HARTFORD, Conn., Oct. 23, 2020 /PRNewswire/ -- Virtus Investment Partners, Inc. (NASDAQ: VRTS) today reported financial results for the three months ended September 30, 2020.

Financial Highlights (Unaudited)

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



Three Months Ended


Three
Months
Ended



9/30/2020

9/30/2019

Change

6/30/2020

Change











U.S. GAAP Financial Measures

















Revenues

$

154.8

$

146.0

6%

$

132.9

16%

Operating expenses

$

113.8

$

110.2

3%

$

106.3

7%

Operating income (loss)

$

41.0

$

35.8

15%

$

26.6

54%

Operating margin

26.5%

24.5%


20.0%


Net income (loss) attributable to common stockholders

$

29.6

$

22.0

35%

$

11.3

162%

Earnings (loss) per share - diluted

$

3.71

$

2.95

26%

$

1.43

159%

Weighted average shares outstanding - diluted

7.997

8.157

(2%)

7.895

1%











Non-GAAP Financial Measures (1)









Revenues, as adjusted

$

137.6

$

127.1

8%

$

118.1

17%

Operating expenses, as adjusted

$

83.6

$

79.5

5%

$

77.6

8%

Operating income (loss), as adjusted

$

54.1

$

47.7

13%

$

40.5

34%

Operating margin, as adjusted

39.3%

37.5%


34.3%


Net income (loss) attributable to common stockholders, as
adjusted

$

35.9

$

32.9

9%

$

25.6

40%

Earnings (loss) per share - diluted, as adjusted

$

4.49

$

4.03

11%

$

3.24

39%

Weighted average shares outstanding - diluted, as adjusted

7.997

8.157

(2%)

7.895

1%


(1)

See the information beginning on page 11 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 11 of this earnings release.

Assets Under Management and Asset Flows

(in billions)




















Three Months Ended


Three
Months
Ended



9/30/2020

9/30/2019

Change

6/30/2020

Change

Ending long-term assets under management (1)

$

115.0

$

102.8

12%

$

107.1

7%

Ending total assets under management

$

116.5

$

104.1

12%

$

108.5

7%

Average long-term assets under management (1)

$

111.5

$

102.8

8%

$

96.9

15%

Average total assets under management

$

112.9

$

104.5

8%

$

98.2

15%

Total sales

$

7.6

$

4.8

60%

$

9.1

(16%)

Net flows

$

1.2

$

(1.1)

N/M

$

2.5

(52%)


(1)

Excludes assets under management in liquidity strategies, including in certain open-end mutual funds and institutional accounts

N/M - Not Meaningful

Long-term assets under management increased 7% to $115.0 billion at September 30, 2020 from $107.1 billion at June 30, 2020 as a result of $7.1 billion of market appreciation and $1.2 billion of positive net flows. Total assets under management at September 30, 2020 were $116.5 billion, including $1.5 billion of assets in liquidity strategies.

Total sales of $7.6 billion compared with $9.1 billion in the second quarter, as higher sales of retail separate accounts were more than offset by lower institutional inflows and open-end fund sales. Retail separate account sales of $1.7 billion increased 16% with continued growth in both the intermediary sold and private client channels. Open-end fund sales of $3.8 billion compared with $4.4 billion in the second quarter primarily due to lower sales of small cap and fixed income strategies. Institutional sales of $2.1 billion, including contributions from new mandates and existing accounts, declined from $3.1 billion in the prior quarter, which included meaningful flows into an existing subadvisory mandate.     

Net flows of $1.2 billion compared with $2.5 billion in the prior quarter and included positive net flows in retail separate accounts, open-end funds, and exchange traded funds. Positive net flows of $1.1 billion in retail separate accounts increased from $0.8 billion in the second quarter and included contributions from both the intermediary sold and private client channels. Open-end fund net flows of $0.4 billion were comparable to the prior quarter and reflected positive net flows in domestic equity and investment-grade fixed income partially offset by net outflows in international equity and credit-sensitive fixed income. Institutional net outflows of $0.3 billion, which included a $0.6 billion redemption of an account, compared with positive net flows of $1.5 billion in the prior quarter.  

GAAP Results

Operating income increased 54% to $41.0 million from $26.6 million in the prior quarter, as a 16% increase in total revenues, due to higher average assets under management, was partially offset by a 7% increase in total operating expenses, largely due to higher variable incentive compensation.  

