UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ |
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 001-38388
Victory Capital Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
|
32-0402956 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
|
|
|
15935 La Cantera Parkway, San Antonio, Texas |
|
78256 |
(Address of principal executive offices) |
|
(Zip Code) |
(216) 898-2400
(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 |
Class A Common Stock, $0.01 Par Value |
VCTR |
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 outstanding shares of the registrant’s Common Stock, par value $0.01 per share as of October 31, 2022 was 68,509,826.
Auditor’s PCAOB ID Number: 42 Auditor Name: Ernst & Young LLP Auditor Location: Cleveland, Ohio
TABLE OF CONTENTS
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3 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
30 |
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45 |
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46 |
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47 |
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47 |
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47 |
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47 |
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48 |
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49 |
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Forward‑Looking Statements This report includes forward-looking statements, including in the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These forward‑looking statements include, without limitation, statements regarding our industry, business strategy, plans, goals and expectations concerning our market position, future operations, margins, profitability, future efficiencies, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words “may,” “believes,” “intends,” “seeks,” “anticipates,” “plans,” “estimates,” “expects,” “should,” “assumes,” “continues,” “could,” “will,” “future” and the negative of these or similar terms and phrases are intended to identify forward‑looking statements in this report.Forward‑looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward‑looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following; reductions in assets under management (“AUM”) based on investment performance, client withdrawals, difficult market conditions and other factors such as a pandemic; the nature of our contracts and investment advisory agreements; our ability to maintain historical returns and sustain our historical growth; our dependence on third parties to market our strategies and provide products or services for the operation of our business; our ability to retain key investment professionals or members of our senior management team; our reliance on the technology systems supporting our operations; our ability to successfully acquire and integrate new companies; the concentration of our investments in long only small‑ and mid‑cap equity and U.S. clients; risks and uncertainties associated with non‑U.S. investments; our efforts to establish and develop new teams and strategies; the ability of our investment teams to identify appropriate investment opportunities; our ability to limit employee misconduct; our ability to meet the guidelines set by our clients; our exposure to potential litigation (including administrative or tax proceedings) or regulatory actions; our ability to implement effective information and cyber security policies, procedures and capabilities; our substantial indebtedness; the potential impairment of our goodwill and intangible assets; disruption to the operations of third parties whose functions are integral to our exchange traded fund (“ETF”) platform; our determination that we are not required to register as an “investment company” under the 1940 Act; the fluctuation of our expenses; our ability to respond to recent trends in the investment management industry; the level of regulation on investment management firms and our ability to respond to regulatory developments; the competitiveness of the investment management industry; the level of control over us retained by Crestview Partners II GP, L.P. (“Crestview GP”); our status as an emerging growth company; and other risks and factors included, but not limited to, those listed under the caption “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2022, which is accessible on the SEC’s website at www.sec.gov.In light of these risks, uncertainties and other factors, the forward‑looking statements contained in this report might not prove to be accurate. All forward‑looking statements speak only as of the date made and we undertake no obligation to update or revise publicly any forward‑looking statements, whether as a result of new information, future events or otherwise.
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Victory Capital Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except shares data)
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
66,669 |
|
|
$ |
69,533 |
|
Receivables |
|
|
87,534 |
|
|
|
104,305 |
|
Prepaid expenses |
|
|
7,321 |
|
|
|
6,654 |
|
Investments, at fair value |
|
|
28,908 |
|
|
|
31,724 |
|
Property and equipment, net |
|
|
23,124 |
|
|
|
25,295 |
|
Goodwill |
|
|
981,805 |
|
|
|
981,805 |
|
Other intangible assets, net |
|
|
1,323,828 |
|
|
|
1,349,797 |
|
Other assets |
|
|
69,936 |
|
|
|
10,633 |
|
Total assets |
|
$ |
2,589,125 |
|
|
$ |
2,579,746 |
|
|
|
|
|
|
|
|
||
Liabilities and stockholders' equity |
|
|
|
|
|
|
||
Accounts payable and accrued expenses |
|
$ |
50,145 |
|
|
$ |
62,102 |
|
Accrued compensation and benefits |
|
|
52,951 |
|
|
|
53,905 |
|
Consideration payable for acquisition of business |
|
|
267,900 |
|
|
|
309,380 |
|
Deferred tax liability, net |
|
|
103,394 |
|
|
|
63,120 |
|
Other liabilities |
|
|
47,883 |
|
|
|
33,388 |
|
Long-term debt, net |
|
|
999,843 |
|
|
|
1,127,924 |
|
Total liabilities |
|
|
1,522,116 |
|
|
|
1,649,819 |
|
|
|
|
|
|
|
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||
Stockholders' equity |
|
|
|
|
|
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||
Common stock, $0.01 par value per share: 2022 - 600,000,000 shares authorized, 80,288,530 shares issued and 68,481,824 shares outstanding; 2021 - 600,000,000 shares authorized, 77,242,372 shares issued and 68,662,779 shares outstanding |
|
|
803 |
|
|
|
772 |
|
Additional paid-in capital |
|
|
699,242 |
|
|
|
673,572 |
|
Treasury stock, at cost: 2022 - 11,806,706 shares; 2021 - 8,579,593 shares |
|
|
(243,901 |
) |
|
|
(153,200 |
) |
Accumulated other comprehensive income |
|
|
37,121 |
|
|
|
5,972 |
|
Retained earnings |
|
|
573,744 |
|
|
|
402,811 |
|
Total stockholders' equity |
|
|
1,067,009 |
|
|
|
929,927 |
|
Total liabilities and stockholders' equity |
|
$ |
2,589,125 |
|
|
$ |
2,579,746 |
|
See the accompanying notes to the unaudited condensed consolidated financial statements.
3
Victory Capital Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
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||||
Investment management fees |
|
$ |
160,770 |
|
|
$ |
171,355 |
|
|
$ |
508,364 |
|
|
$ |
499,672 |
|
Fund administration and distribution fees |
|
|
46,490 |
|
|
|
54,935 |
|
|
|
144,921 |
|
|
|
161,471 |
|
Total revenue |
|
|
207,260 |
|
|
|
226,290 |
|
|
|
653,285 |
|
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|
661,143 |
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Expenses |
|
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Personnel compensation and benefits |
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56,869 |
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55,837 |
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|
179,352 |
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|
172,305 |
|
Distribution and other asset-based expenses |
|
|
39,019 |
|
|
|
44,859 |
|
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|
123,471 |
|
|
|
131,185 |
|
General and administrative |
|
|
12,301 |
|
|
|
13,795 |
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|
|
38,984 |
|
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|
40,818 |
|
Depreciation and amortization |
|
|
10,686 |
|
|
|
4,377 |
|
|
|
32,051 |
|
|
|
13,456 |
|
Change in value of consideration payable for acquisition of business |
|
|
(10,500 |
) |
|
|
2,400 |
|
|
|
(40,600 |
) |
|
|
10,600 |
|
Acquisition-related costs |
|
|
189 |
|
|
|
6,007 |
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|
449 |
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|
|
6,265 |
|
Restructuring and integration costs |
|
|
56 |
|
|
|
18 |
|
|
|
73 |
|
|
|
2,493 |
|
Total operating expenses |
|
|
108,620 |
|
|
|
127,293 |
|
|
|
333,780 |
|
|
|
377,122 |
|
|
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|
|
|
|
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Income from operations |
|
|
98,640 |
|
|
|
98,997 |
|
|
|
319,505 |
|
|
|
284,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other (expense) income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income and other (expense) income |
|
|
(1,446 |
) |
|
|
(119 |
) |
|
|
(5,096 |
) |
|
|
4,547 |
|
Interest expense and other financing costs |
|
|
(11,479 |
) |
|
|
(5,853 |
) |
|
|
(30,637 |
) |
|
|
(18,853 |
) |
Loss on debt extinguishment |
|
|
(369 |
) |
|
|
(669 |
) |
|
|
(2,887 |
) |
|
|
(4,596 |
) |
Total other expense, net |
|
|
(13,294 |
) |
|
|
(6,641 |
) |
|
|
(38,620 |
) |
|
|
(18,902 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income before income taxes |
|
|
85,346 |
|
|
|
92,356 |
|
|
|
280,885 |
|
|
|
265,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax expense |
|
|
(12,582 |
) |
|
|
(18,181 |
) |
|
|
(57,643 |
) |
|
|
(56,472 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
72,764 |
|
|
$ |
74,175 |
|
|
$ |
223,242 |
|
|
$ |
208,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
1.06 |
|
|
$ |
1.09 |
|
|
$ |
3.25 |
|
|
$ |
3.08 |
|
Diluted |
|
$ |
1.01 |
|
|
$ |
1.00 |
|
|
$ |
3.07 |
|
|
$ |
2.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
68,609 |
|
|
|
67,980 |
|
|
|
68,625 |
|
|
|
67,840 |
|
Diluted |
|
|
71,877 |
|
|
|
74,053 |
|
|
|
72,797 |
|
|
|
74,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dividends declared per share of common stock |
|
$ |
0.25 |
|
|
$ |
0.15 |
|
|
$ |
0.75 |
|
|
$ |
0.36 |
|
See the accompanying notes to the unaudited condensed consolidated financial statements.
4
Victory Capital Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income |
|
$ |
72,764 |
|
|
$ |
74,175 |
|
|
$ |
223,242 |
|
|
$ |
208,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net unrealized income on cash flow hedges |
|
|
10,024 |
|
|
|
1,276 |
|
|
|
31,514 |
|
|
|
9,078 |
|
Net unrealized loss on foreign currency translation |
|
|
(78 |
) |
|
|
(56 |
) |
|
|
(365 |
) |
|
|
(47 |
) |
Total other comprehensive income, net of tax |
|
|
9,946 |
|
|
|
1,220 |
|
|
|
31,149 |
|
|
|
9,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Comprehensive income |
|
$ |
82,710 |
|
|
$ |
75,395 |
|
|
$ |
254,391 |
|
|
$ |
217,678 |
|
See the accompanying notes to the unaudited condensed consolidated financial statements.
5
Victory Capital Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
Paid-In |
|
|
Comprehensive |
|
|
Retained |
|
|
|
|
||||||
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Capital |
|
|
Income |
|
|
Earnings |
|
|
Total |
|
||||||
Balance, December 31, 2021 |
|
$ |
772 |
|
|
$ |
(153,200 |
) |
|
$ |
673,572 |
|
|
$ |
5,972 |
|
|
$ |
402,811 |
|
|
$ |
929,927 |
|
Issuance of common stock |
|
|
— |
|
|
|
— |
|
|
|
69 |
|
|
|
— |
|
|
|
— |
|
|
|
69 |
|
Repurchase of shares |
|
|
— |
|
|
|
(9,437 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,437 |
) |
Shares withheld related to net settlement of equity awards |
|
|
— |
|
|
|
(9,317 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,317 |
) |
Vesting of restricted share grants |
|
|
5 |
|
|
|
— |
|
|
|
(5 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercise of options |
|
|
2 |
|
|
|
— |
|
|
|
1,231 |
|
|
|
— |
|
|
|
— |
|
|
|
1,233 |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,199 |
|
|
|
— |
|
|
|
16,199 |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
3,945 |
|
|
|
— |
|
|
|
— |
|
|
|
3,945 |
|
Dividends paid |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,618 |
) |
|
|
(17,618 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
71,273 |
|
|
|
71,273 |
|
Balance, March 31, 2022 |
|
|
779 |
|
|
|
(171,954 |
) |
|
|
678,812 |
|
|
|
22,171 |
|
|
|
456,466 |
|
|
|
986,274 |
|
Issuance of common stock |
|
|
— |
|
|
|
— |
|
|
|
80 |
|
|
|
— |
|
|
|
— |
|
|
|
80 |
|
Repurchase of shares |
|
|
— |
|
|
|
(16,908 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16,908 |
) |
Shares withheld related to net settlement of equity awards |
|
|
— |
|
|
|
(4,839 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,839 |
) |
Vesting of restricted share grants |
|
|
1 |
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercise of options |
|
|
4 |
|
|
|
— |
|
|
|
1,687 |
|
|
|
— |
|
|
|
— |
|
|
|
1,691 |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,004 |
|
|
|
— |
|
|
|
5,004 |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
4,965 |
|
|
|
— |
|
|
|
— |
|
|
|
4,965 |
|
Dividends paid |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,291 |
) |
|
|
(17,291 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
79,205 |
|
|
|
79,205 |
|
Balance, June 30, 2022 |
|
|
784 |
|
|
|
(193,701 |
) |
|
|
685,543 |
|
|
|
27,175 |
|
|
|
518,380 |
|
|
|
1,038,181 |
|
Issuance of common stock |
|
|
— |
|
|
|
— |
|
|
|
64 |
|
|
|
— |
|
|
|
— |
|
|
|
64 |
|
Repurchase of shares |
|
|
— |
|
|
|
(22,827 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22,827 |
) |
Shares withheld related to net settlement of equity awards |
|
|
— |
|
|
|
(27,373 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(27,373 |
) |
Vesting of restricted share grants |
|
|
2 |
|
|
|
|
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Exercise of options |
|
|
17 |
|
|
|
— |
|
|
|
9,285 |
|
|
|
— |
|
|
|
— |
|
|
|
9,302 |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,946 |
|
|
|
— |
|
|
|
9,946 |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
4,352 |
|
|
|
— |
|
|
|
— |
|
|
|
4,352 |
|
Dividends paid |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,400 |
) |
|
|
(17,400 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
72,764 |
|
|
|
72,764 |
|
Balance, September 30, 2022 |
|
$ |
803 |
|
|
$ |
(243,901 |
) |
|
$ |
699,242 |
|
|
$ |
37,121 |
|
|
$ |
573,744 |
|
|
$ |
1,067,009 |
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
Retained |
|
|
|
|
||||||||
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Paid-In |
|
|
Comprehensive |
|
|
(Deficit) |
|
|
|
|
||||||||||||||
|
|
Class A |
|
|
Class B |
|
|
Class A |
|
|
Class B |
|
|
Capital |
|
|
(Loss) Income |
|
|
Earnings |
|
|
Total |
|
||||||||
Balance, December 31, 2020 |
|
$ |
194 |
|
|
$ |
548 |
|
|
$ |
(47,844 |
) |
|
$ |
(47,080 |
) |
|
$ |
647,602 |
|
|
$ |
(7,460 |
) |
|
$ |
161,581 |
|
|
$ |
707,541 |
|
Issuance of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
44 |
|
|
|
— |
|
|
|
— |
|
|
|
44 |
|
Share conversion - Class B to A |
|
|
2 |
|
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Repurchase of shares |
|
|
— |
|
|
|
— |
|
|
|
(7,122 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,122 |
) |
Shares withheld related to net settlement of equity awards |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10,916 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10,916 |
) |
Vesting of restricted share grants |
|
|
— |
|
|
|
9 |
|
|
|
— |
|
|
|
— |
|
|
|
(9 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercise of options |
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
789 |
|
|
|
— |
|
|
|
— |
|
|
|
790 |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,771 |
|
|
|
— |
|
|
|
10,771 |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,547 |
|
|
|
— |
|
|
|
— |
|
|
|
5,547 |
|
Dividends paid |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,481 |
) |
|
|
(6,481 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
65,202 |
|
|
|
65,202 |
|
Balance, March 31, 2021 |
|
|
196 |
|
|
|
556 |
|
|
|
(54,966 |
) |
|
|
(57,996 |
) |
|
|
653,973 |
|
|
|
3,311 |
|
|
|
220,302 |
|
|
|
765,376 |
|
Issuance of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
53 |
|
|
|
— |
|
|
|
— |
|
|
|
53 |
|
Share conversion - Class B to A |
|
|
2 |
|
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Repurchase of shares |
|
|
— |
|
|
|
— |
|
|
|
(8,324 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,324 |
) |
Shares withheld related to net settlement of equity awards |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,929 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,929 |
) |
Vesting of restricted share grants |
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercise of options |
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
1,551 |
|
|
|
— |
|
|
|
— |
|
|
|
1,553 |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,960 |
) |
|
|
— |
|
|
|
(2,960 |
) |
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,345 |
|
|
|
— |
|
|
|
— |
|
|
|
4,345 |
|
Dividends paid |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,228 |
) |
|
|
(8,228 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
69,270 |
|
|
|
69,270 |
|
Balance, June 30, 2021 |
|
|
198 |
|
|
|
558 |
|
|
|
(63,290 |
) |
|
|
(62,925 |
) |
|
|
659,920 |
|
|
|
351 |
|
|
|
281,344 |
|
|
|
816,156 |
|
Issuance of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
73 |
|
|
|
— |
|
|
|
— |
|
|
|
73 |
|
Share conversion - Class B to A |
|
|
3 |
|
|
|
(3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Repurchase of shares |
|
|
— |
|
|
|
— |
|
|
|
(6,275 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,275 |
) |
Shares withheld related to net settlement of equity awards |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,824 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,824 |
) |
Vesting of restricted share grants |
|
|
— |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Exercise of options |
|
|
— |
|
|
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
1,889 |
|
|
|
— |
|
|
|
— |
|
|
|
1,892 |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,220 |
|
|
|
— |
|
|
|
1,220 |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,021 |
|
|
|
— |
|
|
|
— |
|
|
|
4,021 |
|
Dividends paid |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10,771 |
) |
|
|
(10,771 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
74,175 |
|
|
|
74,175 |
|
Balance, September 30, 2021 |
|
$ |
201 |
|
|
$ |
563 |
|
|
$ |
(69,565 |
) |
|
$ |
(75,749 |
) |
|
$ |
665,898 |
|
|
$ |
1,571 |
|
|
$ |
344,748 |
|
|
$ |
867,667 |
|
See the accompanying notes to the unaudited condensed consolidated financial statements.
