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Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-06 · 123 added, 112 removed, 316 unchanged (43% 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 2020 Annual Report on Form 10-K and this Quarterly Report on Form 10-Q, as well as the following risks and uncertainties resulting from:(i) a reduction in our assets under management;

(ii) inability to achieve expected acquisition-related benefits;

and other risks and uncertainties;

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

(iv) withdrawal, renegotiation or termination of investment advisory agreements;

(v) damage to our reputation;

(vi) inability to satisfy financial covenants or make debt payments;

(vii) inability to attract and retain key personnel;

(viii) challenges from competition;

(ix) adverse developments related to unaffiliated subadvisers;

(x) negative changes in key distribution relationships;

(xi) interruptions in or failure to provide critical technological service by us or third parties;

(xii) losses on our investments;

(xiii) lack of sufficient capital on satisfactory terms;

(xiv) adverse regulatory and legal developments;

(xv) failure to comply with investment guidelines or other contractual requirements;

(xvi) adverse civil litigation and government investigations or proceedings;

(xvii) unfavorable changes in tax laws or limitations;

(xviii) volatility in the trading of our common stock;

(xix) inability to make quarterly common stock dividend payments;

(xx) losses or costs not covered by insurance;

(xxi) impairment of goodwill or intangible assets;

(i) any reduction in our assets under management;

(ii) general domestic and global economic, political, and pandemic conditions;

(iii) inability to achieve the expected benefits of our strategic transactions;

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

(v) withdrawal, renegotiation or termination of investment advisory agreements;

(vi) damage to our reputation;

(vii) inability to satisfy financial covenants and payments related to our indebtedness;

(viii) inability to attract and retain key personnel;

(ix) challenges from the competition we face in our business;

(x) adverse developments related to unaffiliated subadvisers;

(xi) negative changes in key distribution relationships;

(xii) interruptions in or failure to provide critical technological service by us or third parties;

(xiii) loss on our investments;

(xiv) lack of sufficient capital on satisfactory terms;

(xv) adverse regulatory and legal developments;

(xvi) failure to comply with investment guidelines or other contractual requirements;

(xvii) adverse civil litigation and government investigations or proceedings;

(xviii) unfavorable changes in tax laws or limitations;

(xix) volatility associated with our common stock;

(xx) inability to make quarterly common stock dividends;

(xxi) certain corporate governance provisions in our charter and bylaws;

(xxii) losses or costs not covered by insurance;

(xxiii) impairment of goodwill or intangible assets;

and other risks and uncertainties.

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Financial Highlights

▪ Net income per diluted share was $7.86 in the second quarter of 2021, as compared to net income per diluted share of $1.43 in the second quarter of 2020.

▪ Total sales were $9.6 billion in the second quarter of 2021, an increase of $0.1 billion, or 1.5%, from $9.4 billion in the second quarter of 2020.

Net flows were $1.3 billion in the second quarter of 2021 compared to $2.8 billion in the second quarter of 2020.

▪ Assets under management were $178.6 billion at June 30, 2021, an increase of $70.2 billion, or 64.7%, from June 30, 2020.

▪ Net income per diluted share was $7.36 in the third quarter of 2021, an increase of $3.65, or 98.3% as compared to net income per diluted share of $3.71 in the third quarter of 2020.

▪ Total sales were $7.6 billion in the third quarter of 2021, a decrease of $0.3 billion, or 3.2%, from $7.9 billion in the third quarter of 2020.

Net flows were $(0.6) billion in the third quarter of 2021 compared to $1.3 billion in the third quarter of 2020.

▪ Assets under management were $177.3 billion at September 30, 2021, an increase of $60.8 billion, or 52.2%, from September 30, 2020.

AllianzGI Strategic Partnership

On February 1, 2021, we completed the actions necessary to finalize the strategic partnership with Allianz Global Investors ("AllianzGI"), pursuant to which NFJ Investment Group ("NFJ") was established as a new affiliated manager and the Company became the investment adviser, distributor and/or administrator for $29.5 billion of AllianzGI's open-end, closed-end, institutional and retail separate account assets (the "AGI Transaction").

