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Virtus Investment Partners Announces Financial Results for First Quarter 2024

  • Earnings Per Share - Diluted of $4.10; Earnings Per Share - Diluted, as Adjusted, of $5.41
  • Total Sales of $7.6B; Net Flows of ($1.2B); Assets Under Management of $179.3B

Virtus Investment Partners, Inc. (NYSE: VRTS) today reported financial results for the three months ended March 31, 2024.

Financial Highlights (Unaudited)

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

 

Three Months Ended

 

 

 

Three

Months

Ended

 

 

 

3/31/2024

 

3/31/2023

 

Change

 

12/31/2023

 

Change

U.S. GAAP Financial Measures

 

 

 

 

 

 

 

 

 

Revenues

$

222.0

 

 

$

197.9

 

 

12

%

 

$

214.6

 

 

3

%

Operating expenses

$

189.7

 

 

$

169.3

 

 

12

%

 

$

175.6

 

 

8

%

Operating income (loss)

$

32.3

 

 

$

28.6

 

 

13

%

 

$

39.0

 

 

(17

%)

Operating margin

 

14.5

%

 

 

14.4

%

 

 

 

 

18.2

%

 

 

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

$

29.9

 

 

$

38.6

 

 

(23

%)

 

$

30.8

 

 

(3

%)

Earnings (loss) per share - diluted

$

4.10

 

 

$

5.21

 

 

(21

%)

 

$

4.21

 

 

(3

%)

Weighted average shares outstanding - diluted

 

7.287

 

 

 

7.410

 

 

(2

%)

 

 

7.320

 

 

%

Non-GAAP Financial Measures (1)

 

 

 

 

 

 

 

 

 

Revenues, as adjusted

$

200.2

 

 

$

176.9

 

 

13

%

 

$

193.4

 

 

4

%

Operating expenses, as adjusted

$

143.8

 

 

$

129.5

 

 

11

%

 

$

129.5

 

 

11

%

Operating income (loss), as adjusted

$

56.4

 

 

$

47.4

 

 

19

%

 

$

63.9

 

 

(12

%)

Operating margin, as adjusted

 

28.2

%

 

 

26.8

%

 

 

 

 

33.0

%

 

 

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

$

39.4

 

 

$

31.1

 

 

27

%

 

$

44.8

 

 

(12

%)

Earnings (loss) per share - diluted, as adjusted

$

5.41

 

 

$

4.20

 

 

29

%

 

$

6.11

 

 

(11

%)

Weighted average shares outstanding - diluted, as adjusted

 

7.287

 

 

 

7.410

 

 

(2

%)

 

 

7.320

 

 

%

(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. Non-GAAP information and reconciliations 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

 

 

 

3/31/2024

 

3/31/2023

 

Change

 

12/31/2023

 

Change

Ending total assets under management

$

179.3

 

 

$

154.8

 

 

16

%

 

$

172.3

 

 

4

%

Average total assets under management

$

173.4

 

 

$

152.4

 

 

14

%

 

$

162.7

 

 

7

%

Total sales

$

7.6

 

 

$

6.2

 

 

22

%

 

$

6.2

 

 

22

%

Net flows

$

(1.2

)

 

$

(1.9

)

 

(37

%)

 

$

(3.8

)

 

(68

%)

 

Total assets under management of $179.3 billion at March 31, 2024 increased 4% from $172.3 billion at December 31, 2023 due to market performance and positive net flows in retail separate accounts, partially offset by net outflows in institutional accounts and open-end funds. In addition, the company provided services to $2.7 billion of other fee-earning assets.

Total sales increased 22% to $7.6 billion from $6.2 billion in the fourth quarter as a result of higher sales in all product categories. Institutional sales of $1.7 billion increased 47% from $1.2 billion in the prior quarter. Retail separate account sales of $2.4 billion increased 12% from $2.1 billion led by the intermediary sold channel. Open-end fund sales of $3.5 billion increased 18% from $2.9 billion reflecting higher sales in almost all investment strategies.

