Invesco Ltd. reported financial results for the three months ended March 31, 2016.

"During a challenging time for the industry, Invesco's net revenues declined 11% year over year," said Martin L. Flanagan, president and CEO. "During the quarter, Invesco remained focused on delivering strong, long-term investment performance while running a disciplined business. Total adjusted operating expenses declined nearly 6% year over year, and we further enhanced the efficiency of our global operating platform by expanding resources in our global shared service centers. Reflecting our continued confidence in the strength of our global business, we are raising our quarterly dividend 3.7% to 28 cents per share."

Assets Under Management

Total assets under management at March 31, 2016, were $771.5 billion (December 31, 2015: $775.6 billion), a decrease of $4.1 billion during the first quarter. Total net outflows were $0.1 billion for the first quarter, as detailed below:

Net market losses led to decreases of $3.0 billion in AUM during the first quarter, compared to market gains of $21.0 billion in the fourth quarter 2015. Foreign exchange rate movements led to a $2.6 billion increase in AUM during the first quarter, compared to a $5.3 billion decrease in the fourth quarter 2015. Average AUM during the first quarter were $747.5 billion, compared to $783.7 billion for the fourth quarter 2015, a decrease of 4.6%. Further analysis is included in the supplementary schedules to this release.

Earnings Summary

The company is presenting both U.S. GAAP earnings information and non-GAAP earnings information in this release. The company believes that the additional disclosure of non-GAAP earnings information provides further transparency into the business on an ongoing operations basis and allows more appropriate comparisons with our industry peers. Management uses these non-GAAP performance measures to evaluate the business, and they are consistent with internal management reporting. These measures are described more fully in the company's Forms 10-K. Non-GAAP measures should not be considered as substitutes for any measures derived in accordance with U.S. GAAP and may not be comparable to other similarly titled measures of other companies.

U.S. GAAP Earnings

This section comments on significant items that have impacted the company's first quarter 2016 results as presented in accordance with U.S. GAAP.

Operating revenues decreased 7.3% to $1,148.7 million in the first quarter, from $1,239.7 million in the fourth quarter 2015. Operating expenses decreased by 6.6% to $874.3 million in the first quarter, from $936.1 million in the fourth quarter 2015.

As previously announced, the company has initiated a broad program focused on transforming several key business support functions to become more effective and efficient. Business optimization charges of $6.8 million associated with this transformation initiative were recorded in the first quarter of 2016 (fourth quarter 2015: $16.2 million), including $4.0 million of staff severance costs (fourth quarter 2015: $12.2 million) recorded in employee compensation.

Separately, general and administrative expenses for the first quarter of 2016 include a provision of $6.0 million (fourth quarter 2015: $12.6 million) pertaining to regulatory investigations, and employee compensation includes $5.4 million associated with the closing of the Jemstep acquisition.

On April 5, 2016, the company purchased the remaining 51% of Religare Invesco Asset Management Company, increasing our interest to 100%. At March 31, 2016, Invesco was committed to its plan of acquisition, which under U.S. GAAP requires the company to include any cumulative translation adjustments as part of the carrying value of the investment for the purpose of impairment testing. As a result, during the first quarter of 2016, the company recorded a non-cash impairment charge of $17.8 million related to its 49% investment in Religare. The charge relates entirely to the devaluation of the Indian Rupee against the U.S. Dollar over the period since the 2013 purchase and is reflected in equity in earnings of unconsolidated affiliates.

In the first quarter of 2015, the company acquired certain investment management contracts from a third party for a purchase price comprised of contingent consideration payable in future periods. During the first quarter of 2016, changes in the fair value of the contingent consideration liability generated a gain of $3.5 million (fourth quarter 2015: $8.7 million gain), which was recorded in other gains and losses, net.

The inclusion of consolidated investment products in the U.S GAAP earnings resulted in a reduction of $8.4 million in net income attributable to Invesco Ltd. in the first quarter, compared to a $19.4 million reduction in the fourth quarter 2015.

The effective tax rate increased to 31.3% for the first quarter, from 30.8% for the fourth quarter 2015. See note 10 on page 21 for further details.

