Voya Financial, Inc. (VOYA) Earnings Call Transcript & Summary

Well, look, I mean, last year was a massive year in the record-keeping side. I think expecting kind of the flows coming in year-over-year -- I mean we take it every day to Sunday, but that's not something I think we want to signal as something that's going to happen every year. Incredibly proud of it. I think the full service piece that you just called out, it has been a consistent grower for us. So we expect that to continue. We haven't given specific guidance on exactly what we anticipate for '21. But if you look at the earnings growth in Retirement, that 8% to 12%, I mean that's just -- I mean there's an inertia, there's a momentum that we expect that will help to drive that. And we think the recurring deposit piece, I mean, that's going to build over the back half of the year as we start to get on the other side, hopefully, of the pandemic.

Mike, could you also speak to the number of participants that we've added in 2019, 2020, which, Andrew, is a reflection again of good deposit numbers, full service or record keeping that you just spoke on?

Sure. It's 0.5 million of additional participants. And if you link that back to what Rod was talking about earlier, I mean just -- that's just a large swath of individuals that we can get better engaged with, we can offer further health and wealth solutions. And so we see a big opportunity there. So it's not just about the revenue that comes in for record-keeping for those 0.5 million participants, but it's also we see additional opportunities over time as we become more and more a provider of choice to really help individuals, participants and employers do the right thing for their employees.

And maybe now thoughts going back up to the corporate level. Rod, you probably get this question in every meeting, thoughts on remaining an independent company?

Andrew, we've -- if you go all the way back to the comment you made earlier, this has been an 8-plus year journey as a public company. And you well and most of your listeners are aware, we fought like heck to be an independent company. We are proud -- as proud as we can be in being one, and we have every intention of continuing to grow this company in the manner and the way that we have been. So there's no change in our thinking around that at all. I think we've come through a very thoughtful and deliberate derisking of the company, choosing what to be in and what to exit to enable 90% to 95% free cash flow to become capital-light to exit the tail liabilities that we've done. We've done that well. We've executed well. And again, the point I'd make is all of our energies are now built around these 3 businesses and delivering those solutions at the workplace, both from a wealth and health perspective. And so we feel good about it, and we're going to continue to grow well organically and find opportunities to deploy our excess capital in the form of share buyback and further investment in the business as we deem appropriate. But no change in our philosophy around that.

Maybe just to follow up on that, Rod. Do you get a lot of inquiries? Or is there [indiscernible] interest? And if the right situation arose, would that be something you'd be willing to consider?

Andrew, I think if you look at -- we've always commented, and I feel particularly proud of this that -- first of all, I'm exceedingly proud of our Board and how our Board has provided just fantastic guidance and support in being, in my view, one of the most shareholder-responsive companies in our industry. And I think you see that in -- as Mike Katz would say, we've got 6.5 billion reasons to point to that answer in the amount of share buyback. We're buying back 15% of our market share, and we've got -- we're in a very enviable position. So I have a lot of confidence that our Board will act in shareholders' best interest, period. Just period. And that said, there's a huge amount of encouragement and support in continuing to execute, focus on growth and invest in our businesses at attractive returns that are in, again, the 16% -- 14% to 16% ROE range, which will produce this year an 8% to 12% EPS growth rate and leading to what I think will be a fantastic Investor Day the latter part of this year going -- laying out the next 3-year plan.

Got it. That makes perfect sense. It's been a great run. I hope -- I suspect it will continue. Rod, you've been the CEO that I always tell my clients that you've been the best steward for the shareholders. So it's synced up with what they're saying. So every time I hear about some -- you've got a plan, a glide path, I think, as you've said, for the first quarter of '21, I kind of winced a little bit. I'm like, "Oh, let's keep Rod there." So -- and I know your contract extends through '21 for an option for '22. So could you give us a little color, Rod, on how long you...

