Good morning. My name is Nicole, and I will be your conference facilitator today. Thank you for standing by, and welcome to the Janus Henderson Group First Quarter 2020 Earnings Conference Call. [Operator Instructions] 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 Form 10-K for the year ended December 31, 2019, Form 10-Q for the quarter ended March 31, 2020, and in other filings made by the company with the SEC from time to time. Janus Henderson assumes no obligation to update any forward-looking statements made during the call. Thank you. Now it is my pleasure to introduce Dick Weil, Chief Executive Officer of Janus Henderson. Mr. Weil, you may begin your conference.

Thank you, operator. Welcome, everyone, to the first quarter 2020 earnings call for the Janus Henderson Group. I'm joined by Roger Thompson, our CFO today. First and foremost, I hope that everybody listening on this call, along with your loved ones, are all safe and healthy. I want to acknowledge the heroic work of many in our society, supporting all of us in the continuation of our businesses and our lives. It's their resilience and sense of duty, which keeps our society going during this COVID-19 crisis. I also want to recognize the very hard work of our own employees who've put in tremendous hours and creativity to adapt to these extraordinary circumstances. And as thanks to them that today, we can report that we're working safely from our homes and that our company is operating successfully. On today's call, I'll provide an introduction and a little update, and then Roger will give his update on quarterly flows, investment performance and financial results. After those remarks, we'll take your questions as usual. For me, the story of the first quarter is really two stories. Roger will give you more specific information in a minute. But we were having a very good start to our year in January and February. Investment performance was strong, and we seem to be gathering positive momentum across our business. Then, of course, the COVID-19 crisis hit in March, and that changed things. Let me step down a level and focus on what we've actually done in the first quarter. Immediately after the WHO declared a global health emergency, we moved aggressively to implement our emergency scenarios in offices around the globe. We were guided by our simple principles, taking excellent care of our clients while simultaneously protecting our employees and their families. The very good…

Thanks, Dick, and thank you, everyone, for joining us. I sincerely hope that everyone and your friends and family and colleagues are safe and healthy. Looking at the first quarter's results. Market volatility in the last five weeks of the quarter, coupled with the previously communicated redemptions, resulted in $12 billion of net outflows. Period end AUM was down 21% compared to the fourth quarter. That said, the average AUM for the quarter was down only 3% from the prior quarter. And as we sit here today, AUM is up around 10% from the end of March. In terms of our GAAP results, there is one significant item in the quarter. The decline in AUM as at the 31st of March and the economic uncertainty of COVID-19 is affecting the value of our intangible assets and goodwill, which resulted in an impairment of $487 million. I'll remind you that this is a noncash adjustment. The adjusted financial results were actually stronger than the same period a year ago, but down a little compared to the prior quarter with adjusted EPS of $0.60 compared to $0.65 a quarter ago. Finally, we returned $97 million of cash to shareholders during the quarter via dividends and share repurchases. Moving to investment performance on slide five. Long-term investment performance remains strong, with 65% and 66% of firm-wide assets, meeting their respective benchmarks on a three and five year basis as at the 31st of March. Relative performance compared to peers is even stronger, with 69%, 84% and 79% of AUM represented in the top two Morningstar quartiles on a one, three and five-year basis, respectively. We take a long-term view of investment performance, understanding that very short-term results will fluctuate period to period. The last five weeks of the quarter were unprecedented in volatility…

[Operator Instructions] We'll take our first question from Ken Worthington with JPMorgan.

Hi, good morning. Thank you for taking my questions. I think, first, can you talk about the differences you saw between the reaction of your European investors, your U.S. investors and your Asian investors to the COVID-19 crisis and the downturn in the various markets? And as the world recovers, we do expect to see or how would you expect to see customers reengage by region, given your mix of business and your relative performance?

Okay. Let me start on that, and perhaps, Dick will comment as well. Looking at flows, it was interesting. We saw outflows in March in the U.S. and in Europe. Actually, interestingly, in Asia, outside the one big fixed income outflow that we've talked about on the prior call, flows in Asia were actually positive. We had our best quarter in Asia for quite some time, and that has continued. So it has been different, but March was a pretty consistent outflow in both Europe and the U.S. Dick, anything to add to that?

No, that covers entirely.

And then on the reengagement side, any things that you would expect here as the market recovers?

I guess, the biggest thing in there is we are very active in the marketplace. We're seeing considerable client interactions. Our pipeline in institutional is actually stronger than it has been since the merger. Our pull-through of information is very high. So yes, it's obviously difficult to say given where markets are and where they may end up. But activity is pretty high everywhere.

Our next question comes from Dan Fannon from Jefferies.

