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BrightSphere Investment Group Inc. (BSIG)·Q1 2024 Earnings Summary

Executive Summary

  • ENI EPS was $0.44, up 57.1% year over year and down from $0.77 in Q4 2023; GAAP diluted EPS was $0.37, up 32.1% year over year, reflecting higher average AUM and buybacks, while the sequential decline stemmed from typical seasonality in performance fees .
  • Revenue rose 15.1% year over year to $105.7M on a ~12% increase in average AUM; operating leverage improved with ENI operating margin up 490 bps year over year, aided by expense discipline .
  • Capital return accelerated: BSIG repurchased 3.5M shares (9% of shares) for $74.4M in Q1 and declared a $0.01 dividend payable June 28, 2024; cash was ~$102.2M at quarter end .
  • Key near-term stock catalysts: continued buyback execution and visibility into operating expense and variable comp ratios (47–52% and 46–50% full-year targets), alongside progress in Systematic Credit/Equity Alternatives and managed volatility flow headwinds narrative .

What Went Well and What Went Wrong

What Went Well

  • ENI and ENI EPS increased 47.5% and 57.1% year over year; management attributed the gains primarily to higher management fee revenue from higher average AUM and, to a lesser extent, higher performance fees, as well as the impact of share repurchases .
    Quote: “The 47.5% increase in ENI…was primarily driven by higher management fee revenue due to higher AUM… The 57.1% increase in ENI earnings per share…was additionally driven by the Company’s share repurchases since December 2023.”
  • Operating leverage improved: the ENI operating expense ratio fell to 48.4% (from 52.0% in Q1’23) and full-year Operating Expense Ratio is targeted at ~47–52% if equity markets remain at current levels .
    Quote: “Q1'24 Operating Expense Ratio fell to 48.4%…due to positive operating leverage… 2024 full year Operating Expense Ratio expected to be approximately 47%-52%…”
  • Strong investment performance and AUM growth: AUM ended at $110.4B (+13.2% YoY; +6.5% QoQ) with revenue-weighted outperformance across 3-, 5-, and 10-year periods (83%, 91%, 93% respectively) .

What Went Wrong

  • Sequential declines driven by performance fee seasonality: ENI, ENI EPS, and Adjusted EBITDA fell vs. Q4 due to most performance fees being earned in Q4 .
    Data: ENI EPS $0.44 vs. $0.77; Adjusted EBITDA $31.9M vs. $51.5M .
  • Continued headwinds in managed volatility and emerging markets interest: outflows persisted in managed volatility, and EM client interest slowed given multi-year index underperformance .
    Quote: “We are seeing the outflows from managed vol and a little slowdown in emerging markets…”
  • Pension derisking to fixed income weighed on equity allocations; management expects flattish net flows near term, with episodic reallocations possible .
    Quote: “One thing that we've seen with the high rate environment is a continued trend of derisking… allocate more to fixed income… we expect to be probably flattish over the next few quarters.”

Financial Results

Consolidated performance vs. prior year and prior quarter

MetricQ1 2023Q4 2023Q1 2024
Revenue ($USD Millions)$91.8 $131.2 $105.7
Diluted EPS (GAAP) ($)$0.28 $0.54 $0.37
ENI EPS ($)$0.28 $0.77 $0.44
Operating Margin (GAAP) (%)22% 27% 22%
Adjusted EBITDA ($USD Millions)$23.6 $51.5 $31.9
Net Income Attributable to Controlling Interests ($USD Millions)$12.0 $22.8 $14.6

Drivers:

  • Year-over-year growth in management fees from higher average AUM; ENI revenue +15.6% and GAAP revenue +15.1% YoY .
  • Sequential declines due to performance fees seasonality (majority earned in Q4) .

Segment breakdown (Acadian – Quant & Solutions)

MetricQ1 2023Q4 2023Q1 2024
Segment ENI ($USD Millions)$23.8 $50.6 $31.4
Segment ENI Operating Margin (%)27.4% 39.5% 31.9%
Segment Adjusted EBITDA ($USD Millions)$27.6 $55.2 $36.0

KPIs

KPIQ1 2023Q4 2023Q1 2024
AUM at Period End ($USD Billions)$97.5 $103.7 $110.4
Average AUM ($USD Billions)$96.4 $98.6 $107.6
Net Flows ($USD Billions)$0.1 $(2.0) $0.4
Annualized Revenue Impact of Net Flows ($USD Millions)$1.0 $(6.4) $(0.2)
ENI Management Fee Rate (bps)38 38 38

