Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Q4 2020 Earnings Presentation
50 slides from Virtus Investment Partners's earnings presentation, Feb 2, 2021
Slide 1: Fourth Quarter Earnings Presentation
FOURTH QUARTER EARNINGS PRESENTATION February 2, 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 Westchester Capital Management ■ Pro Forma Assets Under Management ■ Q & A Session 3
Slide 4: Overview of Quarter
VIRTUS OVERVIEW OF QUARTER
Slide 5: Fourth Quarter 2020 Overview
FOURTH QUARTER 2020 OVERVIEW Assets and Flows ■ Long-term assets under management (AUM) increased 14% sequentially to $130.7 billion due to market appreciation and positive net flows ■ Sales of $8.6 billion increased by $1.0 billion, or 13%, from $7.6 billion in the prior quarter with growth across
Slide 6: Results
VIRTUS RESULTS
Slide 7: Assets Under Management
ASSETS UNDER MANAGEMENT INCREASED DUE TO MARKET AND NET INFLOWS ■ Long-term assets increased by $15.7 billion, or 14%, sequentially to $130.7 billion as a result of: $132.2 – $13.4 billion of market appreciation $116.5 $130.7 $108.9 $108.5 – $2.6 billion of positive net flows $115.0 $107.7 $90.7 $10
Slide 8: Asset Flows
ASSET FLOWS STRONG SALES, POSITIVE NET FLOWS ACROSS PRODUCTS ■ Net flows of $2.6 billion, or 9% Net flows $9.1 $32.3 $8.6 annualized organic growth, included: $7.6 – Retail separate accounts: $1.3 billion $7.0 $20.1 – Open-end funds: $0.7 billion $4.8 – Institutional: $0.6 billion – Exchange traded
Slide 9: Investment Management Fees, As Adjusted
INVESTMENT MANAGEMENT FEES, AS ADJUSTED HIGHER AVERAGE ASSETS AND FEE RATE ■ Investment management fees, as $476.0 adjusted, increased sequentially by $14.5 $428.2 million, or 12%, primarily due to: $136.8 $122.4 – Average long-term assets increase of 7% $113.0 $112.3 $104.6 – Performance-related fe
Slide 10: Employment Expenses, As Adjusted
EMPLOYMENT EXPENSES, AS ADJUSTED RATIO RELATIVELY UNCHANGED FROM PRIOR QUARTER ■ Employment expenses, as adjusted, $265.5 increased $7.4 million, or 11%, $235.2 sequentially primarily due to higher $73.5 variable incentive compensation $66.9 $66.1 $58.8 $59.0 ■ Employment expenses, as adjusted, as a
Slide 11: Other Operating Expenses, As Adjusted
OTHER OPERATING EXPENSES, AS ADJUSTED CONTINUED LOW LEVEL OF TRAVEL EXPENSES ■ Other operating expenses, as adjusted, of $17.1 million increased $0.7 million, $73.9 or 4%, sequentially primarily due to $69.7 higher professional costs $18.2 $18.9 $17.4 $17.1 $16.3 ■ Decline from prior year reflects s
Slide 12: Non-GAAP Results
NON-GAAP RESULTS STRONG GROWTH AND PROFITABILITY ■ Operating margin, as adjusted, of 40.3% Operating Income, As Adjusted increased 100 bps from the prior quarter Diluted earnings per share, as adjusted $196.5 and 130 bps from the prior-year period $61.9 $175.0 ■ Diluted EPS, as adjusted, of $5.15 $5
Slide 13: Capital Position
CAPITAL POSITION BALANCED CAPITAL MANAGEMENT ■ Working capital of $172 million Select Balance Sheet Items: 12/31/19 3/31/20 6/30/20 9/30/20 12/31/20 increased 8% sequentially as cash Cash and cash equivalents $222 $158 $168 $202 $247 generation exceeded return of Seed capital investments1 $107 $91 $
Slide 14: Agreement with Westchester Capital Management
