GlobeNewswire Inc | Oct 20, 2020 04:15PM EDT

October 20, 2020

-- Assets under management ended the third quarter at $33.3billion. -- Q3 2020 revenue decreased8 percent to $33.9 million from Q3 2019. -- Q32020 GAAP diluted earnings per share decreasedto $0.16 from $0.19 in Q3 2019. -- Board declared a quarterly dividend of $0.03 per share.

NEW YORK, Oct. 20, 2020 (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 nine months ended September30, 2020 and 2019 (in thousands, except per-share amounts):

GAAP Basis For the Three Months Ended September30, 2020 2019 (unaudited)Basic Net Income $ 2,664 $ 3,478 Basic Earnings per Share $ 0.16 $ 0.19 Diluted Net Income $ 12,374 $ 13,768 Diluted Earnings per Share $ 0.16 $ 0.19 GAAP Basis For the Nine Months Ended September30, 2020 2019 (unaudited)Basic Net Income $ 4,862 $ 9,944 Basic Earnings per Share $ 0.28 $ 0.55 Diluted Net Income^1 $ 4,862 $ 39,793 Diluted Earnings per Share^1 $ 0.28 $ 0.54

1During the nine months ended September 30, 2020, the calculation of GAAP diluted earnings per share resulted in an increase in earnings per share. Therefore, diluted net income and diluted earnings per share are assumed to be equal to basic net income and basic earnings per share.

GAAP diluted net income and GAAP diluted earnings per share were $12.4 million and $0.16, respectively, for the three months ended September30, 2020, and $13.8 million and $0.19, respectively, for the three months ended September30, 2019. GAAP diluted net income and GAAP diluted earnings per share were $4.9 million and $0.28, respectively, for the nine months ended September30, 2020, and $39.8 million and $0.54, respectively, for the nine months ended September30, 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 nine months ended September30, 2020 and 2019, no adjustments were made to GAAP earnings.

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.

Assets UnderManagement (unaudited)($ billions) For the Three Months Ended For the Twelve Months Ended September30, June30, September30, September30, September30, 2020 2020 2019 2020 2019SeparatelyManaged AccountsAssets Beginning of $ 13.0 $ 10.8 $ 13.9 $ 13.7 $ 14.6 PeriodInflows 0.2 0.7 0.4 2.6 2.0 Outflows (0.3 ) (0.5 ) (0.3 ) (1.4 ) (1.9 )Net Flows (0.1 ) 0.2 0.1 1.2 0.1 MarketAppreciation/ 0.1 1.9 (0.2 ) (2.0 ) (0.8 )(Depreciation)Foreign 0.3 0.1 (0.1 ) 0.4 (0.2 )Exchange^1End of Period $ 13.3 $ 13.0 $ 13.7 $ 13.3 $ 13.7 Sub-Advised AccountsAssets Beginning of $ 16.4 $ 14.3 $ 21.1 $ 19.8 $ 22.2 Period AssetsInflows 2.5 0.7 0.4 5.2 2.4 Outflows (1.2 ) (1.4 ) (1.4 ) (4.2 ) (3.3 )Net Flows 1.3 (0.7 ) (1.0 ) 1.0 (0.9 )MarketAppreciation/ 0.2 2.7 (0.2 ) (3.0 ) (1.3 )(Depreciation)Foreign 0.1 0.1 (0.1 ) 0.2 (0.2 )Exchange^1End of Period $ 18.0 $ 16.4 $ 19.8 $ 18.0 $ 19.8 Pzena Funds Assets Beginning of $ 2.1 $ 1.7 $ 2.3 $ 2.3 $ 2.1 Period AssetsInflows 0.1 0.1 0.1 0.4 0.6 Outflows (0.2 ) ? ? (0.5 ) (0.3 )Net Flows (0.1 ) 0.1 0.1 (0.1 ) 0.3 MarketAppreciation/ ? 0.3 (0.1 ) (0.2 ) (0.1 )(Depreciation)Foreign ? ? ? ? ? Exchange^1End of Period $ 2.0 $ 2.1 $ 2.3 $ 2.0 $ 2.3 Total Assets Beginning of $ 31.5 $ 26.8 $ 37.3 $ 35.8 $ 38.9 PeriodInflows 2.8 1.5 0.9 8.2 5.0 Outflows (1.7 ) (1.9 ) (1.7 ) (6.1 ) (5.5 )Net Flows 1.1 (0.4 ) (0.8 ) 2.1 (0.5 )MarketAppreciation/ 0.3 4.9 (0.5 ) (5.2 ) (2.2 )(Depreciation)Foreign 0.4 0.2 (0.2 ) 0.6 (0.4 )Exchange^1End of Period $ 33.3 $ 31.5 $ 35.8 $ 33.3 $ 35.8

