VIRTUS INVESTMENT PARTNERS, INC. 10-Q

Item 1. Financial Statements Virtus Investment Partners, Inc. Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except share data) June 30, 2024 December 31, 2023 Assets: Cash and cash equivalents $ 183,001 $ 239,602 Investments 122,316 132,696 Accounts receivable, net 105,638 109,076 Assets of consolidated investment products ("CIP") Cash and cash equivalents of CIP 166,738 100,732 Cash pledged or on deposit of CIP 958 680 Investments of CIP 2,106,659 2,082,713 Other assets of CIP 39,187 43,235 Furniture, equipment and leasehold improvements, net 25,150 26,216 Intangible assets, net 401,586 432,119 Goodwill 397,098 397,098 Deferred taxes, net 24,471 25,024 Other assets 74,894 89,438 Total assets $ 3,647,696 $ 3,678,629 Liabilities and Equity Liabilities: Accrued compensation and benefits $ 132,261 $ 200,837 Accounts payable and accrued liabilities 30,275 38,756 Dividends payable 16,982 17,291 Contingent consideration 63,404 90,938 Debt 247,605 253,412 Other liabilities 63,137 91,471 Liabilities of CIP Notes payable of CIP 1,990,338 1,922,243 Securities purchased payable and other liabilities of CIP 102,126 90,523 Total liabilities 2,646,128 2,705,471 Commitments and Contingencies (Note 14) Redeemable noncontrolling interests 129,450 104,869 Equity: Equity attributable to Virtus Investment Partners, Inc.: Common stock, $ 0.01 par value, 1,000,000,000 shares authorized; 12,233,778 shares issued and 7,082,071 shares outstanding at June 30, 2024; and 12,163,228 shares issued and 7,087,728 shares outstanding at December 31, 2023 122 122 Additional paid-in capital 1,304,176 1,300,999 Retained earnings (accumulated deficit) 226,540 207,356 Accumulated other comprehensive income (loss) ( 200 ) ( 87 ) Treasury stock, at cost, 5,151,707 and 5,075,500 shares at June 30, 2024 and December 31, 2023, respectively ( 661,963 ) ( 644,464 ) Total equity attributable to Virtus Investment Partners, Inc. 868,675 863,926 Noncontrolling interests 3,443 4,363 Total equity 872,118 868,289 Total liabilities and equity $ 3,647,696 $ 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 June 30, Six Months Ended June 30, (in thousands, except per share data) 2024 2023 2024 2023 Revenues Investment management fees $ 191,652 $ 179,979 $ 380,012 $ 344,457 Distribution and service fees 13,410 14,132 27,440 28,285 Administration and shareholder service fees 18,308 18,240 36,986 36,599 Other income and fees 1,014 1,185 1,988 2,069 Total revenues 224,384 213,536 446,426 411,410 Operating Expenses Employment expenses 105,667 104,694 220,830 203,308 Distribution and other asset-based expenses 23,695 25,460 48,043 49,175 Other operating expenses 33,050 33,483 64,425 64,213 Other operating expenses of consolidated investment products ("CIP") 2,909 360 3,599 1,060 Change in fair value of contingent consideration ( 3,300 ) ( 6,800 ) ( 3,300 ) ( 6,800 ) Restructuring expense 690 — 1,487 — Depreciation expense 2,270 1,485 4,298 2,630 Amortization expense 15,198 15,808 30,533 30,199 Total operating expenses 180,179 174,490 369,915 343,785 Operating Income (Loss) 44,205 39,046 76,511 67,625 Other Income (Expense) Realized and unrealized gain (loss) on investments, net ( 1,553 ) 1,717 1,863 4,387 Realized and unrealized gain (loss) of CIP, net ( 12,936 ) ( 4,436 ) ( 11,401 ) ( 1,840 ) Other income (expense), net 597 ( 847 ) 1,147 ( 1,190 ) Total other income (expense), net ( 13,892 ) ( 3,566 ) ( 8,391 ) 1,357 Interest Income (Expense) Interest expense ( 5,611 ) ( 6,217 ) ( 11,292 ) ( 11,222 ) Interest and dividend income 2,643 2,675 6,112 5,913 Interest and dividend income of investments of CIP 52,385 47,884 103,500 94,698 Interest expense of CIP ( 41,960 ) ( 38,732 ) ( 81,972 ) ( 73,935 ) Total interest income (expense), net 7,457 5,610 16,348 15,454 Income (Loss) Before Income Taxes 37,770 41,090 84,468 84,436 Income tax expense (benefit) 11,748 10,910 20,579 19,613 Net Income (Loss) 26,022 30,180 63,889 64,823 Noncontrolling interests ( 8,408 ) 77 ( 16,417 ) 4,058 Net Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 17,614 $ 30,257 $ 47,472 $ 68,881 Earnings (Loss) per Share—Basic $ 2.47 $ 4.14 $ 6.66 $ 9.47 Earnings (Loss) per Share—Diluted $ 2.43 $ 4.10 $ 