- Earnings Per Share - Diluted of $4.10; Earnings Per Share -
Diluted, as Adjusted, of $5.43
- Total Sales of $7.6B; Net Flows Breakeven; Assets Under
Management of $168.3B
Virtus Investment Partners, Inc. (NASDAQ: VRTS) today reported
financial results for the three months ended June 30, 2023.
Financial Highlights (Unaudited) (in millions, except per
share data or as noted)
Three Months Ended
Three Months Ended
6/30/2023
6/30/2022
Change
3/31/2023
Change
U.S. GAAP Financial Measures
Revenues
$
213.5
$
225.3
(5
%)
$
197.9
8
%
Operating expenses
$
174.5
$
168.6
3
%
$
169.3
3
%
Operating income (loss)
$
39.0
$
56.7
(31
%)
$
28.6
37
%
Operating margin
18.3
%
25.2
%
14.4
%
Net income (loss) attributable to Virtus
Investment Partners, Inc.
$
30.3
$
17.4
74
%
$
38.6
(22
%)
Earnings (loss) per share - diluted
$
4.10
$
2.29
79
%
$
5.21
(21
%)
Weighted average shares outstanding -
diluted
7.385
7.607
(3
%)
7.410
—
%
Non-GAAP Financial Measures (1)
Revenues, as adjusted
$
190.6
$
199.0
(4
%)
$
176.9
8
%
Operating expenses, as adjusted
$
129.0
$
121.0
7
%
$
129.5
—
%
Operating income (loss), as adjusted
$
61.6
$
78.0
(21
%)
$
47.4
30
%
Operating margin, as adjusted
32.3
%
39.2
%
26.8
%
Net income (loss) attributable to Virtus
Investment Partners, Inc., as adjusted
$
40.1
$
52.2
(23
%)
$
31.1
29
%
Earnings (loss) per share - diluted, as
adjusted
$
5.43
$
6.86
(21
%)
$
4.20
29
%
Weighted average shares outstanding -
diluted, as adjusted
7.385
7.607
(3
%)
7.410
—
%
(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
6/30/2023
6/30/2022
Change
3/31/2023
Change
Ending total assets under management
$
168.3
$
155.4
8%
$
154.8
9%
Average total assets under management
$
163.0
$
171.4
(5%)
$
152.4
7%
Total sales
$
7.6
$
7.9
(4%)
$
6.2
22%
Net flows
$
—
$
(4.8
)
N/M
$
(1.9
)
N/M
N/M - Not Meaningful
Total assets under management of $168.3 billion at June 30, 2023
increased from $154.8 billion at March 31, 2023 due to the addition
of $7.8 billion of assets from the April 1 acquisition of
AlphaSimplex, market performance, and positive institutional net
flows. In addition, the company provided services to $2.6 billion
of other fee-earning assets.
Total sales of $7.6 billion increased 22% from $6.2 billion in
the first quarter. The increase was due to institutional sales,
which nearly doubled to $3.7 billion and included a large new
mandate and meaningful contributions to existing accounts. Open-end
fund sales of $2.6 billion declined from $3.0 billion primarily
reflecting lower domestic equity sales, partially offset by higher
global equity sales. Retail separate account sales of $1.3 billion
were substantially unchanged.
Net flows were breakeven and improved from ($1.9) billion in the
prior quarter. The improvement was due to institutional, which had
broad strength across affiliates and strategies and positive net
flows of $2.2 billion, up from modest net outflows in the prior
quarter. Open-end fund net flows of ($2.1) billion compared with
($1.8) billion primarily due to lower equity sales, partially
offset by positive net flows in global equity and domestic
small/mid cap. Retail separate account net flows of ($0.1) billion
compared with $0.1 billion in the prior quarter, with continued net
inflows in the private client channel.
GAAP Results
Operating income of $39.0 million increased 37% from $28.6
million in the prior quarter due to an 8% increase in total
revenues, reflecting higher average assets under management from
the addition of AlphaSimplex and market performance, partially
offset by a 3% increase in total operating expenses. The increase
in operating expenses was primarily due to the addition of
AlphaSimplex and included higher employment expenses, other
operating expenses, distribution and other asset-based expenses,
and intangible asset amortization, partially offset by fair value
adjustments to contingent consideration.
