Company Quick10K Filing
Quick10K
Virtus Investment Partners
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$102.57 7 $718
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-02-01 Earnings, Exhibits
8-K 2018-10-26 Earnings, Exhibits
8-K 2018-07-27 Earnings, Exhibits
8-K 2018-07-02 Off-BS Arrangement
8-K 2018-06-11 Regulation FD, Exhibits
8-K 2018-05-15 Shareholder Vote
8-K 2018-04-27 Earnings, Exhibits
8-K 2018-03-26 Accountant, Exhibits
8-K 2018-02-15 Enter Agreement, Exhibits
8-K 2018-02-14 Amend Bylaw, Exhibits
8-K 2018-02-07 Enter Agreement
8-K 2018-02-02 Earnings, Exhibits
KKR KKR
BEN Franklin Resources
MORN Morningstar
EV Eaton Vance
JHG Janus Henderson Group
LAZ Lazard
AB Alliancebernstein Holding
HLNE Hamilton Lane
BSIG Brightsphere Investment Group
MDLY Medley
VRTS 2018-09-30
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 q318ex-311.htm
EX-31.2 q318ex-312.htm
EX-32.1 q318ex-321.htm

Virtus Investment Partners Earnings 2018-09-30

VRTS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 vrts0930201810-q.htm 10-Q VIRTUS SEPTEMBER 30, 2018 Document

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

 
 
 
 
 
FORM 10-Q
 
 
 
 
 

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
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
 
 
 
 
 
 
virtuslogo2018a02.jpg
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.)
100 Pearl St., Hartford, CT 06103
(Address of principal executive offices) (Zip Code)
(800) 248-7971
(Registrant’s telephone number, including area code)

 
 
 
 
 

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  x NO  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    YES  x    NO  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
 
x
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
 ¨ (Do not check if a smaller reporting company)
  
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  x
The number of shares outstanding of the registrant’s common stock was 7,146,602 as of October 26, 2018.
 
 
 
 
 



VIRTUS INVESTMENT PARTNERS, INC.
INDEX
 
 
 
Page
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 6.
 
"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.




PART I – FINANCIAL INFORMATION
 
Item 1.    Financial Statements
Virtus Investment Partners, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
 
September 30,
2018
 
December 31,
2017
($ in thousands, except share data)
 
 
 
Assets:
 
 
 
Cash and cash equivalents
$
168,982

 
$
132,150

Investments
85,131

 
108,492

Accounts receivable, net
79,823

 
65,648

Assets of consolidated investment products ("CIP")
 
 
 
Cash and cash equivalents of CIP
50,427

 
101,315

Cash pledged or on deposit of CIP
767

 
817

Investments of CIP
1,791,379

 
1,597,752

Other assets of CIP
16,888

 
33,486

Furniture, equipment and leasehold improvements, net
11,998

 
10,833

Intangible assets, net
346,353

 
301,954

Goodwill
290,366

 
170,153

Deferred taxes, net
22,332

 
32,428

Other assets
19,836

 
35,771

Total assets
$
2,884,282

 
$
2,590,799

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Accrued compensation and benefits
$
70,750

 
$
86,658

Accounts payable and accrued liabilities
32,802

 
29,607

Dividends payable
7,552

 
6,528

Debt
338,874

 
248,320

Other liabilities
22,032

 
39,895

Liabilities of CIP
 
 
 
Notes payable of CIP
1,608,735

 
1,457,435

Securities purchased payable and other liabilities of CIP
84,064

 
112,954

Total liabilities
2,164,809

 
1,981,397

Commitments and Contingencies (Note 14)

 

Redeemable noncontrolling interests
60,248

 
4,178

Equity:
 
 
 
Equity attributable to stockholders:
 
 
 
Series D mandatory convertible preferred stock, $0.01 par value, 1,150,000 shares authorized, issued and outstanding at September 30, 2018 and December 31, 2017
110,843

 
110,843

Common stock, $0.01 par value, 1,000,000,000 shares authorized; 10,541,697 shares issued and 7,146,602 shares outstanding at September 30, 2018 and 10,455,934 shares issued and 7,159,645 shares outstanding at December 31, 2017
105

 
105

Additional paid-in capital
1,210,645

 
1,216,173

Retained earnings (accumulated deficit)
(313,026
)
 
(386,216
)
Accumulated other comprehensive income (loss)
(600
)
 
(600
)
Treasury stock, at cost, 3,395,095 and 3,296,289 shares at September 30, 2018 and December 31, 2017, respectively
(364,249
)
 
(351,748
)
Total equity attributable to stockholders
643,718

 
588,557

Noncontrolling interests of CIP
15,507

 
16,667

Total equity
659,225

 
605,224

Total liabilities and equity
$
2,884,282

 
$
2,590,799


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

1


Virtus Investment Partners, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
($ in thousands, except per share data)
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Investment management fees
$
121,713

 
$
97,295

 
$
325,357

 
$
230,628

Distribution and service fees
13,730

 
11,482

 
39,886

 
32,704

Administration and shareholder service fees
16,567

 
14,699

 
48,272

 
33,156

Other income and fees
200

 
199

 
655

 
1,095

Total revenues
152,210

 
123,675

 
414,170

 
297,583

Operating Expenses
 
 
 
 
 
 
 
Employment expenses
63,269

 
54,159

 
178,833

 
136,792

Distribution and other asset-based expenses
25,386

 
20,552

 
71,398

 
51,639

Other operating expenses
20,350

 
17,733

 
56,340

 
51,195

Operating expenses of consolidated investment products ("CIP")
529

 
6,757

 
2,823

 
7,872

Restructuring and severance

 
1,584

 

