Virtus Investment Partners(VRTS) - 2025 Q2 - Quarterly Results

Financial Performance Overview This section provides an overview of the company's financial results, including key highlights and earnings summary for the period Financial Highlights For the second quarter of 2025, Virtus reported a significant increase in GAAP net income and EPS, driven by lower operating expenses and favorable fair value adjustments, despite a 6% year-over-year decrease in GAAP revenues to $210.5 million, while non-GAAP adjusted EPS declined 4% year-over-year but rose 9% quarter-over-quarter Q2 2025 Financial Highlights (Unaudited, in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | YoY Change | Q1 2025 | QoQ Change | | :--- | :--- | :--- | :--- | :--- | :--- | | U.S. GAAP | | | | | | | Revenues | $210.5 | $224.4 | (6%) | $217.9 | (3%) | | Operating Income | $45.2 | $44.2 | 2% | $36.6 | 23% | | Operating Margin | 21.5% | 19.7% | +1.8pp | 16.8% | +4.7pp | | Net Income | $42.4 | $17.6 | 141% | $28.6 | 48% | | Diluted EPS | $6.12 | $2.43 | 152% | $4.05 | 51% | | Non-GAAP (As Adjusted) | | | | | | | Revenues | $191.0 | $203.0 | (6%) | $197.6 | (3%) | | Operating Income | $59.8 | $66.0 | (9%) | $54.6 | 10% | | Operating Margin | 31.3% | 32.5% | -1.2pp | 27.6% | +3.7pp | | Net Income | $43.3 | $47.3 | (8%) | $40.5 | 7% | | Diluted EPS | $6.25 | $6.53 | (4%) | $5.73 | 9% | Earnings Summary The company reported diluted earnings per share of $6.12 on a GAAP basis and $6.25 on an adjusted basis for Q2 2025, with total sales of $5.6 billion and net outflows of ($3.9) billion, resulting in ending Assets Under Management of $170.7 billion - Reported Diluted EPS was $6.12 (GAAP) and $6.25 (As Adjusted)[4] - Total sales reached $5.6 billion, but the company experienced net outflows of ($3.9) billion[4] - Ending Assets Under Management (AUM) stood at $170.7 billion[4] Assets Under Management (AUM) and Flows This section details the company's assets under management, including changes in AUM, asset flows by product, and average management fees AUM and Asset Flow Summary Total assets under management increased 2% sequentially to $170.7 billion at the end of Q2 2025, driven by market performance which offset net outflows of ($3.9) billion, with sales declining across institutional, retail separate accounts, and open-end funds compared to the prior quarter, primarily due to redemptions in institutional large-cap growth and retail small/mid-cap strategies AUM and Flows (in billions) | Metric | Q2 2025 | Q1 2025 | QoQ Change | | :--- | :--- | :--- | :--- | | Ending AUM | $170.7 | $167.5 | 2% | | Average AUM | $167.0 | $173.6 | (4%) | | Total Sales | $5.6 | $6.2 | (11%) | | Net Flows | ($3.9) | ($3.0) | 32% | - The sequential increase in AUM was due to market performance and positive net flows in ETFs, which were partially offset by net outflows in other products[5] - Net outflows of ($3.9) billion worsened from ($3.0) billion in the prior quarter, with institutional net flows of ($2.2) billion being the largest contributor due to redemptions in large-cap growth[7] AUM by Product and Asset Class As of June 30, 2025, the company's $170.7 billion in AUM was primarily concentrated in Equity ($96.2 billion), with the largest product allocations to Institutional Accounts ($57.1 billion) and Open-End Funds ($55.7 billion), as both Equity and Fixed Income asset classes saw sequential growth in AUM while Alternatives declined AUM Breakdown as of June 30, 2025 (in billions) | Category | AUM | % of Total | | :--- | :--- | :--- | | By Product | | | | Institutional Accounts | $57.1 | 33.5% | | Open-End Funds | $55.7 | 32.6% | | Retail Separate Accounts | $47.4 | 27.8% | | Closed-End Funds | $10.5 | 6.1% | | By Asset Class | | | | Equity | $96.2 | 56.4% | | Fixed Income | $38.6 | 22.6% | | Multi-Asset | $21.4 | 12.5% | | Alternatives | $14.5 | 8.5% | Asset Flows by Product In Q2 2025, total net outflows were ($3.9) billion, with Institutional Accounts experiencing the largest net outflows at ($2.2) billion, followed by Open-End Funds at ($1.0) billion and Retail Separate Accounts at ($0.8) billion, while Closed-End Funds had slightly positive net flows, and total inflows for the quarter were $5.6 billion, a decrease from $6.2 billion in the prior quarter Q2 2025 Net Flows by Product (in millions) | Product | Inflows | Outflows | Net Flows | | :--- | :--- | :--- | :--- | | Institutional Accounts | $1,283 | ($3,455) | ($2,172) | | Open-End Funds | $2,825 | ($3,806) | ($981) | | Retail Separate Accounts | $1,468 | ($2,264) | ($796) | | Closed-End Funds | $4 | ($2) | $2 | | Total | $5,580 | ($9,527) | ($3,947) | Average Management Fees The average management fee for all products was 41.3 basis points in Q2 2025, a slight decrease from the prior quarter and prior year, primarily driven by a lower fee rate in Open-End Funds, which dropped to 46.7 basis points, while Closed-End Funds commanded the highest fee rate at 58.6 basis points Average Management Fees Earned (in basis points) | By Product | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Open-End Funds | 46.7 | 47.8 | 50.9 | | Closed-End Funds | 58.6 | 58.5 | 58.6 | | Retail Separate Accounts | 42.9 | 42.9 | 43.3 | | Institutional Accounts | 31.8 | 31.8 | 30.7 | | All Products | 41.3 | 41.7 | 42.2 | Detailed Financial Results This section provides a comprehensive breakdown of the company's financial performance, including GAAP and Non-GAAP results, and insights into its balance sheet and capital management strategies GAAP Results GAAP operating income for Q2 2025 increased 23% sequentially to $45.2 million, primarily due to a 9% reduction in operating expenses that more than offset a 3% decline in revenues, with the expense reduction led by lower employment costs, and net income per diluted share was $6.12, which included positive fair value adjustments, while the effective tax rate decreased significantly to 22% from 31% in the prior quarter - Operating income rose to $45.2 million from $36.6 million in Q1 2025, driven by lower employment expenses and a favorable change in the fair value of contingent consideration[9] - Net income per diluted share of $6.12 included positive fair value adjustments of $0.50 for minority interests and $0.32 for contingent consideration[10] - The effective tax rate fell to 22% from 31% in the prior quarter, mainly due to a decrease in income tax valuation allowances[11] Non-GAAP Results On a non-GAAP basis, adjusted operating income increased 10% sequentially to $59.8 million, with the adjusted operating margin expanding to 31.3% from 27.6%, primarily due to lower seasonal employment expenses compared to the prior quarter, while adjusted net income per diluted share rose 9% sequentially to $6.25, and the adjusted effective tax rate remained stable at 26% - Revenues, as adjusted, decreased 3% sequentially to $191.0 million due to lower average AUM[12] - Adjusted operating income of $59.8 million and margin of 31.3% increased from $54.6 million and 27.6% in Q1 2025, mainly due to the absence of prior quarter seasonal expenses[13] - Adjusted EPS increased 9% to $6.25 from $5.73 in the prior quarter, reflecting the impact of lower seasonal employment costs[13] Balance Sheet and Capital Management As of June 30, 2025, the company held $172.2 million in cash and cash equivalents, with gross debt at $234.7 million, and net debt decreased significantly by 38% from the prior quarter to $62.5 million, representing a leverage ratio of 0.2 times EBITDA, while the company repurchased 175,872 shares for $30.0 million during the quarter Select Balance Sheet Items (in millions) | Item | 6/30/2025 | 3/31/2025 | QoQ Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $172.2 | $135.4 | 27% | | Gross debt | $234.7 | $235.4 | —% | | Working capital | $144.0 | $137.2 | 5% | | Net debt (cash) | $62.5 | $100.0 | (38%) | - The company repurchased 175,872 shares for $30.0 million during the second quarter[17] - Net debt stood at $62.5 million, equating to a leverage ratio of 0.2 times EBITDA[17] Non-GAAP Information and Reconciliations This section provides detailed reconciliations of GAAP to non-GAAP financial measures, along with explanatory notes and definitions of the adjusted metrics Reconciliation of GAAP to Non-GAAP Measures This section provides detailed reconciliations of U.S. GAAP financial measures to the company's non-GAAP adjusted measures, with key metrics reconciled including revenues, operating expenses, operating income, income before taxes, and net income, where for Q2 2025, GAAP operating income of $45.2 million was adjusted for items such as amortization of intangibles (+$12.9 