Business context and reporting period
Invesco Ltd. is a global investment manager serving retail and institutional clients across more than 120 countries. This Form 10-K reports the fiscal year ended December 31, 2023, with comparisons to 2022. The company reported one operating segment: investment management.
Key financial and operating metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Operating revenues (GAAP) | $5.716 billion | $6.049 billion | Down 5.5% |
| Net revenues (non-GAAP) | $4.311 billion | $4.645 billion | Down 7.2% |
| Operating income/(loss) (GAAP) | $(434.8) million | $1.318 billion | Operating margin: (7.6)% vs. 21.8% |
| Adjusted operating income (non-GAAP) | $1.214 billion | $1.615 billion | Adjusted margin: 28.2% vs. 34.8% |
| Net income/(loss) attributable to Invesco | $(333.7) million | $683.9 million | Diluted EPS: $(0.73) vs. $1.49 |
| Adjusted net income / adjusted diluted EPS (non-GAAP) | $689.7 million / $1.51 | $773.2 million / $1.68 | Both declined |
| Cash and cash equivalents | $1.469 billion | $1.235 billion | Up $234.5 million |
| Cash provided by operating activities (GAAP) | $1.301 billion | $703.2 million | Up $597.6 million |
| Debt, excluding consolidated investment products | $1.490 billion | $1.488 billion | Broadly unchanged |
| Ending AUM | $1.585 trillion | $1.409 trillion | Up 12.5% |
Non-GAAP measures are management-defined and should be considered alongside, not as substitutes for, GAAP results. GAAP operating results included a $1.249 billion non-cash impairment of acquired U.S. retail mutual fund management-contract intangibles. Excluding this impairment, operating expenses still increased $171.1 million.
Material changes versus the prior comparable period
- AUM rose by $176.1 billion, principally reflecting $161.1 billion of market gains and $5.3 billion of total net flows. Long-term net flows were positive $10.2 billion, compared with a slight outflow in 2022; however, active long-term net flows remained negative at $29.0 billion, while passive long-term net flows were positive $39.2 billion.
- Average AUM increased to $1.501 trillion from $1.453 trillion, but the net revenue yield excluding performance fees and QQQ fell to 32.4 basis points from 35.5 basis points, as clients continued shifting toward lower-fee passive products.
- Investment management fees declined 5.8%; performance fees fell 31.5%. Invesco Great Wall net revenues declined 14.9%, reflecting lower average AUM, product-mix changes, lower performance fees, regulatory fee reductions in China and currency effects.
- The 2023 GAAP net loss contrasts with 2022 net income, largely due to the intangible-asset impairment. Adjusted operating income and adjusted diluted EPS also declined year over year.
- Cash from operations increased; cash flows excluding consolidated investment products (CIP) were $1.164 billion in 2023 versus $1.117 billion in 2022. CIP cash and debt are consolidated for GAAP reporting but are not available to Invesco or recourse to the company.
Outlook, management commentary, risks and unusual items
- Management expects organizational simplification and efficiency initiatives to reduce the expense base by $50 million in 2024. No specific revenue, earnings or AUM guidance is provided in the supplied filing text.
- Management described 2023 markets as improved but uneven, amid geopolitical events, persistent inflation and high interest rates. It cited continued focus on investment capabilities, cost efficiency, financial flexibility and shareholder returns. Andrew R. Schlossberg became President and CEO on June 30, 2023, succeeding Martin L. Flanagan.
- The board approved a 7% increase in the quarterly common dividend to $0.20 per share. Invesco repurchased 9.6 million shares for $150 million during 2023; $382.2 million remained under the authorization at year-end. Future dividends depend on earnings, financial condition and capital needs.
- At year-end, cash was $1.469 billion and the undrawn revolving credit facility was $2.0 billion; the facility had no balance at December 31. On January 30, 2024, the company repaid $600 million of senior notes, then drew $128.5 million on the facility on January 31. Credit-agreement leverage and interest-coverage ratios were 0.69x and 20.40x, respectively, within covenant limits.
- In addition to the $1.249 billion intangible impairment, unusual items included a $45 million gain on the sale of Hong Kong pension sponsorship rights and $49.6 million of gains on investments and instruments held for deferred compensation plans. The impairment valuation was sensitive to assumptions: management estimated incremental impairment of $79 million for a 2% lower revenue forecast, $75 million for a 25-basis-point lower long-term growth rate, or $58 million for a 15-basis-point higher discount rate.
- Key risks include market declines and outflows, fee pressure and shifts to passive products, investment underperformance, interest-rate and credit volatility, foreign-exchange movements, cybersecurity and operational failures, regulatory change, litigation, and the ability to retain talent and distribution relationships. Goodwill was $8.692 billion; its tested fair value exceeded carrying value by only 5%, and management said modest changes in key assumptions could bring fair value close to carrying value.
- Undrawn co-investment commitments were $623.3 million at year-end. The company also disclosed potential fund-related equity commitments of up to $275.5 million and guarantees of up to $30 million, which management considered remote. Invesco is cooperating with an SEC investigation concerning investment advisers’ record retention for certain electronic business communications; a loss range could not be reasonably estimated.
- MassMutual owns approximately 18.1% of common stock and all $4.0 billion of perpetual preferred shares. The preferred shares carry a 5.9% annual dividend rate. The filing states no cyber incident had materially affected, or was reasonably likely to materially affect, the company as of year-end.
Most important facts for investors to verify
- Whether AUM growth can translate into stronger fee revenue and whether active-management outflows and lower revenue yield persist.
- The durability of adjusted profitability and the timing and realization of the targeted $50 million 2024 expense reduction.
- The assumptions behind the $1.249 billion impairment and the limited 5% goodwill valuation headroom.
- Post-year-end debt repayment and borrowing, available liquidity, covenant compliance, and the treatment of CIP assets and debt when assessing leverage.
- Developments in the SEC record-retention investigation, co-investment commitments, regulatory matters and other contingencies.
- The filing reports audited GAAP financial statements and effective internal control over financial reporting; investors should also review the complete non-GAAP reconciliations and related notes.