Virtus Investment Partners Announces Financial Results for Second Quarter 2021

Rhea-AI Summary

Virtus Investment Partners reported strong Q2 2021 results with revenues at $244 million, an 84% increase year-over-year and a 12% rise from Q1. Net income soared 458% to $63 million, resulting in earnings per share of $7.86. Operating income rose 225% to $86.4 million, achieving a margin of 35.4%. However, net flows decreased 54% to $1.3 billion compared to $2.8 billion last year. The company’s total assets under management grew 6% to $178.6 billion, supported by market performance and net flows. Additionally, Virtus announced an agreement to acquire Stone Harbor Investment Partners.

Positive

• Revenues increased 84% year-over-year to $244 million.
• Net income rose 458% to $63 million.
• Earnings per share increased 450% to $7.86.
• Operating income surged 225% to $86.4 million with a margin of 35.4%.
• Total assets under management climbed 6% to $178.6 billion.

Negative

• Net flows fell 54% to $1.3 billion compared to $2.8 billion in Q2 2020.
• Total sales decreased 10% sequentially from $10.6 billion to $9.6 billion.

HARTFORD, Conn., July 28, 2021 /PRNewswire/ -- Virtus Investment Partners, Inc. (NASDAQ: VRTS) today reported financial results for the three months ended June 30, 2021.

Financial Highlights (Unaudited) (in millions, except per share data or as noted)
	Three Months Ended											Three Months Ended
	6/30/2021				6/30/2020				Change			3/31/2021				Change
U.S. GAAP Financial Measures
Revenues	$	244.0			$	132.9			84%			$	216.9			12%
Operating expenses	$	157.6			$	106.3			48%			$	154.8			2%
Operating income (loss)	$	86.4			$	26.6			225%			$	62.1			39%
Operating margin	35.4%				20.0%							28.7%
Net income (loss) attributable to common stockholders	$	63.0			$	11.3			458%			$	36.6			72%
Earnings (loss) per share - diluted	$	7.86			$	1.43			450%			$	4.54			73%
Weighted average shares outstanding - diluted	8.007				7.895				1%			8.052				(1%)
Non-GAAP Financial Measures (1)
Revenues, as adjusted	$	210.3			$	118.1			78%			$	187.3			12%
Operating expenses, as adjusted	$	107.4			$	77.6			38%			$	109.3			(2%)
Operating income (loss), as adjusted	$	102.9			$	40.5			154%			$	78.0			32%
Operating margin, as adjusted	48.9%				34.3%							41.6%
Net income (loss) attributable to common stockholders, as adjusted	$	72.7			$	25.6			184%			$	54.6			33%
Earnings (loss) per share - diluted, as adjusted	$	9.07			$	3.24			180%			$	6.78			34%
Weighted average shares outstanding - diluted, as adjusted	8.007				7.895				1%			8.052				(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
	6/30/2021				6/30/2020				Change			3/31/2021				Change
Ending total assets under management	$	178.6			$	108.5			65%			$	168.9			6%
Average total assets under management	$	172.9			$	98.2			76%			$	154.3			12%
Total sales	$	9.6			$	9.4			1%			$	10.6			(10%)
Net flows	$	1.3			$	2.8			(54%)			$	2.4			(46%)

Total assets under management increased 6% to $178.6 billion at June 30, 2021 from $168.9 billion at March 31, 2021 due to $8.8 billion of market performance and $1.3 billion of positive net flows. In addition, the company had $3.8 billion of other fee earning assets, an increase from $3.4 billion at March 31, 2021.

Total sales of $9.6 billion compared with $10.6 billion in the prior quarter, the company's highest level of quarterly sales, as increased sales of institutional products and exchange traded funds (ETFs) were more than offset by lower sales of open-end funds and retail separate accounts. Institutional sales of $2.3 billion increased 22% sequentially, primarily due to several meaningful new mandates that funded during the quarter. Open-end fund sales of $4.7 billion declined from a quarterly high of $5.9 billion in the first quarter as higher sales of multi-asset and alternative funds were more than offset by a decline in equity and fixed income strategies. Retail separate account sales of $2.3 billion compared with $2.7 billion in the first quarter as modestly higher private client sales were offset by a decline in the intermediary sold channel.

