Earnings call transcript Q1 2023

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Operator

Good morning, my name is Michelle 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 at www.virtus.com. This call is being recorded and will be available for replay on the Virtus website. [Operator Instructions]

the to turn Rourke. host, now will conference your over Sean I

Sean Rourke

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

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

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

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

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

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

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

George Aylward

flows over redemptions to a before and highlights it I'll our quarter with separate quarter-end. a Key performance product well-positioned fund margin from at sheet overview across an solid first net a modest increase seasonal our turning results we in strong with balance sales Mike a more in improvement today reported morning investment positive continue leverage equity and start and strategies, items ETFs, sequential net excluding operating have improvement flows retail, Thank included in you, and earlier everyone. lower accounts of in types, the good Sean of the to open-end of we meaningful detail. to provide

our investment closed AlphaSimplex on and broad non-correlated across offer preferences. advances changes alternative capabilities appeal investor further our the quarter that can a and acquisition we to April of cycles Xst, through offerings in and clients After of array strategy on diversifies which expands market our

and results. billion Turning to outflows. fixed-income sales $X sales management a a institutional sales due included due $XXX under lower [ph] the market the review Retail and CLO lower at offset led with net unchanged declined a by to were Total Retail appreciation, increased to offset billion, by assets separate alternatives. funding equities. sequentially now equity prior billion X% SMID in partially $X.X to Sales increase meaningful sales client XX% which to account fund by issuance. quarter, meaningful in a increased

redemptions and improved particularly $X.X private due funds flows. $X billion. marketing XXXX. $X.X product, lower net net quarter nearly net flows. the generated fourth Total positive prior significant improvement in to accounts billion, $X.X in client, delivered were flows quarter where from By funds, flows retail but flows all net to products, mutual but due the a also improved with by SMID the billion, included in sponsored Fund each strategies net positive intermediary net equity net large-cap since improvements billion all markets, of improved performance and best flow outflows Emerging from of separate

a past the challenging this net lumpy $X.X in on flows short-term Institutional positive over basis four business had quarters, has Institutional organic growth down the inherently of prior environment. modest net is outflows from in while the generated billion, a quarter,

the our is we've in what that next quarters. no seen we've see as strong fundings April, of In institutional it and terms over seen as pipeline expected redemptions several

in institutional the lot there's know, flows. a of you as volatility of timing So

what first quarter. open-end to in early saw For similar we funds, are the trends

which absent of higher revenues. impact quarter employment generating closely income expenses, first improvements while both and expenses results margin, in reflected the to we sequential Our manage as financial normal continue we our achieved higher operating seasonally

employment incentive expenses. adjusted comp per was due items $X.XX lower X% expenses, XXX margin EPS quarter seasonal the of and other the the variable Excluding as the Earnings XX.X%, excluding quarter. expenses, operating $X.XX share seasonal those as adjusted up basis operating lower from included over of to employment points fourth increased prior

modest the payment. utilization, quarter Turning now ended the the given of annual cash highest the to first and quarter as we timing capital, quarter revenue a with participation net-debt our represents of position incentives

to for million addition settled net employee we items, to those $XX approximately shares In XX,XXX obligations. satisfy tax

other important open element buybacks After credit given cash did first balance capital in of resources, priorities, $XXX for market using the facility. including continue the million revolving repurchase the We view acquisition quarter-end, we management completed of our we shares but quarter our to share AlphaSimplex not in an sheet as strategy.

of Our and affiliated shareholders to in balanced invest levels managers, initiatives of capital addition to and returning capital working has leverage. us management additions growth recent while prudent maintaining of other capital as approach positioned continue to AlphaSimplex and to and appropriate such the

will With turn Mike, over to that, I the Mike? call

Mike Angerthal

everyone. XXst, were our $XXX.X up X% billion, George. assets under Slide under from $XXX.X assets you, X, XXst. results management. at management Thank with on morning, billion Starting Good December At March

higher of X% X% outflows. which management of management The under reflected average billion sequential performance. appreciation were increased under $X.X billion market Ending and of market to change than assets billion, net due $XXX.X $X.X assets

