10-Q 1 vrts-20220930.htm 10-Q VRTS 09.30.2022 vrts-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-10994
 
vrts-20220930_g1.jpg
VIRTUS INVESTMENT PARTNERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 26-3962811
(State or other jurisdiction of
incorporation or organization)		 (I.R.S. Employer
Identification No.)
One Financial Plaza, Hartford, CT 06103
(Address of principal executive offices, including Zip Code)
(800) 248-7971
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value VRTSThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒ No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
The number of shares outstanding of the registrant’s common stock was 7,231,973 as of October 28, 2022.









VIRTUS INVESTMENT PARTNERS, INC.
INDEX
 
  Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.
"We," "us," "our," the "Company," and "Virtus" as used in this Quarterly Report on Form 10-Q refer to Virtus Investment Partners, Inc., a Delaware corporation, and its subsidiaries.


PART I – FINANCIAL INFORMATION
 
Item 1.    Financial Statements
Virtus Investment Partners, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share data)September 30,
2022		December 31,
2021
Assets:
Cash and cash equivalents$309,248 $378,921 
Investments98,245 108,890 
Accounts receivable, net104,695 123,873 
Assets of consolidated investment products ("CIP")
Cash and cash equivalents of CIP85,791 206,620 
Cash pledged or on deposit of CIP591 604 
Investments of CIP1,976,975 2,140,238 
Other assets of CIP17,432 44,210 
Furniture, equipment and leasehold improvements, net19,237 12,542 
Intangible assets, net467,476 500,571 
Goodwill348,836 338,406 
Deferred taxes, net24,979 19,204 
Other assets92,532 60,102 
Total assets$3,546,037 $3,934,181 
Liabilities and Equity
Liabilities:
Accrued compensation and benefits$145,361 $187,449 
Accounts payable and accrued liabilities37,758 48,496 
Dividends payable15,357 14,824 
Contingent consideration (Note 4)133,628 162,564 
Debt255,428 266,346 
Other liabilities90,698 60,225 
Liabilities of CIP
Notes payable of CIP1,864,943 2,033,617 
Securities purchased payable and other liabilities of CIP72,483 185,068 
Total liabilities2,615,656 2,958,589 
Commitments and Contingencies (Note 15)
Redeemable noncontrolling interests124,442 138,965 
Equity:
Equity attributable to Virtus Investment Partners, Inc.:
Common stock, $0.01 par value, 1,000,000,000 shares authorized; 12,030,346 shares issued and 7,231,973 shares outstanding at September 30, 2022; and 11,906,747 shares issued and 7,506,151 shares outstanding at December 31, 2021
120 119 
Additional paid-in capital1,281,780 1,276,424 
Retained earnings (accumulated deficit)107,324 60,962 
Accumulated other comprehensive income (loss)(771)20 
Treasury stock, at cost, 4,798,373 and 4,400,596 shares at September 30, 2022 and December 31, 2021, respectively
(589,248)(509,248)
Total equity attributable to Virtus Investment Partners, Inc.799,205 828,277 
Noncontrolling interests6,734 8,350 
Total equity 805,939 836,627 
Total liabilities and equity$3,546,037 $3,934,181 

