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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 8-K
 
 
CURRENT REPORT
 
 
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 
Date of Report (Date of Earliest Event Reported): February 7, 2017
 
PZENA INVESTMENT MANAGEMENT, INC.
 
 
(Exact Name of Registrant as Specified in its Charter)
 
 
Delaware
 
001-33761
 
20-8999751
 
 
(State or Other Jurisdiction of Incorporation)
 
(Commission File Number)
 
(IRS Employer Identification Number)
 
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
 
 
 
(Former Name or Former Address, If Changed Since Last Report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act.
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act.
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act.
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act.






ITEM 2.02
RESULTS OF OPERATION AND FINANCIAL CONDITION.
 
On February 7, 2017, Pzena Investment Management, Inc. (the “Company”) issued a press release reporting its financial results for the fourth quarter of 2016. Copies of the press release and related attachments are furnished as Exhibit 99.1 to this Current Report.
 
ITEM 9.01
FINANCIAL STATEMENTS AND EXHIBITS.
 
 
 
(d) Exhibits
 
 
 
99.1 Press release, dated February 7, 2017, of Pzena Investment Management, Inc.






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
PZENA INVESTMENT MANAGEMENT, INC.
 
 
 
Dated: February 7, 2017
By:
/s/ Jessica R. Doran
 
 
Name: Jessica R. Doran
 
 
Title: Chief Financial Officer
 
 
 






EXHIBIT INDEX

Exhibit No.
Document
99.1
Press release, dated February 7, 2017, of Pzena Investment Management, Inc.



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


37931121_pzenalogoinc.jpg

PZENA INVESTMENT MANAGEMENT, INC.
REPORTS RESULTS FOR THE FOURTH QUARTER AND FULL YEAR 2016

2016 revenue was $29.1 million for the fourth quarter and $108.3 million for the full year.

2016 GAAP operating income was $13.7 million for the fourth quarter and $47.2 million for the full year.

2016 GAAP diluted earnings per share was $0.27 for the fourth quarter and $0.58 for the full year.

Declared a year-end dividend of $0.28 per share - in line with annual targeted cash dividend ratio of 70% to 80% of non-GAAP diluted net earnings per share.

NEW YORK, NEW YORK, February 7, 2017 - Pzena Investment Management, Inc. (NYSE: PZN) reported the following U.S. Generally Accepted Accounting Principles (GAAP) and non-GAAP basic and diluted net income and earnings per share for the three and twelve months ended December 31, 2016 and 2015 (in thousands, except per-share amounts):
    

GAAP Basis
 
Non-GAAP Basis
 
For the Three Months Ended
 
For the Three Months Ended
 
December 31,
 
December 31,
 
2016
 
2015
 
2016
 
2015
 
(unaudited)
 
 
 
 
 
 
 
 
Basic Net Income
$
10,986

 
$
2,213

 
$
3,034

 
$
2,082

Basic Earnings Per Share
$
0.67

 
$
0.14

 
$
0.18

 
$
0.14

 
 
 
 
 
 
 
 
Diluted Net Income
$
18,434

 
$
8,415

 
$
10,482

 
$
8,284

Diluted Earnings Per Share
$
0.27

 
$
0.12

 
$
0.15

 
$
0.12

 
 
 
 
 
 
 
 
 
GAAP Basis
 
Non-GAAP Basis
 
For the Twelve Months Ended
 
For the Twelve Months Ended
 
December 31,
 
December 31,
 
2016
 
2015
 
2016
 
2015
 
(unaudited)
 
 
 
 
 
 
 
 
Basic Net Income
$
16,179

 
$
7,679

 
$
7,958

 
$
7,438

Basic Earnings Per Share
$
1.01

 
$
0.55

 
$
0.50

 
$
0.53

 
 
 
 
 
 
 
 
Diluted Net Income
$
39,600

 
$
33,809

 
$
31,379

 
$
34,495

Diluted Earnings Per Share
$
0.58

 
$
0.50

 
$
0.46

 
$
0.51

 
 
 
 
 
 
 
 



