Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Q3 2022 Earnings Presentation
47 slides from Virtus Investment Partners's earnings presentation, Oct 26, 2022
Slide 1: Third Quarter Earnings Presentation
THIRD QUARTER EARNINGS PRESENTATION October 26, 2022 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 to Acquire AlphaSimplex ■ Q & A Session 3
Slide 4: Overview of Quarter
INVESTMENT PARTNERS OVERVIEW OF QUARTER
Slide 5: Third Quarter 2022 Overview
THIRD QUARTER 2022 OVERVIEW Assets and Flows ■ Assets under management (AUM) of $145.0 billion compared with $155.4 billion at June 30, reflecting market depreciation and net outflows ■ Sales of $5.7 billion compared with $7.9 billion in the prior quarter primarily due to lower institutional sales,
Slide 6: Results
INVESTMENT PARTNERS RESULTS
Slide 7: Assets Under Management
ASSETS UNDER MANAGEMENT LOWER DUE TO MARKET AND FLOWS U.S. Retail Funds Closed-End Funds ■ AUM of $145.0 billion compared with Institutional Accounts Retail Separate Accounts $155.4 billion due to: Global Funds, ETFs, and Variable Insurance Funds – $6.6 billion of market depreciation – $3.3 billion
Slide 8: Asset Flows
ASSET FLOWS NET OUTFLOWS PRIMARILY DUE TO FUNDS ■ Sales of $5.7 billion declined from $7.9 billion – Institutional declined 56% reflecting two large client mandates in prior quarter – Open-end funds declined 8%; higher mid- cap, international, and high yield – Retail separate accounts declined 8% du
Slide 9: Investment Management Fees, As Adjusted
INVESTMENT MANAGEMENT FEES, AS ADJUSTED HIGHER AVERAGE FEE RATE ■ Investment management fees, as adjusted, decreased by $11.9 million, or 7%, due to lower average AUM – Included discrete $1.0 million third-party distribution expense ■ Average fee rate of 41.5 bps, up from 41.2 bps – Increase primari
Slide 10: Employment Expenses, As Adjusted
EMPLOYMENT EXPENSES, AS ADJUSTED LOWER PROFIT- AND SALES-BASED VARIABLE COMPENSATION ■ Employment expenses, as adjusted, of $88.7 million included lower profit- and sales-based compensation partially offset by: – $2.2 million of higher stock-based incentive compensation primarily for relative invest
Slide 11: Other Operating Expenses, As Adjusted
OTHER OPERATING EXPENSES, AS ADJUSTED INCLUDE TRANSACTION COSTS ■ Other operating expenses, as adjusted, of $31.1 million increased $0.1 million Transaction Costs $31.1 – Included $1.0 million of AlphaSimplex transaction costs – Prior quarter included $0.8 million of annual director grants ■ Other o
Slide 12: Non-GAAP Results
NON-GAAP RESULTS REFLECTS LOWER AUM ■ Operating margin, as adjusted, of 35.0% Operating Income, As Adjusted compared with 39.2% Diluted earnings per share, as adjusted – Lower primarily due to market-driven revenue declines ■ Diluted EPS, as adjusted, of $5.76 compared with $6.86 – 8% decline in ave
Slide 13: Capital and Select Balance Sheet
CAPITAL AND SELECT BALANCE SHEET BALANCED CAPITAL MANAGEMENT ■ Working capital of $195.2 million Select Balance Sheet Items: 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 increased from $185.4 million primarily Cash and cash equivalents $437 $379 $225 $251 $309 due to cash earnings in excess of Seed capi
