What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-08-06 compared with 2020-05-06 · 118 added, 84 removed, 295 unchanged (41% of the section changed)

9 unchanged sentences

If there are any future public statements or disclosures by us that modify or impact any of the forward-looking statements contained in or accompanying this Quarterly Report on Form 10-Q, such statements or disclosures will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.

Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including those discussed under "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our 2019 Annual Report on Form 10-K, as well as the following risks and uncertainties resulting from:

Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including those discussed under "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our 2019 Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, as well as the following risks and uncertainties resulting from:

(i) the on-going effects of the COVID-19 pandemic and associated global economic disruption;

20 unchanged sentences

and other risks and uncertainties.

Any occurrence of, or any material adverse change in, one or more risk factors or risks and uncertainties referred to above, in our 2019 Annual Report on Form 10-K and our other periodic reports filed with the Securities and Exchange Commission (the "SEC") could materially and adversely affect our operations, financial results, cash flows, prospects and liquidity.

Any occurrence of, or any material adverse change in, one or more risk factors or risks and uncertainties referred to above, in our 2019 Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and our other periodic reports filed with the Securities and Exchange Commission (the "SEC") could materially and adversely affect our operations, financial results, cash flows, prospects and liquidity.

Certain other factors that may impact our continuing operations, prospects, financial results and liquidity, or that may cause actual results to differ from such forward-looking statements, are discussed or included in the Company’s periodic reports filed with the SEC and are available on our website at www.virtus.com under "Investor Relations." You are urged to carefully consider all such factors.

2 unchanged sentences

By offering a broad array of products, we believe we can appeal to a greater number of investors and have offerings across market cycles and through changes in investor preferences.

Our earnings are primarily driven by asset-based fees charged for services relating to these various products, including investment management, fund administration, distribution and shareholder services.

are primarily driven by asset-based fees charged for services relating to these various products, including investment management, fund administration, distribution and shareholder services.

We offer investment strategies for individual and institutional investors in different product structures and through multiple distribution channels.

13 unchanged sentences

Recent Market Developments

During the first quarter of 2020, the novel coronavirus global pandemic ("COVID-19") significantly impacted the global economy and financial markets, creating uncertainty, market volatility and dislocation with the S&P 500 and MSCI World indices experiencing declines in the first quarter of 2020 of 20% and 21%, respectively.

During the first half of 2020, the novel coronavirus global pandemic ("COVID-19") significantly impacted the global economy and financial markets, creating uncertainty, market volatility and dislocation.

Financial markets experienced significant declines during the first quarter of 2020 and in the second quarter, certain markets, including domestic equity securities, experienced recoveries erasing much of the first quarter decline.

In an effort to contain COVID-19 in the U.S., or slow its spread, the federal government and nearly every state enacted varying degrees of social containment measures, restricting business and related activities, closing borders, and restricting travel.

Governments around the world have responded to COVID-19 with economic stimulus measures.

These measures are intended to support businesses, employees and consumers until economic activity and financial markets recover.

The timing and magnitude of any such recovery, however, remains uncertain.

These measures are intended to support businesses, employees and consumers until economic activities recover.

Although financial markets, particularly domestic equity securities, have largely recovered in the second quarter, the economy has been slower to recover.

The timing and magnitude of the economic recovery, as well as the sustainability of the financial markets second quarter recovery, is uncertain.

Impact of COVID-19 to our Business

As a result of the challenging capital, equity and credit markets that emerged late in the first quarter, our assets under management declined during this period.

At the end of the first quarter, our long-term assets under management were $89.5 billion, a 16.9% decline compared to the previous quarter end, which we expect to negatively impact revenues in the near term.

In addition, the fair market value of our seed capital and other investments have also declined.

To the extent that financial markets continue to be challenged, we may experience further decreases in our assets under management and the fair market value of our seed capital and other investments.

As a result of the challenging and volatile capital, equity and credit markets our assets under management experienced significant market volatility during the first six months of 2020 with market depreciation of $16.6 billion and market appreciation of $15.2 billion during the first and second quarters of 2020, respectively.

In addition, the fair market value of our seed capital and other investments experienced similar volatility.

To the extent that financial markets continue to be impacted, we may experience further volatility in our assets under management and the fair market value of our seed capital and other investments.

