Virtus Investment Partners(VRTS) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total assets under management (AUM) increased by 9% to $168 billion, driven by the addition of AlphaSimplex and market appreciation [8][15] - Sales rose by 22% sequentially to $7.6 billion, reflecting strong institutional business momentum [8][21] - Earnings per share (EPS) as adjusted increased to $5.43 from $4.20 in the first quarter, marking a 29% increase [12][32] Business Line Data and Key Metrics Changes - Institutional net inflows were $2.2 billion, a significant improvement from modest net outflows in the previous quarter [9][23] - Retail separate account sales remained largely unchanged, with net outflows of $0.1 billion compared to net inflows of $0.1 billion in the first quarter [10][24] - Fund net outflows were $2.1 billion, slightly worse than $1.8 billion in the first quarter, with fixed income strategies showing improvement [10][23] Market Data and Key Metrics Changes - Institutional AUM now represents 37% of total AUM, up from 32% a year ago, while non-US clients increased to 17% from 15% [17] - Approximately 69% of institutional assets and 89% of retail separate account assets outperformed their benchmarks over five years [18] - Positive net flows were observed in global funds and ETFs, indicating improved trends in the market [11][24] Company Strategy and Development Direction - The company is focused on diversifying its business through the addition of new affiliates and expanding investment capabilities in less correlated and alternative strategies [7][16] - There is a strong emphasis on maintaining a well-positioned balance sheet while returning capital to shareholders and investing in growth initiatives [13][34] - The company continues to evaluate M&A opportunities, particularly in areas that enhance diversification and align with less correlated investment strategies [48][49] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding the institutional pipeline, noting strong demand across various strategies and geographies [39] - The macroeconomic environment for fixed income strategies is expected to improve as clarity on interest rates increases [41] - The company anticipates continued positive trends in AUM and sales, supported by market appreciation and strategic initiatives [12][11] Other Important Information - The operating margin improved to 32.3%, up from 26.8% in the previous quarter, primarily due to seasonal employment expenses [12][31] - The company repurchased approximately 52,000 shares for $10 million during the quarter, reflecting its commitment to returning capital to shareholders [14][35] Q&A Session Summary Question: Fee rate dynamics with large institutional inflows - Management explained that the fee rate is influenced by the mix of AUM and the strategies involved, with institutional business now comprising a larger portion of total AUM [37][38] Question: Update on institutional pipeline and demand trends - Management confirmed a strong institutional pipeline with diverse strategies and geographies, indicating continued strength in demand [39] Question: Expectations for fixed income demand - Management noted that while retail outflows have slowed, there is potential for increased interest in fixed income strategies as clarity on rates improves [41] Question: Capital allocation and M&A activity - Management reiterated the priority of paying down the credit facility while also considering share repurchases and evaluating M&A opportunities that align with strategic goals [47][48] Question: Contingent payments from acquisitions - Management provided details on upcoming cash payments related to contingent considerations from previous acquisitions, indicating a structured payment timeline [50]