Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
VRTS > SEC Filings for VRTS > Form 10-Q on 7-May-2014All Recent SEC Filings

Show all filings for VIRTUS INVESTMENT PARTNERS, INC.

Form 10-Q for VIRTUS INVESTMENT PARTNERS, INC.


7-May-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q contains statements that are, or may be considered to be, forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995, as amended, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements that are not historical facts, including statements about our beliefs or expectations, are forward-looking statements. These statements may be identified by such forward-looking terminology as "expect," "estimate," "intend," "believe," "may," "will," "should," "could," "continue," "project," "opportunity," "predict," "would," "potential," "future," "guarantee," "assume," "likely," "target" 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 and the markets in which we operate, and are not guarantees of future results or performance, and involve substantial risks and uncertainty, including assumptions and projections concerning our assets under management, net cash inflows and outflows, operating cash flows and future credit facilities, for all future periods. All of our forward-looking statements contained in this Quarterly Report are as of the date of this Quarterly Report only.

We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. We do 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 Quarterly Report, 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 Quarterly Report, such statements or disclosures will be deemed to modify or supersede such statements in this Quarterly Report.

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 Annual Report on Form 10-K for the year ended December 31, 2013, or the 2013 Annual Report on Form 10-K, under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in this Quarterly Report on Form 10-Q, as well as the following risks and uncertainties: (a) any reduction in our assets under management due to market conditions, investment performance, redemptions or terminations of investment contracts, or regulatory factors; (b) damage to our reputation;
(c) our money market funds do not maintain stable net asset values; (d) our inability to attract and retain key personnel; (e) the competition we face in our business, including competition related to investment products and fees;
(f) adverse regulatory and legal developments; (g) limitations on our deferred tax assets; (h) changes in key distribution or unaffiliated subadvisory relationships; (i) interruptions in service or failure to provide service by third-party service providers for technology services critical to our business;
(j) impairment of our goodwill or intangible assets; (k) lack of availability of required and necessary capital on satisfactory terms; (l) liabilities and losses not covered by our insurance policies; and (m) 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"). Any occurrence of, or any material adverse change in, one or more risk factors or risks and uncertainties referred to in this Quarterly Report or included in our 2013 Annual Report on Form 10-K or our other periodic reports filed with the SEC could materially and adversely affect our operations, financial results, cash flows, prospects and liquidity.

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.

Overview

We are a provider of investment management and related services to individuals and institutions. We use a multi-manager, multi-style approach, offering investment strategies from affiliated managers and unaffiliated subadvisers, each having its own distinct investment style, autonomous investment process and individual brand. By offering a broad array of products, we believe we can appeal to a greater number of investors, which allows us to have opportunities across market cycles through changes in investor preferences. Our earnings are primarily driven by asset-based fees charged for services relating to these various products including investment management, fund administration, distribution and shareholder services.

We offer investment strategies for individual and institutional investors in different product structures and through multiple distribution channels. Our investment strategies are available in a diverse range of styles and disciplines, managed by a collection of boutique investment managers, both affiliated and unaffiliated. We have offerings in various asset classes (equity, fixed income and alternative), in all market capitalizations (large, mid and small), in different styles (growth, blend and value) and with various investment approaches (fundamental, quantitative and thematic). Our retail products include open-end mutual funds, closed-end funds, variable insurance funds and separately managed accounts. We also offer certain of our investment strategies to institutional clients.


Table of Contents

We distribute our open-end mutual funds through financial intermediaries. We have broad access in the retail market, with distribution partners that include national and regional broker-dealers, independent broker-dealers and independent financial advisory firms. In many of these firms, we have a number of products that are on firms' preferred "recommended" lists and on fee-based advisory programs. Our sales efforts are supported by regional sales professionals, a national account relationship group and separate teams for the retirement and insurance markets.

Our separately managed accounts are distributed through financial intermediaries and directly by teams at our affiliated managers. Our institutional distribution strategy is an affiliate-centric and coordinated model. Through relationships with consultants, our affiliates target key market segments, including foundations and endowments, corporate, and public and private pension plans.

Financial Highlights

Total revenues were $107.9 million in the first quarter of 2014, an increase of $21.7 million, or 25.2% from $86.2 million in the first quarter of 2013. Total revenues increased in the first quarter of 2014 compared to the same period in the prior year as a result of higher average assets under management and an increase in average fees earned.

Long-term open-end mutual fund sales in the first quarter of 2014 remained relatively balanced among asset strategies, with 31.9% of sales in domestic equity funds, 27.5% in fixed income strategies, 24.5% of sales in international equity funds, and 16.1% in alternative strategies.

