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EX-99.1 - EXHIBIT 99.1 - BrightSphere Investment Group plc | bsig-2018331xpressreleasee.htm |
8-K - 8-K - BrightSphere Investment Group plc | bsig-q1x20188xkearningsrel.htm |
1
Q1 2018 EARNINGS PRESENTATION
May 3, 2018
Exhibit 99.2
2
Disclaimer
Forward Looking Statements
This presentation may contain forward looking statements for the purposes of the safe harbor
provision under the Private Securities Litigation Reform Act of 1995. Forward-looking statements
are identified by words such as “expect,” “anticipate,” “may,” “intends,” “believes,” “estimate,”
“project,” and other similar expressions.
Such statements involve a number of risks, uncertainties and other factors that could cause actual
results to differ materially from these forward looking statements. These factors include, but are
not limited to, the factors described in BrightSphere’s filings made with the Securities and
Exchange Commission, including our most recent Annual Report on Form 10-K, filed with the SEC
on February 28, 2018, under the heading “Risk Factors.”
Any forward-looking statements in this presentation are based on assumptions as of today and we
undertake no obligation to update these statements as a result of new information or future
events. We urge you not to place undue reliance on any forward-looking statements.
Non GAAP Financial Measures
This presentation contains non-GAAP financial measures. A reconciliation of GAAP to non-GAAP
measures is included in the appendix to this presentation.
3
Overview and Highlights
• Q1'18 U.S. GAAP EPS of $0.52 up from $0.19 in Q1’17
• Q1'18 ENI per share of $0.50 up 47.1% from Q1'17 ENI per share of $0.34, primarily driven by
increases in average assets under management and weighted average fee rate
• Net Client Cash Flows of $1.9 billion for Q1'18 producing an annualized revenue impact of $19.0
million for Q1 (2% of beginning run-rate management fees)
◦ Q1'18 inflows of $10.3 billion at approximately 49 bps and outflows and disposals of $(8.4)
billion at approximately 37 bps
• AUM of $240.1 billion down (1.2)% from Q4'17 driven by positive net client cash flows offset by
market and other declines
◦ Down (3.8)% from Q1'17 primarily impacted by the sale of Heitman partially offset by
market appreciation
• Investment performance remained strong in the first quarter
◦ Strategies representing 62%, 72% and 79% of revenue outperformed benchmarks on a 1-, 3-
and 5-year basis at March 31, 2018
• As of April 30, 1.7 million shares repurchased in the open market (or $26 million) at a weighted
average price of $15.10/share in 2018
• Increase in quarterly dividend to $0.10 per share, up 11%
• Rebranding to BrightSphere Investment Group and management transition complete
___________________________________________________________
Please see definitions and additional notes.
4
Growth Strategy
BrightSphere’s multi-boutique model is well positioned for growth, with four key areas
of focus...
___________________________________________________________
Please see definitions and additional notes
5
$260
$240
$220
$200
$180
$160
Q1'17 Q1'18
$249.7
$(32.4)
$(1.6)
$24.4
$240.1
AUM
AUM by Affiliate $B %Total
$ 99.5 41%
86.7 36%
5.2 2%
6.1 3%
2.0 1%
16.2 7%
24.4 10%
Total $ 240.1 100%
AUM Progression and Mix
AUM Progression (Last 12 Months) AUM Mix (3/31/18)
AUM
AUM by Asset Class $B %Total
US Equity - large cap value $ 54.2 22%
US Equity - all other 22.4 9%
International Equity 54.5 23%
Global Equity 40.5 17%
Emerging Markets Equity 31.3 13%
Alternatives 23.3 10%
Fixed Income 13.9 6%
Total $ 240.1 100%
AUM Progression (1st Quarter)
$260
$240
$220
$200
$180
$160
Q4'17 Q1'18
$243.0
$1.9
$(4.8)
$240.1
AUM at Period End As % of BoP AUM
Removal of
Heitman
Net flows Market and
other
% Change: (3.8)%
% Change: (1.2)%
(2.0)%
0.8%
(0.6)% 9.8%
________________________________________________
Please see definitions and additional notes
$B
$B
(13.0)%
Net flows Market and
other
6
Strong Investment Performance
Products representing ≥ 62% of revenue outperforming on a 1-, 3- and 5-year basis
Commentary
• BrightSphere uses revenue-weighted performance as its primary investment metric
◦ Ties investment performance to business performance
◦ Reflects percent of management fee revenue in products outperforming their benchmarks (1)
• BrightSphere also uses equal-weighted performance as it considers earlier stage products that may grow to have significant
impact
• Asset-weighted performance is broadly used across the industry
___________________________________________________________
(1) Excludes revenue in products which are not benchmarked; includes management fee revenue from equity-accounted Affiliates in the analysis.
(2) Data as of March 31, 2018.
