Acadian Asset Management 2026 Q2 Earnings Call

Please go ahead, Melody. Good morning and welcome to Acadian Asset Management Inc.'s conference call to discuss our results for the second quarter ended June 30th, 2026.

Before we begin the presentation, please note that we may make forward-looking statements about our business and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected. Additional information regarding this risk and uncertainties appears in our SEC filings, including the Form 8-K filed today containing the earnings release, our 2025 Form 10-K, and our Form 10-Q for the first quarter of 2026. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update them as a result of new information or future events. We may also reference certain non-GAAP financial measures.

Information about any non-GAAP measures referenced, including a reconciliation of those measures to GAAP measures, can be found on our website, along with the slides that we will use as part of today's discussion. Finally, nothing herein shall be deemed to be an offer or solicitation to buy any investment products. Kelly Young, our President and Chief Executive Officer, will lead the call. Now I'm pleased to turn the call over to Kelly.

Thanks, Melody. Good morning, everyone, and thanks for joining us today. I'm delighted to share our exceptional Q2 2026 results with you. As Acadian celebrates its 40th anniversary, our assets under management and profitability continue to reach new heights, with recent strong growth underscoring sustained momentum in our business and disciplined execution of our strategic plan. Before turning to the quarter in more detail, I want to highlight an investment team update that reflects both continuity and ongoing investment in our capabilities. We're pleased to announce that Alex Voitenok, our Deputy Chief Investment Officer, will become Co-CIO alongside Brendan Bradley, effective January 1st, 2027. Alex has been with Acadian since 2012 and has played an increasingly important leadership role across our investment organization, specifically in the areas of portfolio construction, implementation, data infrastructure, and investment engineering.

This move further strengthens dedicated oversight across data, process, risk, and trading as we continue to scale and allows Brendan to focus on investment policy, research innovation, and strategic investment priorities. We are also pleased to have welcomed Jonathan Briggs, formerly of TC43 and CPP Investments, as well as certain other members of the former TC43 team to Acadian's investment organization. Their research, data engineering, and modeling capabilities are highly complementary to our systematic investment platform and will help accelerate work already undertaken across our research and innovation agenda. Taken together, these developments reflect the same strategic planning and organizational continuity that have defined Acadian for decades. Disciplined, systematic investing, continued investment in talent and technology, and a steady focus on delivering long-term outcomes for our clients.

We are also pleased to see Acadian move up meaningfully in the latest annual Pensions & Investments Largest Money Managers ranking, rising to number 62 from number 76 last year. While rankings are only one measure, we view this as further external recognition of the scale we have built and the momentum we are seeing across the business. We continue to deliver outstanding results across all key metrics in the second quarter. Our U.S. GAAP net income attributable to controlling interests was up 170%, and EPS was up 171% compared to the prior year, driven by increased management fees, partially offset by non-cash expenses representing changes in the value of Acadian LLC equity and profit interests. ENI was up 107% to $47.5 million, and our ENI diluted EPS of $1.33 was up 108%, driven by revenue growth. Our adjusted EBITDA was up 79%.

We realized $4.3 billion of positive net client cash flows in Q2 2026, representing a 9% annualized organic growth rate, driven by Enhanced and Extension strategies. Finally, AUM grew 54% from Q2 2025 to $232.7 billion as of June 30, 2026, marking another record high for Acadian. Turning to slide three, Acadian's investment performance track record remains strong. Five major implementations comprise the majority of our assets. As of June 30, 2026, Global Equity, Emerging Markets Equity, non-U.S. equity, Small-Cap Equity, and Enhanced Equity have 100% of assets outperforming benchmarks across three, five, and 10-year periods, with only one exception. Global equity markets delivered strong double-digit performance in Q2 2026, while navigating significant volatility with a challenging geopolitical and macroeconomic backdrop. Emerging markets were standout performers, posting their strongest quarterly gain since 2009, which presented a tailwind for Acadian's portfolio returns.