Financial Highlights

Net loss per diluted share was $0.58 in the first quarter of 2020 , as compared to net income per diluted share of $2.61 in the first quarter of 2019 .

Total sales were $7.0 billion in the first quarter of 2020 , an increase of $1.5 billion , or 27.5% , from $5.5 billion in the first quarter of 2019 .

Net flows were $(1.3) billion in the first quarter of 2020 compared to $(0.1) billion in the first quarter of 2019 .

Assets under management were $90.7 billion at March 31, 2020 , a decrease of $11.0 billion from March 31, 2019 .

Net income per diluted share was $1.43 in the second quarter of 2020 , as compared to net income per diluted share of $3.26 in the second quarter of 2019 .

Total sales were $9.1 billion in the second quarter of 2020 , an increase of $4.0 billion , or 77.5% , from $5.1 billion in the second quarter of 2019 .

Net flows were $2.5 billion in the second quarter of 2020 compared to $0.1 billion in the second quarter of 2019 .

Assets under management were $108.5 billion at June 30, 2020 , an increase of $3.5 billion , or 3.3% , from June 30, 2019 .

Assets Under Management

At March 31, 2020 , total assets under management were $90.7 billion , representing a decrease of $11.0 billion , or 10.8% , from March 31, 2019 , and a decrease of $18.2 billion , or 16.7% , from December 31, 2019 .

The decrease in total assets under management from March 31, 2019 and December 31, 2019 was primarily due to market performance.

Average long-term assets under management, which represent the majority of our fee-earning asset levels, were $104.7 billion for the three months ended March 31, 2020 , an increase of $10.0 billion , or 10.6% , from $94.7 billion for the three months ended March 31, 2019 .

The increase in average long-term assets under management compared to the prior year period was primarily due to market performance partially offset by net outflows.

At June 30, 2020 , total assets under management were $108.5 billion , representing an increase of $3.5 billion , or 3.3% , from June 30, 2019 , and a decrease of $0.4 billion , or 0.4% , from December 31, 2019 .

The change in total assets under management from June 30, 2019 included $4.6 billion of positive market performance and $0.5 billion of positive flows.

The change in total assets under management from December 31, 2019 was due to $1.3 billion of negative market performance partially offset by $1.3 billion of positive net flows.

Average long-term assets under management, which represent the majority of our fee-earning asset levels, were $100.8 billion for the six months ended June 30, 2020 , an increase of $3.2 billion , or 3.3% , from $97.6 billion for the six months ended June 30, 2019 .

The increase in average long-term assets under management compared to the prior year period was primarily due to market performance and positive net flows.

Operating Results

In the first quarter of 2020 , total revenues increased 10.6% to $ 144.6 million from $130.7 million in the first quarter of 2019 , primarily as a result of higher average assets under management related to our open-end funds and retail separate accounts.

Operating income increased $3.6 million to $ 24.6 million in the first quarter of 2020 compared to $ 21.0 million in the first quarter of 2019 , primarily due to increased revenue partially offset by operating expenses of consolidated products largely consisting of launch costs for a new CLO.

In the second quarter of 2020 , total revenues decreased 5.4% to $ 132.9 million from $140.5 million in the second quarter of 2019 , primarily as a result of lower average assets under management in our open-end funds.

Operating income decreased $3.5 million to $ 26.6 million in the second quarter of 2020 compared to $ 30.1 million in the second quarter of 2019 , primarily due to decreased revenue partially offset by lower operating expenses.

Assets Under Management by Product

The following table summarizes our assets under management by product:

As of March 31,

As of June 30,

(in millions)

12 unchanged sentences

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

Averages are calculated as follows:

Averages for the six-month period ended June 30 were calculated as follows:

Funds - average daily or weekly balances

3 unchanged sentences

The following table summarizes asset flows by product:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

1 unchanged sentence

Beginning balance

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

Market performance

20 unchanged sentences

Ending balance

Three Months Ended March 31,

(in millions)

Total Long-Term

2 unchanged sentences

Ending balance

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

Liquidity (3)

8 unchanged sentences

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

Assets Under Management by Asset Class

The following table summarizes our assets under management by asset class:

As of March 31,

As of June 30,

(in millions)

5 unchanged sentences

The following table summarizes the average management fees earned in basis points and average assets under management:

Three Months Ended March 31,

Three Months Ended June 30,

Average Fee Earned

10 unchanged sentences

Liquidity (3)

Six Months Ended June 30,

Average Fee Earned

(expressed in basis points)

Average Assets Under

(in millions) (2)

Open-End Funds (1)

Closed-End Funds

Exchange Traded Funds

Retail Separate Accounts

Institutional Accounts

Structured Products

All Long-Term Products

Liquidity (3)

Represents assets under management of U.S.