Net flows of ($1.2) billion improved from ($3.8) billion in the fourth quarter and included positive net flows in retail separate accounts, ETFs, and global funds. Institutional net flows of ($1.3) billion improved from ($2.2) billion due to higher sales and lower redemptions. Retail separate account net flows of $0.7 billion increased from $0.4 billion in the prior quarter. Open-end fund net flows of ($0.6) billion improved significantly from ($2.0) billion in the prior quarter and included positive net flows in small/mid-cap, global equity, and fixed income strategies.

GAAP Results

Operating income of $32.3 million declined 17% from $39.0 million in the prior quarter as a 3% increase in revenues, reflecting higher average assets under management, was more than offset by an 8% increase in operating expenses. The increase in operating expenses was primarily due to higher employment expenses as a result of seasonal employment items and higher variable incentive compensation, partially offset by lower operating expenses of consolidated investment products and lower fair value adjustments to contingent consideration. Other operating expenses were nearly flat sequentially.

Net income attributable to Virtus Investment Partners, Inc. of $4.10 per diluted share included ($0.69) of fair value adjustments to affiliate minority interests, ($0.12) of amortization related to an early lease termination fee, and ($0.11) of acquisition and integration costs, partially offset by $0.76 of realized and unrealized gains on investments. Net income per diluted share of $4.21 in the prior quarter included ($0.76) of fair value adjustments to affiliate minority interests, ($0.36) of CLO issuance expense, ($0.18) of acquisition and integration costs, and ($0.13) of fair value adjustments to contingent consideration, partially offset by $0.35 of realized and unrealized gains on investments.

The effective tax rate of 19% decreased from 26% in the prior quarter, primarily reflecting changes in valuation allowances related to marketable securities.

Non-GAAP Results

Revenues, as adjusted, of $200.2 million increased 4% from $193.4 million in the prior quarter primarily due to 7% higher average assets under management partially offset by lower performance fees.

Employment expenses, as adjusted, of $111.6 million increased from $96.7 million in the prior quarter due to $10.9 million of seasonal expenses, primarily payroll taxes and benefits related to the timing of annual incentive payments, in addition to higher variable incentive compensation. Other operating expenses, as adjusted, of $30.2 million decreased from $31.2 million.

Operating income, as adjusted, of $56.4 million and the related margin of 28.2% decreased from $63.9 million and 33.0% in the prior quarter, respectively, due to the seasonal employment expenses, partially offset by higher investment management fees and lower other operating expenses.

Net income attributable to Virtus Investment Partners, Inc., as adjusted, per diluted share was $5.41, a decrease of 11% from $6.11 in the prior quarter. The decrease primarily reflected $1.11 per share of seasonal expenses, partially offset by higher revenues, as adjusted, and lower other operating expenses, as adjusted.

The effective tax rate, as adjusted, of 26% compared with 27% in the prior quarter.

Select Balance Sheet Items (Unaudited)

(in millions)

 

As of

 

 

 

As of

 

 

 

3/31/2024

 

3/31/2023

 

Change

 

12/31/2023

 

Change

Cash and cash equivalents

$

123.9

 

$

213.4

 

(42

%)

 

$

239.6

 

(48

%)

Gross debt (1)

$

258.1

 

$

260.9

 

(1

%)

 

$

258.8

 

%

Contingent consideration (2)

$

66.7

 

$

101.2

 

(34

%)

 

$

90.9

 

(27

%)

Redeemable noncontrolling interests (3)

$

80.0

 

$

88.2

 

(9

%)

 

$

74.2

 

8

%

Total equity exc. noncontrolling interests

$

871.7

 

$

837.9

 

4

%

 

$

864.0

 

1

%

 

 

 

 

 

 

 

 

 

 

Working capital (4)

$

123.4

 

$

208.3

 

(41

%)

 

$

109.1

 

13

%

Net debt (cash) (5)

$

134.2

 

$

47.5

 

183

%

 

$

19.2

 

N/M

(1)

Excludes deferred financing costs of $5.1 million, $6.3 million, and $5.4 million as of March 31, 2024, March 31, 2023, and December 31, 2023, respectively

(2)

Represents estimates of revenue participation and contingent payments

(3)

Excludes redeemable noncontrolling interests of consolidated investment products of $35.2 million, $18.4 million, and $30.6 million as of March 31, 2024, March 31, 2023, and December 31, 2023, respectively

(4)

Defined as cash and cash equivalents plus accounts receivable, net, and deferred compensation related investments less accrued compensation and benefits excluding affiliate minority interests, 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. As of March 31, 2024, minority interests liabilities accounted for as accrued compensation were removed from the definition of working capital and prior periods have been adjusted to conform to this definition.