(3) Revenue-Weighted: Calculates each strategy’s percentage weight by taking its estimated composite revenue over total composite revenues in each period, then sums the total percentage of strategies outperforming.
(4) Equal-Weighted (>$100m): Each strategy over $100m has the same weight, then sums the total percentage of strategies outperforming.
(5) Asset-Weighted: Calculates each strategy’s percentage weight by taking its composite AUM over total composite AUM in each period, then sums the total percentage of strategies outperforming.
(6) Barrow Hanley’s Windsor II Large Cap Value account AUM and return are separated from Barrow Hanley’s Large Cap Value composite in revenue-weighted, equal-weighted and asset-weighted outperformance percentage
calculations.
(7) Performance data as of December 31, 2017 removes Heitman composites from the calculation.
100%
80%
60%
40%
20%
0%
1-Year 3-Year 5-Year
57%
69% 74%
100%
80%
60%
40%
20%
0%
1-Year 3-Year 5-Year
59%
72% 75%
100%
80%
60%
40%
20%
0%
1-Year 3-Year 5-Year
62%
72% 79%
Revenue-Weighted (2)(3)(6)(7) Equal-Weighted (>$100m) (2)(4)(6)(7) Asset-Weighted (2)(5)(6)(7)
% outperformance vs. benchmark % outperformance vs. benchmark % outperformance vs. benchmark
Q4'17 65% 72% 83%
Q1'17 46% 59% 75%
Q4'17 59% 69% 82%
Q1'17 49% 66% 78%
Q4'17 61% 71% 74%
Q1'17 37% 49% 63%
7
Derived
Average
Weighted
NCCF ($b)(2)
Net Client Cash Flows and Revenue Impact
AUM Net Client Cash Flows (“NCCF”)
$20
$15
$10
$5
$0
-$5
-$10
$11.3
$13.5
$0.7
$(6.6)
$7.3
$(3.4)
$(7.5)
$14.6
$0.8
$13.1
$12.2
$6.8
$19.0
Revenue Impact of NCCF(1)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3(3) Q4(3) Q1
47 46 46 45 38 46 42 44 43 53 54 57 49
30 31 32 37 40 32 38 35 32 35 40 32 37
2015 2016 2017 2018
$18.9 $11.0 $32.9 $19.0
Bps inflows
Bps outflows
___________________________________________________________
(1) Annualized revenue impact of net flows represents the difference between annualized management fees expected to be earned on new accounts and net assets contributed to existing accounts, less the annualized
management fees lost on terminated accounts or net assets withdrawn from existing accounts, including equity-accounted Affiliates. Annualized revenue is calculated by multiplying the annual gross fee rate for the relevant
account by the net assets gained in the account in the event of a positive flow or the net assets lost in the account in the event of an outflow.
(2) Derived Average Weighted NCCF reflects the implied NCCF if annualized revenue impact of net flows represents asset flows at the weighted fee rate for BSIG (i.e. 41.1 bps in Q1'18). For example, NCCF annualized revenue
impact of $19.0 million divided by average weighted fee rate of BSIG’s AUM of 41.1 bps equals the derived average weighted NCCF of $4.6 billion.
(3) Heitman AUM and flows have been removed from this data.
$4
$2
$0
-$2
-$4
$(0.2)
$0.8
$(2.5)
$(3.2)
$2.4
$(2.9)
$(2.6)
$1.5
$(2.5)
$(0.3)
$0.5
$(3.7)
$1.9
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3(3) Q4(3) Q1
$ 3.3 $ 3.9 $ 0.2 $(1.9) $ 2.1 $(1.0) $(2.1) $ 4.0 $ 0.2 $ 3.4 $ 3.2 $ 1.7 $4.6
2015 2016 2017 2018
$(5.1) $(1.6) $(6.0) $1.9
$B $M
8
___________________________________________________________
(1) Excluding net catch-up fees, the weighted average fee rate for alternatives and hard asset disposals is 80 bps and 80 bps, respectively, for the three months ended March 31, 2018.
(2) Heitman AUM and flows have been removed from this data.
(3) Annualized revenue impact of net flows represents the difference between annualized management fees expected to be earned on new accounts and net assets contributed to existing accounts, less the annualized management fees lost on
terminated accounts or net assets withdrawn from existing accounts, including equity-accounted Affiliates. Annualized revenue is calculated by multiplying the annual gross fee rate for the relevant account by the net assets gained in the account in
the event of a positive flow or the net assets lost in the account in the event of an outflow.
(4) Average fee rate represents the average blended fee rate on assets for each asset class for the three months ended March 31, 2018.
