- U.S. GAAP earnings per share of $0.22
for the quarter, compared to $(0.45) for the 2017 period, and $1.26
for the year compared to $0.04 for full-year 2017
- ENI earnings per share of $0.43 for the
quarter, down (2.3)% compared to the 2017 period, and $1.86
for the year, up 14.8% compared to the 2017 period
- AUM of $206.3 billion at
December 31, 2018, down (15.1)% from December 31,
2017
- Net client cash flows ("NCCF") for the
quarter of $(5.7) billion with an annualized revenue impact of
$(12.3) million; full year NCCF of $(10.5) billion with an
annualized revenue impact of $(3.8) million
BrightSphere Investment Group plc (NYSE: BSIG) today reports its
results for the quarter and full year ended December 31,
2018.
This press release features multimedia. View
the full release here:
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“BrightSphere produced solid financial and operating results for
2018, notwithstanding a challenging equity market environment at
year-end, as our ENI per share of $0.43 for the fourth quarter and
$1.86 for the year reflect a slight decrease of (2)% and an
increase of 15% compared to the same periods of 2017,” said Guang
Yang, BrightSphere’s President and Chief Executive Officer.
“Volatility and dislocation in the equity markets challenged active
equity investors across nearly every style, asset class and
geography during the fourth quarter, resulting in a decrease in our
near-term investment performance quarter-over-quarter. However, the
strength and consistency of our Affiliates’ proprietary investment
capabilities continued to produce strong long-term track records of
outperformance. As of December 31, assets representing 31%, 68% and
75% of revenue outperformed their benchmarks on a one-, three- and
five-year basis, respectively. Net client cash flows of $(5.7)
billion resulted in a negative annualized revenue impact of $(12.3)
million, as outflows across a range of strategies, including
lower-fee subadvisory products, exceeded higher-fee gross inflows
in managed volatility, domestic mid-cap equity and other
strategies.”
Mr. Yang continued, “With an outstanding group of high quality
Affiliates offering a diverse range of strong performing strategies
and proven expertise in working with them to enhance and expand
their product offerings and distribution capabilities, BrightSphere
is well positioned to accelerate the organic growth potential of
our business. We plan to work closely with Affiliates to further
strengthen and expand our global presence, particularly in the
Asia-Pacific region, a growing and underserved market where scale
offers measurable advantages."
“As we look to this next phase of growth, we took a number of
steps to streamline our business, with a focus on creating a more
nimble, flexible organization. Our Center total compensation for
2018 was $20 million lower than 2017 as we linked Center variable
compensation more closely to results and streamlined management
positions in 2018. Additionally, headcount reduction of
approximately 20% at the Center in Q1 2019 along with other cost
measures we have taken will further lower total 2019 Center
expenses by approximately $8-10 million. These steps are part of an
overall, ongoing examination of areas where we and Affiliates can
gain greater efficiency in our non-investment functions. In
addition, given the recent valuation of our shares, we also
maintained the stock buy-back program initiated earlier in 2018,
and have repurchased 5.1 million shares from October 1 through
February 6, 2019. We will continue to manage our capital to
maximize value for shareholders through prudent share repurchases
and continued investment in global expansion opportunities.” Mr.
Yang concluded, “Finally, I am very pleased to welcome Suren Rana
to BrightSphere. Suren will fill the open role of Chief Financial
Officer, and brings many years of experience in corporate finance
and asset management, as well as an understanding of BrightSphere's
business from his previous service on our Board.”
Table 1: Key Performance Metrics
(unaudited)
($ in millions, unless otherwise noted) Three Months
Ended December 31, Twelve Months Ended
December 31,
U.S. GAAP
Basis
2018 2017
Increase(Decrease)
2018 2017
Increase(Decrease)
Revenue $ 214.5 $ 249.2 (13.9 )% $ 928.2 $ 887.4 4.6 % Pre-tax
income from continuing operations attributable to controlling
interests 39.1 82.5 (52.6 )% 141.3 137.1 3.1 % Net income (loss)
attributable to controlling interests 23.0 (48.8 ) n/m 136.4 4.2
n/m Diluted earnings per share, $ $ 0.22 $ (0.45 ) n/m $ 1.26 $
0.04 n/m U.S. GAAP operating margin 14 % 11 % 325 bps 9 % 8 % 103
bps
Economic Net Income Basis
(Non-GAAP measure used by management)(1) ENI revenue
$ 212.0 $ 252.3 (16.0 )% $ 919.1 $ 900.7 2.0 % Pre-tax economic net
income 61.1 71.7 (14.8 )% 262.5 251.3 4.5 % Economic net income
45.6 48.7 (6.4 )% 199.8 180.9 10.4 % ENI diluted earnings per
share, $ $ 0.43 $ 0.44 (2.3 )% $ 1.86 $ 1.62 14.8 % Adjusted EBITDA
67.8 79.4 (14.6 )% 290.6 281.9 3.1 % ENI operating margin 37 % 39 %
(220) bps 38 % 38 % 27 bps
Other Operational
Information(2) Assets under management at period
end ($ in billions) $ 206.3 $ 243.0 (15.1 )% $ 206.3 $ 243.0 (15.1
)% Net client cash flows ($ in billions) (5.7 ) (3.7 ) n/m (10.5 )
(6.0 ) n/m Annualized revenue impact of net flows ($ in millions)
(12.3 ) 6.8 n/m (3.8 ) 32.9 n/m
(1) Please see Table 7 for a reconciliation of U.S. GAAP net
income attributable to controlling interests to economic net
income.(2) Operational information (including AUM and flow data)
excludes Heitman for the third and fourth quarters of 2017 (Heitman
remains in operational information for the first half of 2017).
Actual U.S. GAAP and ENI financial results continue to include
Heitman through November 30, 2017.Please see "Definitions and
Additional Notes."
Assets Under Management and Flows
At December 31, 2018, BrightSphere’s total assets under
management ("AUM") were $206.3 billion, down $(31.4) billion, or
(13.2)%, compared to $237.7 billion at September 30, 2018, and
down $(36.7) billion, or (15.1)%, compared to $243.0 billion at
December 31, 2017. The decrease in AUM during the three months
ended December 31, 2018 reflects net market depreciation of
$(25.6) billion combined with net outflows of $(5.7) billion. The
net flows in the three months ended December 31, 2018 were
impacted primarily by outflows in lower-fee subadvisory products.
For the three months ended December 31, 2018, the annualized
revenue impact of the net flows was $(12.3) million, with gross
inflows of $4.3 billion during the period into higher fee asset
classes yielding approximately 46 bps, versus gross outflows and
hard asset disposals in the same period of $(10.0) billion out of
asset classes yielding approximately 32 bps.
For the twelve months ended December 31, 2018,
BrightSphere's AUM reflected net market depreciation of $(24.6)
billion and net outflows of $(10.5) billion. The net flows in the
twelve months ended December 31, 2018 were impacted primarily
by outflows attributable to subadvisory products and lumpy
institutional re-balancing, along with hard asset disposals. For
the twelve months ended December 31, 2018, the annualized
revenue impact of the net flows was $(3.8) million with gross
inflows of $27.6 billion during the period that yielded an average
of approximately 48 bps, versus gross outflows and hard asset
disposals in the same period of $(38.1) billion that yielded
approximately 36 bps.
