VRTS - Earnings call transcript Q1 2018 | Virtus Investment Partners, Inc.

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Operator

Good morning. My name is Amanda, and I will be your conference operator today. I would like to welcome everyone to the Virtus Investment Partners Quarterly Conference Call. The slide presentation for this call is available in the Investor Relations section of the Virtus website, www.virtus.com. The call is also being recorded and will be available for replay on the Virtus website. Instructions]. [Operator turn to now Hess. host, conference the will your over Jeanne I

Jeanne Hess

the operating you, On first like I to everyone. good quarter to of of you Thank morning, Partners, of behalf XXXX. and for financial and results Virtus Investment welcome discussion the our would

of and Before risks the actual I call within Certain webcast. matters quarterly unknown attention on results Form and those XX-Q this direct and but Private to release discussed cause those on statements to, important disclosures the this we in filings. from two discussed that of Reform uncertainties are meaning in XXXX, and accompanies contain our Litigation begin, may may other report the factors forward-looking on SEC as Page on limited These and and set and uncertainties, the annual subject your risks Act the to in slide XX-K earnings Securities including, presentation forth discussed materially known today's report to of statements. differ not Form such,

presented a to results certain its financial on to addition GAAP results. uses basis, non-GAAP In measures Virtus evaluate

which financial financial available non-GAAP the conjunction not are non-GAAP for and is website. measures are of substitutes GAAP in earnings applicable Our be release, should on financial our read with GAAP press Reconciliations measures results. to GAAP results these measures in included our

President over our call Now the and George I Aylward. would to like to CEO, George? turn

George Aylward

will capital with our of provide everyone. a transaction on Sustainable financial update items the by in Thank pending I'll brief SGA. Advisers, detail results today or more key the status the quarter you, start and Mike Growth Jeanne. Good position. by then morning, reviewing on followed the

increased Institutional outflows term XXXX. $X.X for assets sales assets institutional. with particularly strategies net billion, of mutual $XX.X in a income primarily and billion ended quarter sequentially market structured CLO to flows with the net since as in products, long impact the improvement Seix. the intermediary equity to sold offset of in in negative business, strong accounts retail category Anderson were predominantly strategies in flows January, reflecting generate high trends. period decrease were impacted billion. billion net AUM $X.X international flows tend in fund flows sales, yield negative going see as by in a were sales have Total products outflows me well markets the outflows We Overall, at more total positive were reflecting $X.X with issuance positive quarter flows growing in more existing Equity CLO than flows, depreciation, billion, an Let which open-end than to accounts flows, in redemption strategies, net and billion intermediary from account. quarter great private which were ETFs fixed XX% resulted in reflective managed first billion $X.X Starting and strategies. separate equity, funds with positive modestly growth strategies negative billion and liquidity to in resulted net billion. our managed due the billion, positive the from strategies, Total negative partial low-fee the and fixed which attributable sales the continued by under quarter in compared the the equity the which net client single this of management $X.X equity were client improved growth the Retail domestic structured sequentially primarily opportunity in offset as to from Total and industry redemptions positive Mutual by net The Kayne managed net $X.X sold continued which open-end positive, a to $XX.X redemptions in X.X%, negative of continued higher from of and reflecting to in volatile in we new the XX% of were forward. the due oriented sequential as markets. include flows accounts, fund accounts increased lumpy, flows. quarter the been option ended $X.X accounts offset Rudnick and by be the separate high by begin quarter funds yield income. continue in sequentially, negative managed quality $X.X

April net flows in we're the positive. remained seeing to be that mutual pleased of fund terms sales In continue for flows, we're and what strong

domestic other products, at X equity Regarding clients billion mandates Kayne, funding totaling April. of have Ceredex we is from new note and for that one $X.X thing

institutional not We or been meaningful any redemption in business. have the had notified of during month

flows are by predict nature any However, at their outflows there institutional difficult could to and point. be

to strong on three fund March XX rated and of benchmark of continued with having a X XX% of be approximately X, stars AUM five and year basis. assets X Our relative their as beating performance and XX% investment institutional

as seasonally note primarily Moving the costs, in quarter increased resulting the payroll results XX% expenses, prior important It's higher and $XX.X payments. adjusted incentive of $X.X the and and million to incremental employment quarter. impacted benefit with compared financial margin that the from were the annual million million XX% were taxes to by results. timing and related $XX.X Operating income first

adjusted, respectively. have income, XX%, margin been operating million these $XX.X expenses, the Excluding and related would and as

First employment offset in as and income. an quarter earnings rate lower increase seasonally a adjusted, $X.XX was of tax effective flat quarter other were with prior share, essentially by higher the the per expenses as

