Segment Reporting

12 Months Ended

Dec. 31, 2019

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. 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

Our Advisory segment provides investment advisory services to corporate retirement plans, public retirement plans, endowments, foundations, individuals, the Westwood Funds®, and the UCITS Fund, as well as investment subadvisory services to mutual funds and our Trust segment. Westwood Management Corp. and Westwood International Advisors, which provide investment advisory services to clients of similar type, are included in our Advisory segment, along with Westwood Advisors, L.L.C.

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)	Advisory		Trust		Westwood Holdings		Eliminations		Consolidated
Year Ended December 31, 2019
Revenues:
Net fee revenues from external sources	$	57,797	$	25,483	$	—	$	—	$	83,280
Net intersegment revenues	3,457		236		—		(3,693)		—
Net interest and dividend revenue	103		—		—		—		103
Other revenue	696		—		—		—		696
Total revenues	62,053		25,719		—		(3,693)		84,079
Expenses:
Depreciation and amortization	311		1,765		548		—		2,624
Other operating expenses	46,235		19,672		14,597		(3,693)		76,811
Total expenses	46,546		21,437		15,145		(3,693)		79,435
Unrealized gains on private investments	1,438		1,026		832		—		3,296
Investment income	1,017		298		3		—		1,318
Other income	—		—		144		—		144
Income (loss) before income taxes	17,962		5,606		(14,166)		—		9,402
Income tax expense (benefit)	4,308		1,459		(2,276)		—		3,491
Net income (loss)	$	13,654	$	4,147	$	(11,890)	$	—	$	5,911
Add: Stock-based compensation expense	$	5,362	$	1,587	$	3,356	$	—	$	10,305
Intangible amortization	170		1,516		40		—		1,726
Deferred taxes on goodwill	—		237		—		—		237
Economic Earnings (Loss)	$	19,186	$	7,487	$	(8,494)	$	—	$	18,179

Segment assets	$	242,854	$	51,274	$	24,732	$	(140,153)	$	178,707
Segment goodwill	$	3,403	$	16,401	$	—	$	—	$	19,804
Expenditures for long-lived assets	$	288	$	223	$	82	$	—	$	593

Year Ended December 31, 2018
Revenues:
Net fee revenues from external sources	$	92,351	$	28,953	$	—	$	—	$	121,304
Net intersegment revenues	6,973		238		—		(7,211)		—
Net interest and dividend revenue	708		202		—		—		910
Other revenue	53		33		—		—		86
Total revenues	100,085		29,426		—		(7,211)		122,300
Expenses:
Depreciation and amortization	276		1,764		499		—		2,539
Other operating expenses	48,970		25,467		16,597		(7,211)		83,823
Total expenses	49,246		27,231		17,096		(7,211)		86,362
Gain (loss) on sale of operations	(1)		(16)		541		—		524


(in thousands)	Advisory		Trust		Westwood Holdings		Eliminations		Consolidated
Income (loss) before income taxes	50,838		2,179		(16,555)		—		36,462
Income tax expense (benefit)	12,032		572		(2,893)		—		9,711
Net income	$	38,806	$	1,607	$	(13,662)	$	—	$	26,751
Add: Stock-based compensation expense	$	8,673	$	2,356	$	4,254	$	—	$	15,283
Intangible amortization	95		1,537		40		—		1,672
Deferred taxes on goodwill	—		237		—		—		237
Economic Earnings (Loss)	$	47,574	$	5,737	$	(9,368)	$	—	$	43,943

Segment assets	$	230,565	$	64,196	$	19,240	$	(114,818)	$	199,183
Segment goodwill	3,403		16,401		—		—		19,804
Expenditures for long-lived assets	$	314	$	295	$	382	$	—	$	991

Year Ended December 31, 2017
Revenues:
Net fee revenues from external sources	$	100,612	$	31,621	$	—	$	—	$	132,233
Net intersegment revenues	8,120		218		—		(8,338)		—
Net interest and dividend revenue	546		90		—		—		636
Other revenue	911		5		—		—		916
Total revenues	110,189		31,934		—		(8,338)		133,785
Expenses:
Depreciation and amortization	548		1,900		468		—		2,916
Other operating expenses	58,950		28,580		17,784		(8,338)		96,976
Total expenses	59,498		30,480		18,252		(8,338)		99,892
Income (loss) before income taxes	50,691		1,454		(18,252)		—		33,893
Income tax expense (benefit)	17,120		(47)		(3,169)		—		13,904
Net income (loss)	$	33,571	$	1,501	$	(15,083)	$	—	$	19,989
Add: Stock-based compensation expense	$	9,140	$	2,641	$	4,649	$	—	$	16,430
Intangible amortization	138		1,734		—		—		1,872
Deferred taxes on goodwill	38		588		—		—		626
Economic Earnings (Loss)	$	42,887	$	6,464	$	(10,434)	$	—	$	38,917

Segment assets	$	207,792	$	69,174	$	18,437	$	(102,744)	$	192,659
Segment goodwill	$	5,219	$	21,925	$	—	$	—	$	27,144
Expenditures for long-lived assets	$	151	$	530	$	203	$	—	$	884

We provide a performance measure that we refer to as Economic Earnings. Our management and Board of Directors review Economic Earnings to evaluate our ongoing performance, allocate resources and determine our dividend policy. We believe that this performance measure is useful for management and investors when evaluating our underlying operating and financial performance and our available resources.

In calculating Economic Earnings, we add to Net income the non-cash expense associated with equity-based compensation awards of restricted stock, amortization of intangible assets and the deferred taxes related to the tax-basis amortization of goodwill. Although depreciation on property and equipment is a non-cash expense, we do not add it back when calculating Economic Earnings because depreciation charges represent a decline in the value of the related assets that will ultimately require replacement.

The following table provides a reconciliation of Net income to Economic Earnings (in thousands):


	For the years ended December 31,
	2019		2018		2017
Net Income	$	5,911	$	26,751	$	19,989
Add: Stock-based compensation expense	10,305		15,283		16,430
Add: Intangible amortization	1,726		1,672		1,872
Add: Tax benefit from goodwill amortization	237		237		626
Economic Earnings	$	18,179	$	43,943	$	38,917

Geographical information

Refer to Note 9, “Revenue” for our revenue disaggregated by our clients' geographical location.


	As of December 31,
(in thousands)	2019		2018
Property and equipment, net, by geographic area:
U.S.	$	4,095	$	4,381
Canada	57		73
Total Property and equipment, net	$	4,152	$	4,454