Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Q2 2020 Earnings Presentation
49 slides from Virtus Investment Partners's earnings presentation, Jul 24, 2020
Slide 1: Second Quarter Earnings Presentation
SECOND QUARTER EARNINGS PRESENTATION July 24, 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 Strategic Partnership with Allianz Global Investors Q & A Session 3
Slide 4: Overview of Quarter
INVESTMENT PARTNERS OVERVIEW OF QUARTER
Slide 5: Second Quarter 2020 Overview
SECOND QUARTER 2020 OVERVIEW Assets and Flows Long-term assets under management (AUM) increased 20% sequentially to $107.1 billion due to market appreciation and positive net flows Sales increased $2.1 billion, or 30%, sequentially to $9.1 billion as a result of higher sales in open-end funds, r
Slide 6: Results
INVESTMENT PARTNERS RESULTS
Slide 7: Assets Under Management
ASSETS UNDER MANAGEMENT LONG-TERM AUM BACK TO YEAR-END LEVELS Long-term assets increased by $17.6 billion, or Long-Term Liquidity 20%, as a result of $15.2 billion of market appreciation and $2.5 billion of positive net $108.9 $108.5 $105.0 $104.1 flows $103.3 $102.8 $107.7 $90.7 $107.1 $89.5 Do
Slide 8: Asset Flows
ASSET FLOWS POSITIVE NET FLOWS ON STRONG SALES Sales reached highest level at $9.1 billion, up Net flows $9.1 $16.1 30% sequentially and 77% over the prior year $7.0 $10.6 Sales increased by $2.1 billion sequentially $5.1 $4.8 $4.8 – Funds increased $0.5 billion, or 13%, to $4.4 billion with gro
Slide 9: Investment Management Fees, As Adjusted
INVESTMENT MANAGEMENT FEES, AS ADJUSTED IMPACTED BY LOWER AVERAGE AUM Investment management fees, as adjusted, decreased 7% sequentially due to lower $216.8 $203.6 average AUM – Average long-term AUM lower by 7% due to $113.0 $111.6 $112.3 impact of market declines on beginning assets; $105.7 $104
Slide 10: Employment Expenses, As Adjusted
EMPLOYMENT EXPENSES, AS ADJUSTED LOWER SEASONAL EXPENSES Employment expenses, as adjusted, $125.9 decreased $8.0 million, or 12%, $116.4 sequentially primarily due to $7.7 million of $66.9 seasonally higher employment expenses $60.1 $58.8 $59.0 $57.0 in the first quarter Employment expenses, as
Slide 11: Other Operating Expenses, As Adjusted
OTHER OPERATING EXPENSES, AS ADJUSTED DECLINED DUE TO OPERATING ENVIRONMENT Other operating expenses, as adjusted, of $17.4 million declined $1.4 million, or 8%, sequentially due to: – Significantly lower travel and entertainment $37.6 $36.3 expenses $19.1 $18.9 $18.1 $18.2 $17.4 – Partially offse
Slide 12: Non-GAAP Results
NON-GAAP RESULTS OPERATING INCOME UP MODESTLY Operating margin, as adjusted, of 34% Operating Income, As Adjusted compared with 32% in the prior quarter and Diluted earnings per share, as adjusted $80.5 $77.2 36% in the prior year period Interest and dividend income of $1.1 million $50.1 $47.7 d
Slide 13: Capital Position
CAPITAL POSITION BALANCED CAPITAL MANAGEMENT Working capital of $156 million Select Balance Sheet Items: 6/30/19 9/30/19 12/31/19 3/31/20 6/30/20 essentially unchanged as cash Cash and cash equivalents $166 $196 $222 $158 $168 1 generation was offset by debt Seed capital investments $96 $101 $107
Slide 14: Partnership with Allianz Global Investors
PARTNERSHIP WITH ALLIANZ GLOBAL INVESTORS
Slide 15: Overview of Partnership