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Operating Expense Ratio (as % of mgmt fees)FY 2024Not previously quantified in Q4’23 call~47%–52% if equity market remains at current level Initiated
Variable Compensation Ratio (% of earnings before VC)FY 2024Not previously quantified in Q4’23 call~46%–50% Initiated
Affiliate Key Employee Distribution Ratio (%)FY 2024Not previously quantified in Q4’23 call~7%–8% (mix-dependent) Initiated
ENI Management Fee Rate (bps)Next few quarters~38 bps baseline ~38 bps baseline maintainedMaintained
DividendQ2 2024N/A$0.01 per share; payable June 28, 2024; record date June 14, 2024 Announced
Revolver PaydownFY 2024Typical seasonal draw/paydown Q1 draw to support seasonal needs; expected to be fully paid down by year-end Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3’23 and Q4’23)Current Period (Q1’24)Trend
Share repurchasesWindow closed in Q3; planning up to ~$100M buybacks; opportunistic approach Repurchased 3.5M shares (9%) for $74.4M; ~$15M remaining authorization; preference for opportunistic over programmatic Accelerating buybacks
Managed volatility flowsLumpy reallocations/outflows; beta-rewarding market challenging for low-beta strategies Continued outflows; strategies perform over long periods but near-term environment unfavorable Persistent headwind
Systematic CreditTo be seeded in Nov’23 (High Yield) U.S. High Yield seeded; Global High Yield seeded in April 2024 with $15M Execution progressing
Equity AlternativesSeeded Q4’22; early positive track record; client interest building Continues strong outperformance for seeded/client assets Positive momentum
Operating leverage/expensesMajor investment spend largely complete; scalability built; expense growth to moderate ENI expense ratio lower; full-year Opex ratio guided 47–52%; leverage as AUM rises Improving
Performance fees seasonalityAtypical Q3 performance fees; majority typically in Q4 Sequential decline tied to Q4-heavy seasonality Typical seasonal pattern
Pension deriskingNot highlightedDerisking to fixed income driving reallocations; flattish net flows expected near term; credit platform could benefit Emerging macro headwind/opportunity

Management Commentary

  • Strategic focus: “We remain focused on maximizing shareholder value, and we'll continue using our free cash flow to support organic growth and to buy back our shares.”
  • Operating leverage and expenses: “We should see the benefit of operating leverage… we invested in scalability… we see much less increase on the operating expenses going forward…”
  • Product development: “Systematic Credit’s first strategy, U.S. High Yield… started building a positive track record… Global High Yield strategy… seeded in April 2024… Equity Alternatives… continues to build a strong positive track record.”
  • Capital allocation: “We repurchased 3.5 million shares… for $74.4 million… cash balance of approximately $102.2 million… revolving credit facility… expected to be fully paid down by year-end.”

Q&A Highlights

  • Cash usage and buybacks: Minimum operating cash around ~$25M; ~$15M left on buyback authorization; near-term cash deployment prioritized to buybacks and seeding Systematic Credit (including planned IG seeding in Q4) with an opportunistic repurchase approach .
  • Flows and pipeline: Good sales across Global Equity, Non-U.S., small-cap, extension/130-30, ESG; managed volatility and EM interest softer given multi-year index lag; pipeline diversified across stages .
  • Macro derisking: High rate environment driving pension derisking toward fixed income; management expects flattish net flows with episodic reallocations possible; sees opportunity for Systematic Credit to capture reallocations .
  • Operating leverage/expense outlook: As markets appreciate and AUM rises, ENI accelerates due to operating leverage; scalability investments and outsourcing help contain expense growth .

Estimates Context

  • S&P Global consensus estimates for Q1 2024 EPS and revenue were unavailable due to a mapping issue for BSIG; as a result, we could not compare actuals to consensus or quantify beats/misses. Values retrieved from S&P Global were unavailable due to mapping error (SpgiEstimatesError).
    Note: Missing CIQ mapping for ticker ‘BSIG’ prevented retrieval of “Primary EPS Consensus Mean” and “Revenue Consensus Mean” for Q1 2024, Q4 2023, and Q3 2023.

Key Takeaways for Investors

  • Operating leverage is intact: higher average AUM drove double-digit revenue and ENI growth YoY; expense ratios are guided lower, supporting margin trajectory if markets hold .
  • Capital return is a near-term support: accelerated buybacks (9% of shares in Q1) with remaining authorization and a declared dividend; opportunistic posture should continue .
  • Flow headwinds from managed volatility and pension derisking likely persist; watch for conversion of pipeline in higher-fee strategies (ex-U.S., small-cap, Equity Alternatives) to offset .
  • Seasonality matters: performance fee concentration in Q4 drives sequential volatility in ENI/EBITDA; Q2/Q3 quarters may be lighter absent unusual performance fee timing .
  • Strategic growth vectors: Systematic Credit (HY and Global HY seeded; IG targeted later) and Equity Alternatives broaden capabilities and can lift fee rates over time .
  • Balance sheet flexibility: cash of ~$102M and a revolver expected to be repaid by year-end provide room to fund seed capital and repurchases while maintaining leverage targets .
  • Monitoring items: estimate normalization when S&P mapping is resolved; AUM trajectory vs. equity markets; mix shift toward higher-fee strategies; continued expense discipline and execution on credit/alt platforms .

Citations: Q1 2024 earnings press release/presentation and 8-K ; Q1 2024 earnings call transcript ; prior quarters’ calls (Q4’23, Q3’23) .