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Virtus Investment Partners Announces Financial Results for Fourth Quarter 2022

  • Earnings Per Share - Diluted of $4.77; Earnings Per Share - Diluted, as Adjusted, of $5.17
  • Total Sales of $7.3B; Net Flows of ($3.4B); Assets Under Management of $149.4B

Virtus Investment Partners, Inc. (NASDAQ: VRTS) today reported financial results for the three months ended December 31, 2022.

 

Financial Highlights (Unaudited)

(in millions, except per share data or as noted)

 

 

Three Months Ended

 

 

 

Three

Months

Ended

 

 

 

12/31/2022

 

12/31/2021

 

Change

 

9/30/2022

 

Change

U.S. GAAP Financial Measures

 

 

 

 

 

 

 

 

 

Revenues

$

198.4

 

 

$

266.3

 

 

(25

%)

 

$

210.3

 

 

(6

%)

Operating expenses

$

167.2

 

 

$

182.6

 

 

(8

%)

 

$

166.2

 

 

1

%

Operating income (loss)

$

31.2

 

 

$

83.7

 

 

(63

%)

 

$

44.0

 

 

(29

%)

Operating margin

 

15.7

%

 

 

31.4

%

 

 

 

 

20.9

%

 

 

Net income (loss) attributable to Virtus Investment Partners, Inc.

$

35.4

 

 

$

49.8

 

 

(29

%)

 

$

31.7

 

 

12

%

Earnings (loss) per share - diluted

$

4.77

 

 

$

6.29

 

 

(24

%)

 

$

4.25

 

 

12

%

Weighted average shares outstanding - diluted

 

7.419

 

 

 

7.929

 

 

(6

%)

 

 

7.463

 

 

(1

%)

 

 

 

 

 

 

 

 

 

 

Non-GAAP Financial Measures (1)

 

 

 

 

 

 

 

 

 

Revenues, as adjusted

$

176.3

 

 

$

232.6

 

 

(24

%)

 

$

185.7

 

 

(5

%)

Operating expenses, as adjusted

$

120.2

 

 

$

115.8

 

 

4

%

 

$

120.8

 

 

%

Operating income (loss), as adjusted

$

56.1

 

 

$

116.8

 

 

(52

%)

 

$

64.9

 

 

(14

%)

Operating margin, as adjusted

 

31.8

%

 

 

50.2

%

 

 

 

 

35.0

%

 

 

Net income (loss) attributable to Virtus Investment Partners, Inc., as adjusted

$

38.3

 

 

$

82.1

 

 

(53

%)

 

$

43.0

 

 

(11

%)

Earnings (loss) per share - diluted, as adjusted

$

5.17

 

 

$

10.36

 

 

(50

%)

 

$

5.76

 

 

(10

%)

Weighted average shares outstanding - diluted, as adjusted

 

7.419

 

 

 

7.929

 

 

(6

%)

 

 

7.463

 

 

(1

%)

(1) See the information beginning on page 10 for reconciliations to the most directly comparable U.S. GAAP measures and other important disclosures

Earnings Summary

The company presents U.S. GAAP and non-GAAP earnings information in this release. Management believes that the non-GAAP financial measures presented reflect the company’s operating results from providing investment management and related services to individuals and institutions and uses these measures to evaluate financial performance. Non-GAAP financial measures have material limitations and should not be viewed in isolation or as a substitute for U.S. GAAP measures. Reconciliations of the non-GAAP financial measures to the most comparable U.S. GAAP measures can be found beginning on page 10 of this earnings release.

 

Assets Under Management and Asset Flows

(in billions)

 

 

Three Months Ended

 

 

 

Three

Months

Ended

 

 

 

12/31/2022

 

12/31/2021

 

Change

 

9/30/2022

 

Change

Ending total assets under management

$

149.4

 

 

$

187.2

 

(20%)

 

$

145.0

 

 

3

%

Average total assets under management

$

148.6

 

 

$

184.6

 

(20%)

 

$

157.1

 

 

(5

%)

Total sales

$

7.3

 

 

$

8.7

 

(17%)

 

$

5.7

 

 

27

%

Net flows

$

(3.4

)

 

$

 

N/M

 

$

(3.3

)

 

3

%

N/M - Not Meaningful

Total assets under management of $149.4 billion at December 31, 2022 increased from $145.0 billion at September 30, 2022, reflecting market performance and institutional net inflows, partially offset by net outflows in other products. In addition, other fee earning assets of $2.5 billion were unchanged compared with September 30, 2022.

Total sales of $7.3 billion increased 27% from $5.7 billion in the prior quarter reflecting higher sales in all product categories. Institutional sales of $3.0 billion increased from $1.5 billion largely due to an additional funding into a domestic growth equity mandate and the issuance of a collateralized loan obligation (CLO). Open-end fund sales of $3.0 billion increased 5%, with higher sales of equity, fixed income, and alternative strategies. Retail separate account sales of $1.2 billion increased 4% primarily due to investment grade fixed income.

Net outflows of $3.4 billion compared with $3.3 billion in the prior quarter, as positive institutional net flows were more than offset by net outflows in retail products. Institutional net flows of $0.8 billion compared with net flows of ($0.4) billion in the prior quarter and have been positive in eight of the last nine quarters. Open-end fund net outflows of $3.8 billion increased from $2.8 billion in the prior quarter due to higher redemptions across asset classes reflecting market trends. Retail separate account net outflows of $0.4 billion compared with $0.2 billion in the prior quarter and included net outflows in the intermediary sold channel partially offset by continued net inflows in private client.

GAAP Results

Operating income of $31.2 million declined from $44.0 million in the prior quarter due to a 6% decrease in total revenues and a 1% increase in total operating expenses. Revenues declined primarily due to lower average assets under management. The increase in operating expenses primarily reflected fair value adjustments to contingent consideration partially offset by the impact of restructuring expenses in the prior quarter. Operating expenses were also impacted by a modest decrease in employment expenses, due to lower variable incentive compensation, and a 2% increase in other operating expenses primarily due to acquisition and integration costs.

