Press Release

Email Alerts Email page PDF view Print view Social media sharing

Legg Mason Reports Results For Third Fiscal Quarter

-- Third Quarter Net Income of $149.2 Million, or $1.58 per Diluted Share, Including:

- Tax Benefit of $213.7 Million, or $2.27 per Diluted Share Related to the New Tax Law

- Non-Cash Impairment Charge of $195.0 Million, or $1.62 per Diluted Share

- Discrete Tax Expense Items of $7.4 Million, or $0.08 per Diluted Share

-- Assets Under Management of $767.2 Billion

-- Long-term Net Inflows of $2.2 Billion for the Quarter

Company Release - 1/24/2018 4:15 PM ET

BALTIMORE, Jan. 24, 2018 /PRNewswire/ -- Legg Mason, Inc. (NYSE: LM) today reported its operating results for the third fiscal quarter ended December 31, 2017. 






Quarters Ended


Nine Months Ended

Financial Results

Dec


Sep


Dec


Dec


Dec

(Amounts in millions, except per share amounts)

2017


2017


2016


2017


2016

Operating Revenues

$

793.1



$

768.3



$

715.2



$

2,355.3



$

2,163.8


Operating Expenses

820.4



623.9



604.1



2,131.0



1,851.4


Operating Income (Loss)

(27.3)



144.4



111.2



224.3



312.4


Net Income1

149.2



75.7



51.4



275.8



151.3


Net Income Per Share - Diluted1

1.58



0.78



0.50



2.86



1.43












Assets Under Management2










(Amounts in billions)










End of Period Assets Under Management

$

767.2



$

754.4



$

710.4



$

767.2



$

710.4


Average Assets Under Management

759.9



750.3



716.7



750.6



719.7












(1)    Net Income Attributable to Legg Mason, Inc.

(2)    December 2016 Assets Under Management ("AUM") excludes $13.7 billion of separately managed account assets which were 
        classified as Assets Under Advisement and reported as AUM effective April 1, 2017

Joseph A. Sullivan, Chairman and CEO of Legg Mason said, "Legg Mason's fiscal third quarter included strong core results driven by robust performance and advisory fees, and a keen focus on expense management.

"Long-term inflows of $2.2 billion were driven by fixed income inflows, partially offset by equity outflows. Alternative flows were flat for the period.  Legg Mason's adjusted operating margin3 was over 27%, the highest in nearly 10 years.  And finally, Global Distribution had another quarter of net positive flows with strong persistency of assets. 

"Stepping back from the quarter, we are pleased that expanding client choice is positioning us to create better outcomes for clients while creating more diversification, resiliency and better long-term returns for shareholders." 

(3) See "Use of Supplemental Non-GAAP Financial Information."

Assets Under Management of $767.2 Billion

Assets Under Management were $767.2 billion at December 31, 2017 compared with $754.4 billion at September 30, 2017, resulting from $13.5 billion in positive market performance and other, $2.2 billion in long-term inflows and $0.1 billion in acquisitions, partially offset by liquidity outflows of $2.3 billion, negative foreign exchange of $0.4 billion and realizations of $0.3 billion.











Quarter Ended December 31, 2017



Assets Under Management

AUM

(in billions)


Flows

(in billions)


Operating
Revenue
Yield 1



Equity

$

207.6



$

(3.2)



61 bps



Fixed Income

420.1



5.4



27 bps



Alternative

66.3




2

64 bps



Long-Term Assets

694.0



2.2






Liquidity

73.2



(2.3)



14 bps



Total

$

767.2



$

(0.1)



38 bps











(1) Operating revenue yield equals total operating revenues less performance fees divided by average AUM



(2) Excludes realizations of $0.3 billion


At December 31, 2017, fixed income represented 55% of AUM, while equity represented 27%, alternative represented 9% and liquidity represented 9%. 

By geography, 69% of AUM was from clients domiciled in the United States and 31% from non-US domiciled clients.

Average AUM during the quarter was $759.9 billion compared to $750.3 billion in the prior quarter and $716.7 billion in the third quarter of fiscal year 2017.  Average long-term AUM was $685.3 billion compared to $675.1 billion in the prior quarter and $625.8 billion in the third quarter of fiscal year 2017.














Quarterly Performance























At December 31, 2017:


1-Year


3-Year


5-Year


10-Year



% of Strategy AUM beating Benchmark4


74%


75%


75%


87%















% of Long-Term U.S. Fund Assets Beating Lipper Category Average












Fixed Income


81%


76%


78%


89%




Equity


35%


50%


45%


66%




Alternatives (performance relates to only 3 funds)


16%


93%


100%


n/a




Total U.S. Fund Assets


56%


62%


61%


76%
















(4)    See "Supplemental Data Regarding Quarterly Performance."

