Janus Henderson Group Earnings 2020-03-31

Janus Henderson Group Earnings 2020-03-31

JHG 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from to

Commission File Number 001-38103

JANUS HENDERSON GROUP PLC

(Exact name of registrant as specified in its charter)

Jersey, Channel Islands
(State or other jurisdiction of
incorporation or organization)

98-1376360
(I.R.S. Employer
Identification No.)

201 Bishopsgate

London, United Kingdom
(Address of principal executive offices)

EC2M3AE
(Zip Code)

+44 (0) 20 7818 1818

(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.50 Per Share Par Value	JHG	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ⌧ Accelerated Filer ◻ Non-Accelerated Filer ◻ Smaller Reporting Company ☐ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

As of April 27, 2020, there were 184,914,488 shares of the Company’s common stock, $1.50 par value per share, issued and outstanding.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

JANUS HENDERSON GROUP PLC

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(U.S. Dollars in Millions, Except Share Data)


	March 31,		December 31,
	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	732.5	$	733.9
Investment securities		250.6		253.5
Fees and other receivables		291.3		334.8
OEIC and unit trust receivables		206.2		131.7
Assets of consolidated VIEs:
Cash and cash equivalents		69.7		62.6
Investment securities		548.8		924.8
Other current assets		35.0		23.5
Other current assets		110.4		116.0
Total current assets		2,244.5		2,580.8
Non-current assets:
Property, equipment and software, net		84.0		84.7
Intangible assets, net		2,651.7		3,088.6
Goodwill		1,307.1		1,504.3
Retirement benefit asset, net		200.3		214.0
Other non-current assets		156.3		149.3
Total assets	$	6,643.9	$	7,621.7

LIABILITIES

Current liabilities:
Accounts payable and accrued liabilities	$	221.6	$	246.0
Current portion of accrued compensation, benefits and staff costs		172.3		335.7
OEIC and unit trust payables		213.7		130.9
Liabilities of consolidated VIEs:
Accounts payable and accrued liabilities		83.1		57.1
Total current liabilities		690.7		769.7

Non-current liabilities:
Accrued compensation, benefits and staff costs		30.9		59.4
Long-term debt		315.5		316.2
Deferred tax liabilities, net		602.7		729.1
Retirement benefit obligations, net		4.1		4.4
Other non-current liabilities		142.6		158.8
Total liabilities		1,786.5		2,037.6

Commitments and contingencies (See Note 14)

REDEEMABLE NONCONTROLLING INTERESTS		464.0		677.9

EQUITY
Common stock ($1.50 par, 480,000,000 shares authorized and 184,914,488 and 186,975,693 shares issued and outstanding as of March 31, 2020, and December 31, 2019, respectively)		277.4		280.5
Additional paid-in-capital		3,803.7		3,828.5
Treasury shares (3,534,497 and 3,545,812 shares held, respectively)		(137.9)		(139.5)
Accumulated other comprehensive loss, net of tax		(511.0)		(367.1)
Retained earnings		942.8		1,284.1
Total shareholders’ equity		4,375.0		4,886.5
Nonredeemable noncontrolling interests		18.4		19.7
Total equity		4,393.4		4,906.2
Total liabilities, redeemable noncontrolling interests and equity	$	6,643.9	$	7,621.7

The accompanying notes are an integral part of these condensed consolidated financial statements.

JANUS HENDERSON GROUP PLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(U.S. Dollars in Millions, Except per Share Data)


	Three months ended
	March 31,
	2020		2019
Revenue:
Management fees	$	439.6	$	441.9
Performance fees		14.6		(5.6)
Shareowner servicing fees		50.3		35.9
Other revenue		50.4		47.1
Total revenue		554.9		519.3
Operating expenses:
Employee compensation and benefits		155.6		145.0
Long-term incentive plans		33.6		48.4
Distribution expenses		112.2		101.9
Investment administration		11.7		11.8
Marketing		6.7		7.5
General, administrative and occupancy		65.2		65.2
Impairment of goodwill and intangible assets		487.3		—
Depreciation and amortization		15.0		15.0
Total operating expenses		887.3		394.8
Operating income (loss)		(332.4)		124.5
Interest expense		(3.3)		(4.1)
Investment gains (losses), net		(50.5)		13.3
Other non-operating income (expenses), net		32.2		(3.9)
Income (loss) before taxes		(354.0)		129.8
Income tax benefit (provision)		68.8		(29.9)
Net income (loss)		(285.2)		99.9
Net loss (income) attributable to noncontrolling interests		38.2		(5.8)
Net income (loss) attributable to JHG	$	(247.0)	$	94.1