Cash and balance than million newly was $XX.X offset annual equivalents cash and the the CLO. incentive sequentially sheet. as to decreased generated issued more of to an cash the XX% in Turning timing investment by payments

each to the In terms of us being recent issuance. in grow forward, without retention risk may invest allow to of to U.S. repeal business rules CLOs going continue this required

to phase. In financial our currently variable flexibility. rate warehouse and decreasing the the refinanced how this we loan, that evaluating lowering February, development our apply are is potential term We -- our it interest in increasing may CLO of for next

million of secured an be term the SGA closing also at additional of We that the debt drawn will transaction. loan $XXX

the In terms the towards under December in status pleased we the SGA closing, we've progressing levels midyear. assets transaction, is XX. billion XX, The underway expect as with which which with of made occur consent to $XX.X is still of the and at March expected. consistent we're progress SGA's well the management AUM were client process

with SGA of The of of earnings modest offset costs comparison partially will from financial In overall $XXX to X%, higher expect transactions incorporating for we company's by the continue approximately million terms estimate as SGA, benefit incremental financing the impacts associated the accretion the accretion impacts, loan. margin, adjusted term includes reflecting the EPS additional business. which the size of to their margin to provide in total a the

turn on to detailed capital view more Mike financial Mike? position. I'll over to and provide results Now the our it

Michael Angerthal

prior activity, of $X.X that you, from and $X.X ended assets an the billion long-term George. of primarily under reflects $X.X billion the from a quarter from year $X.X reduction RidgeWorth management. which and change reflects outflows market assets $XX.X on from market net $X.X increase decrease with assets of We outflows dividend prior quarter. billion. the of reflects Thank Good morning, Slide appreciation the other everyone. of of sequential acquisition, billion, depreciation the distributions. The Starting and X.X% billion, of Sequential XX% year decrease billion seven, quarter

March $X.X $X separate four AUM of equity product level $XX accounts, reflected in billion equity be billion assets, fee quarters income, long-term funds, of by to billion billion XX% long-term At continues retail institutional, $XX.X in total and which our assets XX, last Our is diversified billion remained open-end balanced in to in and well of $X.X our of closed-end assets increasing ETFs. the each billion products in between with in with blended type fixed funds, rate. the structured $XX.X in

growth Net end Turning flows on sales billion funds, in due to as launch billion Total ETFs eight, the rate CLO. sequential net were flows. the in XX% from outflows from $X.X quarter institutional. $X.X Slide open and open and $X.X year respect X.X%. offset from an accounts. quarter open of end to and for billion, billion higher combined billion sales of or billion institutional inflows $X.X annualized fund primarily funds the $X.X sales a structured higher were of quarter separate projects, billion, $X.X structured funds, Total retail projects of net for end net With quarter the sales organic in were increased by $X.X or by mutual asset the billion were XX%, $X.X outflows representing more and than prior to the increase

positive Fixed in Fund compared to primarily income sales fund the generate managed quarter. the to has billion flows during in modest The quarter $X.X sales. billion, pullback We as compared were quarter that in levels of and of billion had the a positive bank the in net as billion $X.X billion small-cap to flows sequentially in Domestic Small-Cap $X.X The billion fourth of given by in $X.X market increase the first net billion pleased prior asset class return at of in we strong $X.X quarter $X.X are International We flows of generated strategies continued of funds the equity an loan had net Markets outflows outflows by improvement breakeven follows: this International compared in net quarter. due started was then continued $X.X strong by Opportunities inflows of Positive volatility the net In outflows the Emerging the in quarter. January, with inflows funds were which outflows March, outflows from Fund. with saw in Kayne flows in quarter. Seix were net to the outflows to equity of offset billion February funds fourth in the strategies $X.X of and market to April. result flows.

the The points Kayne's in equity adjusted to points to fourth quarter domestic long-term assets increased assets net nine. points higher management X.X Kayne. products, on open XX.X for the basis XX basis Net of income as the offset as higher a XX.X $XXX products. on in to blended sequentially to fixed primarily was increases points result rate to Turning managed sales low as a XX.X rate basis The the first increased outflows of net due two to end quarter points sequentially The fee with Slide basis positive fee a basis in rate due points management prior XX.X were for XX strategies. fewer of was and equity days yield quarter points blended into to in and fee several higher-average fees assets quarter accounts quarter compared compared fund The by partially XX.X account. due average fee the points basis on very the redemptions. rate. separately first the the in private rate million flows a mix Investment strategies under from fee basis fee quarter rates in managed of the rate fund redemption basis fee a fee flows high of in large of client mutual shift flat

included million that quarter million incentive compensation in we all open-end reflected reflecting eligible costs, as recognized For the awards being of expense quarter higher expenses increased the million trend of employment earlier million of $X.X million XXXK of of plan result expenses. expenses, funds resulting the rate levels made staffing employment primarily a retirement taxes, to and annual believe match, current expense $X.X and sequentially else employees. benefit higher $X.X modeling of shows incremental the timing million in resulting of $X.X is $XX.X The the more XX reasonable, in being adjusted accelerated of equal. year for and timing employment from payments. payroll five seasonally fee $X.X Total Slide modifications, as increased equity purposes,

expenses product, costs were XX% the as of were of percentage as $X adjusted was consistent Other quarter. a of the employment adjusted revenues and reflects transaction the million, agreement. the the other quarter, seasonally or X% a included in $XX.X employment and expenses the which prior of distribution adjusted as The SGA with $X.X million from costs operational trend excluding the with of associated expenses XX%, As timing operating operating prior ratio activities. higher decrease million $X.X million

directors, quarter trend point as second quarter will million annual second out year, In of Slide that grant the results. we the the in our addition, XXXX. independent of include equity $X.X financial each XX totaled to illustrates the

primarily of margin decrease was million, of XX% adjusted as compared in sequentially results, terms to income expenses. prior or In the Operating due non-GAAP XX% a the the year seasonally as quarter. $X.X employment with was XX% adjusted operating million $XX.X higher

an XX% year as in operating and was expenses, quarter the increase XX%, margin seasonal fourth quarter. prior in adjusted those Excluding the XX% from

