Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Q2 2021 Earnings Presentation
47 slides from Virtus Investment Partners's earnings presentation, Jul 28, 2021
Slide 1: Second Quarter Earnings Presentation
SECOND QUARTER EARNINGS PRESENTATION July 28, 2021 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 ■ Agreement with Stone Harbor Investment Partners ■ Q & A Session 3 3
Slide 4: Overview of Quarter
INVESTMENT PARTNERS OVERVIEW OF QUARTER
Slide 5: Second Quarter 2021 Overview
SECOND QUARTER 2021 OVERVIEW Assets and Flows ■ Assets under management (AUM) increased 6% sequentially to $178.6 billion due to market performance and positive net flows ■ Sales of $9.6 billion compared with $10.6 billion in the prior quarter; growth in institutional and exchange traded funds (ETFs
Slide 6: Results
INVESTMENT PARTNERS RESULTS
Slide 7: Assets Under Management
ASSETS UNDER MANAGEMENT MARKET AND FLOW DRIVEN GROWTH ■ Total assets increased by $9.8 billion, or 6%, sequentially to $178.6 billion due to: – $8.8 billion of market performance – $1.3 billion of positive net flows ■ Domestic equity assets grew 7% to $82.8 billion – Large-cap up 7% to $25.7 billion
Slide 8: Asset Flows
ASSET FLOWS CONSISTENT ORGANIC GROWTH ■ Net flows of $1.3 billion represent 3.2% annualized organic growth – Retail separate accounts: $1.4 billion – Institutional: $0.1 billion – ETFs: $0.1 billion ■ Sales of $9.6 billion declined sequentially from highest quarterly level – Institutional sales of $
Slide 9: Investment Management Fees, As Adjusted
INVESTMENT MANAGEMENT FEES, AS ADJUSTED HIGHER AVERAGE ASSETS ■ Investment management fees, as adjusted, increased sequentially by $19.3 million, or 12%, due to: – Higher average AUM, which increased 12% – Performance-related fees of $0.8 million, compared with $0.6 million in the prior quarter ■ Av
Slide 10: Employment Expenses, As Adjusted
EMPLOYMENT EXPENSES, AS ADJUSTED REFLECTS GROWTH OF THE BUSINESS ■ Employment expenses, as adjusted, decreased $3.9 million, or 4%, sequentially due to seasonally higher expenses in the prior quarter, partially offset by: – Higher profit-based incentive compensation – Full-quarter impact of new affi
Slide 11: Other Operating Expenses, As Adjusted
OTHER OPERATING EXPENSES, AS ADJUSTED REFLECTS BUSINESS GROWTH ■ Other operating expenses, as adjusted, of $19.9 million increased $2.1 million, or 12%, sequentially due to: – Annual grants to Board of Directors of $0.8 million – Growth of the business, including full- quarter impact of new affiliat
Slide 12: Non-GAAP Results
NON-GAAP RESULTS HIGHEST LEVEL OF PROFITABILITY ■ Operating margin, as adjusted, of 48.9% Operating Income, As Adjusted increased 730 bps from the prior quarter Diluted earnings per share, as adjusted and from 34.3% in the prior-year period – Excluding seasonal employment expenses in the prior quart
Slide 13: Capital and Select Balance Sheet
CAPITAL AND SELECT BALANCE SHEET BALANCED CAPITAL MANAGEMENT ■ Working capital of $229 million Select Balance Sheet Items: 6/30/20 9/30/20 12/31/20 3/31/21 6/30/21 increased 9% sequentially due to cash Cash and cash equivalents $168 $202 $247 $228 $275 generation in excess of debt Seed capital inves
Slide 14: Agreement with Stone Harbor Investment Partners
AGREEMENT WITH STONE HARBOR INVESTMENT PARTNERS
Slide 15: Stone Harbor Investment Partners: Overview of Transaction
