Invesco Reports Results for Three Months Ended March 31, 2013

ATLANTA, April 30, 2013 /PRNewswire/ -- Invesco Ltd. (NYSE: IVZ) today reported financial results for the three months ended March 31, 2013.

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"Invesco's continued strong investment performance and focus on meeting client needs - coupled with an enhanced level of optimism reflected in the markets - contributed to a meaningful increase in operating income and record net inflows during the first quarter," said Martin L. Flanagan, president and CEO of Invesco.  "Based on the strengthening trend of our business fundamentals, we are raising our quarterly dividend 30% to 22.5 cents."

(1)   The adjusted financial measures are all non-GAAP financial measures. See the information on pages 9 through 11 for a reconciliation to their most directly comparable U.S. GAAP measures and the notes beginning on page 18 for other important disclosures.

Assets Under Management

Total assets under management (AUM) at March 31, 2013, were $729.3 billion (December 31, 2012: $687.7 billion), an increase of $41.6 billion during the first quarter. Total net inflows were $19.2 billion for the first quarter as detailed below:

Note:  The presentation of net flows has been revised to exclude the Invesco PowerShares QQQ from long-term net flows.

Net market gains led to a $31.4 billion increase in AUM during the first quarter, compared to a $4.9 billion increase in the fourth quarter 2012. Foreign exchange rate movements led to a $9.0 billion decrease in AUM during the first quarter, compared to a $1.2 billion decrease in the fourth quarter 2012.

Average AUM during the first quarter were $712.7 billion, compared to $680.2 billion for the fourth quarter 2012, a 4.8% increase. Further analysis is included in the supplementary schedules to this release.

Earnings Summary

The company is presenting both U.S. GAAP earnings information and non-GAAP earnings information in this release. The company believes that the additional disclosure of non-GAAP earnings, as described more fully in the Form 10-K for the year ended December 31, 2012, provides further transparency into the business and allows more appropriate comparisons with our industry peers. Management uses these non-GAAP performance measures to evaluate the business, and they are consistent with internal management reporting.

Non-GAAP Earnings

This section discusses the company's first quarter 2013 compared to the fourth quarter 2012 non-GAAP financial results. The phrase "as adjusted" is used in the following earnings discussion to identify non-GAAP information, together with the non-GAAP financial measures of net revenues, adjusted operating margin, adjusted net income attributable to common shareholders and adjusted diluted EPS. The most directly comparable U.S. GAAP items are reconciled to these non-GAAP items on pages 9 through 11 of this release.

Net revenues increased by $40.6 million (5.2%) to $816.5 million in the first quarter from $775.9 million in the fourth quarter 2012. The change was principally due to increases in investment management fees and performance fees. Foreign exchange rate changes decreased first quarter net revenues by $13.4 million when compared to the fourth quarter 2012.

Investment management fees, as adjusted, increased $27.4 million (3.2%) to $892.4 million in the first quarter from $865.0 million in the fourth quarter 2012. The increase is in line with the higher average AUM after allowing for the two fewer days in the first quarter compared to the fourth quarter.  Foreign exchange rate changes decreased first quarter management fees by $16.2 million when compared to fourth quarter 2012.

Service and distribution fees, as adjusted, increased $6.9 million (3.5%) to $206.3 million in the first quarter from $199.4 million in the fourth quarter 2012, also reflecting the higher average AUM. Foreign exchange rate changes decreased first quarter service and distribution fees by $1.3 million when compared to fourth quarter 2012.

Performance fees, as adjusted, were $38.6 million in the first quarter compared to $21.1 million in the fourth quarter 2012.  The first quarter performance fees included $29.5 million generated by the U.K. and $6.5 million generated by the U.S.  Foreign exchange rate changes decreased first quarter performance fees by $1.9 million when compared to fourth quarter 2012.

Other revenues, as adjusted, decreased by $1.6 million (5.8%) in the first quarter to $25.8 million, compared to $27.4 million in the fourth quarter 2012 due a $4.9 million reduction in transaction fees from real estate fund activities partly offset by a $2.6 million improvement in UIT product revenues.  Foreign exchange rate changes decreased first quarter other revenues by $0.1 million when compared fourth quarter 2012.

Third-party distribution, service and advisory expenses, as adjusted, increased by $9.6 million (2.8%) in the first quarter to $346.6 million from $337.0 million in the fourth quarter 2012, increasing in line with higher management fees and service and distribution fees.  Foreign exchange rate changes decreased the first quarter third-party distribution, services and advisory expenses by $6.1 million.

