Virtus Investment Partners Announces Financial Results for the Second Quarter 2015

- Earnings per Diluted Share, As Adjusted, of $2.21 Compared with $2.37 in Prior-Year Quarter; Earnings per Diluted Share of $1.08 Include ($0.82) Increase to Loss Contingency

- Operating Income, As Adjusted, of $31.4 Million in Second Quarter Compared with $35.3 Million in Prior-Year Quarter; Operating Income of $16.2 Million

- Total Sales of $3.3 Billion in Second Quarter Compared with $4.0 Billion in Prior-Year Quarter; Net Flows of ($1.3) Billion in Second Quarter Compared with $1.0 Billion in Prior-Year Quarter

- Assets Under Management of $52.4 Billion at June 30, 2015 Compared with $60.1 Billion at June 30, 2014

Jul 31, 2015, 07:30 ET from Virtus Investment Partners, Inc.

HARTFORD, Conn., July 31, 2015 /PRNewswire/ -- Virtus Investment Partners, Inc. (NASDAQ: VRTS), which operates a multi-manager asset management business, today reported financial results for the three months ended June 30, 2015.

Management Commentary

"The second quarter results reflect net outflows in the former AlphaSector funds, which were significantly lower than the first quarter. These outflows overshadowed strength and positive flows in our other mutual funds and all additional product categories including institutional, high net worth and ETFs," said George Aylward, president and chief executive officer. "Total net flows of ($1.3) billion improved sequentially from ($2.2) billion and were positive $0.8 billion excluding the former AlphaSector funds."

"Earnings per share, as adjusted, were relatively unchanged from the prior quarter, reflecting lower revenues, as adjusted, partially offset by the variability of our cost structure and a reduced share count, resulting from our high level of share repurchases over the past several quarters. Operating margin, as adjusted, remained strong at 41 percent."

"We returned $18.7 million of capital to shareholders in the quarter, bringing the year-to-date payout to more than 100 percent of net income, as adjusted. Our balance sheet remained strong in the quarter with cash and investments of $52 on a per share basis, which also provides operating flexibility to invest in growth."

"We continued to expand our product and investment capabilities with the introduction of a globally unconstrained target-return fund managed by Aviva Investors and a distressed credit strategy from our Newfleet affiliate. These new product introductions and high levels of share repurchases illustrate our focus on effectively balancing the growth of the business with a meaningful return of capital to shareholders," concluded Aylward.

Financial Highlights (Unaudited)

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

Three Months Ended

Three Months Ended

Six Months Ended

6/30/2015

6/30/2014

Change

3/31/2015

Change

6/30/2015

6/30/2014

Change

Non-GAAP Financial Measures (1) (in millions)

Revenues, as adjusted

$           77.5

$           83.2

(7)%

$           79.7

(3)%

$         157.3

$         163.3

(4)%

Operating expenses, as adjusted

$           46.1

$           47.9

(4)%

$           47.6

(3)%

$           93.7

$           93.7

-

Operating income, as adjusted

$           31.4

$           35.3

(11)%

$           32.2

(2)%

$           63.6

$           69.7

(9)%

Operating margin, as adjusted

40.5%

42.4%

40.3%

40.4%

42.7%

Net income attributable to common stockholders, as adjusted

$           20.0

$           22.1

(10)%

$           20.3

(2)%

$           40.3

$           43.5

(7)%

Earnings per share - diluted, as adjusted

$           2.21

$           2.37

(7)%

$           2.22

-

$           4.43

$           4.66

(5)%

U.S. GAAP Financial Measures (in millions)

Revenues

$           99.7

$         112.7

(12)%

$         103.8

(4)%

$         203.5

$         220.6

(8)%

Operating expenses

$           83.4

$           90.2

(8)%

$           79.3

5%

$         162.7

$         165.5

(2)%

Operating income

$           16.2

$           22.5

(28)%

$           24.5

(34)%

$           40.8

$           55.1

(26)%

Operating margin

16.3%

20.0%

23.6%

20.0%

25.0%

Net income attributable to common stockholders

$             9.8

$           19.5

(50)%

$           19.3

(49)%

$           29.1

$           41.5

(30)%

Earnings per share - diluted

$           1.08

$           2.10

(48)%

$           2.11

(49)%

$           3.20

$           4.44

(28)%

Assets Under Management and Flows (in billions)

Ending Assets Under Management (2)

$           52.4

$           60.1

(13)%

$           54.8

(4)%

$           52.4

$           60.1

(13)%

Average Assets Under Management (2)

$           54.4

$           57.7

(6)%

$           55.7

(2)%

$           55.1

$           56.7

(3)%

Gross Sales

$             3.3

$             4.0

(19)%

$             3.7

(12)%

$             7.0

$             8.3

(16)%

Net Flows

$           (1.3)

$             1.0

N/M

$           (2.2)

38%

$           (3.5)

$             0.5

N/M

(1) See the information on pages 11 through 15 for a reconciliation to their most directly comparable U.S. GAAP measures and the notes beginning on page 16 for other

important disclosures.

(2) Represents assets under management excluding money market funds that were liquidated in October 2014

N/M - Not Meaningful

Asset Flows and Assets Under Management

Total assets under management were $52.4 billion at June 30, 2015 compared with $60.1 billion at June 30, 2014 and $54.8 billion at March 31, 2015. The decrease from the prior periods is primarily attributable to net outflows and market depreciation.

Total sales were $3.3 billion in the second quarter of 2015, a 19 percent decrease from $4.0 billion in the prior-year quarter and a 12 percent decrease from the sequential quarter. Net flows were ($1.3) billion in the second quarter compared with $1.0 billion in the prior-year quarter and ($2.2) billion in the sequential quarter. Net outflows in the quarter were attributable to open-end mutual funds, which offset positive flows in all other product categories.

Open-end mutual fund sales were $2.6 billion in the second quarter compared with $3.2 billion in the prior-year quarter and $3.0 billion in the sequential quarter. The decrease from prior periods reflects lower sales in the primary asset classes other than international equity, which had higher sales. Open-end net flows were ($1.6) billion in the second quarter compared with $0.7 billion in the prior-year quarter and ($2.4) billion in the sequential quarter. Net outflows in the current quarter were primarily attributable to $2.1 billion of net outflows in the former AlphaSector funds compared with $2.9 billion of net outflows in the first quarter of 2015. Mutual fund net flows, excluding the former AlphaSector funds, were positive and increased 26 percent sequentially to $0.6 billion, representing an 8 percent organic growth rate.

ETF net flows were $55.5 million in the quarter with ending assets under management of $132.6 million. As previously noted, the company completed its acquisition of a majority interest in Virtus ETF Solutions (formerly known as ETF Issuer Solutions), which had $77.8 million in assets under management at the time of the acquisition on April 10.