$4
$3
$2
$1
$0
-$1
-$2
-$3
-$4
-$5
-$6
Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018
$(2.9) $(2.8)
$(2.4)
$(3.4)
$(1.6)
$0.4
$1.0 $1.3
$(1.7)
$0.1
$(0.9)
$(0.4)
$0.1
$0.7
$(0.4)
$1.0
$2.1
$1.9
$1.6
$2.8
Hard asset disposals
$24
$20
$16
$12
$8
$4
$0
-$4
-$8
-$12
Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018
$(5.5)
$(7.3)
$(4.9)
$(6.7)
$(2.1)
$(1.2)
$5.9 $6.7
$(0.9)
$(1.6) $(0.5)
$(0.2)
$0.5
$(2.5)
$9.4
$15.6 $13.1
$14.9
$22.1
Net Client Cash Flows Breakdown
AUM Net Client Cash Flows (“NCCF”) - by Asset Class Revenue Impact of NCCF - by Asset Class
Total
Revenue
Impact(3)
$0.8 $13.1 $12.2 $6.8 $19.0
U.S. Equity Global/non-U.S. Equity Fixed Income Alternatives Avg. Fee Rate (bps)(4)
Total
NCCF $(2.5) $(0.3) $0.5 $(3.7) $1.9
20
25
41
112
$M$B
112
$(0.8)
$(0.6) $(0.2)
$(0.1)
(2)
$(0.1)
$(0.1)
(2) (2)
(2)
$(0.3) $(0.6)
$(0.3)
$(0.3)
$(0.1)
(1)
(1)
9
Financial Highlights – Q1 2018 v. Q1 2017
• Q1'18 economic net income up 41.1% to $54.9 million ($0.50 per share) from $38.9 million ($0.34 per share) in Q1'17
• ENI revenue increase of $49.0 million, or 24.6%, to $247.8 million in Q1'18
◦ Management fees increased 25.2% to $245.0 million, including net catch-up fees(1), reflecting a 14.1% increase
in consolidated Affiliate average AUM along with a 3.6 bps increase in average yield to 41.0 bps(2)
◦ Performance fees increased to $2.0 million in Q1'18 from $0.2 million in Q1'17
• The sum of ENI operating expense and variable compensation rose 17.4% to $148.5 million, driven by higher fixed
compensation and benefits, G&A and variable compensation
◦ Operating expenses up 12.4% from year-ago quarter to $84.6 million, reflecting ongoing investment in the
business, while the operating expense ratio(3) decreased (395) bps to 34.5% reflecting the impact of net catch-
up fees(1) and Center expense reduction
◦ Variable compensation up 24.8% to $63.9 million, representing 39.2% of earnings before variable
compensation, primarily due to growth of earnings before variable compensation
• ENI operating margin of 40.1% improved 370 bps over operating margin of 36.4% in year-ago quarter
• Adjusted EBITDA of $79.0 million, a 31.9% increase from $59.9 million in Q1'17
• Third party debt of $392.9 million(4) at March 31, 2018 represents 1.3x trailing twelve months Adjusted EBITDA
• Q1’18 effective tax rate of 23.1% decreased primarily due to impact of U.S. Tax Act, offset by increase in U.K. taxes
___________________________________________________________
Please see definitions and additional notes.
(1) Net catch-up fees reflect payment of fund management fees back to the initial closing date for certain products with multiple closings, less placement fees paid to third parties related to these funds.
(2) Excludes equity-accounted Affiliates. Weighted average fee rate expected to be in range of 38-39 bps for 2018.
(3) The Operating Expense Ratio reflects total ENI operating expenses as a percent of management fees.
(4) Excludes non-recourse borrowings.
10
45
40
35
30
25
20
Q1'17 Q2'17 Q3'17 Q4'17 Q1'18
37.3 37.3 37.4 37.7 38.0
Average AUM(1)
$300
$250
$200
$150
$100
$50
$0
Q1'17 Q2'17 Q3'17 Q4'17 Q1'18
$212 $221 $229 $237 $242
ENI Per Share(5)
Pre-tax ENI
$80
$70
$60
$50
$40
$30
Q1'17 Q2'17 Q3'17 Q4'17 Q1'18
$52
$58 $63 $61
$70
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
$0.00
Q1'17 Q2'17 Q3'17 Q4'17 Q1'18
$0.34 $0.39
$0.42 $0.39
$0.49
ENI Revenue(2)
$280
$240
$200
$160
$120
$80
$40
Q1'17 Q2'17 Q3'17 Q4'17 Q1'18
$199 $210
$228 $238 $246
$248
___________________________________________________________
Please see definitions and additional notes.
(1) Operational information (AUM and flows) excludes Heitman beginning in the third quarter of 2017.
(2) ENI Revenue consists of management fees, performance fees, and other income, which primarily consists of earnings of our equity-accounted Affiliates.
(3) Represents fee rate for consolidated Affiliates; excludes fees for equity-accounted Affiliates.
(4) ENI Operating Margin represents ENI operating margin before Affiliate key employee distributions. This is a non-GAAP efficiency measure, calculated based on ENI operating earnings divided by ENI Revenue.
