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Rating:Three Things to Know From Artio’s Earnings Not Rated 0.0 Email Routing List Email & Route  Print Print
Thursday, February 14, 2013

Three Things to Know From Artio’s Earnings

Reported by Tommy Fernandez

Well, we all know now that Artio [profile] is being acquired by Aberdeen [profile].

If you want some insights as to the why, look no further than the SeekingAlpha transcripts of Artio's earnings call and the company’s fourth quarter 2012 earnings info. Also feel free to peruse Artio’s own announcement about the deal.

First, the basics. On a GAAP basis, Artio’s net loss for the fourth quarter of 2012 was $1.5 million, or $0.03 per diluted share, as compared to a net loss of $52.1 million, or $0.87 per diluted share, for the third quarter of 2012, and a decrease from net income of $8.3 million, or $0.14 per diluted share, for the fourth quarter of 2011.

On an adjusted basis, Artio reported for the fourth quarter of 2012 net income of $1.5 million, or $0.02 per diluted share, a decrease of 61 percent and 71 percent, respectively, from adjusted net income attributable of $3.9 million, or $0.07 per diluted share, for the third quarter of 2012, and a decrease of 85 percent and 88 percent, respectively, from adjusted net income of $10.0 million, or $0.17 per diluted share, for the fourth quarter of 2011.

There are at least three powerful takeaways as to what happened to Artio in 2012 that provide insight into the sale of Artio.

They are:

POINT #1: AUM, For The Year, Fell 53 Percent.
POINT #2: Q4 Revenues Fell 60 Percent Year-Over-Year.
POINT #3: Fixed Income Investing is a Scale Game

Now, to elaborate on these three points.

POINT #1: AUM, For The Year, Fell 53 percent.
According to the company’s earnings info, assets under management were $14.3 billion as of December 31, 2012, down $16.0 billion, or 53 percent, from $30.4 billion as of December 31, 2011, due to net client cash outflows, partly offset by market appreciation.

Net client cash outflows for the fourth quarter of 2012 were $3.8 billion, driven by net client cash outflows across all strategies, although predominantly in the firm’s International Equity I and II strategies.

Artio chief executive Tony Williams had this to say on the subject:
With the decline in our assets under management the last couple of years, we felt there would be significant benefit in partnering with an organization like Aberdeen, which has vast financial strength and a delivered footprint of analytical resources.

POINT #2: Q4 Revenues Fell 60 Percent Year-Over-Year.
Chief financial officer Frank Harte had this to say about revenue:
Turning to revenues, total revenues and other operating income of $20.8 million decreased 60% from the fourth quarter of 2011 driven primarily by a 60% decrease in investment management fees as average AUM declined 52% to $15.9 billion. And the average speed rate declined to 51 basis points over the same period.

On a sequential basis, total revenues and other operating income decreased 23% driven primarily by a 23% decrease in investment manager fees associated with a 17% decrease in average assets under management and a decline in the average speed rate.

Artio did cut costs significantly in a number of areas, including compensation. This is what Harte had to say about that:
Turning to compensation, adjusted compensation costs decreased 27% sequentially as a result of lower salary and benefit costs related to lower headcount, reduced incentive compensation accruals, and lower costs associated with our long-term incentive program.

Adjusted compensation costs decreased 49% from the year ago quarter for the reasons just mentioned.

POINT #3: Fixed Income Investing is a Scale Game
When responding to a series of questions presented by Sandler O’Neill analyst Michael Kim, Williams had this to say about Artio’s fixed income business and the opportunities provided by Aberdeen.
Listen, part of the reason for the deal from our perspective, is we think there’s an enormous opportunity to grow the footprint of our fixed income products. They have already over $58 billion of investments from clients within the North and South American geographical base. They have over 233 staff. Clearly they have a global reach from a distribution perspective, that’s an opportunity for them and ultimately for our investment teams over time to expand the assets under management.

So, yes, you’re absolutely right Michael, that’s a key opportunity going forwards, from a value perspective. At the end of the day, our investment products, our fixed income (guys) will have exactly the same product and exactly the same format within Aberdeen. And Aberdeen has a very significant financial base, and a very extensive opportunity going forward, which is extremely positive for our [inaudible] management teams. And one which we expect them to be – we know they’re very happy with, and one in which we expect to develop over time.

Look, at the end of the day as you know, in any part of the asset management business, scale is important. But it’s … fixed income. But clearly, fixed income being slightly lower margin than equities, it’s even more so. So yes, scale is key.

Artio plans to file soon an 8-K report with the SEC to elaborate more on the details and reasons of the deal. Until then, turn to the SeekingAlpha transcripts of the earnings call and the company’s fourth quarter 2012 earnings info. Also feel free to peruse Arti’s own announcement about the deal

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