Invesco Ltd. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Invesco is a global investment manager. Amounts below are U.S. dollars; financial figures are in millions unless stated otherwise. The filing’s non-GAAP measures are management-defined and are not substitutes for GAAP results.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $1,445.7 | $1,750.0 | $4,605.5 | $5,131.1 |
| Operating income | $350.2 | $463.8 | $1,072.6 | $1,279.0 |
| GAAP operating margin | 24.2% | 26.5% | 23.3% | 24.9% |
| Net income attributable to Invesco | $177.4 | $330.1 | $496.1 | $966.2 |
| Diluted EPS | $0.39 | $0.71 | $1.08 | $2.08 |
| Non-GAAP adjusted operating income | $369.4 | $561.6 | $1,275.9 | $1,605.1 |
| Non-GAAP adjusted operating margin | 33.3% | 42.1% | 36.1% | 41.3% |
| Non-GAAP adjusted diluted EPS | $0.34 | $0.77 | $1.29 | $2.23 |
- Revenue and AUM: Q3 operating revenue fell 17.4% year over year; nine-month revenue fell 10.2%. Ending AUM was $1.323 trillion, down from $1.529 trillion a year earlier and $1.611 trillion at 2021 year-end. Lower markets and foreign exchange were major factors.
- Flows and fee yield: Q3 total net flows were positive $4.2 billion, but long-term flows were negative $7.7 billion. Nine-month total net flows were positive $27.9 billion, including $2.7 billion of long-term net inflows. Q3 net revenue yield excluding performance fees and QQQ declined to 35.3 basis points from 39.1 basis points.
- Cash flow: Nine-month GAAP operating cash flow was $239.7 million versus $1.082 billion in 2021. Excluding consolidated investment products (CIP), operating cash flow was $692.4 million versus $1.223 billion. Capital expenditures were $119.8 million. Cash and cash equivalents were $1.024 billion at quarter-end, down from $1.896 billion at 2021 year-end.
- Debt and liquidity: Company debt was $1.487 billion, down from $2.085 billion at year-end; this excludes $6.549 billion of CIP debt, which Invesco says is non-recourse and does not affect its liquidity. Invesco redeemed $600 million of senior notes in May and had no balance on its $1.5 billion credit facility. The company reported a 0.67x leverage ratio and 21.18x interest coverage, and compliance with covenants.
- Capital returns: Nine-month common dividends paid were $249.1 million and preferred dividends were $177.6 million. Invesco repurchased $200 million of shares in the first nine months; no open-market repurchases occurred in Q3. A $0.1875 common dividend for Q3 was declared after quarter-end.
Material changes versus the prior comparable period
- Q3 revenue declined across investment management fees (down 17.1%), service and distribution fees (down 16.8%), performance fees and other revenue. Lower AUM, product mix, and currency movements contributed; the filing reports a $50.3 million adverse FX impact on quarterly operating revenue.
- Q3 operating expenses fell 14.8%, including lower distribution costs and employee compensation. However, GAAP operating margin declined 2.3 percentage points, and GAAP diluted EPS fell from $0.71 to $0.39.
- Market declines and foreign-exchange translation reduced AUM: nine-month market losses were $278.3 billion and currency translation reduced AUM by $40.7 billion. Q3 market losses were $55.1 billion and currency translation reduced AUM by $17.1 billion.
- Q3 other gains/losses included a $34.6 million net loss, versus a $12.1 million loss in Q3 2021. Nine-month other gains/losses were a $170.1 million loss versus a $65.4 million gain, including significant deferred-compensation investment losses.
Management commentary, outlook and risks
- Management described a challenging backdrop of recession concerns, inflation, rising interest rates and geopolitical tensions. It highlighted year-to-date net long-term inflows in Active Fixed Income, Greater China, the Institutional Channel, ETFs and private markets, while noting continued investor caution.
- The filing provides no specific earnings or revenue guidance. Management said the strategic restructuring program is expected to continue through Q1 2023, with remaining costs primarily related to property, office, technology and general and administrative items and not expected to be material.
- Unusual items included $60 million of insurance recoveries in general and administrative expenses related to prior fund losses, plus $15 million of Q3 transaction and integration expense benefits from ongoing insurance recoveries related to an OppenheimerFunds acquisition matter. These items affect comparability.
- Money-market yield-support waivers reduced revenue by $1.4 million in Q3 and $33.7 million in the first nine months of 2022, substantially less than in 2021. Invesco said waivers are partly offset by lower intermediary payments.
- Risks include market-driven AUM and fee declines, client outflows, investment performance, foreign exchange, inflation and interest rates, liquidity and credit exposure, and legal or regulatory matters. Management reported adequate accruals for estimable probable legal losses and did not expect existing matters to materially affect the company; it cautioned that adverse regulatory or litigation outcomes could harm client confidence and AUM. No significant change to previously disclosed risk factors was reported.
- Management said disclosure controls were effective. New core financial systems were implemented during Q3, with related changes to internal controls to align with the upgraded systems.
Important facts for investors to verify
- Whether AUM, long-term flows and fee yields stabilize, particularly given Q3 long-term net outflows and substantial market-driven AUM declines.
- How much reported and adjusted earnings depend on nonrecurring insurance recoveries, deferred-compensation market movements and other adjustments.
- The company’s cash generation and debt position excluding CIP balances, which are not available to Invesco and are non-recourse to it.
- Potential effects of market, currency, interest-rate and regulatory developments on AUM, client confidence, revenues and liquidity.
- The detailed reconciliation and assumptions behind non-GAAP adjusted results and the restructuring program’s remaining costs.