Invesco Ltd. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Invesco is a global investment manager serving retail and institutional clients. Comparisons are with Q1 2022 unless otherwise noted. Amounts are U.S. dollars.
Financial performance and key metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Operating revenues | $1,418.2 million | $1,629.4 million |
| Operating income / margin (GAAP) | $209.5 million / 14.8% | $377.7 million / 23.2% |
| Net income attributable to Invesco | $145.0 million | $197.7 million |
| Diluted EPS | $0.32 | $0.43 |
| Net revenues (non-GAAP) | $1,075.9 million | $1,252.4 million |
| Adjusted operating income / margin (non-GAAP) | $326.9 million / 30.4% | $494.6 million / 39.5% |
| Adjusted net income / diluted EPS (non-GAAP) | $173.4 million / $0.38 | $259.3 million / $0.56 |
| Average / ending AUM | $1,463.0 billion / $1,483.0 billion | $1,545.1 billion / $1,555.9 billion |
| Net cash from operating activities (GAAP) | $(98.9) million | $(375.4) million |
Operating revenue fell 13.0%; management fees declined 12.9% and service and distribution fees declined 11.8%. Management attributed revenue pressure primarily to lower average AUM, weaker revenue yields, movement toward lower-yield passive products, and foreign exchange headwinds. Net revenue yield excluding performance fees and QQQ AUM decreased to 32.7 bps from 36.6 bps.
Operating expenses decreased 3.4% to $1,208.7 million, but compensation expense rose 6.9% to $462.8 million. GAAP operating margin contracted 8.4 percentage points. Adjusted results also declined year over year; these are company-defined non-GAAP measures and are not substitutes for GAAP results.
Q1 total net flows were positive $9.0 billion, compared with $29.0 billion in Q1 2022. Long-term net flows were positive $2.9 billion, including $5.4 billion in passive and negative $2.5 billion in active flows; money-market net flows added $7.7 billion. Market gains added $61.9 billion to AUM during the quarter.
Cash, debt and liquidity
- Cash and cash equivalents available to Invesco were $889.0 million at March 31, down from $1,234.7 million at year-end. Q1 cash from operations was negative $98.9 million under GAAP; excluding CIP cash flows, operating cash flow was negative $119.5 million.
- Liquidity sources at quarter-end were $2,389.0 million: $889.0 million cash and a fully undrawn $1.5 billion revolving credit facility. On April 26, 2023, the facility was increased to $2.0 billion and extended to April 26, 2028.
- Invesco’s debt was $1,488.1 million, with a weighted-average cost of debt of 4.28%. The company reported no revolver borrowings and was in compliance with its covenants; leverage was 0.83:1.00 against a maximum of 3.25:1.00, and interest coverage was 19.42:1.00 against a minimum of 4.00:1.00.
- Separately, consolidated investment products (CIP) carried $6,774.3 million of debt. The filing states CIP assets are unavailable to Invesco and CIP debt has no recourse to the company.
Material changes, outlook and risks
- Management said major markets recovered during early 2023 but volatility remained elevated, including market caution after regional bank failures. It cited continued net-flow pressure across the industry, while noting inflows in selected capabilities, including fixed income, institutional and ETFs.
- The company completed a strategic business evaluation in Q1 and recorded $44.3 million of related restructuring expense; the restructuring liability was $33.0 million at quarter-end. Management said it continues to pursue expense improvement and positive operating leverage.
- Management expected approximately $20 million of additional Q2 costs, primarily related to executive retirements. CEO Martin Flanagan was scheduled to retire June 30, 2023, with Andrew Schlossberg to succeed him.
- The board approved a 7% increase in the quarterly common dividend to $0.20 per share, declared April 25, payable June 2, 2023. Future dividends remain subject to earnings, financial condition and capital requirements.
- Undrawn co-investment commitments were $453.0 million. The company also disclosed maximum potential commitments of $274.7 million and guarantees of $30.0 million for certain managed products; management considered the likelihood of funding remote. Management reported adequate accruals for probable, estimable legal losses and did not expect pending matters to materially affect the business, revenue, net income or liquidity.
- Risks include AUM and fee sensitivity to market levels, client flows and investment performance; foreign exchange, interest-rate and securities-market exposure; cost inflation; and regulatory limits on moving capital between jurisdictions. No significant risk-factor changes from the 2022 Form 10-K were reported. The filing provides no quantitative earnings or AUM guidance.
Important facts for investors to verify
- Whether the lower average AUM, net revenue yield and active long-term flows persist, and how they affect fee revenue and margins.
- Cash generation excluding CIP, cash available across regulated entities, and the impact of the amended credit facility and upcoming January 2024 senior-note maturity.
- Execution and cash costs of restructuring, expected executive-retirement costs, and whether expense actions deliver the stated operating leverage.
- The assumptions and reconciliations behind non-GAAP adjusted results, particularly restructuring, deferred-compensation market movements and G&A recoveries.
- Funding exposure from co-investment commitments, guarantees and legal or regulatory contingencies, including changes in their likelihood or estimated amounts.