VIRTUS INVESTMENT PARTNERS, INC. [VRTS] Filings

10-Q 1 vrts-20220630.htm 10-Q VRTS 06.30.2022 vrts-20220630

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 June 30, 2022


☐			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

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 class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

VRTS

The 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 7,275,337 as of July 29, 2022.

Table of Contents

VIRTUS INVESTMENT PARTNERS, INC.

INDEX


		Page
Part I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021	2
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021	3
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2022 and 2021	4
	Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	30

Part II. OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 6.	Exhibits	31
	Signatures	32

"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.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Virtus Investment Partners, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


(in thousands, except share data)	June 30, 2022		December 31, 2021
Assets:
Cash and cash equivalents	$	250,530	$	378,921
Investments	102,840		108,890
Accounts receivable, net	108,248		123,873
Assets of consolidated investment products ("CIP")
Cash and cash equivalents of CIP	107,674		206,620
Cash pledged or on deposit of CIP	627		604
Investments of CIP	1,990,159		2,140,238
Other assets of CIP	17,041		44,210
Furniture, equipment and leasehold improvements, net	19,016		12,542

Intangible assets, net	482,085		500,571
Goodwill	347,423		338,406
Deferred taxes, net	21,721		19,204
Other assets	96,551		60,102
Total assets	$	3,543,915	$	3,934,181
Liabilities and Equity
Liabilities:
Accrued compensation and benefits	$	105,106	$	187,449
Accounts payable and accrued liabilities	40,800		48,496
Dividends payable	13,861		14,824
Contingent consideration (Note 4)	133,628		162,564
Debt	255,832		266,346
Other liabilities	93,502		60,225
Liabilities of CIP
Notes payable of CIP	1,904,444		2,033,617
Securities purchased payable and other liabilities of CIP	65,890		185,068
Total liabilities	2,613,063		2,958,589
Commitments and Contingencies (Note 14)
Redeemable noncontrolling interests	139,147		138,965
Equity:
Equity attributable to Virtus Investment Partners, Inc.:
Common stock, $0.01 par value, 1,000,000,000 shares authorized; 12,023,288 shares issued and 7,275,337 shares outstanding at June 30, 2022; and 11,906,747 shares issued and 7,506,151 shares outstanding at December 31, 2021	120		119
Additional paid-in capital	1,275,907		1,276,424
Retained earnings (accumulated deficit)	88,196		60,962
Accumulated other comprehensive income (loss)	(267)		20
Treasury stock, at cost, 4,747,951 and 4,400,596 shares at June 30, 2022 and December 31, 2021, respectively	(579,248)		(509,248)
Total equity attributable to Virtus Investment Partners, Inc.	784,708		828,277
Noncontrolling interests	6,997		8,350
Total equity	791,705		836,627
Total liabilities and equity	$	3,543,915	$	3,934,181

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

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Virtus Investment Partners, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share data)	2022		2021		2022		2021
Revenues
Investment management fees	$	185,024	$	193,510	$	391,841	$	366,779
Distribution and service fees	17,159		23,450		37,166		43,798
Administration and shareholder service fees	21,982		25,877		46,326		48,437
Other income and fees	1,142		1,174		2,414		1,894
Total revenues	225,307		244,011		477,747		460,908
Operating Expenses
Employment expenses	89,360		87,630		195,353		179,389
Distribution and other asset-based expenses	28,583		36,021		61,429		68,315
Other operating expenses	31,559		21,946		63,271		41,526
Operating expenses of consolidated investment products ("CIP")	649		659		1,389		1,218
Change in fair value of contingent consideration	2,900		—		2,900		—

Depreciation expense	962		981		1,897		2,079
Amortization expense	14,624		10,363		29,286		19,828
Total operating expenses	168,637		157,600		355,525		312,355
Operating Income (Loss)	56,670		86,411		122,222		148,553
Other Income (Expense)
Realized and unrealized gain (loss) on investments, net	(10,543)		2,494		(13,525)		3,385
Realized and unrealized gain (loss) of CIP, net	(21,659)		2,747		(35,003)		(1,940)
Other income (expense), net	571		826		858		2,597
Total other income (expense), net	(31,631)		6,067		(47,670)		4,042
Interest Income (Expense)
Interest expense	(2,825)		(2,256)		(5,104)		(4,570)
Interest and dividend income	529		166		857		302
Interest and dividend income of investments of CIP	22,412		22,562		42,792		46,438
Interest expense of CIP	(14,416)		(14,452)		(26,504)		(28,900)
Total interest income (expense), net	5,700		6,020		12,041		13,270
Income (Loss) Before Income Taxes	30,739		98,498		86,593		165,865
Income tax expense (benefit)	16,480		22,401		33,215		37,554
Net Income (Loss)	14,259		76,097		53,378		128,311
Noncontrolling interests	3,143		(13,130)		(2,917)		(28,756)