Net income attributable to common stockholders of $3.71 per diluted common share included ($1.09) of fair value adjustments on affiliate noncontrolling interests and $0.75 of realized and unrealized gains on investments. Second quarter net income per diluted share of $1.43 included ($0.87) of collateralized loan obligation (CLO) expenses, ($0.48) of fair value adjustments on affiliate noncontrolling interests, and ($0.22) of realized and unrealized losses on investments.

The effective tax rate during the second quarter of 23% compared with 32% in the prior quarter, reflecting changes in the valuation allowances related to marketable securities.  

Non-GAAP Results

Revenues, as adjusted, of $137.6 million increased 17% sequentially primarily as a result of a 15% increase in average assets under management due to market appreciation and positive net flows. Revenues, as adjusted, included performance-related fees of $2.0 million, an increase from $0.6 million in the prior quarter.

Employment expenses, as adjusted, increased 12% to $66.1 million largely due to higher variable incentive compensation. Other operating expenses, as adjusted, of $16.3 million declined from $17.4 million primarily due to the annual equity grants to the Board of Directors of $0.8 million in the second quarter.

Operating income, as adjusted, and the related margin increased to $54.1 million and 39%, respectively, from $40.5 million and 34% in the prior quarter primarily due to higher revenues, as adjusted, partially offset by higher employment expenses.

Net income attributable to common stockholders, as adjusted, which is net of noncontrolling interests, was $4.49 per diluted common share, an increase of $1.25, or 39%, from $3.24 in the prior quarter. The increase primarily reflected higher revenues, as adjusted, as a result of higher average assets under management.

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

Select Balance Sheet Items (Unaudited)

(in millions)




















As of


As of



9/30/2020

9/30/2019

Change

6/30/2020

Change

Cash and cash equivalents

$

202.2

$

195.9

3%

$

168.3

20%

Gross debt (1)

$

223.2

$

300.7

(26%)

$

240.7

(7%)

Redeemable noncontrolling interests (2)

$

74.6

$

53.1

40%

$

66.3

12%

Total equity attributable to stockholders

$

679.1

$

665.7

2%

$

658.2

3%











Working capital (3)

$

159.1

$

158.0

1%

$

155.9

2%

Net debt (cash) (4)

$

21.0

$

104.9

(80%)

$

72.4

(71%)


(1)

Excludes deferred financing costs of $5.2 million, $8.7 million, and $5.9 million, as of September 30, 2020, September 30, 2019, and June 30, 2020, respectively

(2)

Excludes redeemable noncontrolling interests of consolidated investment products of $24.7 million, $38.5 million, and $24.3 million as of September 30, 2020, September 30, 2019, and June 30, 2020, respectively

(3)

Defined as cash and cash equivalents plus accounts receivable, net, less accrued compensation and benefits, accounts payable and accrued liabilities, dividends payable and required principal payments due over the next 12 months, including scheduled amortization and an estimate of the excess cash flow payment; the actual excess cash flow payment will be measured based on fiscal year 2020 financial results and the net leverage ratio as of December 31, 2020

(4)

Defined as gross debt less cash and cash equivalents

Working capital at September 30, 2020 of $159.1 million increased 2% from June 30, 2020 as net cash generated from the business was partially offset by return of capital to shareholders and debt repayments.

In August, the company declared an $0.82 per share common stock dividend, an increase of 22% from the previous quarterly rate.

During the quarter, the company repurchased 53,867 shares, or 0.7% of beginning-of-quarter outstanding common shares, for $7.5 million. 

The company reduced gross debt in the quarter by $17.5 million, or 7%, to $223.2 million. The net leverage ratio, which is defined as net debt to EBITDA (in accordance with the company's credit agreement), was 0.1x at September 30, 2020, down from 0.3x at June 30, 2020 and 0.3x at December 31, 2019.

Conference Call

Management will host an investor conference call on Friday, October 23, 2020, at 10 a.m. Eastern to discuss these financial results and related matters. The webcast of the call can be accessed in the Investor Relations section of www.virtus.com, or by telephone at 877-930-7765 for callers in the U.S. and Canada or 253-336-7413 for international callers (Conference ID: 7278492). The presentation that will be reviewed as part of the conference call will be available prior to the call in the Investor Relations section of www.virtus.com. A replay of the call will be available through October 30, 2020 by telephone at 855-859-2056 (U.S. and Canada) or 404-537-3406 (international) (Conference ID: 7278492).