Net flows of $1.3 billion represented an annualized organic growth rate of 3.2% and included positive net flows in retail separate accounts, institutional accounts, and ETFs. Organic growth for the trailing 12 months was 7.1%, with positive net flows across products and asset classes. Retail separate accounts contributed positive net flows of $1.4 billion in the quarter with continued net inflows in both the intermediary sold and private client channels. Institutional net flows of $0.1 billion were positive for the third consecutive quarter and included mandates at multiple affiliates. ETF net flows of $0.1 billion were positive for the fourth consecutive quarter. Open-end fund net flows of ($0.2) billion compared with $0.6 billion in the prior quarter and reflected positive net flows in fixed income, multi-asset, alternative, global equity, and international equity, offset by domestic and specialty equity.     

GAAP Results

Operating income increased 39% to $86.4 million from $62.1 million in the prior quarter, as a 12% increase in total revenues, due to higher average assets under management, was partially offset by a 2% increase in total operating expenses.  

Higher average assets in the second quarter reflected the full-quarter impact of the Allianz Global Investors (AllianzGI) partnership, market performance, and positive net flows. The sequential increase in operating expenses included higher distribution and other asset-based expenses as well as higher other operating expenses due to the addition of a new affiliate, NFJ. This increase was partially offset by lower employment expenses, which included seasonal items in the prior quarter.

Net income attributable to common stockholders of $7.86 per diluted common share included ($1.20) of fair value adjustments on affiliate noncontrolling interests and ($0.24) of acquisition and integration costs, partially offset by $0.58 of realized and unrealized gains on investments. Net income per diluted share in the prior quarter of $4.54 included ($1.68) of fair value adjustments on affiliate noncontrolling interests, ($0.29) of realized and unrealized losses on investments, and ($0.24) of acquisition and integration costs. The fair value adjustments on affiliate noncontrolling interests reflect the increase in the value of an affiliate with minority ownership.

The effective tax rate during the quarter of 23% compared with 22% in the prior quarter.  

Non-GAAP Results

Revenues, as adjusted, of $210.3 million increased 12% sequentially as a result of a 12% increase in average assets under management due to the full-quarter impact of the AllianzGI partnership, market performance, and positive net flows. Revenues, as adjusted, included performance-related fees of $0.8 million, compared with $0.6 million in the prior quarter.

Employment expenses, as adjusted, decreased to $86.5 million from $90.4 million in the prior quarter largely due to seasonally higher first quarter expenses, partially offset by higher profit-based incentive compensation and a full quarter of expenses for a new affiliate. Other operating expenses, as adjusted, of $19.9 million increased sequentially from $17.8 million due to the director equity grants of $0.8 million, growth of the business, expenses for the new affiliate, and a modest increase in travel and related expenses.

Operating income, as adjusted, and the related margin increased to $102.9 million and 48.9%, respectively, from $78.0 million and 41.6% in the prior quarter due to higher revenues and lower seasonal employment expenses.

Net income attributable to common stockholders, as adjusted, per diluted common share was $9.07, an increase of $2.29, or 34%, from $6.78 in the prior quarter, and the company's highest reported level. The sequential increase primarily reflected higher revenues, as adjusted, as a result of the higher average assets under management, and lower employment expenses due to prior quarter seasonality.

