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Pzena Investment Management, Inc. Reports Results for the Fourth Quarter and Full Year 2015
Globe Newswire
  • 2015 revenue was $27.7 million for the fourth quarter and $116.6 million for the full year.
     
  • 2015 GAAP operating income was $13.0 million for the fourth quarter and $55.4 million for the full year.
     
  • 2015 GAAP diluted earnings per share was $0.12 for the fourth quarter and $0.50 for the full year.  For the same periods, non-GAAP diluted earnings per share were $0.12 and $0.51, respectively.
     
  • Declared a year-end dividend of $0.32 per share - in line with annual targeted cash dividend ratio of 70% to 80% of non-GAAP diluted net earnings per share.

NEW YORK, Feb. 09, 2016 (GLOBE NEWSWIRE) -- Pzena Investment Management, Inc. (NYSE:PZN) reported the following U.S. Generally Accepted Accounting Principles (GAAP) and non-GAAP basic and diluted net income and earnings per share for the three and twelve months ended December 31, 2015 and 2014 (in thousands, except per-share amounts):

 GAAP Basis Non-GAAP Basis
 For the Three Months Ended For the Three Months Ended
 December 31, December 31,
 2015 2014 2015 2014
 (unaudited)
        
Basic Net Income$2,213  $2,469  $2,082  $1,853 
Basic Earnings Per Share$0.14  $0.19  $0.14  $0.14 
        
Diluted Net Income$8,415  $9,487  $8,284  $9,063 
Diluted Earnings Per Share$0.12  $0.14  $0.12  $0.13 
        
 GAAP Basis Non-GAAP Basis
 For the Twelve Months Ended For the Twelve Months Ended
 December 31, December 31,
 2015 2014 2015 2014
 (unaudited)
        
Basic Net Income$7,679  $8,100  $7,438  $6,743 
Basic Earnings Per Share$0.55  $0.64  $0.53  $0.53 
        
Diluted Net Income$33,809  $35,685  $34,495  $34,512 
Diluted Earnings Per Share$0.50  $0.53  $0.51  $0.51 
        

                       
The results for the three and twelve months ended December 31, 2015 and 2014 include adjustments related to the Company's deferred tax asset, valuation allowance and the associated liability to its selling and converting shareholders.  Results for 2015 and 2014 also include adjustments related to certain non-recurring charges recognized in operating expenses related to our corporate headquarters during the fourth quarter of 2014, and first and second quarters of 2015. Management believes that these accounting adjustments add a measure of non-operational complexity which obscures the underlying performance of the business.  In evaluating the financial condition and results of operations, management also reviews non-GAAP measures of earnings, which exclude these items.  Excluding these adjustments, non-GAAP diluted net income and non-GAAP diluted earnings per share were $8.3 million and $0.12, respectively, for the three months ended December 31, 2015, and $9.1 million and $0.13, respectively, for the three months ended December 31, 2014.  Non-GAAP diluted net income and non-GAAP diluted earnings per share were $34.5 million and $0.51, respectively, for the twelve months ended December 31, 2015, and $34.5 million and $0.51, respectively, for the twelve months ended December 31, 2014.  GAAP and non-GAAP net income for diluted earnings per share generally assume all operating company membership units are converted into Company stock at the beginning of the reporting period, and the resulting change to Company GAAP and non-GAAP net income associated with its increased interest in the operating company is taxed at the Company's effective tax rate, exclusive of the adjustments noted above and other adjustments.  When this conversion results in an increase in earnings per share or a decrease in loss per share, diluted net income and diluted earnings per share are assumed to be equal to basic net income and basic earnings per share for the reporting period.

Management uses the non-GAAP measures to assess the strength of the underlying operations of the business.  It believes the non-GAAP measures provide information to better analyze the Company's operations between periods and over time.  Investors should consider the non-GAAP measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.

