VIRTUS INVESTMENT PARTNERS, INC. HARTFORD, Conn., Oct. 28, 2014 /PRNewswire/ -- Virtus Investment Partners, Inc. (NASDAQ: VRTS), which operates a multi-manager asset management business, today reported its highest levels of revenue, operating income, as adjusted and related margin for the third quarter of 2014.
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Operating income, as adjusted, was $44.8 million for the quarter ended September 30, 2014, an increase of 25 percent from $35.8 million in the third quarter of 2013 and 16 percent from $38.8 million in the second quarter of 2014. The related margin increased to 51 percent from 48 percent in the prior-year quarter and 47 percent in the second quarter of 2014.
Operating income for the third quarter was $38.9 million with a margin of 33 percent, compared with $31.6 million and 32 percent in the third quarter of 2013 and $22.5 million and 20 percent in the second quarter of 2014, which included $10.1 million in expenses related to the launch of a closed-end fund.
Net income attributable to common stockholders was $37.3 million or $4.02 per fully diluted common share. Net income for the third quarter includes a net tax benefit of $15.5 million, or $1.67 per share, primarily related to the resolution of uncertain tax positions, and $(0.51) per share of unrealized losses on marketable securities. Net income of $21.1 million, or $2.56 per share in the third quarter of 2013 included $0.11 per share of unrealized gains on marketable securities; net income of $19.5 million, or $2.10 per share in the second quarter of 2014 included $(0.67) related to costs associated with a closed-end fund launch and $0.23 per share of unrealized gains.
Financial Highlights (Unaudited)
(Dollars in thousands, except per share data or as noted)
In evaluating its performance, the company considers certain non-GAAP measures, including operating income, as adjusted, operating margin, as adjusted, operating expenses, as adjusted, and revenue, as adjusted, that are described and reconciled to GAAP-reported amounts in the table at the end of the release. These non-GAAP measures net the distribution and administration expenses against the related revenue and also exclude
certain other cash and non-cash items.
Three Months Ended Three Months Ended Nine Months Ended
------------------ ------------------ -----------------
9/30/2014 9/30/2013 Change 6/30/2014 Change 9/30/2014 9/30/2013 Change
--------- --------- ------ --------- ------ --------- --------- ------
Ending Assets Under Management (in billions) $60.9 $55.0 11% $61.4 (1)% $60.9 $55.0 11%
Average Assets Under Management (in billions) $61.8 $54.0 14% $59.0 5% $59.3 $51.8 14%
Ending Long-Term Assets Under Management (in billions) (1) $59.5 $53.4 11% $59.9 (1)% $59.5 $53.4 11%
Average Long-Term Assets Under Management (in billions) (1) $60.4 $52.3 15% $57.6 5% $57.9 $50.0 16%
Gross Sales (in millions) $3,514.3 $4,869.1 (28)% $4,018.3 (13)% $11,781.8 $16,706.9 (29)%
Net Flows (in millions) $492.3 $1,246.0 (60)% $968.1 (49)% $1,000.7 $7,484.2 (87)%
Revenue $117,841 $100,409 17% $112,749 5% $338,461 $282,717 20%
Revenue, as adjusted (2) $88,628 $75,066 18% $83,225 6% $251,971 $211,442 19%
Operating expenses $78,914 $68,779 15% $90,247 (13)% $244,406 $203,105 20%
Operating expenses, as adjusted (2) $43,808 $39,227 12% $44,474 (1)% $131,815 $118,799 11%
Operating income $38,927 $31,630 23% $22,502 73% $94,055 $79,612 18%
Operating income, as adjusted (2) $44,820 $35,839 25% $38,751 16% $120,156 $92,643 30%
Net income $36,995 $21,302 74% $19,792 87% $78,554 $50,270 56%
Net income attributable to common stockholders $37,340 $21,089 77% $19,543 91% $78,821 $50,434 56%
Avg. shares outstanding - diluted (in thousands) 9,279 8,227 13% 9,325 - 9,322 8,125 15%
Earnings per share - diluted $4.02 $2.56 57% $2.10 91% $8.46 $6.21 36%
Operating margin 33% 32% 20% 28% 28%
Operating margin, as adjusted (2) 51% 48% 47% 48% 44%
(1) Represents Assets Under Management excluding cash management strategies
(2) See "Schedule of Non-GAAP Information" at the end of the release
Management Commentary
"We are pleased with this quarter's strong results that included our highest levels of operating earnings, revenues and margin which reflects the growth in average assets and our variable cost structure," said George R. Aylward, president and chief executive officer. "We had positive long-term open-end mutual fund flows for the quarter, including positive flows in domestic and international equities and fixed income strategies, despite investor uncertainty in response to the volatility in the equity markets."
