Modification of Office Lease between Westwood Management Corp. and Crescent TC Investors LP, dated as of August 17, 2012 (incorporated by reference from the Form 10-K filed with the SEC on February 28, 2013) Thirteenth Modification of Office Lease between Westwood Management Corp. and Crescent TC Investors LP, dated as of October 9, 2014 (incorporated by reference from the Form 10-K filed with the SEC on February 25, 2016) Fourteenth Modification of Office Lease between Westwood Management Corp. and Crescent TC Investors LP, dated as of February 5, 2015 (incorporated by reference from the Form 10-K filed with the SEC on February 25, 2016) Fifteenth Modification of Office Lease between Westwood Management Corp. and Crescent TC Investors LP, dated as of July 30, 2015 (incorporated by reference from the Form 10-K filed with the SEC on February 25, 2016) Sixteenth Modification of Office Lease between Westwood Management Corp. and Crescent TC Investors LP, dated as of July 5, 2018 (incorporated by reference from the Form 10-Q filed with the SEC on October 24, 2018) 33 Exhibit Number Description of Exhibits 10.4 10.5 10.6+ 10.7+ 10.8+ 10.9+ 10.10+ 10.11+ 10.12+ 10.13+ 10.14+ 10.15+ 10.16+ 10.17+ 10.18+ 10.19+ 10.20+ 21.1 23.1* 23.2* 24.1* 31.1* 31.2* Software License and Support Agreement between Advent Software, Inc. and Westwood Management Corp., dated as of December 30, 1996 (incorporated by reference from the Registration Statement on Form 10 filed with the SEC on February 8, 2002) Investment Sub-advisory Agreement between Teton Advisers, LLC and Westwood Management Corp., dated as of October 6, 1994 (incorporated by reference from the Form 10-K filed with the SEC on February 28, 2013) Form of Indemnification Agreement for Westwood Holdings Group, Inc. (incorporated by reference from the Form 10-K filed with the SEC on February 27, 2004) Form of Indemnification Agreement for Westwood Management Corp. (incorporated by reference from the Form 10-K filed with the SEC on February 27, 2004) Form of Indemnification Agreement for Westwood Trust (incorporated by reference from the Form 10-K filed with the SEC on February 27, 2004) Executive Employment Agreement between Westwood Holdings Group, Inc. and Brian O. Casey (incorporated by reference from the Form 8-K filed with the SEC on December 18, 2015) Form of Performance Share Agreement between Westwood Holdings Group, Inc. and Brian O. Casey (incorporated by reference from the Form 8-K filed with the SEC on March 14, 2016) One-Time Performance Share Agreement, dated as of March 10, 2016, between Westwood Holdings Group, Inc. and Brian O. Casey (incorporated by reference from the Form 8-K filed with the SEC on March 14, 2016) Waiver of Certain Performance Shares Under the Performance Share Agreement, dated as of February 22, 2017 (incorporated by reference from the Form 8-K filed with the SEC on February 28, 2017) Form of Performance Share Agreement (incorporated by reference from the Form 8-K filed with the SEC on March 10, 2017) Share Award Plan of Westwood Holdings Group, Inc. for Service Provided in Canada to its Subsidiaries (incorporated by reference from the Registration Statement on Form S-8 filed with the SEC on April 18, 2013) Consulting Agreement, dated as of March 17, 2015, between Westwood Holdings Group, Inc. and Susan Byrne (incorporated by reference from the Form 10-Q filed with the SEC on July 29, 2015) Severance Agreement, dated as of February 9, 2018, between Westwood Holdings Group, Inc. and Fabian Gomez (incorporated by reference from the Form 8-K filed with the SEC on February 3, 2018) Employee Confidentiality and Non-compete Agreement, effective November 1, 2018, between Westwood Holdings Group, Inc. and Murray "Terry" Forbes III (incorporated by reference from the Form 8-K/A filed with the SEC on October 29, 2018) Employee Confidentiality and Non-Compete Agreement dated as of May 25, 2022 by and between Fabian Gomez and Westwood Holdings Group, Inc. (incorporated by reference from the Form 8-K filed with the SEC on May 26, 2022) Side Letter Agreement dated as of May 25, 2022 by and between Fabian Gomez and Westwood Holdings Group, Inc. (incorporated by reference from the Form 8-K filed with the SEC on May 26, 2022) Employee Confidentiality and Non-Compete Agreement dated as of April 8, 2021 by and between Porter Montgomery and Westwood Holdings Group, Inc. (incorporated by reference from the Form 8-K filed with the SEC on May 26, 2022) Subsidiaries (incorporated by reference from the Form 10-K filed with the SEC on February 28, 2013) Consent of BDO USA, LLP Consent of Deloitte & Touche LLP Power of Attorney (included on first signature page) Certification of the Chief Executive Officer of Westwood required by Section 302 of the Sarbanes-Oxley Act of 2002 Certification of the Chief Financial Officer of Westwood required by Section 302 of the Sarbanes-Oxley Act of 2002 34 Exhibit Number 32.1# 32.2# 101* Description of Exhibits Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The following financial information from Westwood Holdings Group, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets as of December 31, 2022 and 2021; (ii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022, 2021 and 2020; (iii) Consolidated Statements of Stockholders' Equity for the years ended December 31, 2022, 2021 and 2020; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020; and (v) Notes to the Consolidated Financial Statements. 104* Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101) * + # Filed herewith. Indicates management contract or compensation plan, contract or arrangement. Pursuant to Item 601(b)(32) of SEC Regulation S-K, these exhibits are furnished rather than filed with this Report. 