Artisan Partners Asset Management (APAM) 29 Jul 202020 Q2 Earnings call transcript

Hello and thank you for standing by. My name is Mike and I will be your conference operator today. [Operator Instructions] As a reminder this conference call is being recorded. At this time, I will turn the call over to Ms. Makela Taphorn, Director Investor Relations for Artisan Partners Asset Management. Ms. yours is floor the ma'am. Taphorn

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

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

questions. these for the remarks open will Following we line

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

measure the earnings now in I will find over call And the to can You of GAAP those release. turn reconciliations Eric measures Colson. to comparable the most

for Thank the you well. you joining I call or you, thank hope Makela. the transcript. are And everyone reading

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Good morning Eric. everyone. Thanks

described, us during Just X well, which functioning times. Slide business has on financial principles served uncertain our as these are Eric model our model well

meaningful in and continues to act quarter. the P&L alpha year-to-date financial performance earned fees and intended as are this in quarter for line to generation results our our with led expectations. Strong increase Our

revenues, travel expenses that the home. as and restrictions our benefited predominantly associates reduced addition, bottom as line In worked our from fluctuate observed as of well from variability expenses with

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quarter, teams strategies. Net benefited cash organic totaled our In addition, inflows from broad-based and this annualized rate. across inflows $X.X we investment XX% billion representing a client growth

For year $X.X flows six billion annualized growth months or totaled the rate. net cash a organic client X% of first the

U.S. record client in During gross levels clients, broad outside range a across volume were strategies the of quarter, inflows channels of the U.S. activity and These the the both of distribution drove inflows. and

withdrawals clients. sizable hospital were to navigate some are cash include Changes client including in in operating across These the crisis three of generation strategies. also The pools. COVID-XX primarily net X. all across impact from clients endowments flows from Slide on net and quarter although distribution broad-based by needing strategies recent and U.S. Our liquidity the of withdrawals channels, also client activity generations resulted AUM in inflows

strategies during continued growth the third-generation inflows six billion $X.X quarter and XXXX. with for of inflows impressive achieve net to Our months net of $X.X the of first billion

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and results. will adjusted on release. are comments complete presented our My earnings results Our adjusted focus GAAP in

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to result, XX.X%. operating flat a operating growth and Financial revenues from in As our results XX% higher XX.X% in operating margin income. improved expenses, reflect year-to-date resulting

margin for adjusted last year-to-date an And was Our to operating share compared per improvement year. $X.XX, XX.X%, XX.X% was income the net period same up over adjusted last year. XX%

to slide Turning cash capabilities new continued healthy. products remains our and new and balance to We million technology. seed make $XXX excess investments approximately fund sheet XX, operations, teams, maintain in of operational

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

our well EBITDA times X.X below Our the covenants. leverage limit specified in is ratio and

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

look Directors back to to of quarter will turn per That and my of Board operator. a XXXX. the call we your comments, forward concludes cash Our I the to dividend questions. with declared the second respect now of share $X.XX

[Operator We’ll we Fannon Instructions] come begin you, of Please ahead. Thank will session. sir. go now first Dan question-and-answer the from The Jefferies. have question

This for is in afternoon. good James Hey, Steele Dan. actually filling

and flows So, were the bit looked cadence and little my It on question the May is kind occurred lighter. was they of quarter. in April just a of June predominantly like throughout

if curious why And the for for hope any just I'd case? color might explanation give to So, Thanks. might the extent that that any just I you been flows there's have was July then, on possible?

Eric. Hi, James, it's

tend a why because we after, of in our and set years a will hard in the process, typically we duration and us. it take works, type get month institutional long time that remarks, sophisticated the to quarter due done at we've the doing very It's like the long a clients go and single the In to of persist the high or quite you as when on this they've lot us given just client I due eliminates past. competition. single flows how the process reinforced year, of the we quarter a forward bar to of pinpoint over going lumpiness that even look a clients diligence think or of extends essence, a evaluating a bit diligence It and allows having get. it a

a as or on quite in, and irrelevant. years that having in of and clients know work flow month good of dialogue months with base have diligence interested dialogue a well as a is have done of well us broad due and we performance So, still a base the bit through think even why our current the parties. the going client we're active basis we're given given we and us occurred on environment working go-forward And to given that with

Thank it. you. Got

have Citigroup. we Bill Katz with Next

afternoon. question taking Okay. you the very much this Thank for

to teams highlighted mentioned from that opportunities your teams you X. How migration here about getting opportunity of some there? you're just the think sort you large opportunity Just commentary. you in see a into get you three relatedly pretty given little to? coming incremental collectively you the where can talk And Gen those do had that bit robust the Can an prepared of three then back