7
Victory Capital Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
||
Net income |
|
$ |
223,242 |
|
|
$ |
208,647 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Provision for deferred income taxes |
|
|
30,339 |
|
|
|
16,116 |
|
Depreciation and amortization |
|
|
32,051 |
|
|
|
13,456 |
|
Deferred financing costs and derivative and accretion expense |
|
|
3,395 |
|
|
|
2,655 |
|
Stock-based and deferred compensation |
|
|
10,774 |
|
|
|
20,779 |
|
Change in fair value of contingent consideration obligations |
|
|
(40,600 |
) |
|
|
10,600 |
|
Unrealized depreciation (appreciation) on investments |
|
|
5,307 |
|
|
|
(4,159 |
) |
Noncash lease expense |
|
|
263 |
|
|
|
— |
|
Loss on equity method investment |
|
|
825 |
|
|
|
227 |
|
Loss on debt extinguishment |
|
|
2,887 |
|
|
|
4,596 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Receivables |
|
|
16,781 |
|
|
|
(14,789 |
) |
Prepaid expenses |
|
|
(667 |
) |
|
|
513 |
|
Other assets |
|
|
(1,540 |
) |
|
|
402 |
|
Accounts payable and accrued expenses |
|
|
(11,427 |
) |
|
|
10,615 |
|
Accrued compensation and benefits |
|
|
(2,567 |
) |
|
|
(5,144 |
) |
Other liabilities |
|
|
(944 |
) |
|
|
(453 |
) |
Net cash provided by operating activities |
|
|
268,119 |
|
|
|
264,061 |
|
|
|
|
|
|
|
|
||
Cash flows from investing activities |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
(4,286 |
) |
|
|
(8,298 |
) |
Purchases of investments |
|
|
(17,696 |
) |
|
|
(9,415 |
) |
Sales of investments |
|
|
15,205 |
|
|
|
7,267 |
|
Acquisition of business and assets, net of cash acquired |
|
|
(880 |
) |
|
|
(586 |
) |
Net cash used in investing activities |
|
|
(7,657 |
) |
|
|
(11,032 |
) |
|
|
|
|
|
|
|
||
Cash flows from financing activities |
|
|
|
|
|
|
||
Issuance of common stock |
|
|
12,439 |
|
|
|
4,405 |
|
Repurchase of common stock |
|
|
(61,493 |
) |
|
|
(25,872 |
) |
Payments of taxes related to net share settlement of equity awards |
|
|
(27,897 |
) |
|
|
(22,109 |
) |
Repayments of long-term senior debt |
|
|
(134,000 |
) |
|
|
(142,000 |
) |
Payment of dividends |
|
|
(52,127 |
) |
|
|
(25,409 |
) |
Net cash used in financing activities |
|
|
(263,078 |
) |
|
|
(210,985 |
) |
|
|
|
|
|
|
|
||
Effect of changes of foreign exchange rate on cash and cash equivalents |
|
|
(248 |
) |
|
|
(48 |
) |
|
|
|
|
|
|
|
||
Net (decrease) increase in cash and cash equivalents |
|
|
(2,864 |
) |
|
|
41,996 |
|
Cash and cash equivalents, beginning of period |
|
|
69,533 |
|
|
|
22,744 |
|
Cash and cash equivalents, end of period |
|
$ |
66,669 |
|
|
$ |
64,740 |
|
|
|
|
|
|
|
|
||
Supplemental cash flow information |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
24,118 |
|
|
$ |
14,806 |
|
Cash paid for income taxes |
|
|
26,117 |
|
|
|
49,137 |
|
Noncash items |
|
|
|
|
|
|
||
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities |
|
$ |
3,984 |
|
|
$ |
— |
|
See the accompanying notes to the unaudited condensed consolidated financial statements.
8
Victory Capital Holdings, Inc. and Subsidiaries
NOTE 1. ORGANIZATION AND NATURE OF BUSINESS
Victory Capital Holdings, Inc., a Delaware corporation (along with its wholly-owned subsidiaries, collectively referred to as the “Company,” “Victory,” or in the first-person notations of “we,” “us,” and “our”), was formed on February 13, 2013 for the purpose of acquiring Victory Capital Management Inc. (“VCM”) and Victory Capital Services, Inc. (“VCS”), formerly known as Victory Capital Advisers, Inc., which occurred on August 1, 2013. On February 12, 2018, the Company completed the initial public offering (the “IPO”) of its Class A common stock, which trades on the NASDAQ under the symbol “VCTR.”
On and effective July 1, 2019, the Company completed the acquisition (the “USAA AMCO Acquisition” or “USAA AMCO”) of USAA Asset Management Company (“USAA Adviser”) and Victory Capital Transfer Agency, Inc. (“VCTA”), formerly known as the USAA Transfer Agency Company d/b/a USAA Shareholder Account Services. The USAA AMCO Acquisition includes USAA’s mutual fund and exchange traded fund (“ETF”) businesses and its 529 Education Savings Plan. Refer to Note 4, Acquisitions, for further details on the acquisition.
VCM is a registered investment adviser managing assets through mutual funds, institutional separate accounts, separately managed account products, unified managed account products, third-party ETF model strategies, collective trust funds, private funds, undertakings for the collective investment in transferrable securities, other pooled vehicles and ETFs. VCM also provides mutual fund administrative services for the Victory Portfolios, Victory Variable Insurance Funds and the mutual fund series of the Victory Portfolios II (collectively, the “Victory Funds”), a family of open-end mutual funds, the VictoryShares (the Company’s ETF brand) and the USAA Mutual Fund Trust, a family of open-end mutual funds (the “USAA Funds”). Additionally, VCM employs all of the Company’s United States investment professionals across its Franchises and Solutions, which are not separate legal entities. VCM’s wholly-owned subsidiaries include RS Investment Management (Singapore) Pte. Ltd., RS Investments (Hong Kong) Limited, RS Investments (UK) Limited, Victory Capital Digital Assets, LLC and NEC Pipeline LLC. VCS is registered with the SEC as an introducing broker-dealer and serves as distributor and underwriter for the Victory Funds, the USAA Funds and the USAA 529 Education Savings Plan as well as placement agent for certain private funds managed by VCM. VCTA is registered with the SEC as a transfer agent for the USAA Funds.
On March 1, 2021, the Company completed the acquisition of THB Asset Management (“THB”), resulting in THB becoming the Company’s tenth investment franchise. THB manages responsible investment portfolios in the micro-cap, small-cap and mid-cap asset classes, including U.S., global and international strategies. At March 1, 2021, the THB AUM that was acquired totaled $547 million. Refer to Note 4, Acquisitions, for further details on the acquisition.
On November 1, 2021, the Company completed the acquisition of New Energy Capital Partners (“NEC”), resulting in NEC becoming the Company’s eleventh investment franchise. Founded in 2004 and based in Hanover, New Hampshire, NEC is an alternative asset management firm focused on debt and equity investments in clean energy infrastructure projects and companies. At November 1, 2021, the NEC AUM that was acquired totaled $795 million. Refer to Note 4, Acquisitions, for further details on the acquisition.
On December 31, 2021, the Company completed the acquisition of WestEnd Advisors, LLC (“WestEnd”), resulting in WestEnd becoming the Company’s twelfth investment franchise. Founded in 2004, and headquartered in Charlotte, North Carolina, WestEnd is an ETF strategist advisor that provides financial advisors with a turnkey, core model allocation strategy for either a holistic solution or complementary source of alpha. The firm offers four primary ETF strategies and one large cap core strategy, all in tax efficient Separately Managed Account (SMA) structures. At December 31, 2021, the WestEnd AUM that was acquired totaled $19.3 billion. WestEnd is a wholly-owned subsidiary of Victory Capital Holdings, Inc. and is the Company’s second registered investment adviser. Refer to Note 4, Acquisitions, for further details on the acquisition.
NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
On November 19, 2021, the Company’s stockholders voted on and approved the Amendment eliminating the Company’s dual-class stock structure. Upon the filing of the Amendment on November 23, 2021, all shares of Class B common stock were converted into an equal number of shares of Class A common stock and the Company’s Class A common stock was renamed as “Common Stock.” All references within this document to Class A common stock for periods prior to November 23, 2021 have been updated for the renaming.
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for complete annual financial statements. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
9
In the opinion of management, the consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial condition, results of operations, and cash flows for the interim periods presented. Certain prior period amounts have been reclassified to conform to the current year presentation. Operating results for the three- and nine-month periods ending September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the operations of the Company and its wholly-owned subsidiaries, after elimination of all intercompany balances and transactions.
The Company owned a 15% equity interest in Alderwood Partners LLP (“Alderwood”) from September 20, 2020 through July 31, 2022, when the Company retired as a member of Alderwood. The Company analyzed its investment in Alderwood under the voting interest model and determined that it did not have a controlling financial interest. The Company accounted for its Alderwood investment using the equity method of accounting. Refer to Note 15, Equity Method Investment, for additional information on Alderwood.
The Company’s involvement with non-consolidated variable interest entities (“VIEs”) includes sponsored investment funds. For further discussion regarding VIEs, refer to Note 2, Significant Accounting Policies, in our Annual Report on Form 10-K for the year ended December 31, 2021.
Use of Estimates and Assumptions
The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements and the notes. Actual results may ultimately differ materially from those estimates.
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption. While COVID-19 did not have a material adverse effect on our business, operations and financial results, the extent to which the pandemic impacts our business, operations and financial results going forward will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; and the effect on our ability to sell and provide our services.
Lease Accounting Policy
The Company’s leases consist primarily of real estate leases for office space. The Company determines if an arrangement is a lease at contract inception. A lease liability and a corresponding right-of-use ("ROU") asset are recognized on the commencement date for leases with terms longer than one year. Lease liabilities represent an obligation to make lease payments arising from a lease while ROU assets represent a right to use an underlying asset during the lease term. The lease liability is measured at the present value of the future lease payments over the lease term generally using the Company's incremental borrowing rate, which is determined through market sources. Lease components and non-lease components such as fixed maintenance and other costs are combined into one lease component and capitalized in lease liabilities. Variable lease payments, such as utilities and common area maintenance charges, are excluded from lease liabilities and expensed as incurred. The variable lease payments are determined based on terms in the lease contracts and primarily relate to usage of the ROU asset and services received from the lessor. A ROU asset is measured initially as the value of the lease liability plus initial direct costs and prepaid lease payments and less lease incentives received. The lease term includes periods covered by options to extend the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term and is recorded in general and administrative expenses on the unaudited Condensed Consolidated Statements of Operations.
New Accounting Pronouncements
Accounting Standards Adopted or Applied in 2022
The Company adopted the New Lease Standard using the modified retrospective method of applying the new standard at the adoption date. We elected the package of practical expedients permitted under the transition guidance which allowed us to carry forward historical lease classifications for existing and expired leases and not reassess existing lease initial direct costs. In addition, we elected for all classes of underlying assets not to separate lease and non-lease components of a contract. We
10
also elected the practical expedients to determine the likelihood of an extension or reduction in lease terms at commencement through adoption of the New Lease Standard and to not apply the New Lease Standard to leases with terms of one year or less.
The adoption of the New Lease Standard resulted in the recognition of $18.7 million of operating lease ROU assets and the corresponding operating lease liabilities on the unaudited Condensed Consolidated Balance Sheet and the reclassification of $1.7 million of deferred rent liabilities relating to these leases, reducing operating lease ROU assets. The consolidated balance sheet prior to January 1, 2022 was not restated and continues to be reported under the Legacy ASC Topic 840, which did not require the recognition of operating lease ROU assets and liabilities. The expense recognition for operating leases and finance leases under the New Lease Standard is consistent with the Legacy ASC Topic 840. As a result, there is no significant impact to our results of operations, liquidity or debt covenant compliance under our current credit agreements.
The following table presents the impact of adopting the New Lease Standard on our consolidated balance sheet (in thousands).
|
|
Balance at December 31, 2021 |
|
|
New Lease Standard |
|
|
Balance at January 1, 2022 |
|
|||
Total assets |
|
|
2,579,746 |
|
|
|
17,031 |
|
|
|
2,596,777 |
|
Total liabilities |
|
|
1,649,819 |
|
|
|
17,031 |
|
|
|
1,666,850 |
|
Total liabilities and stockholders' equity |
|
|
2,579,746 |
|
|
|
17,031 |
|
|
|
2,596,777 |
|
The lease liability recorded for our operating leases on January 1, 2022 was based on the present value of the remaining minimum lease payments discounted using our secured incremental borrowing rate on that date for the average remaining term for our lease portfolio.
During the third quarter of 2022, the Company elected to apply certain optional expedients available under ASC 848 providing relief from contract modification and hedge accounting requirements to amendments made to its 2019 credit agreement and interest rate swap (the “Swap”) agreement to transition the referenced interest rate from LIBOR to a rate based on the secured overnight financing rate (“SOFR”). As a result, the Company was not required to evaluate whether the modifications to the 2019 credit agreement and the Swap agreement resulted in the establishment of new contracts or the continuation of existing contracts and elected not to remeasure the contracts at the modification date or reassess previous accounting determinations. The modified contracts are accounted for, and presented as, continuations of the existing contracts. The Company also elected to change the contractual terms of the Swap without dedesignating the hedging relationship.
Prior to amending the Swap, the Company elected to use the guidance in ASC 848 to assert that it remained probable that the hedged forecasted transaction would occur.
Recently Issued Accounting Standards
11
NOTE 3. Revenue RECOGNITION
In accordance with revenue recognition standard requirements, the following table disaggregates our revenue by type and product:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Investment management fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mutual funds (Victory/USAA Funds) |
|
$ |
112,467 |
|
|
$ |
137,433 |
|
|
$ |
357,294 |
|
|
$ |
399,854 |
|
ETFs (VictoryShares) |
|
|
5,324 |
|
|
|
4,338 |
|
|
|
15,274 |
|
|
|
11,792 |
|
Separate accounts and other vehicles |
|
|
43,031 |
|
|
|
31,357 |
|
|
|
137,643 |
|
|
|
92,000 |
|
Performance-based fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mutual funds (USAA Funds) |
|
|
244 |
|
|
|
(1,402 |
) |
|
|
(1,039 |
) |
|
|
(4,394 |
) |
Separate accounts and other vehicles |
|
|
(296 |
) |
|
|
(371 |
) |
|
|
(808 |
) |
|
|
420 |
|
Total investment management fees |
|
|
160,770 |
|
|
|
171,355 |
|
|
|
508,364 |
|
|
|
499,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fund administration and distribution fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Administration fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mutual funds (Victory/USAA Funds) |
|
$ |
25,566 |
|
|
|
30,874 |
|
|
$ |
80,287 |
|
|
|
89,891 |
|
ETFs (VictoryShares) |
|
|
673 |
|
|
|
477 |
|
|
|
2,095 |
|
|
|
1,378 |
|
Distribution fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mutual funds (Victory/USAA Funds) |
|
|
6,036 |
|
|
|
7,340 |
|
|
|
19,172 |
|
|
|
21,624 |
|
Transfer agent fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mutual funds (USAA Funds) |
|
|
14,215 |
|
|
|
16,244 |
|
|
|
43,367 |
|
|
|
48,578 |
|
Total fund administration and distribution fees |
|
|
46,490 |
|
|
|
54,935 |
|
|
|
144,921 |
|
|
|
161,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
207,260 |
|
|
$ |
226,290 |
|
|
$ |
653,285 |
|
|
$ |
661,143 |
|
The following table presents balances of receivables:
(in thousands) |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Customer receivables |
|
|
|
|
|
|
||
Mutual funds (Victory/USAA Funds) |
|
$ |
52,450 |
|
|
$ |
65,304 |
|
ETFs (VictoryShares) |
|
|
2,073 |
|
|
|
1,934 |
|
Separate accounts and other vehicles |
|
|
27,790 |
|
|
|
30,519 |
|
Receivables from contracts with customers |
|
|
82,313 |
|
|
|
97,757 |
|
Non-customer receivables |
|
|
5,221 |
|
|
|
6,548 |
|
Total receivables |
|
$ |
87,534 |
|
|
$ |
104,305 |
|
Revenue
The Company’s revenue includes fees earned from providing;
Revenue is recognized for each distinct performance obligation identified in customer contracts when the performance obligation has been satisfied by transferring services to a customer either over time or at the point in time when the customer obtains control of the service. Revenue is recognized in the amount of variable or fixed consideration allocated to the satisfied performance obligation that Victory expects to be entitled to in exchange for transferring services to a customer. Variable consideration is included in the transaction price only when it is probable that a significant reversal of such revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Investment management, fund administration and fund distribution fees are generally considered variable consideration as they are typically calculated as a percentage of AUM. Fund transfer agent fees are also considered variable consideration as they are calculated as a percentage of AUM or based on the number of accounts in the fund. In such cases, the amount of fees earned is subject to factors outside of the Company’s control including customer or underlying investor contributions and redemptions and financial market
12
volatility. These fees are considered constrained and are excluded from the transaction price until the asset values or number of accounts on which the customer is billed are calculated and the value of consideration is measurable.
The Company has contractual arrangements with third parties to provide certain advisory, administration, transfer agent and distribution services. Management considers whether we are acting as the principal service provider or as an agent to determine whether revenue should be recorded based on the gross amount payable by the customer or net of payments to third-party service providers, respectively. Victory is considered a principal service provider if we control the service that is transferred to the customer. We are considered an agent when we arrange for the service to be provided by another party and do not control the service.
Investment Management Fees
Investment management fees are received in exchange for investment management services that represent a series of distinct incremental days of investment management service. Control of investment management services is transferred to the customers over time as these customers receive and consume the benefits provided by these services. Investment management fees are calculated as a contractual percentage of AUM and are primarily paid in arrears on a monthly or quarterly basis.
AUM represents the financial assets the Company manages for clients on either a discretionary or non-discretionary basis. In general, AUM reflects the valuation methodology that corresponds to the basis used for determining revenue such as net asset value for the Victory Funds, USAA Funds and certain other pooled funds and account market value for separate accounts. For the NEC Funds, AUM represents limited partner capital commitments during the commitment period of the fund. Following the earlier of the termination of the commitment period and the beginning of any commitment period for a successor fund, AUM generally represents, depending on the fund, the lesser of a) the net asset value of the fund and b) the aggregated adjusted cost basis of each unrealized portfolio investment or the limited partner capital commitments reduced by the amount of capital contributions used to make portfolio investments that have been disposed.
Investment management fees are recognized as revenue using a time-based output method to measure progress. Revenue is recorded at month end or quarter end when the value of consideration is measured. The amount of investment management fee revenue varies from one reporting period to another as levels of AUM change (from inflows, outflows and market movements) and as the number of days in the reporting period change.
The Company may waive certain fees for investment management services provided to the Victory Funds, USAA Funds, VictoryShares and other pooled investment vehicles and may subsidize certain share classes of the Victory Funds, USAA Funds, VictoryShares and other pooled investment vehicles to ensure that specified operating expenses attributable to such share classes do not exceed a specified percentage. These waivers and reimbursements reduce the transaction price allocated to investment management services and are recognized as a reduction to investment management fees revenue. The amounts due to the Victory Funds, USAA Funds, VictoryShares and other pooled investment vehicles for waivers and expense reimbursements represent consideration payable to customers, which is recorded in accounts payable and accrued expenses in the unaudited Condensed Consolidated Balance Sheets, and no distinct services are received in exchange for these payments.
Performance-based investment management fees, which include fees under performance fee and fulcrum fee arrangements, are included in the transaction price for providing investment management services. Performance-based investment management fees are calculated as a percentage of investment performance on a client’s account versus a specified benchmark or hurdle based on the terms of the contract with the customer. Performance-based investment management fees are variable consideration and are recognized as revenue when and to the extent that it is probable that a significant reversal of the cumulative revenue for the contractual performance period will not occur. Performance-based investment management fees recognized as revenue in the current period may pertain to performance obligations satisfied in prior periods. Fulcrum fee arrangements include a performance fee adjustment that increases or decreases the total investment management fee depending on whether the assets being managed experienced better or worse investment performance than the index specified in the customer’s contract. The performance fee adjustment arrangement with certain equity and fixed income USAA Funds is calculated monthly based on the investment performance of those funds relative to their specified benchmark indexes over the discrete performance period ending with that month.
Fund Administration Fees
The Company recognizes fund administration fees as revenue using a time-based output method to measure progress. Fund administration fees are determined based on the contractual rate applied to average daily net assets of the Victory Funds, USAA Funds and VictoryShares for which administration services are provided. Revenue is recorded on a monthly basis when the value of consideration is measured using actual average daily net assets and constraints are removed. The Company’s fund administration fee revenue is recorded in fund administration and distribution fees in the unaudited Condensed Consolidated Statements of Operations.