(5)

Defined as gross debt less cash and cash equivalents

N/M - Not Meaningful

Working capital of $123.4 million at March 31, 2024 compared with $109.1 million at December 31, 2023, as earnings more than offset return of capital.

During the quarter, the company repurchased 21,108 shares for $5.0 million and net settled an additional 42,588 shares for $9.9 million.

Net debt was $134.2 million, or 0.4x EBITDA, at March 31, 2024.

Conference Call and Investor Presentation

Management will host an investor conference call and webcast on Friday, April 26, 2024, 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 (NYSE: 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

 

 

 

3/31/2024

 

3/31/2023

 

Change

 

12/31/2023

 

Change

Revenues

 

 

 

 

 

 

 

 

 

Investment management fees

$

188,360

 

 

$

164,478

 

 

15

%

 

$

182,149

 

 

3

%

Distribution and service fees

 

14,030

 

 

 

14,153

 

 

(1

%)

 

 

13,535

 

 

4

%

Administration and shareholder service fees

 

18,678

 

 

 

18,359

 

 

2

%

 

 

18,189

 

 

3

%

Other income and fees

 

974

 

 

 

884

 

 

10

%

 

 

714

 

 

36

%

Total revenues

 

222,042

 

 

 

197,874

 

 

12

%

 

 

214,587

 

 

3

%

Operating Expenses

 

 

 

 

 

 

 

 

 

Employment expenses

 

115,163

 

 

 

98,614

 

 

17

%

 

 

99,847

 

 

15

%

Distribution and other asset-based expenses

 

24,348

 

 

 

23,715

 

 

3

%

 

 

23,470

 

 

4

%

Other operating expenses

 

31,375

 

 

 

30,730

 

 

2

%

 

 

31,164

 

 

1

%

Operating expenses of consolidated investment products

 

690

 

 

 

700

 

 

(1

%)

 

 

2,611

 

 

(74

%)

Restructuring expense

 

797

 

 

 

 

 

N/M

 

 

133

 

 

499

%

Change in fair value of contingent consideration

 

 

 

 

 

 

N/M

 

 

1,290

 

 

(100

%)

Depreciation expense

 

2,028

 

 

 

1,145

 

 

77

%

 

 

1,670

 

 

21

%

Amortization expense

 

15,335

 

 

 

14,391

 

 

7

%

 

 

15,446

 

 

(1

%)

Total operating expenses

 

189,736

 

 

 

169,295

 

 

12

%

 

 

175,631

 

 

8

%

Operating Income (Loss)

 

32,306

 

 

 

28,579

 

 

13

%

 

 

38,956

 

 

(17

%)

Other Income (Expense)

 

 

 

 

 

 

 

 

 

Realized and unrealized gain (loss) on investments, net

 

3,416

 

 

 

2,670

 

 

28

%

 

 

4,056

 

 

(16

%)

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

 

1,535

 

 

 

2,596

 

 

(41

%)

 

 

449

 

 

242

%

Other income (expense), net

 

550

 

 

 

(343

)

 

N/M

 

 

622

 

 

(12

%)

Total other income (expense), net

 

5,501

 

 

 

4,923

 

 

12

%

 

 

5,127

 

 

7

%

Interest Income (Expense)

 

 

 

 

 

 

 

 

 

Interest expense

 

(5,681

)

 

 

(5,005

)

 

14

%

 

 

(5,987

)

 

(5

%)

Interest and dividend income

 

3,469

 

 

 

3,238

 

 

7

%

 

 

3,673

 

 

(6

%)