About Virtus Investment Partners

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. The company provides investment management products and services through its affiliated managers and select subadvisers, each with a distinct investment style, autonomous investment process, and individual brand. Virtus Investment Partners offers access to a variety of investment styles across multiple disciplines to meet a wide array of investor needs. Its affiliates include Ceredex Value Advisors, Duff & Phelps Investment Management, Kayne Anderson Rudnick Investment Management, Newfleet Asset Management, Seix Investment Advisors, Silvant Capital Management, Sustainable Growth Advisers, and Virtus ETF Solutions.

 

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

(in thousands, except per share data)



Three Months Ended


Three
Months
Ended


Nine Months Ended



9/30/2020

9/30/2019

Change

6/30/2020

Change

9/30/2020

9/30/2019

Change

Revenues


















Investment management fees

$

129,785

$

120,023

8%

$

110,550

17%

$

360,623

$

340,532

6%

Distribution and service fees

9,797

10,442

(6%)

8,889

10%

28,146

31,122

(10%)

Administration and shareholder service fees

15,114

15,280

(1%)

13,289

14%

43,056

44,747

(4%)

Other income and fees

94

210

(55%)

166

(43%)

425

761

(44%)

     Total revenues

154,790

145,955

6%

132,894

16%

432,250

417,162

4%

Operating Expenses















Employment expenses

67,479

61,282

10%

60,163

12%

193,772

180,256

7%

Distribution and other asset-based expenses

19,570

20,927

(6%)

17,345

13%

56,324

62,013

(9%)

Other operating expenses

16,343

18,228

(10%)

17,436

(6%)

52,664

56,125

(6%)

Operating expenses of consolidated investment
products

1,016

376

170%

2,179

(53%)

9,944

3,395

193%

Restructuring and severance

735

523

41%

420

75%

1,155

2,019

(43%)

Depreciation expense

1,106

1,245

(11%)

1,196

(8%)

3,560

3,729

(5%)

Amortization expense

7,532

7,587

(1%)

7,533

—%

22,598

22,711

—%

     Total operating expenses

113,781

110,168

3%

106,272

7%

340,017

330,248

3%

Operating Income (Loss)

41,009

35,787

15%

26,622

54%

92,233

86,914

6%

Other Income (Expense)















Realized and unrealized gain (loss) on
investments, net

2,498

2

N/M

7,114

(65%)

2,068

5,474

(62%)

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

2,680

(5,344)

N/M

(6,744)

N/M

(12,733)

2,455

N/M

Other income (expense), net

999

746

34%

(805)

N/M

806

1,892

(57%)

     Total other income (expense), net

6,177

(4,596)

N/M

(435)

N/M

(9,859)

9,821

N/M

Interest Income (Expense)















Interest expense

(2,877)

(4,889)

(41%)

(3,126)

(8%)

(9,202)

(15,205)

(39%)

Interest and dividend income

137

863

(84%)

242

(43%)

1,131

3,017

(63%)

Interest and dividend income of investments of
consolidated investment products

26,088

30,290

(14%)

28,634

(9%)

83,951

87,060

(4%)

Interest expense of consolidated investment
products

(17,622)

(21,252)

(17%)

(28,150)

(37%)

(70,258)

(72,030)

(2%)

     Total interest income (expense), net

5,726

5,012

14%

(2,400)

N/M

5,622

2,842

98%

Income (Loss) Before Income Taxes

52,912

36,203

46%

23,787

122%

87,996

99,577

(12%)

Income tax expense (benefit)

11,978

10,844

10%

7,578

58%

29,847

23,851

25%

Net Income (Loss)

40,934

25,359

61%

16,209

153%

58,149

75,726

(23%)

Noncontrolling interests

(11,286)

(1,274)

N/M

(4,930)

129%

(21,507)

(2,969)

N/M

Net Income (Loss) Attributable to
Stockholders

29,648

24,085

23%

11,279

163%

36,642

72,757

(50%)

Preferred stockholder dividends

—

(2,085)

(100%)

—

N/M

—

(6,253)

(100%)

Net Income (Loss) Attributable to Common
Stockholders

$

29,648

$

22,000

35%

$

11,279

163%

$

36,642

$

66,504

(45%)

