Virtus Investment Partners (VRTS) 28 Jul 232023 Q2 Earnings call transcript

Good morning. My name is Tawanda 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. 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 a there and time. After remarks, be question-and-answer that the speakers' at will period follow instructions will

will host to may conference turn Rourke. begin. Sir, you I your now the Sean over

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

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

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

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

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

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

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

more detail. reported Thank Mike provide over today it you, overview before to with an of the Sean. morning, earlier results we start Good everyone. I'll to turning

affiliate, in net sheet investment the diversification a we breakeven, positive of with both and across meaningful of and in investment and continued Key the funds, net long-term included leverage. private affiliates, balance improvement strategies and year-to-date business performance, modest highlights the the strong and of flows a quarter geographies, to flows second flows ETFs, strategies, addition client global and in sales maintained new across institutional the attractive net well-positioned

increased sequentially of Turning AlphaSimplex due to $XXX now review institutional XX% to our due billion a and in management the of Sales the Total to momentum market increased business. appreciation. $X.X billion assets X% continued to to under results. addition

side, significantly. sales equity equity, the domestic though retail global primarily sales declined in On increased

Retail unchanged separate were sales the essentially quarter. account prior from

Our improvement the institutional net quarter product, and $X.X affiliates, to By net quarter billion strong sales are flows across improved flows first breakeven, of a net modest from significant net prior from in flows and geographies. institutional. the with strategies outflows due

institutional of in quarters, Fund X% as a compared first in net growth improvement quarter billion with in environment. with to four was generated generated continue flows. past has SMID offset organic consistent net strategies more the industry. the an income challenging outflows Over and $X.X Within fixed by relatively billion flows levels. positive than the equity cap global at be domestic lower both accounts separate Retail breakeven equities, equity $X.X

known opportunities what In with July, see CLO terms market. but strong seeing of we're and not our remains we the institutional exceeding funded mandates in pipeline in redemptions, one

continued our including global in positive improved as flows funds funds, open-end For meaningfully as trends well ETFs. have our

of from affiliate sequentially quarter. reflected increased results $X.XX addition financial up as adjusted Earnings margin seasonal due prior the levels share expenses the of XX.X%, in XX.X%, the per from the as impact well quarter end was operating The quarter. primarily quarter of market in first employment second a to near $X.XX as particularly the Our appreciation quarter. the on of of AUM the new of the impact the beginning at

Excluding X% as prior quarter increased share seasonal items, adjusted earnings per sequentially.

capital. Turning now to

working and capital us significant adding financial as management to while shareholders affiliated capital capital has leverage. growth flexibility to appropriate approach in strategically returning and prudent levels managers, initiatives to and balanced invest by of positioned Our supported such maintaining

During with we closed AlphaSimplex revolving the our utilization credit facility. financial quarter, including resources, existing of on

$XX repurchased us and also of to the be $XX we flexible in continue June, circumstances capital and the to paying in credit the million positioning key which approximately facility. prioritizing modest repaid for million. are quarter warrant, priorities. And this XX,XXX allocation down debt year credit with shares repurchasing including shares, net We facility We ended

With that, I'll Mike. Mike? turn the call over to

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

increased and addition quarter's $X.X management from billion, X% average. billion $X.X of the performance. under AlphaSimplex in were from favorable of billion higher X% quarter assets reflected growth ending and $XXX assets The to the assets the market Average than

Our management capabilities investment acquisition We've up of type. now alternative by and our continued X% to represent class asset diversified in expand prior remained XX% assets AUM, the which under and of correlated from strategies, to AlphaSimplex. less product

Notably, each unchanged year multi-asset AUM, during Fixed from quarter. were XX% sequentially at respectively, up and year. institutional up clients relatively AUM, total XX% represents XX% XX% are income now increased from and of the XX% non-US though each a last ago and of XX%,

compelling performance have strategies. across to long-term and relative continue investment also products We

As assets of and outperforming years. account June were five XXth, benchmarks their approximately retail separate assets XX% XX% of over of institutional

four from including three, were In that five rated had We fund or from of addition, five XX% assets or seven XX% up in were more, or funds. last $X billion XX stars, approximately had quarter. XX% five rated AUM quarter or up four last funds star four XX with stars, and of

volatile well institutional our the basis, XX% of groups. XX% AUM, for that year-to-date group. peer outperforming beating respectively, and of XX% separate with account outperforming and performance AUM their of of fund On peer I a AUM, five-year in XX% managers benchmarks note the was period funds performance mutual would of also markets median rated the medium and the our performed

quarter larger significant fixed Total due mandate due existing institutional contributions $X.X sales prior from fee sales. quarter strong level the and billion, $X.X were a last Turning $X.X several accounts. nearly double to new slide sales to institutional up By asset income billion, eight, billion flows. to to XX% product, were low