Slide 14: Agreement to Acquire AlphaSimplex
AGREEMENT TO ACQUIRE ALPHASIMPLEX
Slide 15: Agreement to Acquire AlphaSimplex: Overview of Transaction
AGREEMENT TO ACQUIRE ALPHASIMPLEX OVERVIEW OF TRANSACTION About AlphaSimplex ■ Leading provider Select of systematic Balance alternative investment solutions Sheet Items: ■ $10.9 billion1 of AUM consisting of institutional (64%) and retail (36%) ■ Strategies offered in multiple product forms includi
Slide 16: Financial Supplement
INVESTMENT PARTNERS FINANCIAL SUPPLEMENT
Slide 17: Non-GAAP Information: Income Statement
NON-GAAP INFORMATION INCOME STATEMENT 1 (UNAUDITED) Q3:21 Q4:21 Q1:22 Q2:22 Q3:22 YTD:21 YTD:22 Revenues, As Adjusted Investment management fees, as adjusted $190,029 $203,429 $196,289 $175,896 $163,997 $537,194 $536,182 Administration and shareholder service fees, as adjusted 26,482 27,665 24,387 2
Slide 18: Non-GAAP Information: Income Statement (Continued)
NON-GAAP INFORMATION INCOME STATEMENT 1 (CONTINUED) (UNAUDITED) Q3:21 Q4:21 Q1:22 Q2:22 Q3:22 YTD:21 YTD:22 Other Income (Expense), As Adjusted Realized and unrealized gain (loss) on investments, net, as adjusted $24 ($145) ($455) ($2,704) ($782) $427 ($3,941) Other income, net, as adjusted 1,001 63
Slide 19: Non-GAAP Information: Balance Sheet
NON-GAAP INFORMATION BALANCE SHEET 1 (UNAUDITED) 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 Assets: Cash and cash equivalents $437,242 $378,921 $225,217 $250,530 $309,248 Investments – seed capital 144,476 144,660 137,835 125,409 119,818 Investments – other 78,643 86,569 90,139 75,673 72,547
Slide 20: Non-GAAP Information: Balance Sheet (Continued)
NON-GAAP INFORMATION BALANCE SHEET 1 (CONTINUED) (UNAUDITED) 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 Liabilities and Equity Liabilities: Accrued compensation and benefits $139,106 $187,449 $70,646 $105,106 $145,361 Accounts payable and accrued liabilities 41,774 48,496 62,335 40,800 37,75
Slide 21: U.S. GAAP Information: Income Statement
U.S. GAAP INFORMATION INCOME STATEMENT (UNAUDITED) Q3:21 Q4:21 Q1:22 Q2:22 Q3:22 YTD:21 YTD:22 Revenues Investment management fees $201,133 $213,673 $206,817 $185,024 $172,850 $567,912 $564,691 Distribution and service fees 23,293 23,464 20,007 17,159 15,746 67,091 52,912 Administration and sharehol
Slide 22: U.S. GAAP Information: Income Statement (Continued)
U.S. GAAP INFORMATION INCOME STATEMENT (CONTINUED) (UNAUDITED) Q3:21 Q4:21 Q1:22 Q2:22 Q3:22 YTD:21 YTD:22 Other Income (Expense) Realized and unrealized gain (loss) on investments, net ($504) $1,026 ($2,982) ($10,543) ($2,493) $2,881 ($16,018) Realized and unrealized gain (loss) of CIP 1, net (2,80
Slide 23: Assets Under Management by Product, Asset Class and Region
ASSETS UNDER MANAGEMENT BY PRODUCT, ASSET CLASS AND REGION 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 Assets by Product U.S. Retail Funds $70,526 $74,616 $66,554 $53,838 $49,164 Global Funds 1,399 1,418 4,089 3,483 3,216 Exchange Traded Funds 1,321 1,479 1,448 1,287 1,262 Variable Insurance
Slide 24: Assets Under Management by Product and Asset Class
