NEW YORK, Feb. 02, 2021 (GLOBE NEWSWIRE) -- Pzena Investment Management, Inc. (NYSE: PZN) reported the following U.S. Generally Accepted Accounting Principles (GAAP) basic and diluted net income and earnings per share for the three and twelve months ended December 31, 2020 and 2019 (in thousands, except per-share amounts):
| GAAP Basis | GAAP Basis | For the Three Months Ended December 31, | For the Twelve Months Ended December 31, | 2020 | 2019 | 2020 | 2019 | (unaudited) | As Adjusted1 | As Adjusted1 | For the Three Months Ended December 31, | For the Twelve Months Ended December 31, | 2020 | 2019 | 2020 | 2019 | (unaudited) | For the Three Months Ended | For the Twelve Months Ended | December 31, | September 30, | December 31, | December 31, | December 31, | 2020 | 2020 | 2019 | 2020 | 2019 | For the Three Months Ended | December 31, | September 30, | December 31, | 2020 | 2020 | 2019 | For the Twelve Months Ended | December 31, | December 31, | 2020 | 2019 | For the Three Months Ended | December 31, | September 30, | December 31, | 2020 | 2020 | 2019 | For the Twelve Months Ended | December 31, | December 31, | 2020 | 2019 | For the Three Months Ended | December 31, | September 30, | December 31, | 2020 | 2020 | 2019 | For the Twelve Months Ended | December 31, | December 31, | 2020 | 2019 | For the Three Months Ended | December 31, | September 30, | December 31, | 2020 | 2020 | 2019 | For the Twelve Months Ended | December 31, | December 31, | 2020 | 2019 | For the Three Months Ended | December 31, | September 30, | December 31, | 2020 | 2020 | 2019 | For the Twelve Months Ended | December 31, | December 31, | 2020 | 2019 | During the last twelve months, inclusive of the dividend noted above, the Company declared total dividends of $0.34 per share of its Class A common stock. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GAAP diluted net income and GAAP diluted earnings per share were $17.6 million and $0.22, respectively, for the three months ended December 31, 2020, and $(5.9) million and $(0.08), respectively, for the three months ended December 31, 2019. GAAP diluted net income and GAAP diluted earnings per share were $40.8 million and $0.52, respectively, for the twelve months ended December 31, 2020, and $34.0 million and $0.46, respectively, for the twelve months ended December 31, 2019.
In evaluating the results of operations, management also reviews adjusted measures of earnings, which are adjusted to exclude accounting items that add a measure of non-operational complexity which obscures the underlying performance of the business. For the three and twelve months ended December 31, 2020, no adjustments were made to GAAP earnings. For the three and twelve months ended December 31, 2019, earnings were adjusted to exclude non-recurring Compensation and Benefits expenses related primarily to the issuance of certain unit-based and other awards to a number of the firm’s key contributors pursuant to the terms of our equity incentive plans, in addition to costs related to certain employee departures. As adjusted, diluted net income and as adjusted diluted earnings per share were $14.7 million and $0.20, respectively, for the three months ended December 31, 2019, and $54.1 million and $0.73, respectively, for the twelve months ended December 31, 2019. Management uses the as adjusted measures to assess the strength of the underlying operations of the business. It believes the as adjusted measures provide information to further analyze the Company's operations between periods and over time. Furthermore, management targets a cash dividend payout ratio at approximately 60% to 70% of our as adjusted diluted net income, subject to growth initiatives and other funding needs. Investors should consider the as adjusted measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.
Net income for diluted earnings per share generally assumes all operating company membership units are converted into Company stock at the beginning of the reporting period, and the resulting change to Company 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.
Revenue was $39.9 million for the fourth quarter of 2020, an increase of 17.4% from $33.9 million for the third quarter of 2020, and an increase of 3.7% from $38.4 million for the fourth quarter of 2019.
There were $1.1 million of performance fees recognized in the fourth quarter of 2020, compared to no performance fees recognized during the third quarter of 2020 and the fourth quarter of 2019.
Average assets under management for the fourth quarter of 2020 were $37.7 billion, increasing 13.9% from $33.1 billion for the third quarter of 2020, and decreasing 1.0% from $38.1 billion for the fourth quarter of 2019. The increase from the third quarter of 2020, primarily reflects market appreciation. The variance from fourth quarter of 2019 primarily reflects fluctuation in asset levels due to market appreciation during November and December of 2020.