 









Of Legg Mason's long-term U.S. mutual fund assets, 49% were in funds rated 4 or 5 stars by Morningstar.

Operating Results - Comparison to the Second Quarter of Fiscal Year 2018

Net income was $149.2 million, or $1.58 per diluted share, compared to net income of $75.7 million, or $0.78 per diluted share, in the second quarter of fiscal year 2018. In addition to the net impact of the factors listed below, the increased earnings were driven by higher average AUM and higher non-pass through performance fees. 

     This quarter's results included:

  • One-time non-cash tax benefit of $213.7 million, or $2.27 per diluted share, related to the new tax law.
  • Non-cash intangible asset impairment charge of $195.0 million, or $1.62 per diluted share.
  • Discrete tax expense items of $7.4 million, or $0.08 per diluted share.
  • EnTrustPermal acquisition and transition-related costs of $1.3 million, or $0.01 per diluted share.

     The prior quarter's results included:

  • Severance charges of $1.7 million, or $0.01 per diluted share.
  • EnTrustPermal acquisition and transition-related costs of $1.4 million, or $0.01 per diluted share.
  • Year-to-date annualization tax benefit of $1.2 million, or $0.01 per diluted share.

Operating revenues of $793.1 million were up 3% compared to $768.3 million in the prior quarter reflecting:

  • An increase in non-pass through performance fees of $28.0 million, which more than offset a decrease in pass through performance fees of $9.9 million.
  • Excluding performance fees, operating revenues increased 1% due to higher average long-term AUM.

Operating expenses were $820.4 million compared to $623.9 million in the prior quarter, but excluding the non-cash impairment charge of $195.0 million, expenses were up less than 1%, reflecting:

  • Lower compensation of $5.9 million driven by the decrease in Clarion pass through performance fees.
  • Increases in Communications & Technology expenses and Other Expenses of $2.9 million and $3.3 million, respectively.
  • A $4.3 million gain in the market value of deferred compensation and seed investments which is recorded as an increase in compensation and benefits with an offset in non-operating income, as compared to a $4.8 million gain in the prior quarter.

Non-operating expense was $13.5 million, as compared to $18.1 million in the prior quarter reflecting:  

  • Gains on corporate investments, not offset in compensation, were $1.5 million compared with gains of $2.4 million in the prior quarter.
  • Gains on funded deferred compensation and seed investments, as described above.
  • A $7.9 million gain associated with the consolidation of sponsored investment vehicles compared to a $2.1 million gain in the prior quarter. The consolidation of sponsored investment vehicles has no impact on net income as the effects of consolidation are fully attributable to noncontrolling interests.

Operating margin was (3.4%) compared to 18.8% in the prior quarter, reflecting the impact of the non-cash impairment charge of $195.0 million.  Operating margin, as adjusted5, was 27.2%, as compared to 24.9% in the prior quarter. 

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $13.6 million compared to $10.4 million in the prior quarter, principally related to Clarion, EnTrustPermal, RARE and Royce.

(5) See "Use of Supplemental Non-GAAP Financial Information."

Operating Results - Comparison to the Third Quarter of Fiscal Year 2017

Net income was $149.2 million, or $1.58 per diluted share, compared to net income of $51.4 million, or $0.50 per diluted share, in the third quarter of fiscal year 2017.  In addition to the factors listed below, the increased earnings were driven by higher average long-term AUM and higher non-pass through performance fees.

     This quarter's results included:

  • One-time non-cash tax benefit of $213.7 million, or $2.27 per diluted share, related to the new tax law.
  • Non-cash intangible asset impairment charge of $195.0 million, or $1.62 per diluted share.
  • Discrete tax expense items of $7.4 million, or $0.08 per diluted share.
  • EnTrustPermal acquisition and transition-related costs of $1.3 million, or $0.01 per diluted share.

     The prior year quarter's results included:

  • Non-cash impairment charges of $35.0 million, or $0.25 per diluted share.
  • A credit of $14.5 million, or $0.10 per diluted share, related to contingent consideration fair value adjustments.
  • A gain of $4.0 million, or $0.03 per diluted share, on the sale of Legg Mason Poland.
  • EnTrustPermal acquisition and transition-related costs of $3.0 million, or $0.02 per diluted share.

Operating revenues of $793.1 million were up 11% compared with $715.2 million in the prior year quarter reflecting:

  • Increases principally due to higher average long-term AUM.
  • An increase in non-pass through performance fees of $28.3 million, and an increase in pass through performance fees of $7.7 million.

