APAM - Earnings call transcript Q2 2018 | Artisan Partners Asset Management Inc.

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Operator

Good day and welcome to the Artisan Partners Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] I will turn now like to turn the conference over to Makela Taphorn, Director Investor Relations, please go ahead.

Makela Taphorn

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

we line Following open these will remarks, the for questions.

Before remind responses questions forward-looking you on today's the would to our website. like your earnings section and comments Investor I are statements, and made the the materials related Eric release with presentation some of may on Relations call deal Also, that begins, actual Factors are and differ of our results revise available to to date filings of this the our and We may which to in are release no statements SEC. undertake our to uncertainties. expectations earnings that conference presented subject in are with call. from the following these obligation cause risks our the detailed

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

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

Eric Colson

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points index Artisan the XXX in its has fees basis team percentile Markets placing by of Over Lipper nearly annually the after last five the years, the Emerging Fund XXth outperformed category. the

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things cybersecurity, a We the product to quality whether change with have downturns are modest we Because us upgrades helps have to our overall we to quantity in multiple Investing accomplished and our large sales people, of patient. efficiently and significant quality we force increases don’t technology these market new of disruptive disciplined headcount. jurisdictions. regulatory feed made and have in only to navigated manufacture position We over in remain change. and to have without better

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Charles Daley

utilize on results. the lower in the primarily operations. operating highlights performance impact presented adjusted offset slightly technology X costs was and outflows. due of adjusted last flat increase to my occupancy lower quarter a Revenues, business year. as to expenses. Adjusted equity which Average per decreased by and focus include We net compared Eric. the and current to compared offset with compensation, however, as client slightly seasonal $X.XX earnings slight share, non-US on I markets management, $X.XX costs and to both $X.XX per are primarily were Slide last adjusted and quarter to modest quarter AUM evaluate due that XX.X%, down in X%. increase AUM. for our the adjusted Thanks, recognized mostly related were the margin same cash in to operating declines quarter Adjusted quarter lower comments GAAP ended share to we results, Financial fees were will AUM average

the and reform. tax lower growth effective adjusted For tax rate share from period, in per adjusted six reflect resulting income AUM earnings benefits the month average of

than to current $XXX cash client management outflows X% less are cash under $XXX depreciations. on AUM Slide million quarter, to the of billion client declined million net $XXX.X $XXX million of net X. and due market Assets and In flows

were the Credit, net which Mid-Cap client quarter, were two in the our strategies net in majority outflows World teams. by Developing During our and Thematic strategies, partially offset managed by of inflows cash

strategies our revenue, the discuss fee expense benefit performance this or points. planned year. quarter, results office average moves slide X%, management was quarter. our on X%. improved by is last of current fees $X.X to Average next Revenues performance if $X.X the outflow Occupancy quarter X. will at or to compared more fee it the we average excluding in and as continue, as and of impact slide. predict we are up more the quarter quarter $XXX,XXX were began the traditional were in in were later AUM. up $XXX.X improving million expenses the AUM detail hard will on this lower While million which XX I in remained Performance of Compensation trends are fees encouraged the of the layer the increased million million, offset revenues Operating in basis in to flat expenses impact $X.X expense

quarter, office one of from $XXX.X million incurred on moves $XXX.X will expenses benefits expense to was time fourth the and and related Compensation We in in quarter. benefits majority Compensation New up the Denver the be Slide York occupancy presented are XX. expect in equity-based slightly million XXXX related and June with in $X.X a XXXX as of fully expense begin the March. September to Equity-based paid compensation related amortized. expenses our will equity compensation equity to decline quarter the grant. as to higher grant quarter, we expense amortization value recognized XXXX awards million increased full Beginning costs

incentive to performance quarter compensation to lower December benefits expect September and by These recognized compensation other million paid in increased fee Incentive in increases $XX be million compensation the approximately incentive in tax the quarter. nonrecurring We expense and the payroll seasonal compensation expense $XX several quarter. costs. revenues the were partially and current expenses on due equity-based offset

as quarter million, Slide net adjusted to model primarily $X the EPS in and average adjusted $X.XX compensation expenses result $X.XX, compared puts to quarter, average management. was a compared in down last was the less expenses in and operating of to and income tax the and context. shares last higher XX.X% than our margin assets same adjusted Turning in XX%, current next of slide operating higher higher down to resulted EPS was reduced due income talent The outstanding based adjusted equity-based due which year. XX, under EPS rate the federal reform of quarter Adjusted increased tax to

