Ares(ARES) - 2023 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements Presents Ares Management Corporation's unaudited condensed consolidated financial statements and detailed notes for Q3 2023 Condensed Consolidated Statements of Financial Condition Total assets increased to $23.4 billion, liabilities to $18.3 billion, and equity to $4.0 billion as of September 30, 2023 Condensed Consolidated Statements of Financial Condition (in thousands) | Account | September 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $23,383,893 | $22,002,839 | | Cash and cash equivalents | $311,827 | $389,987 | | Investments | $4,436,746 | $3,974,734 | | Assets of Consolidated Funds | $15,347,425 | $14,134,683 | | Total Liabilities | $18,339,676 | $17,097,810 | | Debt obligations | $2,340,173 | $2,273,854 | | CLO loan obligations, at fair value | $11,460,963 | $10,701,720 | | Total Equity | $4,018,454 | $3,798,618 | | Total stockholders' equity | $1,733,179 | $1,589,239 | Condensed Consolidated Statements of Operations Total revenues rose to $2.58 billion, with net income attributable to stockholders significantly increasing to $300.4 million Key Operating Results (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total Revenues | $2,577,903 | $2,117,719 | | Management fees | $1,853,304 | $1,546,350 | | Carried interest allocation | $541,828 | $417,779 | | Total Expenses | $2,027,334 | $2,062,654 | | Income Before Taxes | $849,963 | $167,997 | | Net Income Attributable to AMC Stockholders | $300,376 | $50,048 | | Diluted EPS | $1.54 | $0.23 | Notes to the Condensed Consolidated Financial Statements This section details accounting policies and financial data, covering goodwill, debt, segment reporting, and subsequent events Note 3. Goodwill and Intangible Assets Net intangible assets decreased to $1.03 billion due to amortization and impairment, with goodwill at $997.8 million - In Q3 2023, the company recorded a non-cash impairment charge of $65.7 million on client relationships from the Landmark Partners acquisition due to lower expected fee-paying AUM in a private equity secondaries fund[53] - Following the SSG Buyout, the Ares SSG reporting unit was transferred to the Credit Group, and its total goodwill of $224.6 million was reallocated accordingly[58] Goodwill and Intangible Assets, Net (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Intangible assets, net | $1,033,590 | $1,208,220 | | Goodwill | $997,801 | $999,656 | Note 6. Debt Total debt obligations increased slightly to $2.34 billion, comprising various notes and a credit facility Company Debt Obligations (in thousands) | Debt Instrument | Maturity Date | Carrying Value (Sep 30, 2023) | Interest Rate (Sep 30, 2023) | | :--- | :--- | :--- | :--- | | Credit Facility | 3/31/2027 | $765,000 | 6.37% | | 2024 Senior Notes | 10/8/2024 | $249,240 | 4.21% | | 2030 Senior Notes | 6/15/2030 | $396,937 | 3.28% | | 2052 Senior Notes | 2/1/2052 | $484,101 | 3.77% | | 2051 Subordinated Notes | 6/30/2051 | $444,895 | 4.13% | | Total Debt Obligations | | $2,340,173 | | Note 13. Segment Reporting Segments generated $795.0 million in FRE and $831.0 million in RI, primarily driven by the Credit Group - Effective January 1, 2023, Ares SSG was rebranded as Ares Asia and its credit business was reclassified into the Credit Group, while 'Strategic Initiatives' became 'Other'[173] Fee Related Earnings (FRE) by Segment (in thousands) | Segment | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Credit Group | $866,403 | $674,978 | | Private Equity Group | $80,399 | $54,214 | | Real Assets Group | $160,716 | $134,844 | | Secondaries Group | $71,262 | $80,111 | | Other | $7,454 | $747 | | Operations Management Group | ($391,219) | ($286,287) | | Total FRE | $795,015 | $658,607 | Realized Income (RI) by Segment (in thousands) | Segment | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Credit Group | $912,402 | $714,827 | | Private Equity Group | $86,264 | $47,631 | | Real Assets Group | $157,543 | $166,595 | | Secondaries Group | $67,227 | $80,245 | | Other | ($1,552) | ($8,383) | | Operations Management Group | ($390,929) | ($288,211) | | Total RI | $830,955 | $712,704 | Note 15. Subsequent Events Post-quarter, a $0.77 per share dividend was declared, and the AAC I SPAC business combination was terminated - In October 2023, the board declared a quarterly dividend of $0.77 per share of Class A and non-voting common stock[237] - The business combination agreement for the SPAC Ares Acquisition Corporation I (AAC I) was terminated in October 2023, with outstanding shares to be redeemed in Q4 2023[237] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operating results, key trends, and liquidity, highlighting stable fee income Trends Affecting Our Business Global