Operating expenses of $820.4 million were up 36% compared with $604.1 million in the prior year quarter reflecting:

  • A non-cash impairment charge related to an intangible asset of $195.0 million, compared with non-cash impairment charges of $35.0 million in the prior year quarter.
  • Increased compensation, related to increased revenues driven by higher average long-term AUM and performance fees.
  • Acquisition and transition-related charges of $1.3 million, as compared with $3.0 million in the prior year.
  • The prior year quarter included a contingent consideration credit adjustment of $14.5 million.
  • A $4.3 million gain in the market value of deferred compensation and seed investments, which is recorded as an increase in compensation and benefits with an offset in non-operating income, compared with a gain of $1.5 million in the prior year quarter.

Non-operating expense was $13.5 million, compared to $20.2 million in the prior year quarter reflecting:

  • A $4.0 million gain on the sale of Legg Mason Poland in the prior year quarter.
  • Gains on corporate investments, not offset in compensation, were $1.5 million compared with gains of $1.3 million in the prior year quarter.
  • Gains on funded deferred compensation and seed investments, as described above.
  • A $7.9 million gain associated with the consolidation of sponsored investment vehicles, as compared to an $0.8 million gain in the prior year quarter. The consolidation of sponsored investment vehicles has no impact on net income as the effects of consolidation are fully attributable to noncontrolling interests.

Operating margin was (3.4%) as compared to 15.5% in the prior year quarter reflecting the impact of the non-cash impairment charge of $195.0 million.  Operating margin, as adjusted, was 27.2%, as compared to 23.9% in the prior year quarter.

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $13.6 million, compared to $13.1 million in the prior year quarter, principally related to Clarion, EnTrustPermal, RARE and Royce.

Quarterly Business Developments and Recent Announcements

  • Morningstar Inc. announced nominees for the U.S. Fixed Income Manager of the Year, which included David Hoffman, Stephen Smith, John McIntyre, and Anujeet Sareen for Brandywine Global's Global Opportunities Bond Fund (GOBSX) and Western Asset's Ken Leech and team for the Western Asset Core Plus Bond Fund (WACPX).
  • Legg Mason, Brandywine Global, ClearBridge Investments and Western Asset were all recognized by Pensions & Investments (P&I) in their Best Places to Work in Investment Management survey for 2017.
  • Legg Mason was ranked #73 overall and #3 among 30 Capital Markets companies in the Forbes/Just Capital, Just 100 annual ranking.
  • RARE Infrastructure was named 2017 Listed Infrastructure Manager of the Year by Professional Pensions, a leading financial publication in the UK.
  • Western Asset was ranked #1 in four out of seven categories in Chief Investment Officers' fifth annual ranking of liability driven investment (LDI) providers. Western was the top-ranked provider in the following categories: Responsiveness, Timely Reporting, Knowledge Sharing and Accessibility to Investment Team.
  • On November 28, 2017, Legg Mason announced that Michelle Goldberg, a venture capital investor, and Alison Quirk, a financial services industry senior executive, were appointed to its Board of Directors, effective immediately.
  • On December 22, 2017, Legg Mason repurchased all of the shares of the Company's common stock beneficially owned by Shanda Asset Management Investment Limited ("Shanda") in a private transaction.

Balance Sheet

At December 31, 2017, Legg Mason's cash position was $680 million.  Total debt was $2.5 billion and stockholders' equity was $3.8 billion.  The ratio of total debt to total capital was 39%, an increase from 36% in the prior quarter.  Seed investments totaled $271 million.

In the third fiscal quarter, the Company retired $299 million, or 7.5 million shares.  The net impact of the share activity reduced the weighted average shares by 1.5 million. These repurchases included 5.6 million shares that the Company repurchased from Shanda in a private transaction funded by a draw on its revolver.

Conference Call to Discuss Results

A conference call to discuss the Company's results, hosted by Joseph A. Sullivan, will be held at 5:00 p.m. EST today. The call will be open to the general public.  Interested participants should access the call by dialing 1-800-447-0521 (or for international calls 1-847-413-3238), confirmation number 46274803, at least 10 minutes prior to the scheduled start to ensure connection.  A live, listen-only webcast will also be available via the Investor Relations section of www.leggmason.com.

The presentation slides that will be reviewed during the discussion of the conference call will be available on the Investor Relations section of the Legg Mason website shortly after the release of the financial results.

A replay of the live broadcast will be available on the Legg Mason website, www.leggmason.com, in the Investor Relations section, or by dialing 1-888-843-7419 (or for international calls 1-630-652-3042), enter pass code 46274803# when prompted.  Please note that the replay will be available beginning at 8:00 p.m. EST on Wednesday, January 24, 2018, and ending at 11:59 p.m. EST on Wednesday, February 7, 2018.