Fund other sales equity. and strategies, by sales as more higher of $X.X separate domestic largely $X.X from account sales $X billion than were unchanged were billion lower global particularly of sales declined billion equity sequentially. offset Retail

be Total net the prior with affiliates. strategies. breakeven billion institutional. net improvement due in outflows diversified net quarter from also across net inflows modest by in to inflows to of with the Institutional $X.X product. flows increased Reviewing flows quarter net across Institutional the continued $X.X outflows prior from were strong well net of billion

outflows $X.X open-end prior the at to billion quarter $X.X similar funds, For billion. with net levels compared were was

nearly in which ETFs outflows, in small-cap net at had a improvement. income of both global positive XXth, the $X.X And retail continued billion as of all outflows. positive flows funds, both quarter positive and sold inflows were sequential in net fixed strategies net billion had accounts, of outflows had global flows had large-cap In net strategies. intermediary focused client Within AUM with net growth in modest funds separate open-end first funds the $X.X June by $X.X private Global fixed flows. funds, net compared while income billion remained and offset

additional the modestly to reflecting average in million in million as assets of management, increase an higher $XXX.X a fee X% average nine. X%, quarter. and the adjusted, Turning Investment The fee day average rate fees, due sequential discrete or increased under unfavorably XX $XX.X basis slide the expense in rate a impacted recur. fee that rate of basis will was item points X.X XX.X points prior increased the quarter. basis to to related by points from by AlphaSimplex The transitional not funds management X.X

growth alternative quarter. fee fee the rate mix the of sequential addition The first strategies, which the of AlphaSimplex's Performance of largely quarter increase rate the in higher compared business. in with million relative by fees the $X.X given offset million institutional the reflected $X.X was mostly average the in shift

XX the for our modeling of forward, points which, range to believe markets purposes, always, appropriate of by basis will mix we and be XX Looking as impacted remains assets.

adjusted employment in decreased trend $XX.X addition by AlphaSimplex. seasonal Total million five-quarter $XX.X expenses. quarter, reflecting of prior as the the the shows of offset XX items of employment sequentially, million in X% largely expenses Slide

to XX.X% addition up first percentage were of the expenses revenues, adjusted AlphaSimplex. of a a As seasonally the employment quarter in XX.X%, due from

quarter, will to lower end third range. XX% toward XX% beginning reasonable appreciation, given that is as employment AUM expenses market levels continued be to expect of our a the revenues of the For and it percentage

well As be based market in as on particular sales. performance, variable and profits always, as highly it will

up Turning as to the to to slide million or as The of million from adjusted, Board million the $X.X annual X% due well XX. grants sequential the of first quarter. Other AlphaSimplex Directors. $XX.X were operating as the $X.X largely expenses, was addition increase of

Excluding AlphaSimplex, other expenditures. expenses close continued over management period of year reflecting the declined discretionary X% all prior operating

million the Looking $XX as in down be million previous from ahead, range. a $XX modestly expenses, operating will believe we adjusted, quarterly of range other to

the sequentially and income as items, for Operating quarter million XX.X% the seasonal as margin the XX XX.X% increased Normalizing in employment compared normalizing million quarter adjusted prior first X%. trend with XX.X% management. by items seasonal XX% of the Slide the earnings. operating for to $XX.X average higher or The items. under or assets increased in income seasonal of illustrates operating adjusted $XX.X due a

by the due the increased interest million, on income investments. $X.XX net expense by share rates. income in Other higher expense Net $X.X variable as from Total diluted interest increased $X.X as income quarter. higher adjusted of higher debt reflecting $X.XX million and XX% per gross increased adjusted to losses unrealized first

discrete item. share included share per a net the quarter Second diluted per from $X.XX reduction income

results. and interests. partially affiliate consideration, acquisition-related value $X.XX $X.XX to GAAP $X.XX net to share losses fair per quarter per net in contingent of share adjustments unrealized including included Net on with transaction of offset expenses, realized by income favorable investments first compared Regarding and adjustments value noncontrolling $X.XX of of and fair $X.XX the costs,

Xst, of repaid $XX million acquisition items. In select revolver June, million our million, EBITDA. revolving we drawn the cash, with of for quarter balance times $XXX representing and Slide including credit ended in $XX capital leverage On April XX facility. net we and the shows million trend sheet completed the liquidity of on X.X net debt of AlphaSimplex of our $XX our

on the expect to repay revolver million We of $XX the continue the course to year. the over outstanding

to transaction working from declined capital a result $XXX million June as the Largely, March at of at payment, XXth million $XXX XXst. closing

In the for repurchased shares $XX quarter, we XX,XXX during addition, million.

