Artisan Partners Asset Management Inc. Reports 2Q13 Results

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Artisan Partners Asset Management Inc. Reports 2Q13 Results

MILWAUKEE--(BUSINESS WIRE)-- Artisan Partners Asset Management Inc. (NYS: APAM) (the "Company" or "Artisan Partners") today reported its results for the quarter ended June 30, 2013, and net income and earnings per share for the period from March 12, 2013 (the closing date of its initial public offering) through June 30, 2013.

"Since the founding of our firm, our approach to the management of our business has consistently centered on our investment talent, strong long-term investment results, asset diversification and financial discipline. We believe that if we remain focused on those primary guideposts over long periods positive results should follow," Eric Colson, President and CEO, noted.


Business Update

Mr. Colson went on to say, "As of June 30, 2013, 10 of our 12 investment strategies (excluding our 13th strategy which we launched late in the quarter) added value relative to their broad performance benchmarks over the trailing 5-year and 10-year periods and since each strategy's inception. In addition, more than 90% of our assets under management were in strategies outperforming the respective benchmarks over the trailing 3, 5, and 10-year periods and since each strategy's inception.

"Our business development efforts continued to be well diversified by investment team, strategy and distribution channel. A highlight of the second quarter was the continued success of our global distribution efforts. Artisan Partners Global Funds, our family of five UCITS funds, which we launched at the end of 2010, grew past the $1 billion mark. We think this reflects very solid early interest in our business model and investment capabilities by investors outside the U.S. In particular, we are optimistic about our growth potential in the EMEA region.

"From a financial standpoint, our primary metrics remained in line with our long-term expectations for our business. In a traditionally slow quarter for market flows, we were pleased with our organic growth. We have continued to generate strong cash flows and recently declared our first dividend. Our highly variable cost structure has continued to support our above average operating margin. As previously stated, we plan to distribute the majority of our annual earnings to our shareholders through the combination of a consistent quarterly dividend and a special annual dividend.

"Recently our board of directors approved our first equity grant to employees as a public company. We believe our long-term success requires a commitment to investment talent. And we believe that high quality investment talent operates most successfully in an environment that nurtures an investment culture, where there is an ability to invest autonomously according to a long held philosophy and where the interests of our employees, particularly our investment professionals, are properly aligned with the interests of our clients and shareholders. Our long-standing equity ownership philosophy is a key part of that interest alignment. We expect to reward value creation within our organization through annual equity grants, the amount of which will be influenced by our results. The size of this year's grant reflects the strong growth of our business and value creation for our clients and shareholders, as well as a transition from our practices of prior years as a private company."

Second Quarter 2013 Highlights

  • Assets under management ("AUM") of $85.8 billion at June 30, 2013
  • Net client cash inflows of $1.4 billion
  • GAAP Operating income of $48.3 million and operating margin of 29.8%
  • GAAP Net income of $5.7 million or $0.38 per basic and diluted share
  • Adjusted1 operating income of $72.2 million and adjusted1 operating margin of 44.6%
  • Adjusted1 net income of $44.5 million or $0.64 per adjusted1 share

______________________________________

1 Adjusted measures are non-GAAP measures and are explained and reconciled to the comparable GAAP measures in Exhibit 2.

 

The table below presents AUM and a comparison of certain GAAP and non-GAAP ("adjusted") financial measures.

  
For the Three Months EndedFor the Six Months Ended
June 30, March 31, June 30,June 30, June 30,
20132013201220132012
(unaudited, in millions except per share amounts or as otherwise noted)
Assets Under Management (amounts in billions)
Ending$85.8$83.2$64.1$85.8$64.1
Average85.379.263.682.363.3
 
Consolidated Financial Results (GAAP)
Revenues$162.0$148.2$120.8$310.2$240.5
Operating income (loss)48.3(421.3)41.4(373.0)45.9
Operating margin29.8%(284.3)%34.3%(120.2)%19.1%
Net income attributable to Artisan Partners Asset Management Inc.15.73.08.7
Basic and diluted earnings per share20.380.19N/A$0.57N/A
 
Adjusted3Financial Results
Adjusted operating income$72.2$54.9$50.3$127.1$97.7
Adjusted operating margin44.6%37.0%41.6%41.0%40.6%
Adjusted EBITDA4$73.0$55.6$51.1$128.6$98.7
Adjusted net income44.533.230.877.759.3
Adjusted earnings per adjusted share20.640.47N/A1.11N/A
 

______________________________________

1 The Company became the general partner of Artisan Partners Holdings on March 12, 2013. Prior to that time none of the net income of Artisan Partners Holdings was allocated to the Company.