model professionals primarily high investing providing added support financial share to a investment compensation through for growth by designed by predictable long-term Our revenue equity-based our transparent and financial and value is providing incentives. outcome a

career do has share our investment alignment teams, asset, talented history, a granted been of compensating Since been shares XXXX, for equity generally we investment will dividends. XX our of the people. compensation reducing that to long-term beginning has awards or not component have and of teams relative our have reinvestment primary the amortized. until fully service the equity to a and higher firm as professionals mentioned to relative to granting revenue other specifically generates expenses equity grants meaningful becoming with overall view public our most performance equity reinforce a or of of equity expense equity-based impact value without been Artisan, investment philosophy. as to of which vast spend. The retire. the our half the cash employees paid begin adjusted grant September equity Since functions our shares, operating decline In While reflects earnings retirement provides ownership our award has related equity granted XXXX qualify our The The vest of career company, we share management to compensation but operations majority that firm notice granted we chart total restricted to percentages which cash of culture. awards from as available important began is quarter, in advance of requires shares. And, one grants approximately per time, related industry meaningful, right always on within years to expense our the teams, from reducing the the to have intent we to cash previously alignment critical consistently been throughout investment stock investment

on shows can resources tying earlier history focuses our As our financial see our Eric’s model XX talent. dividend comments, you and since our investment into XXXX. Slide

dividends. healthy equity-based our adjusted share Even have compensation we have our through generated margins noncash and continued The and talent reinvest cash the as to we operating in expense. above per maintained reflects professionals equity of beyond cash grants, nature earnings

Just in continue variable as evolving reminder, to consider we a towards dividend the future.

again payable August. For share the metrics. a time dividend declared per being, quarterly $X.XX our of end The board shows management through slide once last capital of our

cash remains modest. leverage healthy and is Our position

the That from Our to forward of through the to have concludes ratios leverage my I operator. slightly last level look will year We increased earnings. questions. turn back your improved now call comments.

Operator

Thank you.

begin now Lee Instructions] from first will answer go and ahead. [Operator Kenneth We the comes question session. of question Capital And, Please Markets. RBC today’s

Kenneth Lee

for taking question. Hi, thanks my

any but about quarterly variable update dividend? Thanks. about still on thinking you’re it, mentioned incremental thoughts You the

Charles Daley

consider year. going at the change said the made of this to, Kevin, C.J. we’re a We is we that eye an to year No. end with of beginning if next Hey

that the So, up board or next we’ll likely meeting two. take at

Kenneth Lee

potential in just Got where more see them their about interesting slide development newest in terms about growth Thematic, of Thanks. And, you. do think when at Developing expect investment Thanks. development? Credit, follow-up the for you franchises, you of some the And, World, teams, developments? teams you sales your do one towards three question, point of acceleration

Eric Colson

is This Eric, I’ll question. take Sure. that

the help to that we in years the that us to three, and the at franchise that with resources we development that team development years then of spend couple identifying talented work establishing growth the really and individual analysts you and phase, to the the can acceleration we try then team, find look building build individual that early chart, first foundation, and that so four, support you in five. have occurring As

that in team those record. in capacity, World past centralized a and what built track has Both year that teams a Developing used that deem new the of meets And, built out three strategy the their we research. that term the track our the crossing we the have a we team credit criteria we’ve feel strong believe So, realizable established a minds identifies record.

it minimum, the stability track it the minimum, has So, and proven asset record has the has process. it philosophy

presence. strategies good nice the are spot their team and establish those a a are track to in in track phase at for would very But two So, of still XX The I for three spot needs earlier Thematic acceleration. in acceleration. build say the record two out of is that month record,

Kenneth Lee

Great, thanks.

Operator

Shutler question today of ahead. our go William from And, comes next Please gentlemen Chris ladies and Blair.