AGREEMENT WITH WESTCHESTER CAPITAL MANAGEMENT
Slide 15: Westchester Capital Agreement
WESTCHESTER CAPITAL AGREEMENT OVERVIEW OF TRANSACTION About Westchester Premier manager of event-driven investment strategies Capital Merger arbitrage, multi-event, opportunistic credit $4.3 billion1 in AUM, including the $3.6 billion, 30-year-old Merger Fund First mutual fund devoted exclus
Slide 16: Pro Forma Assets Under Management
PRO FORMA ASSETS UNDER MANAGEMENT
Slide 17: Pro Forma Assets Under Management
PRO FORMA ASSETS UNDER MANAGEMENT BY PRODUCT AND ASSET CLASS Assets Under Management by Product 12/31/20 AllianzGI1 12/31/20PF Net Fee Rate2 Open-End Funds3 $50,771 $19,618 $70,389 43 - 45 Closed-End Funds 5,914 5,652 11,566 54 - 56 Exchange Traded Funds 837 — 837 5-7 Retail Separate Accounts 29,751
Slide 18: Financial Supplement
*RVIRTUS FINANCIAL SUPPLEMENT
Slide 19: Non-GAAP Information: Income Statement
NON-GAAP INFORMATION INCOME STATEMENT1 (UNAUDITED) Q4:19 Q1:20 Q2:20 Q3:20 Q4:20 TY:19 TY:20 Revenues, As Adjusted Investment management fees, as adjusted $112,960 $112,252 $104,569 $122,359 $136,824 $428,158 $476,004 Administration and shareholder service fees, as adjusted 15,189 14,692 13,340 15,1
Slide 20: Non-GAAP Information: Income Statement (Continued)
NON-GAAP INFORMATION INCOME STATEMENT1 (CONTINUED) (UNAUDITED) Q4:19 Q1:20 Q2:20 Q3:20 Q4:20 TY:19 TY:20 Other Income (Expense), As Adjusted Realized and unrealized gain (loss) on investments, net, as adjusted ($29) ($883) $348 ($205) $147 $719 ($593) Other income, net, as adjusted 519 612 (805) 999
Slide 21: Non-GAAP Information: Balance Sheet
NON-GAAP INFORMATION BALANCE SHEET1 (UNAUDITED) 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Assets: Cash and cash equivalents $221,781 $158,456 $168,268 $202,212 $246,511 Investments – seed capital 107,225 90,562 102,802 115,586 135,418 Investments – other 87,657 80,715 61,268 64,267 69,032
Slide 22: Non-GAAP Information: Balance Sheet (Continued)
NON-GAAP INFORMATION BALANCE SHEET1 (CONTINUED) (UNAUDITED) 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Liabilities and Equity Liabilities: Accrued compensation and benefits $101,377 $36,641 $56,228 $87,256 $122,514 Accounts payable and accrued liabilities 23,308 23,594 19,528 21,633 25,357
Slide 23: U.S. GAAP Information: Income Statement
U.S. GAAP INFORMATION INCOME STATEMENT (UNAUDITED) Q4:19 Q1:20 Q2:20 Q3:20 Q4:20 TY:19 TY:20 Revenues Investment management fees $120,945 $120,288 $110,550 $129,785 $144,715 $461,477 $505,338 Distribution and service fees 9,776 9,460 8,889 9,797 10,279 40,898 38,425 Administration and shareholder se
Slide 24: U.S. GAAP Information: Income Statement (Continued)
U.S. GAAP INFORMATION INCOME STATEMENT (CONTINUED) (UNAUDITED) Q4:19 Q1:20 Q2:20 Q3:20 Q4:20 TY:19 TY:20 Other Income (Expense) Realized and unrealized gain (loss) on investments, net $1,570 ($7,544) $7,114 $2,498 $5,071 $7,044 $7,139 Realized and unrealized gain (loss) of CIP1, net (3,657) (8,669)
Slide 25: Assets Under Management by Product
ASSETS UNDER MANAGEMENT BY PRODUCT AND ASSET CLASS 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Assets by Product U.S. Retail Funds $41,458 $32,281 $38,429 $41,445 $47,242 Offshore Funds1 463 445 686 926 1,173 Variable Insurance Funds 949 772 938 998 1,106 Total – Open-End Funds $42,870 $33,4