2 Per share measures for the three months ended March 31, 2013 and the six months ended June 30, 2013 are based on the number of weighted average shares of Class A common stock and convertible preferred stock outstanding for the period from March 12, 2013 (the closing date of the initial public offering) through March 31, 2013 and June 30, 2013, respectively.

3 Adjusted measures are non-GAAP measures and are explained and reconciled to the comparable GAAP measures in Exhibit 2.

4 EBITDA represents earnings before interest, tax, depreciation and amortization expense.

Assets Under Management Increased to $85.8 billion

Our AUM increased to $85.8 billion at June 30, 2013, an increase of $2.6 billion, or 3.1%, compared to $83.2 billion at March 31, 2013 as a result of $1.4 billion in net client cash inflows and $1.2 billion of market appreciation. Compared to June 30, 2012, AUM increased $21.7 billion, or 33.9%, due to $15.1 billion in market appreciation and $6.6 billion of net client cash inflows.

Average AUM for the second quarter of 2013 was $85.3 billion, an increase of 7.8% compared to average AUM for the first quarter of 2013 of $79.2 billion and a 34.1% increase from the average of $63.6 billion for the second quarter of 2012.

Second Quarter of 2013 Compared to First Quarter of 2013

Net income was $5.7 million, or $0.38 per diluted share, in the second quarter of 2013 compared to net income of $3.0 million, or $0.19 per diluted share, in the first quarter of 2013. The first quarter of 2013 reflects earnings from March 12, 2013 (the closing date of the initial public offering) through March 31, 2013. Adjusted net income was $44.5 million, or $0.64 per adjusted share, in the second quarter of 2013 compared to adjusted net income of $33.2 million, or $0.47 per adjusted share, in the first quarter of 2013. Included in compensation and benefits expense in the second quarter of 2013 was $2.2 million of severance and cash retention expenses compared to $9.3 million in the first quarter of 2013.

  • Revenues of $162.0 million in the second quarter of 2013 increased 9.3% from $148.2 million in the first quarter of 2013 primarily due to higher average AUM as a result of net client cash inflows and market appreciation.
  • Operating expenses of $113.7 million in the second quarter of 2013 decreased 80.0% from $569.5 million in the first quarter of 2013 driven primarily by the decrease in share-based and other pre-offering related compensation expenses that were recognized mainly as a result of our initial public offering in the first quarter of 2013. Included in compensation and benefits expense for the second quarter of 2013 was $2.2 million of severance and cash retention expenses compared to $9.3 million in the first quarter of 2013.
  • Operating margin was 29.8% for the second quarter of 2013 compared to (284.3)% for the first quarter of 2013. The increase was primarily due to the decrease in share-based and other pre-offering related compensation expenses that were recognized mainly as a result of our initial public offering in the first quarter of 2013.
  • Adjusted operating margin was 44.6% for the second quarter of 2013 compared to 37.0% for the first quarter of 2013. Severance and cash retention expenses during the second quarter of 2013 decreased by $7.1 million which contributed 492 basis points to adjusted operating margin when compared to the first quarter of 2013.

Second Quarter of 2013 Compared to Second Quarter of 2012

Net income was $5.7 million, or $0.38 per diluted share, in the second quarter of 2013. Adjusted net income was $44.5 million, or $0.64 per adjusted share, in the second quarter of 2013 compared to adjusted net income of $30.8 million in the second quarter of 2012.

