Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Q4 2018 Earnings Presentation
44 slides from Virtus Investment Partners's earnings presentation, Feb 1, 2019
Slide 1: Fourth Quarter 2018 Earnings Presentation
Fourth Quarter 2018 Earnings Presentation February 1, 2019 George R. Aylward President and Chief Executive Officer Michael A. Angerthal Executive Vice President and Chief Financial Officer
Slide 2: Important Disclosures
IMPORTANT DISCLOSURES This presentation contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The Private Secur
Slide 3: Agenda
AGENDA Overview of Fourth Quarter Fourth Quarter Results Q & A Session 3
Slide 4: Overview of Fourth Quarter
_VIRTUS | INVESTMENT PARTNERS OVERVIEW OF FOURTH QUARTER
Slide 5: Overview of Fourth Quarter
OVERVIEW OF FOURTH QUARTER Assets and Flows Long-term assets under management decreased $13.5 billion, or 13%, sequentially to $90.4 billion due to market depreciation and net outflows reflective of the challenging market conditions Total sales of $4.4 billion compared with $6.3 billion in prior
Slide 6: Fourth Quarter Results
_VIRTUS | INVESTMENT PARTNERS FOURTH QUARTER RESULTS
Slide 7: Assets Under Management
ASSETS UNDER MANAGEMENT Quarterly Trends Commentary Long-Term Sequential decrease in long-term Liquidity $105.6 assets of $13.5 billion, or 13%, reflects $8.1 billion from market depreciation $91.0 $89.1 $91.6 $103.9 $92.0 and $4.8 billion of net outflows $88.8 $87.4 $89.8 $90.4 Increase in long
Slide 8: Asset Flows
ASSET FLOWS Inflows / (Outflows) Total Year Commentary Net flows $22.8 Total sales decreased $1.8 billion or 29% sequentially, up $0.3 billion or 8% from $15.4 prior year $6.6 $6.3 Open-end sales down 24% from prior $5.4 $4.1 $4.4 quarter − Decline in small-cap domestic equity strategies offset
Slide 9: Investment Management Fees, As Adjusted
INVESTMENT MANAGEMENT FEES, AS ADJUSTED Quarterly Results Total Year Commentary $443.2 Investment management fees decreased $10.1 million, or 8.2%, sequentially primarily due to: $334.3 − $6.7 million from lower average $123.4 $113.3 AUM and fee rate $102.1 $102.0 $104.6 − $3.4 million of lower pe
Slide 10: Employment Expenses, As Adjusted
EMPLOYMENT EXPENSES, AS ADJUSTED Quarterly Results Total Year Commentary Employment expenses, as adjusted, $232.2 decreased sequentially by $3.6 million or 5.9% due to lower profit- and sales- $185.0 based incentive compensation Employment expenses, as adjusted as a percentage of revenues, as ad
Slide 11: Other Operating Expenses, As Adjusted
OTHER OPERATING EXPENSES, AS ADJUSTED Quarterly Results Total Year Commentary $69.1 Other operating expenses, as adjusted, increased $0.4 million, or 2%, from prior $58.0 quarter primarily due to distribution- $18.2 related activities $17.4 $17.8 $16.7 $15.7 Other operating expenses, as adjusted
Slide 12: Non-GAAP Results
NON-GAAP RESULTS Quarterly Results Total Year Commentary Operating Income, As Adjusted $160.1 Diluted EPS, as adjusted, of $3.06 decreased by $0.58, or 15.9%, sequentially primarily related to lower Diluted earnings per share, as adjusted revenues, as adjusted $110.4 − Excludes $4.2 million, or $0
Slide 13: Capital Position
CAPITAL POSITION Select Non-GAAP Balance Sheet Items Commentary 12/31/17 3/31/18 6/30/18 9/30/2018 12/30/18 Working capital increased $12.0 million, Cash and cash equivalents $132 $81 $139 $169 $202 or 9% sequentially; reflects cash Seed capital investments 1 $118 $116 $107 $109 $93 generation par