Table 2: Assets Under Management
Rollforward Summary
($ in billions, unless otherwise
noted)
Three Months Ended, Twelve Months
Ended,
December 31,2018
September 30,2018
December 31,2017
December 31,2018
December 31,2017
Beginning AUM $ 237.7 $ 234.3 $ 235.9 $ 243.0 $ 240.4 Acquisition
(removal) of Affiliates(1) — — — — (32.4 ) Gross inflows 4.3 6.9
7.4 27.6 31.0 Gross outflows (9.9 ) (7.9 ) (11.0 ) (36.2 ) (36.2 )
Net flows before hard asset disposals (5.6 )
(1.0 ) (3.6 ) (8.6 )
(5.2 ) Hard asset disposals (0.1 ) (1.6 ) (0.1 ) (1.9
) (0.8 )
Net flows (5.7 ) (2.6 )
(3.7 ) (10.5 ) (6.0 )
Market appreciation (depreciation) (25.6 ) 6.0 10.8 (24.6 ) 41.0
Other(2) (0.1 ) — — (1.6 ) —
Ending AUM
$ 206.3 $ 237.7 $
243.0 $ 206.3 $
243.0 Basis points: inflows 45.9 52.5 56.8
47.8 51.3 Basis points: outflows 32.0 33.2 31.7 35.6 34.1
Difference between inflows and outflows 13.9 19.3 25.1 12.2 17.2
Annualized revenue impact of net flows ($ in millions)
$ (12.3 ) $ 4.7 $
6.8 $ (3.8 ) $ 32.9
Derived average weighted NCCF ($ in billions) (3.3 ) 1.2 1.7 (1.4 )
8.5
(1) The Company has removed Heitman from its AUM and cash flow
metrics as of the beginning of the third quarter, 2017.(2) “Other”
in 2018 primarily relates to the decline in billable AUM as a
legacy alternative fund transitioned from billing based on
committed AUM to net asset value.Please see "Definitions and
Additional Notes"
Balance Sheet and Capital Management
Condensed Consolidated Balance Sheets as of December 31,
2018 and December 31, 2017 are provided in Table 3 below. As
of December 31, 2018, the Company had $393.3 million of
long-term bonds ($400.0 million face value, net of discount and
fees), $0.0 million outstanding on its $350 million credit facility
and $0.0 million drawn on a non-recourse seed capital financing
facility. Shareholders' equity (attributable to controlling
interests) amounted to $103.3 million. As of December 31, 2018, the
Company’s ratio of debt(3) to trailing twelve months Adjusted
EBITDA was 2.1x. The Company expects to settle an acquisition
agreement in the first quarter of 2019 utilizing a mix of cash on
hand and external revolver capacity. At the completion of this
settlement, the Company's ratio of debt(3) to trailing twelve
months Adjusted EBITDA ratio is expected to be at the lower end of
the Company's target range of 1.75-2.25x. Of the Company's cash and
cash equivalents of $340.6 million at December 31, 2018,
$133.7 million was held at Affiliates and $206.9 million was
available at the Center.
As of December 31, 2018, the Company has total seed and
co-investment holdings of $156.6 million. During the twelve months
ended December 31, 2018, the Company has made investments of
approximately $93.1 million to support Affiliate strategies and
product capabilities. Amounts previously drawn on the non-recourse
seed capital financing facility have been repaid, leaving $65.0
million available to be drawn down as of December 31,
2018.
In 2018, the Company purchased a total of 5,549,861 shares at a
weighted average price of $13.35 per share, or approximately $74
million in total. As of February 6, 2019, the Company has purchased
an additional 3.9 million shares in 2019 at a weighted average
price of $11.85 per share.
Table 3: Condensed Consolidated Balance
Sheets
($ in millions) December 31, 2018 December 31,
2017 Assets Cash and cash equivalents $ 340.6 $ 186.3
Investment advisory fees receivable 159.1 208.3 Investments(1)
198.5 244.4 Other assets 710.9 698.8 Assets of consolidated
Funds(2) 144.6 153.9
Total assets $
1,553.7 $ 1,491.7
Liabilities and equity Accounts payable and accrued expenses
$ 225.3 $ 241.0 Due to OM plc 33.0 59.1 Non-recourse borrowings —
33.5 Third party borrowings 393.3 392.8 Other liabilities 711.1
583.5 Liabilities of consolidated Funds(2) 14.9 10.5
Total liabilities $ 1,377.6 $
1,320.4 Shareholders’ equity 103.3 75.4
Non-controlling interests, including NCI of consolidated Funds(2)
72.8 95.9
Total equity 176.1
171.3 Total liabilities and equity $
1,553.7 $ 1,491.7 Debt /
trailing twelve months Adjusted EBITDA(3) 2.1 x 1.4 x
(1) Includes investment in Heitman of $53.8 million at December
31, 2017.(2) Consolidated Funds represent certain seed investments
and co-investments.(3) Calculated per terms of the Company’s
external revolver and includes amounts owed under previously agreed
acquisition agreement and excludes non-recourse borrowings.Please
see “Definitions and Additional Notes”
Investment Performance
Table 4 below presents a summary of the Company’s investment
performance as of December 31, 2018, September 30, 2018,
and December 31, 2017. Performance is shown on a
revenue-weighted basis, an equal-weighted basis and an
asset-weighted basis. Please see “Definitions and Additional Notes”
for further information on the calculation of performance.
Table 4: Investment Performance
(% outperformance vs. benchmark)
Revenue-Weighted December 31, 2018
September 30, 2018 December 31, 2017 1-Year
31% 53% 65% 3-Year 68% 64% 72% 5-Year 75% 80% 83%
Equal-Weighted December 31, 2018 September 30,
2018 December 31, 2017 1-Year 38% 57% 59% 3-Year 61% 58%
69% 5-Year 65% 74% 82%
Asset-Weighted December 31,
2018 September 30, 2018 December 31, 2017 1-Year
34% 61% 61% 3-Year 65% 57% 71% 5-Year 70% 74% 74%
Investment performance is calculated gross of fees.Please see
“Definitions and Additional Notes”
As of December 31, 2018, assets representing 31%, 68% and
75% of revenue were outperforming benchmarks on a 1-, 3- and 5-
year basis, respectively, compared to 53%, 64% and 80% at
September 30, 2018; and 65%, 72% and 83% at December 31,
2017. The 1-year revenue-weighted number decreased to 31% due to
declines experienced broadly across several strategies in both U.S.
and international equities. The 3-year performance improved to 68%,
particularly reflecting improved returns from two global managed
volatility strategies and a mid-cap value strategy. The 5-year
performance dropped to 75% with certain U.S. equity value
strategies underperforming in the fourth quarter.
Financial Results: U.S. GAAP
Table 5 below presents the Company’s U.S. GAAP Statement of
Operations. For the three months ended December 31, 2018 and
2017, diluted earnings (loss) per share were $0.22 and $(0.45),
respectively and net income (loss) attributable to controlling
interests was $23.0 million and $(48.8) million, respectively, an
increase of $71.8 million. Earnings per share calculations are
impacted by the shares repurchased in 2017 and 2018 which
contributed to a year-over-year decrease in average diluted shares
outstanding of (3.2) million, or (2.9)% between the three-month
periods and (3.8) million, or (3.4)%, between the twelve-month
periods. U.S. GAAP revenue decreased $(34.7) million, or (13.9)%,
from $249.2 million for the three months ended December 31,
2017, to $214.5 million for the three months ended
December 31, 2018, as a result of lower levels of average
assets under management, excluding equity-accounted Affiliates, and
lower net catch-up fees related to certain alternative products,
combined with lower net performance fees in the three months ended
December 31, 2018. Operating expenses decreased $(38.0)
million, or (17.0)%, from $222.9 million for the three months ended
December 31, 2017, to $184.9 million for the three months
ended December 31, 2018, primarily due to decreases in
compensation and benefits expense, driven by lower variable
compensation and lower Affiliate equity revaluations, offset by
increases in general and administrative expense. The Company
recorded revaluations of its DTA deed with OM plc of $20.0 million
in the three months ended December 31, 2018 which primarily
reflects the agreement to terminate the DTA deed at a discount; and
$51.8 million for the three months ended December 31, 2017,
which reflected reductions in the deed payable as a result of the
U.S. tax law change. Income tax expense decreased from $131.3
million for the three months ended December 31, 2017, to $16.1
million for the three months ended December 31, 2018,
reflecting lower earnings in 2018, a lower U.S. corporate tax rate
in 2018 and the significant deferred tax expense in 2017 as a
result of the U.S. tax law change.