Institutional sales were $214.1 million in the quarter, an increase of 100 percent from $106.8 million in the prior-year quarter and a decrease of 42 percent from $368.1 million in the sequential quarter. Net flows were $126.8 million in the second quarter, an increase from ($31.1) million in the prior-year quarter and a decrease from $220.9 million in the sequential quarter. Positive net flows in the quarter were primarily attributable to existing subadvisory relationships.

Earnings Summary

Non-GAAP Results

Management believes that a series of non-GAAP financial measures most accurately 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. Quarterly reconciliations of the most comparable U.S. GAAP measure to each non-GAAP measure can be found on pages 11 to 15 of this earnings release.

Revenues, As Adjusted

Total revenues, as adjusted, were $77.5 million in the second quarter compared with $83.2 million in the prior-year quarter and $79.7 million in the sequential quarter. The decline from the prior periods reflects lower investment management and administration and transfer agent fees.

Investment management fees, as adjusted, were $70.3 million in the second quarter compared with $74.6 million in the prior-year quarter and $70.8 million in the sequential quarter. Average assets under management were $54.4 billion in the quarter, a decrease of 6 percent from $57.7 million in the prior-year quarter and 2 percent from $55.7 billion in the sequential quarter. The average fee rate of 50.7 basis points was unchanged from the prior-year quarter and declined from 51.5 basis points sequentially.

Administration and transfer agent fees, as adjusted, were $12.7 million in the second quarter, a decrease of 10 percent from $14.0 million in the prior-year quarter and 3 percent from $13.1 million sequentially. The sequential quarter decrease reflects the decline in average open-end fund assets.

Operating Expenses, As Adjusted

Total operating expenses, as adjusted, were $46.1 million in the second quarter, a decrease of 4 percent from $47.9 million in the prior-year quarter and a decrease of 3 percent from $47.6 million in the sequential quarter. The decrease over the prior-year quarter reflects lower employment expenses; the sequential quarter decline reflects lower employment and other operating expenses, as adjusted.

Employment expenses, as adjusted, were $33.6 million in the second quarter, a decrease of 3 percent from $34.6 million in the prior-year quarter and 6 percent from $35.6 million in the sequential quarter. The decrease over the prior-year quarter was attributable to lower variable compensation, both sales-based and profit-based, partially offset by higher staffing levels. The sequential quarter decrease primarily reflects lower payroll taxes due to the payment of annual incentive compensation in the first quarter.

Other operating expenses, as adjusted, were $11.6 million in the second quarter, compared with $12.7 million in the prior-year quarter and $11.2 million in the sequential quarter. Second quarter 2014 other operating expenses, as adjusted, were elevated due to new product introductions and other activities.  The increase over the sequential quarter primarily reflects the timing of annual equity grants to the Board of Directors, partially offset by lower professional fees.

Operating Income, As Adjusted, and Related Margin

Operating income, as adjusted, was $31.4 million for the second quarter of 2015, compared with $35.3 million in the prior-year quarter and $32.2 million in the sequential quarter. The related margin was 41 percent, compared with 42 percent and 40 percent for the respective prior quarters.

Net Income Attributable to Common Stockholders, As Adjusted

Net income attributable to common stockholders, as adjusted, was $20.0 million, or $2.21 per diluted share, compared with $22.1 million or $2.37 per share in the prior-year quarter.  Net income attributable to common stockholders, as adjusted, was $20.3 million or $2.22 per share in the first quarter of 2015.

Effective Tax Rate, As Adjusted

The second quarter effective tax rate of 38 percent was unchanged from the prior-year and sequential quarters.

GAAP Results

Total revenues were $99.7 million in the second quarter, a decrease of 12 percent from $112.7 million in the prior-year quarter and 4 percent from $103.8 million in the sequential quarter due to lower average assets and changes in fee rates.

Operating expenses were $83.4 million in the second quarter, a decrease of 8 percent from $90.2 million in the prior-year quarter and an increase of 5 percent from $79.3 million in the sequential quarter. Current quarter operating expenses reflect an $11.3 million increase to the loss contingency of $5.2 million that was recorded in the first quarter of 2015, related to a previously disclosed regulatory matter. Operating expenses decreased from the prior-year quarter due to $10.1 million of closed-end fund launch costs that were incurred in the second quarter of 2014.

Net income attributable to common stockholders was $9.8 million or $1.08 per fully diluted common share for the second quarter, which includes the $7.4 million or ($0.82) per share after-tax loss contingency, compared with $19.5 million or $2.10 per share in the prior-year quarter, and $19.3 million or $2.11 per share in the sequential quarter, which included $3.6 million or ($0.39) per share after-tax, for the loss contingency. The aggregate $11.0 million or ($1.21) per share after-tax loss contingency reflects the most likely loss associated with this matter.  However, the company cannot provide any assurance that a resolution related to this matter will be reached or that any associated loss will not exceed the loss contingency recorded.

Earnings per diluted share included returns on seed capital investments, including gains and losses (realized and unrealized), dividends and interest income of ($0.13) in the second quarter, $0.51 in the prior-year quarter and $0.37 in the sequential quarter.

The effective second quarter tax rate was 46 percent, an increase from 38 percent in the prior-year quarter and 36 percent in the sequential quarter. The current quarter tax rate was primarily impacted by a $0.8 million valuation allowance related to marketable securities and the impact of consolidated sponsored investment products.

Investment Capabilities and Products

In June, the company introduced the Virtus Credit Opportunities Fund1 (Class I: VCOIX) managed by its proprietary fixed income affiliate Newfleet Asset Management. The fund intends to generate long-term total return from a combination of capital appreciation and interest by seeking the best opportunities in distressed, stressed and performing credit.

The Virtus Multi-Strategy Target Return Fund2 (Class I: VMSIX), managed by Aviva Investors3, became available to investors in July. The fund seeks to provide compelling risk-adjusted global equity returns over a rolling three year period by employing a fundamental research strategy to construct an unconstrained portfolio of global equities, bonds and derivatives.

Balance Sheet and Liquidity

Cash and investments were $455.5 million at June 30, 2015 compared with $423.1 million at June 30, 2014 and $430.2 million at March 31, 2015. The increase over the prior periods reflects cash generated partially offset by return of capital to shareholders. On a per share basis, cash and investments in the second quarter were $52 compared with $46 in the prior-year quarter and $48 in the sequential quarter. At June 30, 2015 the company had no debt outstanding and $75 million of unused capacity on its credit facility.

The company's seed capital investments increased to $238.9 million at June 30, 2015 from $223.9 million at June 30, 2014 and compared with $241.8 million at March 31, 2015. The change from the prior-year quarter reflects $20.7 million of net seed activity, partially offset by the returns of the seed investments. On July 20, the company made a $50.0 million seed investment in the Virtus Multi-Strategy Target Return Fund.

Working capital was $185.3 million at June 30, 2015, compared with $186.2 million at June 30, 2014 and $187.0 million at March 31, 2015.