Net income attributable to Virtus Investment Partners, Inc. of $4.77 per diluted common share included $1.53 of fair value adjustments to affiliate noncontrolling interests and $0.78 of net realized and unrealized gains on investments, partially offset by ($1.03) of CLO issuance expenses, ($0.50) of fair value adjustments to contingent consideration, and ($0.41) of discrete tax adjustments. Net income per diluted share of $4.25 in the prior quarter included ($1.12) of net realized and unrealized losses on investments, primarily consolidated investment products, and ($0.54) of restructuring expenses, partially offset by $0.73 of fair value adjustments to affiliate noncontrolling interests. The fair value adjustments to affiliate non-controlling interests are the result of updating minority-held equity to current value while fair value adjustments to contingent consideration reflect updated expectations of future payments.

The effective tax rate of 34% increased from 28% in the prior quarter, primarily reflecting discrete tax adjustments partially offset by changes in the valuation allowances related to marketable securities.

Non-GAAP Results

Revenues, as adjusted, of $176.3 million declined from $185.7 million in the prior quarter due to lower average assets under management.

Employment expenses, as adjusted, of $88.3 million decreased from $88.7 million as lower profit- and sales-based variable compensation was partially offset by an increase in estimates of investment performance-related compensation, the impact of which was offset in other income, as adjusted. Other operating expenses, as adjusted, of $30.8 million compared with $31.1 million in the prior quarter, which included $1.0 million of transaction related expenses. Excluding the transaction expenses, the sequential increase was due to higher sales and marketing activity as well as efficiency and distribution initiatives. Operating income, as adjusted, of $56.1 million and the related margin of 31.8% declined from $64.9 million and 35.0%, respectively, primarily due to lower investment management fees.

Net income attributable to Virtus Investment Partners, Inc., as adjusted, per diluted common share was $5.17, a decrease of $0.59, or 10%, from $5.76 in the prior quarter. The decline primarily reflected lower investment management fees due to lower average assets under management.

The effective tax rate, as adjusted, of 27% was unchanged from the prior quarter.

 

Select Balance Sheet Items (Unaudited)

(in millions)

 

 

As of

 

 

 

As of

 

 

 

12/31/2022

 

12/31/2021

 

Change

 

9/30/2022

 

Change

Cash and cash equivalents

$

338.2

 

 

$

378.9

 

 

(11

%)

 

$

309.2

 

 

9

%

Gross debt (1)

$

261.6

 

 

$

274.3

 

 

(5

%)

 

$

262.3

 

 

%

Contingent consideration (2)

$

128.4

 

 

$

162.6

 

 

(21

%)

 

$

133.6

 

 

(4

%)

Redeemable noncontrolling interests (3)

$

95.5

 

 

$

126.5

 

 

(25

%)

 

$

108.3

 

 

(12

%)

Total equity exc. noncontrolling interests

$

817.0

 

 

$

828.3

 

 

(1

%)

 

$

799.2

 

 

2

%

 

 

 

 

 

 

 

 

 

 

Working capital (4)

$

180.6

 

 

$

219.8

 

 

(18

%)

 

$

195.2

 

 

(7

%)

Net debt (cash) (5)

$

(76.7

)

 

$

(104.6

)

 

(27

%)

 

$

(47.0

)

 

63

%

(1) Excludes deferred financing costs of $6.5 million, $8.0 million, and $6.8 million, as of December 31, 2022, December 31, 2021, and September 30, 2022, respectively

(2) Represents estimates of revenue participation and contingent payments

(3) Excludes redeemable noncontrolling interests of consolidated investment products of $18.3 million, $12.4 million, and $16.2 million as of December 31, 2022, December 31, 2021, and September 30, 2022, respectively

(4) Defined as cash and cash equivalents plus accounts receivable, net, less accrued compensation and benefits, accounts payable and accrued liabilities, dividends payable, debt principal payments due over next 12 months and revenue participation amounts earned as of the balance sheet date and due within 12 months

(5) Defined as gross debt less cash and cash equivalents

N/M - Not Meaningful

Working capital of $180.6 million at December 31, 2022 declined from $195.2 million at September 30, 2022 as an investment in a newly issued CLO and return of capital to shareholders more than offset cash earnings.

During the quarter, the company returned $10.0 million to shareholders through the repurchase of 53,320 shares of common stock.

Conference Call and Investor Presentation

Management will host an investor conference call and webcast on Friday, February 3, 2023, at 10 a.m. Eastern to discuss these financial results and related matters. The presentation that will accompany the conference call is available in the Investor Relations section of virtus.com. A replay of the call will be available in the Investor Relations section for at least one year.

About Virtus Investment Partners, Inc.

Virtus Investment Partners (NASDAQ: VRTS) is a distinctive partnership of boutique investment managers singularly committed to the long-term success of individual and institutional investors. We provide investment management products and services from our affiliated managers, each with a distinct investment style and autonomous investment process, as well as select subadvisers. Investment solutions are available across multiple disciplines and product types to meet a wide array of investor needs. Additional information about our firm, investment partners, and strategies is available at virtus.com.

