Pzena Investment Management Inc. (PZN)

Q1 2011 Earnings Call

April 27, 2011, 10:00 a.m. ET


Rich Pzena - Chairman, Co-CIO and CEO

Greg Martin - CFO


Alex Blostein - Goldman Sachs

Larry Hedden - KBW

Roger Smith - Macquarie



Good morning. My name is Natalia, and I will be your conference operator today. At this time I’d like to welcome everyone to the Pzena First Quarter 2011 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions) Thank you.

I’d now like to turn the call over to Mr. Greg Martin. Sir, you may begin.

Greg Martin

Thank you very much Natalia. Good morning. I’m Greg Martin, Chief Financial Officer of Pzena Investment Management. I’d like to take this opportunity to welcome you all and thank you for joining us on our first quarter 2011 earnings conference call.

With me on the call is our Chief Executive Officer and Co-Chief Investment Officer, Rich Pzena.

Our earnings press release contains the financial tables for the period to be discussed. If you don’t have a copy it can be obtained in the Investor Relations section on our website at www.pzena.com. Replay of this call will be available for the next week on our website.

Before we begin I’d like to reference the standard legal disclaimer. Statements made in the presentation today may contain forward looking information about management’s plans, projections, expectations, strategic objectives, business prospects, anticipated financial results and other similar matters. A variety of factors many of which are beyond the company’s control affect the operations, performance, business strategy and result of the company and can cause actual results and experiences to differ materially from the expectations or objective expressed in these statements.

These factors include but are not limited to the factors described in the company’s reports filed with the SEC which are available on our website and on the SECs website www.sec.gov. Investors are cautioned not to place undue reliance on forward-looking statements which speaks only as of the date on which these statements are made. The company does not undertake to update such statements to reflect the impact of circumstances or events that arise after the date these statements were made. Investors should however, consult any further disclosure that company may make in records filed with the SEC. In addition, please be advised that because of the prohibitions on selected disclosure the company as a matter of policy does not disclose material that is not public information on that conference calls. If one of your questions require the disclosure of material non-public information, you will not be able to respond to it. Thank you.

Before I turn the call over to Rich, I’d like to first mention some financial highlights. We reported non-GAAP diluted EPS of $0.10 per share and 6.2 million in non-GAAP diluted net income. Revenues were 21.8 million for the quarter and our operating income was 11.5 million. Our cash balance was 22.1 million at quarter end and we declared our $0.03 per share of quarterly dividend last night. I’ll shed some light on our financial results in a few minutes but first I will turn the call over to Rich who discuss our view of the investing environment and we are positioned relative to it.

Rich Pzena

Thanks Greg. Global equity market advanced in the quarter with the MHCI all country world index up 4.4% in U.S. dollar terms. Markets recovered during the latter part of March after being whacked by the disaster in Japan and turmoil in the Middle East and North Africa which pushed oil passed the $100 per barrel. The U.S. market registered solid gains during the quarter with the S&P 500 index up 5.9% and the Russell 2000 index at small cap stock up 7.9%. The MCHI Europe index posted a 6.6% advanced during the quarter helped in large part by the euro which moved up almost 6% against the dollar during the quarter. The MCHI emerging market index was up 2.1% over the same period with energy producers for example Russia posting double-digits gains. Japan however, fell 4.9% reflecting the impacts of the earthquake, tsunami and nuclear disaster.

Despite headwinds of high oil prices Japan’s potential impact on the global supply chain and sovereign debt problems to name a few, investors confidence and the sustainability of the economic recovery is likely a major underlying factor in the continued advance in equities.

Earnings on the whole beat expectations in the fourth quarter and many analysts are predicting double-digit EPS growth in 2011 and 2012. Investor focus also appears to be shifting from an obsession with macro forces to the actual performance of individual companies. Co-relation or how much stock prices move together is one barometer to gauge whether macro high co-relation or company specific low co-relation forces are driving the market. Co-relations peak most recently in September 2010 at the hike of macro concerns and it declined substantially since then giving us reason to believe we are returning to stock sectors market.

From the firms perspective this has created an environment that I’d characterize as stable. Our AUM stands at 16.3 billion at the end of the quarter, up 4.5% from 15.6 billion at December 31st. Operating margins were 52.8% this quarter versus 53.2% in the prior quarter and cash flow continues to be solid with operating activities generating $12.3 million during the quarter.

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