Virtus signals continued ETF expansion and $400M debt refinancing while navigating persistent net outflows

Earnings Call Insights: Virtus Investment Partners (VRTS) Q3 2025

MANAGEMENT VIEW

* George Aylward, President and CEO, stated the company delivered "solid financial results in the third quarter, supported by higher average assets under management and favorable market momentum." He acknowledged ongoing net outflows, particularly in quality-oriented strategies, but emphasized key areas of focus: "Our focus remains on our initiatives to increase our retail separate account offerings, expand the availability of ETFs in key channels and grow the wealth management business."
* Aylward highlighted the ETF business as a "particular highlight this quarter," with assets reaching $4.7 billion, a 79% increase over the prior year, and noted, "ETF sales and flows reached their highest quarterly level at $0.9 billion each, benefiting from strong investment performance and demand for some of our strategies."
* He announced the completion of a debt refinancing: "We completed a debt refinancing, providing significant liquidity and flexibility to invest in the business and return capital to shareholders."
* The company increased its quarterly dividend for the eighth consecutive year.
* Michael Angerthal, Executive VP and CFO, provided a breakdown: "Our total assets under management at September 30 were $169.3 billion, and average assets increased 2% to $170.3 billion."
* Angerthal added, "Within open-end funds, ETF assets under management grew to $4.7 billion, up by $1 billion sequentially on continued strong net flows and have increased 79% over the prior year."

OUTLOOK

* Aylward explained the ETF growth pipeline: "We currently have 21 ETFs across a variety of strategies, and we have several actively managed funds in filing that we anticipate will launch over the next few quarters, including several growth equity-oriented ETFs... a real estate income ETF... a multi-managed fixed income ETF... and a set of building block ETFs."
* Angerthal stated, "Looking ahead, we believe this fee rate is reasonable for the fourth quarter modeling purposes. And as always, the fee rate will be impacted by markets and the mix of assets."
* Regarding employment expenses, Angerthal indicated, "Looking ahead, it is reasonable to anticipate employment expenses as a percentage of revenues will remain within our recent 49% to 51% range."
* No explicit quantitative forward guidance was given for EPS or revenues.

FINANCIAL RESULTS

* Total assets under management were $169.3 billion at September 30, with average assets of $170.3 billion.
* ETF assets under management reached $4.7 billion, growing by $1 billion sequentially.
* Total sales were $6.3 billion, up from $5.6 billion in Q2.
* Total net outflows for the quarter stood at $3.9 billion, unchanged from the prior quarter.
* Investment management fees as adjusted were $176.6 million, a 3% increase.
* The average fee rate, excluding performance fees, was 41.1 basis points, unchanged from last quarter.
* Employment expenses as adjusted were $98.7 million, or 50.2% of revenues, down 70 basis points.
* Operating income as adjusted was $65 million, up 9% sequentially.
* Operating margin as adjusted was 33%, increasing 170 basis points.
* Net income as adjusted per diluted share was $6.69, up from $6.25 in Q2.
* The company raised its quarterly common dividend by 7% to $2.40 per share.
* Cash and equivalents at September 30 were $371 million; gross debt to EBITDA was 1.3x due to the new credit facility.

Q&A

* Benjamin Budish, Barclays Bank PLC, Research Division: Asked about the drivers and future of ETF growth and the pipeline. Aylward responded that both the wrapper and strategies are appealing, with "growth occurring in several of them, particularly those... in the alt space or that have certain kinds of return patterns." He also emphasized efforts to "broaden access" and confirmed filings in process for additional ETF share classes.
* Budish asked about inorganic growth timing and strategic focus. Aylward reiterated, "The activity remains very active and that there is a lot of opportunities in terms of things that could potentially make sense," focusing on differentiated capabilities, private markets, and global client access.
* Crispin Love, Piper Sandler & Co.: Inquired about net outflows and levers for improvement. Aylward noted positive flows in fixed income, alternatives, and ETFs, but said "the significant overweight that we have to those types of [quality-oriented] strategies is the reason that it's overshadowed any of the other areas that have been positive." He believes the cycle will eventually turn in favor of quality.
* Love asked about cost savings from office consolidation and discrete business expenses. Angerthal clarified, "This is the quarter that you actually see it in the run rate... So we talked about the $30 million to $32 million range ex the discrete items coming in at the low end... the discrete items... are generally related to at elevated levels based on some of the inorganic activity that we have been focused on."
* William Katz, TD Cowen: Asked if discrete spend is ongoing and about buybacks. Aylward said, "We are still being very active in evaluating potential opportunities... we continue to view [buybacks] as a core element of our capital strategy."
* Katz also probed on institutional trends and demand for liquid alts. Aylward highlighted emerging market debt and global and domestic REITs as areas of strength.
* Michael Cyprys, Morgan Stanley: Queried ETF distribution and models. Aylward said, "One of the main areas of focus is increasing the availability of our ETFs in certain channels... we think we have a great opportunity, particularly if we can get some of our ETFs up to a certain level of scale."
* Cyprys asked for more detail on inorganic opportunities. Aylward said the company evaluates across scale, capabilities, and private market expansion, seeking "the best strategic fit, the financial benefit and really the long-term value creation."

SENTIMENT ANALYSIS

* Analysts asked probing questions regarding persistent net outflows, discrete spending, and ETF growth, reflecting a neutral to slightly negative tone on outflows but interest in growth areas.
* Management maintained a confident and focused tone in prepared remarks, but was realistic about challenges: "the significant overweight... to those types of strategies is the reason that it's overshadowed any of the other areas that have been positive."
* Compared to last quarter, management’s tone remained confident, with a slight increase in defensiveness around net outflows and inorganic expense questions, but strong enthusiasm about ETF prospects and capital flexibility.

QUARTER-OVER-QUARTER COMPARISON

* Guidance language for fee rates and employment expenses remained consistent, while the focus on ETF growth intensified with new pipeline details.
* Strategic focus continues to prioritize ETF expansion, product launches, and inorganic growth, similar to last quarter, but with added clarity on upcoming ETF offerings and the debt refinancing.
* Analysts maintained attention on net outflows, cost control, and capital deployment, with a recurring theme of whether flows will improve and how management plans to address current headwinds.
* Key metrics show stable AUM, sequential net outflows unchanged, higher ETF sales and assets, improved operating margin, and a larger cash position due to the refinancing.
* Management's confidence in strategic initiatives is steady, but the persistence of net outflows and discrete expenses led to more defensive explanations.

RISKS AND CONCERNS

* Persistent net outflows, particularly in quality-oriented equity strategies, were acknowledged as an ongoing challenge.
* Management cited "headwinds in a market environment that has largely favored momentum" as the main cause.
* The company is mitigating by expanding ETF offerings, targeting style-agnostic and momentum-oriented strategies, and increasing distribution access.
* Discrete business initiative expenses related to inorganic activity were noted, with management emphasizing a disciplined approach to M&A.
* Continued focus on balancing share repurchases with other capital uses and inorganic investments was highlighted as a priority.

FINAL TAKEAWAY

Virtus Investment Partners delivered strong ETF growth and improved operating metrics in Q3 2025, supported by robust sales and a successful debt refinancing that enhances flexibility for future investments and capital returns. While persistent net outflows in quality-oriented equities remain a clear challenge, management continues to prioritize expansion of ETF offerings, new product launches, and disciplined inorganic growth, maintaining confidence in the company’s positioning for when market cycles favor quality strategies once again.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/vrts/earnings/transcripts]

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