EX-99.1 2 docq42020earningsrelease.htm EX-99.1 Q4 2020 EARNINGS RELEASE Document

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News Release

Virtus Investment Partners Announces Financial Results for Fourth Quarter 2020

▪Earnings Per Share - Diluted of $5.40; Earnings Per Share - Diluted, as Adjusted, of $5.15
▪Total Sales of $8.6B; Net Flows of $2.6B; Long-Term AUM of $130.7B; Total AUM of $132.2B

Hartford, CT, February 2, 2021 - Virtus Investment Partners, Inc. (NASDAQ: VRTS) today reported financial results for the three months ended December 31, 2020.

Financial Highlights (Unaudited)
(in millions, except per share data or as noted)
Three Months EndedThree Months Ended
12/31/202012/31/2019Change9/30/2020Change
U.S. GAAP Financial Measures
Revenues$171.6 $146.1 17 %$154.8 11 %
Operating expenses$120.7 $108.3 11 %$113.8 6 %
Operating income (loss)$50.9 $37.8 35 %$41.0 24 %
Operating margin29.7 %25.9 %26.5 %
Net income (loss) attributable to common stockholders$43.3 $20.8 108 %$29.6 46 %
Earnings (loss) per share - diluted$5.40 $2.83 91 %$3.71 46 %
Weighted average shares outstanding - diluted8.026 8.084 (1 %)7.997 — %
Non-GAAP Financial Measures (1)
Revenues, as adjusted$153.5 $128.4 20 %$137.6 12 %
Operating expenses, as adjusted$91.6 $78.3 17 %$83.6 10 %
Operating income (loss), as adjusted$61.9 $50.1 24 %$54.1 14 %
Operating margin, as adjusted40.3 %39.0 %39.3 %
Net income (loss) attributable to common stockholders, as adjusted$41.4 $34.9 18 %$35.9 15 %
Earnings (loss) per share - diluted, as adjusted$5.15 $4.32 19 %$4.49 15 %
Weighted average shares outstanding - diluted, as adjusted8.026 8.084 (1 %)7.997 — %
(1) See the information beginning on page 11 for reconciliations to the most directly comparable U.S. GAAP measures and other important disclosures

Earnings Summary
The company presents U.S. GAAP and non-GAAP earnings information in this release. Management believes that the non-GAAP financial measures presented 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. Non-GAAP financial measures have material limitations and should not be viewed in isolation or as a substitute for U.S. GAAP measures. Reconciliations of the non-GAAP financial measures to the most comparable U.S. GAAP measures can be found beginning on page 11 of this earnings release.

Virtus Investment Partners, Inc. | One Financial Plaza | Hartford, CT 06103 | www.virtus.com

Virtus Investment Partners, Inc. 2.

Assets Under Management and Asset Flows
(in billions)
Three Months EndedThree Months Ended
12/31/202012/31/2019Change9/30/2020Change
Ending long-term assets under management (1) $130.7 $107.7 21 %$115.0 14 %
Ending total assets under management$132.2 $108.9 21 %$116.5 13 %
Average long-term assets under management (1) $119.6 $103.9 15 %$111.5 7 %
Average total assets under management$121.1 $105.1 15 %$112.9 7 %
Total sales$8.6 $4.8 80 %$7.6 13 %
Net flows$2.6 $0.3 N/M$1.2 117 %
(1) Excludes assets under management in liquidity strategies, including in certain open-end mutual funds and institutional accounts
N/M - Not Meaningful

Long-term assets under management increased 14% to $130.7 billion at December 31, 2020 from $115.0 billion at September 30, 2020 as a result of $13.4 billion of market appreciation and $2.6 billion of positive net flows. Total assets under management at December 31, 2020 were $132.2 billion, including $1.5 billion in liquidity strategies.
Total sales of $8.6 billion increased by $1.0 billion, or 13%, from the third quarter as a result of higher sales of open-end funds, institutional, retail separate accounts, and exchange traded funds (ETFs). Open-end fund sales of $3.9 billion increased 5% with growth in both equity and fixed income funds, particularly large- and small-cap domestic equity strategies and credit-sensitive fixed income. Institutional sales of $2.3 billion increased 9%, including contributions from new mandates and existing accounts across multiple affiliates. Retail separate account sales of $2.2 billion increased 26% primarily due to continued growth in the intermediary sold channel.
Net flows of $2.6 billion increased meaningfully from $1.2 billion in the prior quarter and included positive net flows in retail separate accounts, open-end funds, institutional, and ETFs. Retail separate accounts positive net flows of $1.3 billion included contributions from both the intermediary sold and private client channels. Open-end fund net flows of $0.7 billion increased from $0.4 billion in the third quarter and reflected positive net flows in both equity and fixed income funds. Institutional net flows of $0.6 billion improved from net outflows of $0.3 billion in the prior quarter, which included a single large redemption.













Virtus Investment Partners, Inc. | One Financial Plaza | Hartford, CT 06103 | www.virtus.com

Virtus Investment Partners, Inc. 3.