Thanks, I guess just following up on that last comment there, Roger, with regards to the release pipeline since the close of the deal. Can you talk about the breadth and the products that entails?

Yes. This is Dick. It's a broad list of products. It's not just in one thing. It includes some absolute return in fixed income and equity, and it's geographically diverse as well. And so look, Roger is the CFO and he never believes in pipeline, what he believes is cash in the front door. And so we'll see how well we can convert opportunity into flows and long-term relationships. But I think all of us would have had a question going into this crisis, how well can you reach out and connect with clients and even prospects through this remote working environment, it turns out better than I think any of us would have anticipated. I think we are seeing some clients turn to Zoom or remote finals presentations in a way that seems to be working for them and working for us. So our business continues to move forward, and we're optimistic about what we can accomplish asterisk none of us have a crystal ball as to whether the market is going to continue in a relatively stable way or whether there'll be more very significant upsets on the horizon. So we will live in the broader environment as that moves. But assuming a relatively stable platform from which to work, we're pretty optimistic about what we can accomplish.

Great. And then just a follow-up. The noncomp guidance of flat to slightly down. Just you mentioned a couple of different things in terms of what you're evaluating. I assume you had just gone through a lot of those evaluations through the merger. So curious how much is actually business decisions that are being made versus the no travel and kind of work from home, kind of natural reduction in some of the expenses. So can you give a little more color around what that what you're actually doing versus kind of what's the output of the current environment?

Yes, you're right. You're quite right there, Dan. There are some things that sort of naturally look after themselves. We normally spend about $2 million a month in T&E and obviously are not. Our marketing and conferences and things like that and client events is obviously very significantly diminished, and we're expecting that to continue for a period of time. There are we've tightened our belts on a couple of things. But the other thing I think is very important to note is we're continuing to invest in the business. We've got a number of projects that we plan to do this year. The vast majority of those, we're still doing them this year. And again, Dick talked about how the organization is working to be able to deliver those things in this market, I think, is or sorry, in this environment where 95% of people are working at home, I think is pretty remarkable, and we're pretty confident of progressing with those. Some of them will take a little bit longer. So again, we've some of that is that some of those things that we hope to finish in 2020 will probably drag out to 2021. So there's a little bit of cost that will drag into next year, but we are continuing to invest in the business. And that's baked into that guidance of flat to slightly down.

We will take our next question from Simon Fitzgerald from Evans & Partners.

Good morning. Thank you for taking my question. I only have one question this morning. Just in regards to the impairment, if you could just sort of highlight in terms of the what the test was there or the measurement that resulted to the impairment? And was it certain contracts as opposed to others? Like I just wanted a bit more detail around that impairment charge, understanding that's noncash.

Yes, Thanks, Simon. Yes, you've got I think all firms will be looking at this, and you've got a triggering event. There's no doubt you got a triggering event with the AUM decline and the uncertainty in the market. You then just need to look at where your period end assets are and then look at that. We sit with a pretty significant impairment and goodwill balance. We're an intangible business. And when you look at that and you come up with some reasonably prudent assumptions of where you are and where you might be on the upside and downside from the end of March. You model something and that you've got some contracts and some goodwill, that looks a little bit looks a little bit toppy at those prices. So we've written that off. But as you say, it's a noncash item.

And our next question comes from Mike Carrier from Bank of America.

Morning and thanks for taking the question. I guess, another question on flows. I mean, I think if I look at the sales in the quarter, you are pretty strong given the environment. Redemptions, obviously, as expected. When you look at the trend line there, any granularity on where you're seeing kind of that relative strength? And then, Roger, just on the comment on April, I think you said relatively flat. And I just want to make sure I don't know if it was just intermediary or overall, but just any clarity there?

Let me take the second bit of that first, Mike. Yes, intermediary is flat, institutional is lumpy, but we've talked about the pipeline. We talked about the pipeline there. So and there's nothing big to tell you about, I think, is that's how we normally describe institutionally, is we'll tell you if there is something, as we did at the end of last year, there's nothing big out there that you need to be aware of an institutional and intermediary is flat. Sorry, could you just remind me of the first half of the question again, Mike?

Yes. The first part was just when I look at the strength in sales that you guys saw during the quarter, just anything that kind of stood out because on the redemptions, like we obviously know what happened in the quarter and where we saw like the industry outflows. But on the sales side, just any more granularity on that.

So it's a pretty broad brush. You can see in the deck that we saw increased gross flows in a number of capabilities. Some of our long-standing strong products like balances continue to be positive. Absolute Return income, very strongly positive. Some other Fixed Income areas, small cap, global value. So it is fairly broad. But as always, it's different by geography in our business, but fairly broad.

And we'll take our next question from Andrei Stadnik with Morgan Stanley.

