Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Q2 2019 Earnings Presentation
45 slides from Virtus Investment Partners's earnings presentation, Jul 26, 2019
Slide 1: Second Quarter Earnings Presentation
SECOND QUARTER EARNINGS PRESENTATION FRIDAY, JULY 26, 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 Financial Supplement 3
Slide 4: Overview of Quarter
INVESTMENT PARTNERS OVERVIEW OF QUARTER
Slide 5: Second Quarter 2019 Overview
SECOND QUARTER 2019 OVERVIEW Assets and Flows Long-term assets under management increased $3.3 billion, or 3%, sequentially to $103.3 billion due to market appreciation and positive net flows Total sales of $5.1 billion decreased $0.4 billion, or 7%, compared to prior quarter, which included $0.
Slide 6: Results
INVESTMENT PARTNERS RESULTS
Slide 7: Assets Under Management
ASSETS UNDER MANAGEMENT LONG TERM AUM GREW 3% TO $103 BILLION Sequential increase in long-term assets of $3.3 Long-Term Liquidity billion, or 3%, reflected market appreciation and $105.6 $105.0 $101.7 modest positive net flows $91.6 $103.9 $92.0 $103.3 $99.9 $89.8 $90.4 Mid-cap assets under mana
Slide 8: Asset Flows
ASSET FLOWS POSITIVE NET FLOWS DRIVEN BY INSTITUTIONAL AND RETAIL SEPARATE ACCOUNTS Total sales of $5.1 billion decreased $0.4 Net flows $12.1 billion, or 7%, from the first quarter $10.6 – First quarter sales included $0.8 billion related to $6.6 $6.3 a CLO issuance and the initial model allocati
Slide 9: Investment Management Fees, As Adjusted
INVESTMENT MANAGEMENT FEES, AS ADJUSTED AVERAGE FEE RATE HIGHER BY 0.4 BASIS POINTS Investment management fees increased $224.0 $8.9 million, or 8%, sequentially due to: $123.4 $206.6 $116.4 – Long-term average assets higher by 6% $113.3 $104.6 $107.6 – Higher average fee rate of 46.0, up 0.4 basi
Slide 10: Employment Expenses, As Adjusted
EMPLOYMENT EXPENSES, AS ADJUSTED RATIO AT LOW END OF HISTORICAL LEVELS Employment expenses, as adjusted, $116.4 $112.5 decreased $2.4 million, or 4% sequentially due to: $61.7 $59.4 $58.1 $57.0 – $7.5 million of seasonally higher $53.7 employment expenses in the first quarter – Lower sales-based c
Slide 11: Other Operating Expenses, As Adjusted
OTHER OPERATING EXPENSES, AS ADJUSTED HIGHER EXPENSES AS A RESULT OF TIMING OF BOARD GRANTS Other operating expenses, as $37.6 adjusted, of $19.1 million increased $33.9 $0.6 million, or 3%, from the prior $19.1 $18.2 $18.5 $17.4 $17.8 quarter – Increase primarily due to $0.8 million of annual dir
Slide 12: Non-GAAP Results
NON-GAAP RESULTS OPERATING MARGIN, AS ADJUSTED, INCREASED TO 36.1% Diluted EPS, as adjusted, of $3.63 Operating Income, As Adjusted increased by $0.90, or 33%, Diluted earnings per share, as adjusted $77.2 sequentially primarily due to higher $70.5 revenues, as adjusted, and lower $48.2 employment
Slide 13: Capital Position
CAPITAL POSITION CONTINUED STOCK REPURCHASES AND DEBT REPAYMENTS Working capital increased $10.8 Select Balance Sheet Items: 6/30/18 9/30/18 12/31/18 3/31/19 6/30/19 million, or 8%, sequentially, as cash Cash and cash equivalents $139 $169 $202 $142 $166 1 generation more than offset debt Seed cap
Slide 14: Financial Supplement
INVESTMENT PARTNERS FINANCIAL SUPPLEMENT
Slide 15: Non-GAAP Information: Income Statement
NON-GAAP INFORMATION INCOME STATEMENT1 (UNAUDITED) Q2:18 Q3:18 Q4:18 Q1:19 Q2:19 YTD:18 YTD:19 Revenues, As Adjusted Investment management fees, as adjusted $104,559 $123,379 $113,253 $107,572 $116,428 $206,606 $224,000 Distribution and service fees, as adjusted 13,553 13,734 10,831 10,066 10,620 26
Slide 16: Non-GAAP Information: Income Statement (Continued)
NON-GAAP INFORMATION INCOME STATEMENT1 (CONTINUED) (UNAUDITED) Q2:18 Q3:18 Q4:18 Q1:19 Q2:19 YTD:18 YTD:19 Other Income (Expense), As Adjusted Realized and unrealized gain (loss) on investments, net, $137 $10 ($244) $359 $102 ($61) $461 as adjusted Other income, net, as adjusted 455 549 1,272 450 69
