All right, we're going to get started. Good morning, everyone. I'm Ryan Krueger. Pleased to have Voya Financial back with us at the conference this year. On stage with me is Rod Martin, chairman . Just retired, right. Mike Katz, head of investor relations at FP&A. Rod, I wanted to start talking about your EPS guidance on the second quarter call. You reiterated 10%-plus annual normalized EPS growth through 2021 despite the drop in interest rates. Can you discuss some of the reasons that you're still confident that you can achieve that target, as well as some of the levers that you have to offset interest rate pressures?
Sure. You may recall, just going back, I know it may seem like a very long time ago, but it was just November 15th of 2018, we introduced our 2019, 2020, and 2021 plan. There were three pillars to that: organic growth, capital management, and enterprise cost savings. On the enterprise cost savings, we talked about a program that was $230 million-$250 million. We updated the market at the end of the second quarter that we've accomplished $150 million of the $230 million. If you look simply at the things that are absolutely, in my view, in our management's control. Charlie, as one of our business leaders and our other business leaders and the balance of the management team, both from a capital management perspective as well as the cost savings. The enterprise cost savings is $230 million-$250 million. We've done $150 million.
There are over 300 initiatives that we identified. We had a very clear blueprint and a line of sight. What we said at the time, and what we tried to reiterate on the second quarter call, Ryan, was at least $230 million-$250 million. I've got a high level of confidence. If you look at the track record of Voya, the six years we've been a public company, we've met or exceeded these kinds of targets, I've got a high level of confidence in our ability to meet or exceed the $230 million-$250 million. The other thing I'd point out is, as a way to be fully transparent, we put all of that in the calendar year 2019 in the corporate center, you could see the impact of this falling off.
By early next year, we will have accomplished, or certainly by mid-year, that $230 million-$250 million you'll see all of those results starting to bleed in the P&Ls of the businesses in 2020, I think that's another benefit. On the capital management piece, I think we've been one of the most shareholder-friendly organizations from that perspective. We've bought back $5.5-plus billion of shares since we've been a public company. Last year, in total, about $1.1 billion. We accelerated our share repurchase in the second quarter, first half of this year, about $650 million. We've guided you to between what we've bought back in shares in terms of the accelerated piece, plus the refinancing of the life, the release of the $150 million in the fourth quarter of this year, a number of a billion-ish or more in 2019.
I think the combination of both of those things gives us a high level of confidence of reaffirming the targets that we set of the 10-plus%.
Thanks. You touched on expenses.
You've become, as a company, significantly more efficient-
We have
since you took over in 2011. You mentioned the progress on the current cost save target. Can you expand a little bit in terms of once you get through this current cost save target, if you do see additional opportunities to improve the expense structure, and then any examples you can give of some actions that you can take?
Yeah. Happy to. Again, when I'm saying the $230-$250 plus, I'll have Charlie jump in for sure, a big part of the driver of this, one of the things we put in place, and you've heard us talk in previous meetings, was a culture of something internally we talk about as continuous improvement, and that's pushing problem-solving at the right level of the organization. Literally, lots of people talk about it, but this is six years now as a public company and a management team executing this, of finding better ways to do this. Big picture, what we did in the portfolio rebalancing, the easy part are when the people associated with the businesses you sold leave and they walk out the door, that's the easy part.
The hard part for all companies, what in my view differentiates above average companies from average companies are all of the other attendant expenses, corporate expenses, that people aren't wearing a T-shirt that said, "I used to do a third of that business or half of that business," and those have to leave, and that's where the $230-$250 comes. What some of the other pieces that are happening, robotics and automation, I'll let Charlie talk about that, we're very bullish about the impact of that as we push forward. We've made huge progress on the digital front, it's a big piece that's influencing some of the wins that we're having. Frankly, the focus that we've had, we meet weekly as a management team, and have for now, prior to when we announced this program at Investor Day, on these 300-plus initiatives.