In addition, the Company had $3.8 billion of other fee earning assets as of June 30, 2021, also as a result of the AllianzGI partnership.

Agreement with Westchester Capital Management

On February 1, 2021, we entered into an agreement to acquire all of Westchester Capital Management ("Westchester").

The transaction is expected to close in the second half of 2021, subject to customary closing conditions and approvals, including by fund shareholders.

The expected payment at closing is $135.0 million and there is an additional revenue-retention payment of up to $20.0 million due within six months of closing.

On February 1, 2021, the Company completed the actions necessary to finalize a strategic partnership with Allianz Global Investors ("AllianzGI"), pursuant to which NFJ Investment Group ("NFJ") was established as a new affiliated manager and the Company became the investment adviser, distributor and/or administrator for $29.5 billion of AllianzGI's open-end, closed-end, institutional and retail separate account assets (the "AGI Transaction").

Westchester Capital Management

On October 1, 2021, the Company completed its previously announced acquisition of Westchester Capital Management ("Westchester"), a recognized leader in global event-driven strategies with $5.1 billion of assets under management.

The initial purchase price payment of $135.0 million was made at closing and an additional $20.0 million

payment is due near year end, subject to retention of revenue levels, which is expected.

Agreement with Stone Harbor Investment Partners

On June 25, 2021, we entered into an agreement to acquire Stone Harbor Investment Partners LP ("Stone Harbor").

On June 25, 2021, the Company entered into an agreement to acquire Stone Harbor Investment Partners LP ("Stone Harbor").

The transaction is expected to close near the end of 2021, subject to customary closing conditions and approvals, including by fund shareholders.

Assets Under Management

At June 30, 2021, total assets under management were $178.6 billion, representing an increase of $70.2 billion, or 64.7%, from June 30, 2020, and an increase of $46.4 billion, or 35.1%, from December 31, 2020.

The increase in total assets under management from June 30, 2020 included $34.0 billion of positive market performance, $29.5 billion from the AGI Transaction and $7.7 billion of positive net flows.

At September 30, 2021, total assets under management were $177.3 billion, representing an increase of $60.8 billion, or 52.2%, from September 30, 2020, and an increase of $45.1 billion, or 34.1%, from December 31, 2020.

The increase in total assets under management from September 30, 2020 included $26.5 billion of positive market performance, $29.5 billion from the AGI Transaction and $5.9 billion of positive net flows.

The change in total assets under management from December 31, 2020 was due to the increase from the AGI Transaction, $13.0 billion of positive market performance and $3.2 billion of positive net flows.

In addition, at June 30, 2021, we had $3.8 billion of other fee earning assets.

In addition, at September 30, 2021, we had $3.7 billion of other fee earning assets.

Operating Results

In the second quarter of 2021, total revenues increased 83.6% to $244.0 million from $132.9 million in the second quarter of 2020, primarily as a result of higher average assets under management in our open-end funds as a result of positive market performance, positive net flows and the assets from the AGI Transaction.

Operating income increased $59.8 million to $86.4 million in the second quarter of 2021 compared to $26.6 million in the second quarter of 2020, primarily due to the same factors previously mentioned.

In the third quarter of 2021, total revenues increased 62.8% to $252.1 million from $154.8 million in the third quarter of 2020, primarily as a result of higher average assets under management in open-end funds as a result of positive market performance, positive net flows and the assets from the AGI Transaction.

Operating income increased $52.3 million to $93.3 million in the third quarter of 2021 compared to $41.0 million in the third quarter of 2020, primarily due to the same factors previously mentioned.

Assets Under Management by Product

The following table summarizes our assets under management by product:

As of June 30, Change

As of September 30, Change

(in millions) 2021 2020 $ %

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Prior period amounts have been recast to conform to the current year presentation.