Operating income was $32.6 million in the first quarter of 2014, an increase of $11.5 million, or 54.6%, from $21.1 million in the first quarter of 2013.

Net income attributable to common stockholders increased 57.1% to $21.9 million, from $14.0 million, in first quarter of 2013.

Assets Under Management

At March 31, 2014, we managed $58.0 billion in total assets, representing an increase of $6.8 billion, or 13.3%, from the $51.2 billion managed at March 31, 2013 and an increase of $0.3 billion, or 0.5%, from December 31, 2013. Long-term assets under management, which exclude cash management products, were $56.5 billion at March 31, 2014, an increase of $7.1 billion, or 14.4%, from $49.4 billion in March 31, 2013 and an increase of $0.4 billion, or 0.7%, from December 31, 2013. Average assets under management, which generally correspond to our fee-earning asset levels, were $57.2 billion for the three months ended March 31, 2014, an increase of $8.9 billion, or 18.4%, from $48.3 billion for the three months ended March 31, 2013.

Operating Results

In the first quarter of 2014, total revenues increased 25.2% to $107.9 million from $86.2 million in the first quarter of 2013. This increase was primarily the result of an increase in average assets under management and an increase in the average management fee rate. Operating income increased by 54.6% from $21.1 million in the first quarter of 2013 to $32.6 million in the first quarter of 2014, primarily due to increased revenues driven by higher levels of average assets under management and an increase in the average management fee rate.


Table of Contents

Assets Under Management by Product

The following table summarizes our assets under management by product:



                                                As of March 31,                       Change
                                              2014            2013          2014 vs. 2013          %
($ in millions)
Retail Assets
Mutual fund assets
Long-term open-end mutual funds            $ 37,347.0      $ 30,552.5      $       6,794.5         22.2 %
Closed-end funds                              6,690.7         6,621.0                 69.7          1.1 %
Money market open-end funds                   1,378.0         1,742.2               (364.2 )      (20.9 )%

Total mutual fund assets                     45,415.7        38,915.7              6,500.0         16.7 %

Variable insurance funds                      1,286.6         1,317.8                (31.2 )       (2.4 )%
Separately managed accounts (1)               6,778.4         6,435.5                342.9          5.3 %

Total retail assets                          53,480.7        46,669.0              6,811.7         14.6 %

Total institutional assets (1)                4,530.5         4,538.7                 (8.2 )       (0.2 )%

Total Assets Under Management              $ 58,011.2      $ 51,207.7      $       6,803.5         13.3 %

Average Assets Under Management for the
Three Months Ended                         $ 57,173.5      $ 48,287.6      $       8,885.9         18.4 %

(1) Includes assets under management related to options strategies


Table of Contents

Asset Flows by Product

The following table summarizes our asset flows by product:



                                              Three Months Ended March 31,
       ($ in millions)                           2014                2013
       Mutual Funds-Long-term Open-end
       Beginning balance                    $     36,367.7        $  25,827.1
       Inflows                                     3,641.3            5,710.6
       Outflows                                   (3,388.9 )         (2,155.0 )

       Net flows                                     252.4            3,555.6
       Market appreciation                           651.1            1,098.4
       Other (1)                                      75.8               71.4

       Ending balance                       $     37,347.0        $  30,552.5

       Mutual Funds-Closed-end
       Beginning balance                    $      6,499.6        $   6,231.6
       Inflows                                          -                  -
       Outflows                                         -                  -

       Net flows                                        -                  -
       Market appreciation                           298.9              450.2
       Other (1)                                    (107.8 )            (60.8 )

       Ending balance                       $      6,690.7        $   6,621.0

       Mutual Funds-Money Market Open-end
       Beginning balance                    $      1,556.6        $   1,994.1
       Other (1)                                    (178.6 )           (251.9 )

       Ending balance                       $      1,378.0        $   1,742.2

       Variable Insurance Funds
       Beginning balance                    $      1,311.8        $   1,295.7
       Inflows                                        11.6                9.8
       Outflows                                      (55.5 )            (61.0 )

       Net flows                                     (43.9 )            (51.2 )
       Market appreciation                            18.7               73.3
       Other (1)                                        -                  -

       Ending balance                       $      1,286.6        $   1,317.8

       Separately Managed Accounts (2)
       Beginning balance                    $      7,433.1        $   5,829.0
       Inflows                                       471.9              367.0
       Outflows                                   (1,028.0 )           (234.0 )

       Net flows                                    (556.1 )            133.0
       Market (depreciation) appreciation           (100.1 )            473.9
       Other (1)                                       1.5               (0.4 )

