Virtus Investment Partners, Inc. (VRTS) Q4 2012 Earnings Report, Transcript and Summary

Good morning, and my name is Jeff, and I'll 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 on the Investor Relations section of the Virtus website at www.virtus.com. This call is also being recorded and will be available for replay on the Virtus website. [Operator Instructions] I will now turn the conference over to your host, Joe Fazzino.

Thank you, Jeff, and good morning, everyone. On behalf of Virtus Investment Partners, I would like to welcome you to the discussion of our operating and financial results for the fourth quarter and full year of 2012. Before we begin, I direct your attention to the important disclosures on Page 2 of the slide presentation that accompanies this webcast. Certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not statements of facts or guarantees of future performance, and are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those discussed in the statements. These statements may be identified by such words as expect, anticipate, believe, outlook, may and similar terms. For a discussion of these risks and uncertainties, please see the Risk Factors and Management Discussion and Analysis sections of our periodic reports that are filed with the SEC, as well as our other recent filings, which are available in the Investor Relations section of our website, www.virtus.com. In addition to results presented on a GAAP basis, Virtus uses certain non-GAAP measures to evaluate its financial results. Our non-GAAP financial measures are not substitutes for GAAP financial results, and should be read in conjunction with GAAP results. Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in our earnings press release, which is available on our website. For this call, we have a presentation, including an appendix, that is accessible with the webcast through the Investor Relations section of the website. This morning, we will begin with remarks from President and Chief Executive Officer, George Aylward, who will review our accomplishments and operating results for the quarter and the full year. Mike Angerthal, Executive Vice President and Chief Financial Officer, will then discuss our financial results in further detail. George will have some closing comments before we open the call to your questions. Now, I would like to turn the call over to George Aylward.

