Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Q2 2017 Earnings Presentation
39 slides from Virtus Investment Partners's earnings presentation, Jul 28, 2017
Slide 1: Second Quarter 2017 Earnings Presentation
Second Quarter 2017 Earnings Presentation July 28, 2017 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 Second Quarter Second Quarter Results Q & A Session 3
Slide 4: Overview of Second Quarter
_VIRTUS | INVESTMENT PARTNERS OVERVIEW OF SECOND QUARTER
Slide 5: Overview of Second Quarter
OVERVIEW OF SECOND QUARTER Acquisition of RidgeWorth Investments Acquisition closed on June 1 for total consideration of $533.9 million comprising $472.0 purchase price and $61.9 million of balance sheet investments Consideration of $482.2 million funded with $457.9 million in cash, including $2
Slide 6: Second Quarter Results
_VIRTUS | INVESTMENT PARTNERS SECOND QUARTER RESULTS
Slide 7: Assets Under Management
ASSETS UNDER MANAGEMENT Quarterly Trends Commentary Long-Term $88.6 Trend reflects net flows and market Liquidity performance $85.0 Sequential increase in long-term AUM of $37.0 billion primarily due to $35.7 $45.2 $46.5 $45.4 $48.0 billion from acquisition and market appreciation Change over pr
Slide 8: Asset Flows
ASSET FLOWS Inflows / (Outflows) Commentary Net flows $6.7 Flows reflect market trends, product breadth $5.2 and investment performance $3.1 $3.3 $3.5 $2.4 $2.6 Sales increased $0.2 billion, or 6%, sequentially primarily due to higher mutual 1 1 fund sales Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 YTD 16 YTD
Slide 9: Investment Management Fees, As Adjusted
INVESTMENT MANAGEMENT FEES, AS ADJUSTED Quarterly Results Year to Date Commentary $133.8 Fees reflect changes in average assets and $115.8 net fee rate $74.3 Sequential increase of $14.8 million, or $60.6 $59.3 $59.5 25%, due to: $58.1 − Fees from new affiliates of $11.5 million − 5% increase in a
Slide 10: Employment Expenses, As Adjusted
EMPLOYMENT EXPENSES, AS ADJUSTED Quarterly Results Year to Date Commentary $80.6 Trend reflects staffing levels and variable incentive plans $69.0 $39.6 $40.9 Current quarter included $4.2 million of $33.1 $33.1 $33.5 expenses from additional employees as a result of the acquisition Excluding th
Slide 11: Other Operating Expenses, As Adjusted
OTHER OPERATING EXPENSES, AS ADJUSTED Quarterly Results Year to Date Commentary Trend reflects timing of product, $14.2 distribution, and operational initiatives $25.2 $12.1 $22.5 $11.7 $10.9 $10.9 Second quarter increased $3.3 million, or 30%, primarily due to: − $1.5 million of expenses from the
Slide 12: Non-GAAP Results
NON-GAAP RESULTS Quarterly Results Year to Date Commentary Operating Income, As Adjusted Profitability impacted by net flows, market performance and leveragability of the Diluted earnings per share, as adjusted business $36.2 $31.9 Diluted EPS, as adjusted, of $1.61 increased 39% sequentially $22.
Slide 13: Capital Position
CAPITAL POSITION Select Non-GAAP Balance Sheet Items Commentary 6/30/16 9/30/16 12/31/16 3/31/17 6/30/17 Capital position reflects cash flow generation and activities related to Cash and cash equivalents $156 $165 $65 $236 $128 acquisition Debt $0 $0 $30 $0 $248 Contingent consideration $0 $0 $0 $0
Slide 14: Appendix
_VIRTIUS | INVESTMENT PARTNERS Appendix
Slide 15: Non-GAAP Information: Income Statement
NON-GAAP INFORMATION Income Statement Q2:16 Q3:16 Q4:16 Q1:17 Q2:17 YTD:16 YTD:17 Revenues, As Adjusted Investment management fees, as adjusted $58,104 $60,551 $59,279 $59,513 $74,272 115,839 $133,785 Distribution and service fees, as adjusted 12,179 12,122 11,500 10,793 10,446 24,681 21,239 Adminis
Slide 16: Non-GAAP Information: Income Statement (continued)
NON-GAAP INFORMATION Income Statement (continued) Q2:16 Q3:16 Q4:16 Q1:17 Q2:17 YTD:16 YTD:17 Other Income (Expense), As Adjusted Realized and unrealized gain (loss) on investments, net, as $94 $51 $1 $0 $0 $89 $0 adjusted Other income, net, as adjusted (15) 250 626 646 46 213 692 Total other income
