VRTS - Earnings call transcript Q1 2022 | Virtus Investment Partners, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning. My name is Cherry, and I’ll 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. This call is being recorded and will be available for replay on the Virtus website. participants a all mode. time, this are listen-only in At will – question-and-answer at After presentation there that be follow the speakers’ will remarks, a instructions period time. and to will host, I the conference turn Sean now Rourke. your

Sean Rourke

I’d and morning, good of the behalf Investment you and you, for like our the everyone. welcome operating Thank to of XXXX. results of On Virtus Partners, financial discussion Quarter to First

George Angerthal, are today Aylward, Chief Officer. speakers CEO; Mike President Our and Financial and

will have a Following the prepared period. remarks, we Q&A

those in Page on may disclosures of the forth within note XXXX and cause known from news please begin, discussed release such subject SEC factors our actual discussed Securities today’s call we presentation. and slide materially those and this and the Private are the matters of risks to limited contain X in Certain Reform set the results uncertainties, Before unknown the in uncertainties statements Act discussed and These Litigation including, filings. as statements. meaning risks on of but differ may to to, not forward-looking

results addition basis, non-GAAP certain use our a to on evaluate In we measures financial GAAP results. presented to

Reconciliations in substitutes with non-GAAP be on website. news today’s measures supplement, should are financial the financial measures, which read applicable non-GAAP these Our available results our are financial GAAP and GAAP for included in financial not are results. the of measures conjunction GAAP release and

I’d call Now, George? to the like to turn George. over

George Aylward

provide with detail. everyone. start today results morning, an Good then reported Sean. I’ll and more of you, will overview earlier Thank we Mike the

– recent year quarter operating product in AllianzGI, full we return and including prior our from is Capital and differentiated net enhanced transactions, environment in institutional, note added compared Stone income strategic capabilities and and significantly funds Harbor. sales earnings performance higher institutional, and challenging to did in XX also flows shareholders. either increased in categories, were Stone with were while positive share the accretive. per This positive retail managed period increased scale and adjusted our top of include first with capital separate included collectively funds the accounts as also in also I as growth quarter the contributions that the the Westchester operating strong continued meaningful complimentary to funds and context AGI, flows market strategies Our investment that quarter our Westchester outflows three first have open-end net the would financial strong each of net quarter distribution and while financially and all nine being by or of Harbor

For our most recent transaction integration Stone and is proceeding well. expected Harbor, the as going

had particularly previously global We are good presence. integrating we augment and including distribution, our non-U.S. in distribution affiliates, which areas existing progress where opportunities Stone for Harbor’s resources our all making will enhance limited

Harbor’s integrating We are affiliates. platform, operating other end-to-end our be which also progress making will to also Stone available

of in to of billion. most investor level. and investment of market distribution and effectiveness environments that market as with range in increases momentum The inflows review particularly up to outflows reach X% the billion these billion AUM second performance reaching sales this strategies and quarter Harbor the The fund now shift. X. under from the level sales in $XXX.X momentum type investors grew results. market significant to management continued mostly Turning capabilities our billion to attractive $X.X and Total highest addition strategies with of quarter January declining their after institutional net preferences $X.X appeal and by despite their on market sequentially due last offset Stone of volatility highest reflects of meaningfully vary quarterly open-end Sales from $XX.X the assets can

generate some oriented the to organic institutional Retail mandates driven while net had flows by higher higher flows accounts we for institutional Fund growth accounts investor in significant by were positive flows, by outflows including net new net generated consecutive net continued reflecting separate subsequent and and existing positive to redemptions flows. XXth outflows past and funds net Non-U.S. open-end retail resources behavior with For six contributed sequentially Stone continued and to addition there more pronounced the rate. product, at market, alternatives quarter consecutive were separate for impacted volatile flows the with strategies, years. and a positive net January equity a the in were equity. improvement with positive mandates though, in bank Fund Institutional and meaningfully were outflows thereafter. SMID notable investments over strength particularly cap in more X% in loans, mandate. growth including areas traction distribution our strong net both affiliates several multiple quarter Harbor a accounts, flows from of a