1



The GAAP results for the three and twelve months ended December 31, 2016 and 2015 include items related to the Company's deferred tax asset, valuation allowance and the associated liability to its selling and converting shareholders. GAAP results for 2015 also include items related to certain non-recurring charges recognized in operating expenses associated with our former corporate headquarters. Management believes that these accounting items add a measure of non-operational complexity which obscures the underlying performance of the business. In evaluating the results of operations, management also reviews non-GAAP measures of earnings, which are adjusted to exclude these items. As adjusted, non-GAAP diluted net income and non-GAAP diluted earnings per share were $10.5 million and $0.15, respectively, for the three months ended December 31, 2016, and $8.3 million and $0.12, respectively, for the three months ended December 31, 2015. Non-GAAP diluted net income and non-GAAP diluted earnings per share were $31.4 million and $0.46, respectively, for the twelve months ended December 31, 2016, and $34.5 million and $0.51, respectively, for the twelve months ended December 31, 2015. GAAP and non-GAAP 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 GAAP and non-GAAP 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.

Management uses the non-GAAP measures to assess the strength of the underlying operations of the business. It believes the non-GAAP measures provide information to better analyze the Company's operations between periods and over time. Investors should consider the non-GAAP measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.




2



Assets Under Management (unaudited)
 
 
 
 
 
 
 
 
 
 
($ billions)
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
 
For the Twelve Months Ended
 
 
December 31,
 
September 30,
 
December 31,
 
December 31,
 
December 31,
 
 
2016
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
Institutional Accounts
 
 
 
 
 
 
 
 
 
 
  Assets
 
 
 
 
 
 
 
 
 
 
     Beginning of Period
 
$
15.9

 
$
14.3

 
$
14.9

 
$
14.9

 
$
15.6

          Inflows
 
0.5

 
1.1

 
0.3

 
2.5

 
3.2

          Outflows
 
(0.7
)
 
(0.9
)
 
(0.9
)
 
(2.7
)
 
(3.0
)
          Net Flows
 
(0.2
)
 
0.2

 
(0.6
)
 
(0.2
)
 
0.2

          Market Appreciation/(Depreciation)
 
1.2

 
1.4

 
0.6

 
2.2

 
(0.9
)
     End of Period
 
$
16.9

 
$
15.9

 
$
14.9

 
$
16.9

 
$
14.9

 
 
 
 
 
 
 
 
 
 
 
Retail Accounts
 
 
 
 
 
 
 
 
 
 
  Assets
 
 
 
 
 
 
 
 
 
 
     Beginning of Period Assets
 
$
11.5

 
$
11.1

 
$
10.6

 
$
11.1

 
$
12.1

          Inflows
 
1.0

 
0.1

 
0.3

 
2.1

 
1.2

          Outflows
 
(0.7
)
 
(0.7
)
 
(0.4
)
 
(2.4
)
 
(1.7
)
          Net Flows
 
0.3

 
(0.6
)
 
(0.1
)
 
(0.3
)
 
(0.5
)
          Market Appreciation/(Depreciation)
 
1.3

 
1.0

 
0.6

 
2.3

 
(0.5
)
     End of Period
 
$
13.1

 
$
11.5

 
$
11.1

 
$
13.1

 
$
11.1

 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
  Assets
 
 
 
 
 
 
 
 
 
 
     Beginning of Period
 
$
27.4

 
$
25.4

 
$
25.5

 
$
26.0

 
$
27.7

          Inflows
 
1.5

 
1.2

 
0.6

 
4.6

 
4.4

          Outflows
 
(1.4
)
 
(1.6
)
 
(1.3
)
 
(5.1
)
 
(4.7
)
          Net Flows
 
0.1

 
(0.4
)
 
(0.7
)
 
(0.5
)
 
(0.3
)
          Market Appreciation/(Depreciation)
 
2.5

 
2.4

 
1.2

 
4.5

 
(1.4
)
     End of Period
 
$
30.0

 
$
27.4

 
$
26.0

 
$
30.0

 
$
26.0


















3



Financial Discussion

Revenue (unaudited)
 
 
 
 
 
($ thousands)
 
 
 
 
 
 
For the Three Months Ended
 
December 31,
 
September 30,
 
December 31,
 
2016
 
2016
 
2015
 
 
 
 
 
 
Institutional Accounts
$
21,470

 
$
20,513

 
$
20,270

Retail Accounts
7,603

 
6,477

 
7,402

    Total
$
29,073

 
$
26,990

 
$
27,672

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Twelve Months Ended
 
 
 
December 31,
 
December 31,
 
 
 
2016
 
2015
 
 
 
 
 
 
Institutional Accounts
 
 
$
80,149

 
$
85,964

Retail Accounts
 
 
28,187

 
30,643

    Total
 
 
$
108,336

 
$
116,607


Revenue was $29.1 million for the fourth quarter of 2016, an increase of 7.7% from $27.0 million for the third quarter of 2016 and 5.1% from $27.7 million for the fourth quarter of 2015.