 

U.S. GAAP Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

 

 

Three Months Ended

 

 

 

Three

Months

Ended

 

 

 

Twelve Months Ended

 

 

 

12/31/2022

 

12/31/2021

 

Change

 

9/30/2022

 

Change

 

12/31/2022

 

12/31/2021

 

Change

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

$

163,648

 

 

$

213,673

 

 

(23%)

 

$

172,850

 

 

(5%)

 

$

728,339

 

 

$

781,585

 

 

(7%)

Distribution and service fees

 

14,606

 

 

 

23,464

 

 

(38%)

 

 

15,746

 

 

(7%)

 

 

67,518

 

 

 

90,555

 

 

(25%)

Administration and shareholder service fees

 

18,973

 

 

 

27,615

 

 

(31%)

 

 

20,563

 

 

(8%)

 

 

85,862

 

 

 

102,531

 

 

(16%)

Other income and fees

 

1,144

 

 

 

1,510

 

 

(24%)

 

 

1,102

 

 

4%

 

 

4,660

 

 

 

4,563

 

 

2%

Total revenues

 

198,371

 

 

 

266,262

 

 

(25%)

 

 

210,261

 

 

(6%)

 

 

886,379

 

 

 

979,234

 

 

(9%)

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employment expenses

 

87,676

 

 

 

91,496

 

 

(4%)

 

 

88,230

 

 

(1%)

 

 

371,259

 

 

 

358,230

 

 

4%

Distribution and other asset-based expenses

 

24,365

 

 

 

36,032

 

 

(32%)

 

 

26,818

 

 

(9%)

 

 

112,612

 

 

 

141,039

 

 

(20%)

Other operating expenses

 

31,811

 

 

 

25,808

 

 

23%

 

 

31,096

 

 

2%

 

 

126,178

 

 

 

90,134

 

 

40%

Operating expenses of consolidated investment products

 

2,481

 

 

 

1,705

 

 

46%

 

 

538

 

 

361%

 

 

4,408

 

 

 

3,562

 

 

24%

Restructuring expense

 

 

 

 

 

 

N/M

 

 

4,015

 

 

(100%)

 

 

4,015

 

 

 

 

 

N/M

Change in fair value of contingent consideration

 

5,120

 

 

 

12,400

 

 

(59%)

 

 

 

 

N/M

 

 

8,020

 

 

 

12,400

 

 

(35%)

Depreciation expense

 

1,088

 

 

 

906

 

 

20%

 

 

938

 

 

16%

 

 

3,923

 

 

 

3,900

 

 

1%

Amortization expense

 

14,609

 

 

 

14,262

 

 

2%

 

 

14,609

 

 

—%

 

 

58,504

 

 

 

44,481

 

 

32%

Total operating expenses

 

167,150

 

 

 

182,609

 

 

(8%)

 

 

166,244

 

 

1%

 

 

688,919

 

 

 

653,746

 

 

5%

Operating Income (Loss)

 

31,221

 

 

 

83,653

 

 

(63%)

 

 

44,017

 

 

(29%)

 

 

197,460

 

 

 

325,488

 

 

(39%)

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized and unrealized gain (loss) on investments, net

 

3,529

 

 

 

1,026

 

 

244%

 

 

(2,493

)

 

N/M

 

 

(12,489

)

 

 

3,907

 

 

N/M

Realized and unrealized gain (loss) of consolidated investment products, net

 

4,147

 

 

 

2,980

 

 

39%

 

 

(8,440

)

 

N/M

 

 

(39,296

)

 

 

(1,761

)

 

N/M

Other income (expense), net

 

(352

)

 

 

632

 

 

N/M

 

 

(659

)

 

(47%)

 

 

(153

)

 

 

4,230

 

 

N/M

Total other income (expense), net

 

7,324

 

 

 

4,638

 

 

58%

 

 

(11,592

)

 

N/M

 

 

(51,938

)

 

 

6,376

 

 

N/M

Interest Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(4,512

)

 

 

(2,322

)

 

94%

 

 

(3,557

)

 

27%

 

 

(13,173

)

 

 

(9,240

)

 

43%

Interest and dividend income

 

2,578

 

 

 

793

 

 

225%

 

 

1,013

 

 

154%

 

 

4,448

 

 

 

1,364

 

 

226%

Interest and dividend income of investments of consolidated investment products

 

35,889

 

 

 

20,765

 

 

73%

 

 

28,644

 

 

25%

 

 

107,325

 

 

 

90,080

 

 

19%

Interest expense of consolidated investment products

 

(33,374

)

 

 

(18,056

)

 

85%

 

 

(20,356

)

 

64%

 

 

(80,234

)

 

 

(60,398

)

 

33%

Total interest income (expense), net

 

581

 

 

 

1,180

 

 

(51%)

 

 

5,744

 

 

(90%)

 

 

18,366

 

 

 

21,806

 

 

(16%)

Income (Loss) Before Income Taxes

 

39,126

 

 

 

89,471

 

 

(56%)

 

 

38,169

 

 

3%

 

 

163,888

 

 

 

353,670

 

 

(54%)

Income tax expense (benefit)

 

13,291

 

 

 

27,458

 

 

(52%)

 

 

10,754

 

 

24%

 

 

57,260

 

 

 

90,835

 

 

(37%)

Net Income (Loss)

 

25,835

 

 

 

62,013

 

 

(58%)

 

 

27,415

 

 

(6%)

 

 

106,628

 

 

 

262,835

 

 

(59%)

Noncontrolling interests

 

9,565

 

 

 

(12,173

)

 

N/M

 

 

4,265

 

 

124%

 

 

10,913

 

 

 

(54,704

)

 

N/M

Net Income (Loss) Attributable to Virtus Investment Partners, Inc.

