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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission File Number: 001-10994

VIRTUS INVESTMENT PARTNERS, INC.
(Exact name of registrant as specified in its charter)

Delaware |  | 26-3962811
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

One Financial Plaza, Hartford, CT 06103
(Address of principal executive offices, including Zip Code)
(800) 248-7971
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Stock, $0.01 par value |  | VRTS |  | The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer |  | ☒ |  | Accelerated filer |  | ☐
Non-accelerated filer |  | ☐ |  | Smaller reporting company |  | ☐
|  |  |  | Emerging growth company |  | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant’s common stock was 7,231,973 as of October 28, 2022.

Table of Contents
VIRTUS INVESTMENT PARTNERS, INC.
INDEX

|  | Page
Part I. FINANCIAL INFORMATION
Item 1. | Financial Statements |
| Condensed Consolidated Balance Sheets (Unaudited) as of Septe mber 30, 2022 and December 31, 2021 | 1
| Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021 | 2
| Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021 | 3
| Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2022 and 2021 | 4
| Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021 | 5
| Notes to Condensed Consolidated Financial Statements (Unaudited) | 6
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 29
Item 4. | Controls and Procedures | 30
Part II. OTHER INFORMATION
Item 1. | Legal Proceedings | 30
Item 1A. | Risk Factors | 30
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 30
Item 6. | Exhibits | 31
| Signatures | 32

"We," "us," "our," the "Company," and "Virtus" as used in this Quarterly Report on Form 10-Q refer to Virtus Investment Partners, Inc., a Delaware corporation, and its subsidiaries.

Table of Contents
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Virtus Investment Partners, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)

(in thousands, except share data) | September 30, 2022 |  | December 31, 2021
Assets: |  |  |
Cash and cash equivalents | $ | 309,248 |  |  | $ | 378,921 |
Investments | 98,245 |  |  | 108,890 |
Accounts receivable, net | 104,695 |  |  | 123,873 |
Assets of consolidated investment products ("CIP") |  |  |
Cash and cash equivalents of CIP | 85,791 |  |  | 206,620 |
Cash pledged or on deposit of CIP | 591 |  |  | 604 |
Investments of CIP | 1,976,975 |  |  | 2,140,238 |
Other assets of CIP | 17,432 |  |  | 44,210 |
Furniture, equipment and leasehold improvements, net | 19,237 |  |  | 12,542 |
Intangible assets, net | 467,476 |  |  | 500,571 |
Goodwill | 348,836 |  |  | 338,406 |
Deferred taxes, net | 24,979 |  |  | 19,204 |
Other assets | 92,532 |  |  | 60,102 |
Total assets | $ | 3,546,037 |  |  | $ | 3,934,181 |
Liabilities and Equity |  |  |
Liabilities: |  |  |
Accrued compensation and benefits | $ | 145,361 |  |  | $ | 187,449 |
Accounts payable and accrued liabilities | 37,758 |  |  | 48,496 |
Dividends payable | 15,357 |  |  | 14,824 |
Contingent consideration (Note 4) | 133,628 |  |  | 162,564 |
Debt | 255,428 |  |  | 266,346 |
Other liabilities | 90,698 |  |  | 60,225 |
Liabilities of CIP |  |  |
Notes payable of CIP | 1,864,943 |  |  | 2,033,617 |
Securities purchased payable and other liabilities of CIP | 72,483 |  |  | 185,068 |
Total liabilities | 2,615,656 |  |  | 2,958,589 |
Commitments and Contingencies (Note 15) |  |  |
Redeemable noncontrolling interests | 124,442 |  |  | 138,965 |
Equity: |  |  |
Equity attributable to Virtus Investment Partners, Inc.: |  |  |
Common stock, $0.01 par value, 1,000,000,000 shares authorized; 12,030,346 shares issued and 7,231,973 shares outstanding at September 30, 2022; and 11,906,747 shares issued and 7,506,151 shares outstanding at December 31, 2021 | 120 |  |  | 119 |
Additional paid-in capital | 1,281,780 |  |  | 1,276,424 |
Retained earnings (accumulated deficit) | 107,324 |  |  | 60,962 |
Accumulated other comprehensive income (loss) | (771) |  |  | 20 |
Treasury stock, at cost, 4,798,373 and 4,400,596 shares at September 30, 2022 and December 31, 2021, respectively | (589,248) |  |  | (509,248) |
Total equity attributable to Virtus Investment Partners, Inc. | 799,205 |  |  | 828,277 |
Noncontrolling interests | 6,734 |  |  | 8,350 |
Total equity | 805,939 |  |  | 836,627 |
Total liabilities and equity | $ | 3,546,037 |  |  | $ | 3,934,181 |

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 September 30, |  | Nine Months Ended September 30,
(in thousands, except per share data) | 2022 |  | 2021 |  | 2022 |  | 2021
Revenues |  |  |  |  |  |  |
Investment management fees | $ | 172,850 |  |  | $ | 201,133 |  |  | $ | 564,691 |  |  | $ | 567,912 |
Distribution and service fees | 15,746 |  |  | 23,293 |  |  | 52,912 |  |  | 67,091 |
Administration and shareholder service fees | 20,563 |  |  | 26,479 |  |  | 66,889 |  |  | 74,916 |
Other income and fees | 1,102 |  |  | 1,159 |  |  | 3,516 |  |  | 3,053 |
Total revenues | 210,261 |  |  | 252,064 |  |  | 688,008 |  |  | 712,972 |
Operating Expenses |  |  |  |  |  |  |
Employment expenses | 88,230 |  |  | 87,345 |  |  | 283,583 |  |  | 266,734 |
Distribution and other asset-based expenses | 26,818 |  |  | 36,692 |  |  | 88,247 |  |  | 105,007 |
Other operating expenses | 31,096 |  |  | 22,800 |  |  | 94,367 |  |  | 64,326 |
Operating expenses of consolidated investment products ("CIP") | 538 |  |  | 639 |  |  | 1,927 |  |  | 1,857 |
Change in fair value of contingent consideration | — |  |  | — |  |  | 2,900 |  |  | — |
Restructuring expense | 4,015 |  |  | — |  |  | 4,015 |  |  | — |
Depreciation expense | 938 |  |  | 915 |  |  | 2,835 |  |  | 2,994 |
Amortization expense | 14,609 |  |  | 10,391 |  |  | 43,895 |  |  | 30,219 |
Total operating expenses | 166,244 |  |  | 158,782 |  |  | 521,769 |  |  | 471,137 |
Operating Income (Loss) | 44,017 |  |  | 93,282 |  |  | 166,239 |  |  | 241,835 |
Other Income (Expense) |  |  |  |  |  |  |
Realized and unrealized gain (loss) on investments, net | (2,493) |  |  | (504) |  |  | (16,018) |  |  | 2,881 |
Realized and unrealized gain (loss) of CIP, net | (8,440) |  |  | (2,801) |  |  | (43,443) |  |  | (4,741) |
Other income (expense), net | (659) |  |  | 1,001 |  |  | 199 |  |  | 3,598 |
Total other income (expense), net | (11,592) |  |  | (2,304) |  |  | (59,262) |  |  | 1,738 |
Interest Income (Expense) |  |  |  |  |  |  |
Interest expense | (3,557) |  |  | (2,348) |  |  | (8,661) |  |  | (6,918) |
Interest and dividend income | 1,013 |  |  | 269 |  |  | 1,870 |  |  | 571 |
Interest and dividend income of investments of CIP | 28,644 |  |  | 22,877 |  |  | 71,436 |  |  | 69,315 |
Interest expense of CIP | (20,356) |  |  | (13,442) |  |  | (46,860) |  |  | (42,342) |
Total interest income (expense), net | 5,744 |  |  | 7,356 |  |  | 17,785 |  |  | 20,626 |
Income (Loss) Before Income Taxes | 38,169 |  |  | 98,334 |  |  | 124,762 |  |  | 264,199 |
Income tax expense (benefit) | 10,754 |  |  | 25,823 |  |  | 43,969 |  |  | 63,377 |
Net Income (Loss) | 27,415 |  |  | 72,511 |  |  | 80,793 |  |  | 200,822 |
Noncontrolling interests | 4,265 |  |  | (13,775) |  |  | 1,348 |  |  | (42,531) |
Net Income (Loss) Attributable to Virtus Investment Partners, Inc. | $ | 31,680 |  |  | $ | 58,736 |  |  | $ | 82,141 |  |  | $ | 158,291 |
Earnings (Loss) per Share—Basic | $ | 4.33 |  |  | $ | 7.64 |  |  | $ | 11.05 |  |  | $ | 20.59 |
Earnings (Loss) per Share—Diluted | $ | 4.25 |  |  | $ | 7.36 |  |  | $ | 10.76 |  |  | $ | 19.72 |
Weighted Average Shares Outstanding—Basic | 7,308 |  |  | 7,691 |  |  | 7,434 |  |  | 7,688 |
Weighted Average Shares Outstanding—Diluted | 7,463 |  |  | 7,984 |  |  | 7,636 |  |  | 8,028 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
2

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Virtus Investment Partners, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2022 |  | 2021 |  | 2022 |  | 2021
Net Income (Loss) | $ | 27,415 |  |  | $ | 72,511 |  |  | $ | 80,793 |  |  | $ | 200,822 |
Other comprehensive income (loss), net of tax: |  |  |  |  |  |  |
Foreign currency translation adjustment, net of tax of $31 and $6 for the three months ended September 30, 2022 and 2021, respectively, and $280 and $4 for the nine months ended September 30, 2022 and 2021, respectively. | (504) |  |  | (17) |  |  | (791) |  |  | (11) |
Other comprehensive income (loss) | (504) |  |  | (17) |  |  | (791) |  |  | (11) |
Comprehensive income (loss) | 26,911 |  |  | 72,494 |  |  | 80,002 |  |  | 200,811 |
Comprehensive (income) loss attributable to noncontrolling interests | 4,265 |  |  | (13,775) |  |  | 1,348 |  |  | (42,531) |
Comprehensive Income (Loss) Attributable to Virtus Investment Partners, Inc. | $ | 31,176 |  |  | $ | 58,719 |  |  | $ | 81,350 |  |  | $ | 158,280 |

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)

| Nine Months Ended September 30,
(in thousands) | 2022 |  | 2021
Cash Flows from Operating Activities: |  |  |
Net income (loss) | $ | 80,793 |  |  | $ | 200,822 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |  |
Depreciation expense, intangible asset and other amortization | 48,143 |  |  | 35,217 |
Stock-based compensation | 19,267 |  |  | 21,833 |
Amortization of deferred commissions | 3,653 |  |  | 2,606 |
Payments of deferred commissions | (1,789) |  |  | (4,664) |
Equity in earnings of equity method investments | (527) |  |  | (3,701) |
Realized and unrealized (gains) losses on investments, net | 16,056 |  |  | (2,875) |
Distributions from equity method investments | 2,239 |  |  | 3,133 |
Sales (purchases) of investments, net | (8,396) |  |  | (3,453) |
Change in fair value of contingent consideration | 2,900 |  |  | — |
Deferred taxes, net | (5,500) |  |  | (2,672) |
Right of use asset | 3,222 |  |  | — |
Changes in operating assets and liabilities: |  |  |
Accounts receivable, net and other assets | 32,940 |  |  | (41,421) |
Accrued compensation and benefits, accounts payable, accrued liabilities and other liabilities | (76,639) |  |  | 23,242 |
Operating activities of consolidated investment products ("CIP"): |  |  |
Realized and unrealized (gains) losses on investments of CIP, net | 41,312 |  |  | (4,139) |
Purchases of investments by CIP | (601,749) |  |  | (917,355) |
Sales of investments by CIP | 595,451 |  |  | 1,101,258 |
Net proceeds (purchases) of short-term investments and securities sold short by CIP | (655) |  |  | 16,165 |
Change in other assets and liabilities of CIP | 4,129 |  |  | (317) |
Net cash provided by (used in) operating activities | 154,850 |  |  | 423,679 |
Cash Flows from Investing Activities: |  |  |
Capital expenditures and other asset purchases | (5,495) |  |  | (4,822) |
Acquisition of businesses, net of cash acquired of $8,443 | (19,944) |  |  | — |
Change in cash and cash equivalents of CIP due to consolidation (deconsolidation), net | (308) |  |  | (11,703) |
Net cash provided by (used in) investing activities | (25,747) |  |  | (16,525) |
Cash Flows from Financing Activities: |  |  |
Refinancing of credit agreement | — |  |  | 81,155 |
Payment of long-term debt | (12,062) |  |  | (11,826) |
Payment of deferred financing costs | — |  |  | (7,039) |
Common stock dividends paid | (35,244) |  |  | (20,030) |
Repurchase of common shares | (80,000) |  |  | (32,499) |
Payment of contingent consideration | (33,036) |  |  | — |
Taxes paid related to net share settlement of restricted stock units | (16,450) |  |  | (19,362) |
Affiliate equity sales (purchases) | (11,089) |  |  | — |
Net contributions from (distributions to) noncontrolling interests | (1,091) |  |  | 552 |
Financing activities of CIP: |  |  |
Payments on borrowings by CIP | (129,996) |  |  | (144,464) |
Net cash provided by (used in) financing activities | (318,968) |  |  | (153,513) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (650) |  |  | — |
Net increase (decrease) in cash, cash equivalents and restricted cash | (190,515) |  |  | 253,641 |
Cash, cash equivalents and restricted cash, beginning of period | 586,145 |  |  | 339,849 |
Cash, cash equivalents and restricted cash, end of period | $ | 395,630 |  |  | $ | 593,490 |
Non-Cash Investing Activities: |  |  |
Contingent consideration | $ | 1,200 |  |  | $ | 137,664 |
Non-Cash Financing Activities: |  |  |
Increase (decrease) to noncontrolling interests due to consolidation (deconsolidation) of CIP, net | $ | (338) |  |  | $ | (32,007) |
Common stock dividends payable | $ | 12,014 |  |  | $ | 11,478 |