Interest and dividend income of investments of consolidated investment products

 

51,115

 

 

 

46,814

 

 

9

%

 

 

53,206

 

 

(4

%)

Interest expense of consolidated investment products

 

(40,012

)

 

 

(35,203

)

 

14

%

 

 

(43,182

)

 

(7

%)

Total interest income (expense), net

 

8,891

 

 

 

9,844

 

 

(10

%)

 

 

7,710

 

 

15

%

Income (Loss) Before Income Taxes

 

46,698

 

 

 

43,346

 

 

8

%

 

 

51,793

 

 

(10

%)

Income tax expense (benefit)

 

8,831

 

 

 

8,703

 

 

1

%

 

 

13,294

 

 

(34

%)

Net Income (Loss)

 

37,867

 

 

 

34,643

 

 

9

%

 

 

38,499

 

 

(2

%)

Noncontrolling interests

 

(8,009

)

 

 

3,981

 

 

N/M

 

 

(7,665

)

 

4

%

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

$

29,858

 

 

$

38,624

 

 

(23

%)

 

$

30,834

 

 

(3

%)

Earnings (Loss) Per Share - Basic

$

4.19

 

 

$

5.33

 

 

(21

%)

 

$

4.30

 

 

(3

%)

Earnings (Loss) Per Share - Diluted

$

4.10

 

 

$

5.21

 

 

(21

%)

 

$

4.21

 

 

(3

%)

Cash Dividends Declared Per Common Share

$

1.90

 

 

$

1.65

 

 

15

%

 

$

1.90

 

 

%

Weighted Average Shares Outstanding - Basic

 

7,119

 

 

 

7,245

 

 

(2

%)

 

 

7,178

 

 

(1

%)

Weighted Average Shares Outstanding - Diluted

 

7,287

 

 

 

7,410

 

 

(2

%)

 

 

7,320

 

 

%

N/M - Not Meaningful

Assets Under Management - Product and Asset Class

(in millions)

 

Three Months Ended

 

3/31/2023

 

6/30/2023

 

9/30/2023

 

12/31/2023

 

3/31/2024

By Product (period end):

 

 

 

 

 

 

 

 

 

Open-End Funds (1)

$

53,865

 

$

56,828

 

$

54,145

 

$

56,062

 

$

57,818

Closed-End Funds

 

10,358

 

 

10,166

 

 

9,472

 

 

10,026

 

 

10,064

Retail Separate Accounts

 

37,397

 

 

38,992

 

 

38,665

 

 

43,202

 

 

46,816

Institutional Accounts (2)

 

53,229

 

 

62,330

 

 

60,257

 

 

62,969

 

 

64,613

Total

$

154,849

 

$

168,316

 

$

162,539

 

$

172,259

 

$

179,311

 

 

 

 

 

 

 

 

 

 

By Product (average) (3)

 

 

 

 

 

 

 

 

 

Open-End Funds (1)

$

54,141

 

$

56,120

 

$

56,511

 

$

54,132

 

$

56,828

Closed-End Funds

 

10,424

 

 

10,224

 

 

10,001

 

 

9,591

 

 

9,862

Retail Separate Accounts

 

35,352

 

 

37,397

 

 

38,992

 

 

38,665

 

 

43,202

Institutional Accounts (2)

 

52,444

 

 

59,248

 

 

62,368

 

 

60,319

 

 

63,466

Total

$

152,361

 

$

162,989

 

$

167,872

 

$

162,707

 

$

173,358

 

 

 

 

 

 

 

 

 

 

By Asset Class (period end):

 

 

 

 

 

 

 

 

 

Equity

$

87,511

 

$

91,211

 

$

87,984

 

$

96,703

 

$

103,501

Fixed Income

 

36,596

 

 

38,361

 

 

37,352

 

 

37,192

 

 

37,037

Multi-Asset (4)

 

20,597

 

 

20,914

 

 

19,937

 

 

21,411

 

 

21,975

Alternatives (5)

 

10,145

 

 

17,830

 

 

17,266

 

 

16,953

 

 

16,798

Total

$

154,849

 

