VIRTUS INVESTMENT PARTNERS, INC. 10-Q

Item 1. Financial Statements Virtus Investment Partners, Inc. Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except share data) March 31, 2023 December 31, 2022 Assets: Cash and cash equivalents $ 213,424 $ 338,234 Investments 115,663 100,330 Accounts receivable, net 97,899 99,274 Assets of consolidated investment products ("CIP") Cash and cash equivalents of CIP 204,012 250,301 Cash pledged or on deposit of CIP 741 644 Investments of CIP 2,108,738 2,190,113 Other assets of CIP 49,071 45,445 Furniture, equipment and leasehold improvements, net 19,440 19,123 Intangible assets, net 428,128 442,519 Goodwill 348,836 348,836 Deferred taxes, net 21,696 23,171 Other assets 90,399 94,944 Total assets $ 3,698,047 $ 3,952,934 Liabilities and Equity Liabilities: Accrued compensation and benefits $ 69,103 $ 181,805 Accounts payable and accrued liabilities 38,564 33,200 Dividends payable 14,822 15,812 Contingent consideration 101,221 128,400 Debt 254,621 255,025 Other liabilities 84,945 87,827 Liabilities of CIP Notes payable of CIP 2,056,472 2,083,314 Securities purchased payable and other liabilities of CIP 127,372 230,897 Total liabilities 2,747,120 3,016,280 Commitments and Contingencies (Note 14) Redeemable noncontrolling interests 106,630 113,718 Equity: Equity attributable to Virtus Investment Partners, Inc.: Common stock, $ 0.01 par value, 1,000,000,000 shares authorized; 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 121 120 Additional paid-in capital 1,281,509 1,286,244 Retained earnings (accumulated deficit) 155,792 130,261 Accumulated other comprehensive income (loss) ( 259 ) ( 358 ) 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 ) Total equity attributable to Virtus Investment Partners, Inc. 837,915 817,019 Noncontrolling interests 6,382 5,917 Total equity 844,297 822,936 Total liabilities and equity $ 3,698,047 $ 3,952,934 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 Table of Contents Virtus Investment Partners, Inc. Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, (in thousands, except per share data) 2023 2022 Revenues Investment management fees $ 164,478 $ 206,817 Distribution and service fees 14,153 20,007 Administration and shareholder service fees 18,359 24,344 Other income and fees 884 1,272 Total revenues 197,874 252,440 Operating Expenses Employment expenses 98,614 105,993 Distribution and other asset-based expenses 23,715 32,846 Other operating expenses 30,730 31,712 Operating expenses of consolidated investment products ("CIP") 700 740 Depreciation expense 1,145 935 Amortization expense 14,391 14,662 Total operating expenses 169,295 186,888 Operating Income (Loss) 28,579 65,552 Other Income (Expense) Realized and unrealized gain (loss) on investments, net 2,670 ( 2,982 ) Realized and unrealized gain (loss) of CIP, net 2,596 ( 13,344 ) Other income (expense), net ( 343 ) 287 Total other income (expense), net 4,923 ( 16,039 ) Interest Income (Expense) Interest expense ( 5,005 ) ( 2,279 ) Interest and dividend income 3,238 328 Interest and dividend income of investments of CIP 46,814 20,380 Interest expense of CIP ( 35,203 ) ( 12,088 ) Total interest income (expense), net 9,844 6,341 Income (Loss) Before Income Taxes 43,346 55,854 Income tax expense (benefit) 8,703 16,735 Net Income (Loss) 34,643 39,119 Noncontrolling interests 3,981 ( 6,060 ) Net Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 38,624 $ 33,059 Earnings (Loss) per Share—Basic $ 5.33 $ 4.38 Earnings (Loss) per Share—Diluted $ 5.21 $ 4.22 Weighted Average Shares Outstanding—Basic 7,245 7,546 Weighted Average Shares Outstanding—Diluted 7,410 7,839 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Table of Contents Virtus Investment Partners, Inc. Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended March 31, (in thousands) 2023 2022 Net Income (Loss) $ 34,643 $ 39,119 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment, net of tax of $( 35 ) and $ 73 for the three months ended March 31, 2023 and 2022, respectively. 