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spk01: Before we get started, please note that we may make forward-looking statements about our business and financial performance. Each forward-looking statement is subject to risk and uncertainties that could cause actual results to differ materially from those projected. Additional information regarding this risk and uncertainties appears in our SEC fileings, including the Form 8K file today containing the earnings release. Our 2023 Form 10K and our Form 10Q for the first quarter of 2024. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update them as a result of new information of future events. We may also reference certain non-GAAP financial measures. Information about any non-GAAP measures referenced, including the reconciliation of those measures to GAAP measures, can be found on our website, along with the slideset we will use as part of today's discussion. Finally, nothing herein shall be deemed to be an offer of solicitation to buy any investment products. Sirin Rana, our President and Chief Executive Officer, will lead the call. And now I'm pleased to turn the call over to Sirin.
spk07: Thank you, Melody. Now, good morning, everyone, and thanks for joining us today. I'll cover some of the main highlights on slide five of the deck in my initial remarks and then I can answer any questions. So, for the second quarter of 2024, we reported E&I per share of 45 cents compared to 28 cents in the second quarter of 2023 and 44 cents in the first quarter of 2024. The 61% increase in E&I per share compared to the year-ago quarter was primarily driven by increase in management fee revenue due to higher AUM from the market appreciation that we saw over the last 12 months. And secondly, it was also driven by our share repurchases over the last few quarters. Our average AUM increased approximately 13% compared to the second quarter of 2023, and management fee revenue increased 14% in line with the AUM increase. However, since we were able to keep our operating expenses generally flat year over year, our E&I increased 43% because of the 14% increase in revenue. This disproportionate increase in E&I versus revenue increase reflects our continued expense discipline and the embedded operating leverage in our business. We would expect to continue to benefit from this operating leverage as our revenue grows. Additionally, the increase in E&I per share versus year-ago was 61% compared to the 43% increase in E&I that I just went through, and that difference was driven by our share repurchases over the last year. Between December 2023 and June of 2024, we repurchased 4.7 million of our shares, or 11% of our
spk02: total outstanding shares for $100 million. As of June 30, 2024,
spk07: 86%, 92%, and 93% of Acadian strategies by revenue outperformed their respective benchmarks across 3-, 5-, and 10-year periods. Turning to flows. Net client cash flows were incidentally flat for the second quarter. In the second quarter, we had select, large, and lumpy inflows, but we also had select, large, and lumpy outflows, and these lumpy flows basically offset each other. Our growth initiatives continue to progress. On our systematic credit initiative, Acadian's US high-yield strategy that was seeded in 2024, both continue to build good track records. Additionally, we just seeded a third credit strategy, US investment grade strategy, in July 2024, and that strategy is also building a track record now. On our equity alternatives initiative, our multi-strategy fund seeded in Q4 of 2022 continues to build a strong track record of our performance. Turning to capital management. As I mentioned earlier, we repurchased 11% of our outstanding shares since December of 2023 for $100 million. Specifically, in Q2 of 2024, we repurchased 0.9 million shares, or 2% of our total outstanding shares, or $21 million. At the end of Q2, we had a cash balance of $72 million, and Acadian had an outstanding balance of $36 million on their revolving credit facility, which, similar to prior years, is expected to be repaid fully from cash from operations by year end. I'd like to close my initial remarks by reiterating, as I usually do, that we remain focused on maximizing shareholder value. And we'll continue using our free cash flow to support organic growth and to buy back our shares. I'll now turn the call back to the operator, and I'm happy to answer questions at this point. Thank you.
spk04: Thank you. And at this time, those with questions should lift their phone receiver and press star, followed by the number one on their telephone keypad to enter into the Q&A queue. To cancel a question, again, remember, please press star, followed by the number one again. Please hold for a brief moment while we compile the Q&A roster. Our first question for today comes from the line of Michael Cypries with Morgan Stanley. Your line is live.
spk05: Great. Thank you. Good morning. Maybe just starting out with the lumpy flows that you alluded to on both the growth sales and the redemption side. I was hoping you could unpack both of those, maybe talk about some of the types of strategies, customer channels, et cetera, where you're seeing some of the strains come in. And similarly, on the redemption side, what you're seeing there. And if you could also just touch upon the pipeline as it looks today, how is that shaping up versus, say, last quarter? Thank you.