 
10,478

Depreciation and other amortization
1,189

 
1,038

 
3,304

 
2,478

Amortization expense
7,541

 
5,063

 
17,601

 
7,109

Total operating expenses
118,264

 
106,886

 
330,299

 
267,563

Operating Income (Loss)
33,946

 
16,789

 
83,871

 
30,020

Other Income (Expense)
 
 
 
 
 
 
 
Realized and unrealized gain (loss) on investments, net
(374
)
 
1,367

 
1,024

 
2,951

Realized and unrealized gain (loss) of CIP, net
(4,735
)
 
13,465

 
(4,255
)
 
16,485

Other income (expense), net
549

 
436

 
2,323

 
1,129

Total other income (expense), net
(4,560
)
 
15,268

 
(908
)
 
20,565

Interest Income (Expense)
 
 
 
 
 
 
 
Interest expense
(5,155
)
 
(4,116
)
 
(13,482
)
 
(8,098
)
Interest and dividend income
716

 
679

 
3,255

 
1,313

Interest and dividend income of investments of CIP
26,596

 
17,778

 
71,678

 
28,536

Interest expense of CIP
(16,959
)
 
(16,249
)
 
(46,786
)
 
(22,101
)
Total interest income (expense), net
5,198

 
(1,908
)
 
14,665

 
(350
)
Income (Loss) Before Income Taxes
34,584

 
30,149

 
97,628

 
50,235

Income tax expense (benefit)
6,653

 
9,626

 
22,641

 
15,939

Net Income (Loss)
27,931

 
20,523

 
74,987

 
34,296

Noncontrolling interests
(933
)
 
(1,731
)
 
(1,619
)
 
(2,782
)
Net Income (Loss) Attributable to Stockholders
26,998

 
18,792

 
73,368

 
31,514

Preferred stockholder dividends
(2,085
)
 
(2,084
)
 
(6,253
)
 
(6,252
)
Net Income (Loss) Attributable to Common Stockholders
$
24,913

 
$
16,708

 
$
67,115

 
$
25,262

Earnings (Loss) per Share—Basic
$
3.47

 
$
2.32

 
$
9.33

 
$
3.64

Earnings (Loss) per Share—Diluted
$
3.19

 
$
2.21

 
$
8.67

 
$
3.52

Cash Dividends Declared per Preferred Share
$
1.81

 
$
1.81

 
$
5.44

 
$
5.44

Cash Dividends Declared per Common Share
$
0.55

 
$
0.45

 
$
1.45

 
$
1.35

Weighted Average Shares Outstanding—Basic (in thousands)
7,175

 
7,212

 
7,195

 
6,942

Weighted Average Shares Outstanding—Diluted (in thousands)
8,456

 
8,492

 
8,463

 
7,168


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

2


Virtus Investment Partners, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
($ in thousands)
 
 
 
 
 
 
 
Net Income (Loss)
$
27,931

 
$
20,523

 
$
74,987

 
$
34,296

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of tax of $2 and $4 for the three and nine months ended September 30, 2018, respectively
(2
)
 
10

 
(10
)
 
12

Unrealized gain (loss) on available-for-sale securities, net of tax of ($9) and ($32) for the three months ended September 30, 2018 and 2017, respectively, and $68 and ($115) for the nine months ended September 30, 2018 and 2017, respectively
24

 
38

 
(168
)
 
172

Other comprehensive income (loss)
22

 
48

 
(178
)
 
184

Comprehensive income (loss)
27,953

 
20,571

 
74,809

 
34,480

Comprehensive (income) loss attributable to noncontrolling interests
(933
)
 
(1,731
)
 
(1,619
)
 
(2,782
)
Comprehensive Income (Loss) Attributable to Stockholders
$
27,020

 
$
18,840

 
$
73,190

 
$
31,698

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

3




Virtus Investment Partners, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended
September 30,
 
2018
 
2017
($ in thousands)
 
 
 
Cash Flows from Operating Activities:
 
 
 
Net income (loss)
$
74,987

 
$
34,296

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation expense, intangible asset and other amortization
23,147

 
11,621

Stock-based compensation
16,914

 
14,970

Amortization of deferred commissions
2,734

 
1,666

Payments of deferred commissions
(3,839
)
 
(2,104
)
Equity in earnings of equity method investments
(2,358
)
 
(1,150
)
Realized and unrealized (gains) losses on trading securities, net
(752
)
 
(3,117
)
Distributions received from equity method investments
4,032

 
911

Sales (purchases) of trading securities, net
5,571

 
3,859

Deferred taxes, net
9,710

 
6,056

Loss on disposal of fixed assets
25

 
345

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net and other assets
10,343

 
(9,466
)
Accrued compensation and benefits, accounts payable, accrued liabilities and other liabilities
(39,560
)
 
(2,147
)
Operating activities of consolidated investment products ("CIP"):
 
 
 
Realized and unrealized (gains) losses on investments of CIP, net
2,108

 
(16,875
)
Purchases of investments by CIP
(857,999
)
 
(527,214
)
Sales of investments by CIP
655,335

 
377,238

Net purchases of short term investments by CIP
111

 
565

Change in other assets of CIP
(609
)
 
417

Change in liabilities of CIP
(1,589
)
 
1,042

Amortization of discount on notes payable of CIP

 
5,042

Net cash provided by (used in) operating activities
(101,689
)
 
(104,045
)
Cash Flows from Investing Activities:
 
 
 
Capital expenditures
(2,516
)
 
(1,243
)
Change in cash and cash equivalents of CIP due to consolidation, net

 
5,466

Acquisition of businesses (cash paid of $129.5 million, less cash acquired of $2.5 million in 2018 and cash paid of $471.4 million, less cash acquired of $77.6 million in 2017)
(126,995
)
 