I large It's team become strategy predict they to what -- Certainly. look Yeah. like. think or very could could hard given or a how it's

be highlighted to we then I to and and growth, small-cap geographically. thought in some way then been $X in of back size, small-cap and think the areas platform went and wowed have the would the look mid-cap it's breadth billion $X the you also we or variety growth, billion. combination to you if growth expanded really market cap at in by of amazing the -- run it get $X a billion to back up And growth now we of you long If would U.S. down all teams the the

really the look each when multiple envision strategies the and the clients work a have of franchise decision teams, of at new that size to group single sustainable. multiple this We so what And strategy of mindset with don't a at this of we that develop with can become. look our robust we with could makers leaders make

thinks any while and this. talent going to limited outcome Thematic So of they their expand that think themes you in than process markets that think the nicely. segments all that could various from much strategies have I And these can about we've emerging highlighted how quite strategies to be the may with bigger we're some and to single how form develop or world developing thinks three regards apply to about

number So those it's forecast come for of large very for how to that an exact me up with hard become. or could

Okay.

-- follow-up that's you. quick a Just helpful, Thank Eric.

C.J. you. follow-up for we’ll speak the Just even -- to though

So items of that operating transitional could on versus different just half fluidity on any that cost through terms maybe of the you and we're the structurally thinking some what of C.J. playing maybe all on the the you may in update benefit? discretionary how year? certainly backdrop the appreciate in. more of be sort I sense the But of the side, second see in

related long say rest from think I and of of majority the Yeah. from our really as I of how to situation and the we're declines driven year remains expenses the the I would so outlook mean, savings, obviously current majority in the are the home. the working that's for work-from-home

office the gradually and would see expect a will increase. that environment, type for back we that run But you'll year. rate current you up travel the in the I similar into So of would get see as picks

where goes. were on where that on we expense And I'd environment the this quarter. from So depends based work

Thank you. terrific. Okay,

Markets. with Capital have Kenneth Next RBC Lee we

Hi, of good of of currently, thanks as Slide related of franchise thoughts if development highlighted they thoughts the slide. and X are the if wondering teams your in of of teams on question. and three could in progression growth share just perhaps Thanks. well? us progression, with development. those that number are interesting kind terms where you organic for the A for there's afternoon some terms any Wondering of in terms terms very investment in taking you where

using obviously, Yeah, certainly into mix. bring X, slide individuals if we the

a five of record or team, the bringing the and three three, whole a occur. to of group resources, track development and build advisers it to really years group clients, intermediaries courtship four, correct whole there's foundation consultants So takes individual most Usually in. period of foundational an individuals a see to the before a to five-year the like of

is gets mix would stage. expect of the operate has you developing bit about phase the I both you out the has record S&P had development a and With the until think he's regard curve, that of at that we he's in and the longer their phase. phase, growth now to midst development the say of the gestation of and Rezo year. business good period with three-year with you. you in active of it's asset an there's clearly Thematic bit quite we those passive. of helps less breadth say the movement strategy. clients, track But of about is it of and a only these been a heart in squarely and When when that rest the hit the breadth probably competition little two growth five in the where than then in And in the hit big real into how franchise have a So which the will franchises strong, think include we've is business his that stay AUM supply franchise, clearly there there is least a curve teams but as development And benchmark, And until though. the really moved mark management equity business. with or at Hopefully a we U.S. milestones about of to the strategy world years the that very rates, of fee gathering phase of of you thinking that with breadth would a really additional what performance the a track whether good mix franchise, the the five-year development development At development. record strategy into

mentioned this And and follow-up Very on if quick Thanks. may just maintain just to your capacity. up expand remarks. just following helpful. prepared Wondering you further some on, I if on one you could spare striving is comments

now spare Artisan distribution, capacity we've podcast distribution model. our you this of that And to execute market too we take push Certainly, that very leverage, not to the stretching to really all to pandemic, and be launched during want. always we drop model -- to then few advantage at about every of opportunities, trying We us. operations just have that had not stated new to We've you opportunity be and new try the we felt able whether yeah, focus this a the in people. occurred to those things Or you And on no-brainer video is system, able Canvas. to versus team. either Yeah. to which to all out we level unforeseen that take things it's came bring we of a because opportunity that environment. be We digital what you're a business the the that a to we've upped you called can it's in broadly spare never a content need a we've to right in not situations the and try blog, to pivot advantage fast. to in allowing more team some level to need unforeseen we And capacity hard thought on that move the too to

Very helpful. Thanks again.

with Lee KBW. Robert have we next And

as steady in kind is, morning. and into good outflow taking good for the which one so funds a the been categorize questions. one of what my or guess inflows I while. first of think for of the that level you quarter have Thanks -- Thanks I Hi. afternoon things was

past of capabilities building. investments been the and you've in distribution -- talked So you've in you've made various intermediary relationships about types

there A So of is two point with maybe kind some and there this said starting of there platform of you've initiatives reached maybe there question of that future Is that to an off on there's inflection B sales. couple these here. quarter gross any a better kind outsized of of wins -- we -- was pay think sales? two you -- maybe kind well in was helping also And/or came board some should

