Apollo Global Management, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited filing dated November 8, 2022.
Business context and comparability
Apollo operates Asset Management, Retirement Services (Athene) and Principal Investing. Apollo completed its merger with Athene on January 1, 2022; Athene’s results are included from that date, but not in the 2021 reported results. Accordingly, consolidated year-over-year revenue and earnings comparisons are not like-for-like. Apollo also acquired Griffin Capital businesses during 2022.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $2.979 billion | $1.078 billion | $6.126 billion | $4.756 billion |
| Net income (loss) attributable to Apollo common stockholders | $(876) million | $249 million | $(3.797) billion | $1.568 billion |
| Diluted earnings (loss) per share | $(1.52) | $1.01 | $(6.55) | $6.47 |
| Adjusted Segment Income, non-GAAP | $993 million | $903 million | $2.963 billion | $1.857 billion |
- Asset Management: Fee Related Earnings (FRE), a non-GAAP segment measure, were $364.6 million for Q3, up 13.9%, and $1.016 billion for nine months, up 8.0%. Fee-generating AUM was $394.2 billion; total AUM was $523.3 billion at quarter-end. Nine-month net AUM flows were $69.2 billion, partly offset by $22.0 billion of negative market activity.
- Retirement Services: Spread Related Earnings (SRE), a non-GAAP segment measure, were $578.1 million for Q3 and $1.690 billion for nine months; the filing provides no comparable 2021 segment figures in this presentation. Nine-month net investment spread was 1.59% (3.47% net investment earned rate less 1.91% cost of funds, plus strategic capital management fees).
- Principal Investing: Principal Investing Income (PII), a non-GAAP segment measure, was $50.1 million for Q3, down from $582.4 million, and $256.8 million for nine months, down from $915.8 million. Management attributed the decrease principally to lower realized performance fees and delayed monetizations amid market volatility.
- Cash flow: For nine months, operating cash flow was $2.324 billion, investing cash flow was $(12.171) billion and financing cash flow was $21.013 billion. Ending cash, restricted cash and cash held by consolidated VIEs totaled $13.236 billion. Consolidated fund and VIE activity affects these cash-flow totals.
- Debt and liquidity: Reported company debt was $6.081 billion at quarter-end ($2.810 billion Asset Management and $3.271 billion Retirement Services); consolidated VIE debt is separate and generally non-recourse. Management reported $10.9 billion of unrestricted cash and cash equivalents, $1.0 billion of U.S. Treasury securities and $4.5 billion of available credit and liquidity facilities. The facilities described were undrawn at September 30.
- Balance sheet: Total assets were $250.340 billion and total liabilities $247.454 billion. Apollo stockholders’ equity was a deficit of $1.339 billion, while total equity was $1.862 billion. Accumulated other comprehensive loss was $13.758 billion.
Material changes and unusual items
- Retirement Services reported investment-related losses of $2.847 billion in Q3 and $12.823 billion for nine months, reflecting, among other items, fair-value declines in reinsurance-related assets, mortgage loans and derivatives, realized AFS security losses, higher interest rates and wider credit spreads. These valuation effects were a major contributor to GAAP losses; they should be considered alongside SRE, which excludes specified market volatility and other items.
- Athene’s AFS securities had $21.621 billion of gross unrealized losses at September 30, primarily attributed to higher market interest rates. The company said it intended to hold the securities and did not consider it more likely than not that it would be required to sell them before recovery of amortized cost.
- Merger accounting recorded $4.058 billion of Athene goodwill and substantial acquired insurance assets and policy liabilities. Purchase accounting adversely affected investment income and favorably affected cost of funds, according to management. The purchase price allocation remained provisional.
- The 2022 results include a $1.280 billion income tax benefit for nine months, including a benefit from derecognizing a deferred tax liability related to historical Athene holdings. Apollo was still assessing the Inflation Reduction Act’s tax and stock-repurchase provisions.
Outlook, liquidity, and risks
Management said it expected current liquidity and cash generated from revenues to cover anticipated expenses and working-capital needs for at least 12 months. It gave no specific consolidated full-year earnings or revenue guidance in the provided filing text. Management cited fundraising, deployment and Athene organic growth as business drivers, while warning that performance fees and investment valuations are cyclical and market-sensitive.
Athene reported approximately $5.8 billion of deployable capital, subject in part to favorable market conditions and availability of debt capacity, and held A+ / A1 / A financial-strength ratings across its significant insurance subsidiaries. Risks include interest-rate, credit, equity, foreign-exchange and liquidity movements; illiquid investments and possible forced sales; policyholder withdrawals and reinsurance counterparty performance; valuation and performance-fee reversals; regulatory and tax changes; and litigation. Athene had $18.1 billion of investment commitments, expected mostly to be invested over five years but potentially callable sooner. Apollo disclosed up to $4.3 billion of cumulative performance-allocation revenue that could be reversed if existing investments became worthless; management characterized that scenario as remote. Other notable obligations include $394 million of AOG Unit Payment payable through 2024 and $4.5 billion of repurchase-agreement payables.
Notable legal and regulatory matters include an SEC information request concerning investment-adviser record-retention requirements for electronic communications, several ongoing or potential litigation and regulatory matters, and a proposed settlement in the CareerBuilder matter awaiting final approval. Apollo said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Separate Athene’s post-merger contribution and purchase-accounting effects from underlying year-over-year operating trends; reported 2021 consolidated figures exclude Athene.
- Assess the size, drivers and potential persistence of Athene’s investment marks, including AFS unrealized losses, mortgage-loan valuations and derivative effects, alongside SRE and statutory capital measures.
- Verify Athene’s liquidity, collateral needs, surrender exposure, reinsurance recoverables and ability to meet its $18.1 billion of commitments under stressed markets.
- Review Apollo’s fee-generating AUM and fundraising against market-driven AUM declines, realizations, and the sensitivity of performance fees to portfolio marks and clawback terms.
- Track debt, available facilities, repurchase-agreement maturities, the AOG Unit Payment, dividends and repurchases, as well as the resolution of material legal, regulatory and tax matters.