Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Q3 2020 Earnings Presentation
48 slides from Virtus Investment Partners's earnings presentation, Oct 22, 2020
Slide 1: Third Quarter Earnings Presentation
THIRD QUARTER EARNINGS PRESENTATION October 23, 2020 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 ■ AllianzGI Partnership Update ■ Q & A Session 3
Slide 4: Overview of Quarter
VIRTUS OVERVIEW OF QUARTER
Slide 5: Third Quarter 2020 Overview
THIRD QUARTER 2020 OVERVIEW Assets and Flows ■ Long-term assets under management (AUM) increased 7% sequentially to $115.0 billion as a result of market appreciation and positive net flows ■ Sales of $7.6 billion compared with $9.1 billion in the prior quarter as growth in retail separate accounts w
Slide 6: Results
VIRTUS RESULTS
Slide 7: Assets Under Management
ASSETS UNDER MANAGEMENT LONG-TERM AUM AT NEW HIGH ■ Long-term assets increased by $7.9 billion, or 7%, sequentially to $115.0 billion as a result $116.5 of: $108.9 $108.5 $104.1 $115.0 – $7.1 billion of market appreciation; and $107.7 $107.1 $102.8 $90.7 – $1.2 billion of positive net flows $89.5 ■
Slide 8: Asset Flows
ASSET FLOWS CONTINUED STRONG SALES AND POSITIVE NET FLOWS $23.7 ■ Net flows of $1.2 billion, or 4% $9.1 annualized organic growth, included: $7.6 – Retail separate accounts: $1.1 billion $7.0 $15.4 – Open-end funds: $0.4 billion $4.8 $4.8 – Positive net flows in all asset classes ■ Sales of $7.6 bil
Slide 9: Investment Management Fees, As Adjusted
INVESTMENT MANAGEMENT FEES, AS ADJUSTED INCREASED AVERAGE ASSETS AND FEE RATE ■ Investment management fees, as $339.2 $315.2 adjusted, increased sequentially by $17.8 million, or 17%, primarily due to higher $122.4 average AUM $111.6 $113.0 $112.3 $104.6 – Average long-term assets increased 15% – Pe
Slide 10: Employment Expenses, As Adjusted
EMPLOYMENT EXPENSES, AS ADJUSTED HIGHER VARIABLE INCENTIVES ■ Employment expenses, as adjusted, $192.0 increased $7.1 million, or 12%, $176.5 sequentially primarily due to higher $66.9 $66.1 variable incentive compensation $60.1 $58.8 $59.0 ■ Employment expenses, as adjusted, as a percentage of reve
Slide 11: Other Operating Expenses, As Adjusted
OTHER OPERATING EXPENSES, AS ADJUSTED CONTINUED LOWER TRAVEL EXPENSES ■ Other operating expenses, as adjusted, of $16.3 million declined $1.1 million, or $55.7 6%, sequentially $52.7 – Decrease primarily reflects $0.8 million of $18.9 $18.1 $18.2 $17.4 annual director grants in the prior quarter $16
Slide 12: Non-GAAP Results
NON-GAAP RESULTS STRONG GROWTH AND PROFITABILITY ■ Operating margin, as adjusted, of 39.3% Operating Income, As Adjusted increased 500 bps from the prior quarter Diluted earnings per share, as adjusted $134.6 and 180 bps from the prior year period $124.9 ■ Diluted EPS, as adjusted, of $4.49 $54.1 in
Slide 13: Capital Position
CAPITAL POSITION BALANCED CAPITAL MANAGEMENT ■ Working capital of $159 million Select Balance Sheet Items: 9/30/19 12/31/19 3/31/20 6/30/20 9/30/20 increased 2% sequentially as cash Cash and cash equivalents $196 $222 $158 $168 $202 generation was mostly offset by return Seed capital investments1 $1
Slide 14: Allianz Partnership Update
VIRTUS ALLIANZ PARTNERSHIP UPDATE
Slide 15: Allianz Global Investors Partnership Update
ALLIANZ GLOBAL INVESTORS PARTNERSHIP UPDATE Approvals and Timing ■ AllianzGI Funds' shareholder approval in process following required fund board approvals and filing of proxies ■ Closing anticipated in the first quarter of 2021 Assets Under Management ■ AllianzGI related assets of $25.7 billion at
Slide 16: Financial Supplement
*RVIRTUS FINANCIAL SUPPLEMENT
Slide 17: Non-GAAP Information: Income Statement
NON-GAAP INFORMATION INCOME STATEMENT1 (UNAUDITED) Q3:19 Q4:19 Q1:20 Q2:20 Q3:20 YTD:19 YTD:20 Revenues, As Adjusted Investment management fees, as adjusted $111,599 $112,960 $112,252 $104,569 $122,359 $315,199 $339,180 Administration and shareholder service fees, as adjusted 15,329 15,189 14,692 13
Slide 18: Non-GAAP Information: Income Statement (Continued)
