Artio Global Investors Reports Third Quarter 2012 Results; Announces Dividend of $0.02 Per Share

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Artio Global Investors Reports Third Quarter 2012 Results; Announces Dividend of $0.02 Per Share

NEW YORK--(BUSINESS WIRE)-- Artio Global Investors Inc. (NYS: ART) ("Artio Global Investors", together with its subsidiaries, "Artio Global" or the "Company") today reported its results for the quarter ended September 30, 2012.

FinancialUpdate

  • Adjusted1 net income attributable to Artio Global Investors of $3.9 million, or $0.07 per diluted share, for the third quarter of 2012 (GAAP net loss attributable to Artio Global Investors of $52.1 million, or $0.87 per diluted share)
  • Assets under management of $17.7 billion as of September 30, 2012
  • Investment management fees of $26.5 million for the third quarter of 2012
  • Effective fee rate2 of 55.0 basis points for the third quarter of 2012
  • Adjusted EBITDA of $2.8 million for the third quarter of 2012
  • Quarterly dividend of $0.02 per share on Class A common stock

Third quarter 2012 adjusted results are presented to provide more meaningful comparisons between periods and exclude the following items:

  • A net non-cash charge of $36.9 million, related to a valuation allowance on the Company's deferred tax assets (recorded in Income Taxes), net of a reduction in amounts payable under the tax receivable agreement (recorded in Non-operating income);
  • The amortization of restricted stock units ("RSUs") granted at the time of the Company's initial public offering ("IPO") of $19.0 million (including the accelerated amortization related to the removal of service requirements on unvested tranches), and the associated write-off of $3.9 million in related deferred tax assets associated with the vesting of awards at a price below their grant date fair value;
  • Certain compensation and general and administrative costs associated with organizational changes and the wind-down of the Company's US Equity strategies of $5.0 million; and
  • A non-recurring expense related to a potential tax obligation for one of our offshore funds (the "offshore fund expense") of $1.2 million, for which the Company has indemnified the fund.

For the third quarter of 2012, adjusted net income attributable to Artio Global Investors was $3.9 million, or $0.07 per diluted share, an increase of 21% and 40%, respectively, from adjusted net income attributable to Artio Global Investors of $3.2 million, or $0.05 per diluted share, for the second quarter of 2012, and a decrease of 75% and 74%, respectively, from adjusted net income attributable to Artio Global Investors of $15.9 million, or $0.27 per diluted share, for the third quarter of 2011.

On a GAAP basis, net loss attributable to Artio Global Investors for the third quarter of 2012 was $52.1 million, or $0.87 per diluted share, down from net income attributable to Artio Global Investors of $1.5 million, or $0.03 per diluted share, for the second quarter of 2012, and down from net income attributable to Artio Global Investors of $6.4 million, or $0.11 per diluted share, for the third quarter of 2011.

For the first nine months of 2012, adjusted net income attributable to Artio Global Investors was $13.5 million, or $0.23 per diluted share, a decrease of 79% and 78%, respectively, from adjusted net income attributable to Artio Global Investors of $63.4 million, or $1.06 per diluted share, for the first nine months of 2011.

On a GAAP basis, net loss attributable to Artio Global Investors for the first nine months of 2012 was $46.0 million, or $0.78 per diluted share, a decrease of 193% and 192%, respectively, from net income attributable to Artio Global Investors of $49.6 million, or $0.85 per diluted share, for the first nine months of 2011.

The following tables compare the Company's GAAP results and adjusted results. See Exhibits 3 - 5 of this news release for a reconciliation of the Company's GAAP results to adjusted results.

    
Three Months Ended
(unaudited, in millions, except per share amounts)

Sep. 30,
2012

    

Sep. 30,
2011

    

%
Change

    

Jun. 30,
2012

    

%
Change

Revenue3, GAAP

$26.9$63.8

(58%)

$32.7

(18%)

Operating income (loss), GAAP

($24.1)

$21.2NM$2.5NM
Operating income, adjusted$1.2$31.9

(96%)

$5.4

(78%)

Net income (loss) attributable to

Artio Global Investors, GAAP

($52.1)

$6.4

NM

$1.5

NM

Net income attributable to Artio

Global Investors, adjusted

$3.9

$15.9

(75%)

$3.2

21%

Diluted EPS, GAAP

($0.87)

$0.11NM$0.03NM
Diluted EPS, adjusted$0.07$0.27

(74%)

$0.0540%

Adjusted EBITDA4

$2.8$34.7

(92%)

$8.7

(68%)

    
    
Nine Months Ended
(unaudited, in millions, except per share amounts)

Sep. 30,
2012

    

