pzn-ex991

NEW YORK, July 23, 2018 - 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 six months ended June 30, 2018 and 2017 (in thousands, except per-share amounts):

GAAP diluted net income and GAAP diluted earnings per share were $14.0 million and $0.20 respectively, for the three months ended June 30, 2018, and $10.5 million and $0.15, respectively, for the three months ended June 30, 2017. GAAP diluted net income and GAAP diluted earnings per share were $28.2 million and $0.39, respectively, for the six months ended June 30, 2018, and $19.2 million and $0.27, respectively, for the six months ended June 30, 2017.

In evaluating the results of operations, management also reviews non-GAAP 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 six months ended June 30, 2018 and 2017, no adjustments were made to GAAP earnings, resulting in the same GAAP and non-GAAP measures of earnings.

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 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.

In December 2017, the Company changed the classification of assets under management ("AUM") to better reflect the composition of its client base. The Company now groups its assets into three categories: Separately Managed Accounts, Sub-Advised Accounts, and Pzena Funds, which better illustrate the characteristics inherent in its client relationships. Historical data has been reclassified for all periods presented and did not impact reported totals of AUM.

Assets Under Management (unaudited)
($ billions)
	For the Three Months Ended									For the Twelve Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2018			2018			2017			2018			2017
Separately Managed Accounts
Assets
Beginning of Period	$	14.6		$	15.0		$	13.0		$	13.8		$	10.5
Inflows		0.3			0.4			0.5			1.2			2.2
Outflows		(0.8	)		(0.6	)		(0.2	)		(2.2	)		(2.0	)
Net Flows		(0.5	)		(0.2	)		0.3			(1.0	)		0.2
Market Appreciation/(Depreciation)		(0.3	)		(0.2	)		0.5			1.0			3.1
End of Period	$	13.8		$	14.6		$	13.8		$	13.8		$	13.8

Sub-Advised Accounts
Assets
Beginning of Period Assets	$	21.3		$	21.8		$	17.6		$	18.2		$	13.9
Inflows		0.7			0.6			0.6			3.3			2.9
Outflows		(0.5	)		(0.7	)		(0.4	)		(2.2	)		(2.7	)
Net Flows		0.2			(0.1	)		0.2			1.1			0.2
Market Appreciation/(Depreciation)		(0.3	)		(0.4	)		0.4			1.9			4.1
End of Period	$	21.2		$	21.3		$	18.2		$	21.2		$	18.2

Pzena Funds
Assets
Beginning of Period Assets	$	1.8		$	1.7		$	1.4		$	1.5		$	1.0
Inflows		0.2			0.1			—			0.7			0.3
Outflows		(0.1	)		—			—			(0.3	)		(0.2	)
Net Flows		0.1			0.1			—			0.4			0.1
Market Appreciation/(Depreciation)		—			—			0.1			—			0.4
End of Period	$	1.9		$	1.8		$	1.5		$	1.9		$	1.5

Total
Assets
Beginning of Period	$	37.7		$	38.5		$	32.0		$	33.5		$	25.4
Inflows		1.2			1.1			1.1			5.2			5.4
Outflows		(1.4	)		(1.3	)		(0.6	)		(4.7	)		(4.9	)
Net Flows		(0.2	)		(0.2	)		0.5			0.5			0.5
Market Appreciation/(Depreciation)		(0.6	)		(0.6	)		1.0			2.9			7.6
End of Period	$	36.9		$	37.7		$	33.5		$	36.9		$	33.5

Revenue (unaudited)
($ thousands)
	For the Three Months Ended
	June 30,		March 31,		June 30,
	2018		2018		2017
Separately Managed Accounts	$	19,160	$	20,082	$	18,607
Sub-Advised Accounts		16,256		16,451		13,132
Pzena Funds		2,932		2,719		2,374
Total	$	38,348	$	39,252	$	34,113

			For the Six Months Ended
			June 30,		June 30,
			2018		2017
Separately Managed Accounts			$	39,242	$	36,247
Sub-Advised Accounts				32,707		25,365
Pzena Funds				5,651		4,545
Total			$	77,600	$	66,157

Revenue was $38.3 million for the second quarter of 2018, a decrease of 2.3% from $39.3 million for the first quarter of 2018 and an increase of 12.4% from $34.1 million for the second quarter of 2017.