of to continue flow strength sales In fund fund market and open-end open-end as well terms the we’re of quarter inflows what remain loans include as in as trends alternatives. does the April seeing consistent areas first volatility bank with

it seen. of of we institutional, in pipeline current and terms have strongest In challenged. early the business Though, is the is quarter our potential markets remain

sequential primarily impact items. was Our our more that decline well challenging the as results in those began financial from in and seasonally employment result operating first as higher markets of margin the expenses. normal, January, income quarter reflected The

the suggested decline to average increased Looking higher more adjusted increased from as as income employment the revenue including the XX% the quarter operating EPS expenses. seasonal the assets, growth XX% The reflecting decline sequential over first the Earnings year-over-year transactions. three at XXXX share of $X.XX. driven reflected per benefit comparable in period, and revenue of market

increased Turning from settled a quarter or $XX settled is of $XX reflective million additional the we $XX second we raised warrant. which of million returned provides prior now return to different prioritize in in This double in $XX to stock which balanced to shareholders year, level last total approach million of return Including quarter increase capital and circumstances million our the first that half management we our than capital. buybacks million first is in $XX of quarter, period. elements for $XX to to of in as net during repurchased the the capital the dividend, last year. million flexibility of We the to net more

Our position net utilization as turn call participation timing the remains annual revenue and of $XX ended strong. sheet that, also incentives to Mike? represents Mike. over modest With quarter balance given cash with first debt I’ll highest the million quarter of We transaction quarter the included payment. the and our quarter of the

Mike Angerthal

$XXX.X Starting XX. reflected The net by management. management from X% $X the under addition assets of of billion $X.X George. you, market at sequential everyone. under with Thank Harbor. decline our offset the March morning, were billion XX, billion December on which change Stone were At largely assets billion, X down of from assets Good Slide outflows, results and $XXX.X

accounts of year AUM the XX% Fixed to represented XX% period. Assets ago. funds XX% assets our separate continue to be XX% assets, from year and income X% U.S. grew With XX% respectively alternative by assets retail representing of The strategic prior in diversified XX% and institutional a and asset furthered transactions retail product down up have recent X% Equity from XX%. type. class. by diversification and

were strategies. five funds. We across five a rated same had funds We investment three, four fund rated to and performance or had with approximately more four XX% continued of assets stars strong or AUM as set level stars. ago, diverse star five March representing in XX% billion $X XX At that four five strategies relative different generate or The year from managers. of XX, were of or a

XX% were of assets beating their over exceeding March a performance and fund groups median as were addition and assets XX% institutional of separate institutional retail performance peer XX, outperforming strong basis. separate benchmarks In their to account Also years. the of on assets, account their on of assets institutional five-year XX% retail of three-year assets of benchmarks And same the XX% basis. were of five XX%

Institutional for X, flows. account an up again, benefiting in billion higher were billion, markets were cap up emerging billion, from Slide into down positive strategies. XX% by from debt sales fourth open-end core billion outflows the XX% inflows in Institutional were classes, to $X.X and affiliates the driven across Total alternatives $X rate billion mandates inflows quarter, were to $X.X of increased from billion asset flows separate XXX% and were annualized $X.X new In X% both accounts, $X.X sales sales as accounts to well fund from increased were product and sales were due billion growth sequentially loan more sales reviewing sales funds including billion, By than strong were Bank asset separate $X.X as SMID particularly quarter. flows positive up a in with of fund across $X billion. $X most existing net separate XX%. Retail mandates consecutive as contribution. X%. benefiting $X.X ones. positive net of organic retail domestic at sixth institutional product. outflows Overall retail by net net by offset by Turning multiple

trends, open-end convertibles billion in net equity, bank positive as particularly $X.X outflows while with growth outflows net with funds well consistent alternative For net generated as funds, were loans equity, inflows. industry in and

