Janus Henderson Group Earnings 2019-06-30

JHG 10Q Quarterly Report

June 30,

December 31,

Seeded investment products:

Balance Sheet	Income Statement	Cash Flow

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 June 30, 2019

☐ 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 July 26, 2019, there were 191,647,272 shares of the Group’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)


	June 30,		December 31,
	2019		2018
ASSETS
Current assets:
Cash and cash equivalents	$	707.0	$	880.4
Investment securities		246.8		291.8
Fees and other receivables		285.8		309.2
OEIC and unit trust receivables		171.4		144.4
Assets of consolidated VIEs:
Cash and cash equivalents		24.0		36.2
Investment securities		311.1		282.7
Other current assets		4.9		5.0
Other current assets		108.8		69.4
Total current assets		1,859.8		2,019.1
Non-current assets:
Property, equipment and software, net		72.6		69.5
Intangible assets, net		3,089.7		3,123.3
Goodwill		1,477.4		1,478.0
Retirement benefit asset, net		209.6		206.5
Other non-current assets		151.0		15.5
Total assets	$	6,860.1	$	6,911.9

LIABILITIES

Current liabilities:
Accounts payable and accrued liabilities	$	248.4	$	233.2
Current portion of accrued compensation, benefits and staff costs		203.8		345.4
OEIC and unit trust payables		178.4		143.3
Liabilities of consolidated VIEs:
Accounts payable and accrued liabilities		4.8		6.5
Total current liabilities		635.4		728.4

Non-current liabilities:
Accrued compensation, benefits and staff costs		43.1		54.7
Long-term debt		317.7		319.1
Deferred tax liabilities, net		727.6		729.9
Retirement benefit obligations, net		3.6		3.7
Other non-current liabilities		158.6		79.2
Total liabilities		1,886.0		1,915.0

Commitments and contingencies (See Note 15)

REDEEMABLE NONCONTROLLING INTERESTS		153.6		136.1

EQUITY
Common stock ($1.50 par, 480,000,000 shares authorized and 191,647,272 and 196,412,764 shares issued and outstanding, respectively)		287.5		294.6
Additional paid-in-capital		3,801.6		3,824.5
Treasury shares (3,787,063 and 4,523,802 shares held, respectively)		(147.8)		(170.8)
Accumulated other comprehensive loss, net of tax		(424.0)		(423.5)
Retained earnings		1,280.8		1,314.5
Total shareholders’ equity		4,798.1		4,839.3
Nonredeemable noncontrolling interests		22.4		21.5
Total equity		4,820.5		4,860.8
Total liabilities, redeemable noncontrolling interests and equity	$	6,860.1	$	6,911.9

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

JANUS HENDERSON GROUP PLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

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


	Three months ended				Six months ended
	June 30,				June 30,
	2019		2018		2019		2018
Revenue:
Management fees	$	446.4	$	493.5	$	888.3	$	996.4
Performance fees		3.5		13.5		(2.1)		9.6
Shareowner servicing fees		38.3		38.7		74.2		77.1
Other revenue		47.7		46.7		94.8		97.0
Total revenue		535.9		592.4		1,055.2		1,180.1
Operating expenses:
Employee compensation and benefits		146.5		151.0		291.5		297.7
Long-term incentive plans		49.2		55.2		97.6		95.2
Distribution expenses		101.5		114.7		203.4		232.0
Investment administration		11.1		11.7		22.9		23.1
Marketing		8.1		9.5		15.6		18.0
General, administrative and occupancy		67.7		59.2		132.9		131.4
Depreciation and amortization		33.3		15.8		48.3		31.2
Total operating expenses		417.4		417.1		812.2		828.6
Operating income		118.5		175.3		243.0		351.5
Interest expense		(4.2)		(3.9)		(8.3)		(7.7)
Investment gains (losses), net		4.8		(16.6)		18.1		(17.3)
Other non-operating income, net		28.5		13.9		24.6		52.8
Income before taxes		147.6		168.7		277.4		379.3
Income tax provision		(35.3)		(38.2)		(65.2)		(85.6)
Net income		112.3		130.5		212.2		293.7
Net loss (income) attributable to noncontrolling interests		(2.9)		10.1		(8.7)		12.1
Net income attributable to JHG	$	109.4	$	140.6	$	203.5	$	305.8

