10-QPeriod: Q3 FY2020

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q3 Ended Sep 30, 2020

Filed October 30, 2020For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported a decrease in consolidated revenue for both the three and nine months ended September 30, 2020, compared to the prior year, reflecting lower average assets under management and net client cash outflows, particularly in alternative and equity strategies. Despite revenue declines, the company saw a significant increase in Net Income (controlling interest) for the nine-month period, driven by a substantial decrease in equity method intangible amortization and impairments. However, for the three-month period, Net Income (controlling interest) declined, impacted by lower revenue and higher intangible amortization and interest expenses. The company's liquidity remains strong with $929.4 million in cash and cash equivalents as of September 30, 2020. AMG strategically managed its debt, issuing new senior notes and junior subordinated notes while also repaying a portion of its senior bank debt. The company also continued its share repurchase program, although at a lower volume compared to the previous year. The report highlights the ongoing impact of COVID-19, but notes that AMG and its Affiliates have remained operational with minimal disruption. Investors should monitor the company's ability to manage client outflows and the impact of market volatility on assets under management.

Financial Highlights

40 data points
Beta

Revenue

$494.80M

Net Income

$71.30M

14.4% Net Margin

EPS (Diluted)

$1.53

Total Assets

$7.67B

Cash & Equivalents

$929.40M

Free Cash Flow

$249.10M

Financial Statements
Beta
Revenue$494.80M
SG&A Expenses$74.10M
Operating Expenses$359.20M
Interest Expense$23.80M
Net Income$71.30M
EPS (Basic)$1.54
EPS (Diluted)$1.53
Shares Outstanding (Basic)46.30M
Shares Outstanding (Diluted)46.50M

Key Highlights

  • 1Consolidated revenue decreased by 10% to $494.8 million for the three months ended September 30, 2020, and by 13% to $1,473.2 million for the nine months ended September 30, 2020, primarily due to lower asset-based fees driven by reduced average assets under management.
  • 2Net income (controlling interest) declined 17% to $71.3 million for the three months ended September 30, 2020, but increased significantly by $93.1 million to $86.3 million for the nine months ended September 30, 2020, largely due to a substantial reduction in equity method intangible amortization and impairments.
  • 3Cash and cash equivalents increased to $929.4 million as of September 30, 2020, up from $539.6 million at December 31, 2019, indicating a strong liquidity position.
  • 4Total consolidated expenses decreased by 4% to $359.2 million for the three months and by 4% to $1,123.1 million for the nine months ended September 30, 2020, driven by lower compensation, SG&A, and other expenses, partially offset by higher intangible amortization and impairments.
  • 5The company issued $350.0 million of 3.3% senior unsecured notes due 2030 and $275.0 million of 4.750% junior subordinated notes due 2060 during the nine months ended September 30, 2020, strengthening its capital structure.
  • 6Assets under management decreased by 13% to $653.5 billion as of September 30, 2020, reflecting net client cash outflows and market changes, with particular declines in alternative and global equity strategies.
  • 7Intangible amortization and impairments increased significantly by 51% ($10.8 million) for the three-month period and 85% ($61.4 million) for the nine-month period, primarily due to expenses recognized for reducing the carrying value of acquired client relationships.

Frequently Asked Questions

Consolidated revenue decreased by 10% to $494.8 million for the three months ended September 30, 2020, compared to the prior year. This decline was primarily driven by a $51.3 million decrease in asset-based fees, stemming from a 9% reduction in consolidated Affiliate average assets under management, largely due to net client cash outflows and a shift in the composition of assets, particularly in alternative and U.S. equity strategies.

For the three months ended September 30, 2020, Net income (controlling interest) decreased by 17% to $71.3 million, influenced by lower revenues and increased consolidated intangible amortization and impairments, and interest expense. However, for the nine months ended September 30, 2020, Net income (controlling interest) increased significantly to $86.3 million. This improvement was primarily due to a substantial decrease of $278.6 million in equity method intangible amortization and impairments, which more than offset a decrease in consolidated revenue and an increase in income tax expense.

AMG's liquidity remains strong, with cash and cash equivalents increasing to $929.4 million as of September 30, 2020. During the nine-month period, the company issued $350.0 million in senior notes due 2030 and $275.0 million in junior subordinated notes due 2060. Concurrently, it repaid $350.0 million of senior bank debt and $100.0 million of its term loan, demonstrating active management of its debt portfolio.

The company noted that the COVID-19 pandemic caused significant disruption to the global economy. However, AMG and its Affiliates remained fully operational with minimal disruption to clients, due to their decentralized operations and entrepreneurial culture. Management continues to monitor the economic uncertainty and its potential impact, stating that the extent and duration of the impact are uncertain and cannot be predicted.