Business Context and Reporting Period
Affiliated Managers Group, Inc. filed an unaudited Form 10-Q for the quarter and six months ended June 30, 2021. AMG partners with independent active investment management firms and reported aggregate assets under management of $755.7 billion at quarter-end, up 18% from June 30, 2020. The results include consolidated Affiliates and equity-method Affiliates.
Financial Results and Key Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Consolidated revenue | $586.3 million, up 24% | $1,145.4 million, up 17% |
| Income before taxes | $255.1 million | $519.7 million |
| Net income | $184.2 million | $398.2 million |
| Net income attributable to controlling interest | $109.0 million | $258.9 million |
| Diluted EPS | $2.55 | $5.96 |
| Adjusted EBITDA attributable to controlling interest | $227.3 million, up 40% | $474.1 million, up 31% |
| Economic net income attributable to controlling interest | $171.2 million, up 32% | $356.0 million, up 27% |
| Operating cash flow | Not separately provided for the quarter | $550.9 million |
Approximate consolidated revenue-based margins for the second quarter were 43.5% for income before taxes and 18.6% for net income attributable to AMG’s controlling interest. For the six-month period, the corresponding margins were approximately 45.4% and 22.6%.
- Aggregate fees were $1.186 billion in the second quarter, up 23%, and $2.600 billion for the first six months, up 17%. Growth reflected higher average assets under management, market appreciation, strong investment performance, and higher performance-based fees.
- Second-quarter equity-method income increased to $37.6 million from $17.4 million; first-half equity-method income was $89.2 million versus a $95.8 million loss in the prior-year period.
- Investment and other income was $21.1 million in the second quarter and $53.5 million for the first six months, versus losses in the comparable 2020 periods, primarily due to valuation gains on other investments and marketable securities.
- Cash and cash equivalents were $777.9 million at June 30, 2021, compared with $1.040 billion at December 31, 2020. Receivables increased to $711.8 million from $421.6 million.
- Total debt was $2.299 billion at June 30, 2021, including $349.8 million of senior bank debt, $1.093 billion of senior notes, $556.4 million of junior subordinated notes, and $300.4 million of junior convertible securities.
- AMG had no borrowings under its $1.25 billion revolving credit facility. The term loan maturity was extended to January 2026, and its marginal rate was reduced to 0.85% in June 2021.
- Financing cash use was $642.0 million for the first six months, including $394.9 million of common-stock repurchases, $193.5 million of distributions to non-controlling interests, and $22.8 million of junior convertible security repurchases.
Material Changes Versus the Prior Comparable Period
- Net income attributable to the controlling interest increased from $30.7 million to $109.0 million in the second quarter and from $15.1 million to $258.9 million for the first six months.
- Intangible amortization and impairment expense declined 89% in the second quarter and 84% year to date. The prior-year periods included a $60.3 million consolidated Affiliate client-relationship impairment and a $140.0 million equity-method Affiliate impairment in the first quarter of 2020.
- Consolidated expenses increased only 1% year to date despite 17% revenue growth, reflecting lower impairment and amortization expense, partly offset by higher compensation and interest expense.
- Average assets under management increased 18% for the second quarter and 14% year to date. However, net client cash flows were negative $8.1 billion in the second quarter and negative $15.6 billion year to date, principally reflecting outflows from global and U.S. equity strategies.
- AMG repurchased 2.1 million common shares during the first six months at an average price of $135.92. Approximately 4.8 million shares remained available under the January 2021 authorization at June 30.
- The company completed minority investments in Boston Common Asset Management and OCP Asia during the first half of 2021.
Guidance, Outlook, Commentary, Risks, and Unusual Items
- Management expects demand to remain favorable for illiquid alternatives, multi-asset, and fixed-income strategies, while noting continued outflows in quantitative, certain liquid-alternative, and certain equity strategies and ongoing industry demand for passive products.
- In July 2021, AMG agreed to acquire a majority equity interest in Parnassus Investments, an ESG-focused manager. Closing was expected in the second half of 2021, subject to customary conditions and regulatory approvals.
- Management expects cash, operating cash flow, and potential revolver borrowings to fund foreseeable requirements, including Affiliate investments, share repurchases, dividends, debt repayment, distributions, and working capital.
- AMG expected approximately $70 million of net Affiliate equity purchases during the remainder of 2021. It also had $128.5 million of unfunded investment commitments.
- The company was contingently liable for up to $188.0 million of payments tied to financial targets at certain equity-method Affiliates; management expected actual payments of approximately $13 million.
- Future results remain sensitive to market levels, investment performance, client flows, performance-based fees, foreign exchange rates, and potential impairments of goodwill, acquired client relationships, and equity-method investments. Management specifically noted COVID-19 and prolonged market weakness as potential impairment risks.
- The second-quarter effective tax rate attributable to the controlling interest was 36.3%, and the first-half rate was 29.9%. The increase was driven partly by a $19.2 million deferred-tax expense from the enacted increase in the U.K. tax rate and the absence of certain prior-year tax benefits.
- After quarter-end, AMG issued $200.0 million of 4.20% junior subordinated notes due 2061, intended for general corporate purposes, including potential debt repayment, repurchases, and Affiliate investments.
Important Facts for Investors to Verify
- Reconcile GAAP net income and diluted EPS with Adjusted EBITDA, Economic net income, and Economic EPS, which are non-GAAP measures.
- Assess the sustainability and timing of performance-based fees and the effect of market appreciation versus underlying net client flows.
- Monitor leverage, interest expense, debt maturities, the new 2061 notes, and the company’s ability to maintain liquidity while continuing substantial repurchases and Affiliate investments.
- Review the valuation and impairment sensitivity of goodwill, acquired client relationships, equity-method investments, and other investments.
- Evaluate the contingent Affiliate payment obligations, unfunded commitments, redeemable non-controlling interests of $755.7 million, and potential future Affiliate equity purchases.
- Confirm the closing, financing, and strategic impact of the planned Parnassus acquisition.
- Consider that interim results are unaudited and may not be indicative of full-year performance; the filing text does not provide a specific full-year earnings or revenue guidance range.