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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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: 001-38979
| | | | | | | | |
| | BRIGHTSPHERE
Investment Group Inc. |
(Exact name of registrant as specified in its charter)
| | | | | | | | |
| Delaware | 47-1121020 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | | |
| 200 Clarendon Street, 53rd Floor | 02116 |
| Boston, | Massachusetts |
| (Address of principal executive offices) | (Zip Code) |
(617)-369-7300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Ticker Symbol | Name of each exchange on which registered |
| Common stock, par value $0.001 per share | BSIG | New York Stock Exchange |
| 4.800% Notes due 2026 | BSIG 26 | 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 ý No o
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 ý No o
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 definition 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
The number of shares of the registrant’s common stock, $0.001 per share, outstanding as of November 2, 2022 was 41,433,855.
TABLE OF CONTENTS
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| Part I | | |
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| Item 1. | | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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| Part II | | |
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| Item 1. | | |
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| Item 1A. | | |
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| Item 6. | | |
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
BrightSphere Investment Group Inc.
Condensed Consolidated Balance Sheets
(in millions, except for share and per share data, unaudited)
| | | | | | | | | | | |
| September 30,
2022 | | December 31,
2021 |
| Assets | | | |
| Cash and cash equivalents | $ | 101.4 | | | $ | 252.1 | |
| | | |
| Investment advisory fees receivable | 91.1 | | | 167.1 | |
| Income taxes receivable | 16.1 | | | 4.9 | |
| Fixed assets, net | 47.9 | | | 50.2 | |
| Right of use assets | 61.2 | | | 65.1 | |
| Investments | 45.9 | | | 54.5 | |
| | | |
| Goodwill | 20.3 | | | 20.3 | |
| Other assets | 28.1 | | | 28.2 | |
| Deferred tax assets | 62.7 | | | 72.4 | |
| | | |
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| Total assets | $ | 474.7 | | | $ | 714.8 | |
| Liabilities and stockholders’ equity | | | |
| Accounts payable and accrued expenses | $ | 22.9 | | | $ | 35.2 | |
| Accrued incentive compensation | 64.6 | | | 117.4 | |
| | | |
| | | |
| Other compensation liabilities | 60.7 | | | 103.7 | |
| Accrued income taxes | 2.7 | | | 1.1 | |
| Operating lease liabilities | 75.3 | | | 77.6 | |
| Other liabilities | 1.2 | | | 2.5 | |
| Debt: | | | |
| | | |
| Revolving credit facility | 29.0 | | | — | |
| Third party borrowings | 273.4 | | | 394.9 | |
| | | |
| | | |
| | | |
| | | |
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| | | |
| Total liabilities | 529.8 | | | 732.4 | |
| Commitments and contingencies | | | |
| | | |
| Equity: | | | |
Common stock (par value $0.001; 41,433,855 and 45,397,260 shares, respectively, issued) | — | | | — | |
| Additional paid-in capital | 0.9 | | | — | |
| Retained deficit | (42.4) | | | (6.8) | |
| Accumulated other comprehensive loss | (13.6) | | | (10.8) | |
| | | |
| | | |
| Total equity | (55.1) | | | (17.6) | |
| Total liabilities and equity | $ | 474.7 | | | $ | 714.8 | |
See Notes to Condensed Consolidated Financial Statements
3
BrightSphere Investment Group Inc.
