Ameriprise Financial, Inc. (NYSE:AMP) Q1 2024 Earnings Call Transcript

Ameriprise Financial, Inc. (NYSE:AMP) Q1 2024 Earnings Call Transcript April 23, 2024

Ameriprise Financial, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to the Q1 2024 Earnings Call. My name is Brianna, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, the conference is being recorded. I will now turn the call over to Alicia Charity. Alicia, you may begin.

Alicia Charity: Thank you, and good morning. Welcome to Ameriprise Financial’s First Quarter Earnings Call. On the call with me today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, Chief Financial Officer. Following their remarks, we’d be happy to take your questions. Turning to our earnings presentation materials that are available on our website, on Slide 2, you will see a discussion of forward-looking statements. Specifically, during the call, you will hear references to various non-GAAP financial measures, which we believe provide insight into the company’s operations. Reconciliation of non-GAAP numbers to their respective GAAP numbers can be found in today’s materials and on our website. Some statements that we make on this call may be forward-looking, reflecting management’s expectations about future events and overall operating plans and performance.

These forward-looking statements speak only as of today’s date and involve a number of risks and uncertainties. A simple list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in our first quarter 2024 earnings release, our 2023 annual report to shareholders and our 2023 10-K report. We make no obligation to publicly update or revise these forward-looking statements. On Slide 3, you see our GAAP financial results at the top of the page for the first quarter. Below that, you see our adjusted operating results, which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis.

Many of the comments that management makes on the call today will focus on adjusted operating results. And with that, I’ll turn it over to Jim.

James M. Cracchiolo: Good morning. Yesterday, Ameriprise reported good first quarter results to start the year. We’re positioned well and focused on helping our clients emit a complex climate, and we’re also benefiting from our excellent capabilities across the business. Clearly, the operating environment remains dynamic. Equity markets have had strong year-over-year growth as the U.S. economy is proving resilient. However, inflation remains above the Fed’s target and therefore interest rates remain high. The economic picture is not as strong in the U.K. and EMEA. Overall, many investors are holding cash on the sidelines or in shorter duration products, which will eventually move to other investments. This means opportunity for our business with our quality goal-based advice and active solutions.

With that backdrop, for our first quarter adjusted operating results, total revenue increased 11% to $4.1 billion. Earnings grew 10% to $878 million and earnings per diluted share was up 16% to $8.39, and our return on equity ex. AOCI remains outstanding at 49%. Ameriprise assets under the management administration were $1.4 trillion up 15% from a year ago driven by client net flows and equity market appreciation. In Wealth Management, we remain on our path to provide goal-based advice to more clients backed by a highly satisfied and referable experience. I’ve had the opportunity to speak to a number of our advisors at our first quarter field conferences. They consistently shared that our client value proposition and the level of support we provide are real differentiators both in terms of driving high client satisfaction and practice growth.

Total client assets increased to $954 billion up 19%. We saw a nice increase in transactional activity up 17% in the quarter. Client inflows were good at $8.5 billion. While clients are still maintaining high cash holdings, money is starting to move into other products such as structured products, brokerage and back into wrap including in fixed income. Wrap inflows was $6.5 billion and the platform has grown to $522 billion up 20%. The bank is also an important complement. We’re currently holding assets of more than $22 billion and generating very good spread revenue as we focus on deepening relationships and bringing in assets clients hold elsewhere. With $82 billion sitting in cash, we still have a significant opportunity to help clients reposition portfolios as markets settle.

Our Ameriprise advisor force is one of the largest in the industry, and we’ve consistently delivered some of the highest growth rates. Productivity increased nicely again up 11% to $942,000 in adjusted operating net revenue per advisor. Regarding recruiting, we added 64 experienced advisors in the quarter and our pipeline looks good as we proceed through the year. As a long standing leader in advice, Ameriprise and our advisor practices are well-positioned to serve the growing consumer need for advisor force segments. We know that the mass affluent and affluent consumers want advice and that the opportunity continues to grow. From a recent study, 44% of affluent investors say they need even more advice today than in the past, and there are also greater need among the majority of younger investors.

