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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| | | | | | | | | | | |
(Mark One) | | | |
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024 |
| | | | | | | | | | | |
OR |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| FOR THE TRANSITION PERIOD FROM TO |
Commission file number: 001-35826
Artisan Partners Asset Management Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | 45-0969585 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
875 E. Wisconsin Avenue, Suite 800 | 53202 |
Milwaukee, | WI |
(Address of principal executive offices) | (Zip Code) |
| | |
(414) 390-6100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Class A common stock, par value $0.01 per share | APAM | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act: | | | | | | | | | | | | | | | | | |
Large accelerated filer | ☑ | | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The number of outstanding shares of the registrant’s Class A common stock, par value $0.01 per share, Class B common stock, par value $0.01 per share, and Class C common stock, par value $0.01 per share, as of October 30, 2024 were 70,069,120, 1,579,068 and 8,712,951, respectively.
TABLE OF CONTENTS | | | | | | | | |
| | Page |
Part I | | |
Item 1. | Unaudited Consolidated Financial Statements | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
Part II | Other Information | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
| | |
Except where the context requires otherwise, in this report, references to the “Company”, “Artisan”, “we”, “us” or “our” refer to Artisan Partners Asset Management Inc. (“APAM”) and its direct and indirect subsidiaries, including Artisan Partners Holdings LP (“Artisan Partners Holdings” or “Holdings”). On March 12, 2013, APAM closed its initial public offering and related corporate reorganization. Prior to that date, APAM was a subsidiary of Artisan Partners Holdings.
Forward-Looking Statements
This report contains, and from time to time our management may make, forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements regarding future events 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. In some cases, you can identify these statements by forward-looking words such as “may”, “might”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue”, the negative of these terms and other comparable terminology. Forward-looking statements are only predictions based on current expectations of our management and information available to us at the time such statements are made. 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, actions or achievements to differ materially from the results, level of activity, performance, actions or achievements expressed or implied by the forward-looking statements. These factors include: the loss of key investment professionals or senior management, adverse market or economic conditions, poor performance of our investment strategies, significant changes in client cash inflows or outflows or declines in market value of the assets in the accounts we manage, change in the legislative and regulatory environment in which we operate, our ability to maintain our current fee rates, operational or technical errors or other damage to our reputation 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 Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 22, 2024, as such factors may be updated from time to time. Our periodic and current reports are accessible on the SEC’s website at www.sec.gov. We undertake no obligation to publicly update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report, except as required by law.
Forward-looking statements include, but are not limited to, statements about:
•our anticipated future results of operations;
•our potential operating performance and efficiency, including our ability to operate under different and unique circumstances;
•our expectations with respect to future business initiatives, including the development of new investment teams, strategies and vehicles;
•our expectations with respect to the performance of our investment strategies;
•our expectations with respect to future levels of assets under management, including the capacity of our strategies and client cash inflows and outflows;
•our expectations with respect to industry trends and how those trends may impact our business;
•our financing plans, cash needs and liquidity position;
•our intention to pay dividends and our expectations about the amount of those dividends;
•our expected levels of compensation of our employees, including equity- and cash-based long-term incentive compensation;
•our expectations with respect to future expenses and the level of future expenses;
•our expected tax rate, and our expectations with respect to deferred tax assets; and
•our estimates of future amounts payable pursuant to our tax receivable agreements.
Part I — Financial Information
Item 1. Unaudited Consolidated Financial Statements
ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Condensed Consolidated Statements of Financial Condition
(U.S. dollars in thousands, except per share amounts) | | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| | | |
ASSETS |
Cash and cash equivalents | $ | 253,949 | | | $ | 141,008 | |
Accounts receivable | 109,976 | | | 101,169 | |
Investment securities | 211,940 | | | 150,522 | |
Property and equipment, net | 43,483 | | | 46,638 | |
Deferred tax assets | 419,465 | | | 436,529 | |
Prepaid expenses and other assets | 19,053 | | | 20,348 | |
Operating lease assets | 87,201 | | | 94,747 | |
Assets of consolidated investment products | | | |
Cash and cash equivalents | 25,851 | | | 37,459 | |
Accounts receivable and other | 25,931 | | | 13,343 | |
Investment assets, at fair value | 413,752 | | | 364,095 | |
Total assets | $ | 1,610,601 | | | $ | 1,405,858 | |
| | | |
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS’ EQUITY |
Accounts payable, accrued expenses, and other | $ | 28,867 | | | $ | 25,509 | |
Accrued incentive compensation | 164,340 | | | 52,226 | |
Borrowings | 199,389 | | | 199,267 | |
Operating lease liabilities | 105,690 | | | 113,391 | |
Amounts payable under tax receivable agreements | 341,400 | | | 364,048 | |
Liabilities of consolidated investment products | | | |
Accounts payable, accrued expenses, and other | 58,040 | | | 38,080 | |
Investment liabilities, at fair value | 8,860 | | | 9,580 | |
Total liabilities | 906,586 | | | 802,101 | |
Commitments and contingencies | | | |
Redeemable noncontrolling interests | 298,987 | | | 252,406 | |
Common stock | | | |
Class A common stock ($0.01 par value per share, 500,000,000 shares authorized, 70,069,120 and 68,554,078 shares outstanding at September 30, 2024 and December 31, 2023, respectively) | 701 | | | 685 | |
Class B common stock ($0.01 par value per share, 200,000,000 shares authorized, 1,579,068 and 2,435,739 shares outstanding at September 30, 2024 and December 31, 2023, respectively) | 16 | | | 24 | |
Class C common stock ($0.01 par value per share, 400,000,000 shares authorized, 8,712,951 and 9,024,947 shares outstanding at September 30, 2024 and December 31, 2023, respectively) | 87 | | | 90 | |
Additional paid-in capital | 214,854 | | | 193,722 | |
Retained earnings | 158,239 | | | 132,126 | |
Accumulated other comprehensive income (loss) | (1,818) | | | (2,496) | |
Total Artisan Partners Asset Management Inc. stockholders’ equity | 372,079 | | | 324,151 | |
Noncontrolling interests - Artisan Partners Holdings | 32,949 | | | 27,200 | |
Total stockholders’ equity | 405,028 | | | 351,351 | |
Total liabilities, redeemable noncontrolling interests, and stockholders’ equity | $ | 1,610,601 | | | $ | 1,405,858 | |
The accompanying notes are an integral part of the consolidated financial statements.
ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Operations
(U.S. dollars in thousands, except per share amounts) | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Revenues | | | | | | | |
Management fees | $ | 279,546 | | | $ | 248,691 | | | $ | 814,665 | | | $ | 725,980 | |
Performance fees | 36 | | | 31 | | | 86 | | | 154 | |
Total revenues | 279,582 | | | 248,722 | | | $ | 814,751 | | | $ | 726,134 | |
Operating Expenses | | | | | | | |
Compensation and benefits | 149,034 | | | 130,648 | | | 445,704 | | | 392,593 | |
Distribution, servicing and marketing | 6,363 | | | 6,153 | | | 19,149 | | | 17,786 | |
Occupancy | 8,208 | | | 7,244 | | | 23,010 | | | 21,506 | |
Communication and technology | 13,053 | | | 12,974 | | | 39,661 | | | 38,395 | |
General and administrative | 9,744 | | | 9,548 | | | 29,759 | | | 28,690 | |
Total operating expenses | 186,402 | | | 166,567 | | | 557,283 | | | 498,970 | |
Total operating income | 93,180 | | | 82,155 | | | 257,468 | | | 227,164 | |
Non-operating income (expense) | | | | | | | |
Interest expense | (2,199) | | | (2,297) | | | (6,454) | | | (6,520) | |
Interest income on cash and cash equivalents and other | 2,769 | | | 2,089 | | | 6,619 | | | 3,773 | |
Net gain (loss) on the tax receivable agreements | (504) | | | 505 | | | (504) | | | 505 | |
Net investment gain (loss) of consolidated investment products | 23,165 | | | 9,787 | | | 45,636 | | | 38,189 | |
Net investment gain (loss) of nonconsolidated investment products | 12,378 | | | (4,241) | | | 24,679 | | | 7,556 | |
Total non-operating income (expense) | 35,609 | | | 5,843 | | | 69,976 | | | 43,503 | |
Income before income taxes | 128,789 | | | 87,998 | | | 327,444 | | | 270,667 | |
Provision for income taxes | 24,604 | | | 14,570 | | | 65,307 | | | 51,663 | |
Net income before noncontrolling interests | 104,185 | | | 73,428 | | | 262,137 | | | 219,004 | |
Less: Net income attributable to noncontrolling interests - Artisan Partners Holdings | 14,584 | | | 11,319 | | | 38,938 | | | 35,493 | |
Less: Net income (loss) attributable to noncontrolling interests - consolidated investment products | 16,611 | | | 8,954 | | | 33,154 | | | 25,978 | |
Net income attributable to Artisan Partners Asset Management Inc. | $ | 72,990 | | | $ | 53,155 | | | $ | 190,045 | | | $ | 157,533 | |
| | | | | | | |
Basic earnings per share | $ | 1.03 | | | $ | 0.76 | | | $ | 2.68 | | | $ | 2.27 | |
Diluted earnings per share | $ | 1.03 | | | $ | 0.76 | | | $ | 2.68 | | | $ | 2.27 | |
Basic weighted average number of common shares outstanding | 65,123,054 | | 63,520,402 | | 64,802,431 | | 63,419,587 |
Diluted weighted average number of common shares outstanding | 65,162,898 | | 63,563,044 | | 64,840,056 | | 63,449,804 |
Dividends declared per Class A common share | $ | 0.71 | | | $ | 0.61 | | | $ | 2.34 | | | $ | 2.01 | |
The accompanying notes are an integral part of the consolidated financial statements.
ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Comprehensive Income
(U.S. dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Net income before noncontrolling interests | $ | 104,185 | | | $ | 73,428 | | | $ | 262,137 | | | $ | 219,004 | |
Other comprehensive income (loss) | | | | | | | |
Foreign currency translation gain (loss) | 930 | | | (770) | | | 827 | | | 144 | |
Total other comprehensive income (loss) | 930 | | | (770) | | | 827 | | | 144 | |
Comprehensive income | 105,115 | | | 72,658 | | | 262,964 | | | 219,148 | |
Comprehensive income attributable to noncontrolling interests - Artisan Partners Holdings | 14,731 | | | 11,204 | | | 38,671 | | | 35,727 | |
Comprehensive income (loss) attributable to noncontrolling interests - consolidated investment products | 16,611 | | | 8,954 | | | 33,154 | | | 25,978 | |
Comprehensive income attributable to Artisan Partners Asset Management Inc. | $ | 73,773 | | | $ | 52,500 | | | $ | 191,139 | | | $ | 157,443 | |
The accompanying notes are an integral part of the consolidated financial statements.
ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Changes in Stockholders’ Equity
(U.S. dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Three months ended September 30, 2024 | Class A Common Stock | Class B Common Stock | Class C Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests - Artisan Partners Holdings | Total Stockholders’ Equity | Redeemable Noncontrolling Interests |
Balance at July 1, 2024 | $ | 699 | | $ | 17 | | $ | 87 | | $ | 207,664 | | $ | 135,316 | | $ | (2,614) | | $ | 30,535 | | $ | 371,704 | | $ | 276,420 | |
Net income | — | | — | | — | | — | | 72,990 | | — | | 14,584 | | 87,574 | | 16,611 | |
Other comprehensive income - foreign currency translation | — | | — | | — | | — | | — | | 810 | | 120 | | 930 | | — | |
Cumulative impact of changes in ownership of Artisan Partners Holdings LP | — | | — | | — | | (10) | | — | | (14) | | 24 | | — | | — | |
Amortization of equity-based compensation | — | | — | | — | | 6,664 | | — | | — | | 956 | | 7,620 | | — | |
Deferred tax assets, net of amounts payable under tax receivable agreements | — | | — | | — | | 537 | | — | | — | | — | | 537 | | — | |
| | | | | | | | | |
| | | | | | | | | |
Issuance of restricted stock awards | 1 | | — | | — | | (1) | | — | | — | | — | | — | | — | |
| | | | | | | | | |
Exchange of subsidiary equity | 1 | | (1) | | — | | — | | — | | — | | — | | — | | — | |
| | | | | | | | | |
Capital contributions, net | — | | — | | — | | — | | — | | — | | — | | — | | 5,956 | |
| | | | | | | | | |
Distributions | — | | — | | — | | — | | — | | — | | (13,244) | | (13,244) | | — | |
Dividends | — | | — | | — | | — | | (50,067) | | — | | (26) | | (50,093) | | — | |
Balance at September 30, 2024 | $ | 701 | | $ | 16 | | $ | 87 | | $ | 214,854 | | $ | 158,239 | | $ | (1,818) | | $ | 32,949 | | $ | 405,028 | | $ | 298,987 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Three months ended September 30, 2023 | Class A Common Stock | Class B Common Stock | Class C Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests - Artisan Partners Holdings | Total Stockholders’ Equity | Redeemable Noncontrolling Interests |
Balance at July 1, 2023 | $ | 685 | | $ | 25 | | $ | 90 | | $ | 181,484 | | $ | 101,243 | | $ | (2,531) | | $ | 25,741 | | $ | 306,737 | | $ | 206,288 | |
Net income | — | | — | | — | | — | | 53,155 | | — | | 11,319 | | 64,474 | | 8,954 | |
Other comprehensive income - foreign currency translation | — | | — | | — | | — | | — | | (655) | | (115) | | (770) | | — | |
Cumulative impact of changes in ownership of Artisan Partners Holdings LP | — | | — | | — | | (532) | | — | | (60) | | 592 | | — | | — | |
Amortization of equity-based compensation | — | | — | | — | | 6,781 | | — | | — | | 1,114 | | 7,895 | | — | |
Deferred tax assets, net of amounts payable under tax receivable agreements | — | | — | | — | | 32 | | — | | — | | — | | 32 | | — | |
Issuance of Class A common stock, net of issuance costs | — | | — | | — | | (1) | | — | | — | | — | | (1) | | — | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Capital contributions, net | — | | — | | — | | — | | — | | — | | — | | — | | 23,013 | |
Impact of deconsolidation of CIPs | — | | — | | — | | — | | — | | — | | — | | — | | (18,529) | |
Distributions | — | | — | | — | | — | | — | | — | | (12,883) | | (12,883) | | — | |
Dividends | — | | — | | — | | — | | (42,132) | | — | | (28) | | (42,160) | | — | |
Balance at September 30, 2023 | $ | 685 | | $ | 25 | | $ | 90 | | $ | 187,764 | | $ | 112,266 | | $ | (3,246) | | $ | 25,740 | | $ | 323,324 | | $ | 219,726 | |
The accompanying notes are an integral part of the consolidated financial statements. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine months ended September 30, 2024 | Class A Common Stock | Class B Common Stock | Class C Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests - Artisan Partners Holdings | Total Stockholders’ Equity | Redeemable Noncontrolling Interests |
Balance at January 1, 2024 | $ | 685 | | $ | 24 | | $ | 90 | | $ | 193,722 | | $ | 132,126 | | $ | (2,496) | | $ | 27,200 | | $ | 351,351 | | $ | 252,406 | |
Net income | — | | — | | — | | — | | 190,045 | | — | | 38,938 | | 228,983 | | 33,154 | |
Other comprehensive income - foreign currency translation | — | | — | | — | | — | | — | | 722 | | 105 | | 827 | | — | |
Cumulative impact of changes in ownership of Artisan Partners Holdings LP | — | | — | | — | | 1,922 | | — | | (44) | | (1,878) | | — | | — | |
Amortization of equity-based compensation | — | | — | | — | | 21,670 | | — | | — | | 3,079 | | 24,749 | | — | |
Deferred tax assets, net of amounts payable under tax receivable agreements | — | | — | | — | | 3,420 | | — | | — | | — | | 3,420 | | — | |
| | | | | | | | | |
| | | | | | | | | |
Issuance of restricted stock awards | 6 | | — | | — | | (6) | | — | | — | | — | | — | | — | |
Employee net share settlement | (1) | | — | | — | | (5,874) | | — | | — | | (956) | | (6,831) | | — | |
Exchange of subsidiary equity | 11 | | (8) | | (3) | | — | | — | | — | | — | | — | | — | |
| | | | | | | | | |
Capital contributions, net | — | | — | | — | | — | | — | | — | | — | | — | | 35,043 | |
Impact of deconsolidation of CIPs | — | | — | | — | | — | | — | | — | | — | | — | | (21,616) | |
Distributions | — | | — | | — | | — | | — | | — | | (33,445) | | (33,445) | | — | |
Dividends | — | | — | | — | | — | | (163,932) | | — | | (94) | | (164,026) | | — | |
Balance at September 30, 2024 | $ | 701 | | $ | 16 | | $ | 87 | | $ | 214,854 | | $ | 158,239 | | $ | (1,818) | | $ | 32,949 | | $ | 405,028 | | $ | 298,987 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine months ended September 30, 2023 | Class A Common Stock | Class B Common Stock | Class C Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests - Artisan Partners Holdings | Total Stockholders’ Equity | Redeemable Noncontrolling Interests |
