Virtus Investment Partners Announces Financial Results for Fourth Quarter 2020

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- Earnings Per Share - Diluted of $5.40; Earnings Per Share - Diluted, as Adjusted, of $5.15

- Total Sales of $8.6B; Net Flows of $2.6B; Long-Term AUM of $130.7B; Total AUM of $132.2B

HARTFORD, Conn., Feb. 2, 2021 /PRNewswire/ -- Virtus Investment Partners, Inc. (NASDAQ: VRTS) today reported financial results for the three months ended December 31, 2020.

Financial Highlights (Unaudited)

(in millions, except per share data or as noted)



Three Months Ended




Three
Months
Ended




12/31/2020


12/31/2019


Change


9/30/2020


Change











U.S. GAAP Financial Measures













Revenues

$

171.6


$

146.1


17%


$

154.8


11%

Operating expenses

$

120.7


$

108.3


11%


$

113.8


6%

Operating income (loss)

$

50.9


$

37.8


35%


$

41.0


24%

Operating margin

29.7%


25.9%





26.5%




Net income (loss) attributable to common stockholders

$

43.3


$

20.8


108%


$

29.6


46%

Earnings (loss) per share - diluted

$

5.40


$

2.83


91%


$

3.71


46%

Weighted average shares outstanding - diluted

8.026


8.084


(1%)


7.997


—%














Non-GAAP Financial Measures (1)










Revenues, as adjusted

$

153.5


$

128.4


20%


$

137.6


12%

Operating expenses, as adjusted

$

91.6


$

78.3


17%


$

83.6


10%

Operating income (loss), as adjusted

$

61.9


$

50.1


24%


$

54.1


14%

Operating margin, as adjusted

40.3%


39.0%




39.3%



Net income (loss) attributable to common stockholders, as adjusted

$

41.4


$

34.9


18%


$

35.9


15%

Earnings (loss) per share - diluted, as adjusted

$

5.15


$

4.32


19%


$

4.49


15%

Weighted average shares outstanding - diluted, as adjusted

8.026


8.084


(1%)


7.997


—%



(1)

See the information beginning on page 11 for reconciliations to the most directly comparable U.S. GAAP measures and other important disclosures

Earnings Summary

The company presents U.S. GAAP and non-GAAP earnings information in this release. Management believes that the non-GAAP financial measures presented reflect the company's operating results from providing investment management and related services to individuals and institutions and uses these measures to evaluate financial performance. Non-GAAP financial measures have material limitations and should not be viewed in isolation or as a substitute for U.S. GAAP measures. Reconciliations of the non-GAAP financial measures to the most comparable U.S. GAAP measures can be found beginning on page 11 of this earnings release.

Assets Under Management and Asset Flows

(in billions)




















Three Months Ended





Three
Months
Ended





12/31/2020


12/31/2019


Change


9/30/2020


Change

Ending long-term assets under management (1)

$

130.7


$

107.7


21%


$

115.0


14%

Ending total assets under management

$

132.2


$

108.9


21%


$

116.5


13%

Average long-term assets under management (1)

$

119.6


$

103.9


15%


$

111.5


7%

Average total assets under management

$

121.1


$

105.1


15%


$

112.9


7%

Total sales

$

8.6


$

4.8


80%


$

7.6


13%

Net flows

$

2.6


$

0.3


N/M


$

1.2


117%



(1)

Excludes assets under management in liquidity strategies, including in certain open-end mutual funds and institutional accounts

N/M - Not Meaningful

Long-term assets under management increased 14% to $130.7 billion at December 31, 2020 from $115.0 billion at September 30, 2020 as a result of $13.4 billion of market appreciation and $2.6 billion of positive net flows. Total assets under management at December 31, 2020 were $132.2 billion, including $1.5 billion in liquidity strategies.

Total sales of $8.6 billion increased by $1.0 billion, or 13%, from the third quarter as a result of higher sales of open-end funds, institutional, retail separate accounts, and exchange traded funds (ETFs). Open-end fund sales of $3.9 billion increased 5% with growth in both equity and fixed income funds, particularly large- and small-cap domestic equity strategies and credit-sensitive fixed income. Institutional sales of $2.3 billion increased 9%, including contributions from new mandates and existing accounts across multiple affiliates. Retail separate account sales of $2.2 billion increased 26% primarily due to continued growth in the intermediary sold channel.

