10-QPeriod: Q2 FY2019

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q2 Ended Jun 30, 2019

Filed August 1, 2019For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported mixed financial results for the six months ended June 30, 2019, compared to the same period in the prior year. While consolidated revenue saw a decrease of 6% to $1,135.1 million, driven by lower asset-based fees, the company also experienced a significant swing in net income, reporting a net loss of $93.1 million for the controlling interest compared to a net income of $270.0 million in the prior year. This substantial decline was largely due to a $415.0 million pre-tax expense recognized for the impairment of an equity method investment in a U.S. credit alternative affiliate. Despite the overall decline in profitability, AMG's assets under management (AUM) remained substantial at $772.2 billion as of June 30, 2019, although this represented a 6% decrease from the previous year. The company continues to manage its debt effectively, with total debt decreasing slightly to $1,791.4 million. Cash flow from operating activities declined significantly to $309.2 million, impacted by lower distributions from equity method investments and a decrease in net income. Management anticipates that operational cash flows and existing credit facilities will be sufficient to meet future cash requirements.

Financial Highlights

40 data points
Beta

Revenue

$591.90M

Net Income

$107.70M

18.2% Net Margin

EPS (Diluted)

$2.11

Total Assets

$7.73B

Cash & Equivalents

$360.00M

Free Cash Flow

$323.80M

Financial Statements
Beta
Revenue$591.90M
SG&A Expenses$96.20M
Operating Expenses$412.60M
Interest Expense$19.70M
Net Income$107.70M
EPS (Basic)$2.11
EPS (Diluted)$2.11
Shares Outstanding (Basic)51.00M
Shares Outstanding (Diluted)51.00M

Key Highlights

  • 1Consolidated revenue decreased by 6% to $1,135.1 million for the six months ended June 30, 2019.
  • 2Net income (loss) attributable to the controlling interest swung from a profit of $270.0 million in H1 2018 to a loss of $93.1 million in H1 2019, largely due to a significant impairment charge on an equity method investment.
  • 3Assets Under Management (AUM) stood at $772.2 billion as of June 30, 2019, a decrease of 6% year-over-year.
  • 4Total debt was reduced slightly to $1,791.4 million as of June 30, 2019.
  • 5Cash flow from operating activities significantly decreased to $309.2 million for the first six months of 2019.
  • 6The company issued $300.0 million in junior subordinated notes in Q1 2019.
  • 7Despite the net loss, the company continued its share repurchase program, buying back 1.4 million shares in the first six months of 2019.

Frequently Asked Questions

The primary reason for the substantial decrease in net income, resulting in a net loss of $93.1 million for the controlling interest in the first six months of 2019 (compared to a profit of $270.0 million in the same period of 2018), was a pre-tax expense of $415.0 million. This expense was recognized to reduce the carrying value of a U.S. credit alternative affiliate, accounted for under the equity method, to its fair value due to a significant decline in its growth expectations and underperformance.

As of June 30, 2019, AMG's total AUM was $772.2 billion, a decrease of 6% compared to the previous year. This decline was attributed to net client cash outflows, particularly in quantitative strategies within liquid alternatives and global equities, and outflows in certain equity strategies reflecting an industry-wide trend towards passively-managed products. These were partially offset by positive market changes and inflows in areas like illiquid alternatives, multi-asset, and fixed income strategies.

AMG's total debt decreased slightly to $1,791.4 million as of June 30, 2019. The company has access to a $1.25 billion revolving credit facility and a $450 million term loan. Management stated that cash flows from operations, along with borrowings under their credit facilities, are expected to be sufficient to meet their cash requirements for the foreseeable future. They also noted that their credit ratings allow access to debt and equity capital markets.

Consolidated revenue decreased by 1% to $591.9 million for the three months ended June 30, 2019, and by 6% to $1,135.1 million for the six months ended June 30, 2019, driven by lower asset-based fees and a decrease in consolidated Affiliate average assets under management. In contrast, equity method revenue saw a larger decrease of 16% ($112.7 million) for the three months and 26% ($440.2 million) for the six months, primarily due to a significant decrease in equity method Affiliate average assets under management, particularly in alternative strategies.