VIRTUS INVESTMENT PARTNERS, INC. (VRTS)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 was resilient operationally despite lower average AUM and seasonal employment expenses: GAAP diluted EPS $4.05 and adjusted diluted EPS $5.73; GAAP revenue $217.9M; adjusted revenue $197.6M . Net flows improved to ($3.0)B from ($4.8)B in Q4, with ETFs posting strong positive net flows ($0.3B) and 73% organic growth YoY .
• Results beat Wall Street consensus on adjusted EPS (+$0.32*) and revenue (+$16.5M*) as reported by S&P Global; EPS estimates were based on normalized EPS [Q1 2025] with 4 EPS estimates and 1 revenue estimate*, signaling operational outperformance versus expectations. Values retrieved from S&P Global.*
• Management maintained modeling guardrails: average fee rate 41–42 bps, performance fees ~$3–5M/year, employment expenses 49–51% of adjusted revenues, and other OpEx $30–32M/quarter; noted ~$1M/quarter facilities savings starting Q3 2025 .
• Capital returns remained active: $20.0M repurchases (111,200 shares) and $6.1M net share settlements; dividend held at $2.25/share; net debt $100.0M (0.3x EBITDA), supporting flexibility for buybacks, seed capital, and potential M&A .

What Went Well and What Went Wrong

What Went Well

• ETFs momentum and diversification: “ETF assets reached $3.4 billion on continued strong positive net flows of $0.3 billion. Over the past year, ETFs generated an organic growth rate of 73%.”
• Investment performance in volatile markets: “Over 70% of our equity strategies beat their benchmarks [in Q1]… 74% of equity assets beating benchmarks over the 10-year period.” Recognitions by Barron’s (#2 fund family for 10-year; third in taxable bond) .
• Cost discipline and margin ex-seasonality: Adjusted operating margin was 27.6%, but excluding seasonal employment items, it was 32.7%, indicating underlying efficiency .

What Went Wrong

• Lower average AUM and seasonal payroll costs pressured margins: Adjusted revenues fell 7% QoQ (to $197.6M) and adjusted operating margin declined to 27.6% due to ~$10M seasonal employment expenses and lower investment management fees .
• Equity-driven retail fund outflows continued: Open-end net outflows (~$1.1B) “were essentially unchanged” QoQ, driven by equity, despite positive fixed income net flows .
• SMA net outflows on strategy capacity actions: Retail separate account net flows (-$0.7B) reflected the soft closing of SMID-Cap Core equity model offering and investor caution; however, mid-cap capacity remains ample .

Financial Results

P&L vs prior periods

Q1 2025 Actual vs S&P Global Consensus

Segment/Product KPIs (AUM and Flows)

Fee Rate and Expense KPIs

Balance Sheet Highlights

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Key highlights included higher earnings per share over the prior-year period, increased sales in fixed income strategies… positive net flows in ETFs, very strong relative investment performance… and a solid balance sheet.” – George Aylward, CEO
• “Excluding [seasonal] items, the operating margin was 32.7%… earnings per share as adjusted increased 6% YoY.” – George Aylward
• “Employment expenses as adjusted of $109.4 million increased 5% sequentially, reflecting $10 million of seasonal employment expenses… Excluding seasonal items, employment expenses decreased by 5% sequentially.” – CFO Mike Angerthal
• “At March 31… net debt was $100 million, or 0.3x EBITDA… adequate working capital and modest leverage provide financial flexibility to continue to invest and return capital.” – CFO Mike Angerthal
• “We repurchased 111,200 shares for $20.0 million and net settled 35,178 shares for $6.1 million.” – Company press release

Q&A Highlights

• Fee rate: Management reaffirmed 41–42 bps modeling; mix shift from equity to fixed income slightly lowered open-end fee rates; margins still targeted at 50–55% incremental .
• Share repurchases: Increased buybacks given stock trading context; leverage low and cash flow strong; return of capital remains critical .
• SMA capacity: SMID-Cap Core soft closed after significant growth; ample capacity in mid-cap and other SMID strategies to support growth .
• Tax asset: NPV $112–114M ($16/share) and ~$2.50 per share annual economic benefit; considering reporting approaches but emphasizing transparency .
• Other OpEx: Expect $30–32M/quarter with ~$1M/quarter facilities savings from Q3 2025 .

Estimates Context

• Q1 2025 actuals exceeded consensus: Revenue $217.9M vs $201.4M*, EPS (normalized/primary) $5.73 vs $5.41*; # of estimates: EPS 4*, Revenue 1*. Values retrieved from S&P Global.*
• Implications: Street models may raise near-term adjusted EPS and revenue despite management’s caution on market-driven flows/mix; seasonal payroll effects should be normalized in Q2 modeling .

Key Takeaways for Investors

• Underlying margin power intact: Ex-seasonality, adjusted operating margin ~32.7% and cost actions add ~$1M/quarter savings from Q3 2025 .
• ETF flywheel accelerating: Positive net flows ($0.3B), expanding product lineup, and growing distribution underpin faster organic growth vs legacy open-end funds .
• Fixed income offsets equity outflows: Broad fixed income net inflows and fee-rate stability support revenue durability in mixed environments .
• Institutional volatility moderating: Outflows improved to ($1.2)B; flow lumpiness persists but pipeline is broad and diversified .
• Capital returns remain active: $20M repurchases in Q1, $2.25 dividend maintained; modest leverage (0.3x) enables opportunistic buybacks/M&A .
• Modeling guideposts: Keep fee rate at 41–42 bps, employment 49–51% of adjusted revenues, other OpEx $30–32M/quarter, adjusted tax ~26% .
• Watch catalysts: New ETF launches, facilities savings realization, Q2 normalization post seasonal payroll, and potential private markets additions; narrative likely driven by sustained ETF/fixed income flows and any M&A developments .

Notes: All S&P Global estimate values marked with an asterisk and presented with “Values retrieved from S&P Global.”