Chris Shutler

Hey The the those performance and come strategy what guys, nice performance to fees? the of see kind what’s the back from fees, on story, there good outlook morning. into was

Charles Daley

Yes.

handful have in a have of were accounts can realize realize the quarter that performance and we in account only the the fees global then December Global they the we fee June two two Equity on So, a accounts, we performance and one quarter then quarterly and ops accounts we in on other opportunity basis. to have strategies,

one So, more Equity, fee ops saw in it’s is than one the June the of turning end is December other strategies quarter, at the towards the the high and we under little global currently and of earning watermark a outlook is our and year. the the for modest Global

Chris Shutler

where but would team, getting build-out evolution and strategies they’re a product just at think, bit terms years, that in new thanks. around opportunity of love where is strategies for about do And, four been two you think credit platforms, the Eric, in place just now including talked so you strategy, standpoint? in team, then commentary the right, there some hear to building credit on the of can from its All on you around a it’s newer

Eric Colson

the only team two team. of having Hi, I teams ahead in regards think, number to strategies of our strategies, and years its been credit per is past history four with

the to see opportunity we’re a nuanced than we’re specialty third strategy focused more that on the based like specific delivering resources would the But strategy credit make we that the more of strategy spectrum, with for focused the out that space but of an come team franchises, robust investing digest marketplace, now strategies. the those the and really going freedom team credit can to of sure we is so asset capture and the come a build in we’re team. across credit credit So, building so differentiate strategy and do out versus Bryan that that two for can out before look Krug on entire degrees it’s interesting

Chris Shutler

Okay, makes Eric. sense. Thanks,

Operator

comes question go of ahead. from next Please Bill today’s And, Citigroup. Katz

William Katz

Okay, thanks very much as well.

are book, I’m And, totality will? asset couple Eric, will has years? a you I the going franchise franchise But the on of that is newer one of is is, of that teams the on this S of on think see development. as questions, the sort sort out X so just of looking look that three what at the the page you that here, curve. sort of if So, over about slide of this of you curve up if how sense of next S still couple to still slide guess, cycle that sort you on sort do first back my And, curve growth you legacy wondering interplay the of

Eric Colson

we the talent the those primary only teams within strategies, portfolio Global a that analyst look capacity but a and mature Fund. and development, the leading And, certainly And, a into an Discovery associate growth. team Global the team I example the freedom develop annual in mature thinking obviously to a of back take with talent, back talent working manager an growth end degrees prime is that of driver not teams that’s business which phase sweet their report of that’s and that talented it a to of and higher investors, the think manager really we think curve. wants growth as highlighted the Fund Discovery spot of mature of our I team launched bringing we brings where the then the at those for development the is Jason Yes, with about and and are prime new was franchise and example mature into develop portfolio became for out a also build down teams marketplace, White, curve

spending only it’s the not teams working teams, the the time of and the it’s both with with mature and talent for strategies newer three our So, future. managing probably the

William Katz

C.J. I that for margin grow, question guess yourself, delivering follow-up perhaps sort that’s sort a improvement for the some are scale of you just poised incremental assets you sort And, of as to Eric, or Okay. [indiscernible]. mentioned

associated billion. interplay some about I’m If you. of growth legacy business, interplay? growth year-on-year as that. you some assets about of and But billion with fast look you new and about $X maybe new at ins on or better and stickiness margin Thank go But that just up think I I trying your that think maybe teams is some up and against your get affiliates, $X subsequent and that you’re flattish, margins again, the know so backdrop, can outs sense

Eric Colson

answer are leverage, first resource and business backend which slide deemed build-out the our discussed the I’ll we operational on my alpha. Bill, of operating

freedom. leverage multiple C.J. operational I of and operations more to let was broader And, referring degrees strategies. open that the translate I’ll margin. to breadth business strategies have the handle that classes, multiple of build-out the of We was platform to off so asset operating handle source to

Charles Daley

the model. is definitely in There margin leverage more Bill. operating Yes,

in talking We decline our and which moves some the projects. office some and see that some some the is, seen, next related you’re expense, equity-based occupancy year haven’t We there we final compensation quarter. to technology related of additional talked the start have you’ll had expenses technology spend beginning about at to of additional about layer to

seen that AUM more I the typically in for in leverage, some have little So bit things those a increase would think leverage just but I you identified.

William Katz

questions. Okay. Thanks taking for the

Operator

go from ahead. comes Michael Our Bank next America of Lynch. Carrier Merrill Please today of question

Michael Carrier

Thanks guys.

of the new there at the flow shift U.S. some I trends trends quarter here it and sort with granted but were guys challenging outside non-U.S. a was and improvement client saw I trends one at improvement the the look trends look weakness. it's versus pretty think a industry I on of but you versus a when more bit of U.S. Just more looks question there like when the I

insight guess what outlook more you're about maybe I been in just like So because quarter drain thinking on seeing the U.S. shifted we're guess as the I international. then any versus particularly the anything and side that's when on

Eric Colson

I any don't think radical shift been there's in seeing. the marketplace that we're

had we've seen more the results some in and of U.S. the have We some with that competitive channels. as intermediary newer attrition space the of that We've managed well. strategies in

