GCM Grosvenor Inc. — Q1 2024 Form 10-Q
Business context and period: GCM Grosvenor is an alternative asset manager serving institutional and individual investors through customized accounts and commingled funds. This unaudited filing covers the three months ended March 31, 2024, compared with Q1 2023, and the balance sheet as of March 31, 2024.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 / prior period |
|---|---|---|
| Total operating revenue | $108.9 million | $99.1 million; up 9.8% |
| Operating loss | $(16.0) million | $(12.9) million |
| Consolidated net loss | $(18.9) million | $(15.1) million |
| Net income (loss) attributable to GCM Grosvenor Inc. | $2.1 million | $(1.2) million |
| Basic / diluted EPS | $0.05 / $(0.13) | $(0.03) / $(0.10) |
| Operating cash flow | $24.2 million | $(4.8) million |
| Cash and cash equivalents | $41.9 million | $44.4 million at Dec. 31, 2023 |
| Debt | $388.0 million principal; $384.0 million net carrying value | $389.0 million principal; $384.7 million net carrying value at Dec. 31, 2023 |
- Management fees were $95.9 million, up 4%; incentive fees were $10.1 million, up from $5.8 million. Performance fees rose to $6.0 million from $0.2 million, while carried interest declined to $4.1 million from $5.6 million.
- Total operating expenses rose 11% to $124.8 million. Employee compensation and benefits increased 16% to $99.6 million, while general, administrative and other expenses were broadly stable at $25.2 million.
- Operating margin was approximately negative 14.7%, compared with negative 13.0% in Q1 2023. Interest expense was $5.9 million, versus $6.7 million.
- Non-GAAP results improved: Fee-Related Earnings were $38.1 million versus $30.4 million; Adjusted EBITDA was $42.4 million versus $32.9 million; Adjusted Net Income was $27.2 million versus $19.6 million; and diluted Adjusted Net Income per share was $0.14 versus $0.10. These measures are not GAAP substitutes.
- Investing cash outflow was $8.7 million and financing cash outflow was $17.2 million. Cash declined by $2.5 million during the quarter.
- Liquidity included $41.9 million of cash and $50.0 million of undrawn revolving credit capacity. The company reported compliance with debt covenants and regulatory capital requirements.
- Fee-paying AUM increased 2% to $63.2 billion; total AUM rose 2% to $78.8 billion. Contracted, not-yet-fee-paying AUM was $7.1 billion.
Material changes and unusual items
- Revenue growth reflected higher private-markets fees and performance fees, partly offset by lower absolute-return fees and carried interest. Management attributed higher performance fees mainly to one fund with a fiscal year different from the company’s.
- Compensation included $30.0 million of partnership-interest-based expense, up from $11.1 million. This included $18.5 million related to award modifications for certain retiring or retired employees. The company said these awards do not dilute Class A shareholders or affect company cash flows; related deemed contributions are allocated to GCMH noncontrolling interests.
- Operating cash flow improved year over year, reflecting stronger working-capital movements, including higher incentive-fee receipts, and non-cash adjustments.
- The board increased the share repurchase authorization from $115 million to $140 million in February. At March 31, $65 million remained. In April, the company repurchased 3.02 million shares for $28.0 million, leaving $37.0 million at April 30; the filing describes these as repurchases for cash-settled RSUs and tax withholding.
- The company declared a $0.11-per-Class A share dividend payable June 17, 2024. It also reported a $53.8 million payable under the Tax Receivable Agreement.
Outlook, commentary and risks
- No specific revenue, earnings or AUM guidance was provided. Management expects available cash, operating cash flows and revolving-credit capacity to fund operations, planned capital expenditures and debt service for the next 12 months and foreseeable future.
- Management cited fundraising and investor retention, investment performance, realizations and suitable investment availability as important factors. It also noted sensitivity to market, economic, geopolitical and interest-rate conditions, competition, redemptions, regulation and the performance of underlying investments.
- The company had $388.0 million of term-loan principal outstanding, with a February 2028 maturity; the $50.0 million revolving facility matures in February 2026. The term loan’s reported weighted-average interest rate was 7.95% for Q1 2024. A $300 million interest-rate swap hedges part of the debt exposure.
- Unfunded investment commitments were $86.3 million. Unfunded commitments to unconsolidated VIEs were $41.8 million; maximum exposure to loss relating to those VIEs was $112.2 million, including investments and receivables.
- Management reported no material change in risk factors or market risks from the 2023 Form 10-K, no material litigation expected to affect the financial statements, and effective disclosure controls as of March 31, 2024.
Important facts for investors to verify
- Reconcile the consolidated net loss of $18.9 million with the $2.1 million attributable to GCM Grosvenor Inc.; understand the substantial GCMH noncontrolling-interest allocation and the distinction between basic and diluted EPS.
- Assess the quality and repeatability of the incentive-fee increase, particularly the contribution from one fund with a different fiscal year, and the lower carried-interest realizations.
- Review the $30.0 million partnership-interest-based compensation charge, including the $18.5 million award-modification expense, its treatment in non-GAAP measures and its allocation to noncontrolling interests.
- Monitor cash conversion, capital returns and liquidity after the April $28.0 million RSU-related share repurchase, alongside scheduled debt payments, dividends and investment commitments.
- Evaluate leverage, floating-rate exposure and covenant headroom; the filing says covenants were met but does not provide a clear numerical leverage ratio in the supplied text.
- Consider that FPAUM, Adjusted EBITDA, FRE and Adjusted Net Income are management-defined non-GAAP or operating measures and may not be comparable with similarly named measures at other firms.