Virtus Investment Partners(VRTS) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Presents unaudited condensed consolidated financial statements, management's discussion, market risk, and controls Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of Virtus Investment Partners, Inc. for the three months ended March 31, 2022, and comparative periods, including balance sheets, statements of operations, comprehensive income, cash flows, and changes in stockholders' equity, along with detailed notes explaining accounting policies, acquisitions, investments, and other financial details - The financial statements are unaudited and prepared in accordance with GAAP for interim financial information, containing only normal recurring adjustments[26] - Operating results for the three months ended March 31, 2022, are not necessarily indicative of the results expected for the full year ending December 31, 2022[26] Condensed Consolidated Balance Sheets (Unaudited) Presents the company's financial position, assets, liabilities, and equity as of the specified dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2022 | December 31, 2021 | Change | | :----------------------------------- | :------------- | :---------------- | :----- | | Cash and cash equivalents | $225,217 | $378,921 | $(153,704) | | Investments | $116,767 | $108,890 | $7,877 | | Total assets | $3,701,866 | $3,934,181 | $(232,315) | | Accrued compensation and benefits | $70,646 | $187,449 | $(116,803) | | Contingent consideration | $130,728 | $162,564 | $(31,836) | | Total liabilities | $2,738,895 | $2,958,589 | $(219,694) | | Total equity | $824,233 | $836,627 | $(12,394) | Condensed Consolidated Statements of Operations (Unaudited) Details the company's revenues, expenses, and net income for the specified periods Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | % Change | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | :------- | | Total revenues | $252,440 | $216,897 | $35,543 | 16.4% | | Total operating expenses | $186,888 | $154,755 | $32,133 | 20.8% | | Operating Income (Loss) | $65,552 | $62,142 | $3,410 | 5.5% | | Total other income (expense), net | $(16,039) | $(2,025) | $(14,014) | 692.0% | | Income (Loss) Before Income Taxes | $55,854 | $67,367 | $(11,513) | (17.1)% | | Net Income (Loss) Attributable to Virtus Investment Partners, Inc. | $33,059 | $36,588 | $(3,529) | (9.6)% | | Earnings (Loss) per Share—Diluted | $4.22 | $4.54 | $(0.32) | (7.0)% | Condensed Consolidated Statements of Comprehensive Income (Unaudited) Reports the company's net income and other comprehensive income (loss) for the specified periods Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Income (Loss) | $39,119 | $52,214 | | Other comprehensive income (loss), net of tax | $(50) | $6 | | Comprehensive Income (Loss) Attributable to Virtus Investment Partners, Inc. | $33,009 | $36,594 | Condensed Consolidated Statements of Cash Flows (Unaudited) Summarizes the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | % Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | :------- | | Net cash provided by (used in) operating activities | $(81,775) | $150,151 | $(231,926) | (154.5)% | | Net cash provided by (used in) investing activities | $(22,575) | $(2,608) | $(19,967) | 765.6% | | Net cash provided by (used in) financing activities | $(145,777) | $(87,673) | $(58,104) | 66.3% | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(250,183) | $59,870 | $(310,053) | (517.9)% | | Cash, cash equivalents and restricted cash, end of period | $335,962 | $399,719 | $(63,757) | (15.9)% | - The $231.9 million decrease in operating cash flow was primarily due to a $192.7 million reduction in sales of investments by consolidated investment products (CIP) and increased compensation and benefit payments[148] - Investing cash flow was significantly impacted by the cash paid for the Stone Harbor acquisition in Q1 2022[149] - Financing cash flow increased due to $33.0 million in contingent consideration payments and a $16.7 million increase in net borrowings of CIP[150] Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) Outlines changes in the company's equity, including net income, dividends, and share repurchases Condensed Consolidated Statements of Changes in Stockholders' Equity Highlights (in thousands) | Metric | March 31, 2022 | December 31, 2021 | | :---------------------------------------------------- | :------------- | :---------------- | | Total equity attributable to Virtus Investment Partners, Inc. | $816,427 | $828,277 | | Net income (loss) attributable to Virtus Investment Partners, Inc. | $33,059 | N/A | | Cash dividends declared ($1.50 per common share in 2022) | $(12,238) | N/A | | Repurchases of common shares | $(30,000) | N/A | Notes to Condensed Consolidated Financial Statements (Unaudited) Provides detailed explanations and disclosures for the condensed consolidated financial statements Note 1. Organization and Business Describes the company's organizational structure and primary business activities - Virtus provides investment management and related services to individuals and institutions[25] - The company offers retail investment management services through mutual funds, global funds (UCITS, QIFs), ETFs, variable insurance funds, closed-end funds, and retail separate accounts[25] - Institutional services are offered via separate accounts and pooled/commingled structures, and the company also provides subadvisory services and acts as collateral manager for structured products[25] Note 2. Basis of Presentation and Significant Accounting Policies Explains the basis of financial statement preparation and key accounting policies - Financial statements are unaudited and prepared under GAAP for interim information, with normal recurring adjustments[26] - Operating results for Q1 2022 are not indicative of the full year 2022[26] - Significant accounting policies are consistent with those in the 2021 Annual Report on Form 10-K[27] Note 3. Revenues Details the sources and recognition policies for the company's revenues - Revenues are recognized upon satisfaction of performance obligations, typically when control of services is transferred to customers[28] - Investment management, distribution, and administration fees are generally calculated as a percentage of average net assets, which are variable and subject to market factors[28] Investment Management Fees by Source (in thousands) | Source | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Open-end funds | $97,377 | $89,120 | | Closed-end funds | $16,940 | $12,940 | | Retail separate accounts | $49,603 | $37,512 | | Institutional accounts | $41,991 | $32,438 | | Structured products | $906 | $1,259 | | Total investment management fees | $206,817 | $173,269 | Note 4. Acquisitions Provides information on recent business acquisitions and their financial impact - On January 1, 2022, Virtus acquired Stone Harbor Investment Partners for $29.4 million, including $8.8 million in goodwill and $10.8 million in definite-lived intangible assets[30][32] - On October 1, 2021, Virtus acquired Westchester Capital Management for $169.3 million, recording $23.0 million in goodwill and $144.4 million in intangible assets[35] - On February 1, 2021, Virtus finalized a strategic partnership with AllianzGI, establishing NFJ Investment Group and becoming the adviser/distributor for $29.5 billion of AllianzGI's assets[37][103] Stone Harbor Identified Intangible Assets Acquired (January 1, 2022) | Intangible Asset | Approximate Fair Value (in thousands) | Weighted Average Useful Life (in years) | | :----------------------------- | :---------------------------------- | :-------------------------------------- | | Investment management agreements | $6,000 | 7.3 | | Trade names | $1,000 | 6.0 | | Software | $3,800 | 4.0 | | Total definite-lived intangible assets | $10,800 | N/A | Note 5. Goodwill and Intangible Assets, Net Summarizes the company's goodwill and intangible assets, including amortization schedules Goodwill Activity (in thousands) | Metric | Amount | | :-------------------------- | :----- | | Balance at December 31, 2021 | $338,406 | | Acquisitions | $9,017 | | Balance at March 31, 2022 | $347,423 | Intangible Assets, Net Summary (in thousands) | Metric | December 31, 2021 | March 31, 2022 | | :-------------------------- | :---------------- | :------------- | | Definite-Lived Net Book Value | $458,273 | $454,411 | | Indefinite-Lived Net Book Value | $42,298 | $42,298 | | Total Net Book Value | $500,571 | $496,709 | Estimated Definite-Lived Intangible Asset Amortization (in thousands) | Fiscal Year | Amount | | :---------------- | :----- | | Remainder of 2022 | $43,842 | | 2023 | $57,835 | | 2024 | $52,194 | | 2025 | $47,426 | | 