10-Q 1 vrts-20220630.htm 10-Q VRTS 06.30.2022 vrts-20220630
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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 June 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
 
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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 filerAccelerated filer
Non-accelerated filerSmaller 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.










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)June 30,
2022
December 31,
2021
Assets:
Cash and cash equivalents$250,530 $378,921 
Investments102,840 108,890 
Accounts receivable, net108,248 123,873 
Assets of consolidated investment products ("CIP")
Cash and cash equivalents of CIP107,674 206,620 
Cash pledged or on deposit of CIP627 604 
Investments of CIP1,990,159 2,140,238 
Other assets of CIP17,041 44,210 
Furniture, equipment and leasehold improvements, net19,016 12,542 
Intangible assets, net482,085 500,571 
Goodwill347,423 338,406 
Deferred taxes, net21,721 19,204 
Other assets96,551 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 liabilities40,800 48,496 
Dividends payable13,861 14,824 
Contingent consideration (Note 4)133,628 162,564 
Debt255,832 266,346 
Other liabilities93,502 60,225 
Liabilities of CIP
Notes payable of CIP1,904,444 2,033,617 
Securities purchased payable and other liabilities of CIP65,890 185,068 
Total liabilities2,613,063 2,958,589 
Commitments and Contingencies (Note 14)
Redeemable noncontrolling interests139,147 138,965 
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 capital1,275,907 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 interests6,997 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.
1

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)2022202120222021
Revenues
Investment management fees$185,024 $193,510 $391,841 $366,779 
Distribution and service fees17,159 23,450 37,166 43,798 
Administration and shareholder service fees21,982 25,877 46,326 48,437 
Other income and fees1,142 1,174 2,414 1,894 
Total revenues225,307 244,011 477,747 460,908 
Operating Expenses
Employment expenses89,360 87,630 195,353 179,389 
Distribution and other asset-based expenses28,583 36,021 61,429 68,315 
Other operating expenses31,559 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 consideration2,900  2,900  
Depreciation expense962 981 1,897 2,079 
Amortization expense14,624 10,363 29,286 19,828 
Total operating expenses168,637 157,600 355,525 312,355 
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), net571 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 income529 166 857 302 
Interest and dividend income of investments of CIP22,412 22,562 42,792 46,438 
Interest expense of CIP(14,416)(14,452)(26,504)(28,900)
Total interest income (expense), net5,700 6,020 12,041 13,270 
Income (Loss) Before Income Taxes30,739 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 interests3,143 (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—Basic7,449 7,698 7,496 7,674 
Weighted Average Shares Outstanding—Diluted7,607 8,007 7,721 8,038 

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
June 30,
Six Months Ended
June 30,
(in thousands)2022202120222021
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 interests3,143 (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.
3

Virtus Investment Partners, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

 Six Months Ended
June 30,
(in thousands)20222021
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 amortization32,223 23,196 
Stock-based compensation14,119 15,844 
Amortization of deferred commissions2,700 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, net13,562 (3,381)
Distributions from equity method investments2,102 1,908 
Sales (purchases) of investments, net(9,952)(3,395)
Change in fair value of contingent consideration2,900  
Deferred taxes, net(2,271)(1,518)
Changes in operating assets and liabilities:
Accounts receivable, net and other assets31,069 (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, net33,715 (1,961)
Purchases of investments by CIP(441,042)(664,837)
Sales of investments by CIP417,706 790,575 
Net proceeds (purchases) of short-term investments and securities sold short by CIP(45)15,103 
Change in other assets and liabilities of CIP967 (471)
Net cash provided by (used in) operating activities37,611 239,180 
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 period586,145 339,849 
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 CIP107,674 206,620 
Cash pledged or on deposit of CIP627 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.
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 March 31, 20217,649,679 $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 transactions28,848 — — — — — —  —  — 
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, 20217,651,606 $119 $1,280,667 $(35,704)$35 4,254,236 $(464,248)$780,869 $8,968 $789,837 $131,525 
Balances at March 31, 20227,472,829 $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 transactions24,411 — — — — — —  —  — 
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, 20227,275,337 $120 $1,275,907 $88,196 $(267)4,747,951 $(579,248)$784,708 $6,997 $791,705 $139,147 

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)— — — 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 transactions114,973 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, 20217,651,606 $119 $1,280,667 $(35,704)$35 4,254,236 $(464,248)$780,869 $8,968 $789,837 $131,525 
Balances at December 31, 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)— — — 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 transactions116,541 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, 20227,275,337 $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.

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 ("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)2022202120222021
Investment management fees
Open-end funds$84,875 $97,273 $182,252 $186,393 
Closed-end funds16,174 16,395 33,114 29,335 
Retail separate accounts45,312 42,475 94,915 79,987 
Institutional accounts38,663 37,367 81,560 71,064 
Total investment management fees$185,024 $193,510 $391,841 $366,779 
    

6

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