Assets Under Management 
(unaudited)
($ billions) 
  For the Three Months Ended For the Twelve Months Ended
  December 31, September 30, December 31, December 31, December 31,
  2015 2015 2014 2015 2014
           
Institutional Accounts          
  Assets          
  Beginning of Period $14.9  $15.9  $14.3  $15.6  $15.4 
  Inflows 0.3  1.5  1.5  3.2  2.8 
  Outflows (0.9) (0.6) (0.3) (3.0) (3.0)
  Net Flows (0.6) 0.9  1.2  0.2  (0.2)
  Market Appreciation/(Depreciation) 0.6  (1.9) 0.1  (0.9) 0.4 
  End of Period $14.9  $14.9  $15.6  $14.9  $15.6 
           
Retail Accounts          
  Assets          
  Beginning of Period Assets $10.6  $12.1  $12.1  $12.1  $9.6 
  Inflows 0.3  0.2  0.3  1.2  3.3 
  Outflows (0.4) (0.3) (0.7) (1.7) (1.7)
  Net Flows (0.1) (0.1) (0.4) (0.5) 1.6 
  Market Appreciation/(Depreciation) 0.6  (1.4) 0.4  (0.5) 0.9 
  End of Period $11.1  $10.6  $12.1  $11.1  $12.1 
           
Total          
  Assets          
  Beginning of Period $25.5  $28.0  $26.4  $27.7  $25.0 
  Inflows 0.6  1.7  1.8  4.4  6.1 
  Outflows (1.3) (0.9) (1.0) (4.7) (4.7)
  Net Flows (0.7) 0.8  0.8  (0.3) 1.4 
  Market Appreciation/(Depreciation) 1.2  (3.3) 0.5  (1.4) 1.3 
  End of Period $26.0  $25.5  $27.7  $26.0  $27.7 


Financial Discussion

Revenue (unaudited) 
($ thousands) 
 For the Three Months Ended
 December 31, September 30, December 31,
 2015 2015 2014
      
Institutional Accounts$20,270  $23,233  $20,572 
Retail Accounts7,402  7,539  7,988 
  Total$27,672  $30,772  $28,560 
      
      
   For the Twelve Months Ended
   December 31, December 31,
   2015 2014
      
Institutional Accounts  $85,964  $82,805 
Retail Accounts  30,643  29,706 
  Total  $116,607  $112,511 

Revenue was $27.7 million for the fourth quarter of 2015, a decrease of 10.1% from $30.8 million for the third quarter of 2015, and 3.1% from $28.6 million for the fourth quarter of 2014. 

Included in these amounts were performance fees recognized of $0.6 million for the fourth quarter of 2015, compared to $3.2 million for the third quarter of 2015, and $1.2 million for the fourth quarter of 2014.  In general, performance fees are calculated on an annualized basis over the contract's measurement period, which, for the majority of our performance fee arrangements, extends to three years.

Average assets under management for the fourth quarter of 2015 were $26.4 billion, decreases of 2.6% from $27.1 billion for both the third quarter of 2015 and fourth quarter of 2014.  The decreases from the third quarter of 2015 and fourth quarter of 2014 primarily reflect market depreciation.

The weighted average fee rate was 0.420% for the fourth quarter of 2015, decreasing from 0.454% for the third quarter of 2015, and from 0.422% for the fourth quarter of 2014. 

The weighted average fee rate for institutional accounts was 0.532% for the fourth quarter of 2015, decreasing from 0.596% for the third quarter of 2015, and from 0.554% for the fourth quarter of 2014.  The decrease from last quarter and the fourth quarter of last year primarily reflects the decrease in performance fees recognized during the fourth quarter of 2015.

The weighted average fee rate for retail accounts was 0.266% for the fourth quarter of 2015, increasing from 0.262% for the third quarter of 2015 and the fourth quarter of 2014.  The increase from last quarter and the fourth quarter of 2014 primarily reflects an increase in retail performance fees.  The increase from the fourth quarter of 2014 is partially offset by a shift in mix toward our expanded value strategies, which generally carry lower fee rates.