$X.XX benefit tax Act. Net The effective quarter, the primarily sequentially was effective the from or investments, in method expenses. reflecting The and first the on adjusted, the earnings the $X.X Tax million which and non-GAAP $X.X economic provide prior million from to adjusted, by quarter tax do include while of decreased interest essentially and $X.X quarter equity share Jobs previous prior significant impact company. from rate, the as not CLO as It's XX% with income that seed reflecting adjusted, earnings lower quarter dividends million as adjusted $XX.X note prior also million of per to Cuts of employment a the income by benefited increased was quarters, as to of and the offset the benefit other seasonally from important as flat on higher investments. rate earned they diluted our XX%

Regarding which had effective became only GAAP the on items adoption a January impact the no of financials statement recent first to of income reflect the income. The XXXX. between accounting reclassification new results, net adoption line impact recognition the standard revenue on two standard, X, with quarter

distribution to the asset-based basis expense which relates and and fee and an the the revenues gross row. distribution in now certain Specifically, are costs, other against included reclass operating net services the were a of expenses as presentation row presented on previously distribution in

First charge Jobs per increased and noncash fourth to quarter, in tax quarter which share, $X.XX the included Act. per net GAAP share from from resulting $X.XX income a Tax $X.XX of Cuts the

the debt secured bank that In in will quarter The and million drawn debt acquisition plus March to the million majority investment lowered EBITDA the the our Seix. of in from March tax recycled loan loan $XXX to $X.XX [calculation First ratio. managed of the term increased related there quarter company's $XXX.X back million an or of million to me seed the of Net shares XX $X.X to and March metrics. With of and the a primarily increased In expenses; diluted of the per call rate to and $X.XX outstanding share flexibility due unrealized primarily earnings share terms XX% integration weighted included the of financial the higher X.X%. million $X.X resulted employment count, partially liquidity the of reflecting and GAAP February, we investments of at per times and $XXX following million, fund that or or the time of was interest seasonally share quarter, net products. million points by acquisition that increase of certain within one costs; over for that, existing to LIBOR were XX, method. XXX net product million in items: fluctuate a $X.X per be at we debt to seed share term gains; SGA quarter's refinanced Slide LIBOR $X.XX this investments if] the needs. the XXX in to will company's million interest CLO capital investments shows based converted our on by the was maintenance range $XX.X two our the launched $XXX At George? we $XXX.X distribution targeted which quarter, plus basis million position additional capital points CLO let George. related new covenant. XX removing XX, close. trend turn specific $XXX.X the variable was financial In and average interest basis rate at effective

George Aylward

prepared Thanks, Mike. remarks. That concludes our

Now we'll the Amanda, please? take lines, your open questions. can up you

Operator

of Thank Instructions].Our question Suisse. line Ari of you first [Operator Crédit the is Ghosh from

Your line is open.

Ari Ghosh

Hey good everyone. morning,

George Aylward

Good morning, Ari.

Ari Ghosh

taking is to ago the you the performance XX but of to seems demand Ridgeworth color and were longer for conversion seeing a now? on this months the is Virtus sense Can products why materialize? of business. little and Just macro were appreciate Just on cycle key more us side this institutional it be pricing, are Like to that what give I the on could side little of factors as a more bit like what trying to just your institutional that sort XXXX that impacting right lumpy, the a the get flows of and be a outlook side. a balance

George Aylward

Sure.

and or was pre-Ridgeworth increased been So the last starting having to have we our to trying investing area grow and an out institutional activity. year again, have in we've pleased business two, been that over

were saw the in you quarter, redemptions. this what of partial they terms In

are So the for were high where in illogical closed again accounts. downsize as would reductions the focused and idiosyncratic accounts, really they to to people And the their not had we clear, they allocations strategies, of experiences highlighted both not generally optional in quarter those. which existing yield be related to on it be

we quarter. note So that in did the

for what that terms did two one managers the three I seeing from in see. have funding us really very to In mandates time we are as we in highlight, pleased remember, April, different which for month, of first we we're can

