Artisan Partners(APAM) - 2024 Q3 - Quarterly Report

Form 10-Q Cover Page Information This section details Artisan Partners Asset Management Inc.'s Form 10-Q filing information for Q3 2024 - Artisan Partners Asset Management Inc. (APAM) filed its Form 10-Q for the quarter ended September 30, 2024, as a large accelerated filer[1][2] Class of Stock | Class of Stock | Trading Symbol | Exchange on which registered | | :------------------- | :------------- | :--------------------------- | | Class A common stock | APAM | New York Stock Exchange | Outstanding Shares as of October 30, 2024 | Class of Stock | Shares Outstanding | | :------------------- | :----------------- | | Class A common stock | 70,069,120 | | Class B common stock | 1,579,068 | | Class C common stock | 8,712,951 | Part I — Financial Information This part presents the unaudited consolidated financial statements and management's discussion and analysis for the company Item 1. Unaudited Consolidated Financial Statements This section presents Artisan Partners Asset Management Inc.'s unaudited consolidated financial statements and detailed notes for the three and nine months ended September 30, 2024 and 2023 Unaudited Condensed Consolidated Statements of Financial Condition This statement details the company's assets, liabilities, and equity as of September 30, 2024, compared to December 31, 2023 Key Financial Condition Data (in thousands USD) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :------------------------- | :----------- | :----------- | | Total assets | $1,610,601 | $1,405,858 | | Total liabilities | $906,586 | $802,101 | | Total stockholders' equity | $405,028 | $351,351 | - Total assets increased by $204.7 million (14.6%) from December 31, 2023, to September 30, 2024, driven by cash, accounts receivable, and investment securities[8][9] - Accrued incentive compensation significantly increased from $52.2 million at December 31, 2023, to $164.3 million at September 30, 2024[9] Unaudited Consolidated Statements of Operations This statement details the company's revenues, operating expenses, non-operating income/expense, and net income for the three and nine months ended September 30, 2024 and 2023 Consolidated Statements of Operations (in thousands USD) | Metric | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :------------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenues | $279,582 | $248,722 | $814,751 | $726,134 | | Total operating expenses | $186,402 | $166,567 | $557,283 | $498,970 | | Total operating income | $93,180 | $82,155 | $257,468 | $227,164 | | Net income attributable to Artisan Partners Asset Management Inc. | $72,990 | $53,155 | $190,045 | $157,533 | | Basic earnings per share | $1.03 | $0.76 | $2.68 | $2.27 | | Diluted earnings per share | $1.03 | $0.76 | $2.68 | $2.27 | | Dividends declared per Class A common share | $0.71 | $0.61 | $2.34 | $2.01 | - Net income attributable to Artisan Partners Asset Management Inc. increased by 37.3% for the three months and by 20.6% for the nine months ended September 30, 2024, compared to the respective prior year periods[10] - Total revenues grew by 12.4% for the three months and 12.2% for the nine months ended September 30, 2024, primarily driven by management fees[10] Unaudited Consolidated Statements of Comprehensive Income This statement provides a breakdown of comprehensive income, including net income and other comprehensive income (loss), for the three and nine months ended September 30, 2024 and 2023 Consolidated Statements of Comprehensive Income (in thousands USD) | Metric | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :------------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income before noncontrolling interests | $104,185 | $73,428 | $262,137 | $219,004 | | Foreign currency translation gain (loss) | $930 | $(770) | $827 | $144 | | Comprehensive income attributable to Artisan Partners Asset Management Inc. | $73,773 | $52,500 | $191,139 | $157,443 | - Comprehensive income attributable to Artisan Partners Asset Management Inc. increased by 40.5% for the three months and 21.4% for the nine months ended September 30, 2024, compared to the prior year periods[12] Unaudited Consolidated Statements of Changes in Stockholders' Equity This section details changes in stockholders' equity for the three and nine months ended September 30, 2024 and 2023, including net income, other comprehensive income, equity-based compensation, and dividends Total Stockholders' Equity (in thousands USD) | Period | Total Stockholders' Equity | | :--------------------- | :------------------------- | | Sep 30, 2024 (3 months) | $405,028 | | Jul 1, 2024 (3 months) | $371,704 | | Sep 30, 2023 (3 months) | $323,324 | | Jan 1, 2024 (9 months) | $351,351 | | Sep 30, 2024 (9 months) | $405,028 | | Jan 1, 2023 (9 months) | $279,357 | - For the nine months ended September 30, 2024, total stockholders' equity increased by $53.6 million, primarily due to net income of $190.0 million, partially offset by dividends of $163.9 million[17] - Amortization of equity-based compensation contributed $21.7 million to additional paid-in capital for the nine months ended September 30, 2024[17] Unaudited Consolidated Statements of Cash Flows This statement outlines cash flows from operating, investing, and financing activities for the nine months ended September 30, 2024 and 2023, showing a net increase in cash and cash