1 Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

Financial Discussion Revenue (unaudited) ($ thousands) For the Three Months Ended September30, June30, September30, 2020 2020 2019Separately Managed Accounts $ 18,457 $ 16,738 $ 18,548 Sub-Advised Accounts 11,880 10,262 14,651 Pzena Funds 3,611 3,131 3,866 Total $ 33,948 $ 30,131 $ 37,065 For the Nine Months Ended September30, September30, 2020 2019Separately Managed Accounts $ 53,891 $ 55,959 Sub-Advised Accounts 34,851 44,715 Pzena Funds 10,016 11,644 Total $ 98,758 $ 112,318

Revenue was $33.9 million for the third quarter of 2020, an increase of 12.7% from $30.1 million for the second quarter of 2020, and a decrease of 8.4% from $37.1 million for the third quarter of 2019.

There were no performance fees recognized in the third or second quarters of 2020, compared to $0.3 million for the third quarter of 2019.

Average assets under management for the third quarter of 2020 were $33.1 billion, increasing 11.1% from $29.8 billion for the second quarter of 2020, and decreasing 8.1% from $36.0 billion for the third quarter of 2019. The increase from the second quarter of 2020, reflects net inflows and market appreciation. The decrease from third quarter of 2019 primarily reflects market depreciation during the first quarter of 2020, partially offset by net inflows.

The weighted average fee rate was 0.410% for the third quarter of 2020, increasing from 0.404% for the second quarter of 2020, and decreasing from 0.412% for the third quarter of 2019.

The weighted average fee rate for separately managed accounts was 0.549% for the third quarter of 2020, decreasing slightly from 0.552% for the second quarter of 2020 and increasing from 0.543% for the third quarter of 2019. The increase from the third 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 0.270% for the third quarter of 2020, increasing from 0.260% for the second quarter of 2020 and decreasing from 0.292% for the third quarter of 2019. The increase from the second quarter of 2020 reflects a shift in assets to strategies that typically carry higher fee rates. 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 third quarter of 2020, second quarter of 2020, and third quarter of 2019 we recognized a $1.0 million, $1.0 million, and $0.5 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 impact of these fulcrum fee arrangements as well as the decrease in performance fees recognized is reflected in the decrease of the weighted average fee rate from the third quarter of 2019.

The weighted average fee rate for Pzena funds was 0.687% for the third quarter of 2020, increasing from 0.659% for the second quarter of 2020, and from 0.680% for the third quarter of 2019. The increase from the second quarter of 2020 reflects a decrease in fund expense cap reimbursements associated with the closure of one Pzena mutual fund during the third quarter. The increase from the third quarter of 2019 reflects a shift in asset mix toward products in strategies that typically carry higher fee rates.

Total operating expenses were $19.0 million for the third quarter of 2020, decreasing from $19.2 million for the second quarter of 2020 and from $19.9 million for the third quarter of 2019. The decrease from the second quarter of 2020 and third quarter of 2019 reflects a decrease in general and administrative expenses, primarily driven by a decrease in travel and entertainment expense and professional fees.

