Virtus Investment Partners (VRTS) 26 Jul 242024 Q2 Earnings call transcript

Good morning. My name is Dee Dee, 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. turn to now Rourke. host, will Instructions] I the your conference Sean [Operator

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 second operating like

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

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

within risks unknown Certain risks may begin, Page actual results uncertainties Private Reform X 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 in 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 have on GAAP

non-GAAP applicable in and substitutes supplement, non-GAAP financial measures be which the available and 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

turn and some I'll I'll an provide of overview then we over who with this morning, start Thank you, and morning, everyone. detail. good Sean, the results to more reported will it Mike

Separate areas, ETFs part active U.S. each quarter higher the number note net had variety management we largely had and surpassed to outflows, were organic for platform, flows Global which of with the quarter, Accounts, growth including: a was consistent Funds; broader also strong positive we capital second trends Funds, assets while XX% Retail net the share we investment modest in which sequentially strategic quarter prior For solution-oriented emerging and flexibility. One large in and growth Retail of and a repurchases the with and of $X operating performance area meaningful products our level new have over billion through over in capital and our managers growth development. attractive of leverage the under to earnings and strategies; in and ETF ended dividend; continued across we return have period; margin year due which performance funds and have XX year across of We demonstrated quarter. strategies a under ETFs and currently past both

some of smaller we launched introductions, and areas Separate recent Similarly, not be of have growth ETF are a strategies meaningful yet ETFs us are have Accounts Global them offerings. We've all development our been growth during under AlphaSimplex and Retail from and available an focus several to including we for funds and bring new their development. and invest continue we drivers on, of as and in to we expanding business still expect market. While other Funds focused are several at our to quarter, had we part on our the that intermediaries,

assets Funds from benefited strong Sales to first Open-end $X.X quarter, U.S. and Retail in the offset which Institutional, quarter. net prior in which positive a of the were primarily flows Retail now Funds a market Institutional, Funds. due to billion under results. partially of review due X% performance Total net from in Turning Accounts, billion mandate $XXX outflows in decreased to and to large declined and Global management by ETFs Separate the

significant in were year the XX% compared the $X.X For quarter, outflows in $X.X continued a than Retail month over of the with of April. quarter, majority up than of net billion Accounts the prior Separate prior lower the flows Net with early strong they of in $X.X billion the on billion sales were period modestly demand. prior but quarter, more

billion, a of Institutional For related outflows redemptions as quarter, strategy included net strong partial client a had to the performance. $X.X large-cap rebalancing growth of

see Institutional over to managers net of offerings strong performance level high across Accounts a quality growing generated regions Retail strong year, managers and delivered in investors our interest and past due organic have X% from seek investment active billion $X.X performance. Separate continue as We of flows to with positive investors growth and demand. the

fixed compared first Retail Separate level again offerings. Open-end focused ETFs with current are and alternatives, complement outflows strategies flows Retail the Funds. of equities, in $X.X expanding net improved and in flows billion We in billion leveraged net finance $X.X income of U.S. non with Global Accounts, on in our Fund the available particularly equity. to net international a saw generated positive net and U.S. and in quarter, higher Funds outflows we

Retail the seeing Accounts, trends, In with average Funds the monthly better Separate tracking Retail Global July, second with fixed ETFs continue terms quarter, far in of of income U.S. notably their positive flows, we're are the so Funds stronger than and and inflows.

seasonal prior first was managers, Institutional quarter $X.XX quarters expenses. from per XX% of more adjusted we sequential wins, of expenses. share the comparable adjusted assets year the known The the remains well For increased exceed broad earnings fund share average strategies expect included $X.XX as known Relative to from which redemptions. The Earnings across expenses. AUM XX.X%, quarter, seasonal lower seasonal up average increased levels higher the as improvement as in as per our XX.X%, of on sequentially period, expenses. impact in which included the and the to higher operating the based results over and activity reflected the and margin financial which prior impact few next

including sheet and growth Turning flexibility significant we to to and that generate a warrant, approach capital flow now circumstances as capital in returning provides to maintain of and investing the cash strong capital, to shareholders a thoughtfully balance take the allocation balanced business. prioritize

were dividends prior-year repurchased quarter, quarterly XX% we $XX.X million the the that above During paid level. shares for approximately XX,XXX and

the principal position debt a modest and EBITDA. made at term payment in quarter also X.Xx a We on ended loan our