The Company has contractual arrangements with a third party to provide certain sub-administration services. We are the primary obligor under the contracts with the Victory Funds, USAA Funds and VictoryShares and have the ability to select the service provider and establish pricing. As a result, fund administration fees and sub-administration expenses are recorded on a gross basis.
13
Fund Transfer Agent Fees
The Company recognizes fund transfer agent fees using a time-based output method to measure progress. Fund transfer agent fees are determined based on the contractual rate applied to either the average daily net assets of the USAA Funds for which transfer agent services are provided or number of accounts in the USAA Funds. Revenue is recorded on a monthly basis when the value of consideration is measured using actual average daily net assets or actual number of accounts and constraints are removed. The Company’s fund transfer agent fee revenue is recorded in fund administration and distribution fees in the unaudited Condensed Consolidated Statements of Operations.
The Company also receives fees for sub-transfer agency services under contracts with the Victory Funds for member class shares. Sub-transfer agency fees are recognized and recorded in a manner similar to fund transfer agent fees and are recorded in fund administration and distribution fees in the unaudited Condensed Consolidated Statements of Operations.
The Company has contractual arrangements with a third party to provide certain sub-transfer agent services. We are the primary obligor under the transfer agency contracts with the USAA Funds and have the ability to select the service provider and establish pricing. As a result, fund transfer agent fees and sub-transfer agent expenses are recorded on a gross basis.
Fund Distribution Fees
The Company receives compensation for sales and sales-related services promised under distribution contracts with the Victory Funds and USAA Funds. Revenue is measured in an amount that reflects the consideration to which the Company expects to be entitled in exchange for providing distribution services. Distribution fees are generally calculated as a percentage of average net assets in the Victory Funds and USAA Funds. The Company’s performance obligation is satisfied at the point in time when control of the services is transferred to customers, which is upon investor subscription or redemption.
Based on the nature of the calculation, the revenue for these services is accounted for as variable consideration, the Company may recognize distribution fee revenue in the current period that pertains to performance obligations satisfied in prior periods, as it represents variable consideration and is recognized as uncertainties are resolved. The Company’s distribution fee revenue is recorded in fund administration and distribution fees in the unaudited Condensed Consolidated Statements of Operations.
The Company has contractual arrangements with third parties to provide certain distribution services. The Company is the primary obligor under the contracts with the Victory Funds and USAA Funds and has the ability to select the service provider and establish pricing. Substantially all of the Company’s fund distribution fees are recorded gross of payments made to third parties.
Costs Incurred to Obtain or Fulfill Customer Contracts
The Company is required to capitalize certain costs directly related to the acquisition or fulfillment of a contract with a customer. Victory has not identified any sales-based compensation or similar costs that meet the definition of an incremental cost to acquire a contract and as such we have no intangible assets related to contract acquisitions.
Direct costs incurred to fulfill services under the Company’s distribution contracts include sales commissions paid to third party dealers for the sale of Class C Shares. The Company may pay upfront sales commissions to dealers and institutions that sell Class C shares of the participating Victory Funds at the time of such sale. Upfront sales commission payments with respect to Class C shares equal 1.00% of the purchase price of the Class C shares sold by the dealer or institution. When the Company makes an upfront payment to a dealer or institution for the sale of Class C shares, the Company capitalizes the cost of such payment, which is recorded in prepaid expenses in the unaudited Condensed Consolidated Balance Sheets and amortizes the cost over a 12-month period, the estimated period of benefit.
Valuation of Assets Under Management
The fair value of assets under management of the Victory Funds, USAA Funds and VictoryShares is primarily determined using quoted market prices or independent third-party pricing services or broker price quotes. In limited circumstances, a quotation or price evaluation is not readily available from a pricing service. In these cases, pricing is determined by management based on a prescribed valuation process that has been approved by the directors/trustees of the sponsored products. The same prescribed valuation process is used to price securities in separate accounts and the Company’s other non-alternative investment vehicles for which a quotation or price evaluation is not readily available from a pricing service.
The fair value of Level 3 assets held by alternative investment vehicles is determined under the respective valuation policy for each fund. The valuation policies address the fact that substantially all the investments of a fund may not have readily available market information and therefore the fair value for these assets is typically determined using unobservable inputs and models that may include subjective assumptions. AUM reported by the Company for alternative investment vehicles may not necessarily equal the funds’ net asset values or the total fair value of the funds’ portfolio investments as AUM represents the basis for calculating management fees.
For the periods presented, less than one percent of the Company’s total AUM were Level 3 assets priced without a quoted market price, broker price quote or pricing service quotation.
14
NOTE 4. ACQUISITIONS
USAA AMCO Acquisition
Under the terms of the USAA AMCO Acquisition purchase agreement, a maximum of $150.0 million ($37.5 million per year) in contingent payments is payable to sellers based on the annual revenue of USAA Adviser attributable to all “non-managed money”-related AUM in each of the first four years following the closing. To receive any contingent payment in respect of “non-managed money”-related assets for a given year, annual revenue from “non-managed money”-related assets must be at least 80% of the revenue run-rate (as calculated under the Stock Purchase Agreement) of the USAA Adviser’s “non-managed money”-related assets under management as of the closing date, and to achieve the maximum contingent payment for a given year, such annual revenue must total at least 100% of that closing date revenue run-rate. At September 30, 2022, a maximum of $75.0 million in contingent consideration ($37.5 million per year for the remaining 2 years of the earn out period) was potentially payable to sellers.
The estimated fair value of contingent consideration payable to sellers is determined using the real options method. Revenue related to “non-managed money” assets is simulated in a risk-neutral framework to calculate expected probability-weighted earn out payments, which are then discounted from the expected payment dates at the relevant cost of debt. Significant assumptions and inputs include the “non-managed money” revenue projected annual growth rate, the market price of risk adjustment for revenue, which adjusts the projected revenue growth rate to a risk-neutral expected growth rate, revenue volatility and discount rate. The market price of risk adjustment for revenue and revenue volatility are based on data for comparable companies. As the contingent consideration represents a subordinate, unsecured claim of the Company, the Company assesses a discount rate which incorporates adjustments for credit risk and the subordination of the contingent consideration.
Significant inputs to the valuation of contingent consideration payable to sellers as of September 30, 2022 and December 31, 2021 are as follows and are approximate values:
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
|
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
|
||
Non-managed money revenue 4 year average annual growth rate |
|
|
0 |
|
% |
|
6 |
|
% |
|
Market price of risk |
|
|
|
5 |
|
% |
|
6 |
|
% |
Revenue volatility |
|
|
|
16 |
|
% |
|
17 |
|
% |
Discount rate |
|
|
|
8 |
|
% |
|
3 |
|
% |
Years remaining in earn out period |
|
|
|
1.1 |
|
|
|
1.9 |
|
|
Undiscounted estimated remaining earn out payments in millions |
|
|
$62- $75 |
|
|
$72 - $75 |
|
|
||
The estimated fair value of contingent consideration payable to sellers at September 30, 2022 was estimated at $59.7 million and is recorded in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets. The decrease in the liability of $9.1 million from $68.8 million at December 31, 2021 was recorded in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.
NEC Acquisition
On November 1, 2021, VCM completed the acquisition of 100% of the equity interests in NEC. Founded in 2004 and based in Hanover, New Hampshire, NEC is an alternative asset management firm focused on debt and equity investments in clean energy infrastructure projects and companies through four active private closed-end funds (the “NEC Funds”). The estimated purchase price for the NEC Acquisition is $63.1 million, which includes $62.8 million in cash paid at closing, net of cash acquired, and $0.3 million of net working capital adjustments paid in cash to sellers in March 2022.
Under the terms of the purchase agreement, the Company will pay up to an additional $35.0 million in cash based on net revenue growth over a six year period following the closing date. The purchase agreement specifies net revenue and payment targets for the 36-month, 48-month and 60-month periods beginning on November 30, 2021 (the “Start Date”) for the contingent payments. It also provides for advance payments and catch-up payments to be made based on actual NEC net management fee revenue, as defined in the purchase agreement, as measured at the end of each 12 month anniversary of the Start Date over a six year period. The maximum amount of contingent payments is due, less any contingent payments previously paid, upon the occurrence of certain specified events within a five year period following the Start Date.
The Company determined that substantially all of the contingent payments payable per the NEC purchase agreement represent compensation for post-closing services. Accordingly, these contingent payments were excluded from the purchase price for the NEC Acquisition. The Company records compensation expense over the estimated service period on a straight-line basis in an amount equal
15
to the total contingent payments currently forecasted to be paid. In the three and nine months of 2022, the Company recorded $1.7 million and $5.4 million in NEC contingent payment compensation expense, which is included in personnel compensation and benefits in the unaudited Condensed Consolidated Statements of Operations. At September 30, 2022, the liability for NEC contingent payments totaled $6.4 million, which is included in accrued compensation and benefits in the unaudited Condensed Consolidated Balance Sheets.
As of September 30, 2022, the purchase price allocation for the NEC Acquisition is preliminary as all of the customary post-closing purchase adjustments have not been finalized. The final purchase price allocation may reflect changes to the provisional valuations for accounts payable and accrued expenses. Adjustments will be made, as necessary, during the measurement period of up to one year after the closing date.
WestEnd Acquisition
On December 31, 2021, the Company completed the acquisition of 100% of the equity interests of WestEnd. Founded in 2004, and headquartered in Charlotte, North Carolina, WestEnd is an ETF strategist advisor that provides financial advisors with a turnkey, core model allocation strategy for either a holistic solution or complementary source of alpha. The firm offers four primary ETF strategies and one large cap core strategy in Separately Managed Account (SMA) structures.
The aggregate purchase price (the “WestEnd Purchase Price”) for the WestEnd Acquisition is estimated at $716.1 million, net of cash acquired, which includes (i) $475.8 million in cash paid at closing (the “WestEnd Closing”) net of cash acquired, plus the acquisition date value of contingent payments due to sellers of $239.7 million plus $0.6 million paid in cash in April 2022 for net working capital adjustments. The contingent earn-out payments are based on net revenue of the WestEnd business during each of the first four years following the WestEnd Closing, subject to certain “catch-up” provisions over a five and one half year period following the WestEnd Closing. A maximum of $320.0 million ($80.0 million per year) in earn-out payments may be paid.
In connection with the closing of the WestEnd Acquisition, the Company entered into the Third Amendment to the 2019 Credit Agreement and obtained incremental term loans in an aggregate principal amount of $505.0 million to fund the acquisition and pay fees and expenses related to the transaction. Please refer to Note 9, Debt, for more information on the 2021 Incremental Term Loans.
A total of $2.9 million of the cash paid at closing was placed in escrow. In April 2022, the $0.5 million of escrow funds reserved for purchase price adjustments was released to sellers. The remaining $2.4 million of escrow funds remains available to compensate the Company for eligible claims under the purchase agreement’s indemnification provisions.
The purchase price of $716.1 million was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of the WestEnd Acquisition. The Company used an independent valuation specialist to assist with the determination of fair value for certain of the acquired assets and assumed liabilities disclosed below.
The excess purchase price over the estimated fair values of assets acquired and liabilities assumed of $536.0 million was recorded to goodwill in the unaudited Condensed Consolidated Balance Sheets, all of which is expected to be deductible for tax purposes. The goodwill arising from the acquisition primarily results from revenue synergies expected from combining WestEnd and Victory distribution platforms and sales efforts.
The following table presents the estimated amounts of assets acquired and liabilities assumed as of the acquisition date, net of cash acquired:
Investment management fees receivable |
|
$ |
|
4,560 |
|
Prepaid expenses and other assets |
|
|
|
256 |
|
Property and equipment |
|
|
|
2,011 |
|
Other intangible assets (1) |
|
|
|
175,500 |
|
Goodwill |
|
|
|
536,023 |
|
Accounts payable and accrued expenses |
|
|
|
(115 |
) |
Accrued compensation and benefits |
|
|
|
(1,480 |
) |
Other liabilities |
|
|
|
(693 |
) |
Purchase price, net of cash acquired |
|
$ |
|
716,062 |
|
As of September 30, 2022, the purchase price allocation for the WestEnd Acquisition is preliminary as the final calculations may reflect changes to the provisional valuations for accounts payable and accrued expenses. Adjustments will be made, as necessary, during the measurement period of up to one year after the closing date.
The estimated fair value for contingent consideration payable to sellers is estimated using the real options method. WestEnd net revenue growth is simulated in a risk-neutral framework to calculate expected probability-weighted earn out payments, which are then discounted from the expected payment dates at the relevant cost of debt. Significant assumptions and inputs include the WestEnd net revenue projected annual growth rate, the market price of risk adjustment for revenue, which adjusts the projected revenue growth rate to a risk-neutral expected growth rate, revenue volatility and discount rate. The market price of risk adjustment for revenue and revenue volatility
16
are based on data for comparable companies. As the contingent consideration represents a subordinate, unsecured claim of the Company, the Company assesses a discount rate which incorporates adjustments for credit risk and the subordination of the contingent consideration.
A maximum of $320.0 million ($80.0 million per year) is payable to sellers in contingent payments. The fair value of contingent consideration payable to sellers was estimated at $208.2 million at September 30, 2022, a decrease of $31.5 million from December 31, 2021. Significant inputs to the valuation of contingent consideration payable to sellers as of September 30, 2022 and December 31, 2021 are as follows and are approximate values:
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
December 31, 2021 |
|
|
||
|
|
|
September 30, 2022 |
|
|
|
Acquisition Date |
|
|
||
Net revenue 5 year average annual growth rate |
|
|
|
30 |
|
% |
|
|
38 |
|
% |
Market price of risk adjustment for revenue (continuous) |
|
|
|
10 |
|
% |
|
|
11 |
|
% |
Revenue volatility |
|
|
|
20 |
|
% |
|
|
21 |
|
% |
Discount rate |
|
|
|
8 |
|
% |
|
|
4 |
|
% |
Years remaining in earn out period |
|
|
|
5.1 |
|
|
|
|
5.8 |
|
|
Undiscounted estimated remaining earn out payments $ millions |
|
|
$260 - $320 |
|
|
|
$277 - $320 |
|
|
||
Actual and Pro Forma Results for WestEnd
WestEnd revenue for the three and nine months ended September 30, 2022, was as follows:
|
|
Unaudited |
|
|
Unaudited |
|
||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||
(in millions) |
|
September 30, 2022 |
|
|
September 30, 2022 |
|
||
Revenue |
|
$ |
12.7 |
|
|
$ |
41.9 |
|
Net income attributable to WestEnd for the three and nine months ended September 30, 2022 is impractical to determine as the Company does not prepare discrete financial information at that level.
The following Unaudited Pro Forma Condensed Combined Statement of Operations is provided for illustrative purposes only and assumes that the acquisition occurred on January 1, 2020. This unaudited information should not be relied upon as indicative of historical results that would have been obtained if the acquisition had occurred on that date, nor of the results that may be obtained in the future.
The historical unaudited consolidated financial information of the Company and WestEnd have been adjusted to give effect to unaudited pro forma events that are directly attributable to the WestEnd Acquisition. These amounts have been calculated after adjusting the results of WestEnd and the Company to reflect additional interest expense, intangible asset amortization and income taxes that would have been expensed assuming the WestEnd Acquisition was consummated on January 1, 2020.
|
|
Unaudited |
|
|
Unaudited |
|
||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||
(in thousands, except per share amount) |
|
September 30, 2021 |
|
|
September 30, 2021 |
|
||||
Revenue |
|
$ |
|
238,775 |
|
|
$ |
|
693,499 |
|
Net income |
|
|
|
75,096 |
|
|
|
|
208,124 |
|
|
|
|
|
|
|
|
|
|
||
Earnings per share of common stock |
|
|
|
|
|
|
|
|
||
Basic |
|
$ |
|
1.10 |
|
|
$ |
|
3.07 |
|
Diluted |
|
$ |
|
1.01 |
|
|
$ |
|
2.81 |
|
|
|
|
|
|
|
|
|
|
||
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
||
Basic |
|
|
|
67,980 |
|
|
|
|
67,840 |
|
Diluted |
|
|
|
74,053 |
|
|
|
|
74,162 |
|
Acquisition-Related Costs
Costs related to acquisitions are summarized below and include legal and filing fees, advisory services, mutual fund proxy voting costs and other one-time expenses related to the transactions. These costs are included in acquisition-related costs in the unaudited Condensed Consolidated Statements of Operations.
17
|
|
Acquisition-related costs |
|
|||||||||||||
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
NEC |
|
$ |
22 |
|
|
$ |
653 |
|
|
$ |
87 |
|
|
$ |
963 |
|
WestEnd |
|
|
30 |
|
|
|
205 |
|
|
|
92 |
|
|
|
205 |
|
USAA AMCO |
|
|
— |
|
|
|
5,009 |
|
|
|
— |
|
|
|
5,026 |
|
Other |
|
|
137 |
|
|
|
140 |
|
|
|
270 |
|
|
|
71 |
|
Total acquisition-related costs |
|
$ |
189 |
|
|
$ |
6,007 |
|
|
$ |
449 |
|
|
$ |
6,265 |
|
Restructuring and Integration Costs
In connection with business combinations, asset purchases and changes in business strategy, the Company incurs costs integrating investment platforms, products and personnel into existing systems, processes and service provider arrangements and restructuring the business to capture operating expense synergies.
The following table presents the rollforward of restructuring and integration liabilities, which are recorded in accounts payable and accrued expenses in the unaudited Condensed Consolidated Balance Sheets, for the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Liability balance, beginning of period |
|
$ |
— |
|
|
$ |
0.8 |
|
|
$ |
0.3 |
|
|
$ |
1.0 |
|
Severance expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.8 |
|
Integration costs |
|
|
0.1 |
|
|
|
— |
|
|
|
0.1 |
|
|
|
0.7 |
|
Total restructuring and integration costs |
|
|
0.1 |
|
|
|
— |
|
|
|
0.1 |
|
|
|
2.5 |
|
Settlement of liabilities |
|
|
(0.1 |
) |
|
|
(0.3 |
) |
|
|
(0.4 |
) |
|
|
(3.0 |
) |
Liability balance, end of period |
|
$ |
— |
|
|
$ |
0.5 |
|
|
$ |
— |
|
|
$ |
0.5 |
|
NOTE 5. Fair Value Measurements
The Company determines the fair value of certain financial and nonfinancial assets and liabilities. Fair value is determined based on the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value determinations utilize a valuation hierarchy based upon the transparency of inputs used in the valuation of an asset or liability. Classification within the fair value hierarchy contains three levels:
The table below shows assets and liabilities measured at fair value on a recurring basis.
|
|
As of September 30, 2022 |
|
|||||||||||||
(in thousands) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
52,177 |
|
|
$ |
52,177 |
|
|
$ |
— |
|
|
$ |
— |
|
Investments in proprietary funds |
|
|
656 |
|
|
|
656 |
|
|
|
— |
|
|
|
— |
|
Deferred compensation plan investments |
|
|
28,252 |
|
|
|
28,252 |
|
|
|
— |
|
|
|
— |
|
Interest rate swap asset |
|
|
49,328 |
|
|
|
— |
|
|
|
49,328 |
|
|
|
— |
|
Total Financial Assets |
|
$ |
130,413 |
|
|
$ |
81,085 |
|
|
$ |
49,328 |
|
|
$ |
— |
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration arrangements |
|
|
(267,900 |
) |
|
|
— |
|
|
|
— |
|
|
|
(267,900 |
) |
Total Financial Liabilities |
|
$ |
(267,900 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(267,900 |
) |
18
|
|
As of December 31, 2021 |
|
|||||||||||||
(in thousands) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments in proprietary funds |
|
$ |
912 |
|
|
$ |
912 |
|
|
$ |
— |
|
|
$ |
— |
|
Deferred compensation plan investments |
|
|
30,812 |
|
|
|
30,812 |
|
|
|
— |
|
|
|
— |
|
Interest rate swap asset |
|
|
7,774 |
|
|
|
— |
|
|
|
7,774 |
|
|
|
— |
|
Total Financial Assets |
|
$ |
39,498 |
|
|
$ |
31,724 |
|
|
$ |
7,774 |
|
|
$ |
— |
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration arrangements(1) |
|
|
(308,500 |
) |
|
|
— |
|
|
|
— |
|
|
|
(308,500 |
) |
Total Financial Liabilities |
|
$ |
(308,500 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(308,500 |
) |
Level 1 assets consist of money market funds and open-end mutual funds. The fair values for these assets are determined utilizing quoted market prices for identical assets. The money market fund is included in cash and cash equivalents in the unaudited Condensed Consolidated Balance Sheets and proprietary fund investments and deferred compensation plan investments are included in investments in the unaudited Condensed Consolidated Balance Sheets.
