Invesco Ltd. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Invesco is a global investment manager offering active, passive and alternative capabilities. Unless stated otherwise, amounts are U.S. dollars; financial-statement amounts are in millions.
Financial and operating performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenue | $1,530.4 | $1,721.4 | $3,159.8 | $3,381.1 |
| Operating income | $344.7 | $470.9 | $722.4 | $815.2 |
| Operating margin | 22.5% | 27.4% | 22.9% | 24.1% |
| Net income attributable to Invesco | $121.0 | $368.3 | $318.7 | $636.1 |
| Diluted EPS | $0.26 | $0.79 | $0.69 | $1.37 |
| Adjusted operating income (non-GAAP) | $411.9 | $540.5 | $906.5 | $1,043.5 |
| Adjusted operating margin (non-GAAP) | 35.1% | 41.5% | 37.4% | 40.9% |
| Adjusted diluted EPS (non-GAAP) | $0.39 | $0.78 | $0.95 | $1.46 |
- Revenue and earnings: Q2 operating revenue fell 11.1% year over year; six-month revenue declined 6.5%. Lower investment management and service/distribution fees were key contributors. Q2 GAAP net income attributable to Invesco was $121.0 million after noncontrolling interests and $59.2 million of preferred dividends.
- AUM and flows: Ending AUM was $1.390 trillion, down from $1.525 trillion a year earlier and $1.611 trillion at year-end 2021. For Q2, total net outflows were $5.3 billion, including $6.8 billion of net long-term outflows; ETFs, active fixed income and Greater China were cited as areas with inflows. First-half total net flows were positive $23.7 billion, but market losses of $223.2 billion and foreign-exchange effects of negative $23.6 billion drove the AUM decline.
- Fees and margins: Q2 net revenue yield excluding performance fees and QQQ decreased to 36.0 basis points from 39.1; first-half yield was 36.3 versus 39.6. Management attributed pressure partly to lower AUM and a shift toward lower-fee passive products. Non-GAAP measures exclude specified items and are not substitutes for GAAP results.
- Cash flow and liquidity: Six-month GAAP operating cash flow was negative $252.3 million, versus positive $480.8 million a year earlier. Excluding consolidated investment products (CIP), operating cash flow was positive $154.9 million versus $601.2 million. Cash and cash equivalents were $936.8 million at June 30, down from $1.896 billion at year-end. Management said cash, operating cash flows and credit-facility availability should provide resources for obligations and anticipated capital needs.
- Debt: Corporate debt was $1.671 billion, down from $2.085 billion at year-end, after early repayment of $600 million of notes due November 2022. The company had borrowed $184.6 million under its $1.5 billion revolving facility. It reported covenant compliance, a 0.69:1 leverage ratio and 22.35:1 interest coverage. Separately reported CIP debt of $6.731 billion is nonrecourse to Invesco and, management says, does not affect its liquidity or capital resources.
Material changes, outlook and risks
- Markets were difficult amid recession concerns, inflation, rising interest rates and geopolitical tensions. The S&P 500 fell 16.5% in Q2 and 20.6% in the first half. Management reported the first quarterly net long-term outflow in two years, while noting inflows in certain capabilities.
- Management reported $213 million of annualized savings from its strategic expense review, exceeding its original $200 million goal. It planned to continue expense initiatives through year-end 2022 and invest in selected growth areas. Further restructuring costs were expected through year-end but were not expected to be material. The filing provides no specific earnings or revenue guidance.
- Q2 other gains/losses included a $90.0 million net loss, primarily reflecting losses on deferred-compensation investments and seed-money investments. Six-month other gains/losses were a $135.5 million loss. These market movements also affect related compensation costs; adjusted results remove specified deferred-compensation effects.
- Q2 included a $15.0 million insurance recovery related to an OppenheimerFunds acquisition matter. General and administrative expense included a $41.1 million payment related to a fund net-asset-value adjustment, partly offset by a receivable; the company said further payments, if any, were not expected to be material.
- Key risks include market-driven AUM and fee declines, client outflows, investment underperformance, currency movements, inflation and interest rates, regulatory and litigation matters, and ability to access capital markets. Management said adequate accruals were recorded for estimable probable legal losses and did not expect pending matters to materially affect the company. It also reported no significant change in previously disclosed risk factors.
- The quarterly common dividend was increased 10% to $0.1875 per share. In the first half, Invesco repurchased $200 million of shares; none were repurchased in the open market during Q2. The board retained approximately $532.2 million of authorization.
Most important facts for investors to verify
- Review AUM flows, market and currency effects, and fee yields in subsequent periods to assess whether revenue pressure persists.
- Compare GAAP and non-GAAP earnings, including the adjustments for deferred compensation, restructuring, amortization and CIP.
- Assess the sustainability of cash generation and dividends, and distinguish Invesco’s available cash from cash held by CIP or subject to regulatory capital requirements.
- Monitor debt repayment, facility borrowings, covenant headroom and credit-market access.
- Follow the fund NAV adjustment, OppenheimerFunds-related recoveries, legal and regulatory matters, and remaining restructuring costs.