GCM Grosvenor(US:GCMG)2023-11-08 16:00Part I - Financial Information This section presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls Item 1. Financial Statements (unaudited) The unaudited financial statements for Q3 2023 detail the company's financial condition, operations, and cash flows, highlighting a Q3 net income increase despite a nine-month net loss driven by non-cash compensation Condensed Consolidated Statements of Financial Condition Total assets increased to $504.7 million as of September 30, 2023, from $488.9 million, with liabilities also rising, resulting in a slight increase in the total deficit Condensed Consolidated Statements of Financial Condition (in thousands) | | As of Sep 30, 2023 (Unaudited) | As of Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $55,354 | $85,163 | | Investments | $239,883 | $223,970 | | Total assets | $504,721 | $488,933 | | Liabilities and Equity (Deficit) | | | | Debt | $385,451 | $387,627 | | Total liabilities | $598,409 | $582,939 | | Total deficit | $(93,688) | $(94,006) | | Total liabilities and equity (deficit) | $504,721 | $488,933 | Condensed Consolidated Statements of Income (Loss) Q3 2023 net income increased to $17.6 million, but the nine-month period saw a net loss of $33.8 million, primarily due to higher employee compensation expenses Condensed Consolidated Statements of Income (Loss) (in thousands) | | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $121,714 | $137,214 | $328,443 | $346,702 | | Total operating expenses | $97,810 | $108,484 | $353,407 | $280,169 | | Operating income (loss) | $23,904 | $28,730 | $(24,964) | $66,533 | | Net income (loss) | $17,620 | $14,165 | $(33,778) | $68,075 | | Net income attributable to GCM Grosvenor Inc. | $5,898 | $3,099 | $9,516 | $15,430 | | Diluted EPS | $0.04 | $0.02 | $(0.28) | $0.23 | Condensed Consolidated Statements of Cash Flows Net cash from operations significantly decreased to $65.4 million for the nine months ended September 30, 2023, primarily due to lower net income, leading to an overall cash decrease Net Cash Flow Summary (in thousands) | | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $65,389 | $159,929 | | Net cash used in investing activities | $(13,031) | $(10,338) | | Net cash used in financing activities | $(80,947) | $(140,219) | | Net (decrease) increase in cash | $(29,809) | $5,390 | Notes to Condensed Consolidated Financial Statements Detailed notes disclose significant accounting policies, revenue components, fair value, debt, equity compensation, and subsequent events, including incentive fees, stock repurchases, and dividends - Incentive fees for Q3 2023 were $26.1 million, down from $45.5 million in Q3 2022, primarily due to a decrease in carried interest from $44.5 million to $25.4 million52 - On August 8, 2023, the Board of Directors increased the stock repurchase authorization by $25 million, from $90 million to $115 million, with $40.2 million remaining available as of September 30, 20237374 - Partnership interest-based compensation for the nine months ended September 30, 2023, significantly increased to $89.2 million from $21.5 million, representing a non-cash charge offset by a deemed equity contribution83 - A new 16.3-year lease for the New York office was executed in June 2023, with total future lease payments projected at $65.7 million124 - A quarterly dividend of $0.11 per share of Class A common stock was declared on November 7, 2023, payable on December 15, 2023152 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, noting increased Q3 management fees offset by lower carried interest, a nine-month net loss due to higher non-cash compensation, and growth in Fee-Paying AUM to $61.0 billion Results of Operations Total operating revenues decreased in Q3 2023 to $121.7 million and slightly for the nine-month period, while operating expenses significantly increased to $353.4 million, primarily due to higher partnership interest-based compensation Revenue and Expense Comparison (in thousands) | | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Management fees | $94,573 | $90,715 | $280,382 | $275,655 | | Incentive fees | $26,073 | $45,467 | $44,884 | $67,964 | | Total operating revenues | $121,714 | $137,214 | $328,443 | $346,702 | | Employee compensation and benefits | $76,413 | $86,502 | $277,505 | $213,836 | | General, administrative and other | $21,397 | $21,982 | $75,902 | $66,333 | | Total operating expenses | $97,810 | $108,484 | $353,407 | $280,169 | - Employee compensation for the nine months ended