- Earnings Per Share - Diluted of $5.21; Earnings Per Share -
Diluted, as Adjusted, of $4.20
- Total Sales of $6.2B; Net Flows of ($1.9B); Assets Under
Management of $154.8B
Virtus Investment Partners, Inc. (NASDAQ: VRTS) today reported
financial results for the three months ended March 31, 2023.
Financial Highlights (Unaudited) (in millions, except per
share data or as noted)
Three Months Ended
Three Months Ended
3/31/2023
3/31/2022
Change
12/31/2022
Change
U.S. GAAP Financial
Measures
Revenues
$
197.9
$
252.4
(22
%)
$
198.4
—
%
Operating expenses
$
169.3
$
186.9
(9
%)
$
167.2
1
%
Operating income (loss)
$
28.6
$
65.6
(56
%)
$
31.2
(8
%)
Operating margin
14.4
%
26.0
%
15.7
%
Net income (loss) attributable to Virtus
Investment Partners, Inc.
$
38.6
$
33.1
17
%
$
35.4
9
%
Earnings (loss) per share - diluted
$
5.21
$
4.22
23
%
$
4.77
9
%
Weighted average shares outstanding -
diluted
7.410
7.839
(5
%)
7.419
—
%
Non-GAAP Financial
Measures (1)
Revenues, as adjusted
$
176.9
$
221.9
(20
%)
$
176.3
—
%
Operating expenses, as adjusted
$
129.5
$
131.9
(2
%)
$
120.2
8
%
Operating income (loss), as adjusted
$
47.4
$
90.1
(47
%)
$
56.1
(16
%)
Operating margin, as adjusted
26.8
%
40.6
%
31.8
%
Net income (loss) attributable to Virtus
Investment Partners, Inc., as adjusted
$
31.1
$
61.7
(50
%)
$
38.3
(19
%)
Earnings (loss) per share - diluted, as
adjusted
$
4.20
$
7.87
(47
%)
$
5.17
(19
%)
Weighted average shares outstanding -
diluted, as adjusted
7.410
7.839
(5
%)
7.419
—
%
(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
3/31/2023
3/31/2022
Change
12/31/2022
Change
Ending total assets under management
$
154.8
$
183.3
(16
%)
$
149.4
4
%
Average total assets under management
$
152.4
$
190.1
(20
%)
$
148.6
3
%
Total sales
$
6.2
$
9.4
(34
%)
$
7.3
(14
%)
Net flows
$
(1.9
)
$
(2.0
)
(5
%)
$
(3.4
)
(44
%)
N/M - Not Meaningful
Total assets under management of $154.8 billion at March 31,
2023 increased from $149.4 billion at December 31, 2022 due to
market performance and retail separate account net inflows
partially offset by net outflows in other products. In addition,
other fee-earning assets of $2.6 billion increased from $2.5
billion at December 31, 2022.
Total sales of $6.2 billion compared with $7.3 billion in the
fourth quarter, as higher retail separate account sales were more
than offset by lower institutional sales due to a large funding in
the prior quarter. Open-end fund sales of $3.0 billion were
essentially unchanged, as higher sales of equity strategies were
offset by lower fixed income and alternative sales. Retail separate
account sales of $1.4 billion increased 12% primarily due to
small/mid cap equity strategies. Institutional sales of $1.9
billion compared with $3.0 billion in the prior quarter, which
included a large funding and the issuance of a collateralized loan
obligation (CLO).
Net flows of ($1.9) billion improved from ($3.4) billion in the
prior quarter due to a lower level of redemptions in all products.
Open-end fund net flows of ($1.8) billion improved from ($3.8)
billion due to lower redemptions across all asset classes and
included net inflows in small/mid cap, emerging markets, and large
cap equity strategies. Retail separate account net flows of $0.1
billion compared with ($0.4) billion in the prior quarter due to
higher sales and lower redemptions, with continued net inflows in
the private client channel. Institutional net flows of ($0.2)
billion compared with $0.8 billion in the prior quarter due to
lower sales, which included the large funding and CLO issuance in
the fourth quarter.