STONE HARBOR INVESTMENT PARTNERS OVERVIEW OF TRANSACTION About Stone Harbor ■ Manager of $15.3 billion1 of emerging markets debt, multi-asset credit, and other credit strategies ■ Clients include global institutions, including some of the largest sovereign wealth funds, pension plans, foundations, a
Slide 16: Financial Supplement
SéVIRTUS INVESTMENT PARTNERS FINANCIAL SUPPLEMENT
Slide 17: Non-GAAP Information: Income Statement
NON-GAAP INFORMATION INCOME STATEMENT 1 (UNAUDITED) Q2:20 Q3:20 Q4:20 Q1:21 Q2:21 YTD:20 YTD:21 Revenues, As Adjusted Investment management fees, as adjusted $104,569 $122,359 $136,824 $163,935 $183,230 $216,821 $347,165 Administration and shareholder service fees, as adjusted 13,340 15,180 16,472 2
Slide 18: Non-GAAP Information: Income Statement (Continued)
NON-GAAP INFORMATION INCOME STATEMENT 1 (CONTINUED) (UNAUDITED) Q2:20 Q3:20 Q4:20 Q1:21 Q2:21 YTD:20 YTD:21 Other Income (Expense), As Adjusted Realized and unrealized gain (loss) on investments, net, as adjusted $348 ($205) $147 ($73) $476 ($535) $403 Other income, net, as adjusted (805) 999 1,070
Slide 19: Non-GAAP Information: Balance Sheet
NON-GAAP INFORMATION BALANCE SHEET 1 (UNAUDITED) 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 Assets: Cash and cash equivalents $168,268 $202,212 $246,511 $228,260 $275,439 Investments – seed capital 102,802 115,586 135,418 121,690 140,679 Investments – other 61,268 64,267 69,032 66,909 73,723
Slide 20: Non-GAAP Information: Balance Sheet (Continued)
NON-GAAP INFORMATION BALANCE SHEET 1 (CONTINUED) (UNAUDITED) 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 Liabilities and Equity Liabilities: Accrued compensation and benefits $56,228 $87,256 $122,514 $62,335 $96,509 Accounts payable and accrued liabilities 19,528 21,633 25,357 55,153 45,755 D
Slide 21: U.S. GAAP Information: Income Statement
U.S. GAAP INFORMATION INCOME STATEMENT (UNAUDITED) Q2:20 Q3:20 Q4:20 Q1:21 Q2:21 YTD:20 YTD:21 Revenues Investment management fees $110,550 $129,785 $144,715 $173,269 $193,510 $230,838 $366,779 Distribution and service fees 8,889 9,797 10,279 20,348 23,450 18,349 43,798 Administration and shareholde
Slide 22: U.S. GAAP Information: Income Statement (Continued)
U.S. GAAP INFORMATION INCOME STATEMENT (CONTINUED) (UNAUDITED) Q2:20 Q3:20 Q4:20 Q1:21 Q2:21 YTD:20 YTD:21 Other Income (Expense) Realized and unrealized gain (loss) on investments, net $7,114 $2,498 $5,071 $891 $2,494 ($430) $3,385 Realized and unrealized gain (loss) of CIP 1, net (6,744) 2,680 10,
Slide 23: Assets Under Management by Product and Asset Class
ASSETS UNDER MANAGEMENT BY PRODUCT AND ASSET CLASS 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 Assets by Product U.S. Retail Funds $39,520 $42,650 $48,492 $69,730 $72,746 Offshore Funds 686 926 1,173 1,343 1,456 Variable Insurance Funds 938 998 1,106 1,091 1,131 Total – Open-End Funds $41,144
Slide 24: Assets Under Management by Product and Asset Class
ASSETS UNDER MANAGEMENT BY PRODUCT AND ASSET CLASS Open-End Closed-End Exchange Retail Separate Institutional Structured Total as of Funds Funds Traded Funds Accounts Accounts Products 6/30/2021 Equity: Domestic Equity $29,305 $— $78 $31,036 $22,400 $— $82,819 International Equity 11,919 — 7 191 1,4
Slide 25: Asset Flows: Total
ASSET FLOWS TOTAL 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 YTD:20 YTD:21 Total Beginning balance $90,694 $108,461 $116,487 $132,194 $168,880 $108,904 $132,194 Inflows 9,412 7,874 8,941 10,611 9,550 16,613 20,161 Outflows (6,649) (6,603) (6,249) (8,178) (8,214) (15,223) (16,392) Net Flows 2