       Ending balance                       $      6,778.4        $   6,435.5

       Institutional Accounts (2)
       Beginning balance                    $      4,570.8        $   4,359.5
       Inflows                                       124.4              154.6
       Outflows                                     (236.5 )            (66.0 )

       Net flows                                    (112.1 )             88.6
       Market appreciation                            86.9              109.7
       Other (1)                                     (15.1 )            (19.1 )

       Ending balance                       $      4,530.5        $   4,538.7

       Total
       Beginning balance                    $     57,739.6        $  45,537.0
       Inflows                                     4,249.2            6,242.0
       Outflows                                   (4,708.9 )         (2,516.0 )

       Net flows                                    (459.7 )          3,726.0
       Market appreciation                           955.5            2,205.5
       Other (1)                                    (224.2 )           (260.8 )

       Ending balance                       $     58,011.2        $  51,207.7


Table of Contents

(1) Comprised of open-end and closed-end mutual fund distributions, net flows of cash management strategies, net flows and market appreciation (depreciation) on structured products, and net flows from non-sales related activities such as asset acquisitions/(dispositions) and marketable securities investments/(liquidations) and the impact of assets from the use of leverage.

(2) Includes assets under management related to options strategies.

The following table summarizes our assets under management by asset class:

                         As of March 31,                  Change                    % of Total
                                                  2014 vs.
                       2014           2013          2013            %           2014         2013
 ($ in millions)
 Asset Class
 Equity             $ 33,804.4     $ 28,712.6     $ 5,091.8         17.7 %        58.3 %       56.1 %
 Fixed income         16,319.6       16,100.8         218.8          1.4 %        28.1 %       31.4 %
 Alternatives (1)      5,678.3        3,229.8       2,448.5         75.8 %         9.8 %        6.3 %
 Other (2)             2,208.9        3,164.5        (955.6 )      (30.2 %)        3.8 %        6.2 %

 Total              $ 58,011.2     $ 51,207.7     $ 6,803.5         13.3 %       100.0 %      100.0 %

(1) Includes assets under management primarily related to long-short strategies and real estate securities.

(2) Includes assets under management primarily related to cash management and options strategies. Options strategies were $740.7 million and $1,379.4 million at March 31, 2014 and March 31, 2013, respectively.

Average Assets Under Management and Average Basis Points

The following table summarizes the average assets under management and the
average management fee basis points:



                                                                     Three Months Ended March 31,
                                                   Average Fees Earned                   Average Assets Under Management
                                               (expressed in basis points)                       ($ in millions)
                                               2014                   2013                 2014                   2013
Products
Mutual Funds-Long-term Open-End (1)(2)               52                     51       $       36,354.5       $       28,389.9
Mutual Funds-Closed-End                              64                     59                6,523.4                6,402.7
Mutual Funds-Money Market Open-End (1)               -                       3                1,436.8                1,838.4
Variable Insurance Funds (1)                         53                     56                1,282.2                1,315.8
Separately Managed Accounts (3)                      52                     50                6,982.8                5,895.7
Institutional Accounts (3)                           36                     32                4,593.8                4,445.1

All Products                                         51                     49       $       57,173.5       $       48,287.6

(1) Average fees earned are net of non-affiliated subadvisory fees.

(2) Excludes the impact of consolidated sponsored investment products.

(3) Includes assets under management related to options strategies.

Long-term and money market open-end mutual fund and variable insurance fund fees are calculated based on average daily net assets. Closed-end fund fees are calculated based on either average weekly or daily net assets. Average fees earned will vary based on several factors, including the asset mix and reimbursements to funds. Separately managed account fees are generally calculated based on the end of the preceding or current quarter's asset values or on an average of month-end balances. Institutional account fees are generally calculated based on an average of month-end balances or current quarter's asset values. Structured finance product fees, which are included in institutional accounts, are calculated based on a combination of the underlying cash flows and the principal value of the product.

The average fee rate earned for the first quarter of 2014 increased as compared to the same period in the prior year as equity and alternative products, which generally have higher fees, represented a higher percentage of our assets under management due to strong sales, positive flows and market appreciation. The average fee rate earned on closed-end funds increased for the first quarter of 2014 as compared to the same period in 2013 due to decreased fee waivers. The average fee rate earned on money market open-end funds decreased due to the increase in fee waivers during the first quarter of 2014 as compared to the first quarter of 2013. The average fee rate earned on institutional accounts increased in the first quarter of 2014 as compared to the first quarter of 2013 due to higher fee rates on new institutional mandates and additional subordinated fees on one of our structured products.