(in thousands) | September 30, 2022 |  | December 31, 2021
Reconciliation of cash, cash equivalents and restricted cash |  |  |
Cash and cash equivalents | $ | 309,248 |  |  | $ | 378,921 |
Cash of CIP | 85,791 |  |  | 206,620 |
Cash pledged or on deposit of CIP | 591 |  |  | 604 |
Cash, cash equivalents and restricted cash at end of period | $ | 395,630 |  |  | $ | 586,145 |

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 June 30, 2021 | 7,651,606 |  |  | $ | 119 |  |  |  |  |  |  | $ | 1,280,667 |  |  | $ | (35,704) |  |  | $ | 35 |  |  | 4,254,236 |  |  | $ | (464,248) |  |  | $ | 780,869 |  |  | $ | 8,968 |  |  | $ | 789,837 |  |  | $ | 131,525 |
Net income (loss) | — |  |  | — |  |  |  |  |  |  | — |  |  | 58,736 |  |  | — |  |  | — |  |  | — |  |  | 58,736 |  |  | 374 |  |  | 59,110 |  |  | 13,401 |
Foreign currency translation adjustments | — |  |  | — |  |  |  |  |  |  | — |  |  | — |  |  | (17) |  |  | — |  |  | — |  |  | (17) |  |  | — |  |  | (17) |  |  | — |
Net subscriptions (redemptions) and other | — |  |  | — |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (529) |  |  | (529) |  |  | (13,257) |
Cash dividends declared ($1.50 per common share) | — |  |  | — |  |  |  |  |  |  | (12,015) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (12,015) |  |  | — |  |  | (12,015) |  |  | — |
Repurchases of common shares | (64,494) |  |  | — |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 64,494 |  |  | (20,000) |  |  | (20,000) |  |  | — |  |  | (20,000) |  |  | — |
Issuance of common shares related to employee stock transactions | 645 |  |  | — |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Taxes paid on stock-based compensation | — |  |  | — |  |  |  |  |  |  | (148) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (148) |  |  | — |  |  | (148) |  |  | — |
Stock-based compensation | — |  |  | — |  |  |  |  |  |  | 4,872 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,872 |  |  | — |  |  | 4,872 |  |  | — |
Balances at September 30, 2021 | 7,587,757 |  |  | $ | 119 |  |  |  |  |  |  | $ | 1,273,376 |  |  | $ | 23,032 |  |  | $ | 18 |  |  | 4,318,730 |  |  | $ | (484,248) |  |  | $ | 812,297 |  |  | $ | 8,813 |  |  | $ | 821,110 |  |  | $ | 131,669 |
Balances at June 30, 2022 | 7,275,337 |  |  | $ | 120 |  |  |  |  |  |  | $ | 1,275,907 |  |  | $ | 88,196 |  |  | $ | (267) |  |  | 4,747,951 |  |  | $ | (579,248) |  |  | $ | 784,708 |  |  | $ | 6,997 |  |  | $ | 791,705 |  |  | $ | 139,147 |
Net income (loss) | — |  |  | — |  |  |  |  |  |  | — |  |  | 31,680 |  |  | — |  |  | — |  |  | — |  |  | 31,680 |  |  | 151 |  |  | 31,831 |  |  | (4,416) |
Foreign currency translation adjustments | — |  |  | — |  |  |  |  |  |  | — |  |  | — |  |  | (504) |  |  | — |  |  | — |  |  | (504) |  |  | — |  |  | (504) |  |  | — |
Net subscriptions (redemptions) and other | — |  |  | — |  |  |  |  |  |  | 2,035 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2,035 |  |  | (414) |  |  | 1,621 |  |  | (10,289) |
Cash dividends declared ($1.65 per common share) | — |  |  | — |  |  |  |  |  |  | — |  |  | (12,552) |  |  | — |  |  | — |  |  | — |  |  | (12,552) |  |  | — |  |  | (12,552) |  |  | — |
Repurchases of common shares | (50,422) |  |  | — |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 50,422 |  |  | (10,000) |  |  | (10,000) |  |  | — |  |  | (10,000) |  |  | — |
Issuance of common shares related to employee stock transactions | 7,058 |  |  | — |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Taxes paid on stock-based compensation | — |  |  | — |  |  |  |  |  |  | (1,166) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,166) |  |  |  |  | (1,166) |  |  | — |
Stock-based compensation | — |  |  | — |  |  |  |  |  |  | 5,004 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 5,004 |  |  | — |  |  | 5,004 |  |  | — |
Balances at September 30, 2022 | 7,231,973 |  |  | $ | 120 |  |  |  |  |  |  | $ | 1,281,780 |  |  | $ | 107,324 |  |  | $ | (771) |  |  | 4,798,373 |  |  | $ | (589,248) |  |  | $ | 799,205 |  |  | $ | 6,734 |  |  | $ | 805,939 |  |  | $ | 124,442 |

| Permanent Equity |  | Temporary Equity
| Common Stock |  |  |  | Additional 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, 2020 | 7,583,466 |  |  | $ | 118 |  |  |  |  |  |  | $ | 1,298,002 |  |  | $ | (135,259) |  |  | $ | 29 |  |  | 4,207,403 |  |  | $ | (451,749) |  |  | $ | 711,141 |  |  | $ | 9,799 |  |  | $ | 720,940 |  |  | $ | 115,513 |
Net income (loss) | — |  |  | — |  |  |  |  |  |  | — |  |  | 158,291 |  |  | — |  |  | — |  |  | — |  |  | 158,291 |  |  | 719 |  |  | 159,010 |  |  | 41,812 |
Foreign currency translation adjustments | — |  |  | — |  |  |  |  |  |  | — |  |  | — |  |  | (11) |  |  | — |  |  | — |  |  | (11) |  |  | — |  |  | (11) |  |  | — |
Net subscriptions (redemptions) and other | — |  |  | — |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,705) |  |  | (1,705) |  |  | (25,656) |
Cash dividends declared ($3.14 per common share) | — |  |  | — |  |  |  |  |  |  | (25,315) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (25,315) |  |  | — |  |  | (25,315) |  |  | — |
Repurchases of common shares | (111,327) |  |  | — |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 111,327 |  |  | (32,499) |  |  | (32,499) |  |  | — |  |  | (32,499) |  |  | — |
Issuance of common shares related to employee stock transactions | 115,618 |  |  | 1 |  |  |  |  |  |  | 65 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 66 |  |  | — |  |  | 66 |  |  | — |
Taxes paid on stock-based compensation | — |  |  | — |  |  |  |  |  |  | (19,428) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (19,428) |  |  | — |  |  | (19,428) |  |  | — |
Stock-based compensation | — |  |  | — |  |  |  |  |  |  | 20,052 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 20,052 |  |  | — |  |  | 20,052 |  |  | — |
Balances at September 30, 2021 | 7,587,757 |  |  | $ | 119 |  |  |  |  |  |  | $ | 1,273,376 |  |  | $ | 23,032 |  |  | $ | 18 |  |  | 4,318,730 |  |  | $ | (484,248) |  |  | $ | 812,297 |  |  | $ | 8,813 |  |  | $ | 821,110 |  |  | $ | 131,669 |
Balances at December 31, 2021 | 7,506,151 |  |  | $ | 119 |  |  |  |  |  |  | $ | 1,276,424 |  |  | $ | 60,962 |  |  | $ | 20 |  |  | 4,400,596 |  |  | $ | (509,248) |  |  | $ | 828,277 |  |  | $ | 8,350 |  |  | $ | 836,627 |  |  | $ | 138,965 |
Net income (loss) | — |  |  | — |  |  |  |  |  |  | — |  |  | 82,141 |  |  | — |  |  | — |  |  | — |  |  | 82,141 |  |  | (184) |  |  | 81,957 |  |  | (1,164) |
Foreign currency translation adjustments | — |  |  | — |  |  |  |  |  |  | — |  |  | — |  |  | (791) |  |  | — |  |  | — |  |  | (791) |  |  | — |  |  | (791) |  |  | — |
Net subscriptions (redemptions) and other | — |  |  | — |  |  |  |  |  |  | 2,035 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2,035 |  |  | (1,432) |  |  | 603 |  |  | (13,359) |
Cash dividends declared ($4.65 per common share) | — |  |  | — |  |  |  |  |  |  | — |  |  | (35,779) |  |  | — |  |  | — |  |  | — |  |  | (35,779) |  |  | — |  |  | (35,779) |  |  | — |
Repurchases of common shares | (397,777) |  |  | — |  |  |  |  |  |  | — |  |  | — |  |  | — |  |  | 397,777 |  |  | (80,000) |  |  | (80,000) |  |  | — |  |  | (80,000) |  |  | — |
Issuance of common shares related to employee stock transactions | 123,599 |  |  | 1 |  |  |  |  |  |  | (1) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Taxes paid on stock-based compensation | — |  |  | — |  |  |  |  |  |  | (16,450) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (16,450) |  |  |  |  | (16,450) |  |  | — |
Stock-based compensation | — |  |  | — |  |  |  |  |  |  | 19,772 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 19,772 |  |  | — |  |  | 19,772 |  |  | — |
Balances at September 30, 2022 | 7,231,973 |  |  | $ | 120 |  |  |  |  |  |  | $ | 1,281,780 |  |  | $ | 107,324 |  |  | $ | (771) |  |  | 4,798,373 |  |  | $ | (589,248) |  |  | $ | 799,205 |  |  | $ | 6,734 |  |  | $ | 805,939 |  |  | $ | 124,442 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
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Virtus Investment Partners, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Business
Virtus Investment Partners, Inc. (the "Company," "we," "us," "our" or "Virtus"), a Delaware corporation, operates in the investment management industry through its subsidiaries.
The Company provides investment management and related services to individuals and institutions. The Company’s retail investment management services are provided to individuals through products consisting of: mutual funds registered pursuant to the Investment Company Act of 1940, as amended ("U.S. retail funds"); Undertaking for Collective Investment in Transferable Securities ("UCITS") and Qualifying Investor Funds ("QIFs"), collectively, "global funds" and collectively with mutual funds, exchange traded funds ("ETFs"), and variable insurance funds, the "open-end funds"; closed-end funds (collectively, with open-end funds, the "funds"); and retail separate accounts. Institutional investment management services are offered through separate accounts and pooled or commingled structures to a variety of institutional clients. The Company also provides subadvisory services to other investment advisers and serves as the collateral manager for structured products.
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 nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
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, 2021 (the "2021 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 2021 Annual Report on Form 10-K.
3. Revenues
The Company's revenues are recognized when a performance obligation is satisfied, which occurs when control of the services is transferred to customers. Investment management fees, distribution and service fees, and administration and shareholder service fees are generally calculated as a percentage of average net assets of the investment portfolios managed. The net asset values from which these fees are calculated are variable in nature and subject to factors outside of the Company's control, such as additional investments, withdrawals and market performance. Because of this, these fees are considered constrained until the end of the contractual measurement period (monthly or quarterly), which is when asset values are generally determinable.
Investment Management Fees by Source
The following table summarizes investment management fees by source:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2022 |  | 2021 |  | 2022 |  | 2021
Investment management fees |  |  |  |  |  |  |
Open-end funds | $ | 80,234 |  |  | $ | 99,711 |  |  | $ | 262,486 |  |  | $ | 286,104 |
Closed-end funds | 15,773 |  |  | 17,116 |  |  | 48,887 |  |  | 46,451 |
Retail separate accounts | 39,154 |  |  | 46,625 |  |  | 134,069 |  |  | 126,612 |
Institutional accounts | 37,689 |  |  | 37,681 |  |  | 119,249 |  |  | 108,745 |
Total investment management fees | $ | 172,850 |  |  | $ | 201,133 |  |  | $ | 564,691 |  |  | $ | 567,912 |