Earnings per share attributable to JHG common shareholders:
Basic	$	0.56	$	0.70	$	1.04	$	1.52
Diluted	$	0.56	$	0.70	$	1.03	$	1.51
Other comprehensive income, net of tax:
Foreign currency translation gains	$	(37.3)	$	(104.7)	$	(0.5)	$	(52.0)
Other comprehensive loss attributable to noncontrolling interests		0.1		0.6		—		0.8
Other comprehensive loss attributable to JHG	$	(37.2)	$	(104.1)	$	(0.5)	$	(51.2)
Total comprehensive income	$	75.0	$	25.8	$	211.7	$	241.7
Total comprehensive loss (income) attributable to noncontrolling interests		(2.8)		10.7		(8.7)		12.9
Total comprehensive income attributable to JHG	$	72.2	$	36.5	$	203.0	$	254.6

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)


	Six months ended
	June 30,
	2019		2018
CASH FLOWS PROVIDED BY (USED FOR):
Operating activities:
Net income	$	212.2	$	293.7
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		30.3		31.2
Impairment of intangible asset		18.0		—
Deferred income taxes		(0.5)		—
Stock-based compensation plan expense		38.1		41.2
Impairment of ROU operating asset		4.7		—
Investment (gains) losses, net		(18.1)		17.3
Contingent consideration fair value adjustment		(20.0)		—
Contributions to pension plans in excess of costs recognized		(3.4)		(9.0)
Gain from BNP Paribas transaction		—		(22.3)
Dai-ichi option fair value adjustments		—		(24.7)
Other, net		(9.0)		0.4
Changes in operating assets and liabilities:
OEIC and unit trust receivables and payables		8.2		2.8
Other assets		14.5		118.6
Other accruals and liabilities		(192.0)		(268.3)
Net operating activities		83.0		180.9
Investing activities:
Proceeds from (purchase of):
Investment securities, net		57.5		43.9
Property, equipment and software		(14.8)		(11.3)
Investment securities by consolidated seeded investment products, net		(22.2)		(16.7)
Proceeds from BNP Paribas transaction, net		—		36.5
Cash received (paid) on settled hedges, net		(10.7)		3.6
Dividends received from equity-method investments		0.5		—
Proceeds from sale of Volantis		1.2		—
Net investing activities		11.5		56.0
Financing activities:
Proceeds from stock-based compensation plans		—		0.3
Purchase of common stock for stock-based compensation plans		(38.1)		(84.1)
Purchase of common stock for share buyback program		(106.1)		—
Dividends paid to shareholders		(138.3)		(134.7)
Repayment of long-term debt		—		(81.9)
Payment of contingent consideration		(14.1)		(18.8)
Distributions to noncontrolling interests		(0.5)		(3.4)
Third-party sales in consolidated seeded investment products, net		22.2		16.7
Principal payments under capital lease obligations		(0.6)		(0.7)
Net financing activities		(275.5)		(306.6)
Cash and cash equivalents:
Effect of foreign exchange rate changes		(4.6)		(20.7)
Net change		(185.6)		(90.4)
At beginning of period		916.6		794.2
At end of period	$	731.0	$	703.8
Supplemental cash flow information:
Cash paid for interest	$	7.3	$	7.4
Cash paid for income taxes, net of refunds	$	114.7	$	104.9
Reconciliation of cash and cash equivalents:
Cash and cash equivalents	$	707.0	$	669.8
Cash and cash equivalents held in consolidated VIEs		24.0		34.0
Total cash and cash equivalents	$	731.0	$	703.8

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)



Six Months Ended June 30, 2019									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	—		—		—		—		—		203.5		1.4		204.9
Other comprehensive loss	—		—		—		—		(0.5)		—		—		(0.5)
Dividends paid to shareholders	—		—		0.1		—		—		(138.4)		—		(138.3)
Share buyback program	(4.8)		(7.1)		—		—		—		(99.0)		—		(106.1)
Distributions to noncontrolling interests	—		—		—		—		—		—		(0.5)		(0.5)
Fair value adjustments to redeemable noncontrolling interests	—		—		—		—		—		0.2		—		0.2
Purchase of common stock for stock-based compensation plans	—		—		(33.2)		(4.9)		—		—		—		(38.1)
Vesting of stock-based compensation plans	—		—		(27.9)		27.9		—		—		—		—
Stock-based compensation plan expense	—		—		38.1		—		—		—		—		38.1
Balance at June 30, 2019	191.6	$	287.5	$	3,801.6	$	(147.8)	$	(424.0)	$	1,280.8	$	22.4	$	4,820.5