Good morning, and thank you for joining us on the call today. Virtus delivered strong financial and operating results this year with record sales, net flows and cash earnings, and this morning, I'll begin by giving you some perspective on the accomplishments that defined our success in the fourth quarter and for the full year. Mike will then provide a more detailed review of the financial results, and I'll conclude with some thoughts on how we are positioned to continue our success in 2013. As always, we'll be glad to answer your questions after the presentation. Our results for both the quarter and the year reflect the benefits of the inherent strengths of the company, in particular, the breadth of our products, the solid investment performance our managers have delivered, the effectiveness of our distribution and our ability to leverage our business model to grow. At the start of 2012, we set the following business objectives for the year: Maintain the high quality of our products and expand into new strategies, capture greater market share, attract and retain the talents for the business, optimize our capital structure to position the company for further growth and demonstrate that we consistently deliver value for our shareholders. When you look at our accomplishments, you will clearly see that we achieved all these objectives in 2012. So let me review our results for the year and then I'll discuss the fourth quarter. 2012 was another very strong year of growth in sales, net flows and cash earnings. Our sales inflows were the highest yet for the company and included total sales of $14.4 billion, an increase of 29% from $11.2 billion in the prior year; fund sales of $12.3 billion, up 30% from $9.5 billion in 2011. This represented an annual sales rate of 73%. And we had total net flows of $6.7 billion, with fund net flows and increase by 27% to $6.4 billion. The annual organic growth rates for our long-term open-end funds was 38% for the year, which remains among the highest in the industry. We also generated a higher cash earnings, with operating income as adjusted of $81.5 million and a related margin of 38%, which is an increase of $38 million, and more than 1,000 basis points in margin from 2011. These very strong results were generated broadly, including from the equity, fixed income, and alternative products; offerings from affiliated managers; select subadvisers; and sales for multiple distribution partners. While our current offering of diverse and high-performing strategy gives us many opportunities to generate growth, we also know markets and investor needs change rapidly. So even as we are well positioned to continue our success, we're focused on maintaining multiple sources of growth for the long term. In 2012, we were especially active in expanding our investment capabilities to position the company for long-term growth. So for example, we significantly expanded our capabilities by establishing relationships with new subadvisers, adding affiliated managers and an international team, and reaching the agreements to take a minority stake in Kleinwort Benson International. Each of these managers has a distinctive strategy that does not overlap with our existing capabilities. Rampart specializes in option overlay strategies, and we see opportunities to leverage their capabilities. Newfound Investments, which is the affiliate we created in partnership with Newfound Research, provides rule-based strategies using proprietary asset allocation models. We added a team at our Euclid affiliate that manages a high conviction, core international equity portfolio, and their capabilities give us another offering in one of the larger asset classes. And KBI International offers international -- institutional quality, income-oriented equity and resource strategies. We launched 8 new mutual funds with new strategies and introduced a new AlphaSector strategy, as well as launching a new closed-end fund. Our product development illustrates the key benefit of our multi-manager model. It gives us the flexibility to offer a wide variety of differentiated products from numerous institutional-quality boutique managers. In addition to leveraging our model to create and launch innovative products, we have selectively expanded resources in areas, such as distribution, to support our growth. Last year, we've created a new dedicated sales team to focus on the Independent/RIA channels, which represent the fastest-growing segments of the financial intermediary market. We've also increased our efforts in the DCIO area to target the large retirement market. We continue to strengthen and enhance the flexibility of our balance sheet, which allows us to pursue additional growth opportunities. Last year, we amended our credit facility to extend the term and increase capacity, and we simplified our capital structure by converting preferred shares to common shares. Both of these actions position the balance sheet for greater flexibility. Ultimately, all of our activities remain focused on creating shareholder value. In 2012, our shareholders were rewarded with a substantial return on their investment in Virtus, our stock price increased 59%, and for the third consecutive year, it was the top-performing stock among publicly-traded traditional asset managers. The very strong sales in net flows we delivered in the fourth quarter continued the momentum we demonstrated throughout the year. We delivered significant top line and bottom line growth in the fourth quarter, starting with total sales of $3.9 billion, which increased $1.2 billion or 46% from the fourth quarter of 2011. Positive net flows were $1.7 billion or more than double what we had a year earlier, and on par with our very strong net flows last quarter. Mutual fund sales were $3.4 billion in the fourth quarter or 44% higher than the fourth quarter of last year. Our sales remain well balanced among those strategies in high demand, international equity, taxable fixed income and domestic equity allocation strategies. Net flows for our mutual funds were $1.7 billion in the quarter, so we continue to have one of the highest organic growth rates among the large mutual fund families with 29% growth. In terms of how 2013 is looking, you're probably all are aware that the industry is experiencing increased flows, particularly in equity assets. As a reminder, we were earlier than the industry in participating in equity flows and last year, 2/3 of our sales were from equity or alternative strategies. Our expansion in January is consistent with that what you've seen before from us in terms of how our sales compare with the industry. As a result of our cumulative top line success, our operating income as adjusted and related margin reached new levels in the quarter. Operating income as adjusted was $24.5 million for the quarter, an increase of 80% from $13.6 million in the fourth quarter of 2011 and a sequential increase of 12%. The results reflect the benefit of higher revenue and the impact of our variable cost structure associated with our growing AUM. As we have discussed previously, a high percentage of our costs are variable and will be reflective of growing sales and increased profitability. We have grown open-end fund assets under management by 53% and closed-end fund assets by 10% over the past year. And as a result, investment management fees were 41% higher this quarter than a year ago. Increasing profitability of the business is reflected in the operating margin as adjusted, which was 41% in the fourth quarter, an increase from 32% a year ago and 40% in the third quarter. From our news release, you will note that there was an unusual impact on our GAAP earnings related to noncash deferred tax expenses. We lowered the estimate of our future blended state tax rate, and when that was applied to our deferred state tax assets, it resulted in a noncash tax expense in the fourth quarter. This charge was partially offset by the benefit you get by applying a lower tax rate to our taxable income. As a reminder, with our substantial tax assets, our current cash tax rate is negligible. Michael will go into more detail on this later. Our portfolio managers continued to deliver strong relative investment performance, and this performance has been a key driver of our high level of sales and net flows. At year end, 95% of our Morningstar-rated assets were in 3-, 4-, and 5-star funds. 10 of those funds, with 73% of our assets, were rated as 5-star funds. The solid performance is balanced among equity and fixed income asset classes. 93% of our equity assets and 98% of our fixed income assets were in 3-, 4-, or 5-star funds. We're also very pleased that Rajiv Jain of Vontobel Asset Management was Morningstar's 2012 International-Stock Fund Manager of the Year for his management of our Foreign Opportunities and Emerging Market Opportunities Funds. This very prestigious award recognizes Rajiv for delivering outstanding long-term risk-adjusted performance for the investors and our funds. Morningstar honors managers in 5 categories, and Rajiv was cited for international equity strategies. We value the relationship we have with Vontobel, and the success of this partnership reinforces the fact that we have developed long-term mutually beneficial relationships with our subadvisers. We have a rigorous product management process to select the boutique manager with whom we partner and to maintain performance. We are pleased with the successful relationships we have in place and excited about the opportunities to grow the new partnerships we created last year. With that, let me ask Mike to review our financial results in more detail. Mike?

