Q4 2019 Earnings Call

And our answer is nothing companies in our portfolios are delivering on our expectations. It's growth stocks and the market more broadly. However that have had a truly spectacular decade the proper question I think is will that phenomenon continue for the next decade. I find the premise hard to imagine.

Cycles or fascinating phenomena, we observe them through on historical lens and definitely explain their frequency and duration based on the facts and circumstances after the fact dead. But to predict the turning points to predict the timing of the next cycle. That's the stuff of Fairytales. What I am comfortable saying is that the opportunity set off value investor like us is roughly the same as it was ten years ago. In fact, the universe of deep value stocks has consistently offered opportunities below 10,000 times earnings for the past seventy years as they do today.

meanwhile

The market Darlings the most expensive segment of stocks using a US University illustrate has seen there multiple consistently expand over the last several decades and now stand at or near all-time highs value investing as we practice it at Pasadena investment management is the process of studying businesses who sucks have collapsed of gathering enough data to make a reasoned judgment about whether the history of the business and industry remains a useful guide for estimating future earnings money and for and for investing when the range of outcomes skew solidly in our favor.

We said it one of those moments were a small number of Market Darlings have driven market returns to record levels and caused an enormous dispersion between value and growth strategies.

And yet we judged that was an opportunity set that looks as good or better than it did a decade ago the odds of our deep value approach succeeding in the next ten years seems like a much better choice to be and to bet that the winners of the past decade continue to defy analysis.

on the business

Side, we ended our fourth consecutive year with net inflows and we close 2019 with our assets under management at an all-time high of 41.2 billion months in flows during the fourth quarter or driven by both new relationships and flows from our strong sub-advisory Partnerships, and we continue to be encouraged by our robust pipeline of potential new business.

At the end of this year, we issued a new form of equity award to a number of the firm's key contributors.

We strongly believe that broad Equity ownership is an important part of our success. We also believe that the key leaders in The Firm should have a sizable stake in the outcome took along with our Founders accordingly. We made a one-time Grant of what we call Class B one shares to a handful of our Future Leaders. These Shares are designed for employees to participate directly in the firm's dividend stream and in the appreciation of the stock from the date of the grand sophy. So if an impact, he left the firm today, the units would have no value the value of cruise from increases in the firm's earnings and share price appreciation Beyond where it is today.

these one-time grants

Designed as a substitute for future salary increases by the senior team and tied their remuneration more directly to the firm's results.

Furthermore we are using these grants more broadly with the rest of our team as part of normal compensation and expect to continue to issue this form of equity as a part of the ongoing conversation program as we have been doing for years the portion of the grants that were part of our normal compensation strategy were not included in the non-recurring expense item that we bought specifically identified in our press release.

We think this is an efficient and Equitable way to incent hard work where the benefit happens only if we improve the results for all of our shareholders, we awarded these shares those employees that work tirelessly to focus on results for our clients and hopefully for growth to our business and our earnings. I'll now turn the call over to Jessica door and off of financial officer will provide this quarter's Financial update.

Thank you rich.

Our earnings release discloses both Gap and as adjusted Financial result all of our results for this quarter are adjusted to exclude twenty two point seven million dollars and non-recurring compensation and benefits expenses. The vast majority of the expense is related to the issuance of certain unit-based and other Awards to a number of the firm's key contributors during the fourth quarter as Rich mentioned. We also have some costs related to certain employee departures our results for the fourth quarter of last year are adjusted for certain tax receivable agreement item for now. I will focus on the as adjusted information.

We reported as adjusted diluted earnings of twenty cents per share for the fourth quarter compared to diluted earnings of $0.19 per share last quarter and as adjusted diluted earnings of six fifteen cents per share for the fourth quarter of last year revenues were thirty eight point four million dollars for the quarter and as adjusted operating income with 17.5 million dollars AR pack adjusted operating margin was 45.5% this quarter decreasing from 46.3% last quarter and from 51.8. Excuse me, 52.1% off fourth-quarter of last year. We reported as adjusted diluted earnings of 73 cents per share for the full year of 2019 compared to diluted earnings at $0.77 per share for the full year of 2018 revenues were a hundred and fifty point seven million dollars for the year and as adjusted operating income with sixty eight point four million dollars.

our as adjusted operating mark

It's 45.4% for the full year of 2019 decreasing from 51.3% for the full year of 2018 taking a closer. Look at our assets under management. We ended the quarter at an all-time high of forty one point two billion dollars up 15.1% from last quarter, which ended at thirty five point eight billion dollars end up 23.54% from the fourth quarter of last year, which ended at thirty three point four billion dollars the increase in assets under management from the third quarter of this year was driven by market appreciation of $4,000 and buy net inflows of 1.4 billion dollars the increase from the fourth quarter of last year was driven by seven point 1 billion dollars in Market appreciation and net inflows of thousand billion dollars at December 31st, 2019 our assets under management consisted of 16.4 billion dollars and separately managed accounts. Twenty two point four billion dollars and sabotage.

account and 2.4

$10 in our pazina funds compared to last quarter assets under management across all channels increased with separately managed account assets reflecting one point seven billion dollars in Market appreciation and 1 billion dollars and net inflows sub-advised account assets reflecting two point 1 billion dollars in Market appreciation and point five billion dollars and net inflows and pazzini reflecting point two billion dollars in Market appreciation partially offset by Point 1 billion dollars and net outflows average assets under management for the fourth quarter of 2019 or 38 gal 1 billion dollars up 5.8% from last quarter end up 5.5% from the fourth quarter of last year.