Earnings (loss) per share attributable to JHG common shareholders:
Basic	$	(1.35)	$	0.48
Diluted	$	(1.35)	$	0.48
Other comprehensive income (loss), net of tax:
Foreign currency translation gains (losses)	$	(149.1)	$	36.8
Actuarial gains		0.1		—
Other comprehensive income (loss), net of tax		(149.0)		36.8
Other comprehensive loss (income) attributable to noncontrolling interests		5.1		(0.1)
Other comprehensive income (loss) attributable to JHG	$	(143.9)	$	36.7
Total comprehensive income (loss)	$	(434.2)	$	136.7
Total comprehensive loss (income) attributable to noncontrolling interests		43.3		(5.9)
Total comprehensive income (loss) attributable to JHG	$	(390.9)	$	130.8

The accompanying notes are an integral part of these condensed consolidated financial statements.

JANUS HENDERSON GROUP PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(U.S. Dollars in Millions)


	Three months ended
	March 31,
	2020		2019
CASH FLOWS PROVIDED BY (USED FOR):
Operating activities:
Net income (loss)	$	(285.2)	$	99.9
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		15.0		15.0
Impairment of goodwill and intangible assets		487.3		—
Deferred income taxes		(110.8)		0.4
Stock-based compensation plan expense		16.6		20.1
Impairment of right-of-use operating asset		—		4.7
Gain on sale of Geneva		(17.4)		—
Investment (gains) losses, net		50.5		(13.3)
Contributions to pension plans in excess of costs recognized		(0.1)		(1.8)
Contingent consideration adjustment		(7.1)		—
Other, net		(13.2)		(3.2)
Changes in operating assets and liabilities:
OEIC and unit trust receivables and payables		8.3		11.1
Other assets		57.4		1.8
Other accruals and liabilities		(163.4)		(169.4)
Net operating activities		37.9		(34.7)
Investing activities:
Proceeds from (purchase of):
Investment securities, net		98.3		19.3
Property, equipment and software		(8.2)		(7.5)
Investment securities by consolidated seeded investment products, net		(105.3)		46.1
Cash received (paid) on settled hedges, net		17.9		(7.4)
Dividends received from equity-method investments		0.5		0.5
Proceeds from sale of Volantis		—		0.3
Proceeds from sale of Geneva		38.6		—
Net investing activities		41.8		51.3
Financing activities:
Purchase of common stock for stock-based compensation plans		(39.8)		(37.1)
Purchase of common stock for share buyback program		(31.2)		(30.9)
Dividends paid to shareholders		(66.2)		(69.7)
Payment of contingent consideration		(13.8)		(14.1)
Distributions to noncontrolling interests		(0.1)		(0.1)
Third-party sales (redemptions) in consolidated seeded investment products, net		105.3		(46.1)
Principal payments under capital lease obligations		(0.2)		(0.3)
Net financing activities		(46.0)		(198.3)
Cash and cash equivalents:
Effect of foreign exchange rate changes		(28.0)		5.0
Net change		5.7		(176.7)
At beginning of period		796.5		916.6
At end of period	$	802.2	$	739.9
Supplemental cash flow information:
Cash paid for interest	$	7.3	$	7.3
Cash paid for income taxes, net of refunds	$	4.9	$	12.6
Reconciliation of cash and cash equivalents:
Cash and cash equivalents	$	732.5	$	717.1
Cash and cash equivalents held in consolidated VIEs		69.7		22.8
Total cash and cash equivalents	$	802.2	$	739.9

The accompanying notes are an integral part of these condensed consolidated financial statements.

