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Virtus Investment Partners(VRTS) - 2022 Q3 - Quarterly Report

Part I. FINANCIAL INFORMATION Financial Statements This section presents Virtus Investment Partners' unaudited condensed consolidated financial statements for Q3 and YTD September 30, 2022 Condensed Consolidated Balance Sheets Total assets decreased from $3.93 billion to $3.55 billion by September 30, 2022, primarily due to reduced cash and CIP investments Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $309,248 | $378,921 | | Investments of CIP | $1,976,975 | $2,140,238 | | Intangible assets, net | $467,476 | $500,571 | | Goodwill | $348,836 | $338,406 | | Total assets | $3,546,037 | $3,934,181 | | Liabilities & Equity | | | | Debt | $255,428 | $266,346 | | Notes payable of CIP | $1,864,943 | $2,033,617 | | Total liabilities | $2,615,656 | $2,958,589 | | Total equity | $805,939 | $836,627 | Condensed Consolidated Statements of Operations Q3 2022 total revenues decreased to $210.3 million from $252.1 million, with net income falling to $31.7 million from $58.7 million Key Operating Results (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $210,261 | $252,064 | $688,008 | $712,972 | | Operating Income | $44,017 | $93,282 | $166,239 | $241,835 | | Net Income Attributable to Virtus | $31,680 | $58,736 | $82,141 | $158,291 | | Earnings per Share—Diluted | $4.25 | $7.36 | $10.76 | $19.72 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities decreased to $154.9 million for YTD September 2022, with a $190.5 million net decrease in cash Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $154,850 | $423,679 | | Net cash provided by (used in) investing activities | ($25,747) | ($16,525) | | Net cash provided by (used in) financing activities | ($318,968) | ($153,513) | | Net increase (decrease) in cash | ($190,515) | $253,641 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, recent acquisitions like Stone Harbor and AlphaSimplex, goodwill, equity, debt, and CIP consolidation - On January 1, 2022, the Company acquired Stone Harbor Investment Partners, LLC for $28.2 million cash and $1.2 million contingent consideration32 - On October 1, 2021, Westchester Capital Management, LLC was acquired for $156.8 million cash and contingent consideration, with $15.4 million remaining as of September 30, 202237 - For the nine months ended September 30, 2022, 397,777 common shares were repurchased for $80.0 million, with 881,672 shares remaining available53 - Subsequent to quarter end, on October 19, 2022, an agreement was made to acquire AlphaSimplex Group, LLC, with $10.9 billion AUM94 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, noting AUM decreased to $145.0 billion due to market and outflows, and Q3 revenues and operating income declined Assets Under Management AUM decreased to $145.0 billion by September 30, 2022, down 18.2% year-over-year, driven by market performance and net outflows Assets Under Management by Product (in millions) | Product | Sep 30, 2022 | Sep 30, 2021 | % Change | | :--- | :--- | :--- | :--- | | Open-End Funds | $54,454 | $74,365 | (26.8)% | | Closed-End Funds | $10,146 | $11,721 | (13.4)% | | Retail Separate Accounts | $33,381 | $41,528 | (19.6)% | | Institutional Accounts | $46,993 | $49,691 | (5.4)% | | Total | $144,974 | $177,305 | (18.2)% | Asset Flows (in millions) | Period | Inflows | Outflows | Net Flows | | :--- | :--- | :--- | :--- | | Q3 2022 | $5,723 | ($9,037) | ($3,314) | | Q3 2021 | $7,623 | ($8,126) | ($503) | | YTD 2022 | $23,042 | ($33,084) | ($10,042) | | YTD 2021 | $27,000+ | ($24,000+) | $3,000+ | Results of Operations Q3 2022 total revenues fell 16.6% to $210.3 million, with operating income dropping 52.8% due to lower average AUM Financial Summary (in thousands) | Metric | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Total revenues | $210,261 | $252,064 | (16.6)% | | Total operating expenses | $166,244 | $158,782 | 4.7% | | Operating income | $44,017 | $93,282 | (52.8)% | | Net Income Attributable to Virtus | $31,680 | $58,736 | (46.1)% | - The Q3 decrease in investment management fees resulted from a $22.5 billion (12.5%) decrease in average AUM and a lower blended fee rate, partially offset by acquisitions127 - Nine-month operating expenses increased due to Stone Harbor and Westchester acquisitions, higher travel, and increased amortization expense133136141 Liquidity and Capital Resources As of September 30, 2022, cash and equivalents were $309.2 million, with financing activities using $319.0 million for repurchases and dividends Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash from Operating activities | $154,850 | $423,679 | | Net cash from Investing activities | ($25,747) | ($16,525) | | Net cash from Financing activities | ($318,968) | ($153,513) | - The Term Loan had an outstanding balance of $262.2 million as of September 30, 2022, with no borrowings on the $175.0 million revolving credit facility161 Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in market risk disclosures, primarily related to interest rates and securities prices, from the 2021 10-K - Primary market risk exposures are associated with unfavorable movements in interest rates and securities prices164 - No material changes to market risk information occurred during Q3 and YTD September 30, 2022, from the 2021 10-K164 Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2022, with no material changes in internal control - CEO and CFO concluded disclosure controls and procedures were effective at a reasonable assurance level as of the reporting period end166 - No material changes occurred in internal control over financial reporting during the quarter167 Part II. OTHER INFORMATION Legal Proceedings Legal proceedings information is incorporated by reference from Note 15, with outcomes not expected to have a material adverse effect - Information regarding legal proceedings is incorporated by reference from Note 15 of the financial statements168 Risk Factors No material changes to the company's risk factors from those previously reported in the 2021 Annual Report on Form 10-K - No material changes to the Company's risk factors from those previously reported in the 2021 Annual Report on Form 10-K169 Unregistered Sales of Equity Securities and Use of Proceeds In Q3 2022, the company repurchased 50,422 common shares for $10.0 million, with 881,672 shares remaining available Share Repurchases in Q3 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2022 | — | $— | | August 2022 | 27,002 | $207.89 | | September 2022 | 23,420 | $187.23 | | Total | 50,422 | | - As of September 30, 2022, 881,672 shares remained available for repurchase under the company's share repurchase program170 Exhibits This section lists exhibits filed with Form 10-Q, including CEO and CFO certifications and iXBRL financial statements - The report includes CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002174