Operating Expenses (unaudited)($ thousands) For the Three Months Ended September30, June30, September30, 2020 2020 2019Compensation and Benefits $ 15,808 $ 15,578 $ 16,012 ExpenseGeneral and Administrative 3,183 3,575 3,905 ExpenseOperating Expenses $ 18,991 $ 19,153 $ 19,917 For the Nine Months Ended September30, September30, 2020 2019Compensation and Benefits $ 50,526 $ 49,220 ExpenseGeneral and Administrative 11,180 12,186 ExpenseOperating Expenses $ 61,706 $ 61,406

As of September30, 2020, employee headcount was 121, up from 120 at June 30, 2020, and from 119 at September30, 2019.

The operating margin was 44.1% for the third quarter of 2020, compared to 36.4% for the second quarter of 2020, and 46.3% for the third quarter of 2019. The increase in operating margin from the second quarter of 2020 is primarily driven by the increase in revenue.

Other income/ (expense) was income of approximately $0.5 million for the third quarter of 2020, income of $3.2 million for the second quarter of 2020, and income of less than $0.1 million for the third 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.

Other Income/ (Expense) (unaudited)($ thousands) For the Three Months Ended September30, June30, September30, 2020 2020 2019Net Interest and Dividend $ 187 $ 145 $ 431 IncomeGains/ (Losses) and Other 295 3,050 (342 )Investment IncomeOther Income/ (Expense) 52 47 (75 )GAAP Other Income/ (Expense) 534 3,242 14 Outside Interests of (83 ) (234 ) (4 )Investment Partnerships^1As Adjusted Other Income/(Expense), Net of Outside $ 451 $ 3,008 $ 10 Interests For the Nine Months Ended September30, September30, 2020 2019Net Interest and Dividend $ 572 $ 1,070 IncomeGains/ (Losses) and Other (6,165 ) 1,498 Investment IncomeOther Income 13 (174 )GAAP Other Income/ (Expense) (5,580 ) 2,394 Outside Interests of (3 ) (170 )Investment Partnerships^1As Adjusted Other Income/(Expense), Net of Outside $ (5,583 ) $ 2,224 Interests

1Represents the non-controlling interest allocation of the income of the Company's consolidatedinvestment partnerships to its external investors.

The Company recognized an income tax benefit of $0.1 million for the third quarter of 2020, and income tax expenses of $1.4 million for the second quarter of 2020 and $0.2 million for the third 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. The third quarter of 2019 income tax expense reflects $1.6 million of such benefit.

Details of the income tax expense are shown below:

Income Tax Expense (unaudited)($ thousands) For the Three Months Ended September30, June30, September30, 2020 2020 2019Corporate Income Tax Expense $ 961 $ 797 $ 1,124 Unincorporated and Other (1,044 ) 574 (878 )Business Tax ExpenseIncome Tax Expense $ (83 ) $ 1,371 $ 246 For the Nine Months Ended September30, September30, 2020 2019Corporate Income Tax Expense $ 2,129 $ 3,540 Unincorporated and Other 151 613 Business Tax ExpenseIncome Tax Expense $ 2,280 $ 4,153

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 September30, June30, September30, 2020 2020 2019Operating Company Allocation $ 12,827 $ 10,417 $ 13,434 Outside Interests of 83 234 4 Investment Partnerships^1GAAP Net Income Attributable $ 12,910 $ 10,651 $ 13,438 to Non-Controlling Interests For the Nine Months Ended September30, September30, 2020 2019Operating Company Allocation $ 24,327 $ 39,039 Outside Interests of 3 170 Investment Partnerships^1GAAP Net Income Attributable $ 24,330 $ 39,209 to Non-Controlling Interests

1Represents the non-controlling interest allocation of the income of the Company's consolidated investment partnerships to its external investors.

On October 20, 2020, 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:

Record Date: October 30, 2020 Payment Date: November 20, 2020 During the last twelve months, inclusive of the dividend noted above, the Company declared total dividends of $0.55 per share of its Class A common stock.