2026 | $46,446 | | 2027 and thereafter | $206,668 | | Total | $454,411 | Note 6. Investments Details the composition and fair value of the company's investment portfolio Investments Composition (in thousands) | Metric | March 31, 2022 | December 31, 2021 | | :-------------------------- | :------------- | :---------------- | | Investment securities - fair value | $88,421 | $80,335 | | Equity method investments | $13,495 | $13,038 | | Nonqualified retirement plan assets | $12,701 | $13,321 | | Other investments | $2,150 | $2,196 | | Total investments | $116,767 | $108,890 | - Realized gains on investment securities - fair value were $0.1 million for Q1 2022, down from $0.8 million in Q1 2021[43] Note 7. Fair Value Measurements Explains the methodologies and classifications for fair value measurements of assets and liabilities Assets Measured at Fair Value (excluding CIP, in thousands) | Metric | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Cash equivalents (Level 1) | $167,311 | $307,277 | | Investment securities - fair value (Level 1) | $88,421 | $80,335 | | Nonqualified retirement plan assets (Level 1) | $12,701 | $13,321 | | Total assets measured at fair value | $268,433 | $400,933 | Liabilities Measured at Fair Value (excluding CIP, in thousands) | Metric | March 31, 2022 | December 31, 2021 | | :-------------------------- | :------------- | :---------------- | | Contingent consideration (Level 3) | $70,080 | $88,400 | | Total liabilities measured at fair value | $70,080 | $88,400 | - Contingent consideration liabilities are measured using a simulation model with unobservable market data inputs and are categorized as Level 3[47] Reconciliation of Level 3 Contingent Consideration (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Beginning balance | $88,400 | $0 | | Additions for acquisition | $1,200 | $63,500 | | Reduction for payments made | $(19,520) | $0 | | Ending balance | $70,080 | $63,500 | Note 8. Equity Transactions Describes significant equity-related activities, including dividends and share repurchases - A quarterly cash dividend of $1.50 per common share was declared on February 23, 2022, payable on May 13, 2022[49] - During Q1 2022, the company repurchased 125,452 common shares at a weighted average price of $239.10 per share, totaling $30.0 million[50] - As of March 31, 2022, 403,997 shares remained available for repurchase under the program[50] Note 9. Accumulated Other Comprehensive Income (Loss) Reports changes in the company's accumulated other comprehensive income or loss Changes in Accumulated Other Comprehensive Income (Loss) (in thousands) | Metric | March 31, 2022 | December 31, 2021 | | :------------------------------------------ | :------------- | :---------------- | | Balance at period end | $(30) | $20 | | Net current-period other comprehensive income (loss) | $(50) | N/A | Note 10. Stock-Based Compensation Details the company's stock-based compensation plans and associated expenses Stock-Based Compensation Expense (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Stock-based compensation expense | $9,547 | $7,995 | - 645,198 shares of common stock remain available for issuance under the Omnibus Plan as of March 31, 2022[52] - During Q1 2022, 162,541 RSUs were granted, and 153,989 were settled[55] - Unamortized stock-based compensation expense for unvested RSUs and PSUs was $41.1 million as of March 31, 2022, with a weighted-average remaining contractual life of 1.3 years[57] Note 11. Earnings (Loss) Per Share Presents the calculation of basic and diluted earnings per share Earnings (Loss) Per Share (in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net Income (Loss) Attributable to Virtus Investment Partners, Inc. | $33,059 | $36,588 | | Earnings (Loss) per Share—Basic | $4.38 | $4.79 | | Earnings (Loss) per Share—Diluted | $4.22 | $4.54 | | Weighted Average Shares Outstanding—Diluted | 7,839 | 8,052 | - 21 thousand restricted stock units were excluded from diluted EPS computation in Q1 2022 due to their anti-dilutive effect[60] Note 12. Income Taxes Provides information on the company's income tax expense and effective tax rate - The estimated effective tax rate for Q1 2022 was 30.0%, compared to 22.5% for Q1 2021[62] - The higher tax rate in Q1 2022 was mainly due to valuation allowances for tax effects of unrealized losses on company investments[62] Note 