NON-GAAP INFORMATION INCOME STATEMENT1 (CONTINUED) (UNAUDITED) Q3:19 Q4:19 Q1:20 Q2:20 Q3:20 YTD:19 YTD:20 Other Income (Expense), As Adjusted Realized and unrealized gain (loss) on investments, net, as adjusted $289 ($29) ($883) $348 ($205) $750 ($740) Other income, net, as adjusted 746 519 612 (80
Slide 19: Non-GAAP Information: Balance Sheet
NON-GAAP INFORMATION BALANCE SHEET1 (UNAUDITED) 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 Assets: Cash and cash equivalents $195,870 $221,781 $158,456 $168,268 $202,212 Investments – seed capital 100,520 107,225 90,562 102,802 115,586 Investments – other 84,621 87,657 80,715 61,268 64,267 I
Slide 20: Non-GAAP Information: Balance Sheet (Continued)
NON-GAAP INFORMATION BALANCE SHEET1 (CONTINUED) (UNAUDITED) 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 Liabilities and Equity Liabilities: Accrued compensation and benefits $78,073 $101,377 $36,641 $56,228 $87,256 Accounts payable and accrued liabilities 23,310 23,308 23,594 19,528 21,633 Di
Slide 21: U.S. GAAP Information: Income Statement
U.S. GAAP INFORMATION INCOME STATEMENT (UNAUDITED) Q3:19 Q4:19 Q1:20 Q2:20 Q3:20 YTD:19 YTD:20 Revenues Investment management fees $120,023 $120,945 $120,288 $110,550 $129,785 $340,532 $360,623 Distribution and service fees 10,442 9,776 9,460 8,889 9,797 31,122 28,146 Administration and shareholder
Slide 22: U.S. GAAP Information: Income Statement (Continued)
U.S. GAAP INFORMATION INCOME STATEMENT (CONTINUED) (UNAUDITED) Q3:19 Q4:19 Q1:20 Q2:20 Q3:20 YTD:19 YTD:20 Other Income (Expense) Realized and unrealized gain (loss) on investments, net $2 $1,570 ($7,544) $7,114 $2,498 $5,474 $2,068 Realized and unrealized gain (loss) of CIP1, net (5,344) (3,657) (8
Slide 23: Assets Under Management by Product and Asset Class
ASSETS UNDER MANAGEMENT BY PRODUCT AND ASSET CLASS 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 Assets by Product U.S. Retail Funds $39,886 $41,458 $32,281 $38,429 $41,445 Offshore Funds1 401 463 445 686 926 Variable Insurance Funds 903 949 772 938 998 Total – Open-End Funds $41,190 $42,870 $3
Slide 24: Assets Under Management by Asset Class
ASSETS UNDER MANAGEMENT BY ASSET CLASS 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 Domestic Equity: Large Cap $19,684 $20,823 $17,130 $22,938 $24,035 Mid Cap 9,798 11,139 9,180 13,069 15,468 Small Cap 19,964 21,071 16,700 21,319 23,122 Total Domestic Equity $49,446 $53,033 $43,010 $57,326 $62
Slide 25: 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 9/30/2020 Domestic Equity: Large Cap $4,217 $3,416 $— $3,389 $13,013 $— $24,035 Mid Cap 6,665 — — 7,900 903 — 15,468 Small C
Slide 26: Asset Flows: Long-Term
ASSET FLOWS LONG-TERM 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 YTD:19 YTD:20 Long-term Beginning balance $103,254 $102,846 $107,726 $89,534 $107,096 $90,417 $107,726 Inflows 4,760 4,764 7,016 9,086 7,632 15,380 23,734 Outflows (5,885) (4,418) (8,298) (6,538) (6,470) (16,498) (21,306) Net F
Slide 27: Asset Flows by Product
ASSET FLOWS BY PRODUCT 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 YTD:19 YTD:20 U.S. Retail Funds Beginning balance $40,151 $39,886 $41,458 $32,281 $38,429 $36,778 $41,458 Inflows 2,946 2,278 3,772 4,226 3,311 8,400 11,309 Outflows (3,117) (2,734) (5,396) (3,956) (3,056) (10,113) (12,408) Ne
Slide 28: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 YTD:19 YTD:20 Variable Insurance Funds Beginning balance $932 $903 $949 $772 $938 $824 $949 Inflows 9 9 13 8 9 21 30 Outflows (32) (32) (37) (27) (35) (94) (99) Net Flows (23) (23) (24) (19) (26) (73) (69) Market p
Slide 29: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 YTD:19 YTD:20 Closed-End Funds Beginning balance $6,653 $6,816 $6,748 $5,343 $5,639 $5,956 $6,748 Inflows 14 10 5 — 15 34 20 Outflows — — — — — — — Net Flows 14 10 5 — 15 34 20 Market performance 246 26 (1,185) 380
Slide 30: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 YTD:19 YTD:20 Intermediary Sold Managed Accounts Beginning balance $13,909 $14,390 $15,592 $13,410 $17,116 $11,275 $15,592 Inflows 635 763 907 1,324 1,538 1,831 3,769 Outflows (348) (352) (688) (574) (519) (1,110)