Earnings (Loss) Per Share - Basic

$

3.86

$

3.17

22%

$

1.46

164%

$

4.81

$

9.51

(49%)

Earnings (Loss) Per Share - Diluted

$

3.71

$

2.95

26%

$

1.43

159%

$

4.60

$

8.86

(48%)

Cash Dividends Declared Per Preferred
Share

$

—

$

1.81

(100%)

$

—

N/M

$

—

$

5.44

(100%)

Cash Dividends Declared Per Common
Share

$

0.82

$

0.67

22%

$

0.67

22%

$

2.16

$

1.77

22%

Weighted Average Shares Outstanding -
Basic

7,684

6,947

11%

7,720

—%

7,611

6,990

9%

Weighted Average Shares Outstanding -
Diluted

7,997

8,157

(2%)

7,895

1%

7,958

8,215

(3%)


N/M - Not Meaningful

 

 

 

Assets Under Management - Product and Asset Class

(in millions)



Three Months Ended

9/30/2019

12/31/2019

3/31/2020

6/30/2020

9/30/2020

By product (period end):









Open-End Funds (1)

$

41,190

$

42,870

$

33,498

$

40,053

$

43,369

Closed-End Funds

6,816

6,748

5,343

5,639

5,629

Exchange Traded Funds

1,054

1,156

480

541

543

Retail Separate Accounts

18,863

20,414

17,660

22,054

24,727

Institutional Accounts

30,951

32,635

28,210

34,545

36,596

Structured Products

3,972

3,903

4,343

4,264

4,163

Total Long-Term

$

102,846

$

107,726

$

89,534

$

107,096

$

115,027

Liquidity (2)

1,221

1,178

1,160

1,365

1,460

Total

$

104,067

$

108,904

$

90,694

$

108,461

$

116,487












By product (average) (3)









Open-End Funds (1)

$

41,457

$

41,718

$

41,060

$

37,198

$

42,475

Closed-End Funds

6,649

6,639

6,524

5,566

5,742

Exchange Traded Funds

1,048

1,049

962

554

549

Retail Separate Accounts

18,260

18,863

20,414

17,660

22,054

Institutional Accounts

31,462

31,748

31,534

31,648

36,506

Structured Products

3,957

3,903

4,191

4,265

4,171

Total Long-Term

$

102,833

$

103,920

$

104,685

$

96,891

$

111,497

Liquidity (2)

1,710

1,195

1,219

1,267

1,393

Total

$

104,543

$

105,115

$

105,904

$

98,158

$

112,890












By asset class (period end):









Equity

$

65,544

$

70,720

$

57,180

$

73,823

$

81,032

Fixed Income

31,704

31,186

28,231

28,870

29,603

Alternatives (4)

5,598

5,820

4,123

4,403

4,392

Total Long-Term

$

102,846

$

107,726

$

89,534

$

107,096

$

115,027

Liquidity (2)

1,221

1,178

1,160

1,365

1,460

Total

$

104,067

$

108,904

$

90,694

$

108,461

$

116,487

 

 

Assets Under Management - Average Management Fees Earned (5)

(in basis points)



Three Months Ended

9/30/2019

12/31/2019

3/31/2020

6/30/2020

9/30/2020

All Products














Open-End Funds (1)

56.6

57.4

57.8

58.4

59.5

Closed-End Funds

64.7

64.0

62.8

61.8

62.1

Exchange Traded Funds

25.3

22.0

21.3

14.1

13.7

Retail Separate Accounts

48.0

46.8

50.7

51.0

47.6

Institutional Accounts (6)

31.8

31.8

29.2

31.3

31.7

Structured Products (6)

37.3

37.9

33.9

26.8

34.2

All Long-Term Products (6)

46.9

47.0

46.8

46.8

47.0

Liquidity (2)

10.7

8.9

9.8

11.8

12.3

All Products

46.3

46.5

46.4

46.3

46.6

 

(1)

Represents assets under management of U.S. retail funds, offshore funds and variable insurance funds

(2)

Represents assets under management in liquidity strategies, including in certain open-end funds and institutional accounts

(3)

Averages are calculated as follows:

- Funds - average daily or weekly balances

- Retail Separate Accounts - prior-quarter ending balance

- Institutional Accounts and Structured Products - average of month-end balances in quarter