points billion performance. quarter in management higher well declined Harbor average average Stone the to Stone to assets lower fee two addition equity down as fewer market of $XXX.X The AUM, X.X institutional of rate to basis increased assets The was Harbor $XXX.X basis to assets average of or the lower billion proportion institutional due rate fee partially due assets. offset $X.X adjusted X% Investment rate AUM million largely XX.X X. $X.X as lower fees the for of by a Slide due Stone sequentially, higher to days, a to sequentially. reflecting points January. assets Turning addition reflected fee and the the Average million due as Harbor’s

from Performance the of decreased prior level these of billion million. by $X assets, relatively in $X.X excluding market average However, net million were outflows. due quarter fees $X.X AUM depreciation approximately the unchanged and to quarter

points for with adjusted employment of the ahead eligible made trend $X.X expense accelerated incremental of basis million range the of products, low incentives, expenses. quarter stock to XX the in of to season continue based and result of at employees. payroll million all Looking benefits compensation the XX $XXX.X end XX retirement believe to of as reflecting Total annual quarter to shows five Slide expenses sequentially, taxes, including a employment second reasonable we primarily XX% increased grants is equity range. as related the the timing items

items, sequentially. employment essentially expenses flat seasonal the Excluding were

XX.X%, percent a were expenses driven excluding The seasonal market sequential reflected increase revenue the revenues, items of they the As declines. seasonal items, employment but XX.X%. excluding were

XX% and markets sales. believe on Looking employment XX% reasonable forward, adjusted to expenses of variability be revenues, a would based to for range as we subject

of the a would second be we the or For the absent end markets, range. quarter, the in notable high at above improvement

as million a Slide expenses to million Harbor sequential up of from $XX.X operating $X.X of basis reflected addition XX, for million. Turning of XX% Stone other and increase operating $X.X on were adjusted costs the million discrete sequential initiative expenses. and technology resources business operating The comprehensive $XX.X be enhancements from enhancements, valuable across to expenses and platform multiyear that of previously Stone Harbor leveraged include and our planned investment which affiliates. initiatives our a global eliminate each risk can distribution in incremental The will

expect entertainment a operating travel activities. would level we of reflecting a and With range this quarter. forward, per million Looking $XX $XX more in to expenses normalized range, million other of

operating employment business, adjusted of For as illustrates operating of modeling to the in operating other quarter. with the occur in second sequentially annual adjusted Board income revenues year including XX% million our in accretive that adjusted $XX.X as the trend declined prior mind of in the XX expenses. the The XX.X% grants million to equity margin due Slide $XX.X lower quarter, strategic and purposes, Compared and compared Operating earnings. quarter. increased XX.X% with and due transactions. or keep XX% income growth Directors higher as fourth

last diluted year. the expenses, Excluding items, revenue. quarter sequentially of first $XX.XX fourth $X.XX operating compared the XX% and due the with margin to which net was adjusted Net in of quarter down seasonal $X.XX seasonal income as share, lower employment in per of $X.XX included

for of Regarding of XX reflecting value sheet $XXX the integration and included following and decreased million acquisition fourth reduction and payment Cash shareholders, down Working sequentially per items. the $X.XX from March the was unrealized net per capital by to income to as payment quarter $XXX generated more share capital the closing Slide included in revenue AllianzGI as in the results, million the the increase Harbor. annual million capital balance closing return from quarter our GAAP XX. as of by share of in was the the $X.XX of minority million losses $X.XX liability. the in equivalence participation capital and items; than cash $XXX declined as $X.XX Stone utilization and the and costs; investments; payments. on $X.XX liquidity the return realized business trend of fair XX, as sequentially well $XXX at and well incentives and Harbor from select million December Stone interest offset shows of $XX Cash of at

represents As a year. as down times prior at reminder, lower We the quarter low but X.X level. first debt same the million XX, in quarter EBITDA $XX gross Net at At X.X year generated of X.X seasonal March first sequentially items AUM, cash point the the March million to and from was XXXX. typically the times down to the or XX% XX, due EBITDA. up and $XXX EBITDA level March times, our from debt of December XX was XX employment during

first the million $XX common of net million quarter we satisfy XXX,XXX level employee quarter, settled to obligations. shares stock Above the and tax XX,XXX $XX million. During of shares repurchased for an $XX.X prior additional for

have outstanding shares reduced X.X%. the year, by been past Over total

quarter, they Looking over With ahead with the George. the let capital call management, be to back a share to turn given to me repurchases will levels. were continue the first trading priority that, respect in George? recent stocks as