(5) ENI per share is calculated as economic net income divided by weighted average diluted shares outstanding.
(6) Net catch-up fees reflect payment of fund management fees back to the initial closing date for certain products with multiple closings, less placement fees paid to third parties related to these funds.
Consolidated Asset Growth and Fee Mix Benefits Q1'18 Results
Despite Recent Volatile Markets
$200
$150
$100
$50
Q2’15 Q3’15 Q4’15 Q1’16 Q2’16
$167 $163 $161 $153
$249
Fee Rate (Basis Points)(3) ENI Operating Margin(4)
$0.44
$0.34
$0.42
% Change Q1'17 to Q1'18: (0.5)% % Change Q1'17 to Q1'18: 24.6%
% Change Q1'17 to Q1'18: 47.1%
$252
Performance
Fees
$221
$0.43
Performance
Fees
$248
% Change ex. perf. fees: 23.8%
$72
$52
$63
$71
Performance
Fees% Change Q1'17 to Q1'18: 36.3%
45%
38%
31%
24%
17%
10%
Q1'17 Q2'17 Q3'17 Q4'17 Q1'18
36.3% 37.9% 38.7% 36.7%
40.0%
40.1%
36.4% 38.1% 38.9%
Performance
Fees
$0.50
% Change ex. perf. fees: 35.0%
$m$b $m
$228
$64
38.8%
2.3%
3.3%
14.7%
25.6%
% Change ex perf. fees: 44.1%
(0.4)%
13.6%
(1.8)%
Equity-accounted
Affiliates
$239 $231 $245
2.4%
% Change, consolidated Affiliates: 14.1%
$255 $246
$199
Net catch-up
fees(6)
37.4 37.5 38.4
39.2 41.0
11
Management Fee Growth Driven By Increase in Average Assets at
Consolidated Affiliates With Higher Fee Products
___________________________________________________________________________________________________________
(1) Figures in parenthesis represent the percent of the total respective bar.
(2) Excludes equity-accounted Affiliates.
(3) Excluding net catch-up fees the total weighted average fee rate is 37.3 bps and 38.0 bps for the three months ended March 31, 2017 and 2018, respectively.
(4) Excluding net catch-up fees the alternatives weighted average fee rate is 82 bps and 80 bps for the three months ended March 31, 2017 and 2018, respectively.
(5) Excluding net catch-up fees the alternatives ENI management fee revenue is $35.1 million and $44.2 million for the three months ended March 31, 2017 and 2018, respectively.
$250
$200
$150
$100
$50
$0
Q1 2017 Q1 2018
$212.4
$242.4
ENI Management Fee Revenue by Asset Class(1)(2)Average AUM and Fee Rate by Asset Class(1)(2)
U.S. Equity Global/non-U.S. Equity Fixed Income Alternatives Avg. Fee Rate (bps)
$B Avg. AUM
% Change
29%
1%
27%
(3)% 25
% Change: 14.1%
42
21
83
25
41
20
112
$250
$200
$150
$100
$50
$0
Q1 2017 Q1 2018
$195.7
$245.0
$M
% Change
76%
(4)%
24%
(4)%
% Chan
ge: 25.2%
$80.5 (38%)
$101.1 (48%)
$ 13.5 (6%)
$17.3 (8%)
$22.4 (9%)
$13.6 (6%)
$128.3 (53%)
$78.1 (32%)
$49.6 (25%)
$103.7 (53%)
$35.3 (18%)
$7.1 (4%)
$ 47.6 (19%)
$128.6 (53%)
$62.0 (25%)
$6.8 (3%)
37.4
41.0
(3)
(3)
(4)
(4)
(5)
(5)
12
Total ENI Operating Expenses
($M) Q1'18 Q4'17 Q1'17 Q-O-Q Q-O-Q
$M % of MFs(2) $M % of MFs(2) $M % of MFs(2)
Q1'18 vs.
Q4'17
Q1'18 vs.
Q1'17
Fixed compensation and benefits $ 46.9 19.1% $ 45.8 19.6% $ 42.8 21.9% 2% 10%
G&A expenses (excl. sales based compensation) 29.4 12.0% 30.6 13.1% 25.6 13.1% (4)% 15%
Depreciation and amortization 3.4 1.4% 3.3 1.4% 2.5 1.2% 3% 36%
Core operating expense subtotal $ 79.7 32.5% $ 79.7 34.1% $ 70.9 36.2% —% 12%
Sales based compensation 4.9 2.0% 5.1 2.2% 4.4 2.2% (4)% 11%
Total ENI operating expenses $ 84.6 34.5% $ 84.8 36.3% $ 75.3 38.5% —% 12%
Note: Management fees $ 245.0 $ 233.9 $ 195.7 5% 25%
Note: Management fees excluding net catch-up fees 227.2 225.3 195.5 1% 16%
• Total ENI operating expenses reflect Affiliate operating expenses, Center expenses and key initiatives, including Global Distribution
(excluding variable compensation)
• Q1'18 operating expense ratio(1) decreased to 34.5% for the period, reflecting higher net catch-up fees and Center expense
reduction
• Expense increase reflects higher fixed compensation and benefits and general and administrative expenses as a result of normal
growth of the business
• Operating expense ratio(1) is expected to normalize in Q2-Q4. Full-year operating expense ratio(1) expected to be approximately
36%
__________________________________________________________
(1) Operating expense ratio reflects total ENI operating expenses as a percent of management fees.
