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Virtus Investment Partners Announces Financial Results for the Second Quarter 2018

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Virtus Investment Partners Announces Financial Results for the Second Quarter 2018

- EPS of $2.75; EPS, as Adjusted, of $2.97

- Total Sales of $6.6B; Positive Net Flows of $1.3B; Long-Term AUM of $89.8B

PR Newswire

HARTFORD, Conn., July 27, 2018 /PRNewswire/ -- Virtus Investment Partners, Inc. (NASDAQ:VRTS) today reported financial results for the three months ended June 30, 2018.

Financial Highlights (Unaudited)

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


Three Months Ended




Three
Months
Ended




6/30/2018


6/30/2017


Change


3/31/2018


Change











U.S. GAAP Financial Measures










Revenues

$

132.9



$

94.1



41%


$

129.0



3%

Operating expenses

$

105.6



$

90.9



16%


$

106.4



(1%)

Operating income (loss)

$

27.3



$

3.2



N/M


$

22.6



21%

Operating margin

20.5%



3.4%





17.5%




Net income (loss) attributable to common stockholders

$

21.0



$

(2.4)



N/M


$

21.2



(1%)

Earnings (loss) per share - diluted

$

2.75



$

(0.34)



N/M


$

2.77



(1%)

Weighted average shares outstanding - diluted

8.401



7.064



19%


8.411



— %











Non-GAAP Financial Measures (1)










Revenues, as adjusted

$

110.6



$

78.6



41%


$

108.3



2%

Operating expenses, as adjusted

$

73.0



$

55.9



31%


$

75.5



(3%)

Operating income (loss), as adjusted

$

37.6



$

22.7



66%


$

32.8



15%

Operating margin, as adjusted

34.0%



28.8%





30.3%




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

$

25.0



$

13.4



87%


$

21.8



15%

Earnings (loss) per share - diluted, as adjusted

$

2.97



$

1.61



84%


$

2.59



15%

Weighted average shares outstanding - diluted, as adjusted

8.401



8.311



1%


8.411



—%


(1)

See the information beginning on page 11 for reconciliations to the most directly comparable U.S. GAAP measures and other important disclosures

N/M - Not Meaningful

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




6/30/2018


6/30/2017


Change


3/31/2018


Change

Ending long-term assets under management (1)

$

89.8



$

85.0



6%


$

87.4



3%

Ending total assets under management

$

91.6



$

88.6



3%


$

89.1



3%

Average long-term assets under management (1)

$

88.8



$

60.7



46%


$

88.9



—%

Average total assets under management

$

90.5



$

62.0



46%


$

90.6



—%

Gross sales

$

6.6



$

3.5



89%


$

5.4



22%

Net flows

$

1.3



$

(0.2)



N/M


$

(0.7)



N/M


(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 3 percent to $89.8 billion at June 30, 2018 from $87.4 billion at March 31, 2018, as a result of market appreciation and positive net flows. Total assets under management at June 30, 2018, which included $1.8 billion of assets in liquidity strategies, were $91.6 billion.

Total sales of $6.6 billion increased 22 percent from the first quarter, which included $0.4 billion from a new Collateralized Loan Obligation (CLO), due to higher sales in open-end funds, institutional and retail separate accounts. Mutual fund sales of $4.4 billion increased 15 percent and reflected a strong level of sales in domestic equity and an increase of inflows into bank loans. Institutional sales increased to $1.4 billion from $0.4 billion in the prior quarter, primarily in large-cap value equity.

Total net inflows of $1.3 billion improved from ($0.7) billion in the first quarter, reflecting positive net flows from open-end funds, retail separate accounts and ETFs. Mutual fund net flows were positive $1.1 billion, a significant improvement from $0.1 billion sequentially, due to the higher level of sales as well as a lower level of redemptions. Net flows in retail separate accounts improved to $161.4 million from ($85.2) million in the first quarter, which included a large low-fee redemption in the private client business. Institutional net flows were essentially breakeven as increased sales of $1.4 billion were offset by $0.8 billion of partial redemptions on existing accounts and $0.7 billion of outflows on closed accounts.

GAAP Results

Operating income increased sequentially to $27.3 million from $22.6 million, reflecting a 3 percent increase in investment management fees and a 1 percent decrease in operating expenses, as higher other operating expenses partially offset lower employment expenses. Second-quarter operating expenses included $2.6 million of acquisition and integration costs, a decrease from $3.1 million in the first quarter.