Balance at January 1, 2023 | $ | 680 | | $ | 26 | | $ | 90 | | $ | 171,416 | | $ | 93,088 | | $ | (3,079) | | $ | 17,136 | | $ | 279,357 | | $ | 135,280 | |
Net income | — | | — | | — | | — | | 157,533 | | — | | 35,493 | | 193,026 | | 25,978 | |
Other comprehensive income - foreign currency translation | — | | — | | — | | — | | — | | (90) | | 234 | | 144 | | — | |
Cumulative impact of changes in ownership of Artisan Partners Holdings LP | — | | — | | — | | (696) | | — | | (77) | | 773 | | — | | — | |
Amortization of equity-based compensation | — | | — | | — | | 22,489 | | — | | — | | 3,523 | | 26,012 | | — | |
Deferred tax assets, net of amounts payable under tax receivable agreements | — | | — | | — | | 421 | | — | | — | | — | | 421 | | — | |
Issuance of Class A common stock, net of issuance costs | — | | — | | — | | (85) | | — | | — | | — | | (85) | | — | |
| | | | | | | | | |
Issuance of restricted stock awards | 6 | | — | | — | | (6) | | — | | — | | — | | — | | — | |
Employee net share settlement | (2) | | — | | — | | (5,775) | | — | | — | | (981) | | (6,758) | | — | |
Exchange of subsidiary equity | 1 | | (1) | | — | | — | | — | | — | | — | | — | | — | |
| | | | | | | | | |
Capital contributions, net | — | | — | | — | | — | | — | | — | | — | | — | | 76,997 | |
Impact of deconsolidation of CIPs | — | | — | | — | | — | | — | | — | | — | | — | | (18,529) | |
Distributions | — | | — | | — | | — | | — | | — | | (30,341) | | (30,341) | | — | |
Dividends | — | | — | | — | | — | | (138,355) | | — | | (97) | | (138,452) | | — | |
Balance at September 30, 2023 | $ | 685 | | $ | 25 | | $ | 90 | | $ | 187,764 | | $ | 112,266 | | $ | (3,246) | | $ | 25,740 | | $ | 323,324 | | $ | 219,726 | |
The accompanying notes are an integral part of the consolidated financial statements. |
ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Cash Flows
(U.S. dollars in thousands) | | | | | | | | | | | |
| For the Nine Months Ended September 30, |
| 2024 | | 2023 |
Cash flows from operating activities | | | |
Net income before noncontrolling interests | $ | 262,137 | | | $ | 219,004 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 7,501 | | | 6,896 | |
Deferred income taxes | 33,992 | | | 32,286 | |
| | | |
Asset impairment | 979 | | | — | |
Noncash lease expense (benefit) | (795) | | | (158) | |
Net investment (gain) loss on nonconsolidated investment securities | (24,679) | | | (7,551) | |
Net (gain) loss on the tax receivable agreements | 504 | | | (505) | |
(Gain) loss on disposal of property and equipment | 29 | | | 2 | |
Amortization of debt issuance costs | 279 | | | 333 | |
Share-based compensation | 24,749 | | | 26,012 | |
Net investment (gain) loss of consolidated investment products | (45,636) | | | (38,189) | |
Purchase of investments by consolidated investment products | (264,618) | | | (325,922) | |
Proceeds from sale of investments by consolidated investment products | 207,022 | | | 224,288 | |
| | | |
Change in assets and liabilities resulting in an increase (decrease) in cash: | | | |
Accounts receivable | (6,807) | | | 2,232 | |
Prepaid expenses and other assets | 1,258 | | | 431 | |
Accounts payable and accrued expenses | 122,975 | | | 100,060 | |
Net change in operating assets and liabilities of consolidated investment products including net investment income | 16,776 | | | 23,583 | |
Net cash provided by operating activities | 335,666 | | | 262,802 | |
Cash flows from investing activities | | | |
Acquisition of property and equipment | (1,106) | | | (585) | |
Leasehold improvements | (3,192) | | | (5,690) | |
| | | |
Proceeds from sale of investment securities | 11,689 | | | 5,226 | |
Purchase of investment securities | (31,810) | | | (35,483) | |
| | | |
Net cash used in investing activities | (24,419) | | | (36,532) | |
Cash flows from financing activities | | | |
Partnership distributions | (33,445) | | | (30,341) | |
Dividends paid | (164,026) | | | (138,451) | |
| | | |
| | | |
| | | |
| | | |
Payments under the tax receivable agreements | (36,659) | | | (35,757) | |
| | | |
| | | |
Taxes paid related to employee net share settlement | (6,831) | | | (6,758) | |
| | | |
Capital contributions to consolidated investment products, net | 35,043 | | | 76,997 | |
Net cash used in financing activities | (205,918) | | | (134,310) | |
Net increase in cash, cash equivalents, and restricted cash | 105,329 | | | 91,960 | |
Net cash impact of deconsolidation of CIPs | (3,996) | | | (4,679) | |
Cash, cash equivalents and restricted cash | | | |
Beginning of period | 178,467 | | | 143,248 | |
End of period | $ | 279,800 | | | $ | 230,529 | |
| | | |
Cash, cash equivalents and restricted cash as of the end of the period | | | |
Cash and cash equivalents | $ | 253,949 | | | $ | 198,308 | |
| | | |
Cash and cash equivalents of consolidated investment products | 25,851 | | | 32,221 | |
Cash, cash equivalents and restricted cash | $ | 279,800 | | | $ | 230,529 | |
| | | |
Supplementary information | | | |
Noncash activity: | | | |
Establishment of deferred tax assets | $ | 18,465 | | | $ | 3,214 | |
Establishment of amounts payable under tax receivable agreements | 14,011 | | | 828 | |
Increase in investment securities due to deconsolidation of CIPs | 23,831 | | | 19,612 | |
Operating lease assets obtained in exchange for operating lease liabilities | 3,197 | | | 78 | |
Settlement of franchise capital liability via transfer of investment securities | 7,212 | | | 3,204 | |
The accompanying notes are an integral part of the consolidated financial statements.
ARTISAN PARTNERS ASSET MANAGEMENT INC.