Net Income (Loss) Attributable to Virtus Investment Partners, Inc.	$	17,402	$	62,967	$	50,461	$	99,555
Earnings (Loss) per Share—Basic	$	2.34	$	8.18	$	6.73	$	12.97
Earnings (Loss) per Share—Diluted	$	2.29	$	7.86	$	6.54	$	12.39


Weighted Average Shares Outstanding—Basic	7,449		7,698		7,496		7,674
Weighted Average Shares Outstanding—Diluted	7,607		8,007		7,721		8,038

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

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Virtus Investment Partners, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Net Income (Loss)	$	14,259	$	76,097	$	53,378	$	128,311
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment, net of tax of $176 and $(2) for the three months ended June 30, 2022 and 2021, respectively, and $249 and $(2) for the six months ended June 30, 2022 and 2021, respectively.	(237)		0		(287)		6

Other comprehensive income (loss)	(237)		0		(287)		6
Comprehensive income (loss)	14,022		76,097		53,091		128,317
Comprehensive (income) loss attributable to noncontrolling interests	3,143		(13,130)		(2,917)		(28,756)
Comprehensive Income (Loss) Attributable to Virtus Investment Partners, Inc.	$	17,165	$	62,967	$	50,174	$	99,561

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

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Virtus Investment Partners, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended June 30,
(in thousands)	2022		2021
Cash Flows from Operating Activities:
Net income (loss)	$	53,378	$	128,311
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense, intangible asset and other amortization	32,223		23,196
Stock-based compensation	14,119		15,844
Amortization of deferred commissions	2,700		1,462
Payments of deferred commissions	(1,962)		(3,241)
Equity in earnings of equity method investments	(977)		(2,561)

Realized and unrealized (gains) losses on investments, net	13,562		(3,381)
Distributions from equity method investments	2,102		1,908
Sales (purchases) of investments, net	(9,952)		(3,395)
Change in fair value of contingent consideration	2,900		—

Deferred taxes, net	(2,271)		(1,518)

Changes in operating assets and liabilities:
Accounts receivable, net and other assets	31,069		(43,203)
Accrued compensation and benefits, accounts payable, accrued liabilities and other liabilities	(110,581)		(12,651)
Operating activities of consolidated investment products ("CIP"):
Realized and unrealized (gains) losses on investments of CIP, net	33,715		(1,961)
Purchases of investments by CIP	(441,042)		(664,837)
Sales of investments by CIP	417,706		790,575
Net proceeds (purchases) of short-term investments and securities sold short by CIP	(45)		15,103

Change in other assets and liabilities of CIP	967		(471)


Net cash provided by (used in) operating activities	37,611		239,180
Cash Flows from Investing Activities:
Capital expenditures and other asset purchases	(4,361)		(4,336)
Acquisition of businesses, net of cash acquired of $8,443	(19,773)		—
Change in cash and cash equivalents of CIP due to consolidation (deconsolidation), net	(308)		(1,191)



Net cash provided by (used in) investing activities	(24,442)		(5,527)

Cash Flows from Financing Activities:

Payment of long-term debt	(11,375)		(11,826)


Common stock dividends paid	(24,190)		(13,748)

Repurchase of common shares	(70,000)		(12,499)

Payment of contingent consideration	(33,036)		—
Taxes paid related to net share settlement of restricted stock units	(15,284)		(19,214)
Net contributions from (distributions to) noncontrolling interests	(3,598)		(6,636)
Financing activities of CIP:
Payments on borrowings by CIP	(82,694)		(103,722)

Net cash provided by (used in) financing activities	(240,177)		(167,645)