Included in these amounts for the second quarter of 2018 were performance fees recognized of $0.9 million, compared to $0.9 million for the first quarter of 2018, and an increase from $0.4 million for the second quarter of 2017.

Average assets under management for the second quarter of 2018 were $37.7 billion, decreasing 2.8% from $38.8 billion for the first quarter of 2018, and increasing 15.3% from $32.7 billion for the second quarter of 2017. The decrease from the first quarter of 2018 primarily reflects market depreciation and net outflows during the second quarter of 2018. The increase from the second quarter of 2017 primarily reflects market appreciation and net inflows.

The weighted average fee rate was 0.407% for the second quarter of 2018, increasing from 0.405% for the first quarter of 2018, and decreasing from 0.417% for the second quarter of 2017.

The weighted average fee rate for separately managed accounts was 0.535% for the second quarter of 2018, compared to 0.534% for the first quarter of 2018 and 0.555% for the second quarter of 2017. The decrease from the second quarter of 2017 reflects a decrease in assets in our Focused Value strategies that generally carry higher fee rates.

The weighted average fee rate for sub-advised accounts was 0.303% for the second quarter of 2018, compared to 0.300% for the first quarter of 2018 and 0.294% for the second quarter of 2017. The increase from the second quarter of 2017 reflects an increase in performance fees recognized.

The weighted average fee rate for Pzena funds was 0.624% for the second quarter of 2018, increasing from 0.599% for the first quarter of 2018, and decreasing from 0.666% for the second quarter of 2017. The decrease from the second quarter of 2017 reflects the adoption of the new revenue recognition standard, which requires fund expense cap reimbursements to be presented net against revenue. The Company adopted the new revenue recognition standard as of January 1, 2018 using a modified retrospective approach, and thus prior periods have not been restated. Excluding the impact of the revenue recognition presentation change, the weighted average fee rate for Pzena funds was 0.676% for the second quarter of 2018, increasing from 0.660% for the first quarter of 2018 and from 0.666% for the second quarter of 2017 which reflects an increase in assets in strategies that generally carry higher fee rates.

Total operating expenses were $18.6 million for the second quarter of 2018, decreasing from $19.3 million for the first quarter of 2018 and increasing from $17.5 million for the second quarter of 2017. The decrease in operating expenses from the first quarter of 2018 primarily reflects a decrease in compensation and benefits expense, partially offset by an increase in general and administrative costs during the second quarter of 2018. First quarter 2018 compensation expenses included expenses associated with tax payments and the Company's employee profit sharing and savings plan, which generally do not recur during the year. The increase in general and administrative costs from the first quarter of 2018 reflects an increase in business activities. The increase in operating expenses from the second quarter of 2017 reflects an increase in compensation and benefits expense due to an increase in compensation rates, as well as an increase in general and administrative costs due to an increase in business activities.

Operating Expenses (unaudited)
($ thousands)
	For the Three Months Ended
	June 30,		March 31,		June 30,
	2018		2018		2017
Compensation and Benefits Expense	$	15,224	$	16,174	$	14,296
General and Administrative Expense		3,379		3,155		3,198
Operating Expenses	$	18,603	$	19,329	$	17,494

			For the Six Months Ended
			June 30,		June 30,
			2018		2017
Compensation and Benefits Expense			$	31,398	$	29,918
General and Administrative Expense				6,534		6,523
Operating Expenses			$	37,932	$	36,441

As of June 30, 2018, employee headcount was 108, up from 105 at March 31, 2018 and 106 at June 30, 2017.