Thank you, George. Good morning, everyone. In the fourth quarter, we continue to deliver strong financial results across all of our key metrics. And this morning, I'm going to review our fourth quarter and full year results starting with assets under management sales and flows. Then I'll review our income statement, balance sheet and capital position. Overall, 2012 was a very good year for our clients and shareholders, and we are entering 2013 with solid momentum. Starting on Slide 9, assets under management. We ended the year with total AUM of $45.5 billion, which is up 32% from the prior year and 9% over the prior quarter. The year-over-year increase in AUM resulted from 3 primary factors: Strong product performance; effective retail distribution, which generated $6.7 billion of net new flows; and market appreciation, which contributed $3.8 billion of asset growth reflective of positive returns in each of the domestic equity, international equity and fixed income markets. Long-term assets ended at $43.5 billion, an increase of 35% from the prior year and 9% over the prior quarter. On a sequential basis, AUM growth was primarily driven by the strong mutual fund net flows combined with the acquisition of Rampart Investment Management, which was completed in the fourth quarter. One note on the AUM tables in the press release. This is the first quarter we included the new option strategies in our assets. At year end, $1.2 billion of these assets are included in separately managed accounts, and the remaining $100 million is in institutional assets. And additionally, all of these assets are classified as equity assets. At December 31, the percentage of equity assets was 59.1%, an increase of 130 basis points, and it was our highest level of equity assets. Slide 10 shows the quarterly and full year results and strength of the net flows. This is the continuation of a longer-term trend of delivering positive flows that are diversified by manager and asset class. Total sales for the quarter were $3.9 billion, an increase of 46% from the prior year, driven primarily by higher open-end mutual fund sales, contributing to an annualized sales rate of 37%, among the highest in the industry, and up 510 basis points from the prior year. Total net flows for the quarter were $1.7 billion, which reflected an organic growth rate of 16%, the 8th consecutive quarter with double-digit organic growth. Sales of long-term open-end funds were $3.4 billion, a year-over-year increase of 44%, and we maintained a very high annualized sales rate. Open-end fund net flows for the quarter were $1.7 billion, and the annualized organic growth rate for our mutual funds of 29% in the quarter remains at the high end among companies that sell through financial intermediaries. The continued success in gathering assets has been led by strong product performance, strength of the distribution effort and the diverse product offering. These funds cover many of the major product categories, including taxable bonds, international equities, both emerging and developed markets and domestic equities. With regard to distribution, at the beginning of 2012, we established a separate sales force to focus on the independent and RIA channels, and we have begun to see the benefit from that activity. Mutual fund sales in these channels increased 41% compared to the prior year. Finally, we continue to have balanced and diversified open-end sales across the major investment categories, with 42% of sales in international products, 35% in domestic equity and 23% in fixed income. These trends continued throughout the year and contributed to excellent full year results across the same key metrics, including full year open-end fund sales of $12.3 billion, an increase of 30% from $9.5 billion in 2011. The sales rate for the year was 73%, which was at the highest end of the industry. Open-end net flows for the year were $6.4 billion, an increase of $1.3 billion or 27% from the prior year. Net fund flows reflect an organic growth rate of 38%. Again, a very strong result. On Slide 11, we see the positive trends for operating income as adjusted and the associated margin. In the fourth quarter, operating income as adjusted was $24.5 million, which is up 80% compared to a year ago, and 12% on a sequential basis. The $2.7 million sequential increase reflects continued growth in revenues driven by higher AUM. The significant increase over the prior year primarily reflects the cumulative impact of $6.4 billion of open-end fund net flows over the past 4 quarters, combined with 10% higher closed-end fund assets. The operating margin as adjusted for the fourth quarter grew to 41%, an increase of 110 basis points from the third quarter, and an increase of 960 basis points from the prior year quarter. Importantly, fourth quarter results reflected strong revenue and asset growth and provide positive momentum into 2013. Our capture ratio for the quarter, which we define as incremental operating earnings divided by incremental revenues, was 53%. Our year-over-year capture ratio was 67%, which drove our operating margin as adjusted from 28% in 2011 to 38% in 2012. For the full year, operating income as adjusted was $81.5 million, an increase of 86% from $43.7 million in 2011. The key drivers for the increase were 37% higher total revenues, driven by strong net flows in open-end mutual funds; 3 new closed-end funds; and positive equity and fixed income market returns for the year. Concerning GAAP results. Net income in the fourth quarter was $12.2 million or $1.50 per diluted common share. It's important to note that the fourth quarter included income tax expense of $10.6 million, representing an effective tax rate of 46.1% for the quarter. The results in the quarter include incremental net noncash deferred tax expenses of $1.9 million. The incremental noncash tax expense resulted from lowering our estimated blended tax rate from 39.3% to 38% based on our evaluation of the changing mix of business activities by state. The lower blended tax rate had 2 effects: First, we get the benefit of lower tax expenses. However, there were larger offsetting noncash deferred tax expenses resulting from the reduction in our deferred tax assets by applying the lower blended tax rate. This change has no impact on the amount of our gross deferred tax attributes that we can use against future tax obligations. Some final notes on the deferred tax asset. During 2012, we continued to pay minimal cash taxes in the low-single-digit range, enabling us to retain the significant majority of cash we