JANUS HENDERSON GROUP PLC

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

(Amounts in Millions)


									Accumulated
					Additional				other				Nonredeemable
	Number of		Common		paid-in		Treasury		comprehensive		Retained		noncontrolling		Total
	shares		stock		capital		shares		loss		earnings		interests		equity
Balance at January 1, 2020	187.0	$	280.5	$	3,828.5	$	(139.5)	$	(367.1)	$	1,284.1	$	19.7	$	4,906.2
Net loss	—		—		—		—		—		(247.0)		(1.2)		(248.2)
Other comprehensive income	—		—		—		—		(143.9)		—		—		(143.9)
Dividends paid to shareholders	—		—		—		—		—		(66.2)		—		(66.2)
Share buyback program	(2.1)		(3.1)		—		—		—		(28.1)		—		(31.2)
Distributions to noncontrolling interests	—		—		—		—		—		—		(0.1)		(0.1)
Purchase of common stock for stock-based compensation plans	—		—		(37.0)		(2.8)		—		—		—		(39.8)
Vesting of stock-based compensation plans	—		—		(4.4)		4.4		—		—		—		—
Stock-based compensation plan expense	—		—		16.6		—		—		—		—		16.6
Balance at March 31, 2020	184.9	$	277.4	$	3,803.7	$	(137.9)	$	(511.0)	$	942.8	$	18.4	$	4,393.4

									Accumulated
					Additional				other				Nonredeemable
	Number of		Common		paid-in		Treasury		comprehensive		Retained		noncontrolling		Total
	shares		stock		capital		shares		loss		earnings		interests		equity
Balance at January 1, 2019	196.4	$	294.6	$	3,824.5	$	(170.8)	$	(423.5)	$	1,314.5	$	21.5	$	4,860.8
Net income	—		—		—		—		—		94.1		1.2		95.3
Other comprehensive loss	—		—		—		—		36.7		—		—		36.7
Dividends paid to shareholders	—		—		—		—		—		(69.7)		—		(69.7)
Share buyback program	(1.2)		(1.9)		—		—		—		(29.0)		—		(30.9)
Distributions to noncontrolling interests	—		—		—		—		—		—		(0.1)		(0.1)
Purchase of common stock for stock-based compensation plans	—		—		(31.4)		(5.7)		—		—		—		(37.1)
Vesting of stock-based compensation plans	—		—		(11.1)		11.1		—		—		—		—
Stock-based compensation plan expense	—		—		20.1		—		—		—		—		20.1
Balance at March 31, 2019	195.2	$	292.7	$	3,802.1	$	(165.4)	$	(386.8)	$	1,309.9	$	22.6	$	4,875.1

The accompanying notes are an integral part of these condensed consolidated financial statements.

JANUS HENDERSON GROUP PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 — Basis of Presentation and Significant Accounting Policies

Basis of Presentation

In the opinion of management of Janus Henderson Group plc (“JHG,” “the Group,” “we,” “us,” “our” and similar terms), the accompanying unaudited condensed consolidated financial statements contain all normal recurring adjustments necessary to fairly state our financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Such financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the annual consolidated financial statements and notes presented in our Annual Report on Form 10-K for the year ended December 31, 2019. The December 31, 2019, condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Events subsequent to the balance sheet date have been evaluated for inclusion in the accompanying financial statements through the issuance date.

Recent Accounting Pronouncements Adopted

Implementation Costs — Cloud Computing Arrangements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) that aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement with the requirements for implementation costs incurred to develop or obtain internal-use software. The ASU is effective January 1, 2020, for calendar year-end companies and for the interim periods within those years. The ASU allows either a retrospective or prospective approach to all implementation costs incurred after adoption. We adopted the ASU effective January 1, 2020, using the prospective approach. There were no capitalized implementation costs incurred during the period ended March 31, 2020. We generally expect increased capitalized costs as our previous policy dictated that implementation costs incurred in a hosting arrangement be expensed as incurred.

Recent Accounting Pronouncements Not Yet Adopted

Retirement Benefit Plans

In August 2018, the FASB issued an ASU that modifies the disclosure requirements for employers that sponsor defined benefit pension plans. The ASU removes, adds and clarifies a number of disclosure requirements related to sponsored benefit plans. The standard is effective January 1, 2021, for calendar year-end companies, and early adoption is permitted. We are evaluating the effect of adopting this new accounting standard.

