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, 2024 December 31, 2023 Assets: Cash and cash equivalents $ 123,880 $ 239,602 Investments 127,448 132,696 Accounts receivable, net 116,387 109,076 Assets of consolidated investment products ("CIP") Cash and cash equivalents of CIP 123,030 100,732 Cash pledged or on deposit of CIP 767 680 Investments of CIP 2,081,225 2,082,713 Other assets of CIP 31,848 43,235 Furniture, equipment and leasehold improvements, net 26,088 26,216 Intangible assets, net 416,784 432,119 Goodwill 397,098 397,098 Deferred taxes, net 23,974 25,024 Other assets 79,596 89,438 Total assets $ 3,548,125 $ 3,678,629 Liabilities and Equity Liabilities: Accrued compensation and benefits $ 95,591 $ 200,837 Accounts payable and accrued liabilities 44,282 38,756 Dividends payable 16,553 17,291 Contingent consideration 66,704 90,938 Debt 253,008 253,412 Other liabilities 67,460 91,471 Liabilities of CIP Notes payable of CIP 1,922,051 1,922,243 Securities purchased payable and other liabilities of CIP 91,288 90,523 Total liabilities 2,556,937 2,705,471 Commitments and Contingencies (Note 14) Redeemable noncontrolling interests 115,185 104,869 Equity: Equity attributable to Virtus Investment Partners, Inc.: Common stock, $ 0.01 par value, 1,000,000,000 shares authorized; 12,224,489 shares issued and 7,127,881 shares outstanding at March 31, 2024; and 12,163,228 shares issued and 7,087,728 shares outstanding at December 31, 2023 122 122 Additional paid-in capital 1,298,157 1,300,999 Retained earnings (accumulated deficit) 223,023 207,356 Accumulated other comprehensive income (loss) ( 187 ) ( 87 ) Treasury stock, at cost, 5,096,608 and 5,075,500 shares at March 31, 2024 and December 31, 2023, respectively ( 649,463 ) ( 644,464 ) Total equity attributable to Virtus Investment Partners, Inc. 871,652 863,926 Noncontrolling interests 4,351 4,363 Total equity 876,003 868,289 Total liabilities and equity $ 3,548,125 $ 3,678,629 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) 2024 2023 Revenues Investment management fees $ 188,360 $ 164,478 Distribution and service fees 14,030 14,153 Administration and shareholder service fees 18,678 18,359 Other income and fees 974 884 Total revenues 222,042 197,874 Operating Expenses Employment expenses 115,163 98,614 Distribution and other asset-based expenses 24,348 23,715 Other operating expenses 31,375 30,730 Other operating expenses of consolidated investment products ("CIP") 690 700 Restructuring expense 797 — Depreciation expense 2,028 1,145 Amortization expense 15,335 14,391 Total operating expenses 189,736 169,295 Operating Income (Loss) 32,306 28,579 Other Income (Expense) Realized and unrealized gain (loss) on investments, net 3,416 2,670 Realized and unrealized gain (loss) of CIP, net 1,535 2,596 Other income (expense), net 550 ( 343 ) Total other income (expense), net 5,501 4,923 Interest Income (Expense) Interest expense ( 5,681 ) ( 5,005 ) Interest and dividend income 3,469 3,238 Interest and dividend income of investments of CIP 51,115 46,814 Interest expense of CIP ( 40,012 ) ( 35,203 ) Total interest income (expense), net 8,891 9,844 Income (Loss) Before Income Taxes 46,698 43,346 Income tax expense (benefit) 8,831 8,703 Net Income (Loss) 37,867 34,643 Noncontrolling interests ( 8,009 ) 3,981 Net Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 29,858 $ 38,624 Earnings (Loss) per Share—Basic $ 4.19 $ 5.33 Earnings (Loss) per Share—Diluted $ 4.10 $ 5.21 Weighted Average Shares Outstanding—Basic 7,119 7,245 Weighted Average Shares Outstanding—Diluted 7,287 7,410 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) 2024 2023 Net Income (Loss) $ 37,867 $ 34,643 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment, net of tax of $ 36 and $( 35 ) for the three months ended March 31, 2024 and 2023, respectively ( 100 ) 99 Other comprehensive income (loss) ( 100 ) 99 Comprehensive income (loss) 37,767 34,742 Comprehensive (income) loss attributable to noncontrolling interests ( 8,009 ) 3,981 Comprehensive Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 29,758 $ 38,723 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) 2024 2023 Cash Flows from Operating Activities: Net income (loss) $ 37,867 $ 34,643 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation expense, intangible asset and other amortization 18,164 16,410 Stock-based