generate. Also, our current expected statutory effective tax rate is approximately 38%, that's an appropriate estimate as you update your models. For the full year, net income attributable to common stockholders was $37.6 million or $4.66 per diluted share. The fourth quarter and annual 2012 results are not comparable to the prior year periods because, as you may recall, the $16.35 net income attributable per share reported in the fourth quarter of 2011 included a net benefit of approximately $102.5 million or $15.30 per share, primarily related to the valuation allowance release and certain expenses related to retiring the Series B convertible shares. Turning to revenues on Slide 12. Investment management fees increased to $53.2 million, up 11% on a sequential quarter basis and 41% from the fourth quarter of last year. The 2 key drivers of investment management fee growth are average long-term assets under management and fee rates. Average long-term assets of $42.1 billion increased 10% from the prior quarter, due to both strong mutual fund net flows, as well as the acquisition of Rampart. The average fee rate increased to 48 basis points, up 0.5 basis points from the sequential quarter and an increase of 4.2 basis points from the prior year. The increase over the prior year was primarily driven by net flows into higher fee open-end products, combined with $205 million from the launch of a fixed income closed-end fund. I would like to highlight several of the drivers of the fee rate change. The variable insurance funds fee rate increased 5.4 basis points to 52.7 bps. This increase relates to a change in the level of expense reimbursement of the funds that occurred during the fourth quarter. The SMA fee rate changed from 51.1 basis points in the third quarter to 49.3 basis points due to the addition of the option strategy assets that have an average fee rate of 38.8 basis points. The 2.6 basis point increase in our institutional fee rate is related to a change in the mix of equity and fixed income assets. For the full year, investment management fees grew to $187.9 million, up $52.8 million or 39% from the prior year. The drivers of the year-over-year increase include higher average long-term assets of $37.7 billion, an increased $7.9 billion or 27% from the prior year due to strong net flows and market appreciation and an increased net fee rate of 47.4 basis points, up 6.5 bps from the 2011 level of 40.9. This rate was impacted by net flows into higher fee products, closed-end fund launches, as well as the internalization of the Newfleet Multi-Sector team during 2011. On Slide 13, I'll start with the largest component of operating expenses: Employment expenses. Total employment expenses for the quarter were $27.8 million, an increase of $1.9 million or 7% from the prior quarter. This sequential quarter increase is attributable to increased variable compensation based on profitability and sales and the addition of the Rampart and Euclid International equity teams. The ratio of employment expenses to revenues declined 90 basis points from the third quarter to 47% and by 1,020 basis points from the prior year, reflecting the increased profitability of the company. Total employment expenses for the year were $105.6 million, an increase of 14% from the prior year. Increases over the prior year were driven by the variable nature of our compensation plans and select additions to staff that expanded our retail distribution sales force and added to our investment capabilities. With the addition of the team dedicated to independent and RIA channels, we now have 30 external wholesalers. The full year employment expense ratio, which includes certain transition items, declined 970 basis points to 49.9% for the total year. Excluding transition items, the full year ratio is 48.6%, both of those rates we believe are within industry averages and a very strong result given our multi-manager business model. Moving to Slide 14, other operating expenses. The trend in other operating expenses demonstrates the scale of our business as the results continue to remain in a relatively stable range. Specifically notable is the improvement of operating expenses compared to revenues as adjusted. Total operating expenses in the fourth quarter increased $0.4 million or 5%, primarily due to operating costs associated with our new investment teams at Rampart and Euclid. As with employment expenses, a key metric is the ratio of other operating expenses to revenues as adjusted, which declined 60 basis points to 14.8% in the quarter, compared to 15.4% in the third quarter. Total other operating expenses for the year increased $3.8 million or 13%, driven by higher sales and marketing activities related to our retail sales efforts and professional fees associated with various growth initiatives. On a full year basis, other operating expenses to revenues declined 330 basis points to 16.1% compared to the prior year. This declining ratio demonstrates our ability to leverage our cost structure and expand our profit margins. Touching on our balance sheet and capital position. We manage our capital to provide appropriate operating flexibility with the overriding objective of maximizing shareholder value. We believe our record of capital deployment during 2012 and over the past several years has demonstrated our prudent approach to capital management. 2012 highlights include: That we deployed more than $40 million of our capital into growth initiatives, which included the launch of 8 new open-end mutual funds and a closed-end fund and the addition of 2 new investment teams. We returned capital to shareholders in the form of common stock repurchases that totaled $20.9 million. Of that amount, $12 million was related to the net settlement of restricted stock units, and $8.9 million was under our share repurchase program. For the full year, the company repurchased 90,000 shares at an average price of $99.30, and on a cumulative basis, we have repurchased 245,000 shares at an average price of $72.34. As of December 31, 2012, there were 105,000 shares remaining under the currently authorized program. Looking at working capital, an important metric we focus on is working capital, excluding marketable securities compared to our annual spend. We ended the year at 19% on this metric, up 5% from the prior quarter. As the company continues to generate free cash flow, we expect this ratio to move closer to industry averages and toward our objective of increasing our operating flexibility. With that, let me turn the call back over to George.