Slide 17: Non-GAAP Information: Balance Sheet
NON-GAAP INFORMATION BALANCE SHEET1 (UNAUDITED) 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 Assets: Cash and cash equivalents $138,827 $168,982 $201,705 $142,344 $166,026 Investments – seed capital 107,217 109,111 92,846 88,594 95,765 Investments – other 107,030 104,496 93,636 88,558 87,885 Investm
Slide 18: Non-GAAP Information: Balance Sheet (Continued)
NON-GAAP INFORMATION BALANCE SHEET1 (CONTINUED) (UNAUDITED) 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 Liabilities and Equity Liabilities: Accrued compensation and benefits $45,187 $70,750 $93,339 $31,105 $52,675 Accounts payable and accrued liabilities 25,805 32,803 27,926 27,723 24,757 Dividends
Slide 19: U.S. GAAP Information: Income Statement
U.S. GAAP INFORMATION INCOME STATEMENT (UNAUDITED) Q2:18 Q3:18 Q4:18 Q1:19 Q2:19 YTD:18 YTD:19 Revenues Investment management fees $103,168 $121,713 $111,664 $105,918 $114,591 $203,644 $220,509 Distribution and service fees 13,549 13,730 10,829 10,063 10,617 26,156 20,680 Administration and sharehol
Slide 20: U.S. GAAP Information: Income Statement (Continued)
U.S. GAAP INFORMATION INCOME STATEMENT (CONTINUED) (UNAUDITED) Q2:18 Q3:18 Q4:18 Q1:19 Q2:19 YTD:18 YTD:19 Other Income (Expense) Realized and unrealized gain (loss) on investments, net $960 ($374) ($6,241) $3,433 $2,039 $1,398 $5,472 Realized and unrealized gain (loss) of CIP 1, net (1,779) (4,735)
Slide 21: Assets Under Management by Product and Asset Class
ASSETS UNDER MANAGEMENT BY PRODUCT AND ASSET CLASS 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 Assets by Product U.S. Retail Funds $43,322.6 $44,074.3 $36,778.1 $39,587.1 $40,152.0 1 Offshore Funds 115.7 112.2 108.3 126.0 139.9 Variable Insurance Funds 981.0 985.3 823.6 919.5 931.6 Total – Open-End
Slide 22: Assets Under Management by Investment Category / Product
ASSETS UNDER MANAGEMENT BY INVESTMENT CATEGORY / PRODUCT AS OF JUNE 30, 2019 (UNAUDITED) Exchange Retail Open-end Closed-end Structured traded separate Institutional Total funds funds products funds accounts Domestic Equity: Large Cap $3,615.1 $3,912.9 $- $2,497.3 $9,433.5 $- $19,458.8 Mid Cap 4,011
Slide 23: Assets Under Management by Investment Category
ASSETS UNDER MANAGEMENT BY INVESTMENT CATEGORY 9/30/2018 12/31/2018 3/31/2019 6/30/2019 Ending Assets By Investment Category Domestic Equity: Large Cap $19,953.7 $16,923.4 $18,974.5 $19,458.8 Mid Cap 7,617.8 6,706.5 8,067.1 9,128.7 Small Cap 19,823.0 16,223.8 19,000.2 19,938.0 Total Domestic Equity
Slide 24: Asset Flows: Total/Long-Term
ASSET FLOWS TOTAL/LONG-TERM 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 YTD:18 YTD:19 Long-term Beginning balance $87,443.5 $89,833.6 $103,922.8 $90,417.3 $99,923.3 $88,834.5 $90,417.3 Inflows 6,643.1 6,261.2 4,438.4 5,501.1 5,118.9 12,074.1 10,620.0 Outflows (5,353.8) (5,767.8) (9,210.8) (5,555.1)
Slide 25: Asset Flows by Product
ASSET FLOWS BY PRODUCT 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 YTD:18 YTD:19 U.S. Retail Funds Beginning balance $42,092.7 $43,322.6 $44,074.3 $36,778.1 $39,587.1 $41,949.9 $36,778.1 Inflows 4,335.6 3,791.8 2,873.3 2,969.3 2,483.9 8,089.8 5,453.2 Outflows (3,157.1) (3,416.3) (6,709.0) (3,821.2)
Slide 26: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 YTD:18 YTD:19 Variable Insurance Funds Beginning balance $982.6 $981.0 $985.3 $823.6 $919.5 $1,005.4 $823.6 Inflows 6.9 5.7 4.2 7.2 5.1 17.0 12.3 Outflows (36.2) (34.1) (27.2) (31.7) (29.7) (74.0) (61.4) Net Flows (29.3)