(2) Represents reported ENI management fee revenue.
BrightSphere Benefited From Scale Efficiencies
Commentary
13
Variable Compensation
($M) Q-O-Q Q-O-Q
Q1'18 Q4'17 Q1'17
Q1'18 vs.
Q4'17
Q1'18 vs.
Q1'17
Cash variable compensation $ 59.7 $ 64.3 $ 45.0 (7)% 33%
Add: Non-cash equity-based award amortization 4.2 5.3 6.2 (21)% (32)%
Variable compensation 63.9 69.6 51.2 (8)% 25%
Earnings before variable compensation $ 163.2 $ 167.5 $ 123.5 (3)% 32%
Variable Compensation Ratio (VC as % of earnings before variable comp.) 39.2% 41.6% 41.5% (240) bps (230) bps
• Variable compensation typically awarded based on contractual percentage (e.g., ~25 – 35%) of each Affiliate’s ENI earnings before
variable compensation, plus Center bonuses; also includes contractual split of certain performance fees
◦ Affiliate variable compensation includes cash and equity provided through recycling
◦ Center variable compensation includes cash and BSIG equity
• In Q1’18, cash variable compensation up primarily as a result of higher earnings before variable compensation; reduction in non-
cash amortization reflects Center cost reduction
• Q1’18 Variable Compensation Ratio decreased to 39.2% from 41.5% in the year-ago quarter; ratio decreased due to higher growth
in earnings before variable compensation and lower Center variable compensation
• Full-year Variable Compensation Ratio expected to be approximately 41%
___________________________________________________________
Please see definitions and additional notes.
Cash Variable Compensation In Line With Business Profitability
Commentary
14
Affiliate Key Employee Distributions
($M) Q-O-Q Q-O-Q
Q1'18 Q4'17 Q1’17
Q1'18 vs.
Q4'17
Q1'18 vs.
Q1'17
Earnings after variable compensation (ENI operating earnings) $ 99.3 $ 97.9 $ 72.3 1% 37%
Less: Affiliate key employee distributions (23.7) (21.8) (14.9) 9% 59%
Earnings after Affiliate key employee distributions $ 75.6 $ 76.1 $ 57.4 (1)% 32%
Affiliate Key Employee Distribution Ratio ( / ) 23.9% 22.3% 20.6% 160 bps 326 bps
• Represents employees’ share of profit from their respective Affiliates, in some cases following an initial preference to BSIG and
other equity holders(1)
• Q1'18 distribution ratio of 23.9% higher than Q1'17 primarily due to relative growth (particularly net catch-up fees) at Affiliates
with higher employee ownership and leveraged equity structures
• Full-year distribution ratio expected to be approximately 22%
__________________________________________________________
(1) For consolidated Affiliates.
Distribution Ratio Increased Due to Continued Growth and Certain
Leveraged Employee Equity Structures
Commentary
A
B A
B
15
Balance Sheet
($M)
March 31, 2018
December 31,
2017
Assets
Cash and cash equivalents $ 177.1 $ 186.3
Investment advisory fees receivable 211.5 208.3
Investments 207.9 244.4
Other assets 694.6 698.8
Assets of consolidated Funds 144.3 153.9
Total assets $ 1,435.4 $ 1,491.7
Liabilities and shareholders’ equity
Accounts payable and accrued expenses $ 127.6 $ 241.0
Due to OM plc 53.7 59.1
Non-recourse borrowings — 33.5
Third party borrowings 392.9 392.8
Other liabilities 645.7 583.5
Liabilities of consolidated Funds 6.3 10.5
Total liabilities 1,226.2 1,320.4
Shareholders’ equity 122.7 75.4
Non-controlling interests, including NCI of consolidated
Funds 86.5 95.9
Total equity 209.2 171.3
Total liabilities and equity $ 1,435.4 $ 1,491.7
Average quarterly diluted shares (ENI) 109.6 109.9
Leverage ratio(1) 1.3x 1.4x
Balance Sheet Management Provides Ongoing Opportunities to
Increase Shareholder Value
• $0.10 per share interim dividend approved, reflecting 20%
payout rate
◦ Payable June 29 to shareholders of record as of June 15
◦ 11% increase from prior dividend rate of $0.09 per share
per quarter
• Financial capacity remains for potential cash acquisition
◦ After-tax proceeds from Heitman transaction in addition to
cash generation and borrowing ability
◦ Full capacity available on $350 million Revolving Credit
Facility
• Through April 30, the Company has purchased 1,714,091
shares in the open market at a weighted average price of
$15.10/share in 2018
• March 31 leverage ratio (Debt / Adj. EBITDA) of 1.3x below
target range of 1.75x - 2.25x
• Cash of $177.1 million includes $56.3 million at the Affiliates
and $120.8 million at the Center
• Repaid full $33.5 million non-recourse seed facility during the
quarter
• Shareholders’ equity impacted by approximately $43 million
net gain on Heitman sale
Capital
Dividend, Investment & Buyback
_______________________________________________________________
(1) Excludes non-recourse borrowings as of December 31, 2017.