that, So Mike? over turn Mike. with going I'm the to to call

on Thank $X.X under the increased assets you, this At down have prior George. growth quarter's X% which period, X X% driven in Good quarter our the by increased $XXX.X Retail strategic March at assets below period. the to $XXX.X of sequentially management year with Under areas and of net the billion XX% you increased consistent Average from AUM Funds X%, were with billion assets billion Separate XX, unfavorable to under Slide results of Global Assets growth management performance ending market Starting Compared $X.X with XX, and Management. ETFs, Accounts, in collectively to X% over average. due billion be the all June billion $XXX.X morning. outflows. with

markets are products. past mid- equities asset domestic equities a diversified continue and equity assets large-cap XX% XX% and Retail strong an Separate By XX% increasing management well Institutional Our equities, XX%. On across largest are year AUM strategies. under category small, asset Within at to classes product, international of a range AUM, at and broad the year and over and is of Funds split we evenly of led Accounts followed by class our earlier. to to XX% among U.S. from strategies, at represent Retail basis, nearly domestic

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

X June X-star X, XX% funds. X X rated and stars; XX, were and XX% or of of retail assets fund XX As in or funds had

In median ETFs beating their with X-year strong ETF the groups or the addition, have fund management benchmarks X their outperforming assets rated the X had group period; X-year X outperformed of of XX% the and also AUM over stars. peer XX% performance at the X-year products, ETFs over all our of peer of of period. the XX AUM under XX% period. were median of June Across over

lower Account asset demand. Institutional more $X.X a XX% sales quarter, small were compared from of a sales decreased fixed up Institutional period. Total lower Fund partial Fund down a global period, higher quarter in and intermediaries billion strong a reflecting a of billion Retail funding of Retail and by $X.X prior compared equity, Retail million sales strong sequentially billion $X.X a client sales more large-cap although year-to-date and essentially over ETFs of by Accounts, the Separate billion, from Turning large-cap to Retail client largely from with and sequentially with the basis, XX% billion from by Retail year. to $X.X prior and in equity Reviewing flows and Open-end U.S. net billion sales due Open-end billion billion are declined strategy. $X.X prior Separate modestly the in prior sales Global Institutional than by mid-cap of at prior new billion, alternatives. as the billion they were net net were Account year-to-date increased private basis, offset from net the offset basis, were than meaningful sales continued a included Slide lower meaningful April $X.X outflows XX% year-to-date strategy. year by Funds, a sequentially flat offset including sales. due Total equity product, Funds to On declined growth mid-cap $X.X outflows and income were as $X.X X, year Fund $X.X to sold. Institutional outflows On $X.X rebalancing and positive higher be $X.X in sales U.S. were Separate client sales as On flows.

Separate Retail both on continued billion channels. flows fluctuate Accounts flows generate X% in will flows $X.X were intermediaries positive Institutional the year. past client the Net actions. to and of growth quarter with the organic the As over always, sold net private client depending timing in

billion Within billion positive, strong and lower were the due year. For Funds compared past Funds, redemptions $X.X Global growth with ETFs both sales net as in were quarter unchanged. essentially $X.X were Open-end with Funds, each organic the outflows again first over Open-end rates to

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

average first the quarter second was in Excluding unchanged performance fee fee fees, points, the rate basis quarter the from rate. XX normalized

Looking normalized for modeling rate believe the reasonable for is and fee second purposes. the first ahead, average we quarter

million million the shows the trend employment of assets. Slide compensation. incentives, expenses. by $XX.X employment the as offset $XXX.X of including by X% in seasonal As fee partially adjusted of sequentially, impacted always, rate in reflecting will prior variable the performance-based markets be higher expenses XX X-quarter quarter, and expenses decreased stock Total mix

XX.X% of were adjusted a primarily percentage up performance-based higher a stock quarter, from revenues, XX%, As expenses seasonally in the compensation. first employment to due

expenses as a believe reasonable. remains of revenues Looking XX% a percentage of we to ahead, range XX% employment in

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

annual of Other and XX. sequential million X% the of service were expenses, as with grants Slide increase lower in period, the we a costs expenses continue adjusted, Board to to primarily Compared year continued with increases modestly spite Turning provider prior operating as other to in due data manage Directors. expenses. closely operating to million were $XX.X of $X.X

the other As XXXX. a revenues, declined percentage points operating XXX second of quarter of basis compared expenses with

to expenses and increased sequentially, $X.X million of assets. for XX quarterly higher as adjusted range illustrates seasonal the trend employment of income remains Operating to the adjusted other ahead, or $XX earnings. XX% Looking expenses due reasonable. Slide as million $XX in million quarter primarily operating prior average million the $XX