(4)

Consists of real estate securities, mid-stream energy securities and master limited partnerships, options strategies, and other

(5)

Represents investment management fees divided by average assets.  Investment management fees exclude the impact of consolidated investment products

(6)

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

9/30/2019

12/31/2019

3/31/2020

6/30/2020

9/30/2020

Institutional Accounts

1.5

1.2

0.8

0.7

2.1

Structured Products

—

1.5

—

—

—

All Long-Term Products

0.5

0.4

0.2

0.2

0.7

 

Assets Under Management - Asset Flows by Product

(in millions)



Three Months Ended

Nine Months Ended

9/30/2019

12/31/2019

3/31/2020

6/30/2020

9/30/2020

9/30/2019

9/30/2020

Open-End Funds (1)














Beginning balance

$

41,223

$

41,190

$

42,870

$

33,498

$

40,053


$

37,710

$

42,870

Inflows

2,982

2,343

3,874

4,388

3,755


8,492

12,017

Outflows

(3,164)

(2,784)

(5,471)

(4,005)

(3,368)


(10,245)

(12,844)

Net flows

(182)

(441)

(1,597)

383

387


(1,753)

(827)

Market performance

(69)

2,301

(7,730)

6,244

3,004


5,235

1,518

Other (2)

218

(180)

(45)

(72)

(75)


(2)

(192)

Ending balance

$

41,190

$

42,870

$

33,498

$

40,053

$

43,369


$

41,190

$

43,369

















Closed-End Funds














Beginning balance

$

6,653

$

6,816

$

6,748

$

5,343

$

5,639


$

5,956

$

6,748

Inflows

14

10

5

—

15


34

20

Outflows

—

—

—

—

—


—

—

Net flows

14

10

5

—

15


34

20

Market performance

246

26

(1,185)

380

54


1,090

(751)

Other (2)

(97)

(104)

(225)

(84)

(79)


(264)

(388)

Ending balance

$

6,816

$

6,748

$

5,343

$

5,639

$

5,629


$

6,816

$

5,629

















Exchange Traded Funds














Beginning balance

$

1,078

$

1,054

$

1,156

$

480

$

541


$

668

$

1,156

Inflows

94

164

86

74

60


620

220

Outflows

(54)

(62)

(233)

(140)

(35)


(217)

(408)

Net flows

40

102

(147)

(66)

25


403

(188)

Market performance

(36)

23

(505)

137

(12)


67

(380)

Other (2)

(28)

(23)

(24)

(10)

(11)


(84)

(45)

Ending balance

$

1,054

$

1,156

$

480

$

541

$

543


$

1,054

$

543

















Retail Separate Accounts














Beginning balance

$

18,260

$

18,863

$

20,414

$

17,660

$

22,054


$

14,998

$

20,414

Inflows

819

1,012

1,061

1,483

1,727


2,303

4,271

Outflows

(435)

(436)

(775)

(654)

(617)


(1,354)

(2,046)

Net flows

384

576

286

829

1,110


949

2,225

Market performance

297

976

(3,040)

3,560

1,591


3,069

2,111

Other (2)

(78)

(1)

—

5

(28)


(153)

(23)

Ending balance

$

18,863

$

20,414

$

17,660

$

22,054

$

24,727


$

18,863

$

24,727

 

 

Assets Under Management - Asset Flows by Product (continued)

(in millions)



Three Months Ended

Nine Months Ended

9/30/2019

12/31/2019

3/31/2020

6/30/2020

9/30/2020

9/30/2019

9/30/2020

Institutional Accounts













Beginning balance

$

32,056

$

30,951

$

32,635

$

28,210

$

34,545

$

27,445

$

32,635

Inflows

851

1,235

1,499

3,141

2,075

3,542

6,715

Outflows

(2,216)

(1,091)

(1,777)

(1,666)

(2,381)

(4,629)

(5,824)

Net flows

(1,365)

144

(278)

1,475

(306)

(1,087)

891

Market performance

527

1,553

(4,150)

4,877

2,472

4,824

3,199

Other (2)

(267)

(13)

3

(17)

(115)

(231)

(129)

Ending balance

$

30,951

$

32,635

$

28,210

$

34,545

$

36,596

$

30,951

$

36,596
















Structured Products













Beginning balance

$

3,984

$

3,972

$

3,903

$

4,343

$

4,264

$

3,640

$

3,903

Inflows

—

—

491

—

—

389

491

Outflows

(16)