$

168,316

 

$

162,539

 

$

172,259

 

$

179,311

Assets Under Management - Average Management Fees Earned (6)

(in basis points)

 

Three Months Ended

 

3/31/2023

 

6/30/2023

 

9/30/2023

 

12/31/2023

 

3/31/2024

By Product:

 

 

 

 

 

 

 

 

 

Open-End Funds (1)

47.6

 

49.3

 

51.1

 

49.7

 

49.9

Closed-End Funds

57.1

 

57.6

 

58.2

 

58.4

 

58.7

Retail Separate Accounts

44.2

 

44.1

 

43.3

 

43.3

 

43.9

Institutional Accounts (2)(7)

31.8

 

31.6

 

30.3

 

33.2

 

30.8

All Products (7)

42.0

 

42.2

 

42.0

 

42.6

 

41.9

(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:

 

3/31/2023

 

6/30/2023

 

9/30/2023

 

12/31/2023

 

3/31/2024

Institutional Accounts

0.2

 

0.2

 

0.4

 

2.2

 

0.3

All Products

0.1

 

0.1

 

0.1

 

0.8

 

0.1

Assets Under Management - Asset Flows by Product

(in millions)

 

Three Months Ended

 

3/31/2023

 

6/30/2023

 

9/30/2023

 

12/31/2023

 

3/31/2024

Open-End Funds (1)

 

 

 

 

 

 

 

 

 

Beginning balance

$

53,000

 

 

$

53,865

 

 

$

56,828

 

 

$

54,145

 

 

$

56,062

 

Inflows

 

3,011

 

 

 

2,550

 

 

 

2,687

 

 

 

2,940

 

 

 

3,476

 

Outflows

 

(4,792

)

 

 

(4,692

)

 

 

(4,137

)

 

 

(4,905

)

 

 

(4,104

)

Net flows

 

(1,781

)

 

 

(2,142

)

 

 

(1,450

)

 

 

(1,965

)

 

 

(628

)

Market performance

 

2,771

 

 

 

2,163

 

 

 

(1,034

)

 

 

4,260

 

 

 

2,560

 

Other (2)

 

(125

)

 

 

2,942

 

 

 

(199

)

 

 

(378

)

 

 

(176

)

Ending balance

$

53,865

 

 

$

56,828

 

 

$

54,145

 

 

$

56,062

 

 

$

57,818

 

 

 

 

 

 

 

 

 

 

 

Closed-End Funds

 

 

 

 

 

 

 

 

 

Beginning balance

$

10,361

 

 

$

10,358

 

 

$

10,166

 

 

$

9,472

 

 

$

10,026

 

Inflows

 

4

 

 

 

20

 

 

 

 

 

 

 

 

 

 

Outflows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net flows

 

4

 

 

 

20

 

 

 

 

 

 

 

 

 

 

Market performance

 

205

 

 

 

(1

)

 

 

(504

)

 

 

753

 

 

 

239

 

Other (2)

 

(212

)

 

 

(211

)

 

 

(190

)

 

 

(199

)

 

 

(201

)

Ending balance

$

10,358

 

 

$

10,166

 

 

$

9,472

 

 

$

10,026

 

 

$

10,064

 

 

 

 

 

 

 

 

 

 

 

Retail Separate Accounts

 

 

 

 

 

 

 

 

 

Beginning balance

$

35,352

 

 

$

37,397

 

 

$

38,992

 

 

$

38,665

 

 

$

43,202

 

Inflows

 

1,367

 

 

 

1,346

 

 

 

1,849

 

 

 

2,118

 

 

 

2,373

 

Outflows

 

(1,288

)

 

 

(1,434

)

 

 

(1,524

)

 

 

(1,726

)

 

 

(1,695

)

Net flows

 

79

 

 

 

(88

)

 

 

325

 

 

 

392

 

 

 

678

 

Market performance

 

1,966

 

 

 

1,683

 

 

 

(652

)

 

 

4,144

 

 

 

2,936

 

Other (2)

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

Ending balance

$

37,397

 

 

$

38,992

 

 

$

38,665

 