Total operating expenses were $14.7 million for the fourth quarter of 2015, increasing from $14.5 million for the third quarter of 2015 and from $13.8 million for the fourth quarter of 2014.  The increase in operating expenses from the third quarter of 2015 primarily reflects an increase in general and administrative costs partially offset by a decrease in compensation and benefits expense during the fourth quarter of 2015.  The fourth quarter of 2014 includes general and administrative expenses due to one-time and non-recurring charges associated with the move to our new headquarters.  The remaining increase from the fourth quarter of 2014 is primarily driven by the increase in general and administrative expenses.  Details of operating expenses and a reconciliation of GAAP to non-GAAP operating expenses are shown below:

Operating Expenses (unaudited) 
($ thousands) 
  For the Three Months Ended
  December 31, September 30, December 31,
  2015 2015 2014
       
Compensation and Benefits Expense $11,008  $11,645  $10,702 
General and Administrative Expense 3,678  2,896  3,109 
  GAAP Operating Expenses 14,686  14,541  13,811 
One-Time Adjustments     (392)
Non-GAAP Operating Expenses $14,686  $14,541  $13,419 
       
    For the Twelve Months Ended
    December 31, December 31,
    2015 2014
       
Compensation and Benefits Expense   $46,523  $41,273 
General and Administrative Expense   14,667  10,285 
  GAAP Operating Expenses   61,190  51,558 
One-Time Adjustments   (1,834) (392)
Non-GAAP Operating Expenses   $59,356  $51,166 

As of December 31, 2015, employee headcount was 88, flat from September 30, 2015 and up from 81 at December 31, 2014. 

The operating margin was 46.9% on a GAAP basis for the fourth quarter of 2015, compared to 52.7% for the third quarter of 2015, and 51.6% for the fourth quarter of 2014.  Excluding the non-recurring charges associated with the move to our new headquarters during the fourth quarter of 2014, the operating margin was 53.0% on a non-GAAP basis for the fourth quarter of 2014.

Other income/ (expense) was income of approximately $1.9 million for the fourth quarter of 2015, an expense of $5.0 million for the third quarter of 2015, and an expense of $0.2 million for the fourth quarter of 2014.  Other income/ (expense) includes the gains/ (losses) and other investment income recognized by the Company on its direct investments, as well as those recognized by external investors on their investments in investment partnerships that the Company consolidates.  A portion of gains/ (losses) and other investment income associated with the investments of outside interests are offset in net income attributable to non-controlling interests.  For the fourth quarter of 2015, other income/ (expense) also includes income of $1.2 million reflecting a decrease in the Company's liability to its selling and converting shareholders resulting from a decrease in expected future tax benefits described in income tax expense/ (benefit) below.  Changes in the liability to selling and converting shareholders associated with changes in the realizability of the deferred tax asset generated expenses of $0.7 million and $0.2 million in the third quarter of 2015 and the fourth quarter of 2014, respectively.  Details of other income/ (expense), as well as a reconciliation of the related GAAP and non-GAAP measures, are shown below:

Other Income/ (Expense) (unaudited) 
($ thousands) 
   For the Three Months Ended
   December 31,   September 30,   December 31, 
   2015   2015   2014 
             
Net Interest and Dividend Income $107  $187  $119 
Gains/ (Losses) and Other Investment Income 579  (4,398) (129)
Change in Liability to Selling and Converting Shareholders¹ 1,191  (697) (221)
Other Expense (22) (119) (1)
  GAAP Other Income/ (Expense) 1,855  (5,027) (232)
Change in Liability to Selling and Converting Shareholders¹ (1,191) 697  221 
Outside Interests of Investment Partnerships² (57) 2,605  73 
  Non-GAAP Other Income/ (Expense), Net of Outside Interests $607  $(1,725) $62 
       
    For the Twelve Months Ended
     December 31,   December 31, 
     2015   2014 
           
Net Interest and Dividend Income   $722  $387 
(Losses)/ Gains and Other Investment Income   (3,344) (49)
Change in Liability to Selling and Converting Shareholders¹   (423) (4,168)
Other Expense   (255) (206)
  GAAP Other Expense   (3,300) (4,036)
Change in Liability to Selling and Converting Shareholders¹   423  4,168 
Outside Interests of Investment Partnerships²   2,238  92 
  Non-GAAP Other (Expense)/ Income, Net of Outside Interests   $(639) $224 
       
  1  Reflects the change in the liability to the Company’s selling and converting shareholders associated with
  the deferred tax asset generated by the Company’s initial public offering and subsequent unit conversions.
  2  Represents the non-controlling interest allocation of the (income)/ loss of the Company's consolidated
  investment partnerships to its external investors.

