Pzena Investment Management, Inc. [PZN] Filings

10-Q 1 pzn-20220331.htm 10-Q 10-Q

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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

☐ 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.

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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

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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.

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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

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.

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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

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.

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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.

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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		$