Net income attributable to Virtus Investment Partners, Inc. of
$4.10 per diluted common share included ($0.31) of acquisition and
integration costs, including AlphaSimplex acquisition costs,
partially offset by fair value adjustments to contingent
consideration, ($0.30) of net realized and unrealized losses on
investments, and $0.21 of fair value adjustments to affiliate
noncontrolling interests. Net income per diluted share of $5.21 in
the prior quarter included $0.93 of fair value adjustments to
affiliate noncontrolling interests and $0.64 of net realized and
unrealized gains on investments.
The effective tax rate of 27% increased from 20% 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 $190.6 million increased 8% from
$176.9 million in the prior quarter primarily due to higher average
assets under management.
Employment expenses, as adjusted, of $95.8 million decreased
from $98.6 million due to prior quarter seasonal items partially
offset by employment expenses from the addition of AlphaSimplex.
Other operating expenses, as adjusted, of $31.7 million increased
from $29.8 million in the prior quarter due to the addition of
AlphaSimplex and the annual equity grants to the Board of Directors
of $0.9 million.
Operating income, as adjusted, of $61.6 million and the related
margin of 32.3% increased from $47.4 million and 26.8% in the prior
quarter, respectively, due to the impact of the prior quarter
seasonal items and higher investment management fees.
Net income attributable to Virtus Investment Partners, Inc., as
adjusted, per diluted common share was $5.43, an increase of $1.23,
or 29%, from $4.20 in the prior quarter. The increase primarily
reflected the impact of the prior quarter seasonal items and higher
investment management fees.
The effective tax rate, as adjusted, of 27% compared with 28% in
the prior quarter.
Select Balance Sheet Items (Unaudited) (in millions)
As of
As of
6/30/2023
6/30/2022
Change
3/31/2023
Change
Cash and cash equivalents
$
201.5
$
250.5
(20%)
$
213.4
(6%)
Gross debt (1)
$
300.2
$
262.9
14%
$
260.9
15%
Contingent consideration (2)
$
94.4
$
133.6
(29%)
$
101.2
(7%)
Redeemable noncontrolling interests
(3)
$
87.6
$
126.1
(31%)
$
88.2
(1%)
Total equity exc. noncontrolling
interests
$
851.5
$
784.7
9%
$
837.9
2%
Working capital (4)
$
124.0
$
185.4
(33%)
$
184.4
(33%)
Net debt (cash) (5)
$
98.7
$
12.4
N/M
$
47.5
108%
(1)
Excludes deferred financing costs of $6.0 million, $7.1
million, and $6.3 million, as of June 30, 2023, June 30, 2022, and
March 31, 2023, respectively
(2)
Represents estimates of revenue participation and contingent
payments
(3)
Excludes redeemable noncontrolling interests of consolidated
investment products of $22.8 million, $13.0 million, and $18.4
million as of June 30, 2023, June 30, 2022, and March 31, 2023,
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
On April 1, 2023, the company completed the acquisition of
AlphaSimplex for $113.4 million in cash at closing, including $50.0
million drawn on the company's revolving credit facility. In June,
the company repaid $10.0 million of the amount drawn on the
facility.
Working capital of $124.0 million at June 30, 2023 declined from
$184.4 million at March 31, 2023 primarily due to the AlphaSimplex
transaction payment.
During the quarter the company repurchased 51,840 shares of
common stock for $10.0 million.