6.54 $ 9.31 Weighted Average Shares Outstanding—Basic 7,127 7,308 7,123 7,277 Weighted Average Shares Outstanding—Diluted 7,242 7,385 7,264 7,398 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 June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Net Income (Loss) $ 26,022 $ 30,180 $ 63,889 $ 64,823 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment, net of tax of $ 2 and $( 42 ) for the three months ended June 30, 2024 and 2023, respectively and $ 38 and $( 77 ) for the six months ended June 30, 2024 and 2023 ( 13 ) 112 ( 113 ) 211 Other comprehensive income (loss) ( 13 ) 112 ( 113 ) 211 Comprehensive income (loss) 26,009 30,292 63,776 65,034 Comprehensive (income) loss attributable to noncontrolling interests ( 8,408 ) 77 ( 16,417 ) 4,058 Comprehensive Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 17,601 $ 30,369 $ 47,359 $ 69,092 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) Six Months Ended June 30, (in thousands) 2024 2023 Cash Flows from Operating Activities: Net income (loss) $ 63,889 $ 64,823 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation expense, intangible asset and other amortization 36,533 34,476 Stock-based compensation 16,020 12,404 Equity in earnings of equity method investments ( 1,436 ) 1,151 Distributions from equity method investments 2,341 1,080 Realized and unrealized (gains) losses on investments, net ( 1,838 ) ( 4,379 ) Change in fair value of contingent consideration ( 3,300 ) ( 6,800 ) Lease termination ( 1,334 ) — Deferred taxes, net 653 ( 103 ) Changes in operating assets and liabilities: Sales (purchases) of investments, net 6,851 3,757 Accounts receivable, net and other assets 10,255 4,828 Accrued compensation and benefits, accounts payable, accrued liabilities and other liabilities ( 101,798 ) ( 71,676 ) Operating activities of consolidated investment products ("CIP"): Realized and unrealized (gains) losses on investments of CIP, net 7,231 ( 775 ) Purchases of investments by CIP ( 629,549 ) ( 556,365 ) Sales of investments by CIP 635,658 610,917 Net proceeds (purchases) of short-term investments and securities sold short by CIP 207 ( 271 ) Change in other assets and liabilities of CIP ( 6,843 ) 9,021 Amortization of discount on notes payable of CIP 1,887 — Net cash provided by (used in) operating activities 35,427 102,088 Cash Flows from Investing Activities: Capital expenditures ( 3,251 ) ( 2,548 ) Acquisition of businesses, net of cash acquired of $ 4,395 for the six months ended June 30, 2023 — ( 108,999 ) Change in cash and cash equivalents of CIP due to consolidation (deconsolidation), net ( 549 ) ( 52 ) Purchase of equity method investment — ( 11,645 ) Net cash provided by (used in) investing activities ( 3,800 ) ( 123,244 ) Cash Flows from Financing Activities: Borrowings on credit agreement — 50,000 Repayments on credit agreement ( 6,375 ) ( 11,375 ) Common stock dividends paid ( 28,597 ) ( 26,367 ) Repurchase of common shares ( 17,499 ) ( 10,000 ) Payment of contingent consideration ( 24,234 ) ( 27,179 ) Taxes paid related to net share settlement of restricted stock units ( 10,444 ) ( 13,222 ) Affiliate equity sales (purchases) ( 419 ) — Net contributions from (distributions to) noncontrolling interests 18,156 2,459 Financing activities of CIP: Payments on borrowings by CIP ( 690,496 ) ( 175,043 ) Borrowings by CIP 738,064 — Net cash provided by (used in) financing activities ( 21,844 ) ( 210,727 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 100 ) 383 Net increase (decrease) in cash, cash equivalents and restricted cash 9,683 ( 231,500 ) Cash, cash equivalents and restricted cash, beginning of period 341,014 589,179 Cash, cash equivalents and restricted cash, end of period $ 350,697 $ 357,679 Non-Cash Financing Activities: Increase (decrease) to noncontrolling interests due to consolidation (deconsolidation) of CIP, net $ ( 10,199 ) $ ( 3,447 ) Common stock dividends payable $ 13,561 $ 12,056 (in thousands) June 30, 2024 December 31, 2023 Reconciliation of cash, cash equivalents and restricted cash Cash and cash equivalents $ 183,001 $ 239,602 Cash and cash equivalents of CIP 166,738 100,732 Cash pledged or on deposit of CIP 958 680 Cash, cash equivalents and restricted cash