In the second quarter of 2015, the company returned $18.7 million to shareholders, which included $14.0 million in repurchases of common stock.  As a result of the share repurchase program, basic shares outstanding decreased by 3 percent to 8.8 million from 9.1 million in the prior-year quarter.

Balance Sheet Highlights (Unaudited)

(in millions)

As of

As of

6/30/2015

6/30/2014

Change

3/31/2015

Change

Cash and cash equivalents

$             194.3

$             170.4

14%

$             166.0

17%

Seed capital investments (1)

238.9

223.9

7%

241.8

(1)%

Investments - other (2)

22.3

28.8

(23)%

22.4

-

     Total - cash and investments

$             455.5

$             423.1

8%

$             430.2

6%

Deferred taxes, net

$               59.8

$               57.1

5%

$               58.0

3%

Dividends payable

$                 4.3

$                 4.2

2%

$                 4.2

-

Total equity attributable to stockholders

$             559.4

$             514.5

9%

$             565.4

(1)%

Working capital (3)

$             185.3

$             186.2

-

$             187.0

(1)%

(1) Represents the company's investments in sponsored investment products including the company's investment in consolidated sponsored investment products (CSIPs), net of non-controlling interests. For the periods ending June 30, 2015, June 30, 2014, and March 31, 2015, net assets of CSIPs represent $292.2 million, $222.7 million, and $274.7 million, of total assets, $19.5 million, $16.0 million, and $16.5 million of total liabilities, and $55.6 million, $10.4 million, and $35.0 million of redeemable noncontrolling interests, respectively

(2) Liquid investments that are not related to the company's seed investments

(3) Defined as cash and investments plus accounts receivable, net, less seed capital investments, accrued compensation and benefits, accounts payable and accrued liabilities, and dividends payable

Conference Call

Virtus Investment Partners management will host an investor conference call on Friday, July 31, at 9 a.m. Eastern to discuss these financial results and related matters. The webcast of the call will be available 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. (passcode: 91087321). A replay of the call will be available through September 1 in the Investor Relations section or by or by telephone at 855-859-2056 if calling from within the U.S. or 404-537-3406 if calling from outside the U.S. (passcode: 91087321). The presentation that will be reviewed as part of the conference call will be available in the Presentations section of www.virtus.com.

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. Virtus offers access to a variety of investment styles across multiple disciplines to meet a wide array of investor needs, and provides products and services through affiliated managers and select subadvisers, each with a distinct investment style, autonomous investment process, and individual brand. Its affiliates include Cliffwater Investments, Duff & Phelps Investment Management, Virtus ETF Solutions, Euclid Advisors, Kayne Anderson Rudnick Investment Management, Kleinwort Benson Investors International, Newfleet Asset Management, Newfound Investments, Rampart Investment Management and Zweig Advisers. Additional information can be found at www.virtus.com.

U.S. GAAP Consolidated Statements of Operations

(in thousands, except per share data)

Three Months Ended

Three Months Ended

Six Months Ended

6/30/2015

6/30/2014

Change

3/31/2015

Change

6/30/2015

6/30/2014

Change

Revenues

Investment management fees

$       68,867

$       74,537

(8)%

$                         70,496

(2)%

$     139,363

$     146,329

(5)%

Distribution and service fees

17,635

23,940

(26)%

19,598

(10)%

37,233

46,378

(20)%

Administration and transfer agent fees

12,577

13,942

(10)%

13,042

(4)%

25,619

27,015

(5)%

Other income and fees

577

330

75%

695

(17)%

1,272

898

42%

     Total revenues

99,656

112,749

(12)%

103,831

(4)%

203,487

220,620

(8)%

Operating Expenses

Employment expenses

33,593

35,481

(5)%

35,622

(6)%

69,215

70,510

(2)%

Distribution and other asset-based expenses

23,676

39,222

(40)%

24,507

(3)%

48,183

66,959

(28)%

Other operating expenses

23,512

13,130

79%

16,726

41%

40,238

23,664

70%

Other operating expenses of CSIPs

957

797

20%

818

17%

1,775

1,128

57%

Depreciation and other amortization

873

670

30%

779

12%

1,652

1,327

25%

Amortization expense

837

947

(12)%

837

-

1,674

1,904

(12)%

     Total operating expenses

83,448

90,247

(8)%

79,289

5%

162,737

165,492

(2)%

Operating Income

16,208

22,502

(28)%

24,542

(34)%

40,750

55,128

(26)%

Other Income (Expense)

Realized and unrealized gain (loss) on investments, net

343

905

(62)%

545

(37)%

888

2,751

(68)%

Realized and unrealized (loss) gain on investments

     of consolidated sponsored investment products, net

(3,242)

6,444

N/M

2,590

N/M

(652)

6,480

N/M

Other income, net

247

189

31%

435

(43)%

682

340

101%

     Total other (expense) income, net

(2,652)

7,538

N/M

3,570

N/M

918

9,571

(90)%

Interest Income (Expense)

Interest expense

(121)

(125)

4%

(123)

2%

(244)

(263)

7%

Interest and dividend income

302

344

(12)%

280

8%

582

727

(20)%

Interest and dividend income of investments

     of consolidated sponsored investment products

3,098

1,639

89%

2,324

33%

5,422

2,512

116%

     Total interest income, net

3,279

1,858

76%

2,481

32%

5,760

2,976

94%

Income Before Income Taxes

16,835

31,898

(47)%

30,593

(45)%

47,428

67,675

(30)%

Income tax expenses

7,823

12,106

(35)%

10,868

(28)%

18,691

26,116

(28)%

Net Income

9,012

19,792

(54)%

19,725

(54)%

28,737

41,559

(31)%

Noncontrolling interests

765

(249)

N/M

(383)

N/M

382

(78)

N/M

Net Income Attributable to Common Stockholders

$         9,777

$       19,543

(50)%

$                         19,342

(49)%

$       29,119

$       41,481

(30)%

Earnings Per Share - Basic

$           1.10

$           2.14

(49)%

$                             2.16

(49)%

$           3.26

$           4.55

(28)%

Earnings Per Share - Diluted

$           1.08

$           2.10

(48)%

$                             2.11

(49)%

$           3.20

$           4.44

(28)%

Cash Dividends Declared Per Share

$           0.45

$           0.45

-

$                             0.45

-

$           1.35

$           0.45

200%

Weighted Average Shares Outstanding - Basic

8,889

9,133

(3)%

8,964

(1)%

8,927

9,125

(2)%

Weighted Average Shares Outstanding - Diluted

9,037

9,325

(3)%

9,151

(1)%

9,094

9,343

(3)%

 

Non-GAAP Consolidated Income Statement Information

(in thousands, except per share data)