Notes to Unaudited Consolidated Financial Statements
(U.S. currencies in thousands, except share and per share amounts and as otherwise indicated)
Note 1. Nature of Business and Organization
Nature of Business
Artisan Partners Asset Management Inc. (“APAM”), through its subsidiaries, is an investment management firm focused on providing high value-added, active investment strategies to sophisticated clients globally. APAM and its subsidiaries are hereafter referred to collectively as “Artisan” or the “Company.”
Artisan’s autonomous investment teams manage a broad range of U.S., non-U.S. and global investment strategies that are diversified by asset class, market cap and investment style. Strategies are offered through multiple investment vehicles to accommodate a broad range of client mandates. Artisan offers its investment management services primarily to institutions and through intermediaries that operate with institutional-like decision-making processes and have long-term investment horizons.
Organization
On March 12, 2013, APAM completed its initial public offering (the “IPO”). APAM was formed for the purpose of becoming the general partner of Artisan Partners Holdings LP (“Artisan Partners Holdings” or “Holdings”) in connection with the IPO. Holdings is a holding company for the investment management business conducted under the name “Artisan Partners.” The reorganization (“IPO Reorganization”) established the necessary corporate structure to complete the IPO while at the same time preserving the ability of the firm to conduct operations through Holdings and its subsidiaries.
As its sole general partner, APAM controls the business and affairs of Holdings. As a result, APAM consolidates Holdings’ financial statements and records a noncontrolling interest for the equity interests in Holdings held by the limited partners of Holdings. At September 30, 2024, APAM held approximately 87% of the equity ownership interest in Holdings.
Holdings, together with its wholly owned subsidiary, Artisan Investments GP LLC, controls a 100% interest in Artisan Partners Limited Partnership (“APLP”), a multi-product investment management firm that is the principal operating subsidiary of Artisan Partners Holdings. APLP is registered as an investment adviser with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940. APLP provides investment advisory services to traditional separate accounts and pooled investment vehicles, including Artisan Partners Funds, Inc. (“Artisan Funds”), Artisan Partners Global Funds plc (“Artisan Global Funds”) and Artisan sponsored private funds (“Artisan Private Funds”). Artisan Funds are a series of open-end mutual funds registered under the Investment Company Act of 1940, as amended. Artisan Global Funds is a family of Ireland-domiciled UCITS funds. Artisan Private Funds consist of a number of Artisan-sponsored unregistered pooled investment vehicles.
Note 2. Summary of Significant Accounting Policies
Basis of presentation
The accompanying financial statements are unaudited. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of such consolidated financial statements have been included. Such interim results are not necessarily indicative of full year results.
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting and accordingly they do not include all of the information and footnotes required in the annual consolidated financial statements and accompanying footnotes.
The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. As a result, the interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in APAM’s latest annual report on Form 10-K.
The accompanying financial statements were prepared in accordance with U.S. GAAP and related rules and regulations of the SEC. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates or assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates or assumptions.
Principles of consolidation
Artisan’s policy is to consolidate all subsidiaries or other entities in which it has a controlling financial interest. The consolidation guidance requires an analysis to determine if an entity should be evaluated for consolidation using the voting interest entity (“VOE”) model or the variable interest entity (“VIE”) model. Under the VOE model, controlling financial interest is generally defined as a majority ownership of voting interests. Under the VIE model, controlling financial interest is defined as (i) the power to direct activities that most significantly impact the economic performance of the entity and (ii) the right to receive potentially significant benefits or the obligation to absorb potentially significant losses.
Artisan generally consolidates VIEs in which it meets the power criteria and holds an equity ownership interest of greater than 10%. The consolidated financial statements include the accounts of APAM and all subsidiaries or other entities in which APAM has a direct or indirect controlling financial interest. All material intercompany balances have been eliminated in consolidation.
Artisan serves as the investment adviser to Artisan Funds, Artisan Global Funds and Artisan Private Funds. Artisan Funds and Artisan Global Funds are corporate entities, the business and affairs of which are managed by their respective boards of directors. The shareholders of the funds retain voting rights, including rights to elect and reelect members of their respective boards of directors. Each series of Artisan Funds is a VOE and is separately evaluated for consolidation under the VOE model. The shareholders of Artisan Global Funds lack simple majority liquidation rights, and as a result, each sub-fund of Artisan Global Funds is evaluated for consolidation under the VIE model. Artisan Private Funds are also evaluated for consolidation under the VIE model because third-party equity holders of the funds generally lack the ability to divest Artisan of its control of the funds.
From time to time, the Company makes investments in Artisan Funds, Artisan Global Funds and Artisan Private Funds. If the investment results in a controlling financial interest, APAM consolidates the fund and the underlying activity of the entire fund is included in Artisan’s unaudited consolidated financial statements. As of September 30, 2024, Artisan had a controlling financial interest in five sub-funds of Artisan Global Funds and two Artisan Private Funds and, as a result, these funds are included in Artisan’s unaudited consolidated financial statements. Because these consolidated investment products meet the definition of investment companies under U.S. GAAP, Artisan has retained the specialized industry accounting principles for investment companies in the consolidated financial statements. See Note 6, “Variable Interest Entities and Consolidated Investment Products” for additional details.
Reclassification
In conjunction with annual reporting on Form 10-K for the year ended December 31, 2023, the Company changed the presentation of “Other net investment gain (loss)” within the Consolidated Statements of Operations to expand its disaggregation of the components comprising this balance. “Other net investment gain (loss)” has been replaced by “Interest income on cash and cash equivalents and other” and “Net investment gain (loss) of nonconsolidated investment products” within the Non-operating income (expense) section of the Consolidated Statements of Operations. Amounts for the comparative prior fiscal year periods have been reclassified to conform to the current year presentation. These reclassifications had no impact on previously reported operating income, non-operating income, net income or financial position. Management believes the revised presentation is more useful to readers of its financial statements.