GAAP Results
Operating income increased 24% to $50.9 million from $41.0 million in the prior quarter, as an 11% increase in total revenues, due to higher average assets under management, was partially offset by a 6% increase in total operating expenses, largely due to higher variable incentive compensation.
Net income attributable to common stockholders of $5.40 per diluted common share included $1.96 of realized and unrealized gains on investments and ($1.56) of fair value adjustments on affiliate noncontrolling interests. Third quarter net income per diluted share of $3.71 included ($1.09) of fair value adjustments on affiliate noncontrolling interests, and $0.75 of realized and unrealized losses on investments.

The effective tax rate during the quarter of 19% compared with 23% in the prior quarter, reflecting changes in the valuation allowances related to marketable securities.

Non-GAAP Results
Revenues, as adjusted, of $153.5 million increased 12% sequentially primarily as a result of a 7% increase in average assets under management due to market appreciation and positive net flows. Revenues, as adjusted, included performance-related fees of $3.7 million, an increase from $2.0 million in the prior quarter.
Employment expenses, as adjusted, increased 11% to $73.5 million largely due to higher variable incentive compensation. As a percentage of revenues, as adjusted, employment expenses, as adjusted, were 47.8%, down modestly from the prior quarter. Other operating expenses, as adjusted, of $17.1 million increased sequentially from $16.3 million primarily due to modestly higher professional fees.
Operating income, as adjusted, and the related margin increased to $61.9 million and 40.3%, respectively, from $54.1 million and 39.3% in the prior quarter primarily due to higher revenues, as adjusted, partially offset by higher employment expenses.
Net income attributable to common stockholders, as adjusted, which is net of noncontrolling interests, was $5.15 per diluted common share, an increase of $0.66, or 15%, from $4.49 in the prior quarter. The increase primarily reflected higher revenues, as adjusted, as a result of the higher average assets under management.
The effective tax rate, as adjusted, was 27%, unchanged from the prior quarter.

Virtus Investment Partners, Inc. | One Financial Plaza | Hartford, CT 06103 | www.virtus.com

Virtus Investment Partners, Inc. 4.

Select Balance Sheet Items (Unaudited)
(in millions)
As ofAs of
12/31/202012/31/2019Change9/30/2020Change
Cash and cash equivalents$246.5 $221.8 11 %$202.2 22 %
Gross debt (1)$205.7 $285.7 (28 %)$223.2 (8 %)
Redeemable noncontrolling interests (2)$87.5 $58.4 50 %$74.6 17 %
Total equity attributable to stockholders$711.2 $675.7 5 %$679.1 5 %
Working capital (3)$172.0 $160.1 7 %$159.1 8 %
Net debt (cash) (4)$(40.8)$63.9 N/M$21.0 N/M
(1)Excludes deferred financing costs of $4.5 million, $7.9 million, and $5.2 million, as of December 31, 2020, December 31, 2019, and September 30, 2020, respectively
(2)Excludes redeemable noncontrolling interests of consolidated investment products of $28.1 million, $5.4 million, and $24.7 million as of December 31, 2020, December 31, 2019, and September 30, 2020, respectively
(3)Defined as cash and cash equivalents plus accounts receivable, net, less accrued compensation and benefits, accounts payable and accrued liabilities, dividends payable and required principal payments due over the next 12 months, including scheduled amortization and annual excess cash flow payment
(4)Defined as gross debt less cash and cash equivalents

Working capital at December 31, 2020 of $172.0 million increased 8% from September 30, 2020 as net cash generated from the business was partially offset by return of capital to shareholders and debt repayments.
During the quarter, the company repurchased 40,076 shares, or 0.5% of beginning-of-quarter outstanding common shares, for $7.5 million.
The company reduced gross debt in the quarter by $17.5 million, or 8%, to $205.7 million. Cash and cash equivalents at December 31, 2020 exceeded gross debt by $41 million.
Agreement with Westchester Capital Management
The company separately announced that it has entered into an agreement to acquire all of the equity of Westchester Capital Management, a premier manager of global event-driven alternative investment strategies with $4.3 billion in assets at December 31, 2020. The transaction is expected to close in the second half of the year, subject to customary closing conditions and approvals by Westchester Capital Management Funds Board and shareholders.
Partnership with Allianz Global Investors
On February 1, the company announced the completion of the actions necessary to finalize its previously announced strategic partnership with Allianz Global Investors that adds NFJ Investment Group as a newly established affiliated manager and expands the scope of its investment offerings for U.S. retail clients with $29.3 billion of assets under management, primarily in open- and closed-end mutual funds and retail separate accounts, as well as an additional $3.6 billion of other fee earning assets at December 31, 2020.



Virtus Investment Partners, Inc. | One Financial Plaza | Hartford, CT 06103 | www.virtus.com

Virtus Investment Partners, Inc. 5.