For the twelve months ended December 31, 2018 and 2017,
diluted earnings per share were $1.26 and $0.04, respectively, an
increase of $1.22, and net income attributable to controlling
interests was $136.4 million and $4.2 million, respectively, an
increase of $132.2 million. U.S. GAAP revenue increased $40.8
million, or 4.6%, from $887.4 million for the twelve months ended
December 31, 2017, to $928.2 million for the twelve months
ended December 31, 2018, primarily as a result of increases in
management fees due to weighted-average increases in our AUM driven
by market appreciation in the first three quarters of 2018 and
shifts into higher fee rate products. Operating expenses increased
$28.0 million, or 3.4%, from $816.4 million for the twelve months
ended December 31, 2017, to $844.4 million for the twelve
months ended December 31, 2018, primarily as a result of
higher compensation and benefits (see Table 6) and increases in
general and administrative expense. The increase in compensation
and benefits is predominantly due to growth of investment teams
combined with increases in the revaluation of Affiliate equity and
profit interests offset by lower variable compensation due to a
lower Center cost structure. Compensation expense also reflects the
amortization of contingent consideration and the portion of equity
not acquired by the Company at Landmark. Under U.S. GAAP, the fair
value of both the contingent consideration and the portion of
equity not acquired by the Company is recorded as compensation
expense over the applicable term because service requirements exist
for holders of these units. These units are also revalued each
quarter, with any change recorded in that period as an adjustment
to compensation expense. Total compensation expense related to the
Landmark transaction was $203.8 million for the twelve months ended
December 31, 2018 and $120.8 million for the twelve months
ended December 31, 2017. The $39.1 million increase in
investment income for the twelve months ended December 31,
2018 compared to the twelve months ended December 31, 2017
primarily reflects the Company’s gain recognized upon the sale of
its investment in Heitman. Income tax expense decreased from $132.8
million for the twelve months ended December 31, 2017, to $5.0
million for the twelve months ended December 31, 2018 due to
the impact of U.S. tax law changes recorded in 2017, the lower U.S.
corporate tax rate in 2018 and the adjustment to liabilities for
uncertain tax positions in 2018. These decreases were partially
offset by a reduction to interest expense in the fourth quarter of
2017 due to U.K. tax law changes.
Table 5: U.S. GAAP Statement of
Operations
($ in millions) Three Months Ended December 31,
Twelve Months Ended December 31, 2018 2017
Increase(decrease)
2018 2017
Increase(decrease)
Management fees $ 204.0 $ 233.9 (12.8 )% $ 905.0 $ 858.0 5.5 %
Performance fees 6.9 14.4 (52.1 )% 9.8 26.5 (63.0 )% Other revenue
2.4 0.6 300.0 % 9.6 1.2 n/m Consolidated Funds’ revenue 1.2
0.3 300.0 % 3.8 1.7 123.5 %
Total
revenue 214.5 249.2 (13.9
)% 928.2 887.4 4.6
% Compensation and benefits (see Table 6) 143.6 184.4 (22.1
)% 696.4 682.8 2.0 % General and administrative 35.7 32.0 11.6 %
126.0 112.9 11.6 % Amortization of acquired intangibles 1.7 1.7 — %
6.6 6.6 — % Depreciation and amortization 3.9 3.2 21.9 % 14.5 11.7
23.9 % Consolidated Funds’ expense — 1.6 n/m 0.9
2.4 (62.5 )%
Total operating expenses
184.9 222.9 (17.0 )%
844.4 816.4 3.4 %
Operating income 29.6 26.3 12.5
% 83.8 71.0 18.0 % Investment
income (3.1 ) 6.9 n/m 66.5 27.4 142.7 % Interest income 1.2 0.3
300.0 % 3.2 0.8 300.0 % Interest expense (6.2 ) (6.3 ) (1.6 )%
(24.9 ) (24.5 ) 1.6 % Revaluation of DTA deed 20.0 51.8 (61.4 )%
20.0 51.8 (61.4 )% Net consolidated Funds’ investment gains
(losses) (6.6 ) 5.6 n/m (13.4 ) 15.5 n/m
Income
from continuing operations before taxes 34.9 84.6
(58.7 )% 135.2 142.0 (4.8
)% Income tax expense 16.1 131.3 (87.7 )% 5.0
132.8 (96.2 )%
Income (loss) from continuing
operations 18.8 (46.7 ) n/m
130.2 9.2 n/m Gain (loss) on disposal of
discontinued operations, net of tax — — n/m 0.1
(0.1 ) n/m
Net income (loss) 18.8 (46.7
) n/m 130.3 9.1 n/m Net income
(loss) attributable to non-controlling interests (4.2 ) 2.1
n/m (6.1 ) 4.9 n/m
Net income (loss) attributable to
controlling interests $ 23.0 $
(48.8 ) n/m $ 136.4
$ 4.2 n/m Earnings per share, basic $ $
0.22 $ (0.45 ) n/m $ 1.27 $ 0.04 n/m Earnings per share, diluted $
0.22 (0.45 ) n/m 1.26 0.04 n/m Basic shares outstanding (in
millions) 105.6 109.0 107.4 110.7 Diluted shares outstanding (in
millions) 105.8 109.0 107.6 111.4 U.S. GAAP operating margin
14 % 11 % 325 bps 9 % 8 % 103 bps Pre-tax income from continuing
operations attributable to controlling interests 39.1 82.5 (52.6 )%
141.3 137.1 3.1 % Net income (loss) from continuing operations
attributable to controlling interests 23.0 (48.8 ) n/m 136.3 4.3
n/m
Please see "Definitions and Additional Notes"
Table 6: Components of U.S. GAAP
Compensation and Benefits Expense
($ in millions) Three Months Ended December
31, Twelve Months Ended December 31,
2018 2017
Increase(Decrease)
2018 2017
Increase(Decrease)
Fixed compensation and benefits(1) $ 45.9 $ 45.8 0.2 % $ 188.7 $
172.9 9.1 % Sales-based compensation 4.1 5.1 (19.6 )% 17.4 18.6
(6.5 )% Variable compensation(2) 53.5 69.6 (23.1 )% 235.9 252.2
(6.5 )% Affiliate key employee distributions 13.7 21.8 (37.2 )%
76.6 73.1 4.8 % Non-cash key employee-owned equity revaluations 8.7
24.4 (64.3 )% 107.2 95.4 12.4 % Acquisition-related consideration
and pre-acquisition employee equity(3) 17.7 17.7 — %
70.6 70.6 — %
Total U.S. GAAP compensation and
benefits expense $ 143.6 $
184.4 (22.1 )% $ 696.4
$ 682.8 2.0 %
(1) For the three and twelve months, respectively, ended
December 31, 2018, $44.7 million and $181.4 million of fixed
compensation and benefits (of the $45.9 million and $188.7 million
above) is included within economic net income, which excludes
compensation and benefits associated with the 2018 CEO transition
and fixed compensation paid by our Affiliates on behalf of their
customers that is subsequently reimbursed. For the twelve months
ended December 31, 2017, $172.4 million of fixed compensation and
benefits (of the $172.9 million above) is included within economic
net income, which excludes the compensation and benefits associated
with the 2017 CEO transition costs.(2) For the three and twelve
months, respectively, ended December 31, 2018, $48.3 million and
$230.7 million of variable compensation (of the $53.5 million and
$235.9 million above) is included within economic net income, which
excludes variable compensation associated with the 2018 CEO
transition and variable compensation paid by our Affiliates on
behalf of their customers that is subsequently reimbursed. For the
twelve months ended December 31, 2017, $243.4 million of variable
compensation expense (of the $252.2 million above) is included
within economic net income, which excludes the variable
compensation associated with the 2017 CEO transition costs.(3)
Reflects amortization of contingent consideration and equity owned
by employees, both with a service requirement, associated with the
Landmark acquisition; revaluation of the Landmark interests is
included in “Non-cash key employee-owned equity revaluations”
above.Please see “Definitions and Additional Notes”
Financial Results: Non-GAAP Economic Net Income
For the three months ended December 31, 2018 and 2017,
diluted economic net income per share was $0.43 and $0.44,
respectively, a decrease of (2.3)%. For the three months ended
December 31, 2018 and 2017, economic net income was $45.6
million and $48.7 million, respectively, a decrease of $(3.1)
million, or (6.4)%.