Slide 27: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 YTD:18 YTD:19 Closed-End Funds Beginning balance $6,132.7 $6,295.0 $6,342.2 $5,956.0 $6,553.2 $6,666.2 $5,956.0 Inflows 0.5 12.9 8.2 11.5 8.7 0.5 20.2 Outflows - - - - - - - Net Flows 0.5 12.9 8.2 11.5 8.7 0.5 20.2 Marke
Slide 28: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 YTD:18 YTD:19 Intermediary Sold Managed Accounts Beginning balance $10,535.2 $11,062.6 $12,757.4 $11,274.9 $12,974.9 $10,260.7 $11,274.9 Inflows 632.3 771.0 580.5 588.3 608.4 1,208.6 1,196.7 Outflows (499.5) (461.0) (389
Slide 29: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 YTD:18 YTD:19 Institutional Accounts Beginning balance $19,411.2 $19,726.6 $30,960.1 $27,445.0 $30,514.1 $20,815.9 $27,445.0 Inflows 1,425.0 1,484.5 810.8 954.7 1,737.4 1,848.0 2,692.1 Outflows (1,465.8) (1,604.8) (1,822
Slide 30: Open-End Funds Asset Flows by Asset Class
ASSET FLOWS OPEN-END FUNDS1 BY ASSET CLASS 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 YTD:18 YTD:19 Domestic Equity Funds Beginning balance $12,516.4 $14,677.1 $15,979.3 $12,778.0 $14,855.5 $12,023.3 $12,778.0 Inflows 2,320.4 2,033.5 922.1 1,071.1 1,011.3 3,707.3 2,082.4 Outflows (863.2) (1,216.9)
Slide 31: Open-End Funds by Asset Class (Continued)
ASSET FLOWS OPEN-END FUNDS1 BY ASSET CLASS (CONTINUED) 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 YTD:18 YTD:19 2 Taxable Bond Funds Beginning balance $17,241.8 $17,044.7 $16,913.7 $14,507.3 $14,142.2 $17,363.0 $14,507.3 Inflows 1,197.5 927.6 1,077.5 952.8 721.0 2,616.1 1,673.8 Outflows (1,334.8)
Slide 32: Open-End Funds by Asset Class (Continued)
ASSET FLOWS OPEN-END FUNDS1 BY ASSET CLASS (CONTINUED) 06/30/18 09/30/18 12/31/18 03/31/19 06/30/19 YTD:18 YTD:19 2 Alternative Funds Beginning balance $1,290.3 $1,311.1 $1,257.4 $1,030.6 $1,062.0 $1,461.8 $1,030.6 Inflows 74.2 62.5 49.3 75.5 61.1 145.7 136.6 Outflows (132.4) (132.4) (175.6) (112.4)
Slide 33: Average Net Management Fees by Product
INVESTMENT MANAGEMENT FEES AVERAGE NET MANAGEMENT FEES BY PRODUCT (UNAUDITED) Q2:18 Q3:18 Q4:18 Q1:19 Q2:19 YTD:18 YTD:19 1 Average Net Management Fees (in basis points, annualized) U.S. Retail Funds 51.6 54.1 53.9 54.2 55.5 50.9 54.8 Offshore Funds 2 33.8 40.7 29.6 23.9 - - 0.4 Variable Insurance F
Slide 34: Average Assets by Product
INVESTMENT MANAGEMENT FEES AVERAGE ASSETS BY PRODUCT (UNAUDITED) Q2:18 Q3:18 Q4:18 Q1:19 Q2:19 YTD:18 YTD:19 1 Average Assets by Product U.S. Retail Funds $42,889.1 $44,029.2 $40,596.9 $38,520.9 $39,898.5 $42,748.4 $39,209.7 Offshore Funds 2 118.4 113.9 113.5 119.2 133.5 123.2 126.4 Variable Insuran
Slide 35: 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 36: 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 37: 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 38: 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 39: Reconciliation: U.S. GAAP to Non-GAAP, Q2 2018
RECONCILIATION: U.S. GAAP TO NON-GAAP Q2 2018 (UNAUDITED) Reclassifications Adjustments Seed capital Distribution and Acquisition and other Consolidated Amortization integration and U.S. GAAP asset-based investment of intangible related integration Non-GAAP Basis expenses products assets expenses re
Slide 40: Reconciliation: U.S. GAAP to Non-GAAP, 2019 YTD
RECONCILIATION: U.S. GAAP TO NON-GAAP 2019 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 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) Q2:18 Q3:18 Q4:18 Q1:19 Q2:19 YTD:18 YTD:19 Weighted average shares outstanding - diluted Weighted average shares outstanding - diluted, GAAP 8,401 8,456 7,382 8,322 8,252 8,396 8,290 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: Q2:18 Q3:18 Q4:18 Q1:19 Q2:19 YTD:18 YTD:19 Acquisition and Integration Expenses Employment expenses $1,208 $1,561 $1,595 $1,433 $1,115 $3,111 $2,548 Restructur
Slide 45: Investment Partners
INVESTMENT PARTNERS
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