compensation 6,831 5,749 Equity in earnings of equity method investments ( 498 ) 554 Realized and unrealized (gains) losses on investments, net ( 3,393 ) ( 2,670 ) Deferred taxes, net 1,086 1,441 Changes in operating assets and liabilities: Sales (purchases) of investments, net 5,987 5,217 Accounts receivable, net and other assets ( 341 ) 8,725 Accrued compensation and benefits, accounts payable, accrued liabilities and other liabilities ( 120,631 ) ( 115,514 ) Operating activities of consolidated investment products ("CIP"): Realized and unrealized (gains) losses on investments of CIP, net ( 3,732 ) ( 3,844 ) Purchases of investments by CIP ( 304,516 ) ( 320,808 ) Sales of investments by CIP 323,720 323,380 Net proceeds (purchases) of short-term investments and securities sold short by CIP 206 ( 218 ) Change in other assets and liabilities of CIP 4,722 3,976 Net cash provided by (used in) operating activities ( 34,528 ) ( 42,959 ) Cash Flows from Investing Activities: Capital expenditures ( 1,923 ) ( 1,448 ) Change in cash and cash equivalents of CIP due to consolidation (deconsolidation), net ( 537 ) ( 52 ) Purchase of equity method investment — ( 11,645 ) Net cash provided by (used in) investing activities ( 2,460 ) ( 13,145 ) Cash Flows from Financing Activities: Repayments on credit agreement ( 688 ) ( 688 ) Common stock dividends paid ( 14,929 ) ( 14,083 ) Repurchase of common shares ( 5,000 ) — Payment of contingent consideration ( 24,234 ) ( 27,179 ) Taxes paid related to net share settlement of restricted stock units ( 9,854 ) ( 12,209 ) Affiliate equity sales (purchases) ( 419 ) — Net contributions from (distributions to) noncontrolling interests 16,772 294 Financing activities of CIP: Payments on borrowings by CIP ( 17,794 ) ( 61,213 ) Net cash provided by (used in) financing activities ( 56,146 ) ( 115,078 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 203 ) 180 Net increase (decrease) in cash, cash equivalents and restricted cash ( 93,337 ) ( 171,002 ) Cash, cash equivalents and restricted cash, beginning of period 341,014 589,179 Cash, cash equivalents and restricted cash, end of period $ 247,677 $ 418,177 Non-Cash Financing Activities: Increase (decrease) to noncontrolling interests due to consolidation (deconsolidation) of CIP, net $ ( 13,624 ) $ ( 3,447 ) Common stock dividends payable $ 13,467 $ 11,850 (in thousands) March 31, 2024 December 31, 2023 Reconciliation of cash, cash equivalents and restricted cash Cash and cash equivalents $ 123,880 $ 239,602 Cash of CIP 123,030 100,732 Cash pledged or on deposit of CIP 767 680 Cash, cash equivalents and restricted cash at end of period $ 247,677 $ 341,014 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, 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 Balances at December 31, 2023 7,087,728 $ 122 $ 1,300,999 $ 207,356 $ ( 87 ) 5,075,500 $ ( 644,464 ) $ 863,926 $ 4,363 $ 868,289 $ 104,869 Net income (loss) — — — 29,858 — — — 29,858 391 30,249 7,618 Foreign currency translation adjustments — — — — ( 100 ) — — ( 100 ) — ( 100 ) — Net subscriptions (redemptions) and other — — — — — — — — ( 403 ) ( 403 ) 2,698 Cash dividends declared ($ 1.90 per common share) — — — ( 14,191 ) — — — ( 14,191 ) — ( 14,191 ) — Repurchases of common shares ( 21,108 ) — — — — 21,108 ( 4,999 ) ( 4,999 ) — ( 4,999 ) — Issuance of common shares related to employee stock transactions 61,261 — — — — — — — — — — Taxes paid on stock-based compensation — — ( 9,852 ) — — — — ( 9,852 ) — ( 9,852 ) — Stock-based compensation — — 7,010 — — — — 7,010 — 7,010 — Balances at March 31, 2024 7,127,881 $ 122 $ 1,298,157 $ 223,023 $ ( 187 ) 5,096,608 $ ( 649,463 ) $ 871,652 $ 4,351 $ 876,003 $ 115,185 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 institutions and individuals. The Company's investment strategies are offered to institutional clients through institutional separate and commingled accounts, including structured products. 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. The Company also provides subadvisory services to other investment advisers. 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, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. 