I with the advisers that the Yeah. bank dealer our paid of recently. think long-term intermediary and in some many off do relationships and broker trust built even our has the reputation we've partners larger more

in just with due and Given We think, I of it's strategies an the the on done growth with we've partnership and with, mid-cap across I'd environment, that with, been helped breadth have at one of are strategy history success blocking we're partnerships. win already good been tackling. broadly array clients on existing entire if that intermediary leaning broad a we've platform And out outsized solid have successful performing, an strategy. the you the and success just mid-cap with seen growth diligence of rest and with did you the you've intermediary look say the opportunities. those and partners our But that

to you team you institutional is the But kind clients And but relationship. end have strategies do of speak kind up intermediary that, don't leverage have that in often brand to due of see may leverages a And relationship. that once once maybe how how do clients trying And so have another those about find do understanding each sense. know you you in get diligence my of maybe they multiple this much to investment this Just their that the investing and utilizing response. follow-up, I Artisan strategy? team's you oftentimes sense separate

cases whether I say seen multiple we've And And of shelter existing interest newer of to that, strategies benefiting increasing brand. During allocation looking strategy one dialogue in we've strategies. small-scale or been clients at increasing even in Artisan us have the strategies existing in with just broadening in strategies. with during clients this the or an clients large-scale clients on activity period the their their been some uptick with this multiple and the place, would clients many acting

So increased. opportunities that people I opportunity, out call cross-sell would have a think most those

great. That’s for taking Thanks my questions.

Shutler William And Blair. next we have of Chris

Hey, of afternoon. A guys. Good couple questions.

Artisan about the First, the And obviously been pipeline? institutional performance has talk can you tremendous. at second, investment

So potential? what how are at term, from Or strong near just you have for the over you around some to potential given rebalancing the hearing clients how decisions medium been? look do the things

guess two there. Yes. I parts

First is institutional the pipeline.

fluid We and institutional a consultants. clients dialogue with have many

of a are broad translate what conversation and you in pipeline give our but think we having performance very is pipeline to list big with a people a is hard. very the our with there's had they on some not to of a of searches idea With many widespread clients. number regards active going pipeline. dialogue that manner. there I of array There's and we've is, clients of hard of any saying a just performance, It's a strong with sense very broader to a to have But how work this in robust strategies.

with inflows there. out than of And So probably bit saw a has we other firms us elevated and little the few been rebalancing more amount outflows. outsized a gross

Some of And that's extremely some the rebalancing outflows strategies clearly just performed were around have our numbers. that elevated of well.

the comments performance on rebalancing. So be that and my would

answer, a then, Okay. this And to but one bit tricky anyway. ask may I'll be

happen were and see in then at outperformed rebounded outperformed that quarter quite way. So, the them them, markets second in many again that weak in Artisan, when the of first we most strategies totality looking markets of across don't when the quarter. Usually,

like cognizant is exposures your with know, teams, same as of you'd want anything that you're well teams of you're pivoted is how terms there so I time? wary would guess, And I that there just see to the at anything well? like you out or that, the so So, today, talk they look you about why things feel across and you in like factor you like of, call firm everything your or performing then,

a volatility, can active downs securities lower process into more there's to there. normal showcase on the sense a bit act correlation that little a and allow the we're that market like that can you managers and act the on feel that among individual you I embedded that's and set ups in skill cross-sectional

from protecting So, performance to markets doing, a the index, was is in be a way in amount what think, of government had, run the fueled we it up factors, by it's versus nice and perpetuating a one that and some factor movement I we've action a down single up money long see cheap XX-year and dominating it's was standpoint, should market. where fueled there clearly was massive fueled and was by bring by it participating

we active period. of I little environment managers; we we're bit But And more in don't So, history to platform. defend an importantly management active it I active that we're showcased management at why it entire the and quite to we're during that's why again at can why Artisan works producing more the works did and a well showcasing across showcasing that. do alpha it's now Artisan. certainly activity, XX-year And defend now Partners. right that want with all hard that of

Great. Thanks, Eric.

with Goldman Bailey have Sachs. we Ryan Next

question begin with. Good our afternoon a and C.J. for you questions. taking thank for Maybe to

you then rate, we helpful. else assuming loyalty fee very if that and losses if takes account separate maybe see wondering And anything the I'm But of mandates if puts of some it's there trend? there. could else from strong quite you be positive I improvement would any saw generational this. underlying was a decompose anything rates shifts. was the a On in or in sustainability from the

we low of of as really was Yes. little a average a as had low the fact more Sure such point March because function of first end AUM balances. ending abnormally actually Good Ryan. question. very well quarter at It's the the that a quarter low