equivalents Consolidated Statements of Cash Flows (in thousands USD) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :------------------------------------------------ | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $335,666 | $262,802 | | Net cash used in investing activities | $(24,419) | $(36,532) | | Net cash used in financing activities | $(205,918) | $(134,310) | | Net increase in cash, cash equivalents, and restricted cash | $105,329 | $91,960 | | Cash, cash equivalents and restricted cash (End of period) | $279,800 | $230,529 | - Net cash provided by operating activities increased by $72.9 million (27.7%) for the nine months ended September 30, 2024, compared to the same period in 2023[20] - Net cash used in financing activities increased significantly by $71.6 million (53.3%) for the nine months ended September 30, 2024, primarily due to higher dividends paid and lower capital contributions[20] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and disclosures for the unaudited consolidated financial statements, covering business nature, accounting policies, investment securities, fair value measurements, borrowings, variable interest entities, noncontrolling interests, stockholders' equity, revenue, compensation, income taxes, earnings per share, indemnifications, related party transactions, and subsequent events Note 1. Nature of Business and Organization Artisan Partners Asset Management Inc. (APAM) is an investment management firm providing active investment strategies globally through autonomous investment teams - APAM operates as an investment management firm offering diverse U.S., non-U.S., and global investment strategies to sophisticated clients[21] - As of September 30, 2024, APAM held approximately 87% of the equity ownership interest in Artisan Partners Holdings LP, consolidating its financial statements[22] Note 2. Summary of Significant Accounting Policies This note outlines the basis of presentation for the unaudited interim financial statements, principles of consolidation, reclassification of prior period amounts, and recent accounting pronouncements - The consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial reporting and include all subsidiaries where APAM has a controlling financial interest[23][25] - The company adopted ASU 2023-07, 'Improvements to Reportable Segment Disclosures,' for the year ending December 31, 2024, which will result in additional disclosures but no material impact on financial statements[27] - ASU 2023-09, 'Improvements to Income Tax Disclosures,' will be adopted for the year ending December 31, 2025, with no material impact on consolidated financial statements[28] Note 3. Investment Securities This note details Artisan's investment securities, primarily in Artisan Funds, Artisan Global Funds, and Artisan Private Funds, and reports unrealized gains/losses Total Investment Securities (in thousands USD) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------- | :----------- | :----------- | | Investments in equity securities | $196,329 | $139,240 | | Investments in equity securities accounted for under the equity method | $15,611 | $11,282 | | Total investment securities | $211,940 | $150,522 | Unrealized Gain (Loss) on Investment Securities (in thousands USD) | Period | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :--------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Unrealized gain (loss) | $10,697 | $(3,901) | $20,198 | $6,458 | - As of September 30, 2024, $137.8 million of investment securities were related to funded long-term incentive compensation plans[30] Note 4. Fair Value Measurements This note describes the fair value hierarchy (Level 1, 2, and 3) used to measure Artisan's assets and liabilities, primarily money market funds and equity securities Assets at Fair Value (in thousands USD) | Asset | Sep 30, 2024 Total | Sep 30, 2024 Level 1 | Dec 31, 2023 Total | Dec 31, 2023 Level 1 | | :----------------- | :----------------- | :------------------- | :----------------- | :------------------- | | Money market funds | $230,923 | $230,923 | $118,768 | $118,768 | | Equity securities | $211,940 | $197,017 | $150,522 | $139,778 | - A significant portion of Artisan's assets, including money market funds and most equity securities, are measured using Level 1 inputs (quoted market prices in active markets)[33][34] - Investments in Artisan Private Funds are measured at NAV using the ASC 820 practical expedient and do not have a fair value level[34] Note 5. Borrowings This note details Artisan's borrowings, consisting of senior notes and a revolving credit agreement, and related interest expenses Borrowings (in thousands USD) | Debt Type | Maturity | Sep 30, 2024 | Dec 31, 2023 | Interest Rate | | :------------------------ | :------- | :----------- | :----------- | :------------ | | Revolving credit agreement | Aug 2027 | $0 | $0 | NA | | Senior notes (Series D) | Aug 2025 | $60,000 | $60,000 | 4.29% | | Senior notes (Series E) | Aug 2027 | $50,000 | $50,000 | 4.53% | | Senior notes (Series F) | Aug 2032 | $90,000 | $90,000 | 3.10% | | Total gross borrowings | | $200,000 | $200,000 | | | Total borrowings | | $199,389 | $199,267 | | - The company had $200 million in total gross borrowings as of September 30, 2024, primarily from senior notes, with no outstanding borrowings under its $100 million revolving credit facility[35][36] - Interest expense on