16
Appendix
17
i. Exclude non-cash expenses representing
changes in the value of Affiliate equity and
profit interests held by Affiliate key
employees
ii. Exclude non-cash amortization or impairment
expenses related to acquired goodwill and
other intangibles, as well as the amortization
of acquisition-related contingent
consideration and the value of employee
equity owned prior to acquisitions. Please
note that the revaluations related to these
acquisition-related items are included in (1)
above
iii. Exclude capital transaction costs including the
costs of raising debt or equity, gains or losses
realized as a result of redeeming debt or
equity and direct incremental costs associated
with acquisitions of businesses or assets
iv. Exclude gains/losses on seed capital and co-
investments, as well as related financing costs
v. Include cash tax benefits related to tax
amortization of acquired intangibles
vi. Exclude results of discontinued operations as
they are not part of the ongoing business, and
restructuring costs incurred in continuing
operations which represent an exit from a
distinct product or line of business
vii. Exclude one-off tax benefits or costs
unrelated to current operations
Reconciliation: GAAP to ENI and Adjusted EBITDA(1)
ENI Adjustments($M) Three Months Ended
March 31,
2018 2017
U.S. GAAP net income attributable to controlling interests $ 57.3 $ 21.4
Adjustments to reflect the economic earnings of the Company:
Non-cash key employee-owned equity and profit interest revaluations(2) 29.9 11.9
Amortization of acquired intangible assets, acquisition-related consideration and pre-
acquisition employee equity(2) 19.2 19.2
Capital transaction costs(2) — —
Seed/Co-investment (gains) losses and financings(2) 1.8 (5.8)
Tax benefit of goodwill and acquired intangible deductions 1.5 2.2
Discontinued operations and restructuring(3) (65.6) 0.1
Total adjustment to reflect earnings of the Company $ (13.2) $ 27.6
Tax effect of above adjustments(2) 4.0 (10.2)
ENI tax normalization 6.8 0.1
Economic net income $ 54.9 $ 38.9
ENI net interest expense to third parties 4.2 5.0
Depreciation and amortization 3.4 2.5
Tax on Economic Net Income 16.5 13.5
Adjusted EBITDA $ 79.0 $ 59.9
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(1) Refer to slide 2. For further information and additional reconciliations between GAAP and non-GAAP measures, see the Company’s
quarterly earnings release on Form 8-K and Quarterly Report on Form 10-Q.
(2) Tax-affected items for which adjustments are included in “Tax effect of above adjustments” line; includes restructuring component of
discontinued operations and restructuring line taxed at 27.3% U.S. statutory rate (including state tax) and 40.2% U.S. statutory tax rate
in 2017 (including state tax).
(3) Included in restructuring for the three months ended March 31, 2018 is the $65.7 million pre-tax gain on the sale of Heitman.
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Definitions and Additional Notes
References to “BrightSphere” “BSIG” or the “Company” refer to BrightSphere Investment Group plc; references to “OM plc” refer to Old Mutual plc, the Company’s former parent; references to
“BSUS” or the “Center” refer to the holding company excluding the Affiliates; references to "Landmark" refer to Landmark Partners, LLC, acquired by the Company in August 2016. BrightSphere
operates its business through seven boutique asset management firms (the “Affiliates”). BrightSphere’s distribution activities are conducted in various jurisdictions through affiliated companies
in accordance with local regulatory requirements.
The Company uses a non-GAAP performance measure referred to as economic net income (“ENI”) to represent its view of the underlying economic earnings of the business. ENI is used to
make resource allocation decisions, determine appropriate levels of investment or dividend payout, manage balance sheet leverage, determine Affiliate variable compensation and equity
distributions, and incentivize management. The Company’s ENI adjustments to U.S. GAAP include both reclassifications of U.S. GAAP revenue and expense items, as well as adjustments to
U.S. GAAP results, primarily to exclude non-cash, non-economic expenses, or to reflect cash benefits not recognized under U.S. GAAP.