This begins to stimulate other thinking in the organization about how we can do things better, more efficiently, I think there's a residual benefit that will bleed in nicely well beyond the target date of what we said for 2019, 2020. Maybe, Charlie, talk a little bit about your experience with retirement and employee benefits.
Yeah, sure. Relative to the expenses, obviously, when we kind of been shrinking the organization relative to our new business structures, we in the business also have to adjust how we interact with a variety of the shared services, whether that's finance, HR, legal, and all of those the various functions and things. We've been contributing to that in terms of how we work and interact with them. Those benefits, as Rod says, will roll through the corporate line through probably late 2020, and we'll start to see some benefits come back, I think, as we get a lot of our saves that we've been generating in retirement, we've been generating a fair bit, we believe that will emerge in 2020 and 2021.
Relative to your question, Ryan, or the part of the question around what are some of the things that we're doing on robotics and automation and how we're thinking about it in the business, why do we look forward in our organic growth that we've had, which has been quite strong? It's looking at every process that we do inside the business. We've broken down the hundreds of processes from onboarding just to ongoing management and distributions with clients, and broken those out and looked for places where we can automate the process, digitize the experience, and improve the customer experience, whether it's for a participant, whether it's for a plan, or whether it's for an advisor.
A lot of the things and a lot of our efforts to date are really building and ongoing implementation of that onboarding experience, the interactions with clients in terms of how we can automate delivery, electronic delivery of various confirmations and statements and things of that sort. In a lot of ways, I'll tell you, regulations have not caught up with our ability technologically. We're quite optimistic on some of the regulations that will help us deliver more things electronically. As those regulations catch up, we're going to be right there and ready for them to be able to deliver things more electronically and more efficiently, which will give us long-term expense savings as well.
Thanks. On share purchase, you did about $450 million of buybacks in the second quarter. You have $300 million remaining on the current authorization. Can you help us think about how you're viewing buybacks in the second half of this year?
Particularly at current share prices, we're very bullish on share buybacks, and that's part of why you've seen some of the actions that we've taken. As I mentioned just a moment ago, $650 million, when you add all the pieces up in the first half of the year, we accelerated some that we anticipated doing in the third quarter into the second quarter. Last year, we did $1 billion, $150 million-ish in total. This year, that number will be $1 billion-plus, including the life piece. We think you add that to what we've done, it's going to be well north of $6 billion. Nothing has changed in our philosophy, in our approach, in our aggressiveness of using capital management as a lever that we think delivers the best return to shareholders, particularly given current valuations.
And re-
Authorizations, we have a regular rhythm of visiting that with the board. The board has continued to reauthorize what we ask for, so I wouldn't look at it. We've said this many different times before. An authorization is given for a certain amount, we go back and reload basically. That, I wouldn't use that as any kind of signal that anything has changed. We're using the same process we've had for the entire now six-plus years.
On the retirement business, I'd say in the last couple quarters, you've expressed significant optimism around the strength of the pipeline on growth. Can you delve into that a little bit? What kind of factors are driving the momentum? If you could put any numbers around kind of what you're seeing in underlying business growth.
Sure. I think as I said on the second quarter call, even on the first quarter call, we talked about the RFP activity and the pipeline. I want to distinguish between RFP activity, which is things that you're quoting on that you may win and you think you'll get, versus actual kind of the visual that we have in terms of plans that are in the process of implementation. We've seen, we continue to see strong activity in the market from on the quoting side, if you will, on the activity, the pipeline of quotes, but even stronger results, I think it's a testament to our value prop and our brand and things in terms of the plans that are in implementation.
At the time of our second quarter call, we had about 25% more plans in the process of implementation than we did a year ago at that time. Very strong in our small mid corporate, we feel really good about that. We also talked about the $38 billion and over a half a million participants that we have in recordkeeping in the process of implementation, of which about $20 billion and 200,000 will appear in the fourth quarter of this year, and the remainder will mostly hit about the fourth quarter of next year.
As we look at that, both the activity in terms of the quoting, then actually how it's translating into actual sold plans, I think it's kind of a testament to being in the market of markets that we're in, whether it's our tax-exempt or our corporate or the small to the large and mega. Having a position in all those really helps us and puts us in a unique spot when there's a lot of activity, there's a fair bit of activity in the retirement markets today.
