Q1 2021 Brightsphere Investment Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Bright Spear investment Group earnings Conference call and webcast for the first quarter 2021.
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After the presentation, we will conduct a question and answer session to.
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Please note that this call is being recorded today Thursday April 29th 2021 at 11 o'clock a M eastern time.
And I like to turn the meeting over to early Sugarman head of corporate development and Investor Relations. Please go ahead aly.
Good morning, and welcome to bright true conference call to discuss our results for the first quarter ended March 31 2021.
Before we get started please note that we may make forward looking statements about our business and financial performance. Each forward looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected additional information regarding these risks and uncertainties appears in our SEC filings, including the form 8-K.
I saw today containing the earnings release, and our 20 Twenty's form 10-K any forward looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update them as a result of new information or future events. We may also reference certain non-GAAP financial measures.
Information about any non-GAAP measures referenced including a reconciliation of those measures to GAAP measures can be found on our website along with the slides that we will use as part of today's discussion.
Finally, nothing herein shall be deemed to be an offer or solicitation to buy any investment products.
And Ron <unk>, our President and Chief Executive Officer will lead the call and now I'm pleased to turn it over to CERN Suren.
Thanks Ali.
Good morning, everyone and thanks for joining us this morning.
As usual I'll focus my initial remarks on the key highlights in the quarter, but we summarized here on slide five of the deck and then we can switch to Q&A.
So let me start with refreshing the context and remind everyone that we announced the sale of Armada suddenly a landmark in March this year, and we're expecting that transaction to close near the end of the current quarter.
The valuation we received for our bank was quite attractive.
$16 four R E V to adjusted EBITDA multiple.
And with total proceeds from the day I would do us.
$124 million pretax and $630 million after tax.
So this transaction unlocks and crystallize this significant volume for our shareholders.
Given the announced sales and factor in <unk> 'twenty, one landmark has been moved into discontinued operations.
So now we essentially have two primary Italia.
Our largest business Acadian, which comprises our quant <unk> solutions segment.
N Tfw, which comprises our liquid alpha segment.
Both Acadian and T. O W are very well positioned differentiated businesses and we will continue to follow our approach of full affiliate autonomy and managing and growing our business.
While continuing to be lean and maintaining expense discipline and our corporate center.
So with landmark now included in discontinued operations.
We don't have the alternative segment any longer.
Campbell Global our affiliate focused on forest resources, which used to be included in the alternative segment along with landmark.
Now been moved to the other segments.
Now moving to our financial results for the quarter, we reported Eni per share of 34 for the first quarter of this year compared with 30 for the first quarter of last year.
Again to be clear on Eni per both periods.
Excluding landmark if landmark was included.
It would have contributed 11 cents to our EPS or <unk> 21, and 10 cents per <unk> 'twenty.
So if you're trying to compare to our prior reporting the EPS per $1 21 would be 45, if you have landmark.
The increase in reported EPS of <unk> 34 per share compared with net 30 cents per year ago, primarily was driven by the market's recovery since then.
Cost savings that we achieved from restructuring our corporate center and finally, our share repurchase activity last year.
These three factors helped us to more than offset the absence of earnings from Barrow Hanley, which was reflected in our <unk> 'twenty results, but not in 121 since.
Since we already closed that transaction in the fourth quarter of 2020.
The EPS of <unk> 34 cents in the quarter. It was relatively flat compared to 35 for the fourth quarter of 2020.
And does it reflect the benefit of continued market appreciation, which was just about offset by the disposition of Barrow Hanley.
<unk> through 'twenty, we had earnings from Barrow Hanley for about half the quarter until the closing of that sales in the middle of that quarter, but even one till 'twenty. One we obviously had no earnings from downtown.
Our net client cash flow during the quarter were negative $2 4 billion compared to a negative $1 5 billion board into 'twenty.
Again to be clear both numbers have slowed landmarks.