About Legg Mason

Guided by a mission of Investing to Improve Lives,  Legg Mason helps investors globally achieve better financial outcomes by expanding choice across investment strategies, vehicles and investor access through independent investment managers with diverse expertise in equity, fixed income, alternative and liquidity investments.  Legg Mason's assets under management are $767 billion as of December 31, 2017.  To learn more, visit our web site, our newsroom, or follow us on LinkedIn, Twitter, or Facebook

This release contains forward-looking statements subject to risks, uncertainties and other factors that may cause actual results to differ materially. For a discussion of these risks and uncertainties, see "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Legg Mason's Annual report on Form 10-K for the fiscal year ended March 31, 2017 and in the Company's quarterly reports on Form 10-Q.

Supplemental Data Regarding Quarterly Performance

Strategy Performance

For purposes of investment performance comparisons, strategies are an aggregation of discretionary portfolios (separate accounts, investment funds, and other products) into a single group that represents a particular investment objective.  In the case of separate accounts, the investment performance of the account is based upon the performance of the strategy to which the account has been assigned.  Each of our asset managers has its own specific guidelines for including portfolios in their strategies. For those managers which manage both separate accounts and investment funds in the same strategy, the performance comparison for all of the assets is based upon the performance of the separate account.

Approximately eighty-seven percent of total AUM is included in strategy AUM as of December 31, 2017, although not all strategies have three-, five-, and ten-year histories.  Total strategy AUM includes liquidity assets.  Certain assets are not included in reported performance comparisons. These include: accounts that are not managed in accordance with the guidelines outlined above; accounts in strategies not marketed to potential clients; accounts that have not yet been assigned to a strategy; and certain smaller products at some of our affiliates. 

Past performance is not indicative of future results.  For AUM included in institutional and retail separate accounts and investment funds managed in the same strategy as separate accounts, performance comparisons are based on gross-of-fee performance. For investment funds which are not managed in a separate account format, performance comparisons are based on net-of-fee performance. Funds-of-hedge funds generally do not have specified benchmarks. For purposes of this comparison, performance of those products is net of fees, and is compared to the relevant HFRX index.  These performance comparisons do not reflect the actual performance of any specific separate account or investment fund; individual separate account and investment fund performance may differ.  The information in this presentation is provided solely for use regarding this presentation, and is not directed toward existing or potential clients of Legg Mason.

Long-term US Fund Assets Beating Lipper Category Average

Long-term US fund assets include open-end, closed-end, and variable annuity funds. These performance comparisons do not reflect the actual performance of any specific fund; individual fund performance may differ.  Past performance is not a guarantee of future results.  Source: Lipper Inc.

 

 

LEGG MASON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands)

(Unaudited)


















Quarters Ended


Nine Months Ended





December


September


December


December


December





2017


2017


2016


2017


2016

Operating Revenues:











Investment advisory fees:












Separate accounts (1)

$          255,696


$          253,128


$          231,922


$          758,870


$          692,103



Funds

395,370


393,035


368,962


1,170,633


1,109,504



Performance fees

58,926


40,821


22,913


181,284


82,342


Distribution and service fees (1)

81,463


80,668


90,195


241,037


276,122


Other

1,635


686


1,249


3,446


3,705




Total operating revenues

793,090


768,338


715,241


2,355,270


2,163,776














Operating Expenses: (2)











Compensation and benefits

362,071


367,951


327,862


1,143,329


1,054,817


Distribution and servicing

124,254


123,634


123,191


370,237


376,722


Communications and technology

54,239


51,299


52,630


155,841


156,643


Occupancy

24,982


25,171


23,537


74,561


87,237


Amortization of intangible assets

6,071


6,082


7,277


18,492


19,251


Impairment of intangible assets

195,000



35,000


229,000


35,000


Contingent consideration fair value adjustments

739



(14,500)


(15,811)


(39,500)


Other

53,067


49,782


49,078


155,330


161,252




Total operating expenses

820,423


623,919


604,075


2,130,979


1,851,422














Operating Income (Loss)

(27,333)


144,419


111,166


224,291


312,354














Non-Operating Income (Expense):











Interest income

1,827


1,572


1,713


4,867


5,106


Interest expense

(29,088)


(29,077)


(29,495)


(87,431)


(81,985)


Other income, net

5,519


7,289


6,126


24,196


22,686


Non-operating income of












consolidated investment vehicles, net

8,225


2,094


1,458


11,316


9,892




Total non-operating income (expense)

(13,517)


(18,122)


(20,198)


(47,052)


(44,301)














Income (Loss) Before Income Tax Provision (Benefit)

(40,850)


126,297


90,968


177,239


268,053















Income tax provision (benefit)

(209,396)


38,673


26,441


(142,468)


71,654














Net Income

168,546


87,624


64,527


319,707


196,399


Less: Net income attributable












to noncontrolling interests

19,324


11,960


13,088


43,901


45,067














Net Income Attributable to Legg Mason, Inc.