  • Revenues of $162.0 million in the second quarter of 2013 increased 34.1% from $120.8 million in the second quarter of 2012 primarily due to higher average AUM as a result of market appreciation and net client cash inflows.
  • Operating expenses of $113.7 million in the second quarter of 2013 increased 43.2% from $79.4 million in the second quarter of 2012 driven primarily by an increase in share-based and other pre-offering related compensation expense. Included in compensation and benefits expense for the second quarter of 2013 was $2.2 million of severance and cash retention expenses compared to $1.6 million in the second quarter of 2012.
  • Operating margin was 29.8% for the second quarter of 2013 compared to 34.3% for the second quarter of 2012. The decline was primarily due to an increase in share-based pre-offering related compensation expense.
  • Adjusted operating margin was 44.6% for the second quarter of 2013 compared to 41.6% for the second quarter of 2012.

Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012

Net income was $8.7 million, or $0.57 per diluted share, for the six months ended June 30, 2013. Adjusted net income was $77.7 million, or $1.11 per adjusted share, for the six months ended June 30, 2013 compared to adjusted net income of $59.3 million for the six months ended June 30, 2012.

  • Revenues of $310.2 million for the six months ended June 30, 2013 increased 29.0% from $240.5 million for the six months ended June 30, 2012 primarily due to higher average AUM as a result of market appreciation and net client cash inflows.
  • Operating expenses of $683.2 million for the six months ended June 30, 2013 increased 251.1% from $194.6 million for the six months ended June 30, 2012 driven primarily by an increase in share-based and other pre-offering related compensation expenses that were incurred mainly as a result of our initial public offering in the first quarter of 2013. Included in compensation and benefits expense for the six months ended June 30, 2013 was $11.5 million of severance and cash retention expenses compared to $4.2 million for the six months ended June 30, 2012.
  • Operating margin was (120.2)% for the six months ended June 30, 2013 compared to 19.1% for the six months ended June 30, 2012. The decline was primarily due to an increase in share-based and other pre-offering related compensation expenses that were incurred mainly as a result of our initial public offering in the first quarter of 2013.
  • Adjusted operating margin was 41.0% for the six months ended June 30, 2013 compared to 40.6% for the six months ended June 30, 2012. The increase in adjusted operating margin was the result of significantly higher revenues offset by an increase in severance and cash retention expenses during the six months ended June 30, 2013.

Capital Management

Cash and cash equivalents were $257.4 million at June 30, 2013, compared to $141.2 million at December 31, 2012. The Company had total borrowings of $200.0 million at June 30, 2013 and $290.0 million at December 31, 2012. In March 2013, the Company received net proceeds from its initial public offering of $353.4 million. In connection with the initial public offering, the Company used a portion of the proceeds to distribute $105.3 million of pre-IPO retained profits to its partners, repaid $90.0 million of the outstanding principal amount of loans under its revolving credit agreement, and purchased approximately 2.7 million Class A units from certain investors for approximately $76.3 million. Also in connection with the initial public offering, the Company used cash on hand to make cash incentive payments aggregating $56.8 million to certain of its portfolio managers. The Company's debt leverage ratio, calculated in accordance with its loan agreements, was 0.8X at June 30, 2013.

As a result of the Company's IPO-related reorganization, total stockholders' equity was $62.2 million at June 30, 2013, compared to a deficit of $672.7 million at December 31, 2012. The Company had 12.7 million shares of Class A common stock outstanding and 2.6 million shares of convertible preferred shares outstanding at June 30, 2013.

On July 17, 2013, the Company's Board of Directors declared a quarterly dividend of $0.43 per share payable on August 26, 2013 to Class A shareholders of record as of the close of business on August 12, 2013. The dividend marks the first quarterly dividend since Artisan Partners Asset Management Inc.'s initial public offering in March 2013.

CONFERENCE CALL

The Company will host a conference call on July 24, 2013, at 5:00 p.m. (Eastern Time) to discuss these results. Hosting the call will be Eric Colson, Chief Executive Officer, and C.J. Daley, Chief Financial Officer. The call will be webcast and can be accessed via the investor relations section of artisanpartners.com. Listeners may also access the call by dialing 866.652.5200 or 412.317.6060 for international callers; the conference ID is 10030262. A replay of the call will be available until July 31, 2013, by dialing 877.344.7529 or 412.317.0088 for international callers; the replay conference ID is 10030262. In addition, the webcast will be available on the Company's website.