April. while. saying actual then more that activity of personally terms semifinals at finals the funded is bit hopeful you increase into which least over as through in look the of a then what in So seen the an seen perspective, a can recall of to we three year activity, turned business, little that's takes actually last I the time build mandates my we've a to in activity And really you're spoke very and up institutional more a some sign. business sort long increase seeing in and than from we've to, or And that in again, so

building time as two synergies are sort those really capabilities. of and at that least from seen, you additional pleased out terms the of built the of We're that with leveraging we relates that kind at instances they resources growth remember, projections any some we've may pointed the So of still abilities what it if of some But very that about the and never result transaction. for revenue early in are April, flows resources of Ridgeworth, and up. or were about those talking in and in us in or one of to we we of optimistic that we

to very and see So side activity happy that. from were to see our we're as them some new starting for partners either our that some resources of expanded introduced that we actually to

So it's be little I more our a very more heard around finals pipeline sit activity but I again, too early time. giving to seeing us here, for as I'm about going long hearing more clarity in than forward,

Ari Ghosh

small That's it. Got a you Anderson us launched a on just And cap new new quick update XXXX? up. really for follow I fund, Could believe. you then the product believe the helpful. launches Fund, I Kayne recently

is if just this additional year? So the I'm wondering there in for anything pipeline

George Aylward

Sure. market. to always other want And bring we looking that we're to to capabilities see

I sustainable in open-end generating that institutional job funds, Kayne that open-end think the Kayne performance. retail have didn't strong in areas. for terms a we a the for retail in and product intermediaries an reflected our of -- of accounts. great strategy done And is which other in that existed is in incredible flows, example. a not the only product has We're clearly seeing actually fund

separate we've creating something a account for assets on side. really was that So raising success had the already complement in

that. alongside that did we So

In other what launched had of are we you saw terms late UCIT. thoughtfully on the that working we're we year, last ETF that working in and capabilities in products, of terms other

a funds, strategies mutual line mutual primary have. didn't sort our the we lot in of have and that fund of are we one that represented became from of funds So mutual most

ETF product the new look We don't reasonable opportunities side any and launches right now. other have the to to UCIT continue discuss I to on side but see specific

Ari Ghosh

Great. Thank you very much.

George Aylward

Thank you.

Operator

Thank you.

from the Blostein of Alex Goldman question Sachs. next is Our line of

Your line is open.

Alex Blostein

you. of A morning. for good guys, Hey couple questions

flows of get an the SGA seen And the where we What we EBITDA the first assets on where they've closing the are on just kind a so first quarter? on quarter here a stand of will from today. to maybe kind sense away does rate start run just can maybe of update in or help with us refresher deal. So are this as transaction? kind It

George Aylward

control now area so is then working which change a and SGA them. primary of focus Sure, obviously for consents, big and right managing the obviously on is for their assets their focus clients' the of

pointed we down out their now flat. from as was are they of a to So win XX/XX, should you flows. not the focus X.X%. control of right notification, their on where an the is they're midst end they activity related PR so quarter Though Theirs out the of And of in expect really had. was a it unchanged assets AUM announcement really like change put as relates yesterday there our previously lots to a

we will the and as give we of But Mike, to? we're be said, you And more their where when terms want are clarity in we point. think working midyear again, with they're how SGA, will they business. do to close. get they how are as we So midyear closer it pleased incredibly performing, still on

Michael Angerthal

Yes.

top I is that are of as how think, number. will on the that assets, the blended which financial alluded the our pro script, talked basis quarter I line. institutional AUM a we rate reflect indicated terms the think that level a on last billion And accretion contemplating to is use we've of forma full basis, calculated we we for about X% institutional fee of as the points level, $XX.X we billion XX good impact in to the $XX.X In impact,

can get move incremental we're it as closing. refine you continuing impacted and modest the get fact that operating the be and employment benefit items other specific a has we when the reported, line will that sort look margin toward to the on So that at we of to that you you reflect which

this think note, thing is is important I the to a majority other owned situation.

you is term out there in going items the be well remainder, interest of part and impact the interest other reflect our be we business of build this then, impacted partial XXX% each of income the -- don't own, you to the at of closing that will the model so that there. will see so balance results transaction the going minority will will sheet minority So in. should see elements flow And statement loan using finance your for a kind the we're million of of help $XXX of element existing the down to resources you the a on

Alex Blostein

of But doesn't before point a last good the what lot Yes. to way on I sound to from said announcement. guess capital that's like you loan the new a change and the you that guys. maybe talk you broadly about mentioned around for just

of So continue that's income couple than to free even flow, higher adjusted generate a you net million obviously of your cash showing on up highlighted not results. lot of dollars significantly your earnings

bit guess, about here? kind opportunity maybe of as deleveraging little of well after or as there capital through you several set? still return of the guys opportunity Is quarter kind walk strategy we’re first So of do deleveraging, a an the both buyback kind from thinking the us how priority to next deal? I the so closed Is this

George Aylward

mind to returning new to have the we capital of opportunities different obviously either shareholders as perspective in and something is capital the determine in keep and product, of. always is any highest capital now of think leverage sort and balancing to points we of investing at be I very best look individual repurchases terms what is use to our an of we in open mindful terms

there the pull that a loan cash it to our be structured, term of in the in think is pull will bit is will way it mechanism of by a so of does sort what I be. little down terms So leverage, which that