Three Months Ended

Three Months Ended

Six Months Ended

6/30/2015

6/30/2014

Change

3/31/2015

Change

6/30/2015

6/30/2014

Change

Revenues, As Adjusted

Investment management fees, as adjusted

$       70,321

$       74,600

(6)%

$                          70,801

(1)%

$     141,122

$     146,344

(4)%

Distribution and service fees, as adjusted

17,658

23,947

(26)%

19,618

(10)%

37,276

46,398

(20)%

Administration and transfer agent fees, as adjusted

12,662

13,994

(10)%

13,119

(3)%

25,781

27,086

(5)%

Other income and fees, as adjusted

577

330

75%

695

(17)%

1,272

898

42%

Distribution and other asset-based expenses, as adjusted

(23,676)

(29,646)

20%

(24,507)

3%

(48,183)

(57,383)

16%

     Total revenues, as adjusted

77,542

83,225

(7)%

79,726

(3)%

157,268

163,343

(4)%

Operating Expenses, As Adjusted

Employment expenses, as adjusted

33,593

34,605

(3)%

35,622

(6)%

69,215

69,142

-

Other operating expenses, as adjusted

11,643

12,655

(8)%

11,175

4%

22,818

23,189

(2)%

Depreciation and other amortization, as adjusted

873

670

30%

779

12%

1,652

1,327

24%

     Total operating expenses, as adjusted

46,109

47,930

(4)%

47,576

(3)%

93,685

93,658

-

Operating Income, As Adjusted

31,433

35,295

(11)%

32,150

(2)%

63,583

69,685

(9)%

Other Income (Expense), as adjusted

Realized and unrealized gain (loss) on investments, net, as adjusted

224

153

46%

119

88%

343

259

32%

Other income, net, as adjusted

247

189

31%

435

(43)%

682

340

101%

     Total other income, net, as adjusted

471

342

38%

554

(15)%

1,025

599

71%

Interest Income (Expense), as adjusted

Interest expense, as adjusted

(121)

(125)

3%

(123)

2%

(244)

(263)

7%

Interest and dividend income, as adjusted

175

243

(28)%

217

(19)%

392

462

(15)%

     Total interest income, net, as adjusted

54

118

(54)%

94

(43)%

148

199

(26)%

Pre-Tax Income, As Adjusted

31,958

35,755

(11)%

32,798

(3)%

64,756

70,483

(8)%

Income tax expense, as adjusted

12,127

13,690

(11)%

12,500

(3)%

24,627

26,994

(9)%

Net Income, As Adjusted

19,831

22,065

(10)%

20,298

(2)%

40,129

43,489

(8)%

Noncontrolling interests, as adjusted

165

31

432%

34

385%

199

41

385%

Net Income Attributable to Common Stockholders, As Adjusted

$       19,996

$       22,096

(10)%

$                          20,332

(2)%

$       40,328

$       43,530

(7)%

Earnings Per Share - Basic, As Adjusted

$           2.25

$           2.42

(7)%

$                              2.27

(1)%

$           4.52

$           4.77

(5)%

Earnings Per Share - Diluted, As Adjusted

$           2.21

$           2.37

(7)%

$                              2.22

-

$           4.43

$           4.66

(5)%

Weighted Average Shares Outstanding - Basic

8,889

9,133

(3)%

8,964

(1)%

8,927

9,125

(2)%

Weighted Average Shares Outstanding - Diluted

9,037

9,325

(3)%

9,151

(1)%

9,094

9,343

(3)%

 

Assets Under Management - Product and Asset Class

(in millions)

Three Months Ended

Jun 30, 2015

Mar 31, 2015

Dec 31, 2014

Sep 30, 2014

Jun 30, 2014

By product (period end):

Open-End Funds (1)

$     33,345.3

$     35,317.8

$     37,514.2

$     41,076.3

$     41,124.6

Closed-End Funds

6,901.0

7,288.0

7,581.4

7,568.1

7,530.6

Exchange-Traded Funds

132.6

-

-

-

-

Money Market Funds

-

-

-

1,231.9

1,311.7

Separately Managed Accounts (2)

6,952.1

7,131.0

6,884.8

6,653.0

6,862.4

Institutional Accounts (2)

5,070.0

5,036.2

4,722.0

4,348.3

4,565.0

Total

$     52,401.0

$     54,773.0

$     56,702.4

$     60,877.6

$     61,394.3

By product (average) (3)

Open-End Funds (1)

$     34,852.2

$     36,663.7

$     39,550.2

$     41,639.6

$     39,654.8

Closed-End Funds

7,256.5

7,435.8

7,551.8

7,571.4

6,805.1

Exchange-Traded Funds

103.9

-

-

-

-

Money Market Funds

-

-

176.5

1,310.1

1,317.1

Separately Managed Accounts (2)

7,125.3

6,846.3

6,620.4

6,793.5

6,700.0

Institutional Accounts (2)

5,054.8

4,786.7

4,602.6

4,483.6

4,538.4

Total

$     54,392.7

$     55,732.5

$     58,501.5

$     61,798.2

$     59,015.4

By asset class (period end):

Equity

$     31,908.8

$     33,129.0

$     34,180.7

$     35,573.6

$     35,842.5

Fixed Income

16,010.8

16,521.1

16,681.6

16,671.0

16,750.2

Alternatives (4)

4,031.2

4,703.8

5,372.4

6,769.5

6,744.8

Other (5)

450.2

419.1

467.7

1,863.5

2,056.8

Total

$     52,401.0

$     54,773.0

$     56,702.4

$     60,877.6

$     61,394.3

 

Assets Under Management - Average Net Management Fees Earned (6)

(In basis points)

Three Months Ended

Jun 30, 2015

Mar 31, 2015

Dec 31, 2014

Sep 30, 2014

Jun 30, 2014

Open-End Funds (1)

49.2

49.9

50.6

50.8

51.6

Closed-End Funds

66.9

66.7

67.2

67.1

63.6

Exchange-Traded Funds

8.9

-

-

-

-

Money Market Funds

-

-

-

-

0.1

Separately Managed Accounts (2)

53.5

54.2

51.7

51.3

52.4

Institutional Accounts (2)

34.9

36.3

35.2

34.8

35.7

All Products

50.7

51.5

51.5

50.6

50.7

(1) Includes assets under management of open-end and variable insurance funds 

(2) Includes assets under management related to option strategies

(3) Averages are calculated as follows:

   - Funds - average daily or weekly balances

   - Separately Managed Accounts - prior quarter ending balance or average of month-end balances in quarter

   - Institutional Accounts - average of month-end balances in quarter

(4) Consists of long/short equity, real estate, master-limited partnerships, and other

(5) Consists of cash management and option strategies; as of December 31, 2014 only reflects options strategies. Cash management strategies were $1,340.7 and $1,448.9 for the periods ended September 30, 2014 and June 30, 2014, respectively.

(6) Represents net investment management fees divided by average assets. Net investment management fees are defined as investment management fees, as adjusted, less fees paid to third party service providers for investment management related services.