(393,446
)
Sale of available-for-sale securities
37,785

 

Purchases of available-for-sale securities
(20,188
)
 
(194
)
Net cash provided by (used in) investing activities
(111,914
)
 
(389,417
)
Cash Flows from Financing Activities:
 
 
 
Issuance of debt
105,000

 
260,000

Repayments on debt
(12,863
)
 
(30,970
)
Payment of deferred financing costs
(3,810
)
 
(15,549
)
Proceeds from issuance of mandatory convertible preferred stock, net of issuance costs

 
111,004

Proceeds from issuance of common stock, net of issuance costs

 
109,487

Common stock dividends paid
(10,093
)
 
(9,352
)
Preferred stock dividends paid
(6,253
)
 
(4,169
)
Repurchases of common shares
(12,501
)
 
(7,502
)
Stock options exercised
719

 
106

Taxes paid related to net share settlement of restricted stock units
(6,517
)
 
(3,436
)
Contributions (redemptions) of noncontrolling interests, net
(2,159
)
 
18,448

Financing activities of CIP:
 
 
 
Payments on borrowings by CIP
(669,500
)
 
(105,000
)
Borrowings (payments) on borrowings by CIP
817,474

 

Proceeds from issuance of notes payable by CIP

 
474,009

Repayment of notes payable by CIP

 
(500
)
Net cash provided by (used in) financing activities
199,497

 
796,576

Net increase (decrease) in cash, cash equivalents and restricted cash
(14,106
)
 
303,114

Cash, cash equivalents and restricted cash, beginning of period
234,282

 
83,671

Cash, Cash Equivalent and Restricted Cash, End of Period
$
220,176

 
$
386,785

Non-Cash Investing Activities:
 
 
 
Change in accrual for capital expenditures
$
1,906

 
$
96

Non-Cash Financing Activities:
 
 
 
Increase (decrease) to noncontrolling interest due to consolidation (deconsolidation) of CIP, net
$

 
$
11,286

Stock issued for acquisition of business
$

 
$
21,738

Contingent consideration for acquisition of business
$

 
$
51,690

Common stock dividends payable
$
3,930

 
$
4,234

Preferred stock dividends payable
$
2,085

 
$
2,084

Accrued stock issuance costs
$

 
$
332


 
September 30, 2018
 
December 31, 2017
($ in thousands)
 
 
 
Reconciliation of cash, cash equivalents and restricted cash
 
 
 
Cash and cash equivalents
$
168,982

 
$
132,150

Cash of consolidated investment products
50,427

 
101,315

Cash pledged or on deposit of consolidated investment products
767

 
817

Cash, cash equivalents and restricted cash at end of period
$
220,176

 
$
234,282









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

4


Virtus Investment Partners, Inc.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
Permanent Equity
 
Temporary Equity
 
Common Stock
 
Preferred Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury Stock
 
Total
Attributed To
Stockholders
 
Non-
controlling
Interests
 
Total
Equity
 
Redeemable
Non-
controlling
Interests
($ in thousands, except per share data)
Shares
 
Par Value
 
Shares
 
Amount
 
Shares
 
Amount
 
Balances at December 31, 2016
5,889,013

 
$
91

 

 
$

 
$
1,090,331

 
$
(424,279
)
 
$
(224
)
 
3,230,045

 
$
(344,246
)
 
$
321,673

 
$

 
$
321,673

 
$
37,266

Adjustment for adoption of ASU 2016-09

 

 

 

 

 
1,051

 

 

 

 
1,051

 

 
1,051

 

Net income (loss)

 

 

 

 

 
31,514

 

 

 

 
31,514

 
1,073

 
32,587

 
1,709

Net unrealized gain (loss) on securities available-for-sale

 

 

 

 

 

 
172

 

 

 
172

 

 
172

 

Foreign currency translation adjustments

 

 

 

 

 

 
12

 

 

 
12

 

 
12

 

Net subscriptions (redemptions) and other

 

 

 

 

 

 

 

 

 

 
15,414

 
15,414

 
28,252

Issuance of mandatory convertible preferred stock, net of offering costs

 

 
1,150,000

 
110,843

 

 

 

 

 

 
110,843

 

 
110,843

 

Cash dividends declared ($5.44 per preferred share)

 

 

 

 
(6,253
)
 

 

 

 

 
(6,253
)
 

 
(6,253
)
 

Issuance of common stock for acquisition of business
213,669

 
2

 

 

 
21,738

 

 

 

 

 
21,740

 

 
21,740

 

Issuance of common stock, net of offering costs
1,046,500

 
11

 

 

 
109,317

 

 

 

 

 
109,328

 

 
109,328

 

Cash dividends declared ($1.35 per common share)

 

 

 

 
(10,103
)
 

 

 

 

 
(10,103
)
 

 
(10,103
)
 

Repurchases of common shares
(66,244
)
 

 

 

 

 

 

 
66,244

 
(7,502
)
 
(7,502
)
 

 
(7,502
)
 

Issuance of common shares related to employee stock transactions
75,077

 
1

 

 

 
835

 

 

 

 

 
836

 

 
836

 

Taxes paid on stock-based compensation

 

 

 

 
(3,441
)
 

 

 

 

 
(3,441
)
 

 
(3,441
)
 

Stock-based compensation

 

 

 

 
14,317

 

 

 

 

 
14,317

 

 
14,317

 

Balances at September 30, 2017
7,158,015

 
$
105

 
1,150,000

 
$
110,843

 
$
1,216,741

 
$
(391,714
)
 
$
(40
)
 
3,296,289

 
$
(351,748
)
 
$
584,187

 
$
16,487

 
$
600,674

 
$
67,227

Balances at December 31, 2017
7,159,645

 
$
105

 
1,150,000

 
$
110,843

 
$
1,216,173

 
$
(386,216
)
 
