Artisan Partners Asset Management (APAM) 29 Apr 202020 Q1 Earnings call transcript

Hello, and thank you for standing by. My name is Chuck, and I'll be your conference operator today. [Operator Instructions].

As a reminder, this conference is being recorded.

At this time, I would now like to turn the call over to Makela Taphorn, Director of Investor Relations for Artisan Partners Asset Management. ahead. go Please

to and Welcome from Partners Management Daley, Asset Colson, Thank Call. the Today's Update CFO. C.J. and Earnings and remarks call Business Chairman you. CEO; Artisan will Eric include

presentation investor our of and results latest are on Relations website. the available section Investor Our

we opening these for the questions. remarks, Following line will be

risks including are to These may questions, deal in forward-looking statements. I'd Before that release in comments to we like and begin, that made the our responses the are and subject the earnings filings to statements you presented SEC. remind on uncertainties today's call, detailed with with

We are these update revise statements any not of required to call. following the or

of to remarks measures. addition, today will our non-GAAP some financial include references In made

measures earnings in find the to can You of GAAP those release. reconciliations measures comparable the most

to call now will the turn I Eric Colson. over

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continues The the together in far $X garner so raised of over having XXXX. inflows net to most inflows, net third-generation billion

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quarter-to-quarter and We that be lumpy year-to-year. said have always will from flows

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over C.J. financial it our performed. discuss to to I now how turn model will has

the impact stable your lives one Eric, period, I healthy. we COVID-XX good quick world and our everyone. transition experiencing on hope relatively family a global have from the seen economy. and are Thanks, morning, to you surrounding time very the and uncertainty and extreme environment safe In and daily of friends

his our approach in in comments, can in described we believe to business focus our times these, and to disciplined control. running it's Eric we on to what like remain As important

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financial continues our Our to diversified is model than more ever. intended, and act business as

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market XXXX, of generated but reflecting outflows $X.X declines AUM each $XX.X March billion expectations of basis results Our the seasonal global to quarter $XXX in down modest incur or XX% in Slide markets compared quarter. XX% by by expenses, we the quarter reduced quarter, with markets net the down impact million. line The quarter last the the decline And excess financial X global quarter our March had declines returns in are the of which had financial offset compared at points global we in XXX investment given in significant by and primarily client higher in AUM of to and our XX% on March. billion, teams. was for sharp

X. Slide on is generation by AUM

quarter, strategies $X client our net billion returns. to and the third-generation billion of had cash excess inflows $X.X of During close

market positive but have generation for outflows. more net first-generation on on XX inflows client client the February did And the of reached Ahead of those billion XX. than a since strategies XX, net offset days. Our March been alpha XX $XXX experience downturn, high our AUM outflows, of market lows record

on are X. Slide metrics presented financial key Our

will utilize comments to As always, our which and my I we focus adjusted results operations. evaluate business on

on results Financial earned are average offset adjusted and from single quarter performance presented in offset GAAP and day quarter. expenses, less higher prior lower in reflect release. quarter Our the fees. the opportunities quarter our for Revenues and compared performance by first declined the one of $X.X fees day X% complete X% one Those in to million average partially earnings results less lower by seasonal quarter declines partially client. were the a global AUM AUM,

prior primarily Operating shelter-in-place down quarter margin net quarter, operating our offset to for adjusted each $XX.X resulting adjusted prior expenses share were was down COVID-XX expense expenses, mandates. net XX% up and from of partially seasonal from per million million the lower the was X% $X quarter, income by $X.XX prior operating of compared the of travel income to the Adjusted were Resulting income XX% XX%. quarter. and due from

investment mentioned. Results higher XXXX one the charges declined, distribution in Fixed expenses day with first compensation the due higher revenues. XXXX Variable expenses occupancy AUM, of increased performance relocations. and in the related of reflect XXXX to and average on revenues quarter relative first previously to additional quarter to fee primarily higher team

operating our improved and per margin XX.X% result, XX%. XX% increased to adjusted adjusted from net a As income share

Slide to XX. Turning

products approximately and and are the cash Our healthy, capabilities operations, of balance technology. remains in volatility fund $XXX we in excess We markets. we sheet make experienced maintain teams operational seed continued positioned to new recent investments well to million and have new absorb the

an maintain we addition, of EBITDA. million. $XXX credit ample $XXX flow million is In supported Debt undrawn line of by of cash and