Six Months Ended June 30, 2018									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, 2018	200.4	$	300.6	$	3,842.9	$	(155.8)	$	(304.3)	$	1,154.1	$	38.2	$	4,875.7
Net income	—		—		—		—		—		305.8		(6.8)		299.0
Other comprehensive loss	—		—		—		—		(51.2)		—		—		(51.2)
Dividends paid to shareholders	—		—		0.1		—		—		(134.8)		—		(134.7)
Distributions to noncontrolling interests	—		—		—		—		—		—		(3.1)		(3.1)
Fair value adjustments to redeemable noncontrolling interests	—		—		—		—		—		(0.2)		—		(0.2)
Redemptions of convertible debt	—		—		(34.0)		—		—		—		—		(34.0)
Purchase of common stock for stock-based compensation plans	—		—		(37.5)		(46.6)		—		—		—		(84.1)
Vesting of stock-based compensation plans	—		—		(29.5)		29.5		—		—		—		—
Stock-based compensation plan expense	—		—		41.2		—		—		—		—		41.2
Proceeds from stock-based compensation plans	—		—		0.3		—		—		—		—		0.3
Balance at June 30, 2018	200.4	$	300.6	$	3,783.5	$	(172.9)	$	(355.5)	$	1,324.9	$	28.3	$	4,908.9

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” or “the Group”), the accompanying unaudited condensed consolidated financial statements contain all normal recurring adjustments necessary to fairly state the financial position, results of operations and cash flows of JHG 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 JHG’s Annual Report on Form 10-K for the year ended December 31, 2018. The December 31, 2018, 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 and are included in the notes to the condensed consolidated financial statements.

Certain prior year amounts in JHG’s Condensed Consolidated Statements of Comprehensive Income have been reclassified to conform to current year presentation. Specifically, revenue amounts related to certain transfer agent and administrative activities performed for investment products that were previously classified in other revenue were reclassified to shareowner servicing fees. There is no change to consolidated total revenue, operating income, net income or cash flows as a result of this change in classification.

Recent Accounting Pronouncements Adopted

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued a new standard on accounting for leases. The new standard represents a significant change to lease accounting and introduces a lessee model that brings leases onto the balance sheet. The standard also aligns certain underlying principles of the new lessor model with those in the FASB’s new revenue recognition standard. Furthermore, the new standard addresses other concerns related to the prior leases model. The standard became effective January 1, 2019.

The Group adopted the new standard effective January 1, 2019, using the modified retrospective approach. Comparative prior periods were not adjusted upon adoption, as the Group utilized the practical expedients available under the guidance. Specifically, the Group did not (i) reassess existing contracts for embedded leases, (ii) reassess existing lease agreements for finance or operating classification, or (iii) reassess existing lease agreements in consideration of initial direct costs.

Upon adoption, the Group recognized $129.8 million in right-of-use (“ROU”) assets related to its leased property and equipment. Corresponding lease liabilities of $146.4 million were also recognized. The Group’s property leases represent the vast majority of its ROU assets and lease liabilities, with office spaces in Denver and London representing a significant portion of its leased property.

The Group’s leases policy follows. Refer to further disclosure in Note 6.

Leases Policy — Updated January 1, 2019

The Group determines if an arrangement is a lease at inception. Operating lease ROU assets are included in other non-current assets in the Group’s Condensed Consolidated Balance Sheets. The current and non-current portions of operating lease liabilities are included in accounts payable and accrued liabilities and in other non-current liabilities, respectively.

Finance lease ROU assets are included in property, equipment and software, net, and finance lease liabilities are included in other non-current liabilities.

ROU assets represent the Group’s right to use an underlying asset for the lease term, and lease liabilities represent the Group’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of JHG’s leases do not provide an implicit rate, the Group uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Group’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Hedge Accounting

In August 2017, the FASB issued an updated standard that amended hedge accounting. The standard expanded the strategies eligible for hedge accounting, changed how companies assess hedge effectiveness and required new disclosures and presentation. The Group adopted the standard effective January 1, 2019. The adoption did not have a material impact on the Group’s results of operations or financial position.