 

Assets Under Management - Asset Flows by Product

(in millions)

Three Months Ended

Six Months Ended

6/30/2015

3/31/2015

12/31/2014

9/30/2014

6/30/2014

6/30/2015

6/30/2014

Open-End Funds (1)

Beginning balance

$    35,317.8

$    37,514.2

$    41,076.3

$    41,124.6

$    38,633.6

$    37,514.2

$    37,679.5

Inflows

2,619.5

3,014.2

2,856.2

3,055.2

3,169.4

5,633.7

6,822.3

Outflows

(4,174.5)

(5,398.0)

(5,090.2)

(2,442.2)

(2,451.3)

(9,572.5)

(5,895.7)

Net flows

(1,555.0)

(2,383.8)

(2,234.0)

613.0

718.1

(3,938.8)

926.6

Market performance

(352.9)

197.1

(348.1)

(727.3)

1,702.8

(155.8)

2,372.6

Other (2)

(64.6)

(9.7)

(980.0)

66.0

70.1

(74.3)

145.9

Ending balance

$  33,345.3

$  35,317.8

$  37,514.2

$  41,076.3

$ 41,124.6

$  33,345.3

$  41,124.6

Closed-End Funds

Beginning balance

$      7,288.0

$      7,581.4

$      7,568.1

$      7,530.6

$      6,690.7

$      7,581.4

$      6,499.6

Inflows

-

-

-

30.5

463.3

-

463.3

Outflows

-

-

-

-

-

-

-

Net flows

-

-

-

30.5

463.3

-

463.3

Market performance

(281.6)

(168.6)

123.2

(98.4)

475.6

(450.2)

774.5

Other (2)

(105.4)

(124.8)

(109.9)

105.4

(99.0)

(230.2)

(206.8)

Ending balance

$    6,901.0

$    7,288.0

$    7,581.4

$    7,568.1

$    7,530.6

$    6,901.0

$    7,530.6

Exchange-Traded Funds

Beginning balance

$               -

$               -

$               -

$               -

$              -

$               -

$               -

Inflows

67.4

-

-

-

-

67.4

-

Outflows

(12.2)

-

-

-

-

(12.2)

-

Net flows

55.2

-

-

-

-

55.2

-

Market performance

(0.4)

-

-

-

-

(0.4)

-

Other (2)

77.8

-

-

-

-

77.8

-

Ending balance

$       132.6

$              -

$              -

$              -

$              -

$       132.6

$              -

Money Market Funds

Beginning balance

$               -

$               -

$      1,231.9

$      1,311.7

$      1,378.0

$               -

$      1,556.6

Other (2)

-

-

(1,231.9)

(79.8)

(66.3)

-

(244.9)

Ending balance

$              -

$              -

$              -

$    1,231.9

$    1,311.7

$              -

$    1,311.7

Separately Managed Accounts (3)

Beginning balance

$      7,131.0

$      6,884.8

$      6,653.0

$      6,862.4

$      6,778.4

$      6,884.8

$      7,433.1

Inflows

366.8

328.5

263.7

319.2

278.8

695.3

750.7

Outflows

(342.2)

(355.3)

(412.5)

(343.3)

(461.0)

(697.5)

(1,489.0)

Net flows

24.6

(26.8)

(148.8)

(24.1)

(182.2)

(2.2)

(738.3)

Market performance

(65.5)

177.4

397.6

(180.5)

238.5

111.9

138.4

Other (2)

(138.0)

95.6

(17.0)

(4.8)

27.7

(42.4)

29.2

Ending balance

$    6,952.1

$    7,131.0

$    6,884.8

$    6,653.0

$    6,862.4

$    6,952.1

$    6,862.4

Institutional Accounts (3)

Beginning balance

$      5,036.2

$      4,722.0

$      4,348.3

$      4,565.0

$      4,530.5

$      4,722.0

$      4,570.8

Inflows

214.1

368.1

309.9

109.4

106.8

582.2

231.2

Outflows

(87.3)

(147.2)

(132.1)

(236.5)

(137.9)

(234.5)

(374.4)

Net flows

126.8

220.9

177.8

(127.1)

(31.1)

347.7

(143.2)

Market performance

(81.9)

117.6

216.8

(45.6)

131.1

35.7

218.0

Other (2)

(11.1)

(24.3)

(20.9)

(44.0)

(65.5)

(35.4)

(80.6)

Ending balance

$    5,070.0

$    5,036.2

$    4,722.0

$    4,348.3

$    4,565.0

$    5,070.0

$    4,565.0

Total

Beginning balance

$    54,773.0

$    56,702.4

$    60,877.6

$    61,394.3

$    58,011.2

$    56,702.4

$    57,739.6

Inflows

3,267.8

3,710.8

3,429.8

3,514.3

4,018.3

6,978.6

8,267.5

Outflows

(4,616.2)

(5,900.5)

(5,634.8)

(3,022.0)

(3,050.2)

(10,516.7)

(7,759.1)

Net flows

(1,348.4)

(2,189.7)

(2,205.0)

492.3

968.1

(3,538.1)

508.4

Market performance

(782.3)

323.5

389.5

(1,051.8)

2,548.0

(458.8)

3,503.5

Other (2)

(241.3)

(63.2)

(2,359.7)

42.8

(133.0)

(304.5)

(357.2)

Ending balance

$  52,401.0

$  54,773.0

$  56,702.4

$  60,877.6

$ 61,394.3

$  52,401.0

$  61,394.3

(1) Includes assets under management of open-end and variable insurance funds 

(2) Represents open-end and closed-end mutual fund distributions, net of reinvestments, net flows of cash management strategies, net flows and market performance of structured products, and net flows from non-sales related activities such as asset acquisitions/(dispositions), marketable securities investments/(withdrawals), and the impact on assets from the use of leverage

(3) Includes assets under management related to option strategies

 

Virtus Investment Partners, Inc.

Reconciliation of U.S. GAAP Consolidated Statement of Operations to Non-GAAP Consolidated Income Statement Information

(Unaudited, in thousands)

Three months ended June 30, 2015

Reclassifications

Adjustments

U.S. GAAP Basis

Distribution and other asset- based expenses

Consolidated sponsored investment products

Amortization of intangible assets

Seed capital investments impact

Other

Non-GAAP Basis

Revenues

Investment management fees

$        68,867

$                       -

$                     288

$                -

$                       -

$      1,166

$           70,321

Distribution and service fees

17,635

-

23

-

-

-

17,658

Administration and transfer agent fees

12,577

-

85

-

-

-

12,662

Other income and fees

577

-

-

-

-

-

577

Distribution and other asset-based expenses

-

(23,676)

-

-

-

-

(23,676)

     Total revenues

99,656

(23,676)

396

-

-

1,166

77,542

Operating Expenses

Employment expenses

33,593

-

-

-

-

-

33,593

Distribution and other asset-based expenses

23,676

(23,676)

-

-

-

-

-

Other operating expenses

23,512

-

-

-

-

(11,869)

11,643

Other operating expenses of consolidated

     sponsored investment products

957

-

(957)