Net income per diluted share of $2.75 included ($0.22) of acquisition and integration costs, ($0.07) of discrete tax adjustments, and ($0.04) of realized and unrealized losses on investments. First-quarter net income per diluted share of $2.77 included $0.32 of realized and unrealized gains on investments and ($0.26) of acquisition and integration costs.

The effective tax rate was 29 percent compared with 22 percent in the prior quarter, which included the release of a valuation allowance and certain excess tax benefits.

Non-GAAP Results

Revenues, as adjusted, of $110.6 million increased 2 percent from the prior quarter, primarily as a result of  the positive impact of the net flow mix on the average fee rate earned in the quarter. Employment expenses, as adjusted, which included higher sales-based compensation, decreased from the prior quarter, which included $6.8 million of seasonal expenses. Other operating expenses, as adjusted, increased sequentially to $18.2 million, which included higher sales and marketing costs of $1.2 million as well as $0.8 million for the annual equity grants to the Board of Directors.

Operating income, as adjusted, and the related margin were $37.6 million and 34 percent, respectively, compared with $32.8 million and 30 percent in the sequential quarter.

Net income attributable to common stockholders, as adjusted, was $2.97 per diluted common share, an increase of 15 percent from $2.59 in the prior quarter.

Interest and dividends earned on seed and CLO investments, which are not included in net income, as adjusted, were $4.6 million, or $0.39 on an after-tax per-share basis, an increase from $3.4 million or $0.29 in the first quarter.

The effective tax rate, as adjusted, was 28 percent, which was relatively unchanged from the prior quarter.

Select Balance Sheet Items (Unaudited)

(in millions)



As of




As of




6/30/2018


6/30/2017


Change


3/31/2018


Change

Cash and cash equivalents

$

138.8



$

127.6



9%


$

80.8



72%

Debt

$

245.1



$

248.1



(1%)


$

245.4



—%

Total equity attributable to stockholders

$

624.5



$

573.6



9%


$

608.8



3%











Working capital (1)

$

94.3



$

46.5



103%


$

80.3



17%

Net debt (cash) (2)

$

119.2



$

184.1



(35%)


$

177.9



(33%)


(1)

Defined as cash and cash equivalents plus accounts receivable, net, less accrued compensation and benefits, accounts payable and accrued liabilities, dividends
payable, contingent consideration and required principal payments on debt due over the next twelve 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 2018 financial results and the net leverage ratio as of December 31, 2018

(2)

Defined as debt plus unamortized deferred financing costs and contingent consideration less cash and cash equivalents

N/M - Not Meaningful

During the quarter, the company repurchased 60,622 shares, or 0.8 percent of outstanding common shares, as adjusted, for $7.5 million.

Working capital at June 30, 2018 increased from March 31, 2018, reflecting the operating earnings of the business and net proceeds from CLO and seed capital activities, partially offset by the estimated required principal payments on the company's term loan over the next 12 months, interest and dividend payments, and share repurchases.

The net leverage ratio, which is net debt to EBITDA (in accordance with the company's credit agreement), was 0.7x at June 30, 2018 compared with 1.0x at March 31, 2018.

Sustainable Growth Advisers

On July 1, the company closed on its previously announced majority investment in Sustainable Growth Advisers, an investment manager with $11.3 billion in assets under management at June 30 that specializes in high-conviction U.S. and global growth equity portfolios. As previously disclosed, the transaction was financed with balance sheet resources and $105.0 million of term loan debt, which was drawn at the closing.

Conference Call

Virtus Investment Partners management will host an investor conference call on Friday, July 27, 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 if calling from within the U.S. or 253-336-7413 if calling from outside the U.S. (Conference ID: 4288344). 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, 2018 by telephone at 855-859-2056 if calling from within the U.S. or 404-537-3406 if calling from outside the U.S. (Conference ID: 4288344).

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, Rampart Investment Management, Seix Investment Advisors, Silvant Capital Management, Sustainable Growth Advisers, and Virtus ETF Advisers. Additional information is available at virtus.com.