Higher average assets under management in the quarter resulted in an 18 percent increase in investment management fees from the third quarter of 2013, which included a 26 percent increase in closed-end fund and 20 percent increase in long-term open-end mutual fund management fees. As a result of the increasing revenue, and the leveragability of the business, operating income, as adjusted, increased 25 percent from the prior year and the related margin increased to 51 percent, the company's highest quarterly level.
"We continued to expand our differentiated product offerings with the introduction of a new unconstrained bond fund and the filing for a distinctive international equity fund that will be available to investors later this year. We remain well-positioned to meet the needs of financial advisors and their clients, particularly in the current market environment with products that are diversified across asset classes and strategies, including strong fixed income capabilities, quality-oriented equity offerings, and our new multi-manager liquid alternatives strategies," Aylward said.
"Our strong balance sheet continues to provide significant operating flexibility for the company and allows us to balance investments in the growth of the business with a meaningful return of capital to shareholders. Cash and investments increased by 4 percent on a sequential quarter basis to $441 million or $49 per share at the end of the third quarter, and we returned $18.2 million to shareholders in the form of share repurchases and a cash dividend. On a year-to-date basis, including our third quarter declared dividend, we have returned $43.7 million of capital to our shareholders, an increase of 61 percent from the level of capital we returned for the full year of 2013," he added.
"Our strong financial results and positive net flows during an uncertain market environment affirm the strengths of the company and the benefit of our business model, and the high level of capital we have returned demonstrates our commitment to creating value for shareholders."
Asset Flows and Assets Under Management
Assets under management increased from the prior-year quarter as a result of cumulative positive net flows, the launch of a new closed-end fund and market appreciation.
-- On October 20, 2014, the company liquidated its three money market funds
that had a combined $1.2 billion of assets under management as of
September 30, 2014.
-- Assets under management, excluding money market assets, were $59.5
billion at September 30, 2014, an increase of 11 percent from $53.4
billion at September 30, 2013 and compared with $59.9 billion at June
30, 2014. The change from the prior year is primarily the result of $4.7
billion of market appreciation and $1.6 billion of positive net flows;
the sequential change is a result of $0.5 billion of positive net flows
offset by market depreciation of $1.1 billion. Long-term open-end mutual
fund assets increased by 17 percent to $39.8 billion from $34.2 billion
a year earlier.
-- Long-term average assets under management were $60.4 billion for the
period ended September 30, 2014, an increase of 15 percent from $52.3
billion and 5 percent from $57.6 billion in the third quarter of 2013
and the second quarter of 2014, respectively.
-- Total sales were $3.5 billion in the third quarter, compared with $4.9
billion in the third quarter of 2013 and $4.0 billion in the second
quarter of 2014. Total positive net flows were $0.5 billion in the third
quarter, compared with $1.2 billion in the prior-year quarter and $1.0
billion in the second quarter of 2014. Both sales and net flows in the
second quarter included $0.5 billion related to the launch of a
closed-end fund.
-- Long-term open-end mutual fund sales were $3.0 billion in the third
quarter, compared with $4.3 billion in the prior-year quarter and
relatively flat compared with $3.1 billion in the second quarter of
2014.
-- Long-term open-end funds generated $0.7 billion of positive net flows in
the third quarter, compared with $1.1 billion in the third quarter of
2013 and $0.8 billion in the second quarter of 2014. This was the
company's 22(nd) consecutive quarter of positive net long-term open-end
fund flows and represented an annualized organic growth rate, which is
calculated as annualized net flows divided by beginning of period
assets, of 6.5 percent.
Revenue
Revenues increased from prior periods primarily as a result of the company's growing asset base.
-- Revenues increased 17 percent to $117.8 million in the third quarter
from $100.4 million in the third quarter of 2013 and by 5 percent on a
sequential quarter basis.
-- Revenues, as adjusted, increased by 18 percent to $88.6 million in the
third quarter from $75.1 million in the prior-year quarter and by 6
percent from $83.2 million in the second quarter of 2014. The increase
from the prior year is a result of higher investment management and
administration and transfer agent fees.
-- Investment management fees increased 18 percent to $79.0 million from
$67.1 million in the third quarter of 2013 and by 6 percent on a
sequential quarter basis from $74.5 million. The increase from the
prior-year quarter primarily reflects an increase in average long-term
open-end fund assets and an increase in the average net fee rate. The
average net fee rate was 50.6 basis points in the third quarter of 2014
compared with 49.2 in the prior-year quarter and 50.7 basis points in
the sequential quarter.