interest respect XX income Over On by adjusted CLO share as XX.X% of increased first XX% a from interest XX.X% prior-year year's the investment below basis in increased on issuance. Net by the points. and X%. increased $X.XX quarter. increased margin from income year-over-year items, and $X.XX over of operating the quarter reflecting the million, operating income basis, with more margin dividend in With last adjusted the per period, primarily line compared prior $X.X period. year as income comparable increased to operating first diluted the The our

equivalents early $X.XX the net and of per $X.XX on value results, lease interests In of the with increase expenses cash capital, balance included from sequentially $XXX.X $X.XX to select Working investments, repayments. than GAAP and and related generated acquisition terms and share shareholders capital fair $X.XX in at trend March shows was debt realized unrealized and more expense $XXX and share and compared restructuring. Slide of of items. June at our XX, to Cash as million capital sequentially return termination, and related in first of income of an million million quarter up integration, liquidity million to $XXX XX. $X.XX to losses offset minority from XX the of of per increased sheet $XXX.X

second the of repurchased During shares $XX.X we for common quarter, million. XX,XXX stock

since payment first We term million also on made a discretionary $X our mid-XXXX. loan, payment our

$XX revolving XX. our XX credit the As June a in paid balance quarter, employment debt-to-EBITDA X.Xx facility was March from reminder, down the EBITDA. XX, higher prior $XX AUM X.Xx to quarter year million million of or XX% was sequentially X.Xx, at Net We debt off quarter June seasonal from up we second XXXX. At at in of the due fourth of up generated and gross level. the and prior EBITDA average expenses

Looking new let growth minority as ahead, includes the and support the scheduled of anticipated the me turn uses to other purchases business. With product potential back to over interest future capital well George? as that, CLO a call George. introductions

open your Thanks, We'll up all questions. you Mike. the line, now Dee, please? take Dee would

our [Operator Love Crispin And first question from of Instructions] Sandler. comes Piper

with does make year-to-date change shift to outperforming outperforming? cetera. what S&P might stocks, prior of for quarters the I in broader the you off, et relative differences markets the that recently we've recent in several for you July like Or near quarters? especially equal that in shown any weight the just meaningfully kind expect as the S&P shift the here, dynamic driven seen it over know -- Just But first look flows year, new been a term? to space this sales of largest actually that have tech do the weight U.S. last it's S&P by equal anything but by or some

question really interesting a because not are It's always really fully dynamics those understood.

certain S&P the So one number out caps, you're of really of larger kind in has pointing them. XXX, been as only but names so a markets U.S. small within the the predominance the of the not of experiences

our the So your correlated question, look base on we is the asset actually as to kind it, extrapolating mid-caps and at side more small-caps. of domestic the

the last where strong the So period, has you one actually the the relative is smaller underperformance and caps if right? So to the or look had on X-month relative have the that over you'll S&P such large-cap underperformed, for mid-caps of relative even see experiences indices the at period basis, that indices. our year-to-date -- period a the performance

strong for with So little actually, where we see we headwind us. a as the And ways, diversity particularly a the that, reversion been mid-cap, of small a in that's of our some a you in or of And strength, hope have we're we see to bit know, reversion have very position. as caps. again,

I a that, the a -- some lot really managers opportunity. And impacting of related us, more the in is -- momentum, other right? generally, orientation. that's larger impact would that us, versus factor create then it to would say, For does of markets equity So quality quality that right, of our have

quality coordination managers is So that as X experience reverts, X for particularly headwind would momentum. tailwind, a -- recent that creates to ] momentum, X the particularly us. when underperform have then quality also that a versus move or And been [ relative which that we for would in the has create with

is at caution the of through kind people, that's we always to look our So looking is we given the we then not of and going side trend side diversity and have caps. Does to be we question? the that between indicative side as and S&P revenue way the your equity how credit the versus very kind answer that going market or the -- the of XXX within AUM equity

that I'm me. calling the far curious, It that, but that's appreciate specifically then lumpy, if Institutional does. drive flows out. trends in It anything quarter just course could expect quarter George. of one for can be you third I know in I Institutional, flow the other And over worth that the does. And so

I'm mentioned And time it you is size quarters, that some comments, well? that I or kind rather looking That's positive from of but might wins kind about as to sense it? any than negative it? few known How if over your the correctly. I you expect more but think of next the way got that thinking curious

Yes, yes.