Total operating expenses, as adjusted, increased by $3.5 million (0.7%) to $502.9 million in the first quarter from $499.4 million in the fourth quarter 2012 primarily due to increased employee compensation expenses. Foreign exchange rate changes decreased operating expenses, as adjusted, by $7.5 million when compared to the fourth quarter 2012.

Employee compensation expenses, as adjusted, increased by $9.3 million (2.7%) to $351.3 million in the first quarter from $342.0 million in the fourth quarter 2012.  The increase in the first quarter includes seasonally higher payroll tax and retirement costs, partly offset by lower variable compensation costs.  Foreign exchange rate changes decreased first quarter employee compensation expenses by $4.7 million when compared to the fourth quarter 2012. Staff annual salary increases and share-based awards were effective from March 1.

Marketing expenses, as adjusted, decreased by $0.5 million (2.1%) to $23.3 million in the first quarter from $23.8 million in the fourth quarter 2012 . Foreign exchange rate changes decreased first quarter marketing expenses by $0.3 million when compared to the fourth quarter 2012.

Property, office and technology expenses, as adjusted, decreased $2.1 million (2.9%) to $69.6 million in the first quarter from $71.7 million in the fourth quarter 2012.  Foreign exchange rate changes decreased first quarter property, office and technology expenses by $1.0 million when compared to the fourth quarter 2012.

General and administrative expenses, as adjusted, decreased $3.2 million (5.2%) to $58.7 million in the first quarter from $61.9 million in the fourth quarter 2012. The first quarter included a $2.5 million legal settlement credit. Foreign exchange rate changes decreased first quarter general and administrative expenses by $1.5 million when compared to the fourth quarter 2012.

Non-operating other income and expenses, as adjusted, included equity in earnings from partnership investments of $3.9 million in the first quarter compared to $2.8 million in the fourth quarter 2012.   Other gains and losses, net in the first quarter were a loss of $0.5 million compared to a fourth quarter 2012 loss of $0.4 million. Interest expense, as adjusted, decreased $3.0 million (23.6%) to $9.7 million in the first quarter from $12.7 million in the fourth quarter 2012 reflecting the changes made in the fourth quarter to long-term financing arrangements. The effective tax rate increased to 26.0% for the first quarter from 25.0% for the fourth quarter 2012 as the mix of profit has changed, reflecting a higher proportion from the U.S. and Continental Europe. 

U.S. GAAP Earnings

Operating revenues increased 4.5% to $1,141.8 million in the first quarter from $1,092.9 million in the fourth quarter 2012. Operating expenses decreased by 0.2% to $868.4 million in the first quarter from $870.1 million in the fourth quarter 2012.

General and administrative expenses in the first quarter included a charge of $3.0 million relating to the true up of a prior year levy from the U.K. Financial Services Compensation Scheme.  Employee compensation expenses in the first quarter included $2.4 million of employee severance expense associated with the cessation of activities related to a previous acquisition.

Operating expenses included $1.4 million of transaction and integration charges incurred in the first quarter relating to the remaining closed-end fund merger expenses associated with prior year acquisitions.  Transaction and integration charges were $2.6 million in the fourth quarter 2012.  Operating expenses also included $5.7 million of European infrastructure transformational initiative expenses for the first quarter compared to $21.7 million for the fourth quarter.  As part of the outsourcing of the U.K transfer agency, operational process changes resulted in an accounting adjustment recognizing additional distribution expense of $2.7 million in the first quarter (attributable to years prior to 2012), compared to $15.3 million in the fourth quarter 2012 included with this initiative.

Other gains and losses, net included a charge of $23.5 million in the fourth quarter 2012 related to the call premiums on the redemption of Senior Notes.

The effective tax rate reduced to 30.7% for the first quarter from 32.7% for the fourth quarter 2012.  The inclusion of non-controlling interests in consolidated investment products reduced our effective tax rate by 2.5 percentage points for the first quarter when compared to the fourth quarter 2012.

Balance Sheet and Cash Flow Statement Presentation

The company is presenting both a U.S. GAAP balance sheet and balance sheet information excluding consolidated  investment products, along with a U.S. GAAP statement of cash flows and cash flow statement information excluding consolidated investment products in this release.  The information presented excluding consolidated investment products are non-GAAP presentations.  Balance sheet and cash flow statement information before and after the consolidation of investment products are reconciled on pages 14  and 17, respectively.

