Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Q3 2018 Earnings Presentation
43 slides from Virtus Investment Partners's earnings presentation, Oct 26, 2018
Slide 1: Third Quarter 2018 Earnings Presentation
Third Quarter 2018 Earnings Presentation October 26, 2018 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 Third Quarter Third Quarter Results Q & A Session 3
Slide 4: Overview of Third Quarter
_VIRTUS | INVESTMENT PARTNERS OVERVIEW OF THIRD QUARTER
Slide 5: Overview of Third Quarter
OVERVIEW OF THIRD QUARTER Assets and Flows Long-term assets under management increased $14.1 billion, or 16%, sequentially to $103.9 billion reflecting assets from Sustainable Growth Advisers (SGA), market appreciation, and positive net flows Total sales of $6.3 billion compared with $6.6 billio
Slide 6: Third Quarter Results
_VIRTUS | INVESTMENT PARTNERS THIRD QUARTER RESULTS
Slide 7: Assets Under Management
ASSETS UNDER MANAGEMENT Quarterly Trends Commentary Long-Term Sequential increase in long-term assets Liquidity $105.6 of $14.1 billion, or 15.7%, primarily due to assets from SGA $90.6 $91.0 $89.1 $91.6 $103.9 $89.8 Increase in long-term assets included $87.1 $88.8 $87.4 $2.5 billion from marke
Slide 8: Asset Flows
ASSET FLOWS Inflows / (Outflows) Year to Date Commentary $18.3 Net flows Total sales declined modestly sequentially, up significantly from prior year $11.4 − Annualized sales rate of 28% in $6.6 $5.4 $6.3 third quarter $4.6 $4.1 Net flows of $0.5 billion, which represented an annualized organic
Slide 9: Investment Management Fees, as Adjusted
INVESTMENT MANAGEMENT FEES, AS ADJUSTED Quarterly Results Year to Date Commentary $330.0 Investment management fees increased $18.8 million, or 18.0%, sequentially primarily due to: $232.2 − $8.9 million of SGA revenues $123.4 $98.4 $102.1 $102.0 $104.6 − $6.3 million related to higher average AUM
Slide 10: Employment Expenses, as Adjusted
EMPLOYMENT EXPENSES, AS ADJUSTED Quarterly Results Year to Date Commentary $174.2 Employment expenses, as adjusted, increased sequentially by $8.0 million or 15.0% due to: $132.5 − Addition of SGA − Higher profit-based variable $61.7 compensation $58.8 $51.9 $52.6 $53.7 Employment expense as a p
Slide 11: Other Operating Expenses, as Adjusted
OTHER OPERATING EXPENSES, AS ADJUSTED Quarterly Results Year to Date Commentary $51.3 Other operating expenses, as adjusted, decreased $0.8 million, or 5%, from prior $41.3 quarter primarily due to: $18.2 $16.7 $17.4 − Prior quarter included $0.8 million $16.1 $15.7 related to timing of annual dir
Slide 12: Non-GAAP Results
NON-GAAP RESULTS Quarterly Results Year to Date Commentary Operating Income, As Adjusted $118.7 Diluted EPS, as adjusted, of $3.64 increased by $0.67, or 23%, sequentially and $1.34, or 58%, from Diluted earnings per share, as adjusted the prior year $71.4 − Sequential increase primarily $48.2 rel
Slide 13: Capital Position
CAPITAL POSITION Select Non-GAAP Balance Sheet Items Commentary 9/30/17 12/31/17 3/31/18 6/30/18 9/30/18 Cash and cash equivalents $165 $132 $81 $139 $169 Working capital increased $33.9 million or Seed capital investments 1 $109 $118 $116 $107 $109 36% sequentially; includes lower estimate Invest
Slide 14: Financial Supplement
_VIRTUS | INVESTMENT PARTNERS Financial Supplement
Slide 15: Non-GAAP Information: Income Statement
NON-GAAP INFORMATION Income Statement1 (Unaudited) Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 YTD:17 YTD:18 Revenues, As Adjusted Investment management fees, as adjusted $98,402 $102,114 $102,047 $104,559 $123,379 $232,187 $329,985 Distribution and service fees, as adjusted 11,486 11,623 12,611 13,553 13,734 32,
Slide 16: Non-GAAP Information: Income Statement (continued)
NON-GAAP INFORMATION Income Statement1 (continued) (Unaudited) Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 YTD:17 YTD:18 Other Income (Expense), As Adjusted Realized and unrealized gain (loss) on investments, net, as $- $- ($198) $137 $10 $- ($51) adjusted Other income, net, as adjusted 436 506 1,319 455 549 1,12
Slide 17: Non-GAAP Information: Balance Sheet
NON-GAAP INFORMATION Balance Sheet1 (Unaudited) 09/30/17 12/31/17 03/31/18 06/30/18 09/30/18 Assets: Cash and cash equivalents $164,867 $132,150 $80,765 $138,827 $168,982 Investments – seed capital 108,511 118,443 115,848 107,217 109,111 Investments – other 92,676 112,105 136,821 107,030 104,496 Inv
Slide 18: Non-GAAP Information: Balance Sheet (continued)