 

$

43,202

 

 

$

46,816

 

Institutional Accounts (3)

 

 

 

 

 

 

 

 

 

Beginning balance

$

50,663

 

 

$

53,229

 

 

$

62,330

 

 

$

60,257

 

 

$

62,969

 

Inflows

 

1,852

 

 

 

3,660

 

 

 

1,274

 

 

 

1,179

 

 

 

1,734

 

Outflows

 

(2,047

)

 

 

(1,478

)

 

 

(1,648

)

 

 

(3,406

)

 

 

(3,022

)

Net flows

 

(195

)

 

 

2,182

 

 

 

(374

)

 

 

(2,227

)

 

 

(1,288

)

Market performance

 

2,906

 

 

 

2,440

 

 

 

(1,434

)

 

 

5,165

 

 

 

3,001

 

Other (2)

 

(145

)

 

 

4,479

 

 

 

(265

)

 

 

(226

)

 

 

(69

)

Ending balance

$

53,229

 

 

$

62,330

 

 

$

60,257

 

 

$

62,969

 

 

$

64,613

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Beginning balance

$

149,376

 

 

$

154,849

 

 

$

168,316

 

 

$

162,539

 

 

$

172,259

 

Inflows

 

6,234

 

 

 

7,576

 

 

 

5,810

 

 

 

6,237

 

 

 

7,583

 

Outflows

 

(8,127

)

 

 

(7,604

)

 

 

(7,309

)

 

 

(10,037

)

 

 

(8,821

)

Net flows

 

(1,893

)

 

 

(28

)

 

 

(1,499

)

 

 

(3,800

)

 

 

(1,238

)

Market performance

 

7,848

 

 

 

6,285

 

 

 

(3,624

)

 

 

14,322

 

 

 

8,736

 

Other (2)

 

(482

)

 

 

7,210

 

 

 

(654

)

 

 

(802

)

 

 

(446

)

Ending balance

$

154,849

 

 

$

168,316

 

 

$

162,539

 

 

$

172,259

 

 

$

179,311

 

(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

3/31/2024

 

3/31/2023

 

12/31/2023

Total revenues, GAAP

$

222,042

 

 

$

197,874

 

 

$

214,587

 

Consolidated investment products revenues (1)

 

2,544

 

 

 

2,750

 

 

 

2,258

 

Investment management fees (2)

 

(10,316

)

 

 

(9,561

)

 

 

(9,933

)

Distribution and service fees (2)

 

(14,032

)

 

 

(14,154

)

 

 

(13,537

)

Total revenues, as adjusted

$

200,238

 

 

$

176,909

 

 

$

193,375

 

Operating Expenses

 

 

 

 

 

Total operating expenses, GAAP

$

189,736

 

 

$

169,295

 

 

$

175,631

 

Consolidated investment products expenses (1)

 

(690

)

 

 

(700

)

 

 

(2,611

)

Distribution and other asset-based expenses (3)

 

(24,348

)

 

 

(23,715

)

 

 

(23,470

)

Amortization of intangible assets (4)

 

(15,335

)

 

 

(14,391

)

 

 

(15,446

)

Restructuring expense (5)

 

(797

)

 

 

 

 

 

(133

)

Deferred compensation and related investments (6)

 

(1,249

)

 

 

(572

)

 

 

(925

)

Acquisition and integration expenses (7)

 

(1,042

)

 

 

(965

)

 

 

(3,050

)

Other (8)

 

(2,444

)

 

 

592

 

 

 

(472

)

Total operating expenses, as adjusted

$

143,831

 

 

$

129,544

 

 

$

129,524

 

Operating Income (Loss)

 

 

 

 

 

Operating income (loss), GAAP

$

32,306

 

 

$

28,579

 

 

$

38,956

 

Consolidated investment products (earnings) losses (1)

 

3,234

 

 

 

3,450

 

 

 

4,869

 

Amortization of intangible assets (4)

 

15,335

 

 

 

14,391

 

 

 

15,446

 

Restructuring expense (5)

 

797

 

 

 

 

 

 

133

 

Deferred compensation and related investments (6)

 

1,249

 

 

 

572

 

 

 

925

 

Acquisition and integration expenses (7)

 

1,042

 

 

 

965

 

 

 

3,050

 

Other (8)

 

2,444

 

 

 

(592

)

 

 

472

 

Operating income (loss), as adjusted

$

56,407

 

 

$

47,365

 

 

$

63,851

 

 

 

 

 

 

 

Operating margin, GAAP

 

14.5

%

 

 

14.4

%

 

 

18.2

%

Operating margin, as adjusted

 

28.2

%

 

 

26.8

%

 

 

33.0

%

 

Three Months Ended

Income (Loss) Before Taxes

3/31/2024

 

3/31/2023

 

12/31/2023

Income (loss) before taxes, GAAP

$

46,698

 

 

$

43,346

 

 

$

51,793

 

Consolidated investment products (earnings) losses (1)

 

(1,819

)

 

 

(1,412

)

 

 

(1,316

)

Amortization of intangible assets (4)

 

15,335

 

 

 

14,391

 

 

 

15,446

 

Restructuring expense (5)

 

797

 

 

 

 

 

 

133

 

Deferred compensation and related investments (6)

 

(400

)

 

 

(344

)

 

 

(783

)

Acquisition and integration expenses (7)

 

1,042

 

 

 

965

 

 

 

3,050

 

Other (8)

 

2,444

 

 

 

(592

)

 

 

472

 

Seed capital and CLO investments (gains) losses (9)

 

(7,333

)

 

 

(10,140

)

 

 

(5,078

)

Income (loss) before taxes, as adjusted

$

56,764

 

 

$

46,214

 

 

$

63,717

 

Income Tax Expense (Benefit)

 

 

 

 

 

Income tax expense (benefit), GAAP

$

8,831

 

 

$

8,703

 

 

$

13,294

 

Tax impact of:

 

 

 

 

 

Amortization of intangible assets (4)

 

3,993

 

 

 

4,025

 

 

 

4,202

 

Restructuring expense (5)

 

208

 

 

 

 

 

 

36

 

Deferred compensation and related investments (6)

 

(104

)

 

 

(96

)

 

 

(213

)

Acquisition and integration expenses (7)

 

271

 

 

 

270

 

 

 

830

 

Other (8)

 

1,056

 

 

 

1,745

 

 

 

(11

)

Seed capital and CLO investments (gains) losses (9)

 

529

 

 

 

(1,722

)

 

 

(801

)

Income tax expense (benefit), as adjusted

$

14,784

 

 

$

12,925

 

 

$

17,337

 

 

 

 

 

 

 

Effective tax rate, GAAPA

 

18.9

%

 

 

20.1

%

 

 

25.7

%

Effective tax rate, as adjustedB

 

26.0

%

 

 

28.0

%

 

 

27.2

%

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

$

29,858

 

 

$

38,624

 

 

$

30,834

 

Amortization of intangible assets, net of tax (4)

 

10,863

 

 

 

9,687

 

 

 

10,764

 

Restructuring expense, net of tax (5)

 

589

 

 

 

 

 

 

97

 

Deferred compensation and related investments (6)

 

(296

)

 

 

(248

)

 

 

(570

)

Acquisition and integration expenses, net of tax (7)

 

771

 

 

 

695

 

 

 

2,220

 

Other, net of tax (8)

 

5,476

 

 

 

(9,236

)

 

 

5,689

 

Seed capital and CLO investments (gains) losses, net of tax (9)

 

(7,862

)

 

 

(8,418

)

 

 

(4,277

)

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

$

39,399

 

 

$

31,104

 

 

$

44,757

 

Weighted average shares outstanding - diluted

 

7,287

 

 

 

7,410

 

 

 

7,320

 

 

 

 

 

 

 

Earnings (loss) per share - diluted, GAAP

$

4.10

 

 

$

5.21

 

 

$

4.21

 

Earnings (loss) per share - diluted, as adjusted

$

5.41

 

 

$

4.20

 

 

$

6.11

 

 

