Virtus Investment Partners(US:VRTS)2023-04-28 18:53Financial Data and Key Metrics Changes - Total assets under management increased by 4% to $155 billion due to market appreciation, partially offset by net outflows [7] - Earnings per share as adjusted was $4.20, which included $1.11 of seasonal employment expenses, reflecting a 3% increase over the prior quarter when adjusted for those items [12][33] - Operating margin as adjusted was 26.8%, compared to 31.8% in the fourth quarter, but improved by 140 basis points to 33.2% when excluding seasonal items [32] Business Line Data and Key Metrics Changes - Retail separate account sales increased by 12%, driven by SMID equities, while total sales declined sequentially to $6.2 billion due to lower institutional sales [7][21] - Fund net outflows improved to $1.8 billion from $3.8 billion in the prior quarter, with positive net flows in emerging markets, SMID, and large-cap equity funds [8][24] - Institutional sales were $1.9 billion, down from $3 billion in the previous quarter, but the institutional pipeline remains strong [21][9] Market Data and Key Metrics Changes - The pro-forma total assets under management, including AlphaSimplex, is $162.6 billion, with institutional assets increasing to 36% of AUM [18] - Approximately 43% of rated fund assets had four or five stars, and 87% were in three, four, or five-star funds as of March 31 [19] - On a five-year basis, 74% of rated fund AUM outperformed the median performance of their peer groups [20] Company Strategy and Development Direction - The acquisition of AlphaSimplex aims to expand and diversify alternative non-correlated investment offerings, appealing across market cycles [6] - The company is focused on leveraging AlphaSimplex's capabilities to accelerate growth and expand offerings to a broader range of clients [55] - There is an ongoing interest in M&A, particularly in expanding into non-correlated strategies and international markets [65] Management's Comments on Operating Environment and Future Outlook - Management noted a meaningful improvement in open-end fund flows and a strong institutional pipeline, expecting no redemptions over the next several quarters [10][9] - The company anticipates employment expenses as a percentage of revenues to be in the range of 49% to 51%, influenced by market performance [29] - Management expressed optimism about growth opportunities, particularly in non-U.S. institutional markets [59] Other Important Information - The company ended the quarter with a modest net-debt position of $47 million, representing net leverage of 0.2 times EBITDA [34] - The first quarter is typically the highest for cash utilization due to annual incentives and other payments [35] - The company did not repurchase shares in the open market during the first quarter, focusing on maintaining a strong balance sheet [49] Q&A Session Summary Question: AlphaSimplex AUM decline and market dynamics - Management acknowledged the decline in AlphaSimplex AUM due to market performance but noted positive net flows in the first quarter [39][40] Question: Updates on travel and entertainment expenses - Management indicated that travel expenses have not fully returned to pre-COVID levels and that the new expense guidance reflects the addition of AlphaSimplex [44][47] Question: Capital allocation and share repurchases - Management explained that the decision not to repurchase shares was due to competing cash demands and maintaining a strong balance sheet [49][50] Question: Leveraging AlphaSimplex capabilities for growth - Management expressed excitement about integrating AlphaSimplex's capabilities to reach a broader range of clients and enhance product offerings [55] Question: Institutional pipeline and funding expectations - Management highlighted a robust institutional pipeline with diverse strategies, although timing of fundings remains uncertain [60][62] Question: Future M&A considerations - Management reiterated that while M&A is part of their strategy, organic growth remains the primary focus, particularly in non-U.S. markets [63][65]