The Company re-categorizes certain line items on the income statement to:
• exclude the effect of Fund consolidation by removing the portion of Fund revenues, expenses and investment return which is not attributable to its shareholders.
• include within management fee revenue any fees paid to Affiliates by consolidated Funds, which are viewed as investment income under U.S. GAAP.
• include the Company’s share of earnings from equity-accounted Affiliates within other income, rather than investment income;
• treat sales-based compensation as a general and administrative expense, rather than part of fixed compensation and benefits;
• identify separately from operating expenses, variable compensation and Affiliate key employee distributions, which represent Affiliate earnings shared with Affiliate key
employees.
• net the separate revenues and expenses recorded under U.S. GAAP for certain Fund expenses initially paid by the Company’s Affiliates on the Fund’s behalf and subsequently
reimbursed, to better reflect the actual economics of its business.
The Company also makes the following adjustments to U.S. GAAP results to more closely reflect its economic results by:
i. excluding non-cash expenses representing changes in the value of Affiliate equity and profit interests held by Affiliate key employees. These ownership interests may in certain
circumstances be repurchased by BrightSphere at a value based on a pre-determined fixed multiple of trailing earnings and as such this value is carried on the Company’s balance
sheet as a liability. Non-cash movements in the value of this liability are treated as compensation expense under U.S. GAAP. However, any equity or profit interests repurchased by
BrightSphere can be used to fund a portion of future variable compensation awards, resulting in savings in cash variable compensation that offset the negative cash effect of
repurchasing the equity.
ii. excluding non-cash amortization or impairment expenses related to acquired goodwill and other intangibles as these are non-cash charges that do not result in an outflow of
tangible economic benefits from the business. It also excludes the amortization of acquisition-related contingent consideration, as well as the value of employee equity owned
pre-acquisition, as occurred as a result of the Landmark transaction, where such items have been included in compensation expense as a result of ongoing service requirements
for certain employees. Please note that the revaluations related to these acquisition-related items are included in (i) above.
iii. excluding capital transaction costs, including the costs of raising debt or equity, gains or losses realized as a result of redeeming debt or equity and direct incremental costs
associated with acquisitions of businesses or assets.
iv. excluding seed capital and co-investment gains, losses and related financing costs. The net returns on these investments are considered and presented separately from ENI
because ENI is primarily a measure of the Company’s earnings from managing client assets, which therefore differs from earnings generated by its investments in Affiliate
products, which can be variable from period to period.
v. including cash tax benefits associated with deductions allowed for acquired intangibles and goodwill that may not be recognized or have timing differences compared to U.S.
GAAP.
vi. excluding the results of discontinued operations attributable to controlling interests since they are not part of the Company’s ongoing business, and restructuring costs incurred in
continuing operations which represent an exit from a distinct product or line of business.
vii. excluding deferred tax resulting from changes in tax law and expiration of statutes, adjustments for uncertain tax positions, deferred tax attributable to intangible assets and other
unusual items not related to current operating results to reflect ENI tax normalization.
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The Company adjusts its income tax expense to reflect any tax impact of its ENI adjustments. Please see Slide 17 for a reconciliation of U.S. GAAP net income attributable to controlling interests to
economic net income.
Adjusted EBITDA
Adjusted EBITDA is defined as economic net income before interest, income taxes, depreciation and amortization. The Company notes that its calculation of Adjusted EBITDA may not be consistent
with Adjusted EBITDA as calculated by other companies. The Company believes Adjusted EBITDA is a useful liquidity metric because it indicates the Company’s ability to make further investments in
its business, service debt and meet working capital requirements. Please see Slide 17 for a reconciliation of U.S. GAAP net income attributable to controlling interests to ENI and Adjusted EBITDA.
Methodologies for calculating investment performance(1):
Revenue-weighted investment performance measures the percentage of management fee revenue generated by Affiliate strategies which are beating benchmarks. It calculates each
strategy’s percentage weight by taking its estimated composite revenue over total composite revenues in each period, then sums the total percentage of revenue for strategies
outperforming.
Equal-weighted investment performance measures the percentage of Affiliates’ scale strategies (defined as strategies with greater than $100 million of AUM) beating benchmarks. Each
outperforming strategy over $100 million has the same weight; the calculation sums the number of strategies outperforming relative to the total number of composites over $100 million.
Asset-weighted investment performance measures the percentage of AUM in strategies beating benchmarks. It calculates each strategy’s percentage weight by taking its composite AUM
over total composite AUM in each period, then sums the total percentage of AUM for strategies outperforming.
ENI operating earnings
ENI operating earnings represents ENI earnings before Affiliate key employee distributions and is calculated as ENI revenue, less ENI operating expense, less ENI variable compensation. It differs
from economic net income because it does not include the effects of Affiliate key employee distributions, net interest expense or income tax expense.