$

35,400

 

 

$

49,840

 

 

(29%)

 

$

31,680

 

 

12%

 

$

117,541

 

 

$

208,131

 

 

(44%)

Earnings (Loss) Per Share - Basic

$

4.87

 

 

$

6.54

 

 

(26%)

 

$

4.33

 

 

12%

 

$

15.90

 

 

$

27.13

 

 

(41%)

Earnings (Loss) Per Share - Diluted

$

4.77

 

 

$

6.29

 

 

(24%)

 

$

4.25

 

 

12%

 

$

15.50

 

 

$

26.01

 

 

(40%)

Cash Dividends Declared Per Common Share

$

1.65

 

 

$

1.50

 

 

10%

 

$

1.65

 

 

—%

 

$

6.30

 

 

$

4.64

 

 

36%

Weighted Average Shares Outstanding - Basic

 

7,262

 

 

 

7,623

 

 

(5%)

 

 

7,308

 

 

(1%)

 

 

7,391

 

 

 

7,672

 

 

(4%)

Weighted Average Shares Outstanding - Diluted

 

7,419

 

 

 

7,929

 

 

(6%)

 

 

7,463

 

 

(1%)

 

 

7,582

 

 

 

8,003

 

 

(5%)

 

N/M - Not Meaningful

 

Assets Under Management - Product and Asset Class

(in millions)

 

 

Three Months Ended

 

12/31/2021

 

03/31/2022

 

6/30/2022

 

9/30/2022

 

12/31/2022

By Product (period end):

 

 

 

 

 

 

 

 

 

Open-End Funds (1)

$

78,706

 

$

73,149

 

$

59,479

 

$

54,454

 

$

53,000

Closed-End Funds

 

12,068

 

 

12,060

 

 

10,645

 

 

10,146

 

 

10,361

Retail Separate Accounts

 

44,538

 

 

40,824

 

 

35,248

 

 

33,381

 

 

35,352

Institutional Accounts (2)

 

51,874

 

 

57,309

 

 

50,048

 

 

46,993

 

 

50,663

Total

$

187,186

 

$

183,342

 

$

155,420

 

$

144,974

 

$

149,376

 

 

 

 

 

 

 

 

 

 

By Product (average) (3)

 

 

 

 

 

 

 

 

 

Open-End Funds (1)

$

80,303

 

$

75,537

 

$

65,592

 

$

60,185

 

$

54,870

Closed-End Funds

 

12,043

 

 

11,762

 

 

11,405

 

 

10,971

 

 

10,389

Retail Separate Accounts

 

41,528

 

 

44,538

 

 

40,824

 

 

35,248

 

 

33,381

Institutional Accounts (2)

 

50,693

 

 

58,269

 

 

53,560

 

 

50,668

 

 

49,981

Total

$

184,567

 

$

190,106

 

$

171,381

 

$

157,072

 

$

148,621

 

 

 

 

 

 

 

 

 

 

By Asset Class (period end):

 

 

 

 

 

 

 

 

 

Equity

$

116,546

 

$

102,989

 

$

84,754

 

$

78,034

 

$

81,894

Fixed Income

 

34,261

 

 

45,418

 

 

39,322

 

 

36,910

 

 

36,903

Multi-Asset (4)

 

24,853

 

 

23,415

 

 

20,261

 

 

19,364

 

 

19,937

Alternatives (5)

 

11,526

 

 

11,520

 

 

11,083

 

 

10,666

 

 

10,642

Total

$

187,186

 

$

183,342

 

$

155,420

 

$

144,974

 

$

149,376

 

Assets Under Management - Average Management Fees Earned (6)

(in basis points)

 

 

Three Months Ended

 

12/31/2021

 

3/31/2022

 

6/30/2022

 

9/30/2022

 

12/31/2022

By Product:

 

 

 

 

 

 

 

 

 

Open-End Funds (1)

48.5

 

46.5

 

46.2

 

46.8

 

47.2

Closed-End Funds

55.5

 

58.4

 

56.9

 

57.0

 

57.1

Retail Separate Accounts

44.6

 

43.6

 

42.9

 

42.2

 

42.6

Institutional Accounts (2)(7)

32.6

 

31.5

 

30.6

 

31.3

 

32.0

All Products (7)

43.7

 

41.9

 

41.2

 

41.5

 

41.7

(1) Represents assets under management of U.S. retail funds, global funds, exchange traded funds, and variable insurance funds

(2) Represents assets under management of institutional separate and commingled accounts including structured products

(3) Averages are calculated as follows:

- Funds - average daily or weekly balances

- Retail Separate Accounts - prior-quarter ending balance

- Institutional Accounts - average of month-end balances in quarter

(4) Includes strategies with substantial holdings in at least two of the following asset classes: equity, fixed income, and alternatives

(5) Consists of event-driven, real estate securities, infrastructure, long/short, and other strategies

(6) Represents investment management fees, as adjusted, divided by average assets. Investment management fees, as adjusted, exclude the impact of consolidated investment products and are net of revenue-related adjustments. Revenue-related adjustments are based on specific agreements and reflect the portion of investment management fees passed through to third-party client intermediaries for services to investors in sponsored investment products

(7) Includes performance-related fees, in basis points, earned during the three months ended as follows:

 

12/31/2021

 

3/31/2022

 

6/30/2022

 

9/30/2022

 

12/31/2022

Institutional Accounts

0.5

 

0.5

 

0.3

 

0.2

 

0.4

All Products

0.1

 

0.1

 

0.1

 

0.1

 

0.1

 

Assets Under Management - Asset Flows by Product

(in millions)

 

 

Three Months Ended

 

Twelve Months Ended

 

12/31/2021

 

3/31/2022

 

6/30/2022

 

9/30/2022

 

12/31/2022

 

12/31/2021

 

12/31/2022

Open-End Funds (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

74,365

 

 

$

78,706

 

 

$

73,149

 

 

$

59,479

 

 

$

54,454

 

 

$

51,608

 

 

$

78,706

 

Inflows

 

4,346

 

 

 

4,956

 

 

 

3,120

 

 

 

2,880

 

 

 

3,029

 

 

 

19,158

 

 

 

13,985

 

Outflows

 

(5,943

)

 

 

(8,378

)

 

 

(7,643

)

 

 

(5,689

)

 

 

(6,839

)

 

 

(21,525

)

 

 

(28,549

)

Net flows

 

(1,597

)

 

 

(3,422

)

 

 

(4,523

)

 

 

(2,809

)

 

 

(3,810

)

 

 

(2,367

)

 

 

(14,564

)

Market performance

 

2,282

 

 

 

(6,907

)

 

 

(9,000

)

 

 

(2,012

)

 

 

2,806

 

 

 