Sep. 30,
2011

    

%
Change

Revenue3, GAAP

$103.5$224.1(54%)

Operating income (loss), GAAP

($13.4)$97.2(114%)
Operating income, adjusted$17.2$113.1(85%)

Net income (loss) attributable to

Artio Global Investors, GAAP

($46.0)

$49.6

(193%)

Net income attributable to Artio

Global Investors, adjusted

$13.5

$63.4

(79%)

Diluted EPS, GAAP($0.78)$0.85(192%)
Diluted EPS, adjusted$0.23$1.06(78%)

Adjusted EBITDA4

$25.1

$121.3

(79%)

 

NM - Not Meaningful

 

 

 

 

Business Update

  • Cash and seed capital5 increased by $20.2 million to $127.3 million in the third quarter of 2012, equivalent to $2.12 per share outstanding
  • Net client cash outflows of $4.3 billion for the third quarter of 2012

Management Commentary

"Although several significant non-cash items pushed our third quarter GAAP earnings into negative territory, our adjusted earnings and adjusted EBITDA remained positive, aided by reductions we have made to our operating cost structure," said Richard Pell, Chairman, Chief Executive Officer and Chief Investment Officer. "We also added to our financial position, ending the quarter with cash and seed capital totaling $127.3 million, which is equivalent to $2.12 per share outstanding."

"Strategically, we have realigned the business around our expertise in cross-border investing across both equity and fixed income markets, with particular focus on repairing our International Equity track records and growing our highly rated fixed income strategies. At the same time, we continue to concentrate on managing expenses and maintaining the strength of our balance sheet, and remain focused on investing for future growth."

Third Quarter of 2012 Comparison with Third Quarter of 2011

Assets Under Management and Net Client Cash Flows

Assets under management were $17.7 billion as of September 30, 2012, down $16.6 billion, or 48%, from $34.3 billion as of September 30, 2011, due to net client cash outflows, partly offset by market appreciation.

Net client cash outflows for the third quarter of 2012 were $4.3 billion, driven primarily by net client cash outflows from our International Equity I and II strategies.6

Revenues and Other Operating Income

Revenues and other operating income for the third quarter of 2012 totaled $26.9 million, down 58% from $63.8 million for the third quarter of 2011. The decrease was driven primarily by lower investment management fees of $26.5 million for the third quarter of 2012, down 60% from $65.6 million for the third quarter of 2011, due primarily to lower average assets under management.

Expenses

Employee Compensation and Benefits

For the third quarter of 2012, adjusted employee compensation and benefits expenses were $14.4 million, down 19% from $17.7 million for the third quarter of 2011. The decrease was due primarily to a reduction in costs associated with lower headcount.

GAAP employee compensation and benefits expenses for the third quarter of 2012 were $38.0 million, an increase of 34% from $28.4 million for the third quarter of 2011, due primarily to the removal of the service requirement for the remaining unvested RSUs granted at the time of the IPO, partly offset by the reasons noted above and a lower compensation charge related to organizational changes in the third quarter of 2012, as compared to the third quarter of 2011.

Shareholder Servicing and Marketing Expenses

Shareholder servicing and marketing expenses for the third quarter of 2012 were $2.6 million, down 44% from $4.7 million for the third quarter of 2011, driven primarily by lower platform costs, reflecting a decrease in average assets under management in proprietary funds.

General and Administrative Expenses

Adjusted general and administrative expenses for the third quarter of 2012 were $8.7 million, a decrease of 8% from $9.5 million for the third quarter of 2011, due primarily to lower expenses across most categories.

GAAP general and administrative expenses for the third quarter of 2012 were $10.3 million, an increase of 9% from $9.5 million for the third quarter of 2011, due primarily to the offshore fund expense, party offset by the reason noted above.

Non-operating Income (Loss)

Adjusted non-operating income for the third quarter of 2012 was $2.4 million, compared to an adjusted non-operating loss of $4.7 million for the third quarter of 2011, primarily reflecting gains on seed capital investments in the third quarter of 2012, as compared to losses in the third quarter of 2011.

GAAP non-operating income for the third quarter of 2012 was $144.2 million, compared to GAAP non-operating loss of $6.2 million for the third quarter of 2011, due primarily to a reduction in amounts payable under the tax receivable agreement which is associated with the valuation allowance on the Company's deferred tax assets and the reason noted above.

Income Taxes

For the third quarter of 2012, adjusted income tax benefit was $0.3 million, compared to adjusted income tax expense of $11.2 million in the third quarter of 2011. The decrease was due primarily to lower taxable income and a true-up to reflect the finalization of the prior year's tax return.