George Aylward

Mike. you, Thank

lines open we’ll So everyone’s take Cherry, now up would questions. you the please?

Operator

Your [Operator the Sumeet of Mody in comes Piper first from Sandler. Instructions] question line

now open. Your line is

Sumeet Mody

Hey, thanks. Good guys. morning

quarter the of both. for good see on start inflows it’s to to and wanted another businesses, institutional Just SMA

there what you should wondering be maybe of kind – to against client what then Just today, those frame how could help products contrast with seeing that demand think what dynamics if us you’re for you’re retail. we the the And thinking that maybe as inflows. particular think performance such from driver for kind of mostly market or you a Is outside demand major it any about that based kind reverse allow out? environment of could consistent

George Aylward

within it’s positive an not great of actually be could institutional, for those but separates. retail and is same there that because either retail net side, behavior open-end to on have on different be strategy a Sure. open-end very So question, actually a negative the separates for It’s funds, right? three categories even unusual strategies, us institutional

because lot some component usually they behavioral have times different and the open-end the whereas institutional of a the institutional fund, upon allocation of So and versus of based can in being extreme patterns, favor. behave including the more drivers of activity, favor a out the in term differently building they’re asset portfolio longer what’s and what’s

see sometimes an On a strategy. the we’ll use on exit institutional much side, as the side, out of entry where you appetite for people more of a an favor as same see markets, point, lot behave the a of whereas is very to retail point times strategy

opportunities We’ve for many The resources, institutional about invested you and of institutional, So an bit, our three to talked pieces. going as think through we as we’ve the of I people, we’ve us. side, area introduce affiliates particularly that years, focus tried a was the hired it the over there. a the to a highlighted transaction many because the lot few we know one we’ve last the of at for institutional have because truly as resources. haven’t had of We great us, and non-U.S. affiliates more Stone highlighted benefits the previously expanded from then And over Harbor looked even our the the was channel particularly opportunity non-U.S. years.

Mike you’ve within to I or some reference at may several year over to again, our non-U.S. affiliates commented it, So which, about highest we’re strongest. excited which sales, speak and really multiple the as the in mandates included business, made And that of two, portion last heard a us strengthen commented our hit non-U.S. is second is April, I we which pipeline that of think in outlook about. piece, the continued institutional, level for where our

potential some pipeline the we but terms the still size as lot have strength the well the of seen in of of in see as the quarter, We of early diversity, mandate. a

So But vein that’s the retail really us. will it’s sometimes sign fall might – behave accounts, still or period the as the generally, what a average will different same to average than as of trading activity, term used is longer with for positive portfolios The for significantly SMA. don’t holding be going So funds. those an period holding open-end the separate of parts less in sort open-end for are but retail what redeem, fund know right? again, an

So you can on again, separate. strength see, retail the

XX So driven investor we will we’ve of opportunities. that quarters, continued a be as really know to grow it in for looking and demand what by those for they’re their lot

if separate see people table included attractive Kayne our a the retail accounts our worth certain those client reminder, our has the private two will in point. business So remind strategies, just and net be, Anderson side. take of at client all there entry as on off a high are who intermediary some private money – looking one an sold, lastly, to also the And but hope would of are business that wonderful as channels, others at affiliate Rudnick

