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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2022

Or

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______to______

Commission file number 001-33761

PZENA INVESTMENT MANAGEMENT, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

20-8999751

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification No.)

 

320 Park Avenue

New York, New York 10022

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (212) 355-1600

Not Applicable

(Former Address of Principal Executive Offices) (Zip Code)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, par value $0.01 per share

PZN

New York Stock Exchange

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of May 2, 2022, there were 16,940,499 outstanding shares of the registrant’s Class A common stock, par value $0.01 per share.

As of May 2, 2022, there were 56,952,777 outstanding shares of the registrant’s Class B common stock, par value $0.000001 per share.

 

 

 


Table of Contents

 

PZENA INVESTMENT MANAGEMENT, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

PART I — FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition of Pzena Investment Management, Inc. as of March 31, 2022 (unaudited) and December 31, 2021

 

1

 

 

 

 

 

 

 

Consolidated Statements of Operations (unaudited) of Pzena Investment Management, Inc. for the Three Months Ended March 31, 2022 and 2021

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (unaudited) of Pzena Investment Management, Inc. for the Three Months Ended March 31, 2022 and 2021

 

3

 

 

 

 

 

 

 

Consolidated Statement of Changes in Equity (unaudited) of Pzena Investment Management, Inc. for the Three Months Ended March 31, 2022 and 2021

 

4

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) of Pzena Investment Management, Inc. for the Three Months Ended March 31, 2022 and 2021

 

5

 

 

 

 

 

 

 

Notes to the Consolidated Financial Statements (unaudited)

 

6

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

25

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

38

 

 

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

 

 

 

 

 

Item 6.

 

Exhibits

 

40

 

 

 

 

 

SIGNATURES

 

41

 

 

i


Table of Contents

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements provide our current expectations, or forecasts, of future events. Forward-looking statements 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.

Forward-looking statements are subject to known and unknown risks and uncertainties and are based on our views, plans, estimates, and expectations. Potentially inaccurate assumptions could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in Item 1A, “Risk Factors” in Part I of our Annual Report on Form 10-K for our fiscal year ended December 31, 2021. Accordingly, you should not unduly rely on these forward-looking statements, which speak only as of the date they are made. We undertake no obligation to publicly revise any forward-looking statements included in this Quarterly Report to reflect circumstances or events after the date of this Quarterly Report, or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission ("SEC"), after the date of this Quarterly Report on Form 10-Q.

Forward-looking statements include, but are not limited to, statements about:

our ability to respond to global economic, market, business and geopolitical conditions, including changes in such conditions resulting from the COVID-19 pandemic and government responses thereto;
our anticipated future results of operations and operating cash flows;
our successful formulation and execution of business strategies and investment policies;
our financing plans and the availability of short- or long-term borrowing, or equity financing;
our competitive position and the effects of competition on our business;
our ability to identify and capture potential growth opportunities available to us;
the effective recruitment and retention of our executives and employees;
our expected levels of compensation for our employees;
expectations relating to dividend payments and our ability to make such payments;
our potential operating performance, achievements, efficiency, and cost reduction efforts;
our expected tax rate;
changes in interest rates;
our expectations with respect to the economy, capital markets, the market for asset management services, and other industry trends;
the potential impact of disruptions as a result of natural disasters, pandemics, or other international health emergencies, including the COVID-19 pandemic as well as the conditions in the sectors in which we invest; and
the impact of future legislation and regulation, and changes in existing legislation and regulation, on our business.