Note 2 — Dispositions

On December 3, 2019, Henderson Global Investors (North America), Inc. (“HGINA”), a subsidiary, of the Group, entered into an agreement to sell its 100% ownership interest in Geneva Capital Management LLC (“Geneva”) to GCM Purchaser, LLC. The sale closed on March 17, 2020.

Consideration included aggregate cash consideration of $38.6 million and contingent consideration (the “Earnout”) based on future revenue. Payments under the Earnout are to be made quarterly over a five-year term, with minimum aggregate payments of $20.5 million and maximum aggregate payments of $35.0 million. We recognized a gain on the sale of Geneva of $17.4 million in other non-operating income (expenses), net on the Condensed Consolidated Statements of Comprehensive Income during the three months ended March 31, 2020.

The gain on the sale of Geneva was calculated as follows (in millions):


Consideration received:
Cash	$	38.6
Minimum earnout		20.5
Less carrying amount of assets and liabilities:
Intangible assets		17.9
Other assets		0.3
Less: Goodwill allocation		23.5
Net gain on sale, before taxes	$	17.4

Note 3 — Consolidation

Variable Interest Entities

Consolidated Variable Interest Entities

Our consolidated variable interest entities (“VIEs”) as of March 31, 2020, and December 31, 2019, include certain consolidated seeded investment products in which we have an investment and act as the investment manager. The assets of these VIEs are not available to us or our creditors. We may not, under any circumstances, access cash and cash equivalents held by consolidated VIEs to use in our operating activities or otherwise. In addition, the investors in these VIEs have no recourse to the credit of JHG.

Unconsolidated Variable Interest Entities

At March 31, 2020, and December 31, 2019, the carrying value of investment securities included on our Condensed Consolidated Balance Sheets pertaining to unconsolidated VIEs was $8.1 million and $9.9 million, respectively. Our total exposure to unconsolidated VIEs represents the value of our economic ownership interest in the investment securities.

Voting Rights Entities

Consolidated Voting Rights Entities

The following table presents the balances related to consolidated voting rights entities (“VREs”) that were recorded on our Condensed Consolidated Balance Sheets, including our net interest in these products (in millions):


	March 31,		December 31,
	2020		2019
Investment securities	$	52.7	$	29.9
Cash and cash equivalents		5.7		1.5
Other current assets		14.4		0.2
Accounts payable and accrued liabilities		(8.6)		(0.7)
Total		64.2		30.9
Redeemable noncontrolling interests in consolidated VREs		(43.2)		(6.3)
JHG's net interest in consolidated VREs	$	21.0	$	24.6

Our total exposure to consolidated VREs represents the value of our economic ownership interest in these seeded investment products.

Unconsolidated Voting Rights Entities

At March 31, 2020, and December 31, 2019, the carrying value of investment securities included on our Condensed Consolidated Balance Sheets pertaining to unconsolidated VREs was $30.1 million and $21.5 million, respectively. Our total exposure to unconsolidated VREs represents the value of our economic ownership interest in the investment securities.

Note 4 — Investment Securities

Our investment securities as of March 31, 2020, and December 31, 2019, are summarized as follows (in millions):


	March 31,		December 31,
	2020		2019
Seeded investment products:
Consolidated VIEs	$	548.8	$	924.8
Consolidated VREs		52.7		29.9
Unconsolidated VIEs and VREs		38.2		31.4
Separate accounts		54.8		60.8
Pooled investment funds		0.1		0.1
Total seeded investment products		694.6		1,047.0
Investments related to deferred compensation plans		99.5		125.9
Other investments		5.3		5.4
Total investment securities	$	799.4	$	1,178.3

Trading Securities

Net unrealized gains (losses) on investment securities held as of the three months ended March 31, 2020 and 2019, are summarized as follows (in millions):

Derivative Instruments

We maintain an economic hedge program that uses derivative instruments to mitigate against market volatility of certain seeded investments by using index and commodity futures (“futures”), index swaps, total return swaps (“TRSs”) and credit default swaps. Foreign currency exposures associated with our seeded investment products are also hedged by using foreign currency forward contracts. We also have a net investment hedge related to foreign currency translation on hedged seed investments denominated in currencies other than our functional currency.