35 WESTWOOD HOLDINGS GROUP CORPORATE INFORMATION BOARD OF DIRECTORS EXECUTIVE MANAGEMENT Brian O. Casey Chief Executive Officer Westwood Holdings Group, Inc. Susan M. Byrne Founder & Vice Chairman of the Board Westwood Holdings Group, Inc. Brian O. Casey Chief Executive Officer Murray Forbes III Senior Vice President, Chief Financial Officer & Treasurer Richard M. Frank(1)(2)(3) Chairman of the Board Former Executive Chairman CEC Entertainment, Inc. Randy Bowman CEO at AT LAST!—The Urban Boarding Experience Ellen H. Masterson(1)(2)(3) Former Partner PricewaterhouseCoopers Geoffrey R. Norman(1)(2)(3) Former Executive Vice President GE Asset Management (1) Audit Committee Member, Chaired by Ellen Masterson (2) Compensation Committee Member, Chaired by Geoffrey Norman (3) Governance/Nominating Committee Member, Chaired by Randy Bowman STOCKHOLDER INFORMATION Corporate Headquarters Westwood Holdings Group, Inc. 200 Crescent Court, Suite 1200 Dallas, Texas 75201 214.756.6900 Stock Exchange Listing New York Stock Exchange Common Stock Ticker Symbol: WHG Transfer Agent & Registrar American Stock Transfer & Trust Company, LLC 6201 15th Avenue Brooklyn, NY 11219 800.937.5449 Independent Auditors BDO, LLP Dallas, Texas Corporate Counsel Norton Rose Fulbright US LLP Dallas, Texas Annual Meeting of Stockholders Stockholders are invited to attend the 2023 Annual Meeting of Shareholders, which will be held virtually on April 26, 2023 at 10:00 a.m. CST. The website address for the virtual annual meeting will be provided in the Company’s annual meeting proxy materials. For more information about Westwood Holdings Group, Inc., visit our website at westwoodgroup.com or email info@westwoodgroup.com. You may obtain information about Westwood Funds by visiting westwoodfunds.com or by calling 877.FUND.WHG. CERTIFICATIONS REGARDING PUBLIC DISCLOSURES AND LISTINGS STANDARDS Westwood Holdings Group, Inc. has filed with the Securities and Exchange Commis- sion exhibits 31.1 and 31.2 to its Form 10-K for the year ended December 31, 2022, as the certifications required by Section 302 of the Sarbanes-Oxley Act regarding the quality of the company’s public disclosure. In addition, the annual certification of the Chief Executive Officer regarding compli- ance by Westwood Holdings Group, Inc. with the corporate governance listing stan- dards of the New York Stock Exchange will be submitted without qualification to the New York Stock Exchange following the April 2023 annual stockholder meeting. FORWARD-LOOKING STATEMENTS Statements in this Annual Report to Stockholders that are not purely historical facts 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 composition and market value of our assets under management; regulations adversely affecting the financial services industry; competition in the investment manage- ment industry; our assets under management including investments in foreign companies; 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 maintain effective cyber security; our ability to perform operational tasks; our ability to identify and execute on our strategic initiatives; our ability to maintain effective information systems; our ability to select and oversee third-party vendors; litigation risks; our ability to properly address conflicts of interest; our ability to maintain adequate insurance coverage; our ability to maintain an effective system of internal controls; our ability to maintain our fee structure in light of competitive fee pressures; our relationships with investment consulting firms; the significant concentration of our revenues in a small number of customers; and the other risks detailed from time to time in our SEC filings, including, but not limited to, those set forth under the “Forward-Looking Statements” and “Risk Factors” sections in the Annual Report on Form 10-K included herein. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report to Stockholders. Except as required by law, we are not obligated to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Annual Report to Stockholders or to reflect the occurrence of unanticipated events. Past performance is not indicative of future results. Nothing in this Annual Report is intended to offer any investment advisory service or any investment or financial product. This Annual Report should not be relied on to decide whether to use any investment advisory service from, or to purchase any investment or financial product managed or advised by, Westwood Holdings Group, Inc. or any of its affiliates. About Westwood Holdings Group, Inc. WESTWOOD HOLDINGS GROUP, INC. IS A FOCUSED INVESTMENT MANAGEMENT BOUTIQUE AND WEALTH MANAGEMENT FIRM. Westwood offers a broad array of investment solutions to institutional investors, private wealth clients and financial intermediaries. The firm specializes in distinct investment capabilities: U.S. Value Equity and Multi-Asset, which includes Asset Allocation, Real Assets and Tactical, and are made available through separate accounts, the Westwood Funds® family of mutual funds and other pooled vehicles. Westwood benefits from significant, broad-based employee ownership and trades on the New York Stock Exchange under the symbol “WHG.” Based in Dallas, Westwood also maintains offices in Houston and San Francisco. For more information on Westwood Funds, please visit westwoodfunds.com For more information on Westwood Wealth Management, please visit westwoodwealthmanagement.com 200 Crescent Court Suite 1200 Dallas, TX 75201 214.756.6900 DALLAS | HOUSTON | SAN FRANCISCO 

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