Hello and welcome to the Pzena Investment Management reported results for the first quarter of 2022 conference call. My name is Alex and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star one on your telephone keypad. If you'd like to withdraw your question, you may press star two. I will now hand over to your host, Richard Pzena, CEO of Pzena Investment Management. Over to you, Richard. Thank you, Alex. Good morning, and thank you for joining us on the Pzena Investment Management first quarter 2022 earnings call. I'm Richard Pzena, Chief Executive Officer and Co-Chief Investment Officer. Jessica Doran is not with us this morning, but I did wanna congratulate her on the recent birth of her daughter. We all wish her the best. Our earnings press release contains the financial tables for the periods we will be discussing. If you do not have a copy, it can be obtained in the investor relations section on our website at www.pzena.com. Replays of this call will be available for the next two weeks on our website. Before we start, we need to remind you that today's call may contain forward-looking statements and projections. We ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from today's comments. Please note that we do not undertake to update such information to reflect the impact of circumstances or events going forward. In addition, please be advised that due to prohibitions on selective disclosure, we do not, as a matter of policy, disclose material that is not public information on our conference calls. One of the complaints I hear often from my family, don't worry, I'm not gonna offer a long list, is that I tend to repeat myself. The truth is, they're right. I've been saying the same thing about value investing for my entire life. It just works. It works because people are emotional and not analytical. It works because people blindly project recent events indefinitely into the future. It works because people tend to shy away from considering investments that have known problems. As for me, I'm comforted by the predictability that value investing works because of these very human tendencies. My favorite chart these days is one that shows a 70-year history of the price-to-earnings ratios for the most expensive quintile of stocks, along with the cheapest quintile of stocks in the broad U.S. market. While the expensive stocks PEs have fluctuated between 12x and 85 x, and today sit very near their high point, cheap stocks have barely budged for 70 years, ranging between 5x and 10x for the entire period. In other words, as we sit here today, I see an environment that is very normal for a value investor. It seems to me perfectly reasonable to expect that the return opportunity for value strategies should be similar to what has been earned over the long term. At the same time, given the valuation spreads, seems very difficult to imagine that growth strategies, or the broad market for that matter, are likely to earn returns similar to their long-term histories. We stay the course, building concentrated portfolios of deeply undervalued companies, which have gone through a rigorous research process, combined into a portfolio that offers attractive long-term return potential, along with a diverse set of risk exposures, just like we always have. In addition to my enthusiasm for our investment opportunities looking ahead, I wanted to share this morning, something this morning about two subjects getting primary attention here at Pzena, as well as amongst our clients all over the world. They are diversity, equity, and inclusion, and ESG. Let me start with DEI. We're extremely proud of the leadership roles women play in our organization. Here are just a few highlights. Our executive committee of six includes two women. Our general counsel, head of human resources, both co-heads of our North American distribution team, and our director of marketing operations are all women. 57% of our promotions, transfers, and partnership appointments over the past five years have gone to women. There's certainly more for us to do in this area, and we continue to strive to increase the diversity in our applicant pool for all roles. On ESG, we have always viewed environmental, social, and governance factors as being integrated into our investment process. As such, the primary responsibility for our ESG analysis falls on our 28-person research team. While we have added three ESG specialists to coordinate our issue identification, documentation, and tracking of these ESG issues, the entire research team is focused on ESG. Unlike many managers who have taken a quantitative approach, focusing their investments on companies with high ESG scores, we believe a better way both to enable our clients to benefit from companies' increased attention to ESG issues and to have more impact as responsible stewards of capital is to focus our analysis on companies that are taking identifiable steps to improve their ESG standing. We wrote a white paper which highlights that ESG improvers actually make for better investments than those with current high ESG scores. We will keep updating this data as it is too short to have complete confidence, but the initial results are encouraging. On the business front, I can report that things are going well. Our net flows, which have a very erratic pattern, were flat this quarter. For the trailing 12 months, we're about $1 billion in net inflows, and the pipeline is building slowly but surely, as we typically see after value cycles take hold. Now for the details. We reported fully diluted earnings of $0.16 per share for the first quarter, compared to $0.24 last quarter and $0.24 per share for the first quarter of last year. During the current period, we recognized an additional $5.9 million of expense associated with a change in the estimate of uncertain tax positions due to a change in our interpretation of administrative rulings. Excluding the impact of this expense, diluted earnings would have been $0.20 per share for the first quarter of 2022. Taking a closer look at our results, assets under management ended the quarter at $52.8 billion, up 0.6% from last quarter, which ended at $52.5 billion, and up 7.3% from the first quarter of last year, which ended at $49.2 billion. The increase in assets under management from last