Invesco Ltd. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Invesco provides global investment management services. Amounts below are U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial results and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenue (GAAP) | $1,721.4 | $1,419.0 | $3,381.1 | $3,017.9 |
| Net revenue (non-GAAP) | $1,302.9 | $1,034.3 | $2,553.9 | $2,180.1 |
| Operating income (GAAP) | $470.9 | $117.1 | $815.2 | $434.1 |
| Operating margin (GAAP) | 27.4% | 8.3% | 24.1% | 14.4% |
| Adjusted operating income (non-GAAP) | $540.5 | $359.7 | $1,043.5 | $772.4 |
| Adjusted operating margin (non-GAAP) | 41.5% | 34.8% | 40.9% | 35.4% |
| Net income attributable to Invesco | $368.3 | $40.5 | $636.1 | $122.0 |
| Diluted EPS | $0.79 | $0.09 | $1.37 | $0.26 |
| Adjusted diluted EPS (non-GAAP) | $0.78 | $0.35 | $1.46 | $0.68 |
For Q2, operating revenue rose 21.3% year over year and net revenue rose 26.0%; six-month increases were 12.0% and 17.1%, respectively. Revenue benefited from higher average AUM and market levels, while fee yields faced pressure from the shift toward lower-fee passive products and money-market fee waivers. The filing reports voluntary money-market yield-support waivers of $41.4 million in Q2 and $70.4 million year to date.
AUM: Ending AUM was $1.525 trillion, up from $1.145 trillion a year earlier; average AUM was $1.480 trillion in Q2 versus $1.119 trillion. Q2 total net inflows were a record $53.4 billion, including $31.1 billion in long-term flows and $19.8 billion in money-market flows. Passive AUM reached $459.0 billion, or 30.1% of total AUM. Net revenue yield declined to 35.2 basis points from 37.0 basis points in Q2 2020.
Cash flow and liquidity: For the six months, GAAP operating cash flow was $480.8 million; excluding consolidated investment products (CIP), management reported $601.2 million, versus $268.7 million in the prior-year period. Ending company cash and cash equivalents were $1.333 billion, excluding $404.1 million held by CIP. Capital expenditure was $47.2 million. Company cash decreased $75.4 million from year-end 2020.
Debt and capital: Long-term debt was $2.084 billion, principally fixed-rate senior notes; the $1.5 billion revolving facility had no borrowings and was extended to April 2026. The company reported covenant leverage of 0.93x and interest coverage of 19.08x, and stated it was in compliance. These figures exclude CIP debt, which Invesco says is non-recourse and unavailable to general creditors. Common and preferred dividends paid in the first half were $150.1 million and $118.4 million, respectively.
Material changes versus the prior comparable period
- Results improved substantially as average AUM and market levels recovered from the 2020 comparison period; six-month net long-term flows shifted to $55.6 billion of inflows from $33.3 billion of outflows.
- Q2 GAAP operating income included a $47.1 million net benefit in transaction, integration and restructuring expense, primarily from an $85.4 million reduction in the estimated OppenheimerFunds-related remediation liability. The prior-year quarter included $56.5 million of expense and a $105.3 million fund-rebalancing correction in general and administrative expense.
- Six-month GAAP net income also reflected market-driven gains in CIP and other gains and losses. CIP results are largely offset by noncontrolling interests and are not representative of returns on Invesco’s overall AUM.
- Reported total assets fell to $33.2 billion from $36.5 billion at year-end 2020, substantially reflecting lower policyholder assets and matching payables; these balances offset and do not represent resources available to Invesco.
Outlook, management commentary, and risks
- Management targets $200 million of permanent annual net operating expense improvements: $150 million by year-end 2021 and the remainder by year-end 2022. It reported $95 million in annualized savings realized in 2021 to date, plus $30 million realized in 2020. Remaining restructuring costs are estimated at $80–$105 million through 2022.
- Invesco plans to transition to State Street’s Alpha investment-operations platform, with integration begun in Q2 2021 and completion expected in 2024.
- No formal earnings or revenue forecast is provided in the supplied filing text. Management expects fee-yield pressure to continue in the near term as product mix shifts toward passive, lower-fee products and money-market waivers remain elevated.
- The estimated liability for remediation of historical SteelPath fund NAV restatements was reduced to $300 million from $387.8 million at year-end 2020. The estimate is judgmental, excludes potential insurance and indemnification recoveries and other related costs, and could change. Reimbursement payments were expected in Q4 2021.
- Other risks include market-driven AUM and revenue changes, investment performance and client flows, foreign exchange and interest-rate exposure, regulatory and litigation matters, and the LIBOR transition. The filing says legal loss estimates for other matters are not reasonably determinable, but management believes accrued amounts for estimable matters are adequate and does not expect known claims to materially affect the company.
- Management reported effective disclosure controls and no significant change in risk factors from the 2020 Form 10-K. It declared a $0.17-per-common-share dividend after quarter-end, payable September 1, 2021.
Most important facts for investors to verify
- Reconcile the $300 million SteelPath remediation estimate, payment timing, and any insurance or MassMutual recovery; the estimate remains uncertain.
- Track whether the $200 million annual savings target and stated realization timetable are achieved, alongside the remaining restructuring charges.
- Monitor AUM flows, the composition of the large institutional passive mandate, and the effect of passive growth and fee waivers on revenue yield.
- Assess recurring operating performance using both GAAP and non-GAAP measures; review the adjustments, particularly the remediation benefit and CIP effects.
- Distinguish company cash and debt from CIP and policyholder balances, and monitor capital commitments ($427.7 million undrawn) and the company’s fixed debt maturities.