Thank you, Mike. We have often been asked over the past few years whether we can maintain an above average growth rate. And when you consider the results we delivered for the fourth quarter and the year, you'll understand why our answer to that question has been yes. If you asked the question can we continue to do so going forward, we believe it is also yes. Our ability to continue to achieve this strong growth rate is fundamentally based on 3 elements: Our business model, our strategy and our ability to execute. Our multi-manager, multi-strategy model allows us to offer products from a collection of distinct boutique managers. The flexible of our model, which leverages affiliated managers, partially owned firms and select subadvisers allows us to offer a greater number of distinctive investment strategies. Each affiliated firm or subadviser has its own investment strategy and process, and the uniqueness of each manager is an important part of the value offer for our clients. This provides us with a differentiated value proposition as we face the market as one-point access to an array of high-quality boutique managers. Our fundamental strategy is to offer a wide variety of distinctive strong performing products to meet the varied needs of different investors to the diverse markets. With considerable the range of boutique managers and the strong selection of product, you see that we do not have to rely in a limited number of existing capabilities that may or may not be in favor in certain markets in order to achieve growth. But a distinctive model and an effective strategy alone do not guarantee success. You need execution. And we believe the results we have delivered demonstrate our ability to execute on developing products, managing investment performance and raising assets. We've always said the most underappreciated aspect of the company was our model, followed only by our focus and ability to execute on our strategy. I'll say what I've said before. We continue to believe we're in the early innings of a very compelling growth story. We are very pleased with our position as we entered the new year, and I'm confident that we have the right products, the right strategy and the right team in place to continue delivering long-term value to our shareholders. So with that, we're now ready to take your questions. Jeff, can I ask you to open up the lines, please.