Slide 26: Assets Under Management by Asset Class
ASSETS UNDER MANAGEMENT BY ASSET CLASS 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Equity Large Cap $20,823 $17,130 $22,938 $24,035 $26,864 Mid Cap 11,139 9,180 13,069 15,468 19,802 Small Cap 21,071 16,700 21,319 23,122 27,438 Domestic Equity $53,033 $43,010 $57,326 $62,625 $74,104 Internati
Slide 27: Assets Under Management by Product and Asset Class
ASSETS UNDER MANAGEMENT BY PRODUCT AND ASSET CLASS Open-End Closed-End Exchange Retail Separate Structured Total as of Funds Funds Traded Funds Accounts Institutional Products 12/31/2020 Domestic Equity: Large Cap $4,938 $3,722 $92 $3,886 $14,226 $— $26,864 Mid Cap 8,258 — — 10,478 1,066 — 19,802 Sm
Slide 28: Asset Flows: Long-Term
ASSET FLOWS LONG-TERM 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 TY:19 TY:20 Long-term Beginning balance $102,846 $107,726 $89,534 $107,096 $115,027 $90,417 $107,726 Inflows 4,764 7,016 9,086 7,632 8,593 20,144 32,327 Outflows (4,418) (8,298) (6,538) (6,470) (5,947) (20,916) (27,253) Net Fl
Slide 29: Asset Flows by Product
ASSET FLOWS BY PRODUCT 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 TY:19 TY:20 U.S. Retail Funds Beginning balance $39,886 $41,458 $32,281 $38,429 $41,445 $36,778 $41,458 Inflows 2,278 3,772 4,226 3,311 3,701 10,678 15,010 Outflows (2,734) (5,396) (3,956) (3,056) (3,104) (12,847) (15,512) Ne
Slide 30: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 TY:19 TY:20 Variable Insurance Funds Beginning balance $903 $949 $772 $938 $998 $824 $949 Inflows 9 13 8 9 10 30 40 Outflows (32) (37) (27) (35) (29) (126) (128) Net Flows (23) (24) (19) (26) (19) (96) (88) Market
Slide 31: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 TY:19 TY:20 Closed-End Funds Beginning balance $6,816 $6,748 $5,343 $5,639 $5,629 $5,956 $6,748 Inflows 10 5 — 15 5 44 25 Outflows — — — — — — — Net Flows 10 5 — 15 5 44 25 Market performance 26 (1,185) 380 54 364
Slide 32: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 TY:19 TY:20 Intermediary Sold Managed Accounts Beginning balance $14,390 $15,592 $13,410 $17,116 $19,456 $11,275 $15,592 Inflows 763 907 1,324 1,538 1,990 2,594 5,759 Outflows (352) (688) (574) (519) (810) (1,462)
Slide 33: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 TY:19 TY:20 Institutional Accounts Beginning balance $30,951 $32,635 $28,210 $34,545 $36,596 $27,445 $32,635 Inflows 1,235 1,499 3,141 2,075 2,252 4,777 8,967 Outflows (1,091) (1,777) (1,666) (2,381) (1,689) (5,72
Slide 34: Asset Flows: Open-End Funds by Asset Class
ASSET FLOWS OPEN-END FUNDS1 BY ASSET CLASS 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 TY:19 TY:20 Domestic Equity Funds Beginning balance $15,827 $17,145 $13,276 $18,260 $20,504 $12,778 $17,145 Inflows 934 1,644 2,379 2,025 2,329 4,139 8,377 Outflows (875) (1,649) (1,162) (1,466) (1,470) (4
Slide 35: Open-End Funds by Asset Class (Continued)
ASSET FLOWS OPEN-END FUNDS1 BY ASSET CLASS (CONTINUED) 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 TY:19 TY:20 Taxable Bond Funds2 Beginning balance $13,117 $12,563 $10,174 $10,550 $10,715 $14,507 $12,563 Inflows 668 994 1,031 794 816 3,115 3,635 Outflows (1,308) (2,414) (1,291) (897) (716)