You bet. What -- I'll give you some color on what I answered on the fourth quarter call and what you should expect to hear. What I said was in the normal course that was generally reviewed in the late fall, as a result of both COVID, the Life sale, our focus on getting the momentum that you're hearing Christine and I talk about, we simply pushed that to the end of the year. And what I spoke about on the earnings call in there was by the end of the first quarter of 2021, I will give an update on my employment agreement. And you summarized the thesis perfectly. So it's not going to be today, but it will be on or before the end of the first quarter. And I can remember -- actually, you're asking this question explicitly at this meeting a year ago and at the dinner that evening, which was perfectly logical and sensible. And in relation to succession, and importantly what I wanted to say there -- what I said there, what I'm saying now is our Board has been actively engaged in that. So the first piece will be, you'll all get an update on my plans by the end of Q1. And the second piece is we have been as thoughtful as we are on share repurchase. We are equally thoughtful on succession. And there's going to be a logical, sensible, no surprise plan that will reveal itself over time, and we will go from there. But that's the sequence of the event.

Rod, do you think that you'll remain with the company in some form or fashion?

I will answer that when we answer the question of by the end of the first quarter. I am unbelievably excited about where we are. And none of my enthusiasm or, frankly, energy around that has changed. And I'm equally excited about the team. And look, you've had a chance and most of your participants to get to see Christine and Charlie and Rob. And we're equally committed. We've got a whole another generation of leaders that will be very intentional in 2021 and 2022 to -- they are running increasingly larger parts of our business that we want to make the investment community aware of who they are, the talent they have and the contribution they're making.

Yes. No, definitely, an impressive management team. Christine, I even hear great things from some of my equity-based clients at Voya about you. So I think it's even reflected in the -- in that environment. So maybe moving on to the repurchases and the $1 billion authorization in the quarter. By our estimates, if you kind of work in the Cetera $300 million and the retirement of debt, which we kind of roughly subtracted 700 -- anyway, we kind of come to a pro forma $1.4 billion. And then if you had done -- if you were to do nothing, you're probably closer to $2.1 billion at the end of the year. So I guess as -- and like you said, Rod, that's a big chunk. It's like 1/7 of your market cap. It's huge. But investors, for some reason, seem to want more. And I think that's a pretty big number. But is there a possibility that Voya does more than $1 billion in repurchases in 2021?

We said -- it's a very fair question. And I think your numbers are broadly accurate in terms of the summary of the numbers. We said we'd buy back at least $1 billion ratably through the year. And I'll point out, last year, in the pandemic here, we bought back a little over $0.5 billion. And all of that cumulatively led to the $6.5 billion so far. We are -- I'd point to a couple of things, Andrew. We're still in a pandemic. I am encouraged about the vaccines that are emerging. We're going to have to see the pace of that. Mike Katz, Mike Smith and I talked about on the 4Q call what we -- what the impact of the very tragic loss of Life is going to -- how that's going to impact our Q1 and Q2 results. But we are paying attention to that. That said, we've got, as you pointed out, very healthy free cash flow conversion. We are going to return ratably 15% of our market cap. So whether you just call it $1 billion, that's a big number all by itself compared to most others. 15% is more than, I think, almost anyone else. And we have the capacity to flex, and we will be paying attention to the market but also looking for opportunities to further invest in our existing businesses to enhance our growth prospectively in '22, '23 and '24. And we've been doing that pieces and parts at a time. And Christine has done an incredible job on lifting some teams out and adding some capabilities that we talked about last year, and those things are very much in our line of sight as potential opportunities prospectively.

Maybe touch on that, Rod, M&A as a compelling opportunity.

Sure. So maybe, Christine -- I mean,we get the C2 piece, and you've added a number of other capabilities in EMEA. So please jump in.