[Operator Instructions] Our first question comes from the line of Michael Kim with Sandler O'Neill. Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division: First, I'm just a bit curious to get your take on sort of the recent step up in flows into equity mutual funds that we've seen more recently. How much of that do you think is maybe more tactical in nature versus a more durable shift in allocation trends? And then, assuming investors do continue to move up the risk curve, how do you see your flow trends playing out as you look across your product capabilities and your affiliate base?

Sure. I'll just answer the second part, first. Again, the delivery part of our model is that we have a diverse offering of products. So on different market cycles, we would just assume we can sell different options we have in our collections of products. So whether people are focused on fixed income, we have incredibly attractive offerings or equity, where, again, we have some of the most competitive products even in some of the noncorrelated asset classes. Again, we think we have opportunities in all of those areas. In terms of what, at least, we're seeing and I think other people are sort of seeing in the industry, everyone is sort of waiting for the shift from what is essentially been an overweight into fixed income, into more of the risk classes and particularly, equity. And as I mentioned earlier, I think we were earlier than most in really trying to push some of the equities because it's the right thing for people to do in order to maintain the balance. Again, we believe they should have great fixed income in their portfolio, but they need to have a well-diversified portfolio, which includes some more of the risk assets. I think it's been good to see in the early parts of the January that people have been -- investors have been moving more into some of the equity asset classes. And whether that is the beginning of the fundamental change into more of the risk assets or not, it's hard to tell. I think a lot of the macro environment will drive whether investors really continue their level of comfort of stepping into other asset classes other than where they've been, which is in fixed income or not. Again, we do fundamentally believe people should have very well diversified portfolios, and then they should look to balance among those different items. And again, if people continue to want to participate in fixed income, with our multi-sector strategies, our senior floating rate and our emerging market debt fund, we believe we have incredible opportunities. If they want to do risk in terms of international equity and foreign ops, or play the domestic equities in these sophisticated strategies we employ throughout the sector. Again, we believe we have competitive products in all those places. We just want to help financial advisers help their clients sort of come up with the right mix of sales for them. Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division: Got it. Maybe one from a distribution standpoint. You've built out your capabilities here in the U.S. as it relates to kind of the RIA and the independent broker-dealer channels. Just curious if you've started to maybe think about focusing more overseas. It sounds like the Kleinwort Benson partnership is kind of more about offering their strategies to U.S. investors. But is there an opportunity to maybe leverage their global client base?

Yes, no. It's a great question. But yes, terms of the U.S., again, I think we've been very pleased with the success we've had for a small firm. We ranked incredibly well in some of the wire houses. We still believe that there is still great opportunities for penetration within those wire houses. As you alluded to, and as Mike mentioned, we have built out a separate force to focus exclusively on the independents and RIAs, and we've seen a lot of growth there. But we don't yet have the type of penetration in those channels that we believe we're absolutely capable of. So we still see a lot of opportunity for us in the domestic market. But we do have to think longer term about what are the opportunities outside of domestic distribution. We're very excited about our relationship with KBI. It's a wonderful firm, great managers of money and good business partners. And certainly, they participate outside of the U.S., and the relationship was structured as an investment, where we have a partnership in terms of that minority interest in one of their entities, and we'll certainly look at any opportunity. Obviously, we'll be looking to raise assets for them in the U.S., and we're certainly cognizant of and have discussions with them about some of the capabilities they have outside of the U.S.. So that is something that, longer term, we absolutely do focus in on. And KBI is an opportunity for us to partner with a great firm and look at some of the ways that they're raising assets outside the U.S.. Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division: Okay. And then maybe just one last one for Mike. In terms of capital management, it seems like the balance sheet continues to strengthen and free cash flow was ramping up. So any incremental color in terms of how you're thinking about uses for excess cash going forward? And then, more specifically, how are you thinking about the sustainability of the share repurchases?

Yes, it's a good question. When we went through the balance sheet metrics there during the shift, I highlighted one of the metrics that we look at, which is our working capital excluding marketable securities as a percentage of our spend, and while we've been generating and accelerating our free cash flow generation, we're continuing to look at that metric since we've been deploying capital, what we think rather successfully and we've seeded over $30 million of new funds and have capabilities that have been added that we'll look at for continuing to expand our product set as we've talked about. So we balance our capital management on, really, organic growth, where we think that presents the best opportunity. And we talked about continuing to provide flexibility in our balance sheet to that end. In terms of the share repurchase program, we've executed 245,000 share repurchases, including 55,000 in the fourth quarter. There is still capacity under the share repurchase program. We'll continue to look at that as a means to returning our capital to shareholders. We've balanced our objective of returning capital to shareholders with investing in the business, and we'll continue to look at that prudently as we go forward.

[Operator Instructions] Up next, we have Steven Schwartz with Raymond James & Associates. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: I have some follow-ups. First, I think I want to go back to the question of capital deployment, if we could. Looking at 2013, I'm wondering if you've got thoughts on what you might be using for seed capital. Obviously, you used $30 million this year.