unsecured notes and the revolving credit agreement was $1.9 million for both the three months ended September 30, 2024 and 2023, and $5.8 million for both nine-month periods[36] Note 6. Variable Interest Entities and Consolidated Investment Products This note explains Artisan's consolidation policy for Variable Interest Entities (VIEs) and Consolidated Investment Products (CIPs), detailing its controlling financial interests and the fair value measurement of assets and liabilities held by CIPs - As of September 30, 2024, Artisan had a controlling financial interest in five sub-funds of Artisan Global Funds and two Artisan Private Funds, with an aggregate direct equity investment of $99.6 million[37][42] - During the nine months ended September 30, 2024, one series of Artisan Funds was deconsolidated due to a loss of controlling financial interest, resulting in a reclassification of Artisan's $23.8 million direct equity investment to investment securities[38] Assets Held by CIPs at Fair Value (in thousands USD) | Asset | Sep 30, 2024 Total | Sep 30, 2024 Level 1 | Sep 30, 2024 Level 2 | Sep 30, 2024 Level 3 | | :---------------------------------------- | :----------------- | :------------------- | :------------------- | :------------------- | | Money market funds | $16,489 | $16,489 | $0 | $0 | | Equity securities - long position | $69,721 | $67,418 | $2,303 | $0 | | Fixed income instruments - long position | $335,881 | $0 | $328,256 | $7,625 | | Private equity | $6,895 | $0 | $0 | $6,895 | Note 7. Noncontrolling Interests - Holdings This note explains the noncontrolling interests in Artisan Partners Holdings, detailing how APAM's equity ownership changes through Holdings Common Unit Exchanges and other equity transactions - As of September 30, 2024, APAM held approximately 87% of the equity ownership interests in Holdings, an increase from 86% at December 31, 2023[43][44] - During the nine months ended September 30, 2024, Holdings Common Unit Exchanges increased APAM's equity ownership by 1%[44] - Changes in ownership of Holdings are accounted for as equity transactions, adjusting additional paid-in capital and noncontrolling interests[45] Note 8. Stockholders' Equity This note provides details on APAM's authorized and outstanding equity, including Class A, B, and C common stock, and summarizes stock transactions and dividends declared APAM Common Stock Outstanding | Class of Stock | Authorized Shares | Outstanding Sep 30, 2024 | Outstanding Dec 31, 2023 | | :------------------- | :---------------- | :----------------------- | :----------------------- | | Class A common stock | 500,000,000 | 70,069,120 | 68,554,078 | | Class B common stock | 200,000,000 | 1,579,068 | 2,435,739 | | Class C common stock | 400,000,000 | 8,712,951 | 9,024,947 | Dividends Declared per Class A Common Share | Type of Dividend | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :--------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Quarterly | $0.71 | $0.61 | $2.00 | $1.66 | | Special Annual | $0 | $0 | $0.34 | $0.35 | - Holdings partnership distributions to limited partners increased from $12.9 million to $13.2 million for the three months ended September 30, 2024, and from $30.3 million to $33.4 million for the nine months ended September 30, 2024[52] Note 9. Revenue From Contracts with Customers This note disaggregates investment advisory revenue by type and vehicle, and presents balances of receivables related to contracts with customers Investment Advisory Revenue (in thousands USD) | Revenue Source | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Artisan Funds | $161,433 | $145,269 | $471,637 | $420,244 | | Artisan Global Funds | $13,287 | $11,220 | $38,755 | $32,388 | | Separate accounts and other | $104,826 | $92,202 | $304,273 | $273,348 | | Total revenues | $279,582 | $248,722 | $814,751 | $726,134 | Receivables from Contracts with Customers (in thousands USD) | Customer | Sep 30, 2024 | Dec 31, 2023 | | :-------------------------- | :----------- | :----------- | | Artisan Funds | $9,037 | $8,251 | | Artisan Global Funds | $6,151 | $5,047 | | Separate accounts and other | $85,940 | $81,441 | | Total receivables | $101,128 | $94,739 | - Total revenues increased by 12.4% for the three months and 12.2% for the nine months ended September 30, 2024, driven by growth across all client segments[54] Note 10. Compensation and Benefits This note details the components of compensation and benefits, including salaries, incentive compensation, and long-term incentive awards, and their associated expenses Total Compensation and Benefits (in thousands USD) | Component | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Salaries, incentive compensation and benefits | $128,604 | $118,271 | $387,067 | $350,147 | | Long-term cash incentive compensation expense | $12,941 | $4,625 | $35,088 | $17,969 | | Restricted share-based award compensation expense | $7,489 | $7,752 | $23,549 | $24,477 | | Total compensation and benefits | $149,034 | $130,648 | $445,704 | $392,593 | - Total compensation and benefits increased by 14.1% for the three months and 13.5% for the nine months ended September 30, 2024, primarily due to higher incentive compensation and long-term cash incentive compensation[56] - During the nine months ended September 30, 2024, Artisan granted $38.4 million of franchise capital awards and 502,774 restricted stock awards[58][62] Note 11. Income