Janus Henderson Group plc Ordinary Shares

Welcome, everyone. The Janice Henderson First Quarter 2025 earnings call will begin shortly. In the meantime, if you'd like to pre-register to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. Thank you. We'll be right back. Good morning. My name is Lucy and I will be your conference facilitator today. Thank you for standing by and welcome to the Janice Henderson Group first quarter 2025 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 Deghaj, Chief Executive Officer of Janice Henderson. Mr. Dabage, you may begin your conference.

Welcome, everyone, and thank you for joining us today on Janice Henderson's first quarter 2025 earnings call. I'm Ali Dabage. I'm joined by our CFO, Roger Thompson. In today's call, I'll start with some thoughts on the quarter before handing it over to Roger to run through quarterly results in more detail. After Roger's comments, I'll provide an update on our strategic progress including our recently announced multifaceted strategic partnership with the Guardian Life Insurance Company, which we are excited about and believe will deliver value for our clients and shareholders and Guardian and its policyholders. And then we'll take your questions following those prepared remarks. Turning to slide two, market conditions continue to be tumultuous as changing monetary and fiscal policies, U.S. recession fears, and global trade uncertainty dampen investor sentiment. While Janice Henderson is not immune to the current market conditions, we believe we can navigate this period of market uncertainty given our truly global footprint. We have a diverse and global client base, which we are proactively engaging and supporting. It's during challenging times like these our clients and their clients need our differentiated insights, investment discipline, and world-class service the most. Turning to the first quarter, even amidst these significant market challenges, we were resilient and able to deliver a good set of results. Asset center management decreased only 1% to $373.2 billion as market declines were partially offset by $2 billion of positive net flows and favorable currency adjustments due to a weakening U.S. dollar. We delivered our fourth consecutive quarter of positive net flows. The net inflow results reflect a 44% increase in year-over-year gross sales, positive net flows again in both of our intermediary and institutional channels, and we continue to maintain and capture market share in several key intermediary markets. As we stated previously, delivering positive active flows is a key differentiator for Janus Henderson in an industry with well-documented active flow headwinds. Turn to investment performance. Despite some short-term volatility, which often happens in the industry amidst a fast market dislocation, our long-term investment performance is solid, with at least 65% of assets beating respective benchmarks, on a three-, five-, and 10-year basis. Against peers, investment performance is even stronger, with over 70% of AUM in the top two Mormon-style quartiles over all time periods. The current market dislocation, while challenging, presents unique opportunities. Ties will not lift all boats, and active asset management is critical. In situations such as this, our investment professionals are seeing opportunities to invest in high-quality, innovative and or undervalued stocks, bonds, and other securities to deliver for our clients. We have always had a focus on quality, and that quality theme is as important now as ever. Moving to our financial results, which remain solid, adjusted diluted EPS of 79 cents is an 11% increase compared to the first quarter of 2024. 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. Today we announced a 3% increase to the quarterly dividend and a new border-proof share buyback authorization of up to $200 million through April 2026. We also see many asset managers out there looking for a safer harbor to pull into, and thus we remain active and disciplined in M&A as well. In summary, our net flows are positive. Our long-term investment performance is solid. We continue to exit our strategy. Financial results are good. We continue to be disciplined and ROI focused on expenses. We have a strong and stable balance sheet, and our truly global footprint positions us well for the future and provides a strong foundation to navigate periods of market uncertainty. I'll now turn the call over to Roger to run you through the detail of the financial results.