SGA returning first that. of is But point use to not priorities, -- understand that our we other then delevering close at reasonable know, on on the we or something tools, the In the point want time, look are the that continue whatever all to... level you in have same execute fully we time is not as too which, levels terms And little. -- flow given sure consider at much capital at on you a more our make cash we'll is consistently to of we too at a the and shareholders, capital want side, of to of -- used of our leverage we'll priority obviously is Mike, to and a time. do appropriate as something

Michael Angerthal

No.

well. I summarized think you it

to implications our certainly I we the may changes, we're think, be we're requirement go-forward the risk each of issuances. evaluating not the script pleased is the alluded invest a in other of and CLOs around thing retention CLO to that there that alongside

So the a approach a capital now But and all the net capabilities. the well on our positive of that's CLO strength our in given the as maintain I think on focus prudent we'll business debt sheet to paydown. investment balance as and balance return

Alexander Blostein

I much I the Yes. walk that like other the This I it's good the of but How Maybe, CLO side expenses definitely kind sorry, had are through you on -- as think come place year? expense don't for integration sound but outlook. think an the rest missed, if SGA deal and incremental don't just positive don't -- guys heard you on about to guys. obviously I of or of well? related. Mike, the comments thinking operating of the kind with it in expenses comp Just that of anything will you sort for kind I

Michael Angerthal

certainly each two and the quarters the seasonal have we adjusted that as last the of level Yes, elements give on employment items expenses been we to expenses, employment some that of XX% that alluded excluding talked color I level. referenced a about at revenues and two think, the

see you're normalized So appropriate we couple that's starting I an to perspective. think fronts. of adjusted, a And level expenses then on operating as think, other a

we quarters, last take. I XX.X%, or have I think, the XX.X%, few give at think been XX.X%,

seeing to we're adjusted. that XX.X% revenues level that rounds of So as and out

I range still the -- think good about it on million a think last I talked model was that we were absolute around and $XX So levels. basis time it's those to an think appropriate

Alexander Blostein

Thanks a lot. it. Got

Michael Angerthal

just item, a grant well script have modeling for our out think in directors the purposes, that of. you're to the annual seasonal quarters. I other we aware all point did in That's The I equity the second item

Alexander Blostein

Great. We that. Thanks. Yes. got

Michael Angerthal

Thanks, Alex.

Operator

Our line Carrier next of Lynch. from the Michael is BoA of question Merrill

Michael Carrier

Maybe guys. flows. Thank right. fund All first the mutual on

industry. have You pointed the things in guys the some than kind the up you performance -- products. And better of on been holding and some then to

get Just wanted sense. a to

small in think like on strategies update potential side domestic I where the and your mentioned both momentum? there doing any Any cap a capacity and the Maybe the from international you're well. you an seeing constraints. standpoint, the

George Aylward

February the is Because sales, of other level been Sure. a driver. to a of good of having environment the of the month than right. sort We've even pleased and helpful given have level sales

So except and has we're those seeing for every of February sales. that there diversity been month

So as some frequently. of well. out strategies quarters improvements have lot favor like performed seem indicated, which domestic to centric strategies of a and of Mike, asset more in of in go in loans, class Kayne the seen in the particularly equity kind We've alternating

of sort we across seen So several pleased we with managers, products of different it different so and sort several that.

types those have growth of core. so strong, a there in one mid which those or orients small, is terms In very strategies, of them has multiple of two been of so of mid, of some that of Kayne, may terms have successful. lot literally value capacity,

proportion core a up of the some there have that So are like capacity. strategies used

continual the manager closing, closes, allows I platforms we with offered we strategies of for do replenishment. some us other But you funds which of where a allow maintain not given at of sort the our by the relationships big that same know, there accumulated it that in soft has we're of capacity That for within to the of lot capacity is to as we think, are the they've look in of do others of number if terms some still the seeing international close things are and is assets. small-cap their over one one is current a like strategies that assets of sort happy actually unlike the of level newer years. well which issues

Michael Carrier

distribution a we how RidgeWorth from to their -- do strategies. you just get with means SGA? the from But products then more the I of few about entities, think when the you And from Okay. and then, a Virtus legacy kind on when think you That's and different side, and know had of guys standpoint, that add-on opportunity maybe distribution what mentioned it's where the of Virtus you combined you over product that, helpful. some the what obviously, institutional. next maybe, to kind should and think and past SGA years? investment over we new we RidgeWorth and see standpoint Meaning From a Like maybe, years? then these the follow-up SGA, more about for coming prior channels

George Aylward

Sure.