at end of period $ 350,697 $ 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 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 Net income (loss) — — — 30,257 — — — 30,257 ( 650 ) 29,607 573 Foreign currency translation adjustments — — — — 112 — — 112 — 112 — Net subscriptions (redemptions) and other — — — — — — — — ( 536 ) ( 536 ) 3,196 Cash dividends declared ($ 1.65 per common share) — — — ( 12,038 ) — — — ( 12,038 ) — ( 12,038 ) — Repurchases of common shares ( 51,840 ) — — — — 51,840 ( 10,000 ) ( 10,000 ) — ( 10,000 ) — Issuance of common shares related to employee stock transactions 18,232 1 ( 1 ) — — — — — — — — Taxes paid on stock-based compensation — — ( 1,013 ) — — — — ( 1,013 ) — ( 1,013 ) — Stock-based compensation — — 6,280 — — — — 6,280 — 6,280 — Balances at June 30, 2023 7,254,786 $ 122 $ 1,286,775 $ 174,011 $ ( 147 ) 4,903,533 $ ( 609,248 ) $ 851,513 $ 5,196 $ 856,709 $ 110,399 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 Net income (loss) — — — 17,614 — — — 17,614 ( 673 ) 16,941 9,081 Foreign currency translation adjustments — — — — ( 13 ) — — ( 13 ) — ( 13 ) — Net subscriptions (redemptions) and other — — 62 — — — — 62 ( 235 ) ( 173 ) 5,184 Cash dividends declared ($ 1.90 per common share) — — — ( 14,097 ) — — — ( 14,097 ) — ( 14,097 ) — Repurchases of common shares ( 55,099 ) — — — — 55,099 ( 12,500 ) ( 12,500 ) — ( 12,500 ) — Issuance of common shares related to employee stock transactions 9,289 — — — — — — — — — — Taxes paid on stock-based compensation — — ( 592 ) — — — — ( 592 ) — ( 592 ) — Stock-based compensation — — 6,549 — — — — 6,549 — 6,549 — Balances at June 30, 2024 7,082,071 $ 122 $ 1,304,176 $ 226,540 $ ( 200 ) 5,151,707 $ ( 661,963 ) $ 868,675 $ 3,443 $ 872,118 $ 129,450 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) — — — 68,881 — — — 68,881 115 68,996 ( 4,173 ) Foreign currency translation adjustments — — — — 211 — — 211 — 211 — Net subscriptions (redemptions) and other — — — — — — — — ( 836 ) ( 836 ) 854 Cash dividends declared ($ 3.30 per common share) — — — ( 25,131 ) — — — ( 25,131 ) — ( 25,131 ) — Repurchases of common shares ( 51,840 ) — — — — 51,840 ( 10,000 ) ( 10,000 ) — ( 10,000 ) — Issuance of common shares related to employee stock transactions 125,072 2 ( 2 ) — — — — — — — — Taxes paid on stock-based compensation — — ( 13,222 ) — — — — ( 13,222 ) — ( 13,222 ) — Stock-based compensation — — 13,755 — — — — 13,755 — 13,755 — Balances at June 30, 2023 7,254,786 $ 122 $ 1,286,775 $ 174,011 $ ( 147 ) 4,903,533 $ ( 609,248 ) $ 851,513 $ 5,196 $ 856,709 $ 110,399 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) — — — 47,472 — — — 47,472 ( 282 ) 47,190 16,699 Foreign currency translation adjustments — — — — ( 113 ) — — ( 113 ) — ( 113 ) — Net subscriptions (redemptions) and other — — 62 — — — — 62 ( 638 ) ( 576 ) 7,882 Cash dividends declared ($ 3.80 per common share) — — — ( 28,288 ) — — — ( 28,288 ) — ( 28,288 ) — Repurchases of common shares ( 76,207 ) — — — — 76,207 ( 17,499 ) ( 17,499 ) — ( 17,499 ) — Issuance of common shares related to employee stock transactions 70,550 — — — — — — — — — — Taxes paid on stock-based compensation — — ( 10,444 ) — — — — ( 10,444 ) — ( 10,444 ) — Stock-based compensation — — 13,559 — — — — 13,559 — 13,559 — Balances at June 30, 2024 7,082,071 $ 122 $ 1,304,176 $ 226,540 $ ( 200 ) 5,151,707 $ ( 661,963 ) $ 868,675 $ 3,443 $ 872,118 $ 129,450 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 subadvisory services to other investment advisers and Company sponsored 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 (the "open-end funds") that include U.S. retail funds, exchange-traded funds ("ETFs") and variable insurance funds; Undertaking for Collective Investment in Transferable Securities and Qualifying Investor Funds (collectively, "global funds"); closed-end funds (collectively, with open-end funds, the "funds"); and retail separate accounts that include intermediary-sold and private client accounts. 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 six months ended June 30, 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 clients. 