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4. Acquisitions
Stone Harbor Investment Partners
On January 1, 2022, the Company acquired Stone Harbor Investment Partners, LLC ("Stone Harbor"), which was accounted for in accordance with ASC 805, Business Combinations ("ASC 805"). Transaction consideration consisted of $28.2 million paid in cash at closing, net working capital adjustment of $0.7 million to be paid in the fourth quarter of 2022, and $1.2 million in contingent consideration recorded at fair value, which represents future potential earn-out payments based on pre-established performance metrics related to revenue retention and revenue growth rates. Future contingent consideration will be paid, if earned, in 2023, 2026 and 2027. The contingent consideration has been accounted for as a liability within contingent consideration on the Company's Condensed Consolidated Balance Sheet.
The initial transaction consideration of $30.1 million was allocated to the assets acquired and liabilities assumed, based upon their estimated fair values at the date of the acquisition, as well as goodwill of $10.3 million and definite-lived intangible assets of $10.8 million. The Company expects $21.1 million of the purchase price to be tax deductible over 15 years. The transaction consideration allocation is based upon preliminary information and is subject to change if additional information becomes available. The revenues and operating income of Stone Harbor were not material to the Company's results of operations for the three and nine months ended September 30, 2022.
The following table summarizes the identified acquired assets and liabilities assumed as of the Stone Harbor acquisition date:

| January 1, 2022
| (in thousands)
Assets: |
Cash and cash equivalents | $ | 8,443 |
Intangible assets | 10,800 |
Goodwill | 10,259 |
Other assets | 54,264 |
Total Assets | 83,766 |
Liabilities |
Accounts payable, accrued and other liabilities | 53,713 |
Total liabilities | 53,713 |
Total Net Assets Acquired | $ | 30,053 |

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

| January 1, 2022
| Approximate Fair Value (in thousands) |  | Weighted Average of Useful Life (in years)
Definite-lived intangible assets: |  |  |
Investment management agreements | $ | 6,000 |  |  | 7.3
Trade names | 1,000 |  |  | 6.0
Software | 3,800 |  |  | 4.0
Total definite-lived intangible assets | $ | 10,800 |  |  |

The fair value of investment management agreements was estimated using a discounted cash flow method, the fair value of the trade names was estimated using a royalty savings method, and the fair value of the software was estimated using a royalty savings method and replacement cost approach. The fair value estimates were prepared with the assistance of an independent valuation firm.
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Westchester Capital Management
On October 1, 2021, the Company acquired Westchester Capital Management, LLC ("Westchester"), which was accounted for in accordance with ASC 805. Transaction consideration consisted of $156.8 million in cash and contingent consideration representing future potential earn-out payments based on pre-established performance metrics related to revenue growth rates, accounted for as a liability on the Company's Condensed Consolidated Balance sheet. Future contingent consideration payments will be made, if earned, in 2025 and 2026. As of September 30, 2022, the contingent consideration balance was $15.4 million.
The total transaction consideration of $169.3 million was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of the acquisition. Goodwill of $23.0 million and intangible assets of $144.4 million were recorded as a result of the acquisition. The Company expects $155.6 million of the purchase price to be tax deductible over 15 years. The revenues and operating income of Westchester were not material to the Company's results of operations for the three and nine months ended September 30, 2022.
Fund Adoption and NFJ Investment Group
On February 1, 2021, the Company executed an agreement with Allianz Global Investors U.S. LLC ("AGI"), pursuant to which the Company became the investment adviser, distributor and/or administrator of certain of AGI's open-end, closed-end and retail separate account assets. This transaction was classified as an asset acquisition, and the cost of the acquisition was allocated to the assets acquired on the basis of their relative fair values. Additionally, as part of the transaction, AGI’s Value Equity team joined the Company as a newly established affiliated manager, NFJ Investment Group ("NFJ"). The addition of NFJ was classified as a business combination under ASC 805, and assets acquired were recorded at fair value. Assets acquired primarily consisted of definite-lived intangible assets representing investment contracts as well as indefinite-lived assets consisting of goodwill related to NFJ. The revenues and operating income of NFJ were not material to the Company's results of operations for the three and nine months ended September 30, 2022 or 2021.
Transaction consideration consists of variable cash payments based on a percentage of the investment management fees earned on certain open-end, closed-end and retail separate account assets from the transaction. Payments are to be made annually on the anniversary of the closing date of the transactions over seven years. Contingent payment obligations related to NFJ, which were accounted for in accordance with ASC 805, are remeasured at fair value as of each reporting period-end, with the change in fair value recorded within the Condensed Consolidated Statement of Operations. An estimate of these future payments has been recorded as a liability and included as contingent consideration on the Company's Condensed Consolidated Balance Sheet. A payment of $33.0 million was made in the first quarter of 2022. The estimated value of future revenue participation payments at September 30, 2022 was $117.0 million.
5. Goodwill and Intangible Assets, Net
Activity in goodwill was as follows:

|  | (in thousands)
Balance at December 31, 2021 |  | $ | 338,406 |
Acquisitions |  | 10,430 |
Balance at September 30, 2022 |  | $ | 348,836 |

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, 2021 | $ | 755,576 |  |  | $ | (297,303) |  |  | $ | 458,273 |  |  | $ | 42,298 |  |  | $ | 500,571 |
Additions | 10,800 |  |  | — |  |  | 10,800 |  |  | — |  |  | 10,800 |
Intangible amortization | — |  |  | (43,895) |  |  | (43,895) |  |  | — |  |  | (43,895) |
Balances at September 30, 2022 | $ | 766,376 |  |  | $ | (341,198) |  |  | $ | 425,178 |  |  | $ | 42,298 |  |  | $ | 467,476 |

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Definite-lived intangible asset amortization for the remainder of fiscal year 2022 and succeeding fiscal years is estimated as follows:

Fiscal Year |  | Amount (in thousands)
Remainder of 2022 |  | $ | 14,609 |
2023 |  | 57,835 |
2024 |  | 52,194 |
2025 |  | 47,426 |
2026 |  | 46,446 |
2027 and thereafter |  | 206,668 |
Total |  | $ | 425,178 |

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 17, at September 30, 2022 and December 31, 2021 were as follows:

(in thousands) | September 30, 2022 |  | December 31, 2021
Investment securities - fair value | $ | 73,134 |  |  | $ | 80,335 |
Equity method investments (1) | 11,593 |  |  | 13,038 |
Nonqualified retirement plan assets | 11,588 |  |  | 13,321 |
Other investments | 1,930 |  |  | 2,196 |
Total investments | $ | 98,245 |  |  | $ | 108,890 |

(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:

| September 30, 2022 |  | December 31, 2021
(in thousands) | Cost |  | Fair Value |  | Cost |  | Fair Value
Investment Securities - fair value |  |  |  |  |  |  |
Sponsored funds | $ | 70,788 |  |  | $ | 61,699 |  |  | $ | 63,090 |  |  | $ | 66,326 |
Equity securities | 11,570 |  |  | 11,435 |  |  | 10,659 |  |  | 14,009 |
Total investment securities - fair value | $ | 82,358 |  |  | $ | 73,134 |  |  | $ | 73,749 |  |  | $ | 80,335 |

For each of the three and nine months ended September 30, 2022, the Company recognized net realized gains of $0.4 million on the sale of its investment securities - fair value. For the three and nine months ended September 30, 2021, the Company recognized net realized gains of $0.2 million and $2.0 million, respectively, on the sale of its investment securities - fair value.
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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 17, as of September 30, 2022 and December 31, 2021 by fair value hierarchy level were as follows:
September 30, 2022

(in thousands) | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |
Cash equivalents | $ | 242,567 |  |  | $ | — |  |  | $ | — |  |  | $ | 242,567 |
Investment securities - fair value |  |  |  |  |  |  |
Sponsored funds | 61,699 |  |  | — |  |  | — |  |  | 61,699 |
Equity securities | 11,435 |  |  | — |  |  | — |  |  | 11,435 |
Nonqualified retirement plan assets | 11,588 |  |  | — |  |  | — |  |  | 11,588 |
Total assets measured at fair value | $ | 327,289 |  |  | $ | — |  |  | $ | — |  |  | $ | 327,289 |
Liabilities |  |  |  |  |  |  |
Contingent consideration | $ | — |  |  | $ | — |  |  | $ | 72,980 |  |  | $ | 72,980 |
Total liabilities measured at fair value | $ | — |  |  | $ | — |  |  | $ | 72,980 |  |  | $ | 72,980 |

December 31, 2021

(in thousands) | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |
Cash equivalents | $ | 307,277 |  |  | $ | — |  |  | $ | — |  |  | $ | 307,277 |
Investment securities - fair value |  |  |  |  |  |  |
Sponsored funds | 66,326 |  |  | — |  |  | — |  |  | 66,326 |
Equity securities | 14,009 |  |  | — |  |  | — |  |  | 14,009 |
Nonqualified retirement plan assets | 13,321 |  |  | — |  |  | — |  |  | 13,321 |
Total assets measured at fair value | $ | 400,933 |  |  | $ | — |  |  | $ | — |  |  | $ | 400,933 |
Liabilities |  |  |  |  |  |  |
Contingent consideration | $ | — |  |  | $ | — |  |  | $ | 88,400 |  |  | $ | 88,400 |
Total liabilities measured at fair value | $ | — |  |  | $ | — |  |  | $ | 88,400 |  |  | $ | 88,400 |

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 business combinations. See Note 4 for a discussion of the transactions. The estimated fair values are measured using a simulation model using unobservable market data inputs prepared with the assistance of an independent valuation firm. These liabilities are categorized as Level 3.
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Cash, accounts receivable, accounts payable and accrued liabilities equal or approximate fair value based on the short-term nature of these instruments.
The following table presents a reconciliation of beginning and ending balances of recurring fair value measurements classified as Level 3:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2022 |  | 2021 |  | 2022 |  | 2021
Contingent consideration, beginning of period | $ | 72,980 |  |  | $ | 63,500 |  |  | $ | 88,400 |  |  | $ | — |
Additions for acquisition | — |  |  | — |  |  | 1,200 |  |  | 63,500 |
Reduction for payments made | — |  |  | — |  |  | (19,520) |  |  | — |
Increase (reduction) of liability related to re-measurement of fair value | — |  |  | — |  |  | 2,900 |  |  | — |
Contingent consideration, end of period | $ | 72,980 |  |  | $ | 63,500 |  |  | $ | 72,980 |  |  | $ | 63,500 |

8. Equity Transactions
Dividends Declared
On August 17, 2022, the Company declared a quarterly cash dividend of $1.65 per common share to be paid on November 15, 2022 to stockholders of record at the close of business on October 31, 2022.
Common Stock Repurchases
During the three and nine months ended September 30, 2022, the Company repurchased 50,422 and 397,777 common shares, respectively, at a weighted average price of $198.29 and $201.09 per share, respectively, for a total cost, including fees and expenses, of $10.0 million and $80.0 million, respectively, under its share repurchase program. In May 2022, the Company's Board of Directors authorized an additional 750,000 shares to be repurchased under the share repurchase program. As of September 30, 2022, 881,672 shares remained available for repurchase. Under the terms of the program, the Company may repurchase shares of its common stock from time to time at its discretion through open market repurchases, privately negotiated transactions and/or other mechanisms, depending on price and prevailing market and business conditions. The program, which has no specified term, may be suspended or terminated at any time.
9. Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2022 and 2021 were as follows:

|  |  | Foreign Currency Translation Adjustments (in thousands)
Balance at December 31, 2021 |  |  | $ | 20 |
Net current-period other comprehensive income (loss) (1) |  |  | (791) |
Balance at September 30, 2022 |  |  | $ | (771) |
|  |  | Foreign Currency Translation Adjustments (in thousands)
Balance at December 31, 2020 |  |  | $ | 29 |
Net current-period other comprehensive income (loss) (1) |  |  | (11) |
Balance at September 30, 2021 |  |  | $ | 18 |

(1) Consists of foreign currency translation adjustments, net of tax of $280 and $4 for the nine months ended September 30, 2022 and 2021, respectively.
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
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Company's Omnibus Incentive and Equity Plan (the "Omnibus Plan"). At September 30, 2022, 661,463 shares of common stock remained available for issuance of the 3,370,000 shares that are authorized for issuance under the Omnibus Plan.
Stock-based compensation expense is summarized as follows:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2022 |  | 2021 |  | 2022 |  | 2021
Stock-based compensation expense | $ | 5,148 |  |  | $ | 5,989 |  |  | $ | 19,267 |  |  | $ | 21,833 |

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 nine months ended September 30, 2022 is summarized as follows:

| Number of Shares |  | Weighted Average Grant Date Fair Value
Outstanding at December 31, 2021 | 430,730 |  |  | $ | 138.01 |
Granted | 183,277 |  |  | $ | 194.54 |
Forfeited | (37,069) |  |  | $ | 117.60 |
Settled | (196,518) |  |  | $ | 118.79 |
Outstanding at September 30, 2022 | 380,420 |  |  | $ | 177.16 |