(45)

(42)

(73)

(69)

(53)

(184)

Net flows

(16)

(45)

449

(73)

(69)

336

307

Market performance

54

36

39

33

10

137

82

Other (2)

(50)

(60)

(48)

(39)

(42)

(141)

(129)

Ending balance

$

3,972

$

3,903

$

4,343

$

4,264

$

4,163

$

3,972

$

4,163
















Total Long-Term













Beginning balance

$

103,254

$

102,846

$

107,726

$

89,534

$

107,096

$

90,417

$

107,726

Inflows

4,760

4,764

7,016

9,086

7,632

15,380

23,734

Outflows

(5,885)

(4,418)

(8,298)

(6,538)

(6,470)

(16,498)

(21,306)

Net flows

(1,125)

346

(1,282)

2,548

1,162

(1,118)

2,428

Market performance

1,019

4,915

(16,571)

15,231

7,119

14,422

5,779

Other (2)

(302)

(381)

(339)

(217)

(350)

(875)

(906)

Ending balance

$

102,846

$

107,726

$

89,534

$

107,096

$

115,027

$

102,846

$

115,027
















Liquidity (3)













Beginning balance

$

1,752

$

1,221

$

1,178

$

1,160

$

1,365

$

1,613

$

1,178

Other (2)

(531)

(43)

(18)

205

95

(392)

282

Ending balance

$

1,221

$

1,178

$

1,160

$

1,365

$

1,460

$

1,221

$

1,460
















Total













Beginning balance

$

105,006

$

104,067

$

108,904

$

90,694

$

108,461

$

92,030

$

108,904

Inflows

4,760

4,764

7,016

9,086

7,632

15,380

23,734

Outflows

(5,885)

(4,418)

(8,298)

(6,538)

(6,470)

(16,498)

(21,306)

Net flows

(1,125)

346

(1,282)

2,548

1,162

(1,118)

2,428

Market performance

1,019

4,915

(16,571)

15,231

7,119

14,422

5,779

Other (2)

(833)

(424)

(357)

(12)

(255)

(1,267)

(624)

Ending balance

$

104,067

$

108,904

$

90,694

$

108,461

$

116,487

$

104,067

$

116,487



(1)

Represents assets under management of U.S. retail funds, offshore funds and variable insurance funds

(2)

Represents open-end and closed-end fund distributions net of reinvestments, the net change in assets from liquidity strategies, and the effect on net flows from non-sales related activities such as asset acquisitions/(dispositions), seed capital investments/(withdrawals), structured products reset transactions, and the use of leverage

(3)

Represents assets under management in liquidity strategies, including in certain open-end funds and institutional accounts

 

Non-GAAP Information and Reconciliations
(in thousands except per share data)

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

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.

Reconciliation of Total Revenues, GAAP to Total Revenues, as Adjusted:



Three Months Ended

9/30/2020

9/30/2019

6/30/2020

Total revenues, GAAP

$

154,790

$

145,955

$

132,894

Consolidated investment products revenues (1)

2,413

2,110

2,526

Investment management fees (2)

(9,770)

(10,476)

(8,453)

Distribution and service fees (2)

(9,800)

(10,451)

(8,892)

Total revenues, as adjusted

$

137,633

$

127,138

$

118,075

 

Reconciliation of Total Operating Expenses, GAAP to Operating Expenses, as Adjusted:



Three Months Ended

9/30/2020

9/30/2019

6/30/2020

Total operating expenses, GAAP

$

113,781

$

110,168

$

106,272

Consolidated investment products expenses (1)

(1,016)

(376)

(2,179)

Distribution and other asset-based expenses (3)

(19,570)

(20,927)

(17,345)

Amortization of intangible assets (4)

(7,532)

(7,587)

(7,533)

Restructuring and severance (5)

(735)

(523)

(420)

Acquisition and integration expenses (6)

(999)

(1,304)

(952)

Other (7)

(368)

—

(241)

Total operating expenses, as adjusted

$

83,561

$

79,451

$

77,602

 

Reconciliation of Operating Income (Loss), GAAP to Operating Income (Loss), as Adjusted:



Three Months Ended

9/30/2020

9/30/2019

6/30/2020

Operating income (loss), GAAP

$

41,009

$

35,787

$

26,622

Consolidated investment products (earnings) losses (1)

3,429

2,486

4,705

Amortization of intangible assets (4)

7,532

7,587

7,533

Restructuring and severance (5)

735

523

420

Acquisition and integration expenses (6)

999

1,304

952

Other (7)

368

—

241

Operating income (loss), as adjusted

$

54,072

$

47,687

$

40,473








Operating margin, GAAP

26.5%

24.5%

20.0%

Operating margin, as adjusted

39.3%

37.5%

34.3%














 

Reconciliation of Net Income (Loss) Attributable to Common Stockholders, GAAP to Net Income (Loss) Attributable to Common Stockholders, as Adjusted:



Three Months Ended

9/30/2020

9/30/2019

6/30/2020

Net income (loss) attributable to common stockholders, GAAP

$

29,648

$

22,000

$

11,279

Amortization of intangible assets, net of tax (4)

4,739

4,803

4,731

Restructuring and severance, net of tax (5)

534

382

305

Acquisition and integration expenses, net of tax (6)

726

953

691

Other, net of tax (7)

8,184

2,231

4,245

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

(7,910)

2,545

4,316

Net income (loss) attributable to common stockholders, as
adjusted

$

35,921

$

32,914

$

25,567

Weighted average shares outstanding - diluted

7,997

8,157

7,895

Weighted average shares outstanding - diluted, as adjusted

7,997

8,157

7,895








Earnings (loss) per share - diluted, GAAP

$

3.71

$

2.95

$

1.43

Earnings (loss) per share - diluted, as adjusted

$

4.49

$

4.03

$

3.24

 

Reconciliation of Income (Loss) Before Taxes, GAAP to Income (Loss) Before Taxes, as Adjusted:



Three Months Ended

9/30/2020

9/30/2019

6/30/2020

Income (loss) before taxes, GAAP

$

52,912

$

36,203

$

23,787

Consolidated investment products (earnings) losses (1)

(906)

(367)

170

Amortization of intangible assets (4)

7,532

7,587

7,533

Restructuring and severance (5)

735

523

420

Acquisition and integration expenses (6)

999

1,304

952

Other (7)

368

—

241

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

(8,873)

2,038

4,927

Income (loss) before taxes, as adjusted

$

52,767

$

47,288

$

38,030

 

Reconciliation of Income Tax Expense (Benefit), GAAP to Income Tax Expense (Benefit), as Adjusted:



Three Months Ended

9/30/2020

9/30/2019

6/30/2020

Income tax expense (benefit), GAAP

$

11,978

$

10,844

$

7,578

Tax impact of:





  Amortization of intangible assets (4)

2,057

2,042

2,062

  Restructuring and severance (5)

201

141

115

  Acquisition and integration expenses (6)

273

351

261

  Other (7)

868

(146)

(211)

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

(963)

(507)

611

Income tax expense (benefit), as adjusted

$

14,414

$

12,725

$

10,416








Effective tax rate, GAAPA

22.6%

30.0%

31.9%

Effective tax rate, as adjustedB

27.3%

26.9%

27.4%

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

 

Reconciliation of Administration and Shareholder Service Fees, GAAP to Administration and Shareholder Service Fees, as Adjusted:



Three Months Ended

9/30/2020

9/30/2019

6/30/2020

Administration and shareholder service fees, GAAP

$

15,114

$

15,280

$

13,289

Consolidated investment products fees (1)

66

49

51

Administration and shareholder service fees, as adjusted

$

15,180

$

15,329

$

13,340

 

Reconciliation of Employment Expenses, GAAP to Employment Expenses, as Adjusted:



Three Months Ended

9/30/2020

9/30/2019

6/30/2020

Employment expenses, GAAP

$

67,479

$

61,282

$

60,163

Acquisition and integration expenses (6)

(999)

(1,223)

(952)

Other (7)

(368)

—

(241)

Employment expenses, as adjusted

$

66,112

$

60,059

$

58,970

 

Reconciliation of Other Operating Expenses, GAAP to Other Operating Expenses, as Adjusted:



Three Months Ended

9/30/2020

9/30/2019

6/30/2020

Other operating expenses, GAAP

$

16,343

$

18,228

$

17,436

Acquisition and integration expenses (6)