For the three months ended December 31, 2018, compared to
the three months ended December 31, 2017, ENI Revenue (see
Table 8) decreased $(40.3) million, or (16.0)%, from $252.3 million
to $212.0 million, including decreases in management fees from
$233.9 million to $204.0 million driven by negative market
movements and net outflows. Average assets under management,
excluding equity-accounted Affiliates, in those respective periods
(see Table 12) decreased $(17.4) billion, or (7.3)%, to $219.4
billion, while the bps yield on these assets decreased from 39.2
bps to 36.9 bps as net catch-up fees in the three months ended
December 31, 2017 contributed to the higher net yield.
Performance fee revenue was $6.9 million for the current quarter,
compared to $14.4 million in the year-ago quarter. The current
quarter performance fees were principally attributable to net
performance fees from global / non-U.S. equity products and
alternative investments. Total ENI operating expenses (see Table 9)
increased 1.5% to $86.1 million, from $84.8 million in the
prior-year quarter as a result of ongoing investments in the
business offset by cost control initiatives, however total ENI
operating expenses as a percentage of management fee revenue
increased 595 bps from 36.3% to 42.2% primarily as a result of the
negative market impact on management fees. Total variable
compensation decreased (30.6)% quarter-over-quarter to $48.3
million, reflecting lower earnings before variable compensation and
the ENI variable compensation ratio (variable compensation as a
percentage of ENI earnings before variable compensation) decreased
(319) bps from 41.6% to 38.4%. Affiliate key employee distributions
decreased (37.2)% from the year-ago quarter from $21.8 million to
$13.7 million, primarily due to lower ENI operating earnings and
the levered structure of distributions at certain Affiliates. The
ratio of Affiliate key employee distributions over ENI operating
earnings decreased from 22.3% to 17.7% due to lower earnings before
Affiliate key employee distributions at Affiliates with higher
employee ownership and leveraged equity plans which align
incentives for growth. Tax on economic net income for the three
months ended December 31, 2018 and 2017 was $15.5 million and
$23.0 million, respectively, a decrease of $(7.5) million or
(32.6)%. This decrease is primarily due to the lower U.S. corporate
tax rate in 2018 and lower earnings.
For the three months ended December 31, 2018, Adjusted
EBITDA was $67.8 million, a decrease of (14.6)% compared to $79.4
million for the same period in 2017. See Table 17 for a
reconciliation of U.S. GAAP net income attributable to controlling
interests to EBITDA, Adjusted EBITDA and economic net income.
For the twelve months ended December 31, 2018 and 2017,
diluted economic net income per share, was $1.86 and $1.62,
respectively, an increase of 14.8%. For the twelve months ended
December 31, 2018 and 2017, economic net income was $199.8
million and $180.9 million, respectively, an increase of $18.9
million, or 10.4%.
For the twelve months ended December 31, 2018, compared to
the twelve months ended December 31, 2017, ENI Revenue
increased $18.4 million or 2.0%, from $900.7 million to $919.1
million, driven by a $47.0 million, or 5.5%, increase in management
fees from $858.0 million to $905.0 million. This growth was related
to year-over-year increases in both average assets under
management, excluding equity-accounted Affiliates, and the
Company’s weighted-average fee rate on average AUM, which also
benefited from higher net catch-up fees related to alternative
assets in the twelve months ended December 31, 2018
over 2017. Average AUM excluding equity-accounted Affiliates
increased 3.6% from $224.8 billion for the twelve months ended
December 31, 2017 to $232.8 billion for
the twelve months ended December 31, 2018, and the
bps yield on these assets rose from 38.2 bps to 38.9 bps primarily
due to a greater proportion of AUM coming from global / non-U.S.
and alternative products (see Table 12). Performance fee revenue
was $9.8 million for the current period, compared to $26.5 million
in the prior period, primarily reflecting a performance fee earned
on an alternative product in 2017 that was not repeated in 2018.
Total ENI operating expenses (see Table 9) grew 6.9% to $335.7
million, from $314.1 million for the twelve months ended
December 31, 2017. Total operating expenses as a percentage of
management fee revenue increased to 37.1% from 36.6% for the twelve
months ended December 31, 2017, as management fee growth of
5.5% lagged the 6.9% increase in operating expenses, primarily
reflecting the 2018 negative market impact and net outflows on
management fees. Total variable compensation decreased $(12.7)
million, or (5.2)%, period-over-period to $230.7 million and the
ENI variable compensation ratio (variable compensation as a
percentage of ENI earnings before variable compensation) decreased
to 39.5% for the twelve months ended December 31, 2018
compared to 41.5% for the twelve months ended December 31,
2017. Affiliate key employee distributions increased 4.8%
period-over-period from $73.1 million to $76.6 million, primarily
due to the levered structure of distributions at certain Affiliates
and higher ENI operating earnings. The ratio of Affiliate key
employee distributions over ENI operating earnings increased from
21.3% to 21.7% due to the leveraged structure of certain equity
plans in a rising profit environment. The effective tax rate of
23.9% for the period was lower than the prior year period of 28.0%
primarily due to a lower U.S. corporate tax rate in 2018. This
decrease was partially offset by an increase in earnings and the
reduction to interest expense in the U.K. due to tax law changes in
2017.
For the twelve months ended December 31, 2018, Adjusted
EBITDA was $290.6 million, up 3.1% compared to $281.9 million in
2017. See Table 17 for a reconciliation of U.S. GAAP net income
attributable to controlling interests to EBITDA, Adjusted EBITDA
and ENI.
Table 7: Reconciliation
of U.S. GAAP Net Income to Economic Net Income
($ in millions) Three Months Ended December
31, Twelve Months Ended December 31,
2018 2017 2018 2017
U.S. GAAP net income (loss) attributable to controlling
interests $ 23.0 $ (48.8 )
$ 136.4 $ 4.2 Adjustments to reflect
the economic earnings of the Company: i. Non-cash key
employee-owned equity and profit interest revaluations 8.7 24.4
107.2 95.4 ii. Amortization of acquired intangible assets,
acquisition-related consideration and pre-acquisition employee
equity 19.4 19.4 77.2 77.2 iii. Capital transaction costs 1.5 — 1.6
— iv. Seed/Co-investment (gains) losses and financings 7.2 (3.9 )
14.5 (17.3 ) v. Tax benefit of goodwill and acquired intangibles
deductions 1.3 2.0 5.7 8.7 vi. Discontinued operations and
restructuring(1) (14.7 ) 1.3 (79.4 ) 11.0 vii. ENI tax
normalization(2) 5.3 70.9 (30.3 ) 68.6 Tax effect of above
adjustments, as applicable(3) (6.1 ) (16.6 ) (33.1 ) (66.9 )
Economic net income $ 45.6 $
48.7 $ 199.8 $
180.9
(1) Restructuring in 2018 is primarily comprised of the gain
related to the Company’s agreement to terminate its deferred tax
asset deed with OM plc, CEO transition costs, costs associated with
its planned redomicile to the U.S. and the gain on sale of Heitman.
The revaluation of the DTA deed amounted to $(20.0) million and CEO
transition costs amounted to $4.8 million in the three months ended
December 31, 2018. Restructuring in 2017 is primarily comprised of
costs related to the Heitman sale and CEO transition costs.(2)
Includes $51.8 million in the three and twelve months ended
December 31, 2017 related to the revaluation of the deferred tax
asset deed with OM plc, offset by the $122.7 million impact of the
Tax Act.(3) Reflects the sum of lines i., ii., iii. and iv. and the
restructuring part of vi. multiplied by the 27.3% U.S. statutory
tax rate (including state tax) in 2018 and the 40.2% U.S. statutory
tax rate (including state tax) in 2017.See Table 14 for a per-share
presentation of the above reconciliationPlease see the definition
of Economic Net Income within “Definitions and Additional
Notes”
The following table identifies the components of ENI
revenue:
Table 8: Components of ENI
revenue
($ in millions) Three Months Ended December
31, Twelve Months Ended December 31,
2018 2017
Increase(Decrease)
2018 2017
Increase(Decrease)
Management fees $ 204.0 $ 233.9 (12.8 )% $ 905.0 $ 858.0 5.5 %
Performance fees 6.9 14.4 (52.1 )% 9.8 26.5 (63.0 )% Other income,
including equity-accounted Affiliates(1) 1.1 4.0
(72.5 )% 4.3 16.2 (73.5 )%
ENI revenue
$ 212.0 $ 252.3
(16.0 )% $ 919.1 $
900.7 2.0 %
See Table 15 for a reconciliation from U.S. GAAP revenue to ENI
revenue(1) Heitman represents $2.7 million and $12.0 million for
the three and twelve months ended December 31, 2017,
respectively.Please see “Definitions and Additional Notes”
The following table identifies the components of ENI operating
expense:
Table 9: Components of ENI operating
expense
($ in millions) Three Months Ended December
31, Twelve Months Ended December 31,
2018 2017
Increase(Decrease)
2018 2017
Increase(Decrease)
Fixed compensation & benefits $ 44.7 $ 45.8 (2.4 )% $ 181.4 $
172.4 5.2 % General and administrative expenses 37.5 35.7 5.0 %
139.8 129.9 7.6 % Depreciation and amortization 3.9 3.3
18.2 % 14.5 11.8 22.9 %
ENI operating
expense $ 86.1 $ 84.8
1.5 % $ 335.7 $
314.1 6.9 %
See Table 16 for a reconciliation from U.S. GAAP operating
expense to ENI operating expensePlease see “Definitions and
Additional Notes”
The following table shows our key non-GAAP operating metrics for
the three and twelve months ended December 31, 2018 and 2017.