-- Administration and transfer agent fees in the third quarter increased 19
percent to $14.8 million from $12.5 million in the prior-year quarter
and by 6 percent from $13.9 million in the second quarter as a result of
higher average long-term open-end mutual fund and closed-end fund
assets.
Expenses
The year-over-year increase in operating expenses reflects the overall growth of the business, including variable costs related to the growing asset levels.
-- Total operating expenses were $78.9 million in the third quarter,
compared with $68.8 million in the third quarter of 2013, reflecting
increases in distribution and administration, other operating expenses
and employment expenses. Total operating expenses decreased 13 percent
on a sequential quarter basis, primarily reflecting costs related to the
launch of a closed-end fund and other new product introductions in the
second quarter of 2014.
-- Operating expenses, as adjusted, which exclude certain charges including
distribution and administration expenses, stock-based compensation and
depreciation and amortization, were $43.8 million in the third quarter,
compared with $39.2 million in the third quarter of 2013 and $44.5
million in the second quarter of 2014. The increase from the prior year
primarily reflects higher employment costs and an increase in other
operating expenses.
-- Employment expenses were $35.2 million in the third quarter, compared to
$33.0 million in the third quarter of 2013 and $35.5 million in the
second quarter of 2014. The change from the prior year reflects the
increase in personnel costs resulting from the growth of the business.
-- Distribution and administration expenses were $29.2 million in the third
quarter of 2014, compared with $25.3 million in the third quarter of
2013 and $39.2 million in the second quarter of 2014. The second
quarter included costs associated with new product introductions and
$9.6 million of structuring fees related to the launch of a closed-end
fund.
-- Other operating expenses were $11.3 million in the third quarter,
compared to $8.5 million in the third quarter of 2013 and $13.1 million
in the second quarter of 2014. The year-over-year increase reflects
costs associated with the growth of the business, expanded distribution
activities and the middle- and back-office system transition. The
sequential decrease primarily reflects new product introductions and the
annual Board of Directors equity grant in the prior quarter.
Investment Capabilities
The company continued to expand its differentiated product offerings.
-- The Virtus Strategic Income Fund(1) (Class A: VASBX), which became
available to investors in September, is designed to capitalize on
opportunities across undervalued sectors of the bond market by investing
in up to 14 fixed income sectors and shorting securities or sectors that
the manager believes are significantly overvalued. The fund leverages
the existing multi-sector fixed-income capabilities of the company's
Newfleet Asset Management affiliate, which managed $12.8 billion at
September 30, 2014.
-- The company filed a registration for the Virtus International Wealth
Masters Fund(2), an international equity strategy that complements the
U.S.-focused Virtus Wealth Masters Fund, managed by Horizon Asset
Management. The strategy of the fund is to invest in companies that are
controlled or influenced by wealthy individuals who have a substantial
amount of their personal wealth invested in the business. The
International Wealth Masters Fund is expected to be available in the
fourth quarter.
Balance Sheet, Liquidity and Income Taxes
Cash and investments were $440.8 million at September 30, 2014 compared with $343.6 million at September 30, 2013 and $423.1 million at June 30, 2014. Cash and investments increased $17.8 million or 4 percent over the sequential quarter as a result of strong financial results, partially offset by share repurchases and the payment of a quarterly dividend.
The company's seed capital investments increased to $239.6 million at September 30, 2014 from $223.9 million at June 30, 2014 primarily reflecting an investment in the new Strategic Income Fund.
Working capital was $173.7 million at September 30, 2014, compared with $229.9 million at September 30, 2013 and $186.2 million at June 30, 2014. The sequential decrease in working capital reflects the seed capital investments, share repurchases and dividend declaration partially offset by strong operating cash flow.
In the third quarter, the company effectively returned $18.2 million to shareholders consisting of $13.8 million in repurchases of common stock, $4.2 million in common stock dividends paid on August 14, 2014 and $0.2 million to net settle RSU grants prior to their issuance as common shares.
Income taxes were impacted in the quarter due to a $15.5 million net benefit related to the resolution of uncertain tax positions, partially offset by a reduction in deferred tax assets. As a result, the effective tax rate for the quarter was (5.1) percent. Excluding the impact of the net benefit, the effective tax rate was 38.3 percent compared with 37.1 percent for the third quarter of 2013 and 38.0 percent for the second quarter of 2014.
