Artisan Partners Asset Management : Reports 1Q21 Results 183.3 KB

Artisan Partners Asset Management Inc. Reports 1Q21 Results

Milwaukee, WI - April 27, 2021 - Artisan Partners Asset Management Inc. (NYSE: APAM) (the "Company" or "Artisan Partners") today reported its results for the three months ended March 31, 2021, and declared a quarterly dividend.

Chairman and CEO, Eric Colson, said, "Artisan Partners is a high-value added investment firm. Our purpose is to generate and compound wealth over the long-term for our clients. We focus on investments and our investments-first culture."

"Over our 25-year history, we have generated approximately $31 billion in investment returns for our clients over and above what they would have generated in corresponding passive indexes. A hypothetical portfolio consisting of $1 million invested at the inception of each of our strategies marketed to clients would have grown from $22 million to approximately $124 million at March 31, 2021, after fees. That is $52.6 million (73.5%) more than a portfolio consisting of each strategy's corresponding passive index.

"We have a clear understanding of Who We Are as an investment firm and of the defined role we play in our clients' aggregate portfolios. By remaining focused on that defined role, we have generated outcomes that benefit and empower our clients, employees and shareholders-outcomes that compound over time and enhance our stakeholders' individual lives and communities.

"Today, we have nine investment teams and 20 investment strategies performing well for clients. Eleven of our strategies have beaten their indexes, on average, by more than 300 basis points per year since inception, after fees. Over the last 12 months, 12 of our strategies beat their indexes by more than 400 basis points after fees. Seven strategies beat their benchmarks by more than 1,000 basis points after fees. High-value added active management at Artisan Partners works."

"As an investment firm, we provide each of our investment teams with the autonomy and resources to capitalize on investment ideas, themes, dislocations and other opportunities-some of them broad, some of them relatively narrow. We add degrees of freedom to increase the instruments, tools and methods our teams can use to generate alpha. Despite relentless demands for short-term outcomes, we arbitrage time for clients and shareholders with a patient mindset.

"With our newest strategy, China Post-Venture, we have expanded degrees of freedom to invest in mainland China and private companies. With our Select Equity and International Small Cap Value strategies, both launched in 2020, we have reinvested in the value-oriented philosophy and discipline that our Global Value and International Value franchises have successfully employed for nearly 20 years. And, looking ahead, with our Credit team, we are exploring a strategy that would provide the team further flexibility to capitalize on market dislocation, allocate capital into stress and generate wealth for clients.

"These are the kind of things we are focused on as an investment firm-supporting and resourcing our investment teams and helping them further express and capitalize on their investment ideas for the benefit of clients. We will remain focused on investments. By doing so, we expect to continue to compound capital and generate meaningful outcomes for our clients, associates and shareholders."

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

		For the Three Months Ended
		March 31,		December 31,			March 31,
		2021			2020			2020
	(unaudited, in millions except per share amounts
		or as otherwise noted)
Assets Under Management (amounts in billions)
Ending	$	162.9	$	157.8	$	95.2
Average		162.9			145.0			113.8
Consolidated Financial Results (GAAP)
Revenues	$	290.7	$	261.1	$	202.8
Operating income		121.8			113.5			71.0
Operating margin		41.9 %			43.5 %			35.0 %
Net income attributable to Artisan Partners Asset Management Inc.	$	77.3	$	73.1	$	34.8
Basic earnings per share		1.19			1.15			0.53
Diluted earnings per share		1.19			1.15			0.53
Adjusted1 Financial Results
Adjusted operating income	$	121.8	$	113.5	$	71.0
Adjusted operating margin		41.9 %			43.5 %			35.0 %
Adjusted EBITDA2	$	123.5	$	116.1	$	72.8
Adjusted net income		89.8			83.7			51.7
Adjusted net income per adjusted share		1.13			1.06			0.66

______________________________________

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

• Adjusted EBITDA represents adjusted net income before interest expense, income taxes, depreciation and amortization expense.