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

(3) Averages for the nine-month period ended September 30 were calculated as follows:

– Funds - average daily or weekly balances

– Retail Separate Accounts - prior-quarter ending balances

– Retail Separate Accounts - average of quarterly beginning balances

– Institutional Accounts and Structured Products - average of month-end balances

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2021 2020 2021 2020

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2021 2020 2021 2020

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

As of June 30, Change % of Total

As of September 30, Change % of Total

(in millions) 2021 2020 $ % 2021 2020

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

Three Months Ended June 30,

Three Months Ended September 30,

Average Fee Earned

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All Products 42.0 43.1 $ 179,579 $ 112,890

Six Months Ended June 30,

Nine Months Ended September 30,

Average Fee Earned

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– Funds - average daily or weekly balances

– Retail Separate Accounts - prior-quarter ending balances

– Retail Separate Accounts - average of quarterly beginning balances

– Institutional Accounts and Structured Products - average of month-end balances

6 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 all products for the three months ended June 30, 2021 decreased by 0.4 basis points compared to the same period in the prior year primarily due to lower fee rates earned on the assets under management acquired from the AGI Transaction.

The average fee rate earned on all products for the three and nine months ended September 30, 2021 decreased by 1.1 and 0.4 basis points, respectively, compared to the same periods in the prior year primarily due to lower fee rates earned on the assets under management acquired from the AGI Transaction.

Results of Operations

Summary Financial Data

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 vs.

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Operating income (loss) 93,282 41,009 52,273 127.5 % 241,835 92,233 149,602 162.2 %

Other income (expense), net 6,067 (435) 6,502 NM 4,042 (16,036) 20,078 NM

Interest income (expense), net 6,020 (2,400) 8,420 NM 13,270 (104) 13,374 NM

Other income (expense), net (2,304) 6,177 (8,481) (137.3) % 1,738 (9,859) 11,597 (117.6) %

Interest income (expense), net 7,356 5,726 1,630 28.5 % 20,626 5,622 15,004 266.9 %

Income (loss) before income taxes 98,334 52,912 45,422 85.8 % 264,199 87,996 176,203 200.2 %

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Net Income (Loss) Attributable to Virtus Investment Partners, Inc.

$ 62,967 $ 11,279 $ 51,688 458.3 % $ 99,555 $ 6,994 $ 92,561 NM

NM = Not meaningful

$ 58,736 $ 29,648 $ 29,088 98.1 % $ 158,291 $ 36,642 $ 121,649 332.0 %

Revenues by source were as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 vs.

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Administration and shareholder service fees 26,479 15,114 11,365 75.2 % 74,916 43,056 31,860 74.0 %

Other income and fees 1,174 166 1,008 607.2 % 1,894 331 1,563 472.2 %

Other income and fees 1,159 94 1,065 NM 3,053 425 2,628 618.4 %

Total revenues $ 252,064 $ 154,790 $ 97,274 62.8 % $ 712,972 $ 432,250 $ 280,722 64.9 %

NM = Not Meaningful

Investment Management Fees

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 $83.0 million, or 75.0%, and $135.9 million, or 58.9%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year.

The increase in investment management fees during the three- and six- month periods ended June 30, 2021 was due to an increase in average assets under management of $74.7 billion, or 76.1% and $61.6 million, or 60.4%, respectively, primarily as a result of market performance, the AGI Transaction and positive net flows.

Investment management fees increased by $71.3 million, or 55.0%, and $207.3 million, or 57.5%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in the prior year.

The increase in investment management fees during the three- and nine-month periods ended September 30, 2021 was due to an increase in average assets

under management of $66.7 billion, or 59.1% and $63.3 million, or 59.9%, respectively, primarily as a result of market performance and the AGI Transaction.

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 increased by $14.6 million, or 163.8%, and $25.4 million, or 138.7%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year, due to higher average assets for open-end funds in share classes that have distribution and service fees primarily as a result of market performance and the AGI Transaction.

Distribution and service fees increased by $13.5 million, or 137.8%, and $38.9 million, or 138.4%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in the prior year, due to higher average assets for open-end funds in share classes that have distribution and service fees primarily as a result of market performance and the AGI Transaction.

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, ETFs and certain of our closed-end funds.

Fund administration and shareholder service fees increased by $12.6 million, or 94.7%, and $20.5 million, or 73.3%, for the three and six months ended June 30, 2021, compared to the same periods in the prior year primarily due to the increase in average assets under management for our open-end and closed-end funds during the periods primarily as a result of market performance, the AGI Transaction and positive net flows.