The Swap asset and liability represent amounts receivable or payable under a floating-to-fixed interest rate swap transaction entered into by the Company on March 27, 2020. The fair value of the Swap is included in other assets in the unaudited Condensed Consolidated Balance Sheets at September 30, 2022 and December 31, 2021. Pricing is determined based on a third party, model-derived valuation in which all significant inputs are observable in active markets (Level 2). Refer to Note 14, Derivatives, for further detail on the Swap.
Contingent consideration arrangements include the USAA AMCO Acquisition and WestEnd Acquisition earn-out payment liabilities. Contingent consideration arrangements are included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets. Refer to Note 4, Acquisitions, for further details related to the contingent consideration arrangements.
Significant unobservable inputs for the option pricing model used to determine the estimated fair value of the USAA AMCO Acquisition earn-out payment liability include the “non-managed money” revenue projected growth rate, revenue volatility, market price of risk adjustment for revenue and discount rate. Significant unobservable inputs for the option pricing model used to determine the estimated fair value of the WestEnd Acquisition earn-out payment liability include the WestEnd net revenue projected growth rate, revenue volatility, market price of risk adjustment for revenue and discount rate.
For both the USAA AMCO and WestEnd contingent consideration arrangements, an increase in the market price of risk adjustment for revenue, discount rate and revenue volatility results in a lower fair value for the earn-out payment liability, while an increase in the projected growth rate for the relevant revenue base results in a higher fair value for the earn-out payment liability.
Changes in the fair value of contingent consideration arrangement liabilities, realized or unrealized, are recorded in earnings and are included in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.
The following table presents the change in contingent consideration arrangement liabilities for the nine months ended September 30, 2022.
(in thousands) |
|
Contingent Consideration Liabilities |
|
|
Balance, December 31, 2021 |
|
$ |
(308,500 |
) |
USAA AMCO change in fair value measurement |
|
|
9,100 |
|
WestEnd change in fair value measurement |
|
|
31,500 |
|
Balance, September 30, 2022 |
|
$ |
(267,900 |
) |
There were no transfers between any of the Level 1, 2 and 3 categories in the fair value measurement hierarchy from December 31, 2021 to September 30, 2022. The Company recognizes transfers at the end of the reporting period.
The net carrying value of accounts receivable and accounts payable approximates fair value due to the short‑term nature of these assets and liabilities. The fair value of our long-term debt at September 30, 2022 is considered to be its carrying value as the interest rate on the bank debt is variable and approximates current market rates. As a result, Level 2 inputs are utilized to determine the fair value of our long‑term debt.
19
NOTE 6. Related-Party Transactions
The Company considers certain funds that it manages, including the Victory Funds, the USAA Funds, the VictoryShares, collective trust funds that it sponsors (the “Victory Collective Funds”) and other sponsored pooled investment vehicles, to be related parties as a result of our advisory relationship.
The Company receives investment management, administrative, distribution and compliance fees in accordance with contracts that VCM and VCS have with the Victory Funds and the USAA Funds.
The Company receives investment management, administrative and compliance fees in accordance with contracts that VCM has with the VictoryShares.
We also receive investment management fees from the Victory Collective Funds, the NEC Funds and other pooled funds under VCM’s advisory contracts with these funds. In addition, VCTA receives fees for transfer agency services under contracts with the USAA Funds and sub-transfer agency services under contracts with the Victory Funds for member class shares. Director fees payable by the Company in cash and contributions made under the Director Deferred Compensation Plan for non-employee members of our Board of Directors are included in general and administrative expense in the unaudited Condensed Consolidated Statements of Operations.
The table below presents balances and transactions involving related parties included in the unaudited Condensed Consolidated Balance Sheets and unaudited Condensed Consolidated Statements of Operations.
(in thousands) |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Related party assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
52,177 |
|
|
$ |
— |
|
Receivables (investment management fees) |
|
|
43,028 |
|
|
|
53,256 |
|
Receivables (fund administration and distribution fees) |
|
|
14,000 |
|
|
|
17,123 |
|
Prepaid expenses |
|
|
1,115 |
|
|
|
304 |
|
Investments (investments in proprietary funds, fair value) |
|
|
656 |
|
|
|
912 |
|
Investments (deferred compensation plan investments, fair value) |
|
|
26,422 |
|
|
|
28,643 |
|
Total |
|
$ |
137,398 |
|
|
$ |
100,238 |
|
|
|
|
|
|
|
|
||
Related party liabilities |
|
|
|
|
|
|
||
Accounts payable and accrued expenses (fund reimbursements) |
|
$ |
6,281 |
|
|
$ |
6,695 |
|
20
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Related party revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investment management fees |
|
$ |
124,335 |
|
|
$ |
144,978 |
|
|
$ |
391,804 |
|
|
$ |
419,744 |
|
Fund administration and distribution fees |
|
|
46,490 |
|
|
|
54,935 |
|
|
|
144,921 |
|
|
|
161,471 |
|
Total |
|
$ |
170,825 |
|
|
$ |
199,913 |
|
|
$ |
536,725 |
|
|
$ |
581,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Related party expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
$ |
93 |
|
|
$ |
125 |
|
|
$ |
302 |
|
|
$ |
388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Related party other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income and other income (expense) |
|
$ |
(805 |
) |
|
$ |
(330 |
) |
|
$ |
(4,343 |
) |
|
$ |
4,253 |
|
NOTE 7. Investments
As of September 30, 2022 and December 31, 2021, the Company had investments in proprietary funds and deferred compensation plan investments. Investments in proprietary funds consist entirely of seed capital investments in certain Victory Funds and USAA Funds. Deferred compensation plan investments are held under deferred compensation plans and include Victory Funds, USAA Funds and third-party mutual funds.
Unrealized and realized gains and losses on investments in proprietary funds and deferred compensation plan investments are recorded in earnings as interest income and other income (expense).
Investments in Proprietary Funds
The following table presents a summary of the cost and fair value of investments in proprietary funds:
|
|
|
|
|
Gross Unrealized |
|
|
Fair |
|
|||||||
(in thousands) |
|
Cost |
|
|
Gains |
|
|
(Losses) |
|
|
Value |
|
||||
As of September 30, 2022 |
|
$ |
724 |
|
|
$ |
36 |
|
|
$ |
(104 |
) |
|
$ |
656 |
|
As of December 31, 2021 |
|
|
769 |
|
|
|
169 |
|
|
|
(26 |
) |
|
|
912 |
|
There were no proceeds from sales and realized gains and losses from investments in proprietary funds for the three months ended September 30, 2022 and 2021. Sales and realized gains and losses for the nine months ended September 30, 2022 and 2021 were as follows:
|
|
Sale |
|
|
Realized |
|
||||||
(in thousands) |
|
Proceeds |
|
|
Gains |
|
|
(Losses) |
|
|||
For the nine months ended September 30, 2022 |
|
$ |
65 |
|
|
$ |
— |
|
|
$ |
(2 |
) |
For the nine months ended September 30, 2021 |
|
|
215 |
|
|
|
50 |
|
|
|
— |
|
Deferred Compensation Plan Investments
The following table presents a summary of the cost and fair value of deferred compensation plan investments:
|
|
|
|
|
Gross Unrealized |
|
|
Fair |
|
|||||||
(in thousands) |
|
Cost |
|
|
Gains |
|
|
(Losses) |
|
|
Value |
|
||||
As of September 30, 2022 |
|
$ |
31,107 |
|
|
$ |
512 |
|
|
$ |
(3,367 |
) |
|
$ |
28,252 |
|
As of December 31, 2021 |
|
|
27,174 |
|
|
|
4,266 |
|
|
|
(628 |
) |
|
|
30,812 |
|
Proceeds from sales of deferred compensation plan investments and realized gains and losses recognized during the periods ended September 30, 2022 and 2021 are as follows:
|
|
Sale |
|
|
Realized |
|
||||||
(in thousands) |
|
Proceeds |
|
|
Gains |
|
|
(Losses) |
|
|||
For the three months ended September 30, 2022 |
|
$ |
7,023 |
|
|
$ |
— |
|
|
$ |
(258 |
) |
For the three months ended September 30, 2021 |
|
|
3,246 |
|
|
|
383 |
|
|
|
(13 |
) |
21
|
|
Sale |
|
|
Realized |
|
||||||
(in thousands) |
|
Proceeds |
|
|
Gains |
|
|
(Losses) |
|
|||
For the nine months ended September 30, 2022 |
|
$ |
15,139 |
|
|
$ |
1,872 |
|
|
$ |
(473 |
) |
For the nine months ended September 30, 2021 |
|
|
7,051 |
|
|
|
690 |
|
|
|
(41 |
) |
NOTE 8. Income Taxes
The Company’s effective tax rate differs from the United States federal statutory rate primarily as a result of state and local income taxes, excess tax benefits on share-based compensation and certain non-deductible expenses.
For the three months ended September 30, 2022 and 2021, the provision for income taxes was $12.6 million and $18.2 million, or 14.7% and 19.7%, of pre-tax income respectively. For the nine months ended September 30, 2022 and 2021, the provision for income taxes was $57.6 million and $56.5 million, or 20.5% and 21.3%, of pre-tax income respectively.
The effective tax rate for the three months ended September 30, 2022 was lower than the effective tax rate for the same period in 2021 mainly due to higher excess tax benefits on share-based compensation. The effective tax rate for the nine months ended September 30, 2022 was lower than the effective tax rate for the same period in 2021 mainly due to higher excess tax benefits on share-based compensation net of increased non-deductible expenses.
No valuation allowance was recorded for deferred tax assets in the three and nine months ended September 30, 2022 and 2021.
NOTE 9. Debt
2021 Debt Repricing
On February 18, 2021, the Company entered into the Second Amendment (the “Second Amendment”) to the 2019 Credit Agreement with the other loan parties thereto, Barclays Bank PLC, as administrative agent, and the Royal Bank of Canada as fronting bank. Pursuant to the Second Amendment, the Company repriced the existing term loans with replacement term loans in an aggregate principal amount of $755.7 million (the “Repriced Term Loans”). The Repriced Term Loans have substantially the same terms as the previously existing term loans, including the same maturity date of , except that the Repriced Term Loans provide for a reduced applicable margin on LIBOR of 25 basis points. After the Second Amendment, the applicable margin on LIBOR under the Repriced Term Loans is 2.25%.
2021 Incremental Term Loans
On December 31, 2021, the Company entered into the Third Amendment (the “Third Amendment”) to the 2019 Credit Agreement with the guarantors party thereto, Barclays Bank PLC, as administrative agent, and the lenders party thereto from time to time. Pursuant to the Third Amendment, the Company obtained incremental term loans (the “2021 Incremental Term Loans”) in an aggregate principal amount of $505.0 million and used the proceeds to fund the WestEnd Acquisition and to pay fees and expenses incurred in connection therewith. The 2021 Incremental Term Loans mature in and bear interest at an annual rate equal to, at the option of the Company, either LIBOR (adjusted for reserves and subject to a 50 basis point floor) plus a margin of 2.25% or an alternate base rate plus a margin of 1.25%.
Original issue discount was $2.5 million for the 2021 Incremental Term Loans. The Company incurred a total of $9.1 million of other third party costs related to the 2021 Incremental Term Loans, which were recorded as term loan debt issuance costs.
2022 LIBOR to Term SOFR Rate Transition
The 2019 Credit Agreement provides a mechanism for determining an alternative interest rate following the phase-out of LIBOR, which for the three-month rate is expected to occur following the publication of LIBOR rates on June 30, 2023. On September 23, 2022, the Company entered into the Fourth Amendment (the “Fourth Amendment”) to the 2019 Credit Agreement to change the interest rate on its debt from LIBOR to a rate based on SOFR plus a ten-basis point credit spread adjustment. There was no change to the applicable margin on the referenced rate as a result of the Fourth Amendment.
The LIBOR rate loans outstanding as of the Fourth Amendment’s effective date continued as LIBOR rate loans until the end of their current interest periods. The 2021 Incremental Term Loans converted into Term SOFR loans on September 30, 2022, while the Repriced Term Loans converted into Term SOFR loans on October 6, 2022. Also on October 6, 2022, the interest periods for the Repriced Term Loans and 2021 Incremental Term Loans were aligned and the three-month Term SOFR rate was elected for all the Company’s term loans. Refer to Note 17, Subsequent Events, for information related to term loan activity subsequent to September 30, 2022.
The following table presents the components of long-term debt in the unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021.
22
(in thousands) |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
|
Effective Interest Rate as of September 30, 2022 |
|
|||
Term Loans |
|
|
|
|
|
|
|
|
|
|||
Due July 2026, 4.54% interest rate, resets October 6, 2022 |
|
$ |
642,239 |
|
|
$ |
646,239 |
|
|
|
4.94 |
% |
Due December 2028, 5.38% interest rate, reset September 30, 2022 |
|
|
375,000 |
|
|
|
505,000 |
|
|
|
5.71 |
% |
Term loan principal outstanding |
|
|
1,017,239 |
|
|
|
1,151,239 |
|
|
|
|
|
Unamortized debt issuance costs |
|
|
(12,113 |
) |
|
|
(16,436 |
) |
|
|
|
|
Unamortized debt discount |
|
|
(5,283 |
) |
|
|
(6,879 |
) |
|
|
|
|
Long-term debt, net |
|
$ |
999,843 |
|
|
$ |
1,127,924 |
|
|
|
|
|
The 2019 Credit Agreement contains customary affirmative and negative covenants, including covenants that affect, among other things, the ability of the first lien leverage ratio, measured as of the last day of each fiscal quarter on which outstanding borrowings under the revolving credit facility exceed 35.0% of the commitments thereunder (excluding certain letters of credit), of no greater than 3.80 to 1.00. As of September 30, 2022, there were no outstanding borrowings under the revolving credit facility and the Company was in compliance with the financial performance covenant.
For the three and nine months ended September 30, 2022, repayments of outstanding term loan principal and open market term loan debt repurchases and retirements totaled $29.6 million and $144.6 million, respectively. A total of $35.0 million and $142.0 million of the outstanding term loans under the 2019 Credit Agreement was repaid during the three and nine months ended September 30, 2021, respectively.
The Company recognized a loss on debt extinguishment of $0.4 million and $2.9 million in the three and nine months ended September 30, 2022, respectively, due to repayments of term loan principal. The Company recognized a net loss on debt extinguishment of $0.7 million and $4.6 million in the three and nine months ended September 30, 2021 due to term loan repayments and entering into the Second Amendment.
Interest Expense
The following table presents the components of interest expense and other financing costs on the unaudited Condensed Consolidated Statements of Operations for the periods ended September 30, 2022 and 2021:
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Interest expense |
|
$ |
11,717 |
|
|
$ |
4,002 |
|
|
$ |
27,465 |
|
|
$ |
13,279 |
|
Amortization of debt issuance costs |
|
|
784 |
|
|
|
554 |
|
|
|
2,434 |
|
|
|
1,801 |
|
Amortization of debt discount |
|
|
314 |
|
|
|
257 |
|
|
|
960 |
|
|
|
854 |
|
Interest rate swap (income) expense |
|
|
(1,459 |
) |
|
|
947 |
|
|
|
(558 |
) |
|
|
2,639 |
|
Other |
|
|
123 |
|
|
|
93 |
|
|
|
336 |
|
|
|
280 |
|
Total |
|
$ |
11,479 |
|
|
$ |
5,853 |
|
|
$ |
30,637 |
|
|
$ |
18,853 |
|
23
NOTE 10. Equity
Shares Rollforward
The following tables present the changes in the number of shares of common stock issued and repurchased (in thousands):
|
|
Shares of Common Stock Issued |
|
|
|
Shares of Treasury Stock |
|
||
Balance, December 31, 2021 |
|
|
77,242 |
|
|
|
|
(8,580 |
) |
Issuance of shares |
|
|
3 |
|
|
|
|
— |
|
Repurchase of shares |
|
|
— |
|
|
|
|
(293 |
) |
Vesting of restricted share grants |
|
|
481 |
|
|
|
|
— |
|
Exercise of options |
|
|
222 |
|
|
|
|
— |
|
Shares withheld related to net settlement of equity awards |
|
|
— |
|
|
|
|
(285 |
) |
Balance, March 31, 2022 |
|
|
77,948 |
|
|
|
|
(9,158 |
) |
Issuance of shares |
|
|
3 |
|
|
|
|
— |
|
Repurchase of shares |
|
|
— |
|
|
|
|
(640 |
) |
Vesting of restricted share grants |
|
|
139 |
|
|
|
|
— |
|
Exercise of options |
|
|
271 |
|
|
|
|
— |
|
Shares withheld related to net settlement of equity awards |
|
|
— |
|
|
|
|
(197 |
) |
Balance, June 30, 2022 |
|
|
78,361 |
|
|
|
|
(9,995 |
) |
Issuance of shares |
|
|
3 |
|
|
|
|
— |
|
Repurchase of shares |
|
|
— |
|
|
|
|
(819 |
) |
Vesting of restricted share grants |
|
|
208 |
|
|
|
|
— |
|
Exercise of options |
|
|
1,717 |
|
|
|
|
— |
|
Shares withheld related to net settlement of equity awards |
|
|
— |
|
|
|
|
(992 |
) |
Balance, September 30, 2022 |
|
|
80,289 |
|
|
|
|
(11,807 |
) |
|
|
Shares of Common Stock Issued |
|
|
Shares of Treasury Stock |
|
||||||||||
|
|
Class A |
|
|
Class B |
|
|
Class A |
|
|
Class B |
|
||||
Balance, December 31, 2020 |
|
|
19,389 |
|
|
|
54,767 |
|
|
|
(3,183 |
) |
|
|
(3,431 |
) |
Issuance of shares |
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Share conversion - Class B to A |
|
|
221 |
|
|
|
(221 |
) |
|
|
— |
|
|
|
— |
|
Repurchase of shares |
|
|
— |
|
|
|
— |
|
|
|
(287 |
) |
|
|
— |
|
Vesting of restricted share grants |
|
|
— |
|
|
|
953 |
|
|
|
— |
|
|
|
— |
|
Exercise of options |
|
|
— |
|
|
|
109 |
|
|
|
— |
|
|
|
— |
|
Shares withheld related to net settlement of equity awards |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(431 |
) |
Balance, March 31, 2021 |
|
|
19,611 |
|
|
|
55,608 |
|
|
|
(3,470 |
) |
|
|
(3,862 |
) |
Issuance of shares |
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Share conversion - Class B to A |
|
|
204 |
|
|
|
(204 |
) |
|
|
— |
|
|
|
— |
|
Repurchase of shares |
|
|
— |
|
|
|
— |
|
|
|
(288 |
) |
|
|
— |
|
Vesting of restricted share grants |
|
|
— |
|
|
|
143 |
|
|
|
— |
|
|
|
— |
|
Exercise of options |
|
|
— |
|
|
|
236 |
|
|
|
— |
|
|
|
— |
|
Shares withheld related to net settlement of equity awards |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(159 |
) |
Balance, June 30, 2021 |
|
|
19,817 |
|
|
|
55,783 |
|
|
|
(3,758 |
) |
|
|
(4,021 |
) |
Issuance of shares |
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Share conversion - Class B to A |
|
|
331 |
|
|
|
(331 |
) |
|
|
— |
|
|
|
— |
|
Repurchase of shares |
|
|
— |
|
|
|
— |
|
|
|
(188 |
) |
|
|
— |
|
Vesting of restricted share grants |
|
|
— |
|
|
|
501 |
|
|
|
— |
|
|
|
— |
|
Exercise of options |
|
|
— |
|
|
|
390 |
|
|
|
— |
|
|
|
— |
|
Shares withheld related to net settlement of equity awards |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(393 |
) |
Balance, September 30, 2021 |
|
|
20,150 |
|
|
|
56,343 |
|
|
|
(3,946 |
) |
|
|
(4,414 |
) |
Share Repurchased and Withheld
Share Repurchase Program
On May 5, 2022, the Company’s Board of Directors approved a new share repurchase program (the “2022 Share Repurchase Program”) authorizing the repurchase of up to $100.0 million of the Company’s Common Stock. Under the 2022 Share Repurchase Program, which
24
took effect in May 2022, the Company may purchase its shares from time to time until December 31, 2023 in privately negotiated transactions, through block trades, pursuant to open market purchases, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the SEC. The amount and timing of purchases under the 2022 Share Repurchase Program will depend on a number of factors including the price and availability of the Company’s shares, trading volume, capital availability, Company performance and general economic and market conditions. The 2022 Share Repurchase Program can be suspended or discontinued at any time.