Taxes and Related Payments This note covers the provision for income taxes, APAM's effective tax rate, and details regarding the Tax Receivable Agreements (TRAs), including deferred tax assets and amounts payable Provision for Income Taxes (in thousands USD) | Component | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Current taxes | $13,075 | $5,527 | $31,315 | $19,377 | | Deferred taxes | $11,529 | $9,043 | $33,992 | $32,286 | | Total income tax expense | $24,604 | $14,570 | $65,307 | $51,663 | - APAM's effective income tax rate was 19.9% for the nine months ended September 30, 2024, compared to 19.1% for the same period in 2023[65] Deferred Tax Assets and TRA Liabilities (in thousands USD) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------------ | :----------- | :----------- | | Net deferred tax assets | $419,465 | $436,529 | | Amounts payable under tax receivable agreements | $341,400 | $364,048 | Note 12. Earnings Per Share This note details the computation of basic and diluted earnings per share (EPS) using the two-class method, and identifies anti-dilutive securities Basic and Diluted Earnings Per Share | Metric | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :------------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income available to common stockholders | $66,814 | $48,464 | $173,977 | $143,734 | | Basic weighted average number of common shares outstanding | 65,123,054 | 63,520,402 | 64,802,431 | 63,419,587 | | Diluted weighted average number of common shares outstanding | 65,162,898 | 63,563,044 | 64,840,056 | 63,449,804 | | Earnings per share - Basic | $1.03 | $0.76 | $2.68 | $2.27 | | Earnings per share - Diluted | $1.03 | $0.76 | $2.68 | $2.27 | - Basic and diluted EPS increased to $1.03 for the three months and $2.68 for the nine months ended September 30, 2024, from $0.76 and $2.27 respectively in the prior year[76] - Holdings limited partnership units and unvested restricted share-based awards were anti-dilutive and excluded from diluted EPS calculations[77][78] Note 13. Indemnifications This note states that Artisan enters into agreements with indemnities in favor of third parties and indemnifies its general partner, directors, officers, and employees, with maximum exposure unknown - Artisan indemnifies its general partner, directors, officers, employees, and agents, with the maximum exposure under these arrangements being unknown[79] Note 14. Related Party Transactions This note describes transactions with related parties, including limited partners of Holdings and affiliated Artisan Funds, Artisan Global Funds, and Artisan Private Funds, detailing investment advisory fees and expense reimbursements - Several executive officers and directors of APAM are limited partners of Holdings, making certain transactions, such as TRA payments, related party transactions[80] Consolidated Investment Advisory Fees (Gross of expense reimbursements) (in thousands USD) | Fund Type | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Artisan Funds | $162,174 | $145,671 | $473,175 | $421,194 | | Artisan Global Funds | $13,313 | $11,208 | $38,814 | $32,376 | | Artisan Private Funds | $1,988 | $2,470 | $5,883 | $8,468 | - Artisan reimburses certain Artisan Funds and Artisan Global Funds for expenses to limit annualized ordinary operating expenses to a fixed percentage of average daily net assets[81][83] Note 15. Subsequent Events This note reports subsequent events, specifically the declaration of a distribution by Artisan Partners Holdings and a quarterly dividend by APAM, both effective October 29, 2024 - Effective October 29, 2024, Artisan Partners Holdings declared a distribution of $24.6 million to its partnership unit holders[87] - APAM's board of directors declared a quarterly dividend of $0.82 per share of Class A common stock, payable on November 29, 2024[87] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including an overview, recent highlights, organizational structure, key performance indicators, assets under management, investment performance, detailed results of operations, non-GAAP financial measures, liquidity, capital resources, and contractual obligations Overview and Recent Highlights Artisan is an investment management firm offering high-value active strategies globally, focusing on attracting talent, providing resources, and maintaining a transparent financial model - Assets under management (AUM) increased to $167.8 billion at September 30, 2024, a 6% increase from June 30, 2024, primarily due to $9.9 billion in market appreciation[89] - Revenue for the three months ended September 30, 2024, was $279.6 million, up 12% from $248.7 million in the prior year period[89] Key Financial Highlights (3 Months Ended Sep 30, 2024) | Metric | Value | | :------------------------ | :------------- | | AUM (period end) | $167.8 billion | | Revenue | $279.6 million | | GAAP Operating Margin | 33.3% | | Adjusted Operating Margin | 35.0% | | Basic/Diluted EPS | $1.03 | | Adjusted EPS | $0.92 | | Dividends declared per Class A common share | $0.71 | Organizational Structure Artisan's operations are conducted through Artisan Partners Holdings LP and its subsidiaries, with APAM consolidating Holdings' financial statements - Artisan operates its business in a single segment[90] - APAM's equity ownership interest in Holdings increased from 86% at December 31, 2023, to 87% at September 30, 2024, due to