ASSETS UNDER MANAGEMENT BY PRODUCT AND ASSET CLASS Open-End Closed-End Retail Separate Institutional Total as of Funds Funds Accounts Accounts 9/30/2022 Equity: Domestic Equity $18,004 $— $25,331 $18,202 $61,537 International Equity 4,304 — 77 1,156 5,537 Global Equity 1,105 — 371 6,043 7,519 Specia
Slide 25: Asset Flows: Total
ASSET FLOWS TOTAL 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 YTD:21 YTD:22 Total Beginning balance $178,638 $177,305 $187,186 $183,342 $155,420 $132,194 $187,186 Inflows 7,623 8,712 9,435 7,884 5,723 27,784 23,042 Outflows (8,126) (8,693) (11,395) (12,652) (9,037) (24,321) (33,084) Net Flows
Slide 26: Asset Flows by Product
ASSET FLOWS BY PRODUCT 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 YTD:21 YTD:22 U.S. Retail Funds Beginning balance $72,746 $70,526 $74,616 $66,554 $53,838 $48,492 $74,616 Inflows 3,555 4,029 4,739 2,797 2,494 13,798 10,030 Outflows (4,964) (5,744) (7,858) (7,254) (5,310) (14,985) (20,422) N
Slide 27: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 YTD:21 YTD:22 Exchange Traded Funds Beginning balance $1,260 $1,321 $1,479 $1,448 $1,287 $837 $1,479 Inflows 174 211 126 136 91 581 353 Outflows (65) (73) (151) (116) (63) (234) (330) Net Flows 109 138 (25) 20 28 3
Slide 28: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 YTD:21 YTD:22 Closed-End Funds Beginning balance $11,993 $11,721 $12,068 $12,060 $10,645 $5,914 $12,068 Inflows 3 19 8 24 157 3 189 Outflows — — — — — — — Net Flows 3 19 8 24 157 3 189 Market performance (114) 718
Slide 29: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 YTD:21 YTD:22 Intermediary Sold Managed Accounts Beginning balance $34,125 $34,974 $37,621 $34,347 $29,425 $23,852 $37,621 Inflows 1,726 2,045 1,771 1,093 886 6,286 3,750 Outflows (1,103) (999) (1,221) (1,784) (1,2
Slide 30: Asset Flows by Product (Continued)
ASSET FLOWS BY PRODUCT (CONTINUED) 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 YTD:21 YTD:22 Institutional ex. Structured Products Beginning balance $45,604 $45,882 $48,140 $53,658 $46,440 $40,861 $48,140 Inflows 1,808 2,099 2,449 3,452 1,507 5,994 7,408 Outflows (1,727) (1,625) (1,623) (3,03
Slide 31: Asset Flows by Asset Class
ASSET FLOWS BY ASSET CLASS 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 YTD:21 YTD:22 Domestic Equity Beginning balance $82,819 $83,331 $87,889 $78,504 $65,797 $63,680 $87,889 Inflows 3,445 3,596 4,279 2,942 1,871 12,808 9,092 Outflows (3,344) (3,013) (4,343) (4,268) (3,019) (10,796) (11,630)
Slide 32: Asset Flows by Asset Class (Continued)
ASSET FLOWS BY ASSET CLASS (CONTINUED) 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 YTD:21 YTD:22 Global Equity Beginning balance $10,623 $11,009 $11,658 $10,580 $8,701 $9,512 $11,658 Inflows 732 1,231 214 1,154 156 1,902 1,524 Outflows (308) (298) (230) (1,011) (868) (1,329) (2,109) Net Flows
Slide 33: Asset Flows by Asset Class (Continued)
ASSET FLOWS BY ASSET CLASS (CONTINUED) 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 YTD:21 YTD:22 Leveraged Finance Beginning balance $12,270 $12,210 $12,069 $12,213 $10,816 $10,730 $12,213 Inflows 577 666 981 491 370 2,108 1,842 Outflows (623) (755) (847) (1,219) (620) (1,507) (2,686) Net Flo
Slide 34: Asset Flows by Asset Class (Continued)