Conference Call and Investor Presentation
Management will host an investor conference call and webcast on
Friday, July 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
Six Months Ended
6/30/2023
6/30/2022
Change
3/31/2023
Change
6/30/2023
6/30/2022
Change
Revenues
Investment management fees
$
179,979
$
185,024
(3%)
$
164,478
9%
$
344,457
$
391,841
(12%)
Distribution and service fees
14,132
17,159
(18%)
14,153
—%
28,285
37,166
(24%)
Administration and shareholder service
fees
18,240
21,982
(17%)
18,359
(1%)
36,599
46,326
(21%)
Other income and fees
1,185
1,142
4%
884
34%
2,069
2,414
(14%)
Total revenues
213,536
225,307
(5%)
197,874
8%
411,410
477,747
(14%)
Operating Expenses
Employment expenses
104,694
89,360
17%
98,614
6%
203,308
195,353
4%
Distribution and other asset-based
expenses
25,460
28,583
(11%)
23,715
7%
49,175
61,429
(20%)
Other operating expenses
33,483
31,559
6%
30,730
9%
64,213
63,271
1%
Operating expenses of consolidated
investment products
360
649
(45%)
700
(49%)
1,060
1,389
(24%)
Change in fair value of contingent
consideration
(6,800
)
2,900
N/M
—
N/M
(6,800
)
2,900
N/M
Depreciation expense
1,485
962
54%
1,145
30%
2,630
1,897
39%
Amortization expense
15,808
14,624
8%
14,391
10%
30,199
29,286
3%
Total operating expenses
174,490
168,637
3%
169,295
3%
343,785
355,525
(3%)
Operating Income (Loss)
39,046
56,670
(31%)
28,579
37%
67,625
122,222
(45%)
Other Income (Expense)
Realized and unrealized gain (loss) on
investments, net
1,717
(10,543
)
N/M
2,670
(36%)
4,387
(13,525
)
N/M
Realized and unrealized gain (loss) of
consolidated investment products, net
(4,436
)
(21,659
)
(80%)
2,596
N/M
(1,840
)
(35,003
)
(95%)
Other income (expense), net
(847
)
571
N/M
(343
)
147%
(1,190
)
858
N/M
Total other income (expense),
net
(3,566
)
(31,631
)
(89%)
4,923
N/M
1,357
(47,670
)
N/M
Interest Income (Expense)
Interest expense
(6,217
)
(2,825
)
120%
(5,005
)
24%
(11,222
)
(5,104
)
120%
Interest and dividend income
2,675
529
406%
3,238
(17%)
5,913
857
N/M
Interest and dividend income of
investments of consolidated investment products
47,884
22,412
114%
46,814
2%
94,698
42,792
121%
Interest expense of consolidated
investment products
(38,732
)
(14,416
)
169%
(35,203
)
10%
(73,935
)
(26,504
)
179%
Total interest income (expense),
net
5,610
5,700
(2%)
9,844
(43%)
15,454
12,041
28%
Income (Loss) Before Income
Taxes
41,090
30,739
34%
43,346
(5%)
84,436
86,593
(2%)
Income tax expense (benefit)
10,910
16,480
(34%)
8,703
25%
19,613
33,215
(41%)
Net Income (Loss)
30,180
14,259
112%
34,643
(13%)
64,823
53,378
21%
Noncontrolling interests
77
3,143
(98%)
3,981
(98%)
4,058
(2,917
)
N/M
Net Income (Loss) Attributable to
Virtus Investment Partners, Inc.
$
30,257
$
17,402
74%
$
38,624
(22%)
$
68,881
$
50,461
37%
Earnings (Loss) Per Share -
Basic
$
4.14
$
2.34
77%
$
5.33
(22%)
$
9.47
$
6.73
41%
Earnings (Loss) Per Share -
Diluted
$
4.10
$
2.29
79%
$
5.21
(21%)
$
9.31
$
6.54
42%
Cash Dividends Declared Per Common
Share
$
1.65
$
1.50
10%
$
1.65
—%
$
3.30
$
3.00
10%
Weighted Average Shares Outstanding -
Basic
7,308
7,449
(2%)
7,245
1%
7,277
7,496
(3%)
Weighted Average Shares Outstanding -
Diluted
7,385
7,607
(3%)
7,410
—%
7,398
7,721
(4%)
N/M - Not Meaningful
Assets Under Management - Product and Asset Class (in
millions)
Three Months Ended
6/30/2022
9/30/2022
12/31/2022
3/31/2023