—

(81)

—

Other operating expenses, as adjusted

$

16,343

$

18,147

$

17,436

 

Reconciliation of Total Other Income (Expense), Net, GAAP to Total Other Income (Expense), Net, as Adjusted:



Three Months Ended

9/30/2020

9/30/2019

6/30/2020

Total other income (expense), net GAAP

$

6,177

$

(4,596)

$

(435)

Consolidated investment products (1)

3,490

3,593

(4,949)

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

(8,873)

2,038

4,927

Total other income (expense), net as adjusted

$

794

$

1,035

$

(457)

 

Reconciliation of Interest and Dividend Income, GAAP to Interest and Dividend Income, as Adjusted:



Three Months Ended

9/30/2020

9/30/2019

6/30/2020

Interest and dividend income, GAAP

$

137

$

863

$

242

Consolidated investment products (1)

641

2,592

898

Interest and dividend income, as adjusted

$

778

$

3,455

$

1,140

 

Reconciliation of Total Noncontrolling Interests, GAAP to Total Noncontrolling Interests, as Adjusted 



Three Months Ended

9/30/2020

9/30/2019

6/30/2020

Total noncontrolling interests, GAAP

$

(11,286)

$

(1,274)

$

(4,930)

Consolidated investment products (1)

906

367

(170)

Amortization of intangible assets (4)

(736)

(742)

(740)

Other (7)

8,684

—

3,793

Total noncontrolling interests, as adjusted

$

(2,432)

$

(1,649)

$

(2,047)

 

Notes to Reconciliations:

Reclassifications:

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

Other adjustments:

Revenue Related

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

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

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

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

Expense Related

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

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

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

6. Acquisition and integration expenses - Expenses that are directly related to acquisition and integration activities. Acquisition expenses include transaction closing costs, 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

9/30/2020

9/30/2019

6/30/2020


Employment expenses

$

999

$

1,223

$

952



Other operating expenses

—

81

—



Total Acquisition and Integration Expenses

$

999

$

1,304

$

952
















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. Interest expense is adjusted to remove gains on early extinguishment 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. Preferred dividends are adjusted as preferred shares were mandatorily converted into common shares on February 1, 2020 and the non-GAAP weighted average shares are adjusted to reflect the conversion.  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

9/30/2020

9/30/2019

6/30/2020


Employment expense fair value adjustments

$

368

$

—

$

241



Tax impact of employment expense fair value adjustments

(101)

—

(70)



Other discrete tax adjustments

(767)

146

281



Affiliate minority interest fair value adjustments

8,684

—

3,793



Preferred stockholder dividends

—

2,085

—



Total Other

$

8,184

$

2,231

$

4,245
















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 common stockholders, 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 common stockholders, 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 common stockholders, 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 2019 Annual Report on Form 10-K and as supplemented by any subsequent Quarterly Report on Form 10-Q, as well as the following risks and uncertainties resulting from: (i) the on-going effects of the COVID-19 pandemic and associated global economic disruption; (ii) general domestic and global economic, political and pandemic conditions; (iii) any reduction in our assets under management; (iv) withdrawal, renegotiation or termination of investment advisory agreements; (v) damage to our reputation; (vi) failure to comply with investment guidelines or other contractual requirements; (vii) inability to satisfy financial covenants and payments related to our indebtedness; (viii) inability to attract and retain key personnel; (ix) challenges from the competition we face in our business; (x) adverse regulatory and legal developments; (xi) unfavorable changes in tax laws or limitations; (xii) adverse developments related to unaffiliated subadvisers; (xiii) negative implications of changes in key distribution relationships; (xiv) interruptions in or failure to provide critical technological service by us or third parties; (xv) volatility associated with our common stock; (xvi) adverse civil litigation and government investigations or proceedings; (xvii) risk of loss on our investments; (xviii) inability to make quarterly common stock dividends; (xix) lack of sufficient capital on satisfactory terms; (xx) losses or costs not covered by insurance; (xxi) impairment of goodwill or intangible assets; (xxii) inability to achieve expected acquisition-related benefits; 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 2019 Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and our other periodic reports filed with the Securities and Exchange Commission (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 www.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.

 

Virtus Investment Partners, Inc. (PRNewsFoto/Virtus Investment Partners, Inc.) (PRNewsfoto/Virtus Investment Partners)

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