For the nine months ended September 30, 2022 and 2021, a total of 77,508 and 72,795 RSUs, respectively, were withheld by the Company as a result of net share settlements to settle minimum employee tax withholding obligations. The Company paid $16.5 million and $19.4 million for the nine months ended September 30, 2022 and 2021, respectively, in minimum employee tax withholding obligations related to RSUs withheld for the net share settlements. These net share settlements had the effect of share repurchases by the Company as they reduced the number of shares that would have otherwise been issued as a result of the vesting.
During the nine months ended September 30, 2022, the Company granted 30,516 PSUs that contain performance-based metrics in addition to a service condition. 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 September 30, 2022, unamortized stock-based compensation expense for unvested RSUs and PSUs was $32.5 million with a weighted-average remaining contractual life of 1.2 years.
11. Restructuring Expense
During the three and nine months ended September 30, 2022, the Company incurred $4.0 million in restructuring costs, primarily related to the write-down of right-of-use assets for a lease in conjunction with the consolidation of certain office space.
12. 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
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potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, including shares issuable upon the vesting of RSUs and stock option exercises using the treasury stock method, as determined under the if-converted method.
The computation of basic and diluted EPS is as follows:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands, except per share amounts) | 2022 |  | 2021 |  | 2022 |  | 2021
Net Income (Loss) | $ | 27,415 |  |  | $ | 72,511 |  |  | $ | 80,793 |  |  | $ | 200,822 |
Noncontrolling interests | 4,265 |  |  | (13,775) |  |  | 1,348 |  |  | (42,531) |
Net Income (Loss) Attributable to Virtus Investment Partners, Inc. | $ | 31,680 |  |  | $ | 58,736 |  |  | $ | 82,141 |  |  | $ | 158,291 |
Shares (in thousands): |  |  |  |  |  |  |
Basic: Weighted-average number of shares outstanding | 7,308 |  |  | 7,691 |  |  | 7,434 |  |  | 7,688 |
Plus: Incremental shares from assumed conversion of dilutive instruments | 155 |  |  | 293 |  |  | 202 |  |  | 340 |
Diluted: Weighted-average number of shares outstanding | 7,463 |  |  | 7,984 |  |  | 7,636 |  |  | 8,028 |
Earnings (Loss) per Share—Basic | $ | 4.33 |  |  | $ | 7.64 |  |  | $ | 11.05 |  |  | $ | 20.59 |
Earnings (Loss) per Share—Diluted | $ | 4.25 |  |  | $ | 7.36 |  |  | $ | 10.76 |  |  | $ | 19.72 |

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

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2022 |  | 2021 |  | 2022 |  | 2021
Restricted stock units | 31 |  |  | 5 |  |  | 32 |  | 2 |
Total anti-dilutive securities | 31 |  |  | 5 |  |  | 32 |  | 2 |

13. Income Taxes
In calculating the provision for income taxes, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances at each interim period. On a quarterly basis, the estimated annual effective tax rate is adjusted, as appropriate, based upon changes in facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and at each interim period thereafter.
The provision for income taxes reflected U.S. federal, state and local taxes at an estimated effective tax rate of 35.2% and 24.0% for the nine months ended September 30, 2022 and 2021, respectively. The higher estimated effective tax rate for the nine months ended September 30, 2022 was primarily due to valuation allowances recorded in the current year for the tax effects of unrealized losses on certain Company investments.
14. Debt
Credit Agreement
The Company's credit agreement, as amended (the "Credit Agreement"), comprises (i) a $275.0 million seven-year term loan (the "Term Loan") expiring in September 2028, and (ii) a $175.0 million revolving credit facility with a five-year term expiring in September 2026. During the nine months ended September 30, 2022, the Company repaid $12.1 million outstanding under its Term Loan. At September 30, 2022, $262.2 million was outstanding under the Term Loan and there were no outstanding borrowings under the revolving credit facility. In accordance with ASC 835, Interest, the amounts outstanding under the Company's Term Loan are presented in the Condensed Consolidated Balance Sheet net of related debt issuance costs, which were $6.8 million as of September 30, 2022.
15. Commitments and Contingencies
Legal Matters
The Company is involved from time to time in litigation and arbitration, as well as examinations, inquiries and
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investigations by various regulatory bodies, including the SEC, involving its compliance with, among other things, securities laws, client investment guidelines, laws governing the activities of broker-dealers and other laws and regulations affecting its products and other activities. Legal and regulatory matters of this nature involve or may involve but are not limited to the Company's activities as an employer, issuer of securities, investor, investment adviser, broker-dealer or taxpayer. In addition, in the normal course of business, the Company discusses matters with its regulators raised during regulatory examinations or is otherwise subject to their inquiry. These matters could result in censures, fines, penalties or other sanctions.
The Company records a liability when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In addition, in the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450, Contingencies. The disclosures, accruals or estimates, if any, resulting from the foregoing analysis are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. Based on information currently available, available insurance coverage, indemnities and established reserves, the Company believes that the outcomes of its legal and regulatory proceedings are not likely, either individually or in the aggregate, to have a material adverse effect on the Company's results of operations, cash flows or its consolidated financial condition. However, in the event of unexpected subsequent developments, and given the inherent unpredictability of these legal and regulatory matters, the Company can provide no assurance that its assessment of any claim, dispute, regulatory examination or investigation or other legal matter will reflect the ultimate outcome, and an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company's results of operations or cash flows in particular quarterly or annual periods.
16. Redeemable Noncontrolling Interests
Redeemable noncontrolling interests represent third-party investments in the Company's CIP and minority interests held in a consolidated affiliate. Minority interests held in the affiliate are subject to holder put rights and Company call rights at established multiples of earnings before interest, taxes, depreciation and amortization and, as such, are considered redeemable at other than fair value. The rights are exercisable at pre-established intervals (between four and seven years from their issuance) or upon certain conditions, such as retirement. The put and call rights are not legally detachable or separately exercisable and are deemed to be embedded in the related noncontrolling interests. The Company, in purchasing affiliate equity, has the option to settle in cash or shares of the Company's common stock and is entitled to the cash flow associated with any purchased equity. Minority interests in an affiliate are recorded at estimated redemption value within redeemable noncontrolling interests on the Company's Condensed Consolidated Balance Sheets, and any changes in the estimated redemption value are recorded on the Condensed Consolidated Statements of Operations within noncontrolling interests.
Redeemable noncontrolling interests for the nine months ended September 30, 2022 included the following amounts:

(in thousands) |  | CIP |  | Affiliate Noncontrolling Interests |  | Total
Balances at December 31, 2021 |  | $ | 12,416 |  |  | $ | 126,549 |  |  | $ | 138,965 |
Net income (loss) attributable to noncontrolling interests |  | (2,222) |  |  | 6,000 |  |  | 3,778 |
Changes in redemption value (1) |  | — |  |  | (4,942) |  |  | (4,942) |
Total net income (loss) attributable to noncontrolling interests |  | (2,222) |  |  | 1,058 |  |  | (1,164) |
Affiliate equity sales (purchases) |  | — |  |  | (11,089) |  |  | (11,089) |
Net subscriptions (redemptions) and other |  | 5,966 |  |  | (8,236) |  |  | (2,270) |
Balances at September 30, 2022 |  | $ | 16,160 |  |  | $ | 108,282 |  |  | $ | 124,442 |

(1) Relates to noncontrolling interests redeemable at other than fair value.
17. Consolidation
The condensed consolidated financial statements include the accounts of the Company, its subsidiaries and investment products that are consolidated. Voting interest entities ("VOEs") are consolidated when the Company is considered to have a controlling financial interest, which is typically present when the Company owns a majority of the voting interest in an entity or otherwise has the power to govern the financial and operating policies of the entity.
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The Company evaluates any variable interest entities ("VIEs") in which the Company has a variable interest for consolidation. A VIE is an entity in which either (i) the equity investment at risk is not sufficient to permit the entity to finance its own activities without additional financial support; or (ii) where as a group, the holders of the equity investment at risk do not possess (x) the power through voting or similar rights to direct the activities that most significantly impact the entity's economic performance, (y) the obligation to absorb expected losses or the right to receive expected residual returns of the entity, or (z) proportionate voting and economic interests and where substantially all of the entity's activities either involve or are conducted on behalf of an investor with disproportionately fewer voting rights. 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 open-end funds in which the Company holds a controlling financial interest, and VIEs, which primarily consist of CLOs of which the Company is considered the primary beneficiary. The consolidation and deconsolidation of these investment products have no impact on net income (loss) attributable to Virtus Investment Partners, Inc. The Company's risk with respect to these investment products is limited to its beneficial interests in these products. The Company has no right to the benefits from, and does not bear the risks associated with, these investment products beyond the Company's investments in, and fees generated from, these products.
The following table presents the balances of CIP that, after intercompany eliminations, were reflected on the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021:

| As of
| September 30, 2022 |  | December 31, 2021
| VOEs |  | VIEs |  | VOEs |  | VIEs
(in thousands) |  |  | CLOs |  | Other |  |  |  | CLOs |  | Other
Cash and cash equivalents | $ | 781 |  |  | $ | 83,660 |  |  | $ | 1,941 |  |  | $ | 787 |  |  | $ | 205,192 |  |  | $ | 1,245 |
Investments | 19,451 |  |  | 1,901,419 |  |  | 56,105 |  |  | 21,544 |  |  | 2,055,107 |  |  | 63,587 |
Other assets | 112 |  |  | 16,542 |  |  | 778 |  |  | 64 |  |  | 43,327 |  |  | 819 |
Notes payable | — |  |  | (1,864,943) |  |  | — |  |  | — |  |  | (2,033,617) |  |  | — |
Securities purchased payable and other liabilities | (597) |  |  | (71,674) |  |  | (212) |  |  | (558) |  |  | (184,214) |  |  | (296) |
Noncontrolling interests | (5,862) |  |  | (6,734) |  |  | (10,298) |  |  | (4,935) |  |  | (8,350) |  |  | (7,481) |
Net interests in CIP | $ | 13,885 |  |  | $ | 58,270 |  |  | $ | 48,314 |  |  | $ | 16,902 |  |  | $ | 77,445 |  |  | $ | 57,874 |

Consolidated CLOs
The majority of the Company's CIP that are VIEs are CLOs. At September 30, 2022, the Company consolidated six CLOs. The financial information of certain CLOs is included on the Company's condensed consolidated financial statements on a one-month lag based upon the availability of their financial information. A majority-owned consolidated private fund, whose primary purpose is to invest in CLOs for which the Company serves as the collateral manager, is also included.
Investments of CLOs
The CLOs held investments of $1.9 billion at September 30, 2022 consisting of bank loan investments, which comprise the majority of the CLOs' portfolio asset collateral and are senior secured corporate loans across a variety of industries. These bank loan investments mature at various dates between 2023 and 2030 and pay interest at LIBOR plus a spread of up to 10.0%. The CLOs may elect to reinvest any prepayments received on bank loan investments up until the periods between October 2019 and October 2026, depending on the CLO. Generally, subsequent prepayments received after the reinvestment period must be used to pay down the note obligations. At September 30, 2022, the fair value of the senior bank loans was less than the unpaid principal balance by $110.4 million. At September 30, 2022, there were no material collateral assets in default.
Notes Payable of CLOs
The CLOs held notes payable with a total value, at par, of $2.1 billion at September 30, 2022, consisting of senior secured floating rate notes payable with a par value of $1.9 billion and subordinated notes with a par value of $233.7 million. These note obligations bear interest at variable rates based on LIBOR plus a pre-defined spread ranging from 0.8% to 8.9%.
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The principal amounts outstanding of these note obligations mature on dates ranging from October 2027 to October 2034.
The Company's beneficial interests and maximum exposure to loss related to these consolidated CLOs is limited to (i) ownership in the subordinated notes and (ii) accrued management fees. The secured notes of the consolidated CLOs have contractual recourse only to the related assets of the CLO and are classified as financial liabilities. Although these beneficial interests are eliminated upon consolidation, the application of the measurement alternative prescribed by ASU 2014-13, Consolidation (Topic 810) ("ASU 2014-13") results in the net assets of the consolidated CLOs shown above to be equivalent to the beneficial interests retained by the Company at September 30, 2022, as shown in the table below:

| (in thousands)
Subordinated notes | $ | 57,087 |
Accrued investment management fees | 1,183 |
Total Beneficial Interests | $ | 58,270 |

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

| Nine Months Ended September 30, 2022
| (in thousands)
Income: |
Realized and unrealized gain (loss), net | $ | (26,864) |
Interest income | 68,152 |
Total Income | 41,288 |
Expenses: |
Other operating expenses | 1,495 |
Interest expense | 46,860 |
Total Expense | 48,355 |
Noncontrolling interests | 184 |
Net Income (Loss) Attributable to CIP | $ | (6,883) |

