What changed in this filing

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Item 1. Financial Statements

2023-05-09 compared with 2022-11-08 · 87 added, 215 removed, 445 unchanged (40% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(in thousands, except share data) September 30,

(in thousands, except share data) March 31,

2023 December 31,

17 unchanged sentences

Dividends payable 14,822 15,812

Contingent consideration (Note 4) 133,628 162,564

Contingent consideration 101,221 128,400

Debt 254,621 255,025

8 unchanged sentences

Common stock, $ 0.01 par value, 1,000,000,000 shares authorized;

12,030,346 shares issued and 7,231,973 shares outstanding at September 30, 2022;

12,140,087 shares issued and 7,288,394 shares outstanding at March 31, 2023;

and 12,033,247 shares issued and 7,181,554 shares outstanding at December 31, 2022

2 unchanged sentences

Accumulated other comprehensive income (loss) ( 259 ) ( 358 )

Treasury stock, at cost, 4,798,373 and 4,400,596 shares at September 30, 2022 and December 31, 2021, respectively

Treasury stock, at cost, 4,851,693 and 4,851,693 shares at March 31, 2023 and December 31, 2022, respectively

( 599,248 ) ( 599,248 )

8 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except per share data) 2023 2022

9 unchanged sentences

Operating expenses of consolidated investment products ("CIP") 700 740

Change in fair value of contingent consideration — — 2,900 —

Restructuring expense 4,015 — 4,015 —

Depreciation expense 1,145 935

27 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2023 2022

1 unchanged sentence

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment, net of tax of $ 31 and $ 6 for the three months ended September 30, 2022 and 2021, respectively, and $ 280 and $ 4 for the nine months ended September 30, 2022 and 2021, respectively.

( 504 ) ( 17 ) ( 791 ) ( 11 )

Foreign currency translation adjustment, net of tax of $( 35 ) and $ 73 for the three months ended March 31, 2023 and 2022, respectively.

Other comprehensive income (loss) 99 ( 50 )

6 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Nine Months Ended

September 30,

Three Months Ended

(in thousands) 2023 2022

8 unchanged sentences

Realized and unrealized (gains) losses on investments, net ( 2,670 ) 2,983

Distributions from equity method investments 2,239 3,133

Sales (purchases) of investments, net 5,217 ( 7,917 )

Change in fair value of contingent consideration 2,900 —

Deferred taxes, net 1,441 562

Right of use asset 3,222 —

Changes in operating assets and liabilities:

12 unchanged sentences

Change in cash and cash equivalents of CIP due to consolidation (deconsolidation), net ( 52 ) ( 292 )

Purchase of equity method investment ( 11,645 ) —

Net cash provided by (used in) investing activities ( 13,145 ) ( 22,575 )

Cash Flows from Financing Activities:

Refinancing of credit agreement — 81,155

Payment of long-term debt ( 688 ) ( 687 )

Payment of deferred financing costs — ( 7,039 )

Common stock dividends paid ( 14,083 ) ( 12,663 )

2 unchanged sentences

Taxes paid related to net share settlement of restricted stock units ( 12,209 ) ( 13,416 )

Affiliate equity sales (purchases) ( 11,089 ) —

Net contributions from (distributions to) noncontrolling interests 294 ( 3,734 )

11 unchanged sentences

Common stock dividends payable $ 11,850 $ 11,259

(in thousands) September 30,

(in thousands) March 31,

2023 December 31, 2022

18 unchanged sentences

(in thousands, except per share data) Shares Par Value Shares Amount

Balances at June 30, 2021 7,651,606 $ 119 $ 1,280,667 $ ( 35,704 ) $ 35 4,254,236 $ ( 464,248 ) $ 780,869 $ 8,968 $ 789,837 $ 131,525

Net income (loss) — — — 58,736 — — — 58,736 374 59,110 13,401

Foreign currency translation adjustments — — — — ( 17 ) — — ( 17 ) — ( 17 ) —

Net subscriptions (redemptions) and other — — — — — — — — ( 529 ) ( 529 ) ( 13,257 )

Cash dividends declared ($ 1.50 per common share)

— — ( 12,015 ) — — — — ( 12,015 ) — ( 12,015 ) —

Repurchases of common shares ( 64,494 ) — — — — 64,494 ( 20,000 ) ( 20,000 ) — ( 20,000 ) —

Issuance of common shares related to employee stock transactions 645 — — — — — — — — — —

Taxes paid on stock-based compensation — — ( 148 ) — — — — ( 148 ) — ( 148 ) —

Stock-based compensation — — 4,872 — — — — 4,872 — 4,872 —

Balances at September 30, 2021 7,587,757 $ 119 $ 1,273,376 $ 23,032 $ 18 4,318,730 $ ( 484,248 ) $ 812,297 $ 8,813 $ 821,110 $ 131,669

Balances at June 30, 2022 7,275,337 $ 120 $ 1,275,907 $ 88,196 $ ( 267 ) 4,747,951 $ ( 579,248 ) $ 784,708 $ 6,997 $ 791,705 $ 139,147

Net income (loss) — — — 31,680 — — — 31,680 151 31,831 ( 4,416 )

