10-QPeriod: Q1 FY2016

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 10, 2016For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported first-quarter 2016 results that showed a decrease in both revenue and net income compared to the same period in 2015. Revenue declined by 14% to $545.4 million, while net income attributable to controlling interest fell by 18% to $104.5 million. This decline was primarily driven by a reduction in average assets under management and a decrease in the average fee rates across key distribution channels, particularly within the Institutional and Mutual Fund segments. Despite the top-line and bottom-line decreases, AMG completed strategic investments in Systematica Investments L.P. and Baring Private Equity Asia, both accounted for under the equity method. The company also demonstrated proactive capital management through share repurchases and managed its debt obligations, maintaining compliance with its credit facilities. Investors should note the company's continued focus on its unique partnership model with Affiliates, which allows for operational autonomy while aligning interests for long-term growth.

Financial Highlights

41 data points
Beta

Net Income

$104.00M

EPS (Diluted)

$1.90

Total Assets

$8.09B

Cash & Equivalents

$297.60M

Free Cash Flow

$21.50M

Financial Statements
Beta
SG&A Expenses$95.90M
Operating Expenses$366.60M
Operating Income$246.80M
Interest Expense$22.30M
Net Income$104.00M
EPS (Basic)$1.93
EPS (Diluted)$1.90
Shares Outstanding (Basic)54.00M
Shares Outstanding (Diluted)56.60M

Key Highlights

  • 1Revenue decreased by 14% to $545.4 million for the three months ended March 31, 2016, compared to $635.0 million in the prior year period.
  • 2Net income attributable to controlling interest decreased by 18% to $104.5 million ($1.92 per diluted share) from $128.0 million ($2.28 per diluted share) in the first quarter of 2015.
  • 3Average assets under management (AUM) increased slightly by 2% to $642.0 billion as of March 31, 2016, driven by new investments, though revenue was impacted by a decline in AUM at existing Affiliates and lower fee rates.
  • 4The company completed minority investments in Systematica Investments L.P. and Baring Private Equity Asia, which are accounted for under the equity method.
  • 5Operating expenses decreased by 9% to $366.6 million, largely due to lower compensation and selling, general, and administrative expenses.
  • 6Cash flow from operating activities significantly decreased to $26.1 million from $119.1 million in the prior year period, primarily due to lower net income and reduced distributions from equity method investments.
  • 7Financing activities showed a net inflow of $262.9 million, significantly higher than the prior year's outflow of $217.5 million, driven by net borrowings under senior debt facilities and reduced share repurchases.

Frequently Asked Questions

The primary driver of the revenue decrease was a reduction in average assets under management at existing Affiliates and a decline in the average fee rates realized across the Institutional and Mutual Fund distribution channels. This led to lower asset-based fees, partially offset by new investments and performance fees.

The company completed minority investments in Systematica Investments L.P. and Baring Private Equity Asia, which are accounted for under the equity method. These investments contributed positively to 'Income from equity method investments,' which increased by 33% due to higher equity method earnings from these new Affiliates and existing ones.

The company met its cash requirements through operating activities and borrowings under its credit facilities. However, operating cash flow significantly decreased due to lower net income and reduced distributions from equity method investments. The company anticipates sufficient cash flows from operations, along with borrowings, to support future needs, with principal uses being investments in Affiliates, debt repayment, and share repurchases.

The key non-GAAP measures are EBITDA (controlling interest) and Economic net income (controlling interest) and Economic earnings per share. EBITDA focuses on operating performance before interest, taxes, depreciation, and amortization, which is often used for industry comparisons. Economic net income adjusts net income for non-cash items like intangible amortization and deferred taxes related to intangibles, and certain economic items, believed by management to better represent the company's ongoing operating performance and align executive compensation with stockholder value.