Fund administration and shareholder service fees increased by $11.4 million, or 75.2%, and $31.9 million, or 74.0%, for the three and nine months ended September 30, 2021, compared to the same periods in the prior year primarily due to the increase in average assets under management for our open-end and closed-end funds during the periods predominantly as a result of market performance and the AGI Transaction.

Other Income and Fees

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

Other income and fees increased by $1.0 million, or 607.2%, and $1.6 million, or 472.2%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year primarily due fees associated with other fee earning assets as a result of the AGI Transaction.

Other income and fees increased by $1.1 million and $2.6 million, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in the prior year primarily due to fees associated with other fee earning assets as a result of the AGI Transaction.

Operating Expenses

Operating expenses by category were as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 vs.

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

Employment expenses for the three and six months ended June 30, 2021 were $87.6 million and $179.4 million, which represented an increase of $27.5 million, or 45.7%, and $53.1 million, or 42.0%, compared to the same period in the prior year.

The increase for the three and six months ended June 30, 2021 was primarily due to increased profit-based compensation.

Employment expenses for the three and nine months ended September 30, 2021 were $87.3 million and $266.7 million, respectively, which represented an increase of $19.9 million, or 29.4%, and $73.0 million, or 37.7%, respectively, compared to the same periods in the prior year.

The increase for the three and nine months ended September 30, 2021 was primarily due to increased profit-based compensation.

Distribution and Other Asset-Based Expenses

Distribution and other asset-based expenses consist primarily of payments to third-party client intermediaries for providing services to investors in sponsored investment products.

These payments are primarily based on assets under management or on a percentage of sales.

These payments are primarily based on assets under

management or on a percentage of sales.

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 increased by $18.7 million, or 107.7%, and $31.6 million, or 85.9%, for the three and six months ended June 30, 2021, as compared to the same periods in the prior year, primarily due to an increased percentage of sales and assets under management in share classes that have distribution and other asset-based expenses primarily as a result of the AGI Transaction.

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 increased by $17.1 million, or 87.5%, and $48.7 million, or 86.4%, for the three and nine months ended September 30, 2021, as compared to the same periods in the prior year, primarily due to an increased percentage of sales and assets under management in share classes that have distribution and other asset-based expenses primarily as a result of the AGI Transaction.

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 June 30, 2021 increased by $4.5 million, or 25.9%, as compared to the same period in the prior year primarily due to acquisition related professional fees and additional expenses as a result of the newly established affiliated manager, NFJ.

Other operating expenses for the six months ended June 30, 2021 increased $5.2 million, or 14.3%, as compared to the same period in the prior year primarily due to acquisition related professional fees in the current year, partially offset by decreased travel and related expenses primarily as a result of the impact of COVID-19 on the current operating environment.

Other operating expenses for the three months ended September 30, 2021 increased by $6.5 million, or 39.5%, as compared to the same period in the prior year primarily due to acquisition related professional fees and additional expenses as a result of the newly established affiliated manager, NFJ.

Other operating expenses for the nine months ended September 30, 2021 increased $11.7 million, or 22.1%, as compared to the same period in the prior year primarily due to acquisition related professional fees in the current year.

Other Operating Expenses of CIP

Other operating expenses of CIP decreased $1.5 million, or 69.8%, for the three months ended June 30, 2021 and $7.7 million, or 86.4%, for the six months ended June 30, 2021 compared to the same periods in the prior year.

The decreases during the six-month periods were primarily due to the costs associated with the issuance of a new CLO in the prior year periods that did not recur.

Other operating expenses of CIP decreased $0.4 million, or 37.1%, for the three months ended September 30, 2021 and $8.1 million, or 81.3%, for the nine months ended September 30, 2021 compared to the same periods in the prior year.

The decreases during the three- and nine-month periods were primarily due to the costs associated with the issuance of a new CLO in the prior year periods that did not recur.

Depreciation Expense

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

Depreciation expense decreased $0.2 million, or 18.0%, and $0.4 million, or 15.3%, during the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year, primarily due to certain assets becoming fully depreciated.