During the three months ended September 30, 2022, the Company repurchased 819,472 shares of Common Stock at a total cost of $22.8 million for an average price of $27.86 per share. During the nine months ended September 30, 2022, 1,752,167 shares were repurchased at a total cost of $49.2 million for an average price of $28.06. As of September 30, 2022, a total of $66.8 million was available for future repurchases under the 2022 Share Repurchase Program, and a cumulative total of 5,820,654 shares of Common Stock had been repurchased under programs authorized by the Company’s Board of Directors at a total cost of $123.2 million for an average price of $21.16 per share.
Shares withheld for net settlement of employee equity awards
During the three months ended September 30, 2022, the Company net settled 991,785 shares of Common Stock for $27.4 million to satisfy $18.1 million in employee tax obligations and $9.3 million in employee stock option exercise prices. For the nine months ended September 30, 2022, 1,474,946 shares were net settled for $41.5 million to satisfy $29.3 million of employee tax obligations and $12.2 million of employee stock option exercise prices.
Dividend Payments
Dividends paid or payable for the nine months ended September 30, 2022 totaled $52.3 million and included quarterly dividends of $51.5 million and $0.8 million in cash bonuses and distributions related to dividends previously declared upon vesting of restricted stock and stock option awards.
At September 30, 2022 and December 31, 2021, the amount of cash bonuses and distributions related to dividends previously declared on unvested and outstanding restricted share awards and stock options totaled $1.0 million, which was not recorded as a liability as of the balance sheet date. A liability will be recorded for these cash bonuses and dividends when the restricted shares and options vest.
NOTE 11. Share‑Based Compensation
Current Period Activity
During the three months ended September 30, 2022, the Company issued restricted stock awards for 88,698 shares of common stock, of which awards for 11,974 shares were fully vested on the grant date and awards for 76,724 shares vest over two years. For the nine months ended September 30, 2022, the Company issued restricted stock awards for 637,235 shares of common stock, of which awards for 30,092 shares were fully vested on the grant date, awards for 445,984 shares vest over two years, awards for 3,108 shares vest over thirty-three months, and awards for 158,051 shares vest over three years.
Stock option award and restricted stock award activity during the nine months ended September 30, 2022 and 2021 was as follows:
|
|
Shares Subject to Stock Option Awards |
|
|||||||||||||||||||||
|
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||
|
|
Avg wtd |
|
|
Avg wtd |
|
|
|
|
|
Avg wtd |
|
|
Avg wtd |
|
|
|
|
||||||
|
|
grant-date |
|
|
exercise |
|
|
|
|
|
grant-date |
|
|
exercise |
|
|
|
|
||||||
|
|
fair value |
|
|
price |
|
|
Units |
|
|
fair value |
|
|
price |
|
|
Units |
|
||||||
Outstanding at beginning of period |
|
$ |
3.94 |
|
|
$ |
6.71 |
|
|
|
5,315,210 |
|
|
$ |
3.91 |
|
|
$ |
6.50 |
|
|
|
6,865,101 |
|
Forfeited |
|
|
6.46 |
|
|
|
14.15 |
|
|
|
(451 |
) |
|
|
5.27 |
|
|
|
10.67 |
|
|
|
(76,849 |
) |
Exercised |
|
|
3.43 |
|
|
|
5.53 |
|
|
|
(2,209,371 |
) |
|
|
3.72 |
|
|
|
5.77 |
|
|
|
(734,712 |
) |
Outstanding at end of the period |
|
$ |
4.31 |
|
|
$ |
7.55 |
|
|
|
3,105,388 |
|
|
$ |
3.92 |
|
|
$ |
6.54 |
|
|
|
6,053,540 |
|
Vested |
|
$ |
4.27 |
|
|
$ |
7.45 |
|
|
|
2,928,840 |
|
|
$ |
3.86 |
|
|
$ |
6.37 |
|
|
|
5,809,189 |
|
Unvested |
|
|
4.85 |
|
|
|
9.24 |
|
|
|
176,548 |
|
|
|
5.29 |
|
|
|
10.62 |
|
|
|
244,351 |
|
25
|
|
Restricted Stock Awards |
|
|||||||||||||
|
|
Nine Months Ended September 30, |
|
|||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||
|
|
Avg wtd grant- |
|
|
|
|
|
Avg wtd grant- |
|
|
|
|
||||
|
|
date fair value |
|
|
Units |
|
|
date fair value |
|
|
Units |
|
||||
Unvested at beginning of period |
|
$ |
17.75 |
|
|
|
1,352,839 |
|
|
$ |
14.99 |
|
|
|
2,827,008 |
|
Granted |
|
|
31.14 |
|
|
|
637,235 |
|
|
|
26.96 |
|
|
|
260,753 |
|
Vested |
|
|
17.39 |
|
|
|
(827,872 |
) |
|
|
14.53 |
|
|
|
(1,596,839 |
) |
Forfeited |
|
|
28.86 |
|
|
|
(9,643 |
) |
|
|
16.38 |
|
|
|
(121,424 |
) |
Unvested at end of period |
|
$ |
25.34 |
|
|
|
1,152,559 |
|
|
$ |
17.70 |
|
|
|
1,369,498 |
|
The Company recorded $4.4 million and $4.0 million of share-based compensation expense in the three months ended September 30, 2022 and 2021, respectively, and $13.3 million and $13.9 million of share-based compensation in the nine months ended September 30, 2022 and 2021, respectively, in personnel compensation and benefits in the unaudited Condensed Consolidated Statements of Operations.
NOTE 12. Earnings Per Share
The following table sets forth the reconciliation of basic earnings per share and diluted earnings per share from net income for the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(in thousands except per share amounts) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income |
|
$ |
72,764 |
|
|
$ |
74,175 |
|
|
$ |
223,242 |
|
|
$ |
208,647 |
|
Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic: Weighted average number of shares outstanding |
|
|
68,609 |
|
|
|
67,980 |
|
|
|
68,625 |
|
|
|
67,840 |
|
Plus: Incremental shares from assumed conversion of dilutive instruments |
|
|
3,268 |
|
|
|
6,073 |
|
|
|
4,172 |
|
|
|
6,322 |
|
Diluted: Weighted average number of shares outstanding |
|
|
71,877 |
|
|
|
74,053 |
|
|
|
72,797 |
|
|
|
74,162 |
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic: |
|
$ |
1.06 |
|
|
$ |
1.09 |
|
|
$ |
3.25 |
|
|
$ |
3.08 |
|
Diluted: |
|
$ |
1.01 |
|
|
$ |
1.00 |
|
|
$ |
3.07 |
|
|
$ |
2.81 |
|
Outstanding instruments excluded from the computation of weighted average shares for diluted earnings per share because the effect would be anti-dilutive were 0.2 million for the three and nine months ended September 30, 2022 and were de minimus in amount for the three and nine months ended September 30, 2021. Holders of non-vested share-based compensation awards do not have rights to receive nonforfeitable dividends on the shares covered by the awards.
26
NOTE 13. Accumulated Other Comprehensive Income (Loss)
The following table presents changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2022 and 2021.
|
|
|
|
|
Cumulative |
|
|
|
|
|||
|
|
Cash Flow |
|
|
Translation |
|
|
|
|
|||
(in thousands) |
|
Hedges (a) |
|
|
Adjustment |
|
|
Total |
|
|||
Balance, December 31, 2021 |
|
$ |
5,895 |
|
|
$ |
77 |
|
|
$ |
5,972 |
|
Other comprehensive income (loss) before reclassification and tax |
|
|
42,113 |
|
|
|
(485 |
) |
|
|
41,628 |
|
Tax impact |
|
|
(10,176 |
) |
|
|
120 |
|
|
|
(10,056 |
) |
Reclassification adjustments, before tax |
|
|
(558 |
) |
|
|
— |
|
|
|
(558 |
) |
Tax impact |
|
|
135 |
|
|
|
— |
|
|
|
135 |
|
Net current period other comprehensive income (loss) |
|
|
31,514 |
|
|
|
(365 |
) |
|
|
31,149 |
|
Balance, September 30, 2022 |
|
$ |
37,409 |
|
|
$ |
(288 |
) |
|
$ |
37,121 |
|
Balance, December 31, 2020 |
|
$ |
(7,573 |
) |
|
$ |
113 |
|
|
$ |
(7,460 |
) |
Other comprehensive income (loss) before reclassification and tax |
|
|
9,356 |
|
|
|
(63 |
) |
|
|
9,293 |
|
Tax impact |
|
|
(2,275 |
) |
|
|
16 |
|
|
|
(2,259 |
) |
Reclassification adjustments, before tax |
|
|
2,639 |
|
|
|
— |
|
|
|
2,639 |
|
Tax impact |
|
|
(642 |
) |
|
|
— |
|
|
|
(642 |
) |
Net current period other comprehensive income (loss) |
|
|
9,078 |
|
|
|
(47 |
) |
|
|
9,031 |
|
Balance, September 30, 2021 |
|
$ |
1,505 |
|
|
$ |
66 |
|
|
$ |
1,571 |
|
NOTE 14. DERIVATIVES
Interest Rate Swaps
On March 27, 2020, the Company entered into the Swap to manage interest rate risk associated with a portion of its floating-rate long-term debt. The Company does not purchase or hold any derivative instruments for trading or speculative purposes. Under the terms of the Swap, the Company pays interest at a fixed rate of interest on a quarterly basis and receives interest at the three-month LIBOR rate in effect for that quarter.
On September 26, 2022, the Company and the Swap counterparty executed an amendment to the Swap to update LIBOR conventions to SOFR conventions and to modify the fixed rate for the change from three-month LIBOR to three-month Term SOFR effective on October 6, 2022. There was no change to the $450 million notional value, the July 1, 2026 expiration date, the quarterly payment frequency or the designated three-month maturity from the Swap Amendment. The interest rate effectively fixed by the Swap on $450 million of the Company’s outstanding term loan debt through July 1, 2026 changed from 3.22% to 3.15% as a result of the Swap Amendment.
The Company elected to apply certain optional expedients available under ASC 848 providing relief from contract modification and hedge accounting requirements to the amendments to the Swap agreement. As a result, the Company was not required to evaluate whether the modifications to the Swap agreement resulted in the establishment of a new contract or the continuation of an existing contract and elected not to remeasure the contract at the modification date or reassess its previous accounting determination. The modified contract is accounted for, and presented as, a continuation of the existing contract. The Company also elected to change the contractual terms of the Swap without dedesignating the existing hedging relationship and redesignating a new hedging relationship.
The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how the Company reflects the change in fair value of the derivative instrument. A derivative qualifies for hedge accounting treatment if, at inception, it meets defined correlation and effectiveness criteria. These criteria require that the anticipated cash flows and/or changes in fair value of the hedging instrument substantially offset those of the position being hedged. The Swap is assessed for effectiveness and continued qualification for hedge accounting on a quarterly basis. For the three and nine months ended September 30, 2022 and since inception, the Swap was deemed to be highly effective.
The Swap is designated as a cash flow hedge. Accordingly, the Swap is measured at fair value with mark-to-market gains or losses deferred and included in accumulated other comprehensive income (loss), net of tax, to the extent the hedge is determined to be effective. Gains or losses from the Swap are reclassified to interest expense in the same period during which the hedged transaction affects earnings. At September 30, 2022, $1.5 million was recorded as receivable from the Swap counterparty and included in other assets in
27
the unaudited Condensed Consolidated Balance Sheets. Refer to Note 5, Fair Value Measurements, for additional disclosures regarding fair value measurements.
The following table summarizes the classification of the Swap in the unaudited Condensed Consolidated Balance Sheets and the notional amount at September 30, 2022 and December 31, 2021 (in thousands):
Balance Sheets |
Description |
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Other assets |
Fair value of interest rate swap |
|
$ |
49,328 |
|
|
$ |
7,774 |
|
|
Notional amount |
|
|
450,000 |
|
|
|
450,000 |
|
The following table summarizes the effects of the Swap in the unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021 (in thousands):
NOTE 15. EQUITY METHOD INVESTMENT
In September 2020, the Company acquired, through a wholly owned subsidiary, a 15% interest voting share and income share in Alderwood and made a capital contribution to Alderwood of $1.5 million in cash. Alderwood’s operating entity, Alderwood Capital, is a London-based investment advisory firm focused on taking minority stakes in specialist boutique asset management businesses. The Company also committed to contribute additional capital of $4.5 million to Alderwood and $50.0 million to a private fund to be launched by Alderwood, subject to certain terms and conditions, which included obtaining an agreed amount of aggregate legally binding commitments from investors in the private fund.
In January 2022, the Company signed an amendment to the Alderwood members’ agreement (“Alderwood Amendment”) and made an additional $1.5 million capital contribution to Alderwood. The Alderwood Amendment reduced the Company’s commitment to contribute additional capital to Alderwood from $4.5 million to $3.0 million.
In July 2022, Alderwood decided to wind down its business and operations, including the business and operations of its private fund. On July 31, 2022, the Company’s wholly owned subsidiary retired as a member of Alderwood thereby terminating the Company’s commitment to contribute an additional $3.0 million in capital to Alderwood and $50.0 million in capital to Alderwood’s private fund. Alderwood returned the $1.5 million in capital contributed to Alderwood pursuant to the Alderwood Amendment, and the Company recognized a loss on disposal of 100% of its investment in Alderwood of $0.8 million.
Given the level of ownership interest in Alderwood, which is an English limited liability partnership, and the fact that Alderwood will maintain specific ownership accounts for investors, the Company accounts for its investment in Alderwood using the equity method of accounting.
Equity method investments are recorded in other assets in the unaudited Condensed Consolidated Balance Sheets. At September 30, 2022, the Company no longer held an equity investment in Alderwood ($1.1 million as of December 31, 2021).
Gains and losses from equity method investments are recorded in interest income and other income (expense) in the unaudited Condensed Consolidated Statements of Operations. For the three and nine months ended September 30, 2022, losses from equity method investments were $0.8 million, respectively. For the three and nine months ended September 30, 2021, losses from equity method investments were $0.1 million and $0.2 million, respectively.
NOTE 16. LEASES
28
The Company determines if a contract is a lease at inception. We have leases primarily for office facilities and information technology equipment. All of our leases are classified as operating leases.
Supplemental balance sheet information related to the Company’s operating leases as of September 30, 2022 was as follows (in thousands):
|
|
|
|
|
|
|
September 30, 2022 |
|
|
Operating lease ROU assets(1) |
|
$ |
17,664 |
|
Current portion of operating lease liabilities(2) |
|
|
4,872 |
|
Noncurrent portion of operating lease liabilities(2) |
|
|
14,727 |
|
Total operating lease liabilities |
|
$ |
19,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
|
Weighted-average remaining lease term |
|
4.7 years |
|
|
Weighted-average discount rate |
|
|
4.0 |
% |
The components of lease expense and other lease information as of and during the three and nine month periods ended September 30, 2022 are as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||
|
|
September 30, 2022 |
|
|
September 30, 2022 |
|
||
Operating lease cost |
|
$ |
1,318 |
|
|
$ |
3,983 |
|
Short-term lease cost |
|
|
21 |
|
|
|
63 |
|
Variable lease cost |
|
|
460 |
|
|
|
1,344 |
|
Gross lease cost |
|
$ |
1,799 |
|
|
$ |
5,390 |
|
Sub-lease income |
|
|
(206 |
) |
|
|
(621 |
) |
Net lease cost |
|
$ |
1,593 |
|
|
$ |
4,769 |
|
|
|
|
|
|
|
|
||
Other lease information |
|
|
|
|
|
|
||
Cash paid for amounts included in measurement of lease liabilities |
|
|
|
|
|
|
||
Operating cash flows for operating leases |
|
$ |
1,251 |
|
|
$ |
3,720 |
|
|
|
|
|
|
|
|
||
Our leases have remaining lease terms of 1 year to 10 years. These leases generally contain renewal options for periods ranging from to five years. Because the Company is not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term and associated potential option payments are excluded from lease payments. Expenses associated with operating leases are recorded in general and administrative expenses on the unaudited Condensed Consolidated Statement of Operations. Variable lease costs, such as utilities and common area maintenance charges, are excluded from lease liabilities and expensed as incurred. The variable lease costs are determined based on terms in the lease contracts and primarily relate to usage of the ROU asset and services received from the lessor.
