VIRTUS INVESTMENT PARTNERS, INC. Q1 FY2026 earnings call

Key highlights of the quarter included an 8% increase in sales with growth in U.S. retail funds, separate accounts, and global funds; positive net flows in several strategies; expansion into private markets with our investment in Keystone National Group; continued return of capital. Our investment in Keystone on March 1st added a differentiated asset-centric private credit capability, and our sales teams are actively focused on expanding distribution of their compelling strategies to retail and institutional clients. We continue to launch attractive actively managed ETFs. Assets under management were $149 billion at March 31st, down from $159 billion due to net outflows in market performance. Total sales increased 8% to $5.8 billion, with a 26% increase in sales of equity strategies. Net outflows were $8.4 billion, and outflows improved meaningfully in the last month of the quarter. Investment performance had improving relative performance in our equity strategies in the first quarter. Fixed income and alternative strategies had consistently strong performance over periods. The operating margin was 24% and reflected the impact of seasonally higher employment expenses. Excluding those items, the operating margin was 30.3%. Earnings per share as adjusted at $5.38 declined from the fourth quarter. ETFs continued to deliver solid growth, generating $0.3 billion of positive net flows.

Assets under management were $149 billion at March 31st, down from $159 billion due to net outflows in market performance. Total sales increased 8% to $5.8 billion, with a 26% increase in sales of equity strategies. Retail separate account sales increased 19%, with higher sales in each month of the quarter. The operating margin was 24% and reflected the impact of seasonally higher employment expenses. Excluding those items, the operating margin was 30.3%. Earnings per share as adjusted at $5.38 declined from the fourth quarter. ETF AUM increased to $5.4 billion, up $0.2 billion sequentially on continued strong net flows, and up 58% year-over-year. Alternatives now represent over 12% of assets.

For modeling purposes, an average fee rate in the range of 43 to 45 basis points is reasonable for the second quarter, reflecting a full quarter of Keystone. Employment expenses as adjusted will be in the 51 to 53% range as a percentage of revenues, and at the high end of that range in the second quarter, primarily due to the decline in equity assets under management. A reasonable range for non-controlling interests will be $4 to $5 million, which factors in a full quarter of Keystone. Beginning with the second quarter, an effective tax rate of 14% to 15% would be reasonable to expect.

Actual results may differ materially from forward-looking statements described in our news release and SEC filings. The first quarter was challenging from a net flow perspective due to meaningful exposure to quality-oriented equity strategies which have remained out of favor. Institutional flows can be very lumpy and hard to predict. Recent performance reflects our overweight in quality equity, and quality-oriented equity strategies have remained out of favor.

Q: Crispin Love of Piper Sandler asks about the 26% increase in sales of equity strategies, details on drivers and if it's continued in April.

A: While the majority of equity AUM and strategies have a quality orientation, other strategies like high conviction, style agnostic, growth strategies in SMAs and recently launched ETFs are drivers. Hope it continues, quality oriented will come back, and focused on other strategies. Mike Engerthal adds that they're seeing contribution on the top line from those managers and growth in the intermediary-sponsored retail separate account platform.

Q: Crispin Love asks on net outflows, longer-term trajectory.

A: Large percentage of outflows in earlier part of first quarter, March and April improved. Factors include quality-oriented strategies will turn, spent time on other strategies, Keystone transaction offers opportunity, and reopening of a closed strategy will be helpful.