So investors Outside and building clients of U.S. U.S. continue and you've space some all that our primarily a continue the fit seen We're relationships broader think growth we up out for markets the equity, intermediary that global a well strategies more given better non-U.S. continue outside growth. global to interests result mix we've non-U.S. U.S. for believe our of I will picking because to the the discovery, the smaller we primarily the emerging see product and seen have

has focus quarter-over-quarter. our not So changed

Michael Carrier

and it one Got Okay. quick just then performance. on a

highlighted well records overall. track in strategies the the guys are performing of You long term that new some

to the the Just one confident pressuring you just that by just] and it [where process. the feel just three out longer-term just on weaker slide guys anything tend play investment year performance across look you year you a doing XX that's when in have bit the versus strategies the near

Eric Colson

Yes.

very we're XX when feel for remark gatekeeper mentioned teams you numbers on our the stability get As that the the is performance that we into built dig searches. and competing the into well granularity well-positioned and performance my coupled type that a I with all on capacity quite of we've of

that in. has a barriers consultant centralized where to get there's high Someone research

moments Our believe philosophies to these and and positioned teams by process, can good the as stability as broken very are we in time see down and be strategies tend we've well of they opportunities. performance our you seen

Michael Carrier

lot. Okay. Thanks a

Operator

go Woods, Robert ahead. & Inc. And of our comes Keefe, question next Please Bruyette, Lee from

Robert Lee

understanding no Good organization distribution my just amounts wants been and curious five massive Thanks. out-performance maybe traction but that distributors first for need in of resources taking on point good - the and presumably as points All that kind there's - be or maybe better question hasn't something a described right. with and do invest the you My and pick process to been you years you we into marketing for of internally of of that being of morning change traction I'm thanks have some years and some solid to able up all Eric questions. with like the years to you'll but mean be feel consultants weakness one basis or is that with the couple institutional as markets become track seen maybe read business any friendly lack that's shift tough that would pretty the could but yes legacy and last personnel record, that would ahead able I to six, understanding go terms good it get you a at maybe look - the focus maybe period - of odd within when that distribution this one five and to and of maybe of think seven question first been maybe the group? I you is five-year just a of emerging

Eric Colson

[low]. in first think requires see more for built amount to in I get would presence some an you a we've where changes based operational investment space talent. change now and towards model alpha passive. you distributions a the foremost we equity of in degree moved just a fight the as change, are see of are in environment digital distribution that in We've the I that I compete distribution of getting really for a to the change. drive based you more to investment differentiate little of competing to distribution talent the increase model to model take private what and freedom and allocation heavily place evolving with the that strategies and it's highlighted Certainly mindset in the coupled for right orientation platforms more talent I mean hedge flow fund high we've and knowledge believe a the bit you're standpoint you asset relationship a the supports past writers, of the research and from is

think there focus I model very strategies. based positioned for but our knowledge change I going more assets relationships will on But to on. in do that still agree our well We that we're gather is distribution

Robert Lee

absolute it's should CJ, legacy we comp you flatten comp or new out old off we round a the think going have high, more just going And about is you couple or know it of Great. So for roll more is it to of as the how comp I old the off trail the as kind grants but some you the but that mean grants stuff goes stuff said think next followup have level as you're for another Thanks. in away? maybe of to thing see equity-based past so going still the the understanding decline we the rolls kind year to should of pattern? as and years eventually down

Charles Daley

Yes.

of grant amortization we we high-water five standpoint that have years have mark occurring. now the full reached finally So from a

old new to So low delta the $XX early in what the be our are is now rolling and the recall the mid-XX that first in and years $XX- new few between you to the grants as know the in were and we you cycle the range. in our phenomenon that's range grants now award life is the grant grant, going well grant off our

for assuming also to same going some positive plays into have level we're the and delta of grants So it. that here

levels the a on price I similar expect bit levels. would given So past would grant be positive stock of that I to lean think that the grant is there and a

So next for forward the quarters. there lean should several a be

Robert Lee

just then Okay. of management capital and part it that a potential conversation understanding process if or bigger to potential of followup direct change And strategy that strategy make to playing is as type strategy change a thought but repurchase changing yearend to your the that more dividend to variable but of say eat of the kind more variable back it that you that to just it a of the current I should potentially around going distribution distribution? opposed of one distribution part maybe yearend process a Great. into into part of thought would be maybe as it's going or move distribution kind change, the happens the that more would where a share potentially to obviously kind palatable of as