6/30/2023
By Product (period end):
Open-End Funds (1)
$
59,479
$
54,454
$
53,000
$
53,865
$
56,828
Closed-End Funds
10,645
10,146
10,361
10,358
10,166
Retail Separate Accounts
35,248
33,381
35,352
37,397
38,992
Institutional Accounts (2)
50,048
46,993
50,663
53,229
62,330
Total
$
155,420
$
144,974
$
149,376
$
154,849
$
168,316
By Product (average) (3)
Open-End Funds (1)
$
65,592
$
60,185
$
54,870
$
54,141
$
56,120
Closed-End Funds
11,405
10,971
10,389
10,424
10,224
Retail Separate Accounts
40,824
35,248
33,381
35,352
37,397
Institutional Accounts (2)
53,560
50,668
49,981
52,444
59,248
Total
$
171,381
$
157,072
$
148,621
$
152,361
$
162,989
By Asset Class (period end):
Equity
$
84,754
$
78,034
$
81,894
$
87,511
$
91,211
Fixed Income
39,322
36,910
36,903
36,596
38,361
Multi-Asset (4)
20,261
19,364
19,937
20,597
20,914
Alternatives (5)
11,083
10,666
10,642
10,145
17,830
Total
$
155,420
$
144,974
$
149,376
$
154,849
$
168,316
Assets Under Management - Average Management Fees Earned
(6) (in basis points)
Three Months Ended
6/30/2022
9/30/2022
12/31/2022
3/31/2023
6/30/2023
By Product:
Open-End Funds (1)
46.2
46.8
47.2
47.6
49.3
Closed-End Funds
56.9
57.0
57.1
57.1
57.6
Retail Separate Accounts
42.9
42.2
42.6
44.2
44.1
Institutional Accounts (2)(7)
30.6
31.3
32.0
31.8
31.6
All Products (7)
41.2
41.5
41.7
42.0
42.2
(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 managed futures, 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:
6/30/2022
9/30/2022
12/31/2022
3/31/2023
6/30/2023
Institutional Accounts
0.3
0.2
0.4
0.2
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
Six Months Ended
6/30/2022
9/30/2022
12/31/2022
3/31/2023
6/30/2023
6/30/2022
6/30/2023
Open-End Funds (1)
Beginning balance
$
73,149
$
59,479
$
54,454
$
53,000
$
53,865
$
78,706
$
53,000
Inflows
3,120
2,880
3,029
3,011
2,550
8,076
5,561
Outflows
(7,643
)
(5,689
)
(6,839
)
(4,792
)
(4,692
)
(16,021
)
(9,484
)
Net flows
(4,523
)
(2,809
)
(3,810
)
(1,781
)
(2,142
)
(7,945
)
(3,923
)
Market performance
(9,000
)
(2,012
)
2,806
2,771
2,163
(15,907
)
4,934
Other (2)
(147
)
(204
)
(450
)
(125
)
2,942
4,625
2,817
Ending balance
$
59,479
$
54,454
$
53,000
$
53,865
$
56,828
$
59,479
$
56,828
Closed-End Funds
Beginning balance
$
12,060
$
10,645
$
10,146
$
10,361
$
10,358
$
12,068
$
10,361
Inflows
24
157
2
4
20
32
24
Outflows
—
—
—
—
—
—
—
Net flows
24
157
2
4
20
32
24
Market performance
(1,250
)
(531
)
631
205
(1
)
(1,446
)
204
Other (2)
(189
)
(125
)
(418
)
(212
)
(211
)
(9
)
(423
)
Ending balance
$
10,645
$
10,146
$
10,361
$
10,358
$
10,166
$
10,645
$
10,166
Retail Separate Accounts
Beginning balance
$
40,824
$
35,248
$
33,381
$
35,352
$
37,397
$
44,538
$
35,352
Inflows
1,288
1,179
1,221
1,367
1,346
3,310
2,713
Outflows
(1,977
)
(1,418
)
(1,651
)
(1,288
)
(1,434
)
(3,371
)
(2,722
)
Net flows
(689
)
(239
)
(430
)
79
(88
)
(61
)
(9
)
Market performance
(4,887
)
(1,628
)
2,401
1,966
1,683
(9,229
)
3,649
Ending balance
$
35,248
$
33,381
$
35,352
$
37,397
$
38,992
$
35,248
$
38,992
Institutional Accounts (3)
Beginning balance
$
57,309
$
50,048
$
46,993
$
50,663
$
53,229
$
51,874
$
50,663
Inflows
3,452
1,507
2,999
1,852
3,660
5,901
5,512
Outflows
(3,032
)
(1,930
)
(2,162
)
(2,047
)
(1,478
)
(4,655
)
(3,525
)
Net flows
420
(423
)
837
(195
)
2,182
1,246
1,987
Market performance
(7,657
)
(2,475
)
2,976