6,308

 

 

 

(15,113

)

Other (2)

 

3,656

 

 

 

4,772

 

 

 

(147

)

 

 

(204

)

 

 

(450

)

 

 

23,157

 

 

 

3,971

 

Ending balance

$

78,706

 

 

$

73,149

 

 

$

59,479

 

 

$

54,454

 

 

$

53,000

 

 

$

78,706

 

 

$

53,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Closed-End Funds

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

11,721

 

 

$

12,068

 

 

$

12,060

 

 

$

10,645

 

 

$

10,146

 

 

$

5,914

 

 

$

12,068

 

Inflows

 

19

 

 

 

8

 

 

 

24

 

 

 

157

 

 

 

2

 

 

 

22

 

 

 

191

 

Outflows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net flows

 

19

 

 

 

8

 

 

 

24

 

 

 

157

 

 

 

2

 

 

 

22

 

 

 

191

 

Market performance

 

718

 

 

 

(196

)

 

 

(1,250

)

 

 

(531

)

 

 

631

 

 

 

1,223

 

 

 

(1,346

)

Other (2)

 

(390

)

 

 

180

 

 

 

(189

)

 

 

(125

)

 

 

(418

)

 

 

4,909

 

 

 

(552

)

Ending balance

$

12,068

 

 

$

12,060

 

 

$

10,645

 

 

$

10,146

 

 

$

10,361

 

 

$

12,068

 

 

$

10,361

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail Separate Accounts

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

41,528

 

 

$

44,538

 

 

$

40,824

 

 

$

35,248

 

 

$

33,381

 

 

$

29,751

 

 

$

44,538

 

Inflows

 

2,240

 

 

 

2,022

 

 

 

1,288

 

 

 

1,179

 

 

 

1,221

 

 

 

9,215

 

 

 

5,710

 

Outflows

 

(1,125

)

 

 

(1,394

)

 

 

(1,977

)

 

 

(1,418

)

 

 

(1,651

)

 

 

(4,085

)

 

 

(6,440

)

Net flows

 

1,115

 

 

 

628

 

 

 

(689

)

 

 

(239

)

 

 

(430

)

 

 

5,130

 

 

 

(730

)

Market performance

 

1,895

 

 

 

(4,342

)

 

 

(4,887

)

 

 

(1,628

)

 

 

2,401

 

 

 

6,124

 

 

 

(8,456

)

Other (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,533

 

 

 

 

Ending balance

$

44,538

 

 

$

40,824

 

 

$

35,248

 

 

$

33,381

 

 

$

35,352

 

 

$

44,538

 

 

$

35,352

 

Institutional Accounts (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

49,691

 

 

$

51,874

 

 

$

57,309

 

 

$

50,048

 

 

$

46,993

 

 

$

44,921

 

 

$

51,874

 

Inflows

 

2,107

 

 

 

2,449

 

 

 

3,452

 

 

 

1,507

 

 

 

2,999

 

 

 

8,101

 

 

 

10,407

 

Outflows

 

(1,625

)

 

 

(1,623

)

 

 

(3,032

)

 

 

(1,930

)

 

 

(2,162

)

 

 

(7,404

)

 

 

(8,747

)

Net flows

 

482

 

 

 

826

 

 

 

420

 

 

 

(423

)

 

 

837

 

 

 

697

 

 

 

1,660

 

Market performance

 

1,438

 

 

 

(5,012

)

 

 

(7,657

)

 

 

(2,475

)

 

 

2,976

 

 

 

5,697

 

 

 

(12,168

)

Other (2)

 

263

 

 

 

9,621

 

 

 

(24

)

 

 

(157

)

 

 

(143

)

 

 

559

 

 

 

9,297

 

Ending balance

$

51,874

 

 

$

57,309

 

 

$

50,048

 

 

$

46,993

 

 

$

50,663

 

 

$

51,874

 

 

$

50,663

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

177,305

 

 

$

187,186

 

 

$

183,342

 

 

$

155,420

 

 

$

144,974

 

 

$

132,194

 

 

$

187,186

 

Inflows

 

8,712

 

 

 

9,435

 

 

 

7,884

 

 

 

5,723

 

 

 

7,251

 

 

 

36,496

 

 

 

30,293

 

Outflows

 

(8,693

)

 

 

(11,395

)

 

 

(12,652

)

 

 

(9,037

)

 

 

(10,652

)

 

 

(33,014

)

 

 

(43,736

)

Net flows

 

19

 

 

 

(1,960

)

 

 

(4,768

)

 

 

(3,314

)

 

 

(3,401

)

 

 

3,482

 

 

 

(13,443

)

Market performance

 

6,333

 

 

 

(16,457

)

 

 

(22,794

)

 

 

(6,646

)

 

 

8,814

 

 

 

19,352

 

 

 

(37,083

)

Other (2)

 

3,529

 

 

 

14,573

 

 

 

(360

)

 

 

(486

)

 

 

(1,011

)

 

 

32,158

 

 

 

12,716

 

Ending balance

$

187,186

 

 

$

183,342

 

 

$

155,420

 

 

$

144,974

 

 

$

149,376

 

 

$

187,186

 

 

$

149,376

 

(1) Represents assets under management of U.S. retail funds, global funds, exchange traded funds, and variable insurance funds

(2) Represents open-end and closed-end fund distributions net of reinvestments, the net change in assets from cash management strategies, and the impact of non-sales related activities such as asset acquisitions/(dispositions), seed capital investments/(withdrawals), current income or capital returned by structured products and the use of leverage

(3) Represents assets under management of institutional separate and commingled accounts including structured products

Non-GAAP Information and Reconciliations

(in thousands except per share data)

The non-GAAP financial measures included in this release differ from financial measures determined in accordance with U.S. GAAP as a result of the reclassification of certain income statement items, as well as the exclusion of certain expenses and other items that are not reflective of the earnings generated from providing investment management and related services. Non-GAAP financial measures have material limitations and should not be viewed in isolation or as a substitute for U.S. GAAP measures.

