10-QPeriod: Q1 FY2006

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q1 Ended Mar 31, 2006

Filed May 10, 2006For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported a significant increase in revenue and net income for the first quarter of 2006 compared to the same period in 2005. Revenue grew by 38% to $278 million, driven by a 48% increase in average assets under management across its Mutual Fund, Institutional, and High Net Worth distribution channels. Net income rose by 38% to $35.2 million, or $0.81 per diluted share, reflecting strong performance in its investment management affiliates. The company also saw substantial growth in operating income and EBITDA. Despite an increase in operating expenses, primarily due to higher compensation and related expenses and investments in new affiliates, the company's top-line growth and operational efficiencies contributed to improved profitability. AMG's balance sheet remained solid, with total assets growing to $2.4 billion, though cash and cash equivalents decreased slightly. The company continues to manage its debt obligations effectively, with a leverage ratio of 2.0:1 at quarter-end.

Key Highlights

  • 1Revenue increased by 38% year-over-year to $278.0 million for the three months ended March 31, 2006.
  • 2Net income grew by 38% to $35.2 million, with diluted EPS rising to $0.81 from $0.61 in the prior year period.
  • 3Average assets under management across all channels saw a significant increase of 48% to $194.0 billion.
  • 4Operating income increased by 39% to $103.7 million.
  • 5EBITDA rose by 34% to $78.5 million, indicating strong operational cash flow generation.
  • 6The company repurchased approximately 715,400 shares of common stock during the quarter.
  • 7The company successfully implemented EITF 04-05, leading to the consolidation of certain Affiliate investment partnerships.

Frequently Asked Questions

AMG's revenue growth of 38% to $278.0 million was primarily driven by a 48% increase in average assets under management. This increase in AUM resulted from positive investment performance across its affiliates, strategic investments in new investment management firms, and positive net client cash flows. Higher performance fees also contributed to the revenue increase.

Total operating expenses increased by 37% to $174.3 million. The largest component, compensation and related expenses, rose by 43%, largely due to increased revenues at affiliates with revenue-sharing arrangements and investments in new affiliates. Selling, general and administrative expenses also increased, primarily due to higher sub-advisory and distribution costs related to the growth in assets under management.

AMG maintained a solid financial position. Total assets grew to $2.4 billion. The company reported a leverage ratio of 2.0:1. Cash and cash equivalents decreased to $114.7 million from $140.4 million at year-end 2005, but the company had access to its $550 million senior revolving credit facility, of which $219 million was drawn at March 31, 2006. The company also actively repurchased shares during the quarter.

Effective January 1, 2006, AMG implemented EITF 04-05, which requires the consolidation of certain Affiliate investment partnerships where AMG is the general partner. This led to the consolidation of $125.6 million in assets held by these partnerships and the recognition of $119.8 million in minority interest related to outside owners. This accounting change impacts the presentation of assets, liabilities, and income from these partnerships.