Slide 26: Asset Flows by Product
ASSET FLOWS BY PRODUCT 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 YTD:20 YTD:21 U.S. Retail Funds Beginning balance $33,144 $39,520 $42,650 $48,492 $69,730 $42,412 $48,492 Inflows 4,552 3,553 4,049 5,652 4,591 8,509 10,243 Outflows (4,066) (3,189) (3,408) (5,157) (4,864) (9,738) (10,021) Net
Slide 27: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 YTD:20 YTD:21 Variable Insurance Funds Beginning balance $772 $938 $998 $1,106 $1,091 $949 $1,106 Inflows 8 9 10 10 13 21 23 Outflows (27) (35) (29) (40) (40) (64) (80) Net Flows (19) (26) (19) (30) (27) (43) (57)
Slide 28: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 YTD:20 YTD:21 Closed-End Funds Beginning balance $5,343 $5,639 $5,629 $5,914 $11,664 $6,748 $5,914 Inflows — 15 5 — — 5 — Outflows — — — — — — — Net Flows — 15 5 — — 5 — Market performance 380 54 364 105 514 (805)
Slide 29: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 YTD:20 YTD:21 Intermediary Sold Managed Accounts Beginning balance $13,410 $17,116 $19,456 $23,852 $31,133 $15,592 $23,852 Inflows 1,324 1,538 1,990 2,494 2,066 2,231 4,560 Outflows (574) (519) (810) (791) (700) (1
Slide 30: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 YTD:20 YTD:21 Institutional Accounts Beginning balance $28,507 $34,819 $36,851 $40,861 $42,802 $32,859 $40,861 Inflows 3,141 2,075 2,252 1,884 2,302 4,640 4,186 Outflows (1,667) (2,381) (1,687) (1,868) (2,184) (3,4
Slide 31: Asset Flows by Asset Class
ASSET FLOWS BY ASSET CLASS 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 YTD:20 YTD:21 Domestic Equity Beginning balance $36,378 $49,234 $53,621 $63,680 $77,155 $44,976 $63,680 Inflows 5,614 3,586 4,767 4,896 4,467 8,475 9,363 Outflows (2,078) (3,303) (3,079) (3,818) (3,634) (4,891) (7,452) Net
Slide 32: Asset Flows by Asset Class (Continued)
ASSET FLOWS BY ASSET CLASS (CONTINUED) 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 YTD:20 YTD:21 Global Equity Beginning balance $5,807 $7,022 $8,299 $9,512 $9,681 $6,422 $9,512 Inflows 268 1,134 731 501 669 775 1,170 Outflows (377) (627) (232) (617) (404) (641) (1,021) Net Flows (109) 507 49
Slide 33: Asset Flows by Asset Class (Continued)
ASSET FLOWS BY ASSET CLASS (CONTINUED) 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 YTD:20 YTD:21 Leveraged Finance Beginning balance $10,514 $10,563 $10,529 $10,730 $11,981 $12,289 $10,730 Inflows 528 379 466 847 684 1,547 1,531 Outflows (996) (617) (534) (529) (552) (2,787) (1,081) Net Flows
Slide 34: Asset Flows by Asset Class (Continued)
ASSET FLOWS BY ASSET CLASS (CONTINUED) 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 YTD:20 YTD:21 Investment Grade Beginning balance $7,989 $8,244 $8,778 $8,883 $8,509 $7,891 $8,883 Inflows 605 838 515 427 337 956 764 Outflows (586) (338) (445) (366) (601) (1,080) (967) Net Flows 19 500 70 61
Slide 35: Asset Flows by Asset Class (Continued)
ASSET FLOWS BY ASSET CLASS (CONTINUED) 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 YTD:20 YTD:21 Multi-Asset 1 Beginning balance $9,708 $10,714 $11,105 $12,201 $22,498 $11,487 $12,201 Inflows 167 218 211 561 674 383 1,235 Outflows (188) (130) (132) (329) (488) (355) (817) Net Flows (21) 88 79
Slide 36: Investment Management Fees: Average Assets by Product