More people can benefit from what we offer. And in fact, in the quarter, we were proud to earn a Hudson Valley’s 2024 top performer in understands me and shares my values, unbiased puts my interest first and explains things in understandable terms. We also invest significantly to provide our advisors a fully integrated technology suite, which has proven to simplify processes, help deliver a great client experience and drive referrals. As we shared, we’re also investing in advanced analytics that can help to drive further efficiency and opportunity. And in the quarter, we’re also recognized with a Bank Insurance Securities Association Technology Innovation award for our exclusive e-meeting capability, which greatly simplifies and enhances client meeting preparation.

Regarding financials, our margins and wealth management remain among the best-in-the-business at nearly 30%. Looking ahead, our planning model positions us to sustain strong margins as clients adjust portfolios to reflect equity market and interest rate dynamics. Regarding Retirement and Protection, we also saw a good increase in sales in the first quarter. We recently made product enhancements in both structured annuities and VUL and adjusted our wholesaling support to help more advisors deliver these solutions and increase efficiencies to the business. Variable annuity sales were up 32% with very strong results in structured annuities consistent with investor appetite. In the full-year since we launched our structured annuity product, it has become our top selling annuity and ranks among the top 10 in the industry.

In our Insurance business, sales are also very good, increasing 8% with the majority of the sales in our higher margin accumulation variable universal life products where we added new features at the start of the year. Overall, our Retirement and Protection business consistently delivered strong earnings and profitability. By the way, in the quarter, long-term care continue to generate positive earnings of $16 million as we benefited from higher interest rates and consistent claim levels. We also continue to generate good earnings in asset management even with flows being pressured. The team delivered strong performance for clients and focused on fully leveraging our global capabilities to drive efficiencies. Total assets under management were up 7% to $652 billion.

Regarding our investment performance, we continue to generate good short-term, medium-term and long-term performance across product lines. One weaker area was in fixed income due to a difficult year in 2022, but that’s working through our medium-term numbers. With that said, we have good overall performance. In fact, the strength of our numbers was reflected in the most recent Barron’s rankings of the Best Fund Families where Columbia Threadneedle ranked in the top 10. I’ll also highlight that in a recent survey of top asset management firms by institutional investor, Columbia Threadneedle ranks sixth out of 330 asset managers for our active engagement with issuers. Though we remain in net outflows for the quarter, in retail, we did see improvement in gross sales.

In North America, equity and fixed income flows improved. In EMEA, flows also improved and were in net inflows in Continental Europe given the nice pickup in equities. In the U.K., we remain pressured. In institutional, we were in outflows due to redemptions and lower fee mandates and impacts from previously announced portfolio manager changes as well as slower new fundings. We have a strong offering and are tailing into better serve client demand and drive flows. This includes expanding our model delivery in the U.S., advancing our real estate capabilities as well as further strengthening our bank loan CLO business. In asset management, we continue to drive synergies and efficiency gains, and you can see that in our normalized G&A expenses down 3%.

In terms of overall asset management profitability, the North America region is performing well, while EMEA faced a bit more pressure based on market conditions. Now that we’re through the integration in EMEA, we’re very much focused on leveraging our capabilities globally, gaining better efficiencies while reducing expenses. For Ameriprise overall, the level of results we consistently achieve is driven by the totality of what we have here as well as our ability to invest for growth and manage expenses very well. This includes our excellent returns and earnings growth. And in terms of track records, our long-term track records are excellent. Just looking back over the last five years, I would highlight EPS as an example where we have delivered 15% compounded annual growth.

Our return on equity of 49% is among the highest in the industry year-after-year. Also very significant, we consistently deliver a differentiated level of shareholder return, returned another $650 million in capital in the quarter, and we just announced another dividend increase of 10%. Overall, it was a great start to the year across many dimensions. What’s behind our results, our talented team. In the quarter, we received additional external recognition for who we are and how we work together. In fact, Forbes put Ameriprise on their Best America Large Employers 2024 ranking and Newsweek ranked us one of America’s Greatest Workplaces for Women. In closing, I would also like to highlight that in June, we will mark our 130th anniversary, which is a unique and significant milestone in any industry.