Depreciation expense decreased $0.2 million, or 17.3%, and $0.6 million, or 15.9%, during the three and nine months ended September 30, 2021, respectively, compared to the same periods in the prior year, primarily due to certain assets becoming fully depreciated.

Amortization Expense

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

Amortization expense increased for the three and six months ended June 30, 2021 compared to the same periods in the prior year due to the additional amortization associated with the AGI Transaction.

Amortization expense increased $2.9 million, or 38.0%, and $7.6 million, or 33.7%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in the prior year due to the additional amortization associated with the AGI Transaction.

Other Income (Expense)

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

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 vs.

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Realized and unrealized gain (loss) of CIP, net (2,801) 2,680 (5,481) NM (4,741) (12,733) 7,992 (62.8) %

Other income (expense), net 826 (805) 1,631 NM 2,597 (193) 2,790 NM

Total Other Income (Expense), net $ 6,067 $ (435) $ 6,502 NM $ 4,042 $ (16,036) $ 20,078 NM

Other income (expense), net 1,001 999 2 0.2 % 3,598 806 2,792 346.4 %

Total Other Income (Expense), net $ (2,304) $ 6,177 $ (8,481) (137.3) % $ 1,738 $ (9,859) $ 11,597 (117.6) %

Realized and unrealized gain (loss) on investments, net

Realized and unrealized gain (loss) on investments, net changed during the three and six months ended June 30, 2021 by $(4.6) million and $3.8 million, 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, 2021 reflected changes in overall market conditions experienced during the periods.

Realized and unrealized gain (loss) on investments, net changed during the three and nine months ended September 30, 2021 by $(3.0) million and $0.8 million, respectively, as compared to the same periods in the prior year.

The realized and unrealized gains and losses during the three and nine months ended September 30, 2021 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 $9.5 million, and $13.5 million, during the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year.

The change for the three and six months ended June 30, 2021 consisted primarily of an increase in net realized and unrealized gains of $90.5 million and $201.7 million, respectively, due to changes in market values of leveraged loans, partially offset by changes in unrealized losses of $81.0 million and $188.2 million, respectively, related to the value of the notes payable.

Realized and unrealized gain (loss) of CIP, net changed $(5.5) million and $8.0 million, during the three and nine months ended September 30, 2021, respectively, compared to the same periods in the prior year.

The change for the three and nine months ended September 30, 2021 consisted primarily of an increase in net realized and unrealized losses of $75.9 million and gains of $125.7 million, respectively, due to changes in market values of leveraged loans, partially offset by changes in unrealized gains of $70.4 million and losses of $117.8 million, respectively, related to the value of the notes payable.

Other income (expense), net

Other income (expense), net increased by $1.6 million and $2.8 million for the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year, primarily due to increased earnings from equity method investments during the current year periods.

Other income (expense), net remained consistent for the three months ended September 30, 2021, and increased by $2.8 million for the nine months ended September 30, 2021, in each case compared to the same periods in the prior year.

The increase during the nine-month period was primarily due to increased earnings from equity method investments during the current year period.

Interest Income (Expense)

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

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 vs.

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Interest expense of CIP (13,442) (17,622) 4,180 (23.7) % (42,342) (70,258) 27,916 (39.7) %

Total Interest Income (Expense), net $ 6,020 $ (2,400) $ 8,420 NM $ 13,270 $ (104) $ 13,374 NM

Total Interest Income (Expense), net $ 7,356 $ 5,726 $ 1,630 28.5 % $ 20,626 $ 5,622 $ 15,004 266.9 %

Interest Expense

Interest expense decreased $0.9 million, or 27.8%, and $1.8 million, or 27.7%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year.

The decreases were due to a decrease in the average debt outstanding and a lower average interest rate compared to the same periods in the prior year.

Interest expense decreased $0.5 million, or 18.4%, and $2.3 million, or 24.8%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in the prior year.

The decreases were due to a decline in the average debt outstanding 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 $0.1 million, or 31.4%, and $0.7 million, or 69.6%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year.

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

Interest and dividend income increased $0.1 million, or 96.4%, and decreased $0.6 million, or 49.5%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in the prior year.