September 30, 2023, increased primarily due to a $67.7 million rise in partnership interest-based compensation from new awards and amortization203 Fee-Paying AUM (FPAUM) Fee-Paying AUM (FPAUM) increased by $2.1 billion to $61.0 billion during the first nine months of 2023, driven by contributions and market appreciation, with $7.1 billion in Contracted, not yet Fee-Paying AUM (CNYFPAUM) FPAUM Roll-Forward for Nine Months Ended Sep 30, 2023 (in millions) | | Private Markets Strategies | Absolute Return Strategies | Total FPAUM | | :--- | :--- | :--- | :--- | | Balance, beginning of period | $36,876 | $21,980 | $58,856 | | Contributions | $3,614 | $316 | $3,930 | | Withdrawals | $(68) | $(1,714) | $(1,782) | | Distributions | $(752) | $(58) | $(810) | | Change in market value | $163 | $1,048 | $1,211 | | Balance, end of period | $39,554 | $21,414 | $60,968 | - As of September 30, 2023, the company held $7.1 billion in Contracted, not yet Fee-Paying AUM (CNYFPAUM)220 Non-GAAP Financial Measures Key non-GAAP metrics for Q3 2023 include Fee-Related Earnings (FRE) of $36.4 million, Adjusted EBITDA of $43.6 million, and Adjusted Net Income per Share of $0.15, all showing year-over-year increases Key Non-GAAP Financial Measures (in thousands, except per share) | | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Fee-Related Earnings (FRE) | $36,437 | $31,367 | $99,610 | $95,637 | | Adjusted EBITDA | $43,560 | $41,367 | $112,456 | $113,769 | | Adjusted Net Income | $28,427 | $26,567 | $70,769 | $72,420 | | Adjusted Net Income Per Share | $0.15 | $0.14 | $0.38 | $0.38 | Liquidity and Capital Resources As of September 30, 2023, the company maintained $55.4 million in cash and $50.0 million in available borrowing capacity, with an increased stock repurchase authorization and a declared quarterly dividend - As of September 30, 2023, the company held $55.4 million in cash and cash equivalents and $50.0 million in available borrowing capacity250 - On August 8, 2023, the Board of Directors increased the share repurchase authorization by $25 million to a total of $115 million265 - A quarterly dividend of $0.11 per share of Class A common stock was declared on November 7, 2023263 Item 3. Quantitative and Qualitative Disclosures about Market Risk No material changes occurred in the company's market risk exposures, including price, interest-rate, financing, liquidity, counterparty, and foreign exchange-rate risks, during the nine months ended September 30, 2023 - No material changes in the company's market risks occurred during the nine months ended September 30, 2023277 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during Q3 2023 - The principal executive and financial officers concluded that the company's disclosure controls and procedures were effective as of September 30, 2023279 - No material changes to internal control over financial reporting occurred during Q3 2023280 Part II - Other Information This section provides disclosures on legal proceedings, risk factors, equity security sales, and other relevant information Item 1. Legal Proceedings The company is involved in various lawsuits but does not anticipate any current litigation will materially affect its financial statements - Management does not believe any current litigation will materially affect the Company's Condensed Consolidated Financial Statements282 Item 1A. Risk Factors No material changes to the company's risk factors have occurred since the Annual Report on Form 10-K for the fiscal year ended December 31, 2022 - No material changes to risk factors have occurred since the fiscal year ended December 31, 2022284 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities The company did not repurchase shares in the open market during Q3 2023 but is deemed to have repurchased 804,046 shares for $6.4 million for RSU tax liabilities, with the repurchase authorization increased to $115 million - On August 8, 2023, the Board of Directors increased the share repurchase authorization by $25 million, from $90 million to $115 million288 - The company is deemed to have repurchased 804,046 shares of Class A common stock equivalents for $6.4 million during Q3 2023 for vested RSU tax payments287 Item 5. Other Information On September 15, 2023, CFO Pamela Bentley adopted a Rule 10b5-1 trading plan for the sale of up to 125,000 shares of Class A common stock - CFO Pamela Bentley adopted a Rule 10b5-1(c) trading plan on September 15, 2023, for the sale of up to 125,000 shares of Class A common stock, expiring by March 15, 2024292