The company believes that, by excluding the consolidation of investment products, the non-GAAP balance sheet and cash flow statement information provide a more representative presentation of our financial risks and the company's cash and debt positions, allowing more appropriate comparisons with our industry peers. Management uses these non-GAAP presentations to evaluate the business and the presentations are consistent with internal management reporting.  As demonstrated by the selected balance sheet data that follows, inclusion of the long-term debt of consolidated investment products within liquidity measures, such as debt-to-equity ratios, causes the company to appear to be far more indebted than is the case. 

Balance Sheets and Capital Management

Selected balance sheet information is reflected in the table below:

(1)   The balance sheet line items excluding consolidated investment products are non-GAAP financial measures. See the reconciliation information on page 14 for a fully expanded balance sheet before and after the consolidation of investment products.

(2)   The debt/equity ratio excluding CIP is a non-GAAP financial measure.  The debt/equity ratio is calculated as total debt divided by total equity for the balance sheet excluding CIP and total debt plus long-term debt of CIP divided by equity for the balance sheet including CIP.

As of March 31, 2013, the company's cash and cash equivalents were $884.7 million with total debt of $1,514.5 million.   The credit facility balance was $915.0 million at March 31, 2013, compared to $586.5 million at December 31, 2012.

The increase in the credit facility balance during the first quarter reflects the funding of the annual cash bonus payments, related employer payroll taxes, payroll taxes on annual share award vestings, and annual retirement plan contributions. Also during the first quarter the company repurchased $45.0 million of its stock, representing 1.6 million shares at a weighted average share price of $27.52, and completed the purchase of a 49% equity interest in Religare Asset Management Limited, a company incorporated in India.

Dividends paid in the first quarter were $77.2 million.  Today the company is announcing a first-quarter cash dividend of 22.5 cents per share to holders of common shares. The dividend is payable on June 7, 2013, to shareholders of record at the close of business on May 17, 2013.

Atlantic Trust Private Wealth Management

On April 11, 2013, the company announced that it has entered into a definitive agreement to sell Atlantic Trust Private Wealth Management to CIBC.  Under the terms of the transaction, CIBC will acquire Atlantic Trust for $210 million in an all-cash transaction that is expected to close, subject to regulatory approval, in the second half of 2013.  As of the second quarter 2013, Atlantic Trust will be classified as held for sale in the balance sheet and will be reflected as discontinued operations in the income statement.  Its operations will be excluded from the continuing operations of Invesco.

Headcount

As of March 31, 2013, the company had 6,132 employees, compared to 6,128 employees as of December 31, 2012.

Invesco Ltd. is a leading independent global investment management firm, dedicated to helping investors worldwide achieve their financial objectives. By delivering the combined power of our distinctive investment management capabilities, Invesco provides a wide range of investment strategies and vehicles to our retail, institutional and high net worth clients around the world. Operating in more than 20 countries, the firm is listed on the New York Stock Exchange under the symbol IVZ. Additional information is available at www.invesco.com.

Members of the investment community and general public are invited to listen to the conference call today, Tuesday, April 30, 2013, at 9:00 a.m. ET by dialing one of the following numbers: 1-866-617-1526 for U.S. and Canadian callers or 1-210-795-0624 for international callers. An audio replay of the conference call will be available until Tuesday, May 14, 2013 at 5:00 p.m. ET by calling 1-888-839-1174 for U.S. and Canadian callers or 1-203-369-3029 for international callers. A presentation highlighting the company's performance will be available during a live Webcast and on Invesco's Website at www.invesco.com.  

This release, and comments made in the associated conference call today, may include "forward-looking statements." Forward-looking statements include information concerning future results of our operations, expenses, earnings, liquidity, cash flow and capital expenditures, industry or market conditions, AUM, acquisitions and divestitures, debt and our ability to obtain additional financing or make payments, regulatory developments, demand for and pricing of our products and other aspects of our business or general economic conditions.  In addition, words such as "believes," "expects," "anticipates," "intends," "plans," "estimates," "projects," "forecasts," and future or conditional verbs such as "will," "may," "could," "should," and "would" as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements.

Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from our expectations. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in our most recent Form 10-K and subsequent Forms 10-Q, filed with the Securities and Exchange Commission.  You may obtain these reports from the SEC's website at www.sec.gov. We expressly disclaim any obligation to update the information in any public disclosure if any forward-looking statement later turns out to be inaccurate.

 

 

See pages 18 through 20 for notes to the reconciliation.