Sure. Yes. In terms of where we're focusing a lot of our organic or strategic spend, Andrew, is -- includes organically extending into global distribution. So we added a couple of resources and sales, including a Head of EMEA last year and seeing some exciting momentum there. And we want to continue to grow. And so we're expecting that we're going to start adding some folks in Asia towards the fourth quarter, end of this year. So a lot of opportunities. Because we are already -- not including our CLO investors, Andrew, when you think about our CLO investors inside there, our Asia client base is much larger. But just purely, it's a little less than 10% of our overall assets but growing. And we don't have a salesperson there. So these have been coming in through reverse inquiry where they see our investment results or capabilities on an eVestment database or something and actually call us. So we're very bullish on that. And then on team lift-outs as well still has a place inorganic for Investment Management. I would say we want -- we aren't expecting -- we wouldn't want to do anything bold or disruptive. We want to stick with our specialty capabilities. So think about capability step-outs. And some of those can come with offshore funds platforms or international distribution. But again, we're thinking long and hard about it. And we're so excited about our private credit franchise as an example, both organically and potentially inorganically continuing to try to broaden our reach in illiquid credit or less easy to source credit that is a very high demand in the industry right now.

Christine, you mentioned bold and disruptive, that you probably wouldn't want to do that. Would -- and so maybe I'm just asking a question that you already answered. But would you want to merge with a large -- another large investment manager? Would that make Voya Investment Management better? Is that something you would consider?

Well, as we think about strategic partnerships and different things, Andrew, certainly within the industry, I think that consultants and clients understand more within the industry. They are open-minded to strategic partnerships. And so we partnered with NNIP. We used to be one -- way back in the day, we were all part of one global asset manager. And so just the level of trust in the partnership with them has been very important for us. And that's -- so we do have a strategic partner in our eyes. And we're looking -- and including in Asia, we have a pretty narrow -- so a couple of developments there. We have a pretty narrow product set that we have them distribute on our behalf. So we're in conversations with them. They'd like to sell more of what we manufacture. And secondly, we're working with them to distribute a couple of their key benchmark products in North America starting this year. So again, for us, the partnership is key. I think doing something much beyond that is much more complicated, and we're really excited about the opportunity that we have as we stand today.

Christine, could you briefly just talk about the insurance capabilities and how that's grown from nascent 5 or 6 years ago to over 40 different insurance companies we're now doing business with?

Certainly. Thank you, Rod. Yes. When you see, Andrew, going back to how are we going to compete in this environment, right, with consolidation and all of the headlines, we're super excited about the -- both some of our natural culture or DNA that came from our insurance routes. And while we're leaving that space behind as an industry, when you think about all the great decisions we have made -- and I think just from my perspective, I believe that our multiple is undervalued and the expansion is going to result over time as that. So kind of going back to, yes, we're less of an insurance company today, but we sure do know we have the DNA and the roots and the understanding around reg capital and complexities and things that we do such as commercial real estate. And so insurance outsourcing is, I think, the fastest institutional business in North America and expected to be for time to come. So as Rod said, we've really harnessed our culture, our DNA, our special capabilities and have seen it's very fast CAGR in terms of both revenue and AUM growth there. And Andrew, our view in going and putting distribution boots on the ground out of London is that EMEA, like Solvency II, they can't deal with. They've had a negative rates in Europe for years. And I think they're essentially throwing in the towel and they're coming our way. And so we're really excited. I would think about the next -- think about -- we're still making progress in the U.S. on insurance asset management, continuing to develop products. But think about expanding that reach offshore in the next 3 years is an important component of our growth story.

That's exciting. And maybe -- and Rod, maybe just to round it out, you talked about a bunch of areas on the 4Q call in terms of potential M&A enhancements. The one that stuck out to me was retirement blocks of business. Is that a big possibility out there? I mean are you thinking that you may put a lot of money to work in M&As and specifically this retirement opportunity by one-off blocks? Is that something...