quarter was driven by market appreciation, including the impact of foreign exchange of $0.3 billion, with no impact from net flows. The increase from the first quarter of last year reflects $2.6 billion in market appreciation, including the impact of foreign exchange and net inflows of $1 billion. As of March 31st, 2021, our assets under management consisted of $19.4 billion in separately managed accounts, $30.7 billion in sub-advised accounts, and $2.7 billion in our Pzena Funds. Compared to last quarter, separately managed accounts assets remained flat. Sub-advised accounts assets reflecting $0.3 billion in market appreciation and foreign exchange impact and $0.1 billion in net outflows. Assets in Pzena Funds increased slightly due to $0.1 billion in net inflows. Average assets under management for the first quarter of 2022 were $53.1 billion, an increase of 3.1% from last quarter and an increase of 17% from the first quarter of last year. Revenues for the first quarter totaled $52.8 million, increasing 3.5% from $51 million last quarter and increasing 15% from $45.9 million in the first quarter of 2021. These variances primarily reflect the change in average assets under management over the respective periods. A weighted average fee rate was 39.7 basis points for the quarter, compared to 39.6 basis points last quarter and 40.4 basis points for the first quarter of last year. Asset mix across our strategies and distribution channels, as well as performance-based fees, are generally the primary contributors to changes in our overall weighted average fee rate. However, changes in asset levels may also impact our fee rates as the majority of our separately managed accounts pay us management fees pursuant to a schedule in which the rate we earn on the AUM declines as the amount of AUM increases. Our weighted average fee rate for separately managed accounts was 53.2 basis points for the quarter, compared to 53.9 basis points last quarter and 54.5 basis points for the first quarter of last year. The decrease from last quarter primarily reflects a shift in assets to certain strategies that typically carry lower fee rates. The increase from the first quarter of 2021 primarily reflects an increase in assets due to market appreciation as the rates we earn on the majority of our fee schedules decline as the assets increased. Our weighted average fee rate for sub-advised accounts was 28.5 basis points for the first quarter of 2022, compared to 27.4 basis points for the fourth quarter of 2021 and 27.0 for the first quarter of 2021. Certain accounts related to one client relationship have fulcrum fee arrangements. These fee arrangements require a reduction in the base fee if the investment strategy underperforms its relevant benchmark or allow for a performance fee if the strategy outperforms its benchmark. During the first quarter of 2022, we recognized $0.5 million of performance fees related to these accounts. During the fourth quarter of 2021 and the first quarter of 2021, we recognized $0.9 million and $1.0 million reductions in base fees related to these accounts. These fees are calculated quarterly and compare relative performance over a three-year measurement period. To the extent the three-year performance record of these accounts fluctuate relative to their relevant benchmark, the amount of base fees recognized may vary. A weighted average fee rate for Pzena Funds was 69.5 basis points for the quarter, decreasing from 71.7 basis points last quarter and increasing from 68.1 basis points for the first quarter of last year. The decrease from the fourth quarter of 2021 primarily reflects a shift in assets to certain strategies that typically carry lower fee rates. The increase from the fourth quarter of 2021 primarily reflects an increase in performance fees recognized in the first quarter of 2022. Our operating margin was 50.5% this quarter, decreasing from 52.0% last quarter and increasing from 50.2% in the first quarter of last year. Looking at operating expenses, our compensation and benefits expense was $21.2 million for the quarter, increasing from $20 million last quarter and from $19.1 million for the first quarter of last year. The increase from the fourth quarter of 2021 reflects compensation expenses recognized in the first quarter associated with tax payments and the company's employee profit sharing and savings plan, which generally do not recur during the rest of the year. The increase in compensation and benefits expense from the first quarter of 2021 reflects an increase in employee headcount and compensation. G&A expenses were $4.9 million for the first quarter of 2022, compared to $4.5 million last quarter and $3.7 million for the first quarter of last year. The increase from last year and from last quarter and the first quarter of last year primarily reflects an increase in professional fees and travel and occupancy costs. Other income was $0.1 million for the quarter, reflecting the performance of our investments. Turning to taxes, the effective tax rate for our unincorporated and other business taxes was 27.5% this quarter, compared to 4.3% last quarter and 3.2% in the first quarter of last year. The increase in the effective tax rate this quarter reflects the aforementioned $5.9 million expense associated with a change in estimate of uncertain tax positions due to a change in interpretation of administrative rulings. We expect the effective tax associated with the unincorporated and other business taxes of our operating company to be between 4%-6% on an ongoing basis. Our effective tax rate for our corporate income taxes, excluding UBT and other business taxes, was 28.3% this quarter, compared to 24.6% last quarter and 26.4% for the first quarter of last year. We expect this rate to be between 25% and 27% on an ongoing basis. The allocation to the non-public members of our operating company was approximately 77.3% of the operating company's net income for the first quarter of 2022, compared to 78% last quarter and 78.4% for the first quarter of last year. The variance in these percentages is the result of changes in our ownership interest in the operating company. During the quarter, through our stock buyback program, we repurchased and retired approximately 273,000 shares of Class A common stock and Class B