Invesco Ltd. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Invesco is a global investment manager. Amounts below are in U.S. dollars; “Q3” means the three months ended September 30. Comparisons are with 2022 unless stated otherwise.
Financial performance and key metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Operating revenue | $1,442.0 million | $1,445.7 million | $4,303.0 million | $4,605.5 million |
| Operating income | $227.7 million | $350.2 million | $641.0 million | $1,072.6 million |
| Operating margin | 15.8% | 24.2% | 14.9% | 23.3% |
| Net income attributable to Invesco | $131.4 million | $177.4 million | $408.6 million | $496.1 million |
| Diluted EPS | $0.29 | $0.39 | $0.89 | $1.08 |
| Adjusted operating income | $309.2 million | $369.4 million | $938.1 million | $1,275.9 million |
| Adjusted diluted EPS | $0.35 | $0.34 | $1.04 | $1.29 |
Adjusted measures are non-GAAP and exclude or adjust for specified items, including consolidated investment products, Invesco Great Wall, amortization and certain compensation and restructuring items; they are not substitutes for GAAP results.
- Revenue and fee trends: Q3 GAAP revenue was nearly flat year over year; nine-month revenue fell 6.6%. Nine-month investment management fees declined 7.4%, mainly reflecting lower AUM and product mix. Average AUM rose year over year in both periods, but the mix shifted toward lower-yield products. Q3 net revenue yield excluding performance fees and QQQ was 32.9 bps, down from 35.3 bps.
- Expenses and margins: Q3 operating expenses rose 10.8% to $1,214.3 million; employee compensation and general and administrative expense were the principal increases. The company recorded $39.3 million of Q3 costs related to organizational changes, within employee compensation. Nine-month operating expenses rose 3.7% to $3,662.0 million.
- Cash flow: For the nine months, GAAP operating cash flow was $586.5 million, investing cash flow was $17.3 million, and financing cash flow was negative $475.1 million. Excluding CIP cash flows, operating cash flow was $814.3 million, versus $692.4 million in 2022; this is a company-presented non-GAAP view. Capital expenditures were $124.0 million.
- Debt and liquidity: At September 30, cash and cash equivalents available to Invesco were $1,241.5 million, with a $2.0 billion undrawn revolving facility; reported total liquidity sources were $3,241.5 million. Company debt was $1,489.1 million. A $600 million 4.0% senior note is due January 30, 2024. Invesco reported compliance with debt covenants, a 0.69x leverage ratio and 20.03x interest coverage ratio. Separately reported CIP debt of $6,981.5 million is not recourse to Invesco and CIP assets and cash are not available for its general use.
- AUM and flows: Ending AUM was $1.487 trillion, versus $1.323 trillion a year earlier. Q3 long-term net inflows were $2.6 billion, including $11.8 billion of net ETF inflows; total net flows were negative $9.9 billion, including $16.1 billion of money-market outflows. Nine-month long-term net flows were $3.5 billion, with passive net long-term inflows of $25.3 billion and active net long-term outflows of $21.8 billion.
Material changes versus prior periods
- Despite higher reported AUM, lower-yield product mix and weaker fee revenue weighed on revenue yields and operating results.
- Q3 operating income and GAAP operating margin decreased materially, alongside higher compensation expense and the comparison with $60 million of insurance recoveries included in Q3 2022 G&A.
- Nine-month net income attributable to Invesco declined, while adjusted net income was $477.0 million versus $595.4 million. The comparison includes differing market-related and other adjustment items.
- Company cash was broadly stable versus December 2022, while the available revolver increased from $1.5 billion to $2.0 billion. The company ended the quarter with no balance on its floating-rate credit facility.
Outlook, management commentary, risks and contingencies
- Management cited volatile markets, rising interest rates and clients holding cash while awaiting greater certainty. It highlighted ETFs, fixed income, private markets and APAC as areas positioned for potential flows. The filing provides no quantified earnings or revenue guidance.
- Invesco is pursuing a multi-quarter reorganization to simplify operations and improve scale and profitability. It reported $41.6 million of transaction, integration and restructuring costs for the first nine months.
- The company stated its capital priorities include reinvestment, maintaining a strong balance sheet, dividends and share repurchases. It repurchased $150.0 million of shares in the first nine months; no open-market repurchases occurred in Q3. The Board declared a Q3 common dividend of $0.20 per share, payable December 4, 2023.
- Key business risks include market declines reducing AUM and management fees, client outflows or shifts to lower-fee products, investment performance, interest rates, foreign exchange, inflation-related costs and regulatory or geopolitical developments. Management noted that adverse AUM mix or market conditions could lead to future goodwill or intangible-asset impairment.
- Undrawn co-investment commitments were $659.0 million. Certain managed products had equity commitments of up to $274 million and guarantees of up to $30 million; management said the likelihood of funding is remote. Non-consolidated VIE exposure included $141.0 million invested and $142.4 million of unfunded commitments.
- Invesco disclosed ongoing ordinary-course litigation and regulatory matters, including cooperation with SEC requests concerning investment advisers’ record retention of certain electronic business communications. Management said adequate accruals were recorded for estimable probable losses and does not expect ultimate resolution to materially affect the business, revenue, net income or liquidity.
- Management concluded disclosure controls were effective as of September 30, 2023 and reported no material change in internal control over financial reporting during the period.
Most important facts for investors to verify
- Whether active AUM outflows and the shift toward lower-yield products persist, and how these affect fee yields and revenue.
- The details and expected duration of the reorganization, including total costs, savings and effects on future margins.
- Plans for repayment or refinancing of the $600 million note due January 2024, alongside dividend and repurchase commitments.
- How much of reported liquidity is operationally available, considering regulatory capital requirements and restrictions on moving cash between jurisdictions.
- Progress and potential financial exposure from SEC and other legal or regulatory matters, and the status of co-investment commitments and guarantees.
- The distinction between GAAP results and company non-GAAP measures, and between Invesco’s own debt and cash versus CIP balances that are not available to or recourse against the company.