Holdings Unit Exchanges[90] Financial Overview The company's financial performance is significantly influenced by global financial market volatility and AUM fluctuations, with generally positive market conditions for the nine months ended September 30, 2024 - Revenue is primarily based on the value of assets under management (AUM), making market conditions a key driver of financial performance[90] Market Index Total Returns | Index | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :--------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | S&P 500 total returns | 5.9% | (3.3)% | 22.1% | 13.1% | | MSCI All Country World total returns | 6.6% | (3.4)% | 18.7% | 10.1% | | MSCI EAFE total returns | 7.3% | (4.1)% | 13.0% | 7.1% | Key Performance Indicators This section presents key financial and operational metrics used by management to assess business performance, including AUM, net client cash flows, weighted average management fee, and operating margins Key Performance Indicators (in millions USD, except percentages) | Metric | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Assets under management at period end | $167,840 | $136,495 | $167,840 | $136,495 | | Average assets under management | $162,783 | $142,199 | $158,514 | $138,982 | | Net client cash flows | $(743) | $(1,339) | $(2,875) | $(3,678) | | Total revenues | $279.6 | $248.7 | $814.8 | $726.1 | | Weighted average management fee | 68.5 bps | 69.5 bps | 68.8 bps | 70.0 bps | | Operating margin | 33.3% | 33.0% | 31.6% | 31.3% | | Adjusted operating margin | 35.0% | 32.5% | 32.7% | 31.5% | - Net client cash outflows improved significantly, decreasing from $(1,339) million to $(743) million for the three months, and from $(3,678) million to $(2,875) million for the nine months ended September 30, 2024[95] - Adjusted operating margin increased to 35.0% for the three months and 32.7% for the nine months ended September 30, 2024, reflecting improved operational efficiency[95] Assets Under Management and Investment Performance This section analyzes changes in AUM, driven by investment performance, client cash flows, and strategic capacity management, and provides detailed investment performance data by team and strategy, and AUM breakdowns by distribution channel and vehicle type Changes in Assets Under Management (in millions USD) | Metric | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Beginning AUM | $158,887 | $142,989 | $150,167 | $127,892 | | Net client cash flows | $(743) | $(1,339) | $(2,875) | $(3,678) | | Investment returns and other | $9,918 | $(5,080) | $20,946 | $12,471 | | Ending AUM | $167,840 | $136,495 | $167,840 | $136,495 | - AUM increased by $8.9 billion during the quarter, primarily due to $9.9 billion in market appreciation, partially offset by $0.8 billion in net client cash outflows[99] - As of September 30, 2024, 13 of 25 investment strategies experienced net outflows totaling $2.1 billion, while the remaining strategies had $1.3 billion in net inflows[99] AUM by Distribution Channel (in millions USD) | Channel | Sep 30, 2024 AUM | Sep 30, 2024 % of Total | Sep 30, 2023 AUM | Sep 30, 2023 % of Total | | :------------ | :--------------- | :---------------------- | :--------------- | :---------------------- | | Institutional | $104,470 | 62.3% | $85,770 | 62.8% | | Intermediary | $57,753 | 34.4% | $45,435 | 33.3% | | Retail | $5,617 | 3.3% | $5,290 | 3.9% | | Total | $167,840 | 100.0% | $136,495 | 100.0% | AUM by Vehicle Type (in millions USD) | Vehicle Type | Sep 30, 2024 AUM | Sep 30, 2023 AUM | | :---------------------------- | :--------------- | :--------------- | | Artisan Funds & Artisan Global Funds | $81,054 | $66,630 | | Separate Accounts and Other | $86,786 | $69,865 | | Total | $167,840 | $136,495 | AUM by Asset Class (in millions USD) | Asset Class | Sep 30, 2024 AUM | Sep 30, 2023 AUM | | :----------- | :--------------- | :--------------- | | Equity | $151,267 | $124,448 | | Fixed Income | $13,072 | $8,935 | | Alternative | $3,501 | $3,112 | | Total | $167,840 | $136,495 | Results of Operations (Three Months Ended September 30, 2024 vs 2023) This section analyzes the company's financial performance for the three months ended September 30, 2024, compared to the same period in 2023, covering revenues, operating expenses, non-operating income/expense, provision for income taxes, and earnings per share Investment Advisory Revenues Investment advisory revenues increased by 12% for the three months ended September 30, 2024, driven by a 14% increase in average AUM, despite a slight decrease in the weighted average management fee Investment Advisory Revenues (in millions USD) | Metric | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | Change ($) | Change (%) | | :--------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Management fees | $279.6 | $248.6 | $31.0 | 12% | | Performance fees | $0 | $0.1 | $(0.1) | (100)% | | Total revenues | $279.6 | $248.7 | $30.9 | 12% | - The weighted average investment management fee decreased from 69.5 basis points to 68.5 basis points, primarily due to changes in strategy mix[117] Weighted Average Management Fee by Vehicle (3 Months Ended Sep 30) | Vehicle Type | 2024 Fee Rate | 2023 Fee Rate | | :---------------------------- | :------------ | :------------ | | Separate Accounts and Other | 49.5 bps | 50.1 bps | | Artisan Funds and Artisan Global Funds | 88.4 bps | 90.1 bps | Operating Expenses