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 June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Investment management fees Open-end funds $ 79,883 $ 78,161 $ 158,563 $ 149,427 Closed-end funds 14,405 14,674 28,799 29,352 Retail separate accounts 52,216 42,803 101,197 82,882 Institutional accounts 45,148 44,341 91,453 82,796 Total investment management fees $ 191,652 $ 179,979 $ 380,012 $ 344,457 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 — ( 30,533 ) ( 30,533 ) — ( 30,533 ) Balances at June 30, 2024 $ 806,655 $ ( 447,367 ) $ 359,288 $ 42,298 $ 401,586 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 $ 25,766 2025 51,532 2026 50,552 2027 47,450 2028 41,787 2029 and thereafter 142,201 Total $ 359,288 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 June 30, 2024 and December 31, 2023 were as follows: (in thousands) June 30, 2024 December 31, 2023 Investment securities - fair value $ 86,248 $ 97,304 Equity method investments (1) 22,055 22,710 Nonqualified retirement plan assets 14,013 12,682 Total investments $ 122,316 $ 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: June 30, 2024 December 31, 2023 (in thousands) Cost Fair Value Cost Fair Value Investment Securities - fair value Sponsored funds $ 65,205 $ 64,420 $ 80,794 $ 77,433 Equity securities 18,954 21,828 16,353 19,871 Total investment securities - fair value $ 84,159 $ 86,248 $ 97,147 $ 97,304 For the three and six months ended June 30, 2024, the Company recognized net realized gains of $ 1.0 million and $ 0.7 million, respectively, related to its investment securities - fair value. For the three and six months ended June 30, 2023, the Company recognized net realized gains of $ 0.8 million and $ 2.2 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 June 30, 2024 and December 31, 2023 by fair value hierarchy level were as follows: June 30, 2024 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 147,135 $ — $ — $ 147,135 Investment securities - fair value Sponsored funds 64,420 — — 64,420 Equity securities 21,828 — — 21,828 Nonqualified retirement plan assets 14,013 — — 14,013 Total assets measured at fair value $ 247,396 $ — $ — $ 247,396 Liabilities Contingent consideration $ — $ — $ 38,408 $ 38,408 Total liabilities measured at fair value $ — $ — $ 38,408 $ 38,408 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 and closed-end funds for which the Company acts as the investment manager. The fair values of U.S. retail funds and global funds are 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 contingent payment arrangements made in connection with the Company’s business combinations. In these contingent payment arrangements, the Company agrees to pay additional transaction consideration to the seller based on future performance. Contingent consideration is remeasured at fair value each reporting date using a simulation model with the assistance of an independent valuation firm and approved by management and are categorized as Level 3. The following table presents a reconciliation of beginning and ending balances of the Company's contingent consideration liabilities: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Contingent consideration, beginning of period $ 41,708 $ 61,710 $ 56,200 $ 78,100 Reduction for payments made — — ( 14,492 ) ( 16,390 ) Increase (reduction) of liability related to re-measurement of fair value ( 3,300 ) ( 6,800 ) ( 3,300 ) ( 6,800 ) Contingent consideration, end of period $ 38,408 $ 54,910 $ 38,408 $ 54,910 The contingent consideration related to the Westchester Capital Management transaction as of June 30, 2024, was $ 7.8 million measured using an options pricing model valuation technique. The most significant unobservable inputs used relate to revenue growth rates, discount rates (range of 6 %- 7 %) and the market price of risk adjustment ( 9 %). The NFJ Investment Group contingent consideration liability as of June 30, 2024, was $ 30.6 million measured using an options pricing model valuation technique. 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 %). Cash, accounts receivable, accounts payable and accrued liabilities equal or approximate fair value based on the short-term nature of these instruments. 