Business context and reporting period
This is BrightSphere Investment Group Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2023. BrightSphere is a global asset manager operating through Acadian Asset Management LLC, its sole affiliate and Quant & Solutions segment; the filing is not an Acadian standalone filing. Unless stated otherwise, financial amounts are in millions of dollars.
Financial and operating results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $96.3 | $95.5 | $188.1 | $207.7 |
| Operating income | $20.4 | $46.7 | $40.2 | $89.9 |
| Net income attributable to controlling interests | $11.4 | $28.6 | $23.4 | $52.4 |
| Diluted EPS | $0.27 | $0.67 | $0.55 | $1.19 |
| U.S. GAAP operating margin | 21.2% | 48.9% | 21.4% | 43.3% |
| Economic net income (ENI; non-GAAP) | $12.0 | $17.3 | $23.8 | $40.7 |
| Adjusted EBITDA (non-GAAP) | $24.7 | $34.0 | $48.3 | $77.0 |
Management fees were $92.8 in Q2 and $183.4 for the first half; performance fees were $2.2 and $2.7, respectively. At June 30, AUM was $99.9 billion, up from $93.6 billion at year-end 2022, reflecting $6.1 billion of first-half market appreciation and $0.2 billion of net inflows.
First-half cash from operating activities was $7.3 excluding consolidated Funds, versus $29.9 a year earlier; cash used in investing was $10.7. Financing activities provided $35.7 excluding Funds. Period-end cash and cash equivalents were $140.8, plus $12.1 of restricted cash held by consolidated Funds. Debt comprised $38.0 drawn on the revolver and $273.7 carrying value of senior notes, or $311.7 combined. Stockholders’ equity was positive $3.7, compared with a deficit of $21.6 at year-end; total equity including redeemable Fund non-controlling interests was $6.0.
Material changes versus prior comparable periods
- First-half revenue declined $19.6 (9.4%), led by a $9.3 decrease in performance fees and a $12.3 decrease in management fees. Management attributed lower fees primarily to lower average AUM, following market declines in 2022, and lower performance-fee-eligible assets in Q1 2023.
- First-half operating income fell $49.7 and controlling-interest net income fell $29.0. Compensation and benefits rose $23.8 and G&A rose $6.8, while operating revenue declined. The prior-year comparison included larger non-cash reductions in the value of employee affiliate interests ($25.6 for the first half of 2022 versus $1.3 in 2023), which had reduced reported prior-year expenses.
- AUM rose 10.4% year over year to $99.9 billion, mainly from market appreciation. Net flows improved to positive $0.2 billion for the first half from outflows of $5.0 billion in 2022, primarily due to smaller outflows.
- The company drew $38.0 on its revolving facility, which had no balance at December 31, 2022. First-half operating cash generation was lower, while financing cash flow improved substantially from the prior year, which included debt repayments and about $100 million of share repurchases.
Outlook, commentary, risks and unusual items
No specific revenue or earnings guidance is provided. Management expects available cash, operating cash generation and financing, if needed, to fund operations and capital requirements for at least the next 12 months. It cautions that future financing access depends on profitability, leverage and credit-market conditions.
The $125 million revolving facility matures March 7, 2025 and has a $125 million commitment. At June 30, Acadian reported a 0.3x leverage ratio and 53.0x interest coverage, against covenant limits of no more than 2.5x leverage and no less than 4.0x coverage. The facility has variable-rate borrowing costs; the company does not hedge this exposure.
Management identifies market performance, client flows, fee mix, foreign exchange and interest rates as risks to revenue and earnings. A modeled 10% broad AUM change would affect annualized gross management fees by about $38.0 and post-tax ENI by about $19.2, under stated assumptions. Litigation is described as ordinary-course and not expected to have a material adverse effect; no material litigation accrual was recorded. The company also discloses a $2.5 office-security-deposit guaranty expiring in 2033, with no related balance-sheet liability recorded. Management reported effective disclosure controls and no material changes in internal control during the quarter; no material changes to the prior annual report’s risk factors were reported.
Unusual or comparison-sensitive items include the prior-year $3.2 debt-extinguishment loss and the large year-over-year difference in non-cash employee-equity revaluation expense. ENI and Adjusted EBITDA are non-GAAP measures; the filing cautions that ENI excludes certain ongoing expenses and is not a substitute for GAAP results.
Important facts for investors to verify
- Confirm the filing entity: this 10-Q is for BrightSphere Investment Group Inc.; Acadian is its operating affiliate, not the registrant.
- Track whether AUM gains persist through client flows and investment performance, and whether flow trends translate into fee revenue.
- Assess whether expense growth, particularly compensation and G&A, moderates as management invests in growth initiatives.
- Reconcile GAAP earnings with ENI and Adjusted EBITDA, including the non-cash equity revaluation effects and exclusions in those non-GAAP measures.
- Monitor operating cash generation, revolver utilization, variable-rate interest exposure and compliance with facility covenants.
- Review the assumptions behind management’s AUM sensitivity estimates and the status of ordinary-course legal and tax contingencies.