Artisan Partners Asset Management Inc. [APAM] Filings

10-Q 1 apam-20220630.htm 10-Q apam-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022


OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			FOR THE TRANSITION PERIOD FROM TO

Commission file number: 001-35826

Artisan Partners Asset Management Inc.

(Exact name of registrant as specified in its charter)


Delaware		45-0969585
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

875 E. Wisconsin Avenue, Suite 800
Milwaukee,	WI	53202
(Address of principal executive offices)		(Zip Code)

(414) 390-6100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Class A common stock, par value $0.01 per share	APAM	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of outstanding shares of the registrant’s Class A common stock, par value $0.01 per share, Class B common stock, par value $0.01 per share, and Class C common stock, par value $0.01 per share, as of August 2, 2022 were 67,412,717, 3,086,745 and 9,126,117, respectively.

Table of Contents

TABLE OF CONTENTS


		Page
Part I	Financial Information
Item 1.	Unaudited Consolidated Financial Statements
	Unaudited Condensed Consolidated Statements of Financial Condition as of June 30, 2022 and December 31, 2021	1
	Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021	2
	Unaudited Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021	3
	Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021	4
	Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	45
Part II	Other Information
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	46
	Signatures	47

Except where the context requires otherwise, in this report, references to the “Company”, “Artisan”, “we”, “us” or “our” refer to Artisan Partners Asset Management Inc. (“APAM”) and its direct and indirect subsidiaries, including Artisan Partners Holdings LP (“Artisan Partners Holdings” or “Holdings”). On March 12, 2013, APAM closed its initial public offering and related corporate reorganization. Prior to that date, APAM was a subsidiary of Artisan Partners Holdings.

Forward-Looking Statements

This report contains, and from time to time our management may make, forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements regarding future events and our future performance, as well as management’s current expectations, beliefs, plans, estimates, or projections relating to the future, are forward-looking statements within the meaning of these laws. In some cases, you can identify these statements by forward-looking words such as “may”, “might”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue”, the negative of these terms and other comparable terminology. Forward-looking statements are only predictions based on current expectations and projections about future events. 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, the long-term impact of the COVID-19 pandemic 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, 2021, filed with the SEC on February 22, 2022, as such factors may be updated from time to time. Our periodic and current reports are accessible on the SEC’s website at www.sec.gov. We undertake no obligation to publicly update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report, except as required by law.

Table of Contents

Forward-looking statements include, but are not limited to, statements about:

•our anticipated future results of operations;

•our potential operating performance and efficiency, including our ability to operate under different and unique circumstances;

•our expectations with respect to future business initiatives;

•our expectations with respect to the performance of our investment strategies;

•our expectations with respect to future levels of assets under management, including the capacity of our strategies and client cash inflows and outflows;

•our expectations with respect to industry trends and how those trends may impact our business;

•our financing plans, cash needs and liquidity position;

•our intention to pay dividends and our expectations about the amount of those dividends;

•our expected levels of compensation of our employees, including equity- and cash-based long-term incentive compensation;

•our expectations with respect to future expenses and the level of future expenses;

•our expected tax rate, and our expectations with respect to deferred tax assets; and

•our estimates of future amounts payable pursuant to our tax receivable agreements.

Table of Contents

Part I — Financial Information

Item 1. Unaudited Consolidated Financial Statements

ARTISAN PARTNERS ASSET MANAGEMENT INC.

Unaudited Condensed Consolidated Statements of Financial Condition

(U.S. dollars in thousands, except per share amounts)


	June 30, 2022		December 31, 2021

ASSETS
Cash and cash equivalents	$	150,654	$	189,226
Accounts receivable	126,194		115,850
Investment securities	83,191		47,878
Property and equipment, net	42,940		35,313
Deferred tax assets	484,986		497,902
Restricted cash	629		629
Prepaid expenses and other assets	24,197		20,282
Operating lease assets	104,110		88,642
Assets of consolidated investment products
Cash and cash equivalents	12,636		10,916
Accounts receivable and other	24,858		6,408
Investment assets, at fair value	238,779		195,001
Total assets	$	1,293,174	$	1,208,047

