Affiliated Managers Group, Inc. — Q1 2024 Form 10-Q Summary
Business Context and Reporting Period
AMG is a strategic partner to independent investment management firms. It invests in and supports Affiliates across private markets, liquid alternatives, long-only strategies, wealth management, and related offerings. The filing covers the unaudited three months ended March 31, 2024, compared with the three months ended March 31, 2023. Aggregate assets under management were $699.4 billion at March 31, 2024, up 5% year over year.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Consolidated revenue | $499.9 million | $517.4 million | Down 3% |
| Income before taxes | $254.1 million | $233.5 million | Up 9% |
| Net income | $198.7 million | $188.5 million | Up 5% |
| Net income attributable to controlling interest | $149.8 million | $134.5 million | Up 11% |
| Diluted EPS | $4.14 | $3.47 | Up 19% |
| Operating cash flow | $209.2 million | $234.8 million | Down 11% |
| Adjusted EBITDA attributable to controlling interest | $259.8 million | $216.8 million | Up 20% |
| Economic net income attributable to controlling interest | $186.7 million | $158.1 million | Up 18% |
Net income margin was approximately 39.7%, compared with 36.4% in the prior-year quarter. Net income attributable to the controlling interest represented approximately 30.0% of consolidated revenue, compared with 26.0% previously. Aggregate fees declined 2% to $1.472 billion, reflecting a 7% decline in performance-based fees, partly offset by a 5% increase in asset-based fees.
Equity method income increased to $117.5 million from $58.6 million, primarily from new Affiliate investments and higher performance-based fees at Affiliates in which AMG holds a greater economic interest. Investment and other income declined to $18.0 million from $38.0 million, primarily because of lower realized and unrealized gains on marketable securities.
Cash and cash equivalents were $793.4 million at March 31, 2024, compared with $813.6 million at December 31, 2023. Debt was $2.525 billion, including $300.0 million of senior bank debt, $699.5 million of senior notes, $1.216 billion of junior subordinated notes, and $341.7 million of junior convertible securities. AMG had no revolver borrowings and stated that it could borrow the full revolver capacity while remaining in compliance with its credit facilities.
Material Changes Versus the Prior Comparable Period
- Revenue decreased 3%, driven primarily by lower consolidated Affiliate average assets under management and lower asset-based fees in global equity strategies.
- Compensation and related expenses increased 8% to $240.4 million, principally because of higher Affiliate equity compensation and share-based compensation.
- Intangible amortization and impairments decreased 42% to $7.3 million.
- Equity method earnings increased 74% to $138.3 million, although equity method revenue declined 2% because of lower performance-based fees.
- Average assets under management increased 3% to $680.0 billion. Alternatives generated net inflows, while global and U.S. equity strategies experienced net outflows.
- AMG repurchased approximately 1.0 million shares for $152.5 million, at an average price of $155.60 per share. Approximately 3.2 million shares remained available under the October 2023 authorization.
- AMG repaid the $400.0 million 4.25% senior notes at maturity and repaid $50.0 million of its term loan. It issued $450.0 million of 6.75% junior subordinated notes due 2064.
- Financing cash flow was negative $302.3 million, primarily due to debt repayments, share repurchases, distributions to non-controlling interests, and net Affiliate equity purchases.
Outlook, Commentary, Risks, and Unusual Items
Management continues to see demand for alternative strategies and reported net inflows in alternatives, while equity strategies experienced industry-wide client outflows. AMG intends to continue investing in private markets, liquid alternatives, sustainable strategies, wealth management, Asia, and additional independent investment firms. No specific earnings or revenue guidance was provided in the filing.
Management expects current cash, operating cash flows, marketable-securities proceeds, and potential revolver borrowings to fund foreseeable needs. Expected uses include investments in Affiliates, Affiliate equity purchases, share repurchases, dividends, debt repayment, distributions to Affiliate equity holders, taxes, securities purchases, and working capital. AMG expects net Affiliate equity purchases of approximately $70 million during the remainder of 2024.
- AMG had $195.3 million of unfunded commitments to co-invest in Affiliate-sponsored investment products.
- Contingent payment obligations had a fair value of $9.6 million, with maximum potential contingent payments of up to $110.0 million related to certain consolidated Affiliates.
- The Company had $58.5 million of deferred payment obligations related to equity method Affiliates, payable during the remainder of 2024.
- AMG was contingently liable for up to $236.0 million related to specified financial targets of certain equity method Affiliates, primarily payable from 2025 through 2028 if conditions are met.
- AMG had agreed to provide up to $50.0 million of contingent financing to an equity method Affiliate.
- Investment management results remain sensitive to market values, asset flows, investment performance, performance-based fees, foreign exchange, interest rates, and client redemptions.
- A 1% change in interest rates was estimated to produce a $168.6 million change in the fair value of fixed-rate securities at March 31, 2024; this estimate increased following the new junior subordinated note issuance.
- The filing states that there were no significant regulatory capital violations and no material changes to market-risk disclosures other than the interest-rate sensitivity described above.
Important Facts for Investors to Verify
- Whether the increase in equity method income and Adjusted EBITDA is sustained after the quarter’s higher performance-based fee contribution.
- The composition and persistence of net inflows in alternatives versus continued outflows in equity strategies.
- The effect of the new $450.0 million junior subordinated notes, including interest costs, refinancing needs, and the approaching August 2025 maturity of $350.0 million of senior notes.
- Actual cash generation after Affiliate distributions, share repurchases, Affiliate equity purchases, taxes, and investment commitments.
- The timing and amount of contingent payments, deferred payments, put rights relating to Affiliate equity, and the $195.3 million of unfunded co-investment commitments.
- The impact of market performance, foreign exchange, interest rates, client redemptions, and valuation changes on assets under management, fees, investment income, and Affiliate earnings.
- The reconciliation and limitations of non-GAAP measures, including Adjusted EBITDA, Economic net income, and Economic EPS, when comparing AMG with other companies.