OVERVIEW OF PARTNERSHIP Structure Virtus to become investment adviser, distributor, and/or administrator of AllianzGI’s retail products for U.S. clients with $24 billion of AUM: − 23 open-end funds ($16 billion) − 9 closed-end funds ($5 billion) − Retail separate account strategies ($3 billion)
Slide 16: Overview of Partnership
OVERVIEW OF PARTNERSHIP Financial Considerations Immediately accretive well in excess of 20% to EPS, as adjusted No payments required at closing Alignment of economic interests over time − Consideration based on revenues generated Approvals and Timing Requires approval of AllianzGI Funds’ Bo
Slide 17: Financial Supplement
*VIRTUS FINANCIAL SUPPLEMENT
Slide 18: Non-GAAP Information: Income Statement
NON-GAAP INFORMATION INCOME STATEMENT1 (UNAUDITED) Q2:19 Q3:19 Q4:19 Q1:20 Q2:20 YTD:19 YTD:20 Revenues, As Adjusted Investment management fees, as adjusted $105,726 $111,599 $112,960 $112,252 $104,569 $203,600 $216,821 Administration and shareholder service fees, as adjusted 15,081 15,329 15,189 14
Slide 19: Non-GAAP Information: Income Statement (Continued)
NON-GAAP INFORMATION INCOME STATEMENT1 (CONTINUED) (UNAUDITED) Q2:19 Q3:19 Q4:19 Q1:20 Q2:20 YTD:19 YTD:20 Other Income (Expense), As Adjusted Realized and unrealized gain (loss) on investments, net, as adjusted $102 $289 ($29) ($883) $348 $461 ($535) Other income, net, as adjusted 696 746 519 612 (
Slide 20: Non-GAAP Information: Balance Sheet
NON-GAAP INFORMATION BALANCE SHEET1 (UNAUDITED) 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 Assets: Cash and cash equivalents $166,026 $195,870 $221,781 $158,456 $168,268 Investments – seed capital 95,765 100,520 107,225 90,562 102,802 Investments – other 87,885 84,621 87,657 80,715 61,268 In
Slide 21: Non-GAAP Information: Balance Sheet (Continued)
NON-GAAP INFORMATION BALANCE SHEET1 (CONTINUED) (UNAUDITED) 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 Liabilities and Equity Liabilities: Accrued compensation and benefits $52,675 $78,073 $101,377 $36,641 $56,228 Accounts payable and accrued liabilities 24,757 23,310 23,308 23,594 19,528 Di
Slide 22: U.S. GAAP Information: Income Statement
U.S. GAAP INFORMATION INCOME STATEMENT (UNAUDITED) Q2:19 Q3:19 Q4:19 Q1:20 Q2:20 YTD:19 YTD:20 Revenues Investment management fees $114,591 $120,023 $120,945 $120,288 $110,550 $220,509 $230,838 Distribution and service fees 10,617 10,442 9,776 9,460 8,889 20,680 18,349 Administration and shareholder
Slide 23: U.S. GAAP Information: Income Statement (Continued)
U.S. GAAP INFORMATION INCOME STATEMENT (CONTINUED) (UNAUDITED) Q2:19 Q3:19 Q4:19 Q1:20 Q2:20 YTD:19 YTD:20 Other Income (Expense) Realized and unrealized gain (loss) on investments, net $2,039 $2 $1,570 ($7,544) $7,114 $5,472 ($430) Realized and unrealized gain (loss) of CIP1, net 9,720 (5,344) (3,6
Slide 24: Assets Under Management by Product and Asset Class
ASSETS UNDER MANAGEMENT BY PRODUCT AND ASSET CLASS 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 Assets by Product U.S. Retail Funds $40,151 $39,886 $41,458 $32,281 $38,429 Offshore Funds1 140 401 463 445 686 Variable Insurance Funds 932 903 949 772 938 Total – Open-End Funds $41,223 $41,190 $4
Slide 25: Assets Under Management by Asset Class
ASSETS UNDER MANAGEMENT BY ASSET CLASS 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 Domestic Equity: Large Cap $19,459 $19,684 $20,823 $17,130 $22,938 Mid Cap 9,129 9,798 11,139 9,180 13,069 Small Cap 19,938 19,964 21,071 16,700 21,319 Total Domestic Equity $48,526 $49,446 $53,033 $43,010 $57,