We present these metrics because they are the measures our
management uses to evaluate the profitability of our business and
are useful to investors because they represent the key drivers and
measures of economic performance within our business model. Please
see “Definitions and Additional Notes” for an explanation of each
ratio and its usefulness in measuring the economics and operating
performance of our business.
Table 10: Key ENI operating
metrics
($ in millions) Three Months Ended December
31, Twelve Months Ended December 31,
2018 2017
Increase(Decrease)
2018 2017
Increase(Decrease)
Numerator: ENI operating earnings(1) $ 77.6 $ 97.9 (20.7 )% $ 352.7
$ 343.2 2.8 % Denominator: ENI revenue $ 212.0 $ 252.3 (16.0 )% $
919.1 $ 900.7 2.0 %
ENI operating margin 36.6
% 38.8 % (220) bps 38.4 %
38.1 % 27 bps Numerator: ENI operating
expense $ 86.1 $ 84.8 1.5 % $ 335.7 $ 314.1 6.9 % Denominator: ENI
management fee revenue $ 204.0 $ 233.9 (12.8 )% $ 905.0 $ 858.0 5.5
%
ENI operating expense ratio 42.2 %
36.3 % 595 bps 37.1 %
36.6 % 49 bps Numerator: ENI variable
compensation $ 48.3 $ 69.6 (30.6 )% $ 230.7 $ 243.4 (5.2 )%
Denominator: ENI earnings before variable compensation(2) $ 125.9 $
167.5 (24.8 )% $ 583.4 $ 586.6 (0.5 )%
ENI variable compensation
ratio 38.4 % 41.6 % (319)
bps 39.5 % 41.5 % (195) bps
Numerator: ENI Affiliate key employee distributions $ 13.7 $
21.8 (37.2 )% $ 76.6 $ 73.1 4.8 % Denominator: ENI operating
earnings(1) $ 77.6 $ 97.9 (20.7 )% $ 352.7 $ 343.2 2.8 %
ENI
Affiliate key employee distributions ratio 17.7 %
22.3 % (461) bps 21.7 %
21.3 % 42 bps Numerator: Tax on
economic net income $ 15.5 $ 23.0 (32.6 )% $ 62.7 $ 70.4 (10.9 )%
Denominator: Pre-tax economic net income $ 61.1 $ 71.7 (14.8 )% $
262.5 $ 251.3 4.5 %
Economic net income effective tax rate
25.4 % 32.1 % (671) bps
23.9 % 28.0 % (413) bps
(1) ENI operating earnings represents ENI earnings before
Affiliate key employee distributions and is calculated as ENI
revenue, less ENI operating expense, less ENI variable
compensation.(2) ENI earnings before variable compensation is
calculated as ENI revenue, less ENI operating expense.Please see
“Definitions and Additional Notes”Please refer to the Company’s
Annual Report on Form 10-K for comparable U.S. GAAP metrics.
Recent Events
The Company has previously disclosed its expectation to
redomicile to the United States in order to streamline its
organizational structure and provide improved clarity to
shareholders around governance and its legal and regulatory
framework. Implementation of the redomicile will require a
shareholder vote and is expected to be completed in 2019.
Dividend Declaration
The Company's Board of Directors approved a quarterly interim
dividend of $0.10 per share payable on March 29, 2019 to
shareholders of record as of the close of business on March 15,
2019.
About BrightSphere
BrightSphere is a global, multi-boutique asset management
company with $206.3 billion of assets under management as of
December 31, 2018. Its diverse Affiliates offer leading, alpha
generating investment products to investors around the world.
BrightSphere’s partnership approach, which includes equity
ownership at the Affiliate level and a profit sharing relationship
between BrightSphere and its Affiliates, aligns the interests of
the Company and its Affiliates to work collaboratively in
accelerating their growth. BrightSphere’s business model combines
the investment talent, entrepreneurialism, focus and creativity of
leading asset management boutiques with the resources and
capabilities of a larger firm. For more information about
BrightSphere, please visit the Company’s website at
www.bsig.com.
Forward Looking Statements
This press release includes forward-looking statements, as that
term is used in the Private Securities Litigation Reform Act of
1995, including information relating to anticipated growth in
revenues, margins or earnings, anticipated changes in the Company’s
business, anticipated future performance of the Company’s business,
the impact of the Landmark acquisition, anticipated future
investment performance of the Company’s Affiliates, expected future
net cash flows, anticipated expense levels, changes in expense, the
expected effects of acquisitions and expectations regarding market
conditions. The words or phrases ‘‘will likely result,’’ ‘‘are
expected to,’’ ‘‘will continue,’’ ‘‘is anticipated,’’ ‘‘can be,’’
‘‘may be,’’ ‘‘aim to,’’ ‘‘may affect,’’ ‘‘may depend,’’
‘‘intends,’’ ‘‘expects,’’ ‘‘believes,’’ ‘‘estimate,’’ ‘‘project,’’
and other similar expressions are intended to identify such
forward-looking statements. Such statements are subject to various
known and unknown risks and uncertainties and readers should be
cautioned that any forward-looking information provided by or on
behalf of the Company is not a guarantee of future performance.
Actual results may differ materially from those in
forward-looking information as a result of various factors, some of
which are beyond the Company’s control, including but not limited
to those discussed above and elsewhere in this press release and in
the Company’s most recent Annual Report on Form 10-K, filed with
the Securities and Exchange Commission on February 28, 2018. Due to
such risks and uncertainties and other factors, the Company
cautions each person receiving such forward-looking information not
to place undue reliance on such statements. Further, such
forward-looking statements speak only as of the date of this press
release and the Company undertakes no obligations to update any
forward looking statement to reflect events or circumstances after
the date of this press release or to reflect the occurrence of
unanticipated events.