Good morning. I just wanted to ask a couple of questions. Firstly, just following up on the flows and intermediary flows going in April. Can you describe a little bit what's changed the are some geographies doing better than others? And is it better gross sales? Is it lower gross redemptions? What's changed in April?

Primarily redemption story, Andrei, I think there was obviously a reaction in March, but that seems to have there's a pause at least now in terms of redemptions. We're still seeing good activity in gross. So the decrease to get to flattish for intermediary is really around less redemption, but it's the same everywhere. U.S., Lux, Dublin, the U.K. and Asia are all around flat. So it's not that one region has changed completely and others haven't. It's pretty again, for us, I don't think that's the same everywhere, but for us, we're seeing flattish flows in intermediary. The result of gross ins and gross outs being about flat in all markets, which is a dramatic change from April. But again...

Dramatic change from March.

Sorry, dramatic change for March. But as Dick said, we caveat that with just happens to be where we are now. I think the important message is, yes, April looks different than March, but obviously, we can't tell you what May is going to look like.

Good. And my second question, just thinking through where the operating margin could end up, should we be thinking about mid-30s for FY 2021?

I think we previously said mid-to-high 30s. That remains our long-term aspiration, but with lower asset levels, yes, you're probably looking in the lower 30s.

Thank you.

We'll take our next question from Ed Henning with CLSA.

Thank you for taking my questions. Can we just start off on INTECH, look the outflows have been getting better there, but performance seems to be getting a little bit worse. Can you just touch on conversation with clients? And how and what the outlook is there for INTECH?

Yes. I'd say in the first quarter, the performance was a little bit better overall, but they have so many different products moving in different directions that any such comment is has to be taken as a pretty blurry outline. Underneath the covers, they have a lot of different products moving in different directions. But generally speaking, the INTECH products in the first quarter performed sort of as described on the 10. So that's not strong enough outperformance to really drive them back to a very healthy front foot, they need to put up good performance over a long period of time to get to the level of success that we aspire to for them. So they're not back to sort of green lights in full health, but they're continuing to do their job and work hard. They do an excellent job of explaining things and communicating with clients. As they continue to evolve their business, they have a significant number of strategies that have been excellent in this environment and have delivered outperformance. And obviously, those will probably be the things that a lot of clients will be more interested in. But they continue to have opportunities to sell business and move ahead. And they're focused on healing some continuing to heal some of the damage of some of the past. We've talked about, they've added some risk control practices into how they manage money as lessons learned from the past. So they're an improved business. And they're continuing to sort of try and build forward. No special guidance that we have around their future at this point.

Okay, thank you. And just one other question. If you look at the world now, and you've obviously got a very strong balance sheet, which you've highlighted given all the market moves, does that change your appetite at all to look at any inorganic opportunities?

We've sort of always answered that question the same way, which is never say never, but we really are focused on first things first. We want to deliver the simple excellence that we can deliver in the current configuration of our company. We see lots of opportunity to improve how we're doing what we're already doing. And our priorities are more focused on that than they are on big M&A or changing things in an inorganic and significant way. But never say never. We continue to look at things. We continue to educate ourselves. We continue to listen to folks who would like to chat. And mostly, that's a learning exercise, but you can't ever foresee the future perfectly. Something could potentially happen, but it's not the highest thing on our priority list.

Thank you.

Our next question comes from Nigel Pittaway from Citi.

Hi guys. First of all, just it seems like on slide 35, there's reasonable evidence of that sort of LTIP flex here you were talking about. I mean, just checking, I mean, is the assumption behind that pretty much the same as what you were saying on the other costs, basically flat AUM from here? Or is there anything else you can tell us about what's been the scenes behind that flex down that we're observing there?

That's based on flat markets from the end of March, Nigel.

Yes. Okay, okay. And then just a second question, just on performance fees. I mean, obviously, I think it surprised most people that how good the performance fees were in the first quarter. Can you give us sort of any kind of guidance as to how we should think about those for the remainder of the year? I mean, presumably, we've got to look at sort of relative benchmarks now? And is there any color you can provide on that as to what the potential is moving forward?

If we take it in the regular pieces, if you like, the U.S. fulcrum fees Q2 2017 that rolls off was actually quite a good quarter. So we'll have to add a bit in order to stay at the sort of $2 million negative level where we were. But then we run into the sort of bad year of performance dropping off. So again, you can model that. If you model flat performance for the year then you get to sort of $5 million of negative fees for the year compared to $15 million last year. So I can't tell you what future performance will be, but assuming no alpha, it's minus five for the year. In our Mutual Funds, obviously, we have the European funds have the calendar period as June 30. There are some funds in those that are and again, you can track this stuff public. There are some funds in there that are currently above high watermarks. So as we stand here today, there's a little bit uncrystallized, but again, that can change. The U.K. Absolute Return Fund is slightly ahead now. So again, more around the opportunity for the future rather than something that's in the bag today. But if the team there can continue to add small positives, then there's some performance fees that could occur there. And then the last piece is segregated accounts. See, in the first quarter, we had a couple of segregated accounts that were quite large. One of those is one-off, I assume the account we don't have any more. But there are some SEG accounts that we would expect to have performance fees on for the remainder of the year, including in Q2.

