Invesco Ltd. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021. Invesco is a global investment manager. Unless noted otherwise, financial amounts are in U.S. dollars; income-statement amounts are in millions.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Operating revenue | $1,750.0 | $1,497.6 | $5,131.1 | $4,515.5 |
| Operating income | $463.8 | $268.5 | $1,279.0 | $702.6 |
| Operating margin | 26.5% | 17.9% | 24.9% | 15.6% |
| Net income attributable to Invesco | $330.1 | $191.7 | $966.2 | $313.7 |
| Diluted EPS | $0.71 | $0.41 | $2.08 | $0.68 |
| Adjusted operating income (non-GAAP) | $561.6 | $406.7 | $1,605.1 | $1,179.1 |
| Adjusted operating margin (non-GAAP) | 42.1% | 37.2% | 41.3% | 36.0% |
| Adjusted diluted EPS (non-GAAP) | $0.77 | $0.53 | $2.23 | $1.21 |
Q3 revenue rose 16.9% year over year, led by investment management fees, which increased 16.3%. Average AUM rose 27.7% in the quarter. For the nine months, revenue grew 13.6% and average AUM increased to $1,471.9 billion from $1,167.1 billion. Invesco’s non-GAAP measures adjust for items including pass-through revenues, consolidated investment products (CIP), restructuring and amortization; they are not substitutes for GAAP results.
Net revenue yield declined to 34.6 basis points in Q3 from 36.2, and to 35.2 basis points for the nine months from 37.4. Management cited growth in lower-fee passive products, money-market fee waivers and product mix. Passive AUM was $468.6 billion, 30.7% of total AUM, at quarter-end, versus $318.0 billion and 26.1% a year earlier.
- AUM and flows: Ending AUM was $1,528.6 billion, compared with $1,218.2 billion a year earlier. Q3 net flows were $21.4 billion, including $13.3 billion of long-term net inflows. Nine-month net flows were $106.7 billion, including $68.9 billion of long-term net inflows. Q3 market movements reduced AUM by $14.6 billion.
- Cash flow: Nine-month operating cash flow was $1,081.8 million versus $662.7 million; excluding CIP, management reported $1,223.0 million versus $716.9 million. Investing cash outflow was $579.4 million and financing cash inflow was $14.2 million. Cash and cash equivalents available outside CIP were $1,773.2 million at September 30.
- Debt and liquidity: Company long-term debt was $2,084.5 million; the $1.5 billion revolving credit facility had no borrowings. The company reported covenant leverage of 0.86:1 and interest coverage of 23.00:1, within stated limits. These figures exclude CIP debt, which management says is non-recourse and not available to fund company operations.
- Margins and costs: GAAP operating income improved substantially; nine-month operating expenses increased 1.0% to $3,852.1 million. The year-on-year comparison includes a $105.3 million S&P 500 equal-weight fund rebalancing charge in 2020 and a $131.1 million reduction in the estimated OppenheimerFunds-related liability in 2021.
Material changes and unusual items
- The estimated liability for remediation of the SteelPath funds accounting matter fell to $254.3 million from $387.8 million at year-end 2020. The reduction generated a $45.7 million Q3 and $131.1 million nine-month benefit to expense. Invesco expected shareholder reimbursement payments in Q4 2021; insurance or acquisition indemnification recoveries are not included in the estimate.
- Money-market yield-support waivers reduced gross revenue by $40.8 million in Q3 and $111.2 million in the first nine months, compared with $12.4 million and $23.1 million in the corresponding 2020 periods.
- Reported nine-month net income included $416.9 million of net other income from CIP, largely market-driven gains. CIP gains and losses are substantially attributable to outside investors and, according to the company, do not represent performance on its overall AUM.
- Assets and payables held for UK policyholders each declined to $2,232.2 million from $7,582.1 million at year-end 2020, mainly due to net business outflows; these balances offset each other.
Outlook, management commentary and risks
- Management targets $200 million of permanent annual net operating expense improvements. It reported $118 million in annualized savings achieved in 2021 to date, plus $30 million achieved in 2020, and expected to modestly exceed its cumulative 2021 savings target of $150 million. Remaining strategic-evaluation restructuring costs were estimated at $60 million to $85 million through 2022; $187 million had been incurred through September 30, 2021.
- The company is transitioning investment operations to State Street’s Alpha platform; integration began in Q2 2021, with completion expected in 2024. Management also cited investment priorities including ETFs, fixed income, China, solutions, alternatives and global equities.
- No specific earnings or revenue guidance was provided in the supplied filing text. Management said yield pressures from passive-product growth, fee waivers and product mix were expected to continue in the near term.
- Key exposures include market declines or investment underperformance that could reduce AUM and fee revenue, foreign-exchange movements, interest rates, inflation, LIBOR transition, and regulatory or legal matters. Management said it could not estimate reasonably possible losses for certain litigation contingencies; it considered recorded accruals adequate for estimable matters and did not expect their resolution to materially affect the company.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the nine-month period. It reported no significant change in risk factors from its 2020 Form 10-K.
Important facts for investors to verify
- Whether net long-term inflows continue and how AUM market performance, client flows and passive-product growth affect revenue yield.
- The realized cost and timing of SteelPath remediation payments, and any insurance or MassMutual indemnification recoveries.
- Progress against the $200 million savings target, remaining restructuring charges and the Alpha platform implementation timeline.
- Debt maturity and refinancing plans, liquidity available after regulatory capital requirements, and continued compliance with credit-facility covenants.
- The distinction between GAAP results and adjusted non-GAAP measures, particularly the treatment of CIP gains, restructuring benefits and other unusual items.