Balance Sheet Highlights (Unaudited)
(Dollars in thousands)
As of As of
----- -----
9/30/2014 9/30/2013 Change 6/30/2014 Change
--------- --------- ------ --------- ------
Cash and cash equivalents $172,709 $244,683 (29)% $170,367 1%
Investments - seed capital $22,332 $17,801 25% $27,629 (19)%
Net assets of CSIPs - seed capital (1) $217,294 $77,365 181% $196,315 11%
-------- ------- --------
Total - Seed capital $239,626 $95,166 152% $223,944 7%
Investments - other (2) $28,513 $3,800 N/M $28,774 (1)%
------- ------ -------
Total - Cash and investments $440,848 $343,649 28% $423,085 4%
Deferred taxes, net $59,668 $68,117 (12)% $57,064 5%
Dividends payable $4,229 $ - N/M $4,179 1%
Total equity attributable to stockholders $560,576 $465,853 20% $514,529 9%
Working capital (3) $173,725 $229,949 (24)% $186,241 (7)%
(1) Reflects the company's investment in consolidated sponsored investment products (CSIPs) net of non-controlling interests. For the periods ending September 30, 2014, September 30, 2013, and June 30, 2014, net assets of CSIPs represent $263.4 million, $139.0 million, and $222.7 million, of
total assets, $23.8 million, $42.8 million, and $16.0 million of total liabilities, and $22.3 million, $18.8 million, and $10.4 million of redeemable noncontrolling interests, respectively
(2) Investments in mutual funds not for seed capital purposes
(3) Defined as cash and investments plus accounts receivable, net, less investments - seed capital, net assets of CSIPs, accrued compensation and benefits, accounts payable and accrued liabilities, and dividends payable
N/M - Not Meaningful
Conference Call
Virtus Investment Partners management will host an investor conference call on Tuesday, October 28, at 11 a.m. Eastern to discuss these financial results and related matters. The webcast of the call will be available live over the Internet in the Investor Relations section of www.virtus.com. The call can also be accessed at 866-271-6130 if calling from within the U.S. or 617-213-8894 if calling from outside the U.S. (Passcode: 24627437). A replay of the call will be available through December 1 in the Investor Relations section of www.virtus.com or by telephone at 888-286-8010 if calling from within the U.S. or 617-801-6888 if calling from outside the U.S. (Passcode: 49666207). The presentation that will be reviewed as part of the conference call will be available in the Investor Relations section of the company's Web site.
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 affiliated managers include Cliffwater Investments, Duff & Phelps Investment Management, 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 virtus.com.
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
Three Months Ended Three Months Ended Nine Months Ended
------------------ ------------------ -----------------
9/30/2014 9/30/2013 Change 6/30/2014 Change 9/30/2014 9/30/2013 Change
--------- --------- ------ --------- ------ --------- --------- ------
Revenues
Investment management fees $78,960 $67,119 18% $74,537 6% $225,289 $189,371 19%
Distribution and service fees 23,671 20,322 16% 23,940 (1)% 70,049 57,007 23%
Administration and transfer agent fees 14,804 12,492 19% 13,942 6% 41,819 35,248 19%
Other income and fees 406 476 (15)% 330 23% 1,304 1,091 20%
Total revenues 117,841 100,409 17% 112,749 5% 338,461 282,717 20%
------- ------- ------- ------- -------
Operating Expenses
Employment expenses 35,246 33,022 7% 35,481 (1)% 105,756 98,311 8%
Distribution and administration expenses 29,180 25,253 16% 39,222 (26)% 96,139 71,133 35%
Other operating expenses 11,288 8,538 32% 13,130 (14)% 34,952 27,778 26%
Other operating expenses of consolidated
sponsored investment products 1,246 231 439% 797 56% 2,374 547 334%
Restructuring and severance 294 - N/M - N/M 294 203 45%
Depreciation and other amortization 713 610 17% 670 6% 2,040 1,782 14%
Amortization expense 947 1,125 (16)% 947 - 2,851 3,351 (15)%
Total operating expenses 78,914 68,779 15% 90,247 (13)% 244,406 203,105 20%
------ ------ ------ ------- -------
Operating Income 38,927 31,630 23% 22,502 73% 94,055 79,612 18%
------ ------ ------ ------ ------
Other Income (Expense)
Realized and unrealized (loss) gain on investments, net (1,039) 1,285 N/M 905 N/M 1,712 1,887 (9)%
Realized and unrealized (loss) gain on investments
of consolidated sponsored investment products, net (5,330) 324 N/M 6,444 N/M 1,150 (2,460) N/M
Other income, net 233 111 110% 189 23% 573 82 N/M
Total other (expense) income, net (6,136) 1,720 N/M 7,538 N/M 3,435 (491) N/M
------ ----- ----- ----- ----