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

| Nine Months Ended September 30, 2022 |  |
| (in thousands) |  |
Distributions received and unrealized gains (losses) on the subordinated notes held by the Company | $ | (13,024) |  |  |
Investment management fees | 6,141 |  |  |
Total Economic Interests | $ | (6,883) |  |  |

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

(in thousands) | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |
Cash equivalents | $ | 83,660 |  |  | $ | — |  |  | $ | — |  |  | $ | 83,660 |
Debt investments | 809 |  |  | 1,905,523 |  |  | 44,495 |  |  | 1,950,827 |
Equity investments | 20,822 |  |  | 4,012 |  |  | 1,314 |  |  | 26,148 |
Total assets measured at fair value | $ | 105,291 |  |  | $ | 1,909,535 |  |  | $ | 45,809 |  |  | $ | 2,060,635 |
Liabilities |  |  |  |  |  |  |
Notes payable | $ | — |  |  | $ | 1,864,943 |  |  | $ | — |  |  | $ | 1,864,943 |
Short sales | 395 |  |  | — |  |  | — |  |  | 395 |
Total liabilities measured at fair value | $ | 395 |  |  | $ | 1,864,943 |  |  | $ | — |  |  | $ | 1,865,338 |

As of December 31, 2021

(in thousands) | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |
Cash equivalents | $ | 205,192 |  |  | $ | — |  |  | $ | — |  |  | $ | 205,192 |
Debt investments | 273 |  |  | 2,107,736 |  |  | 2,695 |  |  | 2,110,704 |
Equity investments | 26,111 |  |  | 2,961 |  |  | 462 |  |  | 29,534 |
Total assets measured at fair value | $ | 231,576 |  |  | $ | 2,110,697 |  |  | $ | 3,157 |  |  | $ | 2,345,430 |
Liabilities |  |  |  |  |  |  |
Notes payable | $ | — |  |  | $ | 2,033,617 |  |  | $ | — |  |  | $ | 2,033,617 |
Short sales | 515 |  |  | — |  |  | — |  |  | 515 |
Total liabilities measured at fair value | $ | 515 |  |  | $ | 2,033,617 |  |  | $ | — |  |  | $ | 2,034,132 |

The following is a discussion of the valuation methodologies used for the assets and liabilities of the Company’s CIP measured at fair value:
Cash equivalents represent investments in money market funds. Cash investments in money market funds are valued using published net asset values and are classified as Level 1.
Debt and equity investments represent the underlying debt, equity and other securities held in CIP. Equity investments are valued at the official closing price on the exchange on which the securities are traded and are generally categorized within Level 1. Level 2 investments represent most debt securities, including bank loans and certain equity securities (including non-U.S. securities), for which closing prices are not readily available or are deemed to not reflect readily available market prices, and are valued using an independent pricing service. Debt investments are valued based on quotations received from independent pricing services or from dealers who make markets in such securities. Bank loan investments, which are included as debt investments, are generally priced at the average mid-point of bid and ask quotations obtained from a third-party pricing service. Fair value may also be based upon valuations obtained from independent third-party brokers or dealers utilizing matrix pricing models that consider information regarding securities with similar characteristics. In certain instances, fair value has been determined utilizing discounted cash flow analyses or single broker non-binding quotes. Depending on the nature of the inputs, these assets are classified as Level 1, 2 or 3 within the fair value measurement hierarchy. Level 3 investments include debt and equity securities that are not widely traded, are illiquid or are priced by dealers based on pricing models used by market makers in the security.
Notes payable represent notes issued by CIP CLOs and are measured using the measurement alternative in ASU 2014-13. Accordingly, the fair value of CLO liabilities was measured as the fair value of CLO assets less the sum of (i) the fair value of the beneficial interests held by the Company and (ii) the carrying value of any beneficial interests that represent
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compensation for services. The fair value of the beneficial interests held by the Company is based on third-party pricing information without adjustment.
Short sales are transactions in which a security is sold that is not owned or is owned but there is no intention to deliver, in anticipation that the price of the security will decline. Short sales are recorded on the Condensed Consolidated Balance Sheets within other liabilities of CIP and are classified as Level 1 based on the underlying equity security.
The securities purchase payable at September 30, 2022 and December 31, 2021 approximated fair value due to the short-term nature of the instruments.
The following table is a reconciliation of assets of CIP for Level 3 investments for which significant unobservable inputs were used to determine fair value:

| Nine Months Ended September 30, |  |
(in thousands) | 2022 |  | 2021 |  |
Balance at beginning of period | $ | 3,157 |  |  | $ | 54,182 |  |  |
Realized gains (losses), net | (596) |  |  | (209) |  |  |
Change in unrealized gains (losses), net | (425) |  |  | 1,580 |  |  |
Purchases | 1,930 |  |  | 8,267 |  |  |
Amortization | 9 |  |  | 78 |  |  |
Sales | (12,142) |  |  | (31,501) |  |  |
Transfers to Level 2 | (53,746) |  |  | (54,445) |  |  |
Transfers from Level 2 | 107,622 |  |  | 68,635 |  |  |
Balance at end of period (1) | $ | 45,809 |  |  | $ | 46,587 |  |  |

(1)The investments that are categorized as Level 3 were valued utilizing third-party pricing information without adjustment. Transfers between Level 2 and Level 3 were due to trading activities at period end.
Nonconsolidated VIEs
The Company serves as the collateral manager for other collateralized loan and collateralized bond obligations (collectively, "CDOs") that are not consolidated. The assets and liabilities of these CDOs reside in bankruptcy remote, special purpose entities in which the Company has no ownership of, nor holds any notes issued by, the CDOs, and provides neither recourse nor guarantees. The Company has determined that the investment management fees it receives for serving as collateral manager for these CDOs did not represent a variable interest since (i) the fees the Company earns are compensation for services provided and are commensurate with the level of effort required to provide the investment management services, (ii) the Company does not hold other interests in the CDOs that individually, or in the aggregate, would absorb more than an insignificant amount of the CDOs' expected losses or receive more than an insignificant amount of the CDOs' expected residual return, and (iii) the investment management arrangement only includes terms, conditions and amounts that are customarily present in arrangements for similar services negotiated at arm's length.
The Company has interests in certain other VIEs that the Company does not consolidate as it is not the primary beneficiary since its interest in these entities does not provide the Company with the power to direct the activities that most significantly impact the entities' economic performance. At September 30, 2022, the carrying value and maximum risk of loss related to the Company's interest in these VIEs was $25.4 million.
18. Subsequent Event
On October 19, 2022, the Company entered into an agreement to acquire AlphaSimplex Group, LLC, a leading manager of liquid alternative investment solutions with $10.9 billion of assets under management at September 30, 2022. The transaction is expected to close near the end of the first quarter of 2023, subject to customary closing conditions, necessary regulatory approvals, and approvals by the mutual fund boards and fund shareholders.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q contains statements that are, or may be considered to be, forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995, as amended, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements that are not historical facts, including statements about our beliefs or expectations, are "forward-looking statements." These statements may be identified by such forward-looking terminology as "expect," "estimate," "intent," "plan," "intend," "believe," "anticipate," "may," "will," "should," "could," "continue," "project," "opportunity," "predict," "would," "potential," "future," "forecast," "guarantee," "assume," "likely," "target" or similar statements or variations of such terms.
Our forward-looking statements are based on a series of expectations, assumptions and projections about the Company and the markets in which we operate, are not guarantees of future results or performance, and involve substantial risks and uncertainty, including assumptions and projections concerning our assets under management, net asset inflows and outflows, operating cash flows, business plans and ability to borrow, for all future periods. All forward-looking statements contained in this Quarterly Report on Form 10-Q are as of the date of this Quarterly Report on Form 10-Q only.
We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. We do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections, or other circumstances occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. If there are any future public statements or disclosures by us that modify or impact any of the forward-looking statements contained in or accompanying this Quarterly Report on Form 10-Q, such statements or disclosures will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.
Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including those discussed under "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Annual Report on Form 10-K and this Quarterly Report on Form 10-Q, resulting from: (i) any reduction in our assets under management; (ii) general domestic and global economic and political conditions (including war, acts of terrorism and civil unrest); (iii) inability to achieve the expected benefits of our strategic transactions; (iv) the ongoing effects of the COVID-19 pandemic and associated global economic disruption; (v) withdrawal, renegotiation or termination of investment advisory agreements; (vi) damage to our reputation; (vii) inability to satisfy financial covenants and payments related to our indebtedness; (viii) inability to attract and retain key personnel; (ix) challenges from the competition we face in our business; (x) adverse developments related to unaffiliated subadvisers; (xi) negative changes in key distribution relationships; (xii) interruptions in or failure to provide critical technological service by us or third parties; (xiii) loss on our investments; (xiv) lack of sufficient capital on satisfactory terms; (xv) adverse regulatory and legal developments; (xvi) failure to comply with investment guidelines or other contractual requirements; (xvii) adverse civil litigation and government investigations or proceedings; (xviii) unfavorable changes in tax laws or limitations; (xix) volatility associated with our common stock; (xx) inability to make quarterly common stock dividends; (xxi) certain corporate governance provisions in our charter and bylaws; (xxii) losses or costs not covered by insurance; (xxiii) impairment of goodwill or intangible assets; and other risks and uncertainties. Any occurrence of, or any material adverse change in, one or more risk factors or risks and uncertainties referred to above, in our 2021 Annual Report on Form 10-K, this Quarterly Report on Form 10-Q and our other periodic reports filed with the Securities and Exchange Commission (the "SEC") could materially and adversely affect our operations, financial results, cash flows, prospects and liquidity.
Certain other factors that may impact our continuing operations, prospects, financial results and liquidity, or that may cause actual results to differ from such forward-looking statements, are discussed or included in the Company’s periodic reports filed with the SEC and are available on our website at www.virtus.com under "Investor Relations." You are urged to carefully consider all such factors.
Overview
Our Business
We provide investment management and related services to individuals and institutions. We use a multi-manager, multi-style approach, offering investment strategies from affiliated managers, each having its own distinct investment style, autonomous investment process and individual brand, as well as from select unaffiliated subadvisers. By offering a broad array of products, we believe we can appeal to a greater number of investors and have offerings across market cycles and through changes in investor preferences. Our earnings are primarily driven by asset-based fees charged for services relating to these various products, including investment management, fund administration, distribution, and shareholder services.
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We offer investment strategies for individual and institutional investors in different investment products and through multiple distribution channels. Our investment strategies are available in a diverse range of styles and disciplines, managed by differentiated investment managers. We have offerings in various asset classes (equity, fixed income, multi-asset and alternative), geographies (domestic, global, international and emerging), market capitalizations (large, mid and small), styles (growth, core and value) and investment approaches (fundamental, quantitative and specialty). Our retail products include open-end funds, closed-end funds and retail separate accounts. Our institutional products are offered through separate accounts and pooled or commingled structures to a variety of institutional clients. We also provide subadvisory services to other investment advisers and serve as the collateral manager for structured products.
We distribute our open-end funds principally through financial intermediaries. We have broad distribution access in the U.S. retail market, with distribution partners that include national and regional broker-dealers, independent broker-dealers and registered investment advisers, banks and insurance companies. In many of these firms, we have a number of products that are on preferred "recommended" lists and on fee-based advisory programs. Our sales efforts are supported by regional sales professionals, a national account relationship group, and separate teams for ETFs and the retirement and insurance channels. Our retail separate accounts are distributed through financial intermediaries and directly to private clients by teams at an affiliated manager.
Our institutional services are marketed through relationships with consultants as well as directly to clients. We target key market segments, including foundations and endowments, corporate, public and private pension plans, and subadvisory relationships.
Financial Highlights
▪Net income per diluted share was $4.25 in the third quarter of 2022, a decrease of $3.11, or 42.3%, as compared to net income per diluted share of $7.36 in the third quarter of 2021.
▪Total sales were $5.7 billion in the third quarter of 2022, a decrease of $1.9 billion, or 24.9%, from $7.6 billion in the third quarter of 2021. Net outflows were $3.3 billion in the third quarter of 2022 compared to $0.5 billion in the third quarter of 2021.
▪Assets under management were $145.0 billion at September 30, 2022, a decrease of $32.3 billion, or 18.2%, from September 30, 2021.
AlphaSimplex
On October 19, 2022, the Company entered into an agreement to acquire AlphaSimplex, a leading manager of liquid alternative investment solutions with $10.9 billion of assets under management at September 30, 2022. Under the agreement, the Company would acquire 100% of AlphaSimplex for $130.0 million at closing which includes deferred retention incentives for management. The transaction is expected to close near the end of the first quarter of 2023, subject to customary closing conditions, necessary regulatory approvals, and approvals by the mutual fund boards and fund shareholders.
Stone Harbor Investment Partners
On January 1, 2022, the Company acquired Stone Harbor Investment Partners LLC ("Stone Harbor"), a premier manager of emerging markets debt, multi-asset credit, global corporate, and other strategies with $14.7 billion of assets under management at December 31, 2021.
Westchester Capital Management
On October 1, 2021, the Company acquired of Westchester Capital Management ("Westchester"), a recognized leader in global event-driven strategies with $5.1 billion of assets under management.
Fund Adoption and NFJ Investment Group
On February 1, 2021, the Company executed an agreement with Allianz Global Investors U.S. LLC ("AGI"), pursuant to which NFJ Investment Group ("NFJ") was established as a new affiliated investment manager, and the Company became the investment adviser, distributor and/or administrator for $29.5 billion of AGI's open-end, closed-end, institutional and retail separate account assets.
Assets Under Management
At September 30, 2022, total assets under management were $145.0 billion, representing a decrease of $32.3 billion, or 18.2%, from September 30, 2021, and a decrease of $42.2 billion, or 22.6%, from December 31, 2021. The decrease from
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September 30, 2021 was due to $39.6 billion of negative market performance and $10.0 billion of net outflows partially offset by an increase of $19.8 billion in assets under management from the addition of Stone Harbor and Westchester. The decrease from December 31, 2021 was due to $45.9 billion in negative market performance and $10.0 billion of net outflows, partially offset by an increase of $14.7 billion in assets under management from the addition of Stone Harbor.
Other Fee Earning Assets
Other fee earning assets include assets for which we provide services for an asset-based fee but do not serve as the investment adviser. Other fee earning assets are not included in our assets under management. At September 30, 2021, we had $2.5 billion of other fee earning assets.
Operating Results
In the third quarter of 2022, total revenues decreased 16.6% to $210.3 million from $252.1 million in the third quarter of 2021, primarily as a result of lower average assets under management due to negative market performance and net outflows partially offset by an increase in assets under management from Stone Harbor and Westchester. Operating income decreased $49.3 million to $44.0 million in the third quarter of 2022 compared to $93.3 million in the third quarter of 2021, due primarily to the previously mentioned factors.
Assets Under Management by Product
The following table summarizes our assets under management by product:

| As of September 30, |  | Change
(in millions) | 2022 |  | 2021 |  | $ |  | %
Open-End Funds (1) | $ | 54,454 |  |  | $ | 74,365 |  |  | $ | (19,911) |  |  | (26.8) | %
Closed-End Funds | 10,146 |  |  | 11,721 |  |  | (1,575) |  |  | (13.4) | %
Retail Separate Accounts | 33,381 |  |  | 41,528 |  |  | (8,147) |  |  | (19.6) | %
Institutional Accounts (2) | 46,993 |  |  | 49,691 |  |  | (2,698) |  |  | (5.4) | %
Total | $ | 144,974 |  |  | $ | 177,305 |  |  | $ | (32,331) |  |  | (18.2) | %
Average Assets Under Management (3) | $ | 172,853 |  |  | $ | 168,934 |  |  | $ | 3,919 |  |  | 2.3 | %

(1)Represents assets under management of U.S. retail funds, global funds, ETFs and variable insurance funds.
(2)Represents assets under management of institutional separate and commingled accounts including structured products.
(3)Averages are calculated as follows:
–Funds - average daily or weekly balances
–Retail Separate Accounts - prior-quarter ending balance
–Institutional Accounts - average of month-end balances
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Asset Flows by Product
The following table summarizes asset flows by product:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) | 2022 |  | 2021 |  | 2022 |  | 2021
Open-End Funds (1) |  |  |  |  |  |  |
Beginning balance | $ | 59,479 |  |  | $ | 76,593 |  |  | $ | 78,706 |  |  | $ | 51,608 |
Inflows | 2,880 |  |  | 3,809 |  |  | 10,956 |  |  | 14,812 |
Outflows | (5,689) |  |  | (5,168) |  |  | (21,710) |  |  | (15,582) |
Net flows | (2,809) |  |  | (1,359) |  |  | (10,754) |  |  | (770) |
Market performance | (2,012) |  |  | (775) |  |  | (17,919) |  |  | 4,026 |
Other (2) | (204) |  |  | (94) |  |  | 4,421 |  |  | 19,501 |
Ending balance | $ | 54,454 |  |  | $ | 74,365 |  |  | $ | 54,454 |  |  | $ | 74,365 |
Closed-End Funds |  |  |  |  |  |  |
Beginning balance | $ | 10,645 |  |  | $ | 11,993 |  |  | $ | 12,068 |  |  | $ | 5,914 |
Inflows | 157 |  |  | 3 |  |  | 189 |  |  | 3 |
Outflows | — |  |  | — |  |  | — |  |  | — |
Net flows | 157 |  |  | 3 |  |  | 189 |  |  | 3 |
Market performance | (531) |  |  | (114) |  |  | (1,977) |  |  | 505 |
Other (2) | (125) |  |  | (161) |  |  | (134) |  |  | 5,299 |
Ending balance | $ | 10,146 |  |  | $ | 11,721 |  |  | $ | 10,146 |  |  | $ | 11,721 |
Retail Separate Accounts |  |  |  |  |  |  |
Beginning balance | $ | 35,248 |  |  | $ | 40,578 |  |  | $ | 44,538 |  |  | $ | 29,751 |
Inflows | 1,179 |  |  | 2,003 |  |  | 4,489 |  |  | 6,975 |
Outflows | (1,418) |  |  | (1,231) |  |  | (4,789) |  |  | (2,960) |
Net flows | (239) |  |  | 772 |  |  | (300) |  |  | 4,015 |
Market performance | (1,628) |  |  | 178 |  |  | (10,857) |  |  | 4,229 |
Other (2) | — |  |  | — |  |  | — |  |  | 3,533 |
Ending balance | $ | 33,381 |  |  | $ | 41,528 |  |  | $ | 33,381 |  |  | $ | 41,528 |
Institutional Accounts (3) |  |  |  |  |  |  |
Beginning balance | $ | 50,048 |  |  | $ | 49,474 |  |  | $ | 51,874 |  |  | $ | 44,921 |
Inflows | 1,507 |  |  | 1,808 |  |  | 7,408 |  |  | 5,994 |
Outflows | (1,930) |  |  | (1,727) |  |  | (6,585) |  |  | (5,779) |
Net flows | (423) |  |  | 81 |  |  | 823 |  |  | 215 |
Market performance | (2,475) |  |  | 258 |  |  | (15,144) |  |  | 4,259 |
Other (2) | (157) |  |  | (122) |  |  | 9,440 |  |  | 296 |
Ending balance | $ | 46,993 |  |  | $ | 49,691 |  |  | $ | 46,993 |  |  | $ | 49,691 |
Total |  |  |  |  |  |  |
Beginning balance | $ | 155,420 |  |  | $ | 178,638 |  |  | $ | 187,186 |  |  | $ | 132,194 |
Inflows | 5,723 |  |  | 7,623 |  |  | 23,042 |  |  | 27,784 |
Outflows | (9,037) |  |  | (8,126) |  |  | (33,084) |  |  | (24,321) |
Net flows | (3,314) |  |  | (503) |  |  | (10,042) |  |  | 3,463 |
Market performance | (6,646) |  |  | (453) |  |  | (45,897) |  |  | 13,019 |
Other (2) | (486) |  |  | (377) |  |  | 13,727 |  |  | 28,629 |
Ending balance | $ | 144,974 |  |  | $ | 177,305 |  |  | $ | 144,974 |  |  | $ | 177,305 |

(1)Represents assets under management of U.S. retail funds, global funds, ETFs and variable insurance funds.
(2)Represents open-end and closed-end fund distributions net of reinvestments, the net change in assets from cash management strategies, and the impact of non-sales related activities such as asset acquisitions/(dispositions), seed capital investments/(withdrawals), current income or capital returned by structured products and the use of leverage.
(3)Represents assets under management of institutional separate and commingled accounts including structured products.
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Assets Under Management by Asset Class
The following table summarizes assets under management by asset class:

| As of September 30, |  | Change |  | % of Total
(in millions) | 2022 |  | 2021 |  | $ |  | % |  | 2022 |  | 2021
Asset Class |  |  |  |  |  |  |  |  |  |  |
Equity | $ | 78,034 |  |  | $ | 112,732 |  |  | $ | (34,698) |  |  | (30.8) | % |  | 53.7 | % |  | 63.6 | %
Fixed income | 36,910 |  |  | 35,240 |  |  | 1,670 |  |  | 4.7 | % |  | 25.5 | % |  | 19.9 | %
Multi-asset (1) | 19,364 |  |  | 23,641 |  |  | (4,277) |  |  | (18.1) | % |  | 13.4 | % |  | 13.3 | %
Alternatives (2) | 10,666 |  |  | 5,692 |  |  | 4,974 |  |  | 87.4 | % |  | 7.4 | % |  | 3.2 | %
Total | $ | 144,974 |  |  | $ | 177,305 |  |  | $ | (32,331) |  |  | (18.2) | % |  | 100.0 | % |  | 100.0 | %

(1) Includes strategies with substantial holdings in at least two of the following asset classes: equity, fixed income, and alternatives.
(2) Consists of event-driven, real estate securities, infrastructure, long/short and other strategies.
Average Assets Under Management and Average Fees Earned
The following table summarizes the average management fees earned in basis points and average assets under management:

| Three Months Ended September 30,
| Average Fee Earned (expressed in basis points) |  | Average Assets Under Management (in millions) (3)
| 2022 |  | 2021 |  | 2022 |  | 2021
Products |  |  |  |  |  |  |
Open-End Funds (1) | 46.8 |  |  | 45.7 |  |  | $ | 60,185 |  |  | $ | 76,368 |
Closed-End Funds | 57.0 |  |  | 56.2 |  |  | 10,971 |  |  | 12,091 |
Retail Separate Accounts | 42.2 |  |  | 44.0 |  |  | 35,248 |  |  | 40,578 |
Institutional Accounts (2) | 31.3 |  |  | 31.3 |  |  | 50,668 |  |  | 50,542 |
All Products | 41.5 |  |  | 42.0 |  |  | $ | 157,072 |  |  | $ | 179,579 |
| Nine Months Ended September 30,
| Average Fee Earned (expressed in basis points) |  | Average Assets Under Management (in millions) (3)
| 2022 |  | 2021 |  | 2022 |  | 2021
Products |  |  |  |  |  |  |
Open-End Funds (1) | 46.4 |  | 46.3 |  | $ | 67,105 |  |  | $ | 72,930 |
Closed-End Funds | 57.4 |  | 55.8 |  | $ | 11,379 |  |  | $ | 11,122 |
Retail Separate Accounts | 42.9 |  | 44.6 |  | $ | 40,203 |  |  | $ | 36,647 |
Institutional Accounts (2) | 31.1 |  | 32.1 |  | $ | 54,166 |  |  | $ | 48,235 |
All Products | 41.5 |  | 42.5 |  | $ | 172,853 |  |  | $ | 168,934 |

(1)Represents assets under management of U.S. retail funds, global funds, ETFs and variable insurance funds.
(2)Represents assets under management of institutional separate and commingled accounts including structured products.
(3)Averages are calculated as follows:
–Funds - average daily or weekly balances
–Retail Separate Accounts - prior-quarter ending balance
–Institutional Accounts - average of month-end balances
Average fees earned represent investment management fees, net of revenue-related adjustments, divided by average net assets, excluding the impact of consolidation of investment products ("CIP"). Revenue-related adjustments are based on specific agreements and reflect the portion of investment management fees passed-through to third-party client intermediaries for services to investors in sponsored investment products. Fund fees are calculated based on average daily or weekly net
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assets. Retail separate account fees are calculated based on the end of the preceding or current quarter’s asset values or on an average of month-end balances. Institutional account fees are calculated based on an average of month-end balances, an average of current quarter’s asset values or on a combination of the underlying cash flows and the principal value of the product. Average fees earned will vary based on several factors, including the asset mix and expense reimbursements to the funds.
The average fee rate earned on all products for the three and nine months ended September 30, 2022 decreased by 0.5 basis points and 1.0 basis points, respectively, compared to the same periods in the prior year primarily due to a lower proportion of assets under management in equity products as a result of negative equity markets in the current year periods partially offset by a higher proportion of alternative assets in the current year periods.
Results of Operations
Summary Financial Data

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2022 |  | 2021 |  | 2022 vs. 2021 |  | % |  | 2022 |  | 2021 |  | 2022 vs. 2021 |  | %
Investment management fees | $ | 172,850 |  |  | $ | 201,133 |  |  | $ | (28,283) |  |  | (14.1) | % |  | $ | 564,691 |  |  | $ | 567,912 |  |  | $ | (3,221) |  |  | (0.6) | %
Other revenue | 37,411 |  |  | 50,931 |  |  | (13,520) |  |  | (26.5) | % |  | 123,317 |  |  | 145,060 |  |  | (21,743) |  |  | (15.0) | %
Total revenues | 210,261 |  |  | 252,064 |  |  | (41,803) |  |  | (16.6) | % |  | 688,008 |  |  | 712,972 |  |  | (24,964) |  |  | (3.5) | %
Total operating expenses | 166,244 |  |  | 158,782 |  |  | 7,462 |  |  | 4.7 | % |  | 521,769 |  |  | 471,137 |  |  | 50,632 |  |  | 10.7 | %
Operating income (loss) | 44,017 |  |  | 93,282 |  |  | (49,265) |  |  | (52.8) | % |  | 166,239 |  |  | 241,835 |  |  | (75,596) |  |  | (31.3) | %
Other income (expense), net | (11,592) |  |  | (2,304) |  |  | (9,288) |  |  | 403.1 | % |  | (59,262) |  |  | 1,738 |  |  | (61,000) |  |  | N/M
Interest income (expense), net | 5,744 |  |  | 7,356 |  |  | (1,612) |  |  | (21.9) | % |  | 17,785 |  |  | 20,626 |  |  | (2,841) |  |  | (13.8) | %
Income (loss) before income taxes | 38,169 |  |  | 98,334 |  |  | (60,165) |  |  | (61.2) | % |  | 124,762 |  |  | 264,199 |  |  | (139,437) |  |  | (52.8) | %
Income tax expense (benefit) | 10,754 |  |  | 25,823 |  |  | (15,069) |  |  | (58.4) | % |  | 43,969 |  |  | 63,377 |  |  | (19,408) |  |  | (30.6) | %
Net income (loss) | 27,415 |  |  | 72,511 |  |  | (45,096) |  |  | (62.2) | % |  | 80,793 |  |  | 200,822 |  |  | (120,029) |  |  | (59.8) | %
Noncontrolling interests | 4,265 |  |  | (13,775) |  |  | 18,040 |  |  | (131.0) | % |  | 1,348 |  |  | (42,531) |  |  | 43,879 |  |  | (103.2) | %
Net Income (Loss) Attributable to Virtus Investment Partners, Inc. | $ | 31,680 |  |  | $ | 58,736 |  |  | $ | (27,056) |  |  | (46.1) | % |  | $ | 82,141 |  |  | $ | 158,291 |  |  | $ | (76,150) |  |  | (48.1) | %
Earnings (loss) per share-diluted | $ | 4.25 |  |  | $ | 7.36 |  |  | $ | (3.11) |  |  | (42.3) | % |  | $ | 10.76 |  |  | $ | 19.72 |  |  | $ | (8.96) |  |  | (45.4) | %

N/M = Not Meaningful
Revenues
Revenues by source were as follows:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2022 |  | 2021 |  | 2022 vs. 2021 |  | % |  | 2022 |  | 2021 |  | 2022 vs. 2021 |  | %
Investment management fees |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Open-end funds | $ | 80,234 |  |  | $ | 99,711 |  |  | $ | (19,477) |  |  | (19.5) | % |  | $ | 262,486 |  |  | $ | 286,104 |  |  | $ | (23,618) |  |  | (8.3) | %
Closed-end funds | 15,773 |  |  | 17,116 |  |  | (1,343) |  |  | (7.8) | % |  | 48,887 |  |  | 46,451 |  |  | 2,436 |  |  | 5.2 | %
Retail separate accounts | 39,154 |  |  | 46,625 |  |  | (7,471) |  |  | (16.0) | % |  | 134,069 |  |  | 126,612 |  |  | 7,457 |  |  | 5.9 | %
Institutional accounts | 37,689 |  |  | 37,681 |  |  | 8 |  |  | 0.0 | % |  | 119,249 |  |  | 108,745 |  |  | 10,504 |  |  | 9.7 | %
Total investment management fees | 172,850 |  |  | 201,133 |  |  | (28,283) |  |  | (14.1) | % |  | 564,691 |  |  | 567,912 |  |  | (3,221) |  |  | (0.6) | %
Distribution and service fees | 15,746 |  |  | 23,293 |  |  | (7,547) |  |  | (32.4) | % |  | 52,912 |  |  | 67,091 |  |  | (14,179) |  |  | (21.1) | %
Administration and shareholder service fees | 20,563 |  |  | 26,479 |  |  | (5,916) |  |  | (22.3) | % |  | 66,889 |  |  | 74,916 |  |  | (8,027) |  |  | (10.7) | %
Other income and fees | 1,102 |  |  | 1,159 |  |  | (57) |  |  | (4.9) | % |  | 3,516 |  |  | 3,053 |  |  | 463 |  |  | 15.2 | %
Total revenues | $ | 210,261 |  |  | $ | 252,064 |  |  | $ | (41,803) |  |  | (16.6) | % |  | $ | 688,008 |  |  | $ | 712,972 |  |  | $ | (24,964) |  |  | (3.5) | %

Investment Management Fees
Investment management fees are earned based on a percentage of assets under management and are paid pursuant to the terms of the respective investment management contracts, which generally require monthly or quarterly payments. Investment management fees decreased by $28.3 million, or 14.1%, for the three months ended September 30, 2022, and decreased $3.2 million, or 0.6%, for the nine months ended September 30, 2022, compared to the same periods in the prior year. The decrease in investment management fees during the three-month period was due to a decrease in average assets under management of $22.5 billion, or 12.5%, as well as a lower blended fee rate, partially offset by the addition of Stone Harbor and
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Westchester assets under management. The decrease in investment management fees during the nine-month period was due to the lower blended fee rate offset by an increase in average assets under management of $3.9 billion, or 2.3%, as a result of the addition of Stone Harbor and Westchester.
Distribution and Service Fees
Distribution and service fees are sales- and asset-based fees earned from open-end funds for marketing and distribution services. Distribution and service fees decreased by $7.5 million, or 32.4%, and $14.2 million, or 21.1%, for the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year, due primarily to lower sales for open-end funds in share classes that have sales-based distribution and service fees.
Administration and Shareholder Service Fees
Administration and shareholder service fees represent fees earned for fund administration and shareholder services from our U.S. retail funds, ETFs, and certain of our closed-end funds. Fund administration and shareholder service fees decreased by $5.9 million, or 22.3%, and $8.0 million, or 10.7%, for the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year primarily due to the net decrease in average assets under management for our open-end and closed-end funds during the periods as a result of market performance and net outflows in our open-end funds.
Other Income and Fees
Other income and fees primarily represent fees related to other fee-earning assets and contingent sales charges earned from investor redemptions of certain shares sold without a front-end sales charge. Other income and fees increased by $0.5 million, or 15.2%, for the nine months ended September 30, 2022, compared to the same period in the prior year. The increase for the nine months ended September 30, 2022 was primarily due to higher redemption income in the period.
Operating Expenses
Operating expenses by category were as follows:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2022 |  | 2021 |  | 2022 vs. 2021 |  | % |  | 2022 |  | 2021 |  | 2022 vs. 2021 |  | %
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Employment expenses | $ | 88,230 |  |  | $ | 87,345 |  |  | $ | 885 |  |  | 1.0 | % |  | $ | 283,583 |  |  | $ | 266,734 |  |  | $ | 16,849 |  |  | 6.3 | %
Distribution and other asset-based expenses | 26,818 |  |  | 36,692 |  |  | (9,874) |  |  | (26.9) | % |  | 88,247 |  |  | 105,007 |  |  | (16,760) |  |  | (16.0) | %
Other operating expenses | 31,096 |  |  | 22,800 |  |  | 8,296 |  |  | 36.4 | % |  | 94,367 |  |  | 64,326 |  |  | 30,041 |  |  | 46.7 | %
Other operating expenses of CIP | 538 |  |  | 639 |  |  | (101) |  |  | (15.8) | % |  | 1,927 |  |  | 1,857 |  |  | 70 |  |  | 3.8 | %
Restructuring expense | 4,015 |  |  | — |  |  | 4,015 |  |  | 100.0 | % |  | 4,015 |  |  | — |  |  | 4,015 |  |  | 100.0 | %
Change in fair value of contingent consideration | — |  |  | — |  |  | — |  |  | — | % |  | 2,900 |  |  | — |  |  | 2,900 |  |  | 100.0 | %
Depreciation expense | 938 |  |  | 915 |  |  | 23 |  |  | 2.5 | % |  | 2,835 |  |  | 2,994 |  |  | (159) |  |  | (5.3) | %
Amortization expense | 14,609 |  |  | 10,391 |  |  | 4,218 |  |  | 40.6 | % |  | 43,895 |  |  | 30,219 |  |  | 13,676 |  |  | 45.3 | %
Total operating expenses | $ | 166,244 |  |  | $ | 158,782 |  |  | $ | 7,462 |  |  | 4.7 | % |  | $ | 521,769 |  |  | $ | 471,137 |  |  | $ | 50,632 |  |  | 10.7 | %

Employment Expenses
Employment expenses consist of fixed and variable compensation and related employee benefit costs. Employment expenses for the three and nine months ended September 30, 2022 were $88.2 million and $283.6 million, which represented an increase of $0.9 million, or 1.0%, and $16.8 million, or 6.3%, respectively, compared to the same periods in the prior year. The increases in both periods were primarily due to the addition of Stone Harbor and Westchester.
Distribution and Other Asset-Based Expenses
Distribution and other asset-based expenses consist primarily of payments to third-party client intermediaries for providing services to investors in sponsored investment products. These payments are primarily based on assets under management or on a percentage of sales. Distribution and other asset-based expenses also include the amortization of deferred sales commissions related to up-front commissions on shares sold without a front-end sales charge to shareholders. The deferred sales commissions are amortized on a straight-line basis over the period commissions are recovered from distribution fee revenues and contingent sales charges received upon redemption of shares. During the three and nine months ended
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September 30, 2022, distribution and other asset-based expenses decreased $9.9 million, or 26.9%, and $16.8 million, or 16.0%, respectively, as compared to the same periods in the prior year primarily due to lower sales and a decrease in assets under management in share classes that have sales- and asset-based distribution and other asset-based expenses.
Other Operating Expenses
Other operating expenses primarily consist of investment research and technology costs, professional fees, travel and distribution related costs, rent and occupancy expenses, and other business costs. For the three and nine months ended September 30, 2022, other operating expenses increased by $8.3 million, or 36.4%, and $30.0 million, or 46.7%, respectively, as compared to the same periods in the prior year primarily due to the addition of Stone Harbor and Westchester, as well as higher travel and related expenses.
Other Operating Expenses of CIP
Other operating expenses of CIP remained consistent during the three and nine months ended September 30, 2022, compared to the same periods in the prior year.
Restructuring Expense
Restructuring expense primarily consist of costs incurred during the three and nine months ended September 30, 2022 related to the write-down of right-of-use assets for a lease in conjunction with the consolidation of certain office space.
Change in Fair Value of Contingent Consideration
Our contingent consideration related to our NFJ, Westchester and Stone Harbor transactions are remeasured at fair value each reporting date taking into consideration changes in various estimates, including probability of success, discount rates and amount of time until the conditions of the contingent payments are achieved. The change in fair value is recorded in the current period as a gain or loss. The change in value of continent consideration of $2.9 million during the nine months ended September 30, 2022 was primarily attributable to higher future revenue projections and the time value of money.
Depreciation Expense
Depreciation expense consists primarily of the straight-line depreciation of furniture, equipment and leasehold improvements. Depreciation expense remained consistent during the three and nine months ended September 30, 2022, compared to the same periods in the prior year.
Amortization Expense
Amortization expense consists of the amortization of definite-lived intangible assets over their estimated useful lives. Amortization expense increased $4.2 million, or 40.6%, and $13.7 million, or 45.3%, for the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year. The increases during the three- and nine-month periods were due to the additional amortization associated with the acquisitions of Stone Harbor and Westchester.
Other Income (Expense)
Other Income (Expense), net by category were as follows:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2022 |  | 2021 |  | 2022 vs. 2021 |  | % |  | 2022 |  | 2021 |  | 2022 vs. 2021 |  | %
Other Income (Expense) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Realized and unrealized gain (loss) on investments, net | $ | (2,493) |  |  | $ | (504) |  |  | $ | (1,989) |  |  | 394.6 | % |  | $ | (16,018) |  |  | $ | 2,881 |  |  | $ | (18,899) |  |  | (656.0) | %
Realized and unrealized gain (loss) of CIP, net | (8,440) |  |  | (2,801) |  |  | (5,639) |  |  | 201.3 | % |  | (43,443) |  |  | (4,741) |  |  | (38,702) |  |  | 816.3 | %
Other income (expense), net | (659) |  |  | 1,001 |  |  | (1,660) |  |  | (165.8) | % |  | 199 |  |  | 3,598 |  |  | (3,399) |  |  | (94.5) | %
Total Other Income (Expense), net | $ | (11,592) |  |  | $ | (2,304) |  |  | $ | (9,288) |  |  | 403.1 | % |  | $ | (59,262) |  |  | $ | 1,738 |  |  | $ | (61,000) |  |  | (3,509.8) | %