11 unchanged sentences

Average fees earned will vary based on several factors, including the asset mix and expense reimbursements to funds.

The average fee rate earned on long-term products for the three months ended March 31, 2020 increased by 0.9 basis points compared to the same period in the prior year.

The primary reason for the increase during the three months ended March 31, 2020 was due to changes in the underlying asset mix to higher fee earning strategies in open-end funds and retail separate accounts during the current year.

The average fee rate earned on long-term products for the three and six months ended June 30, 2020 increased by 0.5 and 0.7 basis points, respectively, compared to the same periods in the prior year.

The primary reason for the increase during the three and six months ended June 30, 2020 was due to changes in the underlying asset mix to higher fee earning strategies in open-end funds and retail separate accounts during the current year.

Results of Operations

Summary Financial Data

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

13 unchanged sentences

Net Income (Loss) Attributable to Common Stockholders

Earnings (loss) per share-diluted

Revenues by source were as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

13 unchanged sentences

Investment management fees are earned based on a percentage of assets under management and are paid pursuant to the terms of the respective investment management contracts, which generally require monthly or quarterly payments.

Investment management fees increased by $14.4 million , or 13.6% , for the three months ended March 31, 2020 compared to the same period in the prior year due to an increase in average assets of $9.5 billion , or 9.9% , and an increase in the total average fee rate of 1.1 basis points.

Investment management fees decreased by $4.0 million , or 3.5% , and increased $10.3 million , or 4.7% , for the three and six months ended June 30, 2020 , respectively, compared to the same periods in the prior year.

The decrease in investment management fees during the three-month period was due to a decrease in average assets under management of $4.1 billion , or 4.0% , partially offset by an increase in the total average fee rate of 0.6 basis points.

The increase in investment management fees during the six-month period was due to an increase in average assets under management of $2.7 billion and an increase in

the total average fee rate of 0.9 basis points.

Distribution and Service Fees

Distribution and service fees are sales- and asset-based fees earned from open-end funds for marketing and distribution services.

Distribution and service fees decreased by $0.6 million , or 6.0% , for the three months ended March 31,

2020 , compared to the same period in the prior year, primarily due to lower sales and average assets for open-end funds in share classes that have distribution and service fees.

Distribution and service fees decreased by $1.7 million , or 16.3% , and $2.3 million , or 11.3% , for the three and six months ended June 30, 2020 , respectively, compared to the same period in the prior year, primarily due to lower sales and average assets for open-end funds in share classes that have distribution and service fees.

Administration and Shareholder Service Fees

Administration and shareholder service fees represent fees earned for fund administration and shareholder services from our open-end mutual funds and certain of our closed-end funds.

Fund administration and shareholder service fees increased by $0.2 million , or 1.7% , for the three months ended March 31, 2020 , compared to the same period in the prior year primarily due to the increase in average assets under management for open-end funds.

Fund administration and shareholder service fees decreased by $1.8 million , or 11.7% , and $1.5 million , or 5.2% , for the three and six months ended June 30, 2020 , respectively, compared to the same periods in the prior year primarily due to the decrease in average assets under management for open-end funds.

Other Income and Fees

Other income and fees primarily represent contingent sales charges earned from investor redemptions of certain shares sold without a front-end sales charge.

Other income and fees decreased $0.2 million , or 49.1% , for the three months ended March 31, 2020 compared to the same period in the prior year primarily due to a lower level of redemption income.

Other income and fees remained generally consistent for the three and six months ended June 30, 2020 , compared to the same periods in the prior year.

Operating Expenses

Operating expenses by category were as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

10 unchanged sentences

Employment expenses consist of fixed and variable compensation and related employee benefit costs.