$          149,222


$            75,664


$            51,439


$          275,806


$          151,332






















(Continued)














(1) For the quarters ended December 31, 2017, September 30, 2017 and June 30, 2017, separate accounts advisory fees include $15.2 million, $13.8 million and $12.4 million, respectively, of revenue relating to retail separately managed accounts for which revenues were previously classified as Distribution and service fees. See note 2 on page 12.














(2) Operating expenses include acquisition and transition-related costs related to business combinations.















Acquisition and transition-related costs:












Compensation

$              1,099


$              1,115


$              3,763


$              4,578


$            40,770



Occupancy

72


(23)


(962)


170


13,217



Other

141


266


222


484


18,997




Total acquisition and transition-related













costs

$              1,312


$              1,358


$               3,023


$              5,232


$            72,984

 

 

LEGG MASON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME, CONTINUED

(Amounts in thousands, except per share amounts)

(Unaudited)


















Quarters Ended


Nine Months Ended





December


September


December


December


December





2017


2017


2016


2017


2016














Net Income Attributable to Legg Mason, Inc.

$          149,222


$            75,664


$            51,439


$          275,806


$          151,332













Less: Earnings (distributed and undistributed)












allocated to participating securities (1)

5,347


2,687


1,706


9,639


4,874














Net Income (Distributed and Undistributed)











Allocated to Shareholders (Excluding











Participating Securities)

$          143,875


$            72,977


$            49,733


$          266,167


$          146,458














Net Income per Share Attributable to











Legg Mason, Inc. Shareholders:













Basic

$                 1.59


$                 0.78


$                 0.50


$                 2.87


$                 1.44

















Diluted

$                 1.58


$                 0.78


$                 0.50


$                 2.86


$                 1.43














Weighted-Average Number of Shares











Outstanding:













Basic

90,377


93,087


99,403


92,770


101,897




Diluted

90,833


93,496


99,568


93,199


102,102














(1)

Participating securities excluded from weighted-average number of shares outstanding were 3,357, 3,417, and 3,404 for the quarters ended December 2017, September 2017, and December 2016, respectively, and 3,322 and 3,329 for the nine months ended December 2017 and December 2016, respectively.

 

 

LEGG MASON, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENTS OF INCOME

(Amounts in thousands)

(Unaudited)





Quarters Ended





December 2017


September 2017


December 2016


























Balance Before
Consolidation of
Consolidated
Investment
Vehicles and
Other (1)


Consolidated
Investment
Vehicles and
Other (1)


Consolidated
Totals

Balance Before
Consolidation of
Consolidated
Investment
Vehicles and
Other (1)


Consolidated
Investment
Vehicles and
Other (1)


Consolidated
Totals

Balance Before
Consolidation of
Consolidated
Investment
Vehicles and
Other (1)


Consolidated
Investment
Vehicles and
Other (1)


Consolidated
Totals




















Total operating revenues

$               793,373


$             (283)


$        793,090

$               768,361


$               (23)


$        768,338

$               715,601


$             (360)


$        715,241

Total operating expenses

819,984


439


820,423

623,814


105


623,919

604,075



604,075

Operating Income (Loss)

(26,611)


(722)


(27,333)

144,547


(128)


144,419

111,526


(360)


111,166

Non-operating income (expense)

(19,970)


6,453


(13,517)

(19,794)


1,672


(18,122)

(20,545)


347


(20,198)

Income (Loss) Before Income Tax Provision (Benefit)

(46,581)


5,731


(40,850)

124,753


1,544


126,297

90,981


(13)


90,968

Income tax provision (benefit)

(209,396)



(209,396)

38,673



38,673

26,441



26,441

Net Income

162,815


5,731


168,546

86,080


1,544


87,624

64,540


(13)


64,527

Less: Net income (loss) attributable
















to noncontrolling interests

13,593


5,731


19,324

10,416


1,544


11,960

13,101


(13)


13,088

Net Income Attributable to Legg Mason, Inc.