Condensed Consolidated Statements of Operations
(in millions except for per share data, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Revenue: | | | | | | | |
| Management fees | $ | 85.7 | | | $ | 111.4 | | | $ | 281.4 | | | $ | 326.8 | |
| Performance fees | 1.1 | | | 3.4 | | | 13.1 | | | 28.4 | |
| Other revenue | — | | | 3.1 | | | — | | | 5.7 | |
| | | | | | | |
| Total revenue | 86.8 | | | 117.9 | | | 294.5 | | | 360.9 | |
| Operating expenses: | | | | | | | |
| Compensation and benefits | 34.9 | | | 67.2 | | | 108.7 | | | 193.2 | |
| General and administrative expense | 17.5 | | | 16.5 | | | 50.9 | | | 53.6 | |
| | | | | | | |
| Depreciation and amortization | 4.2 | | | 5.4 | | | 14.8 | | | 16.7 | |
| | | | | | | |
| Amortization of acquired intangibles | 0.1 | | | 0.1 | | | 0.1 | | | 0.1 | |
| Total operating expenses | 56.7 | | | 89.2 | | | 174.5 | | | 263.6 | |
| Operating income | 30.1 | | | 28.7 | | | 120.0 | | | 97.3 | |
| Non-operating income and (expense): | | | | | | | |
| Investment income (loss) | (0.4) | | | 0.3 | | | (1.2) | | | 7.6 | |
| Interest income | 0.2 | | | — | | | 0.3 | | | 0.1 | |
| Interest expense | (4.6) | | | (6.2) | | | (15.9) | | | (18.7) | |
| | | | | | | |
| Loss on extinguishment of debt | — | | | — | | | (3.2) | | | — | |
| Gain on sale of subsidiaries | — | | | 34.6 | | | — | | | 33.3 | |
| | | | | | | |
| Total non-operating income (loss) | (4.8) | | | 28.7 | | | (20.0) | | | 22.3 | |
| Income from continuing operations before taxes | 25.3 | | | 57.4 | | | 100.0 | | | 119.6 | |
| Income tax expense | 7.5 | | | 14.5 | | | 29.8 | | | 33.5 | |
| Income from continuing operations | 17.8 | | | 42.9 | | | 70.2 | | | 86.1 | |
| Income from discontinued operations, net of tax | — | | | 1.2 | | | — | | | 76.5 | |
| Gain on disposal of discontinued operations, net of tax | — | | | 185.4 | | | — | | | 694.6 | |
| Net income | 17.8 | | | 229.5 | | | 70.2 | | | 857.2 | |
| Net income attributable to non-controlling interests in consolidated Funds | — | | | — | | | — | | | 68.0 | |
| Net income attributable to controlling interests | $ | 17.8 | | | $ | 229.5 | | | $ | 70.2 | | | $ | 789.2 | |
| | | | | | | |
| Earnings per share (basic) attributable to controlling interests | $ | 0.43 | | | $ | 2.88 | | | $ | 1.66 | | | $ | 9.93 | |
| Earnings per share (diluted) attributable to controlling interests | 0.42 | | | 2.76 | | | 1.62 | | | 9.53 | |
| Continuing operations earnings per share (basic) attributable to controlling interests | 0.43 | | | 0.54 | | | 1.66 | | | 1.08 | |
| Continuing operations earnings per share (diluted) attributable to controlling interests | 0.42 | | | 0.52 | | | 1.62 | | | 1.04 | |
| Weighted average common stock outstanding | 41.4 | | | 79.6 | | | 42.3 | | | 79.4 | |
| Weighted average diluted common stock outstanding | 42.4 | | | 83.2 | | | 43.4 | | | 82.8 | |
See Notes to Condensed Consolidated Financial Statements
4
BrightSphere Investment Group Inc.