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, 2023 (the "2023 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 2023 Annual Report on Form 10-K. New Accounting Standards Not Yet Implemented In November 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280) . This standard updates reportable segment disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss and provides new segment disclosure requirements for entities with a single reportable segment. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted, with the amendments to be applied retrospectively to all prior periods presented in the financial statements. The Company is in the process of evaluating the impact of adopting this standard and, at this time, does not anticipate it will have a material impact on its consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). This standard updates income tax disclosure requirements by requiring disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. This standard is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is in the process of evaluating the impact of adopting this standard and, at this time, does not anticipate it will have a material impact on its consolidated financial statements. In March 2024, the FASB issued ASU 2024-01, Compensation - Stock Compensation (Topic 718), Scope Application of Profits Interest and Similar Awards. This standard provides clarity regarding whether profits interest and similar awards are within the scope of Topic 718 of the Accounting Standards Codification. This standard is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is in the process of evaluating the impact of adopting this standard and, at this time, does not anticipate it will have a material impact on its consolidated financial statements. 6 Table of Contents 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) 2024 2023 Investment management fees Open-end funds $ 78,680 $ 71,266 Closed-end funds 14,394 14,678 Retail separate accounts 48,981 40,079 Institutional accounts 46,305 38,455 Total investment management fees $ 188,360 $ 164,478 4. Acquisitions AlphaSimplex Group, LLC On April 1, 2023, the Company completed the acquisition of AlphaSimplex Group, LLC ("AlphaSimplex"), which was accounted for in accordance with Accounting Standards Codification ("ASC") 805, Business Combinations ("ASC 805"). The total purchase price paid of $ 113.4 million was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of the acquisition. Goodwill of $ 48.3 million and intangible assets of $ 55.4 million were recorded for the acquisition. 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, 2023 $ 806,655 $ ( 416,834 ) $ 389,821 $ 42,298 $ 432,119 Intangible amortization — ( 15,335 ) ( 15,335 ) — ( 15,335 ) Balances at March 31, 2024 $ 806,655 $ ( 432,169 ) $ 374,486 $ 42,298 $ 416,784 Definite-lived intangible asset amortization for the remainder of fiscal year 2024 and succeeding fiscal years is estimated as follows: Fiscal Year Amount (in thousands) Remainder of 2024 $ 40,964 2025 51,532 2026 50,552 2027 47,450 2028 41,787 2029 and thereafter 142,201 Total $ 374,486 7 Table of Contents 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, 2024 and December 31, 2023 were as follows: (in thousands) March 31, 2024 December 31, 2023 Investment securities - fair value $ 90,497 $ 97,304 Equity method investments (1) 23,208 22,710 Nonqualified retirement plan assets 13,743 12,682 Total investments $ 127,448 $ 132,696 (1) The Company's equity method investments are valued on a three-month lag based upon the availability of financial information. 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: March 31, 2024 December 31, 2023 (in thousands) Cost Fair Value Cost Fair Value Investment Securities - fair value Sponsored funds $ 69,067 $ 69,514 $ 80,794 $ 77,433 Equity securities 16,875 20,983 16,353 19,871 Total investment securities - fair value $ 85,942 $ 90,497 $ 97,147 $ 97,304 For the three months ended March 31, 2024 and 2023, the Company recognized net realized losses of $ 0.4 million and net realized gains $ 1.3 million, respectively, related to 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, 2024 and December 31, 2023 by fair value hierarchy level were as follows: March 31, 2024 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 92,458 $ — $ — $ 92,458 Investment securities - fair value Sponsored funds 69,514 — — 69,514 Equity securities 20,983 — — 20,983 Nonqualified retirement plan assets 13,743 — — 13,743 Total assets measured at fair value $ 196,698 $ — $ — $ 196,698 Liabilities Contingent