Included in these amounts for the fourth quarter of 2016 and 2015, were performance fees recognized of $0.1 million and $0.6 million, respectively. No performance fees were recognized during the third quarter of 2016. In general, performance fees are calculated on an annualized basis over the contract's measurement period, which, for the majority of our performance fee arrangements, extends to three years.

Average assets under management for the fourth quarter of 2016 were $28.5 billion, an increase of 6.3% from $26.8 billion for the third quarter of 2016, and an increase of 8.0% from $26.4 billion for the fourth quarter of 2015. The increase from the third quarter of 2016 primarily reflects market appreciation over the period. The increase from the fourth quarter of 2015 reflects $4.5 billion in market appreciation primarily occurring in the second half of 2016, partially offset by net outflows.

The weighted average fee rate was 0.408% for the fourth quarter of 2016, compared to 0.403% for the third quarter of 2016 and 0.420% for the fourth quarter of 2015.

The weighted average fee rate for institutional accounts was 0.529% for the fourth quarter of 2016, compared to 0.533% for the third quarter of 2016 and 0.532% for the fourth quarter of 2015.

The weighted average fee rate for retail accounts was 0.248% for the fourth quarter of 2016, increasing from 0.227% for the third quarter of 2016, and decreasing from 0.266% for the fourth quarter of 2015.  The increase from last quarter primarily reflects inflows in certain non-U.S. strategies that generally carry higher fee rates. The decrease from the fourth quarter of 2015 reflects a decrease in performance fees, partially offset by a shift in mix towards strategies that generally carry higher fee rates. In addition, 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.  A reduction in base fees related to these fee arrangements contributed to the decrease in the weighted average fee rate for retail accounts from the fourth quarter of 2015. Conversely, the increase in weighted average fee rates from last quarter reflects improved relative performance and an increase in the level of base fee recognized, although does not reflect the full base fees

4



of accounts with fulcrum fee arrangements. To the extent the three-year performance records of these accounts fluctuate relative to their relevant benchmarks, the amount of base fees recognized may vary.

Total operating expenses on a GAAP basis were $15.4 million for the fourth quarter of 2016, increasing from $15.0 million for the third quarter of 2016 and from $14.7 million for the fourth quarter of 2015. The changes in operating expenses on a GAAP basis from the third quarter of 2016 and fourth quarter of 2015 primarily reflect increases in compensation and benefits expense, partially offset by a decrease in general and administrative expense. The increase in compensation from the third quarter of 2016 reflects increased headcount, as well as an increase in obligations under the Company's deferred compensation plan driven by an increase in the performance of the strategies in which employees elect to invest deferred compensation. The increase from the fourth quarter of 2015 reflects an increase in compensation and headcount. Details of operating expenses and a reconciliation of GAAP to non-GAAP operating expenses are shown below:

Operating Expenses (unaudited)
 
 
 
 
 
 
($ thousands)
 
 
 
 
 
 
 
 
For the Three Months Ended
 
 
December 31,
 
September 30,
 
December 31,
 
 
2016
 
2016
 
2015
 
 
 
 
 
 
 
Compensation and Benefits Expense
 
$
12,366

 
$
11,767

 
$
11,008

General and Administrative Expense
 
2,998

 
3,271

 
3,678

    Operating Expenses
 
$
15,364

 
$
15,038

 
$
14,686

 
 
 
 
 
 
 
 
 
 
 
For the Twelve Months Ended
 
 
 
 
December 31,
 
December 31,
 
 
 
 
2016
 
2015
 
 
 
 
 
 
 
Compensation and Benefits Expense
 
 
 
$
48,330

 
$
46,523

General and Administrative Expense
 
 
 
12,788

 
14,667

    GAAP Operating Expenses
 
 
 
61,118

 
61,190

One-Time Adjustments
 
 
 

 
(1,834
)
Non-GAAP Operating Expenses
 
 
 
$
61,118

 
$
59,356



As of December 31, 2016, employee headcount was 100, up from 92 at September 30, 2016 and from 88 at December 31, 2015.

