Yahoo Finance Janus Henderson Group plc (NYSE:JHG) Q1 2024 Earnings Call Transcript
Janus Henderson Group plc (NYSE:JHG) Q1 2024 Earnings Call Transcript May 2, 2024
Janus Henderson Group plc beats earnings expectations. Reported EPS is $0.82, expectations were $0.63. Janus Henderson Group plc isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. My name is Brika, and I will be your conference facilitator today. Thank you for standing by, and welcome to the Janus Henderson First Quarter 2024 Results Briefing. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. In the interest of time, questions will be limited to one initial and one follow-up question. In today's conference call, certain matters discussed may constitute forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements due to a number of factors, including, but not limited to, those described in the forward-looking statements and Risk Factors section in the company's most recent Form 10-K and other more recent filings made with the SEC.
Janus Henderson assumes no obligation to update any forward-looking statements made during the call. Thank you. Now it is my pleasure to introduce Ali Dibadj, Chief Executive Officer of Janus Henderson. So Mr. Dibadj, you may begin your conference.
Ali Dibadj: Welcome, everyone, and thank you for joining us today on Janus Henderson's first quarter 2024 earnings call. I'm Ali Dibadj, I'm joined by our CFO, Roger Thompson. Today's call, I'll start with some thoughts on the quarter before handing it over to Roger. After Roger's comments, I'll provide a progress update on our strategic initiatives including two transactions we announced earlier today that we believe will allow us to deliver tremendous value for our clients and shareholders. And then we'll take your questions following those prepared remarks. Turning to Slide 2. Global equity market returns were strong in the first quarter, including in the U.S. where the S&P 500 touched record highs. Despite these strong returns, the market backdrop is uncertain with increasing investor expectations for a higher -- for longer rate environment, stickier inflation and geopolitical conflicts in Eastern Europe and the Middle East.
The strong equity markets, alpha generation provided by a world-class investment team, the exceptional service provided by our client teams and importantly and often overlooked, the productivity of our IT and operation teams as well as our regulatory risk, legal, finance and other teams enabled us to deliver a good set of quarterly results. Indeed, investment performance is off to a very good start in 2024, resulting in at least 60% of assets beating respective benchmarks on a one, three, five and 10-year basis. Assets under management increased to 5% to $352.6 billion, which is the highest quarterly AUM figure in two years. First quarter flows were negative $3 billion, in line with expectations. The net flow results reflect improvement in our higher fee intermediary channel, particularly EMEA intermediary in Q1, where if you recall, we decided we would focus this year, while institutional net flows were impacted by a few larger redemptions in the first quarter.
Our financial results remained solid. Positive markets, coupled with our performance delivered by our investment teams, plus expense management and increased productivity by all our teams at Janus Henderson resulted in an adjusted diluted EPS of $0.71, a 29% increase compared to the first quarter of 2023. Our financial performance and strong balance sheet continues to provide us the flexibility to invest in the business, both organically and inorganically and return cash to shareholders. In summary, investment performance and financial results are strong. We have key areas of flow momentum in our business and still have much work to do to become consistent. We have a strong and stable balance sheet, and we continue to execute our strategy which I'll talk more about later in the presentation.
I'll now turn the call over to Roger to run you through the detailed financial results.
Roger Thompson: Thank you, Ali, and thank you again to everyone for joining us on today's call. Starting on Slide 3 and investment performance. As Ali mentioned, investment performance versus benchmark remained solid with at least 60% of AUM beating their respective benchmarks over all time periods. Backing up the strong long-term numbers, we're pleased to report that the one-year number improved to 70% compared to 44% in the prior quarter, primarily driven by our equity and multi-asset capabilities. In equities, the improvement was driven primarily by the U.S. concentrated growth, international alpha and Global Alpha strategies. In the multi-asset capability, the balanced strategy, which is the vast majority of assets in this bucket moved back above its benchmark on a one-year basis and is now ahead of its benchmark across all time periods.
Performance is strong against peers being in the top Morningstar quartile over one, three, five and 10-year time periods. We see the balanced strategy as a focal point for many of our clients who want to take on more risk, but also want the ballast of fixed income, which now delivers higher yield. Elsewhere, fixed income performance versus benchmark remains strong. We believe our fixed income performance and differentiated breadth of products across different vehicles and regions positions us well for the anticipated movement into fixed income as interest rates potentially fall and bonds provide diversification benefits to clients. Overall, investment performance compared to peers continues to be competitively strong with at least 66% of AUM in the top two Morningstar quartiles over the one, three, five and 10-year time periods.