Slide 36: Open-End Funds by Asset Class (Continued)
ASSET FLOWS OPEN-END FUNDS1 BY ASSET CLASS (CONTINUED) 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 TY:19 TY:20 Alternative Funds2 Beginning balance $1,117 $1,106 $869 $985 $1,036 $1,031 $1,106 Inflows 89 145 118 129 65 307 457 Outflows (104) (112) (97) (72) (172) (391) (453) Net Flows (15) 3
Slide 37: Investment Management Fees: Average Assets by Product
INVESTMENT MANAGEMENT FEES AVERAGE ASSETS1 BY PRODUCT Q4:19 Q1:20 Q2:20 Q3:20 Q4:20 TY:19 TY:20 U.S. Retail Funds $40,376 $39,668 $35,781 $40,645 $44,438 $39,755 $40,133 Offshore Funds2 424 481 553 842 1,049 247 731 Variable Insurance Funds 918 911 864 988 1,058 915 955 Total – Open-End Funds $41,71
Slide 38: Average Management Fees Earned by Product
INVESTMENT MANAGEMENT FEES AVERAGE MANAGEMENT FEES EARNED1 BY PRODUCT (IN BASIS POINTS) Q4:19 Q1:20 Q2:20 Q3:20 Q4:20 TY:19 TY:20 U.S. Retail Funds 57.3 57.7 58.3 59.3 60.5 56.1 59.0 Offshore Funds2 51.9 60.0 61.1 64.1 66.9 35.3 64.0 Variable Insurance Funds 62.9 63.1 62.4 63.2 62.2 63.3 62.8 Total
Slide 39: Average Management Fees Earned by Product (Continued)
INVESTMENT MANAGEMENT FEES AVERAGE MANAGEMENT FEES EARNED1 BY PRODUCT (IN BASIS POINTS) Q4:19 Q1:20 Q2:20 Q3:20 Q4:20 TY:19 TY:20 Total Open-End Funds 57.4 57.8 58.4 59.5 60.7 56.1 59.2 Revenue related adjustments (8.5) (8.5) (7.9) (8.1) (7.8) (8.9) (8.2) Total Open-End Funds, Net 48.9 49.3 50.5 51.
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, Q1 2020
RECONCILIATION: U.S. GAAP TO NON-GAAP Q1 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 44: Reconciliation: U.S. GAAP to Non-GAAP, Q4 2019
RECONCILIATION: U.S. GAAP TO NON-GAAP Q4 2019 (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 45: Reconciliation: U.S. GAAP to Non-GAAP, TY 2020
RECONCILIATION: U.S. GAAP TO NON-GAAP TY 2020 (UNAUDITED) Reclassification Other adjustments Consolidated Restructurin Amortization Seed capital Acquisition U.S. GAAP investment Revenue g and of intangible and CLO and Non-GAAP Basis products related Severance assets investments integration Other Bas
Slide 46: Reconciliation: U.S. GAAP to Non-GAAP, TY 2019
RECONCILIATION: U.S. GAAP TO NON-GAAP TY 2019 (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 47: Reconciliation: Weighted Average Shares Outstanding
RECONCILIATION: U.S. GAAP TO NON-GAAP (UNAUDITED) Q4:19 Q1:20 Q2:20 Q3:20 Q4:20 TY:19 TY:20 Weighted Average Shares Outstanding - Diluted Weighted Average Shares Outstanding - Diluted, GAAP 8,084 7,422 7,895 7,997 8,026 8,149 7,976 Dilutive impact of restricted stock units and stock options — 232 —
Slide 48: 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 49: Footnotes
FOOTNOTES (UNAUDITED) Components of Acquisition and Integration Expenses and Other for the respective periods are shown in the table below: Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 TY:19 TY:20 Acquisition and Integration Expenses Employment expenses $1,193 $(781) $952 $999 $(515) $4,964 $655 Restruct
Slide 50: STMENT PARTNERS
STMENT PARTNERS
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