Employment expenses for the three months ended March 31, 2020 were $66.1 million , which represented an increase of $5.3 million , or 8.7% , compared to the same period in the prior year.

The increase for the three months ended March 31, 2020 was primarily due to increased profit- and sales-based compensation partially offset by lower stock-based compensation.

Employment expenses for the three and six months ended June 30, 2020 were $60.2 million and $126.3 million , respectively, which represented an increase of $2.0 million , or 3.5% , and $7.3 million , or 6.2% , compared to the same periods in the prior year.

The increase for the three months ended June 30, 2020 was primarily due to increased sales-based compensation partially offset by lower profit-based compensation.

The increase for the six months ended June 30, 2020 was primarily due to increased profit- and sales-based compensation partially offset by lower stock-based compensation.

Distribution and Other Asset-Based Expenses

2 unchanged sentences

These expenses also include the amortization of deferred sales commissions related to up-front commissions on shares sold without a front-end sales charge to shareholders.

The deferred sales commissions are amortized on a straight-line basis over the periods in which commissions are generally recovered from distribution fee revenues and contingent sales charges received from shareholders of the funds upon redemption of their shares.

Distribution and other asset-based expenses decreased by $0.4 million , or 1.8% , for the three months ended March 31, 2020 , as compared to the same period in the prior year, primarily due to a lower percentage of sales and assets under management in share classes that have distribution and other asset-based expenses.

The deferred sales commissions are amortized on a straight-line basis over the periods in which commissions are generally recovered from distribution fee revenues

and contingent sales charges received from shareholders of the funds upon redemption of their shares.

Distribution and other asset-based expenses decreased by $4.0 million , or 18.7% , and $4.3 million , or 10.5% , for the three and six months ended June 30, 2020 , respectively, as compared to the same periods in the prior year, primarily due to a lower percentage of sales and assets under management in share classes that have distribution and other asset-based expenses.

Other Operating Expenses

Other operating expenses primarily consist of investment research and technology costs, professional fees, travel and distribution related costs, rent and occupancy expenses, and other business costs.

Other operating expenses for the three months ended March 31, 2020 increased by $0.2 million , or 0.9% , primarily due to higher fund related expenses partially offset

by decreased travel, rent and other office expenses.

Other operating expenses for the three and six months ended June 30, 2020 decreased by $1.7 million , or 9.1% , and $1.6 million , or 4.2% , respectively, as compared to the same periods in the prior year, due to decreased travel expenses primarily as a result of the impact of COVID-19 on the current operating environment.

Other Operating Expenses of CIP

Other operating expenses of CIP increased $6.3 million to $6.7 million , from $0.5 million , for the three months ended March 31, 2020 .

The increase in the three-month period was primarily due to costs associated with the issuance of a new CLO.

Other operating expenses of CIP decreased $0.4 million , or 15.1% to $2.2 million for the three months ended June 30, 2020 and increased $5.9 million , or 195.7% , to $8.9 million , for the six months ended June 30, 2020 , compared to the same periods in the prior year.

The decrease during the three-month period was primarily due to costs associated with the issuance of a CLO in the prior-year period.

The increase in the six-month period was primarily due to costs associated with the issuance of an additional CLO as well as the refinancing of debt for two CLOs in the current year period.

Restructuring and Severance

During the three and six months ended June 30, 2020 , we incurred $0.4 million in restructuring and severance costs.

During the three and six months ended June 30, 2019, we incurred $0.3 million and $1.5 million , respectively in restructuring and severance costs.

The costs primarily related to severance costs in all periods.

Depreciation Expense

Depreciation expense consists primarily of the straight-line depreciation of furniture, equipment and leasehold improvements.

Depreciation expense remained consistent for the three months ended March 31, 2020 , compared to the same period in the prior year.

Depreciation expense remained generally consistent for the three and six months ended June 30, 2020 , compared to the same periods in the prior year.

Amortization Expense

Amortization expense consists of the amortization of definite-lived intangible assets over their estimated useful lives.

Amortization expense remained consistent for the three months ended March 31, 2020 compared to the same period in the prior year.

Amortization expense remained generally consistent for the three and six months ended June 30, 2020 compared to the same periods in the prior year.