Interest Income (Expense)
Interest expense (149) (207) 28% (125) (19)% (412) (634) 35%
Interest and dividend income 326 126 159% 344 (5)% 1,053 426 147%
Interest and dividend income of investments
of consolidated sponsored investment products 2,222 600 270% 1,639 36% 4,734 1,692 180%
Total interest income, net 2,399 519 362% 1,858 29% 5,375 1,484 262%
----- --- ----- ----- -----
Income Before Income Taxes 35,190 33,869 4% 31,898 10% 102,865 80,605 28%
Income tax (benefit) expense (1,805) 12,567 N/M 12,106 N/M 24,311 30,335 (20)%
------ ------ ------ ------
Net Income 36,995 21,302 74% 19,792 87% 78,554 50,270 56%
Noncontrolling interests 345 (213) N/M (249) N/M 267 164 63%
Net Income Attributable to Common Stockholders $37,340 $21,089 77% $19,543 91% $78,821 $50,434 56%
======= ======= ======= ======= =======
Earnings Per Share - Basic $4.10 $2.64 55% $2.14 92% $8.65 $6.40 35%
===== ===== ===== ===== =====
Earnings Per Share - Diluted $4.02 $2.56 57% $2.10 91% $8.46 $6.21 36%
===== ===== ===== ===== =====
Cash Dividends Declared Per Share $0.45 $ - N/M $0.45 - $0.90 $ - N/M
===== ================== ===== ===== ==================
Weighted Average Shares Outstanding - Basic 9,096 7,995 14% 9,133 - 9,115 7,879 16%
(in thousands)
Weighted Average Shares Outstanding - Diluted 9,279 8,227 13% 9,325 - 9,322 8,125 15%
(in thousands)
N/M - Not Meaningful
Assets Under Management - Product and Asset Class
(Dollars in millions)
Three Months Ended
------------------
Sep 30, 2014 Jun 30, 2014 Mar 31, 2014 Dec 31, 2013 Sep 30, 2013
------------ ------------ ------------ ------------ ------------
By product (period end):
Mutual Funds - Long-Term Open-
End $39,838.8 $39,819.1 $37,347.0 $36,367.7 $34,173.0
Mutual Funds - Closed-End 7,568.1 7,530.6 6,690.7 6,499.6 6,379.4
Mutual Funds - Money Market 1,231.9 1,311.7 1,378.0 1,556.6 1,610.2
Variable Insurance Funds 1,237.5 1,305.5 1,286.6 1,311.8 1,286.8
Separately Managed Accounts (1) 6,653.0 6,862.4 6,778.4 7,433.1 6,950.7
Institutional Accounts (1) 4,348.3 4,565.0 4,530.5 4,570.8 4,606.9
Total $60,877.6 $61,394.3 $58,011.2 $57,739.6 $55,007.0
========= ========= ========= ========= =========
By product (average) (2)
Mutual Funds - Long-Term Open-
End $40,353.9 $38,367.2 $36,354.5 $35,639.8 $33,604.3
Mutual Funds - Closed-End 7,571.4 6,805.1 6,523.4 6,443.8 6,442.9
Mutual Funds - Money Market 1,310.1 1,317.1 1,436.8 1,591.4 1,672.5
Variable Insurance Funds 1,285.7 1,287.6 1,282.2 1,303.3 1,280.4
Separately Managed Accounts (1) 6,793.5 6,700.0 6,982.8 6,988.5 6,495.8
Institutional Accounts (1) 4,483.6 4,538.4 4,593.8 4,594.0 4,484.3
Total $61,798.2 $59,015.4 $57,173.5 $56,560.8 $53,980.2
========= ========= ========= ========= =========
By asset class (period end):
Equity $35,573.6 $35,842.5 $33,804.4 $33,610.7 $31,595.9
Fixed Income 16,671.0 16,750.2 16,319.6 15,829.4 15,855.2
Alternatives (3) 6,769.5 6,744.8 5,678.3 5,308.3 4,538.3
Other (4) 1,863.5 2,056.8 2,208.9 2,991.2 3,017.6
Total $60,877.6 $61,394.3 $58,011.2 $57,739.6 $55,007.0
========= ========= ========= ========= =========
Assets Under Management - Average Net Management Fees Earned (5)
(In basis points)
Three Months Ended
Sep 30, 2014 Jun 30, 2014 Mar 31, 2014 Dec 31, 2013 Sep 30, 2013
------------ ------------ ------------ ------------ ------------
Mutual Funds - Long-Term Open-
End 50.8 51.6 52.1 51.7 51.1
Mutual Funds - Closed-End 67.1 63.6 63.8 63.9 62.5
Mutual Funds - Money Market - 0.1 - 0.3 0.5
Variable Insurance Funds 51.7 51.0 53.0 56.6 57.4
Separately Managed Accounts (1) 51.3 52.4 52.2 48.0 48.3
Institutional Accounts (1) 34.8 35.7 36.2 35.8 34.0
All Products 50.6 50.7 50.9 50.0 49.2
(1) Includes assets under management related to option strategies
(2) Averages are calculated as follows:
- Mutual Funds and Variable Insurance 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
(3) Consists of non-traditional investment strategies such as long/short equity, real estate, master-limited partnerships and other
(4) Consists of cash management and option strategies; Option strategies were $522.8, $607.9, $740.7, $1,403.6, and $1,369.1 at
September 30, 2014, June 30, 2014, March 31, 2014, December 31, 2013, and September 30, 2013, respectively
(5) Average fees earned is calculated as revenue earned by product divided by average product assets, as described in note (2). Average fees earned for Mutual Funds and Variable Insurance Funds are net of fees paid to unaffiliated subadvisors, fund expense reimbursements
and advisory fee waivers. Excludes the impact of consolidated sponsored investment products.