GAAP Results
Operating income of $28.6 million declined from $31.2 million in
the prior quarter due to a 1% increase in total operating expenses
with revenues essentially unchanged. The increase in operating
expenses included $11.4 million of seasonal employment items
partially offset by lower fair value adjustments to contingent
consideration, operating expenses of consolidated investment
products, other operating expenses, and variable incentive
compensation.
Net income attributable to Virtus Investment Partners, Inc. of
$5.21 per diluted common share included $0.93 of fair value
adjustments to affiliate noncontrolling interests and $0.64 of net
realized and unrealized gains on investments. Net income per
diluted share of $4.77 in the prior quarter included $1.53 of fair
value adjustments to affiliate noncontrolling interests, $0.78 of
net realized and unrealized gains on investments, ($1.03) of CLO
issuance expenses, ($0.50) of fair value adjustments to contingent
consideration, and ($0.41) of discrete tax adjustments. The fair
value adjustments to affiliate non-controlling interests and
contingent consideration reflected current estimated value and
expectations of future payments.
The effective tax rate of 20% decreased from 34% in the prior
quarter, primarily reflecting changes in valuation allowances
related to marketable securities and other discrete tax
adjustments.
Non-GAAP Results
Revenues, as adjusted, of $176.9 million increased modestly from
$176.3 million in the prior quarter, as higher average assets and
fee rate were partially offset by two fewer days in the
quarter.
Employment expenses, as adjusted, of $98.6 million increased
from $88.3 million due to $11.4 million of seasonal items,
primarily payroll taxes and benefits related to the timing of
annual incentive payments, partially offset by lower variable
incentive compensation. Other operating expenses, as adjusted, of
$29.8 million declined from $30.8 million in the prior quarter
largely due to lower professional fees and seasonally lower travel
and related activity. Operating income, as adjusted, of $47.4
million and the related margin of 26.8% declined from $56.1 million
and 31.8%, respectively, due to the seasonal employment expenses,
partially offset by lower other operating expenses and lower
variable incentive compensation.
Net income attributable to Virtus Investment Partners, Inc., as
adjusted, per diluted common share was $4.20, a decrease of $0.97,
or 19%, from $5.17 in the prior quarter. The decline primarily
reflected the seasonal items.
The effective tax rate, as adjusted, of 28% compared with 27% in
the prior quarter.
Select Balance Sheet Items (Unaudited) (in millions)
As of
As of
3/31/2023
3/31/2022
Change
12/31/2022
Change
Cash and cash equivalents
$
213.4
$
225.2
(5
%)
$
338.2
(37
%)
Gross debt (1)
$
260.9
$
273.6
(5
%)
$
261.6
—
%
Contingent consideration (2)
$
101.2
$
130.7
(23
%)
$
128.4
(21
%)
Redeemable noncontrolling interests
(3)
$
88.2
$
129.3
(32
%)
$
95.5
(8
%)
Total equity exc. noncontrolling
interests
$
837.9
$
816.5
3
%
$
817.0
3
%
Working capital (4)
$
184.4
$
196.1
(6
%)
$
180.6
2
%
Net debt (cash) (5)
$
47.5
$
48.4
(2
%)
$
(76.7
)
N/M
(1) Excludes deferred financing costs of $6.3
million, $7.7 million, and $6.5 million, as of March 31, 2023,
March 31, 2022, and December 31, 2022, respectively (2) Represents
estimates of revenue participation and contingent payments (3)
Excludes redeemable noncontrolling interests of consolidated
investment products of $18.4 million, $9.4 million, and $18.3
million as of March 31, 2023, March 31, 2022, and December 31,
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 $184.4 million at March 31, 2023 increased
modestly from $180.6 million at December 31, 2022.
During the quarter, the company net settled 70,716 shares of
common stock for $12.2 million to satisfy employee tax
obligations.
Acquisition of AlphaSimplex
As previously disclosed, on April 1, 2023 the company completed
its acquisition of AlphaSimplex, a leading manager of quantitative
alternative investment solutions. Consideration of $130.0 million
was financed with existing balance sheet resources including $50.0
million drawn from the company's revolving credit facility.
