Artio Global Investors Reports Fourth Quarter and Full Year 2012 Results

Artio Global Investors Reports Fourth Quarter and Full Year 2012 Results

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 and year ended December 31, 2012.

FinancialUpdate

  • Adjusted1 net income attributable to Artio Global Investors of $1.5 million, or $0.02 per diluted share, for the fourth quarter of 2012 (GAAP net loss attributable to Artio Global Investors of $1.5 million, or $0.03 per diluted share)
  • Assets under management of $14.3 billion as of December 31, 2012
  • Investment management fees of $20.5 million for the fourth quarter of 2012 and $123.1 million for full year 2012
  • Effective fee rate2 of 51.1 basis points for the fourth quarter of 2012
  • Adjusted EBITDA of $0.9 million for the fourth quarter of 2012 and $26.0 million for full year 2012

Fourth quarter 2012 adjusted results are presented to provide a more meaningful comparison between periods and exclude the after-tax impact of certain items, including, but not limited to compensation and general and administrative costs associated with organizational changes.

For the fourth quarter of 2012, adjusted net income attributable to Artio Global Investors was $1.5 million, or $0.02 per diluted share, a decrease of 61% and 71%, respectively, from adjusted net income attributable to Artio Global Investors of $3.9 million, or $0.07 per diluted share, for the third quarter of 2012, and a decrease of 85% and 88%, respectively, from adjusted net income attributable to Artio Global Investors of $10.0 million, or $0.17 per diluted share, for the fourth quarter of 2011.

On a GAAP basis, net loss attributable to Artio Global Investors for the fourth quarter of 2012 was $1.5 million, or $0.03 per diluted share, as compared to a net loss attributable to Artio Global Investors of $52.1 million, or $0.87 per diluted share, for the third quarter of 2012, and a decrease from net income attributable to Artio Global Investors of $8.3 million, or $0.14 per diluted share, for the fourth quarter of 2011.

For the full year 2012, adjusted net income attributable to Artio Global Investors was $15.0 million, or $0.25 per diluted share, a decrease in each case of 80% from adjusted net income attributable to Artio Global Investors of $73.4 million, or $1.23 per diluted share, for the full year 2011.

On a GAAP basis, net loss attributable to Artio Global Investors for the full year 2012 was $47.5 million, or $0.80 per diluted share, a decrease from net income attributable to Artio Global Investors of $57.9 million, or $0.99 per diluted share, for the full year 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)

Dec. 31,

 

Dec. 31,

 

%

 

Sep. 30,

 

%

2012

2011

Change

2012

Change

Revenue3, GAAP

$20.8$51.9(60%)$26.9(23%)
Operating income (loss), GAAP($4.1)$15.5(126%)($24.1)(83%)
Operating income, adjusted$0.7$17.9(96%)$1.2(43%)
Net income (loss) attributable to Artio Global Investors, GAAP

($1

.5)

$8

.3

(119

%)

($52

.1)

(97

%)

Net income attributable to Artio Global Investors, adjusted

$1

.5

$10

.0

(85

%)

$3

.9

(61

%)

Diluted EPS, GAAP($0.03)$0.14(121%)($0.87)(97%)
Diluted EPS, adjusted$0.02$0.17(88%)$0.07(71%)

Adjusted EBITDA4

$0.9$20.5(95%)$2.8(67%)
 
 

Year Ended

(unaudited, in millions, except per share amounts)

Dec. 31,

 

Dec. 31,

 

%

2012

2011

Change

Revenue3, GAAP

$124.3$276.0(55%)
Operating income (loss) , GAAP($17.5)$112.7(116%)
Operating income, adjusted$17.9$131.0(86%)
Net income (loss) attributable to Artio Global Investors, GAAP

($47

.5)

$57

.9

(182

%)

Net income attributable to Artio Global Investors, adjusted

$15

.0

$73

.4

(80

%)

Diluted EPS, GAAP($0.80)$0.99(181%)
Diluted EPS, adjusted$0.25$1.23(80%)
Adjusted EBITDA4 $26.0 $141.8 (82%)
 

Business Update

  • Cash and seed capital5 increased by $8.2 million to $135.6 million in the fourth quarter of 2012, equivalent to $2.26 per share outstanding
  • Net client cash outflows were $3.8 billion for the fourth quarter of 2012 and $18.6 billion for the full year 2012

Fourth Quarter of 2012 Comparison with Fourth Quarter of 2011

Assets Under Management and Net Client Cash Flows

Assets under management were $14.3 billion as of December 31, 2012, down $16.0 billion, or 53%, from $30.4 billion as of December 31, 2011, due to net client cash outflows, partly offset by market appreciation.

Net client cash outflows for the fourth quarter of 2012 were $3.8 billion, driven by net client cash outflows across all strategies, although predominantly in our International Equity I and II strategies.6

Revenues and Other Operating Income

Revenues and other operating income for the fourth quarter of 2012 totaled $20.8 million, down 60% from $51.9 million for the fourth quarter of 2011. The decrease was driven primarily by lower investment management fees of $20.5 million for the fourth quarter of 2012, down 60% from $51.6 million for the fourth quarter of 2011, due primarily to lower average assets under management and a decrease in the effective fee rate.