Okay, it's great. Thank you very much.

And we'll move on to Ryan Bailey from Goldman Sachs.

Morning and thanks for taking our questions. My first question was on the U.K. property funds that are gated. I was just wondering if you can give us an update about the timing that you think that, that might change? And any broader implications that you think could curb that one?

Yes. I mean that's gated as the entire industry is in that sector because the valuers put what they call the material uncertainty clause on valuations. So if you can't value a fund, there's no real choice other than to suspend it. So we suspended, and I think everyone else suspended a day after us just about. The fund is positioned very well. It has a strong cash balance. Its mix has less retail in the most people. It's actually got some things like logistics warehouses in that I would have thought we're doing rather well at the moment. So we can't I can't tell you when it will reopen. It will be when the surveyors decide they can take off that material uncertainty clause. And I doubt that will really happen until there's some transactions in the marketplace. But again, we're communicating well with clients. And I think we've been viewed quite strongly in terms of how we have communicated. So you never like to go to product, but yes, it's a little bit easier when an entire sector is positioned the same way.

Understood. Thank you. And just maybe another question on buyback activity? And thank you for the incremental color on the balance sheet strength and cash flows. I'm just wondering how we should be thinking about maybe as a target payout of EPS or cash flow? Do you think in the current environment expected to be prudent and maybe not pushed to wall given the stock price, do you think you have the opportunity to be a bit more aggressive?

This is Dick. Thanks for that question. Yes. I guess, our commitment to the dividend is the first way that we return capital and the strongest commitment. The buyback is then an incremental piece when we don't have to invest that money in the core of the business, and it's how our investors have told us they like to get that incremental return of capital. So at these levels, we're generating good free cash flow, as Roger said, and we're going to continue to be in the market, as Roger said earlier, buying back. If the levels of the market change significantly, we'll have a conversation with the Board and reflect on whether that remains true. But that's the piece that is, I would say, more it's on top of the dividend, and that would be the first thing where we'd look to adjust if the market levels changed significantly.

And we'll take our question from John Dunn with Evercore ISI.

You talked about being wanted to be a winner coming out of this location, and you talked about what kind of gross sales side is working. But are there any areas that maybe haven't been doing great that maybe teed up or close to maybe flipping to being contributors.

We have a list of focused products that we think have good client demand and good performance. We have a tracking process where we take a look at things that are in the wings that we think are maybe because of length of time that we've been running the strategy or maybe it's just AUM in the strategy or it could be performance bubbles moving through that we think will be more appealing on a go-forward basis, and we track all those things. But there's nothing that we'd want to publicly call your attention to along those lines. That's sort of an internal process. And frankly, most of those pieces are smaller. Our results tend to be the aggregation of a lot of individual pieces, and we hesitate to call any one individual piece out too often because the nature of our company is diverse geographically and diverse product wise, diverse across asset classes. And so the things that really drive our results tend to be aggregations rather than individual specific things.

Got you. And then on the investment, were there in the quarter, are there any investment strategies that stood out as causing kind of the deterioration in investment performance and any ones that I know it's super early days, but maybe that a position to inflect back get you back to where you were in that kind of top quartile overall performance?

Yes. I mean, I don't think I want to participate in a naming and shaming exercise on this call. But yes, we had a few products that dramatically suffered in the three weeks the bad three weeks in March. We had some very good products that lost years of outperformance that they carried into March and gave significant parts of that back. And we had some other pieces, Absolute Return and other things that delivered well through the period of volatility. But honestly, we're less concerned about what's just happened in the last three months and more concerned about what happens from here. I don't think success or failure is driven by how you rode through these last three weeks. I think success or failure is driven by how well we find value in this disrupted market from here going forward. And so we're not going to overreact to short-term performance changes in the last month or two. What we're going to do is try and keep everybody very focused on the idea that there's a huge range of mispriced opportunity out there. And this is where we do our jobs well and succeed over the next three and five years. With that, maybe let me just thank everybody for your time and attention today. I hope we've done a good job answering your questions. Feel free to follow-up with us afterwards if there's more we can do. But we appreciate your time and attention today, and we look forward to speaking with you next quarter.

And once again ladies and gentlemen, that does conclude today's conference. We appreciate your participation today.