Q4 2024 Earnings Summary
- Invesco expects operating margin expansion in 2025 driven by disciplined expense management and a focus on organic revenue growth across all investment capabilities. They aim for 1% expense growth year-over-year, inclusive of costs associated with the Alpha platform implementation.
- Strong growth opportunities in Private Markets and Alternatives, particularly through wealth management channels. Their real estate debt strategy, INCREF, doubled in size over the past few quarters to around $2.5 billion, showcasing increasing demand in this space. They also plan to build out their Alternative Credit offerings.
- ETF adoption in Europe is accelerating, and Invesco is optimistic about EMEA ETF growth, with over $125 billion in ETF assets in the region. Despite slightly lower fee rates in Europe compared to the U.S., this trend is viewed as a net positive for organic revenue growth due to strong demand.
- Invesco's compensation-to-revenue ratio remains elevated at approximately 43%, with limited expectation of improvement in 2025, which may impact operating margins negatively.
- The firm anticipates increased operating expenses in 2025 due to higher implementation costs related to the Alpha platform and higher compensation expenses, potentially pressuring profitability.
- Ongoing net revenue yield declines are driven by a shift towards lower-fee products, such as ETFs, especially in Europe and China, which may negatively affect overall revenues. ,
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | Up 13% (from $1,413.4M to $1,593M) | Total Revenue increased by approximately 13% due to strong growth across business segments. The rise reflects recovery in client AUM and product performance compared to Q4 2023, where revenue performance was adversely impacted, driving an upward revision in Q4 2024. |
Investment Management Fees | Up 12% (from $1,003.3M to $1,127.3M) | Investment Management Fees improved by around 12% primarily driven by higher average AUM, which outweighed any negative effects from shifts toward lower-yield products that were present in prior periods. |
Service and Distribution Fees | Up 10% (from $344.6M to $380.8M) | The increase in Service and Distribution Fees (approximately 10%) reflects higher AUM and improved fee generation, despite ongoing challenges from asset mix shifts to lower-yield products that had constrained fee levels previously. |
Performance Fees | Up 75% (from $19.5M to $34.1M) | Performance Fees surged by roughly 75% as improved market performance and stronger execution in underlying investment strategies reversed the lower fee levels seen in Q4 2023, supporting a substantial boost in performance-based revenue. |
Other Revenues | Increased (from $46M to $50.8M) | The modest increase in Other Revenues is mainly due to higher transaction fees, which built on improvements in transactional activity compared to the previous period. |
Operating Income (EBIT) | From a loss of $1,075.8M to $311.7M | Operating Income turned positive, reversing a significant loss seen in Q4 2023. This turnaround is attributable to strong revenue gains across key segments and improved cost management, with the absence of prior one-off adverse expenses contributing to the recovery. |
Net Income | From a loss of $832.6M to $423.7M | Net Income recovered dramatically from a loss to $423.7M, driven by the rebound in operating income and margin recovery, reflecting both higher revenues and better control of operating costs relative to the previous period's challenging environment. |
EPS (Basic and Diluted) | From -$1.63 to $0.46 | EPS improved significantly due to the recovery in net income and operating performance improvements. The positive turnaround in EPS, rising to $0.46, reflects the cumulative effect of improved revenue streams and better overall efficiency relative to the negative EPS reported in Q4 2023. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Operating Margin | Q4 2024 | no prior guidance | targeting mid-30s over time | no prior guidance |
State Street Alpha Platform Costs | Q4 2024 | no prior guidance | implementation costs remain $15M, fees < $5M | no prior guidance |
Share Buybacks | Q4 2024 | no prior guidance | $25M | no prior guidance |
Tax Rate | Q4 2024 | no prior guidance | near 23%–25% | no prior guidance |
Total Expenses | FY 2024 | no prior guidance | around $3B, slightly higher with market improvement | no prior guidance |
Operating Expenses | FY 2025 | no prior guidance | expected to increase by 1% over 2024 | no prior guidance |
Alpha Implementation Costs | FY 2025 | no prior guidance | $10M–$15M per quarter | no prior guidance |
Alpha-Related Costs (Total) | FY 2025 | no prior guidance | $20M–$25M higher vs. 2024 | no prior guidance |
Compensation to Revenue Ratio | FY 2025 | no prior guidance | 42%–43% | no prior guidance |
Capital Return (Total Payout Ratio) | FY 2025 | moving closer to 60% | moving closer to 60% | no change |
Effective Tax Rate | Q1 2025 | no prior guidance | near 25% | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Operating Margin | Q4 2024 | Mid-30% operating margin | ~19.6% (calculated from Operating Income of 311.7 / Total Revenue of 1,593) | Missed |
Share Buybacks | Q4 2024 | ~$25 million | $26 million | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Alpha platform implementation | In Q3 2024, costs rose to $15M; Q2 2024 at $12M; Q1 2024 at $7M. Each period highlighted rising implementation spend and a phased approach. | Costs remain $10–$15M/quarter in 2025, with continued multi-year rollout and eventual efficiency gains. | Recurring. Key strategic focus with an emphasis on long-term cost savings. |
China joint venture | Q3 2024 saw equity ETF launches and a shift to higher-fee products; Q2 2024 noted domestic-to-domestic focus; Q1 2024 had positive flows. | Achieved $2.5B in net inflows, benefiting from equities and fixed income, modestly aided by stimulus. | Recurring. Consistent growth driver, despite market volatility. |
ETF growth | Q3 2024 had $17.7B inflows (16% annualized); Q2 2024 and Q1 2024 showed robust inflows, new launches, and growing global footprint. | Strong gains in EMEA with $11B net inflows. Record AUM and a high-profile custom ETF launch at $2.5B. | Recurring. Continues to expand globally and drive organic growth. |
