10-QPeriod: Q2 FY2016

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 5, 2016For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported a decrease in revenue and net income for the three and six months ended June 30, 2016, compared to the same periods in the prior year. Revenue declined by 14% to $554.1 million for the quarter and by 14% to $1,099.5 million for the six months, primarily due to a decrease in average assets under management and a lower ratio of average fee rates. Net income attributable to controlling interest fell by 17% to $107.4 million for the quarter and by 17% to $212.0 million for the six months. This was influenced by lower revenues and increased non-controlling interests. Despite the decline in GAAP metrics, the company highlighted non-GAAP "Economic net income" and "Economic earnings per share" which showed more stable performance, indicating a focus on operational profitability before certain non-cash accounting adjustments. The company also saw growth in assets under management for the High Net Worth segment and significant investments in new Affiliates. Liquidity remains a focus, with cash and cash equivalents decreasing. However, the company amended and increased its credit facilities, providing ample borrowing capacity. A notable event was the company's entry into a forward equity agreement to sell approximately 2.9 million shares, which is expected to generate substantial proceeds.

Financial Highlights

40 data points
Beta

Net Income

$108.30M

EPS (Diluted)

$1.98

Total Assets

$8.03B

Cash & Equivalents

$360.40M

Free Cash Flow

$311.30M

Financial Statements
Beta
SG&A Expenses$96.60M
Operating Expenses$372.30M
Operating Income$247.00M
Interest Expense$21.90M
Net Income$108.30M
EPS (Basic)$2.01
EPS (Diluted)$1.98
Shares Outstanding (Basic)53.80M
Shares Outstanding (Diluted)56.70M

Key Highlights

  • 1Revenue declined by 14% for both the three and six months ended June 30, 2016, driven by a decrease in average assets under management and lower fee rates.
  • 2Net income attributable to controlling interest decreased by 17% for both periods, reflecting the impact of lower revenues and higher non-controlling interests.
  • 3Non-GAAP metrics like 'Economic net income' and 'Economic earnings per share' showed more resilience, indicating management's focus on operational performance.
  • 4Assets under management (AUM) saw a slight increase of 1% to $647.6 billion, with growth concentrated in the High Net Worth segment and new Affiliate investments.
  • 5The company amended and increased its credit facilities, enhancing its liquidity position with significant borrowing capacity available.
  • 6A forward equity agreement was entered into for the sale of approximately 2.9 million shares, expected to generate about $480 million in net proceeds.
  • 7Investments in new Affiliates, particularly in Systematica Investments L.P. and Baring Private Equity Asia, contributed to the increase in 'Income from equity method investments'.

Frequently Asked Questions

Revenue decreased primarily due to a decline in average assets under management (AUM) at existing Affiliates, which reduced asset-based fees. Additionally, a lower ratio of average fee rates at existing Affiliates contributed to the decline. Market changes, foreign exchange rates, and net client cash outflows also impacted AUM.

The company amended and increased its senior unsecured revolving credit facility and term loan facility, providing substantial borrowing capacity. Cash and cash equivalents decreased during the period, but the enhanced credit facilities are expected to meet cash requirements. The company also entered into a forward equity agreement to potentially raise significant capital.

'Economic net income' and 'Economic earnings per share' are non-GAAP measures that management uses as principal performance benchmarks. They are presented to provide a view of operating performance before certain non-cash expenses, such as intangible amortization and impairments, and certain other economic items, which management believes better reflect the company's ongoing operational performance and alignment with shareholder value.

Recent investments in new Affiliates, such as Systematica Investments L.P. and Baring Private Equity Asia, have contributed to an increase in 'Income from equity method investments.' These investments also influenced revenue and operating expenses, though the overall impact on consolidated revenue was offset by declines in other areas.