INVESTMENT MANAGEMENT FEES AVERAGE ASSETS 1 BY PRODUCT Q2:20 Q3:20 Q4:20 Q1:21 Q2:21 YTD:20 YTD:21 U.S. Retail Funds $36,765 $41,773 $45,675 $63,872 $71,599 $38,682 $67,736 Offshore Funds 553 842 1,049 1,265 1,411 $517 $1,338 Variable Insurance Funds 864 988 1,058 1,110 1,116 $888 $1,113 Total – Ope
Slide 37: Average Management Fees Earned by Product
INVESTMENT MANAGEMENT FEES AVERAGE MANAGEMENT FEES EARNED 1 BY PRODUCT (IN BASIS POINTS) Q2:20 Q3:20 Q4:20 Q1:21 Q2:21 YTD:20 YTD:21 Total Open-End Funds 56.9 57.9 59.1 54.2 52.2 56.8 53.2 Revenue related adjustments (7.4) (7.5) (7.3) (6.2) (5.8) (7.8) (6.0) Total Open-End Funds, Net 49.5 50.4 51.8
Slide 38: Reconciliation: U.S. GAAP to Non-GAAP, Q2 2021
RECONCILIATION: U.S. GAAP TO NON-GAAP Q2 2021 (UNAUDITED) Reclassification Other adjustments Consolidated Amortization Seed capital Acquisition U.S. GAAP investment Revenue of intangible and CLO and Non-GAAP Basis products related assets investments integration Other Basis Revenues Investment manage
Slide 39: Reconciliation: U.S. GAAP to Non-GAAP, Q1 2021
RECONCILIATION: U.S. GAAP TO NON-GAAP Q1 2021(UNAUDITED) Reclassification Other adjustments Consolidated Amortization Seed capital Acquisition U.S. GAAP investment Revenue of intangible and CLO and Non-GAAP Basis products related assets investments integration Other Basis Revenues Investment managem
Slide 40: Reconciliation: U.S. GAAP to Non-GAAP, Q4 2020
RECONCILIATION: U.S. GAAP TO NON-GAAP Q4 2020 (UNAUDITED) Reclassification Other adjustments Consolidated Amortization Seed capital Acquisition U.S. GAAP investment Revenue of intangible and CLO and Non-GAAP Basis products related assets investments integration Other Basis Revenues Investment manage
Slide 41: Reconciliation: U.S. GAAP to Non-GAAP, Q3 2020
RECONCILIATION: U.S. GAAP TO NON-GAAP Q3 2020 (UNAUDITED) Reclassification Other adjustments Consolidated Amortization Seed capital Acquisition U.S. GAAP investment Revenue Restructuring of intangible and CLO and Non-GAAP Basis products related and Severance assets investments integration Other Basi
Slide 42: Reconciliation: U.S. GAAP to Non-GAAP, Q2 2020
RECONCILIATION: U.S. GAAP TO NON-GAAP Q2 2020 (UNAUDITED) Reclassification Other adjustments Consolidated Amortization Seed capital Acquisition U.S. GAAP investment Revenue Restructuring of intangible and CLO and Non-GAAP Basis products related and Severance assets investments integration Other Basi
Slide 43: Reconciliation: U.S. GAAP to Non-GAAP, YTD 2021
RECONCILIATION: U.S. GAAP TO NON-GAAP YTD 2021 (UNAUDITED) Reclassification Other adjustments Consolidated Amortization Seed capital Acquisition U.S. GAAP investment Revenue of intangible and CLO and Non-GAAP Basis products related assets investments integration Other Basis Revenues Investment manag
Slide 44: Reconciliation: U.S. GAAP to Non-GAAP, YTD 2020
RECONCILIATION: U.S. GAAP TO NON-GAAP YTD 2020 (UNAUDITED) Reclassification Other adjustments Consolidated Amortization Seed capital Acquisition U.S. GAAP investment Revenue Restructuring of intangible and CLO and Non-GAAP Basis products related and Severance assets investments integration Other Bas
Slide 45: 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 46: Footnotes
FOOTNOTES (UNAUDITED) Components of Acquisition and Integration Expenses and Other for the respective periods are shown in the table below: Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 YTD:20 YTD:21 Acquisition and Integration Expenses Employment expenses $952 $999 $(515) $867 $615 $171 $1,482 Other oper
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