Slide 4 shows total company flows by quarter, which were net outflows of $3 billion for the quarter. Slide 5 is flows by client type. Net flows for the higher fee intermediary channel were positive $1 billion for the first quarter, supported by a 25% increase in gross sales year-over-year. The U.S. intermediary channel was positive for the third consecutive quarter with net inflows into several strategies including most of the active ETFs, Multi-Sector, Income Global Life Sciences and the Biotech Innovation Hedge Fund. As we've spoken about previously, U.S. Intermediary is a key initiative under our Protect & Grow strategic pillar. We're pleased by the results for the quarter and that we're gaining market share. During the quarter, we also expanded the sales reach of the Biotech Innovation Hedge Fund and announced a strategic partnership with the Forum Investment Group to market the Forum Real Estate Investment Fund, a public and private real estate inevitable fund of which Janus Henderson has managed the commercial MBS lead since its inception in 2019.
This distribution partnership will provide access to differentiated products to our clients in an investor-friendly structure. Moving to the EMEA and Latin American intermediary segment, we are expanding our strategic efforts. Net outflows improved significantly compared to the prior quarter. Within the region both Continental Europe and Latin America delivered positive flows for the quarter. Intermediary flows in Asia were also positive. Institutional net outflows were $3.1 billion which were primarily driven by the EMEA region and include two large redemptions of $1.5 billion in the global high-yield strategy and $1.2 billion in the global commodities enhanced index strategy. We talked publicly about the need to replenish a sustainable pipeline.
We're pleased with the work our distribution team is doing and the leading indicators suggest more and better client interactions and discussions with the maturation of the pipeline is taking time. Net outflows for the self-directed channel which includes direct and supermarket investors were $900 million compared to $1.1 billion in the prior quarter. Slide 6 is flows in the quarter by capability. Equity flows were negative $1.1 billion improving from negative $3.2 billion in the fourth quarter. The improvement came primarily for the EMEA region in both the Intermediary and Institutional channels. Net inflows and fixed income was $100 million. Several strategies contributed to positive fixed income flows in the Intermediary channel including the fixed income ETFs which had positive flows of $2.6 billion in the quarter.
Other strategies contributing to the positive flows were Multi-Sector Credit, Core Plus Fixed Income and U.S. buying maintain credits. And offsetting these inflows were net outflows in the lower fee institutional channel including the global high-yield redemption that I just mentioned. Total net outflows for the multi-asset capability were $800 million. And finally net outflows in the Alternatives capability were $1.2 billion driven by the institutional redemption of the global commodities enhanced index strategy. Moving on to the financials, Slide 7 is our U.S. GAAP statement of income. Before moving on to adjusted financial results GAAP results this quarter included a non-operating non-cash item related to the release of accumulated foreign currency translation gains due to the liquidation of several JHG entities.
This amount is removed from adjusted results. As we continue to simplify our legal entity structure there will be additional releases of accumulated foreign currency translation reserves in future quarters which will also be non-operating non-cash, but will likely be losses and similarly will be excluded from adjusted results. Continuing to Slide 8 and the adjusted financial results, adjusted operating results are lower compared to the prior quarter primarily due to the significant annual performance fees realized in the fourth quarter. More relevantly, compared to the first quarter a year ago operating income and EPS are up 21% and 29% respectively, primarily due to higher average AUM, operating leverage and good investment performance. Looking at the detail.
Adjusted revenue decreased 6% compared to the prior quarter, primarily due to lower seasonal performance fees which were partially offset by higher adjusted management fees. Adjusted revenue increased 11% over the prior year primarily as a result of higher average assets and improving U.S. mutual fund performance fees. Net management fee margin was stable at 48.7 basis points, level with or above each of the prior three quarters. This is a good result and a differentiating position compared to many competitors considering the fee pressures experienced in the asset management industry. While we're not immune to those fee pressures, we do see that our competitively resilient fee rate is a differentiator versus many of our peers, given the mix of capabilities where we're seeing success particularly in our higher fee intermediary business.
Continuing on to expenses, adjusted operating expenses in the first quarter were $299 million a slight decrease compared to the prior quarter reflecting continued expense discipline. Adjusted LTI was up 18% compared to the prior quarter largely due to seasonal payroll taxes triggered by the annual vesting in the quarter. In the appendix we provided the usual table on the expected future amortization of existing grants for you to use newer models. The first quarter adjusted comp to revenue ratio was seasonally higher at 48.2% which is down from 50.1% in the first quarter of last year. The higher rate in the first quarter is primarily due to the payroll taxes on annual LTI vesting at the beginning of year reset of payroll taxes and retirement contributions.
