Good day, and thank you for standing by. Welcome to the 3Q 2023 Westwood Holdings Group, Inc., earnings conference call. [Operator Instructions]. Please be advised that today's conference is being recorded and would now like to hand the conference over to your speaker today, Ms. Jill Meyer. Please go ahead.

Thank you, and welcome to our third quarter 2023 earnings conference call. The following discussion will include forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results to be materially different from those contemplated by the forward-looking statements. Additional information concerning the factors that could cause such a difference is included in our press release issued earlier today as well as in our Form 10-Q for the quarter ended September 30, 2023, that will be filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. You are cautioned not to place undue reliance on forward-looking statements. In addition, in accordance with SEC rules concerning non-GAAP financial measures, the reconciliation of our economic earnings and economic earnings per share to those comparable GAAP measures is included at the end of our press release issued earlier today. On the call today, we have Brian Casey, our Chief Executive Officer, and Terry Forbes, our Chief Financial Officer. I will now turn the call over to Brian Casey.

Good afternoon and thank you for listening to our quarterly earnings call. We have plenty to share with you this quarter. So I'm going to tell you about our ongoing efforts to create positive investment outcomes for clients, the successful transitions we've made in our SMidCap, AllCap, and Broadmark Tactical Plus and Tactical Growth strategies, and our initiatives to diversify and grow our offerings and revenue streams. As you know, at Westwood, we focus on helping our clients achieve their objectives by using our disciplined investment processes to generate portfolio Alpha without taking excessive risk. This approach has delivered excellent compound rates of return for our clients throughout our 40-plus years of history. While the overall economic backdrop for asset managers has certainly been challenging these past few years, we feel really good about the significant progress we've made so far and the terrific opportunities that lie ahead. We'll look first at capital market conditions. The Fed's rate adjustments have created difficulties for equities and fixed income alike. Taken together with the Fed Chairman, Powell's comments, the Fed actions strained bond prices as rising interest rates pushed yields up and prices lower. The equity market experienced a sharp rise in volatility and price pressures as sentiment shifted lower. Selling waves did not differentiate between styles or market capitalizations. They were driven largely by fears of an interest rate trajectory that might be higher for longer. Against this backdrop of market volatility across a broad spectrum of securities and sectors, 80% of our US value strategies outperformed their benchmarks in the third quarter and remain ahead over the trailing one year period. Over the trailing five-year period, all our US value strategies with track records extending into this length are ahead of their benchmarks. Our US value investment team is highly…

Thanks, Brian, and good afternoon, everyone. Today we reported total revenues of $21.9 million for the third quarter of 2023 compared to $21.9 million in the second quarter and $15.4 million in the prior year's third quarter. Revenues were comparable to the second quarter, revenues were higher than last year third quarter, reflecting higher average AUM following the acquisition of Salient Partners' asset management business during the fourth quarter of last year. Our third quarter comprehensive income of $3.4 million or $0.41 per share, compared favorably with $2.9 million or $0.36 per share in the second quarter due to the receipt of life insurance proceeds, offset by changes in the fair value of contingent consideration. Non-GAAP economic earnings were $6.3 million or $0.77 per share in the current quarter versus $5.7 million or $0.7 per share in the second quarter. Our third quarter comprehensive income was $3.4 million or $0.41 per share compared favorably with last year's third quarter loss of $1.2 million, or $0.15 per share, primarily due to higher revenues in insurance proceeds, offset by changes in the fair value of contingent consideration and higher employee compensation and benefits expenses. Revenues and expenses were higher following the acquisition of Salient Partners' asset management business in 2022. Economic earnings for the quarter were $6.3 million or $0.77 per share compared with $0.8 million or $0.10 per share in the third quarter of 2022. Firmwide assets under management and advisement totaled $15.5 billion at quarter end, consisting of assets under management of $14.4 billion and assets under advisement of $1.1 billion. Assets under management consisted of institutional assets of $6.7 billion or 47% of the total, wealth management assets of $3.8 billion or 26% of the total, and mutual fund assets of $3.9 billion or 27% of total. Over the quarter, our assets under management experienced market depreciation of $0.3 billion and net outflows of $289 million. And our assets under advisement experienced market appreciation of $2 million and net outflows of $63 million. Our financial position continues to be very solid with cash and short-term investments at quarter end totaling $48.5 million and a debt-free balance sheet. I'm happy to announce that our Board of Directors approved a regular cash dividend of $0.15 per common share payable on January 3, 2024, to stockholders of record on December 1, 2023. That brings our prepared comments to a close. We encourage you to review our investor presentation we have posted on our website, reflecting quarterly highlights as well as a discussion of our business, product development, and longer-term trends in revenues and earnings. We thank you for your interest in our company. And we'll open the line to questions.

[Operator Instructions]. Our first question will come from Mac Sykes from GAMCO.

So I have two questions. I'll just ask them together because they're obviously linked. My first is, how should we think about the revenue cost dynamics with this new group that's just been brought in? And then on the revenue side, how should we think about the revenue generation from that? Is that -- I assume that's kind of a consultant basis points fee on AUM?

Yes. So I would look at it like we're hiring three people at market rates and we're opening a very small office in Chicago. So the cost of the office will be minimal. And I would look at it as these are three investment professionals that have 25 years-plus experience, they've done a lot of things in their career, but what they did in their prior life was they built an index solutions business at their prior -- former employer, where they grew the business from 0 to over $100 billion in AUM. The average fee on the assets that they managed was very wide ranging. It was anywhere from 3 basis points to 55 basis points. And they do a lot of interesting things like tax-managed and sector focus thematic, all kinds of different approaches. So it's an exciting new business line for us. It's certainly not a change to our business. It's a new business line, and we've been known as active managers for 40 years. And we intend to continue delivering superior risk-adjusted returns in the active space. But we also have a history of solving problems for clients, and this group has a great history of creative problem solving for their clients. And so we're excited for them to join Westwood. They start next Monday, and we'll hit the ground running.

Right. And then typically, to -- on a mandate like this -- sorry, I mean, as again mandate, what is the sort of lead time for securing them in terms of when they start to prospect and get that solution and then implement it?

I think probably the first 90 days, we'll be getting all of the operational aspects of the business up and running and then they'll be reaching out and talking to the folks in the industry that they know well. And if they have the same kind of success that they had at their prior shop, we should start to see some flows at the end of next year.

Great. Thank you very much. Happy Halloween.

Thank you. [Operator Instructions]. And speakers, I see no further questions in the queue, I would now like to turn the conference back to your CEO, Brian Casey, for closing remarks.

Okay. Well, thanks, everybody, for taking some time to listen to our call today. If you have any further questions, please look at our website, westwoodgroup.com, or call myself or Terry Forbes. Have a great day. Thanks.

This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.