Business context and reporting period
This is BrightSphere Investment Group Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2019. Although the request names Acadian Asset Management Inc., the filing is for BrightSphere (NYSE: BSIG), Acadian’s parent company; it does not provide standalone Acadian financial statements. Acadian is identified as an Affiliate, with $95.8 billion of AUM at quarter-end. BrightSphere completed its redomestication from a U.K. company to a Delaware corporation on July 12, 2019, and reorganized reporting into Quant & Solutions, Alternatives and Liquid Alpha segments.
Key financial metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $197.8 million | $230.1 million | $612.1 million | $713.7 million |
| Operating income | $51.9 million | $13.3 million | $166.5 million | $54.2 million |
| Net income attributable to controlling interests | $75.4 million | $54.0 million | $156.1 million | $113.4 million |
| Diluted EPS | $0.84 | $0.51 | $1.68 | $1.04 |
| U.S. GAAP operating margin | 26.2% | 5.8% | 27.2% | 7.6% |
| ENI operating margin | 34.7% | 38.4% | 34.6% | 38.9% |
| Economic net income (non-GAAP) | $37.4 million | $48.8 million | $117.6 million | $154.2 million |
| Adjusted EBITDA (non-GAAP) | $59.8 million | $71.0 million | $182.1 million | $222.8 million |
Revenue and earnings: Management fees fell 14.5% in Q3 and 13.0% year to date, reflecting lower average AUM, lower fee rates and prior-year alternative-fund catch-up fees that did not recur. Performance fees were negative $1.9 million in Q3 and negative $6.9 million year to date. Higher reported earnings and GAAP margins were substantially influenced by compensation accounting: non-cash Affiliate equity revaluations were a $14.7 million credit in Q3 2019 versus a $34.6 million expense in Q3 2018. ENI, management’s non-GAAP measure, declined year over year.
Cash flow and liquidity: For the nine months, cash used in operating activities excluding consolidated Funds was $149.9 million, versus $186.5 million provided in the prior-year period. Management attributed the decline largely to settlement of the Landmark earnout and related operating-liability changes. Total cash and cash equivalents, including restricted cash held by consolidated Funds, were $124.7 million at September 30, down from $345.5 million at the start of the year; the balance sheet reports $116.5 million of cash and $8.2 million of restricted Fund cash. Investing cash use excluding Funds was $4.6 million; financing cash use was $69.6 million.
Debt: Borrowings and long-term debt totaled $603.6 million at September 30, including a $175 million revolving-facility draw, a $35 million non-recourse seed-capital facility and senior notes. The new $450 million revolving facility matures in August 2022. The company reported covenant compliance, a third-party debt/Adjusted EBITDA ratio of 2.3x and interest coverage of 8.2x. The filing states that available cash, operating cash generation and financing are expected to fund operations and capital needs for at least the next 12 months.
Material changes versus comparable periods
- Ending AUM was $216.8 billion, down 8.8% from $237.7 billion a year earlier, but up from $206.3 billion at December 31, 2018. Nine-month AUM movement included $19.2 billion of market appreciation and $7.6 billion of net outflows.
- Q3 net outflows were $6.2 billion; the annualized revenue impact of net flows was negative $16.2 million. Management cited low-fee merger-related reallocations and continued outflows from a subadvisory client. Year-to-date outflows were concentrated in Liquid Alpha; Alternatives fundraising was lower than in the prior-year period.
- U.S. GAAP net income rose despite lower revenue, while ENI fell. The year-over-year comparison also includes a $65.7 million Heitman-sale gain in 2018, which did not recur in 2019.
- Gross debt increased from $393.3 million at year-end 2018 to $603.6 million, with the new revolving facility and seed-capital borrowing contributing. The company repurchased 16.6 million shares for approximately $208.3 million during the first nine months and paid dividends of $0.30 per share.
Outlook, management commentary and risks
The filing gives no numerical earnings or revenue guidance. Management said liquidity should be sufficient for at least the next 12 months. It did not expect material net performance fees from alternative-product liquidations likely in the near term, based on conditions and performance as of September 30, 2019.
Key exposures include market-driven changes in AUM, client withdrawals, investment performance and fee-rate or strategy mix. Management estimated that a uniform 10% AUM change would alter annualized management-fee revenue by approximately $81 million and post-tax ENI by approximately $29.3 million, assuming its current cost structure and operating model. The company does not hedge corporate-level market exposure and does not currently hedge interest-rate risk on variable-rate facility borrowings.
The company had approximately $48 million of unfunded co-investment commitments, with funding expected through 2022. It reported no material litigation accruals and assessed a foreign-tax contingency as not material, with no accrual recorded. It noted that indemnification exposure cannot be quantified. Disclosure controls were assessed as effective, and the filing reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended issuer: this filing is BrightSphere’s consolidated 10-Q, not an Acadian standalone filing; verify Acadian-specific results separately if needed.
- Assess whether sustained client outflows, lower management-fee rates and weaker alternative fundraising continue to pressure revenue and AUM.
- Separate recurring operating performance from non-cash compensation revaluations, tax benefits and other GAAP-to-ENI adjustments; ENI and Adjusted EBITDA are non-GAAP measures.
- Review the drivers of the substantial cash decline and the timing and amount of future Landmark-related or other compensation payments.
- Monitor debt, variable-rate interest expense, credit-facility covenant headroom, share repurchases and the ability to maintain liquidity while meeting co-investment commitments.