Conference Call Dial-in
The Company will hold a conference call and simultaneous webcast
to discuss the results at 10:00 a.m. Eastern Time on February
7, 2019. The Company has also released an earnings presentation
that will be discussed during the conference call. Please go to
http://ir.bsig.com to download the presentation. To listen to the
call or view the webcast, participants should:
Dial-in:
Toll Free Dial-in
Number: (844) 579-6824 International Dial-in Number: (763) 488-9145
Conference ID: 9894118
Link to Webcast:
http://event.on24.com/r.htm?e=1913222&s=1&k=F18714AF3BA71904992498225C8368C5
Dial-in Replay:
A replay of the call will be available beginning approximately
one hour after its conclusion either on BrightSphere’s website,
at http://ir.bsig.com or at:
Toll Free Dial-in
Number: (855) 859-2056 International Dial-in Number: (404) 537-3406
Conference ID: 9894118
Table 11: Assets Under Management
Rollforward by Asset Class
($ in billions, unless otherwise noted)
Three Months Ended Twelve Months Ended
December 31, 2018 September 30, 2018
December 31, 2017 December 31, 2018
December 31, 2017 U.S. equity Beginning balance $
76.0 $ 74.8 $ 80.5 $ 81.2 $ 82.0 Gross inflows 0.8 0.7 1.5 3.7 4.9
Gross outflows (4.1 ) (3.6 ) (4.9 ) (15.4 ) (16.4 ) Net flows (3.3
) (2.9 ) (3.4 ) (11.7 ) (11.5 ) Market appreciation (depreciation)
(10.1 ) 4.1 4.1 (6.9 ) 10.7
Ending
balance $ 62.6 $ 76.0
$ 81.2 $ 62.6 $
81.2 Average AUM $ 69.7 $ 76.2 $ 80.5 $ 75.5 $ 81.1
Average AUM of consolidated Affiliates $ 67.7 $ 73.9 $ 78.4 $ 73.4
$ 79.1
Global / non-U.S. equity Beginning balance $
124.7 $ 122.3 $ 121.3 $ 126.2 $ 96.4 Gross inflows 2.9 3.8 3.8 15.9
17.0 Gross outflows (5.3 ) (3.1 ) (5.5 ) (18.0 ) (16.0 ) Net flows
(2.4 ) 0.7 (1.7 ) (2.1 ) 1.0 Market appreciation (depreciation)
(15.5 ) 1.7 6.6 (17.3 ) 28.8
Ending
balance $ 106.8 $ 124.7
$ 126.2 $ 106.8
$ 126.2 Average AUM(1) $ 114.8 $ 124.4 $ 123.7
$ 122.8 $ 113.1
Fixed income Beginning balance $ 13.2
$ 13.8 $ 13.4 $ 13.5 $ 13.9 Gross inflows 0.3 0.3 0.3 1.9 1.4 Gross
outflows (0.4 ) (1.0 ) (0.4 ) (1.9 ) (2.7 ) Net flows (0.1 ) (0.7 )
(0.1 ) — (1.3 ) Market appreciation (depreciation) — 0.1
0.2 (0.4 ) 0.9
Ending balance $
13.1 $ 13.2 $ 13.5
$ 13.1 $ 13.5
Average AUM(1) $ 13.1 $ 13.6 $ 13.4 $ 13.5 $ 13.4
Alternatives(3) Beginning balance $ 23.8 $ 23.4 $
20.7 $ 22.1 $ 48.1 Acquisition (removal) of Affiliates — — — —
(32.4 ) Gross inflows 0.3 2.1 1.8 6.1 7.7 Gross outflows (0.1 )
(0.2 ) (0.2 ) (0.9 ) (1.1 ) Hard asset disposals (0.1 ) (1.6 ) (0.1
) (1.9 ) (0.8 ) Net flows 0.1 0.3 1.5 3.3 5.8 Market appreciation
(depreciation) — 0.1 (0.1 ) — 0.6 Other(2) (0.1 ) — —
(1.6 ) —
Ending balance $ 23.8
$ 23.8 $ 22.1 $
23.8 $ 22.1 Average AUM $ 23.8 $
23.1 $ 21.3 $ 23.1 $ 33.7 Average AUM of consolidated Affiliates $
23.8 $ 23.1 $ 21.3 $ 23.1 $ 19.2
Total(3)
Beginning balance $ 237.7 $ 234.3 $ 235.9 $ 243.0 $ 240.4
Acquisition (removal) of Affiliates — — — — (32.4 ) Gross inflows
4.3 6.9 7.4 27.6 31.0 Gross outflows (9.9 ) (7.9 ) (11.0 ) (36.2 )
(36.2 ) Hard asset disposals (0.1 ) (1.6 ) (0.1 ) (1.9 ) (0.8 ) Net
flows (5.7 ) (2.6 ) (3.7 ) (10.5 ) (6.0 ) Market appreciation
(depreciation) (25.6 ) 6.0 10.8 (24.6 ) 41.0 Other(2) (0.1 ) —
— (1.6 ) —
Ending balance $
206.3 $ 237.7 $
243.0 $ 206.3 $
243.0 Average AUM $ 221.4 $ 237.3 $ 238.9 $ 234.9 $
241.3 Average AUM of consolidated Affiliates $ 219.4 $ 235.0 $
236.8 $ 232.8 $ 224.8 Basis points: inflows(3) 45.9 52.5
56.8 47.8 51.3 Basis points: outflows(3) 32.0 33.2 31.7 35.6 34.1
Annualized revenue impact of net flows (in millions)
$ (12.3 ) $ 4.7 $
6.8 $ (3.8 ) $ 32.9
Derived average weighted NCCF (3.3 ) 1.2 1.7 (1.4 ) 8.5
(1) Average AUM equals average AUM of consolidated
Affiliates.(2) "Other" in the twelve months ended December 31, 2018
primarily relates to the decline in billable AUM as legacy
alternative Funds transitioned from billing based on committed AUM
to net asset value.(3) Reflects removal of Heitman in Q3’17.Please
see "Definitions and Additional Notes"
Table 12: Management Fee Revenue and
Average Fee Rates on Assets Under Management
($ in millions, except AUM data in
billions)
Three Months Ended Twelve
Months Ended December 31, 2018 September 30,
2018 December 31, 2017 December 31, 2018
December 31, 2017 Revenue Basis
Pts Revenue Basis Pts Revenue
Basis Pts Revenue Basis Pts
Revenue Basis Pts U.S. equity $ 41.2 24 $ 45.3
24 $ 48.0 24 $ 179.6 24 $ 192.9 24 Global / non-U.S. equity 112.5
39 123.0 39 126.3 41 490.3 40 465.6 41 Fixed income 6.5 20 6.7 20
7.0 21 26.8 20 27.8 21 Alternatives 43.8 73 54.6
94 52.6 98 208.3 90 171.7
89
Management fee revenue $ 204.0
36.9 $ 229.6 38.8 $ 233.9
39.2 $ 905.0 38.9 $ 858.0
38.2 Average AUM excluding equity- accounted Affiliates $
219.4 $ 235.0 $ 236.8 $ 232.8 $ 224.8 Average AUM including
equity-accounted Affiliates and weighted average fee rate(1) $
221.4 37.1 $ 237.3 38.9 $ 238.9 39.3 $ 234.9 39.0 $ 241.3 38.2
(1) Excludes Heitman as of the beginning of the third quarter,
2017.Amounts shown exclude equity-accounted Affiliates unless
otherwise noted.Please see "Definitions and Additional Notes"
Table 13: Assets Under Management by
Affiliate
($ in billions) December 31, 2018 September
30, 2018 December 31, 2017 Acadian Asset
Management $ 86.2 $ 99.7 $ 97.7 Barrow, Hanley, Mewhinney &
Strauss 72.0 84.8 91.7 Campbell Global 4.6 4.6 5.3 Copper Rock
Capital Partners 4.0 4.9 6.4 Investment Counselors of Maryland(1)
1.8 2.2 2.1 Landmark Partners 17.8 17.7 14.8 Thompson, Siegel &
Walmsley 19.9 23.8 25.0
Total assets under
management $ 206.3 $ 237.7
$ 243.0
(1) Equity-accounted Affiliate.Please see “Definitions and
Additional Notes”
Table 14: Reconciliation of per-share
U.S. GAAP Net Income to Economic Net Income
($ in millions) Three Months Ended December
31, Twelve Months Ended December 31,
2018 2017 2018 2017
U.S. GAAP net income per share $ 0.22 $
(0.45 ) $ 1.26 $ 0.04
Adjustments to reflect the economic earnings of the Company: i.
Non-cash key employee-owned equity and profit interest
revaluations 0.08 0.22 1.00 0.86 ii. Amortization of acquired
intangible assets, acquisition-related consideration and
pre-acquisition employee equity 0.18 0.18 0.72 0.69 iii. Capital
transaction costs 0.02 — 0.02 — iv. Seed/Co-investment (gains)
losses and financing 0.07 (0.04 ) 0.14 (0.16 ) v. Tax benefit of
goodwill and acquired intangibles deductions 0.01 0.02 0.05 0.08
vi. Discontinued operations and restructuring (0.14 ) 0.01 (0.74 )
0.10 vii. ENI tax normalization 0.05 0.65 (0.28 ) 0.61 Tax effect
of above adjustments, as applicable (0.06 ) (0.15 ) (0.31 ) (0.60 )
Economic net income per share $ 0.43
$ 0.44 $ 1.86 $
1.62
Please see “Definitions and Additional Notes”
Table 15: Reconciliation of U.S. GAAP
Revenue to ENI Revenue
($ in millions) Three Months Ended December
31, Twelve Months Ended December 31,
2018 2017 2018 2017 U.S.