We were party to the following derivative instruments as of March 31, 2020, and December 31, 2019 (in millions):


	Notional value
	March 31, 2020		December 31, 2019
Futures	$	117.4	$	222.9
Credit default swaps		150.2		143.0
Total return swaps		45.4		46.3
Foreign currency forward contracts		224.8		327.8

The derivative instruments are not designated as hedges for accounting purposes, with the exception of certain foreign currency forward contracts used for net investment hedging. Changes in fair value of the futures, index swaps, TRSs and credit default swaps are recognized in investment gains (losses), net in our Condensed Consolidated Statements of Comprehensive Income. Changes in the fair value of the foreign currency forward contracts designated as hedges for accounting purposes are recognized in other comprehensive income (loss), net of tax on our Condensed Consolidated Statements of Comprehensive Income.

Derivative assets and liabilities are generally recognized on a gross basis and included in other current assets or accounts payable and accrued liabilities on our Condensed Consolidated Balance Sheets. As of March 31, 2020, derivative assets and liabilities were $13.3 million and $0.2 million, respectively.

We recognized the following foreign currency translation losses on hedged seed investments denominated in currencies other than our functional currency and gains associated with foreign currency forward contracts under net investment hedge accounting for the three months ended March 31, 2020 and 2019 (in millions):


	Three months ended
	March 31,
	2020		2019
Foreign currency translation	$	3.0	$	0.3
Foreign currency forward contracts		(3.0)		(0.3)
Total	$	—	$	—

In addition to using derivative instruments to mitigate against market volatility of certain seeded investments, we also occasionally engage in short sales of securities. As of March 31, 2020, the fair value of securities sold but not yet purchased was $9.6 million. The cash received from the short sale and the obligation to repurchase the shares are classified in other current assets and accounts payable and accrued liabilities on our Condensed Consolidated Balance Sheets, respectively. Fair value adjustments are recognized in investment gains (losses), net on our Condensed Consolidated Statements of Comprehensive Income.

Derivative Instruments in Consolidated Seeded Investment Products

Certain of our consolidated seeded investment products utilize derivative instruments to contribute to the achievement of defined investment objectives. These derivative instruments are classified within other current assets or accounts payable and accrued liabilities on our Condensed Consolidated Balance Sheets. Gains and losses on these derivative instruments are classified within investment gains (losses), net in our Condensed Consolidated Statements of Comprehensive Income.

Our consolidated seeded investment products were party to the following derivative instruments as of March 31, 2020, and December 31, 2019 (in millions):

Price	22.12	EPS	2
Shares	190	P/E	10
MCap	4,201	P/FCF	16
Net Debt	-457	EBIT	539
TEV	3,744	TEV/EBIT	7
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-03-31	Filed 2020-04-30
10-K	2019-12-31	Filed 2020-02-26
10-Q	2019-09-30	Filed 2019-10-30
10-Q	2019-06-30	Filed 2019-07-31
10-Q	2019-03-31	Filed 2019-05-02
10-K	2018-12-31	Filed 2019-02-26
10-Q	2018-09-30	Filed 2018-11-01
10-Q	2018-06-30	Filed 2018-07-31
10-Q	2018-03-31	Filed 2018-05-09
10-K	2017-12-31	Filed 2018-02-27
10-Q	2017-09-30	Filed 2017-11-09
10-Q	2017-06-30	Filed 2017-08-08

8-K	2020-05-06
8-K	2020-04-30
8-K	2020-04-30
8-K	2020-04-29
8-K	2020-04-20
8-K	2020-03-19
8-K	2020-03-06
8-K	2020-02-04
8-K	2019-10-30
8-K	2019-07-31
8-K	2019-05-02
8-K	2019-05-02
8-K	2019-03-21
8-K	2019-03-05
8-K	2019-02-25
8-K	2019-02-05
8-K	2018-12-11
8-K	2018-11-01
8-K	2018-08-06
8-K	2018-07-31
8-K	2018-05-09
8-K	2018-05-03
8-K	2018-03-22
8-K	2018-02-28
8-K	2018-02-06

EX-15.1	jhg-20200331xex15d1.htm
EX-31.1	jhg-20200331xex31d1.htm
EX-31.2	jhg-20200331xex31d2.htm
EX-32.1	jhg-20200331xex32d1.htm
EX-32.2	jhg-20200331xex32d2.htm

Three months ended

March 31,

Unrealized gains (losses) on investment securities held at period end