in-line March due offset positive strategies. net partially was and for their at XXth market of was both $X.X was which AlphaSimplex type flows, to billion, the a for month decline by That quarter. AUM with February performance, expectations the XXst for from

represented asset type. XX%, and XX% and combined multi-asset AUM. were strategies and respectively. by was institutional management product total fixed-income of of alternatives US funds accounts under were By at XX% product XX% X% equity with separate type, and class and assets At XXst, Our XX% retail well-diversified AUM, March are retail

strategies effect increasing addition the Westchester with the meaningful alternative assets prior and to management AlphaSimplex under of institutional our a total assets from $XXX.X X% of which and AlphaSimplex the transaction, XX% Capital. to is XX%, to to Giving AUM are increasing pro-forma change billion,

rated continue in investment assets or stars. fund funds long-term seven across had funds. performance have five We of four and were that XX% five-star four We to or with more At or were and XX approximately had $X four and three, funds compelling five strategies. XX% AUM of March relative in products total billion stars XXst, or rated

On our a median peer rated the groups. of of XX% AUM five-year basis, their was outperforming fund performance

assets XX%, quarter and retail performance XX% for five managers mutual institutional the accounts benchmarks during of that as performed March to benchmarks XX% XX% our years. of separate separate also and In respectively, of assets of retail beating were note institutional fund account outperforming addition well XX% over period. their strong would the fund I with and volatile first XXst, AUM

sales which billion, large growth down and were decline quarter. billion account prior by included and Turning was CLO to retail funding asset Slide Total the offset The sales. from due a to higher equity higher a last million in X, quarter, $X.X $X.X $XXX partially a institutional flows. separate mandate sales issuance,

sales strategies. sales. XX%, of were product higher largely of as which fund driven SMID-cap of alternative equity offset were account $X.X up flat separate fixed-income were $X essentially and sales billion XX% lower billion Retail increased By sales by by strategies equity

across large inflows quarter, sales that first the in clients. four $X.X fourth net affiliates, $X and and Institutional quarter, Institutional institutional managers were our issuance. in down the affiliate million, and sales and strategies the CLO funding largest be XX several included from continued geographies billion non-US represented well-diversified to different

the by funds. in there with Total flows largely Reviewing reversed outflows March outflows of quarter the billion and due SMID-cap, were net $X.X $X.X we had $X.X open-end positive in quarter, net net though strategies billion, the in prior equities. net to in emerging $X.X funds, from improvement open-end of all quarter. markets and billion improved billion product fourth were improvement significantly the Almost outflows early in in saw large-cap flows the improvement an net from for

positive retail net $X.X $X.X had and billion, compared outflows of in continued client. $X.X billion private billion. flows positive net net separate with accounts, outflows of fourth quarter of in net modest due to In the Institutional were flows

and adjusted the two $XXX.X quarter. in as of The increased X.X increased fee XX quarter. the Slide in rate, rate points Turning basis partially management the under days XX.X increase $X.X fee prior management million sequential modestly in average by to by million of X% average average a assets X% or investment basis from X, fewer reflecting offset fees higher points

over The increased fee accounts the open-end retail rate separate rate has five and range remaining past in fee both quarters. stable the overall for an to funds basis-point and XX basis, very the XX been on

fees the quarter. fourth million $X.X with Performance $X.X in of in million, the compared quarter

XX taking XX AlphaSimplex, and basis Looking-forward account of range a modeling believe points modestly purposes. higher we to is reasonable for into

XX% expenses stock-based related expense. timing $XX.X sequentially, incentives, payroll in trend seasonal employment Slide including of XX shows of the benefits $XX.X annual compensation increased expenses. as to employment adjusted five accelerated and million million taxes, items Total of the incremental quarter reflecting

Excluding expenses due the by compensation. sequentially seasonal employment to lower items, variable X% declined incentive

expenses items Employment as improvement basis-point due primarily to adjusted, representing but were excluding of variable seasonal XX.X% lower sequential they the revenue were an XX XX.X%, incentives.