The Company recognized income tax expenses of $2.7 million for the fourth quarter of 2015, $0.7 million for the third quarter of 2015, and $0.7 million for the fourth quarter of 2014.  Income taxes for the fourth quarter of 2015 included a $1.1 million income tax expense associated with an increase in the valuation allowance recorded against the Company's deferred tax asset related to the basis step ups created by operating company unit exchanges.  This adjustment generated $0.8 million and $0.4 million in income tax benefits in the third quarter of 2015 and fourth quarter of 2014, respectively.  Details of the income tax expense, as well as a reconciliation of the related GAAP and non-GAAP measures, are shown below: 

Income Tax Expense (unaudited) 
($ thousands) 
  For the Three Months Ended
   December 31,   September 30,   December 31, 
   2015   2015   2014 
             
Non-GAAP Corporate Income Tax Expense $1,098  $956  $962 
Non-GAAP Unincorporated and Other Business Tax Expenses 554  612  648 
  Non-GAAP Income Tax Expense 1,652  1,568  1,610 
  Change in Valuation Allowance1 1,060  (820) (422)
  Less: Effects of One-Time Adjustments2     (44)
  Net Adjustment to Deferred Tax Asset3     (450)
GAAP Income Tax Expense $2,712  $748  $694 
       
    For the Twelve Months Ended
     December 31,   December 31, 
     2015   2014 
           
Non-GAAP Corporate Income Tax Expense   $3,865  $4,521 
Non-GAAP Unincorporated and Other Business Tax Expenses   2,272  2,966 
  Non-GAAP Income Tax Expense   6,137  7,487 
  Change in Valuation Allowance1   (847) (6,005)
  Less: Effects of One-Time Adjustments2   (176) (44)
  Net Adjustment to Deferred Tax Asset3     445 
GAAP Income Tax Expense   $5,114  $1,883 
       
  1  Reflects the change in the valuation allowance assessed against the deferred tax asset established
      as part of the Company's initial public offering and subsequent unit conversions.
  2  Reflects the tax effect of non-recurring lease expenses on Corporate Income Tax Expense and Unincorporated and 
      Other Business Tax Expenses for 2015 of $133 thousand and $43 thousand, respectively, and $31 thousand
      and $13 thousand for 2014, respectively, which are excluded from Non-GAAP results.
  3  Reflects the net impact of the changes in the Company's deferred tax asset and valuation allowance
      assessed against the deferred tax asset associated with the changes in expected future tax benefits.
 
 

Details of the net income attributable to non-controlling interests of the Company's operating company and consolidated subsidiaries, as well as a reconciliation of the related GAAP and non-GAAP measures, are shown below:

Non-Controlling Interests (unaudited) 
($ thousands) 
     
  For the Three Months Ended
   December 31,   September 30,   December 31, 
   2015   2015   2014 
             
Operating Company Allocation $9,859  $11,139  $11,427 
Add Back: Effects of One-Time Adjustments1     313 
  Non-GAAP Operating Company Allocation 9,859  11,139  11,740 
Outside Interests of Investment Partnerships2 57  (2,605) (73)
  Less: Effects of One-Time Adjustments1     (313)
GAAP Net Income Attributable to Non-Controlling Interests $9,916  $8,534  $11,354 
       
    For the Twelve Months Ended
     December 31,   December 31, 
     2015   2014 
           
Operating Company Allocation   $41,562  $47,026 
Add Back: Effects of One-Time Adjustments1   1,475  313 
  Non-GAAP Operating Company Allocation   43,037  47,339 
Outside Interests of Investment Partnerships2   (2,238) (92)
  Less: Effects of One-Time Adjustments1   (1,475) (313)
GAAP Net Income Attributable to Non-Controlling Interests   $39,324  $46,934 
       
       
  1  Reflects the effects of non-recurring lease expenses on non-controlling interests.
  2  Represents the non-controlling interest allocation of the income/ (loss) of the Company's consolidated
       investment partnerships to its external investors.