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

Select Balance Sheet Items (Unaudited) (in millions)
	As of											As of
	6/30/2021				6/30/2020				Change			3/31/2021				Change
Cash and cash equivalents	$	275.4			$	168.3			64%			$	228.3			21%
Gross debt (1)	$	193.8			$	240.7			(19%)			$	199.8			(3%)
Revenue participation liability (2)	$	137.7			$	—			N/M			$	137.7			—%
Redeemable noncontrolling interests (3)	$	108.9			$	66.3			64%			$	98.1			11%
Total equity attributable to stockholders	$	780.9			$	658.2			19%			$	729.4			7%
Working capital (4)	$	229.2			$	155.9			47%			$	211.1			9%
Net debt (cash) (5)	$	(81.6)			$	72.4			N/M			$	(28.5)			186%

(1)	Excludes deferred financing costs of $3.6 million, $5.9 million, and $4.0 million, as of June 30, 2021, June 30, 2020, and March 31, 2021, respectively
(2)	Represents the estimate of future AllianzGI-related revenue participation payments accounted for as consideration
(3)	Excludes redeemable noncontrolling interests of consolidated investment products of $22.6 million, $24.3 million, and $14.4 million as of June 30, 2021, June 30, 2020, and March 31, 2021, respectively
(4)	Defined as cash and cash equivalents plus accounts receivable, net, less accrued compensation and benefits, accounts payable and accrued liabilities, dividends payable, required debt principal payments due over next 12 months and actual AllianzGI revenue participation amounts earned as of the balance sheet date and due within 12 months
(5)	Defined as gross debt less cash and cash equivalents
N/M - Not Meaningful

Working capital of $229.2 million at June 30, 2021 increased 9% from March 31, 2021 reflecting net cash generated from the business in excess of debt repayments and return of capital to shareholders.

During the quarter, the company returned $7.5 million to shareholders through the repurchase of 26,921 shares of common stock. In addition, the company net settled 14,439 shares for $4.1 million to satisfy employee tax obligations.  

The company reduced gross debt in the quarter by $5.9 million to $193.8 million. Over the prior four quarters, the company has reduced gross debt by 19%.

Agreement to Add Stone Harbor Investment Partners

As announced on June 28, 2021, the company entered into an agreement to acquire Stone Harbor Investment Partners LP, a premier manager of emerging markets debt, multi-asset credit, global corporates, and other strategies with $15.3 billion of assets under management as of June 30, 2021. The company will acquire 100% of Stone Harbor and expects to fund the transaction with existing financial resources. The transaction is expected to be modestly accretive to earnings per share, as adjusted, and to close near year-end subject to customary closing conditions and the receipt of regulatory approvals, as well as approvals by the Stone Harbor fund board and fund shareholders. 

Conference Call

Management will host an investor conference call on Wednesday, July 28, 2021, 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: 7567394). 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 August 4, 2021 by telephone at 855-859-2056 (U.S. and Canada) or 404-537-3406 (international) (Conference ID: 7567394).

