Janus Henderson(JHG) - 2019 Q3 - Quarterly Report

PART I Financial Statements Unaudited consolidated financial statements show total assets increased to $6.97 billion, net income of $112.1 million, and decreased operating cash flow for the nine months ended September 30, 2019 Condensed Consolidated Balance Sheets Total assets slightly increased to $6.97 billion, while liabilities rose to $2.01 billion, leading to a decrease in total equity Condensed Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $6,965.9 | $6,911.9 | | Cash and cash equivalents | $736.3 | $880.4 | | Total investment securities | $584.2 | $574.5 | | Goodwill & Intangibles, net | $4,518.4 | $4,601.3 | | Total Liabilities | $2,005.1 | $1,915.0 | | Long-term debt | $316.9 | $319.1 | | Total Equity | $4,744.6 | $4,860.8 | Condensed Consolidated Statements of Comprehensive Income Q3 2019 total revenue decreased to $536.0 million, with net income attributable to JHG at $112.1 million, or $0.58 diluted EPS Q3 and Nine-Month Financial Performance (in millions, except per share data) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $536.0 | $581.2 | $1,591.2 | $1,761.3 | | Management Fees | $446.2 | $498.7 | $1,334.5 | $1,495.1 | | Operating Income | $143.6 | $148.3 | $386.6 | $499.8 | | Net Income Attributable to JHG | $112.1 | $111.2 | $315.6 | $417.0 | | Diluted EPS | $0.58 | $0.55 | $1.62 | $2.07 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly decreased to $256.2 million for the nine months, with financing activities using $383.0 million Cash Flow Summary (Nine months ended Sep 30, in millions) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net Operating Activities | $256.2 | $427.5 | | Net Investing Activities | $(24.6) | $87.9 | | Net Financing Activities | $(383.0) | $(489.0) | | Net Change in Cash | $(142.9) | $1.9 | Notes to the Condensed Consolidated Financial Statements Notes detail accounting policies, VIEs, fair value, goodwill, debt, taxes, and legal matters, including new lease standard adoption and pension buy-in - The Group adopted the new lease accounting standard on January 1, 2019, recognizing $129.8 million in right-of-use (ROU) assets and $146.4 million in corresponding lease liabilities[19][20][21] - An impairment charge of $18.0 million was recognized in Q2 2019 related to certain mutual fund investment management agreements due to lower than expected growth[68] - The company is involved in several class-action lawsuits related to VelocityShares ETNs. One consolidated case was dismissed but is now under appeal, while claims in other related cases are ongoing. The Group believes the claims are without merit[105][106][111] - On September 5, 2019, the Group's UK Pension Scheme entered into a buy-in agreement with Scottish Widows Limited, transferring the risk for pension obligations of 501 plan participants by paying a premium of approximately £328 million ($404 million)[95] Management's Discussion and Analysis of Financial Condition and Results of Operations of Janus Henderson Group plc Management discusses strong investment performance, AUM growth to $356.1 billion, Q3 revenue decline, and liquidity, including share buybacks Third Quarter 2019 Summary Q3 2019 saw strong investment performance, AUM growth to $356.1 billion, and $81.3 million in share repurchases Assets Under Management (AUM) Movement - 9 Months Ended Sep 30, 2019 (in billions) | Capability | Opening AUM (Dec 31, 2018) | Net Sales (Redemptions) | Markets | FX | Closing AUM (Sep 30, 2019) | | :--- | :--- | :--- | :--- | :--- | :--- | | Equities | $167.6 | $(10.9) | $33.4 | $(1.9) | $188.2 | | Fixed Income | $72.4 | $(1.1) | $5.5 | $(1.8) | $75.0 | | Quantitative Equities | $44.3 | $(7.5) | $8.9 | $(0.1) | $45.6 | | Multi-Asset | $30.2 | $1.7 | $4.6 | $(0.2) | $36.3 | | Alternatives | $14.0 | $(2.9) | $0.3 | $(0.4) | $11.0 | | Total | $328.5 | $(20.7) | $52.7 | $(4.4) | $356.1 | Investment Performance (% of AUM outperforming benchmark) | Period | 1 Year | 3 Years | 5 Years | | :--- | :--- | :--- | :--- | | Total Group | 70% | 74% | 78% | - During Q3 2019, the Group