Our 2024 expectation of an adjusted compensation ratio range of 43% to 45% remains unchanged. Adjusted non-comp operating expenses decreased 11% compared to the prior quarter, primarily due to lower G&A expenses. Lower-than-anticipated non-compensation costs in the quarter is due to the timing of our expenses, we still anticipate adjusted non-compensation annual growth of mid- to high single digits compared to the prior year, which suggests significant acceleration in our non-compensation costs for the remaining three quarters of the year given we expect non-compensation expenses to increase as a result of investment-supporting areas of opportunity in our business. As I said earlier, while adjusted operating income decreased 18% compared to the prior quarter, it increased 21% over the same period a year ago to $128 million.
Our first quarter adjusted operating margin was 30%, an increase of 250 basis points from a year ago, demonstrating the leverage in our business. Adjusted diluted EPS was $0.71, down 13% on the prior quarter, but up 29% from the first quarter of 2023. First quarter adjusted diluted EPS primarily reflects higher operating income and benefits below the line from strong alpha generation on the JHG portion of our seed book, active management of our balance sheet and a slightly lower tax rate. Skipping over to slide 9, I'm moving to Slide 10 to look at our liquidity profile. Our capital position remains strong. Cash and cash equivalents were $900 million as of the 31st of March, which is lower from the end of the year, primarily from the payment of annual variable compensation.
The first quarter cash position is typically our lowest given seasonal cash needs. Compared to the same period a year ago, our cash and cash equivalents are 8% higher. During the quarter, we funded our quarterly dividend and repurchased 2.7 million shares for $81 million. As of the 31st of March, there was $7 million remaining under the existing buyback authorization, which was completed in April. This return of excess cash is consistent with our capital allocation framework. We'll look to return capital to shareholders where there isn't an immediately more compelling investments either organically or inorganically in the business. The Board has declared a $0.39 per share dividend to be paid on 29th of May to shareholders of record as of the 13th of May.
Finally, I'm pleased to say that our improving financial results and cash flow generation, along with a strong and stable balance sheet, has enabled the Board to authorize a new share buyback program of up to $150 million to be completed by April 2025. The buyback program does not change our desire and pursue to diversify our business through M&A where clients want us to do so. At this stage, our liquidity profile allows us to do both as we've demonstrated by the acquisitions announced earlier today that Ali will discuss further about in a moment. Finally, slide 11 looks at our return of capital to shareholders. We've been disciplined in consistently returning excess capital to shareholders as the historical data reflects. We've maintained a healthy quarterly dividend.
And since 2018, have reduced shares outstanding by almost 20%. Our return of capital reflects our positive financial outlook, our cash flow generation and our strong and stable balance sheet. We believe that our buybacks and stable dividends do not impair our ability to execute M&A, should further opportunities arise and we'll continue to actively look to buy, build or partner to diversify where clients give us the right to win. With that, I'd like to turn it back over to Ali to give us an update on our strategic progress.
Ali Dibadj: Thanks, Roger. Turning to slide 12, and a reminder of our three strategic pillars of Protect & Grow our core businesses, Amplify our strengths, not fully leveraged and diversify where clients give us the right to win. We are in the execution phase and we believe this strategic vision will lead to consistent organic revenue growth over time. In Protect & Grow, we've talked previously about the importance of protecting and growing our US intermediary business and the progress we have made in capturing market share. We're now working to shift the strategic plan to drive change and improve results in the EMEA and Latin American intermediary channels and early trends are encouraging with much more work to do to deliver steady results.
Within Amplify, we've talked about our institutional and diversified alternatives businesses and our product development and expansion efforts such as our build-out of active ETFs in the US. Over the next few slides, I'll highlight the exciting progress we've made in our efforts to amplify and diversify the business including an update on Privacore Capital and two transactions we announced earlier today, the acquisition of Tabula Investment Management and a strategic partnership with NBK Wealth and the acquisition of their private investments team, NBK Capital. Moving to slide 13 and an update on our joint venture, Privacore Capital, a trusted partner to alternative managers in the democratization of private alternatives with Wealth Management clients.
Privacore Capital has made substantial progress in its mission to deliver institutional quality alternative investment products to private wealth clients through its open architecture distribution platform. I told you last quarter that Privacore was partnering with a premier almost $200 billion alternative asset manager and is currently in the market to distribute its first product. Privacore is about to partner with a second firm, a well-known technology investment firm in order to represent them in their fundraising efforts. In addition, Privacore is working with an alternatives manager that oversees more than $50 billion in assets globally and has filed registration statements with Privacore for two new alternative funds. We look forward to providing additional details for these funds on future calls.
Established last June, in less than a year, Privacore has put together a highly experienced team, is in the market placing products, is filing to launch new alternative products and is having active conversations with several high-quality asset managers interested in partnering with Privacore. We are excited about the significant progress to-date and the opportunities for Privacore Capital to launch integral and tender offer funds and develop custom products for wealth clients in addition to placements. Privacore is in its initial stages of meaningful product development and we anticipate that it will be a key player in the democratization of alternatives. We look forward to sharing more including the details of the new launches with our second quarter results.