GAAP income tax expense was $171.6 million for the third quarter of 2012, up from $9.8 million for the third quarter of 2011, due primarily to a valuation allowance on the Company's deferred tax assets, partly offset by the reasons noted above.

Third Quarter of 2012 Comparison with Second Quarter of 2012

Assets Under Management

Assets under management were $17.7 billion as of September 30, 2012, a decrease of $3.5 billion, or 16%, from $21.2 billion as of June 30, 2012, due to net client cash outflows, partly offset by market appreciation.

Revenues and Other Operating Income

Revenues and other operating income for the third quarter of 2012 totaled $26.9 million, down 18% from $32.7 million for the second quarter of 2012, driven primarily by lower investment management fees. Investment management fees were $26.5 million for the third quarter of 2012, down 20% from $33.3 million for the second quarter of 2012, due primarily to a decrease in average assets under management.

Expenses

Employee Compensation and Benefits

For the third quarter of 2012, adjusted employee compensation and benefits expenses were $14.4 million, a decrease of 13% from $16.5 million for the second quarter of 2012, due primarily to a decrease in the amortization of deferred incentive compensation awards and a reduction in costs associated with lower headcount.

GAAP employee compensation and benefits expenses for the third quarter of 2012 were $38.0 million, an increase of 96% from $19.4 million for the second quarter of 2012, due primarily to the removal of the service requirement for the remaining unvested RSUs granted at the time of the IPO and the compensation charge related to organizational changes recorded in the third quarter of 2012, partly offset by the reasons noted above.

Shareholder Servicing and Marketing Expenses

Shareholder servicing and marketing expenses for the third quarter of 2012 were $2.6 million, a decrease of 14% from $3.0 million for the second quarter of 2012, due primarily to lower platform costs, reflecting a decrease in average assets under management in proprietary funds.

General and Administrative Expenses

Adjusted general and administrative expenses were $8.7 million for the third quarter of 2012, an increase of 12% from $7.7 million for the second quarter of 2012, due primarily to higher professional fees.

GAAP general and administrative expenses were $10.3 million for the third quarter of 2012, an increase of 33% from $7.7 million for the second quarter of 2012, due primarily to the offshore fund expense and the reason noted above.

Non-operating Income (Loss)

Adjusted non-operating income for the third quarter of 2012 was $2.4 million, up from adjusted non-operating loss of $1.2 million for the second quarter of 2012, primarily reflecting gains on seed capital investments in the third quarter of 2012, as compared to losses in the second quarter of 2012.

GAAP non-operating income for the third quarter of 2012 was $144.2 million, up from GAAP non-operating loss of $1.4 million for the second quarter of 2012 due primarily to a reduction in amounts payable under the tax receivable agreement, which is associated with the valuation allowance on the Company's deferred tax assets and the reason noted above.

Income Taxes

For the third quarter of 2012, adjusted income tax benefit was $0.3 million, compared to adjusted income tax expense of $0.9 million in the second quarter of 2012. The decrease was due primarily to a true-up to reflect the finalization of the prior year's tax return.

GAAP income tax expense for the third quarter of 2012 was $171.6 million, compared to GAAP income tax benefit of $0.3 million for the second quarter of 2012, due primarily to a valuation allowance on the Company's deferred tax assets and a write-off of deferred tax assets related to the vesting of RSUs granted at the time of the IPO, at a price below their grant date fair value in the third quarter of 2012.

Liquidity and Capital

As of September 30, 2012, the Company had cash (excluding amounts held in the Company's Consolidated Investment Products) of $79.4 million, seed capital investments5 in our strategies of $47.9 million and investments held for deferred compensation of $10.0 million.

Total stockholders' equity on the Statement of Financial Position was $143.4 million as of September 30, 2012, compared to $162.8 million as of December 31, 2011.

Share Repurchase

No shares were repurchased during the third quarter of 2012. As of September 30, 2012, the Company retained authorization from the Board of Directors to repurchase 2,226,061 shares of its Class A common stock through December 31, 2013.

Shares

As of September 30, 2012, there were 59,983,543 total shares of Class A common stock outstanding.

Dividend

On October 25, 2012, the Board of Directors declared a dividend of $0.02 per share on the Class A common stock for the third quarter of 2012, which is payable on November 20, 2012, to stockholders of record as of the close of business on November 9, 2012.