Conference Call

Management will host an investor conference call on Tuesday, February 2, 2021, at 10 a.m. Eastern to discuss these financial results and related matters. The webcast of the call can be accessed in the Investor Relations section of www.virtus.com, or by telephone at 877-930-7765 for callers in the U.S. and Canada or 253-336-7413 for international callers (Conference ID: 8218508). The presentation that will be reviewed as part of the conference call will be available prior to the call in the Investor Relations section of www.virtus.com. A replay of the call will be available through February 9, 2021 by telephone at 855-859-2056 (U.S. and Canada) or 404-537-3406 (international) (Conference ID: 8218508).

About Virtus Investment Partners

Virtus Investment Partners, Inc. (NASDAQ: VRTS) is a distinctive partnership of boutique investment managers singularly committed to the long-term success of individual and institutional investors. The company provides investment management products and services through its affiliated managers and select subadvisers, each with a distinct investment style, autonomous investment process, and individual brand. Virtus Investment Partners offers access to a variety of investment styles across multiple disciplines to meet a wide array of investor needs. Virtus' affiliates include Ceredex Value Advisors, Duff & Phelps Investment Management, Kayne Anderson Rudnick Investment Management, Newfleet Asset Management, NFJ Investment Group, Seix Investment Advisors, Silvant Capital Management, and Sustainable Growth Advisers. Additional information can be found at virtus.com.

Investor Relations Contact
Sean Rourke
(860) 263-4709
sean.rourke@virtus.com






















Virtus Investment Partners, Inc. | One Financial Plaza | Hartford, CT 06103 | www.virtus.com

Virtus Investment Partners, Inc. 6.

U.S. GAAP Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
Three Months EndedThree Months EndedTwelve Months Ended
12/31/202012/31/2019Change9/30/2020Change12/31/202012/31/2019Change
Revenues
Investment management fees$144,715 $120,945 20 %$129,785 12 %$505,338 $461,477 10 %
Distribution and service fees10,279 9,776 5 %9,797 5 %38,425 40,898 (6 %)
Administration and shareholder service fees16,407 15,137 8 %15,114 9 %59,463 59,884 (1 %)
Other income and fees245 226 8 %94 161 %670 987 (32 %)
     Total revenues171,646 146,084 17 %154,790 11 %603,896 563,246 7 %
Operating Expenses
Employment expenses73,527 60,265 22 %67,479 9 %267,299 240,521 11 %
Distribution and other asset-based expenses20,686 20,086 3 %19,570 6 %77,010 82,099 (6 %)
Other operating expenses17,232 18,238 (6 %)16,343 5 %69,896 74,363 (6 %)
Operating expenses of consolidated investment products641 620 3 %1,016 (37 %)10,585 4,015 164 %
Restructuring and severance— 283 (100 %)735 (100 %)1,155 2,302 (50 %)
Depreciation expense1,100 1,263 (13 %)1,106 (1 %)4,660 4,992 (7 %)
Amortization expense7,529 7,533 — %7,532 — %30,127 30,244 — %
     Total operating expenses120,715 108,288 11 %113,781 6 %460,732 438,536 5 %
Operating Income (Loss)50,931 37,796 35 %41,009 24 %143,164 124,710 15 %
Other Income (Expense)
Realized and unrealized gain (loss) on investments, net5,071 1,570 223 %2,498 103 %7,139 7,044 1 %
Realized and unrealized gain (loss) of consolidated investment products, net10,768 (3,657)N/M2,680 302 %(1,965)(1,202)63 %
Other income (expense), net1,070 519 106 %999 7 %1,876 2,411 (22 %)
     Total other income (expense), net16,909 (1,568)N/M6,177 174 %7,050 8,253 (15 %)
Interest Income (Expense)
Interest expense(2,692)(4,268)(37 %)(2,877)(6 %)(11,894)(19,473)(39 %)
Interest and dividend income236 827 (71 %)137 72 %1,367 3,844 (64 %)
Interest and dividend income of investments of consolidated investment products25,697 28,296 (9 %)26,088 (1 %)109,648 115,356 (5 %)
Interest expense of consolidated investment products(15,179)(19,975)(24 %)(17,622)(14 %)(85,437)(92,005)(7 %)
     Total interest income (expense), net8,062 4,880 65 %5,726 41 %13,684 7,722 77 %
Income (Loss) Before Income Taxes75,902 41,108 85 %52,912 43 %163,898 140,685 16 %
Income tax expense (benefit)14,088 11,326 24 %11,978 18 %43,935 35,177 25 %
Net Income (Loss)61,814 29,782 108 %40,934 51 %119,963 105,508 14 %
Noncontrolling interests(18,499)(6,890)168 %(11,286)64 %(40,006)(9,859)306 %
Net Income (Loss) Attributable to Stockholders43,315 22,892 89 %29,648 46 %79,957 95,649 (16 %)
Preferred stockholder dividends— (2,084)(100 %)— N/M— (8,337)(100 %)
Net Income (Loss) Attributable to Common Stockholders$43,315 $20,808 108 %$29,648 46 %$79,957 $87,312 (8 %)
Earnings (Loss) Per Share - Basic$5.67 $3.02 88 %$3.86 47 %$10.49 $12.54 (16 %)
Earnings (Loss) Per Share - Diluted$5.40 $2.83 91 %$3.71 46 %$10.02 $11.74 (15 %)
Cash Dividends Declared Per Preferred Share$— $1.81 (100 %)$— N/M$— $7.25 (100 %)
Cash Dividends Declared Per Common Share$0.82 $0.67 22 %$0.82 — %$2.98 $2.44 22 %
Weighted Average Shares Outstanding - Basic7,641 6,881 11 %7,684 (1 %)7,620 6,963 9 %
Weighted Average Shares Outstanding - Diluted8,026 8,084 (1 %)7,997 — %7,976 8,149 (2 %)
N/M - Not Meaningful



Virtus Investment Partners, Inc. | One Financial Plaza | Hartford, CT 06103 | www.virtus.com

Virtus Investment Partners, Inc. 7.


Assets Under Management - Product and Asset Class
(in millions)
Three Months Ended
12/31/201903/31/20206/30/20209/30/202012/31/2020
By product (period end):
Open-End Funds (1)$42,870 $33,498 $40,053 $43,369 $49,521 
Closed-End Funds6,748 5,343 5,639 5,629 5,914 
Exchange Traded Funds1,156 480 541 543 837 
Retail Separate Accounts20,414 17,660 22,054 24,727 29,751 
Institutional Accounts32,635 28,210 34,545 36,596 40,623 
Structured Products3,903 4,343 4,264 4,163 4,060 
Total Long-Term$107,726 $89,534 $107,096 $115,027 $130,706 
Liquidity (2)1,178 1,160 1,365 1,460 1,488 
Total$108,904 $90,694 $108,461 $116,487 $132,194 
By product (average) (3)
Open-End Funds (1)$41,718 $41,060 $37,198 $42,475 $46,545 
Closed-End Funds6,639 6,524 5,566 5,742 5,847 
Exchange Traded Funds1,049 962 554 549 683 
Retail Separate Accounts18,863 20,414 17,660 22,054 24,727 
Institutional Accounts31,748 31,534 31,648 36,506 37,746 
Structured Products3,903 4,191 4,265 4,171 4,068 
Total Long-Term$103,920 $104,685 $96,891 $111,497 $119,616 
Liquidity (2) 1,195 1,219 1,267 1,393 1,480 
Total$105,115 $105,904 $98,158 $112,890 $121,096 
By asset class (period end):
Equity$70,720 $57,180 $73,823 $81,032 $95,590 
Fixed Income31,186 28,231 28,870 29,603 30,310 
Alternatives (4)5,820 4,123 4,403 4,392 4,806 
Total Long-Term$107,726 $89,534 $107,096 $115,027 $130,706 
Liquidity (2) 1,178 1,160 1,365 1,460 1,488 
Total$108,904 $90,694 $108,461 $116,487 $132,194 













Virtus Investment Partners, Inc. | One Financial Plaza | Hartford, CT 06103 | www.virtus.com

Virtus Investment Partners, Inc. 8.



Assets Under Management - Average Management Fees Earned (5)
(in basis points)
Three Months Ended
12/31/20193/31/20206/30/20209/30/202012/31/2020
All Products
Open-End Funds (1)57.4 57.8 58.4 59.5 60.7 
Closed-End Funds64.0 62.8 61.8 62.1 62.2 
Exchange Traded Funds22.0 21.3 14.1 13.7 9.1 
Retail Separate Accounts46.8 50.7 51.0 47.6 48.9 
Institutional Accounts (6)31.8 29.2 31.3 31.7 34.7 
Structured Products (6)37.9 33.9 26.8 34.2 31.1 
All Long-Term Products (6)47.0 46.8 46.8 47.0 48.8 
Liquidity (2) 8.9 9.8 11.8 12.3 10.8 
All Products46.5 46.4 46.3 46.6 48.4 


(1)     Represents assets under management of U.S. retail funds, offshore funds and variable insurance funds
(2)     Represents assets under management in liquidity strategies, including in certain open-end funds and institutional accounts
(3)     Averages are calculated as follows:
- Funds - average daily or weekly balances
- Retail Separate Accounts - prior-quarter ending balance
- Institutional Accounts and Structured Products - average of month-end balances in quarter
(4)     Consists of real estate securities, mid-stream energy securities and master limited partnerships, options strategies, and other
(5)     Represents investment management fees divided by average assets. Investment management fees exclude the impact of consolidated investment products
(6)     Includes performance-related fees, in basis points, earned during the three months ended as follows:

12/31/20193/31/20206/30/20209/30/202012/31/2020
Institutional Accounts1.20.80.72.13.9
Structured Products1.5————
All Long-Term Products0.40.20.20.71.2
Virtus Investment Partners, Inc. | One Financial Plaza | Hartford, CT 06103 | www.virtus.com

Virtus Investment Partners, Inc. 9.

Assets Under Management - Asset Flows by Product
(in millions)
Three Months EndedTwelve Months Ended
12/31/20193/31/20206/30/20209/30/202012/31/202012/31/201912/31/2020
Open-End Funds (1)
Beginning balance$41,190 $42,870 $33,498 $40,053 $43,369 $37,710 $42,870 
Inflows2,343 3,874 4,388 3,755 3,937 10,835 15,954 
Outflows(2,784)(5,471)(4,005)(3,368)(3,223)(13,029)(16,067)
Net flows(441)(1,597)383 387 714 (2,194)(113)
Market performance2,301 (7,730)6,244 3,004 5,692 7,536 7,210 
Other (2)(180)(45)(72)(75)(254)(182)(446)
Ending balance$42,870 $33,498 $40,053 $43,369 $49,521 $42,870 $49,521 
Closed-End Funds
Beginning balance$6,816 $6,748 $5,343 $5,639 $5,629 $5,956 $6,748 
Inflows10 5 — 15 5 44 25 
Outflows— — — — — — — 
Net flows10 5 — 15 5 44 25 
Market performance26 (1,185)380 54 364 1,116 (387)
Other (2)(104)(225)(84)(79)(84)(368)(472)
Ending balance$6,748 $5,343 $5,639 $5,629 $5,914 $6,748 $5,914 
Exchange Traded Funds
Beginning balance$1,054 $1,156 $480 $541 $543 $668 $1,156 
Inflows164 86 74 60 218 784 438 
Outflows(62)(233)(140)(35)(40)(279)(448)
Net flows102 (147)(66)25 178 505 (10)
Market performance23 (505)137 (12)126 90 (254)
Other (2)(23)(24)(10)(11)(10)(107)(55)
Ending balance$1,156 $480 $541 $543 $837 $1,156 $837 
Retail Separate Accounts
Beginning balance$18,863 $20,414 $17,660 $22,054 $24,727 $14,998 $20,414 
Inflows1,012 1,061 1,483 1,727 2,181 3,315 6,452 
Outflows(436)(775)(654)(617)(914)(1,790)(2,960)
Net flows576 286 829 1,110 1,267 1,525 3,492 
Market performance976 (3,040)3,560 1,591 3,757 4,045 5,868 
Other (2)(1)— 5 (28)— (154)(23)
Ending balance$20,414 $17,660 $22,054 $24,727 $29,751 $20,414 $29,751 






















Virtus Investment Partners, Inc. | One Financial Plaza | Hartford, CT 06103 | www.virtus.com

Virtus Investment Partners, Inc. 10.

Assets Under Management - Asset Flows by Product (continued)
(in millions)
Three Months EndedTwelve Months Ended
12/31/20193/31/20206/30/20209/30/202012/31/202012/31/201912/31/2020
Institutional Accounts
Beginning balance$30,951 $32,635 $28,210 $34,545 $36,596 $27,445 $32,635 
Inflows1,235 1,499 3,141 2,075 2,252 4,777 8,967 
Outflows(1,091)(1,777)(1,666)(2,381)(1,689)(5,720)(7,513)
Net flows144 (278)1,475 (306)563 (943)1,454 
Market performance1,553 (4,150)4,877 2,472 3,482 6,377 6,681 
Other (2)(13)3 (17)(115)(18)(244)(147)
Ending balance$32,635 $28,210 $34,545 $36,596 $40,623 $32,635 $40,623 
Structured Products
Beginning balance$3,972 $3,903 $4,343 $4,264 $4,163 $3,640 $3,903 
Inflows— 491 — — — 389 491 
Outflows(45)(42)(73)(69)(81)(98)(265)
Net flows(45)449 (73)(69)(81)291 226 
Market performance36 39 33 10 9 173 91 
Other (2)(60)(48)(39)(42)(31)(201)(160)
Ending balance$3,903 $4,343 $4,264 $4,163 $4,060 $3,903 $4,060 
Total Long-Term
Beginning balance$102,846 $107,726 $89,534 $107,096 $115,027 $90,417 $107,726 
Inflows4,764 7,016 9,086 7,632 8,593 20,144 32,327 
Outflows(4,418)(8,298)(6,538)(6,470)(5,947)(20,916)(27,253)
Net flows346 (1,282)2,548 1,162 2,646 (772)5,074 
Market performance4,915 (16,571)15,231 7,119 13,430 19,337 19,209 
Other (2)(381)(339)(217)(350)(397)(1,256)(1,303)
Ending balance$107,726 $89,534 $107,096 $115,027 $130,706 $107,726 $130,706 
Liquidity (3)
Beginning balance$1,221 $1,178 $1,160 $1,365 $1,460 $1,613 $1,178 
Other (2)(43)(18)205 95 28 (435)310 
Ending balance$1,178 $1,160 $1,365 $1,460 $1,488 $1,178 $1,488 
Total
Beginning balance$104,067 $108,904 $90,694 $108,461 $116,487 $92,030 $108,904 
Inflows4,764 7,016 9,086 7,632 8,593 20,144 32,327 
Outflows(4,418)(8,298)(6,538)(6,470)(5,947)(20,916)(27,253)
Net flows346 (1,282)2,548 1,162 2,646 (772)5,074 
Market performance4,915 (16,571)15,231 7,119 13,430 19,337 19,209 
Other (2)(424)(357)(12)(255)(369)(1,691)(993)
Ending balance$108,904 $90,694 $108,461 $116,487 $132,194 $108,904 $132,194 

(1)     Represents assets under management of U.S. retail funds, offshore funds and variable insurance funds
(2)     Represents open-end and closed-end fund distributions net of reinvestments, the net change in assets from liquidity strategies, and the effect on net flows from non-sales related activities such as asset acquisitions/(dispositions), seed capital investments/(withdrawals), structured products reset transactions, and the use of leverage
(3)     Represents assets under management in liquidity strategies, including in certain open-end funds and institutional accounts


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Virtus Investment Partners, Inc. 11.

Non-GAAP Information and Reconciliations
(in thousands except per share data)

The following are reconciliations and related notes of the most comparable U.S. GAAP measure to each non-GAAP measure.

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 exclusion 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.

Reconciliation of Total Revenues, GAAP to Total Revenues, as Adjusted:
Three Months Ended
12/31/202012/31/20199/30/2020
Total revenues, GAAP$171,646 $146,084 $154,790 
Consolidated investment products revenues (1)2,581 2,377 2,413 
Investment management fees (2)(10,403)(10,304)(9,770)
Distribution and service fees (2)(10,283)(9,782)(9,800)
Total revenues, as adjusted$153,541 $128,375 $137,633 


Reconciliation of Total Operating Expenses, GAAP to Operating Expenses, as Adjusted:
Three Months Ended
12/31/202012/31/20199/30/2020
Total operating expenses, GAAP$120,715 $108,288 $113,781 
Consolidated investment products expenses (1)(641)(620)(1,016)
Distribution and other asset-based expenses (3)(20,686)(20,086)(19,570)
Amortization of intangible assets (4)(7,529)(7,533)(7,532)
Restructuring and severance (5)—(283)(735)
Acquisition and integration expenses (6)344(1,193)(999)
Other (7)(580)(308)(368)
Total operating expenses, as adjusted$91,623 $78,265 $83,561 


Reconciliation of Operating Income (Loss), GAAP to Operating Income (Loss), as Adjusted:
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Virtus Investment Partners, Inc. 12.

Three Months Ended
12/31/202012/31/20199/30/2020
Operating income (loss), GAAP$50,931$37,796$41,009
Consolidated investment products (earnings) losses (1)3,2222,9973,429
Amortization of intangible assets (4)7,5297,5337,532
Restructuring and severance (5)—283735
Acquisition and integration expenses (6)(344)1,193999
Other (7)580308368
Operating income (loss), as adjusted$61,918$50,110$54,072
Operating margin, GAAP29.7 %25.9 %26.5 %
Operating margin, as adjusted40.3 %39.0 %39.3 %


Reconciliation of Net Income (Loss) Attributable to Common Stockholders, GAAP to Net Income (Loss) Attributable to Common Stockholders, as Adjusted:
Three Months Ended
12/31/202012/31/20199/30/2020
Net income (loss) attributable to common stockholders, GAAP$43,315 $20,808 $29,648 
Amortization of intangible assets, net of tax (4)4,739 4,737 4,739 
Restructuring and severance, net of tax (5)— 206 534 
Acquisition and integration expenses, net of tax (6)(250)868 726 
Other, net of tax (7)12,405 8,193 8,184 
Seed capital and CLO investments (gains) losses, net of tax (8)(18,847)93 (7,910)
Net income (loss) attributable to common stockholders, as adjusted$41,362 $34,905 $35,921 
Weighted average shares outstanding - diluted8,026 8,084 7,997 
Weighted average shares outstanding - diluted, as adjusted8,026 8,084 7,997 
Earnings (loss) per share - diluted, GAAP$5.40 $2.83 $3.71 
Earnings (loss) per share - diluted, as adjusted$5.15 $4.32 $4.49 


Reconciliation of Income (Loss) Before Taxes, GAAP to Income (Loss) Before Taxes, as Adjusted:
Three Months Ended
12/31/202012/31/20199/30/2020
Income (loss) before taxes, GAAP$75,902 $41,108 $52,912 
Consolidated investment products (earnings) losses (1)(3,292)(304)(906)
Amortization of intangible assets (4)7,529 7,533 7,532 
Restructuring and severance (5)— 283 735 
Acquisition and integration expenses (6)(344)1,193 999 
Other (7)580 308 368 
Seed capital and CLO investments (gains) losses (8)(18,798)311 (8,873)
Income (loss) before taxes, as adjusted$61,577 $50,432 $52,767 
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Virtus Investment Partners, Inc. 13.

Reconciliation of Income Tax Expense (Benefit), GAAP to Income Tax Expense (Benefit), as Adjusted:
Three Months Ended
12/31/202012/31/20199/30/2020
Income tax expense (benefit), GAAP$14,088 $11,326 $11,978 
Tax impact of:
  Amortization of intangible assets (4)2,055 2,054 2,057 
  Restructuring and severance (5)— 77 201 
  Acquisition and integration expenses (6)(94)325 273 
  Other (7)706 (247)868 
  Seed capital and CLO investments (gains) losses (8)49 218 (963)
Income tax expense (benefit), as adjusted$16,804 $13,753 $14,414 
Effective tax rate, GAAPA
18.6 %27.6 %22.6 %
Effective tax rate, as adjustedB
27.3 %27.3 %27.3 %
A     Reflects income tax expense (benefit), GAAP, divided by income (loss) before taxes, GAAP
B     Reflects income tax expense (benefit), as adjusted, divided by income (loss) before taxes, as adjusted


Reconciliation of Administration and Shareholder Service Fees, GAAP to Administration and Shareholder Service Fees, as Adjusted:
Three Months Ended
12/31/202012/31/20199/30/2020
Administration and shareholder service fees, GAAP$16,407 $15,137 $15,114 
Consolidated investment products fees (1)65 52 66 
Administration and shareholder service fees, as adjusted$16,472 $15,189 $15,180 

Reconciliation of Employment Expenses, GAAP to Employment Expenses, as Adjusted:
Three Months Ended
12/31/202012/31/20199/30/2020
Employment expenses, GAAP$73,527 $60,265 $67,479 
Acquisition and integration expenses (6)515 (1,193)(999)
Other (7)(580)(308)(368)
Employment expenses, as adjusted$73,462 $58,764 $66,112 


Reconciliation of Other Operating Expenses, GAAP to Other Operating Expenses, as Adjusted:
Three Months Ended
12/31/202012/31/20199/30/2020
Other operating expenses, GAAP$17,232 $18,238 $16,343 
Acquisition and integration expenses (6)(171)— — 
Other operating expenses, as adjusted$17,061 $18,238 $16,343 

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Virtus Investment Partners, Inc. 14.

Reconciliation of Total Other Income (Expense), Net, GAAP to Total Other Income (Expense), Net, as Adjusted:
Three Months Ended
12/31/202012/31/20199/30/2020
Total other income (expense), net GAAP$16,909 $(1,568)$6,177 
Consolidated investment products (1)3,106 1,747 3,490 
Seed capital and CLO investments (gains) losses (8)(18,798)311 (8,873)
Total other income (expense), net as adjusted$1,217 $490 $794 

Reconciliation of Interest and Dividend Income, GAAP to Interest and Dividend Income, as Adjusted:
Three Months Ended
12/31/202012/31/20199/30/2020
Interest and dividend income, GAAP$236 $827 $137 
Consolidated investment products (1)898 3,273 641 
Interest and dividend income, as adjusted$1,134 $4,100 $778 

Reconciliation of Total Noncontrolling Interests, GAAP to Total Noncontrolling Interests, as Adjusted
Three Months Ended
12/31/202012/31/20199/30/2020
Total noncontrolling interests, GAAP$(18,499)$(6,890)$(11,286)
Consolidated investment products (1)3,292 304 906 
Amortization of intangible assets (4)(735)(742)(736)
Other (7)12,531 5,554 8,684 
Total noncontrolling interests, as adjusted$(3,411)$(1,774)$(2,432)


Notes to Reconciliations:

Reclassifications:

1.Consolidated investment products - Revenues and expenses generated by operating activities of mutual funds and CLOs that are consolidated in the financial statements. Management believes that excluding these operating activities to reflect net revenues and expenses of the company prior to the consolidation of these products is consistent with the approach of reflecting its operating results from managing third-party client assets.
Other Adjustments:
Revenue Related
2.Investment management/Distribution and service fees - Each of these revenue line items is reduced to exclude fees passed through to third-party client intermediaries who own the retail client relationship and are responsible for distributing the product and servicing the client. The amount of fees fluctuates each period, based on a predetermined percentage of the value of assets under management, and varies based on the type of investment product. The specific adjustments are as follows:
Investment management fees - Based on specific agreements, the portion of investment management fees passed-through to third-party intermediaries for services to investors in sponsored investment products.
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Virtus Investment Partners, Inc. 15.

Distribution and service fees - Based on distinct arrangements, fees collected by the company then passed-through to third-party client intermediaries for services to investors in sponsored investment products. The adjustment represents all of the company's distribution and service fees that are recorded as a separate line item on the condensed consolidated statements of operations.
Management believes that making these adjustments aids in comparing the company's operating results with other asset management firms that do not utilize third-party client intermediaries.
Expense Related
3.Distribution and other asset-based expenses - Primarily payments to third-party client intermediaries for providing services to investors in sponsored investment products. Management believes that making this adjustment aids in comparing the company’s operating results with other asset management firms that do not utilize third-party client intermediaries.
4.Amortization of intangible assets - Non-cash amortization expense or impairment expense, if any, attributable to acquisition-related intangible assets, including any portion that is allocated to noncontrolling interests. 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.
5.Restructuring and severance - Certain expenses associated with restructuring the business, including lease abandonment-related expenses and severance costs associated with staff reductions, that are not reflective of the ongoing earnings generation of the business. Management believes that making this adjustment aids in comparing the company's operating results with prior periods.
6.Acquisition and integration expenses - Expenses that are directly related to acquisition and integration activities. Acquisition expenses include transaction closing costs, certain professional fees, and financing fees. Integration expenses include costs incurred that are directly attributable to combining businesses, including compensation, restructuring and severance charges, professional fees, consulting fees, and other expenses. Management believes that making these adjustments aids in comparing the company’s operating results with other asset management firms that have not engaged in acquisitions.
Components of Acquisition and Integration Expenses for the respective periods are shown below:
Three Months Ended
Acquisition and Integration Expenses12/31/202012/31/20199/30/2020
Employment expenses$(515)$1,193 $999 
Other operating expenses171 — — 
Total Acquisition and Integration Expenses$(344)$1,193 $999 