9 Table of Contents 8. Equity Transactions Dividends Declared On May 15, 2024, the Company declared a quarterly cash dividend of $ 1.90 per common share to be paid on August 15, 2024 to shareholders of record at the close of business on July 31, 2024. Common Stock Repurchases During the three and six months ended June 30, 2024, the Company repurchased 55,099 and 76,207 common shares, respectively, at a weighted average price of $ 226.83 and $ 229.60 per share, respectively, for a total cost, including fees and expenses, of $ 12.5 million and $ 17.5 million, respectively, under its share repurchase program. As of June 30, 2024, 528,338 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, prevailing market and business conditions, tax and other financial considerations. 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: Six Months Ended June 30, (in thousands) 2024 2023 Balance at beginning of period $ ( 87 ) $ ( 358 ) Net current-period other comprehensive income (loss) (1) ( 113 ) 211 Balance at end of period $ ( 200 ) $ ( 147 ) (1) Consists of foreign currency translation adjustments, net of tax of $ 38 and $( 77 ) for the six months ended June 30, 2024 and 2023, respectively. 10. Stock-Based Compensation Equity-based awards, including restricted stock units ("RSUs"), performance stock units ("PSUs"), and unrestricted shares of common stock, have been granted to officers, employees and directors of the Company pursuant to the Company's Omnibus Incentive and Equity Plan (the "Omnibus Plan"). At June 30, 2024, 818,989 shares of common stock remained available for issuance of the 3,825,000 shares that are authorized for issuance under the Omnibus Plan. Stock-based compensation expense is summarized as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Stock-based compensation expense $ 9,189 $ 6,655 $ 16,020 $ 12,404 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. 10 Table of Contents RSU activity, inclusive of PSUs, for the six months ended June 30, 2024 is summarized as follows: Number of Shares Weighted Average Grant Date Fair Value Outstanding at December 31, 2023 344,717 $ 204.48 Granted 120,563 $ 235.06 Forfeited ( 9,505 ) $ 256.00 Settled ( 112,498 ) $ 229.57 Outstanding at June 30, 2024 343,277 $ 205.57 For the six months ended June 30, 2024 and 2023, a total of 45,117 and 76,452 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 $ 10.4 million and $ 13.2 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 six months ended June 30, 2024 and 2023, the Company granted 26,757 and 44,583 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 June 30, 2024, unamortized stock-based compensation expense for unvested RSUs and PSUs was $ 40.5 million with a weighted-average remaining contractual life of 1.4 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. The computation of basic and diluted EPS is as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share amounts) 2024 2023 2024 2023 Net Income (Loss) $ 26,022 $ 30,180 $ 63,889 $ 64,823 Noncontrolling interests ( 8,408 ) 77 ( 16,417 ) 4,058 Net Income (Loss) Attributable to Virtus Investment Partners, Inc. $ 17,614 $ 30,257 $ 47,472 $ 68,881 Shares: Basic: Weighted-average number of shares outstanding 7,127 7,308 7,123 7,277 Plus: Incremental shares from assumed conversion of dilutive instruments 115 77 141 121 Diluted: Weighted-average number of shares outstanding 7,242 7,385 7,264 7,398 Earnings (Loss) per Share—Basic $ 2.47 $ 4.14 $ 6.66 $ 9.47 Earnings (Loss) per Share—Diluted $ 2.43 $ 4.10 $ 6.54 $ 9.31 11 Table of Contents 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 June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Restricted stock units 13 36 4 36 Total anti-dilutive securities 13 36 4 36 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 24.4 % and 23.2 % for the six months ended June 30, 2024 and 2023, respectively. The higher estimated effective tax rate for the six months ended June 30, 2024 was primarily due to a change in 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 $ 6.4 million outstanding under the Term Loan during the six months ended June 30, 2024 and had $ 252.4 million outstanding under the Term Loan at June 30, 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 $ 4.8 million as of June 30, 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. The Company records a liability when it believes that 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 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 pre-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 12 Table of Contents 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 six months ended June 30, 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 1,833 3,584 5,417 Changes in redemption value (1) — 11,282 11,282 Total net income (loss) attributable to noncontrolling interests 1,833 14,866 16,699 Affiliate equity sales (purchases) — ( 419 ) ( 419 ) Net subscriptions (redemptions) and other 12,237 ( 3,936 ) 8,301 Balances at June 30, 2024 $ 44,713 $ 84,737 $ 129,450 (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. 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. 13 Table of Contents The following table presents the balances of CIP that, after intercompany eliminations, were reflected on the Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023: As of June 30, 2024 December 31, 2023 VOEs VIEs VOEs VIEs (in thousands) CLOs GFs CLOs GFs Cash and cash equivalents $ 8,576 $ 156,822 $ 2,298 $ 1,223 $ 98,101 $ 2,088 Investments 46,317 1,988,364 71,978 30,985 1,972,342 79,386 Other assets 1,255 37,022 910 174 41,985 1,076 Notes payable — ( 1,990,338 ) — — ( 1,922,243 ) — Securities purchased payable and other liabilities ( 772 ) ( 99,797 ) ( 1,557 ) ( 740 ) ( 89,167 ) ( 616 ) Noncontrolling interests ( 17,880 ) ( 3,443 ) ( 26,833 ) ( 7,316 ) ( 4,363 ) ( 23,327 ) Net interests in CIP $ 37,496 $ 88,630 $ 46,796 $ 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 June 30, 2024, the Company consolidated seven CLOs. Investments of CLOs The CLOs held investments of $ 2.0 billion at June 30, 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 2025 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 $ 2.2 billion at June 30, 2024, consisting of senior secured floating rate notes payable with a par value of $ 2.0 billion and subordinated notes with a par value of $ 217.9 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 June 30, 2024, as shown in the table below: (in thousands) Subordinated notes $ 87,561 Accrued investment management fees 1,069 Total Beneficial Interests $ 88,630 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: Six Months Ended June 30, 2024 (in thousands) Income: Realized and unrealized gain (loss), net $ ( 12,377 ) Interest income 99,673 Total Income 87,296 Expenses: Other operating expenses 3,224 Interest expense 81,972 Total Expense 85,196 Noncontrolling interests 282 Net Income (Loss) Attributable to CLOs $ 2,382 The following table represents the Company’s own economic interests in the consolidated CLOs, which are eliminated upon consolidation: Six Months Ended June 30, 2024 (in thousands) Distributions received and unrealized gains (losses) on the subordinated notes held by the Company $ ( 2,059 ) Investment management fees 4,441 Total Economic Interests $ 2,382 Fair Value Measurements of CIP The assets and liabilities of CIP measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023 by fair value hierarchy level were as follows: As of June 30, 2024 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 163,605 $ — $ — $ 163,605 Debt investments — 2,034,350 35,109 2,069,459 Equity investments 35,229 97 1,874 37,200 Derivatives 124 — — 124 Total assets measured at fair value $ 198,958 $ 2,034,447 $ 36,983 $ 2,270,388 Liabilities Notes payable $ — $ 1,990,338 $ — $ 1,990,338 Short sales 474 — — 474 Total liabilities measured at fair value $ 474 $ 1,990,338 $ — $ 1,990,812 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 June 30, 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: Six Months Ended June 30, (in thousands) 2024 2023 Balance at beginning of period $ 37,062 $ 43,581 Realized and unrealized gains (losses), net 629 ( 467 ) Purchases 31 2,903 Sales ( 19,845 ) ( 7,231 ) Transfers to Level 2 ( 54,857 ) ( 48,337 ) Transfers from Level 2 73,963 53,091 Balance at end of period (1) $ 36,983 $ 43,540 (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 June 30, 2024, the carrying value and maximum risk of loss related to the Company's interest in these VIEs was $ 27.8 million. 17 Table of Contents