We of modest providing leverage, flexibility. meaningful a continue and balance working levels sheet adequate more financial capital have than to strong with

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

Thanks, Mike.

up open Tawanda, We please the take lines? you would questions. will your now

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

Your open. line is

the was up Thanks. rate bit here. AUM came the still at was Good to wanted AUM on guys. rate. sequentially, bit a fee in -- the start sequentially I morning up on a fee the

with you of kind quarter around net-net wondering, institutional can the inflows, large onetimers? a the unpack drove any the bit of by AlphaSimplex, what the those second in dynamics level maybe Just offset here of

particularly AUM either in within the flows the pieces? rate, strategies you quarter, subcomponents, through and either kind market for fee create differentials. in rising in you a mix in and can Mike, to at the last of components and geography movement different a going you And quarter the changes assets where the pulling little a then Sure. or that do again, are fee had underlying had rate go redeeming like the want

Yes.

as we become the the noted even a up I part mix business, look now institutional year rate. it impacts shift providing certainly it's it's think And ago. product, of We business. We the increasing product, the at by rate, it in tight fee range, XX% by as a you fee bigger quarter, of noted, relatively look a AlphaSimplex. in overall XX% from from stayed at the has the

So the rate. you're fee that impact seeing overall

adjusting ticked from by by range, up impacted mix discrete reiterated but XX the range item, shift to XX.X the think the for and and be action. will I we market the that

But categories, markets accordingly. our been has rate mix fee the the shift. from the update and on to we're more continue we'll and again has resilient product been impacted standpoint, of resilient, So each by

the then the see And wins institutional in Mike. Thanks, quarter. it. Got nice to

you date? have Just there? wondering that on can July demand how kind funds trended an that kind if And institutional pipeline and of for SMA to then get update for of

Yes.

to of strength, to affiliates we I And terms be either pleased with continue we we pipeline. side, prefer is strength that in strategies, institutional the well comments. diversity think highlighted in see as as the we On the generally, as speak geographies, our to and of

as that Again, see to very a business. continue we pipeline. it's nice lumpy a So

that versus looks the to of we So see but attractive, But some the only the what it not timing course, one like aspects continue of will which in as well some fee and is be then is. then income side, of slightly are but rate, equity different others. growth as to lends our how the of fee fixed strategies the nice with of is sort some mandates there which that pleased changes of different, to diverse at being but it be level,

for you. then last And one Thank Great. here. me

fixed the side on Just the business. income of

rates slowing retail, Just been months. increasing outflows recent started at a year. looking consistent bit little since last have pretty in They've been

the So guys within for expectations have fixed across market merger your fund then add of mix? about that a range given Thanks. kind strategies with you can of neutral talk as some across retail and income, the of institutional, that the you can on you well context the maybe commentary It's demand alternatives. And environment.

and think Well, been. favorable the acquisitions I the mergers on is not most second that view the piece, it's macro on

like on look at So impact people that. that's going to strategies have how an

than little strategies more the they unfortunately, transactions, be. some on So I retail think, are types a incorrectly investors should those again, with of some of being negative some and headlines the of

clarity is back in our those our some really some fixed Going view were, of some seen a there they an income, strategies. interest where of from increases should of but strategies, to the that more improvements we the be to different of levels not start in We've lot they've rates as strategies they'll need going previously to little getting doing. taking more hope on what some would than But people advantage be, been the be. start a forward, where

questions. Great. taking the Thanks for

No problem.

of Instructions] [Operator the Michael question from line Our with Stanley. you. Morgan Thank comes next Cyprys

open. is line Your

the the just some coming fee I rate Hey, is the the to sort sort can that good that that you institutional you zip what here so fee you I strategy for sort morning. overall? or a had on basis the Thanks code? fund help of the pipeline in be single-digit XX institutional back pipeline. how of you in my on question. the characterize commentary And fee follow-up points quarter. think mentioned And low taking of question was Maybe do compared to mandate Maybe would guess institutional quantify quarter? of the

referred to lower that, fee. on And Mike I Yes. think it as

comments, be again, of to think the sophisticated mix will the to terms very the with what than But as I indicated given earlier mandates of we the we've we of the move that basically XX, So up mix range a going XX in which, in forward, again, in and comments, we some feel larger could size see conviction bit. still strategy comfortable -- such of fees. then higher. other investment little high other because their grade see my sometimes have their will will some strategies or more or lower And equity strategies, down