On January 1, 2016, the company adopted the U.S. GAAP accounting guidance in Accounting Standards Update 2015-02, "Consolidation (Topic 810):  Amendments to the Consolidation Analysis" (ASU 2015-02).  See footnote 4 on page 18 for additional information. 

Non-GAAP Earnings

This section discusses the company's first quarter 2016 non-GAAP financial information, as compared to the fourth quarter 2015. The phrase "as adjusted" is used in the following earnings discussion to identify non-GAAP information, together with the non-GAAP financial measures of net revenues, adjusted operating margin, adjusted net income attributable to Invesco Ltd. and adjusted diluted EPS. The most directly comparable U.S. GAAP items are reconciled to these non-GAAP items on pages 9 through 11 of this release.

Net revenues decreased by $68.0 million (7.7%) to $818.1 million in the first quarter, from $886.1 million in the fourth quarter 2015. The change was primarily due to decreased investment management fees. Foreign exchange rate changes decreased first quarter net revenues by $12.6 million compared to the fourth quarter 2015.

Investment management fees, as adjusted, decreased $78.5 million (7.8%) to $930.3 million in the first quarter, from $1,008.8 million in the fourth quarter 2015. The decrease reflects the lower average AUM during the first quarter compared to the fourth quarter 2015 together with changes in the AUM product and currency mix and the first quarter being one day shorter than the fourth quarter 2015. The AUM currency mix was primarily impacted by a devaluation of 5.6% in the Pound Sterling against the U.S. Dollar when comparing the average exchange rate for the first quarter to the fourth quarter 2015. Foreign exchange rate changes decreased first quarter management fees by $16.1 million when compared to fourth quarter 2015.

Service and distribution fees, as adjusted, decreased $9.9 million (4.8%) to $197.7 million in the first quarter, from $207.6 million in the fourth quarter 2015.  The decrease in service and distribution fees reflects the lower average AUM in the first quarter.  Foreign exchange rate changes decreased first quarter service and distribution fees by $0.2 million when compared to fourth quarter 2015.

Performance fees, as adjusted, were $15.5 million in the first quarter, compared to $18.8 million in the fourth quarter 2015. The first quarter performance fees were generated from a variety of investment capabilities including $9.1 million generated from UK equities. Foreign exchange rate changes decreased first quarter performance fees by $0.6 million when compared to fourth quarter 2015.

Other revenues, as adjusted, decreased by $5.0 million (17.2%) to $24.0 million in the first quarter, compared to $29.0 million in the fourth quarter 2015, primarily due to decreased transaction fees from real estate and reduced UIT activities. Foreign exchange rate changes decreased other revenues by $0.1 million in the first quarter when compared to the fourth quarter 2015.

Third-party distribution, service and advisory expenses, as adjusted, decreased by $28.7 million (7.6%) to $349.4 million in the first quarter from $378.1 million in the fourth quarter 2015, consistent with the decrease in revenues derived from the related retail AUM. Foreign exchange rate changes decreased third-party distribution, service and advisory expenses by $4.4 million in the first quarter when compared to the fourth quarter 2015.

Total operating expenses, as adjusted, decreased by $19.4 million (3.7%) to $511.0 million in the first quarter from $530.4 million in the fourth quarter 2015. Foreign exchange rate changes decreased first quarter operating expenses by $6.5 million when compared to the fourth quarter 2015.

Employee compensation expenses, as adjusted, increased by $1.5 million (0.4%) to $340.3 million in the first quarter, from $338.8 million in the fourth quarter 2015.  The first quarter includes a seasonal increase in payroll tax, which was largely offset by a reduction in variable compensation.  Foreign exchange rate changes decreased first quarter employee compensation expenses by $4.3 million when compared to the fourth quarter 2015.

Marketing expenses, as adjusted, decreased by $9.2 million (26.6%) to $25.4 million in the first quarter, from $34.6 million in the fourth quarter 2015. Marketing expenditures on advertising, literature, travel and client events decreased in the first quarter compared to the prior quarter as expenditures were deferred until later in the year due to volatile market conditions. Foreign exchange rate changes decreased first quarter marketing expenses by $0.2 million when compared to the fourth quarter 2015.