The operating margin was 51.5% for the second quarter of 2018, compared to 50.8% for the first quarter of 2018, and 48.7% for the second quarter of 2017.

Other (expense)/ income was an expense of approximately $0.2 million for the second quarter of 2018, an expense of $0.1 million for the first quarter of 2018, and income $0.7 million for the second quarter of 2017. Other (expense)/ income includes a portion of (losses)/ gains and other investment income associated with the investments of outside interests, which are offset in net income attributable to non-controlling interests.

Excluding the outside interests of the Company's investment partnerships, other (expense)/ income was an expense of approximately $0.2 million for the second quarter of 2018, and an expense of $0.1 million for first quarter of 2018, and income of $0.6 for the second quarter of 2017. Other (expense)/ income primarily reflects the fluctuations in the (losses)/ gains and other investment income recognized by the Company on its direct investments, the majority of which are held to satisfy obligations under its deferred compensation plan, as well as those recognized by external investors on their investments in investment partnerships that the Company consolidates. Details of other (expense)/ income, as well as a reconciliation of the related GAAP and non-GAAP measures, are shown below:

Other (Expense)/ Income (unaudited)
($ thousands)
	For the Three Months Ended
	June 30,			March 31,			June 30,
	2018			2018			2017
Net Interest and Dividend Income	$	125		$	98		$	117
(Losses)/ Gains and Other Investment Income		(327	)		(163	)		517
Other (Expense)/ Income		(10	)		15			109
GAAP Other (Expense)/ Income		(212	)		(50	)		743
Outside Interests of Investment Partnerships¹		33			(30	)		(107	)
Non-GAAP Other (Expense)/ Income, Net of Outside Interests	$	(179	)	$	(80	)	$	636

				For the Six Months Ended
				June 30,			June 30,
				2018			2017
Net Interest and Dividend Income				$	223		$	218
(Losses)/ Gains and Other Investment Income					(490	)		1,748
Other Income/ (Expense)					5			132
GAAP Other (Expense)/ Income					(262	)		2,098
Outside Interests of Investment Partnerships¹					3			(377	)
Non-GAAP Other (Expense)/ Income, Net of Outside Interests				$	(259	)	$	1,721

The Company recognized income tax expenses of $2.2 million for the second and first quarters of 2018, as well as the second quarter of 2017. 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
	June 30,		March 31,		June 30,
	2018		2018		2017
Corporate Income Tax Expense	$	1,338	$	1,469	$	1,569
Unincorporated and Other Business Tax Expense		838		738		672
Income Tax Expense	$	2,176	$	2,207	$	2,241

			For the Six Months Ended
			June 30,		June 30,
			2018		2017
Corporate Income Tax Expense			$	2,807	$	2,667
Unincorporated and Other Business Tax Expense				1,576		1,300
Income Tax Expense			$	4,383	$	3,967

Details of the net income attributable to non-controlling interests of the Company's operating company and consolidated subsidiaries are shown below:

GAAP Non-Controlling Interests (unaudited)
($ thousands)
	For the Three Months Ended
	June 30,			March 31,			June 30,
	2018			2018			2017
Operating Company Allocation	$	13,918		$	14,113		$	12,385
Outside Interests of Investment Partnerships¹		(33	)		30			107
GAAP Net Income Attributable to Non-Controlling Interests	$	13,885		$	14,143		$	12,492

				For the Six Months Ended
				June 30,			June 30,
				2018			2017
Operating Company Allocation				$	28,031		$	22,505
Outside Interests of Investment Partnerships¹					(3	)		377
GAAP Net Income Attributable to Non-Controlling Interests				$	28,028		$	22,882

On July 17, 2018, the Company's Board of Directors approved a quarterly dividend of $0.03 per share of its Class A common stock. The following dates apply to the dividend:

During the last twelve months, inclusive of the dividend noted above, the Company declared total dividends of $0.51 per share of its Class A common stock.