I'll give can upon Mike and some thoughts then So expand those.

was comments, right? a in of might and So inflow, So out, had to target in we then can actually performance above the the little we April, quarter, And he side. frustrating, mid-cap quarter, part again, generally pointed the where on the a we as early mandates rebalancing, that. was first you allocation have the to referenced pull that is always fact and referred which, that Mike's meaningful a relate you in this in that areas those say, there a have, lumpiness

going So of that terms there's the bit. always clients of And where can vary And interested diversity the a are have. we to be business. volatility ultimately that the in in trends our

again, So have fixed period one as another as global REIT income can as And you know, we spoken large-cap. period, of well previously a in we've to opportunity; mandates. mid-cap

will be of some into the forward-looking always there let So go Mike variability. I'll that comments.

or George. breadth timing of is the very fourth would very quarter just And to, us positioned strong to is The added interest had forecast, also third pipeline indicated, our Thanks, add in difficult addition recent which as that's to it's the some most our George I Yes. for manager forward. strategies going you remains to quarter. But that well we've offerings. in AlphaSimplex, alluded the whether that

activity we -- you'll specifically managers. and redemptions across continue see more So when we're exceed across in and geographies forecast of difficult known pleased that again wins the results, our that in bit but we're that to to affiliates pipeline, see we're little the the the and a of aware that breadth with pleased the across

Hays of next comes Cowen. Bradley Our question TD from

on market more what some on Bill opportunities having? give deal in both a conversations of Could M&A on Hays color the in Katz. terms you and you're perhaps bit Bradley and for the the It's dig pipeline in seeing you're

Sure.

that ongoing. same the activity others I the of be in terms said to So M&A, again, and think have continues

on the opposed generally the valuation be conversations conversation. that evolution strategic the I relationship continued part to nature think really just to of of the focused more of as

the is part So thing. interesting always valuation an

we've So again in it build of kind be those we which continue that strong have look loan-only very of very capabilities. representation as do things, opportunities. we traditional we and generally across terms value in business view the of terms in we is to -- before, I'll from of of comment a the considering strategic of active of continue at be areas shareholders to out commented point selective will We believe areas terms to interest

will and to X -- recent liquid been alternative of we acquisitions those capabilities. other the Our continue markets more and there have private most the opportunities recent in that in think space, be

to -- we'll opportunities been are to But there doing again, we we quite evaluate shareholders. things in continue we've and So that move active of of terms if value that. really are forward only think

up Great. that, Okay. within just any on are you're verticals alts particular at? that And following there then looking liquid

a they the Well, of different private altogether aspect right? sort of them, it they're terms nature in So of categorized the again, each illiquid of and have nature to it.

that their to think for ultimately to portfolio need the in investors investments. portion long-term do to have really liquid group, do they financial broad less allocated So a objectives, we their achieve those of

of the to that always get one again, to start the to strength going that for and I be well the really needs of a need be and highly think And yield. income people another. we side, our think the seen overweighting with is be some that's that, kind for you've equity in the and side, of conversation. which of does as versus credit part diversification of verticals view on Within vertical given out high our really interest private concerns kind real portfolio demand balanced lot -- when people's But you of asset remain private as side

place, are we in. we'd areas have those they a So that interested and all be think all

give fee fee on consistently Could attracting how detail pretty range. within on you your new versus you're some pricing flows, then you've maybe us rate And provided about rate thinking Okay. flows? and maintained

of pricing, terms yes. In

both do So isn't strategies, we Because as then again, always and pricing and higher-margin as kind let necessarily different Mike at -- impact look the right? the product. I'll we for product higher of expand at we margin but pricing the look fee sometimes the -- the

strategies offer differentiated. be constrained, we again, market. are So generally or somehow from the either look We that capacity to competitive distinctive

create other fee our we're of business but very to want beta-like for of We rate competitive book offered the profitability also a that than generic lot by company, is that fees So it. include a with to higher capabilities. others. But more be are thoughtful need would Mike? we about

Yes.

fee I the I we've and think mix the XX% we're the we to Retail different that assets has prepared will grown, remain that has of business fee been alluded the rate. think the I as it our Separate areas to experienced would certainly incremental the margins we've that in remarks, impact pleased And I Account with range. in level. the maintain tight just as add, markets our in rate able XX% And business to the grown pleased Institutional and that from been product

something we be we'll markets. So of mix focus assets the again the and on, by it's impacted but

you. Thank

Morgan Our next from Stanley. question comes of Michael Cyprys

to the to would all? How these back opportunities book on might hoping that How most introductions a was you see a much new How where talk seed wanted see if introduce are bit then into little of allocating these if you your anticipate you some uses. at elaborate come you expanding, could some I white Just you do were today? could the marketplace. you some recycling? And to. you it more alluding of other about there that Where you commentary the just on to sense? make about see do And capital products bit space? that broadly, thinking product

Yes. Sure.

cover there, little a that, bit will a bunch of there's So Mike and so go I'll a then further.