29
The following table summarizes the maturity of our operating lease liabilities as of September 30, 2022 (in thousands):
|
|
Operating |
|
||
2022 |
|
$ |
|
1,303 |
|
2023 |
|
|
|
5,586 |
|
2024 |
|
|
|
4,603 |
|
2025 |
|
|
|
3,980 |
|
2026 |
|
|
|
3,193 |
|
Thereafter |
|
|
|
2,828 |
|
Total undiscounted lease payments |
|
|
|
21,493 |
|
Less: imputed interest |
|
|
|
1,894 |
|
Total lease liabilities |
|
$ |
|
19,599 |
|
NOTE 17. SUBSEQUENT EVENTS
Subsequent to September 30, 2022, we reduced outstanding term loan principal by approximately $9.0 million ($5.0 million of Repriced Term Loans and $4.0 million of 2021 Incremental Term Loans), through the settlement of open market term loan repurchases and retirement of debt.
On October 7, 2022, the Company paid $37.5 million in cash to sellers for the third annual earn out period for the USAA AMCO Acquisition.
On November 3, 2022, the Company’s Board of Directors approved a regular quarterly cash dividend of $0.25 per share. The dividend is payable on December 23, 2022, to shareholders of record on December 9, 2022.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “Company,” “Victory,” or in the first-person notations of “we,” “us,” and “our” shall mean Victory Capital Holdings, Inc., a Delaware corporation, and its wholly-owned subsidiaries.
Objective
The objective of this section of the Quarterly Report on Form 10-Q is intended to provide a discussion and analysis, from management’s perspective, of the key performance indicators and material information necessary to assess our financial condition and results of operations for the three and nine months ended September 30, 2022 and 2021 and cash flows for the nine months ended September 30, 2022 and 2021. In addition, we also discuss the Company’s contractual and off-balance sheet arrangements. This discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2021. This discussion and analysis contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q and in “Item 1A. Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2021.
Overview
Our Business – Victory is a diversified global asset management firm with $147.3 billion in AUM as of September 30, 2022. The Company operates a next-generation business model combining boutique investment qualities with the benefits of an integrated, centralized operating and distribution platform.
The Company provides specialized investment strategies to institutions, intermediaries, retirement platforms and individual investors. With 12 autonomous Investment Franchises and a Solutions Platform, Victory offers a wide array of investment products, including actively and passively managed mutual funds, rules-based and active ETFs, institutional separate accounts, VIPs, ESG and impact investment strategies, alternative investments, private closed-end funds, and a 529 Education Savings Plan. Victory Capital’s strategies are also offered through third-party investment products, including mutual funds, third-party ETF model strategies, retail SMAs and UMAs through wrap account programs, CITs, and UCITs. As of September 30, 2022, our Franchises and our Solutions Platform collectively managed a diversified set of 130 investment strategies for a wide range of institutional and retail clients and direct investors.
30
Franchises – Our Franchises are largely operationally integrated but are separately branded and make investment decisions independently from one another within guidelines established by their respective investment mandates. Our largely integrated model creates a supportive environment in which our investment professionals, largely unencumbered by administrative and operational responsibilities, can focus on their pursuit of investment excellence. VCM employs all of our U.S. investment professionals across our Franchises, which are not separate legal entities.
Solutions – Our Solutions Platform consists of multi-asset, multi-manager, quantitative, rules-based, factor-based, and customized portfolios. These strategies are designed to achieve specific return characteristics, with products that include values-based and thematic outcomes and exposures. We offer our Solutions Platform through a variety of vehicles, including separate accounts, mutual funds, UMA accounts, rules-based and active ETFs under our VictoryShares ETF brand. Like our Franchises, our Solutions Platform is operationally integrated and supported by our centralized distribution, marketing and operational support functions.
Professionals within our institutional and retail distribution channels, direct investor business and marketing organization sell our products through our centralized distribution model. Our institutional sales team focuses on cultivating relationships with institutional consultants, who account for the majority of the institutional market, as well as asset allocators seeking sub-advisers. Our retail sales team offers intermediary and retirement platform clients, including broker-dealers, retirement platforms and RIA networks, mutual funds and ETFs as well as SMAs through wrap fee programs and access to our investment models through UMAs. Our direct investor business serves the investment needs of clients including USAA members, the military community, and other individual clients.
We have grown our AUM from $17.9 billion following the management-led buyout with Crestview GP in August 2013 to $147.3 billion at September 30, 2022. We attribute this growth to our success in sourcing acquisitions and evolving them into organic growers, generating strong investment returns, and developing institutional, retail, and direct investor channels with deep penetration.
WestEnd Acquisition (the “WestEnd Acquisition”) – On December 31, 2021, the Company completed the acquisition of 100% of the equity interests of WestEnd pursuant to the WestEnd purchase agreement (as amended, the “WestEnd Purchase Agreement”), resulting in WestEnd becoming the Company’s twelfth investment franchise. Founded in 2004, and headquartered in Charlotte, NC, WestEnd is an ETF strategist advisor that provides financial advisors with a turnkey, core model allocation strategy for either a holistic solution or complementary source of alpha. The firm offers four primary ETF strategies and one large cap core strategy, all in tax efficient SMA structures. At December 31, 2021, the WestEnd acquired assets totaled $19.3 billion. The WestEnd acquired assets had no economic impact on operations in 2021 and no effect on asset flows, average assets, revenues or earnings in the full-year period ended December 31, 2021.
The aggregate purchase price (the “WestEnd Purchase Price”) for the WestEnd Acquisition is estimated at $716.1 million, net of cash acquired, which includes (i) $475.8 million in cash paid at closing (the “WestEnd Closing”) net of cash acquired plus the acquisition date value of contingent payments due to sellers of $239.7 million plus $0.6 million paid in cash in April 2022 for net working capital adjustments. The contingent earn-out payments are based on net revenue of the WestEnd business during each of the first four years following the WestEnd Closing, subject to certain “catch-up” provisions over a five and one half year period following the WestEnd Closing. A maximum of $320.0 million ($80.0 million per year) in earn-out payments may be paid.
The estimated fair value of contingent consideration payable to sellers was estimated at $208.2 million at September 30, 2022 as compared to $239.7 million at December 31, 2021 and is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets. The decrease in the liability of $31.5 million for the nine months ended September 30, 2022 was recorded in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations. Refer to Note 4, Acquisitions, for further details on the WestEnd Acquisition.
NEC Acquisition (the “NEC Acquisition”) – On November 1, 2021, the Company completed the acquisition of 100% of the equity interests in NEC, resulting in NEC becoming the Company’s eleventh investment franchise. Founded in 2004 and based in Hanover, NH, NEC is an alternative asset management firm focused on debt and equity investments in clean energy infrastructure projects and companies. At November 1, 2021, the NEC AUM that was acquired totaled $795.0 million.
The estimated purchase price for the NEC Acquisition is $63.1 million, which includes $62.8 million in cash paid at closing, net of cash acquired, and $0.3 million paid in cash in March 2022 for net working capital adjustments. Under the terms of the purchase agreement, the Company will pay up to an additional $35.0 million in cash based on net revenue growth over a six year period following the closing date. Refer to Note 4, Acquisitions, for further details on the NEC Acquisition.
THB Acquisition (the “THB Acquisition”) – On March 1, 2021, the Company completed the acquisition of certain assets of THB, resulting in THB becoming the Company’s tenth investment franchise. The acquisition expanded and diversified our investment platform, adding capacity constrained asset classes. THB manages responsible investment portfolios in the micro-cap, small-cap and mid-cap assets classes, including U.S., global and international strategies. At March 1, 2021, the THB AUM that was acquired totaled $547 million.
31
In addition to servicing clients in the U.S., THB has a footprint in Australia and Europe which provides us with expanded distribution opportunities in regions in which we have a limited presence today. This will benefit all of our Franchises as we look to leverage THB’s distribution footprint to sell more of our investment strategies outside the U.S.
Aligning with the Company’s responsible investing initiatives, all of THB’s strategies have ESG considerations integrated into their investment processes. THB was an early adopter of responsible investment practices and has been managing responsible investment portfolios for decades.
Nominal consideration was paid for the assets of THB. The THB investment team shares in the revenue generated on their products and benefit from our centralized operational, marketing and distribution platforms. THB has significant room for AUM growth across its product set, which we think will significantly accelerate with our distribution support. Refer to Note 4, Acquisitions, for further details on the THB Acquisition.
USAA AMCO Acquisition – On July 1, 2019, the Company completed the acquisition (the “USAA AMCO Acquisition”) of USAA Asset Management (“USAA Adviser”) and VCTA, formally known as the USAA Transfer Agency Company. The acquisition expanded and diversified the Company’s investment platform and increased the Company’s size and scale. The acquisition also provided the Company the rights to offer products and services using the USAA brand and the opportunity to offer its products to USAA members through a direct distribution channel.
A maximum of $150.0 million ($37.5 million per year) in contingent payments is payable to sellers based on the annual revenue of USAA Adviser attributable to all “non-managed money”-related AUM in each of the first four years following the closing date. In the fourth quarter of 2020, we paid $37.5 million in cash to sellers for the first annual contingent payment. In the fourth quarter of 2021, we paid $37.5 million in cash to sellers for the second annual contingent payment. On October 7, 2022, the Company paid $37.5 million in cash to sellers for the third annual earn out period for the USAA AMCO Acquisition.
The estimated fair value of contingent consideration payable to sellers was estimated at $59.7 million at September 30, 2022 as compared to $68.8 million at December 31, 2021 and is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets. The decrease in the liability of $9.1 million for the nine months ended September 30, 2022 was recorded in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations. Refer to Note 4, Acquisitions, for further details on the USAA AMCO Acquisition.
Alderwood - The Company owned a 15% equity interest in Alderwood Partners LLP (“Alderwood”) from September 20, 2020 through July 31, 2022, when the Company retired as a member of Alderwood. The Company analyzed its investment in Alderwood under the voting interest model and determined that it did not have a controlling financial interest. The Company accounted for its Alderwood investment using the equity method of accounting. Refer to Note 15, Equity Method Investment, for additional information on Alderwood.
COVID-19 Pandemic – The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption. While COVID-19 did not have a material adverse effect on our business, operations and financial results, the extent to which the pandemic impacts our business, operations and financial results going forward will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; and the effect on our ability to sell and provide our services.
Business Highlights
Assets under management:
32
Investment performance:
Financial highlights:
Key Performance Indicators
The following table is a summary of key performance indicators utilized by management to assess results of operations:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
($ in millions, except for basis points and percentages) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
AUM at period end |
|
$ |
147,257 |
|
|
$ |
159,889 |
|
|
$ |
147,257 |
|
|
$ |
159,889 |
|
Average AUM |
|
|
158,903 |
|
|
|
162,469 |
|
|
|
167,157 |
|
|
|
157,344 |
|
Gross flows |
|
|
6,796 |
|
|
|
5,781 |
|
|
|
27,253 |
|
|
|
22,689 |
|
Net short-term flows |
|
|
(19 |
) |
|
|
(113 |
) |
|
|
(125 |
) |
|
|
(430 |
) |
Net long-term flows |
|
|
(553 |
) |
|
|
131 |
|
|
|
1,860 |
|
|
|
(550 |
) |
Net flows |
|
|
(573 |
) |
|
|
18 |
|
|
|
1,734 |
|
|
|
(980 |
) |
Total revenue |
|
|
207.3 |
|
|
|
226.3 |
|
|
|
653.3 |
|
|
|
661.1 |
|
Revenue on average AUM |
|
51.8 bps |
|
|
55.3 bps |
|
|
52.3 bps |
|
|
56.2 bps |
|
||||
Net income |
|
|
72.8 |
|
|
|
74.2 |
|
|
|
223.2 |
|
|
|
208.6 |
|
Adjusted EBITDA(1) |
|
|
103.6 |
|
|
|
115.0 |
|
|
|
324.1 |
|
|
|
334.1 |
|
Adjusted EBITDA Margin(2) |
|
|
50.0 |
% |
|
|
50.8 |
% |
|
|
49.6 |
% |
|
|
50.5 |
% |
Adjusted Net Income(1) |
|
|
76.2 |
|
|
|
85.6 |
|
|
|
228.7 |
|
|
|
242.6 |
|
Tax benefit of goodwill and acquired intangibles(3) |
|
|
9.3 |
|
|
|
6.9 |
|
|
|
28.0 |
|
|
|
20.8 |
|
(1) Management utilizes Adjusted EBITDA and Adjusted Net Income to measure the operating profitability of the business. These measures eliminate the impact of one‑time acquisition, restructuring and integration costs and demonstrate the ongoing operating earnings metrics of the business. These measures are explained in more detail and reconciled to net income calculated in accordance with GAAP in “Supplemental Non‑GAAP Financial Information.”
(2) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total revenue.
(3) Represents the tax benefits associated with deductions allowed for intangibles and goodwill generated from prior acquisitions in which we received a step-up in basis for tax purposes. Acquired intangible assets and goodwill may be amortized for tax purposes, generally over a 15-year period. The tax benefit from amortization on these assets is included to show the full economic benefit of deductions for all acquired intangibles with a step-up in tax basis. Due to our acquisitive nature, tax deductions allowed on acquired intangible assets and goodwill provide us with a significant supplemental economic benefit.
33
Assets Under Management
Our profitability is largely affected by the level and composition of our AUM (including asset class and distribution channel) and the effective fee rates on our products. The amount and composition of our AUM are, and will continue to be, influenced by a number of factors, including; (i) investment performance, including fluctuations in the financial markets and the quality of our investment decisions; (ii) client flows into and out of our various strategies and investment vehicles; (iii) industry trends toward products or strategies that we either do or do not offer; (iv) our ability to attract and retain high quality investment, distribution, marketing and management personnel; (v) our decision to close strategies or limit growth of assets in a strategy when we believe it is in the best interest of our clients or conversely to re‑open strategies in part or entirely; and (vi) general investor sentiment and confidence. Our goal is to establish and maintain a client base that is diversified by Franchise and Solutions, asset class, distribution channel and vehicle. Due to rounding, AUM numbers presented in the tables below may not add up precisely to the totals provided.
The following table presents our AUM by asset class as of the dates indicated:
|
|
As of |
|
|||||
|
|
September 30, |
|
|||||
(in millions) |
|
2022 |
|
|
2021(1) |
|
||
Solutions |
|
$ |
48,551 |
|
|
$ |
38,330 |
|
Fixed Income |
|
|
27,198 |
|
|
|
36,931 |
|
U.S. Mid Cap Equity |
|
|
25,754 |
|
|
|
29,798 |
|
U.S. Small Cap Equity |
|
|
14,109 |
|
|
|
19,863 |
|
Global / Non-U.S. Equity |
|
|
12,293 |
|
|
|
15,840 |
|
U.S. Large Cap Equity |
|
|
10,762 |
|
|
|
14,803 |
|
Alternative Investments |
|
|
5,334 |
|
|
|
1,158 |
|
Total Long-Term Assets |
|
|
144,001 |
|
|
|
156,722 |
|
Money Market & Short-Term Assets |
|
|
3,256 |
|
|
|
3,166 |
|
Total |
|
$ |
147,257 |
|
|
$ |
159,889 |
|
(1) Beginning in January 2022, the Company’s “Other” asset class has been categorized to Solutions, Fixed Income, Global / Non-U.S. Equity, and Alternative Investments based on the underlying investment strategy. Additionally, all assets managed using alternative investment strategies are now included in the Company’s Alternative Investments asset class. Prior-period figures have been adjusted accordingly.
The following tables summarize our asset flows by asset class for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
U.S. Mid |
|
|
U.S. Small |
|
|
|
|
|
U.S. Large |
|
|
Global / |
|
|
|
|
|
|
|
|
|
|
|
Money |
|
|
|
|
||||||||||
|
|
Cap |
|
|
Cap |
|
|
Fixed |
|
|
Cap |
|
|
Non-U.S. |
|
|
|
|
|
Alternative |
|
|
Total |
|
|
Market / |
|
|
|
|
||||||||||
(in millions) |
|
Equity |
|
|
Equity |
|
|
Income |
|
|
Equity |
|
|
Equity |
|
|
Solutions |
|
|
Investments |
|
|
Long-term |
|
|
Short-term |
|
|
Total |
|
||||||||||
For the Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Beginning AUM |
|
$ |
26,356 |
|
|
$ |
14,837 |
|
|
$ |
29,398 |
|
|
$ |
11,857 |
|
|
$ |
13,257 |
|
|
$ |
50,485 |
|
|
$ |
5,617 |
|
|
$ |
151,807 |
|
|
$ |
3,140 |
|
|
$ |
154,947 |
|
Gross client cash inflows |
|
|
1,508 |
|
|
|
589 |
|
|
|
1,123 |
|
|
|
67 |
|
|
|
742 |
|
|
|
1,745 |
|
|
|
827 |
|
|
|
6,601 |
|
|
|
194 |
|
|
|
6,796 |
|
Gross client cash outflows |
|
|
(1,176 |
) |
|
|
(939 |
) |
|
|
(1,958 |
) |
|
|
(269 |
) |
|
|
(636 |
) |
|
|
(1,315 |
) |
|
|
(863 |
) |
|
|
(7,155 |
) |
|
|
(214 |
) |
|
|
(7,368 |
) |
Net client cash flows |
|
|
333 |
|
|
|
(349 |
) |
|
|
(835 |
) |
|
|
(203 |
) |
|
|
107 |
|
|
|
430 |
|
|
|
(36 |
) |
|
|
(553 |
) |
|
|
(19 |
) |
|
|
(573 |
) |
Market appreciation / (depreciation) |
|
|
(938 |
) |
|
|
(404 |
) |
|
|
(829 |
) |
|
|
(560 |
) |
|
|
(1,248 |
) |
|
|
(2,930 |
) |
|
|
(165 |
) |
|
|
(7,074 |
) |
|
|
8 |
|
|
|
(7,066 |
) |
Realizations and distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(51 |
) |
|
|
(51 |
) |
|
|
— |
|
|
|
(51 |
) |
Net transfers |
|
|
3 |
|
|
|
26 |
|
|
|
(536 |
) |
|
|
(333 |
) |
|
|
178 |
|
|
|
566 |
|
|
|
(31 |
) |
|
|
(127 |
) |
|
|
127 |
|
|
|
— |
|
Ending AUM |
|
$ |
25,754 |
|
|
$ |
14,109 |
|
|
$ |
27,198 |
|
|
$ |
10,762 |
|
|
$ |
12,293 |
|
|
$ |
48,551 |
|
|
$ |
5,334 |
|
|
$ |
144,001 |
|
|
$ |
3,256 |
|
|
$ |
147,257 |
|
For the Three Months Ended September 30, 2021(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Beginning AUM |
|
$ |
30,340 |
|
|
$ |
20,617 |
|
|
$ |
36,444 |
|
|
$ |
15,284 |
|
|
$ |
16,244 |
|
|
$ |
38,774 |
|
|
$ |
978 |
|
|
$ |
158,682 |
|
|
$ |
3,254 |
|
|
$ |
161,936 |
|
Gross client cash inflows |
|
|
1,217 |
|
|
|
1,491 |
|
|
|
1,591 |
|
|
|
79 |
|
|
|
536 |
|
|
|
541 |
|
|
|
236 |
|
|
|
5,689 |
|
|
|
92 |
|
|
|
5,781 |
|
Gross client cash outflows |
|
|
(1,332 |
) |
|
|
(1,315 |
) |
|
|
(1,264 |
) |
|
|
(359 |
) |
|
|
(551 |
) |
|
|
(675 |
) |
|
|
(62 |
) |
|
|
(5,558 |
) |
|
|
(205 |
) |
|
|
(5,763 |
) |
Net client cash flows |
|
|
(114 |
) |
|
|
175 |
|
|
|
326 |
|
|
|
(281 |
) |
|
|
(15 |
) |
|
|
(134 |
) |
|
|
174 |
|
|
|
131 |
|
|
|
(113 |
) |
|
|
18 |
|
Market appreciation / (depreciation) |
|
|
(449 |
) |
|
|
(898 |
) |
|
|
57 |
|
|
|
(115 |
) |
|
|
(367 |
) |
|
|
(294 |
) |
|
|
5 |
|
|
|
(2,061 |
) |
|
|
(1 |
) |
|
|
(2,062 |
) |
Net transfers |
|
|
21 |
|
|
|
(32 |
) |
|
|
103 |
|
|
|
(85 |
) |
|
|
(21 |
) |
|
|
(17 |
) |
|
|
1 |
|
|
|
(30 |
) |
|
|
27 |
|
|
|
(3 |
) |
Ending AUM |
|
$ |
29,798 |
|
|
$ |
19,863 |
|
|
$ |
36,931 |
|
|
$ |
14,803 |
|
|
$ |
15,840 |
|
|
$ |
38,330 |
|
|
$ |
1,158 |
|
|
$ |
156,722 |
|
|
$ |
3,166 |
|
|
$ |
159,889 |
|
(1) Beginning in January 2022, the Company’s “Other” asset class has been categorized to Solutions, Fixed Income, Global / Non-U.S. Equity, and Alternative Investments based on the underlying investment strategy. Additionally, all assets managed using alternative investment strategies are now included in the Company’s Alternative Investments asset class. Prior-period figures have been adjusted accordingly.