Table of Contents

Results of Operations

Summary Financial Data



                                             Three Months Ended
                                                  March 31,                           Change
                                             2014            2013           2014 vs. 2013          %
($ in thousands)
Results of Operations
Investment management fees                $   71,792       $ 57,777        $        14,015          24.3 %
Other revenue                                 36,079         28,391                  7,688          27.1 %

Total revenues                               107,871         86,168                 21,703          25.2 %

Operating expenses                            74,288         63,958                 10,330          16.2 %
Amortization expense                             957          1,110                   (153 )       (13.8 )%

Total operating expenses                      75,245         65,068                 10,177          15.6 %

Operating income                              32,626         21,100                 11,526          54.6 %
Other income, net                              2,033          1,179                    854          72.4 %
Interest income, net                           1,118            356                    762         214.0 %

Income before income taxes                    35,777         22,635                 13,142          58.1 %
Income tax expense                            14,010          8,450                  5,560          65.8 %

Net income                                    21,767         14,185                  7,582          53.5 %
Noncontrolling interests                         171           (225 )                  396        (176.0 )%

Net income attributable to common
stockholders                              $   21,938       $ 13,960        $         7,978          57.1 %

Revenues

Revenues by source are as follows:



                                                Three Months Ended
                                                    March 31,                        Change
                                                2014           2013         2014 vs. 2013         %
($ in thousands)
Investment management fees
Mutual funds                                 $   57,020      $ 45,228      $        11,792        26.1 %
Separately managed accounts                       8,995         7,244                1,751        24.2 %
Institutional accounts                            4,102         3,506                  596        17.0 %
Variable insurance funds                          1,675         1,799                 (124 )      (6.9 )%

Total investment management fees                 71,792        57,777               14,015        24.3 %
Distribution and service fees                    22,438        17,361                5,077        29.2 %
Administration and transfer agent fees           13,073        10,695                2,378        22.2 %
Other income and fees                               568           335                  233        69.6 %

Total revenues                               $  107,871      $ 86,168      $        21,703        25.2 %

Investment Management Fees

Investment management fees are earned based on a percentage of assets under management, and are paid pursuant to the terms of the respective investment management contracts, which generally require monthly or quarterly payments. Investment management fees increased by $14.0 million, or 24.3%, for the three months ended March 31, 2014 compared to the same period in the prior year due to an 18.4% increase in average assets under management and an increase of approximately two basis points in average fee rate earned. The increase in average assets under management for the three months ended March 31, 2014 was due primarily to the cumulative four quarter impact of $3.9 billion in net flows and $3.6 billion of market appreciation on total assets under management. Revenues increased at a higher rate than assets under management due to the increase in the average fee rate earned and the mix of assets. Equity and alternative assets, which generally earn a higher average fee rate, represented 68.1% of total assets under management at March 31, 2014 compared to 62.4% at March 31, 2013. Other assets, which represent assets under management related to cash management and options strategies were 3.8% of total assets under management at March 31, 2014 compared to 6.2% at March 31, 2013.


Table of Contents

Distribution and Service Fees

Distribution and service fees, which are asset-based fees earned from open-end mutual funds and variable insurance funds for distribution services, increased by $5.1 million, or 29.2%, for the three months ended March 31, 2014 compared to the same period in the prior year due to higher average long-term open-end assets under management. The increase in fees also resulted in a corresponding increase in distribution and administrative expenses, primarily driven by increased payments to our third-party distribution partners for providing services to investors in our sponsored funds, including marketing support services.

Administration and Transfer Agent Fees

Administration and transfer agent fees represent fees earned for fund administration and shareholder services from our open-end mutual funds, variable insurance funds and certain of our closed-end funds. Fund administration and transfer agent fees increased $2.4 million, or 22.2%, for the three months ended March 31, 2014 compared to the same period in the prior year due to higher average long-term open-end assets under management.

Other Income and Fees

Other income and fees primarily represent contingent sales charges earned from investor redemptions levied on certain shares sold without a front-end sales charge and fees earned for the distribution of unaffiliated products. Other income and fees increased $0.2 million primarily due to an increase in contingent sales charges earned.

Operating Expenses

Operating expenses by category were as follows:



                                               Three Months Ended
                                                   March 31,                         Change
                                               2014           2013         2014 vs. 2013          %
($ in thousands)
Operating expenses
Employment expenses                         $   35,029      $ 32,411      $         2,618           8.1 %
Distribution and administrative expenses        27,737        21,628                6,109          28.2 %
Other operating expenses                        10,865         9,141                1,724          18.9 %
Restructuring and severance                         -            203                 (203 )      (100.0 )%
. . .
  Add VRTS to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for VRTS - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.