Other Income (Expense)

Other Income (Expense), net by category were as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

5 unchanged sentences

Realized and unrealized gain (loss) on investments, net

Realized and unrealized gain (loss) on investments, net changed during the three months ended March 31, 2020 by $11.0 million , as compared to the same period in the prior year.

The realized and unrealized losses during the three months ended March 31, 2020 were primarily due to unrealized losses due to overall market conditions during the quarter.

Realized and unrealized gain (loss) on investments, net changed during the three and six months ended June 30, 2020 by $5.1 million , or 248.9% , and $(5.9) million , or (107.9)% , respectively, as compared to the same periods in the prior year.

The realized and unrealized gains and losses during the three and six months ended June 30, 2020 reflected changes in overall market conditions experienced during the periods.

Realized and unrealized gain (loss) of CIP, net

Realized and unrealized gain (loss) of CIP, net changed $6.7 million during the three months ended March 31, 2020 , compared to the same period in the prior year.

The change for the three months ended March 31, 2020 consisted primarily of an increase in net realized and unrealized losses of $90.3 million, primarily due to changes in market values of leveraged loans, partially offset by an increase of $83.6 million in unrealized gains on notes payable.

Realized and unrealized gain (loss) of CIP, net changed $(16.5) million , or (169.4)% , and $(23.2) million , or (297.6)% , respectively, during the three and six months ended June 30, 2020 , compared to the same periods in the prior year.

The change consisted primarily of an increase in net realized and unrealized losses of $81.7 million and $171.9 million for the three- and six-month periods ended June 30, 2020, respectively, primarily due to changes in market values of leveraged loans, partially offset by an increase of $65.2 million and $148.7 million in the three- and six-month periods, respectively, in unrealized gains on notes payable.

Other income (expense), net

Other income (expense), net increased $0.2 million for the three months ended March 31, 2020 compared to the same period in the prior year due to increased earnings from equity method investments during the current year period.

Other income (expense), net decreased $1.5 million , or (215.7)% , and $1.3 million , or (116.8)% , respectively, for the three and six months ended June 30, 2020 compared to the same periods in the prior year due to losses from equity method investments during the current year periods.

Interest Income (Expense)

Interest Income (Expense), net by category were as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

6 unchanged sentences

Interest Expense

Interest expense decreased $2.0 million , or 38.1% , for the three months ended March 31, 2020 compared to the same period in the prior year.

The decrease was due to a decrease in the average levels of debt outstanding including a gain on the early extinguishment of debt in the current year period compared to the same period in the prior year.

Interest expense decreased $2.0 million , or 39.3% , and $4.0 million , or 38.7% , respectively, for the three and six months ended June 30, 2020 compared to the same periods in the prior year.

The decreases were due to a decrease in the average levels of debt outstanding, including a gain on the early extinguishment of debt in the current six-month period, and a lower average interest rate compared to the same periods in the prior year.

Interest and Dividend Income

Interest and dividend income is earned on cash equivalents and our marketable securities.

Interest and dividend income decreased $0.4 million , or 36.8% , for the three months ended March 31, 2020 , compared to the same period in the prior year.

The decrease was primarily due to lower investment balances as compared to the corresponding period in the prior year.

Interest and dividend income decreased $0.7 million , or 74.9% , and $1.2 million , or 53.9% , respectively, for the three and six months ended June 30, 2020 , compared to the same periods in the prior year.

The decreases were primarily due to lower interest rates earned on cash and lower investment balances as compared to the corresponding periods in the prior year.

Interest and Dividend Income of Investments of CIP

Interest and dividend income of investments of CIP increased $1.8 million , or 6.7% , for the three months ended March 31, 2020 , compared to the same period in the prior year.

The increase was due to increased investments of CIP during the three months ended March 31, 2020 compared to the same period in the prior year.

Interest and dividend income of investments of CIP decreased $0.7 million , or 2.5% , and increased $1.1 million , or 1.9% , respectively, for the three and six months ended June 30, 2020 , compared to the same periods in the prior year.

The decrease during the three-month period was primarily due to a decrease in interest rates partially offset by increased investments of CIP.

The increase during the six-months ended June 30, 2020 compared to the same period in the prior year was due to increased investments of CIP during the current year period.