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

(in thousands, except per share data)



Three Months Ended




Three
Months
Ended




Six Months Ended




6/30/2018


6/30/2017


Change


3/31/2018


Change


6/30/2018


6/30/2017


Change

Revenues
















Investment management fees

$

103,168



$

74,062



39%


$

100,476



3%


$

203,644



$

133,333



53%

Distribution and service fees

13,549



10,439



30%


12,607



7%


26,156



21,222



23%

Administration and transfer agent fees

15,967



9,476



68%


15,738



1%


31,705



18,457



72%

Other income and fees

248



155



60%


207



20%


455



896



(49%)

     Total revenues

132,932



94,132



41%


129,028



3%


261,960



173,908



51%

Operating Expenses
















Employment expenses

54,868



42,992



28%


60,696



(10%)


115,564



82,633



40%

Distribution and other asset-based expenses

23,721



15,764



50%


22,291



6%


46,012



31,087



48%

Other operating expenses

19,128



20,236



(5%)


16,862



13%


35,990



33,462



8%

Operating expenses of consolidated
investment products

1,783



473



277%


511



249%


2,294



1,115



106%

Restructuring and severance



8,894



(100%)




N/M




8,894



(100%)

Depreciation expense

1,100



776



42%


1,015



8%


2,115



1,440



47%

Amortization expense

5,024



1,813



177%


5,036



—%


10,060



2,046



392%

     Total operating expenses

105,624



90,948



16%


106,411



(1%)


212,035



160,677



32%

Operating Income (Loss)

27,308



3,184



N/M


22,617



21%


49,925



13,231



277%

Other Income (Expense)
















Realized and unrealized gain (loss) on
investments, net

960



1,287



(25%)


438



119%


1,398



1,584



(12%)

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

(1,779)



(1,424)



25%


2,259



N/M


480



3,020



(84%)

Other income (expense), net

455



47



N/M


1,319



(66%)


1,774



693



156%

     Total other income (expense), net

(364)



(90)



304%


4,016



N/M


3,652



5,297



(31%)

Interest Income (Expense)
















Interest expense

(4,469)



(3,739)



20%


(3,858)



16%


(8,327)



(3,982)



109%

Interest and dividend income

1,818



446



308%


721



152%


2,539



634



300%

Interest and dividend income of
investments of consolidated investment
products

23,679



5,102



364%


21,403



11%


45,082



10,758



319%

Interest expense of consolidated
investment products

(15,278)



(2,995)



410%


(14,549)



5%


(29,827)



(5,852)



410%

     Total interest income (expense), net

5,750



(1,186)



N/M


3,717



55%


9,467



1,558



N/M

Income (Loss) Before Income Taxes

32,694



1,908



N/M


30,350



8%


63,044



20,086



214%

Income tax expense (benefit)

9,465



1,880



403%


6,523



45%


15,988



6,313



153%

Net Income (Loss)

23,229



28



N/M


23,827



(3%)


47,056



13,773



242%

Noncontrolling interests

(159)



(333)



(52%)


(527)



(70%)


(686)



(1,051)



(35%)

Net Income (Loss) Attributable to
Stockholders

23,070



(305)



N/M


23,300



(1%)


46,370



12,722



264%

Preferred stockholder dividends

(2,084)



(2,084)



—%


(2,084)



—%


(4,168)



(4,168)



—%

Net Income (Loss) Attributable to
Common Stockholders

$

20,986



$

(2,389)



N/M


$

21,216



(1%)


$

42,202



$

8,554



393%

Earnings (Loss) Per Share - Basic

$

2.91



$

(0.34)



N/M


$

2.95



(1%)


$

5.86



$

1.26



365%

Earnings (Loss) Per Share - Diluted

$

2.75



$

(0.34)



N/M


$

2.77



(1%)


$

5.52



$

1.22



352%

Cash Dividends Declared Per Preferred Share

$

1.81



$

1.81



—%


$

1.81



—%


$

3.63



$

3.63



—%

Cash Dividends Declared Per Common Share

$

0.45



$

0.45



—%


$

0.45



—%


$

0.90



$

0.90



—%

Weighted Average Shares
Outstanding - Basic (in thousands)

7,211



7,064



2%


7,198



—%


7,204



6,804



6%

Weighted Average Shares
Outstanding - Diluted (in thousands)

8,401



7,064



19%


8,411



—%


8,396



7,020



20%


N/M - Not Meaningful

 

Assets Under Management - Product and Asset Class

(in millions)



Three Months Ended


6/30/2017


09/30/2017


12/31/2017


3/31/2018


6/30/2018

By product (period end):










