Pzena Investment Management's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Pzena Investment Management, Inc. ( PZN)

Q4 2011 Earnings Call

February 8, 2012; 10:00 am ET


Rich Pzena - Chief Executive Officer & Co-Chief Investment Officer

Greg Martin - Chief Financial Officer


Ken Worthington - JPMorgan



Good morning. My name is Felicia and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Pzena Investment Management 2011 fourth quarter 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 would now like to turn the conference over to Mr. Greg Martin. Sir, you may begin your conference.

Gregory Martin

Thank you very much, Felicia. Good morning and thank you for joining us on the Pzena Investment Management, fourth quarter 2011 earnings call. I’m Greg Martin, Chief Financial Officer. With me today is our Chief Executive Officer and Co-Chief Investment Officer, Rich Pzena.

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

As always, we need to reference the standard legal disclaimer before we begin. 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 results of the company and can cause actual results and experiences to differ materially from the expectations or objectives 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 SEC’s website www.sec.gov.

Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which the 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 disclosures the company may make and reports 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 their conference calls. If one of your questions require the disclosure of material non-public information, we will not be able to respond to it. Thank you.

I’ll turn the call over to Rich shortly, but first I’d like to review some financial highlights. Please note that we’ll be making some minor correction to two charts and resubmitting our press release this afternoon. The PDF on our website is correct.

We reported non-GAAP diluted EPS of $0.08 per share and $5.1 million in non-GAAP diluted net income. Revenues were $18.9 million for the quarter and our non-GAAP operating income was $8.9 million. Our cash balance was $35.1 million at quarter-end, and we declared a $0.19 per share quarterly dividend last night. This $0.19 dividend is our quarterly dividend, as well as the payout for 2011.

I’ll discuss our financial results in greater depth in a few minutes. Let me first turn the call over to Rich, who will discuss our view of the investing environment and how we are positioned relative to it.

Rich Pzena

Thanks Greg. As I look back on 2011, I can’t help but feel drawn back to what it felt like in early 2000 for value investors. Back then momentum had driven Internet stocks to astounding valuations and value investing had lagged for almost five years. Investors were proclaiming the depth of value and a number of long term value investors closed shop, while others changed their strides, of course exactly at the wrong time.

Today investors are once again question whether value investing really works. Despite a strong rebound that started in November 2008 and lasted through early 2011, the market correction and value under performance during the latter half of the last year has rekindled bad memories of the financial crisis and let investors to question whether identifying good, but under valued companies still works, in a world that seems driven by global macro events rather than fundamentals. Investors have fled end mass to safety as the financial crisis in the euro zone creates massive uncertainty and fear that it’s effects will spill over and affect the global economy.

But taking a step back from the day-to-day market noise provides a useful perspective in which to assess recent market activity and possibly even identify hidden opportunities otherwise unsecured.

We studied the cycles of value investing, going back over 40 years, by measuring the performance of a naïve deep value benchmark, to find us the cheapest quintile of the 1000 largest U.S. listed companies on a price to book value basis, versus the S&P 500 index and of a number of key observations.

One, the cycles of value investing tend to be long, almost 10 years on average, with deep value outperforming for almost seven of these years.

Two, over the last four full value cycles dating back to the late 1960s, deep value has outperformed the S&P 500 by 480 basis points per year.

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