spk07: Thanks, Michael. As we've touched on, ours is an institutional business, so some of the numbers can be large, and they are episodic. So if there weren't necessarily any patterns to unpack, if it's just sort of coincidence, if you will, that we had these large numbers on both sides. On the inflows is really almost just three large clients that came in. There was a client that was more than a couple billion, another one for a billion, another one close to a billion. So these really large numbers. And they weren't assorted strategies. I wouldn't say there were any patterns to unpack in terms of any particular strategy. It was just that the strategies that these clients came in, they came in large numbers. And it happened to be that these three large inflows happened to be in the same quarter. On the outflows side, similar story, that we had really a large client, large client close to a couple billion, another client more than a billion, another client with a similar number, different strategies. Sort of quite a bit of a coincidence that it just all happened in one quarter. But yeah, it all sort of canceled each other out. So that's interesting. Going forward, if you get to that sort of another part of your question, as we've sort of guided in the past few quarters, we see more of a break even to flat cadence that we do have. The pipeline remains healthy across stages. We have a good pipeline across different strategies and across different stages. And we still see some pressures from managed volatility strategies, among others. We see rebalancing going on by clients in these rising equity markets when they take some chips off the table. There are some clients that are moving to fixed income as a way to manage their full following the liability driven investing. So in all of those person takes, we think about a break even kind of cadence for a few quarters here.
spk05: Great, thanks. Just a follow up question on capital allocation. Just curious how you're thinking about and planning to sort of approach that as we move it here in the second half and into 25 cash balance, 72 million, I think you mentioned. How should we think about that potentially drawing down, if at all? Just given I know in the past, I think you've mentioned you think about minimum cash level that you need to run the businesses meaningfully lower than that. So what can we expect in terms of buybacks here as we roll forward? Thank you.
spk07: Thanks, Mike. Yeah, we think about minimum cash levels around 20 million or thereabouts. So you could say that maybe they're close to 50 is for other uses. And as we've said, really the two main uses remain the buybacks and seeding opportunities to accelerate our organic growth. So we remain mindful and opportunistic on both of those fronts. We seeded just in the quarter as we mentioned in the relief. We seeded our third credit strategy, which was the US investment grade strategy. So we have a sizable seed pool now. So there might be some recycling that happens within the pool. But still, if you get opportunities to seed more and to see opportunities for organic growth, we might do that. And we'll also look at the buybacks as we go. So there isn't any particular formula we have. We'll remain opportunistic on both. We don't feel like we necessarily have to buy back our shares every quarter, particularly as I touched on with that 50 million kind of a number. It's not that much to put to work. So we'll remain opportunistic here. Great. Thank
spk04: you. Thank you for your question. Our next question is from the line of Kenneth Lee with RBC Capital Markets. Your line is live.
spk03: Hey, good morning. Thanks for taking my question. Just one on the fee rate. There was, I think, a slight pick up in the quarter. Wondering whether it was just due to mix shift and if so,
spk02: I guess. And the first part of your guess. That's so clearly one of the factors was that not the and they have higher... Thanks. And just one more question, if I may, just in terms of the share repurchases count. And, you know, the Seeding organic growth opportunities and And buybacks. It's Necessarily Super
spk07: urgency on that. But yeah, in due course, we'd expect to get new authorization for for buybacks. Gotcha.
spk04: Very helpful there. Thanks again. Thank you. Our next question is from the line of John Dunn with Evercore ISI. Your line is live.
spk06: Thank you. Question on the outlook for further expense control from here.
spk02: Your
spk06: ability to
spk02: Keep it in check. As we were really
spk07: investing in our infrastructure, we invested in our in our trading infrastructure. We we added
spk02: to our investor reporting Capabilities. So we were really building In the sense of making our franchise more scalable. Inflation was everywhere. So So that's So So we it appears that now having built up a lot Over the last couple of years and having What I touched on that we do have the operating Average We should be able to Operating Levels. So we should have Benefit of the revenue. And And Could you Give us a couple of Conversations You're having Performance Market And emerging markets have been lagging for such a long time. So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So So
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