Business context and reporting period
This is BrightSphere Investment Group Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2021. The filing describes a global asset manager operating through Quant & Solutions and Liquid Alpha, with Campbell Global reported in “Other.” The request names Acadian Asset Management Inc.; the filing itself is for BrightSphere. Acadian is an affiliate and assumed the amended revolving credit facility during the quarter.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 or prior date |
|---|---|---|
| Total revenue | $131.2 million | $146.7 million |
| Operating income / margin | $37.1 million / 28.3% | $51.5 million / 35.1% |
| Continuing-operations income attributable to controlling interests | $21.9 million | $17.3 million |
| Net income attributable to controlling interests | $27.0 million | $32.6 million |
| Diluted EPS | $0.33 | $0.38 |
| Economic net income (non-GAAP) | $28.2 million | $25.9 million |
| Adjusted EBITDA (non-GAAP) | $50.0 million | $46.1 million |
| Operating cash flow, continuing operations | $(20.2) million | $(27.3) million |
| Cash and cash equivalents at quarter-end | $450.5 million | $391.3 million at Dec. 31, 2020 |
| Total borrowings | $475.5 million | $394.3 million at Dec. 31, 2020 |
| AUM, excluding discontinued operations | $145.1 billion | $138.3 billion at Dec. 31, 2020; $143.3 billion at Mar. 31, 2020 |
Management fees declined 12.1% to $125.3 million. Performance fees rose to $4.6 million from $1.0 million. Net client flows were $(2.4) billion, partly offset by $9.2 billion of market appreciation. The annualized revenue impact of net flows was $(4.6) million.
Material changes versus the prior comparable period
- Revenue fell $15.5 million, principally because lower average AUM reduced management fees. Dispositions of Barrow Hanley and Copper Rock in 2020 materially reduced Liquid Alpha revenue; Quant & Solutions revenue increased with higher average AUM.
- Operating income fell $14.4 million and GAAP operating margin contracted 6.8 percentage points. Compensation expense rose $18.5 million, partly reflecting a $31.4 million year-over-year swing in non-cash Affiliate equity revaluations. Lower general and administrative costs and no repeat of the prior-year $16.4 million goodwill impairment partly offset the increase.
- Continuing-operations income attributable to controlling interests improved, but total controlling-interest net income and EPS declined, reflecting lower discontinued-operations income attributable to controlling interests and fewer weighted-average shares.
- Investment income improved to $2.6 million from a $13.7 million loss, mainly due to the recovery in seed-capital investment returns. A $1.3 million loss was recorded on the sale of a subsidiary.
- Cash increased, while borrowings rose $81.2 million from year-end. The $125 million revolving facility was assigned to Acadian and reduced from $150 million; $81.0 million was drawn at quarter-end.
Outlook, commentary, risks and unusual items
- BrightSphere agreed to sell Landmark to Ares for approximately $690 million cash, plus approximately $34 million for carried interests and co-investments, subject to customary adjustments. Closing was expected in Q2 2021. Landmark was classified as discontinued operations and held for sale; Q1 discontinued-operations income was $18.5 million, including consolidated Fund results.
- The company also agreed to sell ICM for approximately $19 million, subject to adjustments, with closing expected in Q2 2021. ICM remained in continuing operations pending sale.
- Management stated cash, operating cash generation and financing capacity should be sufficient for operations and capital needs for at least the next 12 months, and expected proceeds from the Landmark and ICM sales.
- Management identified COVID-19 uncertainty, market volatility, investment performance, client flows and AUM mix as factors that could affect fees and earnings. A 10% proportional AUM move was estimated to change annual post-tax ENI by approximately $21.4 million under the stated assumptions; the filing cautions that actual impacts depend on market, strategy and client mix.
- The company reported no material change in risk factors, no material litigation accruals, and no material violations of Affiliate regulatory capital requirements. It disclosed up to $5 million of continuing co-investment commitments and $29 million of Landmark commitments through the expected disposition date.
- ENI and Adjusted EBITDA are non-GAAP measures. Management says they are useful for evaluating performance and liquidity, but cautions they are not substitutes for GAAP results or operating cash flow and may not be comparable across companies.
Important facts for investors to verify
- Confirm completion, final proceeds and adjustments for the Landmark and ICM divestitures, and how proceeds were applied.
- Track net flows, especially Quant & Solutions outflows, and whether the resulting revenue impact improves.
- Assess whether the rise in compensation and the lower GAAP operating margin persist, separating cash costs from non-cash Affiliate equity revaluations.
- Monitor revolving-credit borrowings, facility covenants and debt service; Acadian’s reported leverage and interest-coverage ratios were 0.6x and 184.2x, respectively.
- Reconcile GAAP earnings, discontinued operations and non-GAAP ENI/Adjusted EBITDA, including the effects of divestitures and consolidated Funds.