2,906
2,440
(12,669
)
5,346
Other (2)
(24
)
(157
)
(143
)
(145
)
4,479
9,597
4,334
Ending balance
$
50,048
$
46,993
$
50,663
$
53,229
$
62,330
$
50,048
$
62,330
Total
Beginning balance
$
183,342
$
155,420
$
144,974
$
149,376
$
154,849
$
187,186
$
149,376
Inflows
7,884
5,723
7,251
6,234
7,576
17,319
13,810
Outflows
(12,652
)
(9,037
)
(10,652
)
(8,127
)
(7,604
)
(24,047
)
(15,731
)
Net flows
(4,768
)
(3,314
)
(3,401
)
(1,893
)
(28
)
(6,728
)
(1,921
)
Market performance
(22,794
)
(6,646
)
8,814
7,848
6,285
(39,251
)
14,133
Other (2)
(360
)
(486
)
(1,011
)
(482
)
7,210
14,213
6,728
Ending balance
$
155,420
$
144,974
$
149,376
$
154,849
$
168,316
$
155,420
$
168,316
(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
6/30/2023
6/30/2022
3/31/2023
Total revenues, GAAP
$
213,536
$
225,307
$
197,874
Consolidated investment products revenues
(1)
2,479
2,301
2,750
Investment management fees (2)
(11,326
)
(11,424
)
(9,561
)
Distribution and service fees (2)
(14,134
)
(17,159
)
(14,154
)
Total revenues, as adjusted
$
190,555
$
199,025
$
176,909
Operating Expenses
Total operating expenses, GAAP
$
174,490
$
168,637
$
169,295
Consolidated investment products expenses
(1)
(360
)
(649
)
(700
)
Distribution and other asset-based
expenses (3)
(25,460
)
(28,583
)
(23,715
)
Amortization of intangible assets (4)
(15,808
)
(14,624
)
(14,391
)
Deferred compensation and related
investments (5)
(747
)
—
(572
)
Acquisition and integration expenses
(6)
(3,165
)
(3,761
)
(965
)
Other (7)
49
—
592
Total operating expenses, as adjusted
$
128,999
$
121,020
$
129,544
Operating Income (Loss)
Operating income (loss), GAAP
$
39,046
$
56,670
$
28,579
Consolidated investment products
(earnings) losses (1)
2,839
2,950
3,450
Amortization of intangible assets (4)
15,808
14,624
14,391
Deferred compensation and related
investments (5)
747
—
572
Acquisition and integration expenses
(6)
3,165
3,761
965
Other (7)
(49
)
—
(592
)
Operating income (loss), as adjusted
$
61,556
$
78,005
$
47,365
Operating margin, GAAP
18.3
%
25.2
%
14.4
%
Operating margin, as adjusted
32.3
%
39.2
%
26.8
%
Three Months Ended
Income (Loss) Before Taxes
6/30/2023
6/30/2022
3/31/2023
Income (loss) before taxes, GAAP
$
41,090
$
30,739
$
43,346
Consolidated investment products
(earnings) losses (1)
283
1,122
(1,412
)
Amortization of intangible assets (4)
15,808
14,624
14,391
Deferred compensation and related
investments (5)
(596
)
—
(344
)
Acquisition and integration expenses
(6)
3,165
3,761
965
Other (7)
(49
)
—
(592
)
Seed capital and CLO investments (gains)
losses (8)
(1,057
)
24,910
(10,140
)
Income (loss) before taxes, as
adjusted
$
58,644
$
75,156
$
46,214
Income Tax Expense (Benefit)
Income tax expense (benefit), GAAP
$
10,910
$
16,480
$
8,703
Tax impact of:
Amortization of intangible assets (4)
4,334
3,970
4,025
Deferred compensation and related
investments (5)
(163
)
—
(96
)
Acquisition and integration expenses
(6)
868
1,021
270
Other (7)
628
189
1,745
Seed capital and CLO investments (gains)
losses (8)
(497
)
(1,259
)
(1,722
)
Income tax expense (benefit), as
adjusted
$
16,080
$
20,401
$
12,925
Effective tax rate, GAAPA
26.6
%
53.6
%
20.1
%
Effective tax rate, as adjustedB
27.4
%
27.1
%
28.0
%
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
$
30,257
$
17,402
$
38,624
Amortization of intangible assets, net of
tax (4)