Open-End Funds (1)

$

41,452.8



$

42,397.7



$

43,077.6



$

43,202.5



$

44,419.3


Closed-End Funds

6,707.2



6,735.4



6,666.2



6,132.7



6,295.0


Exchange Traded Funds

968.8



955.7



1,039.2



980.2



1,029.9


Retail Separate Accounts

12,351.1



13,057.2



13,936.8



14,012.3



14,678.4


Institutional Accounts

20,639.1



20,630.5



20,815.9



19,411.2



19,726.6


Structured Products

2,899.8



3,360.0



3,298.8



3,704.6



3,684.4


Total Long-Term

$

85,018.8



$

87,136.5



$

88,834.5



$

87,443.5



$

89,833.6


Liquidity (2)

3,570.6



3,431.4



2,128.7



1,641.6



1,784.9


Total

$

88,589.4



$

90,567.9



$

90,963.2



$

89,085.1



$

91,618.5












By product (average) (3)










Open-End Funds (1)

$

30,651.6



$

42,080.9



$

42,840.1



$

43,751.4



$

44,000.8


Closed-End Funds

6,809.6



6,758.1



6,726.0



6,346.1



6,167.0


Exchange Traded Funds

900.8



945.0



958.3



1,045.7



1,026.8


Retail Separate Accounts

10,143.7



12,345.5



13,051.9



13,923.3



13,999.0


Institutional Accounts

10,795.1



20,728.6



20,933.1



20,165.8



19,942.3


Structured Products

1,392.9



3,111.1



3,304.0



3,619.1



3,681.5


Total Long-Term

$

60,693.7



$

85,969.2



$

87,813.4



$

88,851.4



$

88,817.4


Liquidity (2)

1,328.6



3,331.1



3,635.1



1,787.6



1,699.3


Total

$

62,022.3



$

89,300.3



$

91,448.5



$

90,639.0



$

90,516.7












By asset class (period end):










Equity

$

41,672.6



$

43,147.9



$

45,779.8



$

45,892.8



$

48,894.8


Fixed Income

39,102.1



39,741.7



38,740.0



37,999.2



37,176.0


Alternatives (4)

4,244.1



4,246.9



4,314.7



3,551.5



3,762.8


Liquidity (2)

3,570.6



3,431.4



2,128.7



1,641.6



1,784.9


Total

$

88,589.4



$

90,567.9



$

90,963.2



$

89,085.1



$

91,618.5


 

Assets Under Management - Average Net Management Fees Earned (5)

(in basis points)



Three Months Ended


6/30/2017


9/30/2017


12/31/2017


3/31/2018


6/30/2018

All Products










Open-End Funds (1)

50.7



47.9



50.1



50.3



51.8


Closed-End Funds

65.8



66.0



66.0



66.3



66.1


Exchange Traded Funds

27.2



27.0



15.7



18.2



14.7


Retail Separate Accounts

49.7



46.6



46.1



47.6



48.4


Institutional Accounts

32.7



31.0



31.2



31.8



31.7


Structured Products (6)

33.5



47.1



38.8



39.2



36.2


All Long-Term Products

48.3



44.8



45.4



46.0



46.7


Liquidity (2)

11.4



6.0



8.5



11.8



9.5


All Products

47.5



43.4



43.9



45.3



46.0




(1)

Represents assets under management of U.S. 1940 Act mutual funds and Undertakings for Collective Investments in Transferable Securities (UCITS)

(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 or average of month-end balances in quarter

-

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

(4)

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

(5)

Represents net investment management fees divided by average assets. Net investment management fees are investment management fees, as adjusted, less fees
paid to third-party service providers for investment management related services, which impacted the fee rate in the three months ended June 30, 2018 for Open-
End Funds and All Products by 0.4 and 0.3 basis points, respectively

(6)

Includes incentive fees earned in the three months ended September 30, 2017, December 31, 2017, March 31, 2018, and June 30, 2018 that impacted the fee rate by
10.2, 1.4, 0.2 and 0.1 basis points, respectively

 

Assets Under Management - Asset Flows by Product



(in millions)







Three Months Ended


Six Months Ended


6/30/2017


9/30/2017


12/31/2017


3/31/2018


6/30/2018


6/30/2017


6/30/2018

Open-End Funds (1)