34
|
|
|
|
|
U.S. |
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
U.S. Mid |
|
|
Small |
|
|
|
|
|
Large |
|
|
Global / |
|
|
|
|
|
|
|
|
|
|
|
Money |
|
|
|
|
||||||||||
|
|
Cap |
|
|
Cap |
|
|
Fixed |
|
|
Cap |
|
|
Non-U.S. |
|
|
|
|
|
Alternative |
|
|
Total |
|
|
Market / |
|
|
|
|
||||||||||
(in millions) |
|
Equity |
|
|
Equity |
|
|
Income |
|
|
Equity |
|
|
Equity |
|
|
Solutions |
|
|
Investments |
|
|
Long-term |
|
|
Short-term |
|
|
Total |
|
||||||||||
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Beginning AUM |
|
$ |
30,578 |
|
|
$ |
20,094 |
|
|
$ |
35,154 |
|
|
$ |
15,766 |
|
|
$ |
16,050 |
|
|
$ |
60,364 |
|
|
$ |
2,548 |
|
|
$ |
180,554 |
|
|
$ |
3,100 |
|
|
$ |
183,654 |
|
Gross client cash inflows |
|
|
5,417 |
|
|
|
2,408 |
|
|
|
4,183 |
|
|
|
318 |
|
|
|
3,124 |
|
|
|
6,796 |
|
|
|
4,566 |
|
|
|
26,812 |
|
|
|
441 |
|
|
|
27,253 |
|
Gross client cash outflows |
|
|
(4,659 |
) |
|
|
(4,082 |
) |
|
|
(6,851 |
) |
|
|
(1,048 |
) |
|
|
(2,344 |
) |
|
|
(4,551 |
) |
|
|
(1,417 |
) |
|
|
(24,952 |
) |
|
|
(567 |
) |
|
|
(25,518 |
) |
Net client cash flows |
|
|
758 |
|
|
|
(1,674 |
) |
|
|
(2,668 |
) |
|
|
(730 |
) |
|
|
780 |
|
|
|
2,246 |
|
|
|
3,149 |
|
|
|
1,860 |
|
|
|
(125 |
) |
|
|
1,734 |
|
Market appreciation / (depreciation) |
|
|
(5,604 |
) |
|
|
(4,343 |
) |
|
|
(3,945 |
) |
|
|
(4,008 |
) |
|
|
(4,781 |
) |
|
|
(14,052 |
) |
|
|
(263 |
) |
|
|
(36,998 |
) |
|
|
11 |
|
|
|
(36,987 |
) |
Realizations and distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
(80 |
) |
|
|
(80 |
) |
|
|
— |
|
|
|
(80 |
) |
||
Net transfers |
|
|
22 |
|
|
|
33 |
|
|
|
(1,342 |
) |
|
|
(266 |
) |
|
|
245 |
|
|
|
(6 |
) |
|
|
(19 |
) |
|
|
(1,334 |
) |
|
|
270 |
|
|
|
(1,064 |
) |
Ending AUM |
|
$ |
25,754 |
|
|
$ |
14,109 |
|
|
$ |
27,198 |
|
|
$ |
10,762 |
|
|
$ |
12,293 |
|
|
$ |
48,551 |
|
|
$ |
5,334 |
|
|
$ |
144,001 |
|
|
$ |
3,256 |
|
|
$ |
147,257 |
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Beginning AUM |
|
$ |
26,230 |
|
|
$ |
18,368 |
|
|
$ |
36,639 |
|
|
$ |
14,230 |
|
|
$ |
14,141 |
|
|
$ |
33,676 |
|
|
$ |
422 |
|
|
$ |
143,706 |
|
|
$ |
3,534 |
|
|
$ |
147,241 |
|
Gross client cash inflows |
|
|
4,371 |
|
|
|
3,800 |
|
|
|
5,370 |
|
|
|
268 |
|
|
|
2,290 |
|
|
|
5,435 |
|
|
|
854 |
|
|
|
22,388 |
|
|
|
301 |
|
|
|
22,689 |
|
Gross client cash outflows |
|
|
(5,125 |
) |
|
|
(4,439 |
) |
|
|
(5,923 |
) |
|
|
(1,199 |
) |
|
|
(1,786 |
) |
|
|
(4,337 |
) |
|
|
(128 |
) |
|
|
(22,937 |
) |
|
|
(732 |
) |
|
|
(23,669 |
) |
Net client cash flows |
|
|
(754 |
) |
|
|
(639 |
) |
|
|
(553 |
) |
|
|
(931 |
) |
|
|
504 |
|
|
|
1,098 |
|
|
|
726 |
|
|
|
(550 |
) |
|
|
(430 |
) |
|
|
(980 |
) |
Market appreciation / (depreciation) |
|
|
4,328 |
|
|
|
1,743 |
|
|
|
516 |
|
|
|
1,741 |
|
|
|
1,371 |
|
|
|
3,653 |
|
|
|
6 |
|
|
|
13,359 |
|
|
|
— |
|
|
|
13,359 |
|
Net transfers |
|
|
(6 |
) |
|
|
391 |
|
|
|
329 |
|
|
|
(237 |
) |
|
|
(176 |
) |
|
|
(97 |
) |
|
|
3 |
|
|
|
207 |
|
|
|
62 |
|
|
|
269 |
|
Ending AUM |
|
$ |
29,798 |
|
|
$ |
19,863 |
|
|
$ |
36,931 |
|
|
$ |
14,803 |
|
|
$ |
15,840 |
|
|
$ |
38,330 |
|
|
$ |
1,158 |
|
|
$ |
156,722 |
|
|
$ |
3,166 |
|
|
$ |
159,889 |
|
(1) Beginning in January 2022, the Company’s “Other” asset class has been categorized to Solutions, Fixed Income, Global / Non-U.S. Equity, and Alternative Investments based on the underlying investment strategy. Additionally, all assets managed using alternative investment strategies are now included in the Company’s Alternative Investments asset class. Prior-period figures have been adjusted accordingly.
The following table presents our AUM by distribution channel as of the dates indicated:
|
|
As of September 30, |
|
|||||||||||||
|
|
2022 |
|
|
2021 |
|
||||||||||
(in millions) |
|
Amount |
|
|
% of total |
|
|
Amount |
|
|
% of total |
|
||||
Investor |
|
$ |
51,037 |
|
|
|
35 |
% |
|
$ |
69,189 |
|
|
|
43 |
% |
Institutional |
|
|
43,259 |
|
|
|
29 |
% |
|
|
47,210 |
|
|
|
30 |
% |
Retail |
|
|
52,961 |
|
|
|
36 |
% |
|
|
43,489 |
|
|
|
27 |
% |
Total AUM(1) |
|
$ |
147,257 |
|
|
|
100 |
% |
|
$ |
159,889 |
|
|
|
100 |
% |
(1) The allocation of AUM by distribution channel involves the use of estimates and the exercise of judgment.
35
The following tables summarize our asset flows by vehicle for the periods indicated:
|
|
|
|
|
|
|
|
Separate |
|
|
|
|
||||
|
|
|
|
|
|
|
|
Accounts and |
|
|
|
|
||||
|
|
|
|
|
|
|
|
Other Pooled |
|
|
|
|
||||
(in millions) |
|
Mutual Funds (1) |
|
|
ETFs (2) |
|
|
Vehicles (3) |
|
|
Total |
|
||||
Three Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beginning AUM |
|
$ |
102,297 |
|
|
$ |
5,155 |
|
|
$ |
47,494 |
|
|
$ |
154,947 |
|
Gross client cash inflows |
|
|
4,277 |
|
|
|
515 |
|
|
|
2,003 |
|
|
|
6,796 |
|
Gross client cash outflows |
|
|
(5,689 |
) |
|
|
(196 |
) |
|
|
(1,484 |
) |
|
|
(7,368 |
) |
Net client cash flows |
|
|
(1,411 |
) |
|
|
319 |
|
|
|
519 |
|
|
|
(573 |
) |
Market appreciation (depreciation) |
|
|
(4,290 |
) |
|
|
(383 |
) |
|
|
(2,393 |
) |
|
|
(7,066 |
) |
Realizations and distributions |
|
|
— |
|
|
|
— |
|
|
|
(51 |
) |
|
|
(51 |
) |
Net transfers |
|
|
(5 |
) |
|
|
18 |
|
|
|
(13 |
) |
|
|
— |
|
Ending AUM |
|
$ |
96,591 |
|
|
$ |
5,110 |
|
|
$ |
45,557 |
|
|
$ |
147,257 |
|
Three Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beginning AUM |
|
$ |
123,164 |
|
|
$ |
4,354 |
|
|
$ |
34,418 |
|
|
$ |
161,936 |
|
Gross client cash inflows |
|
|
4,256 |
|
|
|
109 |
|
|
|
1,416 |
|
|
|
5,781 |
|
Gross client cash outflows |
|
|
(4,751 |
) |
|
|
(23 |
) |
|
|
(989 |
) |
|
|
(5,763 |
) |
Net client cash flows |
|
|
(495 |
) |
|
|
86 |
|
|
|
427 |
|
|
|
18 |
|
Market appreciation (depreciation) |
|
|
(1,242 |
) |
|
|
(41 |
) |
|
|
(779 |
) |
|
|
(2,062 |
) |
Net transfers |
|
|
(60 |
) |
|
|
(28 |
) |
|
|
85 |
|
|
|
(3 |
) |
Ending AUM |
|
$ |
121,367 |
|
|
$ |
4,371 |
|
|
$ |
34,151 |
|
|
$ |
159,889 |
|
|
|
|
|
|
|
|
|
Separate |
|
|
|
|
||||
|
|
|
|
|
|
|
|
Accounts and |
|
|
|
|
||||
|
|
|
|
|
|
|
|
Other Pooled |
|
|
|
|
||||
(in millions) |
|
Mutual Funds (1) |
|
|
ETFs (2) |
|
|
Vehicles (3) |
|
|
Total |
|
||||
Nine Months Ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beginning AUM |
|
$ |
124,142 |
|
|
$ |
4,871 |
|
|
$ |
54,641 |
|
|
$ |
183,654 |
|
Gross client cash inflows |
|
|
16,981 |
|
|
|
1,666 |
|
|
|
8,606 |
|
|
|
27,253 |
|
Gross client cash outflows |
|
|
(19,750 |
) |
|
|
(394 |
) |
|
|
(5,374 |
) |
|
|
(25,518 |
) |
Net client cash flows |
|
|
(2,769 |
) |
|
|
1,271 |
|
|
|
3,231 |
|
|
|
1,734 |
|
Market appreciation (depreciation) |
|
|
(23,712 |
) |
|
|
(1,051 |
) |
|
|
(12,225 |
) |
|
|
(36,987 |
) |
Realizations and distributions |
|
|
— |
|
|
|
— |
|
|
|
(80 |
) |
|
|
(80 |
) |
Net transfers |
|
|
(1,071 |
) |
|
|
18 |
|
|
|
(11 |
) |
|
|
(1,064 |
) |
Ending AUM |
|
$ |
96,591 |
|
|
$ |
5,110 |
|
|
$ |
45,557 |
|
|
$ |
147,257 |
|
Nine Months Ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beginning AUM |
|
$ |
112,998 |
|
|
$ |
3,976 |
|
|
$ |
30,267 |
|
|
$ |
147,241 |
|
Gross client cash inflows |
|
|
14,781 |
|
|
|
589 |
|
|
|
7,320 |
|
|
|
22,689 |
|
Gross client cash outflows |
|
|
(16,420 |
) |
|
|
(310 |
) |
|
|
(6,939 |
) |
|
|
(23,669 |
) |
Net client cash flows |
|
|
(1,640 |
) |
|
|
279 |
|
|
|
381 |
|
|
|
(980 |
) |
Market appreciation (depreciation) |
|
|
10,212 |
|
|
|
520 |
|
|
|
2,627 |
|
|
|
13,359 |
|
Net transfers |
|
|
(204 |
) |
|
|
(404 |
) |
|
|
876 |
|
|
|
269 |
|
Ending AUM |
|
$ |
121,367 |
|
|
$ |
4,371 |
|
|
$ |
34,151 |
|
|
$ |
159,889 |
|
(1) Includes institutional and retail share classes, money market and Variable Insurance Products or VIP funds.
(2) Represents only ETF assets held by third parties. Excludes ETF assets held by other Victory Capital products.
(3) Includes collective trust funds, wrap program accounts, UMAs, UCITS, private funds and non-U.S. domiciled pooled vehicles.
September 30, 2022 AUM compared to June 30, 2022 AUM. At September 30, 2022, our total AUM was $147.3 billion, a decrease of $7.7 billion, or 5.0%, from $154.9 billion at June 30, 2022, primarily driven by negative market action of $7.1 billion.
Net inflows from our Solutions and U.S. mid cap equity strategies of $0.4 billion and $0.3 billion, respectively, were offset by net outflows from our fixed income strategies and U.S. small cap equity strategies of $0.8 billion and $0.3 billion, respectively.
36
September 30, 2022 AUM compared to December 31, 2021 AUM. Total AUM decreased by $36.4 billion, or 19.8%, to $147.3 billion at September 30, 2022 compared to $183.7 billion at December 31, 2021. The decrease in AUM was due to negative market action of $37.0 billion partially offset by net inflows of $1.7 billion.
Net inflows into our alternative investments and Solutions strategies of $3.1 billion and $2.2 billion, respectively, were partially offset by net outflows from fixed income strategies and U.S. small cap equity strategies of $2.7 billion and $1.7 billion, respectively.
GAAP Results of Operations
The following table presents our GAAP results of operations for the three and nine months ended September 30, 2022 and 2021.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands, except per share data) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investment management fees |
|
$ |
160,770 |
|
|
$ |
171,355 |
|
|
$ |
508,364 |
|
|
$ |
499,672 |
|
Fund administration and distribution fees |
|
|
46,490 |
|
|
|
54,935 |
|
|
|
144,921 |
|
|
|
161,471 |
|
Total revenue |
|
|
207,260 |
|
|
|
226,290 |
|
|
|
653,285 |
|
|
|
661,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Personnel compensation and benefits |
|
|
56,869 |
|
|
|
55,837 |
|
|
|
179,352 |
|
|
|
172,305 |
|
Distribution and other asset-based expenses |
|
|
39,019 |
|
|
|
44,859 |
|
|
|
123,471 |
|
|
|
131,185 |
|
General and administrative |
|
|
12,301 |
|
|
|
13,795 |
|
|
|
38,984 |
|
|
|
40,818 |
|
Depreciation and amortization |
|
|
10,686 |
|
|
|
4,377 |
|
|
|
32,051 |
|
|
|
13,456 |
|
Change in value of consideration payable for acquisition of business |
|
|
(10,500 |
) |
|
|
2,400 |
|
|
|
(40,600 |
) |
|
|
10,600 |
|
Acquisition-related costs |
|
|
189 |
|
|
|
6,007 |
|
|
|
449 |
|
|
|
6,265 |
|
Restructuring and integration costs |
|
|
56 |
|
|
|
18 |
|
|
|
73 |
|
|
|
2,493 |
|
Total operating expenses |
|
|
108,620 |
|
|
|
127,293 |
|
|
|
333,780 |
|
|
|
377,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income from operations |
|
|
98,640 |
|
|
|
98,997 |
|
|
|
319,505 |
|
|
|
284,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other (expense) income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income and other (expense) income |
|
|
(1,446 |
) |
|
|
(119 |
) |
|
|
(5,096 |
) |
|
|
4,547 |
|
Interest expense and other financing costs |
|
|
(11,479 |
) |
|
|
(5,853 |
) |
|
|
(30,637 |
) |
|
|
(18,853 |
) |
Loss on debt extinguishment |
|
|
(369 |
) |
|
|
(669 |
) |
|
|
(2,887 |
) |
|
|
(4,596 |
) |
Total other expense, net |
|
|
(13,294 |
) |
|
|
(6,641 |
) |
|
|
(38,620 |
) |
|
|
(18,902 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income before income taxes |
|
|
85,346 |
|
|
|
92,356 |
|
|
|
280,885 |
|
|
|
265,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax expense |
|
|
(12,582 |
) |
|
|
(18,181 |
) |
|
|
(57,643 |
) |
|
|
(56,472 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
72,764 |
|
|
$ |
74,175 |
|
|
$ |
223,242 |
|
|
$ |
208,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
1.06 |
|
|
$ |
1.09 |
|
|
$ |
3.25 |
|
|
$ |
3.08 |
|
Diluted |
|
$ |
1.01 |
|
|
$ |
1.00 |
|
|
$ |
3.07 |
|
|
$ |
2.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
68,609 |
|
|
|
67,980 |
|
|
|
68,625 |
|
|
|
67,840 |
|
Diluted |
|
|
71,877 |
|
|
|
74,053 |
|
|
|
72,797 |
|
|
|
74,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dividends declared per share of common stock |
|
$ |
0.25 |
|
|
$ |
0.15 |
|
|
$ |
0.75 |
|
|
$ |
0.36 |
|
Investment Management Fees
Three months ended September 30, 2022 compared to September 30, 2021. Investment management fees decreased 6.2%, or $10.6 million, to $160.8 million for the three months ended September 30, 2022 from $171.4 million for the same period in 2021 due to the combination of a decrease in average AUM and revenue realization over the comparable period.
37
Nine months ended September 30, 2022 compared to September 30, 2021. Investment management fees increased by $8.7 million, or 1.7%, to $508.4 million for the nine months ended September 30, 2022 from $499.7 million for the same period in 2021 due to an increase in average AUM over the comparable period, partially offset by a decrease in revenue realization.