Interest Expense of CIP

Interest expense of CIP represents interest expense on the notes payable of CIP.

Interest expense of CIP increased by $4.8 million , or 24.3% , for the three months ended March 31, 2020 , compared to the same period in the prior year.

The increase was primarily due to higher average debt balances of CIP as well as $3.3 million of amortization of discounts on notes payable in the three months ended March 31, 2020.

Interest expense of CIP decreased by $2.9 million , or 9.4% , and increased by $1.9 million , or 3.7% , respectively, for the three and six months ended June 30, 2020 , compared to the same periods in the prior year.

The decrease during the three months ended June 30, 2020 was primarily due to $4.5 million of amortization of discounts on notes payable in the prior year partially offset by higher average debt balances of CIP during the current year period.

The increase during the six-month period was primarily due to higher average debt balances of CIP during the current year period.

Income Tax Expense (Benefit)

The provision for income taxes reflected U.S.

federal, state and local taxes at an estimated effective tax rate of 91.1% and 15.8% for the three months ended March 31, 2020 and 2019 , respectively.

The increase in the estimated effective tax rate for the three months ended March 31, 2020 was primarily due to unrealized losses on various Company investments for which a valuation allowance is recorded.

federal, state and local taxes at an estimated effective tax rate of 50.9% and 20.5% for the six months ended June 30, 2020 and 2019 , respectively.

The increase in the estimated effective tax rate for the six months ended June 30, 2020 was primarily due to unrealized losses on various Company investments for which a valuation allowance was recorded.

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act, referred to herein as the CARES Act, which contains several income tax provisions.

4 unchanged sentences

The following table summarizes certain financial data relating to our liquidity and capital resources:

March 31, 2020

June 30, 2020

December 31, 2019

3 unchanged sentences

Redeemable noncontrolling interests

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

4 unchanged sentences

Financing Activities

At March 31, 2020 , we had $158.5 million of cash and cash equivalents and $56.9 million of investments, which included $35.5 million of investment securities, compared to $221.8 million of cash and cash equivalents and $83.2 million of investments, which included $61.0 million of investment securities at December 31, 2019 .

At March 31, 2020 , we had $258.2 million outstanding under our term loan maturing June 1, 2024 and no outstanding borrowings under our $100.0 million revolving credit facility.

The Company's liquidity and capital resources were not materially impacted by COVID-19 and related economic conditions during the first quarter of 2020.

For further discussion regarding the potential future impacts of COVID-19 and related economic conditions on the Company's liquidity and capital resources, see "Part II-Item 1A-Risk Factors."

At June 30, 2020 , we had $168.3 million of cash and cash equivalents and $61.3 million of investments, which included $40.0 million of investment securities, compared to $221.8 million of cash and cash equivalents and $83.2 million of investments, which included $61.0 million of investment securities, at December 31, 2019 .

At June 30, 2020 , we had $240.7 million of principal outstanding under our term loan maturing June 1, 2024 and no outstanding borrowings under our $100.0 million revolving credit facility.

The Company's liquidity and capital resources were not materially impacted by the economic conditions during the first six months of 2020 as a result of the COVID-19 pandemic.

Uses of Capital

9 unchanged sentences

(vi) investments in our infrastructure;

(vii) investments in inorganic growth opportunities as they arise;

(vii) investments in inorganic growth opportunities as they arise where the purchase price can take the form of upfront payments and/or contingent consideration;

(viii) integration costs, including restructuring and severance, related to potential acquisitions, if any;

and (ix) potential purchases of affiliate noncontrolling interests.

and (ix) purchases of affiliate noncontrolling interests.

Capital and Reserve Requirements

2 unchanged sentences

Failure to meet these requirements could result in adverse consequences to us, including additional reporting requirements, a lower required ratio of aggregate indebtedness to net capital or interruption of our business.

At March 31, 2020 , the ratio of aggregate indebtedness to net capital of our broker-dealer was below the maximum allowed, and net capital was significantly greater than the required minimum.

At June 30, 2020 , the ratio of aggregate indebtedness to net capital of our broker-dealer was below the maximum allowed, and net capital was significantly greater than the required minimum.