Ryan, that's part of why on the second quarter call, look, there's two things that are happening, it's complex this year for us. One is we're aggressively taking out the expenses that we've talked about, $230 million-$250 million. At the same time, we're investing in the three businesses that we chose as a result of the portfolio rebalancing. You saw elevated business expenses in retirement for a reason. We're talking about $38 billion in recordkeeping, another $1 billion in the second half of this year, a half a billion participants that we're going to onboard in the next year and a half. We're excited about this. We think this speaks well of both our value proposition, the multiple markets, and how it's being received. Both of these things are happening kind of simultaneously, that's just the journey we're on at this point.
Shifting to Retirement earnings. Based on the near-term guidance, it looks like earnings could be down a bit this year in the Retirement business. Are you still comfortable and confident that you can grow earnings in that 4%-7% target range, I guess, after this year?
Let me start, and then I'll throw it to Charlie. We did guide that's correct. Albeit off a record year in 2019. Again, a couple of things happening, including the investments I just spoke about in Retirement. Charlie, you can speak to the balance of 2019 and 2020.
Yeah. We said our second quarter 2019 earnings are going to be Our third and fourth quarter will be kind of in line with our second quarter 2019 earnings for this year. That's really kind of in consideration of where the rates and markets and kind of our spread-based assets were and kind of where we expected those to kind of end up throughout the year. Certainly, if rates kind of continue on the trajectory where they've been, that's going to put pressure on our 4%-7%. We've got both hands on the wheel. We've got a number of places and ways in which we manage through and to address some of these things. Some of the expense programs that we've talked about, we're continuing to work on those.
Those will provide us benefits more directly, I think, in Retirement in 2020 and in 2021. Secondly, our strong organic growth that we've had, in particular, is going to start to pay a lot of those benefits will start paying off in 2020 and 2021 as well as we continue to onboard that business and we get a full year's benefit, if you will, from that growth on that new business. As I kind of think about the total for the remainder of this year, we are, as Rod said, we're doing two things at once.
We're throttle forward on the growth, taking advantage of our market position, how well our value prop is resonating in the market, and the brand is resonating in the market, while at the same time trying to manage the expenses along the way, but not over-index on that because we want to make sure that we're onboarding these plans, giving them all the experience, and advancing our growth.
Even with that guidance that we gave and the point you just made, Ryan, we reaffirmed again the 10-plus %. It's the consideration of the balance of all those factors, particularly because of the confidence that we have in both the capital management piece and the enterprise cost savings, that we can accomplish that and land the plane north of that number.
The SECURE Act is trying to make its way through Congress. It hasn't quite got there yet, but it seems like hopefully it will eventually get passed. It will make a number of changes to the U.S. retirement system. Can you talk a little bit about how you see it impacting the retirement industry and Voya itself, I think mostly it's positive, if there are any parts of it that you see as more of a risk?
I think you described it perfectly. We are cautiously optimistic about the process. It's a spot that we play beautifully in, I'll let Charlie talk about the details.
Relative to the SECURE Act, we've been active, engaged in Washington, both on the legislative side as well as the regulatory side in promotion and advocacy for this. Because in the SECURE Act, depending on your familiarity with it expands coverage. It helps and addresses issues to make small businesses, in particular, have access to what's called multiple employer plans or make it easier for employers that might not have established a workplace savings plan because of cost or fiduciary concerns to band together in multiple employer plans. That's a great thing for the industry. It's going to put more individuals to save for retirement. It also, from a provider perspective, that's a much more efficient way in a lot of ways for us to deliver. Because when you go into a multiple employer plan, it's kind of typical standard design.
We're not setting up a bunch of individual plans, we're setting up basically one big one, and we get efficiencies out of that. It helps us from a cost perspective. We think that that's going to drive some growth. We are in the multiple employer plan business today.
Right.