Thanks, Ali, and thank you, everyone, for joining us on today's call. Starting on slide three, an investment performance. As Ali mentioned, despite some short-term volatility, our medium and long-term investment performance versus benchmark remained solid, with at least 65% of AUM beating their respective benchmarks over the three, five, and 10-year time periods. Overall investment compared to peers continues to be competitively strong, with at least 70% of AUM in the top two Morningstar quartiles over all time periods presented. Active management in portfolios is essential during times of disruption, times such as these, and our over 350 investment professionals are intensely focused on differentiating between the good and the bad companies, separating the weak from the chaff, and positioning us to deliver the best possible investment outcomes for our clients and their clients over the long term. Slide 4 shows total company flows by quarter. Net inflows for the quarter were $2 billion compared to net inflows of $3.3 billion last quarter and a significant improvement over net outflows of $3 billion a year ago. The year-over-year improvement was primarily driven by a 44% increase in gross sales and marked the best quarterly gross sales result in over four years. The increase in gross sales compared to the prior year is across a broad range of regions and strategies, including ETFs, absolute return equity, our biotech hedge fund, US mid-cap growth, balanced, global small cap, multi-sector credit, and asset-backed securities. Turning to slide five, and flows by client type. Please note that beginning in the first quarter of 2025, ETF gross flow activity is reflected in the applicable client type that generated the activity. Access to improved data transparency enabled us to make this change. For periods prior to 2025, all ETF flow activity is shown in the intermediary channel. This change better illustrates the wide range of clients investing in our suite of active ETFs, from supermarket clients in the self-directed channel, advised clients and model portfolios within intermediary, and larger sophisticated clients within our institutional channel. The intermediary channel net flows were positive $1.5 billion. In the first quarter, the US and Asia Pacific region experienced net inflows with net outflows in EMEA. In the US, net flows were positive for the seventh consecutive quarter. Several strategies contributed to the net inflows in the first quarter, including most of the active ETFs, multi-sector credit, and US mid-cap growth. U.S. Intermediary is a key initiative under our Protect and Grow strategic pillar, and we're pleased that we've delivered net inflows in the first quarter and are gaining market share against a challenging market backdrop. Under our Amplify strategic pillar, we've talked about amplifying our investment and client service strengths using various means, including vehicles through which we deliver our products. In addition to ETFs, flows into CITs and hedge funds in this channel were positive in the first quarter. In APAC intermediary, net flows were positive for the third consecutive quarter and the best intermediary net flow result in the region in over three years. Net inflows in this channel demonstrate our truly global investment capabilities, which included global technology leaders managed by our Edinburgh team, tactical fixed income managed by our Melbourne team, and a balanced strategy managed out of our Denver office. Institutional net inflows were $800 million compared to net inflows of $900 million in the prior quarter. Institutional net flows include $600 million of ETF net inflows. We're pleased to see increased interest and utilization of our high quality, highly liquid and stable securitized fixed income ETFs from institutional clients. Elsewhere, we're continuing to work to create a sustainable pipeline, and we're encouraged by the leading indicators and the increasing number of opportunities across all of our regions. Our pipeline is growing and it's starting to mature, but there's still much more to do. Net outflows for the self-directed channel, which includes direct and supermarket investors, were $300 million. The first quarter includes approximately $700 million of ETF net inflows from our supermarket clients. Excluding ETFs, self-directed net outflows were roughly flat the prior quarter and the prior year. It's good to see self-directed clients taking advantage of the opportunity to invest directly in our ETFs. Slide six shows flows in the quarter by capability. Equity flows were negative $4.2 billion. A challenging environment for active equities was exacerbated during the quarter with the market dislocation and risk-off sentiment. First quarter net inflows for fixed income were $5.6 billion, compared to $5.2 billion of net inflows in the prior quarter. Several strategies contributed to the positive fixed income flows. Active fixed income ETFs delivered strong positive flows of $5.7 billion in the quarter, led by flows in JAAA. Other strategies contributing to positive flows were multi-sector credit, asset-backed securities, and Australian fixed income. Net outflows in the multi-asset capability were $600 million, primarily due to net outflows in the balanced strategy. Despite net outflows in aggregate for balanced, several regions were net positive, including EMEA, Latin America, and Asia Pacific. And finally, net inflows in the alternatives capability were $1.2 billion, and driven primarily by absolute return equity and pulled hedge funds. Moving on to