The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Virtus Investment Partners, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands, except per share data)2022202120222021
Revenues
Investment management fees$172,850 $201,133 $564,691 $567,912 
Distribution and service fees15,746 23,293 52,912 67,091 
Administration and shareholder service fees20,563 26,479 66,889 74,916 
Other income and fees1,102 1,159 3,516 3,053 
Total revenues210,261 252,064 688,008 712,972 
Operating Expenses
Employment expenses88,230 87,345 283,583 266,734 
Distribution and other asset-based expenses26,818 36,692 88,247 105,007 
Other operating expenses31,096 22,800 94,367 64,326 
Operating expenses of consolidated investment products ("CIP")538 639 1,927 1,857 
Change in fair value of contingent consideration— — 2,900 — 
Restructuring expense4,015 — 4,015 — 
Depreciation expense938 915 2,835 2,994 
Amortization expense14,609 10,391 43,895 30,219 
Total operating expenses166,244 158,782 521,769 471,137 
Operating Income (Loss)44,017 93,282 166,239 241,835 
Other Income (Expense)
Realized and unrealized gain (loss) on investments, net(2,493)(504)(16,018)2,881 
Realized and unrealized gain (loss) of CIP, net(8,440)(2,801)(43,443)(4,741)
Other income (expense), net(659)1,001 199 3,598 
Total other income (expense), net(11,592)(2,304)(59,262)1,738 
Interest Income (Expense)
Interest expense(3,557)(2,348)(8,661)(6,918)
Interest and dividend income1,013 269 1,870 571 
Interest and dividend income of investments of CIP28,644 22,877 71,436 69,315 
Interest expense of CIP(20,356)(13,442)(46,860)(42,342)
Total interest income (expense), net5,744 7,356 17,785 20,626 
Income (Loss) Before Income Taxes38,169 98,334 124,762 264,199 
Income tax expense (benefit)10,754 25,823 43,969 63,377 
Net Income (Loss)27,415 72,511 80,793 200,822 
Noncontrolling interests4,265 (13,775)1,348 (42,531)
Net Income (Loss) Attributable to Virtus Investment Partners, Inc.$31,680 $58,736 $82,141 $158,291 
Earnings (Loss) per Share—Basic$4.33 $7.64 $11.05 $20.59 
Earnings (Loss) per Share—Diluted$4.25 $7.36 $10.76 $19.72 
Weighted Average Shares Outstanding—Basic7,308 7,691 7,434 7,688 
Weighted Average Shares Outstanding—Diluted7,463 7,984 7,636 8,028 

The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Virtus Investment Partners, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
 Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)2022202120222021
Net Income (Loss)$27,415 $72,511 $80,793 $200,822 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment, net of tax of $31 and $6 for the three months ended September 30, 2022 and 2021, respectively, and $280 and $4 for the nine months ended September 30, 2022 and 2021, respectively.
(504)(17)(791)(11)
Other comprehensive income (loss)(504)(17)(791)(11)
Comprehensive income (loss)26,911 72,494 80,002 200,811 
Comprehensive (income) loss attributable to noncontrolling interests4,265 (13,775)1,348 (42,531)
Comprehensive Income (Loss) Attributable to Virtus Investment Partners, Inc.$31,176 $58,719 $81,350 $158,280 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Virtus Investment Partners, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

 Nine Months Ended
September 30,
(in thousands)20222021
Cash Flows from Operating Activities:
Net income (loss)$80,793 $200,822 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense, intangible asset and other amortization48,143 35,217 
Stock-based compensation19,267 21,833 
Amortization of deferred commissions3,653 2,606 
Payments of deferred commissions(1,789)(4,664)
Equity in earnings of equity method investments(527)(3,701)
Realized and unrealized (gains) losses on investments, net16,056 (2,875)
Distributions from equity method investments2,239 3,133 
Sales (purchases) of investments, net(8,396)(3,453)
Change in fair value of contingent consideration2,900 — 
Deferred taxes, net(5,500)(2,672)
Right of use asset3,222 — 
Changes in operating assets and liabilities:
Accounts receivable, net and other assets32,940 (41,421)
Accrued compensation and benefits, accounts payable, accrued liabilities and other liabilities(76,639)23,242 
Operating activities of consolidated investment products ("CIP"):
Realized and unrealized (gains) losses on investments of CIP, net41,312 (4,139)
Purchases of investments by CIP(601,749)(917,355)
Sales of investments by CIP595,451 1,101,258 
Net proceeds (purchases) of short-term investments and securities sold short by CIP(655)16,165 
Change in other assets and liabilities of CIP4,129 (317)
Net cash provided by (used in) operating activities154,850 423,679 
Cash Flows from Investing Activities:
Capital expenditures and other asset purchases(5,495)(4,822)
Acquisition of businesses, net of cash acquired of $8,443
(19,944)— 
Change in cash and cash equivalents of CIP due to consolidation (deconsolidation), net(308)(11,703)
Net cash provided by (used in) investing activities(25,747)(16,525)
Cash Flows from Financing Activities:
Refinancing of credit agreement— 81,155 
Payment of long-term debt(12,062)(11,826)
Payment of deferred financing costs— (7,039)
Common stock dividends paid(35,244)(20,030)
Repurchase of common shares(80,000)(32,499)
Payment of contingent consideration(33,036)— 
Taxes paid related to net share settlement of restricted stock units(16,450)(19,362)
Affiliate equity sales (purchases)(11,089)— 
Net contributions from (distributions to) noncontrolling interests(1,091)552 
Financing activities of CIP:
Payments on borrowings by CIP(129,996)(144,464)
Net cash provided by (used in) financing activities(318,968)(153,513)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(650)— 
Net increase (decrease) in cash, cash equivalents and restricted cash(190,515)253,641 
Cash, cash equivalents and restricted cash, beginning of period586,145 339,849 
Cash, cash equivalents and restricted cash, end of period$395,630 $593,490 
Non-Cash Investing Activities:
Contingent consideration$1,200 $137,664 
Non-Cash Financing Activities:
Increase (decrease) to noncontrolling interests due to consolidation (deconsolidation) of CIP, net$(338)$(32,007)
Common stock dividends payable$12,014 $11,478 

(in thousands)September 30,
2022		December 31, 2021
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents$309,248 $378,921 
Cash of CIP85,791 206,620 
Cash pledged or on deposit of CIP591 604 
Cash, cash equivalents and restricted cash at end of period$395,630 $586,145 

The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Virtus Investment Partners, Inc.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Permanent EquityTemporary Equity
 Common StockAdditional
Paid-in
Capital		Retained Earnings (Accumulated
Deficit)		Accumulated
Other
Comprehensive
Income (Loss)		Treasury StockTotal
Attributed To
Virtus Investment Partners, Inc.		Non-
controlling
Interests		Total
Equity		Redeemable
Non-
controlling
Interests
(in thousands, except per share data)SharesPar ValueSharesAmount
Balances at June 30, 20217,651,606 $119 $1,280,667 $(35,704)$35 4,254,236 $(464,248)$780,869 $8,968 $789,837 $131,525 
Net income (loss)— — — 58,736 — — — 58,736 374 59,110 13,401 
Foreign currency translation adjustments— — — — (17)— — (17)— (17)— 
Net subscriptions (redemptions) and other— — — — — — — — (529)(529)(13,257)
Cash dividends declared ($1.50 per common share)
— — (12,015)— — — — (12,015)— (12,015)— 
Repurchases of common shares(64,494)— — — — 64,494 (20,000)(20,000)— (20,000)— 
Issuance of common shares related to employee stock transactions645 — — — — — — — — — — 
Taxes paid on stock-based compensation— — (148)— — — — (148)— (148)— 
Stock-based compensation— — 4,872 — — — — 4,872 — 4,872 — 
Balances at September 30, 20217,587,757 $119 $1,273,376 $23,032 $18 4,318,730 $(484,248)$812,297 $8,813 $821,110 $131,669 
Balances at June 30, 20227,275,337 $120 $1,275,907 $88,196 $(267)4,747,951 $(579,248)$784,708 $6,997 $791,705 $139,147 
Net income (loss)— — — 31,680 — — — 31,680 151 31,831 (4,416)
Foreign currency translation adjustments— — — — (504)— — (504)— (504)— 
Net subscriptions (redemptions) and other— — 2,035 — — — — 2,035 (414)1,621 (10,289)
Cash dividends declared ($1.65 per common share)
— — — (12,552)— — — (12,552)— (12,552)— 
Repurchases of common shares(50,422)— — — — 50,422 (10,000)(10,000)— (10,000)— 
Issuance of common shares related to employee stock transactions7,058 — — — — — — — — — — 
Taxes paid on stock-based compensation— — (1,166)— — — — (1,166)(1,166)— 
Stock-based compensation— — 5,004 — — — — 5,004 — 5,004 — 
Balances at September 30, 20227,231,973 $120 $1,281,780 $107,324 $(771)4,798,373 $(589,248)$799,205 $6,734 $805,939 $124,442 

Permanent EquityTemporary Equity
 Common StockAdditional
Paid-in
Capital		Retained Earnings (Accumulated
Deficit)		Accumulated
Other
Comprehensive
Income (Loss)		Treasury StockTotal
Attributed To
Virtus Investment Partners, Inc.		Non-
controlling
Interests		Total
Equity		Redeemable
Non-
controlling
Interests
(in thousands, except per share data)SharesPar ValueSharesAmount
Balances at December 31, 20207,583,466 $118 $1,298,002 $(135,259)$29 4,207,403 $(451,749)$711,141 $9,799 $720,940 $115,513 
Net income (loss)— — — 158,291 — — — 158,291 719 159,010 41,812 
Foreign currency translation adjustments— — — — (11)— — (11)— (11)— 
Net subscriptions (redemptions) and other— — — — — — — — (1,705)(1,705)(25,656)
Cash dividends declared ($3.14 per common share)
— — (25,315)— — — — (25,315)— (25,315)— 
Repurchases of common shares(111,327)— — — — 111,327 (32,499)(32,499)— (32,499)— 
Issuance of common shares related to employee stock transactions115,618 1 65 — — — — 66 — 66 — 
Taxes paid on stock-based compensation— — (19,428)— — — — (19,428)— (19,428)— 
Stock-based compensation— — 20,052 — — — — 20,052 — 20,052 — 
Balances at September 30, 20217,587,757 $119 $1,273,376 $23,032 $18 4,318,730 $(484,248)$812,297 $8,813 $821,110 $131,669 
Balances at December 31, 20217,506,151 $119 $1,276,424 $60,962 $20 4,400,596 $(509,248)$828,277 $8,350 $836,627 $138,965 
Net income (loss)— — — 82,141 — — — 82,141 (184)81,957 (1,164)
Foreign currency translation adjustments— — — — (791)— — (791)— (791)— 
Net subscriptions (redemptions) and other— — 2,035 — — — — 2,035 (1,432)603 (13,359)
Cash dividends declared ($4.65 per common share)
— — — (35,779)— — — (35,779)— (35,779)— 
Repurchases of common shares(397,777)— — — — 397,777 (80,000)(80,000)— (80,000)— 
Issuance of common shares related to employee stock transactions123,599 1 (1)— — — — — — — — 
Taxes paid on stock-based compensation— — (16,450)— — — — (16,450)(16,450)— 
Stock-based compensation— — 19,772 — — — — 19,772 — 19,772 — 
Balances at September 30, 20227,231,973 $120 $1,281,780 $107,324 $(771)4,798,373 $(589,248)$799,205 $6,734 $805,939 $124,442 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5
Virtus Investment Partners, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Business
Virtus Investment Partners, Inc. (the "Company," "we," "us," "our" or "Virtus"), a Delaware corporation, operates in the investment management industry through its subsidiaries.

The Company provides investment management and related services to individuals and institutions. The Company’s retail investment management services are provided to individuals through products consisting of: mutual funds registered pursuant to the Investment Company Act of 1940, as amended ("U.S. retail funds"); Undertaking for Collective Investment in Transferable Securities ("UCITS") and Qualifying Investor Funds ("QIFs"), collectively, "global funds" and collectively with mutual funds, exchange traded funds ("ETFs"), and variable insurance funds, the "open-end funds"; closed-end funds (collectively, with open-end funds, the "funds"); and retail separate accounts. Institutional investment management services are offered through separate accounts and pooled or commingled structures to a variety of institutional clients. The Company also provides subadvisory services to other investment advisers and serves as the collateral manager for structured products.


2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Company’s financial condition and results of operations. Operating results for the nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Annual Report on Form 10-K") filed with the Securities and Exchange Commission (the "SEC"). The Company’s significant accounting policies, which have been consistently applied, are summarized in its 2021 Annual Report on Form 10-K.


3. Revenues
The Company's revenues are recognized when a performance obligation is satisfied, which occurs when control of the services is transferred to customers. Investment management fees, distribution and service fees, and administration and shareholder service fees are generally calculated as a percentage of average net assets of the investment portfolios managed. The net asset values from which these fees are calculated are variable in nature and subject to factors outside of the Company's control, such as additional investments, withdrawals and market performance. Because of this, these fees are considered constrained until the end of the contractual measurement period (monthly or quarterly), which is when asset values are generally determinable.

    Investment Management Fees by Source    
The following table summarizes investment management fees by source:
 Three Months Ended
September 30,		Nine Months Ended
September 30,
(in thousands)2022202120222021
Investment management fees
Open-end funds$80,234 $99,711 $262,486 $286,104 
Closed-end funds15,773 17,116 48,887 46,451 
Retail separate accounts39,154 46,625 134,069 126,612 
Institutional accounts37,689 37,681 119,249 108,745 
Total investment management fees$172,850 $201,133 $