consideration $ — $ — $ 41,708 $ 41,708 Total liabilities measured at fair value $ — $ — $ 41,708 $ 41,708 8 Table of Contents December 31, 2023 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 197,240 $ — $ — $ 197,240 Investment securities - fair value Sponsored funds 77,433 — — 77,433 Equity securities 19,871 — — 19,871 Nonqualified retirement plan assets 12,682 — — 12,682 Total assets measured at fair value $ 307,226 $ — $ — $ 307,226 Liabilities Contingent consideration $ — $ — $ 56,200 $ 56,200 Total liabilities measured at fair value $ — $ — $ 56,200 $ 56,200 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 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 Westchester Capital Management ("WCM") and NFJ Investment Group ("NFJ") transactions . The continent consideration related to the WCM transaction as of March 31, 2024 was $ 11.1 million and represents the fair value of future potential earn-out payments based on pre-established performance metrics related to revenue growth rates. The estimated fair value of the WCM liability is measured using an options pricing model valuation technique utilizing unobservable market data inputs prepared with the assistance of an independent valuation firm. The most significant unobservable inputs used relate to the aforementioned revenue growth rates, discount rate (range of 6 %- 7 %) and the market price of risk adjustment ( 9 %). The NFJ contingent consideration liability as of March 31, 2024 was $ 30.6 million and represents the fair value of the projected future revenue participation payments. The NFJ revenue participation payments consist of variable payments based on a percentage of the investment management fees earned on certain NFJ managed assets. The estimated fair value of the NFJ liability is measured using an options pricing model valuation technique utilizing unobservable market data inputs prepared with the assistance of an independent valuation firm. The most significant unobservable inputs used relate to the revenue growth rates, discount rates (range of 6 % - 7 %) and the market price of risk adjustment ( 7 %). These liabilities are categorized as Level 3. 9 Table of Contents The following table presents a reconciliation of beginning and ending balances of the Company's contingent consideration liabilities: Three Months Ended March 31, (in thousands) 2024 2023 Contingent consideration, beginning of period $ 56,200 $ 78,100 Reduction for payments made ( 14,492 ) ( 16,390 ) Contingent consideration, end of period $ 41,708 $ 61,710 Cash, accounts receivable, accounts payable and accrued liabilities equal or approximate fair value based on the short-term nature of these instruments. 8. Equity Transactions Dividends Declared On February 21, 2024, the Company declared a quarterly cash dividend of $ 1.90 per common share to be paid on May 15, 2024 to shareholders of record at the close of business on April 30, 2024. Common Stock Repurchases During the three months ended March 31, 2024, the Company repurchased 21,108 common shares at a weighted average price of $ 236.84 per share for a total cost, including fees and expenses, of $ 5.0 million under its share repurchase program. As of March 31, 2024, 583,437 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. 9. Accumulated Other Comprehensive Income (Loss) The changes in accumulated other comprehensive income (loss) were as follows: Three Months Ended March 31, (in thousands) 2024 2023 Balance at beginning of period $ ( 87 ) $ ( 358 ) Net current-period other comprehensive income (loss) (1) ( 100 ) 99 Balance at end of period $ ( 187 ) $ ( 259 ) (1) Consists of foreign currency translation adjustments, net of tax of $ 36 and $( 35 ) for the three months ended March 31, 2024 and 2023, 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, 2024, 375,169 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 March 31, (in thousands) 2024 2023 Stock-based compensation expense $ 6,831 $ 5,749 10 Table of Contents 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, 2024 is summarized as follows: Number of Shares Weighted Average Grant Date Fair Value Outstanding at December 31, 2023 344,717 $ 204.48 Granted 108,658 $ 235.14 Forfeited ( 8,333 ) $ 261.65 Settled ( 103,849 ) $ 229.92 Outstanding at March 31, 2024 341,193 $ 205.10 For the three months ended March 31, 2024 and 2023, a total of 42,588 and 70,716 RSUs, respectively, were withheld by the Company as a result of net share settlements to settle minimum employee tax withholding obligations and for which the Company paid $ 9.9 million and $ 12.2 million respectively, in minimum employee tax withholding obligations. 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, 2024 and 2023, the Company granted 26,733 and 44,291 PSUs, respectively, 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, 2024, unamortized stock-based compensation expense for unvested RSUs and PSUs was $ 45.5 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) 2024 2023 Net Income (Loss) $ 37,867 $ 34,643 Noncontrolling interests ( 8,009 ) 3,981 Net Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 29,858 $ 38,624 Shares: Basic: Weighted-average number of shares outstanding 7,119 7,245 Plus: Incremental shares from assumed conversion of dilutive instruments 168 165 Diluted: Weighted-average number of shares outstanding 7,287 7,410 Earnings (Loss) per Share—Basic $ 4.19 $ 5.33 Earnings (Loss) per Share—Diluted $ 4.10 $ 5.21 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) 2024 2023 Restricted stock units 1 40 Total anti-dilutive securities 1 40 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, 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 18.9 % and 20.1 % for the three months ended March 31, 2024 and 2023, respectively. The lower estimated effective tax rate for the three months ended March 31, 2024 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. 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. The Company repaid $ 0.7 million outstanding under the Term Loan during the three months ended March 31, 2024 and had $ 258.1 million outstanding under the Term Loan at March 31, 2024. 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 $ 5.1 million as of March 31, 2024. 14. Commitments and Contingencies Legal Matters The Company is involved from time to time in litigation and arbitration, as well as examinations, inquiries and 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. 12 Table of Contents 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 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. These minority interests in the 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, 2024 included the following amounts: (in thousands) CIP Affiliate Noncontrolling Interests Total Balances at December 31, 2023 $ 30,643 $ 74,226 $ 104,869 Net income (loss) attributable to noncontrolling interests 1,429 1,829 3,258 Changes in redemption value (1) — 4,360 4,360 Total net income (loss) attributable to noncontrolling interests 1,429 6,189 7,618 Affiliate equity sales (purchases) — ( 419 ) ( 419 ) Net subscriptions (redemptions) and other 3,117 — 3,117 Balances at March 31, 2024 $ 35,189 $ 79,996 $ 115,185 (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. A voting interest entity ("VOE") is 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 ("VIE") 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 any one of the following: (a) the power through voting or similar rights to direct the activities that most significantly impact the entity's economic performance, (b) the obligation to absorb expected losses or the right to receive expected residual returns of the entity, or (c) 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. 13 Table of Contents 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 U.S. retail funds and ETFs in which the Company holds a controlling financial interest, and VIEs, which consist of collateralized loan obligations ("CLO") and certain global and private funds ("GF") of which the Company is considered the primary beneficiary. The consolidation and deconsolidation of these investment products have no impact on the Company's net income (loss). 