99 ( 50 ) Other comprehensive income (loss) 99 ( 50 ) Comprehensive income (loss) 34,742 39,069 Comprehensive (income) loss attributable to noncontrolling interests 3,981 ( 6,060 ) Comprehensive Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 38,723 $ 33,009 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents Virtus Investment Partners, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in thousands) 2023 2022 Cash Flows from Operating Activities: Net income (loss) $ 34,643 $ 39,119 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation expense, intangible asset and other amortization 15,910 15,982 Stock-based compensation 5,749 9,547 Amortization of deferred commissions 500 1,471 Payments of deferred commissions ( 384 ) ( 949 ) Equity in earnings of equity method investments 554 ( 410 ) Realized and unrealized (gains) losses on investments, net ( 2,670 ) 2,983 Sales (purchases) of investments, net 5,217 ( 7,917 ) Deferred taxes, net 1,441 562 Changes in operating assets and liabilities: Accounts receivable, net and other assets 9,109 13,841 Accrued compensation and benefits, accounts payable, accrued liabilities and other liabilities ( 115,514 ) ( 120,267 ) Operating activities of consolidated investment products ("CIP"): Realized and unrealized (gains) losses on investments of CIP, net ( 3,844 ) 12,559 Purchases of investments by CIP ( 320,808 ) ( 259,071 ) Sales of investments by CIP 323,380 209,644 Net proceeds (purchases) of short-term investments and securities sold short by CIP ( 218 ) ( 14 ) Change in other assets and liabilities of CIP 3,976 1,145 Net cash provided by (used in) operating activities ( 42,959 ) ( 81,775 ) Cash Flows from Investing Activities: Capital expenditures and other asset purchases ( 1,448 ) ( 2,510 ) Acquisition of businesses, net of cash acquired of $ 8,443 — ( 19,773 ) 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: Payment of long-term debt ( 688 ) ( 687 ) Common stock dividends paid ( 14,083 ) ( 12,663 ) Repurchase of common shares — ( 30,000 ) Payment of contingent consideration ( 27,179 ) ( 33,036 ) Taxes paid related to net share settlement of restricted stock units ( 12,209 ) ( 13,416 ) Net contributions from (distributions to) noncontrolling interests 294 ( 3,734 ) Financing activities of CIP: Payments on borrowings by CIP ( 61,213 ) ( 52,241 ) Net cash provided by (used in) financing activities ( 115,078 ) ( 145,777 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash 180 ( 56 ) Net increase (decrease) in cash, cash equivalents and restricted cash ( 171,002 ) ( 250,183 ) Cash, cash equivalents and restricted cash, beginning of period 589,179 586,145 Cash, cash equivalents and restricted cash, end of period $ 418,177 $ 335,962 Non-Cash Investing Activities: Contingent consideration $ — $ 1,200 Non-Cash Financing Activities: Increase (decrease) to noncontrolling interests due to consolidation (deconsolidation) of CIP, net $ ( 3,447 ) $ ( 2,986 ) Common stock dividends payable $ 11,850 $ 11,259 (in thousands) March 31, 2023 December 31, 2022 Reconciliation of cash, cash equivalents and restricted cash Cash and cash equivalents $ 213,424 $ 338,234 Cash of CIP 204,012 250,301 Cash pledged or on deposit of CIP 741 644 Cash, cash equivalents and restricted cash at end of period $ 418,177 $ 589,179 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents Virtus Investment Partners, Inc. Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) Permanent Equity Temporary Equity Common Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Attributed To Virtus Investment Partners, Inc. Non- controlling Interests Total Equity Redeemable Non- controlling Interests (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 Net income (loss) — — — 33,059 — — — 33,059 ( 57 ) 33,002 6,117 Foreign currency translation adjustments — — — — ( 50 ) — — ( 50 ) — ( 50 ) — Net subscriptions (redemptions) and other — — — — — — — — ( 487 ) ( 487 ) ( 6,344 ) Cash dividends declared ($ 1.50 per common share) — — — ( 12,238 ) — — — ( 12,238 ) — ( 12,238 ) — Repurchases of common shares ( 125,452 ) — — — — 125,452 ( 30,000 ) ( 30,000 ) — ( 30,000 ) — Issuance of common shares related to employee stock transactions 92,130 1 ( 1 ) — — — — — — — — Taxes paid on stock-based compensation — — ( 13,414 ) — — — — ( 13,414 ) — ( 13,414 ) — Stock-based compensation — — 10,793 — — — — 10,793 — 10,793 — 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 Net income (loss) — — — 38,624 — — — 38,624 765 39,389 ( 4,746 ) Foreign currency translation adjustments — — — — 99 — — 99 — 99 — Net subscriptions (redemptions) and other — — — — — — — — ( 300 ) ( 300 ) ( 2,342 ) Cash dividends declared ($ 1.65 per common share) — — — ( 13,093 ) — — — ( 13,093 ) — ( 13,093 ) — Issuance of common shares related to employee stock transactions 106,840 1 ( 1 ) — — — — — — — — Taxes paid on stock-based compensation — — ( 12,209 ) — — — — ( 12,209 ) ( 12,209 ) — Stock-based compensation — — 7,475 — — — — 7,475 — 7,475 — 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. 