The operating margin was 47.2% on a GAAP basis for the fourth quarter of 2016, compared to 44.3% for the third quarter of 2016, and 46.9% for the fourth quarter of 2015.


5



Other (expense)/ income was an expense of approximately $48.1 million for the fourth quarter of 2016, income of $0.4 million for the third quarter of 2016, and income of $1.9 million for the fourth quarter of 2015. Other (expense)/ income includes the gains/ (losses) 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. A portion of gains/ (losses) and other investment income associated with the investments of outside interests are offset in net income attributable to non-controlling interests. For the fourth quarter of 2016, other (expense)/ income also includes an expense of $50.1 million reflecting an increase in the Company's liability to its selling and converting shareholders resulting from the release of the valuation allowance recorded against the deferred tax assets described in income tax (benefit)/ expense below. Changes in the liability to selling and converting shareholders associated with changes in the realizability of the deferred tax asset generated an expense of $1.2 million and income of $1.2 million in the third quarter of 2016 and the fourth quarter of 2015, respectively. Details of other (expense)/ income, as well as a reconciliation of the related GAAP and non-GAAP measures, are shown below:

Other Income/ (Expense) (unaudited)
 
 
 
 
 
 
($ thousands)
 
 
 
 
 
 
 
 
 For the Three Months Ended
 
 
December 31,
 
September 30,
 
December 31,
 
 
2016
 
2016
 
2015
 
 
 
 
 
 
 
Net Interest and Dividend Income
 
$
47

 
$
87

 
$
107

Gains/ (Losses) and Other Investment Income
 
1,888

 
1,533

 
579

Change in Liability to Selling and Converting Shareholders¹
 
(50,064
)
 
(1,200
)
 
1,191

Other Income/ (Expense)
 
22

 
20

 
(22
)
    GAAP Other (Expense)/ Income
 
(48,107
)
 
440

 
1,855

Change in Liability to Selling and Converting Shareholders¹
 
50,064

 
1,200

 
(1,191
)
Outside Interests of Investment Partnerships²
 
(271
)
 
(209
)
 
(57
)
    Non-GAAP Other Income, Net of Outside Interests
 
$
1,686

 
$
1,431

 
$
607

 
 
 
 
 
 
 
 
 
 
 
For the Twelve Months Ended
 
 
 
 
December 31,
 
December 31,
 
 
 
 
2016
 
2015
 
 
 
 
 
 
 
Net Interest and Dividend Income
 
 
 
$
345

 
$
722

Gains/ (Losses) and Other Investment Income
 
 
 
3,019

 
(3,344
)
Change in Liability to Selling and Converting Shareholders¹
 
 
 
(51,442
)
 
(423
)
Other Income/ (Expense)
 
 
 
36

 
(255
)
    GAAP Other Expense
 
 
 
(48,042
)
 
(3,300
)
Change in Liability to Selling and Converting Shareholders¹
 
 
 
51,442

 
423

Outside Interests of Investment Partnerships²
 
 
 
(407
)
 
2,238

    Non-GAAP Other Income/ (Expense), Net of Outside Interests
 
 
 
$
2,993

 
$
(639
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1 Reflects the change in the liability to the Company’s selling and converting shareholders associated with
    the deferred tax asset generated by the Company’s initial public offering and subsequent unit conversions.
2 Represents the non-controlling interest allocation of the (income)/ loss of the Company's consolidated
     investment partnerships to its external investors.


6




The Company recognized an income tax benefit of $57.4 million for the fourth quarter of 2016, and expenses of $0.5 million and $2.7 million for the third quarter of 2016 and fourth quarter of 2015, respectively. Income taxes for the fourth quarter of 2016 included $60.0 million in income tax benefit associated with the release of the valuation allowance recorded against the Company's deferred tax asset related to the basis step ups created by operating company unit exchanges. The release of the valuation allowance resulted from increased levels of assets under management and the associated future taxable income used to analyze the realizability of the deferred tax asset. As of December 31, 2016, the Company concluded it is more-likely-than-not that it will generate sufficient taxable income in the future to realize its deferred tax asset. Income taxes for the third quarter of 2016 and the fourth quarter of 2015 included $1.4 million in income tax benefit and $1.1 million in income tax expense, respectively, associated with changes in the valuation allowance recorded against the Company's deferred tax asset.