NON-GAAP INFORMATION Balance Sheet1 (continued) (Unaudited) 09/30/17 12/31/17 03/31/18 06/30/18 09/30/18 Liabilities and Equity Liabilities: Accrued compensation and benefits $69,833 $86,658 $27,471 $45,187 $70,750 Accounts payable and accrued liabilities 31,677 29,607 28,214 25,805 32,803 Dividends
Slide 19: U.S. GAAP Information: Income Statement
U.S. GAAP INFORMATION Income Statement (Unaudited) Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 YTD:17 YTD:18 Revenues Investment management fees $97,295 $100,447 $100,476 $103,168 $121,713 $230,628 $325,357 Distribution and service fees 11,482 11,618 12,607 13,549 13,730 32,704 39,886 Administration and sharehold
Slide 20: U.S. GAAP Information: Income Statement (continued)
U.S. GAAP INFORMATION Income Statement (continued) (Unaudited) Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 YTD:17 YTD:18 Other Income (Expense) Realized and unrealized gain (loss) on investments, net $1,367 $22 $438 $960 ($374) $2,951 $1,024 Realized and unrealized gain (loss) of consolidated investment 13,465 (2
Slide 21: Assets Under Management: Product and Asset Class
ASSETS UNDER MANAGEMENT Assets: Product and Asset Class 09/30/17 12/31/17 03/31/18 06/30/18 09/30/18 Assets by Product U.S. Retail Funds $41,325.4 $41,949.9 $42,092.7 $43,322.6 $44,074.3 1 Offshore Funds 79.4 122.3 127.2 115.7 112.2 Variable Insurance Funds 992.9 1,005.4 982.6 981.0 985.3 Total – Op
Slide 22: Asset Flows: Total/Long-term
ASSETS UNDER MANAGEMENT Asset Flows: Total/Long-term Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 YTD:17 YTD:18 Long-term Beginning balance $85,018.8 $87,136.5 $88,834.5 $87,443.5 $89,833.6 $45,366.3 $88,834.5 Inflows 4,565.2 4,115.7 5,431.0 6,643.1 6,261.2 11,282.8 18,335.3 Outflows (4,331.0) (4,886.8) (6,161.6)
Slide 23: Asset Flows: Product
ASSETS UNDER MANAGEMENT Asset Flows: Product Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 YTD:17 YTD:18 U.S. Retail Funds Beginning balance $40,421.0 $41,325.4 $41,949.9 $42,092.7 $43,322.6 $22,452.1 $41,949.9 Inflows 2,821.5 2,619.0 3,754.2 4,335.6 3,791.8 7,055.1 11,881.6 Outflows (2,836.9) (3,236.6) (3,617.5) (
Slide 24: Asset Flows: Product
ASSETS UNDER MANAGEMENT Asset Flows: Product Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 YTD:17 YTD:18 Variable Insurance Funds Beginning balance $965.2 $992.9 $1,005.4 $982.6 $981.0 $931.8 $1,005.4 Inflows 7.5 6.9 10.1 6.9 5.7 27.7 22.7 Outflows (33.6) (33.4) (37.8) (36.2) (34.1) (112.4) (108.1) Net Flows (26.1)
Slide 25: Asset Flows: Product (continued)
ASSETS UNDER MANAGEMENT Asset Flows: Product (continued) Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 YTD:17 YTD:18 Closed-End Funds Beginning balance $6,707.2 $6,735.4 $6,666.2 $6,132.7 $6,295.0 $6,757.4 $6,666.2 Inflows - - - 0.5 12.9 - 13.4 Outflows - - - - - (112.8) - Net Flows - - - 0.5 12.9 (112.8) 13.4 Mark
Slide 26: Asset Flows: Product (continued)
ASSETS UNDER MANAGEMENT Asset Flows: Product (continued) Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 YTD:17 YTD:18 Intermediary Sold Managed Accounts Beginning balance $9,045.2 $9,577.7 $10,260.7 $10,535.2 $11,062.6 $5,403.5 $10,260.7 Inflows 541.5 551.5 576.3 632.3 771.0 1,522.7 1,979.6 Outflows (409.7) (455.8)
Slide 27: Asset Flows: Product (continued)
ASSETS UNDER MANAGEMENT Asset Flows: Product (continued) Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 YTD:17 YTD:18 Institutional Accounts Beginning balance $20,639.1 $20,630.5 $20,815.9 $19,411.2 $19,726.6 $5,492.7 $20,815.9 Inflows 439.9 609.7 423.0 1,425.0 1,484.5 1,074.7 3,332.5 Outflows (893.7) (1,000.4) (1,6
Slide 28: Asset Flows: Open-End Funds by Asset Class
ASSETS UNDER MANAGEMENT Asset Flows: Open-End Funds1 by Asset Class Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 YTD:17 YTD:18 Domestic Equity Funds Beginning balance $11,164.9 $11,513.3 $12,023.3 $12,516.4 $14,677.1 $4,335.4 $12,023.3 Inflows 815.1 764.6 1,386.9 2,320.4 2,033.5 1,649.0 5,740.8 Outflows (863.1) (8
Slide 29: Asset Flows: Open-End Funds by Asset Class (continued)
ASSETS UNDER MANAGEMENT Asset Flows: Open-End Funds1 by Asset Class (continued) Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 YTD:17 YTD:18 2 Taxable Bond Funds Beginning balance $17,518.3 $17,754.4 $17,363.0 $17,241.8 $17,044.7 $8,918.8 $17,363.0 Inflows 1,238.8 1,160.1 1,418.6 1,197.5 927.6 2,798.6 3,543.7 Outflo
Slide 30: Asset Flows: Open-End Funds by Asset Class (continued)
ASSETS UNDER MANAGEMENT Asset Flows: Open-End Funds1 by Asset Class (continued) Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 YTD:17 YTD:18 2 Alternative Funds Beginning balance $1,603.0 $1,536.1 $1,461.8 $1,290.3 $1,311.1 $1,682.2 $1,461.8 Inflows 73.8 65.2 71.5 74.2 62.5 329.3 208.2 Outflows (164.6) (157.3) (159.