of of and of offer to channels. really well-diversified family to good really their managers investors. new about managers of is hopeful blocks having take which try us boutique to is of in our retail portfolios for expand to we're building the And sort our and those all opportunity institutional So terms sets objective,

was than much our -- in institutional. stronger, we legacy So retail obviously,

that to affiliated So a but managers, lot RidgeWorth the of Virtus made legacy only of about for the of increasing opportunity investments the really and we've have not some adding some managers. brought RidgeWorth from the previous set the resources been in

same sort access. for our same opportunities, slow have built again get the record launched of a right? them, include is to of set managers non-U.S. a funds, few broadening getting opportunity, to very to with and taking market skills, thoughtfully driver buildout track we three-year of their So institutional, UCIT the on the opportunity which several we So starting

portfolio strategy So If growth making can our having a many managers, product good as distinctive available you in natural as it's same nice leveragability differentiated management leverage those channels team, structures markets, the the same in of as capability, and to the it's multiple right? them trajectory. many we just have about managing really

for announced right with So, differentiated of most in very set the the being that have. now have opportunity traditional asset many the capabilities SGA strong we to classes. to And types transaction a the sort we recently of of very transaction, feel distinctive look the managers stable of really maximize continue we we

our So investment -- we capabilities increasing for the feel time good them. channels effort really excited of multiple focusing and spend feel on in about driving we to the about assets good we're each the

Michael Carrier

a Thanks Okay. lot.

George Aylward

you. Thank

Operator

line the of from is Cyprys Morgan question of next Stanley. Our Michael

is Your line open.

Michael Cyprys

Thanks Hi, taking Good question. for morning. my

Just on relationships. hoping potential new new -- you sub-advisory could update us

managers you today sort what of that the have? as you those sense world for Just around interest interest are for you're distribution make conversations and help platform? across do there seeing What What thinking progressing? look here? of out expanding you about looking from How sort your are with how

George Aylward

Sure. Great question.

back previous comments. going So to my

of our capability. have with don't products a affiliated differentiated of instances distinctive the providing institutional objective and set manager So good an where investors, that we really to sub-advisory offer trying to retail do employee we in

and sub-advisors selective [ph] very legal opportunities. with areas for partner specific So we

select a to growth opportunities in that of our see lot managers, market few opportunity to though that we extent we leveraging and managers, Right that we to asset do maybe managers, for or are have, and that existing side, is I to maximizing sub-advisory, look be the there probably would our in say -- something the We So there that What I particularly managers with only is not us would of existing the to of but would propriety. people, part to transaction. more focus is come I think sub-advisory I really an that on is great question, the say, would primary focus that is the less open going we something a through to manager currently do. our at who now, U.S. a sub-advisory that on now, through your continues would right see be but several continue a from non-U.S. a continue is something like sub-advisory. that opportunities there and the who

be now, objective. keep wouldn't say growing for really and our we'll So on right I right the I now, is existing the our sub-advisory, is think our focus greater managers, primary would demand. supply but eyes the open it than But

Michael Cyprys

Thanks for that.

on quick M&A. a Just follow-up

like three curious looks set about Does thoughts that sort looking SGA for and for it up? And you're sort way that you out are close other with How Just updated interested versus in? from coming the market could today? about to Virtus this out transactions? different of transformative? feeling could strategies bolt-ons thinking sense, your more make deal around What smaller the look of of here other some time to five the you put how years

George Aylward

I always long-term growth for our is that I not try mean, we thing think M&A. plan is say one Sure, dependent to upon

we need long-term to haven't business continually our the been that build So expand and on way. do strategy M&A premise the that

on not strength great. that our that the great organically distribution And So are will the we've focus maximizing on opportunity be think capabilities only currently certain of investment we think, side side, set on of a I what I have.

what prior the to of the that the created terms long-term to that, opportunity, is liftout But And with our multi-boutique. we things that ETF growth really it that the when capital in right that that, is transaction, the three focusing something our added for we solutions do. if Rampart from will it seen RidgeWorth and of like. always in for of transaction So distribution it be will to will Newfleet in us do sense do resources. the see prior makes thing you've the right we it SGA arsenal sort just the of core be that we're transaction But is that's only and with and structurally, us looking strategy thing the as affiliates to transaction,

five as absolutely, it. capability, forward, opportunities necessary the that would company. would we something our existing of was but component is that there So transformational years, made we'd what if from certainly or we three us, But go don't to sense our more consider as successfully product a like or managers, being goal for is being view say I to maximize something in be growing that

Michael Cyprys

Got here. it. A quick follow-up

focus side on your comments more that organic flows. growth given you focused on and Just the

at again, been look and outflows flows, in we this your for quarter. it's years As four then,

on meaningfully equation inflect be articulating? What of you're just what need side needs organic you do to to what Just the achieve do, the to growth you to done? think,

George Aylward

Sure, yes.

you is over things. different a As period of that of mix there go time,

So, a there way. years in which were totally at the reversed sub-advisor, portfolio yes, to related prior gone outflows change some have and other now management obviously

have of we of increasing breakeven active the flows which management markets. you has are in So of sort that aware, an been some struggled as environment, in around hovering

accounts, in positive we I think gone quarter, side positive. been highlighted in open-end of last are positive, intermediary we've funds separate quarters. the flows So retail again, are the ETFs have and first And out this over mutual few positive,

been So right there. we've around hovering

flows our -- product absolutely positive -- terms either as feel deal relates I I now, is active is in have that right or been where like each to we active all passive in category it So right classes. hovering then of has right has with of reality managers, been cost. and around the think pretty individual net around good that demand of to asset But and

relative I positioned. So feel pretty we're basis well on a --

Michael Cyprys

question. my taking for Thanks Great.