Property, office and technology expenses, as adjusted, increased $0.7 million (0.9%) to $81.1 million in the first quarter, from $80.4 million in the fourth quarter 2015. The increase is attributable to additional outsourced administration expenses.  Foreign exchange rate changes decreased first quarter property, office and technology expenses by $0.9 million when compared to the fourth quarter 2015.

General and administrative expenses, as adjusted, decreased $12.4 million (16.2%) to $64.2 million in the first quarter, from $76.6 million in the fourth quarter 2015. Decreases in general and administrative expenses were the result of focused expense control during the quarter.  In particular, expenditures on non-essential professional services ceased and other items of a non-essential discretionary nature were postponed. Foreign exchange rate changes decreased first quarter general and administrative expenses by $1.1 million when compared to the fourth quarter 2015.

Non-operating other income and expenses, as adjusted, included a loss in equity in earnings from investments of $1.1 million in the first quarter, compared to $0.3 million gain in the fourth quarter 2015. Other gains and losses, net in the first quarter were a loss of $7.7 million compared to a fourth quarter 2015 loss of $10.3 million.  The first quarter included $1.4 million in unrealized mark-to-market losses on trading investments and $7.1 million in foreign exchange losses on inter-company loans.  Non-operating other income and expenses, as adjusted, also included interest income of  $4.3 million and interest expense of $23.9 million in the first quarter, compared to $6.7 million and $23.0 million, respectively in the fourth quarter 2015.  At the end of the first quarter we realized $3.4 million from our Pound Sterling - U.S. Dollar hedge.  During the first quarter, the company entered into a new series of put option contracts to provide Pound Sterling / U.S. Dollar exchange rate coverage from April 2016 through to March 2017 with a strike level set at $1.4355.

The adjusted effective tax rate decreased to 26.5% for the first quarter, from 26.6% for the fourth quarter 2015.

Balance Sheet and Cash Flow Statement Presentation

The company is presenting in this release both a U.S. GAAP balance sheet and balance sheet information excluding consolidated investment products (CIP), along with a U.S. GAAP statement of cash flows and cash flow statement information excluding CIP. The information presented excluding CIP is a non-GAAP presentation. Balance sheet and cash flow statement information before and after the consolidation of investment products are reconciled on pages 14 and 17, respectively.

The company believes that, by excluding the consolidation of investment products, the non-GAAP balance sheet and cash flow statement information provides a more representative presentation of our financial risks and the company's cash and debt positions, allowing more appropriate comparisons with our industry peers. Management uses these non-GAAP presentations to evaluate the business, and the presentations are consistent with internal management reporting. As demonstrated by the selected balance sheet data that follows, inclusion of the long-term debt of CIP within liquidity measures, such as debt-to-equity ratios, causes the company to appear to be significantly more indebted than is actually the case.

Balance Sheets and Capital Management

Selected balance sheet information is reflected in the table below:

As of March 31, 2016, the company's cash and cash equivalents were $1,454.5 million, with long-term debt of $2,073.2 million. The credit facility balance was zero at both March 31, 2016 and December 31, 2015.

Dividends paid in the first quarter were $113.0 million. Today the company is announcing a first-quarter cash dividend of 28.0 cents. The dividend is payable on June 3, 2016, to shareholders of record at the close of business on May 13, 2016, with an ex-dividend date of May 11, 2016.

During the first quarter the company repurchased $125.0 million of its common shares on the open market, representing 4.4 million shares at a weighted average share price of $28.73.

Headcount

As of March 31, 2016, the company had 6,552 employees, compared to 6,490 employees as of December 31, 2015. The headcount increase is primarily attributable to growth in our global shared service centers.

Business Acquisitions

During the first quarter of 2016 the company acquired Jemstep, a market-leading provider of advisor-focused digital solutions.   On April 5, 2016, the company increased its ownership of Religare Invesco Asset Management Company, previously our joint venture in India, from 49% to 100%.