Sumeet Mody

was Great, thanks. George. helpful, really That

discount back sheet you should balance trade environment you and like the elevated as to we such assumption peer this? about today. How think the Just turning for the of level forward, the comfortable have always buying generation seen down, draw capabilities of cash improved I first strategy all the mean, guys I know April, But allocation quarter end course despite about flow are to that you going kind in deep decent capacity, that over kind of environments buybacks, Is the the capital guys the are capital in of the talk primary group? the at we’ve this going appetite strategy. market a given forward. a balanced quarterly

George Aylward

news good right still balanced and strong have I I do we have we commented, high balance flow and cash a have now, mean, is approach. we as good a a again, margin. The Yes. sheet

we do So flexibility multiple the have things. to

is first it we buybacks. had robust even saw our that settlement, particularly within of and of amount. the utilization, our though and As And what highlighted a sort indicated quarter, cash that fact quite was quarter the we flexible approach increased in a stock our we given highest

and So very indicated the I kind also of at of well. And our again, of sort highlighted as flexible is, look use think we feel Mike highest that what as as comfortable. as capital I best

is given We balance do in. flow, cash, good particularly sheet, to around with our strong stock cash have views a absolutely that very our will and where what factor trading

Sumeet Mody

here distribution effort, One the is Thanks just you much continue on, the on can from you to scale sales us, much about franchise sales guys distribution structure is much. How the long-term so kind more you specialist of centralized? of how of as kind that the just the the structure you me around centralization you make side? And of remind how of have of the do for does strategy sense not guys. any effort? Or full kind that think

George Aylward

break that a particularly one does in Well, classes. point it service, pieces, I right? So collection access as space intermediary or of asset into retail a distributor to specialize side, different the Virtus the who on is different centralized right? retail off So space managers the two effectively in retail, shared very

individual on coordinated talk is force, about team hand works national side, that one you hand of ETF in one as well as affiliates. on whether the our the So accounts side, through each our with done generally that our retirement sales

value as been proposition is there. that we point So use successful one. think I is one our to very effective model And very different access an the that. with that we’ve And really managers

a affiliates. direct them where do their of make our areas side, of institutional array sense may do lot with business we have in we’ve the not invest driven it to available areas in want the that before, affiliates, something. can is individual really individual – in commented affiliate Because to in support clients the we the is an resources efforts. do most, personally those that contact On where different, our that where affiliate And to an

example we market where non-U.S. in So multiple our that, sales is to talented the a of perfect of sell non-U.S. can distribution available professionals make strategies.

sales, much coordinated more whereas of affiliates. is more from service that specialists affiliate kind hybrid and retail our entirely institutional of the highly driven a So through is leveraging and done an of each the much shared of a

Sumeet Mody

my Thanks George. Got so it. Thanks taking for questions. much,

George Aylward

No, thank you.

Operator

comes Morgan question the from Michael next Your Cyprys Stanley. of from line

Your line now open. is

Michael Cyprys

Great. Thank you. Good morning.

George Aylward

morning. Good

Michael Cyprys

of strategies some or on which talk of in and us, broader and and the that SMA part intermediary can also SMA about could SMA the you distribution place for have platforms? onto getting remind affiliates affiliates maybe just more the platform? available strategies the initiatives you And on Just you onto some the the business, you of the then that currently have some initiatives of around platform those getting largest

George Aylward

Sure.

accounts the retail So separate largest. Kayne is Anderson Rudnick on

records a to make of in also And available. our records times is to uses as space We the strategies available see to lot seed the space. income fixed in ultimately our one doing is which to balance of what trying you space. seeding track on track the sheet in of do incubate have lot value be ultimately as we’ll introduce capital, make time retail of well available a the We spend

So to ones or been for the seeing I strategies particular, track we we’re building Kayne gathering and – actually them today to four strategies, seeded then couple by ago. able that the in where a of year are record, a of lot years the the last bring market. three strategies probably we’ve assets

continue see a we one. So the retail account opportunity as good separate to

as is continue in there attractive before separate account look really what an some fit to they’re of versus for space sort and well that a tailored But way strategies expand a We us. continue because the indicated that to see for to differences to into as area individual many and fund managed clients. that are of as works retail