FORWARD-LOOKING STATEMENTS AND OTHER DISCLOSURES

Certain statements in this release, and other written or oral statements made by or on behalf of the Company, are "forward-looking statements" within the meaning of the federal securities laws. Statements regarding future events and developments and our future performance, as well as management's current expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. These forward-looking statements are only predictions based on current expectations and projections about future events. These forward-looking statements are subject to a number of risks and uncertainties, and there are important factors that could cause actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Among the important factors that could cause actual results, level of activity, performance or achievements to differ materially from those indicated by such forward-looking statements are: fluctuations in quarterly and annual results, incurrence of net losses, adverse effects of management focusing on implementation of a growth strategy, failure to develop and maintain the Artisan Partners brand and other factors disclosed in the Company's filings with the Securities and Exchange Commission, including those factors listed under the caption entitled "Risk Factors" in the Company's registration statement on Form S-1 (File No. 333-184686). The Company undertakes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this release.

Any discrepancies included in this release between totals and the sums of the amounts listed are due to rounding.

ABOUT ARTISAN PARTNERS

Artisan Partners is an independent investment management firm focused on providing high value-added, active investment strategies to sophisticated clients globally. Since 1994, the firm has been committed to attracting experienced, disciplined investment professionals to manage client assets. Artisan Partners has five autonomous investment teams that oversee thirteen distinct U.S., non-U.S. and global investment strategies. Each strategy is offered through multiple investment vehicles to accommodate a broad range of client mandates. The firm's principal offices are located in Milwaukee, San Francisco, Atlanta, New York and London.

 

Exhibit 1

 

Artisan Partners Asset Management Inc.

Consolidated Statements of Operations

(unaudited; in millions, except per share amounts or as noted)

  
Three Months EndedSix Months Ended
June 30, March 31, June 30,June 30, June 30,
20132013201220132012
Revenues
Management fees
Artisan Funds & Artisan Global Funds$109.7$99.5$80.8$209.2$160.3
Separate accounts52.348.740.0101.079.9
Performance fees    0.3 
Total revenues162.0 148.2 120.8 310.2 240.5 
 
Operating expenses
Compensation and benefits69.272.753.6141.9109.3
Pre-offering related compensation - share-based awards23.9333.2(4.9)357.129.9
Pre-offering related compensation - other 143.0 13.8 143.0 21.9 
Total compensation and benefits93.1548.962.5642.0161.1
Distribution and marketing8.88.27.117.014.2
Occupancy2.62.62.25.24.5
Communication and technology3.63.33.56.96.4
General and administrative5.6 6.5 4.1 12.1 8.4 
Total operating expenses113.7 569.5 79.4 683.2 194.6 
Operating income (loss)48.3(421.3)41.4(373.0)45.9
Interest expense(2.9)(3.2)(2.5)(6.1)(5.2)
Net gain on the valuation of contingent value rights8.624.833.4
Net gain (loss) of consolidated investment products(1.2)4.8(1.0)3.61.5
Other non-operating income (loss)  0.2  (0.1)
Total non-operating income (loss)4.5 26.4 (3.3)30.9 (3.8)
Income (loss) before income taxes52.8(394.9)38.1(342.1)42.1
Provision for income taxes5.9 4.4 0.3 10.3 0.6 
Net income (loss) before noncontrolling interests46.9(399.3)37.8(352.4)41.5
Less: Net income (loss) attributable to noncontrolling interests - Artisan Partners Holdings LP42.4(407.1)38.8(364.7)40.0
Less: Net income (loss) attributable to noncontrolling interests - consolidated investment products(1.2)4.8 (1.0)3.6 1.5 
Net income attributable to Artisan Partners Asset Management Inc.$5.7 $3.0 $ $8.7 $ 
 
Basic and diluted earnings per share - Class A common shares$0.38$0.19N/A$0.57 Read Full Story

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