-

-

-

-

Restructuring and severance

-

-

-

-

-

-

-

Depreciation and other amortization

873

-

-

-

-

-

873

Amortization expense

837

-

-

(837)

-

-

-

     Total operating expenses

83,448

(23,676)

(957)

(837)

-

(11,869)

46,109

Operating Income

16,208

-

1,353

837

-

13,035

31,433

Other Income (Expense)

Realized and unrealized gain (loss) on investments, net

343

-

(1,828)

-

1,709

-

224

Realized and unrealized gain (loss) on investments

     of consolidated sponsored investment products, net

(3,242)

-

3,242

-

-

-

-

Other income (expense), net

247

-

-

-

-

-

247

     Total other income (expense), net

(2,652)

-

1,414

-

1,709

-

471

Interest Income (Expense)

Interest expense

(121)

-

-

-

-

-

(121)

Interest and dividend income

302

-

931

-

(1,058)

-

175

Interest and dividend income of investments

     of consolidated sponsored investment products

3,098

-

(3,098)

-

-

-

-

     Total interest income (expense), net

3,279

-

(2,167)

-

(1,058)

-

54

Income Before Income Taxes

16,835

-

600

837

651

13,035

31,958

Income tax expense

7,823

-

-

318

(579)

4,565

12,127

Net Income

9,012

-

600

519

1,230

8,470

19,831

Noncontrolling interests

765

-

(600)

-

-

-

165

Net Income Attributable to Common Stockholders

$          9,777

$                       -

$                       -

$              519

$                 1,230

$      8,470

$           19,996

Earnings Per Share - Basic

$            1.10

$               2.25

Earnings Per Share - Diluted

$            1.08

$               2.21

Weighted Average Shares Outstanding - Basic (in thousands)

8,889

8,889

Weighted Average Shares Outstanding - Diluted  (in thousands)

9,037

9,037

See pages 16 through 17 for notes to the reconciliation

 

Virtus Investment Partners, Inc.

Reconciliation of U.S. GAAP Consolidated Statement of Operations to Non-GAAP Consolidated Income Statement Information

(Unaudited, in thousands)

Three months ended June 30, 2014

Reclassifications

Adjustments

U.S. GAAP Basis

Distribution and other asset- based expenses

Consolidated sponsored investment products

Closed-end fund launch costs

Amortization of intangible assets

Seed capital investments impact

Other

Non-GAAP Basis

Revenues

Investment management fees

$        74,537

$                       -

$                       63

$                        -

$                -

$                       -

$          -

$           74,600

Distribution and service fees

23,940

-

7

-

-

-

-

23,947

Administration and transfer agent fees

13,942

-

52

-

-

-

-

13,994

Other income and fees

330

-

-

-

-

-

-

330

Distribution and other asset-based expenses

-

(29,646)

-

-

-

-

-

(29,646)

     Total revenues

112,749

(29,646)

122

-

-

-

-

83,225

Operating Expenses

Employment expenses

35,481

-

-

(509)

-

-

(367)

34,605

Distribution and other asset-based expenses

39,222

(29,646)

-

(9,576)

-

-

-

-

Other operating expenses

13,130

-

-

-

-

-

(475)

12,655

Other operating expenses of consolidated

     sponsored investment products

797

-

(797)

-

-

-

-

-

Restructuring and severance

-

-

-

-

-

-

-

-

Depreciation and other amortization

670

-

-

-

-

-

-

670

Amortization expense

947

-

-

-

(947)

-

-

-

     Total operating expenses

90,247

(29,646)

(797)

(10,085)

(947)

-

(842)

47,930

Operating Income

22,502

-

919

10,085

947

-

842

35,295

Other Income (Expense)

Realized and unrealized gain (loss) on investments, net

905

-

6,169

-

-

(6,921)

-

153

Realized and unrealized gain (loss) on investments

     of consolidated sponsored investment products, net

6,444

-

(6,444)

-

-

-

-

-

Other income (expense), net

189

-

-

-

-

-

-

189

     Total other income (expense), net

7,538

-

(275)

-

-

(6,921)

-

342

Interest Income (Expense)

Interest expense

(125)

-

-

-

-

-

-

(125)

Interest and dividend income

344

-

715

-

-

(816)

-

243

Interest and dividend income of investments

     of consolidated sponsored investment products

1,639

-

(1,639)

-

-

-

-

-

     Total interest income (expense), net

1,858

-

(924)

-

-

(816)

-

118

Income Before Income Taxes

31,898

-

(280)

10,085

947

(7,737)

842

35,755

Income tax expense

12,106

-

-

3,861

363

(2,962)

322

13,690

Net Income

19,792

-

(280)

6,224

584

(4,775)

520

22,065

Noncontrolling interests

(249)

-

280

-

-

-

-

31

Net Income Attributable to Common Stockholders

$        19,543

$                       -

$                       -

$                  6,224

$              584

$               (4,775)

$       520

$           22,096

Earnings Per Share - Basic

$            2.14

$               2.42

Earnings Per Share - Diluted

$            2.10

$               2.37

Weighted Average Shares Outstanding - Basic (in thousands)

9,133

9,133

Weighted Average Shares Outstanding - Diluted (in thousands)

9,325

9,325

See pages 16 through 17 for notes to the reconciliation

 

Virtus Investment Partners, Inc.

Reconciliation of U.S. GAAP Consolidated Statement of Operations to Non-GAAP Consolidated Income Statement Information

(Unaudited, in thousands)

Three months ended March 31, 2015

Reclassifications

Adjustments

U.S. GAAP Basis

Distribution and other asset- based expenses

Consolidated sponsored investment products

Amortization of intangible assets

Seed capital investments impact

Other

Non-GAAP Basis

Revenues

Investment management fees

$        70,496

$                       -

$                     305

$                -

$                       -

$            -

$           70,801

Distribution and service fees

19,598

-

20

-

-

-

19,618

Administration and transfer agent fees

13,042

-

77

-

-

-

13,119

Other income and fees

695

-

-

-

-

-

695

Distribution and other asset-based expenses

-

(24,507)

-

-

-

-

(24,507)

     Total revenues

103,831

(24,507)

402

-

-

-

79,726

Operating Expenses

Employment expenses

35,622

-

-

-

-

-

35,622

Distribution and other asset-based expenses

24,507

(24,507)

-

-

-

-

-

Other operating expenses

16,726

-

-

-

-

(5,551)

11,175

Other operating expenses of consolidated

     sponsored investment products

818

-

(818)

-

-

-

-

Restructuring and severance

-

-

-

-

-

-

-

Depreciation and other amortization

779

-

-

-

-

-

779

Amortization expense

837

-

-

(837)

-

-

-

     Total operating expenses

79,289

(24,507)

(818)

(837)

-

(5,551)

47,576

Operating Income

24,542

-

1,220

837

-

5,551

32,150

Other Income (Expense)

Realized and unrealized gain (loss) on investments, net

545

-

2,342

-

(2,768)