On February 2, 2016, the Company's Board of Directors approved a year-end dividend of $0.32 per share of its Class A common stock to be declared on February 9, 2016.  The following dates apply to the dividend:

Record Date:        February 19, 2016

Payment Date:      March 3, 2016

During the last twelve months, inclusive of the dividend noted above, the Company declared total dividends of $0.41 per share of its Class A common stock.

Fourth Quarter 2015 Earnings Call Information

Pzena Investment Management, Inc. (NYSE:PZN) will hold a conference call to discuss the Company's financial results and outlook at 10:00 a.m. ET, Wednesday, February 10, 2016.  The call will be open to the public.

Webcast Instructions: To gain access to the webcast, which will be "listen-only," go to the Events page in the Investor Relations area of the Company's website, www.pzena.com.

Teleconference Instructions: To gain access to the conference call via telephone, U.S./Canada callers should dial 866-318-8617; international callers should dial 617-399-5136.  The conference ID number is 95229278.

Replay: The conference call will be available for replay through February 24, 2016, on the web using the information given above.

About Pzena Investment Management

Pzena Investment Management, LLC, the firm's operating company, is a value-oriented investment management firm.  Founded in 1995, Pzena Investment Management has built a diverse, global client base.  More firm and stock information is posted at www.pzena.com.

Forward-Looking Statements

This press release may contain, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the Company's current assumptions, expectations and projections about future events. Words like “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” and similar expressions are used to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements are necessarily estimates reflecting the best judgment of the Company's management and involve a number of risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed or implied by the forward-looking statements.

Among the factors that could cause actual results to differ from those expressed or implied by a forward-looking statement are those described in the sections entitled “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the Company's Annual Report on Form 10-K, as filed with the SEC on March 13, 2015 and in the Company's Quarterly Reports on Form 10-Q as filed with the SEC. In light of these risks, uncertainties, assumptions, and factors, actual results could differ materially from those expressed or implied in the forward-looking statements.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date of this release.

The Company is not under any obligation and does not intend to make publicly available any update or other revisions to any forward-looking statements to reflect circumstances existing after the date of this release or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.

 PZENA INVESTMENT MANAGEMENT, INC.
      
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 (in thousands)
      
    As of
  December 31, December 31,
  2015 2014
  (unaudited)  
 ASSETS    
  Cash and Cash Equivalents $35,417  $39,109 
  Restricted Cash 3,552  2,810 
  Due from Broker 297  94 
  Advisory Fees Receivable 22,248  22,939 
  Investments 27,452  27,945 
  Prepaid Expenses and Other Assets 2,445  1,599 
  Deferred Tax Asset, Net of Valuation Allowance    
   of $53,968 and $44,239, respectively 14,995  14,618 
  Property and Equipment, Net of Accumulated    
   Depreciation of $1,202 and $3,072, respectively 7,903  2,772 
   TOTAL ASSETS $114,309  $111,886 
      
 LIABILITIES AND EQUITY    
  Liabilities:    
  Accounts Payable and Accrued Expenses $7,885  $5,974 
  Due to Broker 30  698 
  Securities Sold Short, at Fair Value 2,231  1,572 
  Liability to Selling and Converting Shareholders 15,075  15,358 
  Deferred Compensation Liability 2,896  2,211 
  Lease Liability   354 
  Other Liabilities 730  686 
   TOTAL LIABILITIES 28,847  26,853 
      
  Equity:    
  Total Pzena Investment Management, Inc.'s Equity 18,422  18,401 
  Non-Controlling Interests 67,040  66,632 
   TOTAL EQUITY 85,462  85,033 
   TOTAL LIABILITIES AND EQUITY $114,309  $111,886 


 PZENA INVESTMENT MANAGEMENT, INC. 
           
