VIRTUS INVESTMENT PARTNERS, INC. HARTFORD, Conn., Jan. 29, 2015 /PRNewswire/ --Virtus Investment Partners, Inc. (NASDAQ: VRTS), which operates a multi-manager asset management business, today reported growth in operating income, as adjusted, in the fourth quarter and the full year of 2014 compared with the prior-year periods, primarily as a result of higher revenues from higher average assets under management.
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Operating income, as adjusted, was $42.7 million for the quarter ended December 31, 2014, an increase of 11 percent from $38.3 million in the fourth quarter of 2013 and a decrease of 5 percent from $44.8 million in the third quarter of 2014. The related margin was 50 percent, compared with 48 percent and 51 percent for the respective prior quarters. Operating income, as adjusted, was $162.8 million for the full year, a 24 percent increase from $131.0 million in 2013; the related margin increased to 48 percent from 45 percent.
Operating income for the fourth quarter of 2014 was $36.7 million, an 8 percent increase from $33.9 million in the fourth quarter of 2013. The related margin was 33 percent compared with 32 percent for the prior-year quarter. For the full year, operating income increased 15 percent to $130.7 million from $113.5 million in 2013 and the related margin was unchanged at 29 percent.
Net income attributable to common stockholders was $18.9 million or $2.05 per fully diluted common share for the fourth quarter of 2014, compared with $24.8 million or $2.65 per share in the fourth quarter of 2013, and $37.3 million or $4.02 per share in the third quarter of 2014. The respective quarters included unrealized mark-to-market adjustments on marketable securities of $(0.91), $0.24, and $(0.51) per diluted share, and net income for the third quarter of 2014 included a net tax benefit of $15.5 million, or $1.67 per share, related to the resolution of uncertain tax positions. For the full year, net income attributable to common stockholders increased 30 percent to $97.7 million or $10.51 per share from $75.2 million or $8.92 per share in 2013.
Assets under management, excluding money market assets, were $56.7 billion at December 31, 2014, an increase of 1 percent from $56.2 billion at December 31, 2013.
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 Twelve Months Ended
Months
Ended
12/31/2014 12/31/2013 Change 9/30/2014 Change 12/31/2014 12/31/2013 Change
---------- ---------- ------ --------- ------ ---------- ---------- ------
Ending Assets Under Management (in billions) $56.7 $57.7 (2)% $60.9 (7)% $56.7 $57.7 (2)%
Average Assets Under Management (in billions) $58.5 $56.6 3% $61.8 (5)% $59.1 $53.0 12%
Ending Long-Term Assets Under Management (in billions) (1) $56.7 $56.2 1% $59.5 (5)% $56.7 $56.2 1%
Average Long-Term Assets Under Management (in billions) (1) $58.3 $54.9 6% $60.4 (3)% $58.0 $51.2 13%
Gross Sales (in millions) $3,429.8 $4,619.7 (26)% $3,514.3 (2)% $15,211.6 $21,326.6 (29)%
Net Flows(in millions) $(2,205.0) $597.3 N/M $492.3 N/M $(1,204.3) $8,081.5 N/M
Revenue $112,137 $106,498 5% $117,841 (5)% $450,598 $389,215 16%
Revenue, as adjusted (2) $85,199 $79,974 7% $88,628 (4)% $337,170 $291,416 16%
Operating expenses $75,472 $72,606 4% $78,914 (4)% $319,878 $275,711 16%
Operating expenses, as adjusted (2) $42,514 $41,628 2% $43,808 (3)% $174,330 $160,427 9%
Operating income $36,665 $33,892 8% $38,927 (6)% $130,720 $113,504 15%
Operating income, as adjusted(2) $42,685 $38,346 11% $44,820 (5)% $162,840 $130,989 24%
Net income $18,411 $26,860 (31)% $36,995 (50)% $96,965 $77,130 26%
Net income attributable to common stockholders $18,879 $24,756 (24)% $37,340 (49)% $97,700 $75,190 30%
Avg. shares outstanding - diluted (in thousands) 9,203 9,347 (2)% 9,279 (1)% 9,292 8,433 10%
Earnings per share - diluted $2.05 $2.65 (23)% $4.02 (49)% $10.51 $8.92 18%
Operating margin 33% 32% 33% 29% 29%
Operating margin, as adjusted (2) 50% 48% 51% 48% 45%
(1) Represents Assets Under Management excluding cash management strategies
(2) See "Schedule of Non-GAAP Information" at the end of the release
N/M - Not Meaningful
Management Commentary
"Today we reported strong financial results over the prior-year periods," said George R. Aylward, president and chief executive officer. "However, we were disappointed with the elevated mutual fund redemptions in the fourth quarter that led to our first quarter of mutual fund net outflows since 2009."