It's certainly an area that we would consider, Andrew. And again, we've come at that with a very capital-disciplined focus, the same philosophy that we've had. So look, as Mike shared with you and the listeners a moment ago, we added over 0.5 million new participants. We've got over 6 million participants right now. Adding participants is useful, but we would only do it if it met our financial thresholds. So we've got scale. Adding to the size would be -- we would be open to that, but that's not the only way that we believe we can grow. And so would we be open to it? Yes. And Andrew, we've talked about the statistic previously. But 10 years ago with the 401(k) space, the top 10 players had 50% of the AUM. Today, it's 75%. We were fifth or sixth 10 years ago. We're about that same position today. So the market has organically consolidated by the consultants and, frankly, the institutions making those choices. And I see that continuing to happen. I believe there's a flight to quality, and there's 4 or 5 of us that are getting a pretty proportionate amount of that growth. But there's also another 50 companies, to your point, Andrew, that are in this business. And I think at some point, both from a data security, what the cost of that and the cost of just maintaining this book of business, they likely could conclude. Maybe that's not core to me, and they'll perhaps decide that, that business is not key to them and they'll put it for sale. We would look at a block of business but only through the lens of the disciplined approach. We don't have to grow that way. We would be open to it. But we're equally open to investing in the business to improve the participant engagement, which we talked about on the fourth quarter to improve the data integration and through technology. But the way you and I just individually have enrolled in benefits hasn't substantially changed in decades. Once a year, you sit down, and we all make decisions. And I've kidded about this on many calls, but most people spend less time on that decision than they do on their Netflix selection for the week. And we can improve that with technology. We can make that experience richer. And what we're hearing from employers is they want that, and employees want better choices and options. And in and through this COVID environment, I think their -- employees are looking increasingly to employers for those choices and options.

I guess we're coming towards the end, so I'm going to ask you one question and actually was kind of looking for some Netflix recommendations, too. So that -- but I just think you've got such a great story at Voya. And I look at the stock trading at about 9x 2022 earnings. The Life group trades at 7x. You're not -- we're touching on this earlier before the live call. It's not really a life company anymore. And so what's it going to take for Voya to kind of re-rate and get perceived as what you really are?

Well, first of all, we fully agree with your thesis. And frankly, it takes time and repetition. I mean in many ways and fairness, Andrew, we just completed the Life transaction January 4. We've just completed a lot of this lifting. And I think it takes time. Many of the investors that are listening to this and listening to you have many, many companies to follow. And I think it just takes time for them to fully kind of embed in their models the from-to journey, what we were and what we are. And if I could leave you with a couple of headlines. I mean we've talked about 8% to 12% EPS growth rate, 14% to 16% ROE, 90% to 95% free cash flow. We don't have the tail liabilities that were associated with those businesses, and they're fully executed. We don't have the tail liability with the long-term care business. We never did. We've fully reinsured that. We've got a DTA with a value of $8.5 a share or more. And I think with corporate taxes likely increasing, that will come increasing focus and we're not going to be a tax payer for the next 5 to 8 years. When you factor all those things in, I think it warrants further multiple expansion. I believe that will happen. We're doing our best to tell the story confidently, calmly but in a very excited way. And I think the market, over time, will experience it. One other piece that came up on an earlier call that I call out, in the fog of the COVID piece, each year, Andrew, as you know, every company does their annual assumption review. And that's generally done in the third quarter. Well, think about all that we were all engaged into the third quarter, election, the market environment, COVID, et cetera, et cetera. We lowered our long-term interest rate to 2%. And that was material. And I'm not sure if that's been factored in, in terms of the impact of that overall. So all of these pieces, we're going to continue to with a fantastic Investor Relations team to tell a story and help people with their thinking and models. And I do believe, over time, and I hope it's sooner than later, there's going to be a further appreciation of where we are. And of course, we understand our responsibility to communicate that, and we understand our responsibility to continue to execute.

All right. Christine, Mike, Josh, great to hear from you, and thanks so much for the time. Look forward to talking soon.

It's great to be with you. Thank you.

Thanks, Andrew. Appreciate it.

Thanks, Andrew. Take care.