Virtus Investment Partners, Inc. (NASDAQ: VRTS) today reported financial results for the three months ended June 30, 2023.
Financial Highlights (Unaudited)
(in millions, except per share data or as noted)
Three Months Ended | Three Months Ended | ||||||||||||||||
6/30/2023 | 6/30/2022 | Change | 3/31/2023 | Change | |||||||||||||
U.S. GAAP Financial Measures | |||||||||||||||||
Revenues | $ | 213.5 | $ | 225.3 | (5 | %) | $ | 197.9 | 8 | % | |||||||
Operating expenses | $ | 174.5 | $ | 168.6 | 3 | % | $ | 169.3 | 3 | % | |||||||
Operating income (loss) | $ | 39.0 | $ | 56.7 | (31 | %) | $ | 28.6 | 37 | % | |||||||
Operating margin | 18.3 | % | 25.2 | % | 14.4 | % | |||||||||||
Net income (loss) attributable to Virtus Investment Partners, Inc. | $ | 30.3 | $ | 17.4 | 74 | % | $ | 38.6 | (22 | %) | |||||||
Earnings (loss) per share - diluted | $ | 4.10 | $ | 2.29 | 79 | % | $ | 5.21 | (21 | %) | |||||||
Weighted average shares outstanding - diluted | 7.385 | 7.607 | (3 | %) | 7.410 | — | % | ||||||||||
Non-GAAP Financial Measures (1) | |||||||||||||||||
Revenues, as adjusted | $ | 190.6 | $ | 199.0 | (4 | %) | $ | 176.9 | 8 | % | |||||||
Operating expenses, as adjusted | $ | 129.0 | $ | 121.0 | 7 | % | $ | 129.5 | — | % | |||||||
Operating income (loss), as adjusted | $ | 61.6 | $ | 78.0 | (21 | %) | $ | 47.4 | 30 | % | |||||||
Operating margin, as adjusted | 32.3 | % | 39.2 | % | 26.8 | % | |||||||||||
Net income (loss) attributable to Virtus Investment Partners, Inc., as adjusted | $ | 40.1 | $ | 52.2 | (23 | %) | $ | 31.1 | 29 | % | |||||||
Earnings (loss) per share - diluted, as adjusted | $ | 5.43 | $ | 6.86 | (21 | %) | $ | 4.20 | 29 | % | |||||||
Weighted average shares outstanding - diluted, as adjusted | 7.385 | 7.607 | (3 | %) | 7.410 | — | % | ||||||||||
(1) | See the information beginning on page 10 for reconciliations to the most directly comparable U.S. GAAP measures and other important disclosures |
Earnings Summary
The company presents U.S. GAAP and non-GAAP earnings information in this release. Management believes that the non-GAAP financial measures presented reflect the company’s operating results from providing investment management and related services to individuals and institutions and uses these measures to evaluate financial performance. Non-GAAP financial measures have material limitations and should not be viewed in isolation or as a substitute for U.S. GAAP measures. Reconciliations of the non-GAAP financial measures to the most comparable U.S. GAAP measures can be found beginning on page 10 of this earnings release.
Assets Under Management and Asset Flows
(in billions)
Three Months Ended | Three Months Ended | |||||||||||||
6/30/2023 | 6/30/2022 | Change | 3/31/2023 | Change | ||||||||||
Ending total assets under management | $ | 168.3 | $ | 155.4 | 8% | $ | 154.8 | 9% | ||||||
Average total assets under management | $ | 163.0 | $ | 171.4 | (5%) | $ | 152.4 | 7% | ||||||
Total sales | $ | 7.6 | $ | 7.9 | (4%) | $ | 6.2 | 22% | ||||||
Net flows | $ | — | $ | (4.8 | ) | N/M | $ | (1.9 | ) | N/M | ||||
N/M - Not Meaningful | ||||||||||||||
Total assets under management of $168.3 billion at June 30, 2023 increased from $154.8 billion at March 31, 2023 due to the addition of $7.8 billion of assets from the April 1 acquisition of AlphaSimplex, market performance, and positive institutional net flows. In addition, the company provided services to $2.6 billion of other fee-earning assets.
Total sales of $7.6 billion increased 22% from $6.2 billion in the first quarter. The increase was due to institutional sales, which nearly doubled to $3.7 billion and included a large new mandate and meaningful contributions to existing accounts. Open-end fund sales of $2.6 billion declined from $3.0 billion primarily reflecting lower domestic equity sales, partially offset by higher global equity sales. Retail separate account sales of $1.3 billion were substantially unchanged.
Net flows were breakeven and improved from ($1.9) billion in the prior quarter. The improvement was due to institutional, which had broad strength across affiliates and strategies and positive net flows of $2.2 billion, up from modest net outflows in the prior quarter. Open-end fund net flows of ($2.1) billion compared with ($1.8) billion primarily due to lower equity sales, partially offset by positive net flows in global equity and domestic small/mid cap. Retail separate account net flows of ($0.1) billion compared with $0.1 billion in the prior quarter, with continued net inflows in the private client channel.
GAAP Results
Operating income of $39.0 million increased 37% from $28.6 million in the prior quarter due to an 8% increase in total revenues, reflecting higher average assets under management from the addition of AlphaSimplex and market performance, partially offset by a 3% increase in total operating expenses. The increase in operating expenses was primarily due to the addition of AlphaSimplex and included higher employment expenses, other operating expenses, distribution and other asset-based expenses, and intangible asset amortization, partially offset by fair value adjustments to contingent consideration.
