Business context and reporting period
BrightSphere Investment Group Inc. (NYSE: BSIG) filed this unaudited Form 10-Q for the three months ended March 31, 2022. Although the request identifies Acadian Asset Management Inc., the filing registrant is BrightSphere; its sole operating affiliate and Quant & Solutions segment is Acadian Asset Management LLC. BrightSphere provides investment management services, primarily to institutional investors.
Financial results and key metrics
| Metric | Q1 2022 | Q1 2021 or comparison |
|---|---|---|
| Total revenue | $112.2 million | $109.7 million |
| Operating income / GAAP operating margin | $43.2 million / 38.5% | $32.5 million / 29.6% |
| Net income attributable to controlling interests | $23.8 million | $27.0 million |
| Diluted EPS | $0.53 | $0.33 |
| Economic net income (non-GAAP) / ENI operating margin | $23.4 million / 34.5% | $22.5 million / 34.2% |
| Adjusted EBITDA (non-GAAP) | $43.0 million | $42.1 million |
| Ending AUM | $110.2 billion | $117.2 billion at Dec. 31, 2021 |
Management fees were $102.2 million, down 1.5% year over year; performance fees rose to $10.0 million from $4.6 million, reflecting outperformance in certain non-U.S. strategies. Operating expenses fell to $69.0 million from $77.2 million. Income from continuing operations attributable to controlling interests was $23.8 million, up from $18.5 million. Total net income was lower year over year, principally because Q1 2021 included $21.9 million of discontinued-operations income. Q1 2022 diluted EPS also reflects a substantially lower weighted-average share count following repurchases.
Cash from continuing operating activities was negative $14.4 million, versus negative $7.3 million in Q1 2021. Investing activities used $4.0 million; financing activities used $144.9 million, including $103.2 million of share repurchases and debt repayments. Cash and cash equivalents declined to $88.8 million from $252.1 million at year-end 2021.
At March 31, 2022, total assets were $494.1 million and total liabilities were $592.0 million, leaving a stockholders’ deficit of $97.9 million. Debt comprised $88.0 million drawn on the revolving facility and $273.2 million of 4.80% notes due 2026. The company redeemed $125 million principal amount of 5.125% notes due 2031 in January; total third-party borrowings declined to $273.2 million from $394.9 million at year-end.
Changes, outlook, risks and unusual items
- AUM fell 6.0% from year-end, reflecting $4.8 billion of market depreciation and $2.2 billion of net outflows. Net outflows improved from $3.5 billion in Q1 2021; management attributed the improvement mainly to lower outflows in global managed volatility and stronger gross sales in non-U.S. equity strategies. Annualized revenue impact of Q1 net flows was negative $1.1 million, versus negative $7.9 million a year earlier.
- The company recorded a $3.2 million loss on extinguishment of debt related to the January note redemption. Lower non-cash employee-equity revaluation expense also reduced reported compensation costs. Prior-year results included disposed businesses, which limits direct comparability.
- Management said cash, expected operating cash generation and potential financing should be sufficient for operations and capital needs for at least the next 12 months. The filing gives no specific revenue, earnings or AUM guidance.
- Key exposures include market declines and client withdrawals, performance-fee variability, inflation and rising rates, foreign currency movements, and COVID-19-related uncertainty. The filing also cites volatility and economic uncertainty following Russia’s invasion of Ukraine; management described direct Russian-securities exposure as limited. A hypothetical 10% broad AUM change was estimated to affect annual post-tax ENI by approximately $18 million under the company’s stated assumptions.
- The revolving facility matures March 7, 2025, has a $125 million commitment, and contains a maximum leverage ratio of 2.5x and minimum interest coverage ratio of 4.0x. Reported March 31 ratios were 0.4x and 304.7x, respectively. The company does not hedge its variable-rate borrowing exposure.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. No material litigation accruals were recorded; management did not believe ordinary-course claims would be material in aggregate. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for BrightSphere Investment Group Inc., with Acadian Asset Management LLC as its operating affiliate.
- Assess how market performance, client flows and performance-fee variability may affect AUM, recurring fees and earnings.
- Review cash usage, the substantial Q1 share repurchase, the negative equity position, remaining liquidity and debt-service capacity.
- Distinguish GAAP results from non-GAAP ENI and Adjusted EBITDA, including the adjustments and limitations described in the filing.
- Consider the debt-redemption charge and prior-year discontinued operations when comparing periods; confirm the status of contingencies and credit-facility covenants in subsequent filings.