$
(600
)
 
3,296,289

 
$
(351,748
)
 
$
588,557

 
$
16,667

 
$
605,224

 
$
4,178

Adjustment for adoption of ASU 2016-01

 

 

 

 

 
(178
)
 
178

 

 

 

 

 

 

Acquisition of businesses

 

 

 

 

 

 

 

 

 

 

 

 
55,500

Net income (loss)

 

 

 

 

 
73,368

 

 

 

 
73,368

 
876

 
74,244

 
743

Net unrealized gain (loss) on securities available-for-sale

 

 

 

 

 

 
(168
)
 

 

 
(168
)
 

 
(168
)
 

Foreign currency translation adjustments

 

 

 

 

 

 
(10
)
 

 

 
(10
)
 

 
(10
)
 

Net subscriptions (redemptions) and other

 

 

 

 

 

 

 

 

 

 
(2,036
)
 
(2,036
)
 
(173
)
Cash dividends declared ($5.44 per preferred share)

 

 

 

 
(6,253
)
 

 

 

 

 
(6,253
)
 

 
(6,253
)
 

Cash dividends declared ($1.45 per common share)

 

 

 

 
(11,099
)
 

 

 

 

 
(11,099
)
 

 
(11,099
)
 

Repurchases of common shares
(98,806
)
 

 

 

 


 

 

 
98,806

 
(12,501
)
 
(12,501
)
 

 
(12,501
)
 

Issuance of common shares related to employee stock transactions
85,763

 

 

 

 
1,444

 

 

 

 

 
1,444

 

 
1,444

 

Taxes paid on stock-based compensation

 

 

 

 
(6,517
)
 

 

 

 

 
(6,517
)
 
 
 
(6,517
)
 

Stock-based compensation

 

 

 

 
16,897

 

 

 

 

 
16,897

 

 
16,897

 

Balances at September 30, 2018
7,146,602

 
$
105

 
1,150,000

 
$
110,843

 
$
1,210,645

 
$
(313,026
)
 
$
(600
)
 
3,395,095

 
$
(364,249
)
 
$
643,718

 
$
15,507

 
$
659,225

 
$
60,248

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

5


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 U.S. 1940 Act mutual funds and Undertaking for Collective Investment in Transferable Securities ("UCITS") (collectively, "open-end funds"), closed-end funds, exchange traded funds ("ETFs") and retail separate accounts. Institutional investment management services are provided to corporations, multi-employer retirement funds, employee retirement systems, foundations, endowments, structured products and as a subadviser to unaffiliated mutual funds.

On July 1, 2018, the Company completed the acquisition of a majority interest in Sustainable Growth Advisers, LP ("SGA"), an investment manager specializing in U.S. and global growth equity portfolios. See Note 4 for further discussion of the SGA acquisition.



2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying 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, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.
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, 2017 filed with the Securities and Exchange Commission. The Company’s significant accounting policies, which have been consistently applied, are summarized in its 2017 Annual Report on Form 10-K.

The Company has reclassified certain amounts in prior-period financial statements to conform to the current period's presentation. The reclassifications were not material to the condensed consolidated financial statements.

New Accounting Standards Implemented

On January 1, 2018, the Company adopted the new Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), pursuant to Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, and all the related amendments ("the new revenue standard") using the modified retrospective approach. The core principle of the new revenue standard is that revenue is recognized upon the transfer of promised goods or services to customers in an amount that reflects the expected consideration to be received for the goods or services. Based on the revised criteria in the new revenue standard for determining whether the Company is acting as a principal or agent, certain costs that were previously presented on a net of revenue basis are now presented on a gross basis. The comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods. No cumulative-effect adjustment to the balance sheet was necessary upon the adoption of ASC 606. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). On January 1, 2018, the Company adopted amendments to ASC 825 - Financial Instruments pursuant to ASU 2016-01. This standard requires all equity investments (other than those accounted for under the equity method) to be measured at fair value with changes in the fair value recognized through net income. The Company recorded a $0.2 million cumulative-effect adjustment to the balance sheet upon adoption.

6



ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). On January 1, 2018, the Company adopted amendments to ASC 230 - Statement of Cash Flows ("ASC 230") on a retrospective basis pursuant to ASU 2016-15. This standard clarifies the treatment of several cash flow activities. ASU 2016-15 also clarifies that when cash receipts and cash payments have aspects of more than one classification of cash flows and cannot be separated, classification will depend on the predominant source or use. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"). On January 1, 2018, the Company adopted amendments to ASC 230 on a retrospective basis pursuant to ASU 2016-18. This standard requires the inclusion of restricted cash with cash and cash equivalents when reconciling the beginning and ending cash on the statement of cash flows. Restricted cash includes cash pledged or on deposit with brokers of consolidated investment products. Cash, cash equivalents and restricted cash reported on the condensed consolidated statements of cash flows now includes $0.8 million, $0.7 million and $1.0 million of cash pledged or on deposit of consolidated investment products as of December 31, 2017, September 30, 2017, and December 31, 2016, respectively, as well as previously reported cash and cash equivalents. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

ASU 2017-01, Clarifying the Definition of a Business ("ASU 2017-01"). On January 1, 2018, the Company adopted amendments to ASC 805 - Business Combinations ("ASC 805") pursuant to ASU 2017-01, and will apply the standard prospectively. This standard provides guidance on evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Accounting for Goodwill Impairment ("ASU 2017-04"). On January 1, 2018, the Company adopted amendments to ASC 350 - Intangibles - Goodwill and Other pursuant to ASU 2017-04, and will apply the standard prospectively for all future annual and interim goodwill impairment tests. Under ASU 2017-04, a goodwill impairment is defined to be the amount by which a reporting unit’s carrying value exceeds its fair value. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

