Private Equity: Apollo Global Management Reports Q1 Earnings Report
Apollo Global Management (NYSE: APO) reported earnings for the first quarter of 2020. Apollo reported an accounting loss for the quarter thanks to mark-to-market accounting regulations. That said they generated Fee-Related Earnings of $228.1 or $0.52 per share.
Apollo Global also declared a dividend of $0.42 a share. Apollo intends to distribute to its Class A common stockholders quarterly substantially all of its distributable earnings after taxes and related payables over amounts determined by the executive committee of its board of directors to be necessary or appropriate to provide for the conduct of its business and, at a minimum, a quarterly dividend of $0.40 per share.
They have paid out more than twice the minimum dividend over the past year.
Apollo Global Management Earnings Call
On the conference call, Apollo co-founder and director Leon Black talked about the firm’s response to the COVID-19 pandemic that has halted much of U.S. economic activity. He told analysts and investors that the firm had put in place an emergency response team to work with portfolio companies. Many employees have shifted to working from home across the portfolio.
He also said that no Apollo companies had obtained any assistance under the Paycheck Protection act. He also said that Apollo does not anticipate applying for any funds under the Main Street Lending Program. Instead, they said that Apollo would be able to leverage the knowledge across the Apollo platform to provide advice and support to these businesses.
Mr. Black also said that Apollo was putting money to work in a turbulent environment.
He told us, “Our investments have been positioned defensively, and our funds’ portfolio companies remain in good shape. Offensively, we have been investing opportunistically. And during the quarter, gross purchases were $40 billion across the platform, with another approximate $10 billion in April. We have successfully created value through prior market dislocations by playing both defense and offense.
Fellow co-founder and director Josh Harris said that the firm had been very active in the quarter. Late last year, in response to what they felt was a tipping point in credit markets, Apollo had been investing in a defensive position in high-grade credits. As those markets stabilized after the initial sell-off and rallied as the Fed announced they would buy corporate bonds, Apollo sold much of the high-grade portfolio locking in profits. That capital will now be deployed in more idiosyncratic opportunities.
Mr. Harris also reminded investors that Apollo’s leadership team has seen five full credit and market cycles since they opened their door back in 1990, and they have a playbook for dealing with, and profiting from, market dislocations. In all, they deployed $40 billion in the first quarter and an additional $10 billion in April.
More on Apollo Q1 Earnings
They have been favoring buying distressed debt to gain control of battered companies in the current environment. They expect more opportunities to develop in this space going forward. Mr. Harris said that “In general, while we believe that the broad markets are ahead of fundamentals, there are still a large number of companies that are over-levered and in need of restructuring or additional capital, notwithstanding the supportive efforts of the government.”
While acknowledging that travel restrictions may make it more challenging to raise funds, Apollo has a large investor base that has been delighted with the firm’s performance. Much of their fundraising can be done over the phone and through video conferencing.
Mr. Black dismissed fundraising concerns saying, “They give us money, one, for performance; and two, they give us money because we’ve created a chemistry of trust and a relationship over time. We’ve been at this 30 years now. We have a AAA group of institutional investors.”
Apollo does not think that the current economic situation will be short-lived. The firm is digging in in anticipation of a longer-lasting disruption. Many buying habits will be more or less permanently changed by the pandemic in their opinion. They do expect that to create opportunities as companies have to deleverage their balance sheets and restructure their debt.
Apollo itself is in a solid position to not only survive but thrive in the aftermath of the current economic situation. CFO Martin Kelly told analysts that Apollo was in excellent shape saying, “Apollo remains in a very strong liquidity position with approximately $1.5 billion of liquidity available on our balance sheet. In addition, our dry powder position was robust at the end of the quarter at $41 billion.”
Mr. Black also pointed out that Apollo’s value-focused nature gives them a considerable advantage over many other firms in the private equity and alternative asset management industry. He noted that “We’ve taken a much more conservative road than many of our peers. There is a real difference in playing growth and paying an average of 11x to 12x EBITDA and levering at 7x versus what we have done in our model, which is to buy companies at 6.5x and lever them at 3.5x. We just haven’t played the same levered growth model as many others in our industry.”
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