The increase during the three-month period was primarily due to a higher average investment balance as compared to the corresponding period in the prior year.

The decrease during the nine-month period was primarily due to lower interest rates earned on cash as compared to the corresponding period in the prior year.

Interest and Dividend Income of Investments of CIP

Interest and dividend income of investments of CIP decreased $6.1 million, or 21.2%, and $11.4 million, or 19.7%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year.

The decreases were primarily due to a decrease in interest rates.

Interest and dividend income of investments of CIP decreased $3.2 million, or 12.3%, and $14.6 million, or 17.4%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in the prior year.

decreases were primarily due to a decrease in interest rates.

Interest Expense of CIP

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

Interest expense of CIP decreased by $13.7 million, or 48.7%, and $23.7 million, or 45.1%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year.

The decrease during the three and six months ended June 30, 2021 was primarily due to lower variable interest rates partially offset by higher average debt balances of CIP during the current year periods, as well as $3.3 million of amortization of discounts on notes payable in the prior year-to-date period that did not recur.

Interest expense of CIP decreased by $4.2 million, or 23.7%, and $27.9 million, or 39.7%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in the prior year.

The decrease during the three and nine months ended September 30, 2021 was primarily due to lower variable interest rates partially offset by higher average debt balances of CIP during the current year periods, as well as $3.3 million of amortization of discounts on notes payable in the prior year-to-date period that did not recur.

Income Tax Expense (Benefit)

The provision for income taxes reflected U.S.

federal, state and local taxes at an estimated effective tax rate of 22.6% and 50.9% for the six months ended June 30, 2021 and 2020, respectively.

The decrease in the estimated effective tax rate for the six months ended June 30, 2021 as compared to the same period in the prior year was primarily due to income tax expense associated with valuation allowances recorded for unrealized losses on certain Company investments in the corresponding prior year period that did not recur.

federal, state and local taxes at an estimated effective tax rate of 24.0% and 33.9% for the nine months ended September 30, 2021 and 2020, respectively.

The decrease in the estimated effective tax rate for the nine months ended September 30, 2021 as compared to the same period in the prior year was primarily due to income tax expense associated with valuation allowances recorded for unrealized losses on certain Company investments in the corresponding prior year period that did not recur.

Liquidity and Capital Resources

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

June 30, 2021 December 31, 2020 Change

September 30, 2021 December 31, 2020 Change

(in thousands) 2021 vs.

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Total equity 821,110 720,940 100,170 13.9 %

Six Months Ended June 30, Change

Nine Months Ended

September 30, Change

(in thousands) 2021 2020 2021 vs.

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Financing Activities (153,513) 305,840 (459,353)

At June 30, 2021, we had $275.4 million of cash and cash equivalents and $81.8 million of investments, which included $54.4 million of investment securities, compared to $246.5 million of cash and cash equivalents and $64.9 million of investments, which included $40.0 million of investment securities, at December 31, 2020.

At June 30, 2021, we had $193.8 million of principal outstanding under our term loan maturing June 1, 2024 and no outstanding borrowings under our $100.0 million revolving credit facility.

At September 30, 2021, we had $437.2 million of cash and cash equivalents and $105.6 million of investments, which included $78.1 million of investment securities, compared to $246.5 million of cash and cash equivalents and $64.9 million of investments, which included $40.0 million of investment securities, at December 31, 2020.

Uses of Capital

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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 June 30, 2021, 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 September 30, 2021, 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

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Operating Cash Flow

Net cash provided by operating activities of $239.2 million for the six months ended June 30, 2021 changed by $688.9 million from net cash used in operating activities of $449.7 million for the same period in the prior year primarily due to an increase in net sales of investments by CIP of $618.4 million in the current year period compared to the prior year period.

Net cash provided by operating activities of $423.7 million for the nine months ended September 30, 2021 changed by $803.9 million from net cash used in operating activities of $380.3 million for the same period in the prior year primarily due to an increase in net sales of investments by CIP of $688.8 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 used in investing activities was $5.5 million for the six months ended June 30, 2021 compared to net cash provided by investing activities of $9.2 million in the same period for the prior year.