ASSET FLOWS BY ASSET CLASS (CONTINUED) 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 YTD:21 YTD:22 Investment Grade Beginning balance $8,245 $7,924 $7,177 $7,475 $6,865 $8,883 $7,475 Inflows 274 229 164 137 372 1,038 673 Outflows (572) (933) (545) (479) (331) (1,539) (1,355) Net Flows (298) (70
Slide 35: Asset Flows by Asset Class (Continued)
ASSET FLOWS BY ASSET CLASS (CONTINUED) 9/30/2021 12/31/2021 3/31/2022 6/30/2022 9/30/2022 YTD:21 YTD:22 Multi-Asset 1 Beginning balance $23,668 $23,641 $24,853 $23,415 $20,261 $12,201 $24,853 Inflows 672 583 577 383 599 1,907 1,559 Outflows (392) (397) (597) (703) (515) (1,209) (1,815) Net Flows 280
Slide 36: Investment Management Fees: Average Assets by Product
INVESTMENT MANAGEMENT FEES AVERAGE ASSETS1 BY PRODUCT Q3:21 Q4:21 Q1:22 Q2:22 Q3:22 YTD:21 YTD:22 U.S. Retail Funds $72,476 $76,288 $69,133 $59,799 $54,563 $69,316 $61,165 Global Funds 1,453 1,426 3,902 3,444 3,355 1,376 3,567 Exchange Traded Funds 1,295 1,387 1,422 1,401 1,371 1,114 1,398 Variable
Slide 37: Investment Management Fees: Average Management Fees Earned by Product
INVESTMENT MANAGEMENT FEES AVERAGE MANAGEMENT FEES EARNED1 BY PRODUCT (IN BASIS POINTS) Q3:21 Q4:21 Q1:22 Q2:22 Q3:22 YTD:21 YTD:22 U.S. Retail Funds 46.1 49.3 47.8 47.4 49.0 46.7 48.0 Global Funds 52.8 43.5 33.5 37.8 25.8 51.1 32.4 Exchange Traded Funds 10.4 6.5 10.0 11.1 8.6 10.7 9.9 Variable Insu
Slide 38: Reconciliation: U.S. GAAP to Non-GAAP, Q3 2022
RECONCILIATION: U.S. GAAP TO NON-GAAP Q3 2022 (UNAUDITED) Reclassification Other adjustments Consolidated Restructuring Amortization Seed capital U.S. GAAP investment Revenue and of intangible and CLO Non-GAAP Basis products related severance assets investments Other Basis Revenues Investment manage
Slide 39: Reconciliation: U.S. GAAP to Non-GAAP, Q2 2022
RECONCILIATION: U.S. GAAP TO NON-GAAP Q2 2022 (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 40: Reconciliation: U.S. GAAP to Non-GAAP, Q1 2022
RECONCILIATION: U.S. GAAP TO NON-GAAP Q1 2022 (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 2021
RECONCILIATION: U.S. GAAP TO NON-GAAP Q4 2021 (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 42: Reconciliation: U.S. GAAP to Non-GAAP, Q3 2021
RECONCILIATION: U.S. GAAP TO NON-GAAP Q3 2021 (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 43: Reconciliation: U.S. GAAP to Non-GAAP, YTD 2022
RECONCILIATION: U.S. GAAP TO NON-GAAP YTD 2022 (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 44: Reconciliation: U.S. GAAP to Non-GAAP, YTD 2021
RECONCILIATION: U.S. GAAP TO NON-GAAP YTD 2021 (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 manag
Slide 45: 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 46: Footnotes
FOOTNOTES (UNAUDITED) Components of Acquisition and Integration Expenses and Other for the respective periods are shown in the table below: Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 YTD:21 YTD:22 Acquisition and Integration Expenses Employment expenses $429 $(846) $4,282 $260 $— $1,911 $4,542 Other op
Slide 47: Investment Partners
INVESTMENT PARTNERS
Virtus Investment Partners — Q3 2022 Earnings Presentation on 6ix