Recent accounting pronouncements
In November 2023, the FASB issued ASU 2023-07, “Improvements to Reportable Segment Disclosures”, which improves reportable segment disclosure requirements, primarily through requirements for more detailed information about significant segment expenses. The Company is required to adopt the guidance for the year ending December 31, 2024. The adoption will not have a material impact on the Company's consolidated financial statements. However, as the Company operates as a single reportable segment, the adoption will result in additional disclosures, including the title of the chief operating decision maker (“CODM”), the measure of the segment’s profit utilized by the CODM for assessing operating performance, and significant expenses within that measure of profit regularly provided to the CODM.
In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures”, which requires disaggregated income tax disclosures on the rate reconciliation and income taxes paid. The Company is required to adopt the guidance for the year ending December 31, 2025. The Company has determined that the ASU will not have a material impact on its consolidated financial statements.
Note 3. Investment Securities
The disclosures below include details of Artisan’s investments, excluding money market funds and consolidated investment products. Investments held by consolidated investment products are described in Note 6, “Variable Interest Entities and Consolidated Investment Products.” | | | | | | | | | | | |
| As of September 30, 2024 | | As of December 31, 2023 |
Investments in equity securities | $ | 196,329 | | | $ | 139,240 | |
Investments in equity securities accounted for under the equity method | 15,611 | | | 11,282 | |
Total investment securities | $ | 211,940 | | | $ | 150,522 | |
Artisan’s investments in equity securities consist of investments in Artisan Funds, Artisan Global Funds and Artisan Private Funds. As of September 30, 2024 and December 31, 2023, $137.8 million and $107.0 million, respectively, of Artisan’s investment securities were related to funded long-term incentive compensation plans (excluding investments in consolidated investment products).
Unrealized gain (loss) related to investment securities held at the end of the periods indicated below were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Unrealized gain (loss) on investment securities held at the end of the period | $ | 10,697 | | | $ | (3,901) | | | $ | 20,198 | | | $ | 6,458 | |
Note 4. Fair Value Measurements
The table below presents information about Artisan’s assets and liabilities that are measured at fair value and the valuation techniques Artisan utilized to determine such fair value. The financial instruments held by consolidated investment products are excluded from the table below and are presented in Note 6, “Variable Interest Entities and Consolidated Investment Products.”
In accordance with ASC 820, fair value is defined as the price that Artisan would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market for the investment. The following three-tier fair value hierarchy prioritizes the inputs used in measuring fair value:
•Level 1 – Observable inputs such as quoted (unadjusted) market prices in active markets for identical securities.
•Level 2 – Other significant observable inputs (including but not limited to quoted prices for similar instruments, interest rates, prepayment speeds, credit risk, etc.).
•Level 3 – Significant unobservable inputs (including Artisan’s own assumptions in determining fair value).
The following provides the hierarchy of inputs used to derive the fair value of Artisan’s assets and liabilities that are financial instruments as of September 30, 2024 and December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets and Liabilities at Fair Value |
| Total | | NAV Practical Expedient (No Fair Value Level) | | Level 1 | | Level 2 | | Level 3 |
September 30, 2024 | | | | | | | | | |
Assets | | | | | | | | | |
Money market funds 1 | $ | 230,923 | | | $ | — | | | $ | 230,923 | | | $ | — | | | $ | — | |
Equity securities | 211,940 | | | 14,923 | | | 197,017 | | | — | | | — | |
| | | | | | | | | |
December 31, 2023 | | | | | | | | | |
Assets | | | | | | | | | |
Money market funds 1 | $ | 118,768 | | | $ | — | | | $ | 118,768 | | | $ | — | | | $ | — | |
Equity securities | 150,522 | | | 10,744 | | | 139,778 | | | — | | | — | |
1 Money market funds are included within the cash and cash equivalents line of the Unaudited Condensed Consolidated Statements of Financial Condition. |
Fair values determined based on Level 1 inputs utilize quoted market prices for identical assets. Level 1 assets generally consist of money market funds, open-end mutual funds and UCITS funds. Equity securities without a fair value level consist of the Company’s investments in Artisan Private Funds, which are measured at the underlying fund’s net asset value (“NAV”), using the ASC 820 practical expedient. The NAV is provided by the fund and is derived from the fair values of the underlying investments as of the reporting date. Cash maintained in demand deposit accounts is excluded from the table above.
Note 5. Borrowings
Artisan’s borrowings consist of the following as of September 30, 2024 and December 31, 2023: | | | | | | | | | | | | | | | | | | | | | | | |
| Maturity (1) | | As of September 30, 2024 | | As of December 31, 2023 | | Interest Rate Per Annum |
Revolving credit agreement | August 2027 | | $ | — | | | $ | — | | | NA |
Senior notes | | | | | | | |
Series D | August 2025 | | 60,000 | | | 60,000 | | | 4.29 | % |
Series E | August 2027 | | 50,000 | | | 50,000 | | | 4.53 | % |
Series F | August 2032 | | 90,000 | | | 90,000 | | | 3.10 | % |
Total gross borrowings | | | 200,000 | | | 200,000 | | | |
Debt issuance costs | | | (611) | | | (733) | | | |
Total borrowings | | | $ | 199,389 | | | $ | 199,267 | | | |
(1) The Company is not required to make principal payments on any of the outstanding obligations prior to contractual maturity. |
The fair value of borrowings was approximately $186.0 million as of September 30, 2024. Fair value was determined based on future cash flows, discounted to present value using current market interest rates. The inputs are categorized as Level 2 in the fair value hierarchy, as defined in Note 4, “Fair Value Measurements.”
The fixed interest rate on each series of unsecured notes is subject to a one percentage point increase in the event Holdings receives a below-investment grade rating and any such increase will continue to apply until an investment grade rating is received.
As of September 30, 2024, there were no borrowings outstanding under the $100.0 million revolving credit facility and the interest rate on the unused commitment was 0.15%.
Interest expense incurred on the unsecured notes and revolving credit agreement was $1.9 million for the three months ended September 30, 2024 and 2023, and $5.8 million for the nine months ended September 30, 2024 and 2023.