-

119

Realized and unrealized gain (loss) on investments

     of consolidated sponsored investment products, net

2,590

-

(2,590)

-

-

-

-

Other income (expense), net

435

-

-

-

-

-

435

     Total other income (expense), net

3,570

-

(248)

-

(2,768)

-

554

Interest Income (Expense)

Interest expense

(123)

-

-

-

-

-

(123)

Interest and dividend income

280

-

935

-

(998)

-

217

Interest and dividend income of investments

     of consolidated sponsored investment products

2,324

-

(2,324)

-

-

-

-

     Total interest income (expense), net

2,481

-

(1,389)

-

(998)

-

94

Income Before Income Taxes

30,593

-

(417)

837

(3,766)

5,551

32,798

Income tax expense

10,868

-

-

319

(420)

1,733

12,500

Net Income

19,725

-

(417)

518

(3,346)

3,818

20,298

Noncontrolling interests

(383)

-

417

-

-

-

34

Net Income Attributable to Common Stockholders

$        19,342

$                       -

$                       -

$              518

$               (3,346)

$      3,818

$           20,332

Earnings Per Share - Basic

$            2.16

$               2.27

Earnings Per Share - Diluted

$            2.11

$               2.22

Weighted Average Shares Outstanding - Basic (in thousands)

8,964

8,964

Weighted Average Shares Outstanding - Diluted  (in thousands)

9,151

9,151

See pages 16 through 17 for notes to the reconciliation

 

Virtus Investment Partners, Inc.

Reconciliation of U.S. GAAP Consolidated Statement of Operations to Non-GAAP Consolidated Income Statement Information

(Unaudited, in thousands)

Six months ended June 30, 2015

Reclassifications

Adjustments

U.S. GAAP Basis

Distribution and other asset- based expenses

Consolidated sponsored investment products

Amortization of intangible assets

Seed capital investments impact

Other

Non-GAAP Basis

Revenues

Investment management fees

$      139,363

$                       -

$                     593

$                -

$                       -

$      1,166

$         141,122

Distribution and service fees

37,233

-

43

-

-

-

37,276

Administration and transfer agent fees

25,619

-

162

-

-

-

25,781

Other income and fees

1,272

-

-

-

-

-

1,272

Distribution and other asset-based expenses

-

(48,183)

-

-

-

-

(48,183)

     Total revenues

203,487

(48,183)

798

-

-

1,166

157,268

Operating Expenses

Employment expenses

69,215

-

-

-

-

-

69,215

Distribution and other asset-based expenses

48,183

(48,183)

-

-

-

-

-

Other operating expenses

40,238

-

-

-

-

(17,420)

22,818

Other operating expenses of consolidated

     sponsored investment products

1,775

-

(1,775)

-

-

-

-

Restructuring and severance

-

-

-

-

-

-

-

Depreciation and other amortization

1,652

-

-

-

-

-

1,652

Amortization expense

1,674

-

-

(1,674)

-

-

-

     Total operating expenses

162,737

(48,183)

(1,775)

(1,674)

-

(17,420)

93,685

Operating Income

40,750

-

2,573

1,674

-

18,586

63,583

Other Income (Expense)

Realized and unrealized gain (loss) on investments, net

888

-

514

-

(1,059)

-

343

Realized and unrealized gain (loss) on investments

     of consolidated sponsored investment products, net

(652)

-

652

-

-

-

-

Other income (expense), net

682

-

-

-

-

-

682

     Total other income (expense), net

918

-

1,166

-

(1,059)

-

1,025

Interest Income (Expense)

Interest expense

(244)

-

-

-

-

-

(244)

Interest and dividend income

582

-

1,866

-

(2,056)

-

392

Interest and dividend income of investments

     of consolidated sponsored investment products

5,422

-

(5,422)

-

-

-

-

     Total interest income (expense), net

5,760

-

(3,556)

-

(2,056)

-

148

Income Before Income Taxes

47,428

-

183

1,674

(3,115)

18,586

64,756

Income tax expense

18,691

-

-

637

(999)

6,298

24,627

Net Income

28,737

-

183

1,037

(2,116)

12,288

40,129

Noncontrolling interests

382

-

(183)

-

-

-

199

Net Income Attributable to Common Stockholders

$        29,119

$                       -

$                       -

$           1,037

$               (2,116)

$    12,288

$           40,328

Earnings Per Share - Basic

$            3.26

$               4.52

Earnings Per Share - Diluted

$            3.20

$               4.43

Weighted Average Shares Outstanding - Basic (in thousands)

8,927

8,927

Weighted Average Shares Outstanding - Diluted  (in thousands)

9,094

9,094

See pages 16 through 17 for notes to the reconciliation

 

Virtus Investment Partners, Inc.

Reconciliation of U.S. GAAP Consolidated Statement of Operations to Non-GAAP Consolidated Income Statement Information

(Unaudited, in thousands)

Six months ended June 30, 2014

Reclassifications

Adjustments

U.S. GAAP Basis

Distribution and other asset- based expenses

Consolidated sponsored investment products

Closed-end fund launch costs

Amortization of intangible assets

Seed capital investments impact

Other

Non-GAAP Basis

Revenues

Investment management fees

$      146,329

$                       -

$                       15

$                        -

$                -

$                       -

$            -

$         146,344

Distribution and service fees

46,378

-

20

-

-

-

-

46,398

Administration and transfer agent fees

27,015

-

71

-

-

-

-

27,086

Other income and fees

898

-

-

-

-

-

-

898

Distribution and other asset-based expenses

-

(57,383)

-

-

-

-

-

(57,383)

     Total revenues

220,620

(57,383)

106

-

-

-

-

163,343

Operating Expenses

Employment expenses

70,510

-

-

(509)

-

-

(859)

69,142

Distribution and other asset-based expenses

66,959

(57,383)

-

(9,576)

-

-

-

-

Other operating expenses

23,664

-

-

-

-

-

(475)

23,189

Other operating expenses of consolidated

     sponsored investment products

1,128

-

(1,128)

-

-

-

-

-

Restructuring and severance

-

-

-

-

-

-

-

-

Depreciation and other amortization

1,327

-

-

-

-

-

-

1,327

Amortization expense

1,904

-

-

-

(1,904)

-

-

-

     Total operating expenses

165,492

(57,383)

(1,128)

(10,085)

(1,904)

-

(1,334)

93,658

Operating Income

55,128

-

1,234

10,085

1,904

-

1,334

69,685

Other Income (Expense)

Realized and unrealized gain (loss) on investments, net

2,751

-

6,584

-

-

(9,076)

-

259

Realized and unrealized gain (loss) on investments

     of consolidated sponsored investment products, net

6,480

-

(6,480)

-

-

-

-

-

Other income (expense), net

340

-

-

-

-

-

-

340

     Total other income (expense), net

9,571

-

104

-

-

(9,076)

-

599

Interest Income (Expense)

Interest expense

(263)