Condensed Consolidated Statements of Comprehensive Income
(in millions, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Net income | $ | 17.8 | | | $ | 229.5 | | | $ | 70.2 | | | $ | 857.2 | |
| Other comprehensive income (loss): | | | | | | | |
Amortization related to derivative securities, net of tax | 0.6 | | | 0.6 | | | 2.8 | | | 1.8 | |
| Foreign currency translation adjustment | (2.5) | | | (0.9) | | | (5.6) | | | 0.3 | |
| Total other comprehensive income (loss) | (1.9) | | | (0.3) | | | (2.8) | | | 2.1 | |
| Comprehensive income attributable to non-controlling interests in consolidated Funds | — | | | — | | | — | | | 68.0 | |
| Total comprehensive income attributable to controlling interests | $ | 15.9 | | | $ | 229.2 | | | $ | 67.4 | | | $ | 791.3 | |
See Notes to Condensed Consolidated Financial Statements
5
BrightSphere Investment Group Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three months ended September 30, 2022 and 2021
($ in millions except share data, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common stock
(millions) | | Common stock,
par
value | | Additional paid-in capital | | Retained earnings (deficit) | | Accumulated
other
comprehensive
income (loss) | | Total
stockholders’
equity | | Non-
controlling
interests | | Non-controlling
interests in
consolidated
Funds | | Total
equity | | | | |
| June 30, 2021 | 79.4 | | | $ | 0.1 | | | $ | 493.4 | | | $ | 381.6 | | | $ | (11.2) | | | $ | 863.9 | | | $ | — | | | $ | — | | | $ | 863.9 | | | | | |
| Issuance of common stock | 0.4 | | | — | | | 0.1 | | | — | | | — | | | 0.1 | | | — | | | — | | | 0.1 | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Equity-based compensation | — | | | — | | | 0.4 | | | — | | | — | | | 0.4 | | | — | | | — | | | 0.4 | | | | | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (0.9) | | | (0.9) | | | — | | | — | | | (0.9) | | | | | |
Amortization related to derivatives securities, net of tax | — | | | — | | | — | | | — | | | 0.6 | | | 0.6 | | | — | | | — | | | 0.6 | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Withholding tax related to stock option exercise | — | | | — | | | (8.9) | | | — | | | — | | | (8.9) | | | — | | | — | | | (8.9) | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Dividends ($0.01 per share) | — | | | — | | | — | | | (0.7) | | | — | | | (0.7) | | | — | | | — | | | (0.7) | | | | | |
| Net income | — | | | — | | | — | | | 229.5 | | | — | | | 229.5 | | | — | | | — | | | 229.5 | | | | | |
| September 30, 2021 | 79.8 | | | $ | 0.1 | | | $ | 485.0 | | | $ | 610.4 | | | $ | (11.5) | | | $ | 1,084.0 | | | $ | — | | | $ | — | | | $ | 1,084.0 | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | 41.4 | | | $ | — | | | $ | 0.5 | | | $ | (59.8) | | | $ | (11.7) | | | $ | (71.0) | | | $ | — | | | $ | — | | | $ | (71.0) | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Equity-based compensation | — | | | — | | | 0.4 | | | — | | | — | | | 0.4 | | | — | | | — | | | 0.4 | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (2.5) | | | (2.5) | | | — | | | — | | | (2.5) | | | | | |
Amortization related to derivatives securities, net of tax | — | | | — | | | — | | | — | | | 0.6 | | | 0.6 | | | — | | | — | | | 0.6 | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Dividends ($0.01 per share) | — | | | — | | | | | (0.4) | | | — | | | (0.4) | | | — | | | — | | | (0.4) | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income | — | | | — | | | — | | | 17.8 | | | — | | | 17.8 | | | — | | | — | | | 17.8 | | | | | |
| September 30, 2022 | 41.4 | | | $ | — | | | $ | 0.9 | | | $ | (42.4) | | | $ | (13.6) | | | $ | (55.1) | | | $ | — | | | $ | — | | | $ | (55.1) | | | | | |
See Notes to Condensed Consolidated Financial Statements
6
BrightSphere Investment Group Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the nine months ended September 30, 2022 and 2021
($ in millions except share data, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common stock
(millions) | | Common stock,
par
value | | Additional paid-in capital | | Retained earnings (deficit) | | Accumulated
other
comprehensive
income (loss) | | Total
stockholders’
equity | | Non-
controlling
interests | | Non-controlling
interests in
consolidated
Funds | | Total
equity | | | | |
| December 31, 2020 | 79.4 | | | $ | 0.1 | | | $ | 492.4 | | | $ | (176.5) | | | $ | (13.6) | | | $ | 302.4 | | | $ | 1.7 | | | $ | 80.3 | | | $ | 384.4 | | | | | |
