Acadian Asset Management Inc. — Q3 2022 filing summary
Registrant clarification: The supplied filing is BrightSphere Investment Group Inc.’s Form 10-Q, not a filing under Acadian Asset Management Inc. BrightSphere reported its asset-management business through Acadian Asset Management LLC. The reporting period ended September 30, 2022; financial amounts below are in millions of dollars unless otherwise noted.
Business context and reporting period
BrightSphere operated through one reportable segment, Quant & Solutions, comprising its interest in Acadian. Management fees are largely asset-based, making revenue sensitive to market performance, client flows, and the mix of assets. The filing compares Q3 and the first nine months of 2022 with the corresponding 2021 periods.
Financial and operating metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $86.8 | $117.9 | $294.5 | $360.9 |
| Operating income | $30.1 | $28.7 | $120.0 | $97.3 |
| Continuing-operations income attributable to controlling interests | $17.8 | $42.9 | $70.2 | $86.1 |
| Net income attributable to controlling interests | $17.8 | $229.5 | $70.2 | $789.2 |
| Diluted EPS | $0.42 | $2.76 | $1.62 | $9.53 |
| U.S. GAAP operating margin | 34.7% | 24.3% | 40.7% | 27.0% |
| Economic net income (ENI), non-GAAP | $12.5 | $23.6 | $53.2 | $79.0 |
| ENI operating margin, non-GAAP | 25.9% | 37.0% | 30.5% | 37.2% |
| Adjusted EBITDA, non-GAAP | $26.0 | $44.2 | $103.0 | $142.6 |
- Management fees were $85.7 in Q3 and $281.4 for the first nine months; performance fees were $1.1 and $13.1, respectively. No other revenue was reported in 2022.
- Operating cash flow from continuing operations was $63.3 for the first nine months, versus $22.3 in 2021. Investing activities used $9.3; financing activities used $204.7. Cash declined $150.7 from year-end 2021 to $101.4.
- At September 30, cash was $101.4, total assets $474.7, and total liabilities $529.8, leaving stockholders’ equity negative at $55.1. Debt was $302.4: $273.4 of senior notes and $29.0 drawn on the revolving facility.
- Acadian’s reported leverage ratio was 0.1x against a maximum covenant of 2.5x; its interest coverage ratio was 156x against a 4.0x minimum.
Material changes versus the prior comparable period
- Q3 revenue fell 26.4% year over year; nine-month revenue fell 18.4%. Management attributed lower management fees primarily to reduced average AUM from market declines and prior outflows, as well as the 2021 Campbell Global disposition. Q3 average AUM was $90.3 billion, 25% below the comparable period.
- Period-end AUM was $83.3 billion, down 26.7% from September 2021. In Q3, $7.8 billion of market depreciation was partly offset by $0.6 billion of net inflows. For the first nine months, $29.5 billion of market depreciation and $4.4 billion of net outflows reduced AUM. The stronger U.S. dollar also weighed on foreign-currency AUM.
- GAAP operating income rose despite lower revenue, as total operating expenses fell to $56.7 from $89.2 in Q3 and to $174.5 from $263.6 for the nine-month period. Lower compensation, including a favorable swing in non-cash Affiliate equity revaluations, contributed. ENI operating margin, however, declined to 25.9% in Q3 and 30.5% year to date.
- Reported net income and EPS comparisons are heavily affected by 2021 divestiture gains: the 2021 nine-month period included $694.6 of after-tax gains on discontinued operations and $76.5 of discontinued-operations income; Q3 2021 included a $185.4 after-tax disposal gain. Those items did not recur in 2022. The 2022 nine-month period also included a $3.2 debt-extinguishment loss.
- The company repurchased 4.15 million shares for approximately $100 million, including commissions, during the first nine months of 2022; no shares were repurchased in Q3. Weighted-average basic shares for the first nine months were 42.3 million versus 79.4 million a year earlier.
Outlook, commentary, risks, and unusual items
- Management said cash and expected operating cash generation, supplemented by financing if needed, should be sufficient for operations and capital needs for at least the next 12 months. No specific revenue, earnings, or AUM guidance was provided.
- Management identified market levels, investment performance, client flows, fee-rate mix, and foreign-exchange movements as important drivers of future results. It noted that inflation and rising rates can reduce asset values and, in turn, management fees. The filing’s market-risk analysis estimated that a 10% AUM change could alter annual post-tax ENI by approximately $16.0 million under its stated assumptions.
- The company cited risks from Russia’s invasion of Ukraine, sanctions, potential cyberattacks, market disruption, inflation, and global growth uncertainty. It also disclosed variable-rate exposure on the $29.0 revolving-facility borrowing and said it did not hedge that exposure.
- The revolving credit facility was replaced in March 2022 with a $125 million facility maturing March 7, 2025. BrightSphere redeemed $125 million of 5.125% notes in January 2022, recognizing the $3.2 loss noted above; $273.4 of 4.80% notes due 2026 remained outstanding at quarter-end.
- The filing reported no material litigation accruals and no material changes to previously disclosed risk factors. A $2.5 million office-security-deposit guaranty remains in place through 2033, with no related balance-sheet liability recorded. 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 subsequent AUM, market performance, and net flows support stabilization after the substantial 2022 market-driven decline and year-to-date net outflows.
- Whether the Q3 inflow improvement persists, and how client withdrawals, performance-fee eligibility, and fee-rate mix affect recurring revenue.
- Cash generation and liquidity after the large year-to-date share repurchase and debt repayments, including the company’s negative stockholders’ equity.
- Current debt balances, variable-rate borrowing costs, and continued compliance with the credit facility’s leverage and interest-coverage covenants.
- How much GAAP and ENI profitability depends on non-cash compensation revaluations and other adjustments; ENI and Adjusted EBITDA are non-GAAP measures and should be assessed alongside GAAP results.