10-QPeriod: Q2 FY2018

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 2, 2018For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported a slight increase in net income for the first six months of 2018 compared to the same period in 2017, reaching $429.3 million. Revenue also saw a healthy increase, driven by growth in both asset-based and performance fees. However, the company experienced a notable decline in net income for the three-month period ended June 30, 2018, largely impacted by a significant expense related to the write-down of an equity method affiliate to zero. Despite this, the company's assets under management continued to grow, indicating resilience in its core business. Investors should note the strategic focus on active return-oriented strategies, particularly in alternatives and multi-asset classes, which are driving demand. The company also highlighted increased Selling, General & Administrative expenses, partly due to the adoption of new accounting standards and investments in distribution capabilities. While overall expenses rose, interest expense saw a decrease due to debt refinancing. Shareholders were also informed about ongoing share repurchase programs, indicating a commitment to returning capital, and a stable liquidity position supported by operating cash flows and an accessible credit facility.

Financial Highlights

41 data points
Beta

Revenue

$600.20M

Net Income

$117.00M

19.5% Net Margin

EPS (Diluted)

$2.16

Total Assets

$8.49B

Cash & Equivalents

$392.80M

Free Cash Flow

$367.50M

Financial Statements
Beta
Revenue$600.20M
SG&A Expenses$105.20M
Operating Expenses$407.60M
Interest Expense$21.40M
Net Income$117.00M
EPS (Basic)$2.17
EPS (Diluted)$2.16
Shares Outstanding (Basic)54.00M
Shares Outstanding (Diluted)54.20M

Key Highlights

  • 1Net income for the six months ended June 30, 2018, increased by 9% to $429.3 million, while consolidated revenue grew by 9% to $1,212.6 million.
  • 2Assets under management (AUM) reached $824.2 billion as of June 30, 2018, an increase of 7% year-over-year, with a strong focus on active return-oriented strategies.
  • 3A significant expense of $33.3 million ($25.0 million net of tax) was recorded in the second quarter of 2018 to write down an equity method affiliate to zero, impacting short-term profitability.
  • 4Selling, General & Administrative expenses increased by 19% for the six months ended June 30, 2018, driven by affiliate-related expenses and investments in distribution.
  • 5Interest expense decreased by 6% for the six months ended June 30, 2018, due to debt refinancing activities.
  • 6The company repurchased approximately $323.9 million of its common stock during the first six months of 2018.
  • 7Cash flow from operating activities increased by 30% to $577.3 million for the six months ended June 30, 2018, supporting the company's liquidity and capital needs.

Frequently Asked Questions

AMG's revenue growth is primarily driven by increases in asset-based fees, which are directly correlated with growth in assets under management (AUM). Performance fees also contribute, although they can be more volatile. The company's strategic focus on active return-oriented strategies, particularly in alternatives and global equities, is supporting AUM growth.

The substantial decrease in net income for the three-month period was primarily due to a one-time $33.3 million ($25.0 million net of tax) expense recognized to reduce the carrying value of an equity method affiliate investment to zero. This write-down significantly impacted profitability for that specific quarter.

While consolidated expenses increased, AMG is managing them by noting decreases in interest expense due to refinancing and some other expense categories. However, Selling, General & Administrative (SG&A) expenses saw a significant rise, particularly for the six-month period, due to increased affiliate-related costs and investments in distribution capabilities, partly influenced by the adoption of new accounting standards. The company also incurs substantial intangible amortization and impairments, a significant portion of which is related to equity method affiliates.

AMG continues to experience growth in AUM, reaching $824.2 billion as of June 30, 2018. The company is strategically positioned to benefit from investor demand for active return-oriented strategies, such as alternatives and multi-asset strategies, while acknowledging industry-wide outflows in passively-managed U.S. equity products.