Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Q3 2019 Earnings Presentation
45 slides from Virtus Investment Partners's earnings presentation, Oct 25, 2019
Slide 1: Third Quarter Earnings Presentation
THIRD QUARTER EARNINGS PRESENTATION FRIDAY, OCTOBER 25, 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 Quarter Results Q & A Session 3
Slide 4: Overview of Quarter
INVESTMENT PARTNERS OVERVIEW OF QUARTER
Slide 5: Third Quarter 2019 Overview
THIRD QUARTER 2019 OVERVIEW Assets and Flows Long-term assets under management of $102.8 billion decreased $0.4 billion sequentially as market appreciation was offset by net outflows primarily due to a $0.9 billion single institutional client redemption Total sales of $4.8 billion decreased $0.4
Slide 6: Results
VIRTUS RESULTS
Slide 7: Assets Under Management
ASSETS UNDER MANAGEMENT DIVERSIFIED LONG-TERM AUM Long-term assets relatively stable sequentially Long-Term Liquidity at $102.8 billion, declining $0.4 billion, or 0.4%, as market appreciation was offset by net $105.6 $105.0 $104.1 $101.7 outflows $103.9 $92.0 $99.9 $103.3 $102.8 – Domestic mid-ca
Slide 8: Asset Flows
ASSET FLOWS IMPROVED FLOWS EXCEPT INSTITUTIONAL Total sales of $4.8 billion decreased $0.4 billion, Net flows $18.3 or 7%, from the second quarter $15.4 – Higher sales in funds and retail separate accounts $6.3 offset by lower institutional sales $5.5 $5.1 $4.8 – Fund sales of $3.0 billion increas
Slide 9: Investment Management Fees, As Adjusted
INVESTMENT MANAGEMENT FEES, AS ADJUSTED HIGHER AVERAGE FEE RATE Investment management fees, as adjusted $346.1 increased sequentially by $5.6 million, or $330.0 $123.4 $122.1 $116.4 5%, due to: $113.3 $107.6 – Increase of 2% in long-term average assets – Higher average fee rate of 46.6 bps, up 0.6
Slide 10: Employment Expenses, As Adjusted
EMPLOYMENT EXPENSES, AS ADJUSTED RATIO REMAINS AT LOW LEVELS Employment expenses, as adjusted, increased sequentially by $3.1 million, or $174.2 $176.5 5%, primarily due to higher profit-based $61.7 $59.4 $60.1 $58.1 $57.0 incentive compensation Employment expenses, as adjusted, as a percentage
Slide 11: Other Operating Expenses, As Adjusted
OTHER OPERATING EXPENSES, AS ADJUSTED LOWER EXPENSES REFLECT TIMING $55.7 Other operating expenses, as $51.3 adjusted, of $18.1 million decreased $0.9 million, or 5%, from the prior $19.1 $18.5 $18.1 $17.8 quarter $17.4 – Decrease primarily reflects $0.8 million of annual director grants in the pr
Slide 12: Non-GAAP Results
NON-GAAP RESULTS CONTINUED STRONG GROWTH AND PROFITABILITY Diluted EPS, as adjusted, of $4.03 Operating Income, As Adjusted increased sequentially by $0.40, or Diluted earnings per share, as adjusted 11%, primarily due to higher revenues, $118.7 $124.9 as adjusted, and lower other operating $48.2
Slide 13: Capital Position
CAPITAL POSITION BALANCED CAPITAL MANAGEMENT Working capital increased $9 million, Select Balance Sheet Items: 9/30/18 12/31/18 3/31/19 6/30/19 9/30/19 or 6%, sequentially as cash generation Cash and cash equivalents $169 $202 $142 $166 $196 more than offset debt repayments and Seed capital invest