Expense discipline | Q3 2024 underscored expense control for margin leverage; Q2 2024 and Q1 2024 focused on cost management and reclassification, with achieved net savings. | Targeting 1% expense growth in 2025, balancing Alpha costs and strategic investments. | Recurring. Ongoing focus on cost containment and resource allocation. |
Fundamental equities outflows | Q3 2024 had $6.3B outflows, slowing from previous quarters; Q2 2024 had similar pressure, with efforts to narrow outflows ; Q1 2024 reported $5.6B outflows. | Continued outflows ($2B) but some moderation; improving performance is a priority. | Recurring. Gradual improvement but still a headwind. |
Geopolitical risk in China | Q3 2024 did not reference it directly; Q2 2024 cited sensitivity to domestic Chinese economy; Q1 2024 noted it as a factor for fundamental equity headwinds. | Not explicitly mentioned in Q4 2024. | Fading. Previously discussed, no direct mention in Q4. |
Government stimulus in China | Q3 2024 saw positive effects on markets and equity demand; no mentions in Q2 2024 or Q1 2024. | Modestly raising confidence, though more is needed to boost retail sentiment. | Newer. Emerged in Q3, continuing into Q4 discussions. |
Net revenue yield declines | Q3 2024 at 25.3 bps trending to 25.0 bps; Q2 2024 and Q1 2024 also showed a falling trajectory linked to lower-fee products. | Yield declined to 24.6 bps, exiting at 24.1 bps due to mix shifts. | Recurring. Ongoing pressure from asset mix changes. |
Operating margin expansion | Q3 2024 margin at 31.6%; Q2 2024 at 30.9%; Q1 2024 highlighted active leverage strategies. | Emphasized 2025 operating margin growth, aided by expense management and organic flows. | Recurring. Continual progress, focus on mid- to long-term targets. |
Private markets and alternatives | Q3 2024 saw real estate debt flows in wealth management; Q2 2024 reported $2.6B inflows; Q1 2024 had $1B inflows across credit and real estate. | Highlighted real estate debt and credit expansion, with INCREF doubling to $2.5B. | Recurring. Growing interest, especially in wealth channels. |
Real estate debt strategies | Q3 2024 saw $1.2B in real estate inflows; Q2 2024 and Q1 2024 emphasized strong demand for private real estate debt. | INCREF reached $2.5B, doubling in recent quarters, targeting wealth management. | Recurring. Momentum building in the wealth segment. |
SMA platform | Q3 2024 at $27B, up 45% YoY; Q2 2024 at $25B, 28% YoY; Q1 2024 at $23B, 24% YoY, especially strong in retail fixed income. | $28B AUM, 33% organic growth driven by municipal bond strategies. | Recurring. Continued rapid expansion and flows. |
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Alpha Expenses & Margin Outlook
Q: How will Alpha expenses affect margins in 2025?
A: Despite $20–25 million higher Alpha costs in 2025 compared to 2024 , management is bullish on margins, expecting only a 1% expense increase over 2024. Alpha implementation costs of $10–15 million per quarter will continue through 2025. Benefits from Alpha will materialize post-transition in 2026. -
Operational Benefits from Alpha
Q: What operational benefits are expected from Alpha implementation?
A: Alpha will simplify operations by transitioning assets to a single platform, enhancing efficiency and investment execution. Early experiences are positive, but significant benefits will emerge as more assets migrate. Cost savings from decommissioning legacy systems are anticipated after full transition. -
Fundamental Equities Outflows
Q: How is the company addressing outflows in Fundamental Equities?
A: Management is focusing on delivering high-quality investment performance and defending the business. Narrowing outflows in Fundamental Equities is seen as the biggest opportunity to expand revenue and improve operating margins in 2025. -
Private Markets Growth Strategy
Q: What is the strategy to grow the Private Markets business?
A: The company sees opportunities in organic growth, especially in real estate debt strategies like INCREF, which doubled to $2.5 billion. They are expanding alternative credit offerings to wealth management channels and exploring partnerships for inorganic growth. -
Capital Management & Payout Ratio
Q: How is capital being allocated given improved liquidity?
A: Priorities are investing in organic growth and preserving cash for a potential repayment of a $500 million debt maturing next January. The payout ratio remains at 60%, maintaining flexibility for growth opportunities and debt management. -
China Business Outlook
Q: What are expectations for growth in China?
A: The company experienced $2.5 billion in flows this quarter, driven by demand for equity ETFs and fixed income plus strategies. While demand is increasing, retail investor confidence may need further stimulus to strengthen. -
Expense Guidance Details
Q: Can you clarify the expense guidance and impact of Alpha costs?
A: The 1% expense increase over 2024 is based on a $3.30 billion expense base. Alpha implementation costs of $10–15 million per quarter will continue through 2025 and may extend into 2026 as assets transition. -
Institutional Business Pipeline
Q: Where is the company seeing success in institutional business?
A: The pipeline is expanding across all regions and capabilities, with strength in fixed income, alternatives, and select equities. Fee rates are on the high end, in the mid-20s to mid-30s basis points. -
ETF Fee Rates & Mix Shift
Q: What is causing changes in ETF fee rates?
A: Fee rates are impacted by mix shifts, with strong demand for lower-fee products like QQQM and S&P 500 Equal Weight ETFs with fees in mid to high single digits. In APAC, fee reductions due to regulatory mandates in 2023 are now fully absorbed. -
Active ETF Strategy
Q: How is the company approaching active ETFs?
A: With about $10 billion in active ETFs, the company is exploring multiple paths, including new launches and potential conversions. Cloning mutual fund strategies into ETFs is considered but is not the primary focus.
Research analysts covering Invesco.