Expenses

Employee Compensation and Benefits

For the fourth quarter of 2012, adjusted employee compensation and benefits expenses were $10.4 million, down 49% from $20.6 million for the fourth quarter of 2011. The decrease was due primarily to a reduction in incentive compensation accruals and a decrease in costs associated with lower headcount.

GAAP employee compensation and benefits expenses for the fourth quarter of 2012 were $15.1 million, a decrease of 34% from $23.0 million for the fourth quarter of 2011, due primarily to the reasons noted above and a decrease in the amortization of RSUs awarded at the time of the IPO, partly offset by the compensation charge related to organizational changes recorded in the fourth quarter of 2012.

Shareholder Servicing and Marketing Expenses

Shareholder servicing and marketing expenses for the fourth quarter of 2012 were $2.1 million, down 45% from $3.9 million for the fourth 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 fourth quarter of 2012 were $7.6 million, a decrease of 20% from $9.5 million for the fourth quarter of 2011, due primarily to a decrease in expenses associated with lower headcount, and other cost saving initiatives.

GAAP general and administrative expenses for the fourth quarter of 2012 were $7.7 million, a decrease of 19% from $9.5 million for the fourth quarter of 2011, due primarily to the reasons noted above.

Non-operating Income (Loss)

Adjusted non-operating income for the fourth quarter of 2012 was $1.7 million, an increase of $1.7 million from the fourth quarter of 2011, primarily reflecting an increase in gains on seed capital investments during the fourth quarter of 2012.

GAAP non-operating income for the fourth quarter of 2012 was $2.7 million, an increase from $0.1 million for the fourth quarter of 2011, due primarily to the reason noted above.

Income Taxes

For the fourth quarter of 2012, adjusted income tax expense was $0.8 million, a decrease of 90% from $8.0 million in the fourth quarter of 2011, due primarily to a decrease in taxable income.

GAAP income tax benefit was $0.5 million for the fourth quarter of 2012, compared to GAAP income tax expense of $7.0 million for the fourth quarter of 2011.

Fourth Quarter of 2012 Comparison with Third Quarter of 2012

Assets Under Management

Assets under management were $14.3 billion as of December 31, 2012, a decrease of $3.3 billion, or 19%, from $17.7 billion as of September 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 fourth quarter of 2012 totaled $20.8 million, down 23% from $26.9 million for the third quarter of 2012, driven primarily by lower investment management fees. Investment management fees were $20.5 million for the fourth quarter of 2012, down 23% from $26.5 million for the third quarter of 2012, due primarily to a decrease in average assets under management and a decrease in the effective fee rate.

Expenses

Employee Compensation and Benefits

For the fourth quarter of 2012, adjusted employee compensation and benefits expenses were $10.4 million, a decrease of 27% from $14.4 million for the third quarter of 2012. The decrease was due primarily to a decrease in costs associated with lower headcount and a reduction in incentive compensation accruals.

GAAP employee compensation and benefits expenses for the fourth quarter of 2012 were $15.1 million, a decrease of 60% from $38.0 million for the third quarter of 2012, due primarily to the removal of the service requirement for the remaining unvested RSUs granted at the time of the IPO, in the third quarter of 2012, and the reasons noted above.

Shareholder Servicing and Marketing Expenses

Shareholder servicing and marketing expenses for the fourth quarter of 2012 were $2.1 million, a decrease of 19% from $2.6 million for the third quarter of 2012, due primarily to lower platform costs, reflecting a decrease in average assets under management in proprietary funds and a decline in marketing expenses.

General and Administrative Expenses

Adjusted general and administrative expenses were $7.6 million for the fourth quarter of 2012, a decrease of 13% from $8.7 million for the third quarter of 2012, due primarily to lower expenses across most categories.

GAAP general and administrative expenses were $7.7 million for the fourth quarter of 2012, a decrease of 25% from $10.3 million for the third quarter of 2012, due primarily to a non-recurring expense recorded in the third quarter of 2012 related to a potential tax obligation for one of our offshore funds, for which the Company has indemnified the fund ("offshore fund expense"), and the reason noted above.

Non-operating Income (Loss)

Adjusted non-operating income for the fourth quarter of 2012 was $1.7 million, a decrease of 30% from adjusted non-operating income of $2.4 million for the third quarter of 2012, primarily reflecting a decrease in gains on seed capital investments.

GAAP non-operating income for the fourth quarter of 2012 was $2.7 million, a decrease of 98% from GAAP non-operating income of $144.2 million for the third quarter of 2012 due primarily to a reduction in amounts payable under the tax receivable agreement in the third quarter of 2012, associated with the valuation allowance on the Company's deferred tax assets and the reason noted above.

Income Taxes

For the fourth quarter of 2012, adjusted income tax expense was $0.8 million, compared to adjusted income tax benefit of $0.3 million in the third quarter of 2012. The increase was due primarily to a true-up to reflect the finalization of the prior year's tax return in the third quarter of 2012.

