Virtus Investment Partners, Inc. (VRTS) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects mixed signals: despite some negative trends like decreased AUM and net outflows, there are positive aspects such as strong ETF growth, share repurchase, and strategic diversification plans. The Q&A revealed cautious optimism about future growth opportunities, although management was vague about M&A specifics. Considering the market cap of $1.57 billion, the stock is likely to experience limited movement, resulting in a neutral sentiment.
Key Financial Performance
Assets Under Management (AUM) $159 billion at 12/31, down from $169 billion year-over-year due to net outflows and the impact of market performance.
Total Sales $5.3 billion compared with $6.3 billion in the third quarter, reflecting a decrease due to a $0.4 billion CLO issuance in the prior quarter.
Net Outflows $8.1 billion, driven primarily by equities, reflecting style headwinds for quality-oriented strategies and seasonal tax loss harvesting.
Fixed Income Net Flows Modestly negative at $0.1 billion for the quarter, with positive net flows in multi-sector and emerging market debt strategies.
Alternative Strategies Net Flows Essentially breakeven for the quarter and positive for the trailing 12 months.
Operating Margin 32.4%, down from 33% last quarter, reflecting lower average AUM partially offset by lower operating expenses.
Earnings Per Share (EPS) $6.50, down from $6.69 in the third quarter, reflecting lower average assets.
ETF AUM $5.2 billion, up $0.5 billion sequentially and up 72% year-over-year due to strong net flows.
Investment Management Fees $168.9 million, down 4% due to lower average AUM and a modestly lower average fee rate.
Employment Expenses $95.8 million, decreased 3% due to lower variable incentive compensation.
Other Operating Expenses $30.2 million, down from $31.1 million due to discrete M&A-related costs in the prior quarter.
Net Income Per Diluted Share $6.50, declined 3% from $6.69 in the prior quarter.
Cash and Equivalents $386 million at December 31, reflecting significant liquidity.
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Operating Highlights
ETF Introductions: Launched three new actively managed ETFs, including a growth opportunities ETF from Silvant and U.S. and international dividend strategies from the Systematic team. Plans for additional active ETF launches over the next two quarters.
Private Market Expansion: Expanded into private markets with the acquisition of a majority interest in Keystone National Group and a minority investment in Crescent Cove.
Market Positioning in Private Credit: Acquired a 56% majority interest in Keystone National Group, specializing in asset-based lending with $2.5 billion in assets. Keystone's strategies are expected to grow across retail and institutional channels.
Venture Growth Market: Completed a 35% minority investment in Crescent Cove, focusing on high-growth middle-market technology companies with over $1 billion in AUM.
AUM Performance: Assets under management (AUM) were $159 billion at year-end, down from $169 billion due to net outflows and market performance.
Net Outflows: Total net outflows were $8.1 billion, primarily driven by equities.
ETF Growth: ETF AUM increased to $5.2 billion, up 72% year-over-year, with strong net flows.
Strategic Investments: Invested in Keystone National and Crescent Cove to diversify offerings and expand into private markets.
Capital Allocation: Repurchased $10 million in shares during the quarter and $60 million for the full year, representing 5% of beginning shares.
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Risk or Challenges
Quality-oriented equity strategies underperformance: The market backdrop favored momentum-driven stocks, leading to near-term underperformance of quality-oriented equity strategies, which represent half of the company's AUM. This resulted in increased net outflows and overshadowed other areas of strength.
Net outflows and declining AUM: Total net outflows were $8.1 billion in the quarter, driven primarily by equities, leading to a decline in assets under management from $169 billion to $159 billion. This was exacerbated by market performance and institutional partial redemptions.
Headwinds in U.S. retail funds: U.S. retail funds faced continued headwinds, with known redemptions exceeding known wins, and a large redemption from a client rebalancing to a passive strategy.
Decline in operating margin and earnings: The operating margin declined to 32.4% from 33% in the previous quarter, and earnings per share decreased to $6.50 from $6.69, reflecting lower average AUM and increased expenses.
Style headwinds for equity strategies: The company's equity strategies faced style headwinds, particularly for quality domestic and global large-cap growth strategies, leading to significant institutional redemptions and seasonal tax loss harvesting.
Increased competition and market challenges: The company faces competitive pressures and market challenges, particularly in maintaining positive net flows in a market environment favoring momentum-driven stocks over quality-oriented strategies.
Potential risks with Keystone National acquisition: The acquisition of Keystone National involves a $200 million payment and integration risks, as well as the challenge of expanding its strategies across retail and institutional channels.
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Guidance & Outlook
ETF Launches: Several additional active ETF launches are expected over the next 2 quarters across managers, including Stone Harbor, Duff & Phelps, and Silvant.
New Offerings: Several new offerings are in process or filing, including interval funds and additional retail separate account strategies.
Private Markets Expansion: The company will acquire a 56% majority interest in Keystone National Group, a boutique private credit manager, and has completed a 35% minority investment in Crescent Cove, a private investment firm. Keystone's strategies are expected to grow across retail and institutional channels, and Crescent Cove has long-term growth potential, including extensions into other products.
Fee Rate Projections: For the first quarter, an average fee rate of 41 to 42 basis points is expected. Beyond the first quarter, the average fee rate is anticipated to be in the range of 43 to 45 basis points.
Employment Expenses: Looking beyond the first quarter, employment expenses as a percentage of revenues are anticipated to be in a range of 50% to 52%.
Other Operating Expenses: Beyond the first quarter, a quarterly range of $31 million to $33 million is considered reasonable.
Noncontrolling Interests: Beyond the first quarter, a reasonable range for noncontrolling interests is expected to be $5 million to $6 million, factoring in Keystone minority ownership.