Fourth quarter 2016 income tax (benefit)/ expense also reflects a $0.7 million benefit associated with the reversal of uncertain tax position liabilities and interest related to unincorporated and other business tax expenses. Details of the income tax (benefit)/ expense, as well as a reconciliation of the related GAAP and non-GAAP measures, are shown below:
Income Tax (Benefit)/ Expense (unaudited)
 
 
 
 
($ thousands)
 
 
 
 
 
 
 
 
For the Three Months Ended
 
 
December 31,
 
September 30,
 
December 31,
 
 
2016
 
2016
 
2015
 
 
 
 
 
 
 
Non-GAAP Corporate Income Tax Expense
 
$
750

 
$
1,124

 
$
1,098

Non-GAAP Unincorporated and Other Business Tax Expenses
 
(147
)
 
758

 
554

     Non-GAAP Income Tax Expense
 
603

 
1,882

 
1,652

         Change in Valuation Allowance1
 
(59,960
)
 
(1,411
)
 
1,060

         Net Adjustment to Deferred Tax Asset2
 
1,944

 

 

GAAP Income Tax (Benefit)/ Expense
 
$
(57,413
)
 
$
471

 
$
2,712

 
 
 
 
 
 
 
 
 
 
 
For the Twelve Months Ended
 
 
 
 
December 31,
 
December 31,
 
 
 
 
2016
 
2015
 
 
 
 
 
 
 
Non-GAAP Corporate Income Tax Expense
 
 
 
$
3,600

 
$
3,865

Non-GAAP Unincorporated and Other Business Tax Expenses
 
 
 
1,588

 
2,272

     Non-GAAP Income Tax Expense
 
 
 
5,188

 
6,137

         Change in Valuation Allowance1
 
 
 
(61,607
)
 
(847
)
         Less: Effects of One-Time Adjustments3
 
 
 

 
(176
)
         Net Adjustment to Deferred Tax Asset2
 
 
 
1,944

 

GAAP Income Tax (Benefit)/ Expense
 
 
 
$
(54,475
)
 
$
5,114

 
 
 
 
 
 
 
    1 Reflects the change in the valuation allowance assessed against the deferred tax asset established
         as part of the Company's initial public offering and subsequent unit conversions.
    2 Reflects the net impact of the changes in the Company's deferred tax asset and valuation allowance
         assessed against the deferred tax asset associated with the changes in expected future tax benefits.
    3 Reflects the tax effect of non-recurring lease expenses on Corporate Income Tax Expense and Unincorporated and Other
        Business Tax Expenses for 2015 of $133 thousand and $43 thousand, respectively, which are excluded from
         from Non-GAAP results.


7



Details of the net income attributable to non-controlling interests of the Company's operating company and consolidated subsidiaries, as well as a reconciliation of the related GAAP and non-GAAP measures, are shown below:
Non-Controlling Interests (unaudited)
 
 
 
 
 
 
($ thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
 
 
December 31,
 
September 30,
 
December 31,
 
 
2016
 
2016
 
2015
 
 
 
 
 
 
 
 Operating Company Allocation
 
$
11,758

 
$
9,547

 
$
9,859

 Outside Interests of Investment Partnerships1
 
271

 
209

 
57

 GAAP Net Income Attributable to Non-Controlling Interests
 
$
12,029

 
$
9,756

 
$
9,916

 
 
 
 
 
 
 
 
 
 
 
For the Twelve Months Ended
 
 
 
 
December 31,
 
December 31,
 
 
 
 
2016
 
2015
 
 
 
 
 
 
 
 Operating Company Allocation
 
 
 
$
37,065

 
$
41,562

Add Back: Effects of One-Time Adjustments2
 
 
 

 
1,475

         Non-GAAP Operating Company Allocation
 
 
 
37,065

 
43,037

 Outside Interests of Investment Partnerships1
 
 
 
407

 
(2,238
)
         Less: Effects of One-Time Adjustments2
 
 
 

 
(1,475
)
 GAAP Net Income Attributable to Non-Controlling Interests
 
 
 
$
37,472

 
$
39,324

 
 
 
 
 
 
 
 
 
 
 
 
 
 
    1 Represents the non-controlling interest allocation of the income/ (loss) of the Company's consolidated
          investment partnerships to its external investors.
    2 Reflects the effects of non-recurring lease expenses on non-controlling interests.