Yes, and so I'll just build on a couple of things that Mike said. I think we've been very pleased that we have -- we've had great opportunities to use our capital to generate significant organic growth and that will be something we always look at. And the amount of seed capital you need is really a function not of how much you have in assets under management, but really what you have in terms of opportunity. And again, with the diversity of our model and our partners, we have a much larger opportunity. So I would continue -- we continue to believe that the ability for us to seed investments in new strategies, which, in the long term, will generate flows is a great use. The other thing I'll just point out when we seed, there's really 2 levels of seeding of new funds. Our larger competitors basically can seed at the level -- the threshold level of having assets that you can get on a lot of the platforms. The lower level, which is what we do, which is basically, what is the amount of the money you need to execute the investment strategy. So for us, we have to seed a fund at the level of which to execute the investment management strategy, and then we have to gather enough assets, so we'd reach certain thresholds for access. I sort of do look at what other firms or larger can do in terms of getting more immediate access. And as our balance sheet grows, that would be something that we would consider. But with the growth that we've had, I do believe that we have a sufficient ability to generate enough capital to, one, make sure we take advantage of the opportunity that we sort of develop over the next year but still continue to do what we've done over the last few years, which is look for ways to return capital in the form of stock repurchases and obviously, in the future, consider other alternatives of ways to address that. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: Okay. And Mike, when you're -- I'll just work out the numbers later, but when you're think of working capital x marketable securities, you are including the value of the seeding capital?

That's correct, the marketable securities, and the consolidated sponsored products. So that's net working capital number that we use in that calculation. Because again, the goal there is that we don't expect to have access to that capital for 3 years or so when would start to see flows accumulate in those funds that we've seeded. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: Okay. That makes sense. What will you -- you said you wanted to move closer to the average just quickly looking at models, I would think that would be in somewhere in the 30% to 40% range of annual spend. Would you agree with that?

We've actually seen it closer to 50% to 75% depending on the nature of the firm. So we are below industry -- and you saw when -- 2 quarters ago, before we started deploying capital into seed late in 2012, we were up into the mid-20s. So we're starting to see the pickup of that, but we're certainly at the low end of the range. We focus on that, and it is one of our objectives to building that flexibility that we talked about. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: Okay. And then, if I may, just a couple more. On 2013, your revenue capture rate, 53%, I think, for this quarter, north of 65% for the year. Is there a reason to think about that changing significantly in 2013?

Yes, I mean we've talked about a range of between 50% and 60% and historically, we've been largely within that range. So I think that's an appropriate thing to think about into 2013. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: Okay, great. And then one more thing for modeling purposes. You have a payroll tax hit in the first quarter of every year, if I remember correctly?

That's correct. Steven D. Schwartz - Raymond James & Associates, Inc., Research Division: Any idea how much should that be, just so we can get the quarter right?

What was it last?

We typically don't give -- we don't give guidance on that.

Last year, I believe it was, Mike correct me, like 7 or?

Close to $2 million, I'd say, from last year.

So last year was close to $2 million. So again, this is basically people maxing out on FICA. And we obviously have grown a little bit since then and payroll taxes have gone up in certain limited circumstances. So I think that's a good number from last year. Probably, you should expect that, that would be similar to slightly more than that, all right?

I think that's right.

[Operator Instructions] All right, ladies and gentlemen, this concludes our question-and-answer session. I'd now like to turn the conference back over to Mr. Aylward for closing remarks. My apologies, gentlemen, it looks like we just got a follow-up from the line of Michael Kim with Sandler O'Neill. Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division: Just one quick follow-up. In terms of product development initiatives that you are currently thinking about and trying to stay ahead of the future demand trends. Just curious, as you look out over the next 3 to 5 years, do you think you'll see somewhat of a return to kind of more style box investing? Or do you think the demand for this multi-asset and alternative strategies is sustainable and just kind out of how you're thinking about product development going forward?

Sure. For us, our focus is less on the more traditional style boxes. We don't think that those things that were the focus of the investing community in the '90s and early 2000s are going to remain the same. We think they'll be more focused on noncorrelated and "liquid alt" types of strategies. Again, we -- I think we have very good coverage of a lot of the fundamental traditional asset strategies and asset classes. But we do think that they'll be -- investors will be increasingly looking for other differentiated ways to play the traditional style boxes, but really looking to build around those traditional style boxes. So again, I think we already have a good diversity of those products and our focus is really looking on things that will be different and additive to that in the future.

All right, Mr. Aylward?

Okay, I just want to thank everyone for joining us this morning, and we certainly encourage anyone to call if they have any additional questions.