Effective Tax Rate: Beginning with the second quarter, the effective tax rate is anticipated to be 23% to 24% due to the addition of Keystone.
Net Leverage: Net leverage at March 31 is anticipated to be 1.2x EBITDA after the $200 million payment for Keystone National.
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Shareholder Return Plan
Share Buybacks: During the quarter, the company repurchased approximately 60,000 shares for $10 million. For the full year, $60 million was used to repurchase over 347,000 shares, representing 5% of beginning shares.
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Key Q&A
Q:What was the driver of the fee rate compression in the quarter?
A:The fee rate compression was driven by discrete expenses, especially on the ETF side. Normalizing the 40.6 basis points in the first quarter brings it to about 40.9 basis points. The company anticipates maintaining a range of 41 to 42 basis points in the first quarter, factoring in one month of impact from the Keystone acquisition.
Q:Does the company see private markets and private credit as avenues for additional diversification?
A:Yes, the company sees private markets and private credit as important areas for diversification. They aim to broaden their distribution footprint, particularly outside the U.S., and focus on growth equity managers and non-U.S. strategies. They have launched ETFs and SMAs in these areas and continue to evaluate M&A opportunities to drive long-term growth.
Q:What is the company's software exposure across AUM and Crescent Cove advisers?
A:The company is generally underweight in technology and software exposure, which has been a drag on performance for quality-oriented equities. Crescent Cove focuses on early-stage venture opportunities in technology and does not have holdings at risk of being disintermediated by AI.
Q:What drove the acceleration in negative flows in the fourth quarter, and what is the outlook for flows?
A:The acceleration in negative flows was driven by underperformance of quality-oriented equity strategies, tax loss harvesting, and year-end portfolio repositioning. The outlook depends on market conditions, with potential for strong performance if the market environment improves. The company is also focusing on growing other strategies to mitigate challenges.
Q:What are the growth opportunities for the Keystone transaction by channel or geography?
A:The Keystone transaction offers growth opportunities in the wealth management channel and institutional side. The company plans to leverage Keystone's existing retail-ready fund and differentiated private credit approach through its broader distribution resources. They aim to accelerate growth in wealth management and explore institutional opportunities.
Q:What are the company's capital deployment priorities and M&A pipeline post-Keystone and Crescent transactions?
A:The company prioritizes a balanced approach, including stock repurchases, dividends, and maintaining reasonable leverage. They continue to evaluate M&A opportunities that add strategic value, broaden distribution, or increase scale. The pipeline remains active, but they will only pursue opportunities that align with their long-term goals.
Q:What is the guidance for the compensation ratio in the first quarter?
A:The guidance for the compensation ratio in the first quarter is 49% to 51%, with an increase to 50% to 52% once the Keystone acquisition is integrated.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the question about the M&A pipeline post-Keystone and Crescent transactions. While they mentioned continuing to evaluate opportunities, they did not provide specific details or clarity on the current state of the pipeline.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AUM benchmark
CLO
Crescent investment
Silvant
base
closing payment
collateral
credit manager
cycle
decline
expansion market
favor
fund end
fund income
headwind quality
introduction expansion
investment Crescent
issuance
lending
majority interest
majority manager
minority investment
modeling purpose
offer fund
outflow quality
ownership
payment National
priority
quality cap
rate basis
strategy AUM
strategy term
style headwind
tax rate
technology company
tender offer
term potential
transaction
usage
venture
VRTS Transcript
Virtus Investment Partners, Inc. (VRTS) Q4 2025 Earnings Call Transcript
Unknown2-6
The earnings call reflects mixed signals: despite some negative trends like decreased AUM and net outflows, there are positive aspects such as strong ETF growth, share repurchase, and strategic diversification plans. The Q&A revealed cautious optimism about future growth opportunities, although management was vague about M&A specifics. Considering the market cap of $1.57 billion, the stock is likely to experience limited movement, resulting in a neutral sentiment.
Virtus Investment Partners, Inc. (VRTS) Q3 2025 Earnings Call Transcript
Positive10-24
Despite some challenges like net outflows and a year-over-year EPS decline, the company shows strong financial performance with increased sales, operating margin, and dividends. Positive signs include growth in ETFs, fixed income, and alternative strategies, along with enhanced financial flexibility from debt refinancing. The Q&A reveals optimism in expanding ETF distribution and active evaluation of growth opportunities. The market cap suggests moderate sensitivity to news, supporting a positive outlook.
Virtus Investment Partners, Inc. (VRTS) Q2 2025 Earnings Call Transcript
Unknown7-25
The earnings call presents a mixed picture: strong shareholder returns via share repurchases and financial flexibility are positives, but declining investment management fees and lack of clarity in management's responses are concerning. The Q&A section highlights optimism in fixed income and ETFs but reveals uncertainty in private market strategies. Given the company's market cap of $1.57 billion, the stock is likely to have moderate fluctuations, resulting in a neutral prediction of -2% to 2% over the next two weeks.
Virtus Investment Partners, Inc. (NASDAQ:VRTS) Q1 2025 Earnings Call Transcript
Unknown4-26
The earnings call highlighted several challenges, including market volatility, net outflows, and decreased operating margin. Despite a slight improvement in net outflows and EPS growth, the reduction in assets under management and unclear guidance on key issues like the deferred tax asset and soft-closed vehicle impact cast a shadow. The Q&A session revealed management's lack of clarity on important matters, which could unsettle investors. Given the company's small-cap status, these issues are likely to result in a negative stock price reaction within the -2% to -8% range over the next two weeks.
VRTS Slides
VRTS Report
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