-

-

-

-

-

-

(263)

Interest and dividend income

727

-

1,055

-

-

(1,320)

-

462

Interest and dividend income of investments

     of consolidated sponsored investment products

2,512

-

(2,512)

-

-

-

-

-

     Total interest income (expense), net

2,976

-

(1,457)

-

-

(1,320)

-

199

Income Before Income Taxes

67,675

-

(119)

10,085

1,904

(10,396)

1,334

70,483

Income tax expense

26,116

-

-

3,861

730

(3,981)

268

26,994

Net Income

41,559

-

(119)

6,224

1,174

(6,415)

1,066

43,489

Noncontrolling interests

(78)

-

119

-

-

-

-

41

Net Income Attributable to Common Stockholders

$        41,481

$                       -

$                       -

$                  6,224

$           1,174

$               (6,415)

$      1,066

$           43,530

Earnings Per Share - Basic

$            4.55

$               4.77

Earnings Per Share - Diluted

$            4.44

$               4.66

Weighted Average Shares Outstanding - Basic (in thousands)

9,125

9,125

Weighted Average Shares Outstanding - Diluted  (in thousands)

9,343

9,343

See pages 16 through 17 for notes to the reconciliation

Virtus Investment Partners, Inc. Notes

The following are notes to the reconciliations of the most comparable U.S. GAAP measure to each non-GAAP measure for the second quarter of 2015, the second quarter of 2014, the first quarter of 2015 and the six-months ended June 30, 2015 and June 30, 2014 presented on pages 11 to 15.

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 adjustment 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.

In particular, the company reclassifies:

  1. Distribution and other asset-based expenses - These costs are generally passed directly through to external parties. Management believes that making this adjustment aids in comparing the company's operating results with other asset management firms that do not distribute products through intermediary distribution partners or utilize third party service providers for investment management related services.
  2. Consolidated sponsored investment products - Management believes that excluding the operating activities of majority-owned funds to reflect revenues and expenses of the company prior to the consolidation of these products is consistent with the approach of reflecting its operating results as only revenues generated and expenses incurred related to providing investment management and related services will be included in operating income, as adjusted.

Net income attributable to common stockholders, as adjusted, excludes from net income:

  • Closed-end fund launch costs - Expenses related to the launch of closed-end funds, or similar products, including structuring fees and sales-based compensation related to the launch. The timing of closed-end fund issuances can be unpredictable, and related costs can fluctuate considerably. In addition, revenue associated with these costs will not fully impact financial results until future periods. Management believes that making these adjustments aids in comparing the company's operating results with prior periods and with other asset management firms that do not issue closed-end funds, or similar products.
  • 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.
  • Seed capital investments impact - Gains and losses (realized and unrealized), dividends and interest income generated by seed capital investments. Earnings or losses generated by investments in seed capital products 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 investments.
  • Other - Expenses and loss contingencies related to restructuring, severance, regulatory matters, and certain transition items that are not reflective of the ongoing earnings generation of the business. In addition, income tax expense/(benefit) items, such as adjustments for uncertain tax positions, valuation allowances and other unusual items not related to current operating results to reflect a normalized effective rate. 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 in the table below:

Three Months Ended

Six Months Ended

Other (in thousands)

6/30/2015

6/30/2014

3/31/2015

6/30/2015

6/30/2014

Loss contingency

$         11,300

$                -

$           5,200

$         16,500

$                -

Tax impact of loss contingency

(3,907)

-

(1,600)

(5,507)

-

Transition related revenues

1,166

-

-

1,166

-

Tax impact of transition related revenues

(442)

-

-

(442)

-

System transition expenses

569

475

351

920

475

Tax impact of system transition expenses

(216)

(182)

(133)

(349)

(182)

Newfleet transition expenses

-

367

-

-

859

Tax impact of Newfleet transition expenses

-

(140)

-

-

(329)

Discrete tax adjustments

-

-

-

-

243

Total Other

$         8,470

$            520

$         3,818

$       12,288

$         1,066

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 sponsored investment products. 

Operating expenses, as adjusted, is calculated to reflect expenses from ongoing continuing operations attributable to stockholders. 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 sponsored investment products, 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 per share, as adjusted, represent net income attributable to common stockholders, as adjusted, divided by weighted average shares outstanding, on either a basic or diluted basis.

1 The Virtus Credit Opportunities Fund is subject to the risks of fixed income investing, including credit and interest rate risk, high yield/high fixed income securities, bank loans, derivatives, non-diversification and investment in equity securities.

2  The Multi-Strategy Target Return Fund is subject to the risks of equity securities, foreign & emerging markets, credit and interest, high yield-high risk fixed income securities, derivatives, leverage, counterparties and portfolio turnover.

3 "Aviva Investors" refers to the global organization of affiliated asset management businesses operating under the Aviva Investors name. Each Aviva Investors affiliate is a subsidiary of Aviva plc, a publicly-traded multi-national financial services company headquartered in the United Kingdom. Aviva Investors Americas LLC ("AIA") is the US SEC registered investment advisor and the named sub-advisor to the Virtus Multi-Strategy Target Return Fund.

Investors should carefully consider the investment objectives, risks, charges and expenses of any Virtus Mutual Fund before investing. The prospectus and summary prospectus contains this and other information about the fund. Please contact your financial representative, call 1-800- 243-4361 or visit www.virtus.com to obtain a current prospectus and/or summary prospectus. You should read the prospectus and/or summary prospectus carefully before you invest or send money.

Mutual funds distributed by VP Distributors, LLC, member FINRA and subsidiary of Virtus Investment Partners, Inc.

"AlphaSector®" is a registered trademark of F-Squared Investments, Inc.

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. These statements may be identified by such forward-looking terminology as "expect," "estimate," "plan," "intend," "believe," "anticipate," "may," "will," "should," "could," "continue," "project," 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, are not guarantees of future results or performance, and involve substantial risks and uncertainty, including assumptions and projections concerning our assets under management, cash inflows and outflows, operating cash flows, our ability to expand distribution and product offerings, and future credit facilities, for all forward 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 2014 Annual Report on Form 10-K, as well as the following risks and uncertainties: (a) any reduction in our assets under management, (b) the withdrawal, renegotiation or termination of our investment advisory agreements; (c) damage to our reputation; (d) our inability to attract and retain key personnel; (e) the competition we face in our business; (f) adverse regulatory and legal developments; (g) limitations on our deferred tax assets; (h) adverse developments with respect to, or changes in our relationships with, unaffiliated subadvisers; (i) changes in key distribution relationships; (j) interruptions in service or failure to provide service by third-party service providers; (k) any reduction in value of our marketable securities; (l) our inability to make intended quarterly distributions; (m) lack of availability of required and necessary capital on satisfactory terms; and (n) liabilities and losses not covered by our insurance policies and (o) certain other risks and uncertainties described in our 2014 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.

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SOURCE Virtus Investment Partners, Inc.



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