Janus Henderson(JHG) - 2020 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for H1 2020 reflect a decrease in total assets, a net loss of $144.1 million, and positive operating cash flow, primarily due to significant impairment charges Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $6,725.2 | $7,621.7 | | Intangible assets, net | $2,638.6 | $3,088.6 | | Goodwill | $1,310.4 | $1,504.3 | | Total Liabilities | $1,827.6 | $2,037.6 | | Total Equity | $4,428.9 | $4,906.2 | Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (in millions, except per share data) | Metric | Q2 2020 | Q2 2019 | 6 Months 2020 | 6 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $518.0 | $535.9 | $1,072.9 | $1,055.2 | | Operating Income (Loss) | $106.7 | $118.5 | $(225.7) | $243.0 | | Net Income (Loss) Attributable to JHG | $102.9 | $109.4 | $(144.1) | $203.5 | | Diluted EPS | $0.55 | $0.56 | $(0.79) | $1.03 | Condensed Consolidated Statements of Cash Flows Highlights (in millions) | Cash Flow Activity | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :--- | :--- | :--- | | Net Operating Activities | $242.5 | $83.0 | | Net Investing Activities | $(125.0) | $11.5 | | Net Financing Activities | $(8.6) | $(275.5) | Notes to the Condensed Consolidated Financial Statements The notes detail significant events including the sale of Geneva Capital Management, substantial impairment charges of $513.7 million due to COVID-19, and ongoing litigation related to VelocityShares ETNs - On March 17, 2020, the company sold Geneva Capital Management for $38.4 million in cash, recognizing a pre-tax gain of $16.2 million[23][24][25] - An interim impairment assessment in Q1 2020, driven by COVID-19, resulted in significant charges: $263.5 million on investment management agreements, $92.6 million on client relationships, $7.7 million on trademarks, and $123.5 million on goodwill[64][66][67] - In June 2020, an additional impairment charge of $26.4 million was recorded, writing off the entire intangible asset associated with VelocityShares ETNs following a delisting announcement[69] - The company is defending lawsuits related to VelocityShares ETNs, with one consolidated case dismissed and on appeal, and most claims against Janus Indices dismissed in another case[98][101][102] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management's discussion highlights the significant negative impact of COVID-19 on AUM and financial results, leading to impairments, while the company maintains a stable capital position and continues its share buyback program - The COVID-19 pandemic significantly impacted financial results, leading to AUM and revenue declines, and triggering Q1 impairments of $363.8 million in intangible assets and $123.5 million in goodwill[116][117][118] Assets Under Management (AUM) Roll-Forward (in billions) | Period | Starting AUM | Net Sales (Redemptions) | Markets | FX & Other | Ending AUM | | :--- | :--- | :--- | :--- | :--- | :--- | | 6 Months to 6/30/20 | $374.8 | $(20.4) | $(8.3) | $(9.4) | $336.7 | Q2 2020 Financial Summary (in millions) | Metric | Q2 2020 | Q2 2019 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $518.0 | $535.9 | (3)% | | Operating Income | $106.7 | $118.5 | (10)% | | Net Income (to JHG) | $102.9 | $109.4 | (6)% | | Diluted EPS | $0.55 | $0.56 | (1.8)% | - The company maintains a stable financial condition with surplus capital and liquidity, not expecting to suspend its quarterly dividend or share buyback program despite economic uncertainty[119] Results of Operations Q2 2020 saw a $38.7 million decrease in management fees offset by a $13.7 million increase in performance fees, while operating expenses decreased due to lower G&A and marketing, partially offset by a $26.4 million impairment charge - Q2 2020 management fees fell $38.7 million year-over-year due to lower average AUM, while performance fees increased by $13.7 million[149][152] - Q2 2020 operating expenses decreased, with G&A down $9.7 million (including $5.3 million in travel reductions) and marketing expenses down $4.4 million[167][168] - Goodwill and intangible asset impairment charges increased by $8.4 million in Q2 2020, primarily due to a $26.4 million impairment of the VelocityShares ETN asset[170] Liquidity and Capital Resources As of June 30, 2020, the company held $835.8 million in cash, maintained an undrawn $200 million credit facility, repurchased $22.0 million in stock, and paid $66.1 million in dividends, demonstrating strong liquidity and capital Key Liquidity Data (in millions) | Item | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $835.8 | $732.4 | | Debt | $314.8 | $316.2 | - The company has an undrawn $200 million unsecured revolving credit facility maturing in February 2024[74][201] - In Q2 2020, the company repurchased 1,061,633 shares for $22.0 million under its buyback program and paid $0.36 per share in dividends[191][195] PART II — OTHER INFORMATION Item 1A. Risk Factors This section updates risk factors, focusing on the significant and ongoing adverse effects of the COVID-19 pandemic, including potential revenue declines, further impairments, liquidity constraints, and operational disruptions - The primary updated risk factor is the COVID-19 pandemic, which has adversely affected and is expected to continue to adversely affect results of operations[212] - Specific risks include further decreases in AUM and revenue, additional impairments of intangible assets and goodwill, potential constraints on liquidity and capital, and possible disruption of business operations[213][216] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company details its common stock repurchase activities, including a new $200 million buyback program approved in February 2020, under which 1,061,633 shares were repurchased for $22.0 million in Q2 - A new on-market share buyback program of up to $200 million was approved on February 3, 2020[215] Share Repurchases (Q2 2020) | Month | Shares Purchased (Buyback Program) | Average Price Paid | Total Cost (Buyback Program) | | :--- | :--- | :--- | :--- | | April | 0 | N/A | $0 | | May | 438,443 | $18.11 | ~$7.9M | | June | 623,190 | $22.21 | ~$13.8M | | Total Q2 | 1,061,633 | - | ~$22.0M |