Slide 14: Financial Supplement
_VIRTUS | INVESTMENT PARTNERS Financial Supplement
Slide 15: Non-GAAP Information: Income Statement
NON-GAAP INFORMATION Income Statement1 (Unaudited) Q4:17 Q1:18 Q2:18 Q3:18 Q4:18 TY:17 TY:18 Revenues, As Adjusted Investment management fees, as adjusted $102,114 $102,047 $104,559 $123,379 $113,253 $334,301 $443,238 Distribution and service fees, as adjusted 11,623 12,611 13,553 13,734 10,831 44,3
Slide 16: Non-GAAP Information: Income Statement (continued)
NON-GAAP INFORMATION Income Statement1 (continued) (Unaudited) Q4:17 Q1:18 Q2:18 Q3:18 Q4:18 TY:17 TY:18 Other Income (Expense), As Adjusted Realized and unrealized gain (loss) on investments, net, as $- ($198) $137 $10 ($244) $- ($295) adjusted Other income, net, as adjusted 506 1,319 455 549 1,272
Slide 17: Non-GAAP Information: Balance Sheet
NON-GAAP INFORMATION Balance Sheet1 (Unaudited) 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 Assets: Cash and cash equivalents $132,150 $80,765 $138,827 $168,982 $201,705 Investments – seed capital 118,443 115,848 107,217 109,111 92,846 Investments – other 112,105 136,821 107,030 104,496 93,636 Inve
Slide 18: Non-GAAP Information: Balance Sheet (continued)
NON-GAAP INFORMATION Balance Sheet1 (continued) (Unaudited) 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 Liabilities and Equity Liabilities: Accrued compensation and benefits $86,658 $27,471 $45,187 $70,750 $93,339 Accounts payable and accrued liabilities 29,607 28,214 25,805 32,803 27,926 Dividends
Slide 19: U.S. GAAP Information: Income Statement
U.S. GAAP INFORMATION Income Statement (Unaudited) Q4:17 Q1:18 Q2:18 Q3:18 Q4:18 TY:17 TY:18 Revenues Investment management fees $100,447 $100,476 $103,168 $121,713 $111,664 $331,075 $437,021 Distribution and service fees 11,618 12,607 13,549 13,730 10,829 44,322 50,715 Administration and shareholde
Slide 20: U.S. GAAP Information: Income Statement (continued)
U.S. GAAP INFORMATION Income Statement (continued) (Unaudited) Q4:17 Q1:18 Q2:18 Q3:18 Q4:18 TY:17 TY:18 Other Income (Expense) Realized and unrealized gain (loss) on investments, net $22 $438 $960 ($374) ($6,241) $2,973 ($5,217) Realized and unrealized gain (loss) of consolidated investment (2,932)
Slide 21: Assets Under Management
ASSETS UNDER MANAGEMENT Assets: Product and Asset Class 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 Assets by Product U.S. Retail Funds $41,949.9 $42,092.7 $43,322.6 $44,074.3 $36,778.1 1 Offshore Funds 122.3 127.2 115.7 112.2 108.3 Variable Insurance Funds 1,005.4 982.6 981.0 985.3 823.6 Total – O
Slide 22: Assets Under Management
ASSETS UNDER MANAGEMENT Assets by Investment Category / Style (Unaudited) 9/30/2018 12/31/2018 Domestic Equity: Large Cap $ 19,953.7 $ 16,923.4 Mid Cap 7,617.8 6,706.5 Small Cap 19,823.0 16,223.8 Total Domestic Equity $ 47,394.5 $ 39,853.7 International Equity: Developed Markets $ 7,909.7 $ 7,116.4
Slide 23: Assets Under Management
ASSETS UNDER MANAGEMENT Asset Flows: Total/Long-term 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 TY:17 TY:18 Long-term Beginning balance $87,136.5 $88,834.5 $87,443.5 $89,833.6 $103,922.8 $45,366.3 $88,834.5 Inflows 4,115.7 5,431.0 6,643.1 6,261.2 4,438.4 15,398.5 22,773.7 Outflows (4,886.8) (6,161
Slide 24: Assets Under Management