Three Months Ended

Administration and Shareholder Services Fees

3/31/2024

 

3/31/2023

 

12/31/2023

Administration and shareholder service fees, GAAP

$

18,678

 

$

18,359

 

$

18,189

Consolidated investment products fees (1)

 

39

 

 

30

 

 

24

Administration and shareholder service fees, as adjusted

$

18,717

 

$

18,389

 

$

18,213

Employment Expenses

 

 

 

 

 

Employment expenses, GAAP

$

115,163

 

 

$

98,614

 

 

$

99,847

 

Deferred compensation and related investments (6)

 

(1,249

)

 

 

(572

)

 

 

(925

)

Acquisition and integration expenses (7)

 

(1,042

)

 

 

 

 

 

(1,760

)

Other (8)

 

(1,262

)

 

 

592

 

 

 

(472

)

Employment expenses, as adjusted

$

111,610

 

 

$

98,634

 

 

$

96,690

 

Other Operating Expenses

 

 

 

 

 

Other operating expenses, GAAP

$

31,375

 

 

$

30,730

 

 

$

31,164

Acquisition and integration expenses (7)

 

 

 

 

(965

)

 

 

Other (8)

 

(1,182

)

 

 

 

 

 

Other operating expenses, as adjusted

$

30,193

 

 

$

29,765

 

 

$

31,164

Total Other Income (Expense), Net

 

 

 

 

 

Total other income (expense), net GAAP

$

5,501

 

 

$

4,923

 

 

$

5,127

 

Consolidated investment products (1)

 

4,127

 

 

 

5,721

 

 

 

1,681

 

Deferred compensation and related investments (6)

 

(1,623

)

 

 

(907

)

 

 

(1,397

)

Seed capital and CLO investments (gains) losses (9)

 

(7,333

)

 

 

(10,140

)

 

 

(5,078

)

Total other income (expense), net as adjusted

$

672

 

 

$

(403

)

 

$

333

 

Interest and Dividend Income

 

 

 

 

 

Interest and dividend income, GAAP

$

3,469

 

 

$

3,238

 

 

$

3,673

 

Consolidated investment products (1)

 

1,923

 

 

 

1,028

 

 

 

2,158

 

Deferred compensation and related investments (6)

 

(26

)

 

 

(9

)

 

 

(311

)

Interest and dividend income, as adjusted

$

5,366

 

 

$

4,257

 

 

$

5,520

 

Total Noncontrolling Interests

 

 

 

 

 

Total noncontrolling interests, GAAP

$

(8,009

)

 

$

3,981

 

 

$

(7,665

)

Consolidated investment products (1)

 

1,819

 

 

 

1,412

 

 

 

1,316

 

Amortization of intangible assets (4)

 

(479

)

 

 

(679

)

 

 

(480

)

Other (8)

 

4,088

 

 

 

(6,899

)

 

 

5,206

 

Total noncontrolling interests, as adjusted

$

(2,581

)

 

$

(2,185

)

 

$

(1,623

)

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.

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.

6.

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.

7.

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

3/31/2024

 

3/31/2023

 

12/31/2023

Employment expenses

$

1,042

 

$

 

$

1,760

Other operating expenses

 

 

 

965

 

 

Change in fair value of contingent consideration

 

 

 

 

 

1,290

Total Acquisition and Integration Expenses

$

1,042

 

$

965

 

$

3,050

8.

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 and amortization of lease termination fees. 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

3/31/2024

 

3/31/2023

 

12/31/2023

Employment expense fair value adjustments

$

1,262

 

 

$

(592

)

 

$

472

 

Amortization of lease termination fees

 

1,182

 

 

 

 

 

 

 

Tax impact of adjustments

 

(637

)

 

 

166

 

 

 

(128

)

Other discrete tax adjustments

 

(419

)

 

 

(1,911

)

 

 

139

 

Affiliate minority interest fair value adjustments

 

4,088

 

 

 

(6,899

)

 

 

5,206

 

Total Other

$

5,476

 

 

$

(9,236

)

 

$

5,689

 

Seed Capital and CLO Related
9.

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 2023 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 2023 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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