ENI operating margin
The ENI operating margin, which is calculated before Affiliate key employee distributions, is used by management and is useful to investors to evaluate the overall operating margin of the business
without regard to the Company’s various ownership levels at each of the Affiliates. ENI operating margin is a non-GAAP efficiency measure, calculated based on ENI operating earnings divided by ENI
revenue. The ENI operating margin is most comparable to the Company’s U.S. GAAP operating margin.
ENI management fee revenue
ENI Management fee revenue corresponds to U.S. GAAP management fee revenue.
Net catch-up fees
Net catch-up fees represent payment of fund management fees back to the initial closing date for certain products with multiple closings, less placement fees paid to third parties related to these
funds.
ENI operating expense ratio
The ENI operating expense ratio is used by management and is useful to investors to evaluate the level of operating expense as measured against the Company’s recurring management fee revenue.
The Company has provided this ratio since many operating expenses, including fixed compensation & benefits and general and administrative expense, are generally linked to the overall size of the
business. The Company tracks this ratio as a key measure of scale economies at BrightSphere because in its profit sharing economic model, scale benefits both the Affiliate employees and
BrightSphere shareholders.
Definitions and Additional Notes
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(1) Barrow Hanley’s Windsor II Large Cap Value account AUM and return are separated from Barrow Hanley’s Large Cap Value composite in revenue-weighted, equal-weighted and asset-
weighted outperformance percentage calculations.
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Definitions and Additional Notes
ENI earnings before variable compensation
ENI earnings before variable compensation is calculated as ENI revenue, less ENI operating expense.
ENI variable compensation ratio
The ENI variable compensation ratio is calculated as variable compensation divided by ENI earnings before variable compensation. It is used by management and is useful to investors to
evaluate consolidated variable compensation as measured against the Company’s ENI earnings before variable compensation. Variable compensation is usually awarded based on a
contractual percentage of each Affiliate’s ENI earnings before variable compensation and may be paid in the form of cash or non-cash Affiliate equity or profit interests. Center variable
compensation includes cash and BrightSphere equity. Non-cash variable compensation awards typically vest over several years and are recognized as compensation expense over that service
period. The variable compensation ratio at each Affiliate will typically be between 25% and 35%.
ENI Affiliate key employee distribution ratio
The Affiliate key employee distribution ratio is calculated as Affiliate key employee distributions divided by ENI operating earnings. The ENI Affiliate key employee distribution ratio is used by
management and is useful to investors to evaluate Affiliate key employee distributions as measured against the Company’s ENI operating earnings. Affiliate key employee distributions
represent the share of Affiliate profits after variable compensation that is attributable to Affiliate key employee equity and profit interests holders, according to their ownership interests. At
certain Affiliates, BSUS is entitled to an initial preference over profits after variable compensation, structured such that before a preference threshold is reached, there would be no required
key employee distributions, whereas for profits above the threshold the key employee distribution amount would be calculated based on the key employee economic percentages, which
range from approximately 20% to 40% at its consolidated Affiliates.
U.S. GAAP operating margin
U.S. GAAP operating margin equals operating income from continuing operations divided by total revenue.
Consolidated Funds
Financial information presented in accordance with U.S. GAAP may include the results of consolidated pooled investment vehicles, or Funds, managed by the Company’s Affiliates, where it
has been determined that these entities are controlled by the Company. Financial results which are “attributable to controlling interests” exclude the impact of Funds to the extent it is not
attributable to the Company’s shareholders.
Annualized revenue impact of net flows (“NCCF”)
Annualized revenue impact of net flows represents the difference between annualized management fees expected to be earned on new accounts and net assets contributed to existing
accounts, less the annualized management fees lost on terminated accounts or net assets withdrawn from existing accounts, including equity-accounted Affiliates. Annualized revenue is
calculated by multiplying the annual gross fee rate for the relevant account by the net assets gained in the account in the event of a positive flow or the net assets lost in the account in the
event of an outflow and is designed to provide investors with a better indication of the potential financial impact of net client cash flows.
Hard asset disposals
Net flows include hard asset disposals and fund distributions made by BrightSphere’s Affiliates. This category is made up of investment-driven asset dispositions by Landmark, investing in
real estate funds and secondary private equity; Heitman, a real estate manager; or Campbell, a timber manager.
Derived average weighted NCCF
Derived average weighted NCCF reflects the implied NCCF if annualized revenue impact of net flows represents asset flows at the weighted fee rate for BrightSphere overall (i.e. 41.1 bps in
Q1 ‘18). For example, NCCF annualized revenue impact of $19.0 million divided by the average weighted fee rate of BrightSphere’s overall AUM of 41.1 bps equals the derived average
weighted NCCF of $4.6 billion.
n/m
“Not meaningful.”