Slide 31: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 YTD:19 YTD:20 Institutional Accounts Beginning balance $32,056 $30,951 $32,635 $28,210 $34,545 $27,445 $32,635 Inflows 851 1,235 1,499 3,141 2,075 3,542 6,715 Outflows (2,216) (1,091) (1,777) (1,666) (2,381) (4,629
Slide 32: Asset Flows: Open-End Funds by Asset Class
ASSET FLOWS OPEN-END FUNDS1 BY ASSET CLASS 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 YTD:19 YTD:20 Domestic Equity Funds Beginning balance $15,773 $15,827 $17,145 $13,276 $18,260 $12,778 $17,145 Inflows 1,123 934 1,644 2,379 2,025 3,205 6,048 Outflows (1,107) (875) (1,649) (1,162) (1,466) (
Slide 33: Open-End Funds by Asset Class (Continued)
ASSET FLOWS OPEN-END FUNDS1 BY ASSET CLASS (CONTINUED) 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 YTD:19 YTD:20 Taxable Bond Funds2 Beginning balance $13,541 $13,117 $12,563 $10,174 $10,550 $14,507 $12,563 Inflows 774 668 994 1,031 794 2,447 2,819 Outflows (1,256) (1,308) (2,414) (1,291) (89
Slide 34: Open-End Funds by Asset Class (Continued)
ASSET FLOWS OPEN-END FUNDS1 BY ASSET CLASS (CONTINUED) 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 YTD:19 YTD:20 Alternative Funds2 Beginning balance $1,061 $1,117 $1,106 $869 $985 $1,031 $1,106 Inflows 80 89 145 118 129 218 392 Outflows (89) (104) (112) (97) (72) (287) (281) Net Flows (9) (1
Slide 35: Investment Management Fees: Average Assets by Product
INVESTMENT MANAGEMENT FEES AVERAGE ASSETS1 BY PRODUCT Q3:19 Q4:19 Q1:20 Q2:20 Q3:20 YTD:19 YTD:20 U.S. Retail Funds $40,224 $40,376 $39,668 $35,781 $40,645 $39,548 $38,698 Offshore Funds2 312 424 481 553 842 188 $625 Variable Insurance Funds 921 918 911 864 988 914 $921 Total – Open-End Funds $41,45
Slide 36: Average Management Fees Earned by Product
INVESTMENT MANAGEMENT FEES AVERAGE MANAGEMENT FEES EARNED1 BY PRODUCT (IN BASIS POINTS) Q3:19 Q4:19 Q1:20 Q2:20 Q3:20 YTD:19 YTD:20 U.S. Retail Funds 56.6 57.3 57.7 58.3 59.3 55.3 58.5 Offshore Funds2 40.2 51.9 60.0 61.1 64.1 22.6 62.2 Variable Insurance Funds 62.7 62.9 63.1 62.4 63.2 63.4 63.0 Tota
Slide 37: Average Management Fees Earned by Product
INVESTMENT MANAGEMENT FEES AVERAGE MANAGEMENT FEES EARNED1 BY PRODUCT (IN BASIS POINTS) Q3:19 Q4:19 Q1:20 Q2:20 Q3:20 YTD:19 YTD:20 Total Open-End Funds 56.6 57.4 57.8 58.4 59.5 55.4 58.6 Revenue related adjustments (9.0) (8.5) (8.5) (7.9) (8.1) (8.8) (8.2) Total Open-End Funds, Net 47.6 48.9 49.3 5
Slide 38: 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 39: 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 40: 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 41: 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 42: Reconciliation: U.S. GAAP to Non-GAAP, Q3 2019
RECONCILIATION: U.S. GAAP TO NON-GAAP Q3 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 43: Reconciliation: U.S. GAAP to Non-GAAP, YTD 2020
RECONCILIATION: U.S. GAAP TO NON-GAAP YTD 2020 (UNAUDITED) Reclassification Other adjustments Consolidated Restructuring Amortization Seed capital Acquisition U.S. GAAP investment Revenue and of intangible and CLO and Non-GAAP Basis products related Severance assets investments integration Other Bas
Slide 44: Reconciliation: U.S. GAAP to Non-GAAP, YTD 2019
RECONCILIATION: U.S. GAAP TO NON-GAAP YTD 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 Bas
Slide 45: Reconciliation: U.S. GAAP to Non-GAAP
RECONCILIATION: U.S. GAAP to NON-GAAP (UNAUDITED) Q3:19 Q4:19 Q1:20 Q2:20 Q3:20 YTD:19 YTD:20 Weighted average shares outstanding - diluted Weighted average shares outstanding - diluted, GAAP 8,157 8,084 7,422 7,895 7,997 8,215 7,958 Dilutive impact of restricted stock units and stock options — — 23
Slide 46: 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 47: Footnotes
FOOTNOTES (UNAUDITED) Components of Acquisition and Integration Expenses and Other for the respective periods are shown in the table below: Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 YTD:19 YTD:20 Acquisition and Integration Expenses Employment expenses $1,223 $1,193 $(781) $952 $999 $3,771 $1,170 Othe
Slide 48: STMENT PARTNERS
STMENT PARTNERS
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