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01/10 16:36
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Despite some challenges like net outflows and a year-over-year EPS decline, the company shows strong financial performance with increased sales, operating margin, and dividends. Positive signs include growth in ETFs, fixed income, and alternative strategies, along with enhanced financial flexibility from debt refinancing. The Q&A reveals optimism in expanding ETF distribution and active evaluation of growth opportunities. The market cap suggests moderate sensitivity to news, supporting a positive outlook.
ETF Assets $4.7 billion, up 79% year-over-year. The increase was driven by strong organic growth, strong investment performance, and demand for strategies.
Total Assets Under Management (AUM) $169 billion as of September 30, modestly below the prior quarter. The decline was due to net outflows offsetting favorable market performance.
Total Sales $6.3 billion, up 12% from $5.6 billion in the second quarter. The increase was driven by higher sales of fixed income and alternative strategies.
Net Outflows $3.9 billion, unchanged sequentially. Positive flows in ETFs, fixed income, and alternative strategies were offset by outflows in quality equity strategies.
Operating Margin 33%, up 170 basis points sequentially. The improvement was due to growth in average assets under management and stable operating expenses.
Earnings Per Share (EPS) as Adjusted $6.69, up from $6.25 in the second quarter but down 3% year-over-year. The year-over-year decline was due to lower average assets.
Quarterly Dividend Increased by 7% to $2.40 per share, marking the eighth consecutive annual increase.
Debt Refinancing Completed with a new $400 million term loan and $250 million revolving credit facility, adding $158 million of cash to the balance sheet and increasing financial flexibility.
Investment Management Fees as Adjusted $176.6 million, up 3% sequentially. The increase was due to a consistent average fee rate and an increase in average assets under management.
Employment Expenses as Adjusted $98.7 million, slightly increased due to higher variable incentive compensation. As a percentage of revenues, it declined by 70 basis points to 50.2%.
Other Operating Expenses as Adjusted $31.1 million, down from $32 million. The decrease was due to lower rent expenses and prior quarter impacts of annual equity grants.
ETF Assets: ETF assets reached $4.7 billion, up 79% over the prior year, with strong organic growth. Quarterly ETF sales and flows reached $0.9 billion each, benefiting from strong investment performance and demand.
New ETF Offerings: Several actively managed ETFs are in filing, including growth equity-oriented ETFs, a real estate income ETF, a multi-managed fixed income ETF, and building block ETFs. A global macro ETF was introduced in Q3.
Market Expansion in ETFs: Focus on broadening access to ETFs in key distribution channels and introducing new offerings.
Financial Flexibility: Completed debt refinancing with a $400 million term loan and $250 million revolving credit facility, adding $158 million in cash to the balance sheet.
Dividend Increase: Quarterly dividend increased for the eighth consecutive year to $2.40 per share.
Operational Efficiency: Operating margin increased to 33%, with stable operating expenses and higher revenues.
Inorganic Growth: $1 million spent on discrete business initiative expenses related to inorganic activity. The company remains disciplined in pursuing financially and strategically compelling opportunities.
Net Outflows: The company experienced net outflows of $3.9 billion during the quarter, driven by outflows in quality equity strategies. This reflects challenges in retaining assets under management, particularly in equity strategies that underperform in momentum-driven markets.
Equity Strategy Performance: Quality-oriented equity strategies underperformed in the current market environment favoring momentum, leading to net outflows and posing a challenge to the company's equity asset management.
Retail Mutual Fund Headwinds: U.S. retail mutual funds faced continued headwinds, with net outflows in equity strategies offsetting positive flows in ETFs. This indicates challenges in maintaining competitiveness in the retail mutual fund space.
Institutional Flows: Institutional net outflows of $1.5 billion were reported, with known redemptions exceeding known wins. This highlights challenges in retaining institutional clients and managing redemptions.
Debt Refinancing: While the company completed a debt refinancing to increase liquidity, the higher debt level will lead to increased interest expenses in the future, potentially impacting profitability.
Market Environment: The market environment has been unfavorable for quality-oriented strategies, which historically perform better over longer cycles but underperform in risk-on, momentum-driven markets. This poses a strategic challenge for the company.
Discrete Business Initiative Expenses: The company incurred $1 million in discrete business initiative expenses related to inorganic activity, which could strain short-term financial performance.
ETF Growth and Launches: The company plans to broaden access to its ETFs in key distribution channels and introduce new offerings. Several actively managed funds are in filing and anticipated to launch over the next few quarters, including growth equity-oriented ETFs, a real estate income ETF, a multi-managed fixed income ETF, and building block ETFs.
Inorganic Growth Opportunities: The company sees a favorable environment for inorganic growth and is open to adding new capabilities or increasing scale, but will act only when opportunities are financially and strategically compelling.
Investment Performance Outlook: The company expects continued strong investment performance in fixed income strategies, supported by positive net flows across several products, including ETFs, institutional, and retail separate accounts.
Market Trends and Flows: ETF sales and net flows are expected to remain strong, while U.S. retail mutual fund headwinds are likely to continue. Institutional trends are expected to remain similar to the third quarter, with known redemptions exceeding known wins.
Financial Flexibility and Capital Management: The company has increased financial flexibility through a new $400 million term loan and $250 million revolving credit facility. It plans to balance returning capital to shareholders with investments in the business, including inorganic opportunities.
Quarterly Dividend Increase: The company raised its quarterly dividend by 7% to $2.40 per share, marking the eighth consecutive annual increase.
Share Repurchase Program: The company did not repurchase shares in the third quarter due to other considerations and priorities. However, $50 million worth of shares were repurchased in the first half of the year, which was higher than the full-year repurchases in each of the prior two years. Share buybacks remain an important component of the capital management strategy, and the company intends to balance share repurchases with investments in the business.
Despite some challenges like net outflows and a year-over-year EPS decline, the company shows strong financial performance with increased sales, operating margin, and dividends. Positive signs include growth in ETFs, fixed income, and alternative strategies, along with enhanced financial flexibility from debt refinancing. The Q&A reveals optimism in expanding ETF distribution and active evaluation of growth opportunities. The market cap suggests moderate sensitivity to news, supporting a positive outlook.
The earnings call presents a mixed picture: strong shareholder returns via share repurchases and financial flexibility are positives, but declining investment management fees and lack of clarity in management's responses are concerning. The Q&A section highlights optimism in fixed income and ETFs but reveals uncertainty in private market strategies. Given the company's market cap of $1.57 billion, the stock is likely to have moderate fluctuations, resulting in a neutral prediction of -2% to 2% over the next two weeks.
The earnings call highlighted several challenges, including market volatility, net outflows, and decreased operating margin. Despite a slight improvement in net outflows and EPS growth, the reduction in assets under management and unclear guidance on key issues like the deferred tax asset and soft-closed vehicle impact cast a shadow. The Q&A session revealed management's lack of clarity on important matters, which could unsettle investors. Given the company's small-cap status, these issues are likely to result in a negative stock price reaction within the -2% to -8% range over the next two weeks.
The earnings call presented mixed signals: while there were positives such as share repurchases and a reduction in net outflows, there were also negatives including decreased operating margin and net debt position. The Q&A revealed some lack of clarity in management's responses, particularly around fee rates and tax assets. The market cap suggests moderate volatility. Overall, the financial performance and cautious market sentiment balance out, leading to a neutral stock price prediction.
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