The following are reconciliations and related notes of the most comparable U.S. GAAP measure to each non-GAAP measure:

 

Three Months Ended

Revenues

12/31/2022

 

12/31/2021

 

9/30/2022

Total revenues, GAAP

$

198,371

 

 

$

266,262

 

 

$

210,261

 

Consolidated investment products revenues (1)

 

2,264

 

 

 

2,374

 

 

 

2,243

 

Investment management fees (2)

 

(9,758

)

 

 

(12,567

)

 

 

(11,070

)

Distribution and service fees (2)

 

(14,607

)

 

 

(23,465

)

 

 

(15,748

)

Total revenues, as adjusted

$

176,270

 

 

$

232,604

 

 

$

185,686

 

Operating Expenses

 

 

 

 

 

Total operating expenses, GAAP

$

167,150

 

 

$

182,609

 

 

$

166,244

 

Consolidated investment products expenses (1)

 

(2,481

)

 

 

(1,705

)

 

 

(538

)

Distribution and other asset-based expenses (3)

 

(24,365

)

 

 

(36,032

)

 

 

(26,818

)

Amortization of intangible assets (4)

 

(14,609

)

 

 

(14,262

)

 

 

(14,609

)

Restructuring expense (5)

 

 

 

 

 

 

 

(4,015

)

Acquisition and integration expenses (6)

 

(6,175

)

 

 

(14,454

)

 

 

 

Other (7)

 

637

 

 

 

(374

)

 

 

486

 

Total operating expenses, as adjusted

$

120,157

 

 

$

115,782

 

 

$

120,750

 

 

 

 

 

 

 

Operating Income (Loss)

 

 

 

 

 

Operating income (loss), GAAP

$

31,221

 

 

$

83,653

 

 

$

44,017

 

Consolidated investment products (earnings) losses (1)

 

4,745

 

 

 

4,079

 

 

 

2,781

 

Amortization of intangible assets (4)

 

14,609

 

 

 

14,262

 

 

 

14,609

 

Restructuring expense (5)

 

 

 

 

 

 

 

4,015

 

Acquisition and integration expenses (6)

 

6,175

 

 

 

14,454

 

 

 

 

Other (7)

 

(637

)

 

 

374

 

 

 

(486

)

Operating income (loss), as adjusted

$

56,113

 

 

$

116,822

 

 

$

64,936

 

 

 

 

 

 

 

Operating margin, GAAP

 

15.7

%

 

 

31.4

%

 

 

20.9

%

Operating margin, as adjusted

 

31.8

%

 

 

50.2

%

 

 

35.0

%

Three Months Ended

Income (Loss) Before Taxes

12/31/2022

 

12/31/2021

 

9/30/2022

Income (loss) before taxes, GAAP

$

39,126

 

 

$

89,471

 

 

$

38,169

 

Consolidated investment products (earnings) losses (1)

 

(441

)

 

 

(517

)

 

 

478

 

Amortization of intangible assets (4)

 

14,609

 

 

 

14,262

 

 

 

14,609

 

Restructuring expense (5)

 

 

 

 

 

 

 

4,015

 

Acquisition and integration expenses (6)

 

6,175

 

 

 

14,454

 

 

 

 

Other (7)

 

(637

)

 

 

374

 

 

 

(486

)

Seed capital and CLO investments (gains) losses (8)

 

(3,322

)

 

 

(1,285

)

 

 

5,363

 

Income (loss) before taxes, as adjusted

$

55,510

 

 

$

116,759

 

 

$

62,148

 

Income Tax Expense (Benefit)

 

 

 

 

 

Income tax expense (benefit), GAAP

$

13,291

 

 

$

27,458

 

 

$

10,754

 

Tax impact of:

 

 

 

 

 

Amortization of intangible assets (4)

 

3,988

 

 

 

3,844

 

 

 

3,939

 

Restructuring expense (5)

 

 

 

 

 

 

 

1,082

 

Acquisition and integration expenses (6)

 

1,686

 

 

 

3,896

 

 

 

 

Other (7)

 

(3,766

)

 

 

(850

)

 

 

610

 

Seed capital and CLO investments (gains) losses (8)

 

(46

)

 

 

(2,880

)

 

 

370

 

Income tax expense (benefit), as adjusted

$

15,153

 

 

$

31,468

 

 

$

16,755

 

 

 

 

 

 

 

Effective tax rate, GAAPA

 

34.0

%

 

 

30.7

%

 

 

28.2

%

Effective tax rate, as adjustedB

 

27.3

%

 

 

27.0

%

 

 

27.0

%

 

A Reflects income tax expense (benefit), GAAP, divided by income (loss) before taxes, GAAP

B Reflects income tax expense (benefit), as adjusted, divided by income (loss) before taxes, as adjusted

Net Income (Loss) Attributable to Virtus Investment Partners, Inc.

 

 

 

 

 

Net income (loss) attributable to Virtus Investment Partners, Inc., GAAP

$

35,400

 

 

$

49,840

 

$

31,680

 

Amortization of intangible assets, net of tax (4)

 

9,942

 

 

 

9,682

 

 

9,952

 

Restructuring expense, net of tax (5)

 

 

 

 

 

 

2,933

 

Acquisition and integration expenses, net of tax (6)

 

4,489

 

 

 

10,558

 

 

 

Other, net of tax (7)

 

(8,216

)

 

 

10,455

 

 

(6,558

)

Seed capital and CLO investments (gains) losses, net of tax (8)

 

(3,276

)

 

 

1,595

 

 

4,993

 

Net income (loss) attributable to Virtus Investment Partners, Inc., as adjusted

$

38,339

 

 

$

82,130

 

$

43,000

 

Weighted average shares outstanding - diluted

 

7,419

 

 

 

7,929

 

 

7,463

 

 

 

