Janus Henderson Group plc Ordinary Shares

Good morning, my name is Megan and I'll be your conference facilitator today. Thank you for standing by and welcome to the Janice Henderson group third quarter 2024 results briefing. All lines have been placed on mute to prevent any background noise. After the speaker's 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 sections of the company's most recent form, 10-K, and other more recent filings made with the SEC. Janice Henderson assumes no obligation to update any forward-looking statements made during the call. Thank you. Now it is my pleasure to introduce Ali Dabaj. Chief Executive Officer of Janus Henderson. Mr. DeBasch, you may begin your conference.

Welcome, everyone, and thank you for joining us today on Janus Henderson's third quarter 2024 earnings call. I'm Ali DeBasch, and I'm joined by our CFO, Roger Thompson. In today's call, I'll start with some thoughts on the quarter, including our recent acquisition of global private credit manager, Victory Park Capital. Then I'll hand it over to Roger to run through the quarterly results in more detail. After our prepared remarks, we'll take your questions. Turning to slide two, Janice Henderson delivered another good set of quarterly results, building upon tangible momentum in the business. Results reflect market gains, solid investment performance produced by our world-class investment professionals, the second consecutive quarter of positive net flows delivered by our dedicated client groups, and the efforts and productivity from all our operating and support areas. Our teams have worked together to protect and grow, amplify and diversify our business, and create growth across channels and regions, which is starting to show in our quarterly results. Investment performance is consistently solid, with at least two-thirds of assets beating respective benchmarks on a 1, 3, 5, and 10-year basis. Assets under management increased 6% to $382.3 billion, which is 24% higher compared to a year ago. Net flows were positive for the quarter at $400 million, The net inflows mark our third quarter out of the last seven with positive flows, demonstrating real progress towards our aspiration of delivering consistent organic growth over the long term. Our financial results remain solid. Better top-line revenue provided by positive markets, net inflows, and outperformance delivered by our investment teams, coupled with operating leverage and non-operating benefits, resulted in adjusted diluted EPS of $0.91, a 42% increase compared to the same period a year ago. Our financial performance and strong balance sheet continue to provide us the flexibility to invest in the business, both organically and inorganically, and return cash to shareholders. On slide three, I want to provide an update on progress being made in the business. We continue to be in the execution phase of our strategic vision, which you may remember consists of three pillars, protect and grow our core businesses, amplify our strengths not fully leveraged, and diversify where clients give us the right to win. In Protect and Grow, we are actively upskilling and utilizing data, people, and process best practices across the organization to drive market share improvement and growth. Examples include applying sales processes that have worked in some regions to those in others, data transformation projects, launching a prioritization tool to clearly outline, prioritize, and align all employees' efforts with our initiatives as a firm, and enhancing our employees' ability to manage change and execute on our strategic plans more effectively. Under Amplify, we closed our acquisition of Tabula Investment Management on July 1st and have moved quickly to begin leveraging the business. Recently, Janice Henderson launched our first active ETF in Europe, where we see client demand and our team's strong investment performance the Japan High Conviction Equity Usage ETF. This launch represents an important milestone, allowing us to cater to client demand globally for our investment strategies, including in an ETF wrapper. We anticipate launching a range of new active European ETFs across equities and fixed income strategies in the coming months. These will take time to mature, but we are energized by their prospects. In September, Janice Henderson announced a partnership with Animoid and Centrifuge to manage Animoid's Liquid Treasury Fund, a fully on-chain tokenized fund issued on Centrifuge's public blockchain that provides investors with direct access to short-term U.S. Treasury bills. Blockchain readiness and tokenization are key pillars underpinning Janice Henderson's innovation strategy, and the decision to partner with Animoid and Centrifuge in this way reflects the firm's commitment to digital assets and our desire to embrace disruptive financial technologies. Under the diversified pillar, we are expanding differentiated private market capabilities for clients with the closings of NBK Capital Partners in September and Victory Park Capital on October 1st. As I said before, both of these are skating to where the puck is going on behalf of our clients. NBK allows Janice Henderson early entry into the rapidly expanding emerging markets private capital space. VPC, which I'll talk about more in the next slide, specializes in asset-backed lending. Along with executing our strategic vision, we're making progress in other areas of the business. As I mentioned, we delivered consecutive quarters of positive net flows and market