The primary investing activities for the six months ended June 30, 2021 were $4.3 million of capital expenditures and other asset purchases.

The primary investing activities for the six months ended June 30, 2020 were related to the consolidation of investment products.

Net cash used in investing activities was $16.5 million for the nine months ended September 30, 2021 compared to net cash provided by investing activities of $8.9 million in the same period for the prior year.

The primary investing activities for the nine months ended September 30, 2021 related to a decrease of $11.7 million in cash of CIP due to the deconsolidation of investment products in the current year period, while there was an increase of $9.7 million in cash of CIP due to the consolidation of additional investment products for the nine months ended September 30, 2020.

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 and repayment of debt and changes to noncontrolling interests.

Net cash related to financing activities changed by $538.2 million to net cash used in financing activities of $167.6 million for the six months ended June 30, 2021 as compared to net cash provided by financing activities of $370.6 million for the six months ended June 30, 2020.

The net change was primarily due to a decrease of $558.7 million in net borrowings of CIP during the six months ended June 30, 2021 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 June 30, 2021, $193.8 million remained 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 on the Condensed Consolidated Balance Sheet net of related debt issuance costs, which were $3.6 million as of June 30, 2021.

Net cash related to financing activities changed by $459.4 million to net cash used in financing activities of $153.5 million for the nine months ended September 30, 2021 as compared to net cash provided by financing activities of $305.8 million for the nine months ended September 30, 2020.

The net change was primarily due to a decrease of $566.9 million in net borrowings of CIP during the nine months ended September 30, 2021 compared to the prior year period, partially offset by the net cash inflows of $69.3 million as a result of the amended and restated credit agreement more fully discussed below.

Credit Agreement Refinancing

On September 28, 2021, We completed a refinancing of our credit agreement through an amended and restated credit agreement dated September 28, 2021 (the "Credit Agreement").

The Credit Agreement provides for (a) a $275.0 million term loan for the Company with a seven-year term (the "Term Loan") and (b) a $175.0 million revolving credit facility for the Company with a five-year term.

A portion of the proceeds from the refinancing was used to pay off $194.0 million outstanding on the previous Term Loan.

At September 30, 2021, $275.0 million was outstanding under the Term Loan, and the Company had no outstanding borrowings under its revolving credit facility.

In accordance with ASC 835, Interest , the amounts outstanding under the Company's Term Loan are presented in the Condensed Consolidated Balance Sheet net of related debt issuance costs, which were $8.3 million as of September 30, 2021.

Contractual Obligations

Our contractual obligations are summarized in our 2020 Annual Report on Form 10-K.

As of June 30, 2021, there have been no material changes in our contractual obligations since December 31, 2020.

Except for borrowing under our Credit Agreement, there have been no material changes outside of the ordinary course of business in our contractual obligations since December 31, 2020 as disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, 2020.

The table below sets forth these changes as of September 30, 2021, but does not update the other line items in the contractual obligations table that appears in the section of the Annual Report on Form 10-K described above:

(in thousands) Total Remainder of 2021 1-3 Years 3-5 Years More Than 5 Years

Credit Facility, including commitment fee (1) $ 334,082 $ 2,914 $ 34,567 $ 22,468 $ 274,133

(1) At September 30, 2021, we had $275.0 million outstanding under the term loan of our Credit Agreement which has a variable rate.

Payments due are estimated based on the variable interest rate and commitment fee rate in effect on September 30, 2021.

Critical Accounting Policies and Estimates

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A complete description of our significant accounting policies is included in our 2020 Annual Report on Form 10-K.

There were no material changes in our critical accounting policies in the three months ended June 30, 2021.

There were no material changes in our critical accounting policies in the three months ended September 30, 2021.

Recently Issued Accounting Pronouncements

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The Company is primarily exposed to market risk associated with unfavorable movements in interest rates and securities prices.

During the three and six months ended June 30, 2021, there were no material changes to the information contained in Part II, Item 7A of the Company's 2020 Annual Report on Form 10-K.

During the three and nine months ended September 30, 2021, there were no material changes to the information contained in Part II, Item 7A of the Company's 2020 Annual Report on Form 10-K.

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