Realized and unrealized gain (loss) on investments, net
Realized and unrealized gain (loss) on investments, net changed during the three and nine months ended September 30, 2022 by $(2.0) million and $(18.9) million, respectively, as compared to the same periods in the prior year. The realized and unrealized gains and losses during the periods reflected changes in overall market conditions experienced during the periods.
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Realized and unrealized gain (loss) of CIP, net
Realized and unrealized gain (loss) of CIP, net changed $(5.6) million and $(38.7) million during the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year. The changes for the three and nine months ended September 30, 2022 consisted primarily of an increase in net realized and unrealized gains of $5.7 million and losses of $119.1 million, respectively, due to changes in market values of leveraged loans, partially offset by changes in unrealized losses of $11.3 million and gains of $80.4 million, respectively, related to the value of the notes payable.
Other income (expense), net
Other income (expense), net decreased $1.7 million and $3.4 million during the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year. The decreases during the three- and nine-month periods were primarily due to lower equity method investment income during the current year periods.
Interest Income (Expense)
Interest Income (Expense), net by category were as follows:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2022 |  | 2021 |  | 2022 vs. 2021 |  | % |  | 2022 |  | 2021 |  | 2022 vs. 2021 |  | %
Interest Income (Expense) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense | $ | (3,557) |  |  | $ | (2,348) |  |  | $ | (1,209) |  |  | 51.5 | % |  | $ | (8,661) |  |  | $ | (6,918) |  |  | $ | (1,743) |  |  | 25.2 | %
Interest and dividend income | 1,013 |  |  | 269 |  |  | 744 |  |  | 276.6 | % |  | 1,870 |  |  | 571 |  |  | 1,299 |  |  | 227.5 | %
Interest and dividend income of investments of CIP | 28,644 |  |  | 22,877 |  |  | 5,767 |  |  | 25.2 | % |  | 71,436 |  |  | 69,315 |  |  | 2,121 |  |  | 3.1 | %
Interest expense of CIP | (20,356) |  |  | (13,442) |  |  | (6,914) |  |  | 51.4 | % |  | (46,860) |  |  | (42,342) |  |  | (4,518) |  |  | 10.7 | %
Total Interest Income (Expense), net | $ | 5,744 |  |  | $ | 7,356 |  |  | $ | (1,612) |  |  | (21.9) | % |  | $ | 17,785 |  |  | $ | 20,626 |  |  | $ | (2,841) |  |  | (13.8) | %

Interest Expense
Interest expense increased $1.2 million, or 51.5%, and $1.7 million, or 25.2%, during the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year. The increases were attributable to higher interest rates.
Interest and Dividend Income
Interest and dividend income increased $0.7 million, or 276.6%, and $1.3 million, or 227.5%, during the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year. The increases were attributable to higher average investment balances and increasing interest rates during the current year periods compared to prior year periods.
Interest and Dividend Income of Investments of CIP
Interest and dividend income of investments of CIP increased $5.8 million, or 25.2%, and $2.1 million, or 3.1%, for the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year. The increases were primarily due to higher average interest rates.
Interest Expense of CIP
Interest expense of CIP represents interest expense on the notes payable of CIP. Interest expense of CIP increased $6.9 million, or 51.4%, and $4.5 million, or 10.7%, for the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year. The increases during the three and nine months ended September 30, 2022 were primarily due to higher average interest rates.
Income Tax Expense (Benefit)
The provision for income taxes reflected U.S. federal, state and local taxes at an estimated effective tax rate of 35.2% and 24.0% for the nine months ended September 30, 2022 and 2021, respectively. The higher estimated effective tax rate for the nine months ended September 30, 2022 was primarily due to valuation allowances recorded in the current year for the tax effects of unrealized losses on certain Company investments.
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Liquidity and Capital Resources
Certain Financial Data
The following table summarizes certain financial data relating to our liquidity and capital resources:

| September 30, 2022 |  | December 31, 2021 |  | Change
(in thousands) | 2022 vs. 2021 |  | %
Balance Sheet Data |  |  |  |  |  |  |
Cash and cash equivalents | $ | 309,248 |  |  | $ | 378,921 |  |  | $ | (69,673) |  |  | (18.4) | %
Investments | 98,245 |  |  | 108,890 |  |  | (10,645) |  |  | (9.8) | %
Contingent consideration | 133,628 |  |  | 162,564 |  |  | (28,936) |  |  | (17.8) | %
Debt | 255,428 |  |  | 266,346 |  |  | (10,918) |  |  | (4.1) | %
Redeemable noncontrolling interests | 124,442 |  |  | 138,965 |  |  | (14,523) |  |  | (10.5) | %
Total equity | 805,939 |  |  | 836,627 |  |  | (30,688) |  |  | (3.7) | %

| Nine Months Ended September 30, |  | Change
(in thousands) | 2022 |  | 2021 |  | 2022 vs. 2021 |  | % |  |
Cash Flow Data |  |  |  |  |  |  |  |  |
Provided by (Used in): |  |  |  |  |  |  |  |  |
Operating activities | $ | 154,850 |  |  | $ | 423,679 |  |  | $ | (268,829) |  |  | (63.5) | % |  |
Investing activities | (25,747) |  |  | (16,525) |  |  | (9,222) |  |  | 55.8 | % |  |
Financing activities | (318,968) |  |  | (153,513) |  |  | (165,455) |  |  | 107.8 | % |  |

Overview
At September 30, 2022, we had $309.2 million of cash and cash equivalents and $98.2 million of investments, which included $73.1 million of investment securities, compared to $378.9 million of cash and cash equivalents and $108.9 million of investments, which included $80.3 million of investment securities, at December 31, 2021.
Uses of Capital
Our main uses of capital related to operating activities comprise employee compensation and related benefit costs, which include annual incentive compensation, other operating expenses, which primarily consist of investment research, technology costs, professional fees, distribution and occupancy costs; interest on our indebtedness; and income taxes. Annual incentive compensation, which is one of the largest annual operating cash expenditures, is typically paid in the first quarter of the year. In the first quarters of 2022 and 2021, we paid $151.6 million and $96.9 million, respectively, in incentive compensation earned during the years ended December 31, 2021 and 2020, respectively.
In addition to operating activities, other uses of cash could include: (i) investments in organic growth, including seeding or launching new products and expanding distribution; (ii) debt principal payments through scheduled amortization, excess cash flow payment requirements or additional paydowns; (iii) dividend payments to common stockholders; (iv) repurchases of our common stock, or withholding obligations for the net settlement of employee share transactions; (v) investments in our infrastructure; (vi) investments in inorganic growth opportunities that may require upfront and/or future payments; (vii) integration costs, including restructuring and severance, related to acquisitions, if any; and (viii) purchases of affiliate noncontrolling interests.
Capital and Reserve Requirements
We operate an SEC registered broker-dealer subsidiary that is subject to certain rules regarding minimum net capital. The broker-dealer is required to maintain a ratio of "aggregate indebtedness" to "net capital," as defined, which may not exceed 15 to 1 and must also maintain a minimum amount of net capital. Failure to meet these requirements could result in adverse consequences to us, including additional reporting requirements, a lower required ratio of aggregate indebtedness to net capital, or interruption of our business. At September 30, 2022, the ratio of aggregate indebtedness to net capital of our broker-dealer was below the maximum allowed, and net capital was significantly greater than the required minimum.
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Balance Sheet
Cash and cash equivalents consist of cash in banks and money market fund investments. Investments consist primarily of investments in our sponsored funds. CIP represent investment products for which we provide investment management services and where we either have a controlling financial interest or are considered the primary beneficiary of an investment product that is considered a variable interest entity.
Operating Cash Flow
Net cash provided by operating activities of $154.9 million for the nine months ended September 30, 2022 changed by $268.8 million from net cash provided by operating activities of $423.7 million for the same period in the prior year primarily due to a $207.0 million reduction in net sales of investments by CIP and a decrease in accrued compensation and other liability balances.
Investing Cash Flow
Cash flows from investing activities consist primarily of capital expenditures and other investing activities related to our business operations. Net cash used in investing activities was $25.7 million for the nine months ended September 30, 2022 compared to net cash used in investing activities of $16.5 million in the same period for the prior year. The increase in cash used in investing activities during the nine months ended September 30, 2022 compared to the prior year period related to cash paid for the Stone Harbor acquisition in the nine months ended September 30, 2022.
Financing Cash Flow
Cash flows from financing activities consist primarily of transactions related to our common shares, issuance and repayment of debt by us and our CIP, payments of contingent consideration and changes to noncontrolling interests. Net cash used in financing activities increased by $165.5 million to $319.0 million for the nine months ended September 30, 2022 from $153.5 million for the nine months ended September 30, 2021. The net change was primarily due to an inflow of $81.2 million from the refinancing of our credit agreement in the prior year, an increase from the prior year in outflows from repurchases of common shares of $47.5 million and contingent consideration payments of $33.0 million, partially offset by a decrease of $14.5 million in net borrowings of CIP during the nine months ended September 30, 2022 compared to the prior year period.
Credit Agreement
The Company's credit agreement, as amended (the "Credit Agreement"), comprises (i) a $275.0 million term loan with a seven-year term (the "Term Loan") expiring in September 2028, and (ii) a $175.0 million revolving credit facility with a five-year term expiring in September 2026. During the nine months ended September 30, 2022, the Company repaid $12.1 million outstanding under its Term Loan. At September 30, 2022, $262.2 million was outstanding under the Term Loan and there were no outstanding borrowings under the revolving credit facility. In accordance with ASC 835, Interest, the amounts outstanding under the Company's Term Loan are presented in the Condensed Consolidated Balance Sheet net of related debt issuance costs, which were $6.8 million as of September 30, 2022.
Critical Accounting Policies and Estimates
Our financial statements and the accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates. Actual results will vary from these estimates. A discussion of our critical accounting policies and estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K. A complete description of our significant accounting policies is included in our 2021 Annual Report on Form 10-K. There were no material changes in our critical accounting policies and estimates in the three months ended September 30, 2022.
Recently Issued Accounting Pronouncements
For a discussion of accounting standards, see Note 2 in our condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is primarily exposed to market risk associated with unfavorable movements in interest rates and securities prices. During the three and nine months ended September 30, 2022, there were no material changes to the information contained in Part II, Item 7A of the Company's 2021 Annual Report on Form 10-K.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2022, the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth in response to Item 103 of Regulation S-K under "Legal Proceedings" is incorporated by reference from Part I, Financial Information Item 1. "Financial Statements" Note 15 "Commitments and Contingencies" of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
There have been no material changes to the Company’s risk factors from those previously reported in our 2021 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
An aggregate of 5,680,045 shares of our common stock have been authorized to be repurchased under the share repurchase program since it was originally approved by our Board of Directors in 2010. As of September 30, 2022, 881,672 shares remained available for repurchase. Under the terms of the program, we may repurchase shares of our common stock from time to time at our discretion through open market repurchases, privately negotiated transactions and/or other mechanisms, depending on price, prevailing market and business conditions and changes in tax laws (including the Inflation Reduction Act). The program, which has no specified term, may be suspended or terminated at any time.
The following table sets forth information regarding our share repurchases in each month during the quarter ended September 30, 2022:

Period | Total number of shares purchased |  | Average price paid per share (1) |  | Total number of shares purchased as part of publicly announced plans or programs (2) |  | Maximum number of shares that may yet be purchased under the plans or programs (2)
July 1-31, 2022 | — |  |  | $ | — |  |  | — |  |  | 932,094 |
August 1-31, 2022 | 27,002 |  |  | $ | 207.89 |  |  | 27,002 |  |  | 905,092 |
September 1-30, 2022 | 23,420 |  |  | $ | 187.23 |  |  | 23,420 |  |  | 881,672 |
Total | 50,422 |  |  |  |  | 50,422 |  |  |

(1)Average price paid per share is calculated on a settlement basis and excludes commissions.
(2)The share repurchases above were completed pursuant to a program announced in the fourth quarter of 2010 and most recently expanded in May 2022. This repurchase program is not subject to an expiration date.
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There were no unregistered sales of equity securities during the period covered by this Quarterly Report. Shares of our common stock purchased by participants in our Employee Stock Purchase Plan were delivered to participant accounts via open market purchases at fair value by the third-party administrator under the plan. We do not reserve shares for this plan or discount the purchase price of the shares.
Item 6. Exhibits

Exhibit Number |  | Description
31.1 |  | Certification of the Registrant’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 |  | Certification of the Registrant’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 |  | Certification of the Registrant’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 |  | The following information is formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2022 and December 31, 2021, (ii) Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2022 and 2021, (iii) Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2022 and 2021, (iv) Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2022 and 2021, (v) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021 and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited).
104 |  | Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: November 8, 2022

| VIRTUS INVESTMENT PARTNERS, INC.
| (Registrant)
| By: | /s/ Michael A. Angerthal
|  | Michael A. Angerthal
|  | Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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