10-QPeriod: Q2 FY2020

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q2 Ended Jun 30, 2020

Filed July 31, 2020For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported a significant decrease in net income attributable to controlling interest for the three months ended June 30, 2020, down 71% year-over-year to $30.7 million, compared to $107.7 million in the prior year. This decline was primarily driven by a substantial increase in intangible amortization and impairments, as well as higher investment and other expenses. For the six months ended June 30, 2020, net income attributable to controlling interest turned positive, reaching $15.1 million from a net loss of $93.1 million in the same period last year, largely due to a significant reduction in equity method intangible amortization and impairments. Consolidated revenue also saw a decline, decreasing by 20% for the quarter and 14% for the year-to-date period, reflecting a challenging market environment exacerbated by the COVID-19 pandemic which impacted assets under management (AUM). Despite the revenue pressures, the company has demonstrated resilience in its operating cash flow, which increased in the first six months of 2020. AMG continues to manage its capital structure, with increased debt outstanding but also an increased cash balance, and actively repurchased shares during the period.

Financial Highlights

40 data points
Beta

Revenue

$471.10M

Net Income

$30.70M

6.5% Net Margin

EPS (Diluted)

$0.65

Total Assets

$7.50B

Cash & Equivalents

$681.60M

Free Cash Flow

$287.90M

Financial Statements
Beta
Revenue$471.10M
SG&A Expenses$73.60M
Operating Expenses$409.60M
Interest Expense$22.30M
Net Income$30.70M
EPS (Basic)$0.65
EPS (Diluted)$0.65
Shares Outstanding (Basic)47.20M
Shares Outstanding (Diluted)47.30M

Key Highlights

  • 1Net income attributable to controlling interest significantly decreased by 71% to $30.7 million for the three months ended June 30, 2020, compared to $107.7 million in the prior year.
  • 2For the six months ended June 30, 2020, net income attributable to controlling interest shifted from a loss of $93.1 million to a gain of $15.1 million, largely due to reduced equity method impairments.
  • 3Consolidated revenue declined by 20% year-over-year for the quarter to $471.1 million and by 14% for the six months to $978.3 million, reflecting the impact of market conditions on AUM.
  • 4Assets under management (AUM) decreased by 17% to $638.4 billion as of June 30, 2020, compared to the prior year, impacted by market changes and net client cash outflows.
  • 5Total consolidated expenses decreased slightly by 1% for the quarter to $409.6 million and by 5% for the six months to $763.9 million, though intangible amortization and impairments saw a substantial increase.
  • 6Operating cash flow increased to $375.4 million for the first six months of 2020, up from $309.2 million in the same period last year.
  • 7Total debt increased to $2,042.8 million as of June 30, 2020, from $1,793.8 million at the end of 2019, primarily due to the issuance of senior notes.

Frequently Asked Questions

The significant decrease in net income attributable to controlling interest for the three months ended June 30, 2020, was primarily driven by a substantial increase in 'Intangible amortization and impairments,' which rose from $21.2 million to $80.9 million year-over-year. Additionally, 'Investment and other expense' increased by $19.3 million, negatively impacting profitability.

The company noted that the COVID-19 pandemic caused significant disruption in economic activity. While AMG and its Affiliates remained operational with minimal disruption, the pandemic led to a decline in assets under management (AUM) and, consequently, asset-based fees. The company stated that the extent of the impact on its business operations and financial results depends on uncertain future developments.

As of June 30, 2020, AMG had $681.6 million in cash and cash equivalents. Operating cash flow for the first six months of 2020 was strong at $375.4 million. The company's total debt increased to $2,042.8 million, partly due to the issuance of $350 million in senior unsecured notes in June 2020. AMG expects cash flows from operations and borrowings under its credit facilities to be sufficient to support its cash needs.

The significant increase in 'Intangible amortization and impairments,' particularly in the second quarter of 2020, was largely due to an expense of $60.3 million recognized to reduce the carrying value of acquired client relationships at one of its Affiliates to zero, as part of a strategic repositioning and sale of the company's equity interest in that Affiliate. This significantly impacted net income for the period.