10-QPeriod: Q3 FY2016

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 7, 2016For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported its financial results for the third quarter and nine months ended September 30, 2016. For the three months, Net Income (Controlling Interest) remained relatively flat at $109.2 million compared to $107.7 million in the prior year. However, for the nine-month period, Net Income (Controlling Interest) saw a decline of 11% to $321.1 million from $362.0 million in the same period last year. Diluted Earnings Per Share followed a similar trend, increasing slightly to $2.00 for the quarter but decreasing to $5.88 for the nine-month period from $6.51. Total revenue for the quarter decreased by 11% to $544.7 million, and for the nine months, it decreased by 13% to $1,644.2 million. This decline was primarily attributed to lower asset-based fees resulting from a decrease in fee rates and reduced average assets under management, particularly in the Mutual Fund and Institutional distribution channels. Despite the revenue pressures, the company continues to manage its expenses effectively, with total operating expenses decreasing by 6% for the quarter and 11% for the nine months. The company also highlighted a significant increase in assets under management, up 13% to $672.4 billion.

Financial Highlights

40 data points
Beta

Net Income

$110.20M

EPS (Diluted)

$2.02

Total Assets

$8.32B

Cash & Equivalents

$422.00M

Free Cash Flow

$336.60M

Financial Statements
Beta
SG&A Expenses$94.20M
Operating Expenses$373.70M
Operating Income$238.50M
Interest Expense$22.40M
Net Income$110.20M
EPS (Basic)$2.04
EPS (Diluted)$2.02
Shares Outstanding (Basic)53.90M
Shares Outstanding (Diluted)56.60M

Key Highlights

  • 1Net Income (Controlling Interest) for the three months ended September 30, 2016, was $109.2 million, a slight increase from $107.7 million in the prior year period.
  • 2For the nine months ended September 30, 2016, Net Income (Controlling Interest) decreased by 11% to $321.1 million compared to $362.0 million in the prior year period.
  • 3Diluted Earnings Per Share for the quarter increased to $2.00 from $1.96, but for the nine months, it decreased to $5.88 from $6.51.
  • 4Total revenue for the quarter declined 11% to $544.7 million, and for the nine months, it fell 13% to $1,644.2 million, primarily due to lower asset-based fees.
  • 5Assets Under Management increased by 13% to $672.4 billion as of September 30, 2016.
  • 6Operating expenses decreased by 6% for the three months and 11% for the nine months, indicating effective cost management.
  • 7The company completed several minority investments in Affiliates during the period, including Systematica Investments L.P., Baring Private Equity Asia, Capula Investment Management LLP, and Partner Fund Management, L.P.

Frequently Asked Questions

The decrease in revenue for the nine months ended September 30, 2016, was primarily driven by a decline in asset-based fees, attributed to both a decrease in the ratio of average fee rates and a reduction in average assets under management, particularly within the Mutual Fund and Institutional distribution channels.

The company completed several minority investments in new Affiliates during the period. These investments contributed to an increase in revenue from new Affiliates, and in the case of equity method Affiliates, increased 'Income from equity method investments' and 'Equity method intangible amortization'.

'Economic Net Income' and 'Adjusted EBITDA' are non-GAAP performance measures used by AMG. 'Adjusted EBITDA' adjusts for interest expense, taxes, depreciation, amortization, and changes in contingent payment obligations. 'Economic Net Income' further adjusts Net Income (controlling interest) by adding back pre-tax intangible amortization and impairments, related deferred taxes, and other economic items, reflecting management's view of operating performance before non-cash expenses related to acquisitions. These measures are provided as supplemental information and are not substitutes for GAAP measures.

AMG anticipates continued client demand for active return-oriented strategies, especially alternative strategies due to their lower correlation to traditional markets. The company believes it is well-positioned to benefit from this trend and expects that many boutique investment management firms will continue to seek a permanent partner with global scale, making the transaction environment favorable for AMG to execute investment opportunities.