paying down of which it inorganic. in has And a alluded to. so It which the does include categories: said, again, organic dividend approach, balanced as does take which X we've the is of investing capital -- and always share does Mike include consistent debt, increases. we repurchases So include as and growth, terms in

into so then seed to the the ties capital. And references that

include We've potential capital. We the really uses kind are do because believe we remarks, prepared have CLOs of right indicated of come a seed new circumstances, including we product and the capital. they've under those introductions revenue maintained capital as good products as in the and So do an previously. from capital, of growing that future seeded could well uses been the allocation balance sheet that many CLO area sometime all something had, we've of of to investment has as generation

future think important the So that's recycle important do of we business. -- of the lot. a part in We an do investing

a of So the It the has capacity draws it sheet lot in seen, see set had seed as that, it a Hopefully, investment you've to that aside so capital continuously in then been point. seed for periodically. reallocate of we've strategy. we've grows we rebalanced balance the third-party assets. We much

So changes of terms there a hasn't that lot of been level. probably major in capital seed

say, So do that we instances, may utilizing then we to then continue that to consider look good has in but are like if that. it And they're a the in threshold fixed been have. CLO certain there they particularly terms of periods, IRR, a fixed ETFs. recycle income, -- if we capital. we actively income the Obviously, of require the meets that terms managed new And of we seed have products, active where in number

that's So been an Funds. where seeded lot. It's of Global area been another a we've area

the that believe And income third the particularly opportunity. fixed we more to then Accounts, big So a alluding Separate ones. doing do piece there's Retail being

add? the there elements. Mike, approach generally one about but at So is the higher you'd end. anything that, how those that thoughtful We're are is we of

fluctuated I to would range. within a just relatively years introduced portfolio alluded sort you it, I of we ago, the we've seed narrow maybe add, think and XX

expanding possible, balance but it opportunities we around actively and higher a seed ticks and when there's investment a require portfolio, little the that. manage recycling Sometimes wherever a discipline

typically you a capital, needs and returning and So capital paying that debt. approach call our when changes balanced product on the part and for can it's our been see seed of expand down requirements as in portfolio, of recycling as market-based and where prominent, the that they're in of but has priority our business we investing

you'll So I that as a continued for priority strategic think see us.

follow up the on just capital Great. Maybe return. to

I think under it million so. million just down $XX.X quarter, pay or the $X buybacks of in debt was around about

good the out should and Do down? think next about look cadence of How it Just or that curious here couple do is buybacks we quarter pace and decelerating? pay we debt that run We of of cadence how we and should the you as anticipate this the rate? a over pace accelerating think quarters? about think from

again, of we connects, of obviously, evaluate Yes. And opportunities all seeds. to question your terms previous And those. actually for that in

and balance maintain generating lot a us things flexibility think do critical. we again, cash gives continue which that that So to flow, of a sheet to strong we are

And so, our consistency We're buybacks upon in paid consistent purposes during cash on we and debt, of down how in after have will revolver number the the been of utilization pretty depending share on the terms have fluctuate, cash start that look beginning outstanding having commented the other for has month. at we terms to to the balance that. the on

of that, balance our within those of the continue a quarter, of all cash, X level every of terms but stock to range. the So quarter, timing in the it will vary the trading of level upon reasonable depending we

that last be that a fluctuate other market that will and a affiliate that I the above is year, but again, number we're CLO worth was be the it's prepared a remarks, a priority. but in million, is in issuances, -- monitoring piece and think that's And that I side. on bit, alluded will potential purchases use $XX quarter, capital have forthcoming minority it this capital CLO and coming reminder, the we will The scheduled the use to a as

investments So discussed. other we've the balance again, we capital priorities with

Great.

purchase. follow million could that minority $XX on I if other one just up Sorry,

Any radar couple like to much the have on that? help the Just anticipate earnouts be if in uses years, next with a do aware us strategic how you you could angle of terms of to from of other screen?

Yes.

the interest purchases, part is we think, of was transaction a I purchases. majority part the minority of again, stage and the the I acquired on this original cadence where think,

year expect after can the in so of of more middle stage one you XXXX. XXXX that be there'll So purchases,

forthcoming I first the payment thing and off that that quarter meaningful payment think, other significant is this about quarter frequently more one a the we there'll of that in contingent of amount in first balance and XXXX. -- quarter, talk consideration and be -- of is XXXX, paid the each first then the the

X those the capital this think the probably priorities I in more third additional in of the one quarter addition to payments meaningful are I that alluded to. year

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

to thank questions. do, for much. just always you other any we want us you if Thank to so today. everyone out do we further there's joining as And I encourage reach

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

now disconnect. You may