On January 31, 2017, the Company's Board of Directors approved a year-end dividend of $0.28 per share of its Class A common stock. The following dates apply to the dividend:

Record Date: February 17, 2017

Payment Date: March 3, 2017

During the last twelve months, inclusive of the dividend noted above, the Company declared total dividends of $0.37 per share of its Class A common stock.











8



Fourth Quarter and Full Year 2016 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, February 8, 2017. 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 888-317-6016; Canada callers should dial 855-669-9657; international callers should dial 412-317-6016. Please reference the Pzena Investment Management call.

Replay: The conference call will be available for replay through February 22, 2017, 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 14, 2016 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.



9



 PZENA INVESTMENT MANAGEMENT, INC.
 
 
 
 
 
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 (in thousands)
 
 
 
 
 
 
 
 
 
 As of
 
 
 
December 31,
 
December 31,
 
 
 
2016
 
2015
 
 
 
 (unaudited)
 
 
 ASSETS
 
 
 
 
 
 Cash and Cash Equivalents
 
$
43,522

 
$
35,417

 
 Restricted Cash
 
3,636

 
3,552

 
 Due from Broker
 
842

 
297

 
 Advisory Fees Receivable
 
26,326

 
22,248

 
 Investments
 
22,310

 
27,452

 
 Prepaid Expenses and Other Assets
 
2,079

 
2,445

 
 Deferred Tax Asset, Net of Valuation Allowance
 
 
 
 
 
      of $0 and $53,968, respectively
 
73,441

 
14,995

 
 Property and Equipment, Net of Accumulated
 
 
 
 
 
     Depreciation of $2,260 and $1,202, respectively
 
6,965

 
7,903

 
      TOTAL ASSETS
 
$
179,121

 
$
114,309

 
 
 
 
 
 
 LIABILITIES AND EQUITY
 
 
 
 
 
 Liabilities:
 
 
 
 
 
 Accounts Payable and Accrued Expenses
 
$
24,648

 
$
7,885

 
 Due to Broker
 
17

 
30

 
 Securities Sold Short, at Fair Value
 
2,622

 
2,231

 
 Liability to Selling and Converting Shareholders
 
65,485

 
15,075

 
 Deferred Compensation Liability
 
4,157

 
2,896

 
 Other Liabilities
 
858

 
730

 
      TOTAL LIABILITIES
 
97,787

 
28,847

 
 
 
 
 
 
 
 Equity:
 
 
 
 
 
 Total Pzena Investment Management, Inc.'s Equity
 
28,493

 
18,422

 
 Non-Controlling Interests
 
52,841

 
67,040

 
      TOTAL EQUITY
 
81,334

 
85,462

 
      TOTAL LIABILITIES AND EQUITY
 
$
179,121

 
$
114,309








10



 PZENA INVESTMENT MANAGEMENT, INC.
 
 
 
 
 
 
 
 
 
 
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except share and per-share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
 
For the Twelve Months Ended
 
 
 
December 31,
 
December 31,
 
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 REVENUE
 
$
29,073

 
$
27,672

 
$
108,336

 
$
116,607

 
 
 
 
 
 
 
 
 
 
 EXPENSES
 
 
 
 
 
 
 
 
 Compensation and Benefits Expense
 
12,366

 
11,008

 
48,330

 
46,523

 General and Administrative Expense
 
2,998

 
3,678

 
12,788

 
14,667

 
 TOTAL OPERATING EXPENSES
 
15,364

 
14,686

 
61,118

 
61,190

 Operating Income
 
13,709

 
12,986

 
47,218

 
55,417

 
 
 
 
 
 
 
 
 
 
 Other (Expense)/ Income
 
(48,107
)
 
1,855

 
(48,042
)
 
(3,300
)
 
 
 
 
 
 
 
 
 
 
 Income Before Taxes
 
(34,398
)
 
14,841

 
(824
)
 
52,117

 
 
 
 
 
 
 
 
 
 
 Income Tax (Benefit)/ Expense
 
(57,413
)
 
2,712

 
(54,475
)
 
5,114

 Consolidated Net Income
 
23,015

 
12,129

 
53,651

 
47,003

 
 
 
 
 
 
 
 
 
 
 Less: Net Income Attributable to Non-Controlling Interests
 
12,029

 
9,916

 
37,472

 
39,324

 
 
 
 
 
 
 
 
 
 
 Net Income Attributable to Pzena Investment Management, Inc.
 