Fund Administration and Distribution Fees
Three months ended September 30, 2022 compared to September 30, 2021. Fund administration and distribution fees decreased by $8.4 million, or 15.4%, to $46.5 million for the three months ended September 30, 2022 compared to $54.9 million for the same period in 2021 due primarily to lower mutual fund average net assets.
Nine months ended September 30, 2022 compared to September 30, 2021. Fund administration and distribution fees decreased $16.6 million, or 10.2%, to $144.9 million for the nine months ended September 30, 2022 from $161.5 million for the same period in 2021 due to the same factors as discussed above in the quarterly section.
Personnel Compensation and Benefits
The following table presents the components of GAAP personnel compensation and benefits expense for the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Salaries, payroll related taxes and employee benefits |
|
$ |
20,707 |
|
|
$ |
19,633 |
|
|
$ |
63,368 |
|
|
$ |
67,604 |
|
Incentive compensation |
|
|
23,767 |
|
|
|
27,690 |
|
|
|
73,278 |
|
|
|
76,464 |
|
Sales-based compensation(1) |
|
|
5,629 |
|
|
|
4,493 |
|
|
|
22,086 |
|
|
|
14,325 |
|
Equity awards granted to employees and directors(2) |
|
|
4,352 |
|
|
|
4,021 |
|
|
|
13,262 |
|
|
|
13,912 |
|
Acquisition and transaction-related compensation |
|
|
2,414 |
|
|
|
— |
|
|
|
7,358 |
|
|
|
— |
|
Total personnel compensation and benefits expense |
|
$ |
56,869 |
|
|
$ |
55,837 |
|
|
$ |
179,352 |
|
|
$ |
172,305 |
|
(1) Represents sales-based commissions paid to our distribution teams. Sales-based compensation varies based on gross client cash flows and revenue earned on sales.
(2) Equity awards typically vest over several years based on service and the achievement of specific business and financial targets. The value of the equity awards is recognized as compensation expense over the vesting period.
Three months ended September 30, 2022 compared to September 30, 2021. Personnel compensation and benefits were $56.9 million for the three months ended September 30, 2022, an increase of $1.0 million, or 1.8%, from $55.8 million for the same period in 2021. Incentive compensation and equity awards granted to employees and directors were $23.8 million and $4.4 million, respectively, for the three months ended September 30, 2022, compared to $27.7 million and $4.0 million, respectively, for the same period in 2021. Salaries, payroll related taxes and employee benefits were $20.7 million and $19.6 million, respectively, for the three months ended September 30, 2022 and 2021.
Nine months ended September 30, 2022 compared to September 30, 2021. Personnel compensation and benefits increased by $7.0 million, or 4.1%, to $179.4 million for the nine months ended September 30, 2022 from $172.3 million for the same period in 2021 due to an increase in variable costs such as sales-based compensation. Also contributing was an increase in headcount and acquisition and transaction-related compensation as a result of the WestEnd and NEC acquisitions in the fourth quarter of 2021. Partially offsetting the increase was a $4.7 million decrease in the net unrealized fair value of deferred compensation plan investments. Salaries, payroll related taxes and employee benefits were $63.4 million and $67.6 million, respectively, for the nine months ended September 30, 2022 and 2021. Incentive compensation and equity awards granted to employees and directors were $73.3 million and $13.3 million, respectively, for the nine months ended September 30, 2022 compared to $76.5 million and $13.9 million, respectively, for the same period in 2021.
38
Distribution and Other Asset‑Based Expenses
The following table presents the components of distribution and other asset-based expenses for the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Broker-dealer distribution fees |
|
$ |
5,495 |
|
|
$ |
6,611 |
|
|
$ |
17,376 |
|
|
$ |
19,393 |
|
Platform distribution fees |
|
|
23,765 |
|
|
|
27,529 |
|
|
|
75,226 |
|
|
|
80,801 |
|
Sub-administration |
|
|
4,009 |
|
|
|
4,366 |
|
|
|
12,299 |
|
|
|
12,750 |
|
Sub-advisory |
|
|
3,206 |
|
|
|
3,627 |
|
|
|
10,718 |
|
|
|
10,059 |
|
Middle-office |
|
|
2,544 |
|
|
|
2,726 |
|
|
|
7,852 |
|
|
|
8,182 |
|
Total distribution and other asset-based expenses |
|
$ |
39,019 |
|
|
$ |
44,859 |
|
|
$ |
123,471 |
|
|
$ |
131,185 |
|
Three months ended September 30, 2022 compared to September 30, 2021. Distribution and other asset-based expenses are primarily based on AUM. For the three months ended September 30, 2022, distribution and other asset-based expenses were $39.0 million, a decrease of $5.8 million, or 13.0%, from $44.9 million for the same period in 2021. The decrease is primarily due to the combination of a change in vehicle mix and our underlying distribution platforms and a decrease in average AUM over the comparable period.
Nine months ended September 30, 2022 compared to September 30, 2021. Distribution and other asset-based expenses were $123.5 million for the nine months ended September 30, 2022, a decrease of $7.7 million, or 5.9%, from $131.2 million for the same period in 2021 primarily due to a change in vehicle mix and our underlying distribution platforms.
General and Administrative
Three months ended September 30, 2022 compared to September 30, 2021. General and administrative expenses were $12.3 million for the three months ended September 30, 2022 compared to $13.8 million for the same period in 2021. The decrease of $1.5 million, or 10.8%, was primarily due to a decrease in professional fees and technology-related expenses.
Nine months ended September 30, 2022 compared to September 30, 2021. For the nine months ended September 30, 2022 and 2021, general and administrative expenses were $39.0 million and $40.8 million, respectively, for a year over year decrease of $1.8 million, or 4.5%. The decrease was primarily due to a decrease in professional fees and technology-related expenses partially offset by an increase in travel and entertainment related expenses.
Depreciation and Amortization
Three months ended September 30, 2022 compared to September 30, 2021. Depreciation and amortization increased by $6.3 million, or 144.1%, to $10.7 million for the three months ended September 30, 2022 from $4.4 million for the same period in 2021, primarily due to the increase in amortization expense related to definite lived intangible assets in connection with the WestEnd and NEC acquisitions.
Nine months ended September 30, 2022 compared to September 30, 2021. Depreciation and amortization increased by $18.6 million, or 138.2%, to $32.1 million for the nine months ended September 30, 2022 from $13.5 million for the same period in 2021, due to the same factors as discussed above in the quarterly section.
Change in Value of Consideration Payable for Acquisition of Business
Three months ended September 30, 2022 compared to September 30, 2021. The change in value of consideration payable for acquisition of business decreased $12.9 million as a result of a $13.2 million decrease in the fair value of the contingent consideration associated with the WestEnd Acquisition partly offset by a $2.7 million increase in the fair value of contingent consideration associated with the USAA Acquisition for the three months ended September 30, 2022 compared to an increase of $2.4 million associated with the USAA AMCO Acquisition for the three months ended September 30, 2021. Refer to Note 4, Acquisitions, for further details on the fair value of contingent consideration payable.
Nine months ended September 30, 2022 compared to September 30, 2021. The change in value of consideration payable for acquisition of business decreased $51.2 million as a result of decreases of $9.1 million and $31.5 million in the fair value of the contingent consideration associated with the USAA AMCO and WestEnd Acquisitions, respectively, for the nine months ended September 30, 2022 compared to an increase of $10.6 million associated with the USAA AMCO Acquisition for the nine months ended September 30, 2021. Refer to Note 4, Acquisitions, for further details on the fair value of contingent consideration payable.
39
Acquisition‑Related Costs
Three months ended September 30, 2022 compared to September 30, 2021. Acquisition-related costs for the three months ended September 30, 2022 were $0.2 million and $6.0 million for the three months ended September 30, 2021. The September 30, 2021 acquisition related costs were primarily related to an estimated liability for potential one-time payments related to a prior acquisition.
Nine months ended September 30, 2022 compared to September 30, 2021. Acquisition-related costs for the nine months ended September 30, 2022 and 2021 were $0.4 million and $6.3 million, respectively. The nine months ended September 30, 2021 was due to the same factors as discussed above in the quarterly section.
Restructuring and Integration Costs
Three months ended September 30, 2022 compared to September 30, 2021. Restructuring and integration costs for the three months ended September 30, 2022 and 2021 was $56 thousand and $18 thousand, respectively.
Nine months ended September 30, 2022 compared to September 30, 2021. Restructuring and integration costs were $73 thousand and $2.5 million, respectively, for the nine months ended September 30, 2022 and 2021. The decrease is due to personnel restructuring within the direct to investor business.
Interest Income and Other Income (Expense)
Three months ended September 30, 2022 compared to September 30, 2021. Interest income and other income/(expense) was expense of $1.4 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively. The expense for the three months ended September 30, 2022 was primarily due to a $1.1 million decrease in the net unrealized fair value of deferred compensation plan investments.
Nine months ended September 30, 2022 compared to September 30, 2021. For the nine months ended September 30, 2022 and 2021, interest income and other income/(expense) was expense of $5.1 million and income of $4.5 million, respectively. The expense for the nine months ended September 30, 2022 was primarily due to a $4.7 million decrease in the net unrealized fair value of deferred compensation plan investments. The income for the nine months ended September 30, 2021 was primarily due to a $4.2 million increase in the net unrealized fair value of deferred compensation plan investments.
Interest Expense and Other Financing Costs
Three months ended September 30, 2022 compared to September 30, 2021. Interest expense and other financing costs increased $5.6 million to $11.5 million for the three months ended September 30, 2022, compared to $5.9 million for the same period in 2021 due to an increase in interest expense as a result of a higher debt principal balance resulting from our incremental borrowing in December 2021 to fund the WestEnd Acquisition. Also contributing was a higher average interest rate over the comparable period.
Nine months ended September 30, 2022 compared to September 30, 2021. For the nine months ended September 30, 2022 and 2021, interest expense and other financing costs were $30.6 million and $18.9 million, respectively. The year-over-year increase is primarily due to the same factors as discussed above in the quarterly section.
Loss on Debt Extinguishment
Three months ended September 30, 2022 compared to September 30, 2021. Loss on debt extinguishment was $0.4 million for the three months ended September 30, 2022 compared to $0.7 million for the same period in 2021. During the quarter ended September 30, 2022, the Company paid down $19.0 million of debt through prepayments and wrote off $0.4 million of a pro-rata portion of the unamortized debt issuance costs and unamortized debt discount due. During the quarter ended September 30, 2021, the Company paid down $35.0 million of debt through prepayments and wrote off $0.7 million of a pro-rata portion of the unamortized debt issuance costs and unamortized debt discount due. Refer to Note 9, Debt, for further details on the 2019 Credit Agreement.
Nine months ended September 30, 2022 compared to September 30, 2021. Loss on debt extinguishment was $2.9 million for the nine months ended September 30, 2022, due to repayments of term loan principal. Loss on debt extinguishment was $4.6 million for the nine months ended September 30, 2021, due to repayments of term loan principal and the one-time write-off of debt issuance and debt discount costs associated with the 2021 term loan repricing in February 2021.
Income Tax Expense
Three months ended September 30, 2022 compared to September 30, 2021. The effective tax rate for the three months ended September 30, 2022 and 2021 was 14.7% and 19.7%, respectively. The change in the effective tax rate was primarily due to higher excess tax benefits on share-based compensation in 2022 compared to the same period in 2021.
40
Nine months ended September 30, 2022 compared to September 30, 2021. For the nine months ended September 30, 2022 and 2021, the effective tax rate was 20.5% and 21.3%, respectively. The change in the effective tax rate was primarily due to higher excess tax benefits on share-based compensation net of increased non-deductible expenses in 2022 compared to the same period in 2021. Refer to Note 8, Income Taxes, for further details on our income taxes.
Supplemental Non‑GAAP Financial Information
We use non-GAAP performance measures to evaluate the underlying operations of our business. Due to our acquisitive nature, there are a number of acquisition and restructuring related expenses included in GAAP measures that we believe distort the economic value of our organization and we believe that many investors use this information when assessing the financial performance of companies in the investment management industry. We have included these non-GAAP measures to provide investors with the same financial metrics used by management to assess the operating performance of our Company. The non-GAAP measures we report are Adjusted EBITDA and Adjusted Net Income.
The following table sets forth a reconciliation from GAAP financial measures to non-GAAP measures for the periods indicated:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Reconciliation of non-GAAP financial measures: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (GAAP) |
|
$ |
72,764 |
|
|
$ |
74,175 |
|
|
$ |
223,242 |
|
|
$ |
208,647 |
|
Income tax expense |
|
|
(12,582 |
) |
|
|
(18,181 |
) |
|
|
(57,643 |
) |
|
|
(56,472 |
) |
Income before income taxes |
|
|
85,346 |
|
|
|
92,356 |
|
|
|
280,885 |
|
|
|
265,119 |
|
Interest expense(1) |
|
|
10,795 |
|
|
|
5,561 |
|
|
|
29,018 |
|
|
|
18,957 |
|
Depreciation(2) |
|
|
2,030 |
|
|
|
1,693 |
|
|
|
6,086 |
|
|
|
4,463 |
|
Other business taxes(3) |
|
|
539 |
|
|
|
376 |
|
|
|
1,670 |
|
|
|
1,274 |
|
Amortization of acquisition-related intangible assets(4) |
|
|
8,657 |
|
|
|
2,684 |
|
|
|
25,969 |
|
|
|
8,993 |
|
Stock-based compensation(5) |
|
|
2,230 |
|
|
|
2,851 |
|
|
|
7,723 |
|
|
|
10,611 |
|
Acquisition, restructuring and exit costs(6) |
|
|
(7,842 |
) |
|
|
8,425 |
|
|
|
(32,719 |
) |
|
|
19,358 |
|
Debt issuance costs(7) |
|
|
1,064 |
|
|
|
960 |
|
|
|
4,685 |
|
|
|
5,057 |
|
Earnings/losses from equity method investments(8) |
|
|
759 |
|
|
|
70 |
|
|
|
825 |
|
|
|
227 |
|
Adjusted EBITDA |
|
$ |
103,578 |
|
|
$ |
114,976 |
|
|
$ |
324,142 |
|
|
$ |
334,059 |
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Reconciliation of non-GAAP financial measures: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (GAAP) |
|
$ |
72,764 |
|
|
$ |
74,175 |
|
|
$ |
223,242 |
|
|
$ |
208,647 |
|
Adjustments to reflect the operating performance of the Company: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
i. Other business taxes(3) |
|
|
539 |
|
|
|
376 |
|
|
|
1,670 |
|
|
|
1,274 |
|
ii. Amortization of acquisition-related intangible assets(4) |
|
|
8,657 |
|
|
|
2,684 |
|
|
|
25,969 |
|
|
|
8,993 |
|
iii. Stock-based compensation(5) |
|
|
2,230 |
|
|
|
2,851 |
|
|
|
7,723 |
|
|
|
10,611 |
|
iv. Acquisition, restructuring and exit costs(6) |
|
|
(7,842 |
) |
|
|
8,425 |
|
|
|
(32,719 |
) |
|
|
19,358 |
|
v. Debt issuance costs(7) |
|
|
1,064 |
|
|
|
960 |
|
|
|
4,685 |
|
|
|
5,057 |
|
Tax effect of above adjustments(9) |
|
|
(1,163 |
) |
|
|
(3,824 |
) |
|
|
(1,833 |
) |
|
|
(11,323 |
) |
Adjusted Net Income |
|
$ |
76,249 |
|
|
$ |
85,647 |
|
|
$ |
228,737 |
|
|
$ |
242,617 |
|
Tax benefit of goodwill and acquired intangibles(10) |
|
$ |
9,328 |
|
|
$ |
6,918 |
|
|
$ |
27,977 |
|
|
$ |
20,754 |
|
Adjustments made to GAAP Net Income to calculate Adjusted EBITDA and Adjusted Net Income, as applicable, are:
(1) Adding back interest paid on debt and other financing costs, net of interest income.
(2) Adding back depreciation on property and equipment.
(3) Adding back other business taxes.
(4) Adding back amortization expense on acquisition‑related intangible assets.
(5) Adding back stock‑based compensation associated with equity awards issued from pools created in connection with the management‑led buyout and various acquisitions and as a result of equity grants related to the IPO.
(6) Adding back direct incremental costs of acquisitions, including restructuring costs.
41
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Acquisition-related costs |
|
$ |
189 |
|
|
$ |
6,007 |
|
|
$ |
449 |
|
|
$ |
6,265 |
|
Restructuring and integration costs |
|
|
56 |
|
|
|
18 |
|
|
|
73 |
|
|
|
2,493 |
|
Change in value of consideration payable for acquisition of business |
|
|
(10,500 |
) |
|
|
2,400 |
|
|
|
(40,600 |
) |
|
|
10,600 |
|
General and administrative |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Personnel compensation and benefits |
|
|
2,413 |
|
|
|
— |
|
|
|
7,359 |
|
|
|
— |
|
Total acquisition, restructuring and exit costs |
|
$ |
(7,842 |
) |
|
$ |
8,425 |
|
|
$ |
(32,719 |
) |
|
$ |
19,358 |
|
(7) Adding back debt issuance costs.
(8) We adjust for losses (earnings) on equity method investments.
(9) Subtracting an estimate of income tax expense applied to the sum of the adjustments above.
(10) Represents the tax benefits associated with deductions allowed for intangible assets and goodwill generated from prior acquisitions in which we received a step-up in basis for tax purposes. Acquired intangible assets and goodwill may be amortized for tax purposes, generally over a 15-year period. The tax benefit from amortization on these assets is included to show the full economic benefit of deductions for all acquired intangible assets with a step-up in tax basis. Due to our acquisitive nature, tax deductions allowed on acquired intangible assets and goodwill provide us with a significant supplemental economic benefit.
Non-GAAP measures should be considered in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. Our non-GAAP measures may differ from similar measures at other companies, even if similar terms are used to identify these measures.
Liquidity and Capital Resources
Our primary uses of cash relate to repayment of our debt obligations, funding of acquisitions and working capital needs, repurchasing of shares and payment of dividends, which are all expected to be met through cash generated from our operations and available capital resources.
We cannot predict the duration or scope of the COVID-19 pandemic, its impact on our business, and the potential negative financial impact to our results, but the Company has actively positioned itself so that our cash flows from operations and financing sources will be sufficient to meet our needs. During the period of uncertainty related to the COVID-19 pandemic, we continue to monitor our liquidity.
The following table shows our liquidity position as of September 30, 2022 and December 31, 2021.
|
|
September 30, |
|
|
December 31, |
|
||
(in thousands) |
|
2022 |
|
|
2021 |
|
||
Cash and cash equivalents |
|
$ |
66,669 |
|
|
$ |
69,533 |
|
Accounts and other receivables |
|
|
87,534 |
|
|
|
104,305 |
|
Undrawn commitment on revolving credit facility (1) |
|
|
100,000 |
|
|
|
100,000 |
|
Accounts and other payables |
|
|
(103,096 |
) |
|
|
(121,057 |
) |
(1) The balance at September 30, 2022 represents the Company’s $99.9 million revolving credit facility and a $0.1 million standby letter of credit used as collateral for THB’s real estate location.
We manage our cash balances in order to fund our day-to-day operations. Our accounts receivable consists primarily of investment management fees that have been earned but not yet received from clients, income and other taxes receivable, and amounts receivable from the funds. We perform a review of our receivables on a monthly basis to assