VIRTUS INVESTMENT PARTNERS, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31, 2019
OR
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number: 001-10994
VIRTUS INVESTMENT PARTNERS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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26-3962811
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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One Financial Plaza, Hartford, CT 06103
(Address of principal executive offices, including Zip Code)
(800) 248-7971
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES
x
NO
¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES
x
NO
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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x
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Accelerated filer
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¨
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Non-accelerated filer
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¨
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Smaller reporting company
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¨
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Emerging growth company
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¨
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||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
¨
NO
x
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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||
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Common Stock, $0.01 par value
(including Preferred Share Purchase Rights)
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VRTS
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The NASDAQ Stock Market LLC
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||
The number of shares outstanding of the registrant’s common stock was
6,987,281
as of
April 26, 2019
.
VIRTUS INVESTMENT PARTNERS, INC.
INDEX
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Page
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Item 1.
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Item 2.
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||
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Item 3.
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Item 4.
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Item 1.
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Item 1A.
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Item 2.
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Item 6.
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"We," "us," "our," "the Company," and "Virtus" as used in this Quarterly Report on Form 10-Q, refer to Virtus Investment Partners, Inc., a Delaware corporation, and its subsidiaries.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Virtus Investment Partners, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
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March 31,
2019 |
December 31,
2018 |
||||||
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($ in thousands, except share data)
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|||||
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Assets:
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|||||||
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Cash and cash equivalents
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$
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142,343
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$
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201,705
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Investments
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75,925
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79,558
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|||
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Accounts receivable, net
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74,150
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70,047
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|||
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Assets of consolidated investment products ("CIP")
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|||||||
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Cash and cash equivalents of CIP
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55,353
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52,015
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|||
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Cash pledged or on deposit of CIP
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370
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936
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|||
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Investments of CIP
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1,767,942
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1,749,568
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|||
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Other assets of CIP
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31,153
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31,057
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Furniture, equipment and leasehold improvements, net
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20,171
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20,154
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Intangible assets, net
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331,271
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338,812
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|||
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Goodwill
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290,366
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290,366
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Deferred taxes, net
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23,564
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22,116
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|||
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Other assets
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32,694
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14,201
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Total assets
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$
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2,845,302
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$
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2,870,535
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Liabilities and Equity
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|||||||
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Liabilities:
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|||||||
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Accrued compensation and benefits
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$
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31,105
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$
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93,339
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Accounts payable and accrued liabilities
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27,723
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27,926
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Dividends payable
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7,473
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7,762
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Debt
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317,665
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329,184
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Other liabilities
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40,573
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20,010
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Liabilities of CIP
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|||||||
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Notes payable of CIP
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1,640,360
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1,620,260
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Securities purchased payable and other liabilities of CIP
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74,942
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70,706
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Total liabilities
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2,139,841
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2,169,187
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|||
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Commitments and Contingencies (Note 15)
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|||||
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Redeemable noncontrolling interests
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59,003
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57,481
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Equity:
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Equity attributable to stockholders:
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|||||||
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Series D mandatory convertible preferred stock, $0.01 par value, 1,150,000 shares authorized, issued and outstanding at March 31, 2019 and December 31, 2018
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110,843
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110,843
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Common stock, $0.01 par value, 1,000,000,000 shares authorized; 10,682,129 shares issued and 6,978,925 shares outstanding at March 31, 2019 and 10,552,624 shares issued and 6,997,382 shares outstanding at December 31, 2018, respectively
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107
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106
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Additional paid-in capital
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1,205,926
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1,209,805
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Retained earnings (accumulated deficit)
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(289,119
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)
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(310,865
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)
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|||
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Accumulated other comprehensive income (loss)
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1
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(731
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)
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Treasury stock, at cost, 3,703,204 and 3,555,242 shares at March 31, 2019 and December 31, 2018, respectively
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(394,248
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)
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(379,249
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)
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|||
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Total equity attributable to stockholders
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633,510
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629,909
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|||
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Noncontrolling interests of CIP
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12,948
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13,958
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Total equity
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646,458
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643,867
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|||
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Total liabilities and equity
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$
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2,845,302
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$
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2,870,535
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Virtus Investment Partners, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended
March 31, |
||||||
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2019
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2018
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|||||
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($ in thousands, except per share data)
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|||||
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Revenues
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|||||||
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Investment management fees
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$
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105,918
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$
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100,476
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Distribution and service fees
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10,063
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12,607
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|||
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Administration and shareholder service fees
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14,413
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15,738
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|||
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Other income and fees
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324
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207
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|||
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Total revenues
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130,718
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129,028
|
|
|||
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Operating Expenses
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|||||||
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Employment expenses
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60,851
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60,696
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|||
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Distribution and other asset-based expenses
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19,764
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22,291
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|||
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Other operating expenses
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18,723
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16,862
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|
|||
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Operating expenses of consolidated investment products ("CIP")
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451
|
|
511
|
|
|||
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Restructuring and severance
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1,176
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—
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|||
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Depreciation and other amortization
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1,213
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|
1,015
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|
|||
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Amortization expense
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7,541
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5,036
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|||
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Total operating expenses
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109,719
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106,411
|
|
|||
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Operating Income (Loss)
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20,999
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22,617
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|
|||
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Other Income (Expense)
|
|||||||
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Realized and unrealized gain (loss) on investments, net
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3,433
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|
438
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|
|||
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Realized and unrealized gain (loss) of CIP, net
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(1,921
|
)
|
2,259
|
|
|||
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Other income (expense), net
|
450
|
|
1,319
|
|
|||
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Total other income (expense), net
|
1,962
|
|
4,016
|
|
|||
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Interest Income (Expense)
|
|||||||
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Interest expense
|
(5,165
|
)
|
(3,858
|
)
|
|||
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Interest and dividend income
|
1,190
|
|
721
|
|
|||
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Interest and dividend income of investments of CIP
|
27,402
|
|
21,403
|
|
|||
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Interest expense of CIP
|
(19,701
|
)
|
(14,549
|
)
|
|||
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Total interest income (expense), net
|
3,726
|
|
3,717
|
|
|||
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Income (Loss) Before Income Taxes
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26,687
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|
30,350
|
|
|||
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Income tax expense (benefit)
|
4,219
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|
6,523
|
|
|||
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Net Income (Loss)
|
22,468
|
|
23,827
|
|
|||
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Noncontrolling interests
|
(722
|
)
|
(527
|
)
|
|||
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Net Income (Loss) Attributable to Stockholders
|
21,746
|
|
23,300
|
|
|||
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Preferred stockholder dividends
|
(2,084
|
)
|
(2,084
|
)
|
|||
|
Net Income (Loss) Attributable to Common Stockholders
|
$
|
19,662
|
|
$
|
21,216
|
|
|
|
Earnings (Loss) per Share—Basic
|
$
|
2.80
|
|
$
|
2.95
|
|
|
|
Earnings (Loss) per Share—Diluted
|
$
|
2.61
|
|
$
|
2.77
|
|
|
|
Cash Dividends Declared per Preferred Share
|
$
|
1.81
|
|
$
|
1.81
|
|
|
|
Cash Dividends Declared per Common Share
|
$
|
0.55
|
|
$
|
0.45
|
|
|
|
Weighted Average Shares Outstanding—Basic (in thousands)
|
7,015
|
|
7,197
|
|
|||
|
Weighted Average Shares Outstanding—Diluted (in thousands)
|
8,322
|
|
8,411
|
|
|||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Virtus Investment Partners, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
|
|
Three Months Ended
March 31, |
||||||
|
|
2019
|
2018
|
|||||
|
($ in thousands)
|
|
|
|||||
|
Net Income (Loss)
|
$
|
22,468
|
|
$
|
23,827
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|||||||
|