5 Table of Contents Virtus Investment Partners, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization and Business Virtus Investment Partners, Inc. (the "Company," "we," "us," "our" or "Virtus"), a Delaware corporation, operates in the investment management industry through its subsidiaries. The Company provides investment management and related services to individuals and institutions. The Company’s retail investment management services are provided to individuals through products consisting of: mutual funds registered pursuant to the Investment Company Act of 1940, as amended ("U.S. retail 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 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. 2. Basis of Presentation and Significant Accounting Policies Basis of Presentation The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. 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 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"). The Company’s significant accounting policies, which have been consistently applied, are summarized in its 2022 Annual Report on Form 10-K. 3. Revenues The Company's revenues are recognized when a performance obligation is satisfied, which occurs when control of the services is transferred to customers. Investment management fees, distribution and service fees, and administration and shareholder service fees are generally calculated as a percentage of average net assets of the investment portfolios managed. The net asset values from which these fees are calculated are variable in nature and subject to factors outside of the Company's control, such as additional investments, withdrawals and market performance. Because of this, these fees are considered constrained until the end of the contractual measurement period (monthly or quarterly), which is when asset values are generally determinable. Investment Management Fees by Source The following table summarizes investment management fees by source: Three Months Ended March 31, (in thousands) 2023 2022 Investment management fees Open-end funds $ 71,266 $ 97,377 Closed-end funds 14,678 16,940 Retail separate accounts 40,079 49,603 Institutional accounts 38,455 42,897 Total investment management fees $ 164,478 $ 206,817 6 Table of Contents 4. Acquisitions Stone Harbor Investment Partners 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"). 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. 5. Intangible Assets, Net Below is a summary of intangible assets, net: Definite-Lived Indefinite-Lived Total (in thousands) Gross Book Value Accumulated Amortization Net Book Value Net Book Value Net Book Value Balances at December 31, 2022 $ 756,028 $ ( 355,807 ) $ 400,221 $ 42,298 $ 442,519 Intangible amortization — ( 14,391 ) ( 14,391 ) — ( 14,391 ) 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: Fiscal Year Amount (in thousands) Remainder of 2023 $ 42,573 2024 51,322 2025 46,554 2026 45,575 2027 42,473 2028 and thereafter 157,333 Total $ 385,830 6. Investments 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 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 Equity method investments (1) 22,755 11,448 Nonqualified retirement plan assets 10,740 10,154 Other investments 1,514 1,729 Total investments $ 115,663 $ 100,330 (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 Investment securities - fair value consist of investments in the Company's sponsored funds and separately managed accounts. The composition of the Company’s investment securities - fair value was as follows: 7 Table of Contents 8 Table of Contents March 31, 2023 December 31, 2022 (in thousands) Cost Fair Value Cost Fair Value Investment Securities - fair value Sponsored funds $ 69,995 $ 65,551 $ 67,472 $ 62,744 Equity securities 13,511 15,103 13,440 14,255 Total investment securities - fair value $ 83,506 $ 80,654 $ 80,912 $ 76,999 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. 7. 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 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 Assets Cash equivalents $ 171,633 $ — $ — $ 171,633 Investment securities - fair value Sponsored funds 65,551 — — 65,551 Equity securities 15,103 — — 15,103 Nonqualified retirement plan assets 10,740 — — 10,740 Total assets measured at fair value $ 263,027 $ — $ — $ 263,027 Liabilities Contingent consideration $ — $ — $ 61,710 $ 61,710 Total liabilities measured at fair value $ — $ — $ 61,710 $ 61,710 December 31, 2022 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 287,126 $ — $ — $ 287,126 Investment securities - fair value Sponsored funds 62,744 — — 62,744 Equity securities 14,255 — — 14,255 Nonqualified retirement plan assets 10,154 — — 10,154 Total assets measured at fair value $ 374,279 $ — $ — $ 374,279 Liabilities Contingent consideration $ — $ — $ 78,100 $ 78,100 Total liabilities measured at fair value $ — $ — $ 78,100 $ 78,100 The following is a discussion of the valuation methodologies used for the Company’s assets measured at fair value: Cash equivalents represent investments in money market funds. Cash investments in money market funds are valued using published net asset values and are classified as Level 1. 