GlobeNewswire Inc | Jul 28, 2020 04:16PM EDT

July 28, 2020

-- Assets under management ends the second quarter at $31.5 billion. -- Q2 2020 revenue decreases 20 percent to $30.1 million from Q2 2019. -- Q22020 GAAP diluted earnings per share increases to $0.13. -- Board declares a quarterly dividend of $0.03 per share.

NEW YORK, July 28, 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 six months ended June30, 2020 and 2019 (in thousands, except per-share amounts):

GAAP Basis For the Three Months Ended June30, 2020 2019 (unaudited) Basic Net Income $ 2,198 $ 3,364 Basic Earnings per Share $ 0.13 $ 0.19 Diluted Net Income $ 9,997 $ 13,218 Diluted Earnings per Share $ 0.13 $ 0.18 GAAP Basis For the Six Months Ended June30, 2020 2019 (unaudited) Basic Net Income $ 2,198 $ 6,466 Basic Earnings per Share $ 0.13 $ 0.36 Diluted Net Income^1 $ 2,198 $ 26,026 Diluted Earnings per Share^1 $ 0.13 $ 0.35

1During the six months ended June 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 $10.0 million and $0.13, respectively, for the three months ended June30, 2020, and $13.2 million and $0.18, respectively, for the three months ended June30, 2019. GAAP diluted net income and GAAP diluted earnings per share were $2.2 million and $0.13, respectively, for the six months ended June 30, 2020, and $26.0 million and $0.35, respectively, for the six months ended June 30, 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 six months ended June 30, 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 June30, March31, June30, June30, June30, 2020 2020 2019 2020 2019 Separately Managed AccountsAssets Beginning of $ 10.8 $ 16.4 $ 13.8 $ 13.9 $ 13.8 PeriodInflows 0.7 0.4 0.2 2.7 2.4 Outflows (0.5 ) (0.3 ) (0.3 ) (1.3 ) (1.9 )Net Flows 0.2 0.1 (0.1 ) 1.4 0.5 MarketAppreciation/ 1.9 (5.4 ) 0.2 (2.2 ) (0.3 )(Depreciation)Foreign Exchange^ 0.1 (0.3 ) ? (0.1 ) (0.1 )1End of Period $ 13.0 $ 10.8 $ 13.9 $ 13.0 $ 13.9 Sub-Advised AccountsAssets Beginning of $ 14.3 $ 22.4 $ 21.0 $ 21.1 $ 21.2 Period AssetsInflows 0.7 0.8 0.4 3.1 3.0 Outflows (1.4 ) (0.8 ) (0.6 ) (4.3 ) (2.5 )Net Flows (0.7 ) ? (0.2 ) (1.2 ) 0.5 MarketAppreciation/ 2.7 (8.0 ) 0.3 (3.5 ) (0.6 )(Depreciation)Foreign Exchange^ 0.1 (0.1 ) ? ? ? 1End of Period $ 16.4 $ 14.3 $ 21.1 $ 16.4 $ 21.1 Pzena Funds Assets Beginning of $ 1.7 $ 2.4 $ 2.3 $ 2.3 $ 1.9 Period AssetsInflows 0.1 0.2 0.1 0.5 0.7 Outflows ? (0.1 ) (0.1 ) (0.4 ) (0.3 )Net Flows 0.1 0.1 ? 0.1 0.4 MarketAppreciation/ 0.3 (0.7 ) ? (0.3 ) ? (Depreciation)Foreign Exchange^ ? (0.1 ) ? ? ? 1End of Period $ 2.1 $ 1.7 $ 2.3 $ 2.1 $ 2.3 Total Assets Beginning of $ 26.8 $ 41.2 $ 37.1 $ 37.3 $ 36.9 PeriodInflows 1.5 1.4 0.7 6.3 6.1 Outflows (1.9 ) (1.2 ) (1.0 ) (6.0 ) (4.7 )Net Flows (0.4 ) 0.2 (0.3 ) 0.3 1.4 MarketAppreciation/ 4.9 (14.1 ) 0.5 (6.0 ) (0.9 )(Depreciation)Foreign Exchange^ 0.2 (0.5 ) ? (0.1 ) (0.1 )1End of Period $ 31.5 $ 26.8 $ 37.3 $ 31.5 $ 37.3

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 June30, March31, June30, 2020 2020 2019 Separately Managed Accounts $ 16,738 $ 18,696 $ 18,815 Sub-Advised Accounts 10,262 12,709 15,057 Pzena Funds 3,131 3,274 3,971 Total $ 30,131 $ 34,679 $ 37,843 For the Six Months Ended June30, June30, 2020 2019 Separately Managed Accounts $ 35,434 $ 37,411 Sub-Advised Accounts 22,971 30,064 Pzena Funds 6,405 7,778 Total $ 64,810 $ 75,253

Revenue was $30.1 million for the second quarter of 2020, a decrease of 13.1% from $34.7 million for the first quarter of 2020, and a decrease of 20.4% from $37.8 million for the second quarter of 2019.