7.Other - Certain expenses that are not reflective of the ongoing earnings generation of the business. Employment expenses and noncontrolling interests are adjusted for fair value measurements of affiliate minority interests. Interest expense is adjusted to remove gains on early extinguishment of debt. Income tax expense (benefit) items are adjusted for uncertain tax positions, changes in tax law, valuation allowances, and other unusual or infrequent items not related to current operating results to reflect a normalized effective rate. Preferred dividends are adjusted as preferred shares were mandatorily converted into common shares on February 1, 2020 and the non-GAAP weighted average shares are adjusted to reflect the conversion. 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 below:
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Virtus Investment Partners, Inc. 16.

Three Months Ended
Other12/31/202012/31/20199/30/2020
Employment expense fair value adjustments$580 308$368 
Tax impact of employment expense fair value adjustments(158)(84)(101)
Other discrete tax adjustments(548)331 (767)
Affiliate minority interest fair value adjustments12,531 5,554 8,684 
Preferred stockholder dividends— 2,084 — 
Total Other$12,405 $8,193 $8,184 

Seed Capital and CLO Related

8.Seed capital and CLO investments (gains) losses - Gains and losses (realized and unrealized) of seed capital and CLO investments. Gains and losses (realized and unrealized) generated by investments in seed capital and CLO investments 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 and CLO investments.

Definitions:
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, namely in excluding the impact of operating activities of consolidated investment products and reduced to exclude fees passed-through to third-party client intermediaries who own the retail client relationship and are responsible for distributing the product and servicing the client.
Operating expenses, as adjusted, is calculated to reflect expenses from ongoing continuing operations. 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 effect of consolidated investment products, acquisition and integration-related expenses 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 (loss) per share, as adjusted, represent net income (loss) attributable to common stockholders, as adjusted, divided by weighted average shares outstanding, as adjusted, on either a basic or diluted basis.



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, as amended. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “intent,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” “opportunity,” “predict,” “would,” “potential,” “future,” “forecast,” “guarantee,” “assume,” “likely,” “target” or similar statements or variations of such terms.
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Virtus Investment Partners, Inc. 17.

Our forward-looking statements are based on a series of expectations, assumptions and projections about the company and the markets in which we operate, are not guarantees of future results or performance, and involve substantial risks and uncertainty including assumptions and projections concerning our assets under management, net asset inflows and outflows, operating cash flows, business plans and ability to borrow, for all future periods. All 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 2019 Annual Report on Form 10-K and as supplemented by any subsequent Quarterly Report on Form 10-Q, as well as the following risks and uncertainties resulting from: (i) the on-going effects of the COVID-19 pandemic and associated global economic disruption; (ii) general domestic and global economic, political and pandemic conditions; (iii) any reduction in our assets under management; (iv) withdrawal, renegotiation or termination of investment advisory agreements; (v) damage to our reputation; (vi) failure to comply with investment guidelines or other contractual requirements; (vii) inability to satisfy financial covenants and payments related to our indebtedness; (viii) inability to attract and retain key personnel; (ix) challenges from the competition we face in our business; (x) adverse regulatory and legal developments; (xi) unfavorable changes in tax laws or limitations; (xii) adverse developments related to unaffiliated subadvisers; (xiii) negative implications of changes in key distribution relationships; (xiv) interruptions in or failure to provide critical technological service by us or third parties; (xv) volatility associated with our common stock; (xvi) adverse civil litigation and government investigations or proceedings; (xvii) risk of loss on our investments; (xviii) inability to make quarterly common stock dividends; (xix) lack of sufficient capital on satisfactory terms; (xx) losses or costs not covered by insurance; (xxi) impairment of goodwill or intangible assets; (xxii) inability to achieve expected acquisition-related benefits; and other risks and uncertainties.  Any occurrence of, or any material adverse change in, one or more risk factors or risks and uncertainties referred to above, in our 2019 Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and our other periodic reports filed with the Securities and Exchange Commission (the "SEC") could materially and adversely affect our operations, financial results, cash flows, prospects and liquidity.

Certain other factors that may impact our continuing operations, prospects, financial results and liquidity, or that 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 that modify or affect 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.

Virtus Investment Partners, Inc. | One Financial Plaza | Hartford, CT 06103 | www.virtus.com