Our priority has always been our clients. Also key to our longevity is our ability to innovate and evolve for the future. Ameriprise is going to continue to navigate for clients and invest in opportunities for growth, and I feel good about our ability to build on our position this year. Now, Walter will share additional detail on the quarter and some of the numbers. Walter?

Walter S. Berman: Thank you, Jim. EPS grew 16% to $8.39 with growth across all segments. The diversified nature of our business drives our consistent financial performance across market cycles and sets us apart from most in the financial services. Assets under management and administration increased 15% to $1.4 trillion benefiting from over $29 billion of client flows over the past year and equity market appreciation. This has resulted in strong 11% revenue growth across our businesses. We continue to manage expenses tightly to maintain strong margins. G&A expenses grew only 2% on a normalized basis, driven by our operational efficiency improvements. We continue to selectively invest in areas that will drive future business growth, particularly in Wealth Management.

We will maintain this discipline in 2024 and plan to keep G&A expenses at 2023 levels. Our returns remain strong with a consolidated margin of 26% and a best-in-class return on equity of 50.2%, excluding unlocking. Balance sheet fundamentals, including excess capital and liquidity, remained strong. Our diversified business model benefits from significant and stable 90% free cash flow contributions across all business segments. We returned $650 million of capital to shareholders in the quarter, and as you saw, we announced a 10% dividend increase, a continuation of our differentiated track record. In 2024, we expect to return 80% of operating earnings to shareholders. On Slide 6, you see the strong results for Wealth Management. Client and Wrap assets increased 19% and 20%, respectively, from strong net flows and market appreciation over the past year.

Client flows in the quarter were $8.5 billion down from quarter one 2023, driven by higher net flows into third-party money market funds a year ago. In the quarter, adjusted operating net revenues increased 13% to $2.6 billion from growth in client assets, increased transactional activity and a robust 30% increase in net investment income in the bank, which more than offset lower fees from off balance sheet cash. This drove revenue per advisor to a new high of $942,000 up 11% from a year ago. Total cash balances, including third-party money market funds and brokered CDs reached a new high this quarter at $82.4 billion as clients remain heavily concentrated in yield oriented products. Cash balances were fairly stable at $43.3 billion with cash sweep down only $1 billion in the quarter reflecting normal seasonal tax patterns.

We expect clients will put money back to work in wrap and other products on our platform over time as markets and rates normalize, which creates a significant opportunity. The financial benefit from cash at the bank remains significant and will be a sustainable source of earnings going forward. Adjusted operating expenses in the quarter increased 14%, with distribution expenses up 17%, reflecting business growth including Comerica, acceleration in transactional activity, growth in experienced advisor recruiting and higher payroll taxes as the business grew. G&A expenses increased 7% to $420 million reflecting higher volume related expenses and the inclusion of Comerica. We continue to invest in our growing business, while maintaining expense discipline in 2024.

We are targeting a G&A increase in the mid-single digit range for the full-year. This combination of revenue growth and well-managed expenses resulted in the business sustaining an operating margin of approximately 30%. Turning to asset management on Slide 7. Financial results were very strong in the quarter and we continue to manage the business well through a challenging environment for active asset managers. Total AUM increased 7% to $652 billion primarily from higher equity market appreciation, partially offset by net outflows. In the quarter, operating earnings increased 25% to $206 million as a result of equity market appreciation, disciplined expense management, which more than offset the cumulative impact of net outflows, and the margin was in our top end of our targeted range at 35% in the quarter.