Foreign currency translation adjustment, net of tax of $(3) and ($4) for the three months ended March 31, 2019 and 2018, respectively
|
6
|
|
10
|
|
|||
|
Unrealized gain (loss) on available-for-sale securities, net of tax of $97 for the three months ended March 31, 2018
|
—
|
|
(249
|
)
|
|||
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Other comprehensive income (loss)
|
6
|
|
(239
|
)
|
|||
|
Comprehensive income (loss)
|
22,474
|
|
23,588
|
|
|||
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Comprehensive (income) loss attributable to noncontrolling interests
|
(722
|
)
|
(527
|
)
|
|||
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Comprehensive Income (Loss) Attributable to Stockholders
|
$
|
21,752
|
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$
|
23,061
|
|
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Virtus Investment Partners, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
Three Months Ended
March 31, |
||||||
|
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2019
|
2018
|
|||||
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($ in thousands)
|
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|||||
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Cash Flows from Operating Activities:
|
|||||||
|
Net income (loss)
|
$
|
22,468
|
|
$
|
23,827
|
|
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|||||||
|
Depreciation expense, intangible asset and other amortization
|
9,874
|
|
6,819
|
|
|||
|
Stock-based compensation
|
5,629
|
|
5,909
|
|
|||
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Amortization of deferred commissions
|
980
|
|
737
|
|
|||
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Payments of deferred commissions
|
(455
|
)
|
(1,075
|
)
|
|||
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Equity in earnings of equity method investments
|
(496
|
)
|
(1,322
|
)
|
|||
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Realized and unrealized (gains) losses on investments, net
|
(3,292
|
)
|
(333
|
)
|
|||
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Sales (purchases) of investments, net
|
9,413
|
|
4,718
|
|
|||
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Deferred taxes, net
|
(1,705
|
)
|
646
|
|
|||
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Changes in operating assets and liabilities:
|
|||||||
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Accounts receivable, net and other assets
|
(2,732
|
)
|
2,629
|
|
|||
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Accrued compensation and benefits, accounts payable, accrued liabilities and other liabilities
|
(60,857
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)
|
(51,148
|
)
|
|||
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Operating activities of consolidated investment products ("CIP"):
|
|||||||
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Realized and unrealized (gains) losses on investments of CIP, net
|
1,497
|
|
(2,382
|
)
|
|||
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Purchases of investments by CIP
|
(157,158
|
)
|
(264,398
|
)
|
|||
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Sales of investments by CIP
|
152,572
|
|
217,564
|
|
|||
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Net purchases of short term investments by CIP
|
(911
|
)
|
(177
|
)
|
|||
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Sales (purchases) of securities sold short by CIP, net
|
1,064
|
|
190
|
|
|||
|
Change in other assets of CIP
|
578
|
|
(492
|
)
|
|||
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Change in liabilities of CIP
|
316
|
|
(3,467
|
)
|
|||
|
Net cash provided by (used in) operating activities
|
(23,215
|
)
|
(61,755
|
)
|
|||
|
Cash Flows from Investing Activities:
|
|||||||
|
Capital expenditures
|
(2,568
|
)
|
(1,275
|
)
|
|||
|
Change in cash and cash equivalents of CIP due to consolidation (deconsolidation), net
|
(1,571
|
)
|
—
|
|
|||
|
Sale of available-for-sale securities
|
2,044
|
|
—
|
|
|||
|
Purchases of available-for-sale securities
|
—
|
|
(20,302
|
)
|
|||
|
Net cash provided by (used in) investing activities
|
(2,095
|
)
|
(21,577
|
)
|
|||
|
Cash Flows from Financing Activities:
|
|||||||
|
Repayments on debt
|
(12,413
|
)
|
(650
|
)
|
|||
|
Payment of deferred financing costs
|
—
|
|
(3,400
|
)
|
|||
|
Common stock dividends paid
|
(4,441
|
)
|
(3,412
|
)
|
|||
|
Preferred stock dividends paid
|
(2,084
|
)
|
(2,084
|
)
|
|||
|
Repurchases of common shares
|
(14,999
|
)
|
—
|
|
|||
|
Stock options exercised
|
449
|
|
698
|
|
|||
|
Taxes paid related to net share settlement of restricted stock units
|
(4,804
|
)
|
(5,014
|
)
|
|||
|
Net subscriptions received from (redemptions/distributions paid to) noncontrolling interests
|
6,012
|
|
(589
|
)
|
|||
|
Financing activities of CIP:
|
|||||||
|
Borrowings (payments) on borrowings by CIP
|
—
|
|
350,000
|
|
|||
|
Proceeds from issuance of notes payable by CIP
|
1,000
|
|
—
|
|
|||
|
Repayment of notes payable by CIP
|
—
|
|
(350,000
|
)
|
|||
|
Net cash provided by (used in) financing activities
|
(31,280
|
)
|
(14,451
|
)
|
|||
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
(56,590
|
)
|
(97,783
|
)
|
|||
|
Cash, cash equivalents and restricted cash, beginning of period
|
254,656
|
|
234,282
|
|
|||
|
Cash, Cash Equivalent and Restricted Cash, End of Period
|
$
|
198,066
|
|
$
|
136,499
|
|
|
|
Non-Cash Investing Activities:
|
|||||||
|
Change in accrual for capital expenditures
|
$
|
(1,267
|
)
|
$
|
(375
|
)
|
|
|
Non-Cash Financing Activities:
|
|||||||
|
Increase (decrease) to noncontrolling interest due to consolidation (deconsolidation) of CIP, net
|
$
|
(6,423
|
)
|
$
|
—
|
|
|
|
Common stock dividends payable
|
$
|
3,865
|
|
$
|
3,248
|
|
|
|
Preferred stock dividends payable
|
$
|
2,084
|
|
$
|
2,084
|
|
|
|
March 31, 2019
|
December 31, 2018
|
||||||
|
($ in thousands)
|
|||||||
|
Reconciliation of cash, cash equivalents and restricted cash
|
|||||||
|
Cash and cash equivalents
|
$
|
142,343
|
|
$
|
201,705
|
|
|
|
Cash of consolidated investment products
|
55,353
|
|
52,015
|
|
|||
|
Cash pledged or on deposit of consolidated investment products
|
370
|
|
936
|
|
|||
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
198,066
|
|
$
|
254,656
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Virtus Investment Partners, Inc.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
|
Permanent Equity
|
Temporary Equity
|
|||||||||||||||||||||||||||||||||||||||||||||||
|
|
Common Stock
|
Preferred Stock
|
Additional
Paid-in
Capital
|
Retained Earnings (Accumulated
Deficit)
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Treasury Stock
|
Total
Attributed To
Stockholders
|
Non-
controlling
Interests
|
Total
Equity
|
Redeemable
Non-
controlling
Interests
|
||||||||||||||||||||||||||||||||||||||
|
($ in thousands, except per share data)
|
Shares
|
Par Value
|
Shares
|
Amount
|
Shares
|
Amount
|
||||||||||||||||||||||||||||||||||||||||||
|
Balances at December 31, 2017
|
7,159,645
|
|
$
|
105
|
|
1,150,000
|
|
$
|
110,843
|
|
$
|
1,216,173
|
|
$
|
(386,216
|
)
|
$
|
(600
|
)
|
3,296,289
|
|
$
|
(351,748
|
)
|
$
|
588,557
|
|
$
|
16,667
|
|
$
|
605,224
|
|
$
|
4,178
|
|
||||||||||||
|
Adjustment for adoption of ASU 2016-01
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(178
|
)
|
178
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||||||||||||
|
Net income (loss)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
23,300
|
|
—
|
|
—
|
|
—
|
|
23,300
|
|
672
|
|
23,972
|
|
(145
|
)
|
||||||||||||||||||||||
|
Net unrealized gain (loss) on securities available-for-sale
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(249
|
)
|
—
|
|
—
|
|
(249
|
)
|
—
|
|
(249
|
)
|
—
|
|
||||||||||||||||||||||
|
Foreign currency translation adjustments
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
10
|
|
—
|
|
—
|
|
10
|
|
—
|
|
10
|
|
—
|
|
||||||||||||||||||||||
|
Net subscriptions (redemptions) and other
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(720
|
)
|
(720
|
)
|
129
|
|
||||||||||||||||||||||
|
Cash dividends declared ($1.8125 per preferred share)
|
—
|
|
—
|
|
—
|
|
—
|
|
(2,084
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(2,084
|
)
|
—
|
|
(2,084
|
)
|
—
|
|
||||||||||||||||||||||
|
Cash dividends declared ($0.45 per common share)
|
—
|
|
—
|
|
—
|
|
—
|
|
(3,394
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(3,394
|
)
|
—
|
|
(3,394
|
)
|
—
|
|
||||||||||||||||||||||
|
Issuance of common shares related to employee stock transactions
|
57,798
|
|
—
|
|
—
|
|
—
|
|
698
|
|
—
|
|
—
|
|
—
|
|
—
|
|
698
|
|
—
|
|
698
|
|
—
|
|
||||||||||||||||||||||
|
Taxes paid on stock-based compensation
|
—
|
|
—
|
|
—
|
|
—
|
|
(5,014
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(5,014
|
)
|
—
|
|
(5,014
|
)
|
—
|
|
||||||||||||||||||||||
|
Stock-based compensation
|
—
|
|
—
|
|
—
|
|
—
|
|
6,963
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6,963
|
|
—
|
|
6,963
|
|
—
|
|
||||||||||||||||||||||
|
Balances at March 31, 2018
|
7,217,443
|
|
$
|
105
|
|
1,150,000
|
|
$
|
110,843
|
|
$
|
1,213,342
|
|
$
|
(363,094
|
)
|
$
|
(661
|
)
|
3,296,289
|
|
$
|
(351,748
|
)
|
$
|
608,787
|
|
$
|
16,619
|
|
$
|
625,406
|
|
$
|
4,162
|
|
||||||||||||
|
Balances at December 31, 2018
|
6,997,382
|
|
$
|
106
|
|
1,150,000
|
|
$
|
110,843
|
|
$
|
1,209,805
|
|
$
|
(310,865
|
)
|
$
|
(731
|
)
|
3,555,242
|
|
$
|
(379,249
|
)
|
$
|
629,909
|
|
$
|
13,958
|
|
$
|
643,867
|
|
$
|
57,481
|
|
||||||||||||
|
Net income (loss)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
21,746
|
|
—
|
|
—
|
|
—
|
|
21,746
|
|
(453
|
)
|
21,293
|
|
1,175
|
|
||||||||||||||||||||||
|
Foreign currency translation adjustments
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6
|
|
—
|
|
—
|
|
6
|
|
—
|
|
6
|
|
—
|
|
||||||||||||||||||||||
|
Net subscriptions (redemptions) and other
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(557
|
)
|
(557
|
)
|
347
|
|
||||||||||||||||||||||
|
Reclassification from other comprehensive (income) loss
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
726
|
|
—
|
|
—
|
|
726
|
|
—
|
|
726
|
|
—
|
|
||||||||||||||||||||||
|
Cash dividends declared ($1.8125 per preferred share)
|
—
|
|
—
|
|
—
|
|
—
|
|
(2,084
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(2,084
|
)
|
—
|
|
(2,084
|
)
|
—
|
|
||||||||||||||||||||||
|
Cash dividends declared ($0.55 per common share)
|
—
|
|
—
|
|
—
|
|
—
|
|
(4,152
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(4,152
|
)
|
—
|
|
(4,152
|
)
|
—
|
|
||||||||||||||||||||||
|
Repurchases of common shares
|
(147,962
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
147,962
|
|
(14,999
|
)
|
(14,999
|
)
|
—
|
|
(14,999
|
)
|
—
|
|
||||||||||||||||||||||
|
Issuance of common shares related to employee stock transactions
|
129,505
|
|
1
|
|
—
|
|
—
|
|
448
|
|
—
|
|
—
|
|
—
|
|
—
|
|
449
|
|
—
|
|
449
|
|
—
|
|
||||||||||||||||||||||
|
Taxes paid on stock-based compensation
|
—
|
|
—
|
|
—
|
|
—
|
|
(4,804
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(4,804
|
)
|
(4,804
|
)
|
—
|
|
||||||||||||||||||||||||
|
Stock-based compensation
|
—
|
|
—
|
|
—
|
|
—
|
|
6,713
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6,713
|
|
—
|
|
6,713
|
|
—
|
|
||||||||||||||||||||||
|
Balances at March 31, 2019
|
6,978,925
|
|
$
|
107
|
|
1,150,000
|
|
$
|
110,843
|
|
$
|
1,205,926
|
|
$
|
(289,119
|
)
|
$
|
1
|
|
3,703,204
|
|
$
|
(394,248
|
)
|
$
|
633,510
|
|
$
|
12,948
|
|
$
|
646,458
|
|
$
|
59,003
|
|
||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Virtus Investment Partners, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Business
Virtus Investment Partners, Inc. ("the Company," "we," "us," "our" or "Virtus"), a Delaware corporation, operates in the investment management industry through its subsidiaries.
The Company provides investment management and related services to individuals and institutions. The Company’s retail investment management services are provided to individuals through products consisting of U.S. 1940 Act mutual funds and Undertaking for Collective Investment in Transferable Securities ("UCITS" or "offshore funds" and collectively with U.S. 1940 Act mutual funds, "open-end funds"), exchange traded funds ("ETFs"), closed-end funds (collectively with open-end funds and ETFs, "funds") and retail separate accounts. Institutional investment management services are provided to corporations, multi-employer retirement funds, employee retirement systems, foundations, endowments and structured products. The Company also provides subadvisory services to other investment advisors.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Company’s financial condition and results of operations. Operating results for the
three
months ended
March 31, 2019
are not necessarily indicative of the results that may be expected for the year ending
December 31, 2019
.
These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018
filed with the Securities and Exchange Commission. The Company’s significant accounting policies, which have been consistently applied, are summarized in its
2018
Annual Report on Form 10-K.
New Accounting Standards Implemented
In July 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-09,
Codification Improvements
. On January 1, 2019, the Company adopted this standard. This standard which does not prescribe any new accounting guidance, makes minor improvements and clarifications of several different FASB Accounting Standards Codification ("ASC") areas based on comments and suggestions made by various stakeholders. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02,
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. The standard provides financial statement preparers with the option to reclassify tax effects within other comprehensive income (referred to as stranded tax effects) to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. On January 1, 2019, the Company adopted this standard. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
("ASU 2016-02")
.
The standard replaces current codification Topic 840 -
Leases
with updated guidance on accounting for leases that requires a lessee to recognize assets and liabilities arising from an operating lease on the balance sheet, whereas previous guidance did not require lease assets and liabilities to be recognized for most operating leases. Furthermore, this standard permits companies to make an accounting policy election to not recognize lease assets and liabilities on the balance sheet for leases with a term of 12 months or less. For both finance leases and operating leases, the lease liability should be initially measured at the present value of the future lease payments. In addition to recognizing the lease liability, companies are required to recognize a corresponding asset representing the right to use the underlying asset over the lease term. The right of use asset ("ROU") is initially measured as the value of the lease liability, plus indirect costs and prepaid lease payments, less lease incentives. In July 2018, the FASB issued ASU 2018-10,
Codification Improvements to Topic 842 (Leases)
, which provides narrow amendments to clarify how to apply certain
6
aspects of ASU 2016-02, allowing entities the option to instead apply the provisions of the new lease standards at the effective date without adjusting comparative periods presented. The Company elected this optional transition method along with the package of practical expedients permitted under the guidance which resulted in not having to reassess whether expired or existing contracts upon adoption contained a lease as well as retaining the historical classifications of the Company's leases and initial direct costs. The Company also elected the hindsight practical expedient in evaluating lessee options and to combine lease and non-lease components in calculating the lease liability and ROU asset for operating leases. The adoption of this standard resulted in the recording of a ROU asset of
$20.5 million
and lease liability of
$28.6 million
on January 1, 2019 which represented a non-cash investing activity in the Company's condensed consolidated statements of cash flows. See Note 8 for further discussion.
New Accounting Standards Not Yet Implemented
In August 2018, the FASB issued ASU 2018-15,
Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40)
("ASU 2018-15"). This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software, including an internal use software license. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this standard will have a material impact on the Company's condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820)
. This standard modifies the disclosure requirements on fair value measurements and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the potential impact of the guidance but does not expect the adoption of this standard will have a material impact on the Company's condensed consolidated financial statements.
3. Revenues
The Company's revenues are recognized when a performance obligation is satisfied, which occurs when control of the services is transferred to customers. Investment management fees, distribution and service fees and administration and shareholder service fees are generally calculated as a percentage of average net assets of the investment portfolios managed. The net asset values from which investment management, distribution and service and administration and shareholder service fees are calculated are variable in nature and subject to factors outside of the Company's control such as deposits, withdrawals and market performance. Because of this, they are considered constrained until the end of the contractual measurement period (monthly or quarterly) which is when asset values are generally determinable.
Revenue Disaggregated by Source
The following table summarizes revenue by source:
|
|
Three Months Ended March 31,
|
||||||
|
|
2019
|
2018
|
|||||
|
($ in thousands)
|
|
|
|||||
|
Investment management fees
|
|||||||
|
Open-end funds
|
$
|
53,293
|
|
$
|
54,361
|
|
|
|
Closed-end funds
|
10,019
|
|
10,378
|
|
|||
|
Retail separate accounts
|
18,005
|
|
16,529
|
|
|||
|
Institutional accounts
|
22,177
|
|
15,818
|
|
|||
|
Structured products
|
1,647
|
|
2,326
|
|
|||
|
Other products
|
777
|
|
1,064
|
|
|||
|
Total investment management fees
|
105,918
|
|
100,476
|
|
|||
|
Distribution and service fees
|
10,063
|
|
12,607
|
|
|||
|
Administration and shareholder service fees
|
14,413
|
|
15,738
|
|
|||
|
Other income and fees
|
324
|
|
207
|
|
|||
|
Total revenues
|
$
|
130,718
|
|
$
|
129,028
|
|
|
7
4. Business Combinations
Sustainable Growth Advisers, LP
On July 1, 2018, the Company completed the acquisition of
70%
of the outstanding limited partnership interests of Sustainable Growth Advisors, LP ("SGA") and
100%
of the membership interests in its general partner, SGIA, LLC (the "SGA Acquisition"). SGA is an investment manager specializing in U.S. and global growth equity portfolios. The total purchase price of the SGA Acquisition was
$129.5 million
. The Company accounted for the acquisition in accordance with ASC 805,
Business Combinations.
The purchase price was allocated to the assets acquired, liabilities assumed and noncontrolling interests based upon their estimated fair values at the date of the SGA Acquisition. Goodwill of
$120.2 million
and other intangible assets of
$62.0 million
were recorded as a result of the SGA Acquisition. The Company expects
$127.5 million
of this amount to be tax deductible over 15 years. The Company has not completed its final assessment of the fair values of purchased receivables or acquired contracts. The final fair value of the net assets acquired may result in adjustments to certain assets and liabilities, including goodwill.
The following table summarizes the identified acquired assets, liabilities assumed and redeemable noncontrolling interests as of the acquisition date:
|
July 1, 2018
|
|||
|
($ in thousands)
|
|||
|
Assets:
|
|||
|
Cash and cash equivalents
|
$
|
2,505
|
|
|
Investments
|
262
|
|
|
|
Accounts receivable
|
6,649
|
|
|
|
Furniture, equipment and leasehold improvements
|
70
|
|
|
|
Intangible assets
|
62,000
|
|
|
|
Goodwill
|
120,213
|
|
|
|
Other assets
|
659
|
|
|
|
Total Assets
|
192,358
|
|
|
|
Liabilities
|
|||
|
Accrued compensation and benefits
|
824
|
|
|
|
Accounts payable and accrued liabilities
|
6,534
|
|
|
|
Total liabilities
|
7,358
|
|
|
|
Redeemable noncontrolling interests
|
55,500
|
|
|
|
Total Net Assets Acquired
|
$
|
129,500
|
|
Identifiable Intangible Assets Acquired
In connection with the allocation of the purchase price, the Company identified the following intangible assets:
|
July 1, 2018
|
|||||
|
Approximate Fair Value
|
Weighted Average of Useful Life
|
||||
|
($ in thousands)
|
|||||
|
Definite-lived intangible assets:
|
|||||
|
Institutional and retail separate account investment contracts
|
$
|
49,000
|
|
6 years
|
|
|
Trade name
|
7,000
|
|
10 years
|
||
|
Non-competition agreements
|
6,000
|
|
5 years
|
||
|
Total definite-lived intangible assets
|
$
|
62,000
|
|
||
8
5. Intangible Assets, Net
Intangible assets, net are summarized as follows:
|
March 31, 2019
|
December 31, 2018
|
||||||
|
($ in thousands)
|
|
|
|||||
|
Definite-lived intangible assets:
|
|||||||
|
Investment contracts and other
|
$
|
487,747
|
|
$
|
487,747
|
|
|
|
Accumulated amortization
|
(199,992
|
)
|
(192,451
|
)
|
|||
|
Definite-lived intangible assets, net
|
287,755
|
|
295,296
|
|
|||
|
Indefinite-lived intangible assets
|
43,516
|
|
43,516
|
|
|||
|
Total intangible assets, net
|
$
|
331,271
|
|
$
|
338,812
|
|
|
Activity in intangible assets, net is as follows:
|
|
Three Months Ended March 31,
|
||||||
|
|
2019
|
2018
|
|||||
|
($ in thousands)
|
|
|
|||||
|
Intangible assets, net
|
|||||||
|
Balance, beginning of period
|
$
|
338,812
|
|
$
|
301,954
|
|
|
|
Amortization
|
(7,541
|
)
|
(5,036
|
)
|
|||
|
Balance, end of period
|
$
|
331,271
|
|
$
|
296,918
|
|
|
Estimated amortization expense of intangible assets for the remainder of fiscal year
2019
and succeeding fiscal years is as follows:
|
Fiscal Year
|
Amount
($ in thousands) |
|||
|
Remainder of 2019
|
$
|
22,569
|
|
|
|
2020
|
29,945
|
|
||
|
2021
|
29,933
|
|
||
|
2022
|
29,809
|
|
||
|
2023
|
29,148
|
|
||
|
2024 and thereafter
|
146,351
|
|
||
|
$
|
287,755
|
|
||
6. Investments
Investments consist primarily of investments in the Company's sponsored products. The Company's investments, excluding the assets of consolidated investment products discussed in Note 17, at
March 31, 2019
and
December 31, 2018
, were as follows:
|
March 31, 2019
|
December 31, 2018
|
||||||
|
($ in thousands)
|
|
|
|||||
|
Investment securities - fair value
|
$
|
56,362
|
|
$
|
59,271
|
|
|
|
Investment securities - available for sale
|
—
|
|
2,023
|
|
|||
|
Equity method investments
|
11,051
|
|
10,573
|
|
|||
|
Nonqualified retirement plan assets
|
7,519
|
|
6,716
|
|
|||
|
Other investments
|
993
|
|
975
|
|
|||
|
Total investments
|
$
|
75,925
|
|
$
|
79,558
|
|
|
9
Investment Securities - fair value
Investment securities - fair value consist of investments in the Company's sponsored funds, separately managed accounts and trading debt securities. The composition of the Company’s investment securities - fair value is summarized as follows:
|
March 31, 2019
|
December 31, 2018
|
||||||||||||||
|
Cost
|
Fair Value
|
Cost
|
Fair Value
|
||||||||||||
|
($ in thousands)
|
|
|
|||||||||||||
|
Investment Securities - fair value
|
|||||||||||||||
|
Sponsored funds
|
$
|
33,082
|
|
$
|
33,075
|
|
$
|
43,507
|
|
$
|
40,191
|
|
|||
|
Equity securities
|
16,628
|
|
18,827
|
|
16,380
|
|
16,981
|
|
|||||||
|
Debt securities
|
4,460
|
|
4,460
|
|
3,816
|
|
2,099
|
|
|||||||
|
Total Investment Securities - fair value
|
$
|
54,170
|
|
$
|
56,362
|
|
$
|
63,703
|
|
$
|
59,271
|
|
|||
For the
three
months ended
March 31, 2019
, the Company recognized a realized loss of
$0.8 million
on the sale of its investment securities - fair value. For the three months ended March 31, 2018, the Company recognized a realized loss of
$0.4 million
on investment securities - fair value.
Investments securities - available for sale
The investment securities - available for sale primarily consist of investments in CLOs for which the Company provides investment management services and does not consolidate. The Company had
no
investment securities - available for sale as of March 31, 2019. The composition of the Company’s investment securities - available for sale is summarized as follows:
|
December 31, 2018
|
|||||||||||||||
|
Cost
|
Unrealized Loss
|
Unrealized Gain
|
Fair Value
|
||||||||||||
|
($ in thousands)
|
|||||||||||||||
|
Investment Securities - available for sale
|
|||||||||||||||
|
Investments in CLOs
|
$
|
3,696
|
|
$
|
(1,673
|
)
|
$
|
—
|
|
$
|
2,023
|
|
|||
7. Fair Value Measurements
The Company’s assets and liabilities measured at fair value on a recurring basis, excluding the assets and liabilities of consolidated investment products discussed in Note 17, as of
March 31, 2019
and
December 31, 2018
by fair value hierarchy level were as follows:
March 31, 2019
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
|
($ in thousands)
|
|
|
|
|
|||||||||||
|
Assets
|
|||||||||||||||
|
Cash equivalents
|
$
|
110,304
|
|
$
|
—
|
|
$
|
—
|
|
$
|
110,304
|
|
|||
|
Investment securities - fair value
|
|||||||||||||||
|
Sponsored funds
|
33,075
|
|
—
|
|
—
|
|
33,075
|
|
|||||||
|
Equity securities
|
18,827
|
|
—
|
|
—
|
|
18,827
|
|
|||||||
|
Debt securities
|
—
|
|
43
|
|
4,417
|
|
4,460
|
|
|||||||
|
Nonqualified retirement plan assets
|
7,519
|
|
—
|
|
—
|
|
7,519
|
|
|||||||
|
Total assets measured at fair value
|
$
|
169,725
|
|
$
|
43
|
|
$
|
4,417
|
|
$
|
174,185
|
|
|||
10
December 31, 2018
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
|
($ in thousands)
|
|
|
|
|
|||||||||||
|
Assets
|
|||||||||||||||
|
Cash equivalents
|
$
|
158,596
|
|
$
|
—
|
|
$
|
—
|
|
$
|
158,596
|
|
|||
|
Investment securities - fair value
|
|||||||||||||||
|
Sponsored funds
|
40,191
|
|
—
|
|
—
|
|
40,191
|
|
|||||||
|
Equity securities
|
16,981
|
|
—
|
|
—
|
|
16,981
|
|
|||||||
|
Debt securities
|
—
|
|
—
|
|
2,099
|
|
2,099
|
|
|||||||
|
Investment securities - available for sale
|
—
|
|
—
|
|
2,023
|
|
2,023
|
|
|||||||
|
Nonqualified retirement plan assets
|
6,716
|
|
—
|
|
—
|
|
6,716
|
|
|||||||
|
Total assets measured at fair value
|
$
|
222,484
|
|
$
|
—
|
|
$
|
4,122
|
|
$
|
226,606
|
|
|||
The following is a discussion of the valuation methodologies used for the Company’s assets measured at fair value:
Cash equivalents
represent investments in money market funds. Cash investments in actively traded money market funds are valued using published net asset values and are classified as Level 1.
Sponsored funds
represent investments in open-end funds, closed-end funds and ETFs for which the Company acts as the investment manager. The fair value of open-end funds is determined based on their published net asset values and are categorized as Level 1. The fair value of closed-end funds and ETFs is determined based on the official closing price on the exchange on which they are traded and are categorized as Level 1.
Equity securities
represent securities traded on active markets and are valued at the official closing price (typically last sale or bid) on the exchange on which the securities are primarily traded and are categorized as Level 1.
Debt securities
primarily
represent investments in CLOs for which the Company provides investment management services. The investments in CLOs are measured at fair value based on independent third-party valuations and are categorized as Level 2 and Level 3. The independent third-party valuations are based on discounted cash flow models and comparable trade data.
Nonqualified retirement plan assets
represent mutual funds within a nonqualified retirement plan whose fair value is determined based on their published net asset value and are categorized as Level 1.
Cash, accounts receivable, accounts payable and accrued liabilities equal or approximate fair value based on the short-term nature of these instruments.
Transfers into and out of levels are reflected when significant inputs used for the fair value measurement, including market inputs or performance attributes, become observable or unobservable or when the Company determines it has the ability, or no longer has the ability, to redeem, in the near term, certain investments that the Company values using a net asset value, or if the book value no longer represents fair value. There were
no
transfers between levels during the
three
months ended
March 31, 2019
and
2018
.
The following table is a reconciliation of assets for Level 3 investments for which significant unobservable inputs were used to determine fair value.
|
|
Three Months Ended March 31,
|
||||||
|
($ in thousands)
|
2019
|
2018
|
|||||
|
Level 3 Investments (a)
|
|||||||
|
Balance at beginning of period
|
$
|
4,122
|
|
$
|
4,439
|
|
|
|
Purchases (sales), net
|
232
|
|
1,326
|
|
|||
|
Change in realized and unrealized gain (loss), net
|
63
|
|
(233
|
)
|
|||
|
Balance at end of period
|
$
|
4,417
|
|
$
|
5,532
|
|
|
|
(a)
|
The investments that are categorized as Level 3 were valued utilizing third-party pricing information without adjustment.
|
11
8. Leases
When an arrangement qualifies as a lease, the Company recognizes a lease liability and a corresponding asset (ROU asset) on the lease’s commencement date. The lease liability is initially measured at the present value of the future minimum lease payments over the lease term using the rate implicit in the arrangement or, if not available, the Company's incremental borrowing rate. An operating lease asset is measured initially at the value of the lease liability excluding any lease incentives and initial direct costs incurred. The Company's leases qualify as operating leases and consist primarily of real estate leases for its office locations which have remaining initial lease terms of
1.3
to
11.1
years and a weighted average remaining lease term of
7.3 years
. The Company has options to renew some of its leases for periods ranging from
3.0
to
15.0
years, depending on the lease. None of the Company's renewal options were considered reasonably assured of being exercised and were excluded from the initial lease term used to determine the Company's ROU asset and lease liability. The balance at
March 31, 2019
of the ROU asset recorded in other assets was
$19.6 million
and the balance of the lease liability recorded in other liabilities was
$27.8 million
in the Company's condensed consolidated balance sheet. As the Company's leases do not provide an implicit rate, the Company used its incremental borrowing rate in determining the present value of its lease payments which was
4.91%
. at
March 31, 2019
.
Lease expense is recorded within other operating expenses on the Company’s condensed consolidated statement of operations and is recognized on a straight-line basis over the lease term. Lease expense for the Company totaled
$1.3 million
and
$1.7 million
for the
three months ended March 31, 2019
and
2018
, respectively. Cash payments relating to operating leases during the
three months ended March 31, 2019
were
$1.1 million
.
The maturities of lease liabilities as of
March 31, 2019
is as follows:
|
($ in thousands)
|
Amount
|
|||
|
Remainder of 2019
|
$
|
4,054
|
|
|
|
2020
|
5,703
|
|
||
|
2021
|
4,707
|
|
||
|
2022
|
3,664
|
|
||
|
2023
|
3,339
|
|
||
|
Thereafter
|
12,202
|
|
||
|
Total lease payments
|
33,669
|
|
||
|
Less: Imputed interest
|
5,872
|
|
||
|
Present value of lease liabilities
|
$
|
27,797
|
|
|
Minimum aggregate rental payments required under operating leases that have initial or remaining non-cancellable lease terms in excess of one year recorded in accordance with ASC 840 as of December 31, 2018 were as follows:
$6.1 million
in 2019;
$6.5 million
in 2020;
$5.1 million
in 2021;
$3.9 million
in 2022;
$3.5 million
in 2023; and
$12.9 million
thereafter.
9. Equity Transactions
On February 21, 2019, the Company declared a quarterly cash dividend of
$0.55
per common share to be paid on May 15, 2019 to shareholders of record at the close of business on April 30, 2019. The Company also declared a quarterly cash dividend of
$1.8125
per share on the Company's
7.25%
mandatory convertible preferred stock ("MCPS") to be paid on May 1, 2019 to shareholders of record at the close of business on April 15, 2019.
As of
March 31, 2019
,
4,180,045
shares of the Company's common stock had been authorized to be repurchased under the share repurchase program approved by the Company's Board of Directors, and
476,841
shares remained available for repurchase. Under the terms of the program, the Company may repurchase shares of its common stock from time to time at its discretion through open market repurchases, privately negotiated transactions and/or other mechanisms, depending on price and prevailing market and business conditions. The program, which has no specified term, may be suspended or terminated at any time.
During the
three
months ended
March 31, 2019
, the Company repurchased
147,962
common shares at a weighted average price of
$101.34
per share for a total cost, including fees and expenses, of
$15.0 million
.
12
10. Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) by component for the
three
months ended
March 31, 2019
and
2018
were as follows:
|
Unrealized Net
Gains and (Losses)
on Securities
Available-for-Sale
|
Foreign
Currency Translation Adjustments |
||||||
|
($ in thousands)
|
|
||||||
|
Balance at December 31, 2018
|
$
|
(726
|
)
|
$
|
(5
|
)
|
|
|
Foreign currency translation adjustments, net of tax of $(3)
|
—
|
|
6
|
|
|||
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax of $(254)
|
726
|
|
—
|
|
|||
|
Net current-period other comprehensive income (loss)
|
726
|
|
6
|
|
|||
|
Balance at March 31, 2019
|
$
|
—
|
|
$
|
1
|
|
|
|
|
Unrealized Net
Gains and (Losses)
on Securities
Available-for-Sale
|
Foreign
Currency
Translation
Adjustments
|
|||||
|
($ in thousands)
|
|
|
|||||
|
Balance at December 31, 2017
|
$
|
(612
|
)
|
$
|
12
|
|
|
|
Unrealized net gain (loss) on securities available-for-sale, net of tax of $97
|
(249
|
)
|
—
|
|
|||
|
Foreign currency translation adjustments, net of tax of $(4)
|
—
|
|
10
|
|
|||
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax of ($61)
(1)
|
178
|
|
—
|
|
|||
|
Net current-period other comprehensive income (loss)
|
(71
|
)
|
10
|
|
|||
|
Balance at March 31, 2018
|
$
|
(683
|
)
|
$
|
22
|
|
|
|
(1)
On January 1, 2018, t
he Company adopted amendments to ASC 825 pursuant to ASU 2016-01
. This standard requires all equity investments (other than those accounted for under the equity method) to be measured at fair value with changes in the fair value recognized through net income.
|
|||||||
11. Stock-Based Compensation
The Company has an Omnibus Incentive and Equity Plan (the "Plan") under which officers, employees, consultants and directors may be granted equity-based awards, including restricted stock units ("RSUs"), performance stock units ("PSUs"), stock options and unrestricted shares of common stock. At
March 31, 2019
,
162,031
shares of common stock remained available for issuance of the
2,400,000
shares that are authorized for issuance under the Plan.
Stock-based compensation expense is summarized as follows:
|
Three Months Ended March 31,
|
|||||||
|
2019
|
2018
|
||||||
|
($ in thousands)
|
|||||||
|
Stock-based compensation expense
|
$
|
5,629
|
|
$
|
5,909
|
|
|
Restricted Stock Units
Each RSU entitles the holder to one share of common stock when the restriction expires. RSUs generally have a term of
one
to
three
years and may be time-vested or performance-contingent. The fair value of each RSU is based on the closing market price of the Company's common stock on the date of grant unless it contains a performance metric that is considered a market condition. RSUs that contain a market condition are valued using a simulation valuation model. Shares that are issued upon vesting are newly issued shares from the Plan and are not issued from treasury stock.
13
RSU activity for the
three
months ended
March 31, 2019
is summarized as follows:
|
Number
of Shares
|
Weighted Average
Grant Date
Fair Value
|
|||||
|
Outstanding at December 31, 2018
|
552,238
|
|
$
|
111.49
|
|
|
|
Granted
|
147,369
|
|
$
|
108.03
|
|
|
|
Forfeited
|
(11,993
|
)
|
$
|
77.21
|
|
|
|
Settled
|
(126,081
|
)
|
$
|
96.57
|
|
|
|
Outstanding at March 31, 2019
|
561,533
|
|
$
|
114.67
|
|
|
For the
three
months ended
March 31, 2019
and
2018
, a total of
47,658
and
28,851
RSUs, respectively, were withheld by the Company as a result of net share settlements to settle minimum employee tax withholding obligations. The Company paid
$4.8 million
and
$5.0 million
for the
three
months ended
March 31, 2019
and
2018
, respectively, in minimum employee tax withholding obligations related to RSUs withheld. These net share settlements had the effect of share repurchases by the Company as they reduced the number of shares that would have been otherwise issued as a result of the vesting.
During the
three
months ended
March 31, 2019
, the Company granted
43,445
PSUs included in the table above which contain performance-based metrics in addition to a service condition. Compensation expense for PSUs is generally recognized over a
three
-year service period based upon the value determined using a combination of (1) the intrinsic value method, for awards that contain a performance metric that represents a "performance condition" in accordance with ASC 718, and (2) the Monte Carlo simulation valuation model for awards that contain a "market condition" performance metric under ASC 718. Compensation expense for the awards that contain a market condition is fixed at the date of grant and will not be adjusted in future periods based upon the achievement of the market condition. Compensation expense for the awards with a performance condition is recorded each period based upon a probability assessment of the expected outcome of the performance metric with a final adjustment upon the final outcome. For the
three
months ended
March 31, 2019
, total stock-based compensation expense for PSUs was
$2.0 million
.
As of
March 31, 2019
, unamortized stock-based compensation expense for unvested RSUs and PSUs was
$39.5 million
, with a weighted-average remaining amortization period of
1.8 years
.
Stock Options
Stock options generally cliff vest after
three
years and have a contractual life of
10
years. Stock options are granted with an exercise price equal to the fair market value of the shares at the date of grant.
Stock option activity for the
three
months ended
March 31, 2019
is summarized as follows:
|
Number
of Shares
|
Weighted
Average
Exercise Price
|
|||||
|
Outstanding at December 31, 2018
|
76,751
|
|
$
|
12.86
|
|
|
|
Exercised
|
(55,106
|
)
|
$
|
9.52
|
|
|
|
Outstanding, vested and exercisable at March 31, 2019
|
21,645
|
|
$
|
21.37
|
|
|
12. Earnings (Loss) Per Share
Basic earnings per share ("EPS") is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period, excluding dilution for potential common stock issuances. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, including: (1) shares issuable upon the vesting of RSUs and common stock option exercises using the treasury stock method; and (2) shares issuable upon the conversion of the Company's MCPS, as determined under the if-converted method. For purposes of calculating diluted EPS, preferred stock dividends have been subtracted from net income (loss) in periods in which utilizing the if-converted method would be anti-dilutive.
14
The computation of basic and diluted EPS is as follows:
|
|
Three Months Ended March 31,
|
||||||
|
|
2019
|
2018
|
|||||
|
($ in thousands, except per share amounts)
|
|
|
|||||
|
Net Income (Loss)
|
$
|
22,468
|
|
$
|
23,827
|
|
|
|
Noncontrolling interests
|
(722
|
)
|
(527
|
)
|
|||
|
Net Income (Loss) Attributable to Stockholders
|
21,746
|
|
23,300
|
|
|||
|
Preferred stock dividends
|
(2,084
|
)
|
(2,084
|
)
|
|||
|
Net Income (Loss) Attributable to Common Stockholders
|
$
|
19,662
|
|
$
|
21,216
|
|
|
|
Shares (in thousands):
|
|||||||
|
Basic: Weighted-average number of common shares outstanding
|
7,015
|
|
7,197
|
|
|||
|
Plus: Incremental shares from assumed conversion of dilutive instruments
|
1,307
|
|
1,214
|
|
|||
|
Diluted: Weighted-average number of common shares outstanding
|
8,322
|
|
8,411
|
|
|||
|
Earnings (Loss) per Share—Basic
|
$
|
2.80
|
|
$
|
2.95
|
|
|
|
Earnings (Loss) per Share—Diluted
|
$
|
2.61
|
|
$
|
2.77
|
|
|
The following table details the securities that have been excluded from the above computation of weighted-average number of shares for diluted EPS, because the effect would be anti-dilutive.
|
|
Three Months Ended March 31,
|
||||
|
|
2019
|
2018
|
|||
|
(in thousands)
|
|
|
|||
|
Restricted stock units and stock options
|
121
|
|
15
|
|
|
|
Total anti-dilutive securities
|
121
|
|
15
|
|
|
13. Income Taxes
In calculating the provision for income taxes, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances at each interim period. On a quarterly basis, the estimated annual effective tax rate is adjusted, as appropriate, based upon changes in facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and at each interim period thereafter.
The provision for income taxes reflected U.S. federal, state and local taxes at an estimated effective tax rate of
15.8%
and
21.5%
for the
three
months ended
March 31, 2019
and
2018
, respectively. The decrease in the estimated effective tax rate for the three months ended March 31, 2019 was primarily due to the decrease in the valuation allowance associated with various investments the Company holds.
14. Debt
C
redit Agreement
The Company's credit agreement, as amended ("Credit Agreement"), comprises (1)
$365.0 million
of
seven
-year term debt ("Term Loan") expiring in May 2024 and (2) a
$100.0 million
five
-year revolving credit facility ("Credit Facility") expiring in May 2022. During the
three months ended March 31, 2019
, the Company made principal loan payments of
$12.4 million
. At
March 31, 2019
,
$328.2 million
was outstanding under the Term Loan, and the Company had
no
outstanding borrowings under its Credit Facility. In accordance with ASC 835,
Interest,
the amounts outstanding under the Company's Term Loan are presented on the consolidated balance sheet net of related debt issuance costs, which were
$10.5 million
as of
March 31, 2019
.
15
15. Commitments and Contingencies
Legal Matters
The Company is regularly involved in litigation and arbitration as well as examinations, inquiries and investigations by various regulatory bodies, including the Securities and Exchange Commission, involving its compliance with, among other things, securities laws, client investment guidelines, laws governing the activities of broker-dealers and other laws and regulations affecting its products and other activities. Legal and regulatory matters of this nature involve or may involve but are not limited to the Company’s activities as an employer, issuer of securities, investor, investment adviser, broker-dealer or taxpayer. In addition, in the normal course of business, the Company discusses matters with its regulators raised during regulatory examinations or is otherwise subject to their inquiry. These matters could result in censures, fines, penalties or other sanctions.
The Company accrues for a liability when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In addition, in the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450,
Loss Contingencies
. The disclosures, accruals or estimates, if any, resulting from the foregoing analysis are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. Based on information currently available, available insurance coverage, indemnities and established reserves, the Company believes that the outcomes of its legal and regulatory proceedings are not likely, either individually or in the aggregate, to have a material adverse effect on the Company’s results of operations, cash flows or its consolidated financial condition. However, in the event of unexpected subsequent developments and given the inherent unpredictability of these legal and regulatory matters, the Company can provide no assurance that its assessment of any claim, dispute, regulatory examination or investigation or other legal matter will reflect the ultimate outcome, and an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company’s results of operations or cash flows in particular quarterly or annual periods.
16. Redeemable Noncontrolling Interests
Redeemable noncontrolling interests represent third-party investor equity in the Company's consolidated investment products and minority interests held in a consolidated affiliate. Minority interests held in an affiliate are subject to holder put rights and Company call rights at established multiples of earnings before interest, taxes, depreciation and amortization and, as such, are considered redeemable at other than fair value. They are exercisable at pre-established intervals (between
four
and
seven years
from their July 2018 issuance or upon certain conditions such as retirement). The put and call rights are not legally detachable or separately exercisable and are deemed to be embedded in the related noncontrolling interests. The Company, in purchasing affiliate equity, has the option to settle in cash or shares of common stock and is entitled to the cash flow associated with any purchased equity. In addition, under certain circumstances, the Company may issue or sell equity interests of the affiliate to employees or partners of the affiliate. Minority interests held in an affiliate are generally recorded at estimated redemption value within redeemable noncontrolling interests on the Company's condensed consolidated balance sheets, and changes in estimated redemption value of these interests are recorded in the Company’s condensed consolidated statements of operations within noncontrolling interests.
Redeemable noncontrolling interests for the
three
months ended
March 31, 2019
included the following amounts:
|
($ in thousands)
|
Consolidated Investment Products
|
Affiliate Noncontrolling Interests
|
Total
|
|||||||||
|
Balances at December 31, 2018
|
$
|
2,384
|
|
$
|
55,097
|
|
$
|
57,481
|
|
|||
|
Net income (loss) attributable to noncontrolling interests
|
338
|
|
837
|
|
1,175
|
|
||||||
|
Net subscriptions (redemptions) and other
|
1,923
|
|
(1,576
|
)
|
347
|
|
||||||
|
Balances at March 31, 2019
|
$
|
4,645
|
|
$
|
54,358
|
|
$
|
59,003
|
|
|||
16
17. Consolidation
The condensed consolidated financial statements include the accounts of the Company, its subsidiaries and investment products that are consolidated. Voting interest entities ("VOEs") are consolidated when the Company is considered to have a controlling financial interest, which is typically present when the Company owns a majority of the voting interest in an entity or otherwise has the power to govern the financial and operating policies of the entity.
The Company evaluates any variable interest entities ("VIEs") in which the Company has a variable interest for consolidation. A VIE is an entity in which either: (a) the equity investment at risk is not sufficient to permit the entity to finance its own activities without additional financial support; or (b) where as a group, the holders of the equity investment at risk do not possess: (i) the power through voting or similar rights to direct the activities that most significantly impact the entity’s economic performance, (ii) the obligation to absorb expected losses or the right to receive expected residual returns of the entity or (iii) proportionate voting and economic interests and where substantially all of the entity’s activities either involve or are conducted on behalf of an investor with disproportionately fewer voting rights. If an entity has any of these characteristics, it is considered a VIE and is required to be consolidated by its primary beneficiary. The primary beneficiary is the entity that has both the power to direct the activities that most significantly impact the VIE’s economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE.
In the normal course of its business, the Company sponsors various investment products, some of which are consolidated by the Company. Consolidated investment products include both VOEs, made up primarily of open-end funds in which the Company holds a controlling financial interest, and VIEs, which primarily consist of collateralized loan obligations ("CLOs") of which the Company is considered the primary beneficiary. The consolidation and deconsolidation of these investment products have no impact on net income (loss) attributable to stockholders. The Company’s risk with respect to these investment products is limited to its beneficial interests in these products. The Company has no right to the benefits from, and does not bear the risks associated with, these investment products beyond the Company’s investments in, and fees generated from, these products.
The following table presents the balances of the consolidated investment products that, after intercompany eliminations, are reflected in the condensed consolidated balance sheets as of
March 31, 2019
and
December 31, 2018
:
|
As of
|
|||||||||||||||||||||||
|
|
March 31, 2019
|
December 31, 2018
|
|||||||||||||||||||||
|
VIEs
|
VIEs
|
||||||||||||||||||||||
|
VOEs
|
CLOs
|
Other
|
VOEs
|
CLOs
|
Other
|
||||||||||||||||||
|
($ in thousands)
|
|
|
|
|
|||||||||||||||||||
|
Cash and cash equivalents
|
$
|
592
|
|
$
|
54,805
|
|
$
|
326
|
|
$
|
1,029
|
|
$
|
51,363
|
|
$
|
559
|
|
|||||
|
Investments
|
15,495
|
|
1,723,411
|
|
29,036
|
|
12,923
|
|
1,709,266
|
|
27,379
|
|
|||||||||||
|
Other assets
|
66
|
|
30,444
|
|
643
|
|
228
|
|
30,426
|
|
403
|
|
|||||||||||
|
Notes payable
|
—
|
|
(1,640,360
|
)
|
—
|
|
—
|
|
(1,620,260
|
)
|
—
|
|
|||||||||||
|
Securities purchased payable and other liabilities
|
(482
|
)
|
(74,070
|
)
|
(390
|
)
|
(823
|
)
|
(69,737
|
)
|
(146
|
)
|
|||||||||||
|
Noncontrolling interests
|
(4,645
|
)
|
(12,948
|
)
|
—
|
|
(2,348
|
)
|
(13,958
|
)
|
(36
|
)
|
|||||||||||
|
The Company’s net interests in consolidated investment products
|
$
|
11,026
|
|
$
|
81,282
|
|
$
|
29,615
|
|
$
|
11,009
|
|
$
|
87,100
|
|
$
|
28,159
|
|
|||||
Consolidated CLOs
The majority of the Company's consolidated investment products that are VIEs are CLOs. At
March 31, 2019
, the Company consolidated
five
CLOs. The financial information for certain of these CLOs is included in the Company's condensed consolidated financial statements one-month in arrears based upon the availability of financial information. Majority-owned consolidated private funds, whose primary purpose is to invest in CLOs for which the Company serves as the collateral manager, are also included.
17
Investments of CLOs
The CLOs' investments of
$1.7 billion
at
March 31, 2019
represented bank loan investments, which comprise the majority of the CLOs' portfolio asset collateral and are senior secured corporate loans across a variety of industries. These bank loan investments mature at various dates between 2019 and 2026 and pay interest at LIBOR plus a spread of up to
8.75%
. At
March 31, 2019
, the fair value of the senior bank loans exceeded the unpaid principal balance by
$36.8 million
.
Notes Payable of CLOs
The CLOs have issued notes payable with a total value, at par, of
$1.8 billion
, consisting of senior secured floating rate notes payable with a par value of
$1.4 billion
, warehouse facility debt with a par value of
$156.7 million
and subordinated notes with a par value of
$179.8 million
. These note obligations bear interest at variable rates based on LIBOR plus a pre-defined spread. The principal amounts outstanding of the note obligations issued by the CLOs mature on dates ranging from April 2019 to October 2029. The CLOs may elect to reinvest any prepayments received on bank loan investments between October 2019 and October 2021, depending on the CLO. Generally, subsequent prepayments received after the reinvestment period must be used to pay down the note obligations.
The Company’s beneficial interests and maximum exposure to loss related to these consolidated CLOs is limited to: (i) ownership in the subordinated notes and (ii) accrued management fees. The secured notes of the consolidated CLOs have contractual recourse only to the related assets of the CLO and are classified as financial liabilities. Although these beneficial interests are eliminated upon consolidation, the application of the measurement alternative prescribed by ASU 2014-13, results in the net assets of the consolidated CLOs shown above to be equivalent to the beneficial interests retained by the Company at
March 31, 2019
, as shown in the table below:
|
As of
|
|||
|
|
March 31, 2019
|
||
|
($ in thousands)
|
|
||
|
Subordinated notes
|
$
|
80,206
|
|
|
Accrued investment management fees
|
1,076
|
|
|
|
Total Beneficial Interests
|
$
|
81,282
|
|
The following table represents income and expenses of the consolidated CLOs included in the Company’s condensed consolidated statements of operations for the period indicated:
|
|
Three Months Ended March 31,
|
||
|
($ in thousands)
|
2019
|
||
|
Income:
|
|||
|
Realized and unrealized gain (loss), net
|
$
|
(5,719
|
)
|
|
Interest income
|
26,882
|
|
|
|
Total Income
|
21,163
|
|
|
|
Expenses:
|
|||
|
Other operating expenses
|
305
|
|
|
|
Interest expense
|
19,701
|
|
|
|
Total Expense
|
20,006
|
|
|
|
Noncontrolling interest
|
(453
|
)
|
|
|
Net Income (loss) attributable to CIPs
|
$
|
704
|
|
18
As summarized in the table below, the application of the measurement alternative as prescribed by ASU 2014-13 results in the consolidated net income summarized above to be equivalent to the Company’s own economic interests in the consolidated CLOs, which are eliminated upon consolidation:
|
|
Three Months Ended March 31,
|
||
|
($ in thousands)
|
2019
|
||
|
Distributions received and unrealized gains (losses) on the subordinated notes held by the Company
|
$
|
(1,036
|
)
|
|
Investment management fees
|
1,740
|
|
|
|
Total Economic Interests
|
$
|
704
|
|
Fair Value Measurements of Consolidated Investment Products
The assets and liabilities of the consolidated investment products measured at fair value on a recurring basis as of
March 31, 2019
and
December 31, 2018
by fair value hierarchy level were as follows:
As of
March 31, 2019
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
|
($ in thousands)
|
|
|
|
|
|||||||||||
|
Assets
|
|||||||||||||||
|
Cash equivalents
|
$
|
54,805
|
|
$
|
—
|
|
$
|
—
|
|
$
|
54,805
|
|
|||
|
Debt investments
|
5,681
|
|
1,715,732
|
|
31,759
|
|
1,753,172
|
|
|||||||
|
Equity investments
|
14,770
|
|
—
|
|
—
|
|
14,770
|
|
|||||||
|
Total Assets Measured at Fair Value
|
$
|
75,256
|
|
$
|
1,715,732
|
|
$
|
31,759
|
|
$
|
1,822,747
|
|
|||
|
Liabilities
|
|||||||||||||||
|
Notes payable
|
$
|
—
|
|
$
|
1,640,360
|
|
$
|
—
|
|
$
|
1,640,360
|
|
|||
|
Short sales
|
297
|
|
—
|
|
—
|
|
297
|
|
|||||||
|
Total Liabilities Measured at Fair Value
|
$
|
297
|
|
$
|
1,640,360
|
|
$
|
—
|
|
$
|
1,640,657
|
|
|||
As of
December 31, 2018
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
|
($ in thousands)
|
|
|
|
|
|||||||||||
|
Assets
|
|||||||||||||||
|
Cash equivalents
|
$
|
51,363
|
|
$
|
—
|
|
$
|
—
|
|
$
|
51,363
|
|
|||
|
Debt investments
|
5,306
|
|
1,724,714
|
|
6,848
|
|
1,736,868
|
|
|||||||
|
Equity investments
|
12,700
|
|
—
|
|
—
|
|
12,700
|
|
|||||||
|
Total Assets Measured at Fair Value
|
$
|
69,369
|
|
$
|
1,724,714
|
|
$
|
6,848
|
|
$
|
1,800,931
|
|
|||
|
Liabilities
|
|||||||||||||||
|
Notes payable
|
$
|
—
|
|
$
|
1,620,260
|
|
$
|
—
|
|
$
|
1,620,260
|
|
|||
|
Short sales
|
707
|
|
—
|
|
—
|
|
707
|
|
|||||||
|
Total Liabilities Measured at Fair Value
|
$
|
707
|
|
$
|
1,620,260
|
|
$
|
—
|
|
$
|
1,620,967
|
|
|||
The following is a discussion of the valuation methodologies used for the assets and liabilities of the Company’s consolidated investment products measured at fair value:
Cash equivalents
represent investments in money ma
rket funds. Cash investments in actively traded money market funds are valued using published net asset values and are classified as Level
1.
Debt and equity investments
represent the underlying debt, equity and other securities held in consolidated investment products. Equity investments are valued at the official closing price on the exchange on which the securities are traded and are generally categorized within Level 1. Level 2 investments represent most debt securities, including bank loans and certain
19
equity securities (including non-U.S. securities), for which closing prices are not readily available or are deemed to not reflect readily available market prices, and are valued using an independent pricing service. Debt investments are valued based on quotations received from independent pricing services or from dealers who make markets in such securities. Bank loan investments, which are included as debt investments, are generally priced at the average mid-point of bid and ask quotations obtained from a third-party pricing service. Fair value may also be based upon valuations obtained from independent third-party brokers or dealers utilizing matrix pricing models that consider information regarding securities with similar characteristics. In certain instances, fair value has been determined utilizing discounted cash flow analyses or single broker non-binding quotes. Depending on the nature of the inputs, these assets are classified as Level 1, 2 or 3 within the fair value measurement hierarchy. Level 3 investments include debt securities that are not widely traded, are illiquid or are priced by dealers based on pricing models used by market makers in the security.
Notes payable
represent notes issued by consolidated investment products that are CLOs and are measured using the measurement alternative in ASU 2014-13. Accordingly, the fair value of CLO liabilities was measured as the fair value of CLO assets less the sum of: (a) the fair value of the beneficial interests held by the Company and (b) the carrying value of any beneficial interests that represent compensation for services.
Short sales
are transactions in which a security is sold which is not owned or is owned but there is no intention to deliver, in anticipation that the price of the security will decline. Short sales are recorded in the condensed consolidated balance sheets within other liabilities of consolidated investment products and are classified as Level 1 based on the underlying equity security.
For the
three
months ended
March 31, 2019
and
2018
,
no
securities held by consolidated investment products were transferred from Level 2 to Level 1. For the
three
months ended
March 31, 2019
and
2018
,
no
securities held by consolidated investment products were transferred from Level 1 to Level 2.
The securities purchase payable at
March 31, 2019
and
December 31, 2018
approximated fair value due to the short-term nature of the instruments.
The following table is a reconciliation of assets of consolidated investment products for Level 3 investments for which significant unobservable inputs were used to determine fair value:
|
|
Three Months Ended March 31,
|
||||||
|
($ in thousands)
|
2019
|
2018
|
|||||
|
Level 3 Investments of CIPs
(a)
|
|||||||
|
Balance at beginning of period
|
$
|
6,848
|
|
$
|
34,781
|
|
|
|
Realized gains (losses), net
|
6
|
|
43
|
|
|||
|
Change in unrealized gains (losses), net
|
(45
|
)
|
2,375
|
|
|||
|
Purchases
|
1,595
|
|
7,122
|
|
|||
|
Amortization
|
2
|
|
19
|
|
|||
|
Sales
|
(429
|
)
|
(11,934
|
)
|
|||
|
Transfers to Level 2
|
(7,199
|
)
|
(29,658
|
)
|
|||
|
Transfers from Level 2
|
30,981
|
|
—
|
|
|||
|
Balance at end of period
|
$
|
31,759
|
|
$
|
2,748
|
|
|
|
(a)
|
The investments that are categorized as Level 3 were valued utilizing third-party pricing information without adjustment. All transfers are deemed to occur at the end of period. Transfers between Level 2 and Level 3 were due to trading activities at period end.
|
Nonconsolidated VIEs
The Company serves as the collateral manager for other collateralized loan and collateralized bond obligations (collectively, "CDOs") that are not consolidated. The assets and liabilities of these CDOs reside in bankruptcy remote, special purpose entities in which the Company has no ownership, nor holds any notes issued by, the CDOs, and provides neither recourse nor guarantees. The Company has determined that the investment management fees it receives for serving as collateral manager for these CDOs did not represent a variable interest as: (1) the fees the Company earns are compensation for services provided and are commensurate with the level of effort required to provide the investment management services; (2) the Company does not hold other interests in the CDOs that individually, or in the aggregate, would absorb more than an
20
insignificant amount of the CDOs expected losses or receive more than an insignificant amount of the CDOs expected residual return; and (3) the investment management arrangement only includes terms, conditions and amounts that are customarily present in arrangements for similar services negotiated at arm's length.
The Company has interests in certain other entities that are VIEs that the Company does not consolidate as it is not the primary beneficiary of those entities. The Company is not the primary beneficiary as its interest in these entities does not provide the Company with the power to direct the activities that most significantly impact the entities' economic performance. At
March 31, 2019
, the carrying value and maximum risk of loss related to the Company's interest in these VIEs was
$12.9 million
.
21
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 (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," "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.
Our forward-looking statements are based on a series of expectations, assumptions and projections about our 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 of our forward-looking statements contained in this Quarterly Report on Form 10-Q are as of the date of this Quarterly Report on Form 10-Q 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 on Form 10-Q, 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 on Form 10-Q, such statements or disclosures will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.
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
2018
Annual Report on Form 10-K, as well as the following risks and uncertainties resulting from: (a) any reduction in our assets under management; (b) withdrawal, renegotiation or termination of investment advisory agreements; (c) damage to our reputation; (d) failure to comply with investment guidelines or other contractual requirements; (e) inability to satisfy financial covenants and payments related to our indebtedness; (f) inability to attract and retain key personnel; (g) challenges from the competition we face in our business; (h) adverse regulatory and legal developments; (i) unfavorable changes in tax laws or limitations; (j) adverse developments related to unaffiliated subadvisers; (k) negative implications of changes in key distribution relationships; (l) interruptions in or failure to provide critical technological service by us or third parties; (m) volatility associated with our common and preferred stock; (n) adverse civil litigation and government investigations or proceedings; (o) risk of loss on our investments; (p) inability to make quarterly common and preferred stock distributions; (q) lack of sufficient capital on satisfactory terms; (r) losses or costs not covered by insurance; (s) impairment of goodwill or intangible assets; (t) 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
2018
Annual Report on Form 10-K or our other periodic reports filed with the Securities and Exchange Commission ("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
Our Business
We provide investment management and related services to individuals and institutions. We use a multi-manager, multi-style approach, offering investment strategies from affiliated managers, 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 and have offerings across market cycles and 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.
22
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 differentiated investment managers. We have offerings in various asset classes (domestic and international equity, fixed income and alternative), market capitalizations (large, mid and small), styles (growth, core and value) and investment approaches (fundamental, quantitative and thematic). Our retail products include open-end funds and exchange traded funds ("ETFs"), as well as closed-end funds and retail separate accounts. Our institutional products include a variety of equity and fixed income strategies for corporations, multi-employer retirement funds, public employee retirement systems, foundations, and endowments. We also provide subadvisory services to other investment advisors.
We distribute our open-end funds and ETFs principally through financial intermediaries. We have broad distribution access in the retail market, with distribution partners that include national and regional broker-dealers, independent broker-dealers and registered investment advisors, banks and insurance companies. In many of these firms, we have a number of products that are on 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 ETFs and the retirement and insurance channels. Our retail separate accounts are distributed through financial intermediaries and directly by teams at other investment advisors.
Our institutional services are marketed through relationships with consultants as well as directly to clients. We target key market segments, including foundations and endowments, corporate, public and private pension plans, and subadvisory relationships.
Financial Highlights
|
•
|
Net earnings per diluted share was
$2.61
in the
first
quarter of
2019
as compared to
$2.77
in the
first
quarter of
2018
.
|
|
•
|
Total sales (inflows) were
$5.5 billion
in the
first
quarter of
2019
, an increase of $
0.1 billion
, or
1.3%
, from
$5.4 billion
in the
first
quarter of
2018
. Net flows were
$(0.1) billion
in the
first
quarter of
2019
compared to
$(0.7) billion
in the
first
quarter of
2018
.
|
|
•
|
Long-term assets under management were
$99.9 billion
at
March 31, 2019
, an increase of
$12.5 billion
from
March 31, 2018
.
|
Assets Under Management
At
March 31, 2019
, total assets under management were
$101.7 billion
, representing an increase of
$12.6 billion
, or
14.2%
, from
March 31, 2018
, and an increase of
$9.7 billion
, or
10.5%
, from
December 31, 2018
. The increase in total assets under management from
March 31, 2018
was primarily due to our July 1, 2018 majority investment in Sustainable Growth Advisers (the "SGA Acquisition"). The increase from
December 31, 2018
was primarily due to market performance.
Average long-term assets under management, which represent the majority of our fee-earning asset levels, were
$94.7
billion for the
three
months ended
March 31, 2019
, an increase of
$5.8
billion, or
6.6%
, from
$88.9
billion for the
three
months ended
March 31, 2018
. The increase in average long-term assets under management compared to
March 31, 2018
was primarily due to the SGA Acquisition and market performance.
Operating Results
In the
first
quarter of
2019
, total revenues increased
1.3%
to $
130.7 million
from
$129.0 million
in the
first
quarter of
2018
, primarily as a result of additional revenues from the SGA Acquisition which was partially offset by lower revenues related to our open-end funds due to lower average assets. Operating income decreased
$1.6 million
to $
21.0 million
in the
first
quarter of
2019
compared to $
22.6 million
in the
first
quarter of
2018
, primarily due to increased operating expenses, including amortization from the SGA Acquisition in the current year quarter partially offset by higher revenues.
23
Assets Under Management by Product
The following table summarizes our assets under management by product:
|
As of March 31,
|
Change
|
|||||||||||||
|
2019
|
2018
|
$
|
%
|
|||||||||||
|
($ in millions)
|
||||||||||||||
|
Open-End Funds (1)
|
$
|
40,632.6
|
|
$
|
43,202.5
|
|
$
|
(2,569.9
|
)
|
(5.9
|
)%
|
|||
|
Closed-End Funds
|
6,553.2
|
|
6,132.7
|
|
420.5
|
|
6.9
|
%
|
||||||
|
Exchange Traded Funds
|
1,102.2
|
|
980.2
|
|
122.0
|
|
12.4
|
%
|
||||||
|
Retail Separate Accounts
|
17,123.2
|
|
14,012.3
|
|
3,110.9
|
|
22.2
|
%
|
||||||
|
Institutional Accounts
|
30,514.1
|
|
19,411.2
|
|
11,102.9
|
|
57.2
|
%
|
||||||
|
Structured Products
|
3,998.0
|
|
3,704.6
|
|
293.4
|
|
7.9
|
%
|
||||||
|
Total Long-Term
|
99,923.3
|
|
87,443.5
|
|
12,479.8
|
|
14.3
|
%
|
||||||
|
Liquidity (2)
|
1,788.6
|
|
1,641.6
|
|
147.0
|
|
9.0
|
%
|
||||||
|
Total
|
$
|
101,711.9
|
|
$
|
89,085.1
|
|
$
|
12,626.8
|
|
14.2
|
%
|
|||
|
Average Assets Under Management (3)
|
$
|
96,407.0
|
|
$
|
90,639.0
|
|
$
|
5,768.0
|
|
6.4
|
%
|
|||
|
Average Long-Term Assets Under Management (3)
|
$
|
94,681.5
|
|
$
|
88,851.4
|
|
$
|
5,830.1
|
|
6.6
|
%
|
|||
|
(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 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 or average of month-end balances in quarter
- Institutional Accounts and Structured Products - average of month-end balances in quarter
24
Asset Flows by Product
The following table summarizes asset flows by product:
|
Three Months Ended March 31,
|
|||||||
|
($ in millions)
|
2019
|
2018
|
|||||
|
Open-End Funds (1)
|
|||||||
|
Beginning balance
|
$
|
37,710.0
|
|
$
|
43,077.6
|
|
|
|
Inflows
|
2,999.7
|
|
3,783.6
|
|
|||
|
Outflows
|
(3,867.4
|
)
|
(3,662.2
|
)
|
|||
|
Net flows
|
(867.7
|
)
|
121.4
|
|
|||
|
Market performance
|
3,838.7
|
|
69.8
|
|
|||
|
Other (2)
|
(48.4
|
)
|
(66.3
|
)
|
|||
|
Ending balance
|
$
|
40,632.6
|
|
$
|
43,202.5
|
|
|
|
Closed-End Funds
|
|||||||
|
Beginning balance
|
$
|
5,956.0
|
|
$
|
6,666.2
|
|
|
|
Inflows
|
11.5
|
|
—
|
|
|||
|
Outflows
|
—
|
|
—
|
|
|||
|
Net flows
|
11.5
|
|
—
|
|
|||
|
Market performance
|
661.9
|
|
(406.1
|
)
|
|||
|
Other (2)
|
(76.2
|
)
|
(127.4
|
)
|
|||
|
Ending balance
|
$
|
6,553.2
|
|
$
|
6,132.7
|
|
|
|
Exchange Traded Funds
|
|||||||
|
Beginning balance
|
$
|
667.6
|
|
$
|
1,039.2
|
|
|
|
Inflows
|
393.8
|
|
139.5
|
|
|||
|
Outflows
|
(46.3
|
)
|
(63.2
|
)
|
|||
|
Net flows
|
347.5
|
|
76.3
|
|
|||
|
Market performance
|
108.3
|
|
(77.5
|
)
|
|||
|
Other (2)
|
(21.2
|
)
|
(57.8
|
)
|
|||
|
Ending balance
|
$
|
1,102.2
|
|
$
|
980.2
|
|
|
|
Retail Separate Accounts
|
|||||||
|
Beginning balance
|
$
|
14,998.4
|
|
$
|
13,936.8
|
|
|
|
Inflows
|
752.6
|
|
701.3
|
|
|||
|
Outflows
|
(471.5
|
)
|
(786.5
|
)
|
|||
|
Net flows
|
281.1
|
|
(85.2
|
)
|
|||
|
Market performance
|
1,895.0
|
|
160.7
|
|
|||
|
Other (2)
|
(51.3
|
)
|
—
|
|
|||
|
Ending balance
|
$
|
17,123.2
|
|
$
|
14,012.3
|
|
|
|
Institutional Accounts
|
|||||||
|
Beginning balance
|
$
|
27,445.0
|
|
$
|
20,815.9
|
|
|
|
Inflows
|
954.7
|
|
423.0
|
|
|||
|
Outflows
|
(1,153.9
|
)
|
(1,649.7
|
)
|
|||
|
Net flows
|
(199.2
|
)
|
(1,226.7
|
)
|
|||
|
Market performance
|
3,155.8
|
|
(172.7
|
)
|
|||
|
Other (2)
|
112.5
|
|
(5.3
|
)
|
|||
|
Ending balance
|
$
|
30,514.1
|
|
$
|
19,411.2
|
|
|
|
Structured Products
|
|||||||
|
Beginning balance
|
$
|
3,640.3
|
|
$
|
3,298.8
|
|
|
|
Inflows
|
388.8
|
|
383.6
|
|
|||
|
Outflows
|
(16.0
|
)
|
—
|
|
|||
|
Net flows
|
372.8
|
|
383.6
|
|
|||
|
Market performance
|
27.4
|
|
37.9
|
|
|||
|
Other (2)
|
(42.5
|
)
|
(15.7
|
)
|
|||
|
Ending balance
|
$
|
3,998.0
|
|
$
|
3,704.6
|
|
|
25
|
Total Long-Term
|
|||||||
|
Beginning balance
|
$
|
90,417.3
|
|
$
|
88,834.5
|
|
|
|
Inflows
|
5,501.1
|
|
5,431.0
|
|
|||
|
Outflows
|
(5,555.1
|
)
|
(6,161.6
|
)
|
|||
|
Net flows
|
(54.0
|
)
|
(730.6
|
)
|
|||
|
Market performance
|
9,687.1
|
|
(387.9
|
)
|
|||
|
Other (2)
|
(127.1
|
)
|
(272.5
|
)
|
|||
|
Ending balance
|
$
|
99,923.3
|
|
$
|
87,443.5
|
|
|
|
Liquidity (3)
|
|||||||
|
Beginning balance
|
$
|
1,612.5
|
|
$
|
2,128.7
|
|
|
|
Other (2)
|
176.1
|
|
(487.1
|
)
|
|||
|
Ending balance
|
$
|
1,788.6
|
|
$
|
1,641.6
|
|
|
|
Total
|
|||||||
|
Beginning balance
|
$
|
92,029.8
|
|
$
|
90,963.2
|
|
|
|
Inflows
|
5,501.1
|
|
5,431.0
|
|
|||
|
Outflows
|
(5,555.1
|
)
|
(6,161.6
|
)
|
|||
|
Net flows
|
(54.0
|
)
|
(730.6
|
)
|
|||
|
Market performance
|
9,687.1
|
|
(387.9
|
)
|
|||
|
Other (2)
|
49.0
|
|
(759.6
|
)
|
|||
|
Ending balance
|
$
|
101,711.9
|
|
$
|
89,085.1
|
|
|
|
(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 impact 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
|
The following table summarizes our assets under management by asset class:
|
|
As of March 31,
|
Change
|
% of Total
|
|||||||||||||||||
|
|
2019
|
2018
|
$
|
%
|
2019
|
2018
|
||||||||||||||
|
($ in millions)
|
||||||||||||||||||||
|
Asset Class
|
||||||||||||||||||||
|
Equity
|
$
|
61,781.0
|
|
$
|
45,428.3
|
|
$
|
16,352.7
|
|
36.0
|
%
|
60.7
|
%
|
51.0
|
%
|
|||||
|
Fixed income
|
33,674.4
|
|
37,766.2
|
|
(4,091.8
|
)
|
(10.8
|
)%
|
33.1
|
%
|
42.4
|
%
|
||||||||
|
Alternatives
(1)
|
4,467.9
|
|
4,249.0
|
|
218.9
|
|
5.2
|
%
|
4.4
|
%
|
4.8
|
%
|
||||||||
|
Liquidity
(2)
|
1,788.6
|
|
1,641.6
|
|
147.0
|
|
9.0
|
%
|
1.8
|
%
|
1.8
|
%
|
||||||||
|
Total
|
$
|
101,711.9
|
|
$
|
89,085.1
|
|
$
|
12,626.8
|
|
14.2
|
%
|
100.0
|
%
|
100.0
|
%
|
|||||
|
(1)
|
Consists of real estate securities, mid-stream energy securities and master limited partnerships, options strategies and other
|
|
(2)
|
Represents assets under management in liquidity strategies, including in certain open-end funds and institutional accounts
|
26
Average Assets Under Management and Average Basis Points
The following table summarizes the average management fees earned in basis points and average assets under management:
|
|
Three Months Ended March 31,
|
||||||||||||
|
($ in millions, except average fee earned data which is in basis points)
|
Average Fees Earned
|
Average Assets Under Management (2)
|
|||||||||||
|
|
2019
|
2018
|
2019
|
2018
|
|||||||||
|
Products
|
|||||||||||||
|
Open-End Funds (1)
|
54.3
|
|
50.3
|
|
$
|
39,531.9
|
|
$
|
43,751.4
|
|
|||
|
Closed-End Funds
|
64.9
|
|
66.3
|
|
6,258.3
|
|
6,346.1
|
|
|||||
|
Exchange Traded Funds
|
10.5
|
|
18.2
|
|
870.8
|
|
1,045.7
|
|
|||||
|
Retail Separate Accounts
|
48.1
|
|
47.6
|
|
14,998.4
|
|
13,923.3
|
|
|||||
|
Institutional Accounts
|
30.6
|
|
31.8
|
|
29,353.8
|
|
20,165.8
|
|
|||||
|
Structured Products
|
37.1
|
|
39.2
|
|
3,668.3
|
|
3,619.1
|
|
|||||
|
All Long-Term Products
|
45.6
|
|
46.0
|
|
94,681.5
|
|
88,851.4
|
|
|||||
|
Liquidity (3)
|
9.9
|
|
11.8
|
|
1,725.5
|
|
1,787.6
|
|
|||||
|
All Products
|
45.0
|
|
45.3
|
|
$
|
96,407.0
|
|
$
|
90,639.0
|
|
|||
|
(1)
|
Represents assets under management of U.S. retail funds, offshore funds and variable insurance funds
|
|
(2)
|
Averages are calculated as follows:
|
- Funds - average daily or weekly balances
- Retail Separate Accounts - prior quarter ending balance or average of month-end balances in quarter
- Institutional Accounts and Structured Products - average of month-end balances in quarter
|
(3)
|
Represents assets under management in liquidity strategies, including in certain open-end funds and institutional accounts
|
Average fees earned represent investment management fees before the impact of consolidation of sponsored investment products less fees paid to third-party service providers for investment management related services, divided by average net assets. Open-end mutual fund, closed-end fund and exchange traded fund fees are calculated based on average daily or weekly net assets. Retail separate account fees are 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 calculated based on an average of month-end balances or current quarter’s asset values. Structured product fees are calculated based on a combination of the underlying cash flows and the principal value of the product. Average fees earned will vary based on several factors, including the asset mix and expense reimbursements to funds.
The average fee rate earned on long-term products for the three months ended
March 31, 2019
decreased by
0.4
basis points compared to the same period in the prior year as a result of the assets from the SGA Acquisition having lower blended fee rates which primarily impacted institutional accounts. The decrease in the average fee rates for ETFs was primarily due to higher fund expense reimbursements. These decreases were partially offset by shifts in the underlying asset mix to higher fee earning strategies in open-end funds and retail separate accounts.
27
Results of Operations
Summary Financial Data
|
|
Three Months Ended March 31,
|
|||||||||||||
|
|
2019
|
2018
|
2019 vs. 2018
|
%
|
||||||||||
|
($ in thousands)
|
|
|
|
|
||||||||||
|
Results of Operations
|
||||||||||||||
|
Investment management fees
|
$
|
105,918
|
|
$
|
100,476
|
|
$
|
5,442
|
|
5.4
|
%
|
|||
|
Other revenues
|
24,800
|
|
28,552
|
|
(3,752
|
)
|
(13.1
|
)%
|
||||||
|
Total revenues
|
130,718
|
|
129,028
|
|
1,690
|
|
1.3
|
%
|
||||||
|
Total operating expenses
|
109,719
|
|
106,411
|
|
3,308
|
|
3.1
|
%
|
||||||
|
Operating income (loss)
|
20,999
|
|
22,617
|
|
(1,618
|
)
|
(7.2
|
)%
|
||||||
|
Other income (expense), net
|
1,962
|
|
4,016
|
|
(2,054
|
)
|
(51.1
|
)%
|
||||||
|
Interest income (expense), net
|
3,726
|
|
3,717
|
|
9
|
|
0.2
|
%
|
||||||
|
Income (loss) before income taxes
|
26,687
|
|
30,350
|
|
(3,663
|
)
|
(12.1
|
)%
|
||||||
|
Income tax expense (benefit)
|
4,219
|
|
6,523
|
|
(2,304
|
)
|
(35.3
|
)%
|
||||||
|
Net income (loss)
|
22,468
|
|
23,827
|
|
(1,359
|
)
|
(5.7
|
)%
|
||||||
|
Noncontrolling interests
|
(722
|
)
|
(527
|
)
|
(195
|
)
|
37.0
|
%
|
||||||
|
Net Income (Loss) Attributable to Stockholders
|
21,746
|
|
23,300
|
|
(1,554
|
)
|
(6.7
|
)%
|
||||||
|
Preferred stockholder dividends
|
(2,084
|
)
|
(2,084
|
)
|
—
|
|
—
|
%
|
||||||
|
Net Income (Loss) Attributable to Common Stockholders
|
$
|
19,662
|
|
$
|
21,216
|
|
$
|
(1,554
|
)
|
(7.3
|
)%
|
|||
Revenues
Revenues by source were as follows:
|
|
Three Months Ended March 31,
|
|||||||||||||
|
|
2019
|
2018
|
2019 vs. 2018
|
%
|
||||||||||
|
($ in thousands)
|
|
|
|
|
||||||||||
|
Investment management fees
|
||||||||||||||
|
Open-end funds
|
$
|
53,293
|
|
$
|
54,361
|
|
$
|
(1,068
|
)
|
(2.0
|
)%
|
|||
|
Closed-end funds
|
10,019
|
|
10,378
|
|
(359
|
)
|
(3.5
|
)%
|
||||||
|
Retail separate accounts
|
18,005
|
|
16,529
|
|
1,476
|
|
8.9
|
%
|
||||||
|
Institutional accounts
|
22,177
|
|
15,818
|
|
6,359
|
|
40.2
|
%
|
||||||
|
Structured products
|
1,647
|
|
2,326
|
|
(679
|
)
|
(29.2
|
)%
|
||||||
|
Other products
|
777
|
|
1,064
|
|
(287
|
)
|
(27.0
|
)%
|
||||||
|
Total investment management fees
|
105,918
|
|
100,476
|
|
5,442
|
|
5.4
|
%
|
||||||
|
Distribution and service fees
|
10,063
|
|
12,607
|
|
(2,544
|
)
|
(20.2
|
)%
|
||||||
|
Administration and shareholder service fees
|
14,413
|
|
15,738
|
|
(1,325
|
)
|
(8.4
|
)%
|
||||||
|
Other income and fees
|
324
|
|
207
|
|
117
|
|
56.5
|
%
|
||||||
|
Total revenues
|
$
|
130,718
|
|
$
|
129,028
|
|
$
|
1,690
|
|
1.3
|
%
|
|||
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 $
5.4 million
, or
5.4%
, for the
three
months ended
March 31, 2019
, compared to the same period in the prior year due to an increase in average assets of
$5.8 billion
, or
6.4%
, for the
three
months ended
March 31, 2019
, primarily as a result of the SGA Acquisition, which was partially offset by lower investment management fees in our open-end and closed-end funds as a result of lower average assets.
28
Distribution and Service Fees
Distribution and service fees, which are primarily sales- and asset-based fees earned from open-end funds for marketing and distribution services, decreased by
$2.5 million
, or
20.2%
, for the
three
months ended
March 31, 2019
, compared to the same period in the prior year, primarily due to lower sales and average assets for open-end funds in share classes that have distribution and service fees.
Administration and Shareholder Servicing Fees
Administration and shareholder servicing fees represent fees earned for fund administration and shareholder services from our open-end mutual funds and certain of our closed-end funds. Fund administration and shareholder servicing fees decreased by
$1.3 million
, or
8.4%
, for the
three
months ended
March 31, 2019
, compared to the same period in the prior year. The decrease for the
three
months ended
March 31, 2019
was primarily due to the decrease in our open-end funds average assets under management.
Other Income and Fees
Other income and fees primarily represent contingent sales charges earned from investor redemptions of certain shares sold without a front-end sales charge. Other income and fees increased
$0.1 million
, or
56.5%
, for the
three
months ended
March 31, 2019
, compared to the same period in the prior year. The increase was primarily due to increased redemption income.
Operating Expenses
Operating expenses by category were as follows:
|
|
Three Months Ended March 31,
|
|||||||||||||
|
|
2019
|
2018
|
2019 vs. 2018
|
%
|
||||||||||
|
($ in thousands)
|
|
|
|
|
||||||||||
|
Operating expenses
|
||||||||||||||
|
Employment expenses
|
$
|
60,851
|
|
$
|
60,696
|
|
$
|
155
|
|
0.3
|
%
|
|||
|
Distribution and other asset-based expenses
|
19,764
|
|
22,291
|
|
(2,527
|
)
|
(11.3
|
)%
|
||||||
|
Other operating expenses
|
18,723
|
|
16,862
|
|
1,861
|
|
11.0
|
%
|
||||||
|
Other operating expenses of consolidated investment products
|
451
|
|
511
|
|
(60
|
)
|
(11.7
|
)%
|
||||||
|
Restructuring and severance
|
1,176
|
|
—
|
|
1,176
|
|
N/M
|
|
||||||
|
Depreciation and other amortization
|
1,213
|
|
1,015
|
|
198
|
|
19.5
|
%
|
||||||
|
Amortization expense
|
7,541
|
|
5,036
|
|
2,505
|
|
49.7
|
%
|
||||||
|
Total operating expenses
|
$
|
109,719
|
|
$
|
106,411
|
|
$
|
3,308
|
|
3.1
|
%
|
|||
Employment Expenses
Employment expenses consist of fixed and variable compensation and related employee benefit costs. Employment expenses for the
three
months ended
March 31, 2019
were
$60.9 million
, which represented an increase of
$0.2 million
, or
0.3%
, compared to the same period in the prior year. The increases reflected the addition of employees from the SGA Acquisition partially offset by lower profit and sales-based compensation.
Distribution and Other Asset-Based Expenses
Distribution and other asset-based expenses consist primarily of payments to third-party distribution partners for providing services to investors in our funds and payments to third-party service providers for investment management-related services. These payments are primarily based on percentages of sales, assets under management or revenues. These expenses also include the amortization of deferred sales commissions related to up-front commissions on shares sold without a front-end sales charge to shareholders. The deferred sales commissions are amortized on a straight-line basis over the periods in which commissions are generally recovered from distribution fee revenues and contingent sales charges received from shareholders of the funds upon redemption of their shares. Distribution and other asset-based expenses decreased by
$2.5 million
, or
11.3%
, in the
three
months ended
March 31, 2019
, as compared to the same period in the prior year, primarily due to lower average open-
29
end fund assets under management and a lower percentage of sales and assets under management in share classes where we pay distribution expenses.
Other Operating Expenses
Other operating expenses primarily consist of investment research and technology costs, professional fees, travel and distribution related costs, rent and occupancy expenses, and other business costs. Other operating expenses for the
three
months ended
March 31, 2019
increased by
$1.9 million
, or
11.0%
as compared to the same period in the prior year primarily due to the addition of SGA costs and certain identified costs including consulting services, corporate office relocation, and corporate logo redesign.
Other Operating Expenses of Consolidated Investment Products
Other operating expenses of consolidated investment products decreased
$0.1 million
, or
11.7%
, to
$0.5 million
for the
three
months ended
March 31, 2019
from the same period in the prior year primarily due to fewer funds being consolidated in the current year.
Restructuring and severance
During the three months ended March 31, 2019, we incurred
$1.2 million
in restructuring and severance costs primarily related to severance costs.
Depreciation and Other Amortization Expense
Depreciation and other amortization expense consists primarily of the straight-line depreciation of furniture, equipment and leasehold improvements. Depreciation and amortization expense increased by
$0.2 million
for the
three
months ended
March 31, 2019
, compared to the same period in the prior year, primarily due to depreciation expense on new corporate office space.
Amortization Expense
Amortization expense consists of the amortization of definite-lived intangible assets, over their estimated useful lives. Amortization expense increased
$2.5 million
, or
49.7%
, for the
three
months ended
March 31, 2019
, compared to the same period in the prior year, primarily due to an increase in definite lived intangible assets as a result of the SGA Acquisition.
Other Income (Expense), net
Other Income (Expense), net by category was as follows:
|
|
Three Months Ended March 31,
|
|||||||||||||
|
|
2019
|
2018
|
2019 vs. 2018
|
%
|
||||||||||
|
($ in thousands)
|
|
|
|
|
||||||||||
|
Other Income (Expense)
|
||||||||||||||
|
Realized and unrealized gain (loss) on investments, net
|
$
|
3,433
|
|
$
|
438
|
|
$
|
2,995
|
|
683.8
|
%
|
|||
|
Realized and unrealized gain (loss) of CIP, net
|
(1,921
|
)
|
2,259
|
|
(4,180
|
)
|
(185.0
|
)%
|
||||||
|
Other income (expense), net
|
450
|
|
1,319
|
|
(869
|
)
|
(65.9
|
)%
|
||||||
|
Total Other Income (Expense), net
|
$
|
1,962
|
|
$
|
4,016
|
|
$
|
(2,054
|
)
|
(51.1
|
)%
|
|||
Realized and unrealized gain (loss) on investments, net
Realized and unrealized gain (loss) on investments, net increased during the
three
months ended
March 31, 2019
by
$3.0 million
, or
683.8%
, as compared to the same period in the prior year. The realized and unrealized gains during the
three
months ended
March 31, 2019
primarily related to unrealized gains on our alternative and equity strategies. The realized and unrealized gains during the
three
months ended
March 31, 2018
primarily related to unrealized gains on our international equity strategies.
30
Realized and unrealized gain (loss) of consolidated investment products, net
Realized and unrealized gain (loss) of our consolidated investment products, net, decreased
$4.2 million
, or
185.0%
during the
three
months ended
March 31, 2019
as compared to the same period in the prior year. The decrease primarily consisted of $16.4 million in changes on the notes payable, partially offset by net realized and unrealized gains of $12.2 million on the investments of our consolidated investment products and mutual funds, primarily due to changes in market values of leveraged loans.
Other income (expense), net
Other income (expense), net decreased during the
three
months ended
March 31, 2019
by
$0.9 million
, or
65.9%
, as compared to the same period in the prior year. The decrease was due to lower earnings on equity method investments.