acquired 4,160,659 shares of its common stock for $81.3 million[133] Results of Operations Q3 2019 revenue decreased 11% to $536.0 million, primarily due to lower management fees, while operating expenses also declined Revenue Breakdown (in millions) | Revenue Type | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Management fees | $446.2 | $498.7 | $1,334.5 | $1,495.1 | | Performance fees | $1.4 | $(6.0) | $(0.7) | $3.6 | | Shareowner servicing fees | $39.3 | $40.2 | $113.5 | $117.3 | | Other revenue | $49.1 | $48.3 | $143.9 | $145.3 | | Total revenue | $536.0 | $581.2 | $1,591.2 | $1,761.3 | Operating Expenses Breakdown (in millions) | Expense Type | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Employee compensation & benefits | $147.9 | $159.5 | $439.4 | $457.2 | | Long-term incentive plans | $42.2 | $61.1 | $139.8 | $156.3 | | Distribution expenses | $102.8 | $112.3 | $306.2 | $344.3 | | General, administrative & occupancy | $67.6 | $59.9 | $200.5 | $191.3 | | Total operating expenses | $392.4 | $432.9 | $1,204.6 | $1,261.5 | Non-GAAP Financial Measures Non-GAAP measures show Q3 2019 adjusted operating income at $160.2 million and adjusted diluted EPS at $0.64 GAAP to Non-GAAP Reconciliation (Q3 2019 vs Q3 2018, in millions) | Metric | Q3 2019 (GAAP) | Q3 2019 (Adjusted) | Q3 2018 (GAAP) | Q3 2018 (Adjusted) | | :--- | :--- | :--- | :--- | :--- | | Operating Income | $143.6 | $160.2 | $148.3 | $180.5 | | Operating Margin | 26.8% | 37.0% | 25.5% | 38.5% | | Net Income Attributable to JHG | $112.1 | $124.7 | $111.2 | $138.6 | | Diluted EPS | $0.58 | $0.64 | $0.55 | $0.69 | Liquidity and Capital Resources The Group maintains strong liquidity with $736.2 million cash and $200 million credit facility, while meeting regulatory capital requirements - As of September 30, 2019, the Group had $736.2 million in cash and cash equivalents and an undrawn $200 million unsecured revolving credit facility[191][208] - The Board approved a new $200 million share buyback program in February 2019. During Q3 2019, the Group repurchased 4,160,659 shares for $81.3 million under this program[195] - The Group's main regulatory capital requirement relates to its FCA-supervised entities, which had capital of £146.7 million ($180.8 million) above the regulatory requirement as of September 30, 2019[194] Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk exposures have occurred since the 2018 Annual Report on Form 10-K - There have been no material changes in the Group's exposures to market risks from those reported in the 2018 Form 10-K[216] Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2019[217] - There were no changes in internal control over financial reporting during Q3 2019 that materially affected, or are reasonably likely to materially affect, the company's internal controls[218] PART II — OTHER INFORMATION Legal Proceedings Details on legal proceedings are referenced in Note 15 of the financial statements - This section refers to Note 15 — Commitments and Contingencies in Part I, Item 1 for details on legal proceedings[219] Risk Factors No material changes in risk factors have occurred since the 2018 Annual Report on Form 10-K - No material changes in risk factors have occurred since the filing of the 2018 Form 10-K[220] Unregistered Sales of Equity Securities and Use of Proceeds The company details Q3 2019 share repurchases, including $81.3 million under a new $200 million buyback program Monthly Share Purchases (Q3 2019) | Period | Total Shares Purchased | Average Price Paid per Share | Value of Shares Purchased (in millions) | | :--- | :--- | :--- | :--- | | July 2019 | 28,540 | $21.09 | ~$0.6 | | August 2019 | 2,718,106 | $18.70 | ~$50.8 | | September 2019 | 1,448,509 | $21.07 | ~$30.5 | - The Group intends to spend up to $200 million on its share buyback program, which commenced on March 5, 2019, and is expected to be completed within 12 months[221] Exhibits This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and XBRL data files - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL data files (101 series)[227][230]