Business context and reporting period
BrightSphere Investment Group Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2021. The filing identifies Acadian Asset Management LLC as its sole remaining operating Affiliate, within the Quant & Solutions segment; it is not a filing by Acadian Asset Management Inc. BrightSphere completed the sales of Landmark, TSW, ICM and Campbell Global during 2021. Landmark and TSW are reported as discontinued operations.
Financial and operating performance
| Metric | Three months ended September 30, 2021 | Nine months ended September 30, 2021 |
|---|---|---|
| Total revenue | $117.9 million, down 7.5% year over year | $360.9 million, down 4.7% |
| Operating income / margin | $28.7 million / 24.3%; prior-year margin 26.8% | $97.3 million / 27.0%; prior-year margin 27.7% |
| Net income attributable to controlling interests | $229.5 million; includes $185.4 million after-tax disposal gain | $789.2 million; includes $694.6 million after-tax disposal gains |
| Economic net income (non-GAAP) | $23.6 million, compared with $23.9 million | $79.0 million, compared with $65.2 million |
| Adjusted EBITDA (non-GAAP) | $44.2 million, compared with $43.7 million | $142.6 million, compared with $122.8 million |
| Assets under management | $113.7 billion at period-end; net client outflows of $0.7 billion | $113.7 billion at period-end; net client outflows of $5.1 billion |
Management fees were $111.4 million in the quarter and $326.8 million year to date, down 9.7% and 10.8%, respectively. The filing attributes the declines primarily to lower average AUM following prior Affiliate dispositions. Performance fees rose to $3.4 million for the quarter and $28.4 million year to date, reflecting outperformance in certain strategies.
For the nine months, continuing-operations operating cash flow was $22.3 million, versus $135.0 million a year earlier. Investing cash inflow was $1.009 billion, largely reflecting Affiliate sale proceeds. Cash and cash equivalents were $1.423 billion at September 30, 2021. Debt consisted of $394.8 million in senior notes and $33.0 million drawn on the revolving facility; the notes’ fair value was $426.6 million. The revolver had $125 million of commitments and matures August 2022.
Material changes versus the prior comparable period
- Reported net income and EPS rose sharply due principally to after-tax gains on Landmark and TSW disposals, not solely recurring operations. Third-quarter diluted EPS was $2.76; continuing-operations diluted EPS was $0.52.
- BrightSphere’s portfolio narrowed substantially through the sales of four Affiliates. Period-end AUM was $113.7 billion versus $147.7 billion a year earlier, with the comparison affected by Affiliate dispositions. Acadian AUM was $113.7 billion, up from $108.1 billion at December 31, 2020.
- Nine-month economic net income increased despite lower reported revenue; ENI operating margin improved to 37.2% from 30.1%. ENI is a company-defined non-GAAP measure and excludes specified items.
- Cash increased substantially, chiefly from divestiture proceeds. Cash from continuing operations was $22.3 million, while total cash flow from operating activities, including discontinued operations, was $15.1 million.
Outlook, commentary, risks and unusual items
Management stated that available cash, operating cash generation and potential financing were expected to fund operations and capital requirements for at least the next 12 months. No specific revenue or earnings guidance was provided. Management expected fourth-quarter tax payments on Affiliate-sale gains and a near-term repayment of the 5.125% notes. After quarter-end, the Board approved repurchases of those notes up to $125 million, and BrightSphere commenced a tender offer to buy up to 33.3 million common shares at $31.50 per share, subject to conditions and scheduled to expire December 6, 2021.
Key exposures include financial-market declines affecting AUM and fees, client outflows, investment performance, foreign exchange and variable interest rates. The filing estimates that a 10% AUM change would affect annual post-tax ENI by approximately $16.6 million under its stated assumptions. COVID-19-related uncertainty remained a potential business and market risk. The company reported no material litigation accruals and no material changes to the risk factors in its 2020 Form 10-K. It also reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Unusual items include the disposal gains, performance-fee variability, prior-year goodwill impairment, and non-cash revaluations of Affiliate employee equity interests. These items make headline GAAP earnings less representative of recurring performance.
Important facts for investors to verify
- Reconcile GAAP net income and EPS to continuing operations and recurring results, excluding Affiliate-sale gains and discontinued operations.
- Track Acadian AUM, net flows, investment performance and fee mix; confirm whether outflows and the revenue impact of flows improve.
- Review the realized proceeds, tax payments and use of divestiture cash, including the share tender offer and planned senior-note repurchases.
- Monitor the revolver’s August 2022 maturity, covenant compliance and interest-rate exposure.
- Assess the sustainability of ENI and Adjusted EBITDA alongside GAAP results, including the assumptions and exclusions in these non-GAAP measures.