2

March 2021 Quarter Compared to December 2020 Quarter

AUM increased to $162.9 billion at March 31, 2021, an increase of $5.1 billion, or 3%, compared to $157.8 billion at December 31, 2020, as a result of $3.7 billion of investment returns and $1.4 billion of net client cash inflows. For the quarter, average AUM increased 12% to $162.9 billion from $145.0 billion in the December 2020 quarter.

Revenues of $290.7 million in the March 2021 quarter increased $29.6 million, or 11%, from $261.1 million in the December 2020 quarter, primarily due to higher average AUM and a $3.2 million increase in performance fee revenue, partially offset by two less calendar days.

Operating expenses of $168.9 million in the March 2021 quarter increased $21.3 million, or 14%, from $147.6 million in the December 2020 quarter, primarily as a result of higher incentive compensation expense related to increased revenues and higher seasonal expenses, which include employer funded retirement and health care contributions, payroll taxes, and non-employee director compensation. Long-term incentive compensation expense also increased $2.0 million with the addition of 2021 annual awards partially offset by lower expense for prior year awards which fully amortized.

Operating margin was 41.9% in the March 2021 quarter compared to 43.5% in the December 2020 quarter.

Gains on investments were $3.3 million in the March 2021 quarter, compared to gains of $8.1 million in the December 2020 quarter. These investment gains are net of income attributable to third party shareholders of consolidated investment products.

GAAP net income was $77.3 million, or $1.19 per basic and diluted share, in the March 2021 quarter, compared to GAAP net income of $73.1 million, or $1.15 per basic and diluted share in the December 2020 quarter. Adjusted net income was $89.8 million, or $1.13 per adjusted share, in the March 2021 quarter, compared to adjusted net income of $83.7 million, or $1.06 per adjusted share, in the December 2020 quarter.

March 2021 Quarter Compared to March 2020 Quarter

AUM at March 31, 2021, was $162.9 billion, up from $95.2 billion at March 31, 2020. The change in AUM over the one-year period was due to $59.4 billion of investment returns and $9.0 billion of net client cash inflows, partially offset by $0.7 billion of Artisan Funds' distributions not reinvested. Average AUM for the March 2021 quarter was $162.9 billion, 43% higher than average AUM for the March 2020 quarter.

Revenues of $290.7 million in the March 2021 quarter increased $87.9 million, or 43%, from $202.8 million in the March 2020 quarter, primarily due to higher average AUM.

Operating expenses of $168.9 million in the March 2021 quarter increased $37.1 million, or 28%, from $131.8 million in the March 2020 quarter, primarily as a result of higher incentive compensation and third-party distribution expense related to increased revenues and increases in other compensation and benefits expenses.

Operating margin was 41.9% in the March 2021 quarter compared to 35.0% in the March 2020 quarter.

Gains on investments were $3.3 million in the March 2021 quarter, compared to losses of $8.1 million in the March 2020 quarter.

GAAP net income was $77.3 million, or $1.19 per basic and diluted share, in the March 2021 quarter, compared to GAAP net income of $34.8 million, or $0.53 per basic and diluted share, in the March 2020 quarter. Adjusted net income was $89.8 million, or $1.13 per adjusted share, in the March 2021 quarter, compared to adjusted net income of $51.7 million, or $0.66 per adjusted share, in the March 2020 quarter.

Capital Management & Balance Sheet

Cash and cash equivalents were $215.8 million at March 31, 2021, compared to $155.0 million at December 31, 2020. The Company paid a variable quarterly dividend of $0.97 per share of Class A common stock and a special dividend of $0.31 per share of Class A common stock during the March 2021 quarter. The Company had total borrowings of $200.0 million at March 31, 2021, and December 31, 2020.

During the March 2021 quarter, the Company funded a long-term incentive compensation plan with $35 million of cash.

On March 1, 2021, the Company sold 963,614 shares of Class A common stock in an underwritten offering and utilized all of the proceeds to purchase 963,614 common units of Artisan Partners Holdings. In addition, during the March 2021 quarter, limited partners of Artisan Partners Holdings exchanged 136,679 common units for 136,679 Class A common shares. The offering and exchange increased the Company's public float of Class A common stock by 1,100,293 shares, or 1.7%.