Conference Call and Investor Presentation
Management will host an investor conference call and webcast on
Friday, April 28, 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
3/31/2023
3/31/2022
Change
12/31/2022
Change
Revenues
Investment management fees
$
164,478
$
206,817
(20
%)
$
163,648
1
%
Distribution and service fees
14,153
20,007
(29
%)
14,606
(3
%)
Administration and shareholder service
fees
18,359
24,344
(25
%)
18,973
(3
%)
Other income and fees
884
1,272
(31
%)
1,144
(23
%)
Total revenues
197,874
252,440
(22
%)
198,371
—
%
Operating Expenses
Employment expenses
98,614
105,993
(7
%)
87,676
12
%
Distribution and other asset-based
expenses
23,715
32,846
(28
%)
24,365
(3
%)
Other operating expenses
30,730
31,712
(3
%)
31,811
(3
%)
Operating expenses of consolidated
investment products
700
740
(5
%)
2,481
(72
%)
Change in fair value of contingent
consideration
—
—
N/M
5,120
(100
%)
Depreciation expense
1,145
935
22
%
1,088
5
%
Amortization expense
14,391
14,662
(2
%)
14,609
(1
%)
Total operating
expenses
169,295
186,888
(9
%)
167,150
1
%
Operating Income (Loss)
28,579
65,552
(56
%)
31,221
(8
%)
Other Income (Expense)
Realized and unrealized gain (loss) on
investments, net
2,670
(2,982
)
N/M
3,529
(24
%)
Realized and unrealized gain (loss) of
consolidated investment products, net
2,596
(13,344
)
N/M
4,147
(37
%)
Other income (expense), net
(343
)
287
N/M
(352
)
(3
%)
Total other income
(expense), net
4,923
(16,039
)
N/M
7,324
(33
%)
Interest Income (Expense)
Interest expense
(5,005
)
(2,279
)
120
%
(4,512
)
11
%
Interest and dividend income
3,238
328
N/M
2,578
26
%
Interest and dividend income of
investments of consolidated investment products
46,814
20,380
130
%
35,889
30
%
Interest expense of consolidated
investment products
(35,203
)
(12,088
)
191
%
(33,374
)
5
%
Total interest income
(expense), net
9,844
6,341
55
%
581
N/M
Income (Loss) Before Income
Taxes
43,346
55,854
(22
%)
39,126
11
%
Income tax expense (benefit)
8,703
16,735
(48
%)
13,291
(35
%)
Net Income (Loss)
34,643
39,119
(11
%)
25,835
34
%
Noncontrolling interests
3,981
(6,060
)
N/M
9,565
(58
%)
Net Income (Loss) Attributable to
Virtus Investment Partners, Inc.
$
38,624
$
33,059
17
%
$
35,400
9
%
Earnings (Loss) Per Share -
Basic
$
5.33
$
4.38
22
%
$
4.87
9
%
Earnings (Loss) Per Share -
Diluted
$
5.21
$
4.22
23
%
$
4.77
9
%
Cash Dividends Declared Per Common
Share
$
1.65
$
1.50
10
%
$
1.65
—
%
Weighted Average Shares Outstanding -
Basic
7,245
7,546
(4
%)
7,262
—
%
Weighted Average Shares Outstanding -
Diluted
7,410
7,839
(5
%)
7,419
—
%
N/M - Not Meaningful
Assets Under Management - Product and Asset Class (in
millions)
Three Months Ended
3/31/2022
06/30/2022
9/30/2022
12/31/2022
3/31/2023
By Product (period end):
Open-End Funds (1)
$
73,149
$
59,479
$
54,454
$
53,000
$
53,865
Closed-End Funds
12,060
10,645
10,146
10,361
10,358
Retail Separate Accounts
40,824
35,248
33,381
35,352
37,397
Institutional Accounts (2)
57,309
50,048
46,993
50,663
53,229
Total
$
183,342
$
155,420
$
144,974
$
149,376
$
154,849
By Product (average) (3)
Open-End Funds (1)
$
75,537
$
65,592
$
60,185
$
54,870
$
54,141
Closed-End Funds
11,762
11,405
10,971
10,389
10,424
Retail Separate Accounts
44,538
40,824
35,248
33,381
35,352
Institutional Accounts (2)
58,269
53,560
50,668
49,981
52,444
Total
$
190,106
$
171,381
$
157,072
$
148,621
$
152,361
By Asset Class (period end):
Equity
$
102,989
$
84,754
$
78,034
$
81,894
$
87,511
Fixed Income
45,418
39,322