And <unk> 21 in the liquid Alpha segment, we had positive net client cash flow of $1 2 billion.
We had net outflows of $3 6 billion in quantum solutions.
And the outflows in quantum solution was primarily driven by some reallocations.
From one or two strategies by select clients.
So there was a lot of lumpiness in the flows which we don't see is recovering.
For example in the second quarter, so far we're seeing positive flows in the segment.
The investment performance of both of our key affiliates.
KPN N T S. W continues to be strong.
Our Canadian long term performance strengthened further in the quarter with 57%, 84% and 91% of strategies by revenue now are beating their benchmarks over the prior three five and 10 year periods compared to 43% 50 per cent and 90% in Q4.
2020.
Turning to capital management in one June 21, we fully terminated our corporate revolving facility at the parent company level.
And assigned it to Acadian weather reduced maximum size of $125 million.
So this facility is now available only to Acadian for their general need and not to beat the parent.
As we've discussed a few times previously.
Acadian has seasonal needs in the first quarter, given the timing of the annual bonuses.
So Acadian drew $81 million from that facility and $1 21.
The seasonal need and we expect to fully paid down within the year.
Our total consolidated debt at the end of the quarter, including the seasonal Acadian draw on the revolver.
At $475 million.
Compared with the cash on our balance sheet at the end of the quarter was $450 million.
Closing the landmark sale later in the second quarter would provide us another six in that $30 million after tax.
<unk> provides ample capacity to deleverage substantially as well as return capital to our shareholders.
Now, let me turn the call back to the operator.
Happy to answer questions at this point.
If you would like to ask an audio question. Please press star one on your telephone keypad again, Thats star one to ask an audio question.
Your first question comes from the line of Craig Siegenthaler with Credit Suisse.
Good morning, Suren helpful as well.
Hi, Craig.
So.
How should we think about your capital return priorities this year between share repurchases dividends and maybe even a special dividend.
Yes, Craig.
Thinking through it.
Yeah as I said earlier, we're expecting another 630 million near.
Near the end of the quarter.
So once that capital is fully in the bag it'll.
It'll be easier to have a holistic.
<unk> and execution at that point.
Rather than trying to engage in doing although right now without having the second part will be executed.
But in terms of priorities those are though they use is essentially day.
Deleveraging and returning capital to shareholders and then the mechanism by which you would do it.
We're still working through it.
The main.
The second shoe to drop is closing on the landmark sale.
We have certainty on but it's always good to have it fully in the bag.
Thank you saw and that was it from me.
Your next question comes from the line of Glenn Schorr with Evercore ISI.
Hi, Sharon.
Hum.
Appreciate the color on the quarter and non recurring flows on the quant side, but I am still curious to hear a little bit more.
About the.
Asset reallocations that happened during the quarter, what kind of conversations you have to know that.
It's just a reallocation and is it out of equities because equity markets did well you mentioned that the rising market environment and that's to me a little bit I'm, just curious from a little more color. Thanks.
Yeah. Thank you Brett.
Yeah no.
What happens is then.
When markets are doing well and our strategies are doing well some clients. What you know do some profit taking if you will and moving to other areas that maybe you haven't done so well so we saw.
That factor in play a little day.
There were also some idiosyncratic things.
That happened given the secured from a business and that's what I alluded to Lumpiness.
For example, a larger outflow was related to.
Our client.
Reallocating because.
Our regulatory.
Concern around not having too much exposure to one manager.
So these kind of again idiosyncratic things do happen of course, some irregularly outflows.
In Florida related to.
People are just looking at what strategies will do best. So for example, we've touched on that in a rising environment managed lower volatility type of strategy.
It isn't necessarily on everyone's mind right now. So you know there are things that happen in select strategies on like that but it's a very diversified business.
And so there are other strategies regional strategy.
Strategies are different objectives that that's the inflows. So it's a combination of all of those but so definitely some videos in prestige and lumpiness.