| Issuance of common stock | 0.4 | | | — | | | 0.2 | | | — | | | — | | | 0.2 | | | — | | | — | | | 0.2 | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Capital contributions | — | | | — | | | — | | | — | | | — | | | — | | | 3.8 | | | 29.7 | | | 33.5 | | | | | |
| Equity-based compensation | — | | | — | | | 1.3 | | | — | | | — | | | 1.3 | | | — | | | — | | | 1.3 | | | | | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | 0.3 | | | 0.3 | | | — | | | — | | | 0.3 | | | | | |
Amortization related to derivatives securities, net of tax | — | | | — | | | — | | | — | | | 1.8 | | | 1.8 | | | — | | | — | | | 1.8 | | | | | |
| Withholding tax related to stock option exercise | | | | | (8.9) | | | | | | | (8.9) | | | | | | | (8.9) | | | | | |
Other changes in non-controlling interests | — | | | — | | | — | | | — | | | — | | | — | | | (5.5) | | | — | | | (5.5) | | | | | |
| Net de-consolidation of Funds | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (178.0) | | | (178.0) | | | | | |
Dividends ($0.03 per share) | — | | | — | | | — | | | (2.3) | | | — | | | (2.3) | | | — | | | — | | | (2.3) | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income | — | | | — | | | — | | | 789.2 | | | — | | | 789.2 | | | — | | | 68.0 | | | 857.2 | | | | | |
| September 30, 2021 | 79.8 | | | $ | 0.1 | | | $ | 485.0 | | | $ | 610.4 | | | $ | (11.5) | | | $ | 1,084.0 | | | $ | — | | | $ | — | | | $ | 1,084.0 | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | 45.4 | | | $ | — | | | $ | — | | | $ | (6.8) | | | $ | (10.8) | | | $ | (17.6) | | | $ | — | | | $ | — | | | $ | (17.6) | | | | | |
| Issuance of common stock | 0.2 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Repurchase of common stock | (4.2) | | | — | | | — | | | (103.2) | | | — | | | (103.2) | | | — | | | — | | | (103.2) | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Equity-based compensation | — | | | — | | | 1.8 | | | — | | | — | | | 1.8 | | | — | | | — | | | 1.8 | | | | | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (5.6) | | | (5.6) | | | — | | | — | | | (5.6) | | | | | |
Amortization related to derivative securities, net of tax | — | | | — | | | — | | | — | | | 2.8 | | | 2.8 | | | — | | | — | | | 2.8 | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Withholding tax related to stock option exercise | — | | | — | | | (0.9) | | | (1.4) | | | — | | | (2.3) | | | — | | | — | | | (2.3) | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Dividends ($0.03 per share) | — | | | — | | | — | | | (1.2) | | | — | | | (1.2) | | | — | | | — | | | (1.2) | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income | — | | | — | | | — | | | 70.2 | | | — | | | 70.2 | | | — | | | — | | | 70.2 | | | | | |
| September 30, 2022 | 41.4 | | | $ | — | | | $ | 0.9 | | | $ | (42.4) | | | $ | (13.6) | | | $ | (55.1) | | | $ | — | | | $ | — | | | $ | (55.1) | | | | | |
See Notes to Condensed Consolidated Financial Statements
7
| | | | | | | | | | | |
BrightSphere Investment Group Inc. Condensed Consolidated Statements of Cash Flows (in millions, unaudited) |
| Nine Months Ended
September 30, |
| | 2022 | | 2021 |
| Cash flows from operating activities: | | | |
| Net income | 70.2 | | | 857.2 | |
| Less: Income from discontinued operations, net of tax | — | | | (76.5) | |
| | | |
| | | |
Adjustments to reconcile net income to net cash flows from operating activities from continuing operations: | | | |
| | | |
| | | |
| Amortization of acquired intangibles | 0.1 | | | 0.1 | |
| Gain on disposal of discontinued operations, net of tax | — | | | (694.6) | |
| Loss on extinguishment of debt | 3.2 | | | — | |
| Gain on sale of subsidiaries | — | | | (33.3) | |
| Depreciation and other amortization | 14.8 | | | 16.7 | |
| Amortization of debt-related costs | 4.6 | | | 3.4 | |
| | | |
| Amortization and revaluation of non-cash compensation awards | (27.4) | | | 23.8 | |
| Net earnings from Affiliate accounted for using the equity method | — | | | (2.6) | |
| Distributions received from equity method Affiliate | — | | | 4.4 | |
| Distributions from discontinued operations | — | | | 52.7 | |
| | | |
| | | |
| | | |
| Deferred income taxes | 8.6 | | | 3.3 | |
| (Gains) losses on other investments | 5.3 | | | (6.6) | |
| Changes in operating assets and liabilities (excluding discontinued operations): | | | |
| (Increase) decrease in investment advisory fees receivable | 75.9 | | | (33.7) | |