ASU 2018-05, Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 ("ASU 2018-05"). In March 2018, the Company adopted the amendments to ASC 740 - Income Taxes pursuant to ASU 2018-05. The standard adds various Securities and Exchange Commission ("SEC") paragraphs pursuant to the issuance of the December 2017 SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act ("SAB 118"), which was effective immediately. The SEC issued SAB 118 to address concerns about reporting entities’ ability to comply with the accounting requirements to recognize all of the effects of the Tax Cuts and Jobs Act in the period of enactment on a timely basis. SAB 118 allows disclosure stating that timely determination of some or all of the income tax effects from the Tax Cuts and Jobs Act are incomplete by the due date of the financial statements and if possible to provide a reasonable estimate of the income tax effects. We have accounted for the tax effects of the Tax Cuts and Jobs Act under the guidance of SAB 118, on a provisional basis. Our accounting for certain income tax effects is incomplete, but we have determined reasonable estimates for those effects and have recorded provisional amounts in our condensed consolidated financial statements as of September 30, 2018 and December 31, 2017.

New Accounting Standards Not Yet Implemented
    
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40) ("ASU 2018-15"). This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software, including an internal use software license. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on the Company's condensed consolidated financial statements.    

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) ("ASU 2018-13"). This standard modifies the disclosure requirements on fair value measurements and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the potential impact of the guidance but does not expect the adoption of this standard to have a material impact on the Company's condensed consolidated financial statements.


7


In July 2018, the FASB issued ASU 2018-09, Codification Improvements ("ASU 2018-09"). This standard does not prescribe any new accounting guidance, but instead makes minor improvements and clarifications of several different FASB ASC areas based on comments and suggestions made by various stakeholders.  Certain updates are applicable immediately while other updates provide for a transition period for adoption over the next fiscal year beginning after December 15, 2018.  The Company does not expect the adoption of this standard to have a material impact on the Company's condensed consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02"). The standard provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on the Company's condensed consolidated financial statements.        

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). The standard replaces current codification Topic 840 - Leases with updated guidance on accounting for leases and requires a lessee to recognize assets and liabilities arising from an operating lease on the balance sheet, whereas previous guidance did not require lease assets and liabilities to be recognized for most leases. Furthermore, this standard permits companies to make an accounting policy election to not recognize lease assets and liabilities for leases with a term of 12 months or less. For both finance leases and operating leases, the lease liability should be initially measured at the present value of the lease payments. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will not significantly change under this new guidance. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 (Leases), which provides narrow amendments to clarify how to apply certain aspects of ASU 2016-02. Both standards are effective for fiscal years beginning after December 15, 2018 and interim periods therein. Early adoption is permitted. The Company is currently evaluating the potential impact of this standard on its condensed consolidated financial statements but expects to record a right-of-use asset and a related lease obligation in the Company's condensed consolidated balance sheet upon adoption.
        
    

3. Revenues

Adoption of ASC 606, Revenue from Contracts with Customers

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 investment management, distribution and service and administration and shareholder service fees are calculated, are variable in nature and subject to factors outside of the Company's control such as deposits, withdrawals and market performance. Because of this, they are considered constrained until the end of the contractual measurement period (monthly or quarterly) which is when asset values are generally determinable.


8


Revenue Disaggregated by Source
The following table summarizes revenue by source:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017 (1)
 
2018
 
2017 (1)
($ in thousands)
 
 
 
 
 
 
 
Investment management fees
 
 
 
 
 
 
 
Open-end funds
$
62,466

 
$
51,190

 
$
174,032

 
$
120,902

Closed-end funds
10,614

 
11,243

 
31,161

 
33,495

Retail separate accounts
19,532

 
14,686

 
53,152

 
38,879

Institutional accounts
24,614

 
16,208

 
56,210

 
30,140

Structured products
3,602

 
2,822

 
7,996

 
4,483

Other products
885

 
1,146

 
2,806

 
2,729

Total investment management fees
121,713

 
97,295

 
325,357

 
230,628

Distribution and service fees
13,730

 
11,482

 
39,886

 
32,704

Administration and shareholder service fees
16,567

 
14,699

 
48,272

 
33,156

Other income and fees
200

 
199

 
655

 
1,095

Total revenues
$
152,210

 
$
123,675

 
$
414,170

 
$
297,583

(1)
Prior period amounts have not been adjusted and are reported in accordance with historical accounting under ASC 605, Revenue Recognition.

    
Investment Management Fees

The Company provides investment management services pursuant to investment management agreements through its affiliated investment advisers (each an "Adviser"). Investment management services represent a series of distinct daily service periods which are performed over time. Fees earned on funds are based on each fund’s average daily or weekly net assets which are generally received and calculated on a monthly basis. The Company records its management fees net of investment management fees paid to unaffiliated subadvisers, as the Company considers itself an agent of the fund as it relates to the day-to-day investment management services performed by unaffiliated subadvisers, with the Company's performance obligation being to arrange for the provision of that service and not control the specified service before that service is performed. Amounts paid to unaffiliated subadvisers for the three and nine months ended September 30, 2018 were $11.4 million and $36.6 million, respectively.

Retail separate account fees are generally 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 generally based on an average of month-end balances or current quarter’s asset values. Fees for structured finance products, for which the Company acts as the collateral manager, consist of senior, subordinated and, in certain instances, incentive management fees. Senior and subordinated management fees are calculated at a contractual fee rate applied against the end of the preceding quarter par value of the total collateral being managed with subordinated fees being recognized only after certain portfolio criteria are met. Incentive fees on certain of the Company's CLOs are typically 20% of the excess cash flows available to holders of the subordinated notes, above a threshold level internal rate of return.