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 9 Table of Contents 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. Equity securities represent securities traded on active markets, are valued at the official closing price (typically the last sale or bid) on the exchange on which the securities are primarily traded and are categorized as Level 1. Nonqualified retirement plan assets represent mutual funds within the Company's nonqualified retirement plan whose fair value is determined based on their published net asset value and are categorized as Level 1. Contingent consideration represents liabilities associated with the Company's business combinations. 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. Cash, accounts receivable, accounts payable and accrued liabilities equal or approximate fair value based on the short-term nature of these instruments. The following table presents a reconciliation of beginning and ending balances of recurring fair value measurements classified as Level 3: Three Months Ended March 31, (in thousands) 2023 2022 Contingent consideration, beginning of period $ 78,100 $ 88,400 Additions for acquisition — 1,200 Reduction for payments made ( 16,390 ) ( 19,520 ) Contingent consideration, end of period $ 61,710 $ 70,080 8. Equity Transactions Dividends Declared 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. 9. Accumulated Other Comprehensive Income (Loss) The changes in accumulated other comprehensive income (loss) by component were as follows: Three Months Ended March 31, (in thousands) 2023 2022 Foreign currency translation adjustments, beginning of period $ ( 358 ) $ 20 Net current-period other comprehensive income (loss) (1) 99 ( 50 ) 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. 10. 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 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. 10 Table of Contents Stock-based compensation expense is summarized as follows: Three Months Ended March 31, (in thousands) 2023 2022 Stock-based compensation expense $ 5,749 $ 9,547 Restricted Stock Units Each RSU entitles the holder to one share of common stock when the restriction expires. RSUs may be time-vested or performance-contingent (PSUs) that convert into RSUs after performance measurement is complete and generally vest in one to three years . 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 three months ended March 31, 2023 is summarized as follows: Number of Shares Weighted Average Grant Date Fair Value Outstanding at December 31, 2022 377,087 $ 178.21 Granted 173,425 $ 156.03 Forfeited ( 2,364 ) $ 90.10 Settled ( 177,556 ) $ 119.97 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 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. Compensation expense for PSU awards that contain a market condition is fixed at the date of grant and will not be adjusted in future periods based upon the achievement of the market condition. 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 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. 11. Earnings (Loss) Per Share Earnings (loss) per share ("EPS") is calculated in accordance with ASC 260, Earnings per Share . Basic EPS is computed by dividing net income (loss) attributable to Virtus Investment Partners, Inc. 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. 11 Table of Contents The computation of basic and diluted EPS is as follows: Three Months Ended March 31, (in thousands, except per share amounts) 2023 2022 Net Income (Loss) $ 34,643 $ 39,119 Noncontrolling interests 3,981 ( 6,060 ) Net Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 38,624 $ 33,059 Shares: Basic: Weighted-average number of shares outstanding 7,245 7,546 Plus: Incremental shares from assumed conversion of dilutive instruments 165 293 Diluted: Weighted-average number of shares outstanding 7,410 7,839 Earnings (Loss) per Share—Basic $ 5.33 $ 4.38 Earnings (Loss) per Share—Diluted $ 5.21 $ 4.22 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 March 31, (in thousands) 2023 2022 Restricted stock units 40 21 Total anti-dilutive securities 40 21 12. Income Taxes In calculating the provision for income taxes, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances at each interim period. On a quarterly basis, the estimated annual effective tax rate is adjusted, as appropriate, based upon changes in facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and at each interim period thereafter. The provision for income taxes reflected U.S. 