a based anticipate sales. in always particular, revenues profits to of of performance well highly ahead, on be it as we in Looking as market employment percentage XX% range XX%, variable expenses and as a will though as

activity and largely and Slide operating professional XX, of fourth other due the in support seasonally to $XX.X we areas all from invest was key quarter. were growth discretionary $X The decrease adjusted also reflected X% travel lower Turning business. close and of or selectively expenditures, down lower to million, continue as fees while the related million expenses sequential to management to

range million to operating expenses quarterly Looking anticipate adjusted in ahead, other $XX will $XX of a be we million. as

in quarter. that purposes, keep of grants second Directors modeling equity For occur annual our in mind Board the

million XX items. due million adjusted sequentially or seasonal of employment the Operating declined $X.X trend as earnings. in Slide $XX.X XX% income to the illustrates

operating those increased XX.X% operating in The with quarter. X%. XX.X% fourth adjusted income margin Excluding as the compared items, of

operating by to items, Excluding XX.X%. points the the seasonal XXX margin basis improved

with $X.XX income $X.XX share, of diluted expenses, included which adjusted compared per Net $X.XX of as the in fourth quarter. seasonal

results, to gains GAAP share of from $X.XX on net benefit per included $X.XX of increased the investments. quarter affiliate interests non-controlling adjustments per from income and and $X.XX Regarding and fourth net $X.XX unrealized realized in share fair-value

XX $XX X.X net select we with unchanged Slide trend XXst, ended sheet items. the and of times balance from the quarter XXst of and at was capital March leverage shows December essentially debt liquidity our capital representing million, EBITDA. net of $XXX million Working

highest revenue million. The liability consideration is in of annual $XX revenue quarter participation the employment includes The the changes incentives, also vary cash expenses and estimated payment payments based payment and utilization will streams. seasonal of which on our related quarter over-time seasonally underlying included first of contingent the earn-out

had of we meaningful to for to short-term leverage, to acquisition available Giving more in we debt AlphaSimplex from of as adequate financial and during The which million funded tax financial balance million this cash settled we facility, the first we than and a hand providing In obligations. capital net $XX.X with strong we have addition, $XXX working April provide continue repay XX,XXX the have million levels acquisition, credit combination our shares quarter sheet and a satisfy was revolving effect employee on generate flexibility to cash $XX flexibility. of year. modest to expect with

let the With over me call turn that back to George? George.

George Aylward

Mike. Thank you,

your up would now questions. the line take will We please? open you Michel,

Operator

[Operator Our Piper of first with the Sandler. Sumeet question comes you. Thank line Instructions] Mody from

Your line is go ahead. open. Please

Sumeet Mody

Thanks. Good morning, guys.

billion 'XX, AUM at looks XX% like about to billion. implied -- AUM, XQ about it around Just it's AlphaSimplex, that $XX announcement down $X.X was with the wanted closed from start in

flow talk and sort around XX% then quarters could that over you alternative estimate dynamics regarding last declined few that secondly X% sort the updates about any if accretion maybe I for considering drove the decline of AUM of period. at wondering market And if, the announcement? Virtus Just that think

George Aylward

Sure.

is we the and On what the numbers I strategies. with ones you expect think change the the February in part March first that with and and decline those then reported would what there with line AlphaSimplex assets,

you that. if sort ESG kind the of trend comparable with of So their line the most for index look index at of in strategies, sort

they're very different some others. think strategies, our as those So of you than about

that line. So moved in

for the both month in flows. the Mike March the positive and his noted of comments, for quarter As was AlphaSimplex

impact unique the those with perform is again how and cycles. and of market strategies they'll in really market So nature

year, you'll near end the last the think certain challenges. I lot earlier of November, volatility those particularly and been in since disclosure -- think year, a indices had And our original of in like in the see back market I there's

the from So in with that strategies they're had client flows. but line moving in manage, the the positive quarter, they again perspective they first