Distribution and Service Fees

Distribution and service fees are asset-based fees earned from open-end funds for distribution services. Depending on the fund type or share class, these fees primarily consist of an asset-based fee (12b-1 fee) that is charged to the fund over a period of years to cover allowable sales and marketing expenses for the fund or front-end sales charges which are based on a percentage of the offering price. Asset-based distribution and service fees are primarily based on percentages of the average daily net assets value and are paid monthly pursuant to the terms of the respective distribution and service fee contracts.

Distribution and service fees represent two performance obligations comprised of distribution and related shareholder servicing activities. Distribution services are generally satisfied upon the sale of a fund share. Shareholder servicing activities are generally services satisfied over time.


9


The Company distributes its open-end funds through unaffiliated financial intermediaries that comprise national and regional broker dealers. These unaffiliated financial intermediaries provide distribution and shareholder service activities on behalf of the Company. The Company passes related distribution and service fees to these unaffiliated financial intermediaries for these services and considers itself the principal in these arrangements as it has control of the services prior to the services being transferred to the customer. These payments are classified within distribution and other asset-based expenses.

Administration & Shareholder Service Fees

The Company provides administrative fund services to its open-end funds and certain of its closed-end funds and shareholder services to its open-end funds. Administration and shareholder services are performed over time. The Company earns fees based on each fund’s average daily or weekly net assets which are calculated and paid monthly. Administrative fund services include: record keeping, preparing and filing documents required to comply with securities laws, legal administration and compliance services, customer service, supervision of the activities of the funds’ service providers, tax services and treasury services as well as providing office space, equipment and personnel that may be necessary for managing and administering the business affairs of the funds. Shareholder services include maintaining shareholder accounts, processing shareholder transactions, preparing filings and performing necessary reporting, among other things.

Financial Statement Impact of the Adoption of ASC 606    

The adoption of ASC 606 resulted in a change from the Company’s treatment under ASC 605 whereby front-end sales charges earned for the sale execution of certain share classes were presented net of the amounts retained by unaffiliated third-party dealers and banks. These front-end sales charges earned are now presented on a gross basis under ASC 606.

The impact of adoption of ASC 606 on the Company's condensed consolidated statement of operations was as follows:
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
($ in thousands)
As
Reported
 
Balance
Under
Prior
ASC 605
 
Effect of
Change
Higher/(Lower)
 
As
Reported
 
Balance
Under
Prior
ASC 605
 
Effect of
Change
Higher/(Lower)
Revenues
 
 
 
 
 
 
 
 
 
 
 
Distribution and service fees
$
13,730

 
$
11,625

 
$
2,105

 
$
39,886

 
$
34,451

 
$
5,435

 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
Distribution and other asset-based expenses
$
25,386

 
$
23,281

 
$
2,105

 
$
71,398

 
$
65,963

 
$
5,435


    

4. Business Combinations

Sustainable Growth Advisers, LP
On July 1, 2018, the Company completed the acquisition of 70% of the outstanding limited partnership interests of SGA and 100% of the membership interests in its general partner, SGIA, LLC ("SGA Acquisition"). SGA is an investment manager specializing in U.S. and global growth equity portfolios. The SGA Acquisition expands Virtus' offerings of investment strategies from its affiliated managers and diversifies its client base, particularly among institutional investors and international clients. The total purchase price of the SGA Acquisition was $129.5 million, comprising (1) an initial payment of $110.5 million paid at closing, and (2) $19.0 million paid in August 2018 upon the successful completion of final closing conditions and client approvals. The Company accounted for the acquisition in accordance with ASC 805. The purchase price was allocated to the assets acquired, liabilities assumed and non-controlling interests based upon their estimated fair values at the date of the SGA Acquisition. Goodwill of $120.2 million and other intangible assets of $62.0 million were recorded as a result of the SGA Acquisition. The Company expects $127.5 million of this amount to be tax deductible over 15 years. The Company has not completed its final assessment of the fair values of purchased receivables or acquired contracts. The final fair value of the net assets acquired may result in adjustments to certain assets and liabilities, including goodwill.

10


The following table summarizes the identified acquired assets, liabilities assumed and redeemable noncontrolling interests as of the acquisition date:
 
July 1, 2018
($ in thousands)
 
Assets:
 
Cash and cash equivalents
$
2,505

Investments
262

Accounts receivable
6,649

Furniture, equipment and leasehold improvements
70

Intangible assets
62,000

Goodwill
120,213

Other assets
659

Total Assets
192,358

Liabilities
 
Accrued compensation and benefits
824

Accounts payable and accrued liabilities
6,534

Total liabilities
7,358

Redeemable noncontrolling interests
55,500

Total Net Assets Acquired
$
129,500


Identifiable Intangible Assets Acquired

In connection with the allocation of the purchase price, the Company identified the following intangible assets:
 
July 1, 2018
 
Approximate Fair Value
 
Weighted Average of Useful Life
($ in thousands)
 
 
 
Definite-lived intangible assets:
 
 
 
Institutional and retail separate account investment contracts
$
49,000

 
6.0 years
Trade Name
7,000

 
10.0 years
Non-Competition Agreements
6,000

 
5.0 years
Total definite-lived intangible assets
$
62,000

 
 
    
The following unaudited pro forma condensed consolidated results of operations are provided for illustrative purposes only and assume that the SGA Acquisition occurred on January 1, 2017. The unaudited pro forma information also reflects adjustment for transaction and integration expenses as if the SGA Acquisition had been consummated on January 1, 2017. This unaudited information should not be relied upon as being indicative of historical results that would have been obtained if the SGA Acquisition had occurred on that date, nor of the results that may be obtained in the future.
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
($ in thousands, except per share amounts)
 
 
 
 
 
 
 
Total Revenues
$
131,307

 
$
152,210

 
$
317,879

 
$
431,400

Net Income (Loss) Attributable to Common Stockholders
$
16,493

 
$
26,201

 
$
22,897

 
$
69,284

Basic EPS
$
2.29

 
$
3.65

 
$
3.30

 
$
9.63

Diluted EPS
$
2.19

 
$
3.35

 
$
3.19

 
$
8.93


11



RidgeWorth Investments

On June 1, 2017, the Company acquired RidgeWorth Investments (the "RW Acquisition"), a multi-boutique asset manager with approximately $40.1 billion in assets under management, including $35.7 billion in long term assets under management and $4.4 billion in liquidity strategies.