markets faced volatility and rising rates, but the company's portfolio is well-positioned with floating-rate assets - Approximately 95% of management fees for Q3 2023 were derived from perpetual capital vehicles and long-dated funds, ensuring a stable capital base[241] - The company's portfolio is positioned for a rising interest rate environment, with 86% of debt assets and 56% of total assets being floating-rate instruments as of September 30, 2023[246] - Recent strategic transactions include the acquisition of Crescent Point Capital and a partnership with Vinci Partners to expand in Latin America[247] Managing Business Performance Total AUM grew to $394.9 billion and FPAUM to $247.7 billion, with $65.7 billion in AUM not yet paying fees AUM Rollforward Summary (in millions) | Metric | As of Sep 30, 2023 | As of Sep 30, 2022 | | :--- | :--- | :--- | | Total AUM | $394,942 | $341,416 | | Net New Commitments (Par/Equity + Debt) | $62,844 (YTD) | $43,603 (YTD) | FPAUM Rollforward Summary (in millions) | Metric | As of Sep 30, 2023 | As of Sep 30, 2022 | | :--- | :--- | :--- | | Total FPAUM | $247,693 | $218,636 | | Commitments & Deployment (YTD) | $33,158 | $49,502 | - As of September 30, 2023, AUM not yet paying fees was $65.7 billion, which could generate approximately $647.4 million in potential incremental annual management fees[267] Results of Operations by Segment FRE increased 21% to $795.0 million and RI grew 17% to $831.0 million, primarily driven by the Credit Group Segment Fee Related Earnings (FRE) (in thousands) | Segment | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Credit Group | $866,403 | $674,978 | | Private Equity Group | $80,399 | $54,214 | | Real Assets Group | $160,716 | $134,844 | | Secondaries Group | $71,262 | $80,111 | | Total FRE | $795,015 | $658,607 | Segment Realized Income (RI) (in thousands) | Segment | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Credit Group | $912,402 | $714,827 | | Private Equity Group | $86,264 | $47,631 | | Real Assets Group | $157,543 | $166,595 | | Secondaries Group | $67,227 | $80,245 | | Total RI | $830,955 | $712,704 | Liquidity and Capital Resources The company maintains strong liquidity with $311.8 million cash, generating $724.9 million from operations - As of September 30, 2023, the company had cash and cash equivalents of $311.8 million and $765.0 million in borrowings outstanding under its Credit Facility[476] - For the nine months ended September 30, 2023, net cash provided by operating activities was $724.9 million, while financing activities used $759.2 million, mainly for dividends ($446.3 million) and AOG unitholder distributions ($313.8 million)[483][489] - The Tax Receivable Agreement (TRA) liability balance increased to $165.6 million as of September 30, 2023, from $118.5 million at year-end 2022[495] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk primarily stems from investment fair value movements, exchange rates, and credit risk - The company's main market risk is the impact of investment fair value movements on management fees, performance income, and investment income[501] - Exchange rate risk is managed through operational activities and, when appropriate, derivative instruments to hedge net foreign currency exposure[506] - Credit risk is minimized by limiting counterparties to reputable financial institutions and applying a rigorous, credit-oriented approach to all investments[507][508] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes - The principal executive officer and principal financial officer concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective[510] - No material changes to the internal control over financial reporting occurred during the quarter ended September 30, 2023[511] PART II—OTHER INFORMATION Item 1. Legal Proceedings As of September 30, 2023, the company was not subject to any material pending legal proceedings - As of September 30, 2023, Ares Management Corporation was not subject to any material pending legal proceedings[513] Item 1A. Risk Factors This section refers to previously disclosed risk factors in the Annual Report on Form 10-K and Q1 2023 Form 10-Q - The report directs readers to previously filed documents (Annual Report on Form 10-K for FY2022 and Q1 2023 Form 10-Q) for a detailed description of risk factors[514] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period - No unregistered sales of equity securities occurred during the period covered by this report[515] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including equity compensation agreements and certifications - Exhibits filed with the report include various forms of Restricted Unit Agreements under the 2023 Equity Incentive Plan, as well as required CEO and CFO certifications[518][519]