Assets Under Management - Asset Flows by Product
(Dollars in millions)
Three Months Ended Nine Months Ended
------------------ -----------------
9/30/2014 6/30/2014 3/31/2014 12/31/2013 9/30/2013 9/30/2014 9/30/2013
--------- --------- --------- ---------- --------- --------- ---------
Mutual Funds - Long-Term Open-End
---------------------------------
Beginning balance $39,819.1 $37,347.0 $36,367.7 $34,173.0 $32,351.2 $36,367.7 $25,827.1
Inflows 3,034.5 3,148.5 3,641.3 4,061.1 4,256.0 9,824.3 15,036.5
Outflows (2,382.9) (2,398.0) (3,388.9) (3,249.4) (3,125.3) (8,169.8) (7,742.3)
-------- -------- -------- -------- -------- -------- --------
Net flows 651.6 750.5 252.4 811.7 1,130.7 1,654.5 7,294.2
Market performance (697.9) 1,651.5 651.1 1,277.0 635.2 1,604.7 847.6
Other (1) 66.0 70.1 75.8 106.0 55.9 211.9 204.1
Ending balance $39,838.8 $39,819.1 $37,347.0 $36,367.7 $34,173.0 $39,838.8 $34,173.0
========= ========= ========= ========= ========= ========= =========
Mutual Funds - Closed-End
-------------------------
Beginning balance $7,530.6 $6,690.7 $6,499.6 $6,379.4 $6,422.3 $6,499.6 $6,231.6
Inflows 30.5 463.3 - - - 493.8 -
Outflows - - - - - - -
--- --- --- --- --- --- ---
Net flows 30.5 463.3 - - - 493.8 -
Market performance (98.4) 475.6 298.9 220.9 118.7 676.1 507.3
Other (1) 105.4 (99.0) (107.8) (100.7) (161.6) (101.4) (359.5)
Ending balance $7,568.1 $7,530.6 $6,690.7 $6,499.6 $6,379.4 $7,568.1 $6,379.4
======== ======== ======== ======== ======== ======== ========
Mutual Funds - Money Market
---------------------------
Beginning balance $1,311.7 $1,378.0 $1,556.6 $1,610.2 $1,707.7 $1,556.6 $1,994.1
Other (1) (79.8) (66.3) (178.6) (53.6) (97.5) (324.7) (383.9)
----- ----- ------ ----- ----- ------ ------
Ending balance $1,231.9 $1,311.7 $1,378.0 $1,556.6 $1,610.2 $1,231.9 $1,610.2
======== ======== ======== ======== ======== ======== ========
Variable Insurance Funds
------------------------
Beginning balance $1,305.5 $1,286.6 $1,311.8 $1,286.8 $1,250.8 $1,311.8 $1,295.7
Inflows 20.7 20.9 11.6 13.5 13.1 53.2 35.2
Outflows (59.3) (53.3) (55.5) (59.3) (59.4) (168.1) (186.1)
----- ----- ----- ----- ----- ------ ------
Net flows (38.6) (32.4) (43.9) (45.8) (46.3) (114.9) (150.9)
Market performance (29.4) 51.3 18.7 71.8 82.3 40.6 141.5
Other (1) - - - (1.0) - - 0.5
--- --- --- ---- ---
Ending balance $1,237.5 $1,305.5 $1,286.6 $1,311.8 $1,286.8 $1,237.5 $1,286.8
======== ======== ======== ======== ======== ======== ========
Separately Managed Accounts (2)
------------------------------
Beginning balance $6,862.4 $6,778.4 $7,433.1 $6,950.7 $6,521.7 $7,433.1 $5,829.0
Inflows 319.2 278.8 471.9 379.7 312.7 1,069.9 1,004.3
Outflows (343.3) (461.0) (1,028.0) (413.2) (283.4) (1,832.3) (812.7)
------ ------ -------- ------ ------ -------- ------
Net flows (24.1) (182.2) (556.1) (33.5) 29.3 (762.4) 191.6
Market performance (180.5) 238.5 (100.1) 520.3 399.7 (42.1) 961.1
Other (1) (4.8) 27.7 1.5 (4.4) - 24.4 (31.0)
Ending balance $6,653.0 $6,862.4 $6,778.4 $7,433.1 $6,950.7 $6,653.0 $6,950.7
======== ======== ======== ======== ======== ======== ========
Institutional Accounts (2)
-------------------------
Beginning balance $4,565.0 $4,530.5 $4,570.8 $4,606.9 $4,399.3 $4,570.8 $4,359.5
Inflows 109.4 106.8 124.4 165.4 287.3 340.6 630.9
Outflows (236.5) (137.9) (236.5) (300.5) (155.0) (610.9) (481.6)
------ ------ ------ ------ ------ ------ ------
Net flows (127.1) (31.1) (112.1) (135.1) 132.3 (270.3) 149.3
Market performance (45.6) 131.1 86.9 122.3 96.4 172.4 192.4
Other (1) (44.0) (65.5) (15.1) (23.3) (21.1) (124.6) (94.3)
Ending balance $4,348.3 $4,565.0 $4,530.5 $4,570.8 $4,606.9 $4,348.3 $4,606.9
======== ======== ======== ======== ======== ======== ========
Total
-----
Beginning balance $61,394.3 $58,011.2 $57,739.6 $55,007.0 $52,653.0 $57,739.6 $45,537.0
Inflows 3,514.3 4,018.3 4,249.2 4,619.7 4,869.1 11,781.8 16,706.9
Outflows (3,022.0) (3,050.2) (4,708.9) (4,022.4) (3,623.1) (10,781.1) (9,222.7)
-------- -------- -------- -------- -------- --------- --------
Net flows 492.3 968.1 (459.7) 597.3 1,246.0 1,000.7 7,484.2
Market performance (1,051.8) 2,548.0 955.5 2,212.3 1,332.3 2,451.7 2,649.9
Other (1) 42.8 (133.0) (224.2) (77.0) (224.3) (314.4) (664.1)
Ending balance $60,877.6 $61,394.3 $58,011.2 $57,739.6 $55,007.0 $60,877.6 $55,007.0
========= ========= ========= ========= ========= ========= =========
(1) Represents open-end and closed-end mutual fund distributions, net flows of cash management strategies, net flows and market performance on 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
(2) Includes assets under management related to option strategies
Schedule of Non-GAAP Information
(Dollars in thousands)
The company reports its financial results on a Generally Accepted Accounting Principles (GAAP) basis; however management believes that evaluating the company's ongoing operating results may be enhanced if investors have additional non-GAAP financial measures. Management reviews non-GAAP financial measures to assess ongoing operations and considers them only
to be additional metrics for both management and investors to consider the company's financial performance over time, as noted in the footnotes below. Management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial results prepared in accordance with GAAP.
Reconciliation of Revenues, Operating Expenses and Operating Income on a GAAP Basis to Revenues, Operating Expenses and Operating Income, as Adjusted
Three Months Ended Nine Months Ended
Sep 30, 2014 Sep 30, 2013 Jun 30, 2014 Sep 30, 2014 Sep 30, 2013
------------ ------------ ------------ ------------ ------------
Revenues, GAAP basis $117,841 $100,409 $112,749 $338,461 $282,717
Less:
Distribution and administration expenses 29,180 25,253 29,646 86,563 71,133
Consolidated sponsored investment products revenues (1) 33 90 (122) (73) 142
---
Revenues, as adjusted (2) $88,628 $75,066 $83,225 $251,971 $211,442
------- ------- ------- -------- --------
Operating Expenses, GAAP basis $78,914 $68,779 $90,247 $244,406 $203,105
Less:
Distribution and administration expenses 29,180 25,253 29,646 86,563 71,133
Depreciation and amortization 1,660 1,735 1,617 4,891 5,133
Stock-based compensation (3) 2,510 1,848 2,786 6,834 5,605
Closed-end fund launch costs (4) - - 10,085 10,085 -
Restructuring and severance charges 294 - - 294 203
System transition costs (5) 216 - 475 691 -
Newfleet transition expenses (6) - 485 367 859 1,685
Consolidated sponsored investment product expenses (1) 1,246 231 797 2,374 547
-----
Operating Expenses, as adjusted (7) $43,808 $39,227 $44,474 $131,815 $118,799
Operating Income, as adjusted (8) $44,820 $35,839 $38,751 $120,156 $92,643
------- ------- ------- -------- -------
Operating margin, GAAP basis 33% 32% 20% 28% 28%
Operating margin, as adjusted (8) 51% 48% 47% 48% 44%
(1) Revenues and expenses related to consolidated sponsored investment products have been excluded to reflect revenues and expenses of the company prior to the consolidation of these products. Revenues represent investment management fees net of fees paid to unaffiliated subadvisors and fund expense reimbursements, distribution and service fees, and
administration and transfer agent fees.