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS’ EQUITY
Accounts payable, accrued expenses, and other	$	26,991	$	28,992
Accrued incentive compensation	100,113		7,521
Borrowings	199,557		199,444
Operating lease liabilities	118,550		100,303
Amounts payable under tax receivable agreements	400,975		425,427
Liabilities of consolidated investment products
Accounts payable, accrued expenses, and other	61,264		20,185
Investment liabilities, at fair value	15,352		19,179
Total liabilities	922,802		801,051
Commitments and contingencies
Redeemable noncontrolling interests	127,078		111,035
Common stock
Class A common stock ($0.01 par value per share, 500,000,000 shares authorized, 67,416,732 and 66,699,872 shares outstanding at June 30, 2022 and December 31, 2021, respectively)	674		667
Class B common stock ($0.01 par value per share, 200,000,000 shares authorized, 3,086,745 and 3,206,580 shares outstanding at June 30, 2022 and December 31, 2021, respectively)	31		32
Class C common stock ($0.01 par value per share, 400,000,000 shares authorized, 9,126,117 and 9,128,617 shares outstanding at June 30, 2022 and December 31, 2021, respectively)	91		91
Additional paid-in capital	153,134		141,835
Retained earnings	75,443		134,889
Accumulated other comprehensive income (loss)	(2,971)		(1,310)
Total Artisan Partners Asset Management Inc. stockholders’ equity	226,402		276,204
Noncontrolling interests - Artisan Partners Holdings	16,892		19,757
Total stockholders’ equity	$	243,294	$	295,961
Total liabilities, redeemable noncontrolling interests, and stockholders’ equity	$	1,293,174	$	1,208,047

The accompanying notes are an integral part of the consolidated financial statements.

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ARTISAN PARTNERS ASSET MANAGEMENT INC.

Unaudited Consolidated Statements of Operations

(U.S. dollars in thousands, except per share amounts)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Revenues
Management fees	$	251,304	$	300,870	$	532,710	$	584,835
Performance fees	84		4,079		276		10,791
Total revenues	$	251,388	$	304,949	$	532,986	$	595,626
Operating Expenses



Compensation and benefits	127,394		138,013		267,326		277,478
Distribution, servicing and marketing	6,298		7,996		13,359		15,576
Occupancy	6,698		5,508		13,280		10,700
Communication and technology	12,130		10,421		23,888		20,277
General and administrative	10,460		5,208		19,734		11,983
Total operating expenses	162,980		167,146		337,587		336,014
Total operating income	88,408		137,803		195,399		259,612
Non-operating income (expense)
Interest expense	(2,739)		(2,720)		(5,425)		(5,405)
Net gain (loss) on the tax receivable agreements	—		—		482		—
Net investment gain (loss) of consolidated investment products	(11,857)		8,328		(10,669)		15,244
Other net investment gain (loss)	(13,414)		3,935		(18,166)		4,131

Total non-operating income (expense)	(28,010)		9,543		(33,778)		13,970
Income before income taxes	60,398		147,346		161,621		273,582
Provision for income taxes	13,225		28,465		32,011		50,083
Net income before noncontrolling interests	47,173		118,881		129,610		223,499
Less: Net income attributable to noncontrolling interests - Artisan Partners Holdings	10,536		25,627		26,151		49,268
Less: Net income (loss) attributable to noncontrolling interests - consolidated investment products	(7,642)		5,047		(6,253)		8,746
Net income attributable to Artisan Partners Asset Management Inc.	$	44,279	$	88,207	$	109,712	$	165,485

Basic earnings per share	$	0.62	$	1.33	$	1.52	$	2.54
Diluted earnings per share	$	0.62	$	1.33	$	1.52	$	2.54
Basic weighted average number of common shares outstanding	62,320,372		59,821,804		62,180,483		59,292,982
Diluted weighted average number of common shares outstanding	62,350,383		59,838,374		62,211,148		59,308,759
Dividends declared per Class A common share	$	0.76	$	0.88	$	2.51	$	2.16

The accompanying notes are an integral part of the consolidated financial statements.

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ARTISAN PARTNERS ASSET MANAGEMENT INC.

Unaudited Consolidated Statements of Comprehensive Income

(U.S. dollars in thousands)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Net income before noncontrolling interests	$	47,173	$	118,881	$	129,610	$	223,499
Other comprehensive income (loss)




Foreign currency translation gain (loss)	(1,405)		64		(1,958)		237
Total other comprehensive income (loss)	(1,405)		64		(1,958)		237
Comprehensive income	45,768		118,945		127,652		223,736
Comprehensive income attributable to noncontrolling interests - Artisan Partners Holdings	10,321		25,640		25,854		49,331
Comprehensive income (loss) attributable to noncontrolling interests - consolidated investment products	(7,642)		5,047		(6,253)		8,746
Comprehensive income attributable to Artisan Partners Asset Management Inc.	$	43,089	$	88,258	$	108,051	$	165,659

The accompanying notes are an integral part of the consolidated financial statements.

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ARTISAN PARTNERS ASSET MANAGEMENT INC.