13. Debt Details the company's debt obligations and credit facilities - The company's Credit Agreement includes a $275.0 million Term Loan expiring in September 2028 and a $175.0 million revolving credit facility expiring in September 2026[63] - At March 31, 2022, $273.6 million was outstanding under the Term Loan, and no borrowings were outstanding under the revolving credit facility[63] Note 14. Commitments and Contingencies Outlines the company's legal and contractual commitments and potential liabilities - The company is involved in litigation, arbitration, and regulatory inquiries related to its activities as an employer, issuer, investor, investment adviser, broker-dealer, or taxpayer[64][65] - Liabilities are recorded when probable and reasonably estimable; otherwise, disclosures are made if a loss is reasonably possible[66] - Management believes current legal and regulatory outcomes are not likely to have a material adverse effect on operations, cash flows, or financial condition, but acknowledges inherent unpredictability[66] Note 15. Redeemable Noncontrolling Interests Explains the nature and valuation of redeemable noncontrolling interests - Redeemable noncontrolling interests represent third-party investments in CIP and minority interests in a consolidated affiliate[67] - Minority interests in the affiliate are subject to holder put rights and company call rights, exercisable at pre-established intervals or conditions, and are recorded at estimated redemption value[67] Redeemable Noncontrolling Interests (in thousands) | Metric | March 31, 2022 | December 31, 2021 | | :------------------------------------------ | :------------- | :---------------- | | Balances at period end | $138,738 | $138,965 | | Net income (loss) attributable to noncontrolling interests | $1,594 | N/A | | Changes in redemption value | $4,523 | N/A | Note 16. Consolidation Describes the company's consolidation policies for variable interest entities and voting interest entities - The company consolidates VOEs (majority voting interest) and VIEs (primary beneficiary), primarily CLOs[70][71][73] - Consolidation and deconsolidation of investment products do not impact net income attributable to Virtus Investment Partners, Inc.[73] - The company's risk related to consolidated investment products is limited to its beneficial interests and fees generated[73] Consolidated Investment Products (CIP) Balances (in thousands) | Metric | March 31, 2022 | December 31, 2021 | | :------------------------------------------ | :------------- | :---------------- | | Cash and cash equivalents of CIP | $110,049 | $206,620 | | Investments of CIP | $2,118,608 | $2,140,238 | | Notes payable of CIP | $1,978,420 | $2,033,617 | - At March 31, 2022, the company consolidated six CLOs, holding $2.0 billion in bank loan investments and $2.2 billion in notes payable[75][76][77] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2022, highlighting key business activities, financial performance, and liquidity. It discusses the impact of recent acquisitions, trends in assets under management, revenue and expense drivers, and cash flow changes Cautionary Statement Regarding Forward Looking Statements Warns that the report contains forward-looking statements subject to risks and uncertainties - The report contains forward-looking statements, which are not guarantees of future results and involve substantial risks and uncertainty[91][92] - Actual results may differ materially from forward-looking statements due to various known and unknown risks, including those discussed under "Risk Factors"[93][94] - The company does not undertake to update or revise any forward-looking statements[93] Overview Provides a general description of the company's business model, strategies, and recent key developments - Virtus provides investment management and related services to individuals and institutions through a multi-manager, multi-style approach[96] - The company offers diverse investment strategies across asset classes (equity, fixed income, multi-asset, alternative), geographies, market capitalizations, styles, and investment approaches[97] - Key acquisitions include Stone Harbor Investment Partners (Jan 2022, $14.7 billion AUM at Dec 2021) and Westchester Capital Management (Oct 2021, $5.1 billion AUM)[101][102] - The AllianzGI strategic partnership (Feb 2021) established NFJ Investment Group and added $29.5 billion of assets[103] Financial Highlights (Q1 2022 vs Q1 2021) | Metric | Q1 2022 | Q1 2021 | Change | % Change | | :-------------------------------- | :------ | :------ | :----- | :------- | | Net income per diluted share | $4.22 | $4.54 | $(0.32) | (7.0)% | | Total sales | $9.4B | $10.6B | $(1.2B) | (11.1)% | | Net flows | $(2.0)B | $2.5B | $(4.5B) | (180.0)% | | Assets under management (March 31) | $183.3B | $168.8B | $14.5B | 8.6% | Assets Under Management by Product Presents a breakdown of assets under management by various product types Assets Under Management by Product (in millions) | Product | As of March 31, 2022 | As of March 31, 2021 | Change ($) | Change (%) | | :---------------------- | :------------------- | :------------------- | :--------- | :--------- | | Open-End Funds | $73,149 | $73,185 | $(36) | 0.0% | | Closed-End Funds | $12,060 | $11,664 | $396 | 3.4% | | Retail Separate Accounts | $40,824 | $37,244 | $3,580 | 9.6% | | Institutional Accounts | $57,309 | $46,787 | $10,522 | 22.5% | | Total | $183,342 | $168,880 | $14,462 | 8.6% | | Average AUM | $190,106 | $154,344 | $35,762 | 23.2% | Asset Flows by Product Details the net asset flows for different product categories over the period Asset Flows by Product (Three Months Ended March 31, in millions) | Product | 2022 Net Flows | 2021 Net Flows | 2022 Market Performance | 2021 Market Performance | | :---------------------- | :------------- | :------------- | :---------------------- | :---------------------- | | Open-End Funds | $(3,422) | $693 | $(6,907) | $1,228 | | Closed-End Funds | $8 | $0 | $(196) | $105 | | Retail Separate Accounts | $628 | $1,803 | $(4,342) | $2,141 | | Institutional Accounts | $826 | $16 | $(5,012) | $1,216 | | Total Net Flows | $(1,960) | $2,512 | $(16,457) | $4,690 | - Total inflows decreased to $9.4 billion in Q1 2022 from $10.6 billion in Q1 2021, while outflows increased to $11.4 billion from $8.1 billion[110] Assets Under Management by Asset Class Categorizes assets under management by different asset classes Assets Under Management by Asset Class (in millions) | Asset Class | As of March 31, 2022 | As of March 31, 2021 | Change ($) | Change (%) | % of Total (2022) | % of Total (2021) | | :---------------- | :------------------- | :------------------- | :--------- | :--------- | :------------------ | :------------------ | | Equity | $102,989 | $106,183 | $(3,194) | (3.0)% | 56.2% | 62.9% | | Fixed income | $45,418 | $35,069 | $10,349 | 29.5% | 24.8% | 20.8% | | Multi-asset | $23,415 | $22,498 | $917 | 4.1% | 12.8% | 13.3% | | Alternatives | $11,520 | $5,130 | $6,390 | 124.6% | 6.2% | 3.0% | | Total | $183,342 | $168,880 | $14,462 | 8.6% | 100.0% | 100.0% | Average Assets Under Management and Average Fees Earned Compares average assets under management and average fee rates across product types Average Assets Under Management and Average Fee Earned | Product | Average Fee Earned (2022 bps) | Average Fee Earned (2021 bps) | Average AUM (2022 millions) | Average AUM (2021 millions) | | :---------------------- | :---------------------------- | :---------------------------- | :-------------------------- | :-------------------------- | | Open-End Funds | 46.5 | 47.5 | $75,537 | $67,137 | | Closed-End Funds | 58.4 | 56.2 | $11,762 | $9,340 | | Retail Separate Accounts | 43.6 | 45.7 | $44,538 | $32,118 | | Institutional Accounts | 31.5 | 32.1 | $58,269 | $45,749 | | All Products | 41.9 | 43.1 | $190,106 | $154,344 | - The decrease in the average fee rate was primarily due to lower fee rates earned on assets acquired from the AGI Relationship and Stone Harbor[117] Results of Operations Analyzes the company's financial performance, including revenues, expenses, and net income Summary Financial Data (Three Months Ended March 31, in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :------------------------------------------ | :----- | :----- | :--------- | :--------- | | Total revenues | $252,440 | $216,897 | $35,543 | 16.4% | | Total operating expenses | $186,888 | $154,755 | $32,133 | 20.8% | | Operating income (loss) | $65,552 | $62,142 | $3,410 | 5.5% | | Other income (expense), net | $(16,039) | $(2,025) | $(14,014) | 692.0% | | Net Income (Loss) Attributable to Virtus Investment Partners, Inc. | $33,059 | $36,588 | $(3,529) | (9.6)% | Revenues by Source (Three Months Ended March 