10-QPeriod: Q2 FY2005

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q2 Ended Jun 30, 2005

Filed August 9, 2005For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported a solid performance for the quarter and six months ended June 30, 2005. Total revenue saw a significant increase of 31% for the quarter and 32% for the six months, primarily driven by a substantial rise in average assets under management across its Mutual Fund and Institutional distribution channels. This growth in assets was fueled by strategic acquisitions and positive investment performance. Despite the revenue growth, operating expenses also increased significantly, largely due to higher compensation and related expenses, as well as increased selling, general, and administrative costs stemming from recent acquisitions and expanded distribution efforts. Net income grew by 39% for the quarter and 40% for the six months, demonstrating the company's ability to translate top-line growth into bottom-line results. Management highlights 'Cash Net Income,' a non-GAAP measure, which also showed strong growth, underscoring the operational performance before non-cash expenses related to acquisitions.

Key Highlights

  • 1Revenue increased by 31% for the quarter and 32% for the six months ended June 30, 2005, driven by a 41% and 42% increase in average assets under management, respectively.
  • 2Net income grew by 39% for the quarter ($26.2 million) and 40% for the six months ($51.8 million) compared to the prior year periods.
  • 3Significant growth in assets under management (AUM) was observed in the Mutual Fund (+43% quarterly, +40% year-to-date) and Institutional (+69% quarterly, +73% year-to-date) segments.
  • 4Operating expenses rose by 44% for the quarter and 43% for the six months, with compensation and related expenses and SG&A showing the largest increases.
  • 5The company completed several acquisitions during the period, including Fremont Investment Advisors, Inc. (FIA) and six Canadian asset management firms, which contributed to AUM growth.
  • 6Debt levels remain significant, with senior debt, senior convertible debt, and mandatory convertible securities totaling over $1.1 billion at June 30, 2005.
  • 7The company reported strong growth in 'Cash Net Income,' a non-GAAP measure used internally to assess operational performance, up 39% for the quarter and 41% for the six months.

Frequently Asked Questions

Revenue growth was primarily driven by a significant increase in average assets under management (AUM), up 41% for the quarter and 42% for the six months. This increase in AUM was fueled by strategic acquisitions, such as Fremont Investment Advisors, Inc. (FIA) and six Canadian asset management firms, as well as positive investment performance across various asset classes.

Operating expenses increased by 44% for the quarter and 43% for the six months. The primary contributors to this rise were higher compensation and related expenses, linked to the increased revenue and recent acquisitions, and higher selling, general, and administrative (SG&A) expenses, also reflecting expansion efforts and acquisition integration.

AMG has a substantial amount of debt, including senior debt, senior convertible debt, and mandatory convertible securities, totaling over $1.1 billion as of June 30, 2005. The company's leverage ratio was 1.7:1, and it continues to manage its debt obligations through operating cash flow and potential capital raises.

'Cash Net Income,' a non-GAAP measure that adds back amortization and deferred taxes related to intangible assets and affiliate depreciation to net income, showed robust growth of 39% for the quarter and 41% for the six months. This metric is highlighted by management as a key indicator of operational performance, excluding non-cash expenses associated with acquisitions.