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, 2024 and December 31, 2023: As of March 31, 2024 December 31, 2023 VOEs VIEs VOEs VIEs (in thousands) CLOs GFs CLOs GFs Cash and cash equivalents $ 1,271 $ 119,914 $ 2,612 $ 1,223 $ 98,101 $ 2,088 Investments 40,591 1,962,697 77,937 30,985 1,972,342 79,386 Other assets 616 30,064 1,168 174 41,985 1,076 Notes payable — ( 1,922,051 ) — — ( 1,922,243 ) — Securities purchased payable and other liabilities ( 1,019 ) ( 88,270 ) ( 1,999 ) ( 740 ) ( 89,167 ) ( 616 ) Noncontrolling interests ( 12,311 ) ( 4,351 ) ( 22,878 ) ( 7,316 ) ( 4,363 ) ( 23,327 ) Net interests in CIP $ 29,148 $ 98,003 $ 56,840 $ 24,326 $ 96,655 $ 58,607 Consolidated CLOs The majority of the Company's CIP that are VIEs are 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. At March 31, 2024, the Company consolidated seven CLOs. Investments of CLOs The CLOs held investments of $ 2.0 billion at March 31, 2024, consisting of bank loan investments that 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 2024 and 2032 and generally pay interest at SOFR plus a spread. Notes Payable of CLOs The CLOs held notes payable with a total value, at par, of $ 2.1 billion at March 31, 2024, consisting of senior secured floating rate notes payable with a par value of $ 1.9 billion and subordinated notes with a par value of $ 215.1 million. These note obligations bear interest at variable rates based on SOFR plus a pre-defined spread. 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, 2024, as shown in the table below: (in thousands) Subordinated notes $ 96,416 Accrued investment management fees 1,587 Total Beneficial Interests $ 98,003 14 Table of Contents 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, 2024 (in thousands) Income: Realized and unrealized gain (loss), net $ 1 Interest income 49,280 Total Income 49,281 Expenses: Other operating expenses 499 Interest expense 40,011 Total Expense 40,510 Noncontrolling interests ( 391 ) Net Income (Loss) Attributable to CLOs $ 8,380 The following table represents the Company’s own economic interests in the consolidated CLOs, which are eliminated upon consolidation: Three Months Ended March 31, 2024 (in thousands) Distributions received and unrealized gains (losses) on the subordinated notes held by the Company $ 6,083 Investment management fees 2,297 Total Economic Interests $ 8,380 Fair Value Measurements of CIP The assets and liabilities of CIP measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 by fair value hierarchy level were as follows: As of March 31, 2024 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 119,914 $ — $ — $ 119,914 Debt investments — 2,003,579 47,551 2,051,130 Equity investments 29,469 384 242 30,095 Total assets measured at fair value $ 149,383 $ 2,003,963 $ 47,793 $ 2,201,139 Liabilities Notes payable $ — $ 1,922,051 $ — $ 1,922,051 Short sales 485 — — 485 Total liabilities measured at fair value $ 485 $ 1,922,051 $ — $ 1,922,536 15 Table of Contents As of December 31, 2023 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 98,101 $ — $ — $ 98,101 Debt investments 241 2,012,760 36,616 2,049,617 Equity investments 32,642 8 446 33,096 Total assets measured at fair value $ 130,984 $ 2,012,768 $ 37,062 $ 2,180,814 Liabilities Notes payable $ — $ 1,922,243 $ — $ 1,922,243 Short sales 518 — — 518 Total liabilities measured at fair value $ 518 $ 1,922,243 $ — $ 1,922,761 The following is a discussion of the valuation methodologies used for the assets and liabilities of the Company’s CIP measured at fair value: Level 1 assets represent cash investments in money market funds and debt and equity investments that are valued using published net asset values or the official closing price on the exchange on which the securities are traded. Level 2 assets 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, other than bank loans, 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. Level 3 assets 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. These securities are valued using unadjusted prices from an independent pricing service. Level 1 liabilities consist of short sales 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. Level 2 liabilities consist of notes payable issued by 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. The securities purchased payable at March 31, 2024 and December 31, 2023 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) 2024 2023 Balance at beginning of period $ 37,062 $ 43,581 Realized and unrealized gains (losses), net ( 324 ) 111 Purchases — 4 Sales ( 14,625 ) ( 7,195 ) Transfers to Level 2 ( 13,468 ) ( 35,747 ) Transfers from Level 2 39,148 9,904 Balance at end of period (1) $ 47,793 $ 10,658 (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 as (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, 2024, the carrying value and maximum risk of loss related to the Company's interest in these VIEs was $ 29.1 million. 17 Table of Contents