31, in thousands) | Revenue Source | 2022 | 2021 | Change ($) | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :--------- | | Investment management fees | $206,817 | $173,269 | $33,548 | 19.4% | | Distribution and service fees | $20,007 | $20,348 | $(341) | (1.7)% | | Administration and shareholder service fees | $24,344 | $22,560 | $1,784 | 7.9% | | Other income and fees | $1,272 | $720 | $552 | 76.7% | | Total revenues | $252,440 | $216,897 | $35,543 | 16.4% | - Investment management fees increased by 19.4% due to a $35.8 billion (23.2%) increase in average AUM from acquisitions[120] - Distribution and service fees decreased by 1.7% due to lower sales for open-end funds in share classes with such fees, impacted by market performance and net outflows[121] Operating Expenses by Category (Three Months Ended March 31, in thousands) | Expense Category | 2022 | 2021 | Change ($) | Change (%) | | :---------------------------------- | :----- | :----- | :--------- | :--------- | | Employment expenses | $105,993 | $91,759 | $14,234 | 15.5% | | Distribution and other asset-based expenses | $32,846 | $32,294 | $552 | 1.7% | | Other operating expenses | $31,712 | $19,580 | $12,132 | 62.0% | | Amortization expense | $14,662 | $9,465 | $5,197 | 54.9% | | Total operating expenses | $186,888 | $154,755 | $32,133 | 20.8% | - Employment expenses increased by 15.5% primarily due to the addition of Stone Harbor and Westchester[125] - Other operating expenses increased by 62.0% due to discrete business initiative professional fees and the Transactions[127] - Amortization expense increased by 54.9% due to additional amortization associated with the Transactions[130] Other Income (Expense), Net (Three Months Ended March 31, in thousands) | Category | 2022 | 2021 | Change ($) | Change (%) | | :------------------------------------------ | :----- | :----- | :--------- | :--------- | | Realized and unrealized gain (loss) on investments, net | $(2,982) | $891 | $(3,873) | (434.7)% | | Realized and unrealized gain (loss) of CIP, net | $(13,344) | $(4,687) | $(8,657) | 184.7% | | Other income (expense), net | $287 | $1,771 | $(1,484) | (83.8)% | | Total Other Income (Expense), net | $(16,039) | $(2,025) | $(14,014) | 692.0% | - Realized and unrealized gain (loss) of CIP, net, worsened by $8.7 million, primarily due to increased unrealized losses on leveraged loans, partially offset by changes in unrealized gains on notes payable[133] Interest Income (Expense), Net (Three Months Ended March 31, in thousands) | Category | 2022 | 2021 | Change ($) | Change (%) | | :------------------------------------------ | :----- | :----- | :--------- | :--------- | | Interest expense | $(2,279) | $(2,314) | $35 | (1.5)% | | Interest and dividend income | $328 | $136 | $192 | 141.2% | | Interest and dividend income of investments of CIP | $20,380 | $23,876 | $(3,496) | (14.6)% | | Interest expense of CIP | $(12,088) | $(14,448) | $2,360 | (16.3)% | | Total Interest Income (Expense), net | $6,341 | $7,250 | $(909) | (12.5)% | - Interest and dividend income of investments of CIP decreased by 14.6% due to lower interest earned from consolidated CLOs[138] - Interest expense of CIP decreased by 16.3% due to lower average debt balances of CIP[139] - Income tax expense increased by 10.4% due to a higher effective tax rate (30.0% in 2022 vs. 22.5% in 2021), primarily from valuation allowances on unrealized losses[140] Liquidity and Capital Resources Discusses the company's cash position, investments, debt, and overall financial flexibility Liquidity and Capital Resources Highlights (in thousands) | Metric | March 31, 2022 | December 31, 2021 | Change ($) | Change (%) | | :-------------------------- | :------------- | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $225,217 | $378,921 | $(153,704) | (40.6)% | | Investments | $116,767 | $108,890 | $7,877 | 7.2% | | Contingent consideration | $130,728 | $162,564 | $(31,836) | (19.6)% | | Debt | $265,954 | $266,346 | $(392) | (0.1)% | | Total equity | $824,233 | $836,627 | $(12,394) | (1.5)% | Cash Flow Data (Three Months Ended March 31, in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :------------------------------------------ | :----- | :----- | :--------- | :--------- | | Operating activities | $(81,775) | $150,151 | $(231,926) | (154.5)% | | Investing activities | $(22,575) | $2,608 | $(19,967) | 