GAAP revenue $ 214.5 $ 249.2 $ 928.2 $ 887.4 Include investment
return on equity-accounted Affiliates(1) 0.6 3.3 2.7 14.5 Exclude
revenue from consolidated Funds (1.2 ) (0.3 ) (3.8 ) (1.7 )
Exclude compensation reimbursed by
customers
(1.9 ) — (8.0 ) — Other — 0.1 — 0.5
ENI revenue $ 212.0 $
252.3 $ 919.1 $
900.7
(1) Includes $2.7 million and $12.0 million related to Heitman
for the three and twelve months ended December 31, 2017,
respectively.Please see “Definitions and Additional Notes”
Table 16: Reconciliation of U.S. GAAP
Operating Expense to ENI Operating Expense
($ in millions) Three Months Ended December
31, Twelve Months Ended December 31,
2018 2017 2018 2017 U.S.
GAAP operating expense $ 184.9 $ 222.9 $ 844.4 $ 816.4 Less: items
excluded from ENI Acquisition-related consideration and
pre-acquisition employee equity(1) (17.7 ) (17.7 ) (70.6 ) (70.6 )
Non-cash Affiliate key employee equity and profit interest
revaluations (8.7 ) (24.4 ) (107.2 ) (95.4 ) Amortization of
acquired intangible assets (1.7 ) (1.7 ) (6.6 ) (6.6 ) Capital
transaction costs (1.5 ) — (1.6 ) — Restructuring costs(2) (5.3 )
(1.3 ) (6.5 ) (10.8 )
Compensation reimbursed by customers
(1.9 ) — (8.0 ) — Funds' operating expenses — (1.6 ) (0.9 ) (2.4 )
Less: items segregated out of U.S. GAAP operating expense Variable
compensation (48.3 ) (69.6 ) (230.7 ) (243.4 ) Affiliate key
employee distributions (13.7 ) (21.8 ) (76.6 ) (73.1 )
ENI
operating expense $ 86.1 $
84.8 $ 335.7 $
314.1
(1) Reflects amortization of contingent consideration and equity
owned by employees, both with a service requirement, associated
with the Landmark acquisition; revaluation of the Landmark
interests is included in “Non-cash key employee-owned equity and
profit interest revaluations” above.(2) Restructuring in 2018 is
primarily comprised of the Company’s CEO transition costs and costs
associated with its planned redomiciling to the U.S. Restructuring
in 2017 is primarily comprised of costs related to the Heitman sale
and CEO transition costs.Please see “Definitions and Additional
Notes”
Table 17: Reconciliation of Net Income
to EBITDA, Adjusted EBITDA and Economic Net Income
($ in millions)
Three Months EndedDecember
31,
Twelve Months EndedDecember
31,
2018 2017 2018 2017
Net income (loss) attributable to controlling interests
$ 23.0 $ (48.8 ) $
136.4 $ 4.2 Net interest expense 5.0 6.0 21.7
23.7 Income tax expense (including tax expenses related to
discontinued operations) 16.0 131.2 5.0 132.7 Depreciation and
amortization (including intangible assets) 5.6 4.9
21.1 18.3
EBITDA $ 49.6 $
93.3 $ 184.2 $ 178.9 Non-cash
compensation costs associated with revaluation of Affiliate key
employee-owned equity and profit-sharing interests 8.7 24.4 107.2
95.4 Amortization of acquisition-related consideration and
pre-acquisition employee equity 17.7 17.7 70.6 70.6 EBITDA of
discontinued operations 0.1 — (0.1 ) 0.2 (Gain) loss on seed and
co-investments 5.0 (5.6 ) 6.4 (22.2 ) Deferred tax asset deed
revaluation (20.0 ) (51.8 ) (20.0 ) (51.8 ) Restructuring(1) 5.2
1.3 (59.3 ) 10.8 Capital transaction costs 1.5 — 1.6 — Other —
0.1 — —
Adjusted EBITDA $
67.8 $ 79.4 $ 290.6 $
281.9 Net interest expense to third parties (2.8 ) (4.4 )
(13.6 ) (18.8 ) Depreciation and amortization (3.9 ) (3.3 ) (14.5 )
(11.8 ) Tax on economic net income (15.5 ) (23.0 ) (62.7 ) (70.4 )
Economic net income $ 45.6 $
48.7 $ 199.8 $
180.9
(1) The three and twelve months ended December 31, 2018 includes
$4.8 million related to 2018 CEO transition costs and $1.6 million
related to the Company's planned redomiciling to the U.S. The
twelve months ended December 31, 2018 includes the gain on sale of
Heitman of $(65.7) million. The three and twelve months ended
December 31, 2017 include costs associated with the Heitman sale
and the 2017 CEO transition.Please see “Definitions and Additional
Notes”
Definitions and
Additional Notes
References to “BrightSphere” “BSIG” or the “Company” refer to
BrightSphere Investment Group plc; references to “OM plc” refer to
Old Mutual plc, the Company’s former parent; references to “BSUS”
or the “Center” refer to the holding company excluding the
Affiliates; references to "Landmark" refer to Landmark Partners,
LLC, acquired by the Company in August 2016. BrightSphere operates
its business through seven boutique asset management firms (the
“Affiliates”). BrightSphere’s distribution activities are conducted
in various jurisdictions through affiliated companies in accordance
with local regulatory requirements.
Given that EBITDA, Adjusted EBITDA and ENI are measures not
deemed to be in accordance with U.S. GAAP and are susceptible to
varying calculations, our EBITDA, Adjusted EBITDA and ENI may not
be comparable to similarly titled measures of other companies,
including companies in our industry, because other companies may
calculate EBITDA, Adjusted EBITDA and ENI in a different manner
than we calculate the measures.
Economic net income
The Company uses a non-GAAP performance measure referred to as
economic net income (“ENI”) to represent its view of the underlying
economic earnings of the business. ENI is used to make resource
allocation decisions, determine appropriate levels of investment or
dividend payout, manage balance sheet leverage, determine Affiliate
variable compensation and equity distributions, and incentivize
management. The Company’s ENI adjustments to U.S. GAAP include both
reclassifications of U.S. GAAP revenue and expense items, as
well as adjustments to U.S. GAAP results, primarily to exclude
non-cash, non-economic expenses, or to reflect cash benefits not
recognized under U.S. GAAP.
The Company re-categorizes certain line items
on the income statement to:
- exclude the effect of Fund
consolidation by removing the portion of Fund revenues, expenses
and investment return which is not attributable to its
shareholders;
- include within management fee revenue
any fees paid to Affiliates by consolidated Funds, which are viewed
as investment income under U.S. GAAP;
- include the Company’s share of earnings
from equity-accounted Affiliates within other income, rather than
investment income;
- treat sales-based compensation as a
general and administrative expense, rather than part of fixed
compensation and benefits;
- identify separately from operating
expenses, variable compensation and Affiliate key employee
distributions, which represent Affiliate earnings shared with
Affiliate key employees; and
- net the separate revenues and expenses
recorded under U.S. GAAP for certain Fund expenses initially paid
by its Affiliates on the Fund’s behalf and subsequently reimbursed,
to better reflect the actual economics of the Company’s
business.