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, NFJ Investment Group, 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							Six Months Ended
	6/30/2021				6/30/2020				Change			3/31/2021				Change			6/30/2021				6/30/2020				Change
Revenues
Investment management fees	$	193,510			$	110,550			75%			$	173,269			12%			$	366,779			$	230,838			59%
Distribution and service fees	23,450				8,889				164%			20,348				15%			43,798				18,349				139%
Administration and shareholder service fees	25,877				13,289				95%			22,560				15%			48,437				27,942				73%
Other income and fees	1,174				166				N/M			720				63%			1,894				331				472%
Total revenues	244,011				132,894				84%			216,897				13%			460,908				277,460				66%
Operating Expenses
Employment expenses	87,630				60,163				46%			91,759				(4%)			179,389				126,293				42%
Distribution and other asset-based expenses	36,021				17,345				108%			32,294				12%			68,315				36,754				86%
Other operating expenses	21,946				17,436				26%			19,580				12%			41,526				36,321				14%
Operating expenses of consolidated investment products	659				2,179				(70%)			559				18%			1,218				8,928				(86%)
Restructuring and severance	—				420				(100%)			—				N/M			—				420				(100%)
Depreciation expense	981				1,196				(18%)			1,098				(11%)			2,079				2,454				(15%)
Amortization expense	10,363				7,533				38%			9,465				9%			19,828				15,066				32%
Total operating expenses	157,600				106,272				48%			154,755				2%			312,355				226,236				38%
Operating Income (Loss)	86,411				26,622				225%			62,142				39%			148,553				51,224				190%
Other Income (Expense)
Realized and unrealized gain (loss) on investments, net	2,494				7,114				(65%)			891				180%			3,385				(430)				N/M
Realized and unrealized gain (loss) of consolidated investment products, net	2,747				(6,744)				N/M			(4,687)				N/M			(1,940)				(15,413)				(87%)
Other income (expense), net	826				(805)				N/M			1,771				(53%)			2,597				(193)				N/M
Total other income (expense), net	6,067				(435)				N/M			(2,025)				N/M			4,042				(16,036)				N/M
Interest Income (Expense)
Interest expense	(2,256)				(3,126)				(28%)			(2,314)				(3%)			(4,570)				(6,325)				(28%)
Interest and dividend income	166				242				(31%)			136				22%			302				994				(70%)
Interest and dividend income of investments of consolidated investment products	22,562				28,634				(21%)			23,876				(6%)			46,438				57,863				(20%)
Interest expense of consolidated investment products	(14,452)				(28,150)				(49%)			(14,448)				—%			(28,900)				(52,636)				(45%)
Total interest income (expense), net	6,020				(2,400)				N/M			7,250				(17%)			13,270				(104)				N/M
Income (Loss) Before Income Taxes	98,498				23,787				314%			67,367				46%			165,865				35,084				373%
Income tax expense (benefit)	22,401				7,578				196%			15,153				48%			37,554				17,869				110%
Net Income (Loss)	76,097				16,209				369%			52,214				46%			128,311				17,215				N/M
Noncontrolling interests	(13,130)				(4,930)				166%			(15,626)				(16%)			(28,756)				(10,221)				181%
Net Income (Loss) Attributable to Common Stockholders	$	62,967			$	11,279			458%			$	36,588			72%			$	99,555			$	6,994			N/M
Earnings (Loss) Per Share - Basic	$	8.18			$	1.46			460%			$	4.79			71%			$	12.97			$	0.92			N/M
Earnings (Loss) Per Share - Diluted	$	7.86			$	1.43			450%			$	4.54			73%			$	12.39			$	0.88			N/M
Cash Dividends Declared Per Common Share	$	0.82			$	0.67			22%			$	0.82			—%			$	1.64			$	1.34			22%
Weighted Average Shares Outstanding - Basic	7,698				7,720				—%			7,633				1%			7,674				7,572				1%
Weighted Average Shares Outstanding - Diluted	8,007				7,895				1%			8,052				(1%)			8,038				7,936				1%

N/M - Not Meaningful

 

Assets Under Management - Product and Asset Class (in millions)
	Three Months Ended
	6/30/2020				09/30/2020				12/31/2020				3/31/2021				6/30/2021
By product (period end):
Open-End Funds (1)	$	41,144			$	44,574			$	50,771			$	72,164			$	75,333
Closed-End Funds	5,639				5,629				5,914				11,664				11,993
Exchange Traded Funds	541				543				837				1,021				1,260
Retail Separate Accounts	22,054				24,727				29,751				37,244				40,578
Institutional Accounts	34,819				36,851				40,861				42,802				45,604
Structured Products	4,264				4,163				4,060				3,985				3,870
Total	$	108,461			$	116,487			$	132,194			$	168,880			$	178,638
By product (average) (2)
Open-End Funds (1)	$	38,182			$	43,603			$	47,782			$	66,247			$	74,126
Closed-End Funds	5,566				5,742				5,847				9,340				11,936
Exchange Traded Funds	554				549				683				890				1,159
Retail Separate Accounts	17,660				22,054				24,727				32,118				37,244
Institutional Accounts	31,931				36,771				37,989				41,764				44,538
Structured Products	4,265				4,171				4,068				3,985				3,875
Total	$	98,158			$	112,890			$	121,096			$	154,344			$	172,878
By asset class (period end):
Equity	$	66,205			$	72,811			$	86,268			$	106,183			$	113,751
Fixed Income	27,427				28,273				28,965				35,069				35,426
Multi-Asset (3)	10,714				11,105				12,201				22,498				23,668
Alternatives (4)	4,115				4,298				4,760				5,130				5,793
Total	$	108,461			$	116,487			$	132,194			$	168,880			$	178,638