36,910
36,903
36,596
Multi-Asset (4)
23,415
20,261
19,364
19,937
20,597
Alternatives (5)
11,520
11,083
10,666
10,642
10,145
Total
$
183,342
$
155,420
$
144,974
$
149,376
$
154,849
Assets Under Management - Average Management Fees Earned
(6) (in basis points)
Three Months Ended
3/31/2022
6/30/2022
9/30/2022
12/31/2022
3/31/2023
By Product:
Open-End Funds (1)
46.5
46.2
46.8
47.2
47.6
Closed-End Funds
58.4
56.9
57.0
57.1
57.1
Retail Separate Accounts
43.6
42.9
42.2
42.6
44.2
Institutional Accounts (2)(7)
31.5
30.6
31.3
32.0
31.8
All Products (7)
41.9
41.2
41.5
41.7
42.0
(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) Consists of strategies and client accounts
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:
3/31/2022
6/30/2022
9/30/2022
12/31/2022
3/31/2023
Institutional Accounts
0.5
0.3
0.2
0.4
0.2
All Products
0.1
0.1
0.1
0.1
0.1
Assets Under Management - Asset Flows by Product (in
millions)
Three Months Ended
3/31/2022
6/30/2022
9/30/2022
12/31/2022
3/31/2023
Open-End Funds (1)
Beginning balance
$
78,706
$
73,149
$
59,479
$
54,454
$
53,000
Inflows
4,956
3,120
2,880
3,029
3,011
Outflows
(8,378
)
(7,643
)
(5,689
)
(6,839
)
(4,792
)
Net flows
(3,422
)
(4,523
)
(2,809
)
(3,810
)
(1,781
)
Market performance
(6,907
)
(9,000
)
(2,012
)
2,806
2,771
Other (2)
4,772
(147
)
(204
)
(450
)
(125
)
Ending balance
$
73,149
$
59,479
$
54,454
$
53,000
$
53,865
Closed-End Funds
Beginning balance
$
12,068
$
12,060
$
10,645
$
10,146
$
10,361
Inflows
8
24
157
2
4
Outflows
—
—
—
—
—
Net flows
8
24
157
2
4
Market performance
(196
)
(1,250
)
(531
)
631
205
Other (2)
180
(189
)
(125
)
(418
)
(212
)
Ending balance
$
12,060
$
10,645
$
10,146
$
10,361
$
10,358
Retail Separate Accounts
Beginning balance
$
44,538
$
40,824
$
35,248
$
33,381
$
35,352
Inflows
2,022
1,288
1,179
1,221
1,367
Outflows
(1,394
)
(1,977
)
(1,418
)
(1,651
)
(1,288
)
Net flows
628
(689
)
(239
)
(430
)
79
Market performance
(4,342
)
(4,887
)
(1,628
)
2,401
1,966
Ending balance
$
40,824
$
35,248
$
33,381
$
35,352
$
37,397
Institutional Accounts (3)
Beginning balance
$
51,874
$
57,309
$
50,048
$
46,993
$
50,663
Inflows
2,449
3,452
1,507
2,999
1,852
Outflows
(1,623
)
(3,032
)
(1,930
)
(2,162
)
(2,047
)
Net flows
826
420
(423
)
837
(195
)
Market performance
(5,012
)
(7,657
)
(2,475
)
2,976
2,906
Other (2)
9,621
(24
)
(157
)
(143
)
(145
)
Ending balance
$
57,309
$
50,048
$
46,993
$
50,663
$
53,229
Total
Beginning balance
$
187,186
$
183,342
$
155,420
$
144,974
$
149,376
Inflows
9,435
7,884
5,723
7,251
6,234
Outflows
(11,395
)
(12,652
)
(9,037
)
(10,652
)
(8,127
)
Net flows
(1,960
)
(4,768
)
(3,314
)
(3,401
)
(1,893
)
Market performance
(16,457
)
(22,794
)
(6,646
)
8,814
7,848
Other (2)
14,573
(360
)
(486
)
(1,011
)
(482
)
Ending balance
$
183,342
$
155,420
$
144,974
$
149,376
$
154,849
(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
3/31/2023
3/31/2022
12/31/2022
Total revenues, GAAP
$
197,874
$
252,440
$
198,371
Consolidated investment products revenues
(1)
2,750
2,354
2,264
Investment management fees (2)
(9,561
)
(12,838
)
(9,758
)
Distribution and service fees (2)
(14,154
)
(20,008
)
(14,607
)
Total revenues, as adjusted
$
176,909
$
221,948
$
176,270
Operating Expenses
Total operating expenses, GAAP
$
169,295
$
186,888
$
167,150
Consolidated investment products expenses
(1)
(700
)
(740
)
(2,481
)
Distribution and other asset-based
expenses (3)
(23,715
)
(32,846
)
(24,365
)
Amortization of intangible assets (4)
(14,391
)
(14,662
)
(14,609
)
