Invesco Ltd. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are to Q1 2020 unless stated otherwise. Invesco is a global investment manager. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. Consolidated investment products (CIP) and policyholder balances significantly affect reported totals and are generally not available for Invesco’s corporate use.
Financial results and key metrics
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Operating revenue | $1,659.7 | $1,598.9; up 3.8% |
| Operating income / margin | $344.3 / 20.7% | $317.0 / 19.8% |
| Net income attributable to Invesco | $267.8 | $81.5 |
| Diluted EPS | $0.58 | $0.18 |
| Net revenue (non-GAAP) | $1,251.0 | $1,145.8; up 9.2% |
| Adjusted operating income / margin (non-GAAP) | $503.0 / 40.2% | $412.7 / 36.0% |
| Adjusted net income / diluted EPS (non-GAAP) | $316.6 / $0.68 | $155.3 / $0.34 |
| Ending AUM | $1,404.1 billion | $1,053.4 billion at March 31, 2020 |
| Net long-term flows | $24.5 billion inflow | $19.1 billion outflow |
| Net revenue yield on AUM | 35.9 basis points | 39.0 basis points |
| Operating cash flow | $(26.9) | $(77.0); excluding CIP, $74.7 provided versus $78.3 used |
Reported net income benefited from materially improved other gains and CIP results versus Q1 2020. CIP produced $66.9 of net gains versus $48.4 of net losses a year earlier; Invesco states CIP had no net impact on its attributable net income in Q1 2021. Adjusted measures are non-GAAP and should be considered alongside, not instead of, GAAP results.
Balance sheet, debt and liquidity
- At March 31, 2021, cash and cash equivalents were $1,158.3, down from $1,408.4 at year-end 2020. Cash, cash equivalents and restricted cash totaled $1,795.9, including $429.6 held by CIP and $208.0 of restricted cash.
- Long-term debt was $2,083.2; the $1.5 billion revolving credit facility had no borrowings outstanding. Debt of CIP was $6,700.9 and is described as nonrecourse to Invesco, with collateral unavailable to general creditors.
- Credit agreement leverage and interest coverage ratios were 1.25x and 14.30x, respectively; the company reported compliance with its covenants. The credit facility was extended after quarter-end, on April 26, 2021, to April 2026.
- GAAP total assets were $34,881.5 and total liabilities $19,513.7; these totals include CIP and equal, offsetting policyholder assets and liabilities. Management’s adjusted balance sheet, excluding those balances and CIP, showed assets of $21,068.3 and liabilities of $6,519.7.
Material changes and management commentary
- Q1 2021 AUM benefited from $24.5 billion of net long-term inflows and $24.6 billion of market gains; total net flows were $31.9 billion. Management reported nine consecutive months of net long-term inflows and a quarterly record of $24.5 billion.
- Average AUM rose to $1,395.1 billion from $1,176.3 billion. Higher AUM supported revenue, but net revenue yield fell 3.1 basis points to 35.9, reflecting product mix shifts toward lower-fee passive products, lower yields in passive products and fee waivers. Management expects these pressures to continue in the near term.
- Employee compensation expense rose 16.0% to $489.2, including a $46.0 increase from mark-to-market changes in deferred compensation liabilities and $10.3 more variable compensation. Headcount fell to 8,426 from 8,757.
- Management targets $200 million of permanent annual net operating expense improvements: $150 million by year-end 2021 and the balance by year-end 2022. It reported $16 million of savings in Q1 and $95 million annualized in total, or 48% of the target. Remaining restructuring expense is estimated at $100–$125 million through 2022; $149 million had been incurred cumulatively through March 31, 2021.
- The board approved a 10% increase in the common dividend to $0.17 per share, announced April 27, 2021. Management described capital priorities as reinvestment, maintaining a strong balance sheet, moderate dividend growth and share repurchases.
- In April, Invesco announced a transition to State Street’s Alpha investment operations platform, with integration starting in Q2 2021 and expected completion in late 2024.
Risks, contingencies and unusual items
- OppenheimerFunds-related remediation: The company recorded an estimated $387.8 liability for historical NAV and financial statement issues involving four MLP funds. The estimate depends on incomplete shareholder data, and final costs and Invesco’s responsibility remain uncertain; potential insurance or MassMutual recoveries are not included. Q1 remediation costs of $1.4 were expensed.
- Fund rebalancing matter: Invesco paid $105.3 in 2020 to compensate two funds after a delayed index rebalance. Insurance recovery remains uncertain.
- Commitments and litigation: Undrawn co-investment commitments were $422.8. Management said guarantees had no prior claims and expected loss risk was remote. It reported adequate accruals for estimable legal matters but said other possible losses could not be estimated; regulatory inquiries or litigation could harm client confidence and AUM.
- Market and operating risks: Results depend on AUM levels and mix, investment performance, market movements, foreign exchange, interest rates and client flows. The filing also discusses COVID-19 operating uncertainty, LIBOR transition exposure, UK-EU financial-services arrangements and possible inflation effects.
- Other items: CIP gains and losses are largely attributable to third-party investors and are not representative of performance across Invesco’s AUM. Q1 income-tax rate was 22.3%, versus 32.4% in Q1 2020. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether net long-term inflows persist and whether AUM growth translates into fee revenue despite continued yield compression.
- How much of reported earnings growth reflects recurring operating performance versus market-sensitive gains, deferred compensation marks and CIP presentation.
- Final remediation costs for the OppenheimerFunds matter, including shareholder reimbursements and any insurance or indemnification recoveries.
- Progress, cash costs and realized savings from the $200 million expense initiative, and execution risks and costs for the Alpha platform transition.
- Corporate cash and liquidity available after distinguishing restricted cash, CIP balances and regulated-subsidiary cash; also monitor dividend and debt capacity.
- Developments in market, regulatory, LIBOR and UK-EU risks, and any material legal or client-confidence effects.