I appreciate that maybe just a quick follow up on that because my other question was on you commented about continuing in line with product innovation side.
Wonder if you could just expand that part a little bit of both.
On the quantitative liquid alpha side that'd be great. Thanks.
Yeah. So we continue to support our affiliates with with capital, particularly in terms of seating new strategy.
And that's where that's where we can help best but but the efforts themselves are really driven by the affiliates teens based on the feedback from clients in terms of where the clients are looking for them too.
To do.
And to provide but we continue to provide.
And we encourage some yes.
To continue and develop products that we can feed now so it's essentially.
Our recurring R&D efforts, if you will.
Gotcha. Thanks, Dan appreciate it.
Thanks, Brett.
Your next question comes from the line of Mike Carrier with Bank of America.
The question sure.
Sure and just on the M&A front, given active conversations that you've had with virus, which led the successful sales of Barrow Hanley and landmark.
How have conversations been for the overall franchise during those conversations and any restrictions or headwinds in the way for for further demand.
Yeah, the M&A environment.
Over the last year and a half has been.
Very constructive in and definitely industry participants are looking for capabilities are looking for scale. There are a variety of factors that flight and as we've said too.
To the market and our shareholders that did.
Did we our primary focus is fiduciary duty to maximize shareholder value.
And we have a good plan and our affiliates are strong businesses.
And that generates really good cash flow so.
So we don't necessarily.
Have to do anything, but no, but we do as a result of our <unk>.
<unk> that we are open minded and have a fiduciary duty to maximize value. We do get inquiries from time to time and then we will review them.
Along with the with the teams and if theres anything legitimate anything of interest we are.
We discuss further so that's generally.
How we've been approaching things.
Great. Okay, and then just on capital return.
It sounds like post landmark.
Have an update on kind of the strategy. So before that so in the second quarter should we not assume much in terms of buybacks.
Okay.
Yeah, Yeah, it's really hard to peg.
I said, we'd prefer to not transit.
So essentially we would like to really have a.
A holistic plan for the entire Mt.
So yeah. So if it does anything it would be pretty close to once net off.
Now once we reach the clothing.
But we wouldn't do much in advance of getting to the closing.
Got it alright, thanks a lot.
Your next question comes from the line of Kenneth Lee with RBC capital markets.
Yeah.
Behind the motivations of assigning the corporate revolving facility to Acadian I'm just wondering if.
If there is anything else that day.
You want to share with that thanks.
You can I think we missed the first part of your question.
So if I haven't if I don't answer it.
Can I ask again, but I think I got it.
What's the motivation to it assigned the revolver to Acadian.
And that's really has to do with deleveraging that we had a large facility, which $450 million. Additionally, which will reduce because we had cash building up.
So we didn't really have a need for that much.
Net.
So we reduced it worse.
And then.
And we do have a seasonal need every year at Acadian, which is not a long term leverage need because there is a first quarter need to.
To pay bonuses and then the revenues and earnings in subsequent quarters more than pay off for that.
So it's a it's a classic.
But its line need.
So and which and it's more needed at Acadian so so.
So we basically moved it there.
Because at the parent level, we don't really have any need for credit given the excess capital we have and it's also more leverage perspective, it's a very low leverage.
Relative to Acadians, EBITDA incentives 80 million draw.
Now the fraction of there.
EBITDA.
So it's a pretty robust facility that meets their needs.
Great that's helpful and that answered my question just one.
One follow up if I may I'm wondering if you could just highlight.
Any products or strategies.
<unk> been seeing some good demand within the quarter.
Can that kind of buried.
No.
Quarter to quarter, but sleep, it's pretty diversified overall, so most strategy.
At Acadian are seeing demand T. S. W. We saw some good wins that you saw in the Codell foreclose on international.
Equity side and Acadian I got you know maybe one I touched on this earlier one strategy that we didn't see a lot of demand in this kind of environment was low volatility manage volatility.
Strategy.