Total operating expenses increased by 12% for the three months ended September 30, 2024, mainly due to higher compensation and benefits, and increased occupancy-related charges Compensation and Benefits (in millions USD) | Component | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | Change ($) | Change (%) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Salaries, incentive compensation and benefits | $128.6 | $118.3 | $10.3 | 9% | | Long-term incentive compensation awards | $20.4 | $12.4 | $8.0 | 65% | | Total compensation and benefits | $149.0 | $130.7 | $18.3 | 14% | - The increase in salaries, incentive compensation, and benefits was primarily due to an $8.4 million increase in incentive compensation driven by higher revenues[119] - Long-term incentive compensation costs increased by $8.0 million, including $5.8 million from market valuation changes and $1.2 million from retirement acceleration features[119] Non-Operating Income (Expense) Total non-operating income significantly increased by 512% for the three months ended September 30, 2024, primarily due to higher net investment gains from consolidated and nonconsolidated investment products Non-Operating Income (Expense) (in millions USD) | Component | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | Change ($) | Change (%) | | :-------------------------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Interest expense | $(2.2) | $(2.3) | $0.1 | (4)% | | Interest income on cash and cash equivalents and other | $2.7 | $2.1 | $0.6 | 29% | | Net investment gain (loss) of consolidated investment products | $23.1 | $9.8 | $13.3 | 136% | | Net investment gain (loss) on nonconsolidated seed investments | $3.6 | $0.2 | $3.4 | 1,700% | | Net investment gain (loss) on nonconsolidated franchise capital investments | $8.8 | $(4.5) | $13.3 | 296% | | Total non-operating income (expense) | $35.5 | $5.8 | $29.7 | 512% | - Net investment gains from consolidated and nonconsolidated investment products increased by $30.0 million in aggregate, predominantly due to favorable market conditions[121] Provision for Income Taxes The provision for income taxes increased by 68% for the three months ended September 30, 2024, with the effective tax rate rising to 19.1% from 16.6% in the prior year, influenced by APAM's increasing equity ownership in Holdings - The provision for income taxes increased by $10.0 million (68%) to $24.6 million for the three months ended September 30, 2024[115] - APAM's effective income tax rate was 19.1% for the three months ended September 30, 2024, up from 16.6% in the prior year, partly due to a lower percentage of Holdings' earnings attributable to other partners[122] Earnings Per Share Basic and diluted earnings per share increased to $1.03 for the three months ended September 30, 2024, up from $0.76 in the prior year, driven by higher net income and increased weighted average shares outstanding due to equity award grants - Basic and diluted earnings per share were $1.03 for the three months ended September 30, 2024, compared to $0.76 in the prior year[115] - Weighted average basic and diluted shares outstanding were higher due to equity award grants[123] Results of Operations (Nine Months Ended September 30, 2024 vs 2023) This section analyzes the company's financial performance for the nine months ended September 30, 2024, compared to the same period in 2023, covering revenues, operating expenses, non-operating income/expense, provision for income taxes, and earnings per share Investment Advisory Revenues Investment advisory revenues increased by 12% for the nine months ended September 30, 2024, primarily due to a 14% increase in average AUM, despite a slight decrease in the weighted average management fee Investment Advisory Revenues (in millions USD) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | Change ($) | Change (%) | | :--------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Management fees | $814.7 | $725.9 | $88.8 | 12% | | Performance fees | $0.1 | $0.2 | $(0.1) | (50)% | | Total revenues | $814.8 | $726.1 | $88.7 | 12% | - The weighted average management fee decreased from 70.0 basis points to 68.8 basis points, predominantly due to changes in strategy mix[126] Weighted Average Management Fee by Vehicle (9 Months Ended Sep 30) | Vehicle Type | 2024 Fee Rate | 2023 Fee Rate | | :---------------------------- | :------------ | :------------ | | Separate Accounts and Other | 49.7 bps | 51.0 bps | | Artisan Funds and Artisan Global Funds | 88.7 bps | 90.3 bps | Operating Expenses Total operating expenses increased by 12% for the nine months ended September 30, 2024, driven by higher compensation and benefits, increased travel, third-party distribution, occupancy, and information technology costs Compensation and Benefits (in millions USD) | Component | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | Change ($) | Change (%) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Salaries, incentive compensation and benefits | $387.1 | $350.1 | $37.0 | 11% | | Long-term incentive compensation awards | $58.6 | $42.5 | $16.1 | 38% | | Total compensation and benefits | $445.7 | $392.6 | $53.1 | 14% | - Salaries, incentive compensation, and benefits increased by $29.9 million due to higher revenues and a $7.0 million increase in salaries and benefits from more full-time associates and salary increases[129] - Other operating expenses