Market Overview

Pzena Investment Management, Inc. Reports Results for the Second Quarter of 2018

Share:
  • Assets under management ends the second quarter at $36.9 billion.
  • Q2 2018 revenue increases 12 percent to $38.3 million from Q2 2017.
  • Q2 2018 GAAP diluted earnings per share increases 33 percent to $0.20 from Q2 2017.
  • Board declares a quarterly dividend of $0.03 per share.

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

    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
               

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  
                                         

Financial Discussion

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  
                         

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

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  
                         

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

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:

Record Date:   August 3, 2018
     
Payment Date:   August 27, 2018

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.

Second Quarter 2018 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, 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.

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 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.

Contact: Gary Bachman, 212-583-0225 or bachman@pzena.com.

 
PZENA INVESTMENT MANAGEMENT, INC.
 
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
       
    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  
                 

 

 
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 
    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  
                                 

A PDF accompanying this announcement is available at http://resource.globenewswire.com/Resource/Download/4abefef4-50f3-4cbb-9153-b19e25aeb6fd

Primary Logo

View Comments and Join the Discussion!