Teleconference and Webcast Details

The Company will host a conference call for analysts and investors to review third quarter 2012 results, today, October 30, 2012, beginning at 4:00 p.m. (Eastern Time). The call will be open to the public and can be accessed by dialing 1-888-771-4371 (callers inside the U.S.) or +1-847-585-4405 (callers outside the U.S.). The number should be dialed at least ten minutes prior to the start of the call. The passcode for the call will be 33664437. A simultaneous webcast of the call (on a listen-only basis), as well as an audio replay, will be available at www.ir.artioglobal.com

About Us

Artio Global Investors Inc. is the indirect holding company of Artio Global Management LLC ("Artio Global"), a registered investment adviser that actively invests in global equity and fixed income markets, primarily for institutional and intermediary clients.

Headquartered in New York, Artio Global offers a select group of equity and fixed income strategies, including International Equity, Global Equity, High Grade Fixed Income, High Yield and Local Emerging Markets Debt. Access to these strategies is offered through a variety of investment vehicles, including separate accounts, commingled funds and mutual funds.

For more information, please visit www.artioglobal.com.

Cautionary Note Regarding Forward-Looking Statements

In addition to historical information, this news release may, and the related remarks do, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regardingthe intrinsic value of our common stock, investor behavior, net client cash flows, our compensation costs and adjusted compensation ratio, future tax rate, use of our free cash flow, potential share repurchases and declaration of dividends. These forward-looking statements are based on the Company's current assumptions, expectations and projections about future events. Words like "believe", "anticipate", "intend", "estimate", "expect", "project", and similar expressions are used to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements discuss matters that necessarily involve a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements.

Among the factors that could cause actual results to differ from those expressed or implied by a forward-looking statement are those described in the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's report on Form 10-K (File No. 001-34457) filed with the Securities and Exchange Commission on February 29, 2012. Other unknown or unpredictable factors also could have material adverse effects on the Company's future results, performance, or achievements.

Any forward-looking statements in this news release and the related remarks speak only as of the date of this news release. The related remarks may contain information about the Company subsequent to September 30, 2012. The Company is not under any obligation and does not intend to make publicly available any update or other revisions to any forward-looking statements to reflect circumstances existing after the date of this news release or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.

Fund Performance and Other Disclaimers

Lipper rankings are for Class I mutual fund shares with three- and five-year track records only. Other classes may have different performance characteristics. Lipper, a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments including mutual funds, retirement funds, hedge funds and fund fees and expenses to the asset management and media communities. Lipper ranks the performance of mutual funds within a classification of funds that have similar investment objectives. Rankings are historical with capital gains and dividends reinvested and do not include the effect of loads. If an expense waiver was in effect, it may have had a material effect on the total return or yield for the period.

Morningstar rankings are for Class I mutual fund shares with a minimum three-year track record. For each mutual fund with at least a three-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) The Overall Morningstar Rating for a mutual fund is derived from a weighted average of the performance figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics. A fund's independent Morningstar Rating metric is then compared against the mutual fund universe breakpoints to determine its hypothetical rating. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

Data presented reflect past performance, which is no guarantee of future results. © 2012 Morningstar, Inc. All Rights Reserved.

This news release is not sales material, nor is it an offer to sell or a solicitation of an offer to buy any securities, nor shall there be any sale of securities in any state or jurisdiction in which any such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

1 See Exhibits 3 - 5 of this news release for a reconciliation of the Company's U.S. GAAP results to its non-GAAP adjusted results ("adjusted").
2Effective fee rate is defined as annualized investment management fees (based on the number of days in the period) divided by the average assets under management for the period.
3Represents total revenues and other operating income.
4See Exhibit 6 for a reconciliation of Net Income to Adjusted EBITDA.
5See Exhibit 7 for more information.
6See Exhibit 9 for more information on "Assets under Management by Investment Strategy".
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ARTIO GLOBAL INVESTORS INC. AND SUBSIDIARIES

Exhibit - 1

Consolidated Statements of Operations

 

(unaudited, in thousands, except share and per share amounts or as noted)

 

 
Three Months Ended% Change FromNine Months Ended% Change From

Sep. 30,

Sep. 30,Jun. 30,Sep. 30,Jun. 30,

Sep. 30,

Sep. 30,

Sep. 30,

2012

2011201220112012

 

2012

2011

2011

Revenues and other operating income:

Investment management fees

 

$26,491$65,576$33,320(60%)(20%)$102,582$225,561(55%)

Net gains (losses) on securities held for deferred compensation

 

373(1,798)(546)121%168%987(1,435)169%

Foreign currency losses

 

 (4) 6 (60)(167%)93% (65) (14)NM

Total revenues and other operating income

 26,860 63,784 32,714(58%)(18%) 103,504 224,112(54%)
 
Expenses:

Employee compensation and benefits

 

38,04828,38719,41734%96%79,79982,217(3%)

Shareholder servicing and marketing

 

2,6274,7083,043(44%)(14%)9,294