Adjusted operating expenses increased 2% with general and administrative expenses flat from a year ago. On a normalized basis, general and administrative expenses was 3% lower than last year, reflecting the benefits from comprehensive expense management initiatives taken since 2023. We are looking globally, especially in EMEA, to enhance operational efficiencies and manage expenses, so we are well-positioned going forward. Let’s turn to Slide 8. Retirement and Protection Solutions continue to deliver good earnings and free cash flow generation, reflecting the high-quality of the business that has been built over a long period of time. Pretax adjusted operating earnings in the quarter increased 3% to $199 million reflecting the benefit from strong markets and higher interest rates, partially offset from strong sales growth, which drove up distribution expense.

Overall, Retirement and Protection Solutions sales improved in the quarter, with Protection sales up 8% to $65 million primarily in higher margin VUL. Variable annuity sales grew 32% to $1.2 billion with strong momentum in our structured product. Turning to Slide 9. Ameriprise delivered excellent growth in the first quarter, which is a continuation of the long track record across market cycles and our commitment to profitable growth. Over the last 12 months, revenue grew 10%, earnings per share increased 19%, and ROE grew 240 basis points excluding unlocking. We had similar growth trends over the past five years with 7% revenue growth, 15% EPS compounded annual growth and ROE improved 13 percentage points. Compared to most financial services companies, this differentiated performance across multiple cycles speak to the complementary nature of our business mix as well as our focus on profitable growth.

Now, let’s finish with the balance sheet on Slide 10. Balance sheet fundamentals and free cash flow generation remained strong and support our ability to consistently return capital to shareholders and invest for future business growth. In the last year, we returned $2.6 billion of capital to shareholders, which included $650 million in the quarter. In addition, we announced our annual dividend increase of 10%, taking the quarterly dividend to $1.48 per share. Ameriprise’s consistent capital return strategy drives long-term shareholder value. Over the past five years, we returned $12 billion to shareholders with the repurchase of 40 million shares at an average price of $227 resulting in a net reduction of our share count of 25%. With that, we’ll take your questions.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Brennan Hawken from UBS is online with your first question. Please go ahead.

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Q&A Session

Brennan Hawken: Good morning. Thanks for taking my questions. You spoke to growth and experienced advisor recruiting. So, I was hoping you could maybe provide some perspective on how you view the competitive environment for FA recruiting right now. And based on that view, do you think it’s a better time to pull back or lean into the market and why is that?

James M. Cracchiolo: So, as you saw in the first quarter, we attracted 65 high-quality recruits into the business. I think the recruiting is a little slower in the first quarter with the markets that ran, people were staying put a little more. I do believe that the market is very competitive and some of the competitors are actually, I think, being a little more irrational in that regard. So, we’re much more focused on quality people that really think about where they need to associate. They want to build good practices, become more productive, want the support they need to do that, and those are the type of people that we’ve been focused on.

Brennan Hawken: Yes. That makes sense. Okay. Thanks. And then maybe, for my follow-up, something a little more tactical. Cash balances have been in focus. We all know that, April is a big month for taxes, and sometimes has an impact on your business. So, could you talk comment on what trends you’ve seen in cash balances here month-to-date? What the impact was that we should expect from taxes? And were those largely funded out of sweep or other cash vehicles?

Walter S. Berman: Okay. What we’ve seen in April, is basically a small amount going out before taxes out of sweep. We have started to see some actually shifting out of money market, third-party money markets. Again, I can’t say it’s taxes, but clearly the patterns there, sweep is stable and we’ve seen a little pattern on shifting on money market, third-party money markets.

Brennan Hawken: Got it. But overall month-to-date stable sweep is the right way to think about it?

Walter S. Berman: Absolutely. Great. Thanks for that color.

Operator: Your next question comes from Suneet Kamath with Jefferies. Please go ahead.

Suneet Kamath: Thanks. Just wanted to go back to the Wealth Management comments about the bank, net investment income rising 30%. Obviously, that’s not a number that we can pull out of your supplements, but just curious where you see that going in the balance of the year and into next year in terms of growth? I know you talked about growth this year over last year and growth next year over this year. But, can you just put some broad numbers around what you’re expecting? I wouldn’t guess it would be 30%, but just curious what you’re seeing there?

Walter S. Berman: It won’t be 30%. As I mentioned, Suneet, what you’ll see is that we have each year about $3 billion in each year that will be reinvested. And, you should figure that will pick up, listen, rates stay where they are somewhere 100 basis points to 125 basis points on that. So, that will make a contribution because that will be almost 35% of our total AUM outstanding at the bank. So, it’s going to, I see it continuing. It’s going to slow obviously as we get into the [‘25] (ph) and as we progress through the year, but it will be very healthy and profitability is quite good.

Suneet Kamath: Got it. And then I guess on the cost savings, I mean, it seems to me like we’ve spent more time talking about that on this call and more recent calls. And, I guess what I want to get a handle on is what are you trying to — what are you seeing on the revenue side? It would seem to me, given your history, you tend to talk a lot about cost savings when there’s revenue pressure. Obviously, we see it in asset management, but it sounds like there might be incremental pressure in other segments. I just want to get a sense of what are you responding to? Is it more than just pressure in the asset management business?

James M. Cracchiolo: No, Suneet. I think when we look at the asset management, we do believe what we have put together the technology and the capabilities and the geographical type of makeup, there is an opportunity for us to further get efficiencies in the asset management and that’s very much our focus. In regard to the other business and across the company from a corporate perspective, we again feel like there’s an opportunity for us to even tighten our operating model a bit more and get even a bit more efficiency based on combination of the technology and other capabilities that we put in place and how we’re operating, including geographically. So, we’re looking at that. It’s not because of any external pressure per se.

It’s something that you know that we’ve done over cycles as we reengineer and continue to invest. But at the same time, we are making good new investments in AI and data and analytics and technology platforms in cybersecurity. And so, what we’re trying to do is we know that we want to invest and we know that if we can get some other efficiencies on the expense base, that’s always helpful for us. And we can’t dictate what the market conditions are, but it gives us flexibility.

Suneet Kamath: Got it. And, then just one comment I had just on the experienced advisor recruits. I think for many quarters, you’ve given us the number of recruits, which is helpful, but I think there’s also been a change in, like the size of the practices that you’ve been bringing on board. So, maybe at some point, if you can give us a look at over this period of time, this is how much assets came in from those recruits, I think that would be helpful.

James M. Cracchiolo: Will do.

Suneet Kamath: Okay. Thank you.

Operator: Your next question comes from Wilma Burdis with Raymond James. Please go ahead.

Wilma Burdis: Hey, good morning. Is there any pressure from clients to pass through more short-term interest rate benefits, especially as the rates could stay higher for longer?

James M. Cracchiolo: Well, as you saw, I mean, we have a lot of cash balances and a lot are invested in whether it be money market, brokered CDs, our own certificate programs, etcetera. Even in our bank now, we have higher savings products, etcetera. So no, because what’s left in sweep is more of that transactional liquidity type thing, just like you maintain in your bank account sort of, but in this case, it’s for activity within the overall business that they have and maintain and the cash moves. So, if everything was sitting in sweep, then the answer would probably be yes, but that’s not the case.

Wilma Burdis: Okay. Thank you. And then, can you talk a little bit about, how you guys think about acquisitions in AWM space, especially maybe for scale a little bit something a little bit larger? Just kind of curious what you’re seeing there. Thanks.

James M. Cracchiolo: Is that regarding AWM?

Wilma Burdis: Yes.

James M. Cracchiolo: Okay.

Wilma Burdis: AWM, yes.

James M. Cracchiolo: What we look as we said is, we look to associate people that really feel that we can add value to their practices and what we can bring. We look at other things that may make sense for us, but again, we’re not just looking to roll up firms and put it on a network. We really look for people to join us and build out under what we provide from a client experience perspective. So, that’s the way we go about thinking about it.

Wilma Burdis: Thank you.

Operator: Your next question comes from Thomas Gallagher with Evercore ISI. Please go ahead.