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

Average assets under management for the second quarter of 2020 were $29.8 billion, decreasing 15.8% from $35.4 billion for the first quarter of 2020, and decreasing 19.7% from $37.1 billion for the second quarter of 2019. The decrease from the first quarter of 2020 and the second quarter of 2019 primarily reflects market depreciation during the first quarter of 2020.

The weighted average fee rate was 0.404% for the second quarter of 2020, increasing from 0.391% for the first quarter of 2020, and decreasing from 0.408% for the second quarter of 2019.

The weighted average fee rate for separately managed accounts was 0.552% for the second quarter of 2020, increasing from 0.526% for the first quarter of 2020, and from 0.545% for the second quarter of 2019. The increase from the first quarter of 2020 reflects the addition of assets to strategies that typically carry higher fee rates.

The weighted average fee rate for sub-advised accounts was 0.260% for the second quarter of 2020, decreasing from 0.266% for the first quarter of 2020 and from 0.287% for the second 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 second quarter of 2020, first quarter of 2020, and second 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 is reflected in the decrease of the weighted average fee rate from the second quarter of 2019. The decrease from the first quarter of 2020 primarily reflects a shift to strategies that typically carry lower fee rates.

The weighted average fee rate for Pzena funds was 0.659% for the second quarter of 2020, increasing from 0.625% for the first quarter of 2020, and decreasing from 0.694% for the second quarter of 2019. The increase from the first quarter of 2020 reflects inflows into funds that generally carry higher fee rates. The decrease from the second quarter of 2019 reflects an increase in fund expense cap reimbursements, which are presented net against revenue.

Total operating expenses were $19.2 million for the second quarter of 2020, decreasing from $23.6 million for the first quarter of 2020 and from $20.3 million for the second quarter of 2019. The decrease from the first quarter of 2020 reflects the absence of the cost of employee departures and expenses associated with tax payments and the Company's employee profit sharing and savings plan, which generally do not recur during the year. The decrease from the second quarter of 2019 primarily reflects a decrease in travel costs and professional fees and a decrease in the bonus accrual.

Operating Expenses (unaudited) ($ thousands) For the Three Months Ended June30, March31, June30, 2020 2020 2019 Compensation and Benefits $ 15,578 $ 19,140 $ 16,019 ExpenseGeneral and Administrative 3,575 4,422 4,254 ExpenseOperating Expenses $ 19,153 $ 23,562 $ 20,273 For the Six Months Ended June30, June30, 2020 2019 Compensation and Benefits $ 34,718 $ 33,208 ExpenseGeneral and Administrative 7,997 8,281 ExpenseOperating Expenses $ 42,715 $ 41,489

As of June30, 2020 and March 31, 2020, employee headcount was 120, up from 110 at June30, 2019.

The operating margin was 36.4% for the second quarter of 2020, compared to 32.1% for the first quarter of 2020, and 46.4% for the second quarter of 2019. The decrease in operating margin from the second quarter of 2019 is primarily driven by the decrease in revenue.

Other income/ (expense) was income of approximately $3.2 million for the second quarter of 2020, an expense of $9.4 million for the first quarter of 2020, and income of $0.6 million for the second 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 June30, March31, June30, 2020 2020 2019 Net Interest and Dividend $ 145 $ 240 $ 360 IncomeGains/ (Losses) and Other 3,050 (9,510 ) 245 Investment IncomeOther Income/ (Expense) 47 (86 ) (44 )GAAP Other Income/ (Expense) 3,242 (9,356 ) 561 Outside Interests of (234 ) 314 (38 )Investment Partnerships^1As Adjusted Other Income/(Expense), Net of Outside $ 3,008 $ (9,042 ) $ 523 Interests For the Six Months Ended June30, June30, 2020 2019 Net Interest and Dividend $ 385 $ 639 IncomeGains/ (Losses) and Other (6,460 ) 1,840 Investment IncomeOther Income (39 ) (99 )GAAP Other Income/ (Expense) (6,114 ) 2,380 Outside Interests of 80 (166 )Investment Partnerships^3As Adjusted Other Income/(Expense), Net of Outside $ (6,034 ) $ 2,214 Interests

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

The Company recognized income tax expenses of $1.4 million for the second quarter of 2020, $1.0 million for the first quarter of 2020, and $1.8 million for the second quarter of 2019.