 

Assets Under Management - Average Management Fees Earned (6) (in basis points)
	Three Months Ended
	6/30/2020			9/30/2020			12/31/2020			3/31/2021			6/30/2021
All Products
Open-End Funds (1)	49.5			50.4			51.8			48.0			46.4
Closed-End Funds	61.8			62.1			62.2			56.2			55.1
Exchange Traded Funds	5.1			6.5			3.3			6.7			14.0
Retail Separate Accounts	49.0			45.7			47.1			45.7			44.2
Institutional Accounts (6)	31.1			31.5			34.6			31.5			32.2
Structured Products	26.8			34.2			31.1			38.8			40.0
All Products (6)	42.9			43.1			44.9			43.1			42.5

 

(1)	Represents assets under management of U.S. retail funds, offshore funds and variable insurance funds
(2)	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
(3)	Includes strategies with substantial holdings in at least two of the following asset classes: equity, fixed income and alternatives
(4)	Includes real estate securities, infrastructure, mid-stream energy, long/short, and options strategies
(5)	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
(6)	Includes performance-related fees, in basis points, earned during the three months ended as follows:

	6/30/2020		9/30/2020		12/31/2020		3/31/2021		6/30/2021
Institutional Accounts	0.7		2.1		3.9		0.6		0.7
All Products	0.2		0.7		1.2		0.2		0.2

 

Assets Under Management - Asset Flows by Product (in millions)
	Three Months Ended																				Six Months Ended
	6/30/2020				9/30/2020				12/31/2020				3/31/2021				6/30/2021				6/30/2020				6/30/2021
Open-End Funds (1)
Beginning balance	$	34,361			$	41,144			$	44,574			$	50,771			$	72,164			$	43,824			$	50,771
Inflows	4,714				3,997				4,285				5,853				4,743				8,773				10,596
Outflows	(4,115)				(3,501)				(3,527)				(5,258)				(4,987)				(9,862)				(10,245)
Net flows	599				496				758				595				(244)				(1,089)				351
Market performance	6,255				3,006				5,694				1,130				3,469				(1,478)				4,599
Other (2)	(71)				(72)				(255)				19,668				(56)				(113)				19,612
Ending balance	$	41,144			$	44,574			$	50,771			$	72,164			$	75,333			$	41,144			$	75,333
Closed-End Funds
Beginning balance	$	5,343			$	5,639			$	5,629			$	5,914			$	11,664			$	6,748			$	5,914
Inflows	—				15				5				—				—				5				—
Outflows	—				—				—				—				—				—				—
Net flows	—				15				5				—				—				5				—
Market performance	380				54				364				105				514				(805)				619
Other (2)	(84)				(79)				(84)				5,645				(185)				(309)				5,460
Ending balance	$	5,639			$	5,629			$	5,914			$	11,664			$	11,993			$	5,639			$	11,993
Exchange Traded Funds
Beginning balance	$	480			$	541			$	543			$	837			$	1,021			$	1,156			$	837
Inflows	74				60				218				175				232				160				407
Outflows	(140)				(35)				(40)				(77)				(92)				(373)				(169)
Net flows	(66)				25				178				98				140				(213)				238
Market performance	137				(12)				126				98				104				(368)				202
Other (2)	(10)				(11)				(10)				(12)				(5)				(34)				(17)
Ending balance	$	541			$	543			$	837			$	1,021			$	1,260			$	541			$	1,260
Retail Separate Accounts
Beginning balance	$	17,660			$	22,054			$	24,727			$	29,751			$	37,244			$	20,414			$	29,751
Inflows	1,483				1,727				2,181				2,699				2,273				2,544				4,972
Outflows	(654)				(617)				(914)				(896)				(833)				(1,429)				(1,729)
Net flows	829				1,110				1,267				1,803				1,440				1,115				3,243
Market performance	3,560				1,591				3,757				2,141				1,910				520				4,051
Other (2)	5				(28)				—				3,549				(16)				5				3,533
Ending balance	$	22,054			$	24,727			$	29,751			$	37,244			$	40,578			$	22,054			$	40,578