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. 13. Debt Credit Agreement 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). 14. Commitments and Contingencies Legal Matters The Company is involved from time to time in litigation and arbitration, as well as examinations, inquiries and 12 Table of Contents 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. 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 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. 15. Redeemable Noncontrolling Interests Redeemable noncontrolling interests represent third-party investments in the Company's CIP and minority interests held in a consolidated affiliate. Minority interests held in the affiliate are subject to holder put rights and Company call rights at established multiples of earnings before interest, taxes, depreciation and amortization and, as such, are considered redeemable at other than fair value. The rights are exercisable at pre-established intervals (between four and seven years from their issuance) or upon certain conditions, such as retirement. The put and call rights are not legally detachable or separately exercisable and are deemed to be embedded in the related noncontrolling interests. The Company, in purchasing affiliate equity, has the option to settle in cash or shares of the Company's common stock and is entitled to the cash flow associated with any purchased equity. 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 three months ended March 31, 2023 included the following amounts: (in thousands) CIP Affiliate Noncontrolling Interests Total Balances at December 31, 2022 $ 18,268 $ 95,450 $ 113,718 Net income (loss) attributable to noncontrolling interests 647 1,666 2,313 Changes in redemption value (1) — ( 7,059 ) ( 7,059 ) Total net income (loss) attributable to noncontrolling interests 647 ( 5,393 ) ( 4,746 ) Affiliate equity sales (purchases) — — — Net subscriptions (redemptions) and other ( 496 ) ( 1,846 ) ( 2,342 ) Balances at March 31, 2023 $ 18,419 $ 88,211 $ 106,630 (1) Relates to noncontrolling interests redeemable at other than fair value. 16. Consolidation The condensed consolidated financial statements include the accounts of the Company, its subsidiaries and investment products that are consolidated. 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 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: (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 13 Table of Contents 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 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. The Company's risk with respect to these investment products is limited to its beneficial interests in these products. 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 March 31, 2023 and December 31, 2022: As of March 31, 2023 December 31, 2022 VOEs VIEs VOEs VIEs (in thousands) CLOs Other CLOs Other Cash and cash equivalents $ 936 $ 201,987 $ 1,830 $ 1,153 $ 249,003 $ 789 Investments 21,336 2,025,673 61,729 24,669 2,106,764 58,680 Other assets 388 47,694 989 295 43,993 1,157 Notes payable — ( 2,056,472 ) — — ( 2,083,314 ) — Securities purchased payable and other liabilities ( 906 ) ( 126,085 ) ( 381 ) ( 573 ) ( 230,141 ) ( 183 ) Noncontrolling interests ( 6,492 ) ( 6,382 ) ( 11,927 ) ( 7,879 ) ( 5,917 ) ( 10,389 ) Net interests in CIP $ 15,262 $ 86,415 $ 52,240 $ 17,665 $ 80,388 $ 50,054 Consolidated CLOs The majority of the Company's CIP that are VIEs are 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. A majority-owned consolidated private fund, whose primary purpose is to invest in CLOs for which the Company serves as the collateral manager, is also included. Investments of CLOs 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 %. The CLOs may elect to reinvest any prepayments received on bank loan investments up until the periods between October 2019 and October 2026, depending on the CLO. Generally, subsequent prepayments received after the reinvestment period must be used to pay down the note obligations. 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 $ 2.3 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 %. The principal amounts outstanding of these note obligations mature on dates ranging from October 2027 to October 2034. The Company's beneficial interests and maximum exposure to loss related to these consolidated CLOs is limited to (i) ownership in the subordinated notes and (ii) accrued management fees. 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 March 31, 2023, as shown in the table below: 14 Table of Contents (in thousands) Subordinated notes $ 84,449 Accrued investment management fees 1,966 Total Beneficial Interests $ 86,415 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: Three Months Ended March 31, 2023 (in thousands) Income: Realized and unrealized gain (loss), net $ 371 Interest income 45,406 Total Income 45,777 Expenses: Other operating expenses 593 Interest expense 35,203 Total Expense 35,796 Noncontrolling interests ( 765 ) Net Income (Loss) Attributable to CIP $ 9,216 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: Three Months Ended March 31, 2023 (in thousands) Distributions received and unrealized gains (losses) on the subordinated notes held by the Company $ 6,807 Investment management fees 2,409 Total Economic Interests $ 9,216 Fair Value Measurements of CIP 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 Assets Cash equivalents $ 201,987 $ — $ — $ 201,987 Debt investments 227 2,072,545 10,645 2,083,417 Equity investments 21,266 4,042 13 25,321 Total assets measured at fair value $ 223,480 $ 2,076,587 $ 10,658 $ 2,310,725 Liabilities Notes payable $ — $ 2,056,472 $ — $ 2,056,472 Short sales 484 — — 484 Total liabilities measured at fair value $ 484 $ 2,056,472 $ — $ 2,056,956 15 Table of Contents As of December 31, 2022 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 249,003 $ — $ — $ 249,003 Debt investments 243 2,119,082 42,246 2,161,571 Equity investments 25,003 2,204 1,335 28,542 Total assets measured at fair value $ 274,249 $ 2,121,286 $ 43,581 $ 2,439,116 Liabilities Notes payable $ — $ 2,083,314 $ — $ 2,083,314 Short sales 414 — — 414 Total liabilities measured at fair value $ 414 $ 2,083,314 $ — $ 2,083,728 The following is a discussion of the valuation methodologies used for the assets and liabilities of the Company’s CIP measured at fair value: Cash equivalents represent investments in money market funds. Cash investments in money market funds are valued using published net asset values and are classified as Level 1. Debt and equity investments represent the underlying debt, equity and other securities held in CIP. Equity investments are valued at the official closing price on the exchange on which the securities are traded and are generally categorized within Level 1. Level 2 investments represent most debt securities, including bank loans and certain equity securities (including non-U.S. securities), for which closing prices are not readily available or are deemed to not reflect readily available market prices, and are valued using an independent pricing service. Debt investments are valued based on quotations received from independent pricing services or from dealers who make markets in such securities. Bank loan investments, which are included as debt investments, are generally priced at the average mid-point of bid and ask quotations obtained from a third-party pricing service. Fair value may also be based upon valuations obtained from independent third-party brokers or dealers utilizing matrix pricing models that consider information regarding securities with similar characteristics. In certain instances, fair value has been determined utilizing discounted cash flow analyses or single broker non-binding quotes. Depending on the nature of the inputs, these assets are classified as Level 1, 2 or 3 within the fair value measurement hierarchy. Level 3 investments include debt and equity securities that are not widely traded, are illiquid or are priced by dealers based on pricing models used by market makers in the security. 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. Short sales are transactions in which a security is sold that is not owned or is owned but there is no intention to deliver, in anticipation that the price of the security will decline. 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 March 31, 2023 and December 31, 2022 approximated fair value due to the short term nature of the instruments. 16 Table of Contents 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: Three Months Ended March 31, (in thousands) 2023 2022 Balance at beginning of period $ 43,581 $ 3,157 Realized gains (losses), net 9 4 Change in unrealized gains (losses), net ( 1 ) ( 20 ) Purchases 4 — Amortization 103 — Sales ( 7,195 ) ( 4 ) Transfers to Level 2 ( 35,747 ) ( 1,626 ) Transfers from Level 2 9,904 40,802 Balance at end of period (1) $ 10,658 $ 42,313 (1) The investments that are categorized as Level 3 were valued utilizing third-party pricing information without adjustment. 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 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 March 31, 2023, the carrying value and maximum risk of loss related to the Company's interest in these VIEs was $ 32.8 million. 17. Subsequent Event 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. 17 Table of Contents