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AP

Artisan Partners Asset Management Inc. (APAM)·Q4 2024 Earnings Summary

Executive Summary

  • Revenues rose 6% sequentially to $297.0M on higher average AUM and $14.7M of performance fees; adjusted operating margin expanded 180 bps QoQ to 36.8% as revenue growth outpaced expenses .
  • GAAP diluted EPS was $0.97 vs $1.03 in Q3 (lower non‑operating gains), while adjusted EPS increased to $1.05 from $0.92; YoY, revenues +19% and adjusted EPS +35% on higher average AUM and performance fees .
  • AUM ended at $161.2B (−4% QoQ, +7% YoY) on $5.0B market depreciation and $0.8B net outflows; average AUM increased 2% QoQ to $165.4B, supporting revenue growth .
  • Board declared a variable quarterly dividend of $0.84 and a $0.50 special dividend (year’s dividends implied ~8% yield at 12/31 price); management expects payout ratio to remain “mid‑90%” of adjusted EPS and guided 2025 LTI amortization to ~$75M with fixed expenses up mid‑ to low‑single digits, and seasonal Q1 comp ~$6M above Q4 .
  • Catalysts: recurring fee rate mix watch (foundational/credit mandates), sustained performance fee potential (~3% of AUM subject to PFs), capacity management in International Value, and alternatives growth (EMsights/credit) .

What Went Well and What Went Wrong

  • What Went Well

    • Revenue/margin expansion: Revenues +6% QoQ to $297.0M; adjusted operating margin 36.8% vs 35.0% prior quarter; adjusted EPS up to $1.05 (from $0.92) as performance fees contributed and operating leverage improved .
    • Credit/EMsights momentum: Two credit-oriented teams raised $3.6B net inflows in 2024; ~67 bps weighted effective fee in 2024; ~$12M performance fees earned in Q4; management emphasized strong outperformance and early stage of credit journey .
    • Capital return: Declared $0.84 quarterly plus $0.50 special dividend; 2024 dividends declared totaled $3.48/share (+25% YoY); special dividend +47% YoY on higher earnings and seed gains .

  • What Went Wrong

    • AUM decline QoQ: Ending AUM fell 4% QoQ to $161.2B on $5.0B market depreciation, $0.8B net client outflows, and $0.8B of fund distributions not reinvested (seasonal) .
    • Fee rate mix pressure: Recurring fee rate 68 bps in Q4 (ex‑performance fees), reflecting mix shift to lower‑fee fixed income and foundational mandates; inclusive of PFs, 72 bps .
    • Net outflows and lumpy flows: Q4 net outflows of ~$0.8B included a $1.1B sub‑advised client rebalance; full‑year net outflows $3.7B despite positive fixed income flows (10th consecutive quarter/year) .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenues ($MM)$249.0 $279.6 $297.0
Operating Income (GAAP, $MM)$76.4 $93.2 $109.1
Operating Margin (GAAP)30.7% 33.3% 36.7%
Adjusted Operating Income ($MM)$80.0 $97.8 $109.3
Adjusted Operating Margin32.1% 35.0% 36.8%
Diluted EPS (GAAP)$0.92 $1.03 $0.97
Adjusted EPS$0.78 $0.92 $1.05
Net Income attributable to APAM ($MM)$64.8 $72.9 $69.7

Revenue mix (segment-like)

Revenue Type ($MM)Q4 2023Q3 2024Q4 2024
Mgmt fees – Artisan Funds & Global Funds$153.7 $174.7 $178.4
Mgmt fees – Separate accounts & other$91.2 $104.9 $103.9
Performance fees$4.1 $0.0 $14.7
Total Revenues$249.0 $279.6 $297.0

Key KPIs

KPIQ4 2023Q3 2024Q4 2024
Ending AUM ($B)$150.2 $167.8 $161.2
Average AUM ($B)$140.3 $162.8 $165.4
Net Client Cash Flows ($B)−$0.398 −$0.743 −$0.824
Funds’ distributions not reinvested ($B)−$0.494 −$0.222 −$0.795
Investment returns and other ($B)$14.564 $9.918 −$5.013
Weighted avg recurring fee rate (bps)N/A69 68 (ex‑PFs); 72 incl. PFs

Notes:

  • Q4 included ~$17M of performance fees from seven strategies (of which $2.4M on a consolidated product flowed through non‑operating income per accounting rules) .
  • Within non‑operating, APAM’s share of gains on sponsored products was a $3.6M loss vs +$18.2M in Q3, contributing to the QoQ EPS decline despite higher operating income .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Variable quarterly dividendQ4 2024$0.82 (Q3 2024) $0.84 Raised
Special dividendFY 2024$0.34 (prior year special, implied)$0.50; special +47% YoY on higher earnings/seed gains Raised
Dividend policyOngoing~80% of quarterly cash generation; year‑end special Reaffirmed (80% quarterly; special from withheld/other) Maintained
Payout ratio (on adjusted EPS)2025 viewMid‑90% in recent years Expect similar mid‑90% payout Maintained
LTI amortizationFY 2025N/A~ $75M (ex mark‑to‑market) New detail
Fixed expenses (ex‑LTI)FY 2025N/AUp mid‑ to low‑single digits New detail
Seasonal comp step-upQ1 2025 vs Q4 2024N/A~+$6M in Q1 vs Q4 New detail
DebtAug 2025N/AExpect to refinance $60M senior notes maturing Aug‑2025 New detail

Earnings Call Themes & Trends

TopicQ2 2024Q3 2024Q4 2024Trend
Alternatives & credit expansionBuilding alts lineup; focus on alts distribution; EMsights compounding; closed‑end Credit Dislocation fund progress Emphasis on degrees of freedom; alt strategies’ long‑term alpha; continued pipeline Credit/EMsights raised $3.6B in 2024; ~$12M performance fees; still early; building platform Positive, scaling
Fee rate dynamicsMix shift toward fixed income; competitive large mandates Avg recurring fee 69 bps; PF opportunity ahead Recurring fee 68 bps; foundational assets and performance‑fee structures lowered rate; 72 bps incl. PFs Slight pressure ex‑PFs
Flows & capacityLumpy redemptions offset by EM/EMD wins Net outflows −$0.743B; IV capacity management highlighted Net outflows −$0.824B; one $1.1B sub‑advised rebalance; fixed income positive for 10th straight quarter/year Mixed, improving fixed income
Wealth/intermediated channelDistribution build‑out for alts; strong RIA/broker‑dealer access Operational leverage from add‑ons; capacity in larger‑cap/global strategies ~$95B AUM in wealth; reoriented distribution to wealth/alternatives Increasing focus
Macro/tariffs/inflationEM allocations under discussion PF windows into year‑end; expense leverage; margin prospects Clients cautious on macro/tariffs/ inflation; expect modest strategic allocation shifts Uncertain macro

Management Commentary

  • “The quality and uniqueness of these [credit] strategies is reflected in the weighted average effective fee rate…67 basis points in 2024. That includes nearly $12 million in performance fees earned in the fourth quarter, contributing meaningfully to our financial outcome.” — Eric Colson, CEO .
  • “Revenues for the quarter increased 6%…Adjusted operating income increased 12% sequentially…Adjusted net income per adjusted share improved 14% compared to last quarter…” — C.J. “CJ” Daley, CFO .
  • “We clearly are in capacity management with a few of our strategies…we will manage International Value with a forward lean, but really not let the assets get out of control so that we don’t hurt the performance track record.” — Eric Colson .
  • “Our weighted average recurring fee rate for the quarter, excluding performance fees, was 68 basis points…Inclusive of our performance fees…72 basis points.” — CJ Daley .
  • “Dividends declared with respect to 2024…totaled $3.48 per share…special dividend…47% larger than the previous year-end special dividend…represent an 8% dividend yield based on the closing price…on December 31, 2024.” — CJ Daley .

Q&A Highlights

  • Fee rate and foundational assets: Management noted recent foundational mandates (including performance fee structures) in EM debt and global unconstrained strategies lowered recurring fee rate ex‑PFs; mix shift to fixed income also modestly dilutive .
  • Dividend payout/seed: Payout ratio expected to remain mid‑90% of adjusted EPS; some realized gains on seed redemptions boosted the 2024 special, with potential more in 2025 from Credit Opportunities private fund; EMsights seed will be harvested later .
  • Expense outlook: Assuming flat markets, total expenses up low single digits; fixed controllable expenses up mid‑single digits; LTI amortization guided to ~$75M for 2025; seasonal comp ~$6M higher in Q1 vs Q4 .
  • Capacity: International Value in capacity management; significant capacity in EM debt (can scale materially), global value, global opportunities, global equity .
  • Demand/macro: Clients cautious amid tariff/inflation uncertainty; expect modest strategic, not wholesale, allocation shifts; active alpha opportunity seen in non‑U.S./EM as volatility rises .

Estimates Context

  • We attempted to retrieve S&P Global consensus for Q4 2024 (Revenue, EPS) but the request failed due to provider rate limits, so consensus comparisons are unavailable at this time [functions.GetEstimates error].
  • Implication: Despite inability to benchmark vs consensus, results showed sequential revenue/margin expansion driven by performance fees and higher average AUM; adjusted EPS rose QoQ while GAAP EPS dipped on lower non‑operating gains .

Key Takeaways for Investors

  • Performance fee leverage emerged: ~$14.7M PF revenue (plus $2.4M PF in non‑op) supported revenue/margin/adjusted EPS; watch PF seasonality (Dec crystallizations) and the ~3% of AUM with PF structures for future quarters .
  • Mix pressure vs platform diversification: Recurring fee rate drifted to 68 bps on mix/foundational assets, but credit/EMsights growth and alternatives breadth enhance durability and fee optionality over time .
  • Balanced capital return: Quarterly dividend raised to $0.84 and $0.50 special underline cash generation; payout philosophy (mid‑90% of adjusted EPS) suggests continued robust returns, subject to earnings/seed realizations .
  • AUM volatility but improving engine: Q4 AUM down QoQ on markets/distributions; fixed income saw 10th straight quarter/year of positive flows; monitor macro and client allocation shifts for flow inflections .
  • 2025 expense clarity reduces uncertainty: LTI amortization ~$75M, fixed cost growth mid‑ to low‑single digits, Q1 seasonal uptick ~$6M; supports visibility into margin trajectory with revenue tailwinds .
  • Capacity management supports longevity: International Value managed for performance over AUM, while EM debt and global strategies offer scalability; aligns with premium, alpha‑oriented brand .
  • Near‑term trading: Dividend and PF surprise are positive sentiment drivers; monitor monthly AUM releases for recovery in markets/flows and any updates on alternatives mandates and fee rate stabilization .

Sources: Q4 2024 8‑K and exhibits (financials, AUM, dividend) ; Q4 2024 earnings call (prepared and Q&A) ; Prior quarter 8‑K/call for trend context ; Monthly AUM press releases .