share gains in key regions, which demonstrates that we are on the path to delivering consistent growth over the long term. In addition to the net flows this quarter, importantly, Janus Henderson also generated positive organic net new revenue in the third quarter. Fee pressures are relentless in this industry, and not all AUM is created equal, so we are pleased with that result. We are seeing success across a mix of capabilities and regions, including higher fee strategies such as hedge funds and thematics. In September, we announced a unique and innovative affinity partnership with the American Cancer Society. Through this pioneering partnership, Janus Henderson will donate the equivalent of 50% of its management fee revenue from all AUM in our government money market fund. In other words, For every $1 Janice Henderson receives in fees, the ACS will also receive $1 to support cancer research, advocacy, and patient support. This allows us to enter the over $6 trillion and growing money market category with a differentiated product that is extremely hard to replicate. It delivers the same performance, has the same fees, has a 30-year track record, and looks and smells like any other money market fund in the sea of sameness. but ours gives away half its management fee to an incredible cause that fights to end cancer as we know it, something that has likely touched all of us in some way. This partnership is our first initiative under our recently launched Brighter Future Project, which is the mechanism Janice Henderson will use to connect our purpose of investing in a brighter future together with our clients, employees, and the communities we serve. We are honored to support the American Cancer Society, and it's Janice Henderson's sincere hope this partnership will help create a brighter financial and physical and mental future for many of the 60 million people and growing that our firm serves around the world. Last quarter, I spoke about the encouraging trends we're seeing in strengthening our brand positioning. Given very strong ROIs, we continue to invest in those efforts globally via various means, including ad campaigns, sponsorships, events, and channel marketing. Shifting to capital stewardship, our improving financial results and cash flow generation along with a strong and stable balance sheet, has enabled the board to authorize an increase of $50 million to the existing buyback authorization. Janice Henderson's strong liquidity profile continues to provide us the flexibility to invest in the business, both organically and inorganically, as well as return cash to shareholders. Now turn to slide four for more background on our acquisition of Victory Park Capital, announced in August and closed on October 1st. Victory Park Capital is a global private credit manager with a nearly two-decade-long track record of delivering risk-adjusted returns to a longstanding, diverse, and global institutional client base. VPC has specialized in asset-backed lending since 2010, including small business and consumer finance, financial and hard assets, and real estate credit. Its suite of investment capabilities also includes legal finance and custom investment sourcing and management for insurance companies. In addition, the firm offers comprehensive structured financing and capital market solutions through its affiliate platform, Triumph Capital Markets. Our M&A strategy is always client-led, and what we heard from clients was an interest in private credit and that they were looking for something different relative to direct lending. Asset-backed lending has emerged as a significant and differentiated market opportunity within private credit, and we believe it will remain appealing to clients as they increasingly look to diversify their private credit exposure beyond direct lending. We are extremely excited to partner with VPC. We believe they are a great business, there's alignment on the growth trajectory, the team is motivated to grow the business together, and importantly, the culture is a great fit with our own mission, value, and purpose. We are executing on our growth plan across both client service teams using our industry experience of how a traditional manager can help an alternative manager grow, including via our specialized distribution platform, Privacore. The partnership with VPC demonstrates continued execution of our client-led strategic vision on several fronts. VPC complements Janice Henderson's successful $36 billion securitized franchise and expertise in public asset-backed securitized markets by expanding asset-backed capabilities into the private markets. enhances our offerings to institutional clients through in-demand private credit strategies, expands options for Janus Henderson in the insurance industry through VPC's capabilities, further diversifies our private credit capabilities following our recent acquisition of emerging market private credit team, NBK Capital Partners, and finally, it leverages our joint venture, Privacore, to provide desired private credit products to private wealth clients. We expect the transaction to be neutral to accretive to EPS in 2025. Janice Henderson acquired a 55% ownership interest with a defined path to reach 100% ownership over time. Upfront consideration included $99 million of cash and issuance of approximately 824,000 shares of JHG common stock on October 1st. There's also a long-term mutually attractive earn-out provision. I'll now turn the call over to Roger to run you through the detailed results.