EBITDA X.Xx limits the is our in covenants. ratio below leverage specified well debt Our and

form remain sheet, As approximately quarter our committed of XX% our result variable cash the and cash the the flow of of to generated balance by company of cash policy the we of a distributing a each in dividend strength dividend.

special stock a at Directors of considering recent annual with Board an declared dividend dividend. first price $X.XX XXXX. the annualized yield of cash That of per approximate respect $X.XX Our before share levels the to represents quarter

Now more the than ever, intended. model our and as business disruptions lives COVID-XX, our and result to a continues operate financial and economy to the appreciative of I of am people's as Despite model. act unprecedented

QX. in a Of course, AUM in far revenues. remain will drive levels lower This so commensurate decline

In in future that costs expect will be our shelter-in-place addition, associates quarters orders. we to abide continue travel lower as by

technology modestly and our over we this lower workforce year, we prioritize our our expect confident to model but sheet We will allow associates the projects hiring global our do we how recruiting also meaningful focused operating markets time, plans. do anticipate in plans not clients, on fixed balance us behave not and on shareholders. are and know the for and remainder expenses We delivering and this of remain financial At any compensation will most delay for difficult environment impacts to boarding. in reductions or impactful as conservative

look forward the your operator. questions. and That concludes call now my back to to I comments, the will we turn

[Operator Instructions].

today America. first Mike Carrier of Bank from question from comes Our

you a generation, a you've -- the backdrop. I guess strong which investments. given So more as been drivers at detail you making guys I alpha had the bit net can flows ongoing you've on look the that surprise year-to-date, trend, provide strong mentioned it, dig is since into the we

or standpoint, give I then trends the And a us client of the relationships, just the investments on opening well? so distribution sales some some more if in redemption some funds as from can guess And you the rebalancing? indication clients of and

Yes, an calling but period, of was the clients. a was, new driver accounts driver We the rebalancing the big rebalancing. amount the Yes. in. opportunity for flows drawdown, take Mike, time up thanks obviously, the People -- Eric. rebalancing. those of pick was big from for It's existing primary during some that did

we you Okay. they're clients, pay. the just on for what And there's less say, expenses that little clients then to expenses the active given -- guys alpha side? alpha you are the and think those there's been pressure pay -- this with your more with are willing not prone generate been when you've more had, active, about but environment, in in past, have to strategies a fee of I'd on And some necessarily able you for kind where that managers hesitation sticking In are. willing generation have, to to been for seeing the

think increase conversations relationships same a and as Mike, even the fees and to relationships and I around consistently No. the ask fee pre a asset going we that to is questions size. responsibility fee currently get and discussion rates. the we or expenses, about in think occurring Inevitably, that crisis as fiduciary, there's their I be those new negotiate existing

still pre environment. So current been and our the questions have are consistent the during in, answers coming and

don't I expect be So away. to going those

from Katz Our next question comes Bill from Citigroup.

appreciate I color. extra the all

are if And if able might in not on incremental those centers distribution maybe you what wondering should remarks. new just that. of mentioned, your you question might maybe first by name, you be? where understand the able I are, I was dimension opportunity give to Just some the Eric, opportunities be prepared to

Yes, certainly.

someone years, else's would out a various providing the pretty widespread. couple are of a opportunity, parts describe we're footprint us our and into a professionals. geographical leverage distribution where the building relationship couple last partnerships. relationships that leveraging broaden we've and and And the Over in a sub-advisory been few network relationships of world distribution gets I

opportunities us here. We deeper the looking that I future be at and wealth we've in channel get the are intermediary into will beneficial few think, also a solidified that's, to

completing and broadens Then our we our that deliver out we're also how finishing strategies. partnership some and relationships up vehicles

in building. last and we've this of some fairly of that completing been last be years. to be to been benefit couple months weeks over advantage happy we're to of widespread take partnerships that able those coming during couple that relationships the And it's So we'll expect the on

helpful. taking That's more questions. And Okay. me. just for appreciate I X the

from quantify might get income? be from? able You well. had reallocations fixed from to and where it in if from the where coming are the alternative? some on coming Is of you the Just from mentioned outs? it some are Is the Is as passive? big sense I And of a trying underneath wondering it to flows was wins that, out. in

Yes. it's Bill, C.J.