We have the capabilities today. We've actually been quite successful with it, and we think this is just going to expand upon that. The other aspects of SECURE Act and advancing lifetime income, extending the required minimum distribution, electronic delivery, kind of helping a lot of the barriers around some of those things. Anytime the government and the legislators are trying to get more people in plans, extend the amount of time that they can keep the assets in the plan, make it more cost-effective to deliver the services, and put focus on lifetime income is a good thing for Voya, for the industry, for plan sponsors, and participants. We feel good about it. Having said that, we're going to encourage Congress to act. It takes a while for these things to kind of come through and for the benefits of those really to be realized.
I wouldn't want to suggest that, oh, geez, if this passes Voya's right there. It's going to take a while for that to kind of evolve and emerge in the business.
It's right in the sweet spot of where we do business today.
Yes.
We'd just like to see it done.
Yes.
In investment management, your margins have recently been in the mid-high 20% range. You have a 30% to 32% target-
Correct
for 2021. Can you talk about the reasons and drivers you expect to get-
Yeah
to that high margin?
We talked a little bit about this on the second quarter call, we really feel we're at an inflection point. What do I mean by that? An outcome of the portfolio rebalancing with Apollo and Athene, there was an impact to investment management, and we are working through that as expected and as planned. We've owned for a very long time, and it's been very well-performing, Pomona, a private equity firm. We're in market for a period and then out of market. We're out of market this year as expected. We will be back in market next year. That will be a contributor. We've introduced a number of funds, one of which has added over $1 billion just this year. It's doubled in size. We've started marketing our capabilities four years ago.
Brian, as we've talked, we've talked to many of you about in terms of our fixed income capabilities to other insurance companies, the trailing 12-month number, Mike, is north of $4 billion. We are just very bullish about we have what the market's looking for. It's not easily indexable. The marketplace is willing to pay for the alpha we are returning. We've had decades of really good performance, top quartile to top decile performance. When we introduced that, we had a plan and a purpose. We have a high level of confidence. We knew we'd be exactly where we are today, that we will get back to the 30%-32% by the end of the plan period. I think you'll see that increasingly reflected in Christine's comments, we really tried to level the table of that in the second quarter.
The employee benefits business, I think is starting to become more appreciated at Voya. It's been a very good performer, both in terms of margins and growth. Just hoping you could give a bit of an update on that business and your outlook there.
Let me start. We included that under Charlie's responsibilities because if you think about our workplace focus, we've got the market of markets in the retirement space, and we added employee benefits to that. Rob Grubka runs that, reports to Charlie. Look, this is a business that if you look at the multiples of the last three or four commercial transactions that they've paid for those and what they're producing for those companies. I said at Investor Day, I think this is, and I put the responsibility on our shoulders, an underappreciated asset in our portfolio. I think we are increasingly being louder about what it's producing, and I think generally investors are beginning to more fully appreciate that. This is a business that's got a 28%-30% ROC. We were very tiny in voluntary benefits five years ago. We're a top seven player today.
We're a must-quote, stop-loss player. We feel really good about this business, Charlie's doing, with Rob Grubka, a great job in running it, I'll let you add dimension.
Yeah, Rob and team, as well as our retirement leaders, Bill and Heather and Tom, they've all been collaborating. As Rod said, the workplace business is more and more we see Americans looking to their workplace for their financial wellness. The workplace solutions, we define, I think it's being increasingly defined by individuals that, what do you mean by wellness? It's when you're well invested, well planned, and you're well protected. Employee benefits is a key part of that equation. It fits really nicely with our retirement, and our retirement fits very nicely with our employee benefits customers. We complement and work together in that basis and can create a more holistic offering together where we have that crossover. Now we're not saying that it's going to be a tremendous overlap, but there is overlap.
We've seen tremendous uptake, I think, with our voluntary benefits and the job that employee benefits is doing with essentially about double-digit premium growth year-over-year. They're doing a great job in there, we think that we can continue to build on that and leverage off both from distributors as well as our mutual clients.