Michael Cyprys

us, and sort Can month-to-date? market remind you can year-to-date model? us down a flexes guys revenue of believe mostly remind and you then just in And a that what seeing how you just have like I operates Great. we’re share

George Aylward

share incent our of bottom That the Virtus model, the operating have the to income. profit to We really to a Sure. actually alignment designed what in to everyone they So affiliates line, bring is right? the so our is is which based that generate profit interest profit shareholders.

of that’s model time. difficult So how we run margin managing to everyone and a terms facilitate through we a it in And it. good think managing does good

profit our that based. incentives affiliated So are all

Michael Cyprys

bringing mention And buyback being of one off debt table priority. you capital anything just How terms Great. for in heard the that didn’t are the clearly a pay maybe something you last that at now? around well I from thinking also that? management, the Is the some M&A guys I hear on down. about executed and then you back Maybe And against on that forefront point. the over in have years. spoken past about have

Just curious or flavor the and may kind a give delaying how sort the bit of where about. is market is what a in accelerating of be things for seeing you color current priority us potential today on that your any marketplace you’re of thinking little volatility today. Maybe of stack maybe could you

George Aylward

Sure.

and because our strong on very we comfortable cycle. – feel is We again, side, sheet capital do different have that our points cash balance so flexibility is prioritize do things things. I’ll we So different the at because strong, in the multiple the flow

stock stock is evaluating down trading we that to will alternatives how believe So influenced paying again its in buying between back actual evaluation. by be relative debt our or

debt rush pay given again, to in se. don’t we’re per the down a So I current Mike, environment, know,

even look to have years, growth continues M&A, active the right very active. multiple Again, probably When prominent. M&A, over noted, I M&A I continuing at think we environment you be though been as we stock not the would opportunities. our incredibly slightly to we’re go need to strategy, prices more fundamentally our want the to now

think has I opportunities the increased. level general of those

things. of market In it’s impact want on to put market something I prolonged it markets. will of more or make in might interesting, think advance do hold volatility two faster because the something forward down volatility, might terms of It move

things very net continue that will considered. been I the that looked of of we’ve we’ve continue think net, and on. at very terms in So that And there’s think I still to amount active,

Michael Cyprys

I there the returns the that looking one suggested of around of speak with at? those M&A you’re what just of uncorrelated Are the you you potentially types had international in distribution. just past could I if in that the in on one Any would on front, terms interested and you’re additional list? the others things product in still And areas of and top prioritizing think flag

George Aylward

No, Sure. you think right. I hit it,

generally very good we we in across on emerging necessarily less the of other right. only So one have have coverage areas is strategies, particular but and we great The long have affiliates. alternatives like market that been which correlated asset traditional types with again, debt, didn’t strategies, in have, focusing specialized classes included

thing. volatile. the was type the less something that So a events market Westchester perfect example of of the We wanted markets more in to that the had correlation became

that we Now, the attractive. it would pleased that first as very strategies of quarter, time at those you see in we’re did that period because are be kinds the

are fit things to may sometimes looking institutional that products. our we’ve again, will always for Things continue it have equity look traditional spend And distribution particularly a we’ll footprints we interested very may at for conclude a that strategic that side. rationale. correlated the will we and money and be then we’re in us, in long we what to non-U.S. not fixed less good mean not expand disciplined ultimately things the So and is things income for do, been on do we’ll I some feel, anything. which

growth. the So the we that future out build sort continued very for we things ability do, I will be be what have about think of some but will it foundations strategic to

Michael Cyprys

my Great. Thanks questions. for taking

Operator

time. like to questions are Mr. This There would at Q&A over Aylward. back concludes no to session. our this I conference turn the

George Aylward

Right. Great.

further you everyone want your reach out us if rest of to for joining and I to we encourage thank today you always, Enjoy As questions. any the certainly day. have other

Operator

concludes you all today’s participation. That Thank your for call.

now disconnect. You may

Virtus Investment Partners (VRTS) 29 Apr 222022 Q1 Earnings call transcript