The total purchase price of the RW Acquisition was $547.1 million, comprising $485.2 million for the business and $61.9 million for certain balance sheet investments. The Company accounted for the RW Acquisition in accordance with ASC 805. The purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of the RW Acquisition. No incremental measurement period adjustments were recorded in the nine months ended September 30, 2018; the measurement period was complete on June 1, 2018.

The following table summarizes the identified acquired assets and liabilities assumed as of the acquisition date:
 
June 1, 2017
($ in thousands)
 
Assets:
 
Cash and cash equivalents
$
39,343

Investments
5,516

Accounts receivable
20,311

Assets of consolidated investment products ("CIP")
 
Cash and cash equivalents of CIP
38,261

Investments of CIP
899,274

Other assets of CIP
19,158

Furniture, equipment and leasehold improvements
5,505

Intangible assets
275,700

Goodwill
163,365

Deferred taxes, net
6,590

Other assets
3,003

Total Assets
1,476,026

Liabilities
 
Accrued compensation and benefits
18,263

Accounts payable and accrued liabilities
11,858

Other liabilities
2,601

Liabilities of consolidated investment products ("CIP")
 
Notes payable of CIP
770,160

Securities purchased payable and other liabilities of CIP
109,881

Noncontrolling Interests of CIP
16,181

Total Liabilities & Noncontrolling Interests
928,944

Total Net Assets Acquired
$
547,082



12


The following unaudited pro forma condensed consolidated results of operations are provided for illustrative purposes only and assume that the RW Acquisition occurred on January 1, 2016. The unaudited pro forma information also reflects adjustment for transaction and integration expenses as if the RW Acquisition had been consummated on January 1, 2016. This unaudited information should not be relied upon as being indicative of historical results that would have been obtained if the RW Acquisition had occurred on that date, nor of the results that may be obtained in the future.
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2017
($ in thousands, except per share amounts)
 
 
 
Total Revenues
$
118,010

 
$
361,070

Net Income (Loss) Attributable to Common Stockholders
$
13,696

 
$
29,975

Basic EPS
$
1.74

 
$
3.42

Diluted EPS
$
1.70

 
$
3.31


Identifiable Intangible Assets Acquired

In connection with the allocation of the purchase price, the Company identified the following intangible assets:
 
June 1, 2017
 
Approximate Fair Value
 
Weighted Average of Useful Life
($ in thousands)
 
 
 
Definite-lived intangible assets:
 
 
 
Mutual fund investment contracts
$
189,200

 
16.0 years
Institutional and retail separate account investment contracts
77,000

 
10.4 years
Trademarks/Trade names
800

 
10.0 years
Total definite-lived intangible assets
267,000

 
 
Indefinite-lived intangible assets:
 
 
 
Trade names
8,700

 
N/A
Total identifiable intangible assets
$
275,700

 
 

    
5. Intangible Assets, Net

Intangible assets, net are summarized as follows: 
 
September 30, 2018
 
December 31, 2017
($ in thousands)
 
 
 
Definite-lived intangible assets:
 
 
 
Investment contracts and other
$
487,747

 
$
425,747

Accumulated amortization
(184,910
)
 
(167,309
)
Definite-lived intangible assets, net
302,837

 
258,438

Indefinite-lived intangible assets
43,516

 
43,516

Total intangible assets, net
$
346,353

 
$
301,954



13


Activity in intangible assets, net is as follows: 
 
Nine Months Ended September 30,
 
2018
 
2017
($ in thousands)
 
 
 
Intangible assets, net
 
 
 
Balance, beginning of period
$
301,954

 
$
38,427

Additions (1)
62,000

 
275,700

Amortization
(17,601
)
 
(7,110
)
Balance, end of period
$
346,353

 
$
307,017


(1) See Note 4 for details on the acquired intangible assets related to recent business combinations.

Estimated amortization expense of intangible assets for the remainder of fiscal year 2018 and succeeding fiscal years is as follows:
($ in thousands)
 
 
Fiscal Year
 
Amount
2018
 
$
7,541

2019
 
30,110

2020
 
29,945

2021
 
29,934

2022
 
29,809

2023 and thereafter
 
175,498

 
 
$
302,837




6. Investments
At September 30, 2018 and December 31, 2017, the Company's investments were as follows:
 
September 30, 2018
 
December 31, 2017
($ in thousands)
 
 
 
Marketable securities
$
62,330

 
$
66,424

Equity method investments
9,943

 
11,098

Nonqualified retirement plan assets
7,409

 
6,706

Investments in collateralized loan obligations
5,043

 
23,339

Other investments
406

 
925

Total investments
$
85,131

 
$
108,492


14


Marketable Securities
Marketable securities consist primarily of investments in the Company's sponsored mutual funds, excluding the investments in consolidated investment products discussed in Note 16. The composition of the Company’s marketable securities is summarized as follows:
September 30, 2018
 
Cost
 
Unrealized
Loss
 
Unrealized
Gain
 
Fair
Value
($ in thousands)
 
