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Virtus Investment Partners Announces Financial Results For The Third Quarter 2015

The following excerpt is from the company's SEC filing.

Earnings per Diluted Share, As Adjusted, of $1.74 in Third Quarter Includes ($0.32) Impact from Variable Incentive Fee, Compared with $2.76 in Prior-Year Quarter; Loss Per Share of ($0.07) Includes ($1.89) of Unrealized Losses on Investments

Operating Income, As Adjusted, of $25.3 Million in Third Quarter Compared with $41.6 Million in Prior-Year Quarter; Operating Income of $23.1 Million

Total Sales of $2.5 Billion in Third Quarter Compared with $3.5 Billion in Prior-Year Quarter; Net Flows of ($1.6) Billion in Third Quarter Compared with $0.5 Billion in Prior-Year Quarter

Assets Under Management of $47.9 Billion at September 30, 2015 Compared with $59.6 Billion at September 30, 2014

Share Repurchase Program Authorized Shares Increased by 1.5 Million

Virtus Investment Partners, Inc.

(NASDAQ: VRTS), which operates a multi-manager asset management business, today reported financial results for the three months ended September 30, 2015.

Management Commentary

“The volatile financial markets in the third quarter led to a challenging environment for asset managers,” said George R. Aylward, president and chief executive officer. “The decline in global markets affected investor behavior, which impacted our results.

“Our third quarter earnings reflect the impact of lower average assets due to equity market declines and net outflows, as well as a negative $4.6 million variable incentive fee. This fee impacted our operating income, as adjusted, and margin. Earnings per share, as adjusted, benefited from a lower share count resulting from share repurchases.

“Open-end mutual fund sales and flows declined over prior periods, consistent with trends we are seeing in the industry. A decline in demand for emerging market equities offset an improvement in outflows in the former AlphaSector funds, which declined to ($0.9) billion from ($2.1) billion sequentially. Both ETFs and institutional had positive net flows.

“We increased our existing share repurchase program by 1.5 million shares, which will allow us to be more opportunistic with repurchases as we continue to invest in the business. The increase underscores our commitment to returning capital to shareholders.”

Virtus Investment Partners, Inc. | 100 Pearl Street | Hartford, CT 06103 |

www.virtus.com

Virtus Investment Partners, Inc.

Financial Highlights (Unaudited)

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

Three Months Ended

Ended

Nine Months Ended

9/30/2015

9/30/2014

Change

6/30/2015

Non-GAAP Financial Measures (1)

Revenues, as adjusted

Operating expenses, as adjusted

Operating income, as adjusted

Operating margin, as adjusted

Net income attributable to common stockholders, as adjusted

Earnings per share - diluted, as adjusted

U.S. GAAP Financial Measures

Net income (loss) attributable to common stockholders

Earnings (loss) per share - diluted

Assets Under Management and Flows (in billions)

Ending Assets Under Management (2)

Average Assets Under Management (2)

Gross Sales

(1) See the information on pages 12 through 16 for a reconciliation to their most directly comparable U.S. GAAP measures and the notes beginning on page 17 for other important disclosures

(2) Represents assets under management excluding money market funds that were liquidated in October 2014

Asset Flows and Assets Under Management

Total assets under management were $47.9 billion at September 30, 2015 compared with $59.6 billion at September 30, 2014 and $52.4 billion at June 30, 2015. The decrease from prior periods is attributable to net outflows and market depreciation.

Total sales were $2.5 billion in the third quarter compared with $3.5 billion in the prior-year quarter and $3.3 billion in the sequential quarter. Net flows were ($1.6) billion in the third quarter compared with $0.5 billion in the prior-year quarter and ($1.3) billion in the sequential quarter. Net outflows in the quarter were primarily attributable to open-end mutual funds, which offset positive flows in ETFs and institutional.

Open-end mutual fund sales were $1.9 billion in the third quarter compared with $3.1 billion in the prior-year quarter and $2.6 billion in the sequential quarter. Mutual fund net flows were ($1.9) billion in the third quarter compared with $0.6 billion in the prior-year quarter and ($1.6) billion in the sequential quarter. Net outflows in the current quarter were primarily attributable to ($0.9) billion in the former AlphaSector funds, an improvement from ($2.1) billion in the prior quarter, and a decrease in international equity net flows reflective of investor sentiment on the asset class.

ETF sales were $217.7 million in the third quarter compared with $67.4 million in the sequential quarter due primarily to sales of the recently launched

Virtus Newfleet Multi-Sector Unconstrained Bond ETF

. For the same periods, net flows were $203.9 million compared with $55.2 million, respectively.

Institutional sales were $199.5 million in the third quarter compared with $109.4 million in the prior-year quarter and $214.1 million in the sequential quarter. Net flows were $89.2 million in the third quarter compared with ($127.1) million in the prior-year quarter and $126.8 million in the sequential quarter.