Acadian generated strong investment performance with broad-based outperformance across most major strategies. Our short-term performance continued to improve in the quarter, 77% of assets outperformed over the trailing one-year period. We believe these results reinforce the consistency and resilience of our disciplined, systematic investment process, which has been built and refined over Acadian's 40-year history. Slide four details how our investment process has generated meaningful long-term alpha for our clients. Our revenue-weighted five-year annualized return in excess of benchmark was 4.3% as of the end of Q2 2026 on a consolidated firm-wide basis. Our asset-weighted five-year annualized return in excess of benchmark was 3.6% as of the end of the quarter. By revenue weight, 96% of Acadian strategies outperformed their respective benchmarks across three, five, and 10-year periods as of June 30, 2026.

By asset weight, 94% of Acadian strategies outperformed their respective benchmarks across three, five, and 10-year periods. The next slide highlights our sustained momentum in net flows. We realized positive net flows of $4.3 billion in Q2 2026, representing a 9% annualized organic growth rate. Gross inflows were diverse across products and client types, and driven by Enhanced and Extension strategies. We've now generated 10 consecutive quarters of positive net flows, and we continue to focus on renewing our pipeline, which remains very healthy and active after the funding of a number of significant client wins in Q2 2026. I'm now going to turn the call over to our CFO, Scott Hynes, to provide you with more detail on our financial performance this quarter and an update on capital allocation.

Thanks, Kelly. Turning to slide seven, our key GAAP and ENI performance metrics are summarized here on a quarterly basis. As previously noted, we manage the business using ENI metrics, which better reflect our underlying operating performance. You can find complete GAAP to ENI reconciliations in the appendix. Let me now turn to our core business results. Starting on slide eight, total ENI revenue of $183 million increased 47% from Q2 2025, primarily due to recurring management fee growth and an increase in performance fees. Q2 2026 management fees of $177 million increased 44% from Q2 2025, reflecting a 66% increase in average AUM, driven by market appreciation and continued positive net client cash flows. With average AUM of $220 billion in the second quarter of 2026, we continue to expand our recurring management fee base and strengthen Acadian's earnings power. Moving to slide nine. In Q2 2026, ENI operating expenses increased 19%, primarily driven by higher G&A expenses, including continued investment in technology and infrastructure, as well as AUM-driven servicing costs, increased sales-based compensation, and higher fixed compensation and benefits.

Our ENI operating margin expanded nearly 10 percentage points to 40.3%, from 30.7% in Q2 2025, mainly driven by increased ENI management fees. While our Q2 2026 operating expense ratio fell eight percentage points year-over-year to 36.8%, reflecting improved operating leverage. Q2 2026 variable compensation increased 39% year-on-year, primarily driven by higher profit before variable compensation. Our Q2 2026 variable compensation ratio decreased to 37.5% in Q2 2026 from 45.4% in Q2 2025. Assuming revenue mix and levels similar to Q2 2026, contractual allocations would imply a full year 2026 variable compensation ratio of approximately 38%-42%. Turning to slide 10 on capital resources and our strong balance sheet.

As of June 30th, 2026, we had $65 million of cash and $110 million of seed investments on the balance sheet, with a $200 million balance on our term loan credit facility and no outstanding balance on our revolving credit facility. Note that the company's strong cash flow generation supported repayment of seasonal revolver borrowings during the second quarter. As of Q2 2026 period end, our gross debt to adjusted EBITDA ratio was 0.8 times, while our net debt to adjusted EBITDA ratio was 0.5 times. Note that our gross leverage ratio of 0.8 times is improved from year-end 2025, supported by greater last 12 months adjusted EBITDA, and is well below the 1.5 times through the cycle gross leverage ratio target identified at our May investor forum. Moving to slide 11. We have a track record of creating significant value through share buybacks in recent years.

Outstanding diluted shares have decreased 58% from 86 million in Q4 2019 to 35.7 million shares in Q2 2026. Over the same period, $1.5 billion in excess capital has been returned to stockholders through share buybacks and dividends. During Q2 2026, we repurchased 0.2 million shares or $10.6 million of stock at a volume weighted average price of $69.92. AAMI's board has declared an interim dividend of $0.10 per share to be paid on September 25th, 2026 to shareholders of record as of the close of business on September 11th, 2026. Going forward, we expect to continue generating strong free cash flow, prioritizing organic growth and balance sheet flexibility, then returning excess capital through dividends and share repurchases. I'll now turn the call back over to Kelly.