Affiliated Managers (AMG) - 2022 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This section provides the unaudited consolidated financial information for the company, including financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Affiliated Managers Group, Inc. for Q2 2022, including income, comprehensive income, balance sheets, equity changes, and cash flows Consolidated Statements of Income Consolidated revenue increased to $604.1 million for Q2 2022, with diluted EPS rising to $2.68, while six-month net income to controlling interest slightly decreased Consolidated Statements of Income (in millions, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Consolidated Revenue | $604.1 | $586.3 | $1,211.4 | $1,145.4 | | Total Consolidated Expenses | $400.6 | $389.9 | $795.7 | $768.4 | | Net Income | $174.0 | $184.2 | $392.6 | $398.2 | | Net Income (controlling interest) | $109.4 | $109.0 | $255.4 | $258.9 | | Earnings Per Share (basic) | $2.83 | $2.62 | $6.52 | $6.15 | | Earnings Per Share (diluted) | $2.68 | $2.55 | $6.10 | $5.96 | Consolidated Statements of Comprehensive Income Comprehensive income attributable to controlling interest significantly decreased to $56.9 million for Q2 2022, primarily due to foreign currency translation losses Consolidated Statements of Comprehensive Income (in millions) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $174.0 | $184.2 | $392.6 | $398.2 | | Other Comprehensive Income (Loss) | $(74.0) | $7.9 | $(85.8) | $32.2 | | Comprehensive Income | $100.0 | $192.1 | $306.8 | $430.4 | | Comprehensive Income (controlling interest) | $56.9 | $118.0 | $197.6 | $292.4 | Consolidated Balance Sheets Total assets decreased to $8.47 billion as of June 30, 2022, primarily due to reduced cash, while total liabilities also decreased Consolidated Balance Sheet Highlights (in millions) | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $8,468.7 | $8,876.4 | | Cash and cash equivalents | $606.8 | $908.5 | | Goodwill | $2,660.0 | $2,689.2 | | Total Liabilities | $4,277.1 | $4,491.9 | | Debt | $2,534.3 | $2,490.4 | | Total Stockholders' Equity | $2,741.0 | $2,786.4 | | Total Liabilities and Equity | $8,468.7 | $8,876.4 | Consolidated Statements of Cash Flows Operating cash flow decreased to $506.5 million for the six months ended June 30, 2022, with significant cash used in financing activities, leading to a $301.7 million net decrease in cash Consolidated Statements of Cash Flows (in millions) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Cash flow from operating activities | $506.5 | $550.9 | | Cash flow used in investing activities | $(172.0) | $(170.7) | | Cash flow used in financing activities | $(616.2) | $(642.0) | | Net decrease in cash and cash equivalents | $(301.7) | $(257.9) | | Cash and cash equivalents at end of period | $606.8 | $777.9 | Notes to the Consolidated Financial Statements Notes detail accounting policies, including ASU 2020-06 adoption, investments, debt structure, and the pending sale of the company's interest in Baring Private Equity Asia - Effective January 1, 2022, the company adopted ASU 2020-06, which changed the accounting for its junior convertible securities to be wholly classified as debt, resulting in a $101.5 million increase in Debt and a $4.5 million increase in Retained Earnings[39] - The company agreed to sell its equity interest in Baring Private Equity Asia (BPEA) to EQT AB, expecting to receive $240.0 million in cash and 28.68 million EQT ordinary shares, with the transaction expected to close in Q4 2022[106] - As of June 30, 2022, the company had total debt of $2.53 billion, consisting of senior bank debt, senior notes, junior subordinated notes, and junior convertible securities[81] - The company has unfunded commitments of $146.1 million to co-invest in certain Affiliate sponsored investment products as of June 30, 2022[93] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2022 financial performance, including $691 billion AUM, revenue and expense drivers, non-GAAP measures, liquidity, and the pending BPEA sale Executive Overview and Operating Performance Aggregate assets under management decreased to $690.9 billion as of June 30, 2022, primarily due to market changes, alongside strategic investments and the pending BPEA sale - Aggregate assets under management were approximately $691 billion as