 

Assets Under Management - Asset Flows by Product (continued) (in millions)
	Three Months Ended																				Six Months Ended
	6/30/2020				9/30/2020				12/31/2020				3/31/2021				6/30/2021				6/30/2020				6/30/2021
Institutional Accounts
Beginning balance	$	28,507			$	34,819			$	36,851			$	40,861			$	42,802			$	32,859			$	40,861
Inflows	3,141				2,075				2,252				1,884				2,302				4,640				4,186
Outflows	(1,667)				(2,381)				(1,687)				(1,868)				(2,184)				(3,444)				(4,052)
Net flows	1,474				(306)				565				16				118				1,196				134
Market performance	4,880				2,473				3,481				1,181				2,752				730				3,933
Other (2)	(42)				(135)				(36)				744				(68)				34				676
Ending balance	$	34,819			$	36,851			$	40,861			$	42,802			$	45,604			$	34,819			$	45,604
Structured Products
Beginning balance	$	4,343			$	4,264			$	4,163			$	4,060			$	3,985			$	3,903			$	4,060
Inflows	—				—				—				—				—				491				—
Outflows	(73)				(69)				(81)				(79)				(118)				(115)				(197)
Net flows	(73)				(69)				(81)				(79)				(118)				376				(197)
Market performance	33				10				9				35				33				72				68
Other (2)	(39)				(42)				(31)				(31)				(30)				(87)				(61)
Ending balance	$	4,264			$	4,163			$	4,060			$	3,985			$	3,870			$	4,264			$	3,870
Total
Beginning balance	$	90,694			$	108,461			$	116,487			$	132,194			$	168,880			$	108,904			$	132,194
Inflows	9,412				7,874				8,941				10,611				9,550				16,613				20,161
Outflows	(6,649)				(6,603)				(6,249)				(8,178)				(8,214)				(15,223)				(16,392)
Net flows	2,763				1,271				2,692				2,433				1,336				1,390				3,769
Market performance	15,245				7,122				13,431				4,690				8,782				(1,329)				13,472
Other (2)	(241)				(367)				(416)				29,563				(360)				(504)				29,203
Ending balance	$	108,461			$	116,487			$	132,194			$	168,880			$	178,638			$	108,461			$	178,638

(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 cash management 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

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
	6/30/2021			6/30/2020			3/31/2021
Total revenues, GAAP	$	244,011		$	132,894		$	216,897
Consolidated investment products revenues (1)	2,340			2,526			2,673
Investment management fees (2)	(12,570)			(8,453)			(11,943)
Distribution and service fees (2)	(23,451)			(8,892)			(20,351)
Total revenues, as adjusted	$	210,330		$	118,075		$	187,276

 

Reconciliation of Total Operating Expenses, GAAP to Operating Expenses, as Adjusted:
	Three Months Ended
	6/30/2021			6/30/2020			3/31/2021
Total operating expenses, GAAP	$	157,600		$	106,272		$	154,755
Consolidated investment products expenses (1)	(659)			(2,179)			(559)
Distribution and other asset-based expenses (3)	(36,021)			(17,345)			(32,294)
Amortization of intangible assets (4)	(10,363)			(7,533)			(9,465)
Restructuring and severance (5)	—			(420)			—
Acquisition and integration expenses (6)	(2,667)			(952)			(2,647)
Other (7)	(494)			(241)			(480)
Total operating expenses, as adjusted	$	107,396		$	77,602		$	109,310