Revenues increased 3.5% from last quarter and 5.5% from the fourth quarter of last year the increase from last quarter and the year ago. Reflects an increase. In fact, it's under management partially offset by a decrease in performance. He's recognized during the quarter. We did not recognize any performance fees compared to point three million dollars recognized in each of the third quarter of this year and fourth quarter of last year in addition. The increase in revenue for the quarter is partially offset by the reduction in the basis of certain accounts related to the fulcrum fee Arrangements of wage client relationship. You see Arrangements require a reduction in the base fee at the investment strategy underperforms. It's relevant Benchmark or allow for a performance see if the strategy outperformed Benchmark during the fourth quarter of 2019 the third quarter of 2019 and the fourth quarter of 2018. We recognized a point eight million dollar a point five million dead.

And the point two million dollar reduction.

And in base these respectively these fees are calculated quarterly and compare relative performance over a three-year measurement. To the extent the 3-year performance records of these accounts fluctuate relative to their relevant Benchmark. The amount of base's recognize may vary are weighted average fee rate was 40.4 basis points for the quarter compared to forty one point six points last quarter and 40.4 basis points for the fourth quarter of last year asset mix and the impact of swings and performance fees and Fulcrum fees are all contributors to changes in our overall weighted average fee rates.

Are weighted average pay rate for separately managed accounts was 54.1 basis points for the quarter compared to 54.3 basis points last quarter and 54.1 basis points for the fourth quarter of last year the decrease from last quarter was driven by a shift and assets towards strategies that typically carry lower fee rates are weighted average fee rate for subsidized account was 26.3 basis points for the quarter compared to 29.2 basis points last quarter and 28.9 basis points for the fourth quarter of last year the decrease from last month and the fourth quarter of 2018 is driven by the impact of the fulcrum fees and decrease in performance. He's additionally the decrease reflects an increase in Access in larger class ships that typically carry lower fee rates are weighted average fee for pezzino funds was 69 basis points for the quarter increasing from 68 basis points last quarter and from Thursday.

4.8 basis points through the 4th

Quarter of last year the increase from the last quarter and the fourth quarter of last year reflects the shift and assets to strategies and products that typically carry higher fee rates.

Looking at operating expenses are as adjusted compensation and benefits expense with 16.1 million dollars for the quarter compared to $16 last quarter and increase range from thirteen point nine million dollars for the fourth quarter of last year the increase from the fourth quarter of 2018 reflects increases and headcount and compensation. G&A expenses wage, 4.8 million dollars for the fourth quarter of 2019 compared to three point nine million dollars last quarter and 3.5 million dollars for the fourth quarter of last year the increase from last quarter of a year ago. Reflects increases in professional fees and data and systems expenses the increase from the fourth quarter of last year also reflects an increase in occupancy cost.

Other income was three point two million dollars for the quarter driven primarily by the performance of our investments.

As adjusted effective rate for unincorporated and other business taxes 3.3% this quarter compared to a negative 5.1% last quarter and 4.8% in the fourth quarter of last year, the negative effect of tax rate last quarter reflects a benefit associated with the reversal of Uncertain tax position liabilities and interests due to the expiration of the statute of limitations. We expect the effect of associated with the unincorporated and other business taxes of our operating company to be between three and 5% on an ongoing basis are as just as effective tax rate for our corporate income taxes and other business taxes with 27.6% This quarter compared to 24.4% last quarter and 26.3% for the fourth quarter of last year. We expect a straight excluding any adjustments to our deferred tax asset to be between $23 and 25% on an ongoing basis dead.

Yeah location.

The non-public members of our operating company with approx 74.6% of the operating companies. Net income for the fourth quarter of 2019 compared to 74.5% last quarter and 75.3% for the fourth quarter of last year. The variance needs percentages is the result of changes in our ownership interests in the operating company job.

The quarter through our stock Buy-Back program. We repurchased and retired approximately 114000 shares of class a common stock and classy unit four point nine million dollars at Thursday December 31st. There was approximately 18.8 million dollars remaining and the repurchase program off.

At quarter-end our financial position remains strong with fifty two point five million dollars in cash and cash equivalents as well as 29.1 million dollars and short-term Investments. We declared a $0.46 per share urine dividend last night.

Thank you for joining us. We now be happy to take any questions.

We will now.

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At this time, I'm showing no questions. I would like to conclude the conference call. Thank you for attending today's presentation. You may now disconnect.