Interest Income (Expense), net
Interest income (expense), net by category were as follows:
|
|
Three Months Ended March 31,
|
|||||||||||||
|
|
2019
|
2018
|
2019 vs. 2018
|
%
|
||||||||||
|
($ in thousands)
|
|
|
|
|
||||||||||
|
Interest Income (Expense)
|
||||||||||||||
|
Interest expense
|
$
|
(5,165
|
)
|
$
|
(3,858
|
)
|
$
|
(1,307
|
)
|
33.9
|
%
|
|||
|
Interest and dividend income
|
1,190
|
|
721
|
|
469
|
|
65.0
|
%
|
||||||
|
Interest and dividend income of investments of CIP
|
27,402
|
|
21,403
|
|
5,999
|
|
28.0
|
%
|
||||||
|
Interest expense of CIP
|
(19,701
|
)
|
(14,549
|
)
|
(5,152
|
)
|
35.4
|
%
|
||||||
|
Total Interest Income (Expense), net
|
$
|
3,726
|
|
$
|
3,717
|
|
$
|
9
|
|
0.2
|
%
|
|||
Interest Expense
Interest expense increased
$1.3 million
, or
33.9%
, for the
three
months ended
March 31, 2019
, compared to the same period in the prior year. The increase was due to the higher average level of debt outstanding compared to the same period in the prior year.
Interest and Dividend Income
Interest and dividend income increased
$0.5 million
, or
65.0%
, for the
three
months ended
March 31, 2019
, compared to the same period in the prior year. The increase was due to higher cash and investment balances as compared to the corresponding period in the prior year.
Interest and Dividend Income of Investments of Consolidated Investment Products
Interest and dividend income of investments of consolidated investment products increased
$6.0 million
, or
28.0%
, for the
three
months ended
March 31, 2019
, compared to the same period in the prior year. The increase was due to increased investments of our consolidated investment products during the
three
months ended
March 31, 2019
compared to the same periods in the prior year.
Interest Expense of Consolidated Investment Products
Interest expense of consolidated investment products represents interest expense on the notes payable of the consolidated investment products. Interest expense of consolidated investment products increased by
$5.2 million
, or
35.4%
, for the
three
months ended
March 31, 2019
, primarily due to higher average debt balances for our consolidated investment products as compared to the same period in the prior year.
Income Tax Expense (Benefit)
The provision for income taxes reflected U.S. federal, state and local taxes at an estimated effective tax rate of
15.8%
and
21.5%
for the
three
months ended
March 31, 2019
and
2018
, respectively. The decrease in the estimated effective tax rate
31
for the
three
months ended
March 31, 2019
was primarily due to
t
he decrease in the valuation allowance associated with various investments the Company holds.
Liquidity and Capital Resources
Certain Financial Data
The following table summarizes certain financial data relating to our liquidity and capital resources:
|
|
March 31, 2019
|
December 31, 2018
|
Change
|
|||||||||||
|
|
2019 vs. 2018
|
%
|
||||||||||||
|
($ in thousands)
|
|
|
|
|
||||||||||
|
Balance Sheet Data
|
||||||||||||||
|
Cash and cash equivalents
|
$
|
142,343
|
|
$
|
201,705
|
|
$
|
(59,362
|
)
|
(29.4
|
)%
|
|||
|
Investments
|
75,925
|
|
79,558
|
|
(3,633
|
)
|
(4.6
|
)%
|
||||||
|
Debt
|
317,665
|
|
329,184
|
|
(11,519
|
)
|
(3.5
|
)%
|
||||||
|
Total equity
|
646,458
|
|
643,867
|
|
2,591
|
|
0.4
|
%
|
||||||
|
|
Three Months Ended March 31,
|
Change
|
||||||||||||
|
|
2019
|
2018
|
2019 vs. 2018
|
%
|
||||||||||
|
($ in thousands)
|
|
|
|
|
||||||||||
|
Cash Flow Data
|
||||||||||||||
|
Provided by (Used In):
|
||||||||||||||
|
Operating Activities
|
$
|
(23,215
|
)
|
$
|
(61,755
|
)
|
$
|
38,540
|
|
(62.4
|
)%
|
|||
|
Investing Activities
|
(2,095
|
)
|
(21,577
|
)
|
19,482
|
|
(90.3
|
)%
|
||||||
|
Financing Activities
|
(31,280
|
)
|
(14,451
|
)
|
(16,829
|
)
|
116.5
|
%
|
||||||
Overview
At
March 31, 2019
, we had
$142.3 million
of cash and cash equivalents and
$75.9 million
of investments which included
$56.4 million
of investment securities compared to
$201.7 million
of cash and cash equivalents and
$79.6 million
of investments which included
$61.3 million
of investment securities at
December 31, 2018
.
At
March 31, 2019
, we had
$328.2 million
outstanding under our term loan maturing June 1, 2024 (the "Term Loan"), and no outstanding borrowings under our $100.0 million revolving credit facility (the "Credit Facility").
Uses of Capital
Our main uses of capital related to operating activities include payments of annual incentive compensation, interest on our indebtedness, income taxes, and other operating expenses, which primarily consisted of investment research, technology costs, professional fees and distribution and occupancy costs. Annual incentive compensation, which is one of the largest annual operating cash expenditures, is typically paid in the first quarter of the year. In the first quarters of
2019
and
2018
, we paid $76.2 million and $74.1 million, respectively, in incentive compensation earned during the years ended
December 31, 2018
and
2017
, respectively.
In addition to operating activities, other uses of cash could include: (i) investments in organic growth, including expanding our distribution efforts; (ii) seeding or launching new products, including seeding funds or sponsoring CLO issuances; (iii) principal payments on debt outstanding through scheduled amortization, excess cash flow payment requirements or additional paydowns; (iv) dividend payments to preferred and common stockholders; (v) repurchases of our common stock; (vi) investments in our infrastructure; (vii) investments in inorganic growth opportunities as they arise; (viii) integration costs, including restructuring and severance, related to potential acquisitions, if any; and (ix) potential purchases of affiliate noncontrolling interests.
32
Capital and Reserve Requirements
We operate two broker-dealer subsidiaries registered with the SEC which are subject to certain rules regarding minimum net capital. The broker-dealers are required to maintain a ratio of "aggregate indebtedness" to "net capital," as defined, which may not exceed 15 to 1 and must also maintain a minimum amount of net capital. Failure to meet these requirements could result in adverse consequences to us including additional reporting requirements, a lower required ratio of aggregate indebtedness to net capital or interruption of our business. At both
March 31, 2019
and
December 31, 2018
, the ratio of aggregate indebtedness to net capital of our broker-dealers was below the maximum allowed, and net capital was significantly greater than the required minimum.
Balance Sheet
Cash and cash equivalents consist of cash in banks and money market fund investments. Investments consist primarily of investments in our affiliated mutual funds. Consolidated investment products primarily represent investment products to which we provide investment management services and where we have either a controlling financial interest or we are considered the primary beneficiary of an investment product that is a considered a variable interest entity.
Operating Cash Flow
Net cash used in operating activities of
$23.2 million
for the
three
months ended
March 31, 2019
decreased by
$38.5 million
from net cash used in operating activities of
$61.8 million
for the same period in the prior year primarily due a decrease in net purchases of investments of our consolidated investment products, partially offset by changes in our operating assets and liabilities.
Investing Cash Flow
Cash flows from investing activities consist primarily of capital expenditures and other investing activities related to our business operations. Net cash used in investing activities of
$2.1 million
for the
three
months ended
March 31, 2019
decreased by
$19.5 million
from net cash used in investing activities of
$21.6 million
in the same period for the prior year. The primary investing activities for the
three
months ended
March 31, 2019
were the sale of investments in unconsolidated CLOs of
$2.0 million
and capital expenditures on our new corporate office space of
$2.6 million
. The primary investing activity for the
three
months ended
March 31, 2018
was
$20.3 million
of net cash used for the purchase of investments in unconsolidated CLOs.
Financing Cash Flow
Cash flows from financing activities consist primarily of the issuance of common and preferred stock, return of capital through repurchases of common shares, dividends, withholding obligations for the net share settlement of employee share transactions, and contributions to noncontrolling interests related to our consolidated investment products. Net cash used in financing activities increased
$16.8 million
to
$31.3 million
for the
three
months ended
March 31, 2019
as compared to net cash used in financing activities of
$14.5 million
for the
three
months ended
March 31, 2018
. The primary reason for the increase was due to the repurchase of shares of common stock in the current year period, while no shares of common stock were repurchased in the prior year period.
C
redit Agreement
The Company's credit agreement, as amended (the "Credit Agreement"), comprises (1) $365.0 million of seven-year term debt ("Term Loan") expiring in May 2024 and (2) a $100.0 million five-year revolving credit facility ("Credit Facility") expiring in May 2022. At
March 31, 2019
,
$328.2 million
was outstanding under the Term Loan, and the Company had
no
outstanding borrowings under its Credit Facility. In accordance with ASC 835,
Interest,
the amounts outstanding under the Company's Term Loan are presented on the consolidated balance sheet net of related debt issuance costs which were
$10.5 million
as of
March 31, 2019
.
Contractual Obligations
Our contractual obligations are summarized in our
2018
Annual Report on Form 10-K. As of
March 31, 2019
, there have been no material changes outside of the ordinary course of business in our contractual obligations since
December 31, 2018
.
33
Critical Accounting Policies and Estimates
Our financial statements and the accompanying notes are prepared in accordance with generally accepted accounting principles generally accepted in the United States of America, which require the use of estimates. Actual results will vary from these estimates. A discussion of our critical accounting policies and estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our
2018
Annual Report on Form 10-K. A complete description of our significant accounting policies is included in our
2018
Annual Report on Form 10-K. There were no material changes in our critical accounting policies in the three months ended
March 31, 2019
.
Recently Issued Accounting Pronouncements
For a discussion of accounting standards, see Note 2 within our condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is primarily exposed to market risk associated with unfavorable movements in interest rates and securities prices. During the
three
months ended
March 31, 2019
, there were no material changes to the information contained in Part II, Item 7A of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2018
.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Consistent with guidance issued by the Securities and Exchange Commission that an assessment of internal controls over financial reporting of a recently acquired business may be omitted from management's evaluation of disclosure controls and procedures, management is excluding an assessment of the internal controls of SGA, which was acquired by the Company on July 1, 2018, from its evaluation of the effectiveness of the Company's disclosure controls and procedures. SGA represented approximately 6.6% of the Company's consolidated total assets and 6.4% of the Company's consolidated total revenues as of and for the quarter ended March 31, 2019.
Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of
March 31, 2019
, the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
34
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Legal Matters
The Company is regularly involved in litigation and arbitration as well as examinations, inquiries and investigations by various regulatory bodies, including the SEC, involving its compliance with, among other things, securities laws, client investment guidelines, laws governing the activities of broker-dealers and other laws and regulations affecting its products and other activities. Legal and regulatory matters of this nature involve or may involve but are not limited to the Company’s activities as an employer, issuer of securities, investor, investment adviser, broker-dealer or taxpayer. In addition, in the normal course of business, the Company discusses matters with its regulators raised during regulatory examinations or is otherwise subject to their inquiry. These matters could result in censures, fines, penalties or other sanctions.
The Company accrues for a liability when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In addition, in the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450,
Loss Contingencies
. The disclosures, accruals or estimates, if any, resulting from the foregoing analysis are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. Based on information currently available, available insurance coverage, indemnities and established reserves, the Company believes that the outcomes of its legal and regulatory proceedings are not likely, either individually or in the aggregate, to have a material adverse effect on the Company’s results of operations, cash flows or its consolidated financial condition. However, in the event of unexpected subsequent developments and given the inherent unpredictability of these legal and regulatory matters, the Company can provide no assurance that its assessment of any claim, dispute, regulatory examination or investigation or other legal matter will reflect the ultimate outcome, and an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company’s results of operations or cash flows in particular quarterly or annual periods.
Item 1A. Risk Factors
The reader should carefully consider, in connection with the other information in this report, the Company’s risk factors previously reported in our
2018
Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
As of
March 31, 2019
,
4,180,045
shares of our common stock had been authorized to be repurchased under the share repurchase program approved by our Board of Directors, and
476,841
shares remained available for repurchase. Under the terms of the program, we may repurchase shares of our common stock from time to time at our discretion through open market repurchases, privately negotiated transactions and/or other mechanisms, depending on price and prevailing market and business conditions. The program, which has no specified term, may be suspended or terminated at any time.
The following table sets forth information regarding our share repurchases in each month during the quarter ended
March 31, 2019
:
|
Period
|
Total number of shares purchased
|
Average price paid per share
(1)
|
Total number of shares purchased as part of publicly announced plans or programs
(2)
|
Maximum number of shares that may yet be purchased under the plans or programs
(2)
|
||||||||
|
January 1-31, 2019
|
—
|
|
$
|
—
|
|
—
|
|
624,803
|
|
|||
|
February 1-28, 2019
|
40,183
|
|
$
|
103.59
|
|
40,183
|
|
584,620
|
|
|||
|
March 1-31, 2019
|
107,779
|
|
$
|
100.50
|
|
107,779
|
|
476,841
|
|
|||
|
Total
|
147,962
|
|
147,962
|
|
||||||||
|
(1)
Average price paid per share is calculated on a settlement basis and excludes commissions.
|
||||||||||||
|
(2)
The share repurchases above were completed pursuant to a program announced in the fourth quarter of 2010 and most recently expanded in December 2017. This repurchase program is not subject to an expiration date.
|
||||||||||||
35
There were no unregistered sales of equity securities during the period covered by this Quarterly Report. Shares of our common stock purchased by participants in our Employee Stock Purchase Plan were delivered to participant accounts via open market purchases at fair value by the third-party administrator under the plan. We do not reserve shares for this plan or discount the purchase price of the shares.
Item 6. Exhibits
|
Exhibit
Number
|
|
Description
|
|
|
Certification of the Registrant’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
Certification of the Registrant’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
Certification of the Registrant’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
101
|
|
The following information formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2019 and December 31, 2018, (ii) Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2019 and 2018, (iii) Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2019 and 2018, (iv) Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2019 and 2018, (v) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2019 and 2018 and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited).
|
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated:
May 6, 2019
|
VIRTUS INVESTMENT PARTNERS, INC.
|
||
|
(Registrant)
|
||
|
By:
|
/s/ Michael A. Angerthal
|
|
|
|
Michael A. Angerthal
|
|
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
|
||
37
TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits