Voya Financial, Inc. (NYSE:VOYA) Q4 2022 Earnings Call Transcript

Voya Financial, Inc. (NYSE:VOYA) Q4 2022 Earnings Call Transcript February 8, 2023

Operator: Good morning, and welcome to Voya Financial’s Fourth Quarter and Full Year 2022 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunities to ask questions. Please note, this event is being recorded. I’d now like to turn the call over to Mike Katz, EVP of Finance. Please go ahead.

Michael Katz: Thank you, and good morning. Welcome to Voya Financial’s fourth quarter and full year 2022 earnings conference call. We appreciate all of you who have joined us for this call. As a reminder materials for today’s call are available on our website at investors.voya.com or via the webcast. Turning to Slide two; some of the comments made during this call may contain forward-looking statements within the meaning of Federal Securities law. I refer you to the slide for more information. We’ll also be referring today to certain non-GAAP financial measures, GAAP reconciliations are available in our press release and financial supplement found on our website. We plan to release our fourth quarter 2022 financial supplement restated for the accounting impacts from long duration targeted improvements or LDTI with our first quarter 2023 earnings call.

The restated financial supplement will include the impacts of the targeted improvements, which build into effect in the first quarter 2023. That said, we do include forward-looking guidance related to LDTI in the analysts modelling considerations within our presentation. Joining me on the call are Rod Martin, our Executive Chairman; Heather Lavallee, our Chief Executive Officer; and Don Templin, our Chief Financial Officer. After their prepared remarks, we will take your questions. For Q&A session, we have also invited the heads of our businesses, specifically, Christine Hurtsellers, Investment Management and Rob Grubka, Workplace Solutions. With that, let’s turn to Slide three as I’d like to turn the call over to Heather.

Heather Lavallee: Good morning. I’d like to begin by sharing how energized I am to serve as Voya’s CEO and lead this management team as we execute on our strategic objectives and continue to deliver strong financial results for our shareholders. I also want to thank Rod for his leadership over the past decade. Thanks to Rod and the incredible work performed by so many across our company, Voya has been at the forefront of strategic developments in our industry in recent years. We’ve divested capital-intensive businesses, grown high ROE and free cash flow generating revenues and deployed capital in a manner that maximizes value for our shareholders. I’m enthusiastic about our leadership team and Voya’s prospects, as we continue to execute on our strategic and financial objectives this year and into the future.

Together, we are guided by the same set of principles that have served Voya and its shareholders so well over the years, careful stewardship of shareholder capital, skillful management of expenses and a focus on profitable growth. And as I think back to everything that our team has accomplished in just the past year, I see those principles in action. Today, we are reporting strong financial results for a year in which macro headwinds were among the most difficult we have faced. Across every business, we have proven our resiliency and our ability to execute. We carried out transformative M&A transactions throughout 2022 that have positioned Voya for strong growth in the years ahead. Our acquisition of AllianzGI’s U.S. Asset Management business has added scale and diversification to Voya Investment Management and is already delivering outstanding financial results.

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And we just recently closed our acquisition of Benefitfocus, adding a highly strategic business that provides the capabilities we need to fully capitalize on our workplace strategy. Through these two notable acquisitions, we have carried out in significant part the inorganic moves that we signaled at Investor Day just 16 months ago. We are focused on continuing to execute and deliver on integration of the businesses we have acquired, achievement of the strategic goals these transactions have enabled and driving Voya’s continued growth. Before I cover our key themes from the quarter and full year 2022, I’d like to ask Rod to say a few words. Rod?

Rod Martin: Thank you, Heather. Today’s call is special for me and everyone at Voya, as it’s our first following our successful CEO transition earlier this month. As we approach Voya’s next decade as a publicly traded company, we do so with a CEO and a management team that have my complete support and the full confidence of our entire Board of Directors. Since we began our CEO transition six months ago. Heather with the strong support of our management team, has demonstrated that Voya will continue to build upon our proven foundation of success. Under Heather’s leadership, Voya’s next chapter is an exciting one. Building on the commitments at our last Investor Day, Voya is well positioned to create even greater value for our customers, clients, employees and shareholders.

I want to personally thank everyone at Voya for the dedication and commitment that has enabled our company to positively impact the lives of our customers and clients and to contribute to the communities in which we live and work. As Executive Chairman, I will continue to serve Voya and support our outstanding CEO and management team. With that, I will turn it back over to Heather.

Heather Lavallee: Thank you, Rod. Let’s move to Slide 6 with some key themes, starting with our strong EPS growth in both the quarter and full year. For the full year, we grew adjusted operating EPS by 24%, well above our annual growth target of 12% to 17%. Our strong EPS growth reflects Voya’s continued execution of our net revenue growth, margin expansion and capital management initiatives. In terms of net revenue growth, commercial momentum continued across our businesses. For Wealth Solutions, we grew full service recurring deposits over 10%. In Health Solutions, annualized in-force premiums grew nearly 11% year-over-year. In Investment Management, we generated approximately $150 million of net inflows during the fourth quarter despite a challenging backdrop for asset managers.

This contributed to full year net flows of over $1 billion, reflecting, in particular, the strong performance of the business we acquired from Allianz’s global investors last July. In a few moments, Don will share more on our results and performance. With respect to capital management, we concluded the year with approximately $900 million of excess capital after deploying $1.2 billion to repurchase shares, extinguish debt and pay common stock dividends. And having completed our acquisitions of Benefitfocus last month, we expect to resume share repurchases in the second quarter of 2023 and assuming market conditions remain constructive. In addition to net revenue growth and capital deployment, we have also remained focused on margins, which has included our successful elimination of all stranded costs associated with prior divestitures ahead of schedule in 2022.

Underlying our results this year is our continued commitment to the execution of our plans, controlling what we can control despite the headwinds of the macro environment. Let’s turn to Slide 7. We completed our asset management transaction with Allianz’s global investors only six months ago, and we are already seeing significant benefits from this acquisition, including strong earnings and positive net flows. Through this acquisition, we have significantly diversified our asset management business, transforming Voya Investment Management into a global provider of investment solutions to clients across numerous attractive asset classes and markets. The transaction also added considerable scale to our business with $90 billion in new assets under management, as well as access to AllianzGI’s extensive global footprint to distribute our investment strategies outside of the U.S. and Canada.

Let’s turn to Slide 8. We also completed our acquisition of Benefitfocus last month. Benefitfocus helps us achieve one of our core strategic objectives: connecting workplace health benefits and workplace savings in a manner unique to the marketplace. With a Benefitfocus platform, Voya can meet the increasing demand among employers for workplace benefits and savings solutions that optimize their benefit spend. Just as important, the acquisition allows Voya to simplify what is too often an overly complicated process for employees to select the right package of benefits to meet their unique needs and circumstances, providing a superior user experience for our clients and customers. From a financial standpoint, it adds capital-light, fee-based recurring revenues, while positioning us well over the longer term to grow into highly attractive markets connected to health benefits at the workplace.

For 2023, we expect the business to generate EBITDA of approximately $50 million including expense synergies. Turning to Slide 9; our focus on our culture and the character of our brand continues to differentiate Voya. Once again, this quarter, we have been recognized externally by several prestigious organizations, including those noted on this slide. These honors speak to the Voya culture that we have developed during the past decade and is reflected in the diversity and strength of our Board, our management team and our workforce. The transformation we have executed over the past 10 years is directly attributable to our people who have consistently worked in partnership to achieve the ambitious goals we have set. As Voya’s CEO, I will continue to protect and develop the strength of this culture, preserving the powerful legacy and differentiators that Voya has built over many years.

Looking forward, our culture will continue to help us stand apart in the marketplace. Before I pass it over to Don, I’d like to take a moment to welcome him to Voya. I’m excited to have him as part of our management team, and I’m confident that all of our stakeholders will benefit from his great experience and knowledge. We are looking forward to working closely with him as we advance our strategy and financial plans. Don?

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Q&A Session

Don Templin: Thank you, Heather. Let me begin by saying how delighted I am to join you all on my first earnings call as CFO. I’m incredibly excited to join a high-caliber management team with an established track record of execution. I look forward to working with this team to accelerate organic growth opportunities, maximize value from our recently acquired assets and drive long-term shareholder value. Let’s turn to our results on Slide 11. We delivered adjusted operating earnings per share of $2.18 in the fourth quarter and $7.58 for the full year. This included notable items totaling $0.13 for the quarter and $0.17 for the full year. Excluding these items, year-over-year adjusted operating earnings per share for the fourth quarter grew by 31% to $2.05 and for the full year by 24% to $7.41.

Organic growth was driven by higher investment spread revenue in Wealth and strong underwriting results in Health. This was partly offset by the impact of equity markets on fee revenues in Wealth and Investment Management. Fourth quarter and full year 2022 GAAP net income was $190 million and $474 million, respectively. From an excess capital perspective, we generated over $600 million in 2022. This is meaningfully above net income, primarily due to the noncash impacts related to businesses we exited through reinsurance. Our strong results exemplify how diverse revenue streams and complementary businesses enable us to effectively navigate through rapidly changing economic landscapes. Moving to Slide 12. Wealth Solutions delivered strong fourth quarter and full year results.

We generated $148 million of adjusted operating earnings in the fourth quarter and full year earnings of $707 million. Full year net revenues ex notables grew approximately 3%, in line with our 2% to 4% target. Our spread-based revenues continued to benefit from higher interest rates. This more than offset the impact of lower average equity markets on our fee-based margins. First quarter investment spread income is expected to be in line with fourth quarter 2022. While we expect to benefit from the higher rate environment, this will be offset by increased crediting rates. Full year adjusted operating margin was 37.5%, this exceeded our target range of 34% to 36%, highlighting our ability to manage through challenging macro cycles. Turning to deposits and flows.

Full Service recurring deposits grew 10% on a trailing 12-month basis, consistent with our 10% to 12% growth expectation. Full Service net inflows were over $950 million in the quarter, reflecting strong planned sales and favorable retention. This contributed to a record year of Full Service net flows of nearly $3 billion, marking the seventh consecutive year of positive flows in Full Service. Finally, recordkeeping net outflows were approximately $570 million in the quarter. Looking ahead, we expect a favorable trend in full service and record keeping net cash flows to continue, supported by a healthy 2023 pipeline. Turning to Slide 13. Health Solutions delivered strong fourth quarter and full year results, demonstrating marketplace demand and pricing discipline.

We generated $74 million of adjusted operating earnings in the fourth quarter and full year earnings of $291 million. Adjusted operating earnings grew on solid revenue growth, and operating margins were within our 27% to 33% target range. Full year net revenues ex notables grew close to 13% year-over-year, reflecting favorable net underwriting results and premium growth across all product lines. Annualized in-force premiums grew nearly 11% year-over-year exceeding our 7% to 10% expectation. We saw growth in all products, including 20% growth in voluntary. Total aggregate loss ratios were 69% on a trailing 12-month basis. This was better than our targeted 70% to 73% range, primarily due to favorable claims development within stop loss during the quarter, which more than offset elevated non-COVID mortality within group life.