Earnings Summary

Non-GAAP Results

Management believes that a series of non-GAAP financial measures most accurately 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. Quarterly reconciliations of the most comparable U.S. GAAP measure to each non-GAAP measure can be found on pages 12 to 16 of this earnings release.

Revenues, As Adjusted

Total revenues, as adjusted, were $71.1 million in the third quarter compared with $88.6 million in the prior-year quarter and $77.5 million in the sequential quarter. The decline from the prior periods reflects lower investment management and administration and transfer agent fees.

Investment management fees, as adjusted, were $65.2 million in the third quarter compared with $78.8 million in the prior-year quarter and $70.3 million in the sequential quarter. Average assets under management were $50.6 billion in the third quarter compared with $60.5 billion in the prior-year quarter and $54.4 billion in the sequential quarter. The average fee rate in the quarter decreased to 49.4 basis points from 50.6 basis points in the prior-year quarter and 50.7 basis points in the sequential quarter. The third quarter average fee rate included a negative $4.6 million variable incentive fee on one of the company’s mutual funds, the majority of which was previously attributable to the fund’s former subadviser. Excluding the fee, the open-end fund fee rate for the quarter would have been 53.1 basis points.

Administration and transfer agent fees, as adjusted, were $11.7 million in the third quarter compared with $14.9 million in the prior-year quarter and $12.7 million in the sequential quarter. The decrease from prior periods reflects the decline in average open-end fund assets.

Operating Expenses, As Adjusted

Total operating expenses, as adjusted, were $45.8 million in the third quarter, compared with $47.0 million in the prior-year quarter and $46.1 million in the sequential quarter. The decrease from the prior-year quarter reflects lower employment expenses; the sequential decline reflects lower other operating expenses.

Employment expenses, as adjusted, were $33.5 million in the third quarter compared with $35.2 million in the prior-year quarter and $33.6 million in the sequential quarter. The decrease over the prior-year quarter is attributable to lower incentive compensation partially offset by higher costs associated with increased staffing levels, primarily at the affiliates.

Other operating expenses, as adjusted, were $11.3 million in the third quarter compared with $11.1 million in the prior-year quarter and $11.6 million in the sequential quarter. The sequential quarter decline primarily reflects the timing of annual equity grants to the Board of Directors in the second quarter of 2015.

Operating Income, As Adjusted, and Related Margin

Operating income, as adjusted, was $25.3 million for the third quarter compared with $41.6 million in the prior-year quarter and $31.4 million in the sequential quarter. The related margin was 36 percent compared with 47 percent and 41 percent for the respective prior periods, reflecting lower revenues, as adjusted. Excluding the negative impact of the variable incentive fee, third quarter operating income, as adjusted, would have been $29.9 million and the margin would have been 40 percent.

Net Income Attributable to Common Stockholders, As Adjusted

Net income attributable to common stockholders, as adjusted, was $15.5 million, or $1.74 per diluted share, compared with $25.6 million, or $2.76 per share, in the prior-year quarter and $20.0 million, or $2.21 per share, in the sequential quarter. Current quarter adjusted earnings per share included ($0.32) related to the variable incentive fee. Excluding the impact of the fee, third quarter adjusted earnings per share would have been $2.06.

Effective Tax Rate, As Adjusted

The third quarter effective tax rate, as adjusted, was 38 percent, unchanged from the prior-year and sequential quarters.

Total revenues were $92.4 million in the third quarter compared with $117.8 million in the prior-year quarter and $99.7 million in the sequential quarter due to lower average assets and fee rates.

Operating expenses were $69.3 million in the third quarter compared with $78.9 million in the prior-year quarter and $83.4 million in the sequential quarter. Operating expenses in the second quarter of 2015 included an $11.3 million loss contingency, related to a previously disclosed regulatory matter, which was unchanged in the third quarter. In October, the company reached an agreement in principle with the staff of the Securities and Exchange Commission to settle the matter. The agreement in principle is subject to review and approval by the Commission.

In the third quarter, the company reported a net loss attributable to common stockholders of ($0.6) million or ($0.07) per fully diluted common share that includes ($16.6) million or ($1.89) per share of unrealized losses on investments. This compares with net income of $37.3 million or $4.02 per share in the prior-year quarter that included ($4.7) million or ($0.50) per share of unrealized losses and $15.5 million or $1.67 per share primarily related to the resolution of uncertain tax positions. Sequential quarter net income of $9.8 million or $1.08 per share included ($2.0) million or ($0.22) per share of unrealized losses and ($7.4) million or ($0.82) related to a loss contingency.

The effective third quarter tax rate was 162 percent compared with (5) percent in the prior-year quarter and 46 percent in the sequential quarter.

The current quarter tax rate included a $6.2 million valuation allowance related to the unrealized loss position of the company’s marketable securities portfolio; the tax rate for the third quarter 2014 was impacted by a $15.5 million net benefit related to the resolution of uncertain tax positions.

Virtus Investment Partners, Inc. | 100 Pearl Street | Hartford, CT 06103 |

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