Foreign currency translation adjustments — — — — ( 504 ) — — ( 504 ) — ( 504 ) —

Net subscriptions (redemptions) and other — — 2,035 — — — — 2,035 ( 414 ) 1,621 ( 10,289 )

Cash dividends declared ($ 1.65 per common share)

— — — ( 12,552 ) — — — ( 12,552 ) — ( 12,552 ) —

Repurchases of common shares ( 50,422 ) — — — — 50,422 ( 10,000 ) ( 10,000 ) — ( 10,000 ) —

Issuance of common shares related to employee stock transactions 7,058 — — — — — — — — — —

Taxes paid on stock-based compensation — — ( 1,166 ) — — — — ( 1,166 ) ( 1,166 ) —

Stock-based compensation — — 5,004 — — — — 5,004 — 5,004 —

Balances at September 30, 2022 7,231,973 $ 120 $ 1,281,780 $ 107,324 $ ( 771 ) 4,798,373 $ ( 589,248 ) $ 799,205 $ 6,734 $ 805,939 $ 124,442

Permanent Equity Temporary Equity

Common Stock Additional

Capital Retained Earnings (Accumulated

Deficit) Accumulated

Comprehensive

Income (Loss) Treasury Stock Total

Attributed To

Virtus Investment Partners, Inc.

Interests Total

Equity Redeemable

(in thousands, except per share data) Shares Par Value Shares Amount

Balances at December 31, 2021 7,506,151 $ 119 $ 1,276,424 $ 60,962 $ 20 4,400,596 $ ( 509,248 ) $ 828,277 $ 8,350 $ 836,627 $ 138,965

8 unchanged sentences

Stock-based compensation — — 10,793 — — — — 10,793 — 10,793 —

Balances at September 30, 2021 7,587,757 $ 119 $ 1,273,376 $ 23,032 $ 18 4,318,730 $ ( 484,248 ) $ 812,297 $ 8,813 $ 821,110 $ 131,669

Balances at March 31, 2022 7,472,829 $ 120 $ 1,273,802 $ 81,783 $ ( 30 ) 4,526,048 $ ( 539,248 ) $ 816,427 $ 7,806 $ 824,233 $ 138,738

Balances at December 31, 2022 7,181,554 $ 120 $ 1,286,244 $ 130,261 $ ( 358 ) 4,851,693 $ ( 599,248 ) $ 817,019 $ 5,917 $ 822,936 $ 113,718

4 unchanged sentences

— — — ( 13,093 ) — — — ( 13,093 ) — ( 13,093 ) —

Repurchases of common shares ( 397,777 ) — — — — 397,777 ( 80,000 ) ( 80,000 ) — ( 80,000 ) —

Issuance of common shares related to employee stock transactions 106,840 1 ( 1 ) — — — — — — — —

1 unchanged sentence

Stock-based compensation — — 7,475 — — — — 7,475 — 7,475 —

Balances at September 30, 2022 7,231,973 $ 120 $ 1,281,780 $ 107,324 $ ( 771 ) 4,798,373 $ ( 589,248 ) $ 799,205 $ 6,734 $ 805,939 $ 124,442

Balances at March 31, 2023 7,288,394 $ 121 $ 1,281,509 $ 155,792 $ ( 259 ) 4,851,693 $ ( 599,248 ) $ 837,915 $ 6,382 $ 844,297 $ 106,630

The accompanying notes are an integral part of these condensed consolidated financial statements.

8 unchanged sentences

retail funds");

Undertaking for Collective Investment in Transferable Securities ("UCITS") and Qualifying Investor Funds ("QIFs"), collectively, "global funds" and collectively with mutual funds, exchange traded funds ("ETFs"), and variable insurance funds, the "open-end funds";

Undertaking for Collective Investment in Transferable Securities and Qualifying Investor Funds (collectively, "global funds") and collectively with U.S.

retail funds, variable insurance funds, and exchange-traded funds ("ETFs"), the "open-end funds");

closed-end funds (collectively, with open-end funds, the "funds");

and retail separate accounts.

Institutional investment management services are offered through separate accounts and pooled or commingled structures to a variety of institutional clients.

The Company also provides subadvisory services to other investment advisers and serves as the collateral manager for structured products.

and retail separate accounts that include intermediary-sold and private client accounts.

Our investment strategies are offered to institutional clients through separate accounts and pooled, or commingled, structures.

We also provide subadvisory services to other investment advisers and serve as the collateral manager for structured products.

Basis of Presentation and Significant Accounting Policies

3 unchanged sentences

In the opinion of management, these financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Company’s financial condition and results of operations.

Operating results for the nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Annual Report on Form 10-K") filed with the Securities and Exchange Commission (the "SEC").

7 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2023 2022

7 unchanged sentences

On January 1, 2022, the Company acquired Stone Harbor Investment Partners, LLC ("Stone Harbor"), which was accounted for in accordance with ASC 805, Business Combinations ("ASC 805").

Transaction consideration consisted of $ 28.2 million paid in cash at closing, net working capital adjustment of $ 0.7 million to be paid in the fourth quarter of 2022, and $ 1.2 million in contingent consideration recorded at fair value, which represents future potential earn-out payments based on pre-established performance metrics related to revenue retention and revenue growth rates.

Future contingent consideration will be paid, if earned, in 2023, 2026 and 2027.

The contingent consideration has been accounted for as a liability within contingent consideration on the Company's Condensed Consolidated Balance Sheet.

The initial transaction consideration of $ 30.1 million was allocated to the assets acquired and liabilities assumed, based upon their estimated fair values at the date of the acquisition, as well as goodwill of $ 10.3 million and definite-lived intangible assets of $ 10.8 million.

The Company expects $ 21.1 million of the purchase price to be tax deductible over 15 years.

The transaction consideration allocation is based upon preliminary information and is subject to change if additional information becomes available.

The revenues and operating income of Stone Harbor were not material to the Company's results of operations for the three and nine months ended September 30, 2022.

The following table summarizes the identified acquired assets and liabilities assumed as of the Stone Harbor acquisition date:

January 1, 2022

(in thousands)

Cash and cash equivalents

Intangible assets

Accounts payable, accrued and other liabilities

Total liabilities

Total Net Assets Acquired

Identifiable Intangible Assets Acquired

The Company identified and recorded the following intangible assets as a result of the Stone Harbor acquisition:

January 1, 2022

Approximate Fair Value

( in thousands)

Weighted Average of Useful Life

Definite-lived intangible assets:

Investment management agreements $ 6,000 7.3

Trade names 1,000 6.0

Software 3,800 4.0

Total definite-lived intangible assets $ 10,800

The fair value of investment management agreements was estimated using a discounted cash flow method, the fair value of the trade names was estimated using a royalty savings method, and the fair value of the software was estimated using a royalty savings method and replacement cost approach.

The fair value estimates were prepared with the assistance of an independent valuation firm.

Westchester Capital Management

On October 1, 2021, the Company acquired Westchester Capital Management, LLC ("Westchester"), which was accounted for in accordance with ASC 805.

Transaction consideration consisted of $ 156.8 million in cash and contingent consideration representing future potential earn-out payments based on pre-established performance metrics related to revenue growth rates, accounted for as a liability on the Company's Condensed Consolidated Balance sheet.

Future contingent consideration payments will be made, if earned, in 2025 and 2026.

As of September 30, 2022, the contingent consideration balance was $ 15.4 million.

The total transaction consideration of $ 169.3 million was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of the acquisition.

Goodwill of $ 23.0 million and intangible assets of $ 144.4 million were recorded as a result of the acquisition.

The Company expects $ 155.6 million of the purchase price to be tax deductible over 15 years.

The revenues and operating income of Westchester were not material to the Company's results of operations for the three and nine months ended September 30, 2022.

Fund Adoption and NFJ Investment Group

On February 1, 2021, the Company executed an agreement with Allianz Global Investors U.S.

LLC ("AGI"), pursuant to which the Company became the investment adviser, distributor and/or administrator of certain of AGI's open-end, closed-end and retail separate account assets.

This transaction was classified as an asset acquisition, and the cost of the acquisition was allocated to the assets acquired on the basis of their relative fair values.

Additionally, as part of the transaction, AGI’s Value Equity team joined the Company as a newly established affiliated manager, NFJ Investment Group ("NFJ").

The addition of NFJ was classified as a business combination under ASC 805, and assets acquired were recorded at fair value.

Assets acquired primarily consisted of definite-lived intangible assets representing investment contracts as well as indefinite-lived assets consisting of goodwill related to NFJ.

The revenues and operating income of NFJ were not material to the Company's results of operations for the three and nine months ended September 30, 2022 or 2021.

Transaction consideration consists of variable cash payments based on a percentage of the investment management fees earned on certain open-end, closed-end and retail separate account assets from the transaction.

Payments are to be made annually on the anniversary of the closing date of the transactions over seven years .

Contingent payment obligations related to NFJ, which were accounted for in accordance with ASC 805, are remeasured at fair value as of each reporting period-end, with the change in fair value recorded within the Condensed Consolidated Statement of Operations.

An estimate of these future payments has been recorded as a liability and included as contingent consideration on the Company's Condensed Consolidated Balance Sheet.

A payment of $ 33.0 million was made in the first quarter of 2022.

The estimated value of future revenue participation payments at September 30, 2022 was $ 117.0 million.

Goodwill and Intangible Assets, Net

Activity in goodwill was as follows:

(in thousands)

Balance at December 31, 2021 $ 338,406

Acquisitions 10,430

Balance at September 30, 2022 $ 348,836

The total transaction consideration of $ 30.1 million was allocated to the assets acquired and liabilities assumed, based upon their estimated fair values at the date of the acquisition, as well as goodwill of $ 10.3 million and definite-lived intangible assets of $ 10.8 million.

Intangible Assets, Net

Below is a summary of intangible assets, net:

2 unchanged sentences

Balances at December 31, 2022 $ 756,028 $ ( 355,807 ) $ 400,221 $ 42,298 $ 442,519

Additions 10,800 — 10,800 — 10,800

Intangible amortization — ( 14,391 ) ( 14,391 ) — ( 14,391 )

Balances at September 30, 2022 $ 766,376 $ ( 341,198 ) $ 425,178 $ 42,298 $ 467,476

Balances at March 31, 2023 $ 756,028 $ ( 370,198 ) $ 385,830 $ 42,298 $ 428,128

Definite-lived intangible asset amortization for the remainder of fiscal year 2023 and succeeding fiscal years is estimated as follows:

5 unchanged sentences

Investments consist primarily of investments in the Company's sponsored products.

The Company's investments, excluding the assets of consolidated investment products ("CIP") discussed in Note 17, at September 30, 2022 and December 31, 2021 were as follows:

(in thousands) September 30, 2022 December 31, 2021

The Company's investments, excluding the assets of consolidated investment products ("CIP") discussed in Note 16, at March 31, 2023 and December 31, 2022 were as follows:

(in thousands) March 31, 2023 December 31, 2022

Investment securities - fair value $ 80,654 $ 76,999

4 unchanged sentences

(1) The Company's equity method investments are valued on a three-month lag based upon the availability of financial information.

On January 1, 2023, the Company made an additional investment in an existing minority interest in an affiliated manager for $ 11.6 million including transaction costs.

Investment Securities - fair value

1 unchanged sentence

The composition of the Company’s investment securities - fair value was as follows:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in thousands) Cost Fair Value Cost Fair Value

3 unchanged sentences

Total investment securities - fair value $ 83,506 $ 80,654 $ 80,912 $ 76,999

For each of the three and nine months ended September 30, 2022, the Company recognized net realized gains of $ 0.4 million on the sale of its investment securities - fair value.

For the three and nine months ended September 30, 2021, the Company recognized net realized gains of $ 0.2 million and $ 2.0 million, respectively, on the sale of its investment securities - fair value.

For the three months ended March 31, 2023 and 2022, the Company recognized net realized gains of $ 1.3 million and $ 0.1 million on the sale of its investment securities - fair value.

Fair Value Measurements

The Company’s assets and liabilities measured at fair value on a recurring basis, excluding the assets and liabilities of CIP discussed in Note 17, as of September 30, 2022 and December 31, 2021 by fair value hierarchy level were as follows:

September 30, 2022

The Company’s assets and liabilities measured at fair value on a recurring basis, excluding the assets and liabilities of CIP discussed in Note 16, as of March 31, 2023 and December 31, 2022 by fair value hierarchy level were as follows:

March 31, 2023

(in thousands) Level 1 Level 2 Level 3 Total

21 unchanged sentences

Sponsored funds represent investments in open-end funds, closed-end funds and ETFs for which the Company acts as the investment manager.

The fair value of open-end funds is determined based on their published net asset values and are categorized as Level 1.

The fair value of open-end funds is determined based on their published net asset values and are

categorized as Level 1.

The fair value of closed-end funds and ETFs is determined based on the official closing price on the exchange on which they are traded and are categorized as Level 1.

2 unchanged sentences

Contingent consideration represents liabilities associated with the Company's business combinations.

See Note 4 for a discussion of the transactions.

The estimated fair values are measured using a simulation model using unobservable market data inputs prepared with the assistance of an independent valuation firm.

The estimated fair values are measured using simulation models using unobservable market data inputs prepared with the assistance of an independent valuation firm.

These liabilities are categorized as Level 3.

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2023 2022

2 unchanged sentences

Reduction for payments made ( 16,390 ) ( 19,520 )

Increase (reduction) of liability related to re-measurement of fair value — — 2,900 —

Contingent consideration, end of period $ 61,710 $ 70,080

1 unchanged sentence

Dividends Declared

On August 17, 2022, the Company declared a quarterly cash dividend of $ 1.65 per common share to be paid on November 15, 2022 to stockholders of record at the close of business on October 31, 2022.

Common Stock Repurchases

During the three and nine months ended September 30, 2022, the Company repurchased 50,422 and 397,777 common shares, respectively, at a weighted average price of $ 198.29 and $ 201.09 per share, respectively, for a total cost, including fees and expenses, of $ 10.0 million and $ 80.0 million, respectively, under its share repurchase program.

In May 2022, the Company's Board of Directors authorized an additional 750,000 shares to be repurchased under the share repurchase program.

As of September 30, 2022, 881,672 shares remained available for repurchase.

Under the terms of the program, the Company may repurchase shares of its common stock from time to time at its discretion through open market repurchases, privately negotiated transactions and/or other mechanisms, depending on price and prevailing market and business conditions.

The program, which has no specified term, may be suspended or terminated at any time.

On February 22, 2023, the Company declared a quarterly cash dividend of $ 1.65 per common share to be paid on May 15, 2023 to stockholders of record at the close of business on April 28, 2023.

Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2022 and 2021 were as follows:

Foreign Currency

Translation Adjustments

(in thousands)

Balance at December 31, 2021 $ 20

Net current-period other comprehensive income (loss) (1) ( 791 )

Balance at September 30, 2022 $ ( 771 )

Foreign Currency

Translation Adjustments

The changes in accumulated other comprehensive income (loss) by component were as follows:

Three Months Ended

(in thousands) 2023 2022

Balance at December 31, 2020 $ 29

Foreign currency translation adjustments, beginning of period $ ( 358 ) $ 20

Net current-period other comprehensive income (loss) (1) 99 ( 50 )

Balance at September 30, 2021 $ 18

(1) Consists of foreign currency translation adjustments, net of tax of $ 280 and $ 4 for the nine months ended September 30, 2022 and 2021, respectively.

Foreign currency translation adjustments, end of period $ ( 259 ) $ ( 30 )

(1) Consists of foreign currency translation adjustments, net of tax of $( 35 ) and $ 73 for the three months ended March 31, 2023 and 2022, respectively.

Stock-Based Compensation

Equity-based awards, including restricted stock units ("RSUs"), performance stock units ("PSUs"), stock options and unrestricted shares of common stock may be granted to officers, employees and directors of the Company pursuant to the

Company's Omnibus Incentive and Equity Plan (the "Omnibus Plan").

At September 30, 2022, 661,463 shares of common stock remained available for issuance of the 3,370,000 shares that are authorized for issuance under the Omnibus Plan.

Equity-based awards, including restricted stock units ("RSUs"), performance stock units ("PSUs"), stock options and unrestricted shares of common stock, may be granted to officers, employees and directors of the Company pursuant to the Company's Omnibus Incentive and Equity Plan (the "Omnibus Plan").

At March 31, 2023, 484,282 shares of common stock remained available for issuance of the 3,370,000 shares that are authorized for issuance under the Omnibus Plan.

Stock-based compensation expense is summarized as follows:

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

Three Months Ended March 31,

(in thousands) 2023 2022

4 unchanged sentences

Shares that are issued upon vesting are newly issued shares from the Omnibus Plan and are not issued from treasury stock.

RSU activity, inclusive of PSUs, for the nine months ended September 30, 2022 is summarized as follows:

RSU activity, inclusive of PSUs, for the three months ended March 31, 2023 is summarized as follows:

of Shares Weighted Average

3 unchanged sentences

Settled ( 177,556 ) $ 119.97

Outstanding at September 30, 2022 380,420 $ 177.16

For the nine months ended September 30, 2022 and 2021, a total of 77,508 and 72,795 RSUs, respectively, were withheld by the Company as a result of net share settlements to settle minimum employee tax withholding obligations.

The Company paid $ 16.5 million and $ 19.4 million for the nine months ended September 30, 2022 and 2021, respectively, in minimum employee tax withholding obligations related to RSUs withheld for the net share settlements.

Outstanding at March 31, 2023 370,592 $ 196.29

For the three months ended March 31, 2023 and 2022, a total of 70,716 and 61,859 RSUs, respectively, were withheld by the Company as a result of net share settlements to settle minimum employee tax withholding obligations.

The Company paid $ 12.2 million and $ 13.4 million for the three months ended March 31, 2023 and 2022, respectively, in minimum employee tax withholding obligations related to RSUs withheld for the net share settlements.

These net share settlements had the effect of share repurchases by the Company as they reduced the number of shares that would have otherwise been issued as a result of the vesting.

During the nine months ended September 30, 2022, the Company granted 30,516 PSUs that contain performance-based metrics in addition to a service condition.

During the three months ended March 31, 2023, the Company granted 44,291 PSUs that contain performance-based metrics in addition to a service condition.

Compensation expense for PSUs is generally recognized over a three-year service period based upon the value determined using a combination of (i) the intrinsic value method, for awards that contain a performance metric that represents a "performance condition" in accordance with ASC 718, Stock Compensation ("ASC 718") and (ii) the Monte Carlo simulation valuation model for awards that contain a "market condition" performance metric under ASC 718.

1 unchanged sentence

Compensation expense for PSU awards with a performance condition is recorded each period based upon a probability assessment of the expected outcome of the performance metric with a final adjustment upon measurement at the end of the performance period.

As of September 30, 2022, unamortized stock-based compensation expense for unvested RSUs and PSUs was $ 32.5 million with a weighted-average remaining contractual life of 1.2 years.

Restructuring Expense

During the three and nine months ended September 30, 2022, the Company incurred $ 4.0 million in restructuring costs, primarily related to the write-down of right-of-use assets for a lease in conjunction with the consolidation of certain office space.

As of March 31, 2023, unamortized stock-based compensation expense for unvested RSUs and PSUs was $ 42.4 million with a weighted-average remaining contractual life of 1.6 years.

Earnings (Loss) Per Share

2 unchanged sentences

by the weighted-average number of common shares outstanding for the period, excluding dilution for potential common stock issuances.

Diluted EPS reflects the

potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, including shares issuable upon the vesting of RSUs and stock option exercises using the treasury stock method, as determined under the if-converted method.

Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, including shares issuable upon the vesting of RSUs and stock option exercises using the treasury stock method, as determined under the if-converted method.

The computation of basic and diluted EPS is as follows:

Three Months Ended September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

(in thousands, except per share amounts) 2023 2022

3 unchanged sentences

$ 38,624 $ 33,059

Shares (in thousands):

Weighted-average number of shares outstanding 7,245 7,546

4 unchanged sentences

The following table details the securities that have been excluded from the above computation of weighted-average number of shares for diluted EPS, because the effect would be anti-dilutive.

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

Three Months Ended March 31,

(in thousands) 2023 2022

4 unchanged sentences

The provision for income taxes reflected U.S.

federal, state and local taxes at an estimated effective tax rate of 35.2 % and 24.0 % for the nine months ended September 30, 2022 and 2021, respectively.

The higher estimated effective tax rate for the nine months ended September 30, 2022 was primarily due to valuation allowances recorded in the current year for the tax effects of unrealized losses on certain Company investments.

federal, state and local taxes at an estimated effective tax rate of 20.1 % and 30.0 % for the three months ended March 31, 2023 and 2022, respectively.

The lower estimated effective tax rate for the three months ended March 31, 2023 was primarily due to excess tax benefits associated with stock-based compensation and the change in valuation allowances in the current year related to the tax effects of unrealized gains on certain Company investments.

The higher effective tax rate in the prior year period was due to valuation allowances recorded for the tax effects of unrealized losses on certain Company investments.

Credit Agreement

The Company's credit agreement, as amended (the "Credit Agreement"), comprises (i) a $ 275.0 million seven-year term loan (the "Term Loan") expiring in September 2028, and (ii) a $ 175.0 million revolving credit facility with a five-year term expiring in September 2026.

During the nine months ended September 30, 2022, the Company repaid $ 12.1 million outstanding under its Term Loan.

At September 30, 2022, $ 262.2 million was outstanding under the Term Loan and there were no outstanding borrowings under the 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 $ 6.8 million as of September 30, 2022.

The Company's credit agreement, as amended (the "Credit Agreement"), comprises (i) a $ 275.0 million term loan with a seven-year term (the "Term Loan") expiring in September 2028, and (ii) a $ 175.0 million revolving credit facility with a five-year term expiring in September 2026.

During the three months ended March 31, 2023, the Company repaid $ 0.7 million outstanding under its Term Loan.

At March 31, 2023, $ 260.9 million was outstanding under the Term Loan and there were no outstanding borrowings under the revolving credit facility.

In accordance with ASC 835, Interest , the amounts outstanding under the Company's Term Loan are presented on the Condensed Consolidated Balance Sheet net of related debt issuance costs, which were $ 6.3 million as of March 31, 2023.

On April 3, 2023, the Company borrowed $ 50.0 million under the revolving credit facility to partially finance its acquisition of AlphaSimplex Group, LLC (see Note 17 for further information).

Commitments and Contingencies

1 unchanged sentence

The Company is involved from time to time in litigation and arbitration, as well as examinations, inquiries and

investigations by various regulatory bodies, including the SEC, involving its compliance with, among other things, securities laws, client investment guidelines, laws governing the activities of broker-dealers and other laws and regulations affecting its products and other activities.

Legal and regulatory matters of this nature involve or may involve but are not limited to the Company's activities as an employer, issuer of securities, investor, investment adviser, broker-dealer or taxpayer.

In addition, in the normal course of business, the Company discusses matters with its regulators raised during regulatory examinations or is otherwise subject to their inquiry.

These matters could result in censures, fines, penalties or other sanctions.

investigations by various regulatory bodies, involving its compliance with, among other things, securities laws, client investment guidelines, laws governing the activities of broker-dealers and other laws and regulations affecting its products and other activities.

The Company records a liability when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated.

Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable.

In addition, in the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450, Contingencies .

The disclosures, accruals or estimates, if any, resulting from the foregoing analysis are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter.

Based on information currently available, available insurance coverage, indemnities and established reserves, the Company believes that the outcomes of its legal and regulatory proceedings are not likely, either individually or in the aggregate, to have a material adverse effect on the Company's results of operations, cash flows or its consolidated financial condition.

However, in the event of unexpected subsequent developments, and given the inherent unpredictability of these legal and regulatory matters, the Company can provide no assurance that its assessment of any claim, dispute, regulatory examination or investigation or other legal matter will reflect the ultimate outcome, and an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company's results of operations or cash flows in particular quarterly or annual periods.

However, in the event of unexpected subsequent developments, and given the inherent unpredictability of these legal and regulatory matters, the Company can provide no assurance that its assessment of any legal matter will reflect the ultimate outcome, and an adverse outcome in certain matters could have a material adverse effect on the Company's results of operations or cash flows in particular quarterly or annual periods.

Redeemable Noncontrolling Interests

5 unchanged sentences

Minority interests in an affiliate are recorded at estimated redemption value within redeemable noncontrolling interests on the Company's Condensed Consolidated Balance Sheets, and any changes in the estimated redemption value are recorded on the Condensed Consolidated Statements of Operations within noncontrolling interests.

Redeemable noncontrolling interests for the nine months ended September 30, 2022 included the following amounts:

Redeemable noncontrolling interests for the three months ended March 31, 2023 included the following amounts:

(in thousands) CIP Affiliate Noncontrolling Interests Total

5 unchanged sentences

Net subscriptions (redemptions) and other ( 496 ) ( 1,846 ) ( 2,342 )

Balances at September 30, 2022 $ 16,160 $ 108,282 $ 124,442

Balances at March 31, 2023 $ 18,419 $ 88,211 $ 106,630

(1) Relates to noncontrolling interests redeemable at other than fair value.

2 unchanged sentences

Voting interest entities ("VOEs") are consolidated when the Company is considered to have a controlling financial interest, which is typically present when the Company owns a majority of the voting interest in an entity or otherwise has the power to govern the financial and operating policies of the entity.

The Company evaluates any variable interest entities ("VIEs") in which the Company has a variable interest for consolidation.

The Company evaluates any variable interest entity ("VIEs") in which the Company has a variable interest for consolidation.

A VIE is an entity in which either (i) the equity investment at risk is not sufficient to permit the entity to finance its own activities without additional financial support;

or (ii) where as a group, the holders of the equity investment at risk do not possess (x) the power through voting or similar rights to direct the activities that most significantly impact the entity's economic performance, (y) the obligation to absorb expected losses or the right to receive expected residual returns of the entity, or (z) proportionate voting and economic interests and where substantially all of the entity's activities either involve or are conducted on behalf of an investor with disproportionately fewer voting rights.

or (ii) where as a group, the holders of the equity investment at risk do not possess:

(i) the power through voting or similar rights to direct the activities that most significantly impact the entity's economic performance, (ii) the obligation to absorb expected losses or the right to receive expected residual returns of the entity, or (iii) proportionate voting and economic interests and where substantially all of the entity's activities either involve or are conducted on behalf of an investor with disproportionately fewer voting rights.

If an entity has any of these characteristics, it is considered a VIE and is required to be consolidated by its primary beneficiary.

The primary beneficiary is the entity that has both the power to direct the activities that most significantly impact the VIE's economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE.

The primary beneficiary is the entity that

has both the power to direct the activities that most significantly impact the VIE's economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE.

In the normal course of its business, the Company sponsors various investment products, some of which are consolidated by the Company.

CIP includes both VOEs, made up primarily of open-end funds in which the Company holds a controlling financial interest, and VIEs, which primarily consist of CLOs of which the Company is considered the primary beneficiary.

CIP includes both VOEs, made up primarily of open-end funds in which the Company holds a controlling financial interest, and VIEs, which consist of CLOs and certain global and private funds of which the Company is considered the primary beneficiary.

The consolidation and deconsolidation of these investment products have no impact on net income (loss) attributable to Virtus Investment Partners, Inc.

1 unchanged sentence

The Company has no right to the benefits from, and does not bear the risks associated with, these investment products beyond the Company's investments in, and fees generated from, these products.

The following table presents the balances of CIP that, after intercompany eliminations, were reflected on the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

The following table presents the balances of CIP that, after intercompany eliminations, were reflected on the Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

VOEs VIEs VOEs VIEs

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The majority of the Company's CIP that are VIEs are CLOs.

At September 30, 2022, the Company consolidated six CLOs.

At March 31, 2023, the Company consolidated seven CLOs.

The financial information of certain CLOs is included on the Company's condensed consolidated financial statements on a one-month lag based upon the availability of their financial information.

1 unchanged sentence

Investments of CLOs

The CLOs held investments of $ 1.9 billion at September 30, 2022 consisting of bank loan investments, which comprise the majority of the CLOs' portfolio asset collateral and are senior secured corporate loans across a variety of industries.

The CLOs held investments of $ 2.0 billion at March 31, 2023 consisting of bank loan investments, which comprise the majority of the CLOs' portfolio asset collateral and are senior secured corporate loans across a variety of industries.

These bank loan investments mature at various dates between 2023 and 2030 and pay interest at LIBOR plus a spread of up to 10.0 %.

1 unchanged sentence

Generally, subsequent prepayments received after the reinvestment period must be used to pay down the note obligations.

At September 30, 2022, the fair value of the senior bank loans was less than the unpaid principal balance by $ 110.4 million.

At September 30, 2022, there were no material collateral assets in default.

At March 31, 2023, the fair value of the senior bank loans was less than the unpaid principal balance by $ 120.3 million.

At March 31, 2023, there were no material collateral assets in default.

Notes Payable of CLOs

The CLOs held notes payable with a total value, at par, of $ 2.1 billion at September 30, 2022, consisting of senior secured floating rate notes payable with a par value of $ 1.9 billion and subordinated notes with a par value of $ 233.7 million.

The CLOs held notes payable with a total value, at par, of $ 2.3 billion at March 31, 2023, consisting of senior secured floating rate notes payable with a par value of $ 2.1 billion and subordinated notes with a par value of $ 261.2 million.

These note obligations bear interest at variable rates based on LIBOR plus a pre-defined spread ranging from 0.8 % to 9.1 %.

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The secured notes of the consolidated CLOs have contractual recourse only to the related assets of the CLO and are classified as financial liabilities.

Although these beneficial interests are eliminated upon consolidation, the application of the measurement alternative prescribed by ASU 2014-13, Consolidation (Topic 810) ("ASU 2014-13") results in the net assets of the consolidated CLOs shown above to be equivalent to the beneficial interests retained by the Company at September 30, 2022, as shown in the table below:

(in thousands)

3 unchanged sentences

The following table represents income and expenses of the consolidated CLOs included on the Company’s Condensed Consolidated Statements of Operations for the period indicated:

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

(in thousands)

8 unchanged sentences

As summarized in the table below, the application of the measurement alternative as prescribed by ASU 2014-13 results in the consolidated net income summarized above to be equivalent to the Company’s own economic interests in the consolidated CLOs, which are eliminated upon consolidation:

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

(in thousands)

3 unchanged sentences

Fair Value Measurements of CIP

The assets and liabilities of CIP measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 by fair value hierarchy level were as follows:

As of September 30, 2022

The assets and liabilities of CIP measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 by fair value hierarchy level were as follows:

As of March 31, 2023

(in thousands) Level 1 Level 2 Level 3 Total

29 unchanged sentences

Notes payable represent notes issued by CIP CLOs and are measured using the measurement alternative in ASU 2014-13.

Accordingly, the fair value of CLO liabilities was measured as the fair value of CLO assets less the sum of (i) the fair value of the beneficial interests held by the Company and (ii) the carrying value of any beneficial interests that represent

compensation for services.

The fair value of the beneficial interests held by the Company is based on third-party pricing information without adjustment.

1 unchanged sentence

Short sales are recorded on the Condensed Consolidated Balance Sheets within other liabilities of CIP and are classified as Level 1 based on the underlying equity security.

The securities purchase payable at September 30, 2022 and December 31, 2021 approximated fair value due to the short-term nature of the instruments.

The securities purchase payable at March 31, 2023 and December 31, 2022 approximated fair value due to the short term nature of the instruments.

The following table is a reconciliation of assets of CIP for Level 3 investments for which significant unobservable inputs were used to determine fair value:

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

9 unchanged sentences

(1) The investments that are categorized as Level 3 were valued utilizing third-party pricing information without adjustment.

Transfers between Level 2 and Level 3 were due to trading activities at period end.

Transfers in and/or out of levels are reflected when significant inputs, including market inputs or performance attributes, used for the fair value measurement become observable/unobservable at period end.

Nonconsolidated VIEs

The Company serves as the collateral manager for other collateralized loan and collateralized bond obligations (collectively, "CDOs") that are not consolidated.

The assets and liabilities of these CDOs reside in bankruptcy remote, special purpose entities in which the Company has no ownership of, nor holds any notes issued by, the CDOs, and provides neither recourse nor guarantees.

The Company has determined that the investment management fees it receives for serving as collateral manager for these CDOs did not represent a variable interest since (i) the fees the Company earns are compensation for services provided and are commensurate with the level of effort required to provide the investment management services, (ii) the Company does not hold other interests in the CDOs that individually, or in the aggregate, would absorb more than an insignificant amount of the CDOs' expected losses or receive more than an insignificant amount of the CDOs' expected residual return, and (iii) the investment management arrangement only includes terms, conditions and amounts that are customarily present in arrangements for similar services negotiated at arm's length.

The Company serves as the collateral manager for other CLOs that are not consolidated.

The assets and liabilities of these CLOs reside in bankruptcy remote, special purpose entities in which the Company has no ownership of, nor holds any notes issued by, the CLOs, and provides neither recourse nor guarantees.

The Company has determined that the investment management fees it receives for serving as collateral manager for these CLOs did not represent a variable interest since (i) the fees the Company earns are compensation for services provided and are commensurate with the level of effort required to provide the investment management services, (ii) the Company does not hold other interests in the CLOs that individually, or in the aggregate, would absorb more than an insignificant amount of the CLOs' expected losses or receive more than an insignificant amount of the CLOs' expected residual return, and (iii) the investment management arrangement only includes terms, conditions and amounts that are customarily present in arrangements for similar services negotiated at arm's length.

The Company has interests in certain other VIEs that the Company does not consolidate as it is not the primary beneficiary since its interest in these entities does not provide the Company with the power to direct the activities that most significantly impact the entities' economic performance.

At September 30, 2022, the carrying value and maximum risk of loss related to the Company's interest in these VIEs was $ 25.4 million .

At March 31, 2023, the carrying value and maximum risk of loss related to the Company's interest in these VIEs was $ 32.8 million.

Subsequent Event

On October 19, 2022, the Company entered into an agreement to acquire AlphaSimplex Group, LLC, a leading manager of liquid alternative investment solutions with $ 10.9 billion of assets under management at September 30, 2022.

The transaction is expected to close near the end of the first quarter of 2023, subject to customary closing conditions, necessary regulatory approvals, and approvals by the mutual fund boards and fund shareholders.

On April 1, 2023, the Company completed its previously announced acquisition of AlphaSimplex Group, LLC, a leading manager of liquid alternative investment solutions.

Transaction consideration of $ 130.0 million was financed with existing balance sheet resources including $ 50.0 million drawn from the Company's revolving credit facility.

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 1. Financial Statements