ASSETS UNDER MANAGEMENT Asset Flows: Product 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 TY:17 TY:18 U.S. Retail Funds Beginning balance $41,325.4 $41,949.9 $42,092.7 $43,322.6 $44,074.3 $22,452.1 $41,949.9 Inflows 2,619.0 3,754.2 4,335.6 3,791.8 2,873.3 9,674.1 14,754.9 Outflows (3,236.6) (3,617.5
Slide 25: Assets Under Management
ASSETS UNDER MANAGEMENT Asset Flows: Product 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 TY:17 TY:18 Variable Insurance Funds Beginning balance $992.9 $1,005.4 $982.6 $981.0 $985.3 $931.8 $1,005.4 Inflows 6.9 10.1 6.9 5.7 4.2 34.6 26.9 Outflows (33.4) (37.8) (36.2) (34.1) (27.2) (145.8) (135.3) Net
Slide 26: Assets Under Management
ASSETS UNDER MANAGEMENT Asset Flows: Product (continued) 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 TY:17 TY:18 Closed-End Funds Beginning balance $6,735.4 $6,666.2 $6,132.7 $6,295.0 $6,342.2 $6,757.4 $6,666.2 Inflows - - 0.5 12.9 8.2 - 21.6 Outflows - - - - - (112.8) - Net Flows - - 0.5 12.9 8.2
Slide 27: Assets Under Management
ASSETS UNDER MANAGEMENT Asset Flows: Product (continued) 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 TY:17 TY:18 Intermediary Sold Managed Accounts Beginning balance $9,577.7 $10,260.7 $10,535.2 $11,062.6 $12,757.4 $5,403.5 $10,260.7 Inflows 551.5 576.3 632.3 771.0 580.5 2,074.2 2,560.1 Outflows (4
Slide 28: Assets Under Management
ASSETS UNDER MANAGEMENT Asset Flows: Product (continued) 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 TY:17 TY:18 Institutional Accounts Beginning balance $20,630.5 $20,815.9 $19,411.2 $19,726.6 $30,960.1 $5,492.7 $20,815.9 Inflows 609.7 423.0 1,425.0 1,484.5 810.8 1,684.4 4,143.3 Outflows (1,000.4)
Slide 29: Assets Under Management
ASSETS UNDER MANAGEMENT Asset Flows: Open-End Funds1 by Asset Class 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 TY:17 TY:18 Domestic Equity Funds Beginning balance $11,513.3 $12,023.3 $12,516.4 $14,677.1 $15,979.3 $4,335.4 $12,023.3 Inflows 764.6 1,386.9 2,320.4 2,033.5 922.1 2,413.6 6,662.9 Outflo
Slide 30: Assets Under Management
ASSETS UNDER MANAGEMENT Asset Flows: Open-End Funds1 by Asset Class (continued) 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 TY:17 TY:18 2 Taxable Bond Funds Beginning balance $17,754.4 $17,363.0 $17,241.8 $17,044.7 $16,913.7 $8,918.8 $17,363.0 Inflows 1,160.1 1,418.6 1,197.5 927.6 1,077.5 3,958.7 4
Slide 31: Assets Under Management
ASSETS UNDER MANAGEMENT Asset Flows: Open-End Funds1 by Asset Class (continued) 12/31/17 03/31/18 06/30/18 09/30/18 12/31/18 TY:17 TY:18 2 Alternative Funds Beginning balance $1,536.1 $1,461.8 $1,290.3 $1,311.1 $1,257.4 $1,682.2 $1,461.8 Inflows 65.2 71.5 74.2 62.5 49.3 394.5 257.5 Outflows (157.3)
Slide 32: Assets Under Management
ASSETS UNDER MANAGEMENT Average Net Fees (Unaudited) Q4:17 Q1:18 Q2:18 Q3:18 Q4:18 TY:17 TY:18 1 Average Net Management Fees (in basis points, annualized) U.S. Retail Funds 49.8 50.2 51.6 54.1 53.9 49.5 52.5 2 Offshore Funds - - 33.8 40.7 29.6 9.1 15.8 Variable Insurance Funds 65.8 65.3 63.7 65.3 62
Slide 33: Assets Under Management
ASSETS UNDER MANAGEMENT Average AUM (Unaudited) Q4:17 Q1:18 Q2:18 Q3:18 Q4:18 TY:17 TY:18 1 Average Assets by Product U.S. Retail Funds $41,744.8 $42,607.8 $42,889.1 $44,029.2 $40,596.9 $33,887.2 $42,530.8 2 Offshore Funds 93.0 128.1 118.4 113.9 113.5 69.4 118.5 Variable Insurance Funds 1,002.3 1,01
Slide 34: Reconciliation: U.S. GAAP to Non-GAAP