units for $2.4 million. At March 31st, there was approximately $38.9 million remaining in the repurchase program. At quarter end, our financial position remains strong with $35.6 million in cash and cash equivalents. We declared a 3% quarterly dividend last night. Thank you for joining us, and we'd now be happy to take your questions. Thank you. If you'd like to ask a question, you can press star one on your telephone keypad. If you would like to withdraw your question, you can press star two. Please ensure you're unmuted locally when asking your question. As a reminder, if you'd like to ask a question, you can press star one on your telephone keypad. Our first question for today comes from Macrae Sykes of Pzena. Mac, your line is now open. Good morning, Rich, and congratulations to Jessica. I had two questions. The first was just if you could provide a little more color on the tax expense this quarter and whether this is likely to come up in the future, maybe a benefit to you guys. I just wanna get a little more understanding about what may have happened there. Thanks. Yeah. Actually, we're not changing any tax positions. We increased a reserve due to an adverse tax ruling or tax court case in a company that has similar but not identical characteristics to us on the UBT, the unincorporated business tax. We don't anticipate any change in filing position, and we expect, if things go our way, that we will reverse these reserves. We thought given that development, it was prudent to have a bigger reserve, and that's why we took that. Understood. Okay, and then just in terms of the value investing universe today, it seems like we've had some pretty significant volatility. I mean, one of the stocks was traditional growth stock is now compressed quite a bit today. I guess my question would be, you know, in light of some of the outperformance in some stocks in the value universe and obviously some fallen angels or whatever you wanna call it from the growth aspect, do you feel like there's an opportunity to expand some of your core competencies in the industries that you follow, just given some of the dynamics today, or do you just see a path where, you know, you're focusing on what you've done traditionally? Thanks. If you mean by expanding our core competencies as moving into more growth or opening or starting up growth type strategies, I would say no, we don't see any change in that. If you're asking the question to say, are there companies that have historically been viewed as growth stocks that come into the value universe? Of course, we're open to that. We don't think we're anywhere near that being a dominant situation given how wide the spreads were. Even though they've narrowed, when you look at it on a full cap weighted basis, the narrowing hasn't been tremendous. When you look at it on a company specific basis, I'm not gonna say all, but most declines in valuation in the growth stock universe have come from companies where the valuations were highly speculative relative to earnings, which have not yet materialized, as opposed to the big successful franchises that have operating earnings really getting into range. I would say they're just not in our range, broadly speaking. We certainly have owned, in the past, companies that are today considered growth stocks and that are fairly expensive. Companies like Microsoft and Google have been in our portfolios in the past 10 years. But I wouldn't say that there's a broad opportunity for us to be looking at those yet. I don't know if I exactly answered your question. Hopefully I did. No, that was terrific. Thanks, Rich, and congratulations on the quarter. Thank you. Thank you. Our next question comes from Tom Brownell from Rock Point Advisors. Tom, your line is now open. Great. Thanks. Good morning, Richard. Good morning, everybody. I was wondering, just following up on that last question, I was wondering if you could talk a little bit about the performance in the first quarter, the investment performance that is, perhaps focusing on your sort of large cap domestic strategy. Then secondly, just real quickly, last quarter, I think we talked a little bit about, and this is also following on to that last question, we talked about, I don't know if launching is the right word, but at least contemplating moving into high yield/distressed as perhaps, you know, an area that you might explore. I was just wondering if that's still live or not. Thanks. Sure. Across the board, we outperformed our benchmarks in the first quarter. The first quarter sort of looked like it was a continuation of this great value cycle recovery up until the Russian invasion of Ukraine, where things turned back a little bit. I would say the first half of the quarter, we had very wide leads against our and against the broad market indices, and they narrowed a bit in the second half of the quarter. The quarter still wound up being a good quarter for us, not just in U.S. large cap value, but broadly speaking across all of our strategies. I would say the issues that are typically associated with value cycles are not only the Ukrainian situation. There are also fears that have reemerged in the marketplace around recession, mostly tied to what appears to be consensus views that interest rates will go up dramatically to help ward off inflation. Obviously, we always take a long-term approach and generally are not reacting to macro events. We've stayed the course, but that sort of broadly describes how our investment performance looked. As far as our move into high yield and leveraged loans, no, we made the decision that this is a potential area of opportunity for us, primarily because we think that our industry research and our company-specific research can provide us with a pretty nice competitive position in the marketplace for investing in high yield. We are. This is a long-term investment, so we don't expect to be able to even be thinking about offering any of these products or services to our clients for the foreseeable future. We have been building up our knowledge and expertise and systems and administrative capability and plan to fund an incubation strategy sometime before the end of the second quarter. I don't think it's reasonable to think that there's any significant revenues for us for the next couple of years.