Recent Accounting Pronouncements Not Yet Adopted

Retirement Benefit Plans

In August 2018, the FASB issued an accounting standards update (“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. The Group is evaluating the effect of adopting this new accounting standard.

Implementation Costs — Cloud Computing Arrangements

In August 2018, the FASB issued an 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. Early adoption is permitted. The ASU allows either a retrospective or prospective approach to all implementation costs incurred after adoption. The Group is evaluating the effect of adopting this new accounting standard.

Note 2 — Consolidation

Variable Interest Entities

Consolidated Variable Interest Entities

JHG’s consolidated variable interest entities (“VIEs”) as of June 30, 2019, and December 31, 2018, include certain consolidated seeded investment products in which the Group has an investment and acts as the investment manager. The assets of these VIEs are not available to JHG or the creditors of JHG. JHG may not, under any circumstances, access cash and cash equivalents held by consolidated VIEs to use in its operating activities or otherwise. In addition, the investors in these VIEs have no recourse to the credit of the Group.

Unconsolidated Variable Interest Entities

At June 30, 2019, and December 31, 2018, JHG’s carrying values of investment securities included on JHG’s Condensed Consolidated Balance Sheets pertaining to unconsolidated VIEs were $3.7 million and $3.1 million, respectively. JHG’s total exposure to unconsolidated VIEs represents the value of its 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 JHG’s Condensed Consolidated Balance Sheets, including JHG’s net interest in these products (in millions):


	June 30,		December 31,
	2019		2018
Investment securities	$	9.3	$	13.9
Cash and cash equivalents		0.1		1.4
Other current assets		0.2		0.1
Accounts payable and accrued liabilities		(0.1)		(0.1)
Total		9.5		15.3
Redeemable noncontrolling interests in consolidated VREs		(4.3)		(6.0)
JHG's net interest in consolidated VREs	$	5.2	$	9.3

JHG’s total exposure to consolidated VREs represents the value of its economic ownership interest in these seeded investment products. JHG may not, under any circumstances, access cash and cash equivalents held by consolidated VREs to use in its operating activities or for any other purpose.

Unconsolidated Voting Rights Entities

At June 30, 2019, and December 31, 2018, JHG’s carrying values of investment securities included on JHG’s Condensed Consolidated Balance Sheets pertaining to unconsolidated VREs were $28.4 million and $50.7 million, respectively. JHG’s total exposure to unconsolidated VREs represents the value of its economic ownership interest in the investment securities.

Note 3 — Investment Securities

JHG’s investment securities as of June 30, 2019, and December 31, 2018, are summarized as follows (in millions):

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$22.50	195	$4,390

10-Q	2019-06-30	Quarter: 2019-06-30
10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30

8-K	2019-07-31	Earnings, Exhibits
8-K	2019-05-02	Shareholder Vote
8-K	2019-05-02	Earnings, Exhibits
8-K	2019-03-21	Regulation FD, Exhibits
8-K	2019-02-05	Earnings, Exhibits
8-K	2018-12-11	Officers, Exhibits
8-K	2018-11-01	Earnings, Exhibits
8-K	2018-08-06	Regulation FD, Exhibits
8-K	2018-07-31	Earnings, Officers, Exhibits
8-K	2018-05-03	Shareholder Vote
8-K	2018-03-22	Regulation FD, Exhibits
8-K	2018-02-28	Earnings, Exhibits
8-K	2018-02-06	Earnings, Exhibits

TYPE	Monotype Imaging	704
TPVG	Triplepoint Venture Growth Bdc	351
GPAQ	Gordon Pointe Acquisition	160
JAX	J. Alexander's	155
ARS	Aleris	0
JGRI	Joshua Gold Resources	0
PNTTE	Punto Group	0
NANX	Nanophase Technologies	0
HQCL	Hanwha Q Cells	0
NSPM	Northern States Power	0

EX-15.1	jhg-20190630ex151f5413d.htm
EX-15.2	jhg-20190630ex15259d390.htm
EX-31.1	jhg-20190630ex3112d29a7.htm
EX-31.2	jhg-20190630ex31213d102.htm
EX-32.1	jhg-20190630ex32104eca2.htm
EX-32.2	jhg-20190630ex32260737e.htm