Slide 14: Financial Supplement
INVESTMENT PARTNERS FINANCIAL SUPPLEMENT
Slide 15: Non-GAAP Information: Income Statement
NON-GAAP INFORMATION INCOME STATEMENT1 (UNAUDITED) Q3:18 Q4:18 Q1:19 Q2:19 Q3:19 YTD:18 YTD:19 Revenues, As Adjusted Investment management fees, as adjusted $123,379 $113,253 $107,572 $116,428 $122,075 $329,985 $346,075 Distribution and service fees, as adjusted 13,734 10,831 10,066 10,620 10,451 39
Slide 16: Non-GAAP Information: Income Statement (Continued)
NON-GAAP INFORMATION INCOME STATEMENT1 (CONTINUED) (UNAUDITED) Q3:18 Q4:18 Q1:19 Q2:19 Q3:19 YTD:18 YTD:19 Other Income (Expense), As Adjusted Realized and unrealized gain (loss) on investments, net, as $10 ($244) $359 $102 $289 ($51) $750 adjusted Other income, net, as adjusted 549 1,272 450 696 74
Slide 17: Non-GAAP Information: Balance Sheet
NON-GAAP INFORMATION BALANCE SHEET1 (UNAUDITED) 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 Assets: Cash and cash equivalents $168,982 $201,705 $142,344 $166,026 $195,870 Investments – seed capital 109,111 92,846 88,594 95,765 100,520 Investments – other 104,496 93,636 88,558 87,885 84,621 Investme
Slide 18: Non-GAAP Information: Balance Sheet (Continued)
NON-GAAP INFORMATION BALANCE SHEET1 (CONTINUED) (UNAUDITED) 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 Liabilities and Equity Liabilities: Accrued compensation and benefits $70,750 $93,339 $31,105 $52,675 $78,073 Accounts payable and accrued liabilities 32,803 27,926 27,723 24,757 23,310 Dividends
Slide 19: U.S. GAAP Information: Income Statement
U.S. GAAP INFORMATION INCOME STATEMENT (UNAUDITED) Q3:18 Q4:18 Q1:19 Q2:19 Q3:19 YTD:18 YTD:19 Revenues Investment management fees $121,713 $111,664 $105,918 $114,591 $120,023 $325,357 $340,532 Distribution and service fees 13,730 10,829 10,063 10,617 10,442 39,886 31,122 Administration and sharehol
Slide 20: U.S. GAAP Information: Income Statement (Continued)
U.S. GAAP INFORMATION INCOME STATEMENT (CONTINUED) (UNAUDITED) Q3:18 Q4:18 Q1:19 Q2:19 Q3:19 YTD:18 YTD:19 Other Income (Expense) Realized and unrealized gain (loss) on investments, net ($374) ($6,241) $3,433 $2,039 $2 $1,024 $5,474 Realized and unrealized gain (loss) of CIP1, net (4,735) (16,997) (
Slide 21: Assets Under Management by Product and Asset Class
ASSETS UNDER MANAGEMENT BY PRODUCT AND ASSET CLASS 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 Assets by Product U.S. Retail Funds $44,074.3 $36,778.1 $39,587.1 $40,152.0 $39,886.4 1 112.2 108.3 126.0 139.9 400.7 Offshore Funds Variable Insurance Funds 985.3 823.6 919.5 931.6 902.6 Total – Open-End
Slide 22: Assets Under Management by Asset Class
ASSETS UNDER MANAGEMENT BY ASSET CLASS 9/30/18 12/31/18 3/31/19 6/30/19 9/30/19 Domestic Equity: Large Cap $19,953.7 $16,923.4 $18,974.5 $19,458.8 $19,684.5 Mid Cap 7,617.8 6,706.5 8,067.1 9,128.7 9,797.6 Small Cap 19,823.0 16,223.8 19,000.2 19,938.0 19,963.7 Total Domestic Equity $47,394.5 $39,853.