Slide 26: 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 6/30/2020 Domestic Equity: Large Cap $3,667 $3,424 — $3,000 $12,847 — $22,938 Mid Cap 5,702 — — 6,428 939 — 13,069 Small Cap
Slide 27: Asset Flows: Long-Term
ASSET FLOWS LONG-TERM 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 YTD:19 YTD:20 Long-term Beginning balance $99,923 $103,254 $102,846 $107,726 $89,534 $90,417 $107,726 Inflows 5,119 4,760 4,764 7,016 9,086 10,620 16,102 Outflows (5,058) (5,885) (4,418) (8,298) (6,538) (10,613) (14,836) Net Fl
Slide 28: Asset Flows by Product
ASSET FLOWS BY PRODUCT 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 YTD:19 YTD:20 U.S. Retail Funds Beginning balance $39,588 $40,151 $39,886 $41,458 $32,281 $36,778 $41,458 Inflows 2,484 2,946 2,278 3,772 4,226 5,454 7,998 Outflows (3,175) (3,117) (2,734) (5,396) (3,956) (6,996) (9,352) Net F
Slide 29: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 YTD:19 YTD:20 Variable Insurance Funds Beginning balance $919 $932 $903 $949 $772 $824 $949 Inflows 5 9 9 13 8 12 21 Outflows (30) (32) (32) (37) (27) (62) (64) Net Flows (25) (23) (23) (24) (19) (50) (43) Market p
Slide 30: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 YTD:19 YTD:20 Closed-End Funds Beginning balance $6,553 $6,653 $6,816 $6,748 $5,343 $5,956 $6,748 Inflows 9 14 10 5 — 20 5 Outflows — — — — — — — Net Flows 9 14 10 5 — 20 5 Market performance 182 246 26 (1,185) 380
Slide 31: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 YTD:19 YTD:20 Intermediary Sold Managed Accounts Beginning balance $12,975 $13,909 $14,390 $15,592 $13,410 $11,275 $15,592 Inflows 608 635 763 907 1,324 1,196 2,231 Outflows (385) (348) (352) (688) (574) (762) (1,2
Slide 32: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 YTD:19 YTD:20 Institutional Accounts Beginning balance $30,514 $32,056 $30,951 $32,635 $28,210 $27,445 $32,635 Inflows 1,737 851 1,235 1,499 3,141 2,691 4,640 Outflows (1,259) (2,216) (1,091) (1,777) (1,666) (2,413
Slide 33: Asset Flows: Open-End Funds by Asset Class
ASSET FLOWS OPEN-END FUNDS1 BY ASSET CLASS 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 YTD:19 YTD:20 Domestic Equity Funds Beginning balance $14,856 $15,773 $15,827 $17,145 $13,276 $12,778 $17,145 Inflows 1,011 1,123 934 1,644 2,379 2,082 4,023 Outflows (934) (1,107) (875) (1,649) (1,162) (2,
Slide 34: Asset Flows: Open-End Funds by Asset Class (Continued)
ASSET FLOWS OPEN-END FUNDS1 BY ASSET CLASS (CONTINUED) 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 YTD:19 YTD:20 Taxable Bond Funds2 Beginning balance $14,142 $13,541 $13,117 $12,563 $10,174 $14,507 $12,563 Inflows 721 774 668 994 1,031 1,673 2,025 Outflows (1,453) (1,256) (1,308) (2,414) (1,
Slide 35: Asset Flows: Open-End Funds by Asset Class (Continued)
ASSET FLOWS OPEN-END FUNDS1 BY ASSET CLASS (CONTINUED) 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 YTD:19 YTD:20 Alternative Funds2 Beginning balance $1,062 $1,061 $1,117 $1,106 $869 $1,031 $1,106 Inflows 62 80 89 145 118 138 263 Outflows (86) (89) (104) (112) (97) (198) (209) Net Flows (24)
Slide 36: Investment Management Fees: Average Assets by Product
INVESTMENT MANAGEMENT FEES AVERAGE ASSETS1 BY PRODUCT Q2:19 Q3:19 Q4:19 Q1:20 Q2:20 YTD:19 YTD:20 U.S. Retail Funds $39,899 $40,224 $40,376 $39,668 $35,781 $39,210 $37,725 Offshore Funds2 133 312 424 481 553 126 517 Variable Insurance Funds 929 921 918 911 864 911 887 Total – Open-End Funds $40,961