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS 
 (in thousands, except share and per-share amounts) 
           
   For the Three Months Ended For the Twelve Months Ended 
   December 31, December 31, 
   2015 2014 2015 2014 
           
 REVENUE $27,672  $28,560  $116,607  $112,511  
           
 EXPENSES         
 Compensation and Benefits Expense 11,008  10,702  46,523  41,273  
 General and Administrative Expense 3,678  3,109  14,667  10,285  
  TOTAL OPERATING EXPENSES 14,686  13,811  61,190  51,558  
 Operating Income 12,986  14,749  55,417  60,953  
           
 Other Income/ (Expense) 1,855  (232) (3,300) (4,036) 
           
 Income Before Taxes 14,841  14,517  52,117  56,917  
           
 Income Tax Expense 2,712  694  5,114  1,883  
 Consolidated Net Income 12,129  13,823  47,003  55,034  
           
 Less: Net Income Attributable to Non-Controlling Interests 9,916  11,354  39,324  46,934  
           
 Net Income Attributable to Pzena Investment Management, Inc. $2,213  $2,469  $7,679  $8,100  
           
 Earnings per Share - Basic and Diluted Attributable to         
 Pzena Investment Management, Inc. Common Stockholders:         
           
 Net Income for Basic Earnings per Share $2,213  $2,469  $7,679  $8,100  
 Basic Earnings per Share $0.14  $0.19  $0.55  $0.64  
 Basic Weighted Average Shares Outstanding 15,268,795  13,177,612  14,014,219  12,628,676  
           
 Net Income for Diluted Earnings per Share $8,415  $9,487  $33,809  $35,685  
 Diluted Earnings per Share $0.12  $0.14  $0.50  $0.53  
 Diluted Weighted Average Shares Outstanding 68,070,880  67,484,615  68,126,786  67,797,524  


  PZENA INVESTMENT MANAGEMENT, INC. 
           
  UNAUDITED NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS 
  (in thousands, except share and per-share amounts) 
           
   Non-GAAP Basis Non-GAAP Basis 
   For the Three Months Ended For the Twelve Months Ended 
   December 31, December 31, 
   2015 2014 2015 2014 
           
 REVENUE $27,672  $28,560  116,607  $112,511  
           
 EXPENSES         
 Compensation and Benefits Expense 11,008  10,702  46,523  41,273  
 General and Administrative Expense 3,678  2,717  12,833  9,893  
  TOTAL OPERATING EXPENSES 14,686  13,419  59,356  51,166  
 Operating Income 12,986  15,141  57,251  61,345  
           
 Other (Expense)/ Income, Net of Outside Interests 607  62  (639) 224  
           
 Income Before Taxes and Operating Company Allocation 13,593  15,203  56,612  61,569  
           
 Unincorporated and Other Business Tax Expenses 554  648  2,272  2,966  
 Allocable Income 13,039  14,555  54,340  58,603  
           
 Operating Company Allocation 9,859  11,740  43,037  47,339  
 Income Before Corporate Income Taxes 3,180  2,815  11,303  11,264  
           
Corporate Income Tax Expense 1,098  962  3,865  4,521  
Non-GAAP Net Income $2,082  $1,853  $7,438  $6,743  
Effect of One-Time Adjustments   (35) (183) (35) 
Tax Receivable Agreement Income, Net of Taxes 131  651  424  1,392  
GAAP Net Income $2,213  $2,469  $7,679  $8,100  
           
 Earnings Per Share - Basic and Diluted Attributable to         
 Pzena Investment Management, Inc. Common Stockholders:         
           
   Net Income for Basic Earnings per Share $2,082  $1,853  $7,438  $6,743  
   Basic Earnings per Share $0.14  $0.14  $0.53  $0.53  
   Basic Weighted Average Shares Outstanding 15,268,795  13,177,612  14,014,219  12,628,676  
           
   Net Income for Diluted Earnings per Share $8,284  $9,063  $34,495  $34,512  
   Diluted Earnings per Share $0.12  $0.13  $0.51  $0.51  
   Diluted Weighted Average Shares Outstanding 68,070,880  67,484,615  68,126,786  67,797,524  

 

Contact:  
Gary Bachman, 212-355-1600 or bachman@pzena.com

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