$               149,222


$                —


$        149,222

$                75,664


$                —


$          75,664

$                51,439


$                —


$          51,439















































Nine Months Ended











December 2017


December 2016
































Balance Before
Consolidation of
Consolidated
Investment
Vehicles and
Other (1)


Consolidated
Investment
Vehicles and
Other (1)


Consolidated
Totals

Balance Before
Consolidation of
Consolidated
Investment
Vehicles and
Other (1)


Consolidated
Investment
Vehicles and
Other (1)


Consolidated
Totals

























Total operating revenues

$            2,355,620


$             (350)


$     2,355,270

$            2,164,162


$             (386)


$     2,163,776






Total operating expenses

2,130,412


567


2,130,979

1,851,199


223


1,851,422






Operating Income (Loss)

225,208


(917)


224,291

312,963


(609)


312,354






Non-operating income (expense)

(55,892)


8,840


(47,052)

(53,063)


8,762


(44,301)






Income Before Income Tax Provision (Benefit)

169,316


7,923


177,239

259,900


8,153


268,053






Income tax provision (benefit)

(142,468)



(142,468)

71,654



71,654






Net Income

311,784


7,923


319,707

188,246


8,153


196,399






Less: Net income attributable
















to noncontrolling interests

35,978


7,923


43,901

36,914


8,153


45,067






Net Income Attributable to Legg Mason, Inc.

$               275,806


$                —


$        275,806

$               151,332


$                —


$        151,332



























(1) Other represents consolidated sponsored investment products that are not designated as CIVs




























 

 

LEGG MASON, INC. AND SUBSIDIARIES


SUPPLEMENTAL DATA


 RECONCILIATION OF OPERATING MARGIN,  AS ADJUSTED (1)


(Amounts in thousands)


(Unaudited)





















Quarters Ended



Nine Months Ended





















December


September


December



December


December






2017


2017


2016



2017


2016

















Operating Revenues, GAAP basis

$            793,090


$            768,338


$            715,241



$        2,355,270


$        2,163,776


















Plus (less):














Pass-through performance fees

(9,970)


(19,874)


(2,250)



(95,275)


(52,681)




Operating revenues eliminated upon















consolidation of investment vehicles

283


23


360



350


386




Distribution and servicing expense excluding















consolidated investment vehicles

(124,071)


(123,578)


(123,326)



(369,998)


(376,722)

















Operating Revenues, as Adjusted

$            659,332


$            624,909


$            590,025



$        1,890,347


$        1,734,759
































Operating Income (Loss), GAAP basis

$            (27,333)


$            144,419


$            111,166



$            224,291


$            312,354


















Plus (less):














Gains on deferred compensation















and seed investments, net

4,333


4,824


1,474



14,585


9,072




Impairment of intangible assets

195,000



35,000



229,000


35,000




Amortization of intangible assets

6,071


6,082


7,277



18,492


19,251




Contingent consideration fair value adjustments

739



(14,500)



(15,811)


(39,500)




Operating loss of consolidated investment















vehicles, net

722


128


360



917


609

















Operating Income, as Adjusted

$            179,532


$            155,453


$            140,777



$            471,474


$            336,786

















Operating Margin, GAAP basis

(3.4)

%

18.8

%

15.5

%


9.5

%

14.4

%

Operating Margin, as Adjusted

27.2


24.9


23.9



24.9


19.4

















(1) See explanations for "Use of Supplemental Non-GAAP Financial Information."















































 

 

LEGG MASON, INC. AND SUBSIDIARIES

SUPPLEMENTAL DATA

RECONCILIATION OF CASH PROVIDED BY OPERATING ACTIVITIES

TO ADJUSTED EBITDA (1)

(Amounts in thousands)

(Unaudited)


















Quarters Ended


Nine Months Ended


















December


September


December


December


December





2017


2017


2016


2017


2016














Cash provided by (used in) operating activities, GAAP basis

$                  117,323


$               289,329


$                  209,102


$            293,072


$            346,961















Plus (less):












Interest expense, net of accretion and amortization













of debt discounts and premiums

28,503


28,343


28,534


85,176


78,927



Current tax expense

8,823


9,662


(2,981)


24,557


11,925



Net change in assets and liabilities

25,077


(145,656)


(108,242)


92,744


21,346



Net change in assets and liabilities













of consolidated investment vehicles

21,873


1,235


43,732


54,897


(15,041)



Net income attributable to noncontrolling interests

(19,324)


(11,960)


(13,088)


(43,901)


(45,067)



Net gains (losses) and earnings on investments

(4,163)


1,491


2,432


2,874


(959)



Net gains on consolidated investment vehicles

8,225


2,094


1,458


11,316


9,892



Other

663


194


(638)


934


(1,137)














Adjusted EBITDA

$                  187,000


$               174,732


$                  160,309


$            521,669


$            406,847



























(1) 

See explanations for "Use of Supplemental Non-GAAP Financial Information."


