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

(U.S. dollars in thousands)



Three months ended June 30, 2022	Class A Common Stock		Class B Common Stock		Class C Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests - Artisan Partners Holdings		Total Stockholders’ Equity		Redeemable Noncontrolling Interests
















Balance at April 1, 2022	$	674	$	31	$	91	$	146,002	$	82,768	$	(1,782)	$	24,090	$	251,874	$	107,139
Net income	—		—		—		—		44,279		—		10,536		54,815		(7,642)
Other comprehensive income - foreign currency translation	—		—		—		—		—		(1,189)		(216)		(1,405)		—
Cumulative impact of changes in ownership of Artisan Partners Holdings LP	—		—		—		(1,525)		—		—		1,525		—		—
Amortization of equity-based compensation	—		—		—		8,592		—		—		1,523		10,115		—
Deferred tax assets, net of amounts payable under tax receivable agreements	—		—		—		66		—		—		—		66		—
Issuance of Class A common stock, net of issuance costs	—		—		—		(1)		—		—		—		(1)		—
Forfeitures and employee/partner terminations	—		—		—		—		—		—		—		—		—
Issuance of restricted stock awards	—		—		—		—		—		—		—		—		—
Employee net share settlement	—		—		—		—		—		—		—		—		—
Exchange of subsidiary equity	—		—		—		—		—		—		—		—		—

Capital contributions, net	—		—		—		—		—		—		—		—		27,581
Impact of deconsolidation of CIPs	—		—		—		—		—		—		—		—		—
Distributions	—		—		—		—		—		—		(20,527)		(20,527)		—
Dividends	—		—		—		—		(51,604)		—		(39)		(51,643)		—
Balance at June 30, 2022	$	674	$	31	$	91	$	153,134	$	75,443	$	(2,971)	$	16,892	$	243,294	$	127,078



Three months ended June 30, 2021	Class A Common Stock		Class B Common Stock		Class C Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests - Artisan Partners Holdings		Total Stockholders’ Equity		Redeemable Noncontrolling Interests
















Balance at April 1, 2021	$	648	$	38	$	106	$	114,757	$	68,960	$	(868)	$	21,434	$	205,075	$	124,915
Net income	—		—		—		—		88,207		—		25,627		113,834		5,047
Other comprehensive income - foreign currency translation	—		—		—		—		—		51		13		64		—

Cumulative impact of changes in ownership of Artisan Partners Holdings LP	—		—		—		(2,099)		—		—		2,099		—		—
Amortization of equity-based compensation	—		—		—		7,862		—		—		1,692		9,554		—
Deferred tax assets, net of amounts payable under tax receivable agreements	—		—		—		395		—		—		—		395		—
Issuance of Class A common stock, net of issuance costs	—		—		—		(2)		—		—		—		(2)		—
Forfeitures and employee/partner terminations	(1)		—		—		1		—		—		—		—		—
Issuance of restricted stock awards	—		—		—		—		—		—		—		—		—
Employee net share settlement	(1)		—		—		(1,059)		—		—		(232)		(1,292)		—
Exchange of subsidiary equity	2		(2)		—		—		—		—		—		—		—

Capital contributions, net	—		—		—		—		—		—		—		—		6,845
Impact of deconsolidation of CIPs	—		—		—		—		—		—		—		—		(46,349)
Distributions	—		—		—		—		—		—		(30,387)		(30,387)		—
Dividends	—		—		—		—		(56,738)		—		(39)		(56,777)		—
Balance at June 30, 2021	$	648	$	36	$	106	$	119,855	$	100,429	$	(817)	$	20,207	$	240,464	$	90,458


The accompanying notes are an integral part of the consolidated financial statements.

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Six months ended June 30, 2022	Class A Common Stock		Class B Common Stock		Class C Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests - Artisan Partners Holdings		Total Stockholders’ Equity		Redeemable Noncontrolling Interests
















Balance at January 1, 2022	$	667	$	32	$	91	$	141,835	$	134,889	$	(1,310)	$	19,757	$	295,961	$	111,035
Net income	—		—		—		—		109,712		—		26,151		135,863		(6,253)
Other comprehensive income - foreign currency translation	—		—		—		—		—		(1,657)		(301)		(1,958)		—
Cumulative impact of changes in ownership of Artisan Partners Holdings LP	—		—		—		(1,152)		—		(4)		1,156		—		—
Amortization of equity-based compensation	—		—		—		18,367		—		—		3,087		21,454		—
Deferred tax assets, net of amounts payable under tax receivable agreements	—		—		—		330		—		—		—		330		—
Issuance of Class A common stock, net of issuance costs	—		—		—		(2)		—		—		—		(2)		—
Forfeitures and employee/partner terminations	—		—		—		—		—		—		—		—		—
Issuance of restricted stock awards	8		—		—		(8)		—		—		—		—		—
Employee net share settlement	(2)		—		—		(6,236)		(25)		—		(1,157)		(7,420)		—
Exchange of subsidiary equity	1		(1)		—		—		—		—		—		—		—

Capital contributions, net	—		—		—		—		—		—		—		—		31,569
Impact of deconsolidation of CIPs	—		—		—		—		—		—		—		—		(9,273)
Distributions	—		—		—		—		—		—		(31,695)		(31,695)		—
Dividends	—		—		—		—		(169,133)		—		(106)		(169,239)		—
Balance at June 30, 2022	$	674	$	31	$	91	$	153,134	$	75,443	$	(2,971)	$	16,892	$	243,294	$	127,078



Six months ended June 30, 2021	Class A Common Stock		Class B Common Stock		Class C Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests - Artisan Partners Holdings		Total Stockholders’ Equity		Redeemable Noncontrolling Interests
















Balance at January 1, 2021	$	631	$	45	$	110	$	107,738	$	72,944	$	(991)	$	10,565	$	191,042	$	93,753
Net income	—		—		—		—		165,485		—		49,268		214,753		8,746
Other comprehensive income - foreign currency translation	—		—		—		—		—		187		50		237		—

Cumulative impact of changes in ownership of Artisan Partners Holdings LP	—		—		—		(845)		—		(13)		858		—		—
Amortization of equity-based compensation	—		—		—		16,769		—		—		3,585		20,354		—
Deferred tax assets, net of amounts payable under tax receivable agreements	—		—		—		3,839		—		—		—		3,839		—
Issuance of Class A common stock, net of issuance costs	10		—		—		46,656		—		—		—		46,666		—
Forfeitures and employee/partner terminations	(1)		—		—		1		—		—		—		—		—
Issuance of restricted stock awards	7		—		—		(7)		—		—		—		—		—
Employee net share settlement	(2)		—		—		(7,378)		—		—		(1,778)		(9,158)		—
Exchange of subsidiary equity	3		(2)		(1)		—		—		—		—		—		—
Purchase of equity and subsidiary equity	—		(7)		(3)		(46,918)		—		—		—		(46,928)		—
Capital contributions, net	—		—		—		—		—		—		—		—		55,042
Impact of deconsolidation of CIPs	—		—		—		—		—		—		—		—		(67,083)
Distributions	—		—		—		—		—		—		(42,260)		(42,260)		—
Dividends	—		—		—		—		(138,000)		—		(81)		(138,081)		—
Balance at June 30, 2021	$	648	$	36	$	106	$	119,855	$	100,429	$	(817)	$	20,207	$	240,464	$	90,458
The accompanying notes are an integral part of the consolidated financial statements.

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ARTISAN PARTNERS ASSET MANAGEMENT INC.

Unaudited Consolidated Statements of Cash Flows

(U.S. dollars in thousands)


	For the Six Months Ended June 30,
	2022		2021
Cash flows from operating activities
Net income before noncontrolling interests	$	129,610	$	223,499
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,527		3,248
Deferred income taxes	14,390		19,945


Noncash lease expense	566		(945)
Net investment (gain) loss on nonconsolidated investment securities	18,141		(4,328)
Net (gain) loss on the tax receivable agreements	(482)		—
(Gain) loss on disposal of property and equipment	2		—
Amortization of debt issuance costs	236		236
Share-based compensation	21,454		20,354
Net investment (gain) loss of consolidated investment products	10,669		(15,244)
Purchase of investments by consolidated investment products	(182,387)		(143,799)
Proceeds from sale of investments by consolidated investment products	87,023		73,923

Change in assets and liabilities resulting in an increase (decrease) in cash:
Accounts receivable	(10,346)		(21,766)
Prepaid expenses and other assets	(4,023)		(643)
Accounts payable and accrued expenses	89,255		97,681
Net change in operating assets and liabilities of consolidated investment products	40,478		7,346
Net cash provided by operating activities	218,113		259,507
Cash flows from investing activities
Acquisition of property and equipment	(1,702)		(1,343)
Leasehold improvements	(7,882)		(2,722)

Proceeds from sale of investment securities	5,164		12,813
Purchase of investment securities	(48,648)		(33,820)

Net cash used in investing activities	(53,068)		(25,072)
Cash flows from financing activities
Partnership distributions	(31,695)		(42,260)
Dividends paid	(169,239)		(138,081)




Payment under the tax receivable agreements	(25,112)		(

Artisan Partners Asset Management Inc. [APAM] Filings
10-Q	[2022-08-04]
10-Q	[2022-04-28]
10-K	[2022-02-22]
10-Q	[2021-10-27]
10-Q	[2021-08-04]
10-Q	[2021-04-28]
10-K	[2021-02-23]
10-Q	[2020-11-03]
10-Q	[2020-07-31]
10-Q	[2020-04-29]
10-K	[2020-02-18]
10-Q	[2019-10-30]
10-Q	[2019-07-31]
10-Q	[2019-05-01]
10-K	[2019-02-20]
10-Q	[2018-10-31]
10-Q	[2018-08-01]
10-Q	[2018-05-02]
10-K	[2018-02-21]
10-Q	[2017-11-01]
10-Q	[2017-08-02]
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10-Q	[2013-11-07]
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