 

 

 

 

Earnings (loss) per share - diluted, GAAP

$

4.77

 

 

$

6.29

 

$

4.25

 

Earnings (loss) per share - diluted, as adjusted

$

5.17

 

 

$

10.36

 

$

5.76

 

 

Three Months Ended

Administration and Shareholder Services Fees

12/31/2022

 

12/31/2021

 

9/30/2022

Administration and shareholder service fees, GAAP

$

18,973

 

 

$

27,615

 

 

$

20,563

 

Consolidated investment products fees (1)

 

32

 

 

 

50

 

 

 

24

 

Administration and shareholder service fees, as adjusted

$

19,005

 

 

$

27,665

 

 

$

20,587

 

 

 

 

 

 

 

Employment Expenses

 

 

 

 

 

Employment expenses, GAAP

$

87,676

 

 

$

91,496

 

 

$

88,230

 

Acquisition and integration expenses (6)

 

 

 

 

846

 

 

 

 

Other (7)

 

637

 

 

 

(346

)

 

 

486

 

Employment expenses, as adjusted

$

88,313

 

 

$

91,996

 

 

$

88,716

 

 

Other Operating Expenses

 

 

 

 

 

Other operating expenses, GAAP

$

31,811

 

 

$

25,808

 

 

$

31,096

 

Acquisition and integration expenses (6)

 

(1,055

)

 

 

(2,900

)

 

 

 

Other (7)

 

 

 

 

(28

)

 

 

 

Other operating expenses, as adjusted

$

30,756

 

 

$

22,880

 

 

$

31,096

 

 

Total Other Income (Expense), Net

 

 

 

 

 

Total other income (expense), net GAAP

$

7,324

 

 

$

4,638

 

 

$

(11,592

)

Consolidated investment products (1)

 

(3,782

)

 

 

(2,866

)

 

 

4,788

 

Seed capital and CLO investments (gains) losses (8)

 

(3,322

)

 

 

(1,285

)

 

 

5,363

 

Total other income (expense), net as adjusted

$

220

 

 

$

487

 

 

$

(1,441

)

 

Interest and Dividend Income

 

 

 

 

 

Interest and dividend income, GAAP

$

2,578

 

 

$

793

 

 

$

1,013

 

Consolidated investment products (1)

 

1,111

 

 

 

979

 

 

 

1,197

 

Interest and dividend income, as adjusted

$

3,689

 

 

$

1,772

 

 

$

2,210

 

 

Total Noncontrolling Interests

 

 

 

 

 

Total noncontrolling interests, GAAP

$

9,565

 

 

$

(12,173

)

 

$

4,265

 

Consolidated investment products (1)

 

441

 

 

 

517

 

 

 

(478

)

Amortization of intangible assets (4)

 

(679

)

 

 

(736

)

 

 

(718

)

Other (7)

 

(11,345

)

 

 

9,231

 

 

 

(5,462

)

Total noncontrolling interests, as adjusted

$

(2,018

)

 

$

(3,161

)

 

$

(2,393

)

 

Notes to Reconciliations:

Reclassifications:

1. Consolidated investment products - Revenues and expenses generated by operating activities of mutual funds and CLOs that are consolidated in the financial statements. Management believes that excluding these operating activities to reflect net revenues and expenses of the company prior to the consolidation of these products is consistent with the approach of reflecting its operating results from managing third-party client assets.

Other Adjustments:

Revenue Related

2. Investment management/Distribution and service fees - Each of these revenue line items is reduced to exclude fees passed through to third-party client intermediaries who own the retail client relationship and are responsible for distributing the product and servicing the client. The amount of fees fluctuates each period, based on a predetermined percentage of the value of assets under management, and varies based on the type of investment product. The specific adjustments are as follows:

Investment management fees - Based on specific agreements, the portion of investment management fees passed-through to third-party intermediaries for services to investors in sponsored investment products.

Distribution and service fees - Based on distinct arrangements, fees collected by the company then passed-through to third-party client intermediaries for services to investors in sponsored investment products. The adjustment represents all of the company's distribution and service fees that are recorded as a separate line item on the condensed consolidated statements of operations.

Management believes that making these adjustments aids in comparing the company's operating results with other asset management firms that do not utilize third-party client intermediaries.

Expense Related

3. Distribution and other asset-based expenses - Primarily payments to third-party client intermediaries for providing services to investors in sponsored investment products. Management believes that making this adjustment aids in comparing the company’s operating results with other asset management firms that do not utilize third-party client intermediaries.

4. Amortization of intangible assets - Non-cash amortization expense or impairment expense, if any, attributable to acquisition-related intangible assets, including any portion that is allocated to noncontrolling interests. Management believes that making this adjustment aids in comparing the company’s operating results with other asset management firms that have not engaged in acquisitions.

5. Restructuring expense - Certain non-recurring expenses associated with restructuring the business, including lease abandonment-related expenses and severance costs associated with staff reductions that are not reflective of ongoing earnings generation of the business. Management believes that making this adjustment aids in comparing the company's operating results with prior periods.

6. Acquisition and integration expenses - Expenses that are directly related to acquisition and integration activities. Acquisition expenses include transaction closing costs, change in fair value of contingent consideration, certain professional fees, and financing fees. Integration expenses include costs incurred that are directly attributable to combining businesses, including compensation, restructuring and severance charges, professional fees, consulting fees, and other expenses. Management believes that making these adjustments aids in comparing the company’s operating results with other asset management firms that have not engaged in acquisitions.