I think reallocations. So it's again,

from Some as been they've a strategies. market rebalances into Eric and they've been to we've -- as international the given been obviously of have those environment. of advantage them fixed take broad-based, win more out global on And them reallocate that current side, few come and equities of been there's updates people of given. And of the sort said, the have

Okay.

here one for last one C.J. you, Just

and IT. soft case just given on push a in just digital? operating more reduce virtual some backdrop? you You might toward outlook of Is wondering case we're than of lines. the I sort And going some leverage then that of sort some you finding here more afoot given could had of structural that And expenses, sort on mentioned give otherwise have slope lot the there off would the G&A growth here new guess, otherwise you workarounds are around forward -- gave, sort that all new guidance something given of under some the of operating the finished

we're I too the question. as it's Yes. over systems. And has little that's of we've several automated, more second additions. really question, efficiencies with structural And the fewer tell. then early the a think on years count improved been able Yes. seen you've No, head to happening increase to mean as I process a move good part

won't material cost anything obviously structure most Our actually as their be model because of know, environment and will think compensation, variable will change. you I our which begin be structure, to is remains is work people coming this to of seen. adjust our out cost with pretty lean how it to don't

if the it anything, will emerge this. but is think of be margins, there be on that I will as we looking at we certainly out So

question comes Our Lee KBW. from Robert next from

a up gross there recently that were new accounts retail or the these of pretty are nicely and in wondering, in the as side? any saw well. relationships and too gross increase that business the mutual was guess fund on distribution to I you separate I was side sales the sales But added you -- had drive healthy funds helping

the in where current now, Rob, it's made flows. distribution prepared I solidifying gross comments driving they The new partners remarks relationships year-to-date around weren't Eric. contracts and the we're

that was you're mean relationships? year pay the see Or legacy that pretty I or X much past to was that just starting off? added there how you over anything maybe that really

I'll say and up it it few institutional people new the relationships was was driven period, diligence. or done the time a have did known for a research pick by mix. consultants that we've We that already but years due during good this

was so new existing healthy to amount relationships money mix it and more of And with a some just are work a us. putting of that

new activity it tougher seeing would maybe that? be -- but you expect or of maybe that. other you to any activity? healthy To about do slow it's up new that to a just remain clients side. diligence. just addition I quick with the Can client you you of think environment, institutional pick I'm one. Are little think new assuming extent, clients of some in on looking kind And kind talk around Okay. Kind mainly kind up? that given institutional the ahead should Great. -- bit new one the due the relationships, color to of distribution Or degree,

Yes.

each our relationship home, distribution crisis, as or shared our deeper called around all color lives team, about our stronger. those call Just other's and and the all as relationships relationships from building, Zoom existing deeper and stated to obviously, working consultants got as during had our got a shelter-in-place homes and well in distribution provide either we stories a that myself everybody and with and into clients some

increase also but new the and ability came -- been have relationships our some relationships. out, relationships newer were we And to as We or broaden there ability new in surprised in new many weren't add clearly well. strategies, as that of the the to expecting that

built channel has institutional relationships research had over Artisan a intermediary relationships some extend that effort teams And the and that into well primary built into relationships. that the had the us think as I and we've the as allowed the newer we've they driver some in was that commitment confidence groups Partners' years operations to

still well, ahead, I Today, wouldn't said So of forward. relationships continue weeks looking new and build a couple have that push we to ago.

from from question Our comes Goldman next Alex Sachs. Blostein

to still wanted XXX(k) in the of get the portion DCIO to your dynamics comprise I guess one, thoughts channel. a extent Artisan's AUM. what assets on I XXX(k) and

both on you for maybe end So How to size that an and about new implications, can be of think of penalty year. through thinking flows? the withdrawals you with and impact could the unemployment respect with some that relief help of do the meaningful the

bit of quite come bit past that of over Yes. opportunities. on as the Certainly, mid-cap down over of X U.S. of amount were have outflows Those have quite assets years couple gone our Alex, a a we've mentioned our primarily that calls the the out with of a healthy those outside in strategies DC institutional assets years. last We've replaced and XXX(k)

brought DC a funds chunk with So amount approximately to XX%. as good that and our accounts, are good still assets it's well. those A in mutual there's our of overall separate are down