Operator

Thank you.

next Our Sandler Andrew line of question the Disdier from O'Neill. of is

line Your is open.

Andrew Disdier

morning Hey, everyone.

you on breakouts and the the can wondering outflows with So, with quarters. fee institutional during yield between two, first us one, rates was options products. provide the then the I outflows if and the high associated

point got are rate. Newfleet. And of and Seix number options I between XX then, products overlay I about know the think fee we high-yield there basis with

would help? there just little clarity So

Michael Angerthal

Yes.

you rate overall outflows. reported appropriate fee think terms is would of in blended generally assume I the that The I to XX. the the right have option intuition we strategy, right. net be the But think around

Andrew Disdier

but billion -- that of see strategy the $XX.X And from and [focusing their mode, know at I then, being outlfow I SGA] And flagship net we're their a net perspective, redemptions fermented you on of equity flow from Okay. mode. what of can seeing with inflow from consistent the AUM. pulled least update U.S. products you in got guess, all large-cap

any but the you be mandates comment So of numbers? was three the alluded flow wondering some aggregating sure unfunded flow impact to trends? And the if clarify from million to not, or it could if would to the you of into on not $XXX able you George, then,

George Aylward

they're Their executing managing their change SGA a is For and sort on existing focus busy communication is obviously, assets. speaking very potential primary about. period with that control of the we're clients. in And indicated three-month a clients of

opportunity over period. focused during period So of on any the expectation a want We're obviously, helpful to be set period control be change they on Mike, pretty and are generally, in terms market we to doing opposed Again, not or get going going them that, small to gave behind think really of? to as they're the give as again, companies Again, in having But specifics to change And would like good continue transaction outflow. We is are to of focus new win I AUM I they and in what continue very business. try terms them, any will their strong the inflow place. anything closed. in business. the new the that feel be

Michael Angerthal

No.

to alluded it on was question, we mandate the that earlier? April Your

Andrew Disdier

purchase quarter mandates, was the SGA, XXXX? but or so $XXX any first three of million yet looks between Virtus to that were into hit it the not In agreement like funded No. by going of was just I if wondering million, won not were million, $XXX woven $XXX and have that have hit during SGA there those

Michael Angerthal

$XX.X mandates agreement Yes, talking that XX, will -- at was about goes that to back to of back be signed, we're the some the in would September those dates time the kind that which numbers so of the that incorporate billion.

Andrew Disdier

Got it. it. Got

one if place the March. Saw in then Okay. mind. caps in -- put were don't you one, And last there of some expense some that

a firm industry level. or level at question multi-part an it whether and a also here So at would

see I So be T&A filings, and exactly one, [ph]. a the like we'll are client TA expense that distribution, seems sales charges – it an through of still incur, or would the expense fee whether as the where unclear but it reimbursements, could went waivers some it's admin, to

that wondering it'd and And really industry-wide caps then, Virtus think at the be do impact there. two, or level? be whether you ever just So these can a multi-affiliate lifted,

George Aylward

Yes.

So charges. where partners And think expense made increase intermediary sort Most caps the in would we there you brought not tweaks focus we distribute expense and so the to the the or right? ratios periods we cap, their caps. on continuously evaluate noted, of sales of of if So, are expense about sales times as are our the I marketability. down you competitiveness them. and through, NAV funds our all on the are -- I focus of that multiple would to there

issued tiny retirement a We've lot on of Sometimes done in funds terms newly channel. the RXs. it's like

set as make impact as been RX, we no assets. In doesn't competitiveness of really are terms for the be. competitive our really increasing of could future done more we there opportunity our sure to the growth It's are P&L because

made We our we can competitive funds we some we as in want some be. have as make fixed where changes sure, are that to of previously

right? As that a shop, where a fee look we smaller of don't management rate cap fund can lot the really our away. expense we so competitors. income is continuously that. you its the have sort ultimately I've raised under reduction cap, funds see we're than expenses, grows is don't if see out see scale its a And in the performance rate the at But we you'll it have ratio. all So net pleased better same the in then cap it home, the cover never when up we And goes the admin reimbursement, of of you That's take in the your its because you of the of you're something not expenses, you something a grows the but line. fund, if it and own what about question expense of reducing -- show run ratio won't you you're then you that the total and seen and fund they caps down bringing fee. cap below and TA in but If the that industry, net

cap, not expenses. sustain pickup a assets see growing level So do helpful? the you that of but above actually the fund the Is by the to by increasing

Andrew Disdier

for the question. Absolutely. Thanks Yes. taking

George Aylward

You're welcome.