Now turning to slide 14 for more background on our pending acquisition of Tabula Investment Management, announced earlier today. Tabula is a leading independent ETF provider in Europe with $500 million in assets under management across nine UCITS products, primarily in fixed income and sustainability strategies. It's an institutional grade investment management business led by an extremely experienced management team. The European ETF market is undergoing a significant transformation growing considerably and mirroring trends observed in the US market where active management is increasingly incorporated in the ETF wrapper. This shift represents a considerable growth opportunity for asset managers seeking to broaden the way in which clients access their investment capabilities and capitalize on evolving client preferences in the European market.
We believe this acquisition will allow Janus Henderson early access to this growing market and build on our extremely successful suite of active ETFs in the US where Janus Henderson is the fourth largest global provider of active fixed income ETFs by assets under management. We believe partnering with Tabula, will enable Janus Henderson to respond to client demand globally for its exceptional investment acumen to include an ETF wrapper. In particular, Janus Henderson is seeking to enhance its partnership with its UK and European client base, which is increasingly looking at active ETFs and to further expand its reach in key growing markets in Latin America, the Middle East and APAC where there is rising demand for UCITS ETFs and our presence is increasing.
Turning to slide 15. In addition to Tabula, we also announced a strategic partnership with National Bank of Kuwait Groups, NBK Wealth and the pending acquisition of their private investment team NBK Capital Partners, which allows Janus Henderson to enter the emerging markets private capital space. NBK Capital is a leading alternative investment manager across multiple private capital asset classes in emerging markets including the Middle East and North Africa. They secured $1.1 billion in capital commitments to-date and have built an 18-year track record of strong investment performance. Janus Henderson has a well-established history of investing in emerging markets with capabilities in both emerging market equity and more recently emerging market debt.
As investors look across the global market for differentiated investment opportunities, emerging markets remain underpenetrated for private capital solutions and therefore, present a key strategic growth area. We believe partnering with NBK Wealth will provide Janus Henderson the opportunity for early entry into this rapidly expanding market where there is increasing appetite for both sovereigns and corporates. In addition to enhancing product offerings for existing clients, the partnership also provides Janus Henderson with the access to engage with new clients that includes some of the largest and faster-growing pools of capital such as the Middle East and Asian Sovereign Wealth Funds and pensions, who want to actively invest globally thereby expanding our footprint in the region.
Both Tabula and NBK Capital are prime examples of our strategic pillars of amplify and diversify respectively. Tabula's existing infrastructure and ecosystem offers Janus Henderson instant access to an institutional platform that we believe will immediately position the firm as a trusted and credible player in the growing European ETF market and allow us to amplify our existing investment skills in a sought-after wrapper. NBK Capital gives Janus Henderson a private investment capability allowing us to better serve our clients, we are increasingly seeking differentiated investments in private credit, including evolving opportunities in emerging economies and positions the firm as a pioneer in anticipating and embracing this growing trend. Importantly, Privacore Capital, Tabula and NBK Capital are only the beginning of what we expect to be more well thought-out acquisitions and partnerships of varying sizes to meet our clients' needs to support the growth of Janus Henderson.
As I've said previously, we'll be disciplined in identifying where to buy, build or partner. We want people who are like-minded in terms of culture, investment, mindset and client service, which is what we believe we have in Privacore Capital, Tabula, NBK Capital. Now wrapping up on slide 16. In conclusion, we are proud of the progress made during the first quarter. Investment performance is solid including a meaningful improvement in short-term performance. Adjusted diluted EPS increased 29% compared to last year reflecting strong markets, alpha generation, expense management and increased productivity. Our strong balance sheet and financial results allow us to return cash to shareholders through dividends and share buybacks, including $145 million in the first quarter, declaring a $0.39 per share quarterly dividend and approving a new share buyback authorization of up to $150 million, all while continuing to reinvest in the business for future growth.
We are executing our strategic objectives. US intermediary flows are positive and our early strategic efforts in the EMEA and Latin America intermediary segments have resulted in improved intermediary flows. We continue to work on our institutional channel. We amplified and diversified our business with client-led inorganic bolt-on acquisitions. We expect that these acquisitions are only the beginning. The M&A pipeline remains active and we continue to look to buy build or partner where clients give us the right to further diversify the business. Looking forward, our focus is unwaveringly to help clients define and achieve superior financial outcomes and to deliver desired results for our clients, shareholders, employees and all our stakeholders.
Let me turn the call back over to the operator for your questions.
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