increased by $5.3 million, primarily due to higher travel, third-party distribution, occupancy, and information technology costs[130] Non-Operating Income (Expense) Total non-operating income increased by 61% for the nine months ended September 30, 2024, driven by higher net investment gains from consolidated and nonconsolidated investment products and increased interest income Non-Operating Income (Expense) (in millions USD) | Component | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | Change ($) | Change (%) | | :-------------------------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Interest expense | $(6.5) | $(6.5) | $0 | 0% | | Interest income on cash and cash equivalents and other | $6.6 | $3.8 | $2.8 | 74% | | Net investment gain (loss) of consolidated investment products | $45.6 | $38.2 | $7.4 | 19% | | Net investment gain (loss) on nonconsolidated seed investments | $6.9 | $1.4 | $5.5 | 393% | | Net investment gain (loss) on nonconsolidated franchise capital investments | $17.8 | $6.1 | $11.7 | 192% | | Total non-operating income (expense) | $69.9 | $43.5 | $26.4 | 61% | - Net investment gains from consolidated and nonconsolidated investment products increased by $24.6 million in aggregate, primarily due to favorable market conditions[132] - Interest income on cash and cash equivalents increased by $2.8 million due to higher yields and cash balances[132] Provision for Income Taxes The provision for income taxes increased by 26% for the nine months ended September 30, 2024, with the effective tax rate rising to 19.9% from 19.1% in the prior year, influenced by APAM's increasing equity ownership in Holdings - The provision for income taxes increased by $13.6 million (26%) to $65.3 million for the nine months ended September 30, 2024[125] - APAM's effective income tax rate was 19.9% for the nine months ended September 30, 2024, up from 19.1% in the prior year, partly due to a lower percentage of Holdings' earnings attributable to other partners[133] Earnings Per Share Basic and diluted earnings per share increased to $2.68 for the nine months ended September 30, 2024, up from $2.27 in the prior year, driven by higher net income and increased weighted average shares outstanding due to Holdings' unit exchanges and equity award grants - Basic and diluted earnings per share were $2.68 for the nine months ended September 30, 2024, compared to $2.27 in the prior year[125] - Weighted average basic and diluted shares outstanding were higher due to Holdings' unit exchanges and equity award grants[134] Supplemental Non-GAAP Financial Information This section provides non-GAAP financial measures, including adjusted net income, adjusted net income per adjusted share, adjusted operating income, adjusted operating margin, and adjusted EBITDA, which management uses to evaluate profitability and efficiency, excluding certain non-operational impacts - Adjusted net income excludes the impact of net gain/loss on tax receivable agreements, compensation expense related to market valuation changes, and net investment gain/loss of investment products[136] Adjusted Non-GAAP Financial Measures (in millions USD, except per share data) | Metric | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Adjusted net income | $74.5 | $60.8 | $202.1 | $170.3 | | Adjusted net income per adjusted share | $0.92 | $0.75 | $2.50 | $2.11 | | Adjusted operating income | $97.8 | $80.9 | $266.7 | $228.4 | | Adjusted operating margin | 35.0% | 32.5% | 32.7% | 31.5% | | Adjusted EBITDA | $103.6 | $85.5 | $282.2 | $239.6 | - Adjusted operating margin improved to 35.0% for the three months and 32.7% for the nine months ended September 30, 2024, indicating enhanced operational efficiency[138] Liquidity and Capital Resources Artisan's liquidity is primarily met through cash generated by operations, with working capital needs including accrued incentive compensation, and the company manages cash balances, accounts receivable, seed investments, and borrowings, maintaining compliance with debt covenants Liquidity Position (in millions USD) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :---------------------------- | :----------- | :----------- | | Cash and cash equivalents | $253.9 | $141.0 | | Accounts receivable | $110.0 | $101.2 | | Seed investments | $157.9 | $150.1 | | Undrawn revolving credit facility | $100.0 | $100.0 | - The company had $200 million in unsecured notes outstanding and a $100 million unused revolving credit facility as of September 30, 2024[142] - Artisan was in compliance with all debt covenants as of September 30, 2024[142] Distributions and Dividends This section details Artisan Partners Holdings' distributions and APAM's declared dividends, outlining the company's dividend policy of paying approximately 80% of quarterly cash generation as a variable quarterly dividend Holdings Partnership Distributions (in millions USD) | Recipient | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Holdings Partnership Distributions to Limited Partners | $13.2 | $12.9 | $33.4 | $30.3 | | Holdings Partnership Distributions to APAM | $84.4 | $72.4 | $208.4 | $169.1 | | Total Holdings Partnership Distributions | $97.6 | $85.3 | $241.8 | $199.4 | Dividends Declared per Class A Common Share | Type of Dividend | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :--------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Quarterly | $0.71 | $0.61 | $2.00 | $1.66 | | Special Annual | $0 | $0 | $0.34 | $0.35 | - A variable quarterly dividend of $0.82 per share of Class A common stock was declared for the September quarter of 2024, representing approximately 80% of cash generated[144] Tax Receivable Agreements ("TRAs") This section discusses the company's obligations under Tax Receivable Agreements (TRAs), which require payments based on realized tax savings, with the TRA liability decreasing to $341.4 million as of September 30, 2024 - The TRA liability decreased from $364.0 million at December 31, 2023, to $341.4 million at September 30, 2024[148] - Payments totaling $36.7 million were made related to TRAs during the nine months ended September 30, 2024[148] - The company expects to make approximately $38.9 million in TRA payments in 2025[148] Cash Flows This section summarizes the cash flows from operating, investing, and financing activities for the nine months ended September 30, 2024 and 2023, highlighting increases in operating cash and changes in investing and financing activities Cash Flows Summary (in millions USD) | Activity | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :------------------------------------------------ | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $335.7 | $262.8 | | Net cash used in investing activities | $(24.5) | $(36.5) | | Net cash used in financing activities | $(205.9) | $(134.3) | | Cash, cash equivalents and restricted cash (End of period) | $279.8 | $230.5 | - Net cash provided by operating activities increased by $72.9 million, driven by higher operating income and activity within consolidated investment products[147] - Net cash used in financing activities increased by $71.6 million, primarily due to a $25.6 million increase in dividends paid and a $42.0 million decrease in contributions from noncontrolling interests[147] Certain Contractual Obligations There have been no material changes to contractual obligations outside the ordinary course of business, except for changes in the TRA liability, which decreased to $341.4 million at September 30, 2024 - The TRA liability decreased from $364.0 million at December 31, 2023, to $341.4 million at September 30, 2024[148] - The company expects to make approximately $38.9 million in TRA payments in 2025[148] Critical Accounting Policies and Estimates There have been no updates to the company's critical accounting policies and estimates from those disclosed in the latest annual report on Form 10-K - No updates to critical accounting policies and estimates were reported for the quarter ended September 30, 2024[149] New or Revised Accounting Standards No new or revised accounting standards were reported in this period - No new or revised accounting standards were reported[149] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the company's quantitative and qualitative disclosures regarding market risk from those previously reported in its Form 10-K for the year ended December 31, 2023 - No material changes in market risk disclosures were reported compared to the previous annual report[151] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter Disclosure Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2024, and concluded they are effective - The company's disclosure controls and procedures were evaluated and deemed effective as of September 30, 2024[152] Changes in Internal Control over Financial Reporting There have been no changes in internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2024[153] Part II — Other Information This part covers legal proceedings, risk factors, unregistered sales of equity securities, defaults, mine safety disclosures, other information, and exhibits Item 1. Legal Proceedings The company is subject to various legal and administrative proceedings in the normal course of business, but currently, there are no proceedings that management believes may have a material adverse effect on its consolidated financial position, cash flows, or results of operations - No legal or administrative proceedings are expected to have a material adverse effect on the company's financial position, cash flows, or results of operations[155] Item 1A. Risk Factors For a discussion of related and other potential risks and uncertainties, readers are referred to the 'Risk Factors' section in the company's latest annual report on Form 10-K - Readers are directed to the Form 10-K for a discussion of risk factors[155] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section describes the exchange of employee-partner Class B common units for Class E common units and corresponding Class C common stock upon termination of employment, with no such issuances occurring during the three months ended September 30, 2024 - No unregistered sales of equity securities occurred during the three months ended September 30, 2024[155] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[155] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[155] Item 5. Other Information No other information was reported under this item - No other information was reported under this item[155] Item 6. Exhibits This section lists the exhibits filed or furnished with the Form 10-Q, including certifications and the Cover Page Interactive Data File (XBRL) - Exhibits include certifications from the CEO and CFO (31.1, 31.2, 32.1, 32.2) and the Cover Page Interactive Data File (XBRL) as Exhibit 101[157][158](index=1