Net flows of $2.6 billion increased meaningfully from $1.2 billion in the prior quarter and included positive net flows in retail separate accounts, open-end funds, institutional, and ETFs. Retail separate accounts positive net flows of $1.3 billion included contributions from both the intermediary sold and private client channels. Open-end fund net flows of $0.7 billion increased from $0.4 billion in the third quarter and reflected positive net flows in both equity and fixed income funds. Institutional net flows of $0.6 billion improved from net outflows of $0.3 billion in the prior quarter, which included a single large redemption.

GAAP Results

Operating income increased 24% to $50.9 million from $41.0 million in the prior quarter, as an 11% increase in total revenues, due to higher average assets under management, was partially offset by a 6% increase in total operating expenses, largely due to higher variable incentive compensation.

Net income attributable to common stockholders of $5.40 per diluted common share included $1.96 of realized and unrealized gains on investments and ($1.56) of fair value adjustments on affiliate noncontrolling interests. Third quarter net income per diluted share of $3.71 included ($1.09) of fair value adjustments on affiliate noncontrolling interests, and $0.75 of realized and unrealized losses on investments.

The effective tax rate during the quarter of 19% compared with 23% in the prior quarter, reflecting changes in the valuation allowances related to marketable securities.

Non-GAAP Results

Revenues, as adjusted, of $153.5 million increased 12% sequentially primarily as a result of a 7% increase in average assets under management due to market appreciation and positive net flows. Revenues, as adjusted, included performance-related fees of $3.7 million, an increase from $2.0 million in the prior quarter.

Employment expenses, as adjusted, increased 11% to $73.5 million largely due to higher variable incentive compensation. As a percentage of revenues, as adjusted, employment expenses, as adjusted, were 47.8%, down modestly from the prior quarter. Other operating expenses, as adjusted, of $17.1 million increased sequentially from $16.3 million primarily due to modestly higher professional fees.

Operating income, as adjusted, and the related margin increased to $61.9 million and 40.3%, respectively, from $54.1 million and 39.3% in the prior quarter primarily due to higher revenues, as adjusted, partially offset by higher employment expenses.

Net income attributable to common stockholders, as adjusted, which is net of noncontrolling interests, was $5.15 per diluted common share, an increase of $0.66, or 15%, from $4.49 in the prior quarter. The increase primarily reflected higher revenues, as adjusted, as a result of the higher average assets under management.

The effective tax rate, as adjusted, was 27%, unchanged from the prior quarter.

Select Balance Sheet Items (Unaudited)

(in millions)



As of





As of





12/31/2020


12/31/2019


Change


9/30/2020


Change

Cash and cash equivalents

$

246.5


$

221.8


11%


$

202.2


22%

Gross debt (1)

$

205.7


$

285.7


(28%)


$

223.2


(8%)

Redeemable noncontrolling interests (2)

$

87.5


$

58.4


50%


$

74.6


17%

Total equity attributable to stockholders

$

711.2


$

675.7


5%


$

679.1


5%














Working capital (3)

$

172.0


$

160.1


7%


$

159.1


8%

Net debt (cash) (4)

$

(40.8)


$

63.9


N/M


$

21.0


N/M



(1)

Excludes deferred financing costs of $4.5 million, $7.9 million, and $5.2 million, as of December 31, 2020, December 31, 2019, and September 30, 2020, respectively

(2)

Excludes redeemable noncontrolling interests of consolidated investment products of $28.1 million, $5.4 million, and $24.7 million as of December 31, 2020, December 31, 2019, and September 30, 2020, respectively

(3)

Defined as cash and cash equivalents plus accounts receivable, net, less accrued compensation and benefits, accounts payable and accrued liabilities, dividends payable and required principal payments due over the next 12 months, including scheduled amortization and annual excess cash flow payment

(4)

Defined as gross debt less cash and cash equivalents

Working capital at December 31, 2020 of $172.0 million increased 8% from September 30, 2020 as net cash generated from the business was partially offset by return of capital to shareholders and debt repayments.

During the quarter, the company repurchased 40,076 shares, or 0.5% of beginning-of-quarter outstanding common shares, for $7.5 million.

The company reduced gross debt in the quarter by $17.5 million, or 8%, to $205.7 million. Cash and cash equivalents at December 31, 2020 exceeded gross debt by $41 million.

Agreement with Westchester Capital Management

The company separately announced that it has entered into an agreement to acquire all of the equity of Westchester Capital Management, a premier manager of global event-driven alternative investment strategies with $4.3 billion in assets at December 31, 2020. The transaction is expected to close in the second half of the year, subject to customary closing conditions and approvals by Westchester Capital Management Funds Board and shareholders.

Partnership with Allianz Global Investors

On February 1, the company announced the completion of the actions necessary to finalize its previously announced strategic partnership with Allianz Global Investors that adds NFJ Investment Group as a newly established affiliated manager and expands the scope of its investment offerings for U.S. retail clients with $29.3 billion of assets under management, primarily in open- and closed-end mutual funds and retail separate accounts, as well as an additional $3.6 billion of other fee earning assets at December 31, 2020.

Conference Call

Management will host an investor conference call on Tuesday, February 2, 2021, at 10 a.m. Eastern to discuss these financial results and related matters. The webcast of the call can be accessed in the Investor Relations section of www.virtus.com, or by telephone at 877-930-7765 for callers in the U.S. and Canada or 253-336-7413 for international callers (Conference ID: 8218508). The presentation that will be reviewed as part of the conference call will be available prior to the call in the Investor Relations section of www.virtus.com. A replay of the call will be available through February 9, 2021 by telephone at 855-859-2056 (U.S. and Canada) or 404-537-3406 (international) (Conference ID: 8218508).

About Virtus Investment Partners

Virtus Investment Partners (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' affiliates include Ceredex Value Advisors, Duff & Phelps Investment Management, Kayne Anderson Rudnick Investment Management, Newfleet Asset Management, NFJ Investment Group, Seix Investment Advisors, Silvant Capital Management, and Sustainable Growth Advisers. Additional information can be found at virtus.com.

U.S. GAAP Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)



Three Months Ended




Three
Months
Ended




Twelve Months Ended




12/31/2020


12/31/2019


Change


9/30/2020


Change


12/31/2020


12/31/2019


Change

Revenues
















Investment management fees

$

144,715



$

120,945



20%


$

129,785



12%


$

505,338



$

461,477



10%

Distribution and service fees

10,279



9,776



5%


9,797



5%


38,425



40,898



(6%)

Administration and shareholder service fees

16,407



15,137



8%


15,114



9%


59,463



59,884



(1%)

Other income and fees

245



226



8%


94



161%


670



987



(32%)

Total revenues

171,646



146,084



17%


154,790



11%


603,896



563,246



7%

Operating Expenses
















Employment expenses

73,527



60,265



22%


67,479



9%


267,299



240,521



11%

Distribution and other asset-based expenses

20,686



20,086



3%


19,570



6%


77,010



82,099



(6%)

Other operating expenses

17,232



18,238



(6%)


16,343



5%


69,896



74,363



(6%)

Operating expenses of consolidated investment products

641



620



3%


1,016



(37%)


10,585



4,015



164%

Restructuring and severance



283



(100%)


735



(100%)


1,155



2,302



(50%)

Depreciation expense

1,100



1,263



(13%)


1,106



(1%)


4,660



4,992



(7%)

Amortization expense

7,529



7,533



—%


7,532



—%


30,127



30,244



—%

Total operating expenses

120,715



108,288



11%


113,781



6%


460,732



438,536



5%

Operating Income (Loss)

50,931



37,796



35%


41,009



24%


143,164



124,710



15%

Other Income (Expense)



















Realized and unrealized gain (loss) on investments, net

5,071



1,570



223%


2,498



103%


7,139



7,044



1%

Realized and unrealized gain (loss) of consolidated investment products, net

10,768



(3,657)



N/M


2,680



302%


(1,965)



(1,202)



63%

Other income (expense), net

1,070



519



106%


999



7%


1,876



2,411



(22%)

Total other income (expense), net

16,909



(1,568)



N/M


6,177



174%


7,050



8,253



(15%)

Interest Income (Expense)
















Interest expense

(2,692)



(4,268)



(37%)


(2,877)



(6%)


(11,894)



(19,473)



(39%)

Interest and dividend income

236



827



(71%)


137



72%


1,367



3,844



(64%)

Interest and dividend income of investments of
consolidated investment products

25,697



28,296



(9%)


26,088



(1%)


109,648



115,356



(5%)

Interest expense of consolidated investment products

(15,179)



(19,975)



(24%)


(17,622)



(14%)


(85,437)



(92,005)



(7%)

Total interest income (expense), net

8,062



4,880



65%


5,726



41%


13,684



7,722



77%

Income (Loss) Before Income Taxes

75,902



41,108



85%


52,912



43%


163,898



140,685



16%

Income tax expense (benefit)

14,088



11,326



24%


11,978



18%


43,935



35,177



25%

Net Income (Loss)

61,814



29,782



108%


40,934



51%


119,963



105,508



14%

Noncontrolling interests

(18,499)



(6,890)



168%


(11,286)



64%


(40,006)



(9,859)



306%

Net Income (Loss) Attributable to Stockholders

43,315



22,892



89%


29,648



46%


79,957



95,649



(16%)

Preferred stockholder dividends


...