Operating income, as adjusted, and the related margin increased for the fourth quarter and the full year compared to the prior-year periods as the company generated increased revenue on higher levels of average assets and continued to benefit from the leveragability of the business. Total assets under management ended the year at $56.7 billion, up 1% over the prior year, excluding money market assets.
"Our fourth quarter sales rate of 22 percent was consistent with the third quarter and sales continued to be diversified by asset class," said Aylward. "Net flows in the quarter were impacted by mutual fund redemptions in domestic equity and alternative strategies, primarily in our defensive equity and long-short equity funds. The remainder of our fourth quarter sales and flows were generally in line with industry trends. Our international equity mutual funds generated positive net flows as our funds in this asset class have strong short and long-term performance. Our fixed income fund flows were slightly negative, consistent with industry trends."
"Our strong balance sheet continues to provide significant operating flexibility. In the fourth quarter, we completed our highest quarterly level of share repurchases and increased the repurchase authorization by 500,000 shares. We ended the year with cash and investments of $52 on a per share basis, up from $44 in the prior year. For the full year, we invested $166.7 million of seed capital in new products, and returned $61.7 million of capital to shareholders, an increase of 127 percent over 2013."
"As we look ahead, we are well-positioned with a broad array of differentiated product offerings from boutique managers that are intended to provide the building blocks of a well-diversified investment portfolio. As demonstrated by our recent announcements, we are continuing to focus on our strategy to opportunistically expand our investment capabilities. Our existing and new investment capabilities, distribution opportunities and the advantages of our business model will serve as the basis for future opportunities for growth," concluded Aylward.
Asset Flows and Assets Under Management
Total assets under management changed from the prior periods primarily as a result of market performance, the liquidation of money market assets and net flows.
-- Total assets under management, excluding money market assets, were $56.7
billion at December 31, 2014 compared with $56.2 billion at December 31,
2013 and $59.5 billion at September 30, 2014. The change from the prior
year is primarily attributable to market appreciation partially offset
by net outflows, net mutual fund distributions and the impact on assets
from changes in leverage. The sequential change reflects $(2.2) billion
of net flows, $(1.1) billion resulting from the impact on assets from
changes in leverage and net mutual fund distributions which more than
offset market appreciation of $0.4 billion.
-- Average assets under management were $58.5 billion at December 31, 2014
compared to $56.6 billion at December 31, 2013 and $61.8 billion at
September 30, 2014.
-- Total sales were $3.4 billion in the fourth quarter, compared with $4.6
billion in fourth quarter of 2013 and $3.5 billion in the third quarter
of 2014. For the full year, sales were $15.2 billion compared with $21.3
billion in 2013. Net flows were $(2.2) billion in the fourth quarter,
compared with net flows of $0.6 billion in the prior-year quarter and
$0.5 billion in the third quarter of 2014.
-- Long-term open-end mutual fund sales were $2.8 billion in the fourth
quarter of 2014, compared with $4.1 billion in the fourth quarter of
2013 and $3.0 billion in the third quarter of 2014. Full-year sales of
$12.7 billion compared with $19.1 billion in 2013.
-- Mutual fund net flows were $(2.2) billion in the fourth quarter compared
with $0.8 billion in the fourth quarter of 2013 and $0.7 billion in the
third quarter of 2014. The current quarter net flows were primarily
attributable to $(2.0) billion of net flows in domestic equity and
alternative strategies. For the full year, fund net flows were $(0.5)
billion compared with net flows of $8.1 billion for the full year of
2013.
-- Institutional account sales were $310 million in the quarter, an
increase of 87 percent from $165 million in the prior-year quarter, and
183 percent from $109 million in the sequential quarter, primarily
related to a fixed income subadvisory mandate. Net flows were $178
million in the fourth quarter compared to net flows of $(135) million in
the prior-year period and $(127) million in the prior quarter.
Revenue
The year-over-year increase in revenues primarily reflects growth in average assets.
-- Revenues were $112.1 million in the fourth quarter, an increase of 5
percent from $106.5 million in the fourth quarter of 2013 and compared
with $117.8 million in the third quarter of 2014. For the year, total
revenues increased 16 percent to $450.6 million from $389.2 million, as
a result of the 15 percent increase in investment management fees, as
well as higher distribution and service fees and administration and
transfer agent fees.
-- Revenues, as adjusted, were $85.2 million in the fourth quarter, an
increase of 7 percent from $80.0 million in the prior-year quarter and
compared with $88.6 million in the sequential quarter. For the full
year, revenues, as adjusted, increased 16 percent to $337.2 million from
$291.4 million in 2013.
-- Investment management fees were $75.4 million, an increase of 6 percent
from $71.2 million in the fourth quarter of 2013 and compared with $79.0
million in the sequential quarter. The average fee rate in the quarter
increased to 51.5 basis points from 50.0 basis points in the fourth
quarter of 2013 primarily due to the liquidation of money market assets
in October 2014.
-- Administration and transfer agent fees were $14.2 million in the fourth
quarter, an increase of 10 percent from $12.9 million in the prior-year
quarter and compared with $14.8 million in the sequential quarter. For
the full year, administration and transfer agent fees increased 16
percent to $56.0 million from $48.2 million in 2013, compared with the
18 percent increase in open-end mutual fund average assets.
Expenses
Operating expenses increased from the prior-year periods reflecting the overall growth of the business.
-- Total operating expenses were $75.5 million in the fourth quarter,
compared with $72.6 million in the fourth quarter of 2013 and $78.9
million in the third quarter of 2014. Full-year total operating expenses
were $319.9 million compared with $275.7 million in 2013. The increases
from the prior-year periods reflect the growth of the business; the
decrease from the sequential quarter reflects the variability of the
company's expense structure.
-- Fourth quarter operating expenses, as adjusted, were $42.5 million,
compared with $41.6 million in the fourth quarter of 2013 and $43.8
million in the third quarter of 2014. The increase over the prior-year
quarter primarily reflects higher other operating expenses; the
sequential quarter decrease primarily reflects lower employment
expenses. Full-year operating expenses, as adjusted, were $174.3 million
compared with $160.4 million in the prior year.
-- Employment expenses were $34.1 million in the fourth quarter compared
with $33.5 million in the fourth quarter of 2013 and $35.2 million in
the third quarter of 2014. The increase compared to the prior-year
quarter is attributable to increased staffing resulting from the growth
of the business, partially offset by lower overall variable incentive
compensation. For the full year, employment expenses were $139.8 million
compared with $131.8 million in 2013, primarily reflecting higher
staffing levels due to the growth of the business.
-- Distribution and administration expenses were $27.5 million in the
fourth quarter, compared with $26.7 million in the fourth quarter of
2013 and $29.2 million in the third quarter of 2014. For the full year,
distribution and administration expenses were $123.7 million compared
with $97.8 million in 2013.
-- Other operating expenses were $11.6 million in the fourth quarter, an
increase from $10.5 million in the prior-year quarter and from $11.3
million in the sequential quarter. The increase over the prior-year
quarter includes higher portfolio management and marketing activities as
well as system transition costs. For the full year, other operating
expenses increased to $46.5 million from $38.3 million in the prior
year. The increase over the prior year reflects additional costs
primarily attributable to sales and marketing activities, professional
fees and system transition costs.
Investment Capabilities and Products
The company continued its expansion of its investment capabilities and products.
