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Legg Mason Reports Results For Fourth Fiscal Quarter And Fiscal Year-Ended 2019

-- Fourth Quarter Net Income of $49.5 Million, or $0.56 per Diluted Share

-- Strategic Restructuring and Affiliate Charges of $18.6 Million, or $0.14 per Diluted Share

-- Assets Under Management of $758.0 Billion

-- Breakeven Long-term Flows

-- Quarterly Dividend Increased by 18% to $0.40 Per Share

BALTIMORE, May 13, 2019 /PRNewswire/ -- Legg Mason, Inc. (LM) today reported its operating results for the fourth fiscal quarter and the fiscal year ended March 31, 2019. 






Quarters Ended


Fiscal Years Ended

Financial Results

Mar


Dec


Mar


Mar


Mar

(Amounts in millions, except per share amounts)

2019


2018


2018


2019


2018

Operating Revenues

$

692.6



$

704.3



$

785.1



$

2,903.3



$

3,140.3


Operating Expenses

614.5



940.7



685.3



2,800.2



2,816.3


Operating Income (Loss)

78.1



(236.4)



99.7



103.1



324.0


Net Income (Loss)1

49.5



(216.9)



9.3



(28.5)



285.1


Net Income (Loss) Per Share - Diluted1

0.56



(2.55)



0.10



(0.38)



3.01












Assets Under Management










(Amounts in billions)










End of Period Assets Under Management

$

758.0



$

727.2



$

754.1



$

758.0



$

754.1


Average Assets Under Management

748.7



739.3



766.9



748.0



754.4












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


(PRNewsfoto/Legg Mason, Inc.)

Joseph A. Sullivan, Chairman and CEO of Legg Mason said, "This quarter's results reinforce the benefits of diversification of our investment management platform across asset classes, with  alternative and fixed income net inflows offset by decelerating equity net outflows.  Our distribution platform contributed with a favorable inflection in retail net flows reflecting higher sales and slower redemptions.  We continue to focus on meeting evolving client demand by expanding client choice in investment strategies, vehicles and distribution access.  Looking ahead, lead indicators of improving investment performance, ongoing product development, and increasing interest in alternative strategies bode well for organic growth prospects.

"On top of improving fundamental trends, we have refined the perspective and scope of our strategic restructuring which will deliver meaningful cost reductions.  Finally, we are thoughtfully allocating capital, including paying down  $250 million of our public debt in July, and approving an 18% increase in the quarterly dividend."  

Assets Under Management of $758.0 Billion

Assets Under Management were $758.0 billion at March 31, 2019 compared with $727.2 billion at December 31, 2018, resulting from $39.2 billion in positive market performance and other, offset by $0.3 billion in realizations, and liquidity outflows of $8.1 billion.











Quarter Ended March 31, 2019



Assets Under Management

($ in billions)

 

AUM


 

Flows


Operating
Revenue Yield 1



Equity

$

202.0



$

(1.0)



58 bps



Fixed Income

419.6



0.1



27 bps



Alternative

68.6



0.9


2

60 bps



Long-Term Assets

690.2



0.0






Liquidity

67.8



(8.1)



 14 bps



Total

$

758.0



$

(8.1)



 37 bps











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



(2) Excludes realizations of $0.3 billion


At March 31, 2019, 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 $748.7 billion compared to $739.3 billion in the prior quarter and $766.9 billion in the fourth quarter of fiscal year 2018.  Average long-term AUM was $676.1 billion compared to $672.4 billion in the prior quarter and $697.1 billion in the fourth quarter of fiscal year 2018.



Quarterly Performance




1-Year


3-Year


5-Year


10-Year

% of Strategy AUM beating Benchmark3


56%


78%


74%


84%











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


48%


63%


72%


61%











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










Of Legg Mason's long-term U.S. mutual fund assets, 56% were in funds rated 4 or 5 stars by Morningstar.