3

Total stockholders' equity was $205.1 million at March 31, 2021, compared to $191.0 million at December 31, 2020. The Company had

64.8 million Class A common shares outstanding at March 31, 2021. The Company's debt leverage ratio, calculated in accordance with its loan agreements, was 0.4X at March 31, 2021.

Dividend

The Company's board of directors declared a variable quarterly dividend of $0.88 per share of Class A common stock with respect to the March 2021 quarter. The variable quarterly dividend represents approximately 80% of the cash generated in the March 2021 quarter and will be paid on May 28, 2021, to shareholders of record as of the close of business on May 14, 2021. Based on our projections and subject to change, we expect some portion of the 2021 dividend payments to constitute a return of capital for tax purposes.

Subject to board approval each quarter, we currently expect to pay a quarterly dividend of approximately 80% of the cash the Company generates each quarter. We expect cash generation will generally equal adjusted net income plus long-term incentive compensation expense, less cash reserved for future franchise capital awards (which we expect will approximate 4% of investment management revenues each quarter), with additional adjustments made for certain other sources and uses of cash, including capital expenditures. After the end of the year, our board will consider payment of a special dividend.

*********

4

Conference Call

The Company will host a conference call on April 28, 2021 at 1:00 p.m. (Eastern Time) to discuss these results. Hosting the call will be Eric Colson, Chairman and Chief Executive Officer, and C.J. Daley, Chief Financial Officer. Supplemental materials that will be reviewed during the call are available on the Company's website at www.apam.com. The call will be webcast and can be accessed via the Company's website. Listeners may also access the call by dialing 877.328.5507 or 412.317.5423 for international callers; the conference ID is 10154131. A replay of the call will be available until May 5, 2021 at 9:00 a.m. (Eastern Time), by dialing 877.344.7529 or 412.317.0088 for international callers; the replay conference ID is 10154131. An audio recording will also be available on the Company's website.

Forward-Looking Statements and Other Disclosures

Certain statements in this release, and other written or oral statements made by or on behalf of the Company, are "forward- looking statements" within the meaning of the federal securities laws. Statements regarding future events and our future performance, as well as management's current expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. These forward-looking statements are only predictions based on current expectations and projections about future events. These forward-looking statements are subject to a number of risks and uncertainties, and there are important factors that could cause actual results, level of activity, performance, 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, change in the legislative and regulatory environment in which we operate, 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, 2020, filed with the SEC on February 23, 2021, 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. The Company undertakes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this release.

Results for any investment strategy described herein, and for different investment products within a strategy, are affected by numerous factors, including different material market or economic conditions; different investment management fee rates, brokerage commissions and other expenses; and the reinvestment of dividends or other earnings. The returns for any strategy may be positive or negative, and past performance does not guarantee future results.

Unless otherwise noted, composite returns have been presented gross of investment advisory fees applied to client accounts, but include applicable trade commissions and transaction costs. Management fees, when reflected, would reduce the results presented for an investor in an account managed within a composite. Net-of-fees composite returns presented in these materials were calculated using the highest model investment advisory fees applicable to portfolios within the composite. Fees may be higher for certain pooled vehicles, and the composite may include accounts with performance-based fees. Index returns do not reflect the payment of fees and expenses. Certain Artisan composite returns may be represented by a single account.

In these materials, we present the amount, in basis points, that our composite returns have beaten, or outperformed, their market indexes most commonly used by our separate account clients to compare the performance of the relevant strategy. These excess returns are an estimate of the amount in dollars by which Artisan's investment strategies have outperformed or underperformed the market index most commonly used by our separate account clients to compare the performance of the relevant strategy. Excess returns are calculated by (i) multiplying a strategy's beginning-of-year AUM by the difference between the returns (in basis points) of the strategy (gross of fees) and the benchmark for the ensuing year and (ii) summing all strategies' excess returns for each year calculated.

In this material we discuss the growth of our strategies for our clients over and above each strategy's benchmark returns. The growth calculation is based on investing $1 million in each Artisan composite historically marketed to investors and the market index most commonly used by our separate account clients to compare the performance of the relevant strategy, at the inception of each Artisan composite. The growth of each initial investment is based on the monthly returns of each composite, net of fees, and its respective market index from the composite inception date through March 31, 2021.

5