(2,084)



(100%)




N/M




(8,337)



(100%)

Net Income (Loss) Attributable to Common Stockholders

$

43,315



$

20,808



108%


$

29,648



46%


$

79,957



$

87,312



(8%)

Earnings (Loss) Per Share - Basic

$

5.67



$

3.02



88%


$

3.86



47%


$

10.49



$

12.54



(16%)

Earnings (Loss) Per Share - Diluted

$

5.40



$

2.83



91%


$

3.71



46%


$

10.02



$

11.74



(15%)

Cash Dividends Declared Per Preferred Share

$



$

1.81



(100%)


$



N/M


$



$

7.25



(100%)

Cash Dividends Declared Per Common Share

$

0.82



$

0.67



22%


$

0.82



—%


$

2.98



$

2.44



22%

Weighted Average Shares Outstanding - Basic

7,641



6,881



11%


7,684



(1%)


7,620



6,963



9%

Weighted Average Shares Outstanding - Diluted

8,026



8,084



(1%)


7,997



—%


7,976



8,149



(2%)


N/M - Not Meaningful

Assets Under Management - Product and Asset Class

(in millions)



Three Months Ended


12/31/2019


03/31/2020


6/30/2020


9/30/2020


12/31/2020

By product (period end):










Open-End Funds (1)

$

42,870



$

33,498



$

40,053



$

43,369



$

49,521


Closed-End Funds

6,748



5,343



5,639



5,629



5,914


Exchange Traded Funds

1,156



480



541



543



837


Retail Separate Accounts

20,414



17,660



22,054



24,727



29,751


Institutional Accounts

32,635



28,210



34,545



36,596



40,623


Structured Products

3,903



4,343



4,264



4,163



4,060


Total Long-Term

$

107,726



$

89,534



$

107,096



$

115,027



$

130,706


Liquidity (2)

1,178



1,160



1,365



1,460



1,488


Total

$

108,904



$

90,694



$

108,461



$

116,487



$

132,194












By product (average) (3)










Open-End Funds (1)

$

41,718



$

41,060



$

37,198



$

42,475



$

46,545


Closed-End Funds

6,639



6,524



5,566



5,742



5,847


Exchange Traded Funds

1,049



962



554



549



683


Retail Separate Accounts

18,863



20,414



17,660



22,054



24,727


Institutional Accounts

31,748



31,534



31,648



36,506



37,746


Structured Products

3,903



4,191



4,265



4,171



4,068


Total Long-Term

$

103,920



$

104,685



$

96,891



$

111,497



$

119,616


Liquidity (2)

1,195



1,219



1,267



1,393



1,480


Total

$

105,115



$

105,904



$

98,158



$

112,890



$

121,096












By asset class (period end):










Equity

$

70,720



$

57,180



$

73,823



$

81,032



$

95,590


Fixed Income

31,186



28,231



28,870



29,603



30,310


Alternatives (4)

5,820



4,123



4,403



4,392



4,806


Total Long-Term

$

107,726



$

89,534



$

107,096



$

115,027



$

130,706


Liquidity (2)

1,178



1,160



1,365



1,460



1,488


Total

$

108,904



$

90,694



$

108,461



$

116,487



$

132,194


Assets Under Management - Average Management Fees Earned (5)

(in basis points)



Three Months Ended


12/31/2019


3/31/2020


6/30/2020


9/30/2020


12/31/2020

All Products















Open-End Funds (1)

57.4


57.8


58.4


59.5


60.7

Closed-End Funds

64.0


62.8


61.8


62.1


62.2

Exchange Traded Funds

22.0


21.3


14.1


13.7


9.1

Retail Separate Accounts

46.8


50.7


51.0


47.6


48.9

Institutional Accounts (6)

31.8


29.2


31.3


31.7


34.7

Structured Products (6)

37.9


33.9


26.8


34.2


31.1

All Long-Term Products (6)

47.0


46.8


46.8


47.0


48.8

Liquidity (2)

8.9


9.8


11.8


12.3


10.8

All Products

46.5


46.4


46.3


46.6


48.4


(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 in 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


- Institutional Accounts and Structured Products - average of month-end balances in quarter

(4)

Consists of real estate securities, mid-stream energy securities and master limited partnerships, options strategies, and other

(5)

Represents investment management fees divided by average assets. Investment management fees exclude the impact of consolidated investment products

(6)

Includes performance-related fees, in basis points, earned during the three months ended as follows:


12/31/2019


3/31/2020


6/30/2020


9/30/2020


12/31/2020

Institutional Accounts

1.2


0.8


0.7


2.1


3.9

Structured Products

1.5





All Long-Term Products

0.4


0.2


0.2


0.7


1.2

Assets Under Management - Asset Flows by Product

(in millions)



Three Months Ended



Twelve Months Ended


12/31/2019


3/31/2020


6/30/2020


9/30/2020


12/31/2020



12/31/2019


12/31/2020

Open-End Funds (1)















Beginning balance

$

41,190



$

42,870



$

33,498



$

40,053



$

43,369




$

37,710



$

42,870


Inflows

2,343



3,874



4,388



3,755



3,937




10,835



15,954


Outflows

(2,784)



(5,471)



(4,005)



(3,368)



(3,223)




(13,029)



(16,067)


Net flows

(441)



(1,597)



383



387



714




(2,194)



(113)


Market performance

2,301



(7,730)



6,244



3,004



5,692




7,536



7,210


Other (2)

(180)



(45)



(72)



(75)



(254)




(182)



(446)


Ending balance

$

42,870



$

33,498



$

40,053



$

43,369



$

49,521




$

42,870



$

49,521

















Closed-End Funds















Beginning balance

$

6,816



$

6,748



$

5,343



$

5,639



$

5,629




$

5,956



$

6,748


Inflows

10



5





15



5




44



25


Outflows















Net flows

10



5





15



5




44



25


Market performance

26



(1,185)



380



54



364




1,116



(387)


Other (2)

(104)



(225)



(84)



(79)



(84)




(368)



(472)


Ending balance

$

6,748



$

5,343



$

5,639



$

5,629



$

5,914




$

6,748



$

5,914

















Exchange Traded Funds















Beginning balance

$

1,054



$

1,156



$

480



$

541



$

543




$

668



$

1,156


Inflows

164



86



74



60



218




784



438


Outflows

(62)



(233)



(140)



(35)



(40)




(279)



(448)


Net flows

102



(147)



(66)



25



178




505



(10)


Market performance

23



(505)



137



(12)



126




90



(254)


Other (2)

(23)



(24)



(10)



(11)



(10)




(107)



(55)


Ending balance

$

1,156



$

480



$

541



$

543



$

837




$

1,156



$

837

















Retail Separate Accounts















Beginning balance

$

18,863



$

20,414



$

17,660



$

22,054



$

24,727




$

14,998



$

20,414


Inflows

1,012



1,061



1,483



1,727



2,181




3,315



6,452


Outflows

(436)



(775)



(654)



(617)



(914)




(1,790)



(2,960)


Net flows

576



286



829



1,110



1,267




1,525



3,492


Market performance

976



(3,040)



3,560



1,591



3,757




4,045



5,868


Other (2)

(1)





5



(28)






(154)



(23)


Ending balance

$

20,414



$

17,660



$

22,054



$

24,727



$

29,751




$

20,414



$

29,751


Assets Under Management - Asset Flows by Product (continued)

(in millions)



Three Months Ended


Twelve Months Ended


12/31/2019


3/31/2020


6/30/2020


9/30/2020


12/31/2020


12/31/2019


12/31/2020

Institutional Accounts














Beginning balance

$

30,951



$

32,635



$

28,210



$

34,545



$

36,596



$

27,445



$

32,635


Inflows

1,235



1,499



3,141



2,075



2,252



4,777



8,967


Outflows

(1,091)



(1,777)



(1,666)



(2,381)



(1,689)



(5,720)



(7,513)


Net flows

144



(278)



1,475



(306)



563



(943)



1,454


Market performance

1,553



(4,150)



4,877



2,472



3,482



6,377



6,681


Other (2)

(13)



3



(17)



(115)



(18)



(244)



(147)


Ending balance

$

32,635



$

28,210



$

34,545



$

36,596



$

40,623



$

32,635



$

40,623
















Structured Products














Beginning balance

$

3,972



$

3,903



$

4,343



$

4,264



$

4,163



$

3,640



$

3,903


Inflows



491









389



491


Outflows

(45)



(42)



(73)



(69)



(81)



(98)



(265)


Net flows

(45)



449



(73)



(69)



(81)



291



226


Market performance

36



39



33



10



9



173



91


Other (2)

(60)



(48)



(39)



(42)



(31)



(201)



(160)


Ending balance

$

3,903



$

4,343



$

4,264



$

4,163



$

4,060



$

3,903



$

4,060
















Total Long-Term














Beginning balance

$

102,846



$

107,726



$

89,534



$

107,096



$

115,027



$

90,417



$

107,726


Inflows

4,764



7,016



9,086



7,632



8,593



20,144



32,327


Outflows

(4,418)



(8,298)



(6,538)



(6,470)



(5,947)



(20,916)



(27,253)


Net flows

346



(1,282)



2,548



1,162



2,646



(772)



5,074


Market performance

4,915



(16,571)



15,231



7,119



13,430



19,337



19,209


Other (2)

(381)



(339)



(217)



(350)



(397)



(1,256)



(1,303)


Ending balance

$

107,726



$

89,534



$

107,096



$

115,027



$

130,706



$

107,726



$

130,706
















Liquidity (3)














Beginning balance

$

1,221



$

1,178



$

1,160



$

1,365



$

1,460



$

1,613



$

1,178


Other (2)

(43)



(18)



205



95



28



(435)



310


Ending balance

$

1,178



$

1,160



$

1,365



$

1,460



$

1,488



$

1,178



$

1,488
















Total














Beginning balance

$

104,067



$

108,904



$

90,694



$

108,461



$

116,487



$

92,030



$

108,904


Inflows

4,764



7,016



9,086



7,632



8,593



20,144



32,327


Outflows

(4,418)



(8,298)



(6,538)



(6,470)



(5,947)



(20,916)



(27,253)


Net flows

346



(1,282)



2,548



1,162



2,646



(772)



5,074


Market performance

4,915



(16,571)



15,231



7,119



13,430



19,337



19,209


Other (2)

(424)



(357)



(12)



(255)



(369)



(1,691)



(993)


Ending balance

$

108,904



$

90,694



$

108,461



$

116,487



$

132,194



$

108,904



$

132,194




(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 effect 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

Non-GAAP Information and Reconciliations
(in thousands except per share data)

The following are reconciliations and related notes of the most comparable U.S. GAAP measure to each non-GAAP measure.

The non-GAAP financial measures included in this release differ from financial measures determined in accordance with U.S. GAAP as a result of the reclassification of certain income statement items, as well as the exclusion of certain expenses and other items that are not reflective of the earnings generated from providing investment management and related services. Non-GAAP financial measures have material limitations and should not be viewed in isolation or as a substitute for U.S. GAAP measures.

Reconciliation of Total Revenues, GAAP to Total Revenues, as Adjusted:



Three Months Ended


12/31/2020


12/31/2019


9/30/2020

Total revenues, GAAP

$

171,646



$

146,084



$

154,790


Consolidated investment products revenues (1)

2,581



2,377



2,413


Investment management fees (2)

(10,403)



(10,304)



(9,770)


Distribution and service fees (2)

(10,283)



(9,782)



(9,800)


Total revenues, as adjusted

$

153,541



$

128,375



$

137,633


Reconciliation of Total Operating Expenses, GAAP to Operating Expenses, as Adjusted:



Three Months Ended


12/31/2020


12/31/2019


9/30/2020

Total operating expenses, GAAP

$

120,715



$

108,288



$

113,781


Consolidated investment products expenses (1)

(641)



(620)



(1,016)


Distribution and other asset-based expenses (3)

(20,686)



(20,086)



(19,570)


Amortization of intangible assets (4)

(7,529)



(7,533)



(7,532)


Restructuring and severance (5)



(283)



(735)


Acquisition and integration expenses (6)

344



(1,193)



(999)


Other (7)

(580)



(308)



(368)


Total operating expenses, as adjusted

$

91,623



$

78,265



$

83,561


Reconciliation of Operating Income (Loss), GAAP to Operating Income (Loss), as Adjusted:



Three Months Ended


12/31/2020


12/31/2019


9/30/2020

Operating income (loss), GAAP

$

50,931


$

37,796


$

41,009

Consolidated investment products (earnings) losses (1)

3,222


2,997


3,429

Amortization of intangible assets (4)

7,529


7,533


7,532

Restructuring and severance (5)


283


735

Acquisition and integration expenses (6)

(344)


1,193


999

Other (7)

580


308


368

Operating income (loss), as adjusted

$

61,918


$

50,110


$

54,072







Operating margin, GAAP

29.7%


25.9%


26.5%

Operating margin, as adjusted

40.3%


39.0%


39.3%













Reconciliation of Net Income (Loss) Attributable to Common Stockholders, GAAP to Net Income (Loss) Attributable to Common Stockholders, as Adjusted:



Three Months Ended


12/31/2020


12/31/2019


9/30/2020

Net income (loss) attributable to common stockholders, GAAP

$

43,315



$

20,808



$

29,648


Amortization of intangible assets, net of tax (4)

4,739



4,737



4,739


Restructuring and severance, net of tax (5)



206



534


Acquisition and integration expenses, net of tax (6)

(250)



868



726


Other, net of tax (7)

12,405



8,193



8,184


Seed capital and CLO investments (gains) losses, net of tax (8)

(18,847)



93



(7,910)


Net income (loss) attributable to common stockholders, as adjusted

$

41,362



$

34,905



$

35,921


Weighted average shares outstanding - diluted

8,026



8,084



7,997


Weighted average shares outstanding - diluted, as adjusted

8,026



8,084



7,997








Earnings (loss) per share - diluted, GAAP

$

5.40



$

2.83



$

3.71


Earnings (loss) per share - diluted, as adjusted

$

5.15



$

4.32



$

4.49


Reconciliation of Income (Loss) Before Taxes, GAAP to Income (Loss) Before Taxes, as Adjusted:



Three Months Ended


12/31/2020


12/31/2019


9/30/2020

Income (loss) before taxes, GAAP

$

75,902



$

41,108



$

52,912


Consolidated investment products (earnings) losses (1)

(3,292)



(304)



(906)


Amortization of intangible assets (4)

7,529



7,533



7,532


Restructuring and severance (5)



283



735


Acquisition and integration expenses (6)

(344)



1,193



999


Other (7)

580



308



368


Seed capital and CLO investments (gains) losses (8)

(18,798)



311



(8,873)


Income (loss) before taxes, as adjusted

$

61,577



$

50,432



$

52,767


Reconciliation of Income Tax Expense (Benefit), GAAP to Income Tax Expense (Benefit), as Adjusted:



Three Months Ended


12/31/2020


12/31/2019


9/30/2020

Income tax expense (benefit), GAAP

$

14,088



$

11,326



$

11,978


Tax impact of:






Amortization of intangible assets (4)

2,055



2,054



2,057


Restructuring and severance (5)



77



201


Acquisition and integration expenses (6)

(94)



325



273


Other (7)

706



(247)



868


Seed capital and CLO investments (gains) losses (8)

49



218



(963)


Income tax expense (benefit), as adjusted

$

16,804



$

13,753



$

14,414








Effective tax rate, GAAPA

18.6%



27.6%



22.6%


Effective tax rate, as adjustedB

27.3%



27.3%



27.3%


A

Reflects income tax expense (benefit), GAAP, divided by income (loss) before taxes, GAAP

B

Reflects income tax expense (benefit), as adjusted, divided by income (loss) before taxes, as adjusted

Reconciliation of Administration and Shareholder Service Fees, GAAP to Administration and Shareholder Service Fees, as Adjusted:



Three Months Ended


12/31/2020


12/31/2019


9/30/2020

Administration and shareholder service fees, GAAP

$

16,407



$

15,137



$

15,114


Consolidated investment products fees (1)

65



52



66


Administration and shareholder service fees, as adjusted

$

16,472



$

15,189



$

15,180


Reconciliation of Employment Expenses, GAAP to Employment Expenses, as Adjusted:



Three Months Ended


12/31/2020


12/31/2019


9/30/2020

Employment expenses, GAAP

$

73,527



$

60,265



$

67,479


Acquisition and integration expenses (6)

515



(1,193)



(999)


Other (7)

(580)



(308)



(368)


Employment expenses, as adjusted

$

73,462



$

58,764



$

66,112


Reconciliation of Other Operating Expenses, GAAP to Other Operating Expenses, as Adjusted:



Three Months Ended


12/31/2020


12/31/2019


9/30/2020

Other operating expenses, GAAP

$

17,232



$

18,238



$

16,343


Acquisition and integration expenses (6)

(171)






Other operating expenses, as adjusted

$

17,061



$

18,238



$

16,343


Reconciliation of Total Other Income (Expense), Net, GAAP to Total Other Income (Expense), Net, as Adjusted:



Three Months Ended


12/31/2020


12/31/2019


9/30/2020

Total other income (expense), net GAAP

$

16,909



$

(1,568)



$

6,177


Consolidated investment products (1)

3,106



1,747



3,490


Seed capital and CLO investments (gains) losses (8)

(18,798)



311



(8,873)