Slide 17: Non-GAAP Information: Balance Sheet
NON-GAAP INFORMATION Balance Sheet(1) 6/30/16 9/30/16 12/31/16 03/31/17 06/30/17 Assets: Cash and cash equivalents $155,532 $165,421 $64,588 $235,930 $127,571 Investments – seed capital 174,130 179,105 180,085 174,810 104,076 Investments – other 38,362 38,385 29,083 30,714 91,739 Investments – long
Slide 18: Non-GAAP Information: Balance Sheet (continued)
NON-GAAP INFORMATION Balance Sheet(1) (continued) 6/30/16 9/30/16 12/31/16 03/31/17 06/30/17 Liabilities and Equity Liabilities: Accrued compensation and benefits $26,242 $37,813 $47,885 $16,519 $51,978 Accounts payable and accrued liabilities 20,448 21,429 25,176 30,365 29,167 Dividends payable 4,0
Slide 19: U.S. GAAP Information: Income Statement
U.S. GAAP INFORMATION Income Statement (Unaudited) Q2:16 Q3:16 Q4:16 Q1:17 Q2:17 YTD:16 YTD:17 Revenues Investment management fees $58,192 $60,398 $58,996 $59,271 $74,062 $115,836 $133,333 Distribution and service fees 12,167 12,116 11,489 10,783 10,439 24,645 21,222 Administration and transfer agen
Slide 20: U.S. GAAP Information: Income Statement (continued)
U.S. GAAP INFORMATION Income Statement (Unaudited) (continued) Q2:16 Q3:16 Q4:16 Q1:17 Q2:17 YTD:16 YTD:17 Other (Expense) Income Realized and unrealized gain on investments, net $3,281 $961 $1,398 $297 $1,287 2,623 $1,584 Realized and unrealized (loss) gain on investments of 3,678 $3,680 ($7,140) $
Slide 21: Assets Under Management: Product and Asset Class
ASSETS UNDER MANAGEMENT Assets: Product and Asset Class 6/30/16 9/30/16 12/31/16 03/31/17 06/30/17 Assets by Product Open-End Funds $23,854.9 $24,302.7 $22,501.0 $23,768.0 $40,487.6 Variable Insurance Funds $958.9 $963.7 $931.8 $948.8 $965.2 Total – Open-End Funds $24,813.8 $25,266.4 $23,432.8 $24,7
Slide 22: Assets Under Management: Asset Flows Total
ASSETS UNDER MANAGEMENT Asset Flows: Total Q2:16 Q3:16 Q4:16 Q1:17 Q2:17 YTD:16 YTD:17 All Product Flows Beginning balance $45,651.2 $45,169.7 $46,539.5 $45,366.3 $48,019.8 $47,385.3 $45,366.3 Inflows 2,390.1 3,078.0 2,630.8 3,265.3 3,452.3 5,231.2 6,717.6 Outflows (4,544.0) (2,593.4) (3,005.9) (2,7
Slide 23: Asset Flows: Product
ASSETS UNDER MANAGEMENT Asset Flows: Product Q2:16 Q3:16 Q4:16 Q1:17 Q2:17 YTD:16 YTD:17 Open-End Funds Beginning balance $25,560.3 $23,854.9 $24,302.7 $22,501.0 $23,768.0 $27,865.8 $22,501.0 Inflows 1,344.5 1,869.3 1,635.3 2,025.9 2,240.5 3,530.9 4,266.4 Outflows (3,756.9) (2,093.5) (2,344.2) (2,09
Slide 24: Asset Flows: Product (continued)
ASSETS UNDER MANAGEMENT Asset Flows: Product (continued) Q2:16 Q3:16 Q4:16 Q1:17 Q2:17 YTD:16 YTD:17 Closed-End Funds Beginning balance $6,543.6 $6,959.6 $6,887.3 $6,757.4 $6,814.3 $6,222.3 $6,757.4 Inflows - - - - - - - Outflows (103.3) - - (81.6) (31.2) (103.3) (112.8) Net Flows (103.3) - - (81.6)
Slide 25: Asset Flows: Product (continued)
ASSETS UNDER MANAGEMENT Asset Flows: Product (continued) Q2:16 Q3:16 Q4:16 Q1:17 Q2:17 YTD:16 YTD:17 Intermediary Sold Managed Accounts Beginning balance $4,151.5 $4,462.7 $4,888.9 $5,403.5 $6,035.2 $3,985.7 $5,403.5 Inflows 337.5 418.0 348.7 480.9 500.3 633.4 981.2 Outflows (148.3) (102.6) (183.7)
Slide 26: Asset Flows: Product (continued)
ASSETS UNDER MANAGEMENT Asset Flows: Product (continued) Q2:16 Q3:16 Q4:16 Q1:17 Q2:17 YTD:16 YTD:17 Institutional Accounts Beginning balance $4,848.3 $4,920.0 $5,376.6 $5,492.7 $5,711.3 $4,799.7 $5,492.7 Inflows 224.9 612.5 321.7 277.7 357.1 411.1 634.8 Outflows (292.0) (207.2) (263.5) (191.9) (612
Slide 27: Asset Flows: Open-End Funds by Asset Class
ASSETS UNDER MANAGEMENT Asset Flows: Open-End Funds by Asset Class Q2:16 Q3:16 Q4:16 Q1:17 Q2:17 YTD:16 YTD:17 Domestic Equity Funds Beginning balance $4,739.2 $4,498.3 $4,459.1 $4,335.4 $4,574.5 $4,892.4 $4,335.4 Inflows 229.6 249.3 257.1 375.4 458.5 352.3 833.9 Outflows (546.8) (416.3) (454.5) (40
Slide 28: Asset Flows: Open-End Funds by Asset Class (continued)
ASSETS UNDER MANAGEMENT Asset Flows: Open-End Funds by Asset Class (continued) Q2:16 Q3:16 Q4:16 Q1:17 Q2:17 YTD:16 YTD:17 Taxable Bond Funds (1) Beginning balance $8,959.0 $8,946.1 $9,083.1 $8,918.8 $9,138.2 $9,202.0 $8,918.8 Inflows 426.4 482.4 571.4 725.6 834.2 951.9 1,559.8 Outflows (641.9) (502
Slide 29: Average Net Fees and AUM
ASSETS UNDER MANAGEMENT Average Net Fees and AUM Q2:16 Q3:16 Q4:16 Q1:17 Q2:17 YTD:16 YTD:17 Average Net Management Fees (1) (in basis points, annualized) Open-End Funds 49.2 49.7 50.0 50.1 50.4 48.1 50.3 Variable Insurance Funds 55.4 61.8 62.4 61.2 60.1 54.3 60.6 Total Open-End Funds 49.4 50.1 50.5
Slide 30: U.S. GAAP to Non-GAAP Reconciliation: Q2 2017
U.S. GAAP TO NON-GAAP RECONCILIATION Reclassifications Adjustments Q2 2017 Distribution and Consolidated Amortization Acquisition and U.S. GAAP other asset- investment of intangible Restructuring Seed capital and integration Non-GAAP Basis based expenses vehicles assets and severance CLO investments
Slide 31: U.S. GAAP to Non-GAAP Reconciliation: Q1 2017
U.S. GAAP TO NON-GAAP RECONCILIATION Reclassifications Adjustments Distribution and Consolidated Amortization Acquisition and Q1 2017 U.S. GAAP other asset- investment of intangible Seed capital and integration Non-GAAP Basis based expenses products assets CLO investments expenses Other Basis Revenu
Slide 32: U.S. GAAP to Non-GAAP Reconciliation: Q4 2016
U.S. GAAP TO NON-GAAP RECONCILIATION Reclassifications Adjustments Distribution and Consolidated Amortization Acquisition and Q4 2016 U.S. GAAP other asset- investment of intangible Seed capital and integration Non-GAAP Basis based expenses products assets CLO investments expenses Other Basis Revenu
Slide 33: U.S. GAAP to Non-GAAP Reconciliation: Q3 2016
U.S. GAAP TO NON-GAAP RECONCILIATION Reclassifications Adjustments Distribution and Consolidated Amortization Q3 2016 U.S. GAAP other asset- investment of intangible Restructuring Seed capital and Non-GAAP Basis based expenses products assets and severance CLO investments Other Basis Revenues Invest
Slide 34: U.S. GAAP to Non-GAAP Reconciliation: Q2 2016
U.S. GAAP TO NON-GAAP RECONCILIATION Reclassifications Adjustments Q2 2016 U.S. GAAP Distribution and other asset- Consolidated investment Amortization of intangible Restructuring Seed capital and Non-GAAP Basis based expenses products assets and severance CLO investments Other Basis Revenues Invest
Slide 35: U.S. GAAP to Non-GAAP Reconciliation: YTD 2017
U.S. GAAP TO NON-GAAP RECONCILIATION Reclassifications Adjustments YTD 2017 U.S. GAAP Distribution and other asset- Consolidated investment Amortization of intangible Restructuring Seed capital and Acquisition and integration Non-GAAP Basis based expenses products assets and severance CLO investment
Slide 36: U.S. GAAP to Non-GAAP Reconciliation: YTD 2016
U.S. GAAP TO NON-GAAP RECONCILIATION Reclassifications Adjustments Distribution and Consolidated Amortization YTD 2016 U.S. GAAP other asset- investment of intangible Restructuring Seed capital and Non-GAAP Basis based expenses products assets and severance CLO investments Other Basis Revenues Inves
Slide 37: Footnotes
FOOTNOTES Non-GAAP financial measures differ from financial measures 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 from prov
Slide 38: Footnotes
FOOTNOTES Components of Acquisition Related Expenses and Other for the respective periods are shown in the table below: Q2:16 Q3:16 Q4:16 Q1:17 Q2:17 YTD:16 YTD:17 Acquistion Related Expenses ($ in thousands) Loss contingency $- $- $- $- $- $- $- Tax impact of loss contingency - - - - - - - Transiti
Slide 39: Virtus Investment Partners
VIRTIUS | INVESTMENT PARTNERS
Virtus Investment Partners — Q2 2017 Earnings Presentation on 6ix