Slide 31: Average Net Fees
ASSETS UNDER MANAGEMENT Average Net Fees (Unaudited) Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 YTD:17 YTD:18 1 Average Net Management Fees (in basis points, annualized) U.S. Retail Funds 47.7 49.8 50.2 51.6 54.1 49.3 52.0 2 Offshore Funds 27.9 - - 33.8 40.7 18.9 11.4 Variable Insurance Funds 59.0 65.8 65.3 63.7
Slide 32: Average AUM
ASSETS UNDER MANAGEMENT Average AUM (Unaudited) Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 YTD:17 YTD:18 1 Average Assets by Product U.S. Retail Funds $41,027.9 $41,744.8 $42,607.8 $42,889.1 $44,029.2 $31,268.0 $43,175.4 2 Offshore Funds 72.0 93.0 128.1 118.4 113.9 61.6 120.1 Variable Insurance Funds 981.0 1,002
Slide 33: Assets by Investment Category / Style
ASSETS UNDER MANAGEMENT Assets by Investment Category / Style 9/30/2018 (Unaudited) Domestic Equity: Domestic Equity - Large Cap $ 19,953.7 Domestic Equity - Mid Cap 7,617.8 Domestic Equity - Small Cap 19,823.0 Total Domestic Equity $ 47,394.5 International Equity: Developed Markets $ 7,909.7 Emergi
Slide 34: U.S. GAAP to Non-GAAP Reconciliation: Q3 2018
U.S. GAAP TO NON-GAAP RECONCILIATION 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 expenses
Slide 35: U.S. GAAP to Non-GAAP Reconciliation: Q2 2018
U.S. GAAP TO NON-GAAP RECONCILIATION 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 expense
Slide 36: U.S. GAAP to Non-GAAP Reconciliation: Q1 2018
U.S. GAAP TO NON-GAAP RECONCILIATION 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 37: U.S. GAAP to Non-GAAP Reconciliation: Q4 2017
U.S. GAAP TO NON-GAAP RECONCILIATION Q4 2017 Reclassifications Adjustments 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 38: U.S. GAAP to Non-GAAP Reconciliation: Q3 2017
U.S. GAAP TO NON-GAAP RECONCILIATION Q3 2017 Reclassifications Adjustments (Unaudited) Distribution and Consolidated Amortization Acquisition and U.S. GAAP other asset- investment of intangible Restructuring Seed capital and integration Non-GAAP Basis based expenses products assets and severance CLO
Slide 39: U.S. GAAP to Non-GAAP Reconciliation: YTD 2018
U.S. GAAP TO NON-GAAP RECONCILIATION YTD 2018 Reclassifications Adjustments Seed capital Acquisition (Unaudited) Distribution and and and other Consolidated Amortization integration integration U.S. GAAP asset-based investment of intangible related related Non-GAAP Basis expenses products assets exp
Slide 40: U.S. GAAP to Non-GAAP Reconciliation: YTD 2017
U.S. GAAP TO NON-GAAP RECONCILIATION Reclassifications Adjustments YTD 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: 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 42: Footnotes
FOOTNOTES Components of Acquisition and Integration Expenses and Other for the respective periods are shown in the table below: (Unaudited) Q3:17 Q4:17 Q1:18 Q2:18 Q3:18 YTD:17 YTD:18 Acquisition and Integration Expenses Employment expenses $2,275 $2,009 $1,903 $1,208 $1,561 $4,334 $4,672 Restructur
Slide 43: Virtus Investment Partners
VIRTIUS | INVESTMENT PARTNERS
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