So be terms we kind at collectively in because out. going of look coming of the some bucket having and that you'll in

which market as you'd for So including else, of of then upon assets, underlying as the institutional well based in the on income Mike, rate also guidance is of And -- there fee sizes add? mix Anything the change. the appreciation impact that or fixed moving relative will we're equity, parts. not that did be terms a reasonable are there'll account what giving one lot because

I summed pretty you that think, George, well. up

actually in the looking as support breadth does above level. mandate, specifically, equity. fee just given quarter's strength also looking institutional part breadth institutional new it, as rate. across pipeline, well and income as it a the rate larger in the current of excluding level XX.X think geographies fixed well. you're has it above Michael, business quarter, the the has of this current of that has It It was that the at I fee at And the --

of I side. that quarter's of modeling on some for the think again, the So and some we're that is takes. level the supports, when seeing look strength breadth at we institutional got some But the current you've puts, business, appropriate

sounds you I down allocation and us maybe end just about update $XX the here allocation capital capital on on you're you paying And thinking how year. it M&A Great. the by million the the could side. hear on like of revolver,

there where much spending And as you as an what as interest you give the seeing us of how well thinking you year you're on end have are that properties you days? are M&A? maybe Just from into out buybacks How the and can these about here? update might on of well sort time

Sure.

the in do we the so capital pay of in down on So to of it's credit facility. kind appropriate the comments terms priority, that what we indicated, believe drew

repurchasing certainly of capital. to goal, think flow today, on of in in do use continue we earlier leverage year, that, view our level comments our our and of quarter believe last our by generation, shares as and given I So And end the commented as we the a of we down. valuation that can that low well current our cash the is our bringing great and again, current

purchased $XX continue an we and year, last as see we that million opportunity. So to we -- used

In which work that of terms don't. we're we've as active of really activity sometimes which been, refers transactions M&A, doing continue sometimes turn to always amount be into the and to as and

We do for continue opportunity we we to of area see growth, consider but opportunities. that try to continue prioritize inorganic our to be organic to us. an Again, always

continues the do of to sector. I in market think be a going our lot there on So activity in M&A

continue We you've relates evaluate that further think well to we as, it in business strategically terms had seen also to less and focused the diversification, a would as additive fixed things good our correlated the last particularly geographies as of of be as strategies long-only pretty clients to investment two from traditional in array where kind equity that. towards we're and we transactions, always of

else the last to dividend as as And that? few have of capital to take both increased well the make continue as dividend. years. our But shareholders add that to returning again, evaluate that over well as know, we'll and sure you to as our generate continue a anything level we leverage that. cash Mike, So our you'd we repurchases annually through we'll comfortable we've

Yes.

in alluded seems what indicated the that George, capital, reiterate in we're the I'd current that support use of we and business. think, environment would part on the which teams conducive. the George on do CLO seeing something opportunities, continue we the is may to fact issuance, market to invest that prepared thing remarks on other you CLO the to capital be I

So well balancing our alluded growth. we're as support all George affiliates to priorities as continuing to the

a question for And Great. final me. just

a contingent acquisitions of a these had couple the over earn-outs. done past years have guys number You and number them also have or of payments of

on through be to out? could that come So might I be to the a what's hoping of paid us next over cash you couple years still was remind able standpoint from

Yes. Capital, consideration look And third XXXX. quarter been coming sheet we that first we we of have participation five-year the the had to consideration two would and contingent in bulk five contingent Westchester payment years the period have would being there's the that tailed a revenue balance post each transaction, million periods. each range that period we be closed related recall the of be the and This some that at payments about you have which on up. talked quarter, longer which the and four out $XX also over And over may that a first in

from So payments. so more to to participation year over the related or three now, each quarter that's imminent two the years of X first the next years revenue

Great. Thank you.

conference Mr. our turn now gentlemen, I you. Thank Aylward. like session. to and this the Ladies would question-and-answer concludes back over to

to any so you with thank further us. free And additional feel Thank please always, for much. Thank want And Great. you reach if out very there's everyone as questions. today I much. to questions, joining

your you may Thank call. today's concludes you participating that now gentlemen, and and disconnect. for Ladies