The Company also makes the following adjustments to
U.S. GAAP results to more closely reflect its economic results
by:
i.
excluding non-cash expenses representing
changes in the value of Affiliate equity and profit interests held
by Affiliate key employees. These ownership interests may in
certain circumstances be repurchased by BrightSphere at a value
based on a pre-determined fixed multiple of trailing earnings and
as such this value is carried on the Company’s balance sheet as a
liability. Non-cash movements in the value of this liability are
treated as compensation expense under U.S. GAAP. However, any
equity or profit interests repurchased by BrightSphere can be used
to fund a portion of future variable compensation awards, resulting
in savings in cash variable compensation that offset the negative
cash effect of repurchasing the equity.
ii. excluding non-cash amortization or impairment expenses related
to acquired goodwill and other intangibles as these are non-cash
charges that do not result in an outflow of tangible economic
benefits from the business. It also excludes the amortization of
acquisition-related contingent consideration, as well as the value
of employee equity owned pre-acquisition, as occurred as a result
of the Landmark transaction, where such items have been included in
compensation expense as a result of ongoing service requirements
for certain employees. Please note that the revaluations related to
these acquisition-related items are included in (i) above. iii.
excluding capital transaction costs, including the costs of raising
debt or equity, gains or losses realized as a result of redeeming
debt or equity and direct incremental costs associated with
acquisitions of businesses or assets. iv. excluding seed capital
and co-investment gains, losses and related financing costs. The
net returns on these investments are considered and presented
separately from ENI because ENI is primarily a measure of the
Company’s earnings from managing client assets, which therefore
differs from earnings generated by its investments in Affiliate
products, which can be variable from period to period. v. including
cash tax benefits associated with deductions allowed for acquired
intangibles and goodwill that may not be recognized or have timing
differences compared to U.S. GAAP. vi. excluding the results of
discontinued operations attributable to controlling interests since
they are not part of the Company’s ongoing business, and
restructuring costs incurred in continuing operations. vii.
excluding deferred tax resulting from changes in tax law and
expiration of statutes, adjustments for uncertain tax positions,
deferred tax attributable to intangible assets and other unusual
items not related to current operating results to reflect ENI tax
normalization.
The Company adjusts its income tax expense to reflect any tax
impact of its ENI adjustments. Please see Table 7 for a
reconciliation of U.S. GAAP net income attributable to controlling
interests to economic net income.
Adjusted EBITDA
Adjusted EBITDA is defined as economic net income before
interest, income taxes, depreciation and amortization. The Company
notes that its calculation of Adjusted EBITDA may not be consistent
with Adjusted EBITDA as calculated by other companies. The Company
believes Adjusted EBITDA is a useful liquidity metric because it
indicates the Company’s ability to make further investments in its
business, service debt and meet working capital requirements.
Please see Table 17 for a reconciliation of U.S. GAAP net income
attributable to controlling interests to EBITDA, Adjusted EBITDA
and ENI.
Methodologies for calculating investment
performance(1):
Revenue-weighted
investment performance measures the percentage of management fee
revenue generated by Affiliate strategies which are beating
benchmarks. It calculates each strategy’s percentage weight by
taking its estimated composite revenue over total composite
revenues in each period, then sums the total percentage of revenue
for strategies outperforming.
Equal-weighted
investment performance measures the percentage of Affiliates’ scale
strategies (defined as strategies with greater than $100 million of
AUM) beating benchmarks. Each outperforming strategy over $100
million has the same weight; the calculation sums the number of
strategies outperforming relative to the total number of composites
over $100 million.
Asset-weighted
investment performance measures the percentage of AUM in strategies
beating benchmarks. It calculates each strategy’s percentage weight
by taking its composite AUM over total composite AUM in each
period, then sums the total percentage of AUM for strategies
outperforming.
______________________
(1) Barrow Hanley’s Windsor II Large Cap Value account AUM and
return are separated from Barrow Hanley’s Large Cap Value composite
in revenue-weighted, equal-weighted and asset-weighted
outperformance percentage calculations.
ENI operating earnings
ENI operating earnings represents ENI earnings before Affiliate
key employee distributions and is calculated as ENI revenue, less
ENI operating expense, less ENI variable compensation. It differs
from economic net income because it does not include the effects of
Affiliate key employee distributions, net interest expense or
income tax expense.
ENI operating margin
The ENI operating margin, which is calculated before Affiliate
key employee distributions, is used by management and is useful to
investors to evaluate the overall operating margin of the business
without regard to our various ownership levels at each of the
Affiliates. ENI operating margin is a non-GAAP efficiency measure,
calculated based on ENI operating earnings divided by ENI revenue.
The ENI operating margin is most comparable to our U.S. GAAP
operating margin.
ENI management fee revenue
ENI Management fee revenue corresponds to U.S. GAAP management
fee revenue.
Net catch-up fees
Net catch-up fees represent payment of fund management fees back
to the initial closing date for certain products with multiple
closings, less placement fees paid to third parties related to
these funds.
ENI operating expense ratio
The ENI operating expense ratio is used by management and is
useful to investors to evaluate the level of operating expense as
measured against our recurring management fee revenue. We have
provided this ratio since many operating expenses, including fixed
compensation & benefits and general and administrative expense,
are generally linked to the overall size of the business. We track
this ratio as a key measure of scale economies at BrightSphere
because in our profit sharing economic model, scale benefits both
the Affiliate employees and BrightSphere shareholders.
ENI earnings before variable
compensation
ENI earnings before variable compensation is calculated as ENI
revenue, less ENI operating expense.
ENI variable compensation ratio
The ENI variable compensation ratio is calculated as variable
compensation divided by ENI earnings before variable compensation.
It is used by management and is useful to investors to evaluate
consolidated variable compensation as measured against our ENI
earnings before variable compensation. Variable compensation is
usually awarded based on a contractual percentage of each
Affiliate’s ENI earnings before variable compensation and may be
paid in the form of cash or non-cash Affiliate equity or profit
interests. Center variable compensation includes cash and
BrightSphere equity. Non-cash variable compensation awards
typically vest over several years and are recognized as
compensation expense over that service period. The variable
compensation ratio at each Affiliate will typically be between 25%
and 35%.
ENI Affiliate key employee distribution
ratio
The Affiliate key employee distribution ratio is calculated as
Affiliate key employee distributions divided by ENI operating
earnings. The ENI Affiliate key employee distribution ratio is used
by management and is useful to investors to evaluate Affiliate key
employee distributions as measured against our ENI operating
earnings. Affiliate key employee distributions represent the share
of Affiliate profits after variable compensation that is
attributable to Affiliate key employee equity and profit interests
holders, according to their ownership interests. At certain
Affiliates, BSUS is entitled to an initial preference over profits
after variable compensation, structured such that before a
preference threshold is reached, there would be no required key
employee distributions, whereas for profits above the threshold the
key employee distribution amount would be calculated based on the
key employee economic percentages, which range from approximately
20% to 40% at our consolidated Affiliates.
U.S. GAAP operating margin
U.S. GAAP operating margin equals operating income from
continuing operations divided by total revenue.
Consolidated Funds
Financial information presented in accordance with U.S. GAAP may
include the results of consolidated pooled investment vehicles, or
Funds, managed by our Affiliates, where it has been determined that
these entities are controlled by the Company. Financial results
which are “attributable to controlling interests” exclude the
impact of Funds to the extent it is not attributable to our
shareholders.
Annualized revenue impact of net flows
(“NCCF”)
Annualized revenue impact of net flows represents the difference
between annualized management fees expected to be earned on new
accounts and net assets contributed to existing accounts, less the
annualized management fees lost on terminated accounts or net
assets withdrawn from existing accounts, including equity-accounted
Affiliates. Annualized revenue is calculated by multiplying the
annual gross fee rate for the relevant account by the net assets
gained in the account in the event of a positive flow or the net
assets lost in the account in the event of an outflow and is
designed to provide investors with a better indication of the
potential financial impact of net client cash flows.
Hard asset disposals
Net flows in Table 1, Table 2 and Table 11 include hard asset
disposals and fund distributions made by BrightSphere’s Affiliates.
This category is made up of investment-driven asset dispositions by
Landmark, investing in real estate funds and secondary private
equity; Heitman, a real estate manager; or Campbell, a timber
manager.
Derived average weighted NCCF
Derived average weighted NCCF reflects the implied NCCF if
annualized revenue represents asset flows at the weighted fee rate
for BrightSphere overall (i.e. 37.1 bps in Q4 '18). For example,
NCCF annualized revenue impact of $(12.3) million divided by the
average weighted fee rate of BrightSphere's overall AUM of 37.1 bps
equals the derived average weighted NCCF of $(3.3) billion.
n/m
"Not meaningful."
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190207005426/en/
Brett Perrymanir@bsig.com(617) 369-7300
BrightSphere Investment (NYSE:BSIG)
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