Components of Acquisition and Integration Expenses for the respective periods are shown below:

 

Three Months Ended

Acquisition and Integration Expenses

12/31/2022

 

12/31/2021

 

9/30/2022

Employment expenses

$

 

$

(846

)

 

$

Other operating expenses

 

1,055

 

 

2,900

 

 

 

Change in fair value of contingent consideration

 

5,120

 

 

12,400

 

 

 

Total Acquisition and Integration Expenses

$

6,175

 

$

14,454

 

 

$

7. Other - Certain expenses that are not reflective of the ongoing earnings generation of the business. Employment expenses and noncontrolling interests are adjusted for fair value measurements of affiliate minority interests. Other operating expenses are adjusted for non-capitalized debt issuance costs. Interest expense is adjusted to remove gains on early extinguishment of debt and the write-off of previously capitalized costs associated with the modification of debt. Income tax expense (benefit) items are adjusted for uncertain tax positions, changes in tax law, valuation allowances, and other unusual or infrequent items not related to current operating results to reflect a normalized effective rate. Management believes that making these adjustments aids in comparing the company’s operating results with prior periods.

Components of Other for the respective periods are shown below:

 

Three Months Ended

Other

12/31/2022

 

12/31/2021

 

9/30/2022

Employment expense fair value adjustments

$

(637

)

 

$

346

 

 

$

(486

)

Non-capitalized debt issuance costs

 

 

 

 

28

 

 

 

 

Tax impact of adjustments

 

174

 

 

 

(101

)

 

 

131

 

Other discrete tax adjustments

 

3,592

 

 

 

951

 

 

 

(741

)

Affiliate minority interest fair value adjustments

 

(11,345

)

 

 

9,231

 

 

 

(5,462

)

Total Other

$

(8,216

)

 

$

10,455

 

 

$

(6,558

)

Seed Capital and CLO Related

8. Seed capital and CLO investments (gains) losses - Gains and losses (realized and unrealized) of seed capital and CLO investments. Gains and losses (realized and unrealized) generated by investments in seed capital and CLO investments can vary significantly from period to period and do not reflect the company’s operating results from providing investment management and related services. Management believes that making this adjustment aids in comparing the company’s operating results with prior periods and with other asset management firms that do not have meaningful seed capital and CLO investments.

Definitions:

Revenues, as adjusted, comprise the fee revenues paid by clients for investment management and related services. Revenues, as adjusted, for purposes of calculating net income attributable to Virtus Investment Partners, Inc., as adjusted, differ from U.S. GAAP, namely in excluding the impact of operating activities of consolidated investment products and reduced to exclude fees passed through to third-party client intermediaries who own the retail client relationship and are responsible for distributing the product and servicing the client.

Operating expenses, as adjusted, is calculated to reflect expenses from ongoing continuing operations. Operating expenses, as adjusted, for purposes of calculating net income attributable to Virtus Investment Partners, Inc., as adjusted, differ from U.S. GAAP expenses in that they exclude amortization or impairment, if any, of intangible assets, restructuring and severance, the effect of consolidated investment products, acquisition and integration-related expenses and certain other expenses that do not reflect the ongoing earnings generation of the business.

Operating margin, as adjusted, is a metric used to evaluate efficiency represented by operating income, as adjusted, divided by revenues, as adjusted.

Earnings (loss) per share, as adjusted, represent net income (loss) attributable to Virtus Investment Partners, Inc., as adjusted, divided by weighted average shares outstanding, as adjusted, on either a basic or diluted basis.

Forward-Looking Information

This press release contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995, as amended. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “intent,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” “opportunity,” “predict,” “would,” “potential,” “future,” “forecast,” “guarantee,” “assume,” “likely,” “target” or similar statements or variations of such terms.

Our forward-looking statements are based on a series of expectations, assumptions and projections about the company and the markets in which we operate, are not guarantees of future results or performance, and involve substantial risks and uncertainty including assumptions and projections concerning our assets under management, net asset inflows and outflows, operating cash flows, business plans, and ability to borrow, for all future periods. All forward-looking statements are as of the date of this release only. The company can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially.

Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including those discussed under "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Annual Report on Form 10-K, as supplemented by our periodic filings with the Securities and Exchange Commission (the "SEC"), as well as the following risks and uncertainties resulting from: (i) any reduction in our assets under management; (ii) general domestic and global economic and political conditions (including war, acts of terrorism, and civil unrest); (iii) inability to achieve the expected benefits of our strategic transactions; (iv) the ongoing effects of the COVID-19 pandemic and associated global economic disruption; (v) withdrawal, renegotiation or termination of investment advisory agreements; (vi) damage to our reputation; (vii) inability to satisfy financial covenants and payments related to our indebtedness; (viii) inability to attract and retain key personnel; (ix) challenges from the competition we face in our business; (x) adverse developments related to unaffiliated subadvisers; (xi) negative changes in key distribution relationships; (xii) interruptions in or failure to provide critical technological service by us or third parties; (xiii) loss on our investments; (xiv) lack of sufficient capital on satisfactory terms; (xv) adverse regulatory and legal developments; (xvi) failure to comply with investment guidelines or other contractual requirements; (xvii) adverse civil litigation and government investigations or proceedings; (xviii) unfavorable changes in tax laws or limitations; (xix) volatility associated with our common stock; (xx) inability to make quarterly common stock dividends; (xxi) certain corporate governance provisions in our charter and bylaws; (xxii) losses or costs not covered by insurance; (xxiii) impairment of goodwill or intangible assets; and other risks and uncertainties. Any occurrence of, or any material adverse change in, one or more risk factors or risks and uncertainties referred to above, in our 2021 Annual Report on Form 10-K and our other periodic reports filed with the SEC could materially and adversely affect our operations, financial results, cash flows, prospects and liquidity.

Certain other factors that may impact our continuing operations, prospects, financial results and liquidity, or that may cause actual results to differ from such forward-looking statements, are discussed or included in the company’s periodic reports filed with the SEC and are available on our website at virtus.com under “Investor Relations.” You are urged to carefully consider all such factors.

The company does not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections, or other circumstances occurring after the date of this release, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. If there are any future public statements or disclosures by us that modify or affect any of the forward-looking statements contained in or accompanying this release, such statements or disclosures will be deemed to modify or supersede such statements in this release.

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