Note 6. Variable Interest Entities and Consolidated Investment Products
Artisan serves as the investment adviser for various types of investment products, consisting of both VIEs and VOEs. Artisan consolidates an investment product if it has a controlling financial interest in the entity. See Note 2, ”Summary of Significant Accounting Policies.” Any such entities are collectively referred to herein as consolidated investment products or CIPs.
As of September 30, 2024, Artisan is considered to have a controlling financial interest in five sub-funds of Artisan Global Funds and two Artisan Private Funds, with an aggregate direct equity investment in the consolidated investment products of $99.6 million.
Artisan’s maximum exposure to loss in connection with the assets and liabilities of CIPs is limited to its direct equity investment, while the potential benefit is limited to the management and performance fees received and the return on its equity investment. With the exception of Artisan’s direct equity investment, the assets of CIPs are not available to Artisan’s creditors, nor are they available to Artisan for general corporate purposes. In addition, third-party investors in the CIPs have no recourse to the general credit of the Company.
Management and performance fees earned from CIPs are eliminated from revenue upon consolidation. See Note 14, “Related Party Transactions” for additional information on management and performance fees earned from CIPs.
Third-party investors’ ownership interest in CIPs is presented as redeemable noncontrolling interests in the unaudited condensed consolidated statements of financial condition as third-party investors have the right to withdraw their capital, subject to certain conditions. Net income attributable to third-party investors is reported as net income (loss) attributable to noncontrolling interests - consolidated investment products in the unaudited consolidated statements of operations.
During the nine months ended September 30, 2024, the Company determined that it no longer had a controlling financial interest in one series of Artisan Funds as a result of third party capital contributions. Upon loss of control, the fund was deconsolidated and the related assets, liabilities and equity of the fund were derecognized from the Company’s unaudited condensed consolidated statements of financial condition. There was no net impact to the unaudited consolidated statement of operations for the nine months ended September 30, 2024. Artisan generally does not recognize a gain or loss upon deconsolidation of investment products as the assets and liabilities of CIPs are carried at fair value. Artisan’s $23.8 million direct equity investment was reclassified from investment assets of consolidated investment products to investment securities.
As of September 30, 2024, Artisan held direct equity investments of $15.6 million in VIEs for which the Company does not hold a controlling financial interest. These direct equity investments consisted of seed investments in sub-funds of Artisan Global Funds and Artisan Private Funds, both of which are accounted for under the equity method of accounting because Artisan has significant influence over the funds.
Fair Value Measurements - Consolidated Investment Products
Investments held by CIPs are reflected at fair value. Short and long positions on equity securities are valued based upon closing prices of the security on the exchange or market designated by the accounting agent or pricing vendor as the principal exchange. The closing price may represent last sale price, official closing price, a closing auction or other information depending on market convention. Short and long positions on fixed income instruments are valued at market value. Market values are generally evaluations based on prices provided by independent pricing vendors, which may consider, among other factors, the prices at which securities actually trade, broker-dealer quotations, pricing formulas, estimates of market values obtained from yield data relating to investments or securities with similar characteristics and/or discounted cash flow models that might be applicable. Short-term investments are comprised of repurchase agreements and U.S. Treasury obligations. Repurchase agreements are valued at cost plus accrued interest and U.S. treasury obligations are valued using the same principles as fixed income securities. Derivative assets and liabilities are generally comprised of put and call options on securities and indices and forward foreign currency contracts. Put and call options are valued at the mid price (average of bid price and ask price) as provided by the pricing vendor at the close of trading on the contract’s principal exchange. Open forward foreign currency contracts are valued using the market spot rate. Private equity investments are valued at market value, which are generally evaluations based on estimates of market values obtained using valuation multiples on key financial metrics and/or discounted cash flow models.
The following tables present the fair value hierarchy levels of assets and liabilities held by CIPs measured at fair value as of September 30, 2024 and December 31, 2023: | | | | | | | | | | | | | | | | | | | | | | | |
| Assets and Liabilities at Fair Value |
| Total | | Level 1 | | Level 2 | | Level 3 |
September 30, 2024 | | | | | | | |
Assets | | | | | | | |
Money market funds | $ | 16,489 | | | $ | 16,489 | | | $ | — | | | $ | — | |
Equity securities - long position | 69,721 | | | 67,418 | | | 2,303 | | | — | |
Fixed income instruments - long position | 335,881 | | | — | | | 328,256 | | | 7,625 | |
Derivative assets | 1,256 | | | 8 | | | 1,248 | | | — | |
| | | | | | | |
Private equity | 6,895 | | | — | | | — | | | 6,895 | |
| | | | | | | |
| | | | | | | |
Liabilities | | | | | | | |
| | | | | | | |
Fixed income instruments - short position | $ | 6,932 | | | $ | — | | | $ | 6,932 | | | $ | — | |
Derivative liabilities | 505 | | | 52 | | | 453 | | | — | |
Repurchase agreements | 1,423 | | | — | | | 1,423 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Assets and Liabilities at Fair Value |
| Total | | Level 1 | | Level 2 | | Level 3 |
December 31, 2023 | | | | | | | |
Assets | | | | | | | |
Money market funds | $ | 18,156 | | | $ | 18,156 | | | $ | — | | | $ | — | |
Equity securities - long position | 42,693 | | | 40,838 | | | 1,855 | | | — | |
Fixed income instruments - long position | 315,183 | | | — | | | 309,110 | | | 6,073 | |
Derivative assets | 1,004 | | | — | | | 1,004 | | | — | |
Short-term investments | 5,215 | | | — | | | 5,215 | | | — | |
| | | | | | | |
Liabilities | | | | | | | |
Fixed income instruments - short position | $ | 7,392 | | | $ | — | | | $ | 7,392 | | | $ | — | |
Derivative liabilities | 2,188 | | | 843 | | | 1,345 | | | — | |
CIP balances included in the Company’s unaudited condensed consolidated statements of financial condition were as follows: | | | | | | | | | | | |
| As of September 30, 2024 | | As of December 31, 2023 |
Net CIP assets included in the table above | $ | 421,382 | | | $ | 372,671 | |
Net CIP assets/(liabilities) not included in the table above | (22,748) | | | (5,434) | |
Total Net CIP assets | 398,634 | | | 367,237 | |
Less: redeemable noncontrolling interests | 298,987 | | | 252,406 | |
Artisan’s direct equity investment in CIPs | $ | 99,647 | | | $ | 114,831 | |
Note 7. Noncontrolling Interests - Holdings
Net income attributable to noncontrolling interests - Artisan Partners Holdings in the unaudited consolidated statements of operations represents the portion of earnings or loss attributable to the equity ownership interests in Holdings held by the limited partners of Holdings. As of September 30, 2024, APAM held approximately 87% of the equity ownership interests in Holdings.