Deferred compensation and related
investments (5)
(572
)
—
—
Acquisition and integration expenses
(6)
(965
)
(6,667
)
(6,175
)
Other (7)
592
(122
)
637
Total operating expenses, as adjusted
$
129,544
$
131,851
$
120,157
Operating Income (Loss)
Operating income (loss), GAAP
$
28,579
$
65,552
$
31,221
Consolidated investment products
(earnings) losses (1)
3,450
3,094
4,745
Amortization of intangible assets (4)
14,391
14,662
14,609
Deferred compensation and related
investments (5)
572
—
—
Acquisition and integration expenses
(6)
965
6,667
6,175
Other (7)
(592
)
122
(637
)
Operating income (loss), as adjusted
$
47,365
$
90,097
$
56,113
Operating margin, GAAP
14.4
%
26.0
%
15.7
%
Operating margin, as adjusted
26.8
%
40.6
%
31.8
%
Three Months Ended
Income (Loss) Before Taxes
3/31/2023
3/31/2022
12/31/2022
Income (loss) before taxes, GAAP
$
43,346
$
55,854
$
39,126
Consolidated investment products
(earnings) losses (1)
(1,412
)
806
(441
)
Amortization of intangible assets (4)
14,391
14,662
14,609
Deferred compensation and related
investments (5)
(344
)
—
—
Acquisition and integration expenses
(6)
965
6,667
6,175
Other (7)
(592
)
122
(637
)
Seed capital and CLO investments (gains)
losses (8)
(10,140
)
10,735
(3,322
)
Income (loss) before taxes, as
adjusted
$
46,214
$
88,846
$
55,510
Income Tax Expense (Benefit)
Income tax expense (benefit), GAAP
$
8,703
$
16,735
$
13,291
Tax impact of:
Amortization of intangible assets (4)
4,025
3,974
3,988
Deferred compensation and related
investments (5)
(96
)
—
—
Acquisition and integration expenses
(6)
270
1,807
1,686
Other (7)
1,745
2,603
(3,766
)
Seed capital and CLO investments (gains)
losses (8)
(1,722
)
(1,041
)
(46
)
Income tax expense (benefit), as
adjusted
$
12,925
$
24,078
$
15,153
Effective tax rate, GAAPA
20.1
%
30.0
%
34.0
%
Effective tax rate, as adjustedB
28.0
%
27.1
%
27.3
%
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
$
38,624
$
33,059
$
35,400
Amortization of intangible assets, net of
tax (4)
9,687
9,952
9,942
Deferred compensation and related
investments (5)
(248
)
—
—
Acquisition and integration expenses, net
of tax (6)
695
4,860
4,489
Other, net of tax (7)
(9,236
)
2,007
(8,216
)
Seed capital and CLO investments (gains)
losses, net of tax (8)
(8,418
)
11,776
(3,276
)
Net income (loss) attributable to Virtus
Investment Partners, Inc., as adjusted
$
31,104
$
61,654
$
38,339
Weighted average shares outstanding -
diluted
7,410
7,839
7,419
Earnings (loss) per share - diluted,
GAAP
$
5.21
$
4.22
$
4.77
Earnings (loss) per share - diluted, as
adjusted
$
4.20
$
7.87
$
5.17
Three Months Ended
Administration and Shareholder Services
Fees
3/31/2023
3/31/2022
12/31/2022
Administration and shareholder service
fees, GAAP
$
18,359
$
24,344
$
18,973
Consolidated investment products fees
(1)
30
43
32
Administration and shareholder service
fees, as adjusted
$
18,389
$
24,387
$
19,005
Employment Expenses
Employment expenses, GAAP
$
98,614
$
105,993
$
87,676
Deferred compensation and related
investments (5)
(572
)
—
—
Acquisition and integration expenses
(6)
—
(4,282
)
—
Other (7)
592
(122
)
637
Employment expenses, as adjusted
$
98,634
$
101,589
$
88,313
Other Operating Expenses
Other operating expenses, GAAP
$
30,730
$
31,712
$
31,811
Acquisition and integration expenses
(6)
(965
)
(2,385
)
(1,055
)
Other operating expenses, as adjusted
$
29,765
$
29,327
$
30,756
Total Other Income (Expense),
Net
Total other income (expense), net GAAP
$
4,923
$
(16,039
)
$