The weighted average fee rate was 0.423% for the fourth quarter of 2020, increasing from 0.410% for the third quarter of 2020, and from 0.404% for the fourth quarter of 2019.
The weighted average fee rate for separately managed accounts was 0.557% for the fourth quarter of 2020, increasing from 0.549% for the third quarter of 2020 and from 0.541% for the fourth quarter of 2019. The increase from the third quarter of 2020 and the fourth quarter of 2019 primarily reflects the addition of assets to certain strategies that typically carry higher fee rates.
The weighted average fee rate for sub-advised accounts was 0.272% for the fourth quarter of 2020, increasing from 0.270% for the third quarter of 2020 and relatively flat from 0.273% for the fourth quarter of 2019. Certain accounts related to one retail client relationship have fulcrum fee arrangements. These fee arrangements require a reduction in the base fee or allow for a performance fee if the relevant investment strategy underperforms or outperforms, respectively, the agreed-upon benchmark over the contract's measurement period, which extends to three years. During the fourth quarter of 2020, third quarter of 2020, and fourth quarter of 2019 we recognized a $1.0 million, $1.0 million, and $0.8 million reduction in base fees, respectively, related to this client relationship. To the extent the three-year performance record of this account fluctuates relative to its relevant benchmark, the amount of base fees recognized may vary.
The weighted average fee rate for Pzena funds was 0.893% for the fourth quarter of 2020, increasing from 0.687% for the third quarter of 2020, and from 0.690% for the fourth quarter of 2019. The increase from the third quarter of 2020 and from the fourth quarter of 2019 primarily reflects performance fees recognized in the fourth quarter of 2020.
Total operating expenses were $21.6 million for the fourth quarter of 2020, increasing from $19.0 million for the third quarter of 2020 and decreasing from $43.7 million for the fourth quarter of 2019. The increase from the third quarter of 2020 reflects increases in both compensation and benefits expense and general and administrative expenses. The increase in compensation and benefits expense is driven by an increase in the bonus accrual and in the market performance of strategies tied to the Company’s deferred compensation obligations during the fourth quarter of 2020. The increase in general and administrative expense is primarily driven by an increase in professional fees and data and systems expense. Included in operating expenses in the fourth quarter of 2019 is approximately $22.7 million in compensation and benefits expenses, relating to the one-time issuance of certain unit-based and other awards to a number of the firm’s key contributors pursuant to the terms of our equity incentive plans in addition to costs related to certain employee departures. Excluding these non-recurring expenses, the increase in compensation and benefits expense from the fourth quarter of 2019 reflects an increase in compensation. The decrease in general and administrative expense from the fourth quarter of 2019 reflects a decrease in travel and entertainment and professional fees.
As of December 31, 2020, employee headcount was 121, remaining flat from 121 at September 30, 2020, and up from 115 at December 31, 2019.
The operating margin was 45.7% for the fourth quarter of 2020, compared to 44.1% for the third quarter of 2020, and (13.7)% for the fourth quarter of 2019. The as adjusted operating margin for the fourth quarter of 2019 was 45.5%. The increase in operating margin from the third quarter of 2020 is primarily driven by the increase in revenue.
Other income/ (expense) was income of approximately $6.1 million for the fourth quarter of 2020, $0.5 million for the third quarter of 2020, and $3.2 million for the fourth quarter of 2019.
Other income/ (expense) primarily reflects the fluctuations in the gains/ losses and other investment income recognized by the Company on its direct equity investments, the majority of which are held to satisfy obligations under its deferred compensation plan. Other income/ (expense) also includes a portion of gains/ (losses) and other investment income recognized by external investors on their investments in investment partnerships that the Company consolidates, which are offset in net income attributable to non-controlling interests.
The Company recognized an income tax expense of $2.0 million for the fourth quarter of 2020, an income tax benefit of $0.1 million for the third quarter of 2020 and an income tax expense of $1.6 million for the fourth quarter of 2019. The third quarter of 2020 income tax benefit reflects a $1.6 million benefit associated with the reversal of uncertain tax position liabilities and interest related to unincorporated and other business tax expenses due to the expiration of the statute of limitations. Tax expense for the fourth quarter of 2019 also includes the impact of $22.7 million of non-recurring expenses. Corporate tax expense for the fourth quarter of 2019 as adjusted was $1.4 million. The increase from the third quarter of 2020 and fourth quarter of 2019 primarily reflects an increase in pre-tax income in the fourth quarter of 2020.
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.