The reports that we file with the SEC, accessible on the SEC’s website at www.sec.gov, identify additional factors that can affect forward-looking statements. The impact of COVID-19 may also exacerbate these risks, any of which could have a material effect on us.

i


Table of Contents

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

PZENA INVESTMENT MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share and per-share amounts)

 

 

 

As of

 

 

 

March 31, 2022

 

 

December 31, 2021

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Cash and Cash Equivalents ($0 and $1,030)1

 

$

35,576

 

 

$

81,133

 

Restricted Cash

 

 

2,214

 

 

 

1,056

 

Due from Broker

 

 

131

 

 

 

55

 

Advisory Fees Receivable

 

 

41,999

 

 

 

41,127

 

Investments ($1,477 and $27,483)1

 

 

71,584

 

 

 

95,506

 

Receivable from Related Parties

 

 

5,780

 

 

 

3,871

 

Other Receivables ($0 and $40)1

 

 

492

 

 

 

265

 

Prepaid Expenses and Other Assets

 

 

1,714

 

 

 

1,700

 

Right-of-use Assets

 

 

32,516

 

 

 

10,014

 

Deferred Tax Asset

 

 

24,106

 

 

 

25,886

 

Property and Equipment, Net of Accumulated Depreciation of $7,367 and $7,086, respectively

 

 

4,003

 

 

 

3,687

 

TOTAL ASSETS

 

$

220,115

 

 

$

264,300

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Accounts Payable and Accrued Expenses ($0 and $62)1

 

$

27,884

 

 

$

44,167

 

Due to Broker

 

 

124

 

 

 

 

Securities Sold Short, at Fair Value

 

 

276

 

 

 

237

 

Liability to Selling and Converting Shareholders

 

 

24,679

 

 

 

24,679

 

Lease Liabilities

 

 

33,042

 

 

 

10,323

 

Deferred Compensation Liability

 

 

2,066

 

 

 

6,840

 

TOTAL LIABILITIES

 

 

88,071

 

 

 

86,246

 

Commitments and Contingencies (see Note 12)

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Preferred Stock (Par Value $0.01; 200,000,000 Shares Authorized; None Outstanding)

 

 

 

 

 

 

Class A Common Stock (Par Value $0.01; 750,000,000 Shares Authorized; 17,106,402 and 17,306,455 Shares Issued and Outstanding in 2022 and 2021, respectively)

 

 

171

 

 

 

172

 

Class B Common Stock (Par Value $0.000001; 750,000,000 Shares Authorized; 56,726,740 and 54,203,277 Shares Issued and Outstanding in 2022 and 2021, respectively)

 

 

 

 

 

 

Additional Paid-In Capital

 

 

5,111

 

 

 

3,989

 

Retained Earnings

 

 

32,026

 

 

 

38,420

 

Accumulated Other Comprehensive Income

 

 

5

 

 

 

7

 

Total Pzena Investment Management, Inc.'s Equity

 

 

37,313

 

 

 

42,588

 

Non-Controlling Interests

 

 

94,731

 

 

 

135,466

 

TOTAL EQUITY

 

 

132,044

 

 

 

178,054

 

TOTAL LIABILITIES AND EQUITY

 

$

220,115

 

 

$

264,300

 

 

1.
Asset and liability amounts in parentheses represent the aggregated balances at March 31, 2022 and December 31, 2021 attributable to Pzena U.S. Best Ideas (GP), LLC and Pzena Global Best Ideas (GP), LLC, which were variable interest entities as of March 31, 2022 and December 31, 2021. Asset and liability amounts in parentheses at December 31, 2021 are also attributable to Pzena Global Focus Value Fund.

 

 

See accompanying notes to unaudited consolidated financial statements.

1


Table of Contents

 

PZENA INVESTMENT MANAGEMENT, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per-share amounts)

 

 

 

For the Three Months
Ended March 31,

 

 

 

2022

 

 

2021

 

REVENUE

 

$

52,760

 

 

$

45,871

 

EXPENSES

 

 

 

 

 

 

Compensation and Benefits Expense

 

 

21,186

 

 

 

19,135

 

General and Administrative Expense

 

 

4,945

 

 

 

3,696

 

Total Operating Expenses

 

 

26,131

 

 

 

22,831

 

Operating Income

 

 

26,629

 

 

 

23,040

 

OTHER INCOME/ (EXPENSE)

 

 

 

 

 

 

Interest Income

 

 

26

 

 

 

55

 

Dividend Income

 

 

436

 

 

 

142

 

Net Realized and Unrealized (Losses)/ Gains from Investments

 

 

(182

)

 

 

2,563

 

Equity in (Losses)/ Earnings of Affiliates

 

 

(63

)

 

 

1,537

 

Other (Expense)/ Income

 

 

(139

)

 

 

58

 

Total Other Income

 

 

78

 

 

 

4,355

 

Income Before Income Taxes

 

 

26,707

 

 

 

27,395

 

Income Tax Expense

 

 

8,225

 

 

 

2,366

 

Net Income

 

 

18,482

 

 

 

25,029

 

Less: Net Income Attributable to Non-Controlling Interests

 

 

15,667

 

 

 

20,842

 

Net Income Attributable to Pzena Investment Management, Inc.

