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VI

VIRTUS INVESTMENT PARTNERS, INC. (VRTS)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered revenue growth and margin expansion despite elevated net outflows tied to a previously disclosed $3.3B partial institutional redemption; GAAP diluted EPS was $4.66 and adjusted diluted EPS was $7.50, with adjusted operating margin at 35.1%, the highest since Q2 2022 .
  • Ending AUM fell to $175.0B from $183.7B in Q3 on net outflows and negative markets, partly offset by positive flows in ETFs, global funds, and retail separate accounts; average AUM rose to $182.1B .
  • No explicit forward revenue/EPS guidance; management provided modeling guardrails: average fee rate 41–42 bps, employment expenses 49–51% of revenues, other OpEx $30–32M, performance fees $3–5M per year, and interest/dividend income roughly at Q4 levels .
  • Catalysts: sustained margin discipline, fee-rate stability, strong ETF momentum (ETF AUM doubled to ~$3.1B and posted $0.4B quarterly net inflows), and balance sheet flexibility (net cash $29.8M); headwinds: institutional rebalancings and continued open-end fund outflows .

What Went Well and What Went Wrong

What Went Well

  • Adjusted margin/earnings strength: adjusted operating margin reached 35.1% (up from 34.4% in Q3) and adjusted diluted EPS rose to $7.50; management cited higher investment management fees and expense discipline .
  • Product momentum in focus areas: positive net flows in ETFs (+$0.4B) and global funds (+$0.1B), with ETFs doubling year over year to ~$3.1B AUM; “ETF sales of $0.5B increased 13% sequentially… senior loan, utilities, preferred stock ETFs strong” .
  • Balance sheet strength and capital returns: net cash position $29.8M, working capital $134.5M; repurchased 52,176 shares ($12.5M), repaid $5.7M of debt; gross debt-to-EBITDA 0.7x, EBITDA $88M .

Management quotes:

  • “The operating margin of 35.1% reached its highest level since the second quarter of 2022… adjusted EPS of $7.50 increased 8%” .
  • “Our ETFs… have doubled in size over the past year… and generated over $0.5B of sales in the fourth quarter alone” .
  • “We ended the year in a net cash position of $30 million… returning capital through share repurchases and our dividend” .

What Went Wrong

  • Elevated net outflows driven by a $3.3B partial institutional redemption: total net flows were ($4.8)B vs ($1.7)B in Q3; institutional net flows ($3.8)B .
  • Sequential AUM decline and negative market performance: ending AUM fell to $175.0B from $183.7B, with equity down to $100.8B at period end .
  • GAAP EPS headwinds from non-operating items: $4.66 diluted EPS included ($0.72) fair value adjustments to minority interests, ($0.41) losses on investments, ($0.27) CLO expenses, and ($0.17) contingent consideration fair value adjustments .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Revenues ($USD Millions)$224.4 $227.0 $233.5
Revenues, as adjusted ($USD Millions)$203.0 $205.1 $212.0
Operating Income ($USD Millions)$44.2 $55.3 $50.7
Operating Margin (%)19.7% 24.3% 21.7%
Operating Income, as adjusted ($USD Millions)$66.0 $70.5 $74.5
Operating Margin, as adjusted (%)32.5% 34.4% 35.1%
Net Income attrib. to VRTS ($USD Millions)$17.6 $41.0 $33.3
Diluted EPS (GAAP) ($USD)$2.43 $5.71 $4.66
Diluted EPS, as adjusted ($USD)$6.53 $6.92 $7.50

Segment/AUM breakdown (period-end):

Product AUM ($USD Millions)Q2 2024Q3 2024Q4 2024
Open-End Funds$55,852 $58,100 $56,073
Closed-End Funds$9,915 $10,432 $10,225
Retail Separate Accounts$45,672 $50,610 $49,536
Institutional Accounts$62,146 $64,600 $59,167
Total AUM$173,585 $183,742 $175,001

KPIs and operating drivers:

KPIQ2 2024Q3 2024Q4 2024
Ending AUM ($USD Billions)$173.6 $183.7 $175.0
Average AUM ($USD Billions)$175.2 $176.0 $182.1
Total Sales ($USD Billions)$6.1 $6.6 $6.4
Net Flows ($USD Billions)($2.6) ($1.7) ($4.8)
Avg Fee Rate (All Products, bps)42.2 41.9 42.0
Adjusted Operating Margin (%)32.5% 34.4% 35.1%

Estimate comparison (consensus unavailable due to access limitations):

MetricQ4 2024 ActualQ4 2024 Consensus
Revenues ($USD Millions)$233.5 N/A (S&P Global data unavailable)
Diluted EPS (GAAP) ($USD)$4.66 N/A (S&P Global data unavailable)
Diluted EPS, as adjusted ($USD)$7.50 N/A (S&P Global data unavailable)

Non-GAAP adjustments (Q4 GAAP EPS reconciliation context): GAAP diluted EPS of $4.66 included ($0.72) fair value adjustments to minority interests, ($0.41) realized/unrealized investment losses, ($0.27) CLO expenses, and ($0.17) fair value adjustments to contingent consideration; acquisition/integration costs ($0.09) also impacted GAAP EPS .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Average Fee RateOngoingQ3: ~41–42 bps “reasonable for modeling purposes” Q4: 41–42 bps; performance fees +$3–$5M per year incremental Maintained; added performance fee detail
Employment Expenses (% of revenues)OngoingQ3: 49–51% range Q4: 49–51%; Q1 seasonality incremental Maintained
Other Operating Expenses ($USD Millions per quarter)OngoingQ3: ~$30M “reasonable,” stable range Q4: $30–$32M range; seasonal travel/facilities noted Narrowed to explicit range
Interest & Dividend IncomeOngoingQ3: average of past two quarters reasonable Q4: Q4 level reasonable going forward Updated reference point
Effective Tax Rate (as adjusted)OngoingQ3: ~26–27% observed (adj. ETR 26.7%) Q4: ~27% (unchanged vs Q3) Maintained
Dividend per shareQ4 declaredIncreased to $2.25 in Q3; Q4 declared $2.25 $2.25 for Q4 Maintained
Performance Fees ($USD)AnnualNot explicitly quantified previously$3–$5M per year incremental to fee rate New specificity

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
ETFs growth/availabilityQ2: ETF AUM >$2B, 18 ETFs; building track records and expanding distribution . Q3: strong ETF momentum; distribution expansion discussed .ETF AUM doubled to ~$3.1B; $0.5B sales, $0.4B net inflows; January ETF flows running ahead of Q4 average .Accelerating growth; broader availability
Institutional flowsQ2/Q3: lumpy; rebalancings; known wins > redemptions (timing uncertain) .($3.8)B net outflows driven by $3.3B partial redemption; ex-redemption, institutional net outflows ~$0.5B .Headwind from specific redemption; underlying improvement ex-item
Fee rate stabilityQ2/Q3: 41.9–42.2 bps; stable excluding performance fees .~42.0 bps; guidance 41–42 bps; performance fees $3–$5M/year .Stable with added detail
M&A/private marketsQ2/Q3: active evaluation; interest in illiquid alts; disciplined approach .Continued active pipeline; flexible structures (JV/minority/majority); comfort with higher leverage for right deal .Ongoing; positioning for private markets
AI/data scienceNot discussed in Q2/Q3.Evaluating AI/data science; shared infrastructure, manager-specific adoption; thoughtful integration into processes .Emerging investment/tech theme
Capital returnQ2: buybacks/dividend up 15% YoY; debt paydown . Q3: dividend up 18%; buybacks $15M .Q4: buybacks $12.5M; net cash $29.8M; continued balanced capital allocation .Consistent execution
Tax attributesQ3: adjusted ETR 26.7%; commentary on valuation allowances .NPV of tax asset $$114M ($16/share); considering non-GAAP treatment evaluation .Reinforced cash value; disclosure emphasis

Management Commentary

  • Strategic focus: “We continue to prioritize increasing the availability of our ETFs, global funds and SMAs through intermediaries” .
  • Product innovation: “In December, we introduced a new ETF from Sykes… invests in private credit CLOs… Sykes currently manages 9 CLOs with over $3B in assets” .
  • Operating discipline: “With higher revenues and discipline around discretionary spending… operating margin of 35.1% reached its highest level since Q2 2022” .
  • Capital flexibility: “We ended the year with a solid balance sheet, including a net cash position of $30 million… adequate working capital and modest leverage” .
  • Pipeline/M&A posture: “We continue to be very active in terms of evaluating opportunities… flexible in our approach (majority, minority, JV) focused on shareholder value” .

Q&A Highlights

  • Near-term flows: January retail fund flows tracking similar to Q4 with continued fixed income strength; ETFs running ahead of Q4 monthly average; institutional known redemptions modestly exceed wins (better than Q4 given the one-off redemption) .
  • Capital allocation: Balanced buybacks, dividends, debt paydown, and seed capital; potential to use higher leverage for the right acquisition to drive long-term value .
  • Non-GAAP and tax assets: Management reiterates economic value of tax shield (~$114M NPV, ~$16/share) and continues to evaluate whether peers’ practice of including in non-GAAP is appropriate .
  • M&A in illiquid alts: Active evaluation with focus on private credit, private equity, and real assets; aim to enhance platform and long-term valuation/multiple .
  • AI/data science: Thoughtful evaluation across managers; shared infrastructure with manager-specific implementation; emphasis on rigor before integration .

Guidance Changes

(See table above for detailed changes and status.)

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 was unavailable due to access limitations at the time of this analysis; as a result, we cannot quantify beats/misses versus consensus. Comparisons are provided vs prior quarter and prior year using company-reported figures .

Key Takeaways for Investors

  • Margin expansion and adjusted EPS strength underscore operating leverage even amid outflows; sustained cost discipline and stable fee rates support durability .
  • The $3.3B partial institutional redemption was a specific driver of net outflows; underlying flows ex-redemption are meaningfully better, with continued positives in ETFs, global funds, and retail separate accounts .
  • ETF momentum is a tangible growth vector with expanding distribution and new product innovation (e.g., PCLO private credit CLO ETF); expect continued contribution to sales/flows .
  • Balance sheet optionality (net cash, low leverage) enables ongoing capital return while preserving capacity for inorganic growth; watch for potential private markets additions .
  • Modeling anchors: avg fee rate 41–42 bps; employment expenses 49–51% of revenues; other OpEx $30–32M/quarter; performance fees $3–$5M/year; interest/div income at Q4 levels .
  • Without consensus data, trading around prints may hinge on margin trajectory, flows ex-one-off redemption, and product momentum; monitor monthly AUM releases for intra-quarter trend signals .
  • Medium-term thesis: diversified multi-boutique platform with improving margins, growing ETF/SMAs/global funds, and potential private market adjacency via M&A, balancing organic/inorganic growth .