GAAP income tax benefit for the fourth quarter of 2012 was $0.5 million, compared to GAAP income tax expense of $171.6 million for the third quarter of 2012, due primarily to the valuation allowance taken on the Company's deferred tax assets in the third quarter of 2012 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.

Full Year 2012 Comparison to Full Year 2011

Net Client Cash Flows

Net client cash outflows for full year 2012 were $18.6 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 2012 totaled $124.3 million, down 55% from $276.0 million for 2011, driven primarily by lower investment management fees. Investment management fees were $123.1 million for 2012, down 56% from $277.2 million for 2011, due primarily to lower average assets under management and a decrease in the effective fee rate.

Expenses

Employee Compensation and Benefits

For 2012, adjusted employee compensation and benefits expenses were $61.3 million, down 29% from $86.9 million for 2011. The decrease was due primarily to lower accruals for incentive compensation and a decrease in costs associated with lower headcount.

GAAP employee compensation and benefits expenses were $94.9 million for 2012, a decrease of 10% from $105.2 million for 2011, due primarily to the reasons noted above, partly offset by the removal of the service requirement for the remaining unvested RSUs granted at the time of the IPO in 2012 and a larger compensation charge related to organizational changes in 2012.

Shareholder Servicing and Marketing Expenses

Shareholder servicing and marketing expenses for 2012 were $11.4 million, down 39% from $18.7 million for 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 were $33.7 million for 2012, a decrease of 15% from $39.5 million for 2011, due primarily to a decrease in expenses associated with lower headcount and other cost saving initiatives.

GAAP general and administrative expenses were $35.5 million for 2012, a decrease of 10% from $39.5 million for 2011, driven primarily by the reasons note above, partly offset by the offshore fund expense in 2012.

Non-operating Income (Loss)

Adjusted non-operating income of $4.8 million for 2012, increased from an adjusted non-operating loss of $4.3 million in 2011, primarily reflecting gains on seed capital investments in 2012, as compared to losses in 2011, and a decrease in interest expense on the Company's term debt.

GAAP non-operating income for 2012 was $148.0 million, an increase from a GAAP non-operating loss of $5.7 million for 2011, due primarily to a reduction in amounts payable under the tax receivable agreement in 2012, associated with the valuation allowance on the Company's deferred tax assets and the reasons noted above.

Income Taxes

For 2012, adjusted income tax expense was $7.6 million, a decrease of 86% from $53.3 million for 2011, due primarily to a decrease in taxable income.

GAAP income tax expense was $176.1 million for 2012, an increase from $48.4 million for 2011. The increase was due primarily to a valuation allowance on the Company's deferred tax assets in 2012, partly offset by the reason noted above.

Liquidity and Capital

As of December 31, 2012, the Company had cash (excluding amounts held in the Company's Consolidated Investment Products) of $90.9 million, seed capital investments5 in our strategies of $44.7 million and investments held for deferred compensation of $10.1 million.

Total stockholders' equity on the Statement of Financial Position was $141.0 million as of December 31, 2012, compared to $162.8 million as of December 31, 2011.

Share Repurchase

No shares were repurchased during the fourth quarter of 2012. As of December 31, 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 December 31, 2012, there were 60,009,073 total shares of Class A common stock outstanding.

Dividend

The Board of Directors has suspended the Company's dividend on the Class A common stock.

Teleconference and Webcast Details

The Company will host a conference call for analysts and investors to review fourth quarter 2012 results, today, February 14, 2013, beginning at 8:00 a.m. (Eastern Time). Members of the public who are interested in participating in the conference call should dial, from inside the U.S., 1 (888) 771-4371 or, from outside the U.S., +1 (847) 585-4405 at least ten minutes prior to the start of the call and reference the Artio Global Investors Conference Call (ID number 34052652). A simultaneous listen-only webcast of the call 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 fixed income and equity markets, primarily for institutional and intermediary clients.

Headquartered in New York City, Artio Global offers a select group of investment strategies, including High Grade Fixed Income, High Yield, International Equity and Global Equity. 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 December 31, 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.

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."
 
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 From Year Ended% Change From
Dec. 31, 2012 Dec. 31, 2011 Sep. 30, 2012Dec. 31, 2011 Sep. 30, 2012Dec. 31, 2012 Dec. 31, 2011Dec. 31, 2011
Revenues and other operating income:
Investment management fees$20,484$51,589$26,491(60%)(23%)$123,066$277,150(56%)
Net gains (losses) on funds held for deferred compensation315376373(16%)(16%)1,302(1,059)NM
Foreign currency losses (10) (55) (4)82%(150%) (75) (69)(9%)
Total revenues and other operating income 20,789  51,910  26,860 (60%)(23%) 124,293  276,022 (55%)
 
Expenses:
Employee compensation and benefits15,09422,98438,048(34%)(60%)94,893105,201(10%)
Shareholder servicing and marketing2,1353,9172,627(45%)(19%)11,42918,653(39%)
General and administrative 7,673  9,461  10,291 (19%)(25%) 35,450  39,460 (10%)
Total expenses 24,902  36,362  50,966 (32%)(51%) 141,772  163,314 (13%)
 
Operating income (loss) before income tax expense(4,113)15,548(24,106)(126%)(83%)(17,479)
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