 

$

2,815

 

 

$

4,187

 

 

 

 

 

 

 

 

Net Income for Basic Earnings per Share

 

$

2,815

 

 

$

4,187

 

Basic Earnings per Share

 

$

0.16

 

 

$

0.24

 

Basic Weighted Average Shares Outstanding1

 

 

17,350,846

 

 

 

17,240,412

 

 

 

 

 

 

 

 

Net Income for Diluted Earnings per Share

 

$

13,489

 

 

$

19,731

 

Diluted Earnings per Share

 

$

0.16

 

 

$

0.24

 

Diluted Weighted Average Shares Outstanding1

 

 

86,694,305

 

 

 

83,451,997

 

 

 

 

 

 

 

 

Cash Dividends per Share of Class A Common Stock

 

$

0.53

 

 

$

0.25

 

 

1.
The Company issues restricted shares of Class A common stock and restricted Class B units that have non-forfeitable dividend rights. Under the "two-class method," these shares and units are considered participating securities and are required to be included in the computation of basic and diluted earnings per share.

 

See accompanying notes to unaudited consolidated financial statements.

2


Table of Contents

 

PZENA INVESTMENT MANAGEMENT, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

 

 

 

For the Three Months
Ended March 31,

 

 

 

2022

 

 

2021

 

NET INCOME

 

$

18,482

 

 

$

25,029

 

OTHER COMPREHENSIVE GAIN

 

 

 

 

 

 

Foreign Currency Translation Adjustment

 

 

(134

)

 

 

(12

)

Total Other Comprehensive Loss

 

 

(134

)

 

 

(12

)

Comprehensive Income

 

 

18,348

 

 

 

25,017

 

Less: Comprehensive Income Attributable to Non-Controlling Interests

 

 

15,535

 

 

 

20,835

 

Total Comprehensive Income Attributable to Pzena Investment Management, Inc.

 

$

2,813

 

 

$

4,182

 

 

 

See accompanying notes to unaudited consolidated financial statements.

3


Table of Contents

 

PZENA INVESTMENT MANAGEMENT, INC.

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(in thousands, except share and per-share amounts)

 

 

 

Shares of
Class A
Common Stock

 

 

Shares of
Class B
Common Stock

 

 

Class A
Common Stock

 

 

Additional
Paid-In Capital

 

 

Accumulated
Other
Comprehensive
Income

 

 

Retained
Earnings

 

 

Non-Controlling
Interests

 

 

Total Equity

 

Balance at December 31, 2021

 

 

17,306,455

 

 

 

55,203,277

 

 

$

172

 

 

$

3,989

 

 

$

7

 

 

$

38,420

 

 

$

135,466

 

 

$

178,054

 

Amortization of Non-Cash Compensation

 

 

15,539

 

 

 

310,369

 

 

 

 

 

 

431

 

 

 

 

 

 

 

 

 

1,648

 

 

 

2,079

 

Issuance of Shares under Equity Incentive Plan

 

 

 

 

 

1,084,675

 

 

 

 

 

 

1,528

 

 

 

 

 

 

 

 

 

5,259

 

 

 

6,787

 

Sale of Shares under Equity Incentive Plan

 

 

18,057

 

 

 

138,238

 

 

 

 

 

 

151

 

 

 

 

 

 

 

 

 

578

 

 

 

729

 

Directors' Share Grants

 

 

29,713

 

 

 

 

 

 

 

 

 

91

 

 

 

 

 

 

 

 

 

345

 

 

 

436

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,815

 