 

Reconciliation of Operating Income (Loss), GAAP to Operating Income (Loss), as Adjusted:
	Three Months Ended
	6/30/2021				6/30/2020				3/31/2021
Operating income (loss), GAAP	$	86,411			$	26,622			$	62,142
Consolidated investment products (earnings) losses (1)	2,999				4,705				3,232
Amortization of intangible assets (4)	10,363				7,533				9,465
Restructuring and severance (5)	—				420				—
Acquisition and integration expenses (6)	2,667				952				2,647
Other (7)	494				241				480
Operating income (loss), as adjusted	$	102,934			$	40,473			$	77,966
Operating margin, GAAP	35.4%				20.0%				28.7%
Operating margin, as adjusted	48.9%				34.3%				41.6%

 

Reconciliation of Net Income (Loss) Attributable to Common Stockholders, GAAP to Net Income (Loss) Attributable to Common Stockholders, as Adjusted:
	6/30/2021			6/30/2020			3/31/2021
Net income (loss) attributable to common stockholders, GAAP	$	62,967		$	11,279		$	36,588
Amortization of intangible assets, net of tax (4)	6,873			4,731			6,201
Restructuring and severance, net of tax (5)	—			305			—
Acquisition and integration expenses, net of tax (6)	1,958			691			1,940
Other, net of tax (7)	8,067			4,245			11,047
Seed capital and CLO investments (gains) losses, net of tax (8)	(7,204)			4,316			(1,156)
Net income (loss) attributable to common stockholders, as adjusted	$	72,661		$	25,567		$	54,620
Weighted average shares outstanding - diluted	8,007			7,895			8,052
Earnings (loss) per share - diluted, GAAP	$	7.86		$	1.43		$	4.54
Earnings (loss) per share - diluted, as adjusted	$	9.07		$	3.24		$	6.78

 

Reconciliation of Income (Loss) Before Taxes, GAAP to Income (Loss) Before Taxes, as Adjusted:
	Three Months Ended
	6/30/2021			6/30/2020			3/31/2021
Income (loss) before taxes, GAAP	$	98,498		$	23,787		$	67,367
Consolidated investment products (earnings) losses (1)	(1,232)			170			(30)
Amortization of intangible assets (4)	10,363			7,533			9,465
Restructuring and severance (5)	—			420			—
Acquisition and integration expenses (6)	2,667			952			2,647
Other (7)	494			241			480
Seed capital and CLO investments (gains) losses (8)	(7,725)			4,927			(1,533)
Income (loss) before taxes, as adjusted	$	103,065		$	38,030		$	78,396

 

Reconciliation of Income Tax Expense (Benefit), GAAP to Income Tax Expense (Benefit), as Adjusted:
	Three Months Ended
	6/30/2021				6/30/2020				3/31/2021
Income tax expense (benefit), GAAP	$	22,401			$	7,578			$	15,153
Tax impact of:
Amortization of intangible assets (4)	2,754				2,062				2,528
Restructuring and severance (5)	—				115				—
Acquisition and integration expenses (6)	709				261				707
Other (7)	2,051				(211)				2,931
Seed capital and CLO investments (gains) losses (8)	(521)				611				(377)
Income tax expense (benefit), as adjusted	$	27,394			$	10,416			$	20,942
Effective tax rate, GAAPA	22.7%				31.9%				22.5%
Effective tax rate, as adjustedB	26.6%				27.4%				26.7%

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
	6/30/2021			6/30/2020			3/31/2021
Administration and shareholder service fees, GAAP	$	25,877		$	13,289		$	22,560
Consolidated investment products fees (1)	49			51			61
Administration and shareholder service fees, as adjusted	$	25,926		$	13,340		$	22,621