But generally otherwise we did see.
You'd see a pretty good demand across across the board and we've touched on this that some of that's new strategies we're seating.
Why are not big numbers, yet they continued to get traction.
For example, in the multi asset class strategy, which goes beyond equities, but leverages the theme multifactor approach and in data.
And and philosophy.
We continue to see good traction there.
Great that's very helpful. Thanks again.
Thank you Ken.
Your next question comes from the line of Michael Cyprus with Morgan Stanley.
Hey, good morning, Thanks for taking the question maybe just another on the capital management. So it sounds like you're waiting until the landmark sale closes before I guess deciding on.
How much and how to sort of pursue that if I hear you correctly that means it would be the third quarter, sorry second quarter Conference call. In July is one where you would expect to hear an update is that right or what's the scenario, where we could hear or see something.
Any any sooner than that and maybe if you could just elaborate a little bit on why wait.
So long I think last quarter or the quarter or two before you were suggesting we would be able to hear an update in the next couple of months, which some are suggesting are thinking would be this quarter's conference call.
Yeah. So the first part Mike Yeah. That's that's accurate that we would probably have an update on our next earnings call.
No.
Or right around then we would definitely be around thereafter the clothing.
Landmark so that we know.
So they've been fully have the capital that we are.
Looking to deploy that.
That's part one and the second part yes.
Yes.
Last earnings call, we were probably expecting within a few months from then.
But then we of course had a sizable development in terms of a sale of landmark, which essentially obviously changes the magnitude of the capital we're looking to deploy and hence you know.
A reworking if you will.
All of our approach.
Is it also fair that giving you were in discussions to sell their Mark you were prohibited from buying back stock earlier in the Europe because of those discussions and if that's correct and if you were theoretically in discussions today around selling something else would that also theoretically limit your ability to buy back stock.
Over the next couple of months if theoretically if you were in such discussions.
Yes, we do have those type of constraints from time to time.
In terms of buybacks in particular or anything material that would be if we are in a blackout window before earnings or if you're on conversations real conversations on.
On a material part of the business.
Yes so.
That would that would restrict us from time to time.
Sorry, just one last one if you were to sort of sell off maybe Acadian here, but then there's a lot of cash left in the public entity and a small business with Campbell and T. S and W. I guess, how do you think about.
Small public company, a large cash position, but significantly smaller business you know what sort of scenario could such a thing.
Play out.
Yeah, we would generally.
No not considered.
That specific kind of scenario.
We very much are pleased with our businesses, where I guess you saw with would make what else what we have flows.
And with the caveat and it's a very it's a very strong business that's highly.
Regarded and reputation around the world.
So, but if but if some inquiries came in.
From the perspective of initial Julian we do consider them.
But of course, I did see even with landmark, which which is a business we bought not so many years ago.
There is some tax leakage.
And the larger.
The value to more of a tax leakage.
So we would.
That would also be a factor when considering something.
So the scenario played out that way.
So our largest business.
And pay a big tax Bill and.
And have a smaller business it's probably.
Low likelihood it would only be something is so compelling that in spite of that we go ahead.
Got it thank you very much.
Your next question comes from the line of Robert Lee with K B W.
Great. Good morning, Thanks for taking my questions.
Just real quickly.
Two questions first just.
Actual modeling question in the liquid Alpha segment is there anything I guess largely T. S and W are only DSW right now is there anything as we look at the $9 million of adjusted EBITDA.
That's a good run rate is there anything kind of seasonal.
And then around comp for some interest and you're trying to think of.
The first clean quarter without Barroway, yes, I'm just trying to.
Going to handle such a good run rate per square.
Yeah, Hi, Rob, Yes, it's mostly basically tfw now, we we announced the sale of IPM in our 10-K and Latin to be close so ICM resolve inflows are in there as well.
So that will.
So it's it's basically cleaned, but there is slight noise.
No ICM is not.
No.
It's another income so it doesn't flow into the P&L.