 

 

15,667

 

 

 

18,482

 

Foreign Currency Translation Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(132

)

 

 

(134

)

Repurchase and Retirement of Class A Common Stock

 

 

(263,362

)

 

 

 

 

 

(1

)

 

 

(491

)

 

 

 

 

 

 

 

 

(1,873

)

 

 

(2,365

)

Repurchase and Retirement of Class B Units

 

 

 

 

 

(9,819

)

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

(51

)

 

 

(64

)

Class A Cash Dividends Declared and Paid ($0.25 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,209

)

 

 

 

 

 

(9,209

)

Tax Impact of Transactions with Non-Controlling Shareholders

 

 

 

 

 

 

 

 

 

 

 

(829

)

 

 

 

 

 

 

 

 

 

 

 

(829

)

Effect of Deconsolidation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,755

)

 

 

(26,755

)

Contributions from Non-Controlling Interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,838

 

 

 

11,838

 

Distributions to Non-Controlling Interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(47,005

)

 

 

(47,005

)

Other

 

 

 

 

 

 

 

 

 

 

 

254

 

 

 

 

 

 

 

 

 

(254

)

 

 

 

Balance at March 31, 2022

 

 

17,106,402

 

 

 

56,726,740

 

 

$

171

 

 

$

5,111

 

 

$

5

 

 

$

32,026

 

 

$

94,731

 

 

$

132,044

 

 

 

 

Shares of
Class A
Common Stock

 

 

Shares of
Class B
Common Stock

 

 

Class A
Common Stock

 

 

Additional
Paid-In Capital

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Retained
Earnings

 

 

Non-Controlling
Interests

 

 

Total Equity

 

Balance at December 31, 2020

 

 

17,328,899

 

 

 

54,313,620

 

 

$

173

 

 

$

5,190

 

 

$

132

 

 

$

25,611

 

 

$

77,849

 

 

$

108,955

 

Amortization of Non-Cash Compensation

 

 

14,201

 

 

 

320,495

 

 

 

 

 

 

462

 

 

 

 

 

 

 

 

 

1,683

 

 

 

2,145

 

Issuance of Shares under Equity Incentive Plan

 

 

12,353

 

 

 

805,987

 

 

 

 

 

 

872

 

 

 

 

 

 

 

 

 

2,950

 

 

 

3,822

 

Sale of Shares under Equity Incentive Plan

 

 

 

 

 

26,097

 

 

 

 

 

 

36

 

 

 

 

 

 

 

 

 

131

 

 

 

167

 

Directors' Share Grants

 

 

12,338

 

 

 

 

 

 

 

 

 

53

 

 

 

 

 

 

 

 

 

194

 

 

 

247

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,187

 

 

 

20,842

 

 

 

25,029

 

Foreign Currency Translation Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5

)

 

 

 

 

 

(7

)

 

 

(12

)

Repurchase and Retirement of Class A Common Stock

 

 

(275,218

)

 

 

 

 

 

(3

)

 

 

(516

)

 

 

 

 

 

 

 

 

(1,871

)

 

 

(2,390

)

Repurchase and Retirement of Class B Units

 

 

 

 

 

(18,476

)

 

 

 

 

 

(20

)

 

 

 

 

 

 

 

 

(70

)

 

 

(90

)

Class A Cash Dividends Declared and Paid ($0.46 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,302

)

 

 

 

 

 

(4,302

)

Tax Impact of Transactions with Non-Controlling Shareholders

 

 

 

 

 

 

 

 

 

 

 

(494

)

 

 

 

 

 

 

 

 

 

 

 

(494

)

Contributions from Non-Controlling Interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

303

 

 

 

303

 

Distributions to Non-Controlling Interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,725

)

 

 

(29,725

)

Other

 

 

 

 

 

 

 

 

 

 

 

(541

)

 

 

 

 

 

 

 

 

541

 

 

 

 

Balance at March 31, 2021

 

 

17,092,573

 

 

 

55,447,723

 

 

$

170

 

 

$

5,042

 

 

$

127

 

 

$

25,496

 

 

$