Janus Capital Group Inc. ( JNS) Q4 2010 Earnings Call Transcript January 27, 2011 10:00 am ET Executives Dick Weil – CEO & Director Greg Frost – EVP & CFO Analysts Craig Siegenthaler – Credit Suisse Cynthia Mayer – Bank of America Roger Freeman – Barclays Capital Ken Worthington – JP Morgan Michael Kim – Sandler O’Neill Jeff Hopson – Stifel Bill Katz – Citigroup Jonathan Casteleyn – Susquehanna Michael Carrier – Deutsche Bank Roger Smith – Macquarie Presentation Operator
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Now, it is my pleasure to introduce Dick Weil, Chief Executive Officer of Janus Capital Group. Mr. Weil, you may begin your conference.Dick Weil Thank you, operator. Good morning, everyone. Welcome to the fourth quarter and full year call for Janus Capital Group. In particular, welcome to those of you who have braved the storm in the northeast, we hope you are safe and well, and we thank you for your interest in our company. In the fourth quarter of 2010, we generated earnings per share of $0.36 which is up from $0.18 in the third quarter. Importantly, about $0.12 per share of that operating and non-operating items that Greg will talk to you about in some more detail, a little later in the presentation. Our operating margin in the fourth quarter of 2010 increased to 34.7%, up from 23.4% in the third quarter with assets under management rising to 169.5 billion at 12/31, which is up over 5% from September 30. The long-term net flows in the fourth quarter were minus 4.7 billion versus minus 2.9 billion in the third quarter. An important part of this net outflow was a very surprising $2.6 billion redemption in fundamental equity by one large non-US institutional client. We were notified in December that this client was redeeming their assets, which was a surprise to us because we had done our job, both in terms of excellent performance and in terms of building a good relationship with the operating folks on the ground level. This client had serious concerns about fee structures. It’s been long time negotiating a performance fee structure and it turned out when our performance was really great. They made the decision to pull those assets in-house. And that was obviously, a deep disappointment to us. On a run rate basis, projected sort of more normal levels of performance, this would not have been a very significant asset flow, but Greg will talk to you about the effects on our performance fees for this quarter, where we did have exceptional performance in this year later in the presentation.
So full year, adding this quarter with prior, long-term net flows were minus 10.8 billion primarily driven by minus 10.5 billion inflows in our mathematical strategies.We took important steps forward in our balance sheet during the fourth quarter. We called $121 million of debt in subsequent to the fourth quarter, where we gained our investment grade rating. Turning to the next page, Page 3, I made some statements in my first year about what our 2010 priorities were on prior calls, and I’d like to review how we’re doing against those targets. First, we emphasize we wanted to act with financial discipline. We told you we expected that in time we could deliver margins in excess of 30%. We’re pleased to have achieved that level in the fourth quarter. We also told you it was important for us to strengthen our balance sheet and regain our investment grade rating. And when that happen that is an important message for our clients and our employees, and we’re pleased that we’ve accomplished that important goal. The next item is superior long-term investment. With 64% and 92% and complex-wide mutual funds assets in top two Lipper quartiles on a three-year and a five-year return basis, we think we’re still delivering good performance for our clients, but we must acknowledge that with 33% of our mutual fund assets in the top two Lipper quartiles on a one-year basis, we’ve some shorter-term challenges that we must effectively address. Read the rest of this transcript for free on seekingalpha.com