Beginning balance

$

24,716.8



$

41,452.8



$

42,397.7



$

43,077.6



$

43,202.5



$

23,432.8



$

43,077.6


Inflows

2,253.9



2,842.5



2,647.8



3,783.6



4,356.6



4,286.6



8,140.2


Outflows

(2,278.6)



(2,872.7)



(3,275.0)



(3,662.2)



(3,220.6)



(4,413.3)



(6,882.8)


Net flows

(24.7)



(30.2)



(627.2)



121.4



1,136.0



(126.7)



1,257.4


Market performance

1,212.3



1,040.7



1,409.5



69.8



170.5



2,656.8



240.3


Other (2)

15,548.4



(65.6)



(102.4)



(66.3)



(89.7)



15,489.9



(156.0)


Ending balance

$

41,452.8



$

42,397.7



$

43,077.6



$

43,202.5



$

44,419.3



$

41,452.8



$

44,419.3
















Closed-End Funds














Beginning balance

$

6,814.3



$

6,707.2



$

6,735.4



$

6,666.2



$

6,132.7



$

6,757.4



$

6,666.2


Inflows









0.5





0.5


Outflows

(31.2)











(112.8)




Net flows

(31.2)









0.5



(112.8)



0.5


Market performance

16.4



124.4



22.8



(406.1)



250.0



297.2



(156.1)


Other (2)

(92.3)



(96.2)



(92.0)



(127.4)



(88.2)



(234.6)



(215.6)


Ending balance

$

6,707.2



$

6,735.4



$

6,666.2



$

6,132.7



$

6,295.0



$

6,707.2



$

6,295.0
















Exchange Traded Funds














Beginning balance

$

863.3



$

968.8



$

955.7



$

1,039.2



$

980.2



$

596.8



$

1,039.2


Inflows

185.1



104.1



177.7



139.5



86.5



450.8



226.0


Outflows

(51.3)



(28.9)



(49.4)



(63.2)



(71.7)



(74.3)



(134.9)


Net flows

133.8



75.2



128.3



76.3



14.8



376.5



91.1


Market performance

(8.5)



4.2



(8.8)



(77.5)



65.2



26.1



(12.3)


Other (2)

(19.8)



(92.5)



(36.0)



(57.8)



(30.3)



(30.6)



(88.1)


Ending balance

$

968.8



$

955.7



$

1,039.2



$

980.2



$

1,029.9



$

968.8



$

1,029.9
















Retail Separate Accounts














Beginning balance

$

9,312.1



$

12,351.1



$

13,057.2



$

13,936.8



$

14,012.3



$

8,473.5



$

13,936.8


Inflows

656.2



704.4



680.5



701.3



736.7



1,345.4



1,438.0


Outflows

(455.7)



(480.1)



(512.5)



(786.5)



(575.3)



(753.6)



(1,361.8)


Net flows

200.5



224.3



168.0



(85.2)



161.4



591.8



76.2


Market performance

341.6



478.3



722.4



160.7



499.7



795.4



660.4


Other (2)

2,496.9



3.5



(10.8)





5.0



2,490.4



5.0


Ending balance

$

12,351.1



$

13,057.2



$

13,936.8



$

14,012.3



$

14,678.4



$

12,351.1



$

14,678.4


 

Assets Under Management - Asset Flows by Product (continued)



(in millions)







Three Months Ended


Six Months Ended


6/30/2017


9/30/2017


12/31/2017


3/31/2018


6/30/2018


6/30/2017


6/30/2018

Institutional Accounts














Beginning balance

$

5,711.3



$

20,639.1



$

20,630.5



$

20,815.9



$

19,411.2



$

5,492.7



$

20,815.9


Inflows

357.1



439.9



609.7



423.0



1,425.0



634.8



1,848.0


Outflows

(612.1)



(893.7)



(1,000.4)



(1,649.7)



(1,465.8)



(804.0)



(3,115.5)


Net flows

(255.0)



(453.8)



(390.7)



(1,226.7)



(40.8)



(169.2)



(1,267.5)


Market performance

168.1



451.1



581.9



(172.7)



486.4



306.4



313.7


Other (2)

15,014.7



(5.9)



(5.8)



(5.3)



(130.2)



15,009.2



(135.5)


