Release Date: October 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Virtus Investment Partners Inc (VRTS, Financial) reported strong operating and financial performance in the third quarter, with higher sequential sales across all products.
- The company achieved positive net flows in retail separate accounts, ETFs, and global funds, reflecting a favorable market environment.
- Investment performance was strong, with 62% of assets outperforming peers in the third quarter, and 82% of equity assets outperforming peers.
- The operating margin reached its highest level in two years at 34.4%, benefiting from higher revenues and disciplined expense management.
- Virtus Investment Partners Inc (VRTS) increased its quarterly dividend for the seventh consecutive year and maintained a modest net debt position, providing significant financial flexibility.
Negative Points
- Despite improvements, the company experienced overall net outflows of $1.7 billion in the quarter.
- Institutional net outflows were $1.1 billion, driven by redemptions of lower fee mandates.
- Open-end fund net outflows were $1 billion, although improved from the previous quarter.
- The company faces challenges in the open-end fund industry, particularly on the active side.
- Known redemptions for the fourth quarter currently exceed known wins, potentially impacting revenue neutrality.
Q & A Highlights
Q: Can you provide more detail on what you're seeing in the fourth quarter regarding flows, especially after the high sales in September?
A: George Aylward, President and CEO: The last two months of the year can be volatile due to tax considerations and the election cycle. In October, we continue to see positive flows in retail separate accounts, ETFs, and global funds. The ETF business is gaining traction as products reach a three-year performance mark. Fixed income strategies are performing well, and we expect this trend to continue, though the end of the year could bring volatility.
Q: Adjusted other operating expenses came in below the prior guidance. Is the $30 million level sustainable for the next quarters?
A: Michael Angerthal, CFO: The current level is appropriate for modeling purposes. We've managed to keep costs stable despite inflationary pressures by streamlining investment support systems and data feeds. We will update our outlook if there are changes in the future.
Q: How are you approaching inorganic growth and M&A opportunities?
A: George Aylward, President and CEO: We focus on organic growth in retail separate accounts, ETFs, and global funds. For M&A, we look to add capabilities not currently in our portfolio, particularly in less correlated markets like private markets. We aim to expand offerings to include private market opportunities.
Q: What is your strategy for capital allocation, particularly regarding dividends and new product introductions?
A: George Aylward, President and CEO: We continue to see opportunities for new products, especially in ETFs and global funds. Our capital allocation strategy includes consistent dividend increases, balanced with stock buybacks and other investments. We aim to maintain a steady growth in dividends as part of our strategy.
Q: Can you elaborate on the institutional pipeline and the challenges in achieving positive flows?
A: George Aylward, President and CEO: Institutional outflows are often due to reallocations rather than mandate terminations. We are focusing on meeting institutional clients' needs as they adjust their asset allocations. Our pipeline remains strong across managers, strategies, and geographies, but it's a competitive space.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