| Increase in other receivables, prepayments, deposits and other assets | (4.9) | | | (0.1) | |
| Decrease in accrued incentive compensation, operating lease liabilities and other liabilities | (65.1) | | | (3.5) | |
| Decrease in accounts payable, accrued expenses and accrued income taxes | (22.0) | | | (88.4) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Net cash flows from operating activities of continuing operations | 63.3 | | | 22.3 | |
| Net cash flows from operating activities of discontinued operations | — | | | (7.2) | |
| Total net cash flows from operating activities | 63.3 | | | 15.1 | |
| | | |
| Cash flows from investing activities: | | | |
| Additions of fixed assets, excluding discontinued operations | (12.7) | | | (11.1) | |
| | | |
| | | |
| Cash proceeds from sale of discontinued operations | — | | | 950.2 | |
| Cash proceeds from sale of subsidiaries | — | | | 46.2 | |
| Purchase of investment securities | (5.3) | | | (2.3) | |
| Sale of investment securities | 8.7 | | | 26.0 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Net cash flows from investing activities of continuing operations | (9.3) | | | 1,009.0 | |
| Net cash flows from investing activities of discontinued operations | — | | | 3.1 | |
| Total net cash flows from investing activities | (9.3) | | | 1,012.1 | |
| | | |
See Notes to Condensed Consolidated Financial Statements
8
| | | | | | | | | | | |
BrightSphere Investment Group Inc. Condensed Consolidated Statements of Cash Flows (in millions, unaudited) |
| Nine Months Ended
September 30, |
| | 2022 | | 2021 |
| Cash flows from financing activities: | | | |
| Proceeds from revolving credit facility | 202.0 | | | 176.0 | |
| Repayment of third party borrowings and revolving credit facility | (298.0) | | | (143.0) | |
| Payment for debt issuance costs | (0.9) | | | (0.4) | |
| | | |
| Proceeds from stock issuance | — | | | 0.2 | |
| | | |
| Payment to OM plc for co-investment redemptions | (1.1) | | | (1.5) | |
| Dividends paid to stockholders | (0.8) | | | (1.5) | |
| Dividends paid to related parties | (0.4) | | | (0.9) | |
| | | |
| Repurchases of common stock | (103.2) | | | — | |
| Withholding tax payments related to stock option exercise | (2.3) | | | (8.9) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Net cash flows from financing activities of continuing operations | (204.7) | | | 20.0 | |
| Net cash flows from financing activities of discontinued operations | — | | | (27.2) | |
| Total net cash flows from financing activities | (204.7) | | | (7.2) | |
| Effect of foreign exchange rate changes on cash and cash equivalents | — | | | — | |
| Net increase (decrease) in cash and cash equivalents | (150.7) | | | 1,020.0 | |
| Cash and cash equivalents at beginning of period | $ | 252.1 | | | $ | 372.9 | |
| Cash and cash equivalents at beginning of period classified within assets held for sale | $ | — | | | $ | 31.2 | |
| | | |
| | | |
| Cash and cash equivalents at end of period from continuing operations | $ | 101.4 | | | $ | 1,424.1 | |
| | | |
| Supplemental disclosure of cash flow information: | | | |
| Interest paid | $ | 15.7 | | | $ | 18.0 | |
| Income taxes paid | 34.7 | | | 114.0 | |
| | | |
| | | |
| | | |
| | | |
See Notes to Condensed Consolidated Financial Statements
9
BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1) Organization and Description of the Business
BrightSphere Investment Group Inc. (“BrightSphere”, “BSIG” or the “Company”), through its subsidiaries, is a global asset management company. The Company provides investment management services globally to predominantly institutional investors. The Company historically held interests in a diverse group of investment management firms (the “Affiliates”) individually headquartered in the United States. The Company completed the disposition of certain Affiliates and currently operates the business through one Affiliate, Acadian Asset Management LLC (“Acadian”), within its Quant & Solutions reportable segment:
•Quant & Solutions—comprised of versatile, often highly-tailored strategies that leverage data and technology in a computational, factor-based investment process across a range of asset classes in developed and emerging markets, including global, non-U.S. and small-cap equities, as well as managed volatility, ESG, multi-asset, equity alternatives, and long/short strategies.