10,775
9,918
9,687
Deferred compensation and related
investments (5)
(433
)
—
(248
)
Acquisition and integration expenses, net
of tax (6)
2,297
2,740
695
Other, net of tax (7)
(2,253
)
(4,060
)
(9,236
)
Seed capital and CLO investments (gains)
losses, net of tax (8)
(560
)
26,169
(8,418
)
Net income (loss) attributable to Virtus
Investment Partners, Inc., as adjusted
$
40,083
$
52,169
$
31,104
Weighted average shares outstanding –
diluted
7,385
7,607
7,410
Earnings (loss) per share - diluted,
GAAP
$
4.10
$
2.29
$
5.21
Earnings (loss) per share - diluted, as
adjusted
$
5.43
$
6.86
$
4.20
Three Months Ended
Administration and Shareholder Services
Fees
6/30/2023
6/30/2022
3/31/2023
Administration and shareholder service
fees, GAAP
$
18,240
$
21,982
$
18,359
Consolidated investment products fees
(1)
33
5
30
Administration and shareholder service
fees, as adjusted
$
18,273
$
21,987
$
18,389
Employment Expenses
Employment expenses, GAAP
$
104,694
$
89,360
$
98,614
Deferred compensation and related
investments (5)
(747
)
—
(572
)
Acquisition and integration expenses
(6)
(8,183
)
(260
)
—
Other (7)
49
—
592
Employment expenses, as adjusted
$
95,813
$
89,100
$
98,634
Other Operating Expenses
Other operating expenses, GAAP
$
33,483
$
31,559
$
30,730
Acquisition and integration expenses
(6)
(1,782
)
(601
)
(965
)
Other operating expenses, as adjusted
$
31,701
$
30,958
$
29,765
Total Other Income (Expense),
Net
Total other income (expense), net GAAP
$
(3,566
)
$
(31,631
)
$
4,923
Consolidated investment products (1)
4,868
4,588
5,721
Deferred compensation and related
investments (5)
(1,312
)
—
(907
)
Seed capital and CLO investments (gains)
losses (8)
(1,057
)
24,910
(10,140
)
Total other income (expense), net as
adjusted
$
(1,067
)
$
(2,133
)
$
(403
)
Interest and Dividend Income
Interest and dividend income, GAAP
$
2,675
$
529
$
3,238
Consolidated investment products (1)
1,728
1,580
1,028
Deferred compensation and related
investments (5)
(31
)
—
(9
)
Interest and dividend income, as
adjusted
$
4,372
$
2,109
$
4,257
Total Noncontrolling Interests
Total noncontrolling interests, GAAP
$
77
$
3,143
$
3,981
Consolidated investment products (1)
(283
)
(1,122
)
1,412
Amortization of intangible assets (4)
(699
)
(736
)
(679
)
Other (7)
(1,576
)
(3,871
)
(6,899
)
Total noncontrolling interests, as
adjusted
$
(2,481
)
$
(2,586
)
$
(2,185
)
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 certain transaction related employment expenses,
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
6/30/2023
6/30/2022
3/31/2023
Employment expenses
$
8,183
$
260
$
—
Other operating expenses
1,782
601
965
Change in fair value of contingent
consideration
(6,800
)
2,900
—
Total Acquisition and Integration
Expenses
$
3,165
$
3,761
$
965
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
6/30/2023
6/30/2022
3/31/2023
Employment expense fair value
adjustments
$
(49
)
$
—
$
(592
)
Tax impact of adjustments
13
—
166
Other discrete tax adjustments
(641
)
(189
)
(1,911
)
Affiliate minority interest fair value
adjustments
(1,576
)
(3,871
)
(6,899
)
Total Other
$
(2,253
)
$
(4,060
)
$
(9,236
)
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/20230728084588/en/
Investor Relations Contact Sean Rourke (860) 263-4709
sean.rourke@virtus.com
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