of June 30, 2022[145] - The company agreed to sell its interest in Baring Private Equity Asia (BPEA) to EQT, expecting to receive $240.0 million in cash and 28.68 million EQT ordinary shares, with the transaction expected to close in Q4 2022[147] AUM Roll-Forward by Strategy - Year to Date (in billions) | Strategy | Dec 31, 2021 | Net Client Flows | Market Changes | Other | June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | | Alternatives | $238.2 | $12.7 | $1.1 | $(8.2) | $243.8 | | Global Equities | $277.5 | $(21.5) | $(48.7) | $(6.2) | $201.1 | | U.S. Equities | $170.7 | $(4.1) | $(31.3) | $(1.0) | $134.3 | | Fixed Income & Multi-Asset | $127.4 | $(0.7) | $(13.9) | $(1.1) | $111.7 | | Total | $813.8 | $(13.6) | $(92.8) | $(16.5) | $690.9 | Results of Operations Consolidated revenue for Q2 2022 increased to $604.1 million driven by performance-based fees, while equity method income and investment income declined due to lower performance fees and unrealized losses - Consolidated revenue for Q2 2022 increased by 3% YoY to $604.1 million, mainly due to a $42.3 million (7%) increase in performance-based fees from illiquid alternative strategies[172] - Equity method revenue for Q2 2022 decreased by 4% YoY to $575.5 million, as a $45.5 million drop in performance-based fees from liquid alternatives offset a $21.7 million rise in asset-based fees[183] - Investment and other income decreased by $43.1 million in Q2 2022 compared to Q2 2021, primarily due to unrealized losses on Other Investments ($28.3 million) and Marketable Securities ($12.0 million)[190] - Income tax expense for Q2 2022 decreased 46% to $38.0 million, largely because a $25.1 million deferred tax expense from a UK tax rate change in Q2 2021 did not recur[191] Supplemental Financial Performance Measures Non-GAAP measures show Adjusted EBITDA and Economic Net Income (controlling interest) decreased for Q2 2022, while Economic Earnings Per Share remained flat at $4.03 Reconciliation to Non-GAAP Measures (in millions, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net income (controlling interest) | $109.4 | $109.0 | | Adjusted EBITDA (controlling interest) | $213.4 | $227.3 | | Economic net income (controlling interest) | $160.5 | $171.2 | | Economic earnings per share | $4.03 | $4.03 | Liquidity and Capital Resources The company ended Q2 2022 with $606.8 million in cash, utilizing funds for share repurchases and Affiliate investments, while maintaining a $1.25 billion revolving credit facility - Cash and cash equivalents were $606.8 million as of June 30, 2022[205] - During the six months ended June 30, 2022, the company repurchased 1.9 million shares of its common stock for $264.6 million (net of proceeds from issuances)[31][215] - The company has a $1.25 billion senior unsecured revolving credit facility, which had no outstanding borrowings as of June 30, 2022[218] - Following the closing of the BPEA sale, the company expects to use approximately 60% of gross proceeds for growth investments and share repurchases over time[207] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in the company's quantitative and qualitative market risk disclosures for the quarter ended June 30, 2022 - There were no material changes to the company's market risk disclosures for the quarter ended June 30, 2022[228] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[229] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[230] PART II—OTHER INFORMATION This section provides additional information, including details on equity security repurchases and a list of exhibits filed with the quarterly report Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 621,810 shares at an average price of $128.75 during Q2 2022, with 3.5 million shares remaining available for repurchase Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2022 | 264,213 | $133.44 | | May 2022 | 131,435 | $125.67 | | June 2022 | 226,162 | $125.07 | | Total | 621,810 | $128.75 | - As of June 30, 2022, there were 3.5 million shares available for repurchase under the company's outstanding share repurchase programs[233] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including CEO/CFO certifications and XBRL financial data - The exhibits filed with this report include CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906, and financial data in XBRL format[235]