Apollo Global Management, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Financial statements are unaudited. Amounts are in U.S. dollars. Apollo completed its merger with Athene on January 1, 2022; Athene’s results are included from that date, but not in reported 2021 results. This makes reported year-over-year comparisons substantially affected by the merger.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $2.272bn | $1.383bn | $3.147bn | $3.678bn |
| Net income (loss) attributable to Apollo common stockholders | $(2.051)bn | $649m | $(2.921)bn | $1.319bn |
| Diluted earnings (loss) per share | $(3.53) | $2.70 | $(5.03) | $5.51 |
| Adjusted Segment Income (non-GAAP) | $803m | $591m | $1.970bn | $954m |
| Adjusted Net Income (non-GAAP) | $566m | $502m | $1.481bn | $796m |
- GAAP results: Q2 included $5.759bn of Retirement Services investment-related losses; the six-month amount was $9.976bn. Losses reflected higher interest rates and wider credit spreads, market declines, derivative and mortgage-loan valuation changes, realized securities losses, and increased credit-loss provisions. Q2 consolidated net loss was $3.002bn; the six-month net loss was $4.532bn.
- Asset Management: Fee Related Earnings (non-GAAP) were $341m for Q2, up 7% year over year, and $651m for six months, up 5%. Management cited growth in management fees and advisory and transaction fees, partly offset by higher compensation and operating costs. Asset-management GAAP investment income was a loss of $195m in Q2, versus income of $812m a year earlier, primarily reflecting lower performance allocations as portfolio values fell.
- Retirement Services: Spread Related Earnings (non-GAAP) were $442m for Q2 and $1.112bn for six months. Net investment spread was 1.32% and 1.59%, respectively. Q2 results benefited from organic inflows and floating-rate income, while purchase-accounting marks adversely affected investment income and favorably affected cost of funds.
- Principal Investing: Income was $20m for Q2 and $207m for six months, down from $272m and $333m, respectively, mainly because lower Fund VIII performance-fee realizations delayed monetization.
Balance sheet, cash flow and liquidity
- At June 30, total assets were $247.850bn, total liabilities $239.689bn, and total equity $7.158bn. The large increase in assets and liabilities versus year-end 2021 primarily reflects the Athene merger.
- Apollo reported $6.092bn of debt: $2.813bn in Asset Management and $3.279bn in Retirement Services. Athene also had $4.109bn payable under repurchase agreements, presented separately from debt.
- Unrestricted cash and cash equivalents were $12.7bn; Apollo also cited $0.5bn of U.S. Treasury securities and $2.0bn of available capacity under existing AMH and AHL credit facilities. A separate $2.5bn Athene liquidity facility was entered into in Q3; no borrowings were outstanding under it as of August 5, 2022. Cash, restricted cash, and cash held at consolidated VIEs totaled $14.510bn.
- For the first six months, consolidated operating cash flow was $(20)m, investing cash flow $(818)m, and financing cash flow $13.280bn. The financing inflow chiefly reflected Athene policy and funding-agreement inflows, net of withdrawals. Consolidated cash flow includes fund and VIE activity; Apollo also disclosed $5.237bn of operating cash flow attributable to the Company, offset by $(5.257)bn from consolidated funds and VIEs.
- Athene’s investment portfolio had $15.116bn of gross unrealized losses on available-for-sale securities at quarter-end, largely attributed to market interest-rate changes. Accumulated other comprehensive loss was $9.790bn.
Business developments and outlook
- Apollo reported $514.8bn of total AUM, including $380.8bn of fee-generating AUM, at June 30. Total AUM increased 3.5% from year-end, supported by $44.9bn of net flows, partly offset by $16.4bn of negative market activity. Dry powder was $50bn.
- Apollo completed the Griffin Capital U.S. asset-management acquisition in May. The Athene merger also drove a new three-segment reporting structure: Asset Management, Retirement Services, and Principal Investing. Prior segment periods were recast, but reported consolidated 2021 results do not include Athene.
- Management stated it believed available liquidity and expected cash generation would be sufficient for anticipated expenses and working-capital needs for at least 12 months. It estimated Athene deployable capital at approximately $6.6bn, subject in part to debt-market conditions. These are management assessments, not guarantees.
- Management described high inflation, rising rates, falling equity and credit markets, and Russia-Ukraine-related disruption as relevant conditions. It noted that higher rates could improve investment income on floating-rate assets and new investments, but also reduce existing asset values, raise financing costs, and pressure realizations. A 25-basis-point immediate rate increase was estimated to reduce Athene’s point-in-time pre-tax income by $975m, partly offset by a $41m increase from DAC, DSI, and rider-reserve effects.
- Material exposures and obligations include $16.3bn of Athene investment commitments, $3.0bn of FHLB funding agreements, $23.0bn of FABN funding agreements, and possible performance-fee clawbacks. Up to $4.3bn of cumulative performance-allocation revenue could be reversed if existing investments became worthless; management considered that outcome remote. Litigation, regulatory matters, reinsurance counterparty performance, and liquidity mismatch between assets and liabilities are also risks.
- The company declared a $0.40-per-share dividend on August 4, payable August 31, 2022. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Separate the effects of the Athene merger and purchase accounting from underlying operating trends; reported 2021 comparisons exclude Athene.
- Review the drivers and potential duration of Athene’s market-related losses, AOCI decline, and interest-rate sensitivity, including the assumptions behind fair values and reserves.
- Assess the quality and recurrence of non-GAAP FRE, SRE, PII, Adjusted Segment Income, and Adjusted Net Income, and reconcile them to GAAP results.
- Evaluate Athene’s liquidity, collateral and funding needs, policyholder withdrawal behavior, investment commitments, and ability to access subsidiary dividends and credit facilities under stress.
- Monitor performance-fee reversals, clawback exposure, private-asset valuation assumptions, reinsurance counterparty risk, and the status of material legal and regulatory matters.