DC, date impacted as where to in relationships the I X don't separate the bulk we'll all be over account funds the space feel we've target the the that of to Given for X, years. larger smaller the established gone same X, assets have like degree the exposure, the last

is relationship space. a exposure extended with low in and that So I our like for have feel that years healthy

question comes William Blair. next Our from Shutler from Chris

an Eric, pace And expectation maybe hiring? your talk increased it crisis investment is about can I of discussions bit new of that from with, a your emerge with talent? you little you this could guess,

zooming new opportunities, start other's discussions the person meet to into you quickly first jumps new right very because The exploring around personal continue. similar into distribution. say, would lives. relationship comments my it a and time I'd for you're team the be relationship each When Sure.

and get are to other of healthy. still but out are the I So different, knowing The interacting there. each think, means opportunities

obviously, the will is continue. which think rate fairly I at converts, Artisan The And slow. pipeline

We bringing in have teams time bar. take extremely patient quite new high our on individuals. we're and We or

on So of the I talent, extraordinary either. uptick pipeline see an disruption think don't I and any see don't

are how much and will on basis and We should is allocation on strategies. change looking we asset views the more thinking allocation real the asset will thinking assets, where go how inflation play in, real going go-forward and economy how about stimulus estate people's infrastructure, to at a much tax-efficient to about be

using we're the primarily, impact think and about go-forward thinking to process be the should long-term the basis. So opportunity about effects on and we a how teams new

picking So spending time to we're are calls with there more just we meet than up people. specifically

Our comes next Kenneth RBC. question from Lee from

a broader at Just level.

potentially solid which if volatility, resonating Given the you particular that wondering firm's environment? could you're share mentioned differentiated especially during us investment with are for of in you the client record remarks, in finding market what track strategies strategies, the clients just current prepared times for preferences with and especially

Yes.

But we the the breadth the opportunities. Fortunately, as We're a mentioned, trend we in as activity generation third-generation definitely seeing and strategies. in continued remarks, of well. bit in quite prepared also of first the our mentioned second also seen we've

the we've all our strategies. So broad activity and is reopened also of based,

the strategy last remarks, as over that well. as about So there we've client driving prepared it's been frequency that's or one type channel, consistent been also in And it. one well hasn't XX-plus one days, fairly C.J's. specific talked the

teams. the various across So happy consistency. the we're and happy with breadth the We're about

one can. the could potentially that near on over strategies I if Any introduced new be investment term? Very just in helpful. updates And follow-up,

No.

about We're as we're We picking classes in have contemplating term dialogue of here in and to in. we're interested with nothing and thinking few We're no new the any we're but the teams that that would asset teams. announcement categories said teams. with to in be And a for future, contact opportunities a some keeping I make up relationships earlier, groups always healthy what announce. new short we

Fannon from from Jefferies. next our And question comes Dan

a kind on of previous of the Just responses. follow-up some

it you -- You of channels kind across broad-based success last higher. happening playing highlighted, continued it rebalancing the do a of seeing, and kind the market you've obviously, kind of X, of and just is as X as weeks? to grind some result happening, is highlighted activity but guess behavior there have a of as Or been that's multitude you that's disruption is a more client been So that your market over is still as or see of the as driver basics? and I guys out performance still funds? a the dynamic

think indexes. opportunity the mentioned, look I the at rebalancing value-based the beyond you and fixed equity will continue. then beyond you spread rebalancing the the of the at still when C.J. but And the fixed, opportunity subcategories, return space, in high-yield look as in and in of even and you strategies, broad-based feel just see the equity

handful of driving we If that see there's the a index past securities market cap you all move the market. the weighted and and the breadth, been look at equal weighted can index

still into subcategories, underneath having how advantage we're still in take there's the major in asset certain quite strategies. opportunity some a broad-based to so And of of rebalancing classes and bit specific and discussions

the over to And closing at management call Instructions]. any back no [Operator showing to additional like I'd for questions. remarks. turn time, conference this I'm

I you. attending Thank you we're everybody good. for call the all think Thank be today, safe. and

gentlemen, We and with end Ladies you we'll do today's joining that, call. conference thank today's for presentation.

You your now disconnect lines. may