Slide 37: Average Management Fees Earned by Product
INVESTMENT MANAGEMENT FEES AVERAGE MANAGEMENT FEES EARNED1 BY PRODUCT (IN BASIS POINTS) Q2:19 Q3:19 Q4:19 Q1:20 Q2:20 YTD:19 YTD:20 U.S. Retail Funds 55.8 56.6 57.3 57.7 58.3 55.2 58.0 Offshore Funds2 — 40.2 51.9 60.0 61.1 0.4 60.6 Variable Insurance Funds 64.1 62.7 62.9 63.1 62.4 63.8 62.8 Total Op
Slide 38: Average Net Management Fees Earned by Product
INVESTMENT MANAGEMENT FEES AVERAGE NET MANAGEMENT FEES EARNED1 BY PRODUCT (IN BASIS POINTS) Q2:19 Q3:19 Q4:19 Q1:20 Q2:20 YTD:19 YTD:20 Total Open-End Funds 55.7 56.6 57.4 57.8 58.4 55.2 58.1 Revenue related adjustments (9.3) (9.0) (8.5) (8.5) (7.9) (9.2) (8.2) Total Open-End Funds, Net 46.4 47.6 48
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 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 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 Restructuring Amortization Seed capital Acquisition Non- U.S. GAAP investment Revenue and of intangible and CLO and GAAP Basis products related Severance assets investments integration Other Bas
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 Restructuring Amortization Seed capital Acquisition Non- U.S. GAAP investment Revenue and of intangible and CLO and GAAP Basis products related Severance assets investments integration Other Bas
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 Restructuring Amortization Seed capital Acquisition Non- U.S. GAAP investment Revenue and of intangible and CLO and GAAP Basis products related Severance assets investments integration Other Bas
Slide 43: Reconciliation: U.S. GAAP to Non-GAAP, Q2 2019
RECONCILIATION: U.S. GAAP TO NON-GAAP Q2 2019 (UNAUDITED) Reclassification Other adjustments Consolidated Restructuring Amortization Seed capital Acquisition Non- U.S. GAAP investment Revenue and of intangible and CLO and GAAP Basis products related Severance assets investments integration Other Bas
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 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 45: Reconciliation: U.S. GAAP to Non-GAAP, YTD 2019
RECONCILIATION: U.S. GAAP TO NON-GAAP YTD 2019 (UNAUDITED) Reclassification Other adjustments Consolidated Restructuring Amortization Seed capital Acquisition Non- U.S. GAAP investment Revenue and of intangible and CLO and GAAP Basis products related Severance assets investments integration Other Ba
Slide 46: Reconciliation: U.S. GAAP to Non-GAAP
RECONCILIATION: U.S. GAAP to NON-GAAP (UNAUDITED) Q2:19 Q3:19 Q4:19 Q1:20 Q2:20 YTD:19 YTD:20 Weighted average shares outstanding - diluted Weighted average shares outstanding - diluted, GAAP 8,252 8,157 8,084 7,422 7,895 8,290 7,936 Dilutive impact of restricted stock units and stock options — — —
Slide 47: 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 48: Footnotes
FOOTNOTES (UNAUDITED) Components of Acquisition and Integration Expenses and Other for the respective periods are shown in the table below: Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 YTD 2019 YTD 2020 Acquisition and Integration Expenses Employment expenses $1,115 $1,223 $1,193 $(781) $952 $2,548 $171
Slide 49: Investment Partners
INVESTMENT PARTNERS
Virtus Investment Partners — Q2 2020 Earnings Presentation on 6ix