Slide 23: Assets Under Management by Product and Asset Class
ASSETS UNDER MANAGEMENT BY PRODUCT AND ASSET CLASS Exchange Retail Open-end Closed-end traded separate Structured Total as of funds funds funds accounts Institutional products 09/30/2019 Domestic Equity: Large Cap $3,414.1 $4,049.3 - $2,604.1 $9,617.0 - $19,684.5 Mid Cap 4,406.6 - - 4,263.4 1,127.6
Slide 24: Asset Flows: Total/Long-Term
ASSET FLOWS TOTAL/LONG-TERM 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 YTD:18 YTD:19 Long-term Beginning balance $89,833.6 $103,922.8 $90,417.3 $99,923.3 $103,253.8 $88,834.5 $90,417.3 Inflows 6,261.2 4,438.4 5,501.1 5,118.9 4,759.5 18,335.3 15,379.5 Outflows (5,767.8) (9,210.8) (5,555.1) (5,058.0
Slide 25: Asset Flows by Product
ASSET FLOWS BY PRODUCT 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 YTD:18 YTD:19 U.S. Retail Funds Beginning balance $43,322.6 $44,074.3 $36,778.1 $39,587.1 $40,152.0 $41,949.9 $36,778.1 Inflows 3,791.8 2,873.3 2,969.3 2,483.9 2,945.8 11,881.6 8,399.0 Outflows (3,416.3) (6,709.0) (3,821.2) (3,175.4
Slide 26: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 YTD:18 YTD:19 Variable Insurance Funds Beginning balance $981.0 $985.3 $823.6 $919.5 $931.6 $1,005.4 $823.6 Inflows 5.7 4.2 7.2 5.1 8.6 22.7 20.9 Outflows (34.1) (27.2) (31.7) (29.7) (31.6) (108.1) (93.0) Net Flows (28.4
Slide 27: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 YTD:18 YTD:19 Closed-End Funds Beginning balance $6,295.0 $6,342.2 $5,956.0 $6,553.2 $6,653.1 $6,666.2 $5,956.0 Inflows 12.9 8.2 11.5 8.7 14.0 13.4 34.2 Outflows - - - - - - - Net Flows 12.9 8.2 11.5 8.7 14.0 13.4 34.2 M
Slide 28: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 YTD:18 YTD:19 Intermediary Sold Managed Accounts Beginning balance $11,062.6 $12,757.4 $11,274.9 $12,974.9 $13,909.1 $10,260.7 $11,274.9 Inflows 771.0 580.5 588.3 608.4 635.0 1,979.6 1,831.7 Outflows (461.0) (389.8) (377
Slide 29: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 YTD:18 YTD:19 Institutional Accounts Beginning balance $19,726.6 $30,960.1 $27,445.0 $30,514.1 $32,056.2 $20,815.9 $27,445.0 Inflows 1,484.5 810.8 954.7 1,737.4 850.5 3,332.5 3,542.6 Outflows (1,604.8) (1,822.6) (1,153.9
Slide 30: Asset Flows: Open-End Funds by Asset Class
ASSET FLOWS OPEN-END FUNDS1 BY ASSET CLASS 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 YTD:18 YTD:19 Domestic Equity Funds Beginning balance $14,677.1 $15,979.3 $12,778.0 $14,855.5 $15,773.0 $12,023.3 $12,778.0 Inflows 2,033.5 922.1 1,071.1 1,011.3 1,123.4 5,740.8 3,205.8 Outflows (1,216.9) (1,838.
Slide 31: Asset Flows: Open-End Funds by Asset Class (Continued)
ASSET FLOWS OPEN-END FUNDS1 BY ASSET CLASS (CONTINUED) 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 YTD:18 YTD:19 Taxable Bond Funds2 Beginning balance $17,044.7 $16,913.7 $14,507.3 $14,142.2 $13,541.3 $17,363.0 $14,507.3 Inflows 927.6 1,077.5 952.8 721.0 773.7 3,543.7 2,447.5 Outflows (1,214.1) (3,
Slide 32: Asset Flows: Open-End Funds by Asset Class (Continued)
ASSET FLOWS OPEN-END FUNDS1 BY ASSET CLASS (CONTINUED) 09/30/18 12/31/18 03/31/19 06/30/19 09/30/19 YTD:18 YTD:19 2 Alternative Funds Beginning balance $1,311.1 $1,257.4 $1,030.6 $1,062.0 $1,060.9 $1,461.8 $1,030.6 Inflows 62.5 49.3 75.5 61.1 80.2 208.2 216.8 Outflows (132.4) (175.6) (112.4) (85.8)
Slide 33: Average Net Management Fees by Product
INVESTMENT MANAGEMENT FEES AVERAGE NET MANAGEMENT FEES BY PRODUCT (UNAUDITED) Q3:18 Q4:18 Q1:19 Q2:19 Q3:19 YTD:18 YTD:19 1 Average Net Management Fees (in basis points, annualized) U.S. Retail Funds 54.1 53.9 54.2 55.5 56.3 52.0 55.1 2 40.7 29.6 23.9 - 40.2 11.4 19.4 Offshore Funds Variable Insuran
Slide 34: Average Assets by Product