RECONCILIATION: U.S. GAAP TO NON-GAAP Reclassifications Adjustments Acquisition Q4 2018 Distribution and other Consolidated Amortization Seed capital and integration (Unaudited) U.S. GAAP asset-based investment of intangible Restructuring and CLO related Non-GAAP Basis expenses products assets and S
Slide 35: Reconciliation: U.S. GAAP to Non-GAAP
RECONCILIATION: U.S. GAAP TO NON-GAAP Reclassifications Adjustments Q3 2018 Acquisition (Unaudited) Distribution and and other Consolidated Amortization Seed capital integration U.S. GAAP asset-based investment of intangible and CLO related Non-GAAP Basis expenses products assets investments expense
Slide 36: Reconciliation: U.S. GAAP to Non-GAAP
RECONCILIATION: U.S. GAAP TO NON-GAAP Q2 2018 Reclassifications Adjustments Distribution and Consolidated Amortization Acquisition and (Unaudited) U.S. GAAP other asset- investment of intangible Seed capital and integration related Non-GAAP Basis based expenses products assets CLO investments expens
Slide 37: Reconciliation: U.S. GAAP to Non-GAAP
RECONCILIATION: U.S. GAAP TO NON-GAAP Q1 2018 Reclassifications Adjustments (Unaudited) Distribution and Consolidated Amortization Acquisition and U.S. GAAP other asset- investment of intangible Seed capital and integration Non-GAAP Basis based expenses products assets CLO investments expenses Other
Slide 38: Reconciliation: U.S. GAAP to Non-GAAP
RECONCILIATION: U.S. GAAP TO NON-GAAP Reclassifications Adjustments Q4 2017 Distribution and Consolidated Amortization Acquisition and (Unaudited) U.S. GAAP other asset- investment of intangible Seed capital and integration Non-GAAP Basis based expenses products assets CLO investments expenses Other
Slide 39: Reconciliation: U.S. GAAP to Non-GAAP
RECONCILIATION: U.S. GAAP TO NON-GAAP Reclassifications Adjustments TY 2018 Seed capital Acquisition Distribution and and (Unaudited) and other Consolidated Amortization Restructuri integration integration U.S. GAAP asset-based investment of intangible ng and related related Non-GAAP Basis expenses
Slide 40: Reconciliation: U.S. GAAP to Non-GAAP
RECONCILIATION: U.S. GAAP TO NON-GAAP Reclassifications Adjustments TY 2017 Distribution and Consolidated Amortization of Acquisition and U.S. GAAP other asset- investment intangible Restructuring Seed capital and integration Non-GAAP (Unaudited) Basis based expenses vehicles assets and severance CL
Slide 41: Reconciliation: U.S. GAAP to Non-GAAP
RECONCILIATION: U.S. GAAP TO NON-GAAP (Unaudited) Q4:17 Q1:18 Q2:18 Q3:18 Q4:18 TY:17 TY:18 Weighted average shares outstanding - diluted Weighted average shares outstanding - diluted, GAAP 7,433 8,411 8,401 8,456 7,382 7,247 8,527 1 Preferred stock 980 - - - 1,047 897 - Weighted average shares outs
Slide 42: Footnotes
FOOTNOTES Non-GAAP financial information differ from financial information determined in accordance with U.S. GAAP as a result of the reclassification of certain income statement items, as well as the exclusion of certain expenses and other items that are not reflective of the earnings generated fro
Slide 43: Footnotes
FOOTNOTES Components of Acquisition and Integration Expenses and Other for the respective periods are shown in the table below: (Unaudited) Q4:17 Q1:18 Q2:18 Q3:18 Q4:18 TY:17 TY:18 Acquisition and Integration Expenses Employment expenses $2,009 $1,903 $1,208 $1,561 $1,595 $6,343 $6,267 Restructurin
Slide 44: Virtus Investment Partners
VIRTIUS | INVESTMENT PARTNERS
Virtus Investment Partners — Q4 2018 Earnings Presentation on 6ix