And the the at really past that billing so had end billed that quarter first was and this end normal. those that billed clients on were quarter AUM, very because a than quarter clients are low it's low the were billing issue assets the higher cycle of

low. more quarter to I normal would quarter was little this a was So than a bit say, which closer last

Got it.

question A bit. shifting gears kind Okay. on, little new sort of And talent. of, maybe a

I competitors the some and work sort challenges. worked seen of your same time the You've from through platform home at of shock some guess we've face initial larger of

potential just the So of a was conversations number I to wondering with new there's I been had you've change if any pace guess, talent? of

Yes.

those point amount home, disruption more inquiries pretty platforms. to saw fair more inquiries. I we've firms reach decent I'd of in that that inside some the listed consistent, we're of than a the hedge the a do of integrated activity around of quite those. remarks of activity fund our you few way we're whether would say a the down And the prepared of there. different We firms bit if talent spending had work And in time and it's of interested been pace there platforms individuals there's maybe hedge out out the fund with to larger say, outgoing the that think -- all has some of amount normal. is movement a from the that I we I would out and

time. we more in on with -- at are abnormal making moves. going or working in home you time out some out the decent don't people have privately really on. this And way direction, there making there either wouldn't as of for There's -- of any amount different So conversations people individuals clearly a the move but norm I looking interested have describe I environment. it during which

would So slightly I elevated guess I say.

Thank Great. you.

will come of The from next Mike question Carrier, America. we Bank have

for the Thanks afternoon. taking Good questions.

on flows a just of and I Just diversity question like given sustainability. the have strength the

mentioned growth guys mid-cap a win blocking You tackling. and of the lot

the and performance strategies. the got differentiated You've

So has recurring nature? that portfolios be more more to to it in been Like have on driven decision-makers could intermediary side? kind by or been the like the third-generation are weighted added platforms institutional funds more any channel. Or you other new of the or

at client does mix discussion types into those base brings three. definitely the hitting With base the institutional tilted the towards the that generation tilted that some introduce of opportunities. towards towards that tilted and we're the looking broaden had a generation for of of with U.S. with client pooled dialogue vehicles strategies, and the intermediary client out And up to three other and milestones starting mix breadth we the the reason and interest many

out mix to we'd we the go-forward expect strategies able basis. So be on that a those would in broaden

it. Got

just C.J. a then quick And Okay. one.

the It there. Just given tend straightforward, nuances impact comp sure how then performance that fairly in that I there's fees so like to make elevated And ratio? seemed of the does but the no just to quarter want more expect we ahead.

I to think that fees, I but there's hasn't shifted just make still not too sure much performance that want much? generates

on it a have comp fees. management the performance do than higher Obviously payout on we did ratio fees we impact recurring Yes. No.

performance and billion that's of the around AUM some seen still $X of it's June performance So in X% a quarter. this it's comp subject December And spread for to little extra surprise that a opportunities the the quarters you've with performance performance was And And we've this X% as really to for number there largest given being under fees. fees running X% this AUM, quarter. fees. the spiked no said fee that's bit a number that performance we're over P&L of year,

guys. Thanks it. Got

follow-up next we question is a Katz have Citigroup. from The Bill with

Okay. Thanks very much.

tying things. a of couple Just up

terms the lumpy the outs pressure ins outflows any had few have trends? then how sort some around in incremental just much And pressure to July to commentary you cash? Any given might maybe Just sort experienced you down of way draw a mentioned and of of need size, the rebalancing. of

we people to rebalance. flows variety elevated The of of the Yes. of success bit just talked about a wanting a strategies

continue allocation. in a be to that think that That's to going investment their see I clients especially we more asset rebalancing sophisticated to performance, natural. strong the perform, have and statement, sticking the some institutional you'll natural oversight occurs strong Given strong policy

in bit the a of outflow outflow on space. have little space. elevated structural We in international intermediary the going saw You

saw bring bit So you in mix a active. both some that and international international passive saw outflow asset of growth, intermediaries balance the value of exposure the higher as and allocation into strategies little passive some

probably into So weave the as people bit the active-passive in a that persist more That mix that I'd call across bit. both will little secular a strategies. happened the international space.

on as But it's I any on or mentioned to I a hard give I going to really and and on still -- month say trust sticking on given And outlook go-forward go-forward And a our and are so can why we I'd who think same. I very I the accuracy think base. shine you still with given to situation reputation our any think is basis through focused would any we we environment that's building client the the that I brand now. -- any think in the given month-to-month, right mean clearly quarter that

Thank you.

question-and-answer day. time Well disconnect call. like session for conclude you and our have this today's management their time care We this a you would and for Take presentation. thank may great thank you Thank all lines. team At the will again everyone. conference to today today's and your attending