Details of the income tax expense are shown below:

Income Tax Expense (unaudited) ($ thousands) For the Three Months Ended June30, March31, June30, 2020 2020 2019 Corporate Income Tax Expense $ 797 $ 371 $ 1,051 Unincorporated and Other 574 621 785 Business Tax ExpenseIncome Tax Expense $ 1,371 $ 992 $ 1,836 For the Six Months Ended June30, June30, 2020 2019 Corporate Income Tax Expense $ 1,168 $ 2,416 Unincorporated and Other 1,195 1,491 Business Tax ExpenseIncome Tax Expense $ 2,363 $ 3,907

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 June30, March31, June30, 2020 2020 2019 Operating Company Allocation $ 10,417 $ 1,083 $ 12,893 Outside Interests of 234 (314 ) 38 Investment Partnerships^1GAAP Net Income Attributable $ 10,651 $ 769 $ 12,931 to Non-Controlling Interests For the Six Months Ended June30, June30, 2020 2019 Operating Company Allocation $ 11,500 $ 25,605 Outside Interests of (80 ) 166 Investment Partnerships^1GAAP Net Income Attributable $ 11,420 $ 25,771 to Non-Controlling Interests

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

On July 28, 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: August 7, 2020

Payment Date: August 28, 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.

Second Quarter 2020 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, July 29, 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 August 12, 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 June30, December31, 2020 2019 (unaudited) ASSETS Cash and Cash Equivalents $ 33,131 $ 52,480 Restricted Cash 1,043 1,036 Due from Broker 875 149 Advisory Fees Receivable 30,155 32,887 Investments 29,403 55,934 Prepaid Expenses and Other Assets 5,287 4,876 Right-of-use Assets 12,698 13,860 Deferred Tax Asset 30,752 32,683 Property and Equipment, Net of Accumulated Depreciation of $5,376 and $4,765, 4,968 5,547 respectivelyTOTAL ASSETS $ 148,312 $ 199,452 LIABILITIES AND EQUITY Liabilities: Accounts Payable and Accrued Expenses $ 23,460 $ 44,715 Due to Broker 1,812 40 Securities Sold Short 779 ? Liability to Selling and Converting 28,652 28,652 ShareholdersLease Liabilities 13,049 14,235 Deferred Compensation Liability 1,936 3,600 TOTAL LIABILITIES 69,688 91,242 Equity: Total Pzena Investment Management, Inc.'s 23,567 31,444 EquityNon-Controlling Interests 55,057 76,766 TOTAL EQUITY 78,624 108,210 TOTAL LIABILITIES AND EQUITY $ 148,312 $ 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 Six Months Ended June30, June30, 2020 2019 2020 2019 REVENUE $ 30,131 $ 37,843 $ 64,810 $ 75,253 EXPENSES Compensationand Benefits 15,578 16,019 34,718 33,208 ExpenseGeneral andAdministrative 3,575 4,254 7,997 8,281 ExpenseTOTAL OPERATING 19,153 20,273 42,715 41,489 EXPENSESOperating 10,978 17,570 22,095 33,764 Income Other Income 3,242 561 (6,114 ) 2,380 Income Before 14,220 18,131 15,981 36,144 Taxes Income Tax 1,371 1,836 2,363 3,907 ExpenseConsolidated 12,849 16,295 13,618 32,237 Net Income Less: NetIncomeAttributable to 10,651 12,931 11,420 25,771 Non-ControllingInterests Net IncomeAttributable toPzena $ 2,198 $ 3,364 $ 2,198 $ 6,466 InvestmentManagement,Inc. Earnings perShare - Basicand DilutedAttributable toPzena InvestmentManagement,Inc. CommonStockholders: Net Income forBasic Earnings $ 2,198 $ 3,364 $ 2,198 $ 6,466 per ShareBasic Earnings $ 0.13 $ 0.19 $ 0.13 $ 0.36 per ShareBasic WeightedAverage Shares 17,215,163 17,874,842 17,502,674 18,075,692 Outstanding Net Income forDiluted $ 9,997 $ 13,218 $ 2,198 $ 26,026 Earnings perShare^1DilutedEarnings per $ 0.13 $ 0.18 $ 0.13 $ 0.35 Share^1DilutedWeighted 78,608,197 74,153,408 79,261,048 74,212,207 Average SharesOutstanding

1During the six months ended June 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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