Ending balance

$

20,639.1



$

20,630.5



$

20,815.9



$

19,411.2



$

19,726.6



$

20,639.1



$

19,726.6
















Structured Products














Beginning balance

$

602.0



$

2,899.8



$

3,360.0



$

3,298.8



$

3,704.6



$

613.1



$

3,298.8


Inflows



474.3





383.6



37.8





421.4


Outflows

(224.0)



(55.6)



(49.5)





(20.4)



(240.7)



(20.4)


Net flows

(224.0)



418.7



(49.5)



383.6



17.4



(240.7)



401.0


Market performance

13.5



37.1



4.8



37.9



45.3



23.8



83.2


Other (2)

2,508.3



4.4



(16.5)



(15.7)



(82.9)



2,503.6



(98.6)


Ending balance

$

2,899.8



$

3,360.0



$

3,298.8



$

3,704.6



$

3,684.4



$

2,899.8



$

3,684.4
















Total Long-Term














Beginning balance

$

48,019.8



$

85,018.8



$

87,136.5



$

88,834.5



$

87,443.5



$

45,366.3



$

88,834.5


Inflows

3,452.3



4,565.2



4,115.7



5,431.0



6,643.1



6,717.6



12,074.1


Outflows

(3,652.9)



(4,331.0)



(4,886.8)



(6,161.6)



(5,353.8)



(6,398.7)



(11,515.4)


Net flows

(200.6)



234.2



(771.1)



(730.6)



1,289.3



318.9



558.7


Market performance

1,743.4



2,135.8



2,732.6



(387.9)



1,517.1



4,105.7



1,129.2


Other (2)

35,456.2



(252.3)



(263.5)



(272.5)



(416.3)



35,227.9



(688.8)


Ending balance

$

85,018.8



$

87,136.5



$

88,834.5



$

87,443.5



$

89,833.6



$

85,018.8



$

89,833.6
















Liquidity (3)














Beginning balance

$



$

3,570.6



$

3,431.4



$

2,128.7



$

1,641.6



$



$

2,128.7


Other (2)

3,570.6



(139.2)



(1,302.7)



(487.1)



143.3



3,570.6



(343.8)


Ending balance

$

3,570.6



$

3,431.4



$

2,128.7



$

1,641.6



$

1,784.9



$

3,570.6



$

1,784.9
















Total














Beginning balance

$

48,019.8



$

88,589.4



$

90,567.9



$

90,963.2



$

89,085.1



$

45,366.3



$

90,963.2


Inflows

3,452.3



4,565.2



4,115.7



5,431.0



6,643.1



6,717.6



12,074.1


Outflows

(3,652.9)



(4,331.0)



(4,886.8)



(6,161.6)



(5,353.8)



(6,398.7)



(11,515.4)


Net flows

(200.6)



234.2



(771.1)



(730.6)



1,289.3



318.9



558.7


Market performance

1,743.4



2,135.8



2,732.6



(387.9)



1,517.1



4,105.7



1,129.2


Other (2)

39,026.8



(391.5)



(1,566.2)



(759.6)



(273.0)



38,798.5



(1,032.6)


Ending balance

$

88,589.4



$

90,567.9



$

90,963.2



$

89,085.1



$

91,618.5



$

88,589.4



$

91,618.5




(1)

Represents assets under management of U.S. 1940 Act mutual funds and Undertakings for Collective Investment in Transferable Securities (UCITS)

(2)

Represents open-end and closed-end fund distributions net of reinvestments, the net change in assets from liquidity strategies, and the impact 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


6/30/2018


6/30/2017


3/31/2018

Total revenues, GAAP

$

132,932



$

94,132



$

129,028


Distribution and other asset-based expenses (1)

(23,721)



(15,764)



(22,291)


Consolidated investment products revenues (2)

1,423



236



1,576


Total revenues, as adjusted

$

110,634



$

78,604



$

108,313


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


Three Months Ended


6/30/2018


6/30/2017


3/31/2018

Total operating expenses, GAAP

$

105,624



$

90,948



$

106,411


Distribution and other asset-based expenses (1)

(23,721)



(15,764)



(22,291)


Consolidated investment products expenses (2)

(1,783)



(473)



(511)


Amortization of intangible assets (3)

(5,024)



(1,813)



(5,036)


Restructuring and severance (4)



(255)




Acquisition and integration expenses (5)

(1,976)



(16,327)



(3,092)


Other (6)

(133)



(374)