Effect of exchange rate changes on cash, cash equivalents and restricted cash	(306)		—
Net increase (decrease) in cash, cash equivalents and restricted cash	(227,314)		66,008
Cash, cash equivalents and restricted cash, beginning of period	586,145		339,849
Cash, cash equivalents and restricted cash, end of period	$	358,831	$	405,857

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)	$	(8,001)

Common stock dividends payable	$	11,229	$	6,277


(in thousands)	June 30, 2022		December 31, 2021
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	250,530	$	378,921
Cash of CIP	107,674		206,620
Cash pledged or on deposit of CIP	627		604
Cash, cash equivalents and restricted cash at end of period	$	358,831	$	586,145

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

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Virtus Investment Partners, Inc.

Condensed Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)



	Permanent Equity															Temporary Equity
	Common Stock			Additional Paid-in Capital	Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Attributed To Virtus Investment Partners, Inc.		Non- controlling Interests		Total Equity		Redeemable Non- controlling Interests
(in thousands, except per share data)	Shares	Par Value									Shares									Amount
Balances at March 31, 2021	7,649,679	$	119		$	1,284,643	$	(98,671)	$	35	4,227,315	$	(456,748)	$	729,378	$	9,317	$	738,695		$	112,482

Net income (loss)	—	—			—		62,967		—		—	—		62,967		270		63,237			12,860

Foreign currency translation adjustments	—	—			—		—		—		—	—		—		—		—			—
Net subscriptions (redemptions) and other	—	—			—		—		—		—	—		—		(619)		(619)			6,183



Cash dividends declared ($0.82 per common share)	—	—			(6,604)		—		—		—	—		(6,604)		—		(6,604)			—
Repurchases of common shares	(26,921)	—			—		—		—		26,921	(7,500)		(7,500)		—		(7,500)			—

Issuance of common shares related to employee stock transactions	28,848	—			—		—		—		—	—		—		—		—			—
Taxes paid on stock-based compensation	—	—			(4,117)		—		—		—	—		(4,117)		—		(4,117)			—
Stock-based compensation	—	—			6,745		—		—		—	—		6,745		—		6,745			—
Balances at June 30, 2021	7,651,606	$	119		$	1,280,667	$	(35,704)	$	35	4,254,236	$	(464,248)	$	780,869	$	8,968	$	789,837		$	131,525
Balances at March 31, 2022	7,472,829	$	120		$	1,273,802	$	81,783	$	(30)	4,526,048	$	(539,248)	$	816,427	$	7,806	$	824,233		$	138,738

Net income (loss)	—	—			—		17,402		—		—	—		17,402		(278)		17,124			(2,865)

Foreign currency translation adjustments	—	—			—		—		(237)		—	—		(237)		—		(237)			—
Net subscriptions (redemptions) and other	—	—			—		—		—		—	—		—		(531)		(531)			3,274




Cash dividends declared ($1.50 per common share)	—	—			—		(10,989)		—		—	—		(10,989)		—		(10,989)			—
Repurchases of common shares	(221,903)	—			—		—		—		221,903	(40,000)		(40,000)		—		(40,000)			—

Issuance of common shares related to employee stock transactions	24,411	—			—		—		—		—	—		—		—		—			—
Taxes paid on stock-based compensation	—	—			(1,870)		—		—		—	—		(1,870)				(1,870)			—
Stock-based compensation	—	—			3,975		—		—		—	—		3,975		—		3,975			—
Balances at June 30, 2022	7,275,337	$	120		$	1,275,907	$	88,196	$	(267)	4,747,951	$	(579,248)	$	784,708	$	6,997	$	791,705		$	139,147


	Permanent Equity															Temporary Equity
	Common Stock			Additional Paid-in Capital	Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Attributed To Virtus Investment Partners, Inc.		Non- controlling Interests		Total Equity		Redeemable Non- controlling Interests
(in thousands, except per share data)	Shares	Par Value									Shares									Amount
Balances at December 31, 2020	7,583,466	$	118		$	1,298,002	$	(135,259)	$	29	4,207,403	$	(451,749)	$	711,141	$	9,799	$	720,940		$	115,513
Net income (loss)	—	—			—		99,555		—		—	—		99,555		345		99,900			28,411
Foreign currency translation adjustments	—	—			—		—		6		—	—		6		—		6			—
Net subscriptions (redemptions) and other	—	—			—		—		—		—	—		—		(1,176)		(1,176)			(12,399)