Net income attributable to Virtus Investment Partners, Inc. of $4.10 per diluted common share included ($0.31) of acquisition and integration costs, including AlphaSimplex acquisition costs, partially offset by fair value adjustments to contingent consideration, ($0.30) of net realized and unrealized losses on investments, and $0.21 of fair value adjustments to affiliate noncontrolling interests. Net income per diluted share of $5.21 in the prior quarter included $0.93 of fair value adjustments to affiliate noncontrolling interests and $0.64 of net realized and unrealized gains on investments.
The effective tax rate of 27% increased from 20% in the prior quarter, primarily reflecting changes in valuation allowances related to marketable securities and other discrete tax adjustments.
Non-GAAP Results
Revenues, as adjusted, of $190.6 million increased 8% from $176.9 million in the prior quarter primarily due to higher average assets under management.
Employment expenses, as adjusted, of $95.8 million decreased from $98.6 million due to prior quarter seasonal items partially offset by employment expenses from the addition of AlphaSimplex. Other operating expenses, as adjusted, of $31.7 million increased from $29.8 million in the prior quarter due to the addition of AlphaSimplex and the annual equity grants to the Board of Directors of $0.9 million.
Operating income, as adjusted, of $61.6 million and the related margin of 32.3% increased from $47.4 million and 26.8% in the prior quarter, respectively, due to the impact of the prior quarter seasonal items and higher investment management fees.
Net income attributable to Virtus Investment Partners, Inc., as adjusted, per diluted common share was $5.43, an increase of $1.23, or 29%, from $4.20 in the prior quarter. The increase primarily reflected the impact of the prior quarter seasonal items and higher investment management fees.
The effective tax rate, as adjusted, of 27% compared with 28% in the prior quarter.
Select Balance Sheet Items (Unaudited)
(in millions)
As of | As of | |||||||||||
6/30/2023 | 6/30/2022 | Change | 3/31/2023 | Change | ||||||||
Cash and cash equivalents | $ | 201.5 | $ | 250.5 | (20%) | $ | 213.4 | (6%) | ||||
Gross debt (1) | $ | 300.2 | $ | 262.9 | 14% | $ | 260.9 | 15% | ||||
Contingent consideration (2) | $ | 94.4 | $ | 133.6 | (29%) | $ | 101.2 | (7%) | ||||
Redeemable noncontrolling interests (3) | $ | 87.6 | $ | 126.1 | (31%) | $ | 88.2 | (1%) | ||||
Total equity exc. noncontrolling interests | $ | 851.5 | $ | 784.7 | 9% | $ | 837.9 | 2% | ||||
Working capital (4) | $ | 124.0 | $ | 185.4 | (33%) | $ | 184.4 | (33%) | ||||
Net debt (cash) (5) | $ | 98.7 | $ | 12.4 | N/M | $ | 47.5 | 108% | ||||
(1) | Excludes deferred financing costs of $6.0 million, $7.1 million, and $6.3 million, as of June 30, 2023, June 30, 2022, and March 31, 2023, respectively | |
(2) | Represents estimates of revenue participation and contingent payments | |
(3) | Excludes redeemable noncontrolling interests of consolidated investment products of $22.8 million, $13.0 million, and $18.4 million as of June 30, 2023, June 30, 2022, and March 31, 2023, respectively | |
(4) | Defined as cash and cash equivalents plus accounts receivable, net, less accrued compensation and benefits, accounts payable and accrued liabilities, dividends payable, debt principal payments due over next 12 months and revenue participation amounts earned as of the balance sheet date and due within 12 months | |
(5) | Defined as gross debt less cash and cash equivalents | |
N/M - Not Meaningful | ||
On April 1, 2023, the company completed the acquisition of AlphaSimplex for $113.4 million in cash at closing, including $50.0 million drawn on the company's revolving credit facility. In June, the company repaid $10.0 million of the amount drawn on the facility.
Working capital of $124.0 million at June 30, 2023 declined from $184.4 million at March 31, 2023 primarily due to the AlphaSimplex transaction payment.
During the quarter the company repurchased 51,840 shares of common stock for $10.0 million.
Conference Call and Investor Presentation
Management will host an investor conference call and webcast on Friday, July 28, 2023, at 10 a.m. Eastern to discuss these financial results and related matters. The presentation that will accompany the conference call is available in the Investor Relations section of virtus.com. A replay of the call will be available in the Investor Relations section for at least one year.
About Virtus Investment Partners, Inc.
Virtus Investment Partners (NASDAQ: VRTS) is a distinctive partnership of boutique investment managers singularly committed to the long-term success of individual and institutional investors. We provide investment management products and services from our affiliated managers, each with a distinct investment style and autonomous investment process, as well as select subadvisers. Investment solutions are available across multiple disciplines and product types to meet a wide array of investor needs. Additional information about our firm, investment partners, and strategies is available at virtus.com.
U.S. GAAP Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
Three Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||
6/30/2023 | 6/30/2022 | Change | 3/31/2023 | Change | 6/30/2023 | 6/30/2022 | Change | ||||||||||||||||||
Revenues | |||||||||||||||||||||||||
Investment management fees | $ | 179,979 | $ | 185,024 | (3%) | $ | 164,478 | 9% | $ | 344,457 | $ | 391,841 < | |||||||||||||
