Invesco Ltd. — Q2 2023 Form 10-Q
Business context and period. Invesco is a global investment manager serving retail and institutional clients. This unaudited quarterly report covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods. Unless noted, amounts are U.S. dollars.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Operating revenue | $1,442.8m | $1,530.4m | $2,861.0m | $3,159.8m |
| Operating income | $203.8m | $344.7m | $413.3m | $722.4m |
| GAAP operating margin | 14.1% | 22.5% | 14.4% | 22.9% |
| Net income attributable to Invesco | $132.2m | $121.0m | $277.2m | $318.7m |
| Diluted EPS | $0.29 | $0.26 | $0.60 | $0.69 |
| Adjusted operating income (non-GAAP) | $302.0m | $411.9m | $628.9m | $906.5m |
| Adjusted operating margin (non-GAAP) | 27.7% | 35.1% | 29.0% | 37.4% |
| Adjusted diluted EPS (non-GAAP) | $0.31 | $0.39 | $0.69 | $0.95 |
Q2 GAAP net income was $164.4m versus $218.9m a year earlier. Net income attributable to Invesco was higher year over year, while the six-month attributable result declined. Non-GAAP measures adjust for specified items and should not be treated as substitutes for GAAP results.
- AUM: Ending AUM was $1.538tn, up from $1.390tn a year earlier; quarterly average AUM was $1.495tn versus $1.457tn. Q2 net long-term flows were outflows of $2.0bn, partly offset by $15.4bn of money-market inflows. ETFs had $5.7bn of net long-term inflows; Greater China and fixed income had $1.6bn and $1.0bn, respectively.
- Cash flow: For the first half, GAAP operating cash flow was $232.4m, investing cash outflow $49.2m and financing cash outflow $349.6m. Excluding consolidated investment products (CIP), operating cash flow was $357.1m. Company cash and cash equivalents were $1,009.9m at June 30, down from $1,234.7m at year-end 2022.
- Debt and liquidity: Corporate debt carrying value was $1,488.6m; the $2.0bn revolving facility had no borrowings. Cash plus available revolver capacity totaled $3,009.9m. The $600m 4.0% senior notes mature in January 2024. Reported CIP debt of $6,884.5m is associated with consolidated products and, according to the filing, is not a corporate obligation and has no recourse to Invesco.
- Capital returns: Invesco repurchased 9.6m shares for $150m in Q2. First-half common and preferred dividends paid were $177.6m and $118.4m. A $0.20-per-share common dividend and $14.75-per-preferred-share dividend were declared after quarter-end.
Material changes versus the prior comparable period
- Q2 revenue fell 5.7%; first-half revenue fell 9.5%. Investment management fees declined 7.2% in Q2 and 10.1% in the first half, reflecting lower average AUM over the first half, product mix shifts toward lower-yield products and foreign exchange effects.
- Operating expenses rose 4.5% in Q2 and 0.4% in the first half. Employee compensation increased $68.5m in Q2, including higher deferred-compensation mark-to-market expense, executive retirement and organizational-change costs, and higher staff costs.
- Q2 other gains were $20.9m versus losses of $90.0m a year earlier; first-half other gains were $48.3m versus losses of $135.5m. The change largely reflected investment and deferred-compensation-related valuations.
- Q2 markets recovered unevenly: the S&P 500 rose 8.3%, while emerging-market equities were nearly flat and the U.S. Aggregate Bond Index fell 0.8%. Market gains contributed $46.5bn to Q2 AUM.
Outlook, commentary, risks and unusual items
- Management described client activity as cautious for much of the quarter, with cash strategies remaining a historically high share of client investments. Late-quarter risk appetite improved amid cooling inflation and hopes of avoiding a global recession. The filing provides no quantified financial guidance.
- Management said it remains focused on investing in key capabilities, maintaining lower debt, and returning capital through dividends and repurchases. Andrew R. Schlossberg became President and CEO on June 30, succeeding Martin L. Flanagan, who retired.
- Principal business risks include market declines or underperformance that reduce AUM, fee revenue and performance fees; client withdrawals and shifts to lower-yield products; currency movements; interest-rate and credit risks; and inflation-related expense pressure. The company reported no significant changes to previously disclosed risk factors or material changes in market-risk exposures.
- Undrawn co-investment commitments were $453.1m. The company also disclosed up to $274.9m of equity commitments and $30.0m of guarantees for managed products, stating that the likelihood of funding is remote. Management reported adequate accruals for estimable probable legal losses and did not expect resolution of claims to materially affect the business, revenue, net income or liquidity. Invesco is cooperating with SEC requests concerning record-retention practices for certain electronic business communications.
- Other notable items: first-half transaction, integration and restructuring costs were $41.6m, primarily related to compensation restructuring following a strategic evaluation. A $20.0m insurance recovery and $14.8m of indirect-tax refunds benefited first-half general and administrative expense. Management stated that disclosure controls were effective and there was no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether net long-term flow trends and the shift toward lower-yield products continue to weigh on fee revenue and revenue yield.
- The drivers of higher employee compensation and whether related mark-to-market movements and executive-transition costs persist.
- How Invesco will refinance or repay the $600m senior notes maturing in January 2024, and whether debt, facility capacity and covenant headroom change.
- The conversion of reported operating cash flow into available corporate cash, excluding CIP cash flows and assets that are not available to Invesco.
- Developments in the SEC record-retention inquiry, other legal or regulatory matters, and potential calls on co-investment commitments or guarantees.
- The assumptions and reconciling adjustments behind non-GAAP measures, including adjusted operating income, margin and EPS.