Third Quarter2020 Earnings Call Information

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, Wednesday, October 21, 2020. 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 November 4, 2020, on the web using the information given above.

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.

Forward-Looking Statements

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 Companys 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 10, 2020 and in the Company's Quarterly Reports on Form 10-Q as filed with the SEC. These risk factors include a pandemic or health crisis, including the COVID-19 pandemic, and its impact on financial institutions, the global economic or capital markets as well as Pzenas products, clients, vendors and employees, and Pzenas results of operations, the full extent of which may be unknown. 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.

Contact: Jessica Doran, 212-355-1600 or doran@pzena.com.

PZENA INVESTMENT MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(in thousands)

As of September30, December31, 2020 2019 (unaudited) ASSETS Cash and Cash Equivalents $ 49,235 $ 52,480 Restricted Cash 1,047 1,036 Due from Broker 120 149 Advisory Fees Receivable 29,507 32,887 Investments 26,701 55,934 Prepaid Expenses and Other Assets 5,267 4,876 Right-of-use Assets 12,143 13,860 Deferred Tax Asset 29,669 32,683 Property and Equipment, Net of Accumulated Depreciation of $5,679 and $4,765, respectively 4,667 5,547 TOTAL ASSETS $ 158,356 $ 199,452 LIABILITIES AND EQUITY Liabilities: Accounts Payable and Accrued Expenses $ 28,470 $ 44,715 Due to Broker 163 40 Securities Sold Short 690 ? Liability to Selling and Converting Shareholders 28,652 28,652 Lease Liabilities 12,482 14,235 Deferred Compensation Liability 2,940 3,600 TOTAL LIABILITIES 73,397 91,242 Equity: Total Pzena Investment Management, Inc.'s Equity 25,695 31,444 Non-Controlling Interests 59,264 76,766 TOTAL EQUITY 84,959 108,210 TOTAL LIABILITIES AND EQUITY $ 158,356 $ 199,452



PZENA INVESTMENT MANAGEMENT, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except share and per-share amounts)

For the Three Months Ended For the Nine Months Ended September30, September30, 2020 2019 2020 2019REVENUE $ 33,948 $ 37,065 $ 98,758 $ 112,318 EXPENSES Compensationand Benefits 15,808 16,012 50,526 49,220 ExpenseGeneral andAdministrative 3,183 3,905 11,180 12,186 ExpenseTOTAL OPERATING 18,991 19,917 61,706 61,406 EXPENSESOperating 14,957 17,148 37,052 50,912 Income Other Income 534 14 (5,580 ) 2,394 Income Before 15,491 17,162 31,472 53,306 Taxes Income Tax (83 ) 246 2,280 4,153 ExpenseConsolidated 15,574 16,916 29,192 49,153 Net Income Less: NetIncomeAttributable to 12,910 13,438 24,330 39,209 Non-ControllingInterests Net IncomeAttributable toPzena $ 2,664 $ 3,478 $ 4,862 $ 9,944 InvestmentManagement,Inc. Earnings perShare - Basicand DilutedAttributable toPzena InvestmentManagement,Inc. CommonStockholders: Net Income forBasic Earnings $ 2,664 $ 3,478 $ 4,862 $ 9,944 per ShareBasic Earnings $ 0.16 $ 0.19 $ 0.28 $ 0.55 per ShareBasic WeightedAverage Shares 16,931,447 17,851,780 17,310,875 18,000,234 Outstanding Net Income forDiluted $ 12,374 $ 13,768 $ 4,862 $ 39,793 Earnings perShare^1DilutedEarnings per $ 0.16 $ 0.19 $ 0.28 $ 0.54 Share^1DilutedWeighted 78,783,209 73,649,468 79,084,609 74,022,533 Average SharesOutstanding

1During the nine months ended September 30, 2020, the calculation of GAAP diluted earnings per share resulted in an increase in earnings per share. Therefore, diluted net income and diluted earnings per share are assumed to be equal to basic net income and basic earnings per share.

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