Balance Sheet

3 unchanged sentences

Operating Cash Flow

Net cash used in operating activities of $252.3 million for the three months ended March 31, 2020 increased by $229.1 million from net cash used in operating activities of $23.2 million for the same period in the prior year primarily due to increased net purchases of investments by CIP of $230.8 million in the current year period compared to the prior year period.

Net cash used in operating activities of $449.7 million for the six months ended June 30, 2020 increased by $306.0 million from net cash used in operating activities of $143.7 million for the same period in the prior year primarily due to increased net purchases of investments by CIP of $294.0 million in the current year period compared to the prior year period.

Investing Cash Flow

Cash flows from investing activities consist primarily of capital expenditures and other investing activities related to our business operations.

Net cash provided by investing activities was $9.4 million for the three months ended March 31, 2020 compared to net cash used in investing activities of $2.1 million in the same period for the prior year.

The primary investing activities for the three months ended March 31, 2020 were related to the consolidation of investment products.

The primary investing activities for the three months ended March 31, 2019 were capital expenditures on our corporate office space of $2.6 million partially offset by the sale of investments in unconsolidated CLOs of $2.0 million.

Net cash provided by investing activities was $9.2 million for the six months ended June 30, 2020 compared to net cash used in investing activities of $5.6 million in the same period for the prior year.

The primary investing activities for the six months ended June 30, 2020 were related increases in cash of CIP due to the consolidation of additional investment products.

The primary investing activities for the six months ended June 30, 2019 were capital expenditures and other asset purchases of $6.1 million partially offset by the sale of investments in unconsolidated CLOs of $2.0 million.

Financing Cash Flow

Cash flows from financing activities consist primarily of the issuance of common stock, return of capital through repurchases of common shares, dividends, withholding obligations for the net share settlement of employee share transactions, issuance of and repayment of debt by us, our CIP and contributions to noncontrolling interests related to CIP.

Net cash provided by financing activities increased by $345.9 million to $314.6 million for the three months ended March 31, 2020 as compared to net cash used in financing activities of $31.3 million for the three months ended March 31, 2019 .

Net cash provided by financing activities changed during the period primarily due to an increase of $360.8 million in net borrowings of CIP during the three months ended March 31, 2020 compared to the prior year period, partially offset by an increase of $14.1 million on the repayment of debt during the three months ended March 31, 2020 compared to the prior year period.

Net cash provided by financing activities increased by $224.6 million to $370.6 million for the six months ended June 30, 2020 as compared to net cash provided by financing activities of $145.9 million for the six months ended June 30, 2019 .

Net cash provided by financing activities increased during the period primarily due to an increase of $249.9 million in net borrowings of CIP during the six months ended June 30, 2020 compared to the prior year period, partially offset by an increase of $19.2 million on the repayment of debt during the six months ended June 30, 2020 compared to the prior year period.

C redit Agreement

The Company's credit agreement, as amended (the "Credit Agreement"), is comprised of (i) $365.0 million of seven-year term debt (the "Term Loan") expiring in June 2024 and (ii) a $100.0 million five-year revolving credit facility (the "Credit Facility") expiring in June 2022.

At March 31, 2020 , $258.2 million was outstanding under the Term Loan, and there were no outstanding borrowings under the Credit Facility.

In accordance with Accounting Standards Codification 835, Interest, the amounts outstanding under the Term Loan are presented in the Condensed Consolidated Balance Sheet net of related debt issuance costs, which were $6.7 million as of March 31, 2020 .

At June 30, 2020 , $240.7 million was outstanding under the Term Loan, and there were no outstanding borrowings under the Credit Facility.

Contractual Obligations

Our contractual obligations are summarized in our 2019 Annual Report on Form 10-K.

As of March 31, 2020 , there have been no material changes outside of the ordinary course of business in our contractual obligations since December 31, 2019 .

As of June 30, 2020 , there have been no material changes outside of the ordinary course of business in our contractual obligations since December 31, 2019 .

Critical Accounting Policies and Estimates

3 unchanged sentences

A complete description of our significant accounting policies is included in our 2019 Annual Report on Form 10-K.

There were no material changes in our critical accounting policies in the three months ended March 31, 2020 .

There were no material changes in our critical accounting policies in the three months ended June 30, 2020 .

Recently Issued Accounting Pronouncements

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis