Virtus Investment Partners Announces Financial Results for Fourth Quarter and Full Year 2010

HARTFORD, Conn., Feb. 1, 2011 /PRNewswire/ -- Virtus Investment Partners, Inc. (Nasdaq: VRTS), which operates a multi-manager asset management business, today reported financial results for the fourth quarter and full year of 2010 that included a 51 percent increase in total sales for the year driven by a 63 percent increase in long-term mutual fund sales.  The significant growth in sales and continued positive net flows, combined with the impact of the adoption of a variable insurance trust (VIT), contributed to strong sequential improvement in operating income, as adjusted, and operating margin, as adjusted.

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Operating income, as adjusted, was $7.1 million for the quarter ended December 31, 2010, compared with $5.7 million in the third quarter of 2010 and $4.4 million in the fourth quarter of 2009.  Operating margin, as adjusted, improved to 23 percent from 21 percent in the prior quarter and 18 percent in the fourth quarter of 2009.  Operating income, as adjusted, and operating margin, as adjusted, are non-GAAP measures that exclude certain non-cash and other items as described in the table at the end of the release.

Operating income was $4.5 million in the fourth quarter, compared with $2.9 million in the prior quarter and $1.3 million in the fourth quarter of 2009.  Operating margin was 11 percent in the fourth quarter, compared with 8 percent in the prior quarter and 4 percent for the prior year quarter.  Net income was $4.5 million for the current quarter, compared with $3.7 million in the prior quarter and $1.4 million in the fourth quarter of 2009.  

For the year ended December 31, 2010, the company had operating income, as adjusted, of $21.7 million, with a related margin of 20 percent, compared with $7.0 million and 8 percent margin for the prior year, and operating income and margin of $9.3 million and 6 percent, compared with a loss of $6.6 million and margin of (6) percent for the year ended December 31, 2009.

Virtus ended 2010 with assets under management of $29.5 billion, an increase of 9 percent from $27.1 billion at September 30, 2010 and 16 percent from $25.4 billion at December 31, 2009.  Long-term assets under management, which exclude money market funds, were $26.6 billion at December 31, 2010, an increase of 9 percent from $24.4 billion at September 30, 2010 and 23 percent from $21.5 billion at December 31, 2009.

Management Commentary

"The fourth quarter continued the trend in 2010 of strong sales, positive net flows and improving profitability, and helped us deliver another year of growth and overall improvement in our business," said George R. Aylward, president and chief executive officer.  "With each quarter this year we improved from the prior quarter.  In 2010 we demonstrated an ability to significantly grow the business while simultaneously improving profitability in a way that creates increasing value for our shareholders."

Aylward identified three factors that were primarily responsible for the improvement in fourth quarter financial results: a company-record $1.5 billion in long-term mutual fund sales and $553 million in total net flows; the VIT adoption that added $1.2 billion to assets under management; and a continued expense discipline that allowed the company to improve profitability in spite of significantly increased variable expenses that come with the growing levels of sales achieved by the company.

"This quarter mirrors the success we've had all year in our mutual fund business.  We successfully capitalized on the product diversity and attractiveness of the Virtus Mutual Funds to grow long term assets," Aylward said.  "The organic growth rate for long-term mutual funds was 22.4 percent in the fourth quarter, which demonstrates the strong interest in our funds.  It is also noteworthy that the growth in sales has come without an increase in our retail sales force."

Aylward noted the company continues to deliver on its goal of improving its overall profitability, as measured by operating margin, as adjusted, which increased to 23 percent for the quarter and 20 percent for the full year, compared with 8 percent for 2009, even though sales-related expenses, particularly variable incentive compensation, increased noticeably from the prior quarter as a result of the significant growth in mutual fund sales.

"Our accomplishments this quarter show we were successful in executing a strategy that delivers growing value for our shareholders," Aylward added.  "We believe we have in place the products, distribution strategy, expense discipline and capital structure that will position us for continued profitable growth."

Asset Flows and Assets Under Management

Total sales were up for the fourth quarter and full year, driven by a quarter in which the annualized sales rate for long-term open end mutual funds exceeded 50 percent.  In addition, a seventh consecutive quarter of positive net flows drove growth in assets under management.

• Total sales of $1.7 billion in the fourth quarter of 2010 were up 9 percent from $1.6 billion in the prior quarter, and were up 51 percent for the year to $5.8 billion from $3.9 billion in 2009, driven by higher mutual fund sales.  Positive net flows of $552.7 million in the quarter  increased 21 percent from $455.2 million in the third quarter and increased to $1.6 billion for the year, compared to $114.4 million in 2009.
• Long-term mutual fund sales were $1.5 billion for the fourth quarter, an increase of 31 percent from $1.1 billion in the third quarter.  Positive net flows of $598.6 million for the quarter increased 30 percent from $461.1 million in the prior quarter.  For the full year, mutual fund sales were $4.5 billion, an increase of 63 percent from 2009, with positive net flows of $1.7 billion, compared with $525.5 million in the prior year.  In the fourth quarter, the organic growth rate of the company's long-term mutual funds, which the company defines as annualized net flows divided by beginning assets under management, was 22.4 percent compared with 19.6 percent in the prior quarter and 18.7 percent for the full year.
• Separately managed account sales were $200.2 million in the fourth quarter compared with $107.2 million in the prior quarter.  Institutional sales, which tend to fluctuate significantly, were $60.7 million in the fourth quarter, compared with $358.5 million in the third quarter.  For the full year, separately managed accounts had negative net flows of $133.5 million on sales of $539.0 million, and institutional products had positive net flows of $55.3 million on sales of $745.4 million.
• As a result of the adoption transaction completed on November 5, Virtus became the advisor and distributor, and remained fund administrator, of the VIT, which had a total of $1.5 billion in assets at year-end.  At the time of the adoption, Virtus affiliates were reappointed to manage the $0.3 billion they previously subadvised under institutional mandates and were appointed as subadvisors to an additional $0.5 billion of assets. The remaining $0.7 billion is managed by unaffiliated investment managers under subadvisory agreements with Virtus.  The "Assets Under Management" tables in this release now include a new product category, "Variable Insurance Trust."
• The increase in assets under management to $29.5 billion at December 31, 2010 was a result of the additional VIT assets, positive net flows, and market appreciation of $927.6 million in the fourth quarter and $2.3 billion for all of 2010.  The increase in long-term mutual fund assets to $16.1 billion at the end of the fourth quarter was driven by the positive net flows of $1.7 billion for the year, and market appreciation of $1.4 billion.
• Average assets under management, which correspond to the company's fee-earning asset levels, were $28.6 billion for the quarter ended December 31, 2010, an improvement of 10 percent from $26.1 billion for the quarter ended September 30, 2010.  Ending assets under management for separately managed accounts, which form the basis for first quarter 2011 revenue, were up 6 percent to $3.8 billion.

Revenue

Total revenue increased on both a quarterly and full-year basis, a result of increased mutual fund revenue and the addition of the Virtus Variable Insurance Trust.

• Total revenue was $40.7 million in the fourth quarter of 2010, an improvement of 14 percent from $35.6 million in the prior quarter and 22 percent from $33.3 million in the fourth quarter of 2009.  For the full year, total revenue increased 23 percent to $144.6 million from $117.2 million.
• Revenue, as adjusted, which is net of certain mutual fund distribution and administration expenses, showed increases for the quarter and the full year.  For the fourth quarter of 2010, revenue, as adjusted, increased 13 percent to $30.9 million from $27.4 million in the third quarter, and was 23 percent greater than $25.2 million in the fourth quarter of 2009.  The adoption of the VIT contributed $0.7 million of the increase in revenue, as adjusted, from the prior quarter.
• Investment management fees of $26.7 million in the fourth quarter increased 14 percent from $23.5 million in the prior quarter and 16 percent from $23.1 million in the prior year quarter.  For the full year 2010, investment management fees of $98.0 million increased 23 percent from $79.7 million in 2009.

Expenses

Higher operating expenses resulted from the increase in sales-related costs, primarily higher variable incentive compensation related to higher sales.

• Operating expenses of $36.3 million in the fourth quarter compare with $32.7 million in the prior quarter and $32.0 million for the prior year quarter, as employment expenses increased $1.6 million from the third quarter as a result of stronger sales.  For the full year, operating expenses were $135.3 million, compared with $123.8 million in 2009.
• Operating expenses, as adjusted, which exclude distribution and administration expenses, restructuring and severance charges, and certain non-cash charges, were $23.7 million for the fourth quarter, compared with $21.7 million in the prior quarter and $20.8 million in the fourth quarter of 2009.  Operating expenses, as adjusted, declined as a percentage of revenues, as adjusted, to 77 percent in the fourth quarter, from 79 percent in the third quarter and 82 percent in the fourth quarter of 2009.  For the full year 2010, operating expenses, as adjusted, were $89.6 million compared with $80.2 million in the prior year.
• Employment expenses of $17.5 million in the fourth quarter represented an increase of 10 percent from $15.9 million in the prior quarter and 13 percent from $15.5 million in the prior year quarter.  Fourth quarter 2010 expenses were primarily impacted by the variable incentive compensation related to higher overall and mutual fund sales.  For the full year, employment expenses were $65.2 million, or 14 percent higher than $57.1 million for 2009.
• Other operating expenses, which also include variable sales-related expenses, were $7.1 million in the 2010 fourth quarter, or 6 percent higher than $6.7 million in the prior quarter and 13 percent higher than $6.3 million in the prior year quarter.  For the full year, other operating expenses of $28.3 million were 6 percent higher than $26.6 million in 2009, reflecting the relative stability of the company's fixed cost structure.