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, Monday, July 23, 2018. 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. callers should dial 844-378-6482; Canada callers should dial 855-669-9657; international callers should dial 412-317-5106. Please reference the Pzena Investment Management call.

Replay: The conference call will be available for replay through August 6, 2018, on the web using the information given above.

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.

This press release may contain, in addition to historical information, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. Forward-looking statements provide the Company’s current views, expectations, or forecasts of future events and performance, and include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “ongoing,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking.

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 9, 2018 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.

	As of
	June 30,		December 31,
	2018		2017
	(unaudited)
ASSETS
Cash	$	52,541	$	63,414
Restricted Cash		1,024		1,017
Due from Broker		698		1,875
Advisory Fees Receivable		33,651		32,531
Investments		20,895		21,737
Prepaid Expenses and Other Assets		3,264		2,575
Deferred Tax Asset		36,955		39,639
Property and Equipment, Net of Accumulated
Depreciation of $3,559 and $3,063, respectively		5,789		6,259
TOTAL ASSETS	$	154,817	$	169,047

LIABILITIES AND EQUITY
Liabilities:
Accounts Payable and Accrued Expenses	$	22,910	$	31,983
Due to Broker		475		144
Liability to Selling and Converting Shareholders		36,441		36,441
Deferred Compensation Liability		2,347		918
Other Liabilities		289		272
TOTAL LIABILITIES		62,462		69,758

Equity:
Total Pzena Investment Management, Inc.'s Equity		27,976		32,304
Non-Controlling Interests		64,379		66,985
TOTAL EQUITY		92,355		99,289
TOTAL LIABILITIES AND EQUITY	$	154,817	$	169,047

	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2018			2017		2018			2017
REVENUE	$	38,348		$	34,113	$	77,600		$	66,157

EXPENSES
Compensation and Benefits Expense		15,224			14,296		31,398			29,918
General and Administrative Expense		3,379			3,198		6,534			6,523
TOTAL OPERATING EXPENSES		18,603			17,494		37,932			36,441
Operating Income		19,745			16,619		39,668			29,716

Other (Expense)/ Income		(212	)		743		(262	)		2,098

Income Before Taxes		19,533			17,362		39,406			31,814

Income Tax Expense		2,176			2,241		4,383			3,967
Consolidated Net Income		17,357			15,121		35,023			27,847

Less: Net Income Attributable to Non-Controlling Interests		13,885			12,492		28,028			22,882

Net Income Attributable to Pzena Investment Management, Inc.	$	3,472		$	2,629	$	6,995		$	4,965

Earnings per Share - Basic and Diluted Attributable to Pzena Investment Management, Inc. Common Stockholders:

Net Income for Basic Earnings per Share	$	3,472		$	2,629	$	6,995		$	4,965
Basic Earnings per Share	$	0.20		$	0.15	$	0.39		$	0.29
Basic Weighted Average Shares Outstanding		17,759,396			17,314,218		17,886,675			17,337,556

Net Income for Diluted Earnings per Share	$	14,020		$	10,458	$	28,248		$	19,190
Diluted Earnings per Share	$	0.20		$	0.15	$	0.39		$	0.27
Diluted Weighted Average Shares Outstanding		71,773,989			70,661,596		72,045,221			70,777,295

	GAAP Basis
	For the Three Months Ended June 30,
	2018		2017
	(unaudited)
Basic Net Income	$	3,472	$	2,629
Basic Earnings Per Share	$	0.20	$	0.15

Diluted Net Income	$	14,020	$	10,458
Diluted Earnings Per Share	$	0.20	$	0.15

	GAAP Basis
	For the Six Months Ended June 30,
	2018		2017
	(unaudited)
Basic Net Income	$	6,995	$	4,965
Basic Earnings Per Share	$	0.39	$	0.29

Diluted Net Income	$	28,248	$	19,190
Diluted Earnings Per Share	$	0.39	$	0.27