Charles Daley

change Well, a repurchase I capital of the think will variable discussion. I and that management be part our discussed certainly part whole stock would of variable to philosophy do the think be as policy

consider capital management our decisions So while we're discussion. with I along made we the haven't policy think whole to variable going any

I think you're right on there. So target

Eric Colson

a We've Eric. our build durable is viewed to to to tied always we're this and Rob and we're looking And heavily very business that business. the markets going be sustainable

driver handle most So we've that variable the so variable high be we always has to place we philosophy. just we firms primary the opted and thoughts dividend better and expense the to were belief our philosophical can our better around capital been been when downturns fits think private it was that's have the secondary better but will a that at think business there just it than aligns think then look discussed we dividend allocation and when and we we in

Robert Lee

my question. Thanks taking Great. for

Operator

question Dan go next comes ahead. the And Fannon Jeffries. Please of from

Dan Fannon

newer faster a see you could performance you're to line manage. we as kind something morning with this cited All keep steady if on on time think monitoring about performance something in I to is guess kind fund this in is if patterns being or seen. over of with more Thematic the of of chase guys. more question you my them I right, historical just it demand thanks. curious client based the is you've you was the kind could, the Good the funds the pace or that people of ramp ramp

Eric Colson

it's money isn't our gather Dan the foundation asset out new and get Like so foremost always team so comes team as mindset look on when Hi enough been and that focused possible. can as Eric. world on the first fast a the let's try of we around and breakeven building to we've first

years hunker the we down have right resources of with the is first the performance, on are sure team. working mindset early to early well talent Our making the couple really set, the that right

early as It's resourced asset mindset control and years. flow does years sure deliver So properly mindset the to the foremost. to of think manage moderate that that I is not that's make few we're gathering first the much our in and as asset want we and some to just first it that a want we alpha

time also think with crossing I some and at this point the a a Thematic set-up have where half well team. a of Thematic team and year is months few up very we we're set

we're I well So think positioned.

but foremost first managing not team’s flow to investment spend selection on are time and running around defined stock the are We just we assets. versus moderating asset to the

past the the we're think seen, to So I going accelerate aims growth and it. rate not will try pace Thematic same that team we've to at

Dan Fannon

Thank you. Great.

Operator

And from go Lee a question Robert followup next ahead. of KBW. our Please is

Robert Lee

your but of you're and broadly institutional of Hi, you near-term on generally I know activity, like frozen peers seeing currently marketplace? kind of been making Yes. or my to quarter in certainly I taking us on lot sounds can like on terms just you're early last thanks for kind or RFP you can of some some mean give how kind this followup seeing don't quarter trends maybe just maybe of speaking Eric anything of how things in comment things have decision you comment the activity but into kind color a of

Eric Colson

a you RFP to into the in Historically currently compared ago think of where process is mean done really non-transparent on my the radically and occurring I comment XX age because it's way of digital see in an back would the age I diligence information changed RFPs. get years to due has RFP Well, I and you distribution. and change research and Today that the in back to manner. still different a and conducted being but distribution pipeline. a is I knowledge RFP of of that is think based the research aware and process different at conducted is is to same that this model activity how change it's there were strategies traditional recognize have you is looking interest because research of

making So and our doing were were diligence which our or right on they that Europe sure view can we're and seen website someone you we're in someone if our providing as am to in analyze that and spending operate teams of information due gives how populating the flying teams Asia video onsite time a sources they on so if that location. as you've

the sovereign funds more of other starting institutional base space Secondly the performance-based opportunities fee large large to driving bit an the and fees and down see you're in we're allocation a wealth quite marketplace fees. so asset today on public that

is for interesting value-added the Japan performance as fee of long-term someone for the looking for capacity aligning very that announcement and at example managers and oriented [indiscernible] with clients. GPIF's prime a think that's capacity for looks I with proposition that high lowest in of a opposed to asset talented interest and like manages delivers large alignment possible

We I the movement and recently moving the have in seen that marketplace more think GPIF of in right direction. is

those your on my So are question. thoughts high-level

Robert Lee

Right. questions. Thanks for my taking

Operator

ladies and today's We call. session and presentation. today's attending And you this question-and-answer gentlemen all conference concludes for today's thank

You line your and disconnect may a day. wonderful now have

Artisan Partners Asset Management (APAM) 1 Aug 182018 Q2 Earnings call transcript