(2) Revenues, as adjusted, is a non-GAAP financial measure calculated by netting distribution and administration expenses from GAAP revenues. Management believes Revenues, as adjusted, provides useful information to investors because distribution and administration expenses are costs that are generally passed directly through to external parties.
(3) Stock-based compensation expense includes equity issued under incentive plans and equity granted to Board of Directors
(4) For the three months ended June 30, 2014 and the nine months ended September 30, 2014, closed-end fund launch costs comprise structuring fees of $9.6 million payable to underwriters and sales-based compensation of $0.5 million
(5) System transition costs include expenses associated with the transition of middle- and back-office systems to a third-party provider
(6) For the three months ended September 30, 2013, and June 30, 2014, Newfleet transition expenses include $0.1 million, and $0.1 million, respectively, of stock-based compensation. For the nine months ended September 30, 2014 and September 30, 2013, Newfleet transition expenses include $0.2 million and $0.4 million, respectively, of stock-based compensation.
(7) Operating expenses, as adjusted, is a non-GAAP financial measure that management believes provides investors with additional information because of the nature of the specific excluded operating expenses. Specifically, management adds back amortization attributable to acquisition-related intangible assets as this may be useful to an investor to consider
our operating results with the results of other asset management firms that have not engaged in significant acquisitions. In addition, we add back restructuring and severance charges as we believe that operating expenses exclusive of these costs will aid comparability of the information to prior reporting periods. We believe that because of the variety of
equity awards used by companies and the varying methodologies for determining stock-based compensation expense, excluding stock-based compensation enhances the ability of management and investors to compare financial results over periods. Distribution and administrative expenses are excluded for the reason set forth above.
(8) Operating income, as adjusted, and operating margin, as adjusted, are calculated using the basis of revenues, as adjusted, and operating expenses, as adjusted, as described above.
The above measures should not be considered as substitutes for any measures derived in accordance with GAAP and may not be comparable to similarly titled measures of other companies. Exclusion of items in our non-GAAP presentation should not be considered as an inference that these items are unusual, infrequent or non-recurring.
(1 )The Strategic Income Fund is subject to credit, duration, interest rate, and leverage risks, as well as to the risks associated with investing in convertible securities, derivatives, foreign and emerging markets, ETFs, high yield securities (junk bonds), loan participation interests, mortgage- and asset-backed securities, and preferred stocks.
Investors should carefully consider the investment objectives, risks, charges, and expenses of any Virtus Mutual Fund before investing. The prospectus and summary prospectus contain 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.
(2 )A registration statement relating to Virtus International Wealth Masters Fund has been filed with the Securities and Exchange Commission. The fund may not be sold until the registration statement becomes effective.
The International Wealth Masters Fund, when effective, will be subject to the risks associated with equity securities, sector-focused investing and foreign investing, including volatility risk. The performance of the fund and the index it seeks to track may vary.
Virtus Mutual Funds are distributed by VP Distributors, LLC, member, FINRA, and subsidiary of Virtus Investment Partners, 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 2013 Annual Report on Form 10-K, as well as the following risks and uncertainties: (a) any reduction in our assets under management; (b) damage to our reputation; (c) our inability to attract and retain key personnel; (d) the competition we face in our business; (e) adverse regulatory and legal developments; (f) limitations on our deferred tax assets; (g) changes in key distribution or unaffiliated subadvisory relationships; (h) interruptions in service or failure to provide service by third-party service providers; (i) impairment of our goodwill or intangible assets; (j) lack of availability of required and necessary capital on satisfactory terms; (k) liabilities and losses not covered by our insurance policies; and (l) certain other risks and uncertainties described in our 2013 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.
