10-QPeriod: Q3 FY2004

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q3 Ended Sep 30, 2004

Filed November 9, 2004For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported strong revenue growth for the nine months ended September 30, 2004, with a 34% increase year-over-year, driven by a 29% rise in average assets under management. This growth was fueled by positive investment performance and strategic acquisitions, including the significant acquisition of Genesis Asset Managers. The company's net income also saw a notable increase of 25% for the same period, reflecting improved operational performance. Despite increased operating expenses and interest expenses, largely due to new debt issuances to fund growth and acquisitions, AMG demonstrated its ability to manage its financial leverage, with a debt-to-EBITDA ratio of 0.92:1 at the end of the quarter. The company also proactively managed its capital structure, including repurchasing shares and settling forward purchase contracts. Looking ahead, AMG is well-positioned to continue its growth trajectory, with several pending acquisitions expected to close in the fourth quarter of 2004. The company's focus remains on internal growth of existing businesses and strategic investments to enhance its Affiliates' capabilities and market reach. Investors should monitor the impact of ongoing acquisitions and the evolving accounting standards for convertible debt on future financial reporting.

Key Highlights

  • 1Revenue increased by 34% to $476.0 million for the nine months ended September 30, 2004, compared to the prior year, driven by a 29% increase in average assets under management.
  • 2Net Income grew by 25% to $53.9 million for the nine months ended September 30, 2004, compared to the prior year.
  • 3The company completed the acquisition of 60% of Genesis Asset Managers and announced definitive agreements to acquire the growth equity business of TimesSquare Capital Management and a mutual fund business from Fremont Investment Advisors.
  • 4Average assets under management across all segments increased to $101.0 billion as of September 30, 2004, up from $91.5 billion at the end of 2003.
  • 5Total operating expenses increased by 31% to $283.6 million for the nine months ended September 30, 2004, driven by higher compensation, SG&A, and intangible asset amortization.
  • 6The company issued $300 million in "2004 PRIDES" mandatory convertible securities in February 2004, increasing its total debt.
  • 7Cash Net Income, a non-GAAP measure, increased by 16% to $89.0 million for the nine months ended September 30, 2004.

Frequently Asked Questions

AMG's revenue growth was primarily driven by an increase in average assets under management (AUM), which rose to $101.0 billion as of September 30, 2004. This increase in AUM was fueled by positive investment performance across its various investment strategies and by strategic acquisitions, notably the 60% acquisition of Genesis Asset Managers. Higher performance fees also contributed to the revenue growth.

AMG issued $300 million in "2004 PRIDES" mandatory convertible securities in February 2004, increasing its overall debt. Despite this, the company maintained a manageable leverage ratio of 0.92:1 (debt to EBITDA) as of September 30, 2004. They also actively managed their capital by repurchasing common stock and settling forward purchase contracts related to prior debt issuances. The company plans to repay a $51 million senior bank debt facility by November 2004.

Investors should be aware of several key items. Firstly, AMG has announced definitive agreements to acquire additional businesses, including TimesSquare Capital Management and a mutual fund business from Fremont Investment Advisors, which are expected to close in the fourth quarter of 2004 and will impact future financial results and AUM. Secondly, the company is preparing to adopt new accounting guidance (EITF 04-08) regarding contingently convertible debt, which may require restatement of prior earnings per share calculations and could impact future EPS reporting. Finally, the company's performance is inherently linked to financial market conditions.