million) and consolidated investment products (+$3.2 million) to arrive at an adjusted operating income of $59.8 million Q2 2025 Reconciliation of GAAP to Non-GAAP Operating Income (in millions) | Description | Amount | | :--- | :--- | | Operating income (loss), GAAP | $45.2 | | Consolidated investment products (earnings) losses | $3.2 | | Distributions to minority interests | $0.7 | | Amortization of intangible assets | $12.9 | | Acquisition and integration expenses | ($2.6) | | Other adjustments | $0.3 | | Operating income (loss), as adjusted | $59.8 | - Management believes non-GAAP measures are useful to investors as they reflect the company's core operating results from providing investment management services[26] Notes to Reconciliations The notes explain the rationale for each non-GAAP adjustment, including excluding the revenues and expenses of consolidated investment products, removing non-cash amortization of acquisition-related intangible assets, and eliminating expenses directly related to acquisition and integration activities, with other adjustments made for items not reflective of ongoing earnings, such as restructuring costs and fair value changes of contingent consideration - Consolidated investment products' results are excluded to reflect the company's performance from managing third-party client assets[31] - Amortization of intangible assets is excluded to aid in comparison with firms that have not engaged in acquisitions[35] - Acquisition and integration expenses, including changes in fair value of contingent consideration, are removed as they are not part of ongoing operations[38] Definitions of Non-GAAP Measures This section defines the key non-GAAP metrics used in the report, where 'Revenues, as adjusted' represent core client fees, excluding consolidated products and fees passed through to third-party intermediaries, 'Operating expenses, as adjusted' exclude items like amortization, restructuring, and acquisition costs to reflect ongoing operational expenses, and 'Operating margin, as adjusted' and 'Earnings per share, as adjusted' are derived from these adjusted figures - Revenues, as adjusted: Excludes the impact of consolidated investment products and fees passed through to third-party client intermediaries[39] - Operating expenses, as adjusted: Excludes amortization of intangible assets, restructuring, acquisition expenses, and other non-recurring items[40] - Operating margin, as adjusted: Calculated as operating income, as adjusted, divided by revenues, as adjusted[41] Other Information This section provides additional context, including details on investor communications, company background, and important disclaimers regarding forward-looking statements Conference Call and Investor Information Virtus management will host an investor conference call and webcast on Friday, July 25, 2025, at 10 a.m. Eastern Time to discuss the second quarter financial results, with an accompanying presentation available in the Investor Relations section of the company's website - An investor conference call is scheduled for July 25, 2025, at 10 a.m. Eastern to discuss the financial results[19] About Virtus Investment Partners Virtus Investment Partners is a company that operates as a partnership of boutique investment managers, providing a variety of investment products and services from its affiliated managers and select subadvisers, each with a distinct and autonomous investment style, catering to both individual and institutional investors - The company operates a multi-boutique asset management model, offering investment solutions from various managers with distinct investment styles[20] Forward-Looking Statements This section contains a standard legal disclaimer regarding forward-looking statements, cautioning that statements about expectations and projections are not guarantees of future performance and involve substantial risks and uncertainties, and directs investors to its SEC filings, such as the Form 10-K, for a detailed discussion of risk factors - The press release includes forward-looking statements that are based on current expectations and are not guarantees of future results[42][43] - Investors are advised to consider the risks and uncertainties detailed in the company's SEC filings, including its Annual Report on Form 10-K[44]