Acadian is organized as a limited liability company. Fees for services are largely asset-based and, as a result, the Company’s revenue fluctuates based on the performance of financial markets and investors’ asset flows in and out of the Company’s products. The Company utilizes a profit-sharing model in structuring its compensation and ownership with Acadian. Variable compensation is based on the firm’s profitability. BSIG and Acadian key employees share in profits after variable compensation according to their respective ownership interests. The profit-sharing model results in the alignment of BSIG and Acadian key employee economic interests, which is critical to the Company’s talent management strategy and long-term growth of the business.
The corporate head office is included within the Other category, along with the Company’s previously disposed affiliates, Campbell Global, LLC (“Campbell Global”) and Investment Counselors of Maryland (“ICM”), for the prior year period.
Prior to 2014, the Company was a wholly-owned subsidiary of Old Mutual plc (“OM plc”), an international long-term savings, protection, and investment group, listed on the London Stock Exchange. On October 15, 2014, the Company completed the initial public offering (the “Offering”) by OM plc pursuant to the Securities Act of 1933, as amended. Additionally, between the Offering and February 25, 2019, the Company, OM plc and/or HNA Capital U.S. (“HNA”) completed a series of transactions in the Company’s shares, including a two-step transaction announced on March 25, 2017 for a sale by OM plc of a 24.95% shareholding in the Company to HNA and a two-step transaction announced on November 19, 2018 for a sale of the substantial majority of the shares held by HNA of the Company to Paulson & Co. Inc. (“Paulson”). On February 25, 2019, this transaction was completed and Paulson held approximately 21.7% of the shares of the Company. The remaining shares held by HNA were bought back by the Company in the first quarter of 2019.
For the three months ended September 30, 2022, the Company did not repurchase any shares of common stock. For the nine months ended September 30, 2022, the Company repurchased 4,147,450 shares of common stock at an average price of $24.09 per share, or approximately $100 million in total, including commissions. For the three and nine months ended September 30, 2021, the Company did not repurchase any shares of common stock.
BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
2) Basis of Presentation and Significant Accounting Policies
The Company’s significant accounting policies are as follows:
Basis of presentation
These unaudited Condensed Consolidated Financial Statements reflect the historical balance sheets, statements of operations, comprehensive income, changes in stockholders’ equity and cash flows of the Company. Within these Condensed Consolidated Financial Statements, Paulson and its related entities, as defined above, are referred to as “related parties.”
The Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of the Company’s Condensed Consolidated Financial Statements have been included. All dollar amounts, except per-share data in the text and tables herein, are stated in millions unless otherwise indicated. Transactions between the Company and its related parties are included in the Condensed Consolidated Financial Statements, however, material intercompany balances and transactions among the Company, its consolidated Affiliates and consolidated Funds are eliminated in consolidation.
The Notes to the Condensed Consolidated Financial Statements are presented on a continuing operations basis unless otherwise noted. See Note 3, Discontinued Operations for additional information.
Certain disclosures included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (annual report on Form 10-K) are not required to be included on an interim basis in the Company’s quarterly reports on Form 10-Q. The Company has condensed or omitted these disclosures. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022. The Company’s significant accounting policies, which have been consistently applied, are summarized in those financial statements.
Use of estimates
The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from such estimates, and the differences may be material to the Condensed Consolidated Financial Statements.
New accounting standards not yet adopted
The Company has considered all newly issued accounting guidance that is applicable to the Company’s operations and the preparation of the unaudited Condensed Consolidated Financial Statements, including those that have not yet been adopted. The Company does not believe that any such guidance has or will have a material effect on its Condensed Consolidated Financial Statements and related disclosures.
BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
3) Discontinued Operations
Landmark Partners
On March 30, 2021, the Company entered into a definitive agreement with Ares Holdings L.P. (“Ares”), pursuant to which Ares agreed to purchase all of the Company’s interests in Landmark Partners LLC (“Landmark”) and the Company’s co-investments in Landmark funds. On June 2, 2021, the Company completed the sale of all its interests in Landmark to Ares for cash consideration of $690.0 million, adjusted for customary closing adjustments. The Company recognized a gain on disposal of discontinued operations of $509.2 million, net of tax of $176.6 million for the nine months ended September 30, 2021. The divestiture of Landmark met the discontinued operations criteria as it represented a strategic shift that had a major effect on the Company’s operations and financial results. The Company redeemed co-investments of $31.5 million in Landmark’s funds as of June 2, 2021 upon consummation of the sale.
Thompson, Siegel & Walmsley, LLC
On May 9, 2021, the Company entered into an agreement with Pendal Group Limited (“Pendal”), to sell all of the Company’s interests in Thompson, Siegel & Walmsley, LLC (“TSW”) and the Company’s seed investment in TSW strategies. On July 22, 2021, the Company completed the sale of all its interests in TSW to Pendal for cash consideration of $240.0 million. The Company recognized a gain on disposal of discontinued operations of $185.4 million net of tax of $74.0 million for the three and nine months ended September 30, 2021. The divestiture of TSW met the discontinued operations criteria as it represented a strategic shift that has a major effect on the Company’s operations and financial results.
BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
3) Discontinued Operations (cont.)
The major classes of revenue and expenses constituting net income from discontinued operations attributable to controlling interests for Landmark and TSW in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Revenues | $ | — | | | $ | 5.6 | | | $ | — | | | $ | 115.1 | |
| Operating expenses: | | | | | | | |
| Compensation and benefits | — | | | 3.6 | | | — | | | 91.2 | |
| General and administrative expenses | — | | | 0.4 | | | — | | | 8.1 | |
| Amortization of intangibles | — | | | — | | | — | | | 2.7 | |
| Depreciation and amortization | — | | | — | | | — | | | 0.5 | |
| Consolidated Funds’ expense | — | | | — | | | — | | | 0.1 | |
| Total operating expenses | — | | | 4.0 | | | — | | | 102.6 | |
| Operating income | — | | | 1.6 | | | — | | | 12.5 | |
| Investment gains of consolidated Funds | — | | | — | | | — | | | 68.1 | |
| | | | | | | |
| Income from discontinued operations before taxes | — | | | 1.6 | | | — | | | 80.6 | |
| Income tax expense | — | | | 0.4 | | | — | | | 4.1 | |
| Income from discontinued operations, net of tax | — | | | 1.2 | | | — | | | 76.5 | |
| | | | | | | |
| | | | | | | |
Gain on disposal, net of tax of $0.0, $74.0, $0.0, and $250.6 | — | | | 185.4 | | | — | | | 694.6 | |
| Total discontinued operations | — | | | 186.6 | | | — | | | 771.1 | |
| Income from discontinued operations attributable to non-controlling interests | — | | | — | | | — | | | 68.0 | |
| Net income from discontinued operations attributable to controlling interests | $ | — | | | $ | 186.6 | | | $ | — | | | $ | 703.1 | |
| | | | | | | |
Consolidated Funds
In connection with the sale of Landmark on June 2, 2021, the Company transferred its co-investment interests in Landmark funds to Ares for $31.5 million. The redemption resulted in the de-consolidation of consolidated Funds that were considered to be variable interest entities (“VIEs”) as of June 2, 2021 upon consummation of the sale. The criteria for discontinued operations accounting treatment were met.
BrightSphere Investment Group Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
4) Investments
Investments are comprised of the following as of the dates indicated (in millions):
| | | | | | | | | | | |
| | September 30,
2022 | | December 31,
2021 |
| | | |
| Other investments | $ | 7.8 | | | $ | 9.5 | |
| Investments related to long-term incentive compensation plans | 38.1 | | | 45.0 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total investments per Condensed Consolidated Balance Sheets | $ | 45.9 | | | $ | 54.5 | |
| | | |
Investment income (loss) is comprised of the following for the three and nine months ended September 30 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Realized and unrealized gains (losses) on other investments held at fair value | $ | (0.4) | | | $ | 0.1 | | | |