Thomas Gallagher: Good morning. First question is, can you provide some color on what kind of margin you’re getting on new flows, the $8.5 billion of net inflows overall to AWM? When I look at, Jim, I agree with your comment, 30% margin is certainly impressive. But just curious as you think about organic growth, what that’s going to do to margins assuming we keep the macro constant on kind of your in force earnings?

James M. Cracchiolo: So, Tom, as you look like even in the first quarter, what we saw, it was a nice increase in core business activities. And, what you had a little more is on the cash side, that came off a little bit in total contribution to the margin. And so, when you look at the totality of it, that underlying business, particularly as you kind of combination of business that’s their transactional wrap fee business, and what they’re sitting on the cash sidelines coming back in, which would give us higher margins if it’s not in the cash certificates, brokerage other things like that. So, I would probably say there’s a good opportunity there based on people cycling back into the markets. We saw a nice start to increase in fixed income, again rather than just short-term cash.

So, I think there’s some of that that will occur. Part of that’s from the new flow as you said, but part of it’s really from the core of what came in and what’s sitting there. And so, I would probably say in the past year or two, a bit more of that has been in the cash side. And when that cash goes into money market or into brokered CDs, etcetera, that doesn’t give us as much margin, and that should come back in.

Thomas Gallagher: And Jim, sorry, just a follow-up there. So, would you say or maybe this is for Walter, would you say the incremental margin you’re getting on new flows is above or below the 30% level? If you would just isolate it that way.

James M. Cracchiolo: I didn’t look at exactly how much of the new flow came and went right into the market yet. I would probably say it’s relatively consistent, because our advisors don’t put it all to work immediately when it comes in. So, I would probably look at it that way that it’s probably relatively the same at this point.

Thomas Gallagher: Got you. That’s helpful. And, then just one follow-up. Long-term care risk transfer, Walter, I think you mentioned last quarter that you were sort of encouraged by bid spread narrowing. Can you talk about where your head is at with that? Is that something you’re actively pursuing? Would you have to bundle other risks to potentially transact on that?

Walter S. Berman: So Tom, as I said last quarter, we certainly looked at the Manulife transaction and we are evaluating it. We really are. We continue to do that and evaluate the trade-offs and certainly it moved the bar and we’re just evaluating that.

Thomas Gallagher: Okay. Thanks.

Operator: Your next question comes from Ryan Krueger with KBW. Please go ahead.

Ryan Krueger: Hi, thanks. Good morning. My first question was just on the, can you give us some sense of your expectations for bank, not NII, but just bank asset growth in 2024, whether it be moving more from cash sweep or growing it organically?

James M. Cracchiolo: Yes. So, we’re looking at that now and obviously we do have buffers in the sweep account. So, it would be, we haven’t decided on the amount yet. We will just evaluate, but it will increase. It’s certainly not at the levels we’ve increased previously, but certainly there’s potential to increase it. And, then of course we’re going to be picking up basically interest earnings on basically when we reposition the $3 billion each year. So, I would say that it’s, will be increasing, but, and then also we’ll be launching other products there too. So it’s a combo, and we certainly have room to do that.

Ryan Krueger: Great. Thanks. And then, I guess, back to Tom’s question, just curious, to what extent are you, I guess, are you interested specifically in risk transfer with RiverSource? Or, I guess, would you consider something that’s a more broad strategic move with RiverSource rather than isolating to a risk transfer deal?

James M. Cracchiolo: So, we do evaluate different possibilities. But as I said, I think our business is performing really well. I mean, even in long-term care, I mentioned about we’re earning $16 million but even if you look over the last four quarters, we had some nice positive income and we think that’s pretty stable now. And so, if an opportunity came along that made sense for us with a good strategic type of partner or on a reinsurance type, we will be very open to explore that. But, on the other side, I think we have a really good hand and it gives us a lot of free cash flow and again good solutions. And, we have a real large complement of solutions on our shelf. So, it’s not like we have to be the provider, we’re not. So, we pick our spots, but we feel good about it. But again, we will always look at if there’s a better opportunity for us.