20


Total operating expenses, as adjusted

$

72,987



$

55,942



$

75,501


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


Three Months Ended


6/30/2018


6/30/2017


3/31/2018

Operating income (loss), GAAP

$

27,308



$

3,184



$

22,617


Consolidated investment products (earnings) loss (2)

3,206



709



2,087


Amortization of intangible assets (3)

5,024



1,813



5,036


Restructuring and severance (4)



255




Acquisition and integration expenses (5)

1,976



16,327



3,092


Other (6)

133



374



(20)


Operating income (loss), as adjusted

$

37,647



$

22,662



$

32,812








Operating margin, GAAP

20.5%



3.4%



17.5%


Operating margin, as adjusted

34.0%



28.8%



30.3%


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


Three Months Ended


6/30/2018


6/30/2017


3/31/2018

Net income (loss) attributable to common stockholders, GAAP

$

20,986



$

(2,389)



$

21,216


Amortization of intangible assets, net of tax (3)

3,617



1,124



3,626


Restructuring and severance, net of tax (4)



158




Acquisition and integration expenses, net of tax (5)

1,869



11,540



2,255


Other, net of tax (6)

2,748



3,779



1,176


Seed capital and CLO investments (earnings) loss, net of tax (7)

(4,270)



(859)



(6,447)


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

$

24,950



$

13,353



$

21,826








Weighted average shares outstanding - diluted

8,401



7,064



8,411


Preferred stockA



1,045




Restricted stock units



202




Weighted average shares outstanding - diluted, as adjusted

8,401



8,311



8,411








Earnings (loss) per share - diluted, GAAP

$

2.75



$

(0.34)



$

2.77


Earnings (loss) per share - diluted, as adjusted

$

2.97



$

1.61



$

2.59



A Assumes conversion of preferred shares to common shares at the 20-day volume-weighted average common stock price as of period end, subject to a conversion price range of $110 to $132 per share, resulting in a conversion ratio range of 0.9091 to 0.7576

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


Three Months Ended


6/30/2018


6/30/2017


3/31/2018

Income (loss) before taxes, GAAP

$

32,694



$

1,908



$

30,350


Consolidated investment products (earnings) loss (2)

(159)



(333)



(527)


Amortization of intangible assets (3)

5,024



1,813



5,036


Restructuring and severance (4)



255




Acquisition and integration expenses (5)

2,596



18,613



3,132


Other (6)

133



374



(20)


Seed capital and CLO investments (earnings) loss (7)

(5,630)



(1,096)



(7,588)


Income (loss) before taxes, as adjusted

$

34,658



$

21,534



$

30,383


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


Three Months Ended


6/30/2018


6/30/2017


3/31/2018

Income tax expense (benefit), GAAP

$

9,465



$

1,880



$

6,523


Tax impact of amortization of intangible assets (3)

1,407



689



1,410


Tax impact of restructuring and severance (4)



97




Tax impact of acquisition and integration expenses (5)

727



7,073



877


Tax impact of other (6)

(531)



(1,321)



888


Tax impact of seed capital and CLO investments (earnings) loss (7)

(1,360)



(237)



(1,141)


Income tax expense (benefit), as adjusted

$

9,708



$

8,181



$

8,557








Effective tax rate, GAAPA

29.0%



98.5%



21.5%


Effective tax rate, as adjustedB

28.0%



38.0%



28.2%



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

Reconciliation of Investment Management Fees, GAAP to Investment Management Fees, as Adjusted:


Three Months Ended


6/30/2018


6/30/2017


3/31/2018

Investment management fees, GAAP

$

103,168



$

74,062



$

100,476


Consolidated investment products fees (2)

1,391



210



1,571


Investment management fees, as adjusted

$

104,559



$

74,272



$

102,047


Reconciliation of Administration and Transfer Agent Fees, GAAP to Administration and Transfer Agent Fees, as Adjusted:


Three Months Ended


6/30/2018


6/30/2017


3/31/2018

Administration and transfer agent fees, GAAP

$

15,967



$

9,476



$

15,738


Consolidated investment products fees (2)

28



19



1


Administration and transfer agent fees, as adjusted

$

15,995



$

9,495



$

15,739


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


Three Months Ended


6/30/2018


6/30/2017


3/31/2018

Employment expenses, GAAP

$

54,868



$

42,992



$

60,696


Acquisition and integration expenses (5)

(1,208)



(2,059)



(1,903)