765.6% | | Financing activities | $(145,777) | $(87,673) | $(58,104) | 66.3% | - Main uses of capital include employee compensation ($151.6 million paid in Q1 2022), other operating expenses, interest on debt, and income taxes[143][144] - The broker-dealer subsidiary maintained a ratio of aggregate indebtedness to net capital below the maximum allowed, with net capital significantly greater than the minimum[146] - The company repaid $0.7 million under its Term Loan in Q1 2022, with $273.6 million outstanding at March 31, 2022[151] Critical Accounting Policies and Estimates Highlights key accounting policies and estimates that require significant management judgment - No material changes occurred in critical accounting policies and estimates during Q1 2022[153] Recently Issued Accounting Pronouncements References disclosures on new accounting standards and their potential impact - Refer to Note 2 in the condensed consolidated financial statements for a discussion of accounting standards[154] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is associated with unfavorable movements in interest rates and securities prices. There were no material changes to this information from the 2020 Annual Report on Form 10-K during Q1 2022 - The company is primarily exposed to market risk from unfavorable movements in interest rates and securities prices[155] - No material changes to market risk disclosures were reported in Q1 2022 compared to the 2020 Annual Report on Form 10-K[155] Item 4. Controls and Procedures Details management's evaluation of disclosure controls and internal control over financial reporting Evaluation of Disclosure Controls and Procedures Assesses the effectiveness of the company's disclosure controls and procedures - Disclosure controls and procedures are designed to ensure timely and accurate reporting of information required by the Exchange Act[156] - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2022[157] Changes in Internal Control over Financial Reporting Reports on any material changes in the company's internal control over financial reporting - No material changes in internal control over financial reporting occurred during Q1 2022[158] PART II – OTHER INFORMATION Provides information on legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 14 "Commitments and Contingencies" in Part I, Item 1 of this report - Legal proceedings information is incorporated by reference from Note 14 "Commitments and Contingencies" in Part I, Item 1[159] Item 1A. Risk Factors There have been no material changes to the company's risk factors from those previously reported in its 2021 Annual Report on Form 10-K - No material changes to the company's risk factors were reported from the 2021 Annual Report on Form 10-K[160] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2022, the company repurchased 125,452 common shares for $30.0 million under its share repurchase program, leaving 403,997 shares available. No unregistered sales of equity securities occurred - The company repurchased 125,452 common shares for $30.0 million during Q1 2022 under its share repurchase program[161][163] - As of March 31, 2022, 403,997 shares remained available for repurchase[161][163] - No unregistered sales of equity securities occurred during the period[165] Share Repurchases (Q1 2022) | Period | Total shares purchased | Average price paid per share | Total shares purchased as part of plans | Maximum shares available for repurchase | | :------------------ | :--------------------- | :--------------------------- | :-------------------------------------- | :-------------------------------------- | | January 1-31, 2022 | 0 | $0 | 0 | 529,449 | | February 1-28, 2022 | 52,895 | $255.08 | 52,895 | 476,554 | | March 1-31, 2022 | 72,557 | $227.46 | 72,557 | 403,997 | | Total | 125,452 | N/A | 125,452 | N/A | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications, interactive data files, and other required documents - Exhibits include certifications (CEO, CFO), interactive data files (iXBRL), and other financial statements[167] Signatures The report is duly signed on behalf of Virtus Investment Partners, Inc. by Michael A. Angerthal, Executive Vice President and Chief Financial Officer, on May 10, 2022 - The report was signed by Michael A. Angerthal, Executive Vice President and Chief Financial Officer, on May 10, 2022[170]