Brian, we've talked about this before, but probably worthy of repeating, just building on what Charlie said. One of the things, look, all of us, and I suspect you can relate to this, have had to make choices about high-deductible or low-deductible health plans every year when we enroll. We're about to all enroll this year. Many people have chosen higher deductible plans for affordability purposes. Quite understandable. These voluntary benefits, for many prototypical average Americans, fill in gaps that they otherwise can't afford the risk for. What I talked about on the second quarter call, and a bit on the first quarter call is, what I'm excited about is half of the new coverage we put in place in both of the quarters was brand-new cover in the market. This is not us replacing company A or B.
This ranges from a small mid-corporate to a Fortune 50 company. I think there's an increasingly recognized gap and need, both at the company level, at the consultant or advisor level, and most importantly, at the employee level. It isn't often in our industry we've got kind of a new swim lane where we're not slugging it out with, you got to pick me or you on cover. This is exciting, and I think that's why most of the companies that are in this business are bullish about it, and we certainly are, too.
Shifting gears a bit. Voya has a high free cash flow conversion rate of 85%-95%. As a result of this, you also trade with a higher free cash flow yield at the current time. Do you see any risk to that 85%-95% when you look forward, and is there any impact to that potentially from being in an extended low interest rate environment?
We feel very comfortable about the 85%-95%, and would remind you that part of that's influenced by our DTA, and we're not going to be a taxpayer for the next five to seven years. If you add those two dimensions together, we think that, and the yield, Ryan, as you point out, is among the highest, if not the highest in the industry. It's part of why we think we're a great value today. In the 10-plus % EPS growth rate, the high free cash conversion, no long-term care, de minimis VA. Just let me re-remind you of the portfolio, the from and to part. We've chosen these businesses, and we're really excited about what we have.
ESG has been a big focus for you and the company overall. Can you talk a little bit about what you've been doing and why you've decided to do that, and it's important to the company?
Happy to. I had a couple dimensions, but let me start specifically with ESG. Look, we didn't invent this, but we saw this coming four-plus years ago. How do you see it coming? It starts to be part of the dialogue in the consultant community, and Charlie can speak to that in just a minute. It's now an absolute, and it's well more than a check-the-box piece in an RFP. There's a real dissection of are you being authentic in living this? The consultants and the consumers and the companies, they're just very advanced in figuring that out. Barron's ranks the top 100 companies. Three years ago, we weren't on the list, top 100 companies. Two years ago, we were 47th. This last year, we were sixth, and the highest ranked financial services company.
When Barron's called to interview me and my head of communications, literally the conversation was, "Who the hell are you guys and where did you come from?" I mean, literally. I think there's a convergence of things that we're very proud of and from a cultural perspective, and the ESG piece is part of it. We've talked about, we've been one of the companies that have been recognized for six consecutive years by the Ethisphere Institute. Look, we're in the long-term promise keeping business in retirement and the other businesses that we're in. This matters. They rank 128 companies globally. There's only 15-ish financial services companies. We're one of them. All of these. Ethisphere, if you look at the results of the complexion of those 128 companies, it's +15% or better than the S&P 500 over that period of time.
If you look at the Barron's list, it's even better than that. Look, when we went public, we had a very bold aspiration for a new mid-cap public company. We want to be recognized as America's retirement company, and one of the things that we introduced pretty quickly early on was, wait a minute, one in five families in America has someone with a special need or disability. We've got to be able to focus on serving all Americans. I'll let Charlie speak about this, but this is our Voya Cares initiative. You weave a thread through ESG, the Barron's piece, the Ethisphere piece, and Voya Cares. We think this is influencing as much as one in five decisions. A lot of these decisions, you start with a group of companies, it gets narrowed down to two. How do you make the decision?
You've got to be competitive from a cost per participant basis. You've got to be competitive with technology. People sort through, is there an alignment of culture and values? This is why we're increasingly picked. Charlie, you're living this every day.
Yeah. It's exactly as you describe, Rod. I put it under the umbrella that all of these things really have become to really define our brand and who we are as a company. I think what we hear from consultants and from plan sponsor decision makers, as Rod was saying, is sometimes play right. What was it that at the end of the day how'd you select Voya? Obviously, we think well of ourselves and that we've got the right offering, the right prices and value. They will come back and we see about one in five will say, "You know what? It's not just what you do, but it's how you're doing it. It's your Voya Cares, it's your culture.
It's the vision and how you're bringing things together in the marketplace." No one's talking about how to really address caregivers and their needs from a financial wellness perspective and helping them understand how to be well-planned, well-invested, and well-protected while being a caregiver and the implications that that has, whether it's caring for an elderly relative or maybe a family member with some type of a special need. That really resonates with plan sponsors in particular, and consultants. We've got a unique position. I think we've distinguished ourselves as a leader in that, and it's been a key part of our overall ESG and cultural and brand offering.
If I could just add one thing, I'll be very quick about this, we did a program late last year at the stock exchange, with Disability:IN, which is one of the leading organizations. They work with over 2,000 companies associated with these kinds of things, Accenture and us. Comptroller DiNapoli in New York at the end of last year wrote a letter to the top 50 companies in America basically said, "If you're not focused on diversity inclusion, including special needs, we're not going to allow you to invest in our pension funds.
This is a trend that's going to accelerate. We're on the leading edge of this. DiNapoli was using us as an example. We're not the only example, I want to be clear about that, but we have been way in front of this issue. That's from what does your board look like? Our board has been somewhere between 40% and 50% men and women from the very beginning. Why? Because it was important to us, and we affected that outcome. How does that transcend in your organization? How does that transcend in terms of special needs? This is a phenomenon. Why are we talking about it so much? We've literally had investors say, "Why are you talking about this so much?" We're talking about it because it's impacting business and it's making a difference.
Thanks, Rod. I just had one, I guess, quick capital question.
Sure.
You talked about how bullish you are on the balance sheet.
Sure.
You have a 400% RBC target. A lot of your peers have lowered it to more, it's like 350%-375% following tax reform. Do you think there could be potential room in the future to change the target?
Good question, and one we're asked with reasonable frequency. Just remind you that we just lowered in the recent period from 425 to 400 associated with tax reform. The NAIC is doing a review that you're well aware of. We're really trying to align our thinking around that review. We're comfortable with where we are. We are very aware that a few of our peers are at a different place, and that would be another lever that we can consider at an appropriate time. That's where we are today.
Are there any quick questions in the audience?
Yes. Can you talk about pricing pressure in the retirement business overall with your outlook? Sure. I would say pricing pressure is nothing new in the retirement business. It's something I think we've been managing through in our business for a number of, feels like decades. When I look at the marketplace, it appears differently in different segments. The beauty of our business being in the market of markets, we have some fee-based businesses, if you will, like our record keeping to also businesses where we have more spread-based revenue in some of our full service. Our revenues are roughly 50/50, if you will, between spread and fee based. That gives us an ability to really be able to manage through, we think a fair bit of pricing pressure and things of that sort that can come in the marketplace.
Having said that, I think we guided in the second quarter that our full service fees, we expected probably about a basis point a quarter for the third and fourth quarter of this year, just kind of continuing. That's not all from pricing pressure, I would caution. Because what you see there is sometimes business mix also impacting that. Average assets per participant and average plan size can bring that down. What may appear as pricing pressure is oftentimes actually more just business mix shift than anything else.
Charlie, can you just speak to retention too? Because this has been a good news story for Voya.
On the retention side, we've experienced very strong retention, in particular in the first half of this year, in both our corporate as well as in our tax exempt business. At a plan level, I think you see it. When you look at our full service business, which is the higher margin business across our book of business, on average our assets stay about 16 years in our retirement. If you took the plans that left, they were with us on average about 16 years in our full service business. We think that stickiness of that and the retention speaks also to our value prop, but also the strength of the business in total.
All right. Great. We are out of time.
Okay. Thank you, Adam.
Thank you very much for attending.
Thank you. Thank you all.
Thank you, guys.