Business context and reporting period
Apollo Global Management, Inc. (NYSE: APO) filed this unaudited Form 10-Q for the three months ended March 31, 2022. Apollo manages alternative investment funds and, following its January 1, 2022 merger with Athene, operates retirement services through Athene. Athene’s results are included only from the merger date; the prior-year comparison is therefore not like-for-like. Apollo reorganized reporting into Asset Management, Retirement Services and Principal Investing, and recast prior-period segment information.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $875 million | $2.295 billion |
| Net income (loss) attributable to Apollo common stockholders | $(870) million; $(1.50) per diluted share | $670 million; $2.81 per diluted share |
| Adjusted Segment Income (non-GAAP) | $1.167 billion | $363 million |
| Adjusted Net Income (non-GAAP) | $915 million | $294 million |
| Operating cash flow | $(3.993) billion | $(229) million |
| Investing cash flow | $3.103 billion | $19 million |
| Financing cash flow | $11.240 billion | $1.177 billion |
Comparisons are substantially affected by the Athene merger and market-driven valuation changes. Consolidated GAAP margins are not especially informative in this quarter: retirement services reported investment-related losses and insurance liabilities, while Apollo’s adjusted segment measures exclude specified market and other items.
- Asset Management: Fee Related Earnings (FRE) were $310 million, up 2.8% from $302 million. Total AUM was $512.8 billion, up 3.1% from year-end 2021; Fee-Generating AUM was $375.7 billion. Net AUM flows were $20.7 billion and dry powder was $47.9 billion.
- Retirement Services: Spread Related Earnings (SRE) were $670 million. Net investment earned rate was 3.65%, cost of funds was 1.82%, and net investment spread was 1.86%. These are segment measures, not consolidated GAAP results.
- Principal Investing: Principal Investing Income was $187 million, versus $61 million, helped by realized gains on certain co-investments transferred to Athene.
- Balance sheet and liquidity: Total assets were $261.6 billion and total liabilities were $241.3 billion at March 31. Cash and cash equivalents were $9.8 billion unrestricted, with $1.9 billion restricted; total cash, restricted cash and cash held at consolidated VIEs was $12.4 billion. Apollo also reported $0.9 billion of U.S. Treasury securities and $2.0 billion of available capacity under its AMH and AHL credit facilities. Management said liquidity should be sufficient for anticipated needs for at least 12 months.
- Debt: Reported corporate debt was $6.1 billion, comprising $2.8 billion in Asset Management and $3.3 billion in Retirement Services. Consolidated VIE debt is also reported, generally without recourse to Apollo. Athene had $22.5 billion of funding agreements under its FABN program and $3.2 billion of FHLB funding agreements outstanding; these are funding obligations, not included in the corporate-debt figure above.
Material changes, outlook and risks
- Merger and accounting: The Athene merger added a large retirement-services balance sheet and created $4.2 billion of goodwill. Purchase accounting and the allocation of acquired assets and liabilities remained provisional. Athene contributed a GAAP net loss of $1.31 billion in the quarter, with reported retirement-services revenue of $(234) million.
- Market-related losses: Retirement Services recorded $4.2 billion of investment-related losses, primarily reflecting higher Treasury rates, wider credit spreads and equity-market effects on derivatives and mortgage valuations. The quarter also included $5.4 billion of other comprehensive loss; accumulated other comprehensive loss was $4.7 billion. Athene’s AFS securities had $7.0 billion of gross unrealized losses, which management attributed primarily to rate changes and said it did not expect to realize through forced sales.
- Market backdrop: Management cited rising inflation and interest rates, volatile equity and credit markets, and geopolitical uncertainty including the war in Ukraine. Apollo noted that rising rates can increase financing costs and pressure existing asset values, while potentially improving yields on new investments and floating-rate assets.
- Outlook: The filing provides no specific consolidated earnings guidance. Management said it expects to fund Asset Management from fees and performance fees and believes Athene has approximately $7.3 billion of deployable capital, subject in part to market availability. Apollo expected a $1.60 annual common dividend, subject to board discretion; it declared a $0.40-per-share dividend payable May 31, 2022.
- Commitments and contingencies: Athene had $16.6 billion of investment commitments, expected mostly to be funded over five years but potentially callable earlier. Up to approximately $4.8 billion of cumulative recognized performance fees could be reversed if remaining investments became worthless; management considered that scenario remote. Material risks include valuation uncertainty, illiquid assets, leverage and refinancing, interest-rate and credit exposure, policyholder withdrawals, reinsurer and derivative-counterparty performance, insurance regulation and ratings, and integration of Athene. Several legal matters remain pending; for some, Apollo said a possible loss could not be reasonably estimated.
- Other items: Merger-related transaction costs were $18 million. After quarter-end, Apollo completed the Griffin Capital U.S. asset-management acquisition for approximately $300 million plus contingent consideration of up to $150 million, substantially in shares. Management reported disclosure controls effective as of quarter-end.
Most important facts for investors to verify
- Separate the impact of the Athene merger and purchase-accounting marks from underlying operating trends; confirm that segment comparisons use the recast presentation.
- Review the drivers and potential persistence of Athene’s market-related losses, AOCI reduction, and sensitivity to rates, spreads and equity markets.
- Assess the quality and cash realization of performance fees, including the approximately $4.8 billion maximum potential reversal and the related profit-sharing obligations.
- Reconcile reported cash and liquidity to amounts available to the parent, and evaluate Athene’s funding-agreement, repurchase, collateral and policyholder-liquidity needs.
- Track the final Athene purchase-price allocation, integration costs and expected benefits, as well as Griffin acquisition consideration and integration.