10-QPeriod: Q1 FY2007

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 10, 2007For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported increased revenue and net income for the first quarter ended March 31, 2007, compared to the same period in 2006. Revenue grew by 11% to $309.8 million, driven by a 26% increase in average assets under management across its Mutual Fund, Institutional, and High Net Worth distribution channels. Net income saw a modest increase of 4% to $36.6 million, translating to diluted EPS of $0.93. The company's performance was positively impacted by strong investment performance and net client cash flows, as well as its acquisition of Chicago Equity Partners in late 2006. Despite revenue growth, operating expenses also rose, particularly compensation and related expenses, which increased by 19%. Interest expenses also saw a significant jump due to new debt issuances. AMG continued its share repurchase program during the quarter, indicating confidence in its valuation.

Key Highlights

  • 1Revenue increased by 11% to $309.8 million for the quarter ended March 31, 2007.
  • 2Net income rose by 4% to $36.6 million, with diluted EPS of $0.93.
  • 3Average assets under management grew by 26% to $245.2 billion, driven by positive investment performance and net client cash flows.
  • 4Compensation and related expenses increased by 19%, impacting profitability.
  • 5Interest expense rose significantly by 60% due to recent debt issuances.
  • 6The company repurchased approximately 885,598 shares of common stock during the quarter.
  • 7Cash Net Income, a non-GAAP measure, increased by 5% to $55.4 million.

Frequently Asked Questions

AMG's revenue growth of 11% to $309.8 million was primarily driven by a significant 26% increase in average assets under management. This growth in assets was attributed to positive investment performance, net client cash flows, and the strategic acquisition of Chicago Equity Partners in late 2006.

Total operating expenses increased by 13% to $197.5 million. Notably, compensation and related expenses rose by 19%, largely due to revenue-sharing arrangements with affiliates and increased compensation at certain profit-based affiliates. This increase in expenses, along with a 60% rise in interest expense, partially offset the revenue gains, leading to a more modest 4% increase in net income.

AMG anticipates continued need for capital to fund investments in new and existing affiliates, affiliate manager distributions, debt servicing, and share repurchases. The company utilizes its senior revolving credit facility and may explore additional debt or equity issuances. Despite a decrease in cash flow from operations, the company's leverage ratio remained at 2.0:1 as of March 31, 2007, and it continues to repurchase shares.

Cash Net Income is a non-GAAP performance measure that adjusts Net Income by adding back amortization and deferred taxes related to intangible assets and affiliate depreciation. AMG considers it an important metric representing operating performance before non-cash expenses. For Q1 2007, Cash Net Income increased by 5% to $55.4 million, indicating underlying operational strength.