And ahead. then on we're Mike, the second, -- go not

Mike Angerthal

key that some modeling Yeah we metrics. gave updates of thinking reflect and about we the for I each think accretion, the did that - in of

that than the rate blended given fee of noted higher You AlphaSimplex fee is the ticked fee the rate. rate products modestly up modestly

been line as and their gave Virtus in existing business. there each changes we impact as So of AlphaSimplex, have both items the the on well of assets the

thinking line So will to the with and revised in the generally -- how should metrics updated bring about figures. we and were you it updated

Sumeet Mody

follow-up Thank my it. that. you. guess here is regards I Got in to

the I press cost other expense to you know in you mentioned first $XX release, to lower in the be have cited and seasonal guys million on So the seems million travel $XX line, what quarter. guys

at that of So and can million? of levels? guide $XX I what about of million, maybe AlphaSimplex between back just just sort run ramp from million $XX guess where travel sort you is the expense pandemic it with And rate kind and new the are being talk $XX entertainment are you been driver of then full the you've -

George Aylward

think you're generally impact T&E one first quarter. the correctly I noting, half on this two sort certain dynamics mean weather travel on, given I There's just [ph] as going of has in Yeah, the of less country.

So was in quarter. the that illustrated first

are gotten in back fully terms terms the T&E. the to In of of full just post-COVID we There's in generally some of works of had how been remote we on that terms side. changes retail area, particularly not levels where

that So T&E, few the quarters in professional move dynamic things bit. again we've and kind the which can volatility little of there that expenses, sometimes had a been last as has a other where as number well like the is

Mike Angerthal

the over or quarters four five a I sequentially been down then on in range right, we've tight operating. and other were past And X% very you're think

revised new incorporate [ph] does Simplex So - out the the level the bringing on.

So that second bit obviously now the us in bring in but a lower prior start reflected new we range and you will the expenses come saw little than to the AlphaSimplex the on quarter, quarter. fully business

Sumeet Mody

I or cash, kind the why back cash. pay do million the capital second quarter? in in quarter the how And down it. one in ended the that balance for think not in XQ kind comes quarter hop open market all and here then know $XXX between repurchase more moving AlphaSimplex payment at Thanks. repurchase over the of the just last million queue, for any items but of stock $XX And I Got before on allocation. I maybe of assume out debt parts? didn't given guys we you quarter the first about shares the in

George Aylward

important first again, thing, we've repurchases management done Sure, of consistently many which our stock years, so strategy. the I many, mean is for part is a capital very

lot highest of draw a anticipating quarter parts, our moving competing is also off first for from the it The facility. little which closing actually on for a transaction demands bit that, quarter of did we utilization our credit several cash,

kind of challenging. interest an In environment rate was a that little

there repurchases, in impact maintained $XX that were many have open the and not what a we making which had different an in we're the that strong with on net but settlements do have could shared sheet, of So also share issues. that did sure been terms of we priorities we environment also balance in, million

So time part remember lot important in bit balance strategy, but that again, an And -- at any we as the in first there of you a market. uncertainty our the quarter, of was things. a more little still point

that point we thought thing do. that in to at So was the time, right

Sumeet Mody

Thanks taking the questions. for

George Aylward

you. Thank

Operator

Michael next our for question. with And question line Stanley. And comes you. moment one Cyprys next Thank the from of our Morgan

is line Your ahead. go Please open.

Michael Cyprys

and the Thank the morning. you growth? can speak some conversation leverage is AlphaSimplex Can ways their deal that continuing to to good accelerate the Maybe you, on capabilities expertise closed. with you of now

George Aylward

said institutional a primarily traditional, very family and less are become when equity equity, manager the including the to capabilities perspective about of our currently very announced that compelling our some they They are from fixed expanding we're side part also we the very fund of currently but of transaction, currently markets they those on of. is diversity include that offerings, excited income on have have to having Sure. attractive correlated we a us. where we great the clients, the have them as Well, managers, to long-only

the strategies think well-diversified broader that in portfolio. of from I there could is set clients probably perspective a is that range their channels and our opportunity a utilize

conversations of capabilities how internally we those we've and them broader the with those. are potential do investors So that array available a having make been to in

then vehicles capable they're of So you the that as But offering that more opportunity currently attractive. taking capabilities just I in have just would include, in also a kind vast types think be amount of terms of that of think about other what of. there untapped is they in them could

some of and bringing into that their involved of that in, through what again aspects property in an strength other business taking where have terms other vehicles. history been opportunity through then looking we to multiple we additional the just And they and and have currently focus they've think markets of there's the capabilities, of intellectual expanding