 
 
 
 
 
 
Marketable securities:
 
 
 
 
 
 
 
Sponsored funds
$
39,568

 
$
(983
)
 
$
1,366

 
$
39,951

Equity securities
15,903

 
(9
)
 
2,747

 
18,641

Sponsored closed-end funds
3,787

 
(417
)
 
368

 
3,738

Total marketable securities
$
59,258

 
$
(1,409
)
 
$
4,481

 
$
62,330


December 31, 2017
 
Cost
 
Unrealized
Loss
 
Unrealized
Gain
 
Fair
Value
($ in thousands)
 
 
 
 
 
 
 
Marketable securities:
 
 
 
 
 
 
 
Sponsored funds
$
47,084

 
$
(1,294
)
 
$
1,059

 
$
46,849

Equity securities
13,141

 
(2
)
 
2,671

 
15,810

Sponsored closed-end funds
3,761

 
(302
)
 
306

 
3,765

Total marketable securities
$
63,986

 
$
(1,598
)
 
$
4,036

 
$
66,424


For the three and nine months ended September 30, 2018, the Company recognized net realized gains of $0.6 million and $1.9 million, respectively, on marketable securities. For the three and nine months ended September 30, 2017, the Company recognized a net realized gain of $0.3 million and a net realized loss of $1.6 million, respectively, on marketable securities.



7. Fair Value Measurements
The Company’s assets and liabilities measured at fair value on a recurring basis, excluding the assets and liabilities of consolidated investment products, which are separately discussed in Note 16, as of September 30, 2018 and December 31, 2017 by fair value hierarchy level were as follows:
September 30, 2018  
 
Level 1
 
Level 2
 
Level 3
 
Total
($ in thousands)
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Cash equivalents
$
138,301

 
$

 
$

 
$
138,301

Marketable securities:
 
 
 
 
 
 
 
Sponsored funds
39,951

 

 

 
39,951

Equity securities
18,641

 

 

 
18,641

Sponsored closed-end funds
3,738

 

 

 
3,738

Other investments:
 
 
 
 
 
 
 
Investments in collateralized loan obligations

 

 
5,043

 
5,043

Nonqualified retirement plan assets
7,409

 

 

 
7,409

Total assets measured at fair value
$
208,040

 
$

 
$
5,043

 
$
213,083



15


December 31, 2017  
 
Level 1
 
Level 2
 
Level 3
 
Total
($ in thousands)
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Cash equivalents
$
72,993

 
$

 
$

 
$
72,993

Marketable securities:
 
 
 
 
 
 
 
Sponsored funds
46,849

 

 

 
46,849

Equity securities
15,810

 

 

 
15,810

Sponsored closed-end funds
3,765

 

 

 
3,765

Other investments
 
 
 
 
 
 
 
Investment in collateralized loan obligations

 
18,900

 
4,439

 
23,339

Nonqualified retirement plan assets
6,706

 

 

 
6,706

Total assets measured at fair value
$
146,123

 
$
18,900

 
$
4,439

 
$
169,462

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 actively traded money market funds are valued using published net asset values and are classified as Level 1.
Sponsored funds represent investments in open-end mutual funds, closed-end funds and ETFs for which the Company acts as the investment manager. The fair value of open-end mutual 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 are determined based on the official closing price on the exchange on which they are traded and are categorized as Level 1.
Equity securities include securities traded on active markets and are valued at the official closing price (typically last sale or bid) on the exchange on which the securities are primarily traded and are categorized as Level 1.
Investments in collateralized loan obligations represent investments in CLOs for which the Company provides investment management services. The investments in collateralized loan obligations are measured at fair value based on independent third-party valuations and are categorized as Level 2 or Level 3.

Nonqualified retirement plan assets represent open-end mutual funds within a nonqualified retirement plan whose fair value is determined based on their published net asset value and are categorized as Level 1.

Cash, accounts receivable, accounts payable and accrued liabilities equal or approximate fair value based on the short-term nature of these instruments.

Transfers into and out of levels are reflected when: (1) significant inputs used for the fair value measurement, including market inputs or performance attributes, become observable or unobservable; or (2) if the book value no longer represents fair value. There were no transfers between levels during the three and nine months ended September 30, 2018 and 2017.
The following table is a reconciliation of assets for Level 3 investments for which significant unobservable inputs were used to determine fair value.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 ($ in thousands)
2018
 
2017
 
2018
 
2017
Level 3 Investments (a)
 
 
 
 
 
 
 
Balance at beginning of period
$
5,744

 
$
2,909

 
$
4,439

 
$

Acquired in period

 

 
1,326

 
2,916

Change in unrealized gain (loss), net
(701
)
 
(168
)
 
(722
)
 
(175
)
Balance at end of period
$
5,043

 
$
2,741

 
$
5,043

 
$
2,741

 
 
 
 
 
 
 
 
(a)
The investments that are categorized as Level 3 were valued utilizing third-party pricing information without adjustment.


16




8. Equity Transactions

On August 14, 2018, the Company declared a quarterly cash dividend of $0.55 per common share to be paid on November 15, 2018 to shareholders of record at the close of business on October 31, 2018. The Company also declared a quarterly cash dividend of $1.8125 per share on the Company's 7.25% mandatory convertible preferred stock ("MCPS") to be paid on November 1, 2018 to shareholders of record at the close of business on October 16, 2018.

As of September 30, 2018, there were 784,950 shares available to be repurchased from a total of 4,180,045 shares of Company common stock that had been approved by the Company's Board of Directors. 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. During the nine months ended September 30, 2018, the Company repurchased 98,806 common shares at a weighted average price of $126.49 per share for a total cost, including fees and expenses, of $12.5 million.



9. Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) by component for the nine