Limited partners of Artisan Partners Holdings are entitled to exchange partnership units (along with a corresponding number of shares of Class B or C common stock of APAM) for shares of Class A common stock from time to time (the “Holdings Common Unit Exchanges”). The Holdings Common Unit Exchanges increase APAM’s equity ownership interest in Holdings and result in an increase to deferred tax assets and amounts payable under the tax receivable agreements. See Note 11, “Income Taxes and Related Payments.”
In order to maintain the one-to-one correspondence of the number of Holdings partnership units and APAM common shares, Holdings will issue one general partner (“GP”) unit to APAM for each share of Class A common stock issued by APAM. For the nine months ended September 30, 2024, APAM’s equity ownership interest in Holdings increased as a result of the following transactions: | | | | | | | | | | | | | | | | | | | | | | | |
| Holdings GP Units | | Limited Partnership Units | | Total | | APAM Ownership % |
Balance at December 31, 2023 | 68,554,078 | | | 11,460,686 | | | 80,014,764 | | | 86 | % |
| | | | | | | |
Holdings Common Unit Exchanges | 1,168,667 | | | (1,168,667) | | | — | | | 1 | % |
Issuance of APAM Restricted Shares (1) | 502,774 | | | — | | | 502,774 | | | — | % |
Delivery of Shares Underlying RSUs and PSUs (1) | 28,795 | | | — | | | 28,795 | | | — | % |
Restricted Share Award Net Share Settlement (1) | (149,172) | | | — | | | (149,172) | | | — | % |
Forfeitures from Employee Terminations (1) | (36,022) | | | — | | | (36,022) | | | — | % |
Balance at September 30, 2024 | 70,069,120 | | | 10,292,019 | | | 80,361,139 | | | 87 | % |
(1) The impact of the transaction on APAM’s ownership percentage was less than 1%. |
Changes in ownership of Holdings are accounted for as equity transactions because APAM continues to have a controlling interest in Holdings. Additional paid-in capital and noncontrolling interests - Artisan Partners Holdings in the unaudited condensed consolidated statements of financial condition are adjusted to reallocate Holdings’ historical equity to reflect the change in APAM’s ownership of Holdings.
The reallocation of equity had the following impact on the unaudited condensed consolidated statements of financial condition: | | | | | | | | | | | |
Statements of Financial Condition | For the Nine Months Ended September 30, |
2024 | | 2023 |
Additional paid-in capital | $ | 1,922 | | | $ | (696) | |
Noncontrolling interests - Artisan Partners Holdings | (1,878) | | | 773 | |
Accumulated other comprehensive income (loss) | (44) | | | (77) | |
Net impact to financial condition | $ | — | | | $ | — | |
In addition to the reallocation of historical equity, the change in ownership resulted in an increase to deferred tax assets and additional paid-in capital of $1.0 million and $0.2 million for the nine months ended September 30, 2024 and 2023, respectively.
Note 8. Stockholders’ Equity
APAM - Stockholders’ Equity
APAM had the following authorized and outstanding equity as of September 30, 2024 and December 31, 2023: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Outstanding | | | | |
| Authorized | | As of September 30, 2024 | | As of December 31, 2023 | | Voting Rights (1) | | Economic Rights |
Common shares | | | | | | | | | |
Class A, par value $0.01 per share | 500,000,000 | | | 70,069,120 | | | 68,554,078 | | | 1 vote per share | | Proportionate |
Class B, par value $0.01 per share | 200,000,000 | | | 1,579,068 | | | 2,435,739 | | | 1 vote per share | | None |
Class C, par value $0.01 per share | 400,000,000 | | | 8,712,951 | | | 9,024,947 | | | 1 vote per share | | None |
(1) The Company’s employees to whom Artisan has granted equity have entered into a stockholders agreement with respect to all shares of APAM common stock they have acquired from the Company and any shares they may acquire from the Company in the future, pursuant to which they granted an irrevocable voting proxy to a Stockholders Committee. As of September 30, 2024, Artisan’s employees held 5,166,152 restricted shares of Class A common stock and all 1,579,068 outstanding shares of Class B common stock, all of which were subject to the agreement. |
APAM is dependent on cash generated by Holdings to fund any dividends. Generally, Holdings will make distributions to all of its partners, including APAM, based on the proportionate share of ownership each has in Holdings. APAM will fund dividends to its stockholders from its proportionate share of those distributions after provision for its taxes and other obligations. APAM declared and paid the following dividends per share during the three and nine months ended September 30, 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Type of Dividend | | Class of Stock | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | | | 2024 | | 2023 | | 2024 | | 2023 |
Quarterly | | Class A Common | | $ | 0.71 | | | $ | 0.61 | | | $ | 2.00 | | | $ | 1.66 | |
Special Annual | | Class A Common | | $ | — | | | $ | — | | | $ | 0.34 | | | $ | 0.35 | |
The following table summarizes APAM’s stock transactions for the nine months ended September 30, 2024: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Stock Outstanding | | Class A Common Stock(1) | | Class B Common Stock | | Class C Common Stock | | |
Balance at December 31, 2023 | 80,014,764 | | | 68,554,078 | | | 2,435,739 | | | 9,024,947 | | | |
Holdings Common Unit Exchanges | — | | | 1,168,667 | | | (753,667) | |