Employment expenses, as adjusted

$

53,660



$

40,933



$

58,793


Reconciliation of Restructuring and Severance, GAAP to Restructuring and Severance, as Adjusted: 


Three Months Ended


6/30/2018


6/30/2017


3/31/2018

Restructuring and severance, GAAP

$



$

8,894



$


Restructuring and severance (4)



(255)




Acquisition and integration expenses (5)



(8,639)




Restructuring and severance, as adjusted

$



$



$


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


Three Months Ended


6/30/2018


6/30/2017


3/31/2018

Other operating expenses, GAAP

$

19,128



$

20,236



$

16,862


Acquisition and integration expenses (5)

(768)



(5,629)



(1,189)


Other (6)

(133)



(374)



20


Other operating expenses, as adjusted

$

18,227



$

14,233



$

15,693


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


Three Months Ended


6/30/2018


6/30/2017


3/31/2018

Total other income (expense), net GAAP

$

(364)



$

(90)



$

4,016


Consolidated investment products total other (income) expense, net (2)

2,001



(123)



1,291


Seed capital and CLO investments total other (income) expense, net (7)

(1,045)



259



(4,186)


Total other income (expense), net as adjusted

$

592



$

46



$

1,121


Notes to Reconciliations:

1. Distribution and other asset-based expenses - Primarily payments to distribution partners for providing services to investors in our sponsored funds and payments to third-party service providers for investment management-related services. Management believes that making this adjustment aids in comparing the company's operating results with other asset management firms that do not utilize intermediary distribution partners or third-party service providers.

2. 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.

3. Amortization of intangible assets - Non-cash amortization expense or impairment expense, if any, attributable to acquisition-related intangible assets. 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.

4. 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.

5. 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

6/30/2018


6/30/2017


3/31/2018

Employment expenses

$

1,208



$

2,059



$

1,903


Restructuring and severance



8,639




Other operating expenses

768



5,629



1,189


Interest expense

620



2,286



40


Total Acquisition and Integration Expenses

$

2,596



$

18,613



$

3,132


6. Other - Certain expenses that are not reflective of the ongoing earnings generation of the business. In addition, it includes income tax expense (benefit) items, such as adjustments 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 the shares are mandatorily convertible into common shares at the end of three years 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

6/30/2018


6/30/2017


3/31/2018

Occupancy related expenses

$

111



$



$


Tax impact of occupancy related expenses

(31)






System transition expenses

22



374



(20)


Tax impact of system transition expenses

(6)



(141)



6


Other discrete tax adjustments

568



1,462



(894)


Preferred stockholder dividends

2,084



2,084



2,084


Total Other

$

2,748



$

3,779



$

1,176


7. Seed capital and CLO investments earnings (loss) - Gains and losses (realized and unrealized), dividends and interest income generated by seed capital and CLO investments. Earnings or losses 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 revenues in that they are reduced by distribution and other asset-based expenses that are generally passed through to external parties, and exclude the impact of consolidated investment products.

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 impact 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 our 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 of our 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 2017 Annual Report on Form 10-K as well as the following risks and uncertainties: (a) any reduction in our assets under management; (b) withdrawal, renegotiation or termination of investment advisory agreements; (c) damage to our reputation; (d) failure to comply with investment guidelines or other contractual requirements; (e) inability to satisfy financial covenants and payments related to our indebtedness; (f) inability to attract and retain key personnel; (g) challenges from the competition we face in our business; (h) adverse regulatory and legal developments; (i) unfavorable changes in tax laws or limitations; (j) adverse developments related to unaffiliated subadvisers; (k) negative implications of changes in key distribution relationships; (l) interruptions in or failure to provide critical technological service by us or third parties; (m) volatility associated with our common and preferred stock; (n) adverse civil litigation and government investigations or proceedings; (o) risk of loss on our investments; (p) inability to make quarterly common and preferred stock distributions; (q) lack of sufficient capital on satisfactory terms; (r) losses or costs not covered by insurance; (s) impairment of goodwill or intangible assets; (t) inability to achieve expected acquisition-related benefits; and other risks and uncertainties described in our 2017 Annual Report on Form 10-K or in any of our filings with the Securities and Exchange Commission ("SEC").

Certain other factors which may impact our continuing operations, prospects, financial results and liquidity, or which 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 which modify or impact 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.)

 

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SOURCE Virtus Investment Partners, Inc.

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