Janus Capital Group Management Discusses Q2 2012 Results - Earnings Call Transcript

Janus Capital Group (JNS)

Q2 2012 Earnings Call

July 26, 2012 10:00 am ET

Executives

Richard Mac Coy Weil - Chief Executive Officer, Director and Chairman of the Executive Committee

Bruce Lewis Koepfgen - Chief Financial Officer, Executive Vice President and Member of Executive Committee

Analysts

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

Michael Carrier - Deutsche Bank AG, Research Division

Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division

William R. Katz - Citigroup Inc, Research Division

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

Cynthia Mayer - BofA Merrill Lynch, Research Division

Roger A. Freeman - Barclays Capital, Research Division

Craig Siegenthaler - Crédit Suisse AG, Research Division

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Presentation

Operator

Good morning. My name is Andrea, and I will be your conference facilitator today. I would like to welcome everyone to the Janus Capital Group's Second Quarter 2012 Earnings Conference Call. [Operator Instructions] .

Before the company begins, I would like to reference their standard legal disclaimer, which also accompanies the full slide presentation located in the Investor Relations area of janus.com. Statements made in the presentation today may contain forward-looking information about management's plans, projections, expectations, strategic objectives, business prospects, anticipated financial results, anticipated results of litigation and regulatory proceedings and other similar matters. A variety of factors, many of which are beyond the company's control, affect the operations, performance, business strategy and results of Janus, and could cause actual results and experiences to differ materially from the expectations and objectives expressed in their statements. These factors include, but are not limited to, the factors described in Janus' reports filed with the SEC, which are available on their website, www.janus.com, and on the SEC's website, www.sec.gov. Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made. Janus does not undertake to update such statements to reflect the impact of circumstances or events that arise after the date these statements were made. Investors should, however, consult any further disclosures Janus may make in its reports filed with the SEC.

Thank you. Now it is my pleasure to introduce Dick Weil, Chief Executive Officer of Janus Capital Group. Mr. Weil, you may begin your conference.

Richard Mac Coy Weil

Thank you, operator. Good morning, everyone. Welcome to the Second Quarter 2012 Earnings Presentation for Janus Capital Group.

In the second quarter of 2012, we delivered an earnings per share of $0.13 compared to $0.12 in the quarter. Assets under management were $152.4 billion, down 7.1% versus March. Total company long-term net flows were $3.9 billion out in the second quarter compared to $2.5 billion out in the first. And we maintained an operating margin of 25.3% compared to the 25.9% in the first quarter.

Let me just take a moment to tell you what I think the story of the quarter is, and then I'll turn it over to Bruce Koepfgen for some more information from him. And then, of course, as we always do, we'll take your questions.

For the story on the quarter. Our highest priority here remains investment performance for our clients. We've seen some significant improvement, particularly in our U.S. growth franchise at Janus. But clearly, we have a lot more work to do, and that remains priority 1. We are disappointed with the flows in the second quarter, but we understand them to be in the context of a very challenging external environment for equities in general for actively managed equities in particular. With correlations returning to pretty high levels in the second quarter driven by macro risk-on, risk-off trading.

This is a tough environment for active management, and it has been for a couple of years in this dimension. With extreme market volatility and a longer-term not such great results and equity markets more broadly, a lot of investors are scared and they're either doing nothing or pulling back from equities. As a result, active equity flows in the first half of 2012 has suffered about a $37 billion withdrawal, so we continue to face a challenging environment.

In the face of that, we're moving forward with our diversification strategy, with our planned organic diversification strategy, which, over time, will leave us much less exposed to the ebbs and flows in any single asset class. Toward that end, we continue to balance -- maintaining business discipline and margins with investment in our team and in our strategic priorities. We've added significant new talent in fixed income, in international, in U.S. institutional and in innovative new product areas. But at the same time, the strategy of organic diversification takes more time than we would like. We're on the right path and we are making progress, but these efforts are too new and, at this point, too small to drive dramatic changes in the flows and the results.

Our balance business discipline maintained through this process has allowed us to control and reduce operating expenses $8 million compared to the last quarter. We've maintained a 25%-plus operating margin, and we've delivered in this quarter $71 million of cash flow from operations.

Today, what we're seeing from our clients, from advisors, from institutions both in the U.S. and non-U.S. is they are risk-averse. There's strong demand for fixed income and there is -- that creates a very positive trend for our fixed income business. However, we're also challenged by the fact that many clients, particularly institutional clients, are shifting away from actively managed U.S. equities. This creates particular challenges for our INTECH subsidiary.

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