P&L.
So I would say next quarter would be a clean quarter.
Essentially there, but you can consider it mostly TSM.
Okay.
I mean.
Another quick question on the.
They are involved or they need dense acadian just.
Across the routine dot every I that he's moved down there its theres, but theres no.
<unk> non recourse and the whole company.
Kirk.
Right.
Yes that is right and of course as I touched on it was essentially.
Deleveraging with the driver.
Somebody moving if they were Fabian.
And having very low leverage ratios that Acadian nonrecourse to <unk> so that.
Wireless consolidated in our GAAP. It is it is not apples to apples because its nonrecourse to visa that's right.
Okay.
I guess you kind of address this from your prior comments from the tax leakage, but share reasons there.
Any noticeable or meaningful.
A deferred tax asset post the landmark deal that will remain at the Holdco or is it pretty much.
These stuff.
Yes, we pretty much used up.
Our deferred tax assets.
Last year from the earnings.
We had as well.
<unk> that we had.
But with Barrow and others, so with landmark actually we didn't have much.
Left to use.
Right.
Great.
That was my only question. Thanks, so much.
Thank you Robert.
Your next question comes from the line of Justin Ziegler with Eaton Vance.
Follow up on the transfer the revolver true Acadian I.
You just mentioned it's non recourse.
But in doing that.
Are you guys still beholden to the covenants are there shifts in how those apply to debt and leverage at the holding company.
And what does this do in terms of cash flow up to the center corporate center as well.
How does that kind of affect how bondholders might be.
At least in the unsecured basis at the holding company.
Still have that kind of EBITDA available to them.
Yeah. Thank you Justin for asking that question it seems like that it wasn't clear in the materials. So appreciate that.
Yes, so essentially that is the.
The benefit that at now at the parent level, we don't have any.
Debt to EBITDA covenants, because our bonds did not have such covenants. So, but we did have a debt to EBITDA covenant on our revolver.
So by having by.
By moving it out of the corporate structure, we don't have debt covenant at the at the parent level.
There is a debt to EBITDA covenant at Acadian level.
On the facility.
But their EBITDA.
If you look at the most recent quarters.
Hum.
Close to two X multiple up.
How much.
They they drew.
So so there is ample cushion that acadian level, given that's such a small.
Portion out there.
EBITDA narrowing any restrictions in terms of the distributions that come to the come to us of course, except in scenarios where.
If you had an extreme scenario what debt servicing with a problem in all our business went away.
Of courses.
Next to.
We wouldnt really think that's net the scenario it's conceivable scenario.
So it's a it's a prudent.
Approach essentially that's a very low leverage at Acadian level.
Hum.
No restrictions on our distributions and no covenants at the parent level.
Okay. Thanks for that clarification and as you think about the year come forward by the end of 2021 you've stated intention to delever.
You've got the call coming up in June.
You know with given you have like us kind of.
Two affiliates with.
Maybe less overall EBITDA, how are you thinking about leverage at the holding company.
Going forward and what's your target area for that.
Yes, generally we would say basically one month day below below two works.
In terms of total leverage.
And we do of course, we have.
Per to for example.
Excluding the seasonal need we have.
Shy of 400 million.
On our bonds.
<unk>.
And in our cash already has $450 million and then we would have another 630 million coming from sale of landmark.
So so we have.
Essentially.
Pretty loans that restaurant from a net basis, but you are in terms of EBIT to EBITDA multiple we would generally want to stay below two non logo okay.
Okay. Okay. Thank you very much.
Thank you.
There are no questions at this time.
Great. Thank you everyone for joining us this morning.
And we look forward to talking to everyone next quarter.
Okay.
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Thanks, Steve.
Yeah.
Good day.
Yes.
And growth.
Yes.
Yes.
With that revenue.
Peter.
Yes.
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Yes.
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Net.
In the past.
Net.
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Yes.
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No.
Yes.
Yeah.