Product Management

In December 2010, the Zweig Total Return Fund, Inc., a closed-end fund advised by affiliated manager Zweig Advisers, initiated a secondary rights offering that was completed in January 2011.  This secondary offering raised an additional $98 million in assets from investors.

Balance Sheet, Liquidity and Capital Resources

Working capital increased to $44.2 million at December 31, 2010 from $41.0 million at the end of the third quarter 2010 and from $32.1 million at the end of 2009.  The change reflects the benefit of cash earnings, partially offset by interest and dividend payments, capital expenditures, taxes, the share repurchase program and the VIT transaction.

In the fourth quarter, the company initiated a multi-year share repurchase program of up to 350,000 shares of Virtus' common stock that is part of a comprehensive, long-term capital management strategy.  Through this program, which is intended to generally offset shares issued under equity-based plans, Virtus repurchased 20,000 shares of common stock in December.

Conference Call

Virtus Investment Partners management will host an investor conference call on Wednesday, February 2 at 11 a.m. Eastern to discuss these financial results and related matters. The conference call will be broadcast live over the Internet at www.virtus.com in the Investor Relations section. The call can also be accessed by telephone at 800.259.0251 if calling from within the U.S. or 617.614.3671 if calling from outside the U.S. (Passcode: 71190241).  A replay of the call will be available through February 22 in the Investor Relations section of www.virtus.com, or by telephone at 888-286-8010 if calling from within the U.S. or 617-801-6888 if calling from outside the U.S. (Conference Number: 18634086).  The presentation that will be reviewed as part of the conference call will be available on the Investor Relations section of our Web site.

About Virtus Investment Partners

Virtus Investment Partners, Inc. (Nasdaq: VRTS) is a distinctive partnership of boutique investment managers singularly committed to the long-term success of individual and institutional investors.  The company provides investment management products and services through its affiliated managers and select subadvisers, each with a distinct investment style, autonomous investment process and individual brand.  Virtus Investment Partners offers access to a variety of investment styles across multiple disciplines to meet a wide array of investor needs.  Virtus Mutual Funds are distributed by VP Distributors, Inc., a subsidiary of Virtus Investment Partners and member, FINRA.  Additional information can be found at www.virtus.com.

Forward-Looking Information

This press release contains statements that are, or may be considered to be, forward-looking statements.  All statements that are not historical facts, including statements about our beliefs or expectations, are "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995.  These statements may be identified by such forward-looking terminology as "expect," "estimate," "plan," "intend," "believe," "anticipate," "may," "will," "should," 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, are not guarantees of future results or performance, and involve substantial risks and uncertainty, including assumptions and projections concerning our assets under management, cash inflows and outflows, operating cash flows, expected cost savings, and future credit facilities, for all forward periods. All of our forward-looking statements are as of the date of this release only. The company can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially.

Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the following: (a) the effects of adverse market and economic developments on all aspects of our business; (b) any poor relative investment performance of our asset management strategies and any resulting outflows of assets; (c) any lack of availability of additional and/or replacement financing, as may be needed, on satisfactory terms or at all; (d) any inadequate performance of third-party relationships; (e) the withdrawal of assets from under our management; (f) our ability to attract and retain key personnel in a competitive environment; (g) the ability of independent trustees of our mutual funds and closed-end funds, and other clients, to terminate their relationships with us; (h) the possibility that our goodwill or intangible assets could become impaired, requiring a charge to earnings; (i) the competition we face in our business, including competition related to investment products and fees; (j) potential adverse regulatory and legal developments; (k) the difficulty of detecting misconduct by our employees, subadvisers and distribution partners; (l) changes in accounting or regulatory standards or rules, including the impact of proposed rules which may be promulgated relating to Rule 12b-1 fees; (m) the ability to satisfy the financial covenants under existing debt agreements; and (n) certain other risks and uncertainties described in our 2009 Annual Report on Form 10-K or in any of our filings with the Securities and Exchange Commission ("SEC").

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.

The company does not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections, or other circumstances occurring after the date of this release, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. If there are any future public statements or disclosures by us which modify or impact any of the forward-looking statements contained in or accompanying this release, such statements or disclosures will be deemed to modify or supersede such statements in this release.

SOURCE Virtus Investment Partners, Inc.