Invesco Ltd. Q1 FY2025 earnings call

Strategic Priorities

• Emphasize geographic diversity, local presence, broad portfolio capabilities, and organic growth through various market cycles.

Business Results

• Generated $17.6 billion in long-term net asset inflows, 5.3% annualized growth rate; adjusted operating income up 18%, operating margins expanded 330 basis points.
• Reported change in reporting of investment capabilities to isolate China JV and India business performance.

Partnerships

• Announced $1 billion repurchase of preferred stock from MassMutual and strategic product distribution partnership with Barings for private markets.

Financial Results

• Total AUM $1.84 trillion; adjusted diluted EPS $0.44 (33% increase over prior year); net debt $143 million; board approved increase in quarterly common stock dividend.

Invesco Ltd. reported $17.6 billion in long-term net asset inflows, a 5.3% annualized growth rate. The ETF and index capability had net inflows over $16 billion with 13% annualized organic growth in Q1, including a near-record $4 billion flow in QQQM. Fundamental fixed income saw $8 billion net long-term inflows. Private real estate had net inflows of $1.1 billion. Private credit had modest net outflows. The China JV and India capability recorded $2.2 billion net long-term inflows. Multi-asset related capabilities had $1.1 billion net long-term outflows. Fundamental equities had outflows in the US but modest net inflows in EMEA and Asia Pacific.

EPS Accretion

• Expected to reach $0.13 run rate on a quarterly basis once term loans are fully repaid by mid-late 2029.

Capital Deployment

• Ample cash flow capacity to repay bank term loans and a $500 million senior note without restricting capital deployment priorities like investment/growth initiatives, share repurchases, and dividend increases.

Expenses

• Focus on disciplined expense management; variable expense component of around 25% without intervention, increasing to 30%-35% with management action; Alpha platform implementation costs expected to be $10-$15 million next quarter.

• Market volatility impacting asset flows and investment performance.
• Regulatory changes affecting business operations and product distribution.
• Competition from peers in various investment capabilities.

Q: Alex Blostein asked about the product and distribution opportunities with Barings and MassMutual.

A: Andrew Schlossberg responded that initial phases focus on private credit, with first phase happening relatively quickly and subsequent phases over time.

Q: Craig Siegenthaler inquired about MassMutual's common equity stake limitations.

A: Allison Dukes replied that the shareholder agreement limits MassMutual to a 22.5% common equity stake.

Q: Mike Brown questioned the use of $650 million seed capital and vehicle structure for the Barings partnership.

A: Andrew Schlossberg stated the seed capital is for launching initial products, complementing existing investment capabilities in private credit areas.

Q: Daniel Fannon asked about trends in April and China's performance.

A: Andrew Schlossberg noted investors staying invested but more cautious, with China showing positive organic flow growth into April.

Q: Brian Bedell inquired about Invesco's global landscape and local profiles.

A: Andrew Schlossberg mentioned diversified asset holdings outside the US, local presence in EMEA and Asia Pacific providing resiliency.

Q: Bill Katz asked about retirement market allocation to alternatives.

A: Andrew Schlossberg stated Invesco is positioned to create products for retirement markets using existing relationships and capabilities.

Q: Patrick Davitt asked about inorganic opportunities and balance sheet flexibility.

A: Allison Dukes replied Invesco remains willing to pursue inorganic opportunities, with the preferred stock repurchase enhancing balance sheet flexibility for such moves.

Q: Ken Worthington asked about expense variability and SMA platform traction.

A: Allison Dukes discussed expense variability driven by compensation, and Andrew Schlossberg highlighted SMA platform growth in fixed income with several dozen strategies.

Q: Michael Cyprys inquired about Alpha platform implementation cadence.

A: Allison Dukes stated $10-$15 million implementation costs expected for next quarter, with waves of AUM moving onto the platform into 2027.

Q: Benjamin Budish asked about Barings deal distribution timeline and investment.

A: Andrew Schlossberg responded that distribution is leveraged off existing platforms, with timelines in quarters, and investments already made in distribution and product structuring.