Invesco Ltd

Welcome to the Invesco's third quarter earnings conference call. All participants will be in a listen only mode until the question and answer session. At that time to ask a question, press star one. This call will last one hour. To allow more participants to ask questions, one question and the follow up can be submitted to a participant. As a reminder, today's call is being recorded. Now I would like to turn the call over to Greg Ketron, Invesco's head of investor relations.

Thanks, Operator, and to all of you joining us today. In addition to the press release, we have provided a presentation that covers the topics we plan to address on the call. The press release and presentation are available on our website, nbafrica.com. This information can be found by going to the investor relations section of the website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on slide two, as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco is not responsible for the accuracy of our earnings transcripts provided by third parties. The only authorized webcasts are located on our website. Andrew Schlossberg, President and CEO, and Allison Dukes, Chief Financial Officer, will present our results this morning, and then we'll open up the call for questions.

We'll now turn the call over to Andrew. Great. Thanks, Greg, and good morning to everybody. I'm pleased to be speaking with you today. During the third quarter, we continued to execute against our strategic priorities Leveraging our advantageous market position globally to deliver for our clients and for our shareholders. We generated over $100 billion of net long-term inflows through the first nine months of the year, representing a 6.5% annualized organic growth rate. Well over half of those flows came from outside the U.S., demonstrating the breadth of our global platform and the relevance of our capabilities in meeting clients' evolving needs. The continued growth of our diversified AUM base is driving revenue growth and substantial operating leverage. On a quarterly, sequential basis, net revenue increased 4%, while operating expenses declined 1%, driving operating income growth of 13% and operating margin expansion by more than 3 percentage points to 40.7%. Furthermore, on a year-over-year basis, operating income increased 39%, and operating margins expanded by 650 basis points. These strong business results are enhancing our financial flexibility and supporting the ongoing strength of our balance sheet while allowing us to continue investing in our business and returning capital to our shareholders. Over the past year, we have improved our operating or our leverage ratio from two and a half times to 1.6 times, inclusive of the outstanding preferred shares. We have also increased our common share buyback by over 100% year to date versus the same period last year. This morning, we announced the repurchase of an additional $1.5 billion of the preferred stock held by MassFuture. This brings the total repurchase to $3 billion over the past 18 months, leaving just $1 billion outstanding. Accelerating the retirement of these otherwise non-callable preferred shares ultimately enables reduced leverage, increases our balance sheet flexibility, and enhances earnings available to common shareholders. Allison's going to discuss this transaction and our financial results in greater detail. I want to emphasize that the platform we have built at Invesco and continue to scale is delivering profitable growth, enabling us to hold true to our capital priorities of investing in our business for the future, meaningfully strengthening the balance sheet and returning capital to shareholders. We are immensely proud of the progress we have made through the continued disciplined execution of our strategic roadmap and the collaboration of our colleagues across the company. We remain firmly focused on sustaining and building on our momentum. Shifting to asset flows, I'd like to spend a few minutes highlighting third quarter client demand results within each of our investment capabilities noted on slide four. The third quarter operating environment remained broadly constructive with resilient equity markets and strong pockets of demand amid rising rates and increased market dispersion. Our diversified scaled platform through strong organic growth of 6.3% or $35.1 billion of net long term inflows as clients continue to entrust Invesco with significant new capital. Additionally, we generated $47 billion in global liquidity inflows, ending the period with $262 billion in AUM in this category. Importantly, we are encouraged by the continued breadth of our overall growth. We had positive flows across several dimensions, including in many of our strategically important investment capabilities across the Americas, EMEA, and the Asia Pacific region, and in both our active and passive strategies. The breadth of our inflows is also demonstrated by the fact that 25 of our products generated more than $500 million in net inflows during the quarter. EMEA and Asia Pacific again produced very strong net inflows with nearly 16% and 11% annualized organic growth, respectively. In our ETFs and index offering, we continue to substantially scale our platform and our profitability. Ending AUM stood at a record $775 billion with nearly $29 billion of net inflows or a 15% annualized organic growth rate. We garnered net inflows across a diverse set of products with 14 ETFs generating more than half a billion dollars in net inflows. This growth was generated across the globe with EMEA producing nearly half of the net inflows for the quarter and posting a 26% annualized organic growth. Our EMEA ETF AUM now stands in nearly $240 billion, including the QQQ. We remain focused on innovation in the ETF space. During the quarter, we launched seven highly targeted, strategically aligned products, including five active ETFs. We have built a robust active ETF platform globally, which continues to grow as demand has accelerated for high quality, differentiated strategies. We currently manage $30 billion in active ETFs across nearly 50 products and this AUM-based increases to more than $45 billion when including index-based ETF strategies that are executed by our active investment teams. Our QQQ fund also attracted strong interest during the quarter with nearly $7 billion of net inflows or 6% annualized organic growth. This performance reflects QQQ's differentiated competitive position supported by a very large and broad institutional and retail investor base. Unmatched liquidity with tight spreads and deep options and derivative markets developed over multiple decades. When looking more broadly across our full suite of QQQ products in the US and globally, which includes QQQM, we generated a very strong $16 billion in net inflows during the quarter. Moving on to fundamental fixed income. Within these capabilities, we had net outflows of $2.6 billion for the quarter, but this was heavily driven by a few relatively large institutional reallocations out of stable value and low fee investment grade index oriented mandates. However, looking more broadly across all fixed income products managed throughout Invesco, including strategies reported within ETFs and our China JV, We generated a more respectable $1.3 billion of net inflows for the quarter. We continue to see strong inflows for active fixed income ETFs and SMAs within the wealth management channels. Our entire SMA platform, which also includes a portion of equity assets, now stands at nearly $41 billion in AUF. We have one of the fastest growing SMA offerings in the market, generating an annualized organic growth rate of 11% this quarter. Moving on to our China JV and following strong momentum in the first half of the year, flows moderated amid third quarter market volatility and equity market drawdowns. Despite this, we reached record AUM of $166 billion and generated net inflows of $1.5 billion, or 5% annualized organic growth, driven by institutional demand for our bond strategies. The continued growth overall in our domestic Chinese business is supported by a diversified product line with various style offerings, which allows us to adapt to changing client needs in different market environments. To further support growth in the JV, we launched nine new funds this quarter that are aligned with the growing demand for innovation and balanced as well as active and passive equity strategies. Widening the scope to look at the entire Asia Pacific region from a client source perspective, our AUM has now reached $375 billion. During the quarter, we generated nearly $9 billion of net inflows, or 11% annualized organic growth, led by continued strength in Japan, where our AUM has reached $95 billion. We also saw strong demand for our QQQ product suite, supported by our cross-listings in Hong Kong and Tokyo, as well as for our broader passive equity, passive and active fixed income product lineup in the region. We value our strong and advantageous position in Asia, which continues to scale as we see capital market expansion, wealth creation, and extraordinary growth of the individual and retirement segments in several countries across the region over time. Shifting to private markets, where we posted a modest $400 million of net outflows. In alternative credit, we saw strong institutional demand for our CLO products, including the funding of two new offerings. One in the US and another in EMEA. This growth was offset by nearly 700 million of net outflows in our industry-leading bank loan ETF in the United States. Overall, we continue to see strong demand for alternative and private credit solutions from institutional investors on a global basis. And the current slower growth environment overall has not changed our long-term conviction for these strategies in both the retirement and wealth management channels. Favorable positions with dry powder, diversification, and extensive experience. For managers with our discipline and profile, continued volatility could ultimately prove to be an opportunity. Within our real estate capabilities, NCREF, or our real estate debt fund for U.S. wealth management clients, continued to gain scale and generated half a billion dollars in net inflows during the quarter. Assets in this fund, including leverage, now total $7 billion. Moving on to our multi-asset capabilities where we had over $3 billion of net inflows in the quarter, driven by a positive result across all three regions, with particularly strong demand in EMEA. This momentum was driven by systematic equities as interest in quantitative strategies and custom equity products continues to grow. I will also note that asset allocation model portfolios and the wealth management channels are quickly becoming a core distribution venue for delivering the breadth of Adesco's investment solutions. We have over $20 billion in assets across our model portfolios and anticipate continued expansion in both our custom and pre-built models where we are making investments to drive future growth. Finally, in fundamental equities, we saw significantly moderated net outflows of only $1.5 billion and another strong growth sales quarter. We continue to record net inflows from clients in Asia, driven by the ongoing momentum in our global equity income fund which remains one of the top-selling retail active funds in the Japanese market. This fund, which generates a very favorable net revenue yield, posted net inflows of over $4 billion during the quarter, rapidly growing to over $30 billion in AUM and reflecting the sustained appetite for income-oriented global equity strategies. We also continue to see strength in our US small and mid-cap value funds which drove nearly $1 billion of net inflows in the US during the quarter. Furthermore, our developing markets fund in the US continues to experience significant moderation of outflows with just $400 million during the quarter. We have made substantial progress in building a fundamental equities platform globally, taking decisive action to simplify our structure, bring capabilities closer together across regions, strengthen investment talent and oversight, and create better pathways to work more efficiently and cohesively to build breadth and depth across our teams. We believe this puts us in a much stronger position to improve investor outcomes and garner fundamental equity market share gains globally regardless of client demand and various market cycles. Finally, I'll take a moment to speak to our investment performance on slide five. This page shows our overall investment results relative to benchmarks and peers as well as our performance and key capabilities where information is readily comparable and more meaningful to driving client demand. Investment performance is integral to winning and maintaining market share and as such, achieving first quartile investment performance remains a key priority for Invesco. Overall, 47% of our active funds are performing in the top quartile of peers on a three-year time horizon, with 58% reaching that bar on a five-year basis. 70% of our active AUM is beating its respective benchmark on both a three and five year basis. And as I mentioned, we are working to improve performance in our fundamental equities lineup, which currently has 40% of funds performing in the top quartile of peers on a five year time horizon with nearly half beating their benchmark. Likewise, in fundamental fixed income, we saw the percentage of funds performing in the top quartile of peers over a five year time period increased to 45% this quarter. With that, I'm going to take a pause and turn the call over to Allison to discuss the details and the benefits of the additional $1.5 billion repurchase of preferred stock and our financial results for the quarter, and we look forward to your questions.