INVESTMENT MANAGEMENT FEES AVERAGE ASSETS BY PRODUCT (UNAUDITED) Q3:18 Q4:18 Q1:19 Q2:19 Q3:19 YTD:18 YTD:19 1 Average Assets by Product U.S. Retail Funds $44,029.2 $40,596.9 $38,520.9 $39,898.5 $40,224.2 $43,175.4 $39,716.9 2 113.9 113.5 119.2 133.5 312.3 120.1 219.3 Offshore Funds Variable Insuran
Slide 35: Reconciliation: U.S. GAAP to Non-GAAP, Q3 2019
RECONCILIATION: U.S. GAAP TO NON-GAAP Q3 2019 (UNAUDITED) Reclassifications Adjustments Distribution and other asset- Consolidated Amortization of Seed capital Acquisition and U.S. GAAP based investment intangible Restructuring and CLO integration Non-GAAP Basis expenses products assets and Severanc
Slide 36: Reconciliation: U.S. GAAP to Non-GAAP, Q2 2019
RECONCILIATION: U.S. GAAP TO NON-GAAP Q2 2019 (UNAUDITED) Reclassifications Adjustments Distribution Acquisition and other Consolidated Amortization Restructuring Seed capital and U.S. GAAP asset-based investment of intangible and and CLO integration Non-GAAP Basis expenses products assets Severance
Slide 37: Reconciliation: U.S. GAAP to Non-GAAP, Q1 2019
RECONCILIATION: U.S. GAAP TO NON-GAAP Q1 2019 (UNAUDITED) Reclassifications Adjustments Distribution Acquisition and other Consolidated Amortization Restructuring Seed capital and U.S. GAAP asset-based investment of intangible and and CLO integration Non-GAAP Basis expenses products assets Severance
Slide 38: Reconciliation: U.S. GAAP to Non-GAAP, Q4 2018
RECONCILIATION: U.S. GAAP TO NON-GAAP Q4 2018 (UNAUDITED) Reclassifications Adjustments Distribution Acquisition and other Consolidated Amortization Restructuring Seed capital and U.S. GAAP asset-based investment of intangible and and CLO integration Non-GAAP Basis expenses products assets Severance
Slide 39: Reconciliation: U.S. GAAP to Non-GAAP, Q3 2018
RECONCILIATION: U.S. GAAP TO NON-GAAP Q3 2018 (UNAUDITED) Reclassifications Adjustments Distribution Acquisition and other Consolidated Amortization Seed capital and U.S. GAAP asset-based investment of intangible and CLO integration Non-GAAP Basis expenses products assets investments related Other B
Slide 40: Reconciliation: U.S. GAAP to Non-GAAP, 2019 YTD
RECONCILIATION: U.S. GAAP TO NON-GAAP 2019 YTD (UNAUDITED) Reclassifications Adjustments Distribution and other asset- Consolidated Amortization of Seed capital Acquisition and U.S. GAAP based investment intangible Restructuring and CLO integration Non-GAAP Basis expenses products assets and Severan
Slide 41: Reconciliation: U.S. GAAP to Non-GAAP, 2018 YTD
RECONCILIATION: U.S. GAAP TO NON-GAAP 2018 YTD (UNAUDITED) Reclassifications Adjustments Distribution Acquisition and other Consolidated Amortization Restructuring Seed capital and U.S. GAAP asset-based investment of intangible and and CLO integration Non-GAAP Basis expenses products assets Severanc
Slide 42: Reconciliation: U.S. GAAP to Non-GAAP (Unaudited)
RECONCILIATION: U.S. GAAP TO NON-GAAP (UNAUDITED) Q3:18 Q4:18 Q1:19 Q2:19 Q3:19 YTD:18 YTD:19 Weighted average shares outstanding - diluted Weighted average shares outstanding - diluted, GAAP 8,456 7,382 8,322 8,252 8,157 8,463 8,215 1 Preferred stock - 1,047 - - - - - Weighted average shares outsta
Slide 43: Footnotes
FOOTNOTES Non-GAAP financial information differs 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 fr
Slide 44: Footnotes (Unaudited)
FOOTNOTES (UNAUDITED) Components of Acquisition and Integration Expenses and Other for the respective periods are shown in the table below: Q3:18 Q4:18 Q1:19 Q2:19 Q3:19 YTD:18 YTD:19 Acquisition and Integration Expenses Employment expenses $1,561 $1,595 $1,433 $1,115 $1,223 $4,672 $3,771 Restructur
Slide 45: Investment Partners
INVESTMENT PARTNERS
Virtus Investment Partners — Q3 2019 Earnings Presentation on 6ix