 

Reconciliation of Employment Expenses, GAAP to Employment Expenses, as Adjusted:
	Three Months Ended
	6/30/2021			6/30/2020			3/31/2021
Employment expenses, GAAP	$	87,630		$	60,163		$	91,759
Acquisition and integration expenses (6)	(615)			(952)			(867)
Other (6)	(494)			(241)			(480)
Employment expenses, as adjusted	$	86,521		$	58,970		$	90,412

 

Reconciliation of Other Operating Expenses, GAAP to Other Operating Expenses, as Adjusted:
	Three Months Ended
	6/30/2021			6/30/2020			3/31/2021
Other operating expenses, GAAP	$	21,946		$	17,436		$	19,580
Acquisition and integration expenses (6)	(2,052)			—			(1,780)
Other operating expenses, as adjusted	$	19,894		$	17,436		$	17,800

 

Reconciliation of Total Other Income (Expense), Net, GAAP to Total Other Income (Expense), Net, as Adjusted:
	Three Months Ended
	6/30/2021			6/30/2020			3/31/2021
Total other income (expense), net GAAP	$	6,067		$	(435)		$	(2,025)
Consolidated investment products (1)	2,960			(4,949)			5,256
Seed capital and CLO investments (gains) losses (8)	(7,725)			4,927			(1,533)
Total other income (expense), net as adjusted	$	1,302		$	(457)		$	1,698

 

Reconciliation of Interest and Dividend Income, GAAP to Interest and Dividend Income, as Adjusted:
	Three Months Ended
	6/30/2021			6/30/2020			3/31/2021
Interest and dividend income, GAAP	$	166		$	242		$	136
Consolidated investment products (1)	919			898			910
Interest and dividend income, as adjusted	$	1,085		$	1,140		$	1,046

 

Reconciliation of Total Noncontrolling Interests, GAAP to Total Noncontrolling Interests, as Adjusted
	Three Months Ended
	6/30/2021			6/30/2020			3/31/2021
Total noncontrolling interests, GAAP	$	(13,130)		$	(4,930)		$	(15,626)
Consolidated investment products (1)	1,232			(170)			30
Amortization of intangible assets (4)	(736)			(740)			(736)
Other (7)	9,624			3,793			13,498
Total noncontrolling interests, as adjusted	$	(3,010)		$	(2,047)		$	(2,834)

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	6/30/2021			6/30/2020			3/31/2021
		Employment expenses	$	615		$	952		$	867
		Other operating expenses	2,052			—			1,780
		Total Acquisition and Integration Expenses	$	2,667		$	952		$	2,647

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.  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	6/30/2021			6/30/2020			3/31/2021
		Employment expense fair value adjustments	$	494		241			$	480
		Tax impact of employment expense fair value adjustments	(131)			(70)			(128)
		Other discrete tax adjustments	(1,920)			281			(2,803)
		Affiliate minority interest fair value adjustments	9,624			3,793			13,498
		Total Other	$	8,067		$	4,245		$	11,047

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

 

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SOURCE Virtus Investment Partners, Inc.

FAQ

What were the key financial results for VRTS in Q2 2021?

VRTS reported revenues of $244 million, net income of $63 million, and earnings per share of $7.86.

How did VRTS's assets under management perform in Q2 2021?

Total assets under management reached $178.6 billion, a 6% increase from the previous quarter.

What significant acquisition did VRTS announce?

Virtus announced an agreement to acquire Stone Harbor Investment Partners, expected to close near year-end.

What were the changes in net flows for VRTS in Q2 2021?

Net flows decreased by 54% to $1.3 billion compared to $2.8 billion in Q2 2020.

What was the operating income for VRTS in the latest quarter?

Operating income for VRTS rose to $86.4 million, reflecting a 225% increase year-over-year.