Operator

Thank the line Jefferies. our of of Surinder next is you. Thind And question from

open. is line Your

Surinder Thind

the positive currently it sounds capital for of CLO, you if you how much could Meaning the on your it that, future also it's like on is the would But requirements. an impact have potentially redeem follow-up our quick a and Obviously, CLOs? so, have, up? that current issuance. regulatory A capital locked

George Aylward

indicated issued, warehouse that indicated that's absolutely, to Mike on sort I of sensing implications products guideline, only but I its think that and one the for And aspects clients, themselves But change because some CLOs. and the is that it legal requirements. client not in does Technically, U.S. be is But or the important again, phase. as investing the for us they of retention sometimes One, next remember was I yes. the expectations, risk the why investments. aligning which adviser we're sort see in there's also to is two like it's there through of

simple changes very cause we goes So sure Clients to as them that products. making the believe risk our make it's want. in don't that not don't we us can retention do people important believe away, would as once to in whatever they are

want comm add? more anything you to there'll Mike, So be on that.

Michael Angerthal

I think, alluded George, to it well. Yes,

do you then go-forward consideration EU the have the place as transactions in vehicle, we retention were transactions through we extent take the and executed who risk The evaluating the rules for are would EU There a compliant. And are are some to have will risk are other as we that implications that But around that change. to there to know, consideration, mindful the existing risk issuances that remain into that. well portfolios extent. investors are. and rules retention clients the retention as be of as We

George Aylward

And it's definitely a plus.

be So we positively. definitely there

Surinder Thind

what maybe, more total If a was then, remind the blended Post modeling importantly, transaction, you the look like? here. perhaps what just us can there, should debt Understood. actually SGA And load? rate question maybe the quick

Michael Angerthal

be $XXX an We'll undertaking financing. incremental million of

we bit, rate million refinancing in or rate in February use the interest first as lower as effective XXX million an keeping quarter a $XXX eye $XXX to plus it a on $XXX just the was but million. us get go-forward We rate plus and guess, million. $XXX to on will a the with good up So basis. to the tick [ph] did in We've interest LIBOR the I That's million think, seen I sided of, LIBOR LIBOR. $XXX $XXX million, quarter on

George Aylward

down in And of bring debt. mechanisms place the that terms the that Mike, in are will

Michael Angerthal

Yes. the debt flow a talked sweep about And around bit little we excess payments. cash

XXXX assessment to in debt be would would cash that down requirement EBITDA first pay quarter debt. the would first based XXXX paydown of of bank requirement The the be levels on an flow and go

as required agreement. by rest as through we step So we'll of be financing XXXX the that the focused of kind on

Surinder Thind

And just if optimize the obviously, to. a versus with could doing you that you in based can something number correction repurchases capital up market open if there guys – needed Does do that, It management But share things market you of get then, versus following in needed up that or all the up Obviously, would of was on And that relever paydown? to? guys could sense in evaluate. trying Understood. like be the like options do a correction why if options now, that there's to not environment. debt with seems not questions. aggressive more M&A aggressive sorts be market and necessarily current the just on a you other table you just more on there more

Michael Angerthal

are. I We do definitely a open fair that we think competing And building to that for agree mind an maintain product, demands on Again, lot something is returning out always have we it's say, Yes that on that's make capital. flexibility responsive could responsive being we new sense. where try comment. of we absolutely of given capital a why being

going don't but give saying, I what So right of disagree now. we're terms in any you're where specifics with going not to we're

Surinder Thind

guys organic have focus. more that sense want to with lot as to model. and get the that there's order. the challenge the that the a And with much it the perhaps do out -- mentioned growth, headwinds Does there's that there, other if had not industry Okay. model but growth to make given there question. Obviously, you then, you you invest and managers not is of of relatively is M&A a have be unique M&A? a that guys boutiques, has primary fact organic switch the the to lot industry Obviously, is with not related the aggressive out why you can But

George Aylward

is and said mean, we you did I mean, I surprised I some SGA. that were wouldn't interpret that's definitely people wouldn't. to fair, Yes. we I want what

perfect to absolutely for those are there. high-conviction found for is and literally after manager an SGA and that soon opportunities capability. a consideration equity closing us. any That differentiated, was a So participate out give on with we perfect global We fit where example incredibly want look to we RidgeWorth,

view need talking look we opportunity, the term as we saying a it So to you're we Newfleet that was grow. But we'll be we're Ceredex, we those bit list there in a it. don't in are absolutely is SGA, not that. and quite those is great that in went of Have of where If about capabilities successful I long What because can Rampart, trying we're to have wouldn't to we along, whether instances certainly been at Seix, keep where certainly Silvant, I we've it. the to many our that the open communicate thing an as comes again, we always launch, open -- is And through consider opportunity. ETF, done will the that. right so

Surinder Thind

Thank you.

George Aylward

you. Okay. Thank

Operator

This to the back Mr. session. our to Aylward. question-and-answer conference over you. like concludes would Thank I turn

George Aylward

other encourage you we So, forward today us and speaking to Thanks, any I with look everyone, for call. everyone. next to questions want the you in have you joining to us thank, certainly if call and

Operator

teleconference. today's you This concludes Thank participating. for

You may now disconnect.

Virtus Investment Partners (VRTS) 28 Apr 182018 Q1 Earnings call transcript