the financials. Slide 7 is our US GAAP statement of income, and on slide 8 we explain 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 of 24. More relevantly, Compared to the first quarter a year ago, operating income and EPS are up 22% and up 11% respectively, as a result of higher average AUM and operating leverage and improved three-year investment performance, leading to better mutual fund performance fees. Looking at the detail, adjusted revenue decreased 14% compared to the prior quarter, primarily due to those lower seasonal performance fees. and increased 14% compared to the prior year, primarily due to higher management fees on higher average AUM and the improved US mutual fund performance fees. Net management fee margin remained relatively stable at 48.5 basis points, which remains the differentiator for Janus Henderson. I want to remind you that as part of the announced strategic partnership with Guardian, Janus Henderson will manage the $45 billion investment grade public fixed income portfolio for Guardian's general account. And we expect that our aggregate net management fee rate will be approximately five to six basis points lower once the assets are fully onboarded, which is expected to be at the end of the second quarter. First quarter performance fees of negative $4 million primarily consists of US mutual fund performance fees. Whilst negative, US Mutual Fund performance fees have improved significantly compared to the negative $13 million a year ago. Continuing on to expenses. Adjusted operating expenses for the first quarter decreased 9% to $330 million compared to the prior quarter. Adjusted employee compensation expense, which includes fixed and variable costs, was down 13% compared to the prior quarter, primarily from incentive compensation on higher revenues in the fourth quarter of 24. Adjusted LTI increased 21% compared to the prior quarter, largely due to seasonal payroll taxes triggered by annual vestings in the quarter. 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 first quarter adjusted comp to revenue ratio was seasonally higher at 45.8%, which is down from 48.2% in the first quarter of last year and 50.1% two years ago. The higher rate in the first quarter is primarily due to the payroll taxes on annual LTI vesting and the beginning of year reset of payroll taxes and retirement contributions. Adjusted non-comp operating expenses decreased 12% compared to the fourth quarter, primarily from lower marketing and J&A expenses. With respect to 2025 expense expectations, we are navigating an uncertain operating landscape. We remain committed to strong cost discipline, ensuring that we manage our cost base while continuing to support the long-term growth objectives of the business. Our previously stated expected compensation ratio in 2025 remains unchanged at 43% to 44%, assuming 31st of March AUM and a zero market assumption for the remainder of the year. For non-compensation, including the non-comp related to the new Guardian business and the weakening US dollar, we expect to be at the higher end of the mid to high single-digit percentage growth guidance due to the investments supporting our ongoing strategic initiatives and operational efficiencies, inflation, and the fleer impact of the consolidation of VPC, NBK, Tabula, and now Guardian. If the market deteriorates further and that decline is prolonged, We have expense levers and will actively manage our cost structure, allowing us to maintain financial discipline and the flexibility to continue to invest strategically in the business where it makes sense to do so. Finally, our expectation of the firm's tax rate on adjusted net income attributable to JHG remains unchanged at a range of 23% to 25%. Our first quarter adjusted operating margin was 32%, an increase of 220 basis points from a year ago, demonstrating the leverage in our business. Adjusted diluted EPS was 79 cents, up 11% from the comparable Q1 2024 period. Skipping over slide 9 and wrapping up on slide 10 with a look at our liquidity profile. Our balance sheet remains strong and stable. Cash and cash equivalents were $1.1 billion as of the 31st of March, which is lower than the end of the year, primarily due to 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 19% higher. During the quarter, we funded our quarterly dividend and repurchased 0.6 million shares for $27 million. Shares repurchased were lower this quarter as we paused our share buyback during the lead-up to the Guardian Strategic Partnership announcement and through today's release of earnings to the market. As Ali discussed, we are committed to returning cash to shareholders and are pleased to announce that the Board has authorised a new share buyback programme of up to $200 million to be completed by April 2026. We will start this in short order. The board has also approved a 3% increase in our quarterly dividend to 40 cents per share to be paid on the 29th of May to shareholders of record as of the 12th of May. The buyback program and the increase in our dividends do not alter our ability to invest in the business organically or inorganically and return cash to shareholders. Currently, our liquidity profile allows us to do both. Our 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 investment in the business. In summary, we have a strong liquidity position and we continue to balance the capital needs and the investment opportunities of the business with returning capital to shareholders. With that, I'd like to turn it back over to Ali to give an update on our strategic progress.