Thanks Ali, and thank you all for joining us on the call today. Turning to slide five and investment performance. As Ali mentioned, investment performance versus benchmark remains solid with at least two thirds of aggregates AUM beating their respective benchmarks over all time periods. Looking in further detail, at least half of each capabilities AUM is ahead of benchmarks over all time periods, reflecting consistent investment performance across all time periods and capabilities. Overall investment performance compared to peers is very competitive. with nearly three quarters of AUM in the top two Morningstar quartiles over one, three, five and 10 year time periods. And as you can see in the appendix, much of that is in the top quartile. Slide six shows total company flows by quarter. Net inflows for the quarter were $400 million compared to net inflows of $1.7 billion last quarter and a significant improvement over net outflows of $2.6 billion a year ago. The year-over-year improvement was primarily driven by a 36% increase in gross sales. The increase in gross sales compared to the prior year is across a broad range of regions and strategies, including ETFs, thematics, such as life sciences and technology, US equities, balanced, hedge funds, multi-sector credit, and European equities. On slide seven are flows by client type. Third quarter net flows for the intermediary channel were positive $1.8 billion, bringing year-to-date intermediary net inflows to $5.2 billion, equating to a 4% annual organic growth rate. In the third quarter, the US, EMEA, LATAM, and Asia-Pacific regions all delivered positive net inflows in the intermediary channel. In the US, net flows were positive for the fifth consecutive quarter, with NED's inflows in several strategies, including most of the active ETFs, U.S. mid-cap growth, and multi-sector credit. U.S. Intermediary is a key initiative under our Protect and Grow strategic pillar, and we're pleased that we're gaining market share. Under our Amplify strategic pillar, we've talked about amplifying our investment in client service strengths using various means, including vehicles in which to deliver products, in addition to ETFs, flows into CITs were also positive in the third quarter in this channel. Moving to the EMEA and Latin American intermediary segment. Here, we've spoken previously about expanding our strategic efforts. And in this region, net flows were positive for the second consecutive quarter. And in APAC intermediary, net flows were positive and represent the best quarterly result in almost three years. Institutional net outflows were $500 million. Following a directionally improved second quarter, we talked publicly about the need to replenish a sustainable pipeline. We're pleased with the work our distribution team is doing, and we're encouraged by the leading indicators and increasing number of opportunities across all our regions. But the continued development and maturation of the pipeline will take time. Net outflows for the self-directed channel, which includes direct and supermarket investors, was flat to the prior quarter at $900 million. Slide eight is flows in the quarter by capability. Equity flows were negative $1.5 billion, which was relatively stable compared to quarter two, and improved from negative $2.3 billion a year ago. Despite a challenging environment for active equities, gross sales for equities improved 39% on a year-over-year basis, with increases in the US, EMEA, LATAM, and Asia-Pacific. Net inflows for fixed income were $2.2 billion. Several strategies contributed to the positive fixed income flows in the intermediary channel. Fixed income ETFs delivered further strong positive flows of $2.4 billion in the quarter, led by flows in JAAA. Other strategies contributing to the positive flows were multi-sector credits and Australian tactical income, and offsetting these inflows were net outflows in the lower fee institutional channels. Total net outflows for multi-asset capability were $400 million, improving from $800 million of net outflows in the prior quarter. While still in net outflows, this is the best quarterly result in two years and reflects improving flows in the balance strategy. And finally, net inflows in the alternatives capability were $100 million. Moving on to the financials. Slide 9 is our US GAAP Statement of Income. Before moving on to the adjusted financial results, GAAP results this quarter include an expected $111.9 million non-cash, non-operating accounting release of accumulated foreign currency translation losses related to subsidiary entities liquidated this quarter. This amount is removed from adjusted results. Continuing to slide 10 and the adjusted financial results. Almost all adjusted operating results improved compared to the prior quarter and the prior year. The improvement was primarily due to higher average AUM and good investment performance generating higher performance fees. Adjusted operating income improved 4% and EPS improved 7% quarter over quarter. Improvements over the prior year were even stronger with operating income and EPS up 36% and 42% respectively. Looking at the detail. Adjusted revenue increased 7% compared to the prior quarter and 21% compared to the prior year, primarily due to higher management fees on higher average AUM and improved performance fees. Net management fee margin remained stable compared to the prior quarter and declined very