Total other income (expense), net as adjusted

$

1,217



$

490



$

794


Reconciliation of Interest and Dividend Income, GAAP to Interest and Dividend Income, as Adjusted:



Three Months Ended


12/31/2020


12/31/2019


9/30/2020

Interest and dividend income, GAAP

$

236



$

827



$

137


Consolidated investment products (1)

898



3,273



641


Interest and dividend income, as adjusted

$

1,134



$

4,100



$

778


Reconciliation of Total Noncontrolling Interests, GAAP to Total Noncontrolling Interests, as Adjusted



Three Months Ended


12/31/2020


12/31/2019


9/30/2020

Total noncontrolling interests, GAAP

$

(18,499)



$

(6,890)



$

(11,286)


Consolidated investment products (1)

3,292



304



906


Amortization of intangible assets (4)

(735)



(742)



(736)


Other (7)

12,531



5,554



8,684


Total noncontrolling interests, as adjusted

$

(3,411)



$

(1,774)



$

(2,432)


Notes to Reconciliations:

Reclassifications:

1. Consolidated investment products - Revenues and expenses generated by operating activities of mutual funds and CLOs that are consolidated in the financial statements. Management believes that excluding these operating activities to reflect net revenues and expenses of the company prior to the consolidation of these products is consistent with the approach of reflecting its operating results from managing third-party client assets.

Other Adjustments:

Revenue Related

2. Investment management/Distribution and service fees - Each of these revenue line items is reduced to exclude fees passed through to third-party client intermediaries who own the retail client relationship and are responsible for distributing the product and servicing the client. The amount of fees fluctuates each period, based on a predetermined percentage of the value of assets under management, and varies based on the type of investment product. The specific adjustments are as follows:

Investment management fees - Based on specific agreements, the portion of investment management fees passed-through to third-party intermediaries for services to investors in sponsored investment products.

Distribution and service fees - Based on distinct arrangements, fees collected by the company then passed-through to third-party client intermediaries for services to investors in sponsored investment products. The adjustment represents all of the company's distribution and service fees that are recorded as a separate line item on the condensed consolidated statements of operations.

Management believes that making these adjustments aids in comparing the company's operating results with other asset management firms that do not utilize third-party client intermediaries.

Expense Related

3. Distribution and other asset-based expenses - Primarily payments to third-party client intermediaries for providing services to investors in sponsored investment products. Management believes that making this adjustment aids in comparing the company's operating results with other asset management firms that do not utilize third-party client intermediaries.

4. Amortization of intangible assets - Non-cash amortization expense or impairment expense, if any, attributable to acquisition-related intangible assets, including any portion that is allocated to noncontrolling interests. Management believes that making this adjustment aids in comparing the company's operating results with other asset management firms that have not engaged in acquisitions.

5. Restructuring and severance - Certain expenses associated with restructuring the business, including lease abandonment-related expenses and severance costs associated with staff reductions, that are not reflective of the ongoing earnings generation of the business. Management believes that making this adjustment aids in comparing the company's operating results with prior periods.

6. Acquisition and integration expenses - Expenses that are directly related to acquisition and integration activities. Acquisition expenses include transaction closing costs, certain professional fees, and financing fees. Integration expenses include costs incurred that are directly attributable to combining businesses, including compensation, restructuring and severance charges, professional fees, consulting fees, and other expenses. Management believes that making these adjustments aids in comparing the company's operating results with other asset management firms that have not engaged in acquisitions.

Components of Acquisition and Integration Expenses for the respective periods are shown below:




Three Months Ended



Acquisition and Integration Expenses

12/31/2020


12/31/2019


9/30/2020



Employment expenses

$

(515)



$

1,193



$

999




Other operating expenses

171








Total Acquisition and Integration Expenses

$

(344)



$

1,193



$

999


7. Other - Certain expenses that are not reflective of the ongoing earnings generation of the business. Employment expenses and noncontrolling interests are adjusted for fair value measurements of affiliate minority interests. Interest expense is adjusted to remove gains on early extinguishment of debt. Income tax expense (benefit) items are adjusted for uncertain tax positions, changes in tax law, valuation allowances, and other unusual or infrequent items not related to current operating results to reflect a normalized effective rate. Preferred dividends are adjusted as preferred shares were mandatorily converted into common shares on February 1, 2020 and the non-GAAP weighted average shares are adjusted to reflect the conversion. Management believes that making these adjustments aids in comparing the company's operating results with prior periods.

Components of Other for the respective periods are shown below:




Three Months Ended



Other

12/31/2020


12/31/2019


9/30/2020