Cash dividends declared ($1.64 per common share)	—	—			(13,300)		—		—		—	—		(13,300)		—		(13,300)			—
Repurchases of common shares	(46,833)	—			—		—		—		46,833	(12,499)		(12,499)		—		(12,499)			—
Issuance of common shares related to employee stock transactions	114,973	1			65		—		—		—	—		66		—		66			—
Taxes paid on stock-based compensation	—	—			(19,280)		—		—		—	—		(19,280)		—		(19,280)			—
Stock-based compensation	—	—			15,180		—		—		—	—		15,180		—		15,180			—
Balances at June 30, 2021	7,651,606	$	119		$	1,280,667	$	(35,704)	$	35	4,254,236	$	(464,248)	$	780,869	$	8,968	$	789,837		$	131,525
Balances at December 31, 2021	7,506,151	$	119		$	1,276,424	$	60,962	$	20	4,400,596	$	(509,248)	$	828,277	$	8,350	$	836,627		$	138,965

Net income (loss)	—	—			—		50,461		—		—	—		50,461		(335)		50,126			3,252

Foreign currency translation adjustments	—	—			—		—		(287)		—	—		(287)		—		(287)			—
Net subscriptions (redemptions) and other	—	—			—		—		—		—	—		—		(1,018)		(1,018)			(3,070)




Cash dividends declared ($3.00 per common share)	—	—			—		(23,227)		—		—	—		(23,227)		—		(23,227)			—
Repurchases of common shares	(347,355)	—			—		—		—		347,355	(70,000)		(70,000)		—		(70,000)			—
Issuance of common shares related to employee stock transactions	116,541	1			(1)		—		—		—	—		—		—		—			—
Taxes paid on stock-based compensation	—	—			(15,284)		—		—		—	—		(15,284)				(15,284)			—
Stock-based compensation	—	—			14,768		—		—		—	—		14,768		—		14,768			—
Balances at June 30, 2022	7,275,337	$	120		$	1,275,907	$	88,196	$	(267)	4,747,951	$	(579,248)	$	784,708	$	6,997	$	791,705		$	139,147

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

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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 ("U.S. retail funds"), as amended; 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 six months ended June 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 ("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 June 30,				Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Investment management fees
Open-end funds	$	84,875	$	97,273	$	182,252	$	186,393
Closed-end funds	16,174		16,395		33,114		29,335

Retail separate accounts	45,312		42,475		94,915		79,987
Institutional accounts	38,663		37,367		81,560		71,064



Total investment management fees	$	185,024	$	193,510	$	391,841	$	366,779

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4. Acquisitions

Stone Harbor Investment Partners

On January 1, 2022, the Company completed the acquisition of Stone Harbor Investment Partners, LLC ("Stone Harbor"), which was accounted for in accordance with ASC 805, Business Combinations ("ASC 805"). The initial transaction consideration of $29.4 million was allocated to the assets acquired and liabilities assumed, based upon their estimated fair values at the date of the acquisition, as well as goodwill of $8.8 million and definite-lived intangible assets of $10.8 million. The Company expects $19.6 million of the purchase price to be tax deductible over 15 years. The transaction consideration allocation is based upon preliminary information and is subject to change if additional information becomes available. The final fair value of the net assets acquired may result in adjustments to certain assets and liabilities, including goodwill. The revenues and operating income of Stone Harbor were not material to the Company's results of operations for the three and six months ended June 30, 2022.

Transaction consideration consisted of $28.2 million in cash paid at closing and $1.2 million in contingent consideration recorded at fair value, which represents future potential earn-out payments based on pre-established performance metrics related to revenue retention and revenue growth rates. Future contingent consideration will be paid, if earned, in 2023, 2026 and 2027. The contingent consideration has been accounted for as a liability within contingent consideration on the Company's Condensed Consolidated Balance Sheet.

The following table summarizes the identified acquired assets and liabilities assumed as of the Stone Harbor acquisition date:


	January 1, 2022
	(in thousands)
Assets:
Cash and cash equivalents	$	8,443
Intangible assets	10,800
Goodwill	8,846
Other assets	55,129
Total Assets