$
10,986

 
$
2,213

 
$
16,179

 
$
7,679

 
 
 
 
 
 
 
 
 
 
 Earnings per Share - Basic and Diluted Attributable to
 
 
 
 
 
 
 
 
 Pzena Investment Management, Inc. Common Stockholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net Income for Basic Earnings per Share
 
$
10,986

 
$
2,213

 
$
16,179

 
$
7,679

 Basic Earnings per Share
 
$
0.67

 
$
0.14

 
$
1.01

 
$
0.55

 Basic Weighted Average Shares Outstanding
 
16,426,205

 
15,268,795

 
15,962,902

 
14,014,219

 
 
 
 
 
 
 
 
 
 
 Net Income for Diluted Earnings per Share
 
$
18,434

 
$
8,415

 
$
39,600

 
$
33,809

 Diluted Earnings per Share
 
$
0.27

 
$
0.12

 
$
0.58

 
$
0.50

 Diluted Weighted Average Shares Outstanding
 
69,087,027

 
68,070,880

 
68,849,172

 
68,126,786


11



 PZENA INVESTMENT MANAGEMENT, INC.
 
 
 
 
 
 
 
 
 
 
 UNAUDITED NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except share and per-share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP Basis
 
Non-GAAP Basis
 
 
 
For the Three Months Ended
 
For the Twelve Months Ended
 
 
 
December 31,
 
December 31,
 
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 REVENUE
 
$
29,073

 
$
27,672

 
$
108,336

 
$
116,607

 
 
 
 
 
 
 
 
 
 
 EXPENSES
 
 
 
 
 
 
 
 
 Compensation and Benefits Expense
 
12,366

 
11,008

 
48,330

 
46,523

 General and Administrative Expense
 
2,998

 
3,678

 
12,788

 
12,833

 
 TOTAL OPERATING EXPENSES
 
15,364

 
14,686

 
61,118

 
59,356

 Operating Income
 
13,709

 
12,986

 
47,218

 
57,251

 
 
 
 
 
 
 
 
 
 
 Other Income/ (Expense), Net of Outside Interests
 
1,686

 
607

 
2,993

 
(639
)
 
 
 
 
 
 
 
 
 
 
 Income Before Taxes and Operating Company Allocation
 
15,395

 
13,593

 
50,211

 
56,612

 
 
 
 
 
 
 
 
 
 
 Unincorporated and Other Business Tax (Benefit)/ Expenses
 
(147
)
 
554

 
1,588

 
2,272

 Allocable Income
 
15,542

 
13,039

 
48,623

 
54,340

 
 
 
 
 
 
 
 
 
 
 Operating Company Allocation
 
11,758

 
9,859

 
37,065

 
43,037

 Income Before Corporate Income Taxes
 
3,784

 
3,180

 
11,558

 
11,303

 
 
 
 
 
 
 
 
 
 
Corporate Income Tax Expense
 
750

 
1,098

 
3,600

 
3,865

Non-GAAP Net Income
 
$
3,034

 
$
2,082

 
$
7,958

 
$
7,438

Effect of One-Time Adjustments
 

 

 

 
(183
)
Tax Receivable Agreement Income, Net of Taxes
 
7,952

 
131

 
8,221

 
424

GAAP Net Income
 
$
10,986

 
$
2,213

 
$
16,179

 
$
7,679

 
 
 
 
 
 
 
 
 
 
 Earnings Per Share - Basic and Diluted Attributable to
 
 
 
 
 
 
 
 
 Pzena Investment Management, Inc. Common Stockholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income for Basic Earnings per Share
 
$
3,034

 
$
2,082

 
$
7,958

 
$
7,438

Basic Earnings per Share
 
$
0.18

 
$
0.14

 
$
0.50

 
$
0.53

Basic Weighted Average Shares Outstanding
 
16,426,205

 
15,268,795

 
15,962,902

 
14,014,219

 
 
 
 
 
 
 
 
 
 
Net Income for Diluted Earnings per Share
 
$
10,482

 
$
8,284

 
$
31,379

 
$
34,495

Diluted Earnings per Share
 
$
0.15

 
$
0.12

 
$
0.46

 
$
0.51

Diluted Weighted Average Shares Outstanding
 
69,087,027

 
68,070,880

 
68,849,172

 
68,126,786



12
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Section 3: EX-99.1 (EXHIBIT 99.1)

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