VRTS

Business Context and Reporting Period

Company: VIRTUS INVESTMENT PARTNERS, INC.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Business Overview: Virtus provides investment management and related services to individual and institutional clients through open-end mutual funds, closed-end funds, and separately managed accounts. The company became a standalone public entity following a spin-off from The Phoenix Companies, Inc. (PNX) on December 31, 2008.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 48% to $26.3 million, driven by a 42% drop in average fee-earning assets under management (AUM) due to market depreciation and net outflows. Investment management fees fell $18.2 million.
• Expense Reduction: Total operating expenses decreased 49% to $30.7 million. This significant reduction was primarily due to the absence of a $10.5 million non-cash intangible asset impairment charge recorded in Q1 2008 and lower amortization expenses. Excluding non-cash charges, operating expenses decreased 38% due to reduced employment and distribution costs.
• Improved Loss Profile: While the company reported a net loss, the loss narrowed by $3.4 million compared to the prior year, largely attributable to the removal of the prior year's impairment charge and cost-cutting measures.
• Assets Under Management: Total AUM declined to $20.8 billion at March 31, 2009, down from $32.6 billion in Q1 2008. The decrease reflects market depreciation of $1.2 billion and net outflows of $0.5 billion during the quarter.

Outlook, Risks, and Management Commentary

• Market Environment: Management cites unprecedented credit and liquidity issues, volatility, and declines in equity and fixed income markets as primary drivers of reduced AUM and revenue. The economic slowdown is expected to continue through 2009.
• Liquidity and Capital: The company holds $26.8 million in cash and $5.7 million in marketable securities. Management believes these resources, combined with operating cash flows, are sufficient to fund operations for the next 12 months. However, access to additional financing is uncertain due to weak credit markets.
• Debt Obligations: The company has a $19.0 million note payable to Phoenix Life Insurance Company (PNX) maturing December 31, 2010, with a 9% interest rate. Quarterly principal payments of $1.0 million are required for the remainder of 2009.
• Preferred Stock Dividends: The company has $45.0 million of Series B Convertible Preferred Stock outstanding. Dividends are cumulative and accrued but unpaid dividends may be paid in cash or additional shares. A dividend of $0.2 million was declared in April 2009.
• Risks: Key risks include further deterioration in global markets, inability to secure financing, potential impairment of goodwill or intangible assets, and continued asset outflows.

Investor Verification Checklist

• Debt Covenants: Verify compliance with the PNX Loan Agreement covenants, specifically regarding adjusted EBITDA limits on preferred stock dividends.
• Intangible Assets: Monitor the carrying value of $59.3 million in intangible assets for potential future impairment charges given the depressed market environment.
• Cash Burn Rate: Assess the sustainability of the $22.8 million net cash outflow from operations against current cash reserves of $26.8 million.
• Refinancing Status: Confirm progress on refinancing the $19.0 million PNX note due in late 2010, given the tight credit market conditions.
• Asset Flows: Track net inflows/outflows to determine if the trend of redemptions is stabilizing or accelerating.