Operating Results - Comparison to the Third Quarter of Fiscal Year 2019

Net income was $49.5 million, or $0.56 per diluted share, compared to a net loss of $216.9 million, or $2.55 per diluted share, in the third quarter of fiscal year 2019. In addition to the net impact of the factors listed below, the changes were driven by two fewer days in the quarter and higher seasonal compensation.   

This quarter's results included:

  • Strategic restructuring costs4 of $9.4 million, or $0.08 per diluted share.
  • Affiliate charges  of $9.2 million, or $0.06 per diluted share, which included Royce management equity plan costs of $2.4 million.

The prior quarter's results included:

  • Non-cash intangible asset impairment charges of $365.2 million, or $3.11 per diluted share, primarily related to commingled fund management contracts at EnTrust Global and RARE Infrastructure.
  • Net discrete tax expenses and other tax items of $10.5 million, or $0.12 per diluted share.
  • Corporate restructuring costs4 of $5.9 million, or $0.05 per diluted share.

Operating revenues of $692.6 million were down 2% compared to $704.3 million in the prior quarter reflecting:

  • A decrease in separate account and fund advisory fee revenues of $15.3 million, or 2%, reflecting two fewer days in the quarter.
  • This was partially offset by a $3.8 million increase in performance fees.

Operating expenses were $614.5 million compared to $940.7 million in the prior quarter, but excluding the non-cash impairment charges of $365.2 million in the fiscal third quarter, expenses were up 7%, reflecting:

  • Higher compensation of $38.8 million driven by a $16.0 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 loss of $10.8 million in the prior quarter, as well as seasonal compensation expenses.
  • An increase in occupancy expenses of $4.9 million driven by Corporate restructuring costs.
  • An increase in other expenses of $4.3 million related to Corporate and other restructuring costs, as well as an increase in affiliate related legal and professional fees.

Non-operating expense was $2.8 million, as compared to $30.3 million in the prior quarter reflecting:  

  • Gain on corporate investments, not offset in compensation, were $10.2 million compared with losses of $4.9 million in the prior quarter.
  • A residual distribution of $8.4 million from an investment holding in the prior quarter.  
  • Gains on funded deferred compensation and seed investments, as described above.
  • A $4.5 million loss associated with the consolidation of sponsored investment vehicles compared to a $2.6 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 11.3% compared to (33.6)% in the prior quarter, reflecting the impact of the non-cash impairment charges of $365.2 million in the prior quarter.  Operating margin, as adjusted5, was 17.1%, as compared to 21.1% in the prior quarter. 

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $5.7 million compared to $9.0 million in the prior quarter, principally related to Clarion, EnTrust Global, RARE and Royce.

(4)  For the March and December quarters, Strategic restructuring costs include both global business platform as well as other corporate functions
(5)  See "Use of Supplemental Non-GAAP Financial Information."

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

Net income was $49.5 million, or $0.56 per diluted share, compared to net income of $9.3 million, or $0.10 per diluted share, in the fourth quarter of fiscal year 2018.  In addition to the factors listed below, the changes reflecting lower revenues driven by lower average long-term AUM and lower non-pass through performance fees.

This quarter's results included:

  • Strategic restructuring costs4 of $9.4 million, or $0.08 per diluted share.
  • Affiliate charges  of $9.2 million, or $0.06 per diluted share, which included Royce management equity plan costs of $2.4 million.

The prior year quarter's results included:

  • A charge of $67.0 million, or $0.76 per diluted share, related to the previously disclosed regulatory matter.
  • Contingent consideration credit adjustments of $15.5 million, or $0.11 per diluted share. 
  • EnTrust Global acquisition and transition-related costs of $1.8 million, or $0.01 per diluted share.
  • Corporate severance costs of $1.9 million, or $0.01 per diluted share.

Operating revenues of $692.6 million down 12% compared with $785.1 million in the prior year quarter reflecting:

  • Decreases principally due to lower average long-term AUM.
  • A decrease in non-pass through performance fees of $21.6 million.

Operating expenses of $614.5 million were down 10% compared with $685.3 million in the prior year quarter reflecting:

  • Decreased compensation and distribution and service fees, related to decreased revenues driven by lower average long-term AUM and performance fees.
  • Regulatory charge of $67.0 million reflected in Other Expenses in the prior year quarter.
  • Excluding the regulatory charge, other expenses increased $7.3 million related to Corporate and other restructuring costs, as well as an increase in affiliate related legal and professional fees.
  • A $16.0 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 loss of $2.2 million in the prior year quarter.

Non-operating expense was $2.8 million, compared to $43.1 million in the prior year quarter reflecting:

  • Gains on corporate investments, not offset in compensation, were $10.2 million compared with losses of $11.9 million in the prior year quarter.
  • Gains on funded deferred compensation and seed investments as described above.
  • A $4.5 million loss associated with the consolidation of sponsored investment vehicles, as compared to an $1.3 million loss 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 11.3% as compared to12.7% in the prior year quarter.  Operating margin, as adjusted, was 17.1%, as compared to 23.8% in the prior year quarter.

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $5.7 million, compared to $8.6 million in the prior year quarter, principally related to Clarion, EnTrust Global, RARE and Royce.

Comparison to the Full Fiscal Year 2018

Net loss was $28.5 million, or $0.38 per diluted share, compared to net income of $285.1 million, or $3.01 per diluted share, for fiscal year 2018.  In addition to the factors listed below, the decreased earnings were driven by lower advisory fee and distribution and service fee revenue due to a lower operating revenue yield  and lower non-pass through performance fees.

This year's results included:

  • Non-cash impairment charges of $365.2 million, or $3.07 per diluted share
  • Strategic and corporate restructuring costs of $18.5 million, or $0.15 per diluted share.
  • Affiliate charges of $9.2 million, or $0.06 per diluted share, which included Royce management equity plan costs of $2.4 million
  • A charge of $4.2 million, or $0.05 per diluted share, reflecting the previously disclosed regulatory matter.
  • Net discrete tax expenses and other tax items of $7.7 million, or $0.09 per diluted share.

The prior year's results included:

  • Tax benefit of $213.7 million, or $2.26 per diluted share
  • Non-cash impairment charges of $229.0 million, or $1.96 per diluted share
  • A charge of $67.0 million, or $0.71 per diluted share, related to a previously disclosed regulatory matter.
  • Contingent consideration credit adjustments of $31.3 million, or $0.33 per diluted share. 
  • EnTrust Global acquisition and transition-related costs of $7.0 million, or $0.05 per diluted share.

Operating revenues of $2.9 billion were down 8% compared with $3.1 billion in the prior year reflecting:

  • Lower advisory fee and distribution and service fee revenue due to a lower operating revenue yield.
  • A decrease in non-pass through performance fees of $83.2 million, and a decrease in pass through performance fees of $59.7 million.

Operating expenses of $2.8 billion were in line with the prior year, but excluding the non-cash impairment charges in both years, and the regulatory charges in both years and contingent consideration credit adjustments, were down 5% reflecting:

  • Decreased compensation, related to decreased revenues driven by lower average long-term AUM and lower performance fees. 
  • Distribution and servicing expenses decreased $50.0 million resulting from lower AUM on which we pay third party distributors.
  • An $18.8 million increase in other expenses, due to global business platform and other corporate restructuring costs of $20.3 million.
  • A $10.4 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 $12.3 million in the prior year.

Non-operating expense was $74.6 million, compared to $90.2 million in the prior year reflecting:

  • Gain on corporate investments, not offset in compensation, were $22.5 million compared with net losses of $1.8 million in the prior year.
  • Gains on funded deferred compensation and seed investments, as described above.
  • A $2.4 million loss associated with the consolidation of sponsored investment vehicles, as compared to a $10.0 million gain in the prior year.  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 3.6% as compared to 10.3% in the prior year.  Operating margin, as adjusted, was 21.1%, as compared to 24.6% in the prior year.

Net income attributable to noncontrolling interests, excluding consolidated investment vehicles, was $35.7 million, compared to $44.6 million in the prior year, principally related to Clarion, EnTrust Global, RARE and Royce.

Quarterly Business Developments and Recent Announcements

  • On April 15, 2019, S&P Global Ratings affirmed the BBB senior debt rating of Legg Mason and moved the rating outlook to positive from stable.
  • On April 10, 2019, Clarion Partners acquired a majority stake in  Gramercy Europe (Jersey) Limited, a European real estate business specializing in pan-European logistics and industrial assets.
  • On April 8, 2019, The U.S. Securities and Exchange Commission (SEC) issued a notice of application for exemptive relief for Precidian Investments' proprietary exchange traded fund (ETF) intellectual property, ActiveShares®.
  • On April 2, 2019 Legg Mason announced that it has received a perfect score of 100 on the 2019 Corporate Equality Index (CEI), the nation's premier benchmarking survey and report on corporate policies and practices related to LGBTQ+ workplace equality.

Balance Sheet

At March 31, 2019, Legg Mason's cash position was $921.1 million.  Total debt was $2.2 billion, and stockholders' equity was $3.7 billion.  The ratio of total debt to total capital was 38%, in line with the prior quarter.   Seed investments totaled $227.8 million.

The Board of Directors has declared a quarterly cash dividend on the Company's common stock in the amount of $0.40, per share.   The dividend is payable on July 22, 2019 to shareholders of record at the close of business on July 2, 2019.

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. EDT 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 48533739, 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 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 48533739# when prompted.  Please note that the replay will be available beginning at 8:00 p.m. EDT on Monday, May 13, 2019, and ending at 11:59 p.m. EDT on Monday, May 27, 2019.

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 $758.0 billion as of March 31, 2019.  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, 2018 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 88% of total AUM is included in strategy AUM as of March 31, 2019, 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.





At March 31, 2019:


1-Year


3-Year


5-Year


10-Year

% of Strategy AUM beating Benchmark



















Fixed Income


46%


89%


84%


96%


Equity


47%


45%


45%


35%


Alternatives


98%


83%


97%


100%


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.





At March 31, 2019:


1-Year


3-Year


5-Year


10-Year




















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










Fixed Income


29%


73%


81%


84%


Equity


67%


54%


63%


36%


Alternatives (performance relates to only 3 funds)


32%


0%


0%


n/a


 

 

LEGG MASON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Amounts in thousands)

(Unaudited)


















Quarters Ended


Fiscal Years Ended





March


December


March


March


March





2019


2018


2018


2019


2018

Operating Revenues:











Investment advisory fees:












Separate accounts

$          251,234


$          256,657


$          261,920


$      1,029,353


$      1,020,790



Funds

351,312


361,173


394,206


1,479,972


1,564,839



Performance fees

16,371


12,619


46,501


84,900


227,785


Distribution and service fees

72,518


72,185


80,899


302,967


321,936


Other

1,170


1,688


1,526


6,067


4,972




Total operating revenues

692,605


704,322


785,052


2,903,259


3,140,322














Operating Expenses:











Compensation and benefits

355,640


316,876


365,469


1,398,969


1,508,798


Distribution and servicing

99,317


108,842


119,094


439,276


489,331


Communications and technology

57,245


56,664


56,957


228,138


212,798


Occupancy

28,963


24,077


26,199


105,296


100,760


Amortization of intangible assets

6,033


6,089


6,112


24,404


24,604


Impairment of intangible assets


365,200



365,200


229,000


Contingent consideration fair value adjustments



(15,518)


571


(31,329)


Other

67,282


63,001


127,029


238,303


282,359




Total operating expenses

614,480


940,749


685,342


2,800,157


2,816,321














Operating Income (Loss)

78,125


(236,427)


99,710


103,102


324,001














Non-Operating Income (Expense):











Interest income

4,184


3,126


2,239


12,176


7,106


Interest expense

(28,794)


(28,770)


(30,441)


(117,341)


(117,872)


Other income (expense), net

24,286


(7,042)


(13,372)


31,123


10,824


Non-operating income (expense) of












consolidated investment vehicles, net

(2,519)


2,369


(1,535)


(565)


9,781




Total non-operating income (expense)

(2,843)


(30,317)


(43,109)


(74,607)


(90,161)














Income Before Income Tax Provision











(Benefit)

75,282


(266,744)


56,601


28,495


233,840















Income tax provision (benefit)

20,396


(60,354)


39,958


20,561


(102,510)














Net Income (Loss)

54,886


(206,390)


16,643


7,934


336,350


Less: Net income attributable












to noncontrolling interests

5,399


10,498


7,374


36,442


51,275














Net Income (Loss) Attributable to Legg











Mason, Inc.

$            49,487


$        (216,888)


$              9,269


$          (28,508)


$          285,075






















(Continued)

 

 

LEGG MASON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS), CONTINUED

(Amounts in thousands, except per share amounts)

(Unaudited)


















Quarters Ended


Fiscal Years Ended





March


December


March


March


March





2019


2018


2018


2019


2018














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

$            49,487


$        (216,888)


$              9,269


$          (28,508)


$          285,075













Less: Earnings (distributed and undistributed)












allocated to participating securities (1)

1,703


1,049


923


4,225


10,128














Net Income (Loss) (Distributed and Undistributed)











Allocated to Shareholders (Excluding











Participating Securities)

$            47,784


$        (217,937)


$              8,346


$          (32,733)


$          274,947














Net Income (Loss) per Share Attributable to











Legg Mason, Inc. Shareholders:













Basic

$                 0.56


$               (2.55)


$                 0.10


$               (0.38)


$                 3.03

















Diluted

$                 0.56


$               (2.55)


$                 0.10


$               (0.38)


$                 3.01














Weighted-Average Number of Shares











Outstanding: (2)













Basic

85,552


85,537


84,526


85,423


90,734




Diluted

85,613


85,537


85,079


85,423


91,194














(1)

Participating securities excluded from weighted-average number of shares outstanding were 3,055, 3,104, and 3,343 for the quarters ended March 2019, December 2018, and March 2018, respectively, and 3,092 and 3,327 for the fiscal years ended March 2019 and March 2018, respectively.

(2)

Diluted shares are the same as basic shares for periods with a loss.






Strategic Restructuring effective January 1, 2019

Quarter
Ended
March
2019










Strategic restructuring cost savings:












Compensation

$              1,663











Occupancy

300











Other

1,642












Total strategic restructuring cost savings

$              3,605























Strategic restructuring costs:












Occupancy

$              2,848











Other

6,504












Total strategic restructuring costs

$              9,352
























 

 

LEGG MASON, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENTS OF INCOME (LOSS)

(Amounts in thousands)

(Unaudited)





Quarters Ended





March 2019


December 2018


March 2018


























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

$               692,743


$             (138)


$        692,605

$               704,477


$             (155)


$        704,322

$               785,280


$             (228)


$        785,052

Total operating expenses

614,361


119


614,480

940,561


188


940,749

685,610


(268)


685,342

Operating Income (Loss)

78,382


(257)


78,125

(236,084)


(343)


(236,427)

99,670


40


99,710

Non-operating income (expense)

(2,840)


(3)


(2,843)

(32,158)


1,841


(30,317)

(41,802)


(1,307)


(43,109)

Income (Loss) Before Income Tax Provision (Benefit)

75,542


(260)


75,282

(268,242)


1,498


(266,744)

57,868


(1,267)


56,601

Income tax provision (benefit)

20,396



20,396

(60,354)



(60,354)

39,958



39,958

Net Income (Loss)

55,146


(260)


54,886

(207,888)


1,498


(206,390)

17,910


(1,267)


16,643

Less: Net income (loss) attributable
















to noncontrolling interests

5,659


(260)


5,399

9,000


1,498


10,498

8,641


(1,267)


7,374

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

$                49,487


$                —


$          49,487

$              (216,888)


$                —


$       (216,888)

$                  9,269


$                —


$           9,269















































Fiscal Years Ended











March 2019


March 2018
































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

$            2,903,858


$             (599)


$     2,903,259

$            3,140,900


$             (578)


$     3,140,322






Total operating expenses

2,799,168


989


2,800,157

2,816,022


299


2,816,321






Operating Income (Loss)

104,690


(1,588)


103,102

324,878


(877)


324,001






Non-operating income (expense)

(76,971)


2,364


(74,607)

(97,694)


7,533


(90,161)






Income Before Income Tax Provision (Benefit)

27,719


776


28,495

227,184


6,656


233,840






Income tax provision (benefit)

20,561



20,561

(102,510)



(102,510)






Net Income

7,158


776


7,934

329,694


6,656


336,350






Less: Net income attributable
















to noncontrolling interests

35,666


776


36,442

44,619


6,656


51,275






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

$               (28,508)


$                —


$         (28,508)

$               285,075


$                —


$        285,075



























(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



Fiscal Years Ended





















March


December


March



March


March






2019


2018


2018



2019


2018

















Operating Revenues, GAAP basis

$            692,605


$            704,322


$            785,052



$        2,903,259


$        3,140,322


















Plus (less):














Pass-through performance fees

(4,986)


(7,436)


(13,482)



(49,048)


(108,757)




Operating revenues eliminated upon















consolidation of investment vehicles

138


155


228



599


578




Distribution and servicing expense excluding















consolidated investment vehicles

(99,299)


(108,771)


(119,312)



(439,144)


(489,310)

















Operating Revenues, as Adjusted

$            588,458


$            588,270


$            652,486



$        2,415,666


$        2,542,833
































Operating Income (Loss), GAAP basis

$              78,125


$          (236,427)


$              99,710



$            103,102


$            324,001


















Plus (less):














Gains (losses) on deferred compensation















and seed investments, net

16,006


(10,826)


(2,240)



10,416


12,345




Impairment of intangible assets


365,200




365,200


229,000




Amortization of intangible assets

6,033


6,089


6,112



24,404


24,604




Contingent consideration fair value adjustments



(15,518)



571


(31,329)




Charge related to regulatory matter



67,000



4,151


67,000




Operating (income) loss of consolidated investment















vehicles, net

257


343


(40)



1,588


877

















Operating Income, as Adjusted

$            100,421


$            124,379


$            155,024



$            509,432


$            626,498

















Operating Margin, GAAP basis

11.3

%

(33.6)

%

12.7

%


3.6

%

10.3

%

Operating Margin, as Adjusted

17.1


21.1


23.8



21.1


24.6

















(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


Fiscal Years Ended


















March


December


March


March


March





2019


2018


2018


2019


2018














Cash provided by operating activities, GAAP basis

$                  116,877


$               256,591


$                  197,550


$            560,866


$            489,368















Plus (less):












Interest expense, net of accretion and amortization













of debt discounts and premiums

28,328


28,259


29,880


115,284


115,056



Current tax expense (benefit)

9,081


(1,218)


14,426


26,716


38,983



Net change in assets and liabilities

(27,724)


(170,384)


(128,797)


(52,518)


(31,125)



Net change in assets and liabilities













of consolidated investment vehicles

(7,701)


60,158


16,569


(17,667)


67,792



Net income attributable to noncontrolling interests

(5,399)


(10,498)


(7,374)


(36,442)


(51,275)



Net gains (losses) and earnings on investments

(8,790)


21,367


(3,179)


27,705


(305)



Net gains (losses) on consolidated investment vehicles

(2,519)


2,369


(1,535)


(565)


9,781



Other

(866)


(68)


(1,981)


(1,155)


(1,047)














Adjusted EBITDA

$                  101,287


$               186,576


$                  115,559


$            622,224


$            637,228



























(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:

March 2019


December 2018


September 2018


June 2018


March 2018






Equity

$                         202.0


$                         181.0


$                         214.5


$                         206.4


$                         203.0






Fixed Income

419.6


406.6


411.0


412.3


422.3






Alternative

68.6


66.3


67.4


66.4


66.1







Long-Term Assets

690.2


653.9


692.9


685.1


691.4






Liquidity

67.8


73.3


62.5


59.5


62.7







Total

$                         758.0


$                         727.2


$                         755.4


$                         744.6


$                         754.1
























Quarters Ended


Fiscal Years Ended

By asset class (average):

March 2019


December 2018


September 2018


June 2018


March 2018


March 2019


March 2018


Equity

$                         195.4


$                         198.2


$                         212.2


$                         205.0


$                         208.8


$                         203.1


$                         200.5


Fixed Income

413.7


407.4


411.4


416.7


422.2


412.9


412.0


Alternative

67.0


66.8


66.4


66.0


66.1


66.5


66.3



Long-Term Assets

676.1


672.4


690.0


687.7


697.1


682.5


678.8


Liquidity

72.6


66.9


60.2


61.8


69.8


65.5


75.6



Total

$                         748.7


$                         739.3


$                         750.2


$                         749.5


$                         766.9


$                         748.0


$                         754.4

































Component Changes in Assets Under Management














Quarters Ended


Fiscal Years Ended




March 2019


December 2018


September 2018


June 2018


March 2018


March 2019


March 2018

Beginning of period

$                         727.2


$                         755.4


$                         744.6


$                         754.1


$                         767.2


$                         754.1


$                         728.4

Net client cash flows:














Equity

(1.0)


(3.3)


(1.1)


(2.2)


(2.1)


(7.5)


(6.7)

Fixed Income

0.1


(5.1)


(0.5)


1.3


2.8


(4.3)


9.4

Alternative

0.9


(0.1)


0.6



0.5


1.5


(1.0)

Long-Term flows


(8.5)


(1.0)


(0.9)


1.2


(10.3)


1.7

Liquidity

(8.1)


10.5


3.0


(2.9)


(10.7)


2.3


(24.3)

Total net client cash flows

(8.1)


2.0


2.0


(3.8)


(9.5)


(8.0)


(22.6)

Realizations(1)

(0.3)


(0.2)


(0.2)


(0.3)


(0.5)


(1.0)


(2.6)

Market performance and other

39.1


(30.0)


11.0


1.1


(6.0)


21.3


45.7

Impact of foreign exchange

0.1



(2.0)


(6.5)


2.9


(8.4)


5.4

Acquisitions (disposition), net







(0.2)

End of period

$                         758.0


$                         727.2


$                         755.4


$                         744.6


$                         754.1


$                         758.0


$                         754.1

















(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).

(2) 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 arrangements, amortization related to intangible assets, income (loss) of consolidated investment vehicles, the impact of fair value adjustments of contingent consideration liabilities, if any, unusual and other non-core charges (including the previously disclosed regulatory charge), 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 expense or net income (loss) attributable to noncontrolling 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), net, and thus have no impact on Net Income (Loss) Attributable to Legg Mason, Inc. We adjust for the impact of the 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 the results of other asset management firms that have not engaged in significant acquisitions. Impairment charges, unusual and other non-core charges (including the previously disclosed regulatory charge), 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 performances fees which are passed through as compensation expense or net income (loss) attributable to noncontrolling 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 (Loss) Attributable to Legg Mason, Inc. and indicates what our operating margin would have been without 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 noncontrolling 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, unusual and other non-core charges (including the previously disclosed regulatory charge), 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 (Loss) 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 stockholders.  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.


Cision

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