Patria Investments Limited — FY2022 Form 20-F Summary
Period clarification: The request identifies 2021 Q4, but the supplied filing is Patria’s annual report for the fiscal year ended December 31, 2022, filed April 28, 2023. It reports annual results, not standalone 2021 Q4 results. Financial statements are prepared under IFRS as issued by the IASB and presented in U.S. dollars.
Business context
Patria is a Latin America-focused alternative asset manager with private equity, infrastructure, credit, public equities, real estate, and advisory and distribution businesses. AUM was $27.25 billion at year-end 2022, compared with $23.82 billion at year-end 2021. Fee-earning AUM rose to $19.17 billion from $17.93 billion. The filing includes acquisitions at different dates, so year-over-year comparisons are affected by changes in the consolidated business.
Financial and operating performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net revenue from services | $258.9 million | $235.5 million | +10% |
| Net income | $94.1 million | $121.2 million | -22% |
| Net income attributable to owners | $93.0 million | $122.5 million | -24% |
| Net cash from operating activities | $81.1 million | $107.6 million | Down $26.5 million |
| Fee Related Earnings (non-GAAP) | $130.0 million | $86.0 million | +51% |
| Distributable Earnings (non-GAAP) | $147.1 million | $141.3 million | +4% |
| Dividends paid | $103.3 million | $119.8 million | Down $16.5 million |
Net income margin was approximately 36% of service revenue in 2022, versus approximately 51% in 2021. Management-fee revenue grew 54% to $223.5 million, reflecting acquired businesses and increased deployment in Private Equity Fund VI. Performance-fee revenue fell 66% to $30.4 million, changing from primarily Private Equity Fund III in 2021 to Infrastructure Fund III in 2022. Higher personnel costs, deferred Moneda consideration, acquired-intangible amortization, administrative costs and taxes also weighed on reported earnings.
Year-end cash and cash equivalents were $26.5 million; short-term investments were $285.9 million, including $240.3 million restricted in the SPAC trust account. Excluding that restricted trust balance, cash, cash equivalents and short-term investments totaled approximately $72.1 million. Management said available cash, investments and operating cash flows should cover ordinary working-capital and capital-expenditure needs for the next 12 months. Patria reported no outstanding financial indebtedness and no off-balance-sheet arrangements. Current liabilities included $234.1 million of SPAC shares subject to possible redemption.
Capital expenditures were $54.5 million in 2022, compared with $125.8 million in 2021. Investing cash outflow was $189.3 million; financing cash inflow was $118.5 million, including $230 million of SPAC IPO proceeds and $103.3 million of dividends paid.
Material changes versus the prior comparable period
- AUM increased $3.44 billion. Acquisitions, inflows, valuation changes and foreign exchange contributed to growth; outflows and divestments partly offset it. Private equity AUM rose to $10.91 billion and infrastructure AUM to $5.84 billion; credit AUM declined to $4.69 billion.
- FEAUM increased $1.24 billion, with acquired businesses and new fundraising offset in part by redemptions, divestments, fee-basis changes and the end of fee periods for certain funds.
- Net accrued performance fees increased to $461.8 million from $348.1 million, mainly on valuations in Infrastructure III and Private Equity Funds V and VI. This is an estimate of potential future performance fees, not cash already received.
- Patria acquired 50% of VBI Real Estate in July 2022 and consolidated it; it acquired Igah Ventures in late 2022 and expanded into venture capital. The first 40% Kamaroopin stake was acquired in February 2022. Its remaining 60% was acquired in April 2023, after year-end.
- The 2022 SPAC IPO raised $230 million gross. Its redeemable Class A shares are classified as a financial liability under IFRS; trust funds are restricted for a business combination or redemptions.
Outlook, risks and unusual items
Patria provided no quantified earnings guidance and states that it does not provide quarterly or annual operating-results guidance. Its stated strategy is to grow fundraising, broaden products and distribution, and expand through acquisitions, while investing in operating capacity and technology. The filing cites industry forecasts for alternative-asset growth, but these are third-party market estimates, not company financial guidance.
Management’s outlook is exposed to fundraising, deployment and realization conditions; volatile performance-fee income; rising interest rates and financing costs; inflation, currency movements and political or regulatory developments in Latin America; competition and fee pressure; and the operating, valuation and integration risks of acquisitions. The filing also discusses COVID-19-related uncertainty, the Russia-Ukraine conflict, cybersecurity and privacy exposure, regulatory compliance, key-person retention, valuation uncertainty in illiquid assets, and potential conflicts of interest. Brazil’s SELIC rate was 13.75% at December 31, 2022, and Brazilian inflation was 5.8% for 2022.
Acquisition accounting and the SPAC were identified by the auditor as critical audit matters involving significant judgment. Year-end liabilities included a $73.4 million gross obligation under put options associated with VBI and Igah; VBI’s put option liability is sensitive to projected AUM and valuation assumptions. Moneda-related deferred consideration totaled $58.7 million expected consideration tied to employee service, of which $24.4 million was recognized as 2022 expense. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; the internal-control assessment excluded VBI and Igah, acquired during 2022.
Patria reported no probable-loss legal provisions at year-end. It disclosed four civil proceedings with an aggregate estimated amount of $17.6 million and eight labor proceedings totaling $3.3 million, which it assessed as unlikely to materially affect results or financial condition. Certain tax proceedings were assessed as possible losses without provisions; the filing describes individual exposures, including a $5.5 million tax assessment and municipal tax claims. These estimates and risk assessments may change.
The company intends to distribute approximately 85% of Distributable Earnings as dividends, but payment is discretionary and subject to board approval, legal and solvency requirements, cash needs, contractual restrictions and other factors. It paid a further $45.3 million dividend in March 2023.
Important facts for investors to verify
- Confirm the intended reporting period: this filing covers FY2022, not 2021 Q4.
- Review the IFRS statements alongside FRE and Distributable Earnings; both are non-GAAP measures with company-defined adjustments and are not substitutes for IFRS net income.
- Check the quality and timing of fee income, especially the decline in performance fees, and the collection timing of receivables. $23.8 million of current receivables related to performance fees; management-fee receivables included renegotiated balances.
- Distinguish unrestricted liquidity from the $240.3 million of SPAC trust investments restricted for a business combination or redemption; verify the SPAC’s completion deadline and redemption obligations.
- Assess acquisition-related obligations, including VBI and Igah put options, contingent consideration, goodwill and the assumptions underlying valuations and integration plans.
- Verify dividend capacity and the board’s discretion: the stated 85% payout target is based on non-GAAP Distributable Earnings and is not guaranteed.
- Monitor the disclosed possible legal and tax contingencies, foreign-exchange exposure, and the continued integration of acquired businesses.