 

 

LEGG MASON, INC. AND SUBSIDIARIES

(Amounts in billions)

(Unaudited)

















Assets Under Management
















Quarters Ended





By asset class:

December 2017


September 2017


June 2017


March 2017


December 2016






Equity

$                         207.6


$                         201.2


$                         196.2


$                         179.8


$                         169.0






Fixed Income

420.1


411.9


403.6


394.3


381.1






Alternative

66.3


65.8


66.5


67.9


71.5







Long-Term Assets

694.0


678.9


666.3


642.0


621.6






Liquidity

73.2


75.5


74.9


86.4


88.8







Total

$                         767.2


$                         754.4


$                         741.2


$                         728.4


$                         710.4
























Quarters Ended


Nine Months Ended

By asset class (average):

December 2017


September 2017


June 2017


March 2017


December 2016


December 2017


December 2016


Equity

$                         204.7


$                         198.9


$                         190.6


$                         174.2


$                         166.7


$                         197.9


$                         165.1


Fixed Income

414.8


410.2


400.7


388.1


387.8


408.7


385.2


Alternative

65.8


66.0


67.4


70.4


71.3


66.4


66.0



Long-Term Assets

685.3


675.1


658.7


632.7


625.8


673.0


616.3


Liquidity

74.6


75.2


81.6


86.2


90.9


77.6


103.4



Total

$                         759.9


$                         750.3


$                         740.3


$                         718.9


$                         716.7


$                         750.6


$                         719.7

































Component Changes in Assets Under Management














Quarters Ended


Nine Months Ended




December 2017


September 2017


June 2017


March 2017


December 2016


December 2017


December 2016

Beginning of period

$                         754.4


$                         741.2


$                         728.4


$                         710.4


$                         732.9


$                         728.4


$                         669.6

Net client cash flows:














Equity

(3.2)


(2.4)


1.0


3.1


(3.7)


(4.6)


(8.4)

Fixed Income

5.4


0.9


0.3


3.5


0.5


6.6


7.3

Alternative


(0.7)


(0.8)


(2.7)


(0.8)


(1.5)


(4.4)

     Long-Term flows

2.2


(2.2)


0.5


3.9


(4.0)


0.5


(5.5)

Liquidity

(2.3)


0.2


(11.5)


(3.1)


(6.9)


(13.6)


(24.2)

     Total net client cash flows

(0.1)


(2.0)


(11.0)


0.8


(10.9)


(13.1)


(29.7)

Realizations(1)

(0.3)


(0.5)


(1.3)




(2.2)


Market performance and other(2)

13.5


13.5


24.7


17.1


(2.3)


51.8


25.7

Impact of foreign exchange

(0.4)


2.2


0.7


4.0


(8.4)


2.5


(5.4)

Acquisitions (disposition), net

0.1



(0.3)


(3.9)


(0.9)


(0.2)


50.2

End of period

$                         767.2


$                         754.4


$                         741.2


$                         728.4


$                         710.4


$                         767.2


$                         710.4

















(1) Realizations represent investment manager-driven distributions primarily related to the sale of assets. Realizations are specific to our alternative managers and do not include client-driven distributions (e.g. client requested redemptions, liquidations or asset transfers).  Realizations of $0.2 billion, $0.4 billion, $0.4 billion, and $0.3 billion were included in net client cash flows for the quarters ended March 31, 2017, December 31, 2016, September 30, 2016, and June 30, 2016, respectively.

 

(2) For the quarter ended June 30, 2017, Other includes a reclass, effective April 1, 2017, of $16.0 billion of certain assets which were previously included in Assets Under Advisement to Assets Under Management, specifically retail separately managed account programs that operate and have fee rates comparable to programs managed on a fully discretionary basis.  These Assets Under Advisement as of the quarters ended March 31, 2017, December 31, 2016, and September 30, 2016 were $16.0 billion, $13.7 billion, and $12.8 billion, respectively. The quarter ended September 30, 2017 includes a reclassification of $1.0 billion from long-term net client cash flows to Market performance and other related to this AUM.  For the quarter ended June 30, 2017, Other also includes a $3.7 billion reconciliation to previously reported amounts.

 

(3) Due to effects of rounding, the sum of the quarterly results may differ immaterially from the year-to-date results.

















Use of Supplemental Non-GAAP Financial Information

As supplemental information, we are providing a performance measure for "Operating Margin, as Adjusted" and a liquidity measure for "Adjusted EBITDA", each of which are based on methodologies other than generally accepted accounting principles ("non-GAAP").  Our management uses these measures as benchmarks in evaluating and comparing our period-to-period operating performance and liquidity.

Operating Margin, as Adjusted

We calculate "Operating Margin, as Adjusted," by dividing (i) Operating Income, adjusted to exclude the impact on compensation expense of gains or losses on investments made to fund deferred compensation plans, the impact on compensation expense of gains or losses on seed capital investments by our affiliates under revenue sharing agreements, amortization related to intangible assets, income (loss) of consolidated investment vehicles, the impact of fair value adjustments of contingent consideration liabilities, if any, and impairment charges by (ii) our operating revenues, adjusted to add back net investment advisory fees eliminated upon consolidation of investment vehicles, less distribution and servicing expenses which we use as an approximate measure of revenues that are passed through to third parties, and less performance fees that are passed through as compensation expenses or net income (loss) attributable to non-controlling interests, which we refer to as "Operating Revenues, as Adjusted".  The deferred compensation items are removed from Operating Income in the calculation because they are offset by an equal amount in Non-operating income (expense), and thus have no impact on Net Income Attributable to Legg Mason, Inc.  We adjust for the impact of amortization of management contract assets and the impact of fair value adjustments of contingent consideration liabilities, if any, which arise from acquisitions to reflect the fact that these items distort comparison of our operating results with results of other asset management firms that have not engaged in significant acquisitions.  Impairment charges and income (loss) of consolidated investment vehicles are removed from Operating Income in the calculation because these items are not reflective of our core asset management operations.  We use Operating Revenues, as Adjusted in the calculation to show the operating margin without distribution and servicing expenses, which we use to approximate our distribution revenues that are passed through to third parties as a direct cost of selling our products, although distribution and servicing expenses may include commissions paid in connection with the launching of closed-end funds for which there is no corresponding revenue in the period.  We also use Operating Revenues, as Adjusted in the calculation to show the operating margin without performance fees, which are passed through as compensation expense or net income (loss) attributable to non-controlling interests per the terms of certain more recent acquisitions.  Operating Revenues as adjusted also include our advisory revenues we receive from consolidated investment vehicles that are eliminated in consolidation under GAAP.

We believe that Operating Margin, as Adjusted, is a useful measure of our performance because it provides a measure of our core business activities.  It excludes items that have no impact on Net Income Attributable to Legg Mason, Inc. and indicates what our operating margin would have been without the distribution revenues that are passed through to third parties as a direct cost of selling our products, performance fees that are passed through as compensation expense or net income (loss) attributable to non-controlling interests per the terms of certain more recent acquisitions, amortization related to intangible assets, changes in the fair value of contingent consideration liabilities, if any, impairment charges, and the impact of the consolidation of certain investment vehicles described above.  The consolidation of these investment vehicles does not have an impact on Net Income Attributable to Legg Mason, Inc.  This measure is provided in addition to our operating margin calculated under GAAP, but is not a substitute for calculations of margins under GAAP and may not be comparable to non-GAAP performance measures, including measures of adjusted margins of other companies.

Adjusted EBITDA

We define Adjusted EBITDA as cash provided by (used in) operating activities plus (minus) interest expense, net of accretion and amortization of debt discounts and premiums, current income tax expense (benefit), the net change in assets and liabilities, net (income) loss attributable to noncontrolling interests, net gains (losses) and earnings on investments, net gains (losses) on consolidated investment vehicles, and other.  The net change in assets and liabilities adjustment aligns with the Consolidated Statements of Cash Flows.  Adjusted EBITDA is not reduced by equity-based compensation expense, including management equity plan non-cash issuance-related charges.  Most management equity plan units may be put to or called by Legg Mason for cash payment, although their terms do not require this to occur.

We believe that this measure is useful to investors and us as it provides additional information with regard to our ability to meet working capital requirements, service our debt, and return capital to our shareholders.  This measure is provided in addition to Cash provided by operating activities and may not be comparable to non-GAAP performance measures or liquidity measures of other companies, including their measures of EBITDA or Adjusted EBITDA.  Further, this measure is not to be confused with Net Income, Cash provided by operating activities, or other measures of earnings or cash flows under GAAP, and are provided as a supplement to, and not in replacement of, GAAP measures.

We have previously disclosed Adjusted EBITDA that conformed to calculations required by our debt covenants, which adjusted for certain items that required cash settlement that are not part of the current definition.

Cision View original content:http://www.prnewswire.com/news-releases/legg-mason-reports-results-for-third-fiscal-quarter-300587815.html

SOURCE Legg Mason, Inc.