7,324
Consolidated investment products (1)
5,721
5,136
(3,782
)
Deferred compensation and related
investments (5)
(907
)
—
—
Seed capital and CLO investments (gains)
losses (8)
(10,140
)
10,735
(3,322
)
Total other income (expense), net as
adjusted
$
(403
)
$
(168
)
$
220
Interest and Dividend Income
Interest and dividend income, GAAP
$
3,238
$
328
$
2,578
Consolidated investment products (1)
1,028
868
1,111
Deferred compensation and related
investments (5)
(9
)
—
—
Interest and dividend income, as
adjusted
$
4,257
$
1,196
$
3,689
Total Noncontrolling Interests
Total noncontrolling interests, GAAP
$
3,981
$
(6,060
)
$
9,565
Consolidated investment products (1)
1,412
(806
)
441
Amortization of intangible assets (4)
(679
)
(736
)
(679
)
Other (7)
(6,899
)
4,488
(11,345
)
Total noncontrolling interests, as
adjusted
$
(2,185
)
$
(3,114
)
$
(2,018
)
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 company sponsored
investment products 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. Deferred
compensation and related investments - Compensation expense,
gains and losses (realized and unrealized), and interest and
dividend income related to market performance of deferred
compensation and related balance sheet investments. Market
performance of deferred compensation plans and related investments
can vary significantly from period to period. 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
3/31/2023
3/31/2022
12/31/2022
Employment expenses
$
—
$
4,282
$
—
Other operating expenses
965
2,385
1,055
Change in fair value of contingent
consideration
—
—
5,120
Total Acquisition and Integration
Expenses
$
965
$
6,667
$
6,175
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
3/31/2023
3/31/2022
12/31/2022
Employment expense fair value
adjustments
$
(592
)
$
122
$
(637
)
Tax impact of adjustments
166
(33
)
174
Other discrete tax adjustments
(1,911
)
(2,570
)
3,592
Affiliate minority interest fair value
adjustments
(6,899
)
4,488
(11,345
)
Total Other
$
(9,236
)
$
2,007
$
(8,216
)
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 2022 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)
inability to achieve expected benefits of strategic transactions;
(iii) withdrawal, renegotiation or termination of investment
advisory agreements; (iv) damage to our reputation; (v) inability
to satisfy financial debt covenants and required payments; (vi)
inability to attract and retain key personnel; (vii) challenges
from competition; (viii) adverse developments related to
unaffiliated subadvisers; (ix) negative changes in key distribution
relationships; (x) interruptions, breaches, or failures of
technology systems; (xi) loss on our investments; (xii) lack of
sufficient capital on satisfactory terms; (xiii) adverse regulatory
and legal developments; (xiv) failure to comply with investment
guidelines or other contractual requirements; (xv) adverse civil
litigation, government investigations, or proceedings; (xvi)
unfavorable changes in tax laws or limitations; (xvii) inability to
make common stock dividend payments; (xviii) impediments from
certain corporate governance provisions; (xix) losses or costs not
covered by insurance; (xx) impairment of goodwill or other
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 2022
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230428005017/en/
Investor Relations Sean Rourke (860) 263-4709
sean.rourke@virtus.com
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