slightly compared to a year ago. Janice Henderson's net management fee margin continues to be a differentiator compared to many peers, given the fee pressure headwinds experienced in the asset management industry. In addition to a stable fee rate, we are also very pleased with positive firm organic net revenue generation in the third quarter, which demonstrates our success across a broad range of strategies and regions. Third quarter performance fees were positive $9 million, including negative $9 million of US mutual fund performance fees. While still negative, US mutual fund performance fees have improved significantly compared to the negative $18 million in the third quarter of 2023. As we sit here today, we estimate fourth quarter aggregate performance fees to be higher than the fourth quarter of 2023, primarily due to improvement in US mutual fund performance fees and strong investment performance in hedge funds. Clearly, the result will be dependent on performance over the remainder of the year. Continuing on to expenses. Adjusted operating expenses in the third quarter increased 8% to $318 million, primarily reflecting higher profit-based compensation, LTI expense, AUM-related costs, and previously communicated increases in non-compensation expenses. Adjusted LTI increased 12% compared to the prior quarter, largely due to mark-to-market on mutual fund share awards, and in the appendix we've provided the usual table on the expected future amortization of existing grants for you to use in your models. The third quarter adjusted comp to revenue ratio was 43.3% in line with our expectations and down from 45.3% a year ago, demonstrating the leverage in our business. Our 2024 expectation of an adjusted compensation ratio range of 43 to 45% remains unchanged. Adjusted non-comp operating expenses increased 10% compared to the second quarter. primarily due to expected higher G&A and investment admin expenses. As I mentioned last quarter, we anticipated adjusted non-compensation costs to accelerate in the second half of the year, which is what we saw in the third quarter. In the fourth quarter, we expect to invest a bit further in high ROI investments supporting areas of momentum in our business, examples being technology, marketing and advertising in both the US and EMEA, as well as client related expenses such as T&E. As we execute these focused investments and also now include the consolidation of VPC beginning in the fourth quarter and the full costs of NBK, we anticipate annual non-compensation expense growth to be at the higher end of our existing mid to high single digit growth expectation. Please note that a portion of the expected fourth quarter spend is seasonal, or one time in nature, all else being equal, an indicative quarterly run rate going forward for non compensation expenses will be lower than what we anticipate in the fourth quarter. Moving on from expenses. Adjusted operating income increased 4% compared to the prior quarter and 36% over the same period a year ago to $171 million. Our third quarter adjusted operating margin was 35%, an increase of 390 basis points from a year ago. Adjusted diluted EPS was 91 cents, up 7% from the prior quarter and up 42% from the third quarter of 2023. The increase in adjusted diluted EPS primarily reflects the higher operating income and non-operating benefits. Skipping over slide 11, I'm moving to slide 12 when I look at our liquidity profile. Our capital position remains strong. Cash and cash equivalents were $1.4 billion as of the 30th of September, compared to $699 million of outstanding debt. In September, we successfully completed a $400 million issuance of senior unsecured notes at a coupon rate of 5.45% due in 2034. The intent of the issuance is to repay the $300 million of notes due in August 25. We executed the make-whole call on the 300 million earlier this month, effective in November. Therefore, you will see lower cash and lower outstanding debt when we report fourth quarter earnings. During the quarter, we funded our quarterly dividend and repurchased approximately 1 million shares for $40 million. The Board has also declared a 39 cent per share dividend to be paid on the 27th of November to shareholders of record as at the 11th of November. Finally, we closed on the Victory Park transaction on October 1st, which included consideration of $99 million in cash and the issuance of approximately 824,000 shares of JHG common stock. Finishing on slide 13 and a detailed look at our consistent return of capital to shareholders. We've maintained a strong liquidity position and we continue to balance the capital needs and the investment opportunities of the business with returning capital to shareholders. Along these lines, the board has approved an incremental $50 million on the existing repurchase authorization, bringing the total authorized up to $200 million. Our capital allocation philosophy has not changed. The incremental buyback authorization reflects our improved financial outlook, better cash flow generation, and a strong and stable balance sheet. We've maintained a healthy quarterly dividend and have reduced shares outstanding by roughly 21% since the commencement of our buyback program in 2018. During the first three quarters of 2024, we've returned $343 million, including $155 million for our share repurchases. With that, I'd like to turn it back over to Ali for a brief wrap-up before we take Q&A.