And supporting on we which which of U.S., outside them but anything we've for U.S., really noted more in the do the institutional few really them the there, important then to a calls growth been is do has can as bringing what side for they're they well, area the us. help last then

of look AlphaSimplex opportunity the of just bit institutional Under current we our of great a managers. a forward-looking optimism as outside think not is is in the that all all U.S., but where gave we view we from statement. I that -- that of of little coming growth pipeline a for the lot and and for kind at our a

Michael Cyprys

little maybe institutional you you're in elaborate a bit seeing can more types the Maybe that of strategies on speaking of the there. pipeline,

help today, second or the expect through quantify or maybe the fundings the quite come pipeline it's in you to much of mentioned seeing quarter? elaborate here the how size could you're You robust, of

George Aylward

comments, in as And you some multiple -- geographical what's wins try really to even of if on look then a and at sort right, mean, Mike look have think it multiple any time his work those I over different time. prevent areas. losses, the at because you're really as looking noted first you I managers and going quarter, to right, are capabilities, largest in did you span how the a always and XX you as of inflows, interesting well pipeline, period clarity on you the wins have the looking Yeah always

is this then for and only indicated, of So spectrum even across as different and income we're managers what fixed equity ends seen go it the the strongest we've really not income I within the does of offering. manager it in fixed terms managers

it the is within what right, really lumpiness that's So why flows you is nicely The each timing, timing always those because can diversified. challenge is be of quarter. control can't some the and there

any other additional? Mike,

Mike Angerthal

covered interest to I we've the how and diverse strategies, traction interest emerging strategies in seen whether across. estate, nicely, we've think the particularly real I particular you in we've it that's think is is equity, timing with project, there global pleased managers. it we're But across but markets, seen seen those and global coming global they're difficult

Michael Cyprys

on just me you. one And Thank last M&A. Great. for

little with sort you as have incremental becomes from AlphaSimplex thinking here? and well? that. the guess private marketplace around could valuations spending And the talk much What of Now M&A properties in on question bit seeing how deal sense? are guys that closed, you time the you make a could congratulations how guys on evolved maybe I just are

George Aylward

with make channels have. expand important put business it And allows repeat, the predicated through sure we us to but that growth help M&A, specialized long-term and model part our offerings obviously is for that different that know, us not it's our we you strategy really can as distribution that our of firms partner us upon we often

in non-U.S. that you'll see and to field. development for growth from open our UCITS, so the focus institutional, do continues ETFs be to I have see leveraging that. the us organically institutional, which particularly some products continue main playing in has us our So we great highlighted of really is on our we and lot think been an A already of managers, already capabilities opportunities

on very remain activities in So of of M&A, we in the in the are all going active market. terms that

have in say, at on fit, from there So conversations. But we either a those perspective, look addition is product which we continue similar and rationale to AlphaSimplex a to, our terms good and of strategic focused us. continues be fixed both to a and Westchester, it interested to then were interest be U.S. expanding an outside very in on traditional obviously, for area long-only things we of income equity non-correlated that from of And the into continue strategies strong

So we'll to those things. consider continue

In different But but deals been there public there terms our recently, the of continues hasn't valuations, around very and every right closed the not the terms a of people space -- disconnect to of is private actually be actually of lot deal a lot again, market. approach between how valuation. markets in

Michael Cyprys

you. Thank Great.

George Aylward

you. Thank

Operator

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

George Aylward

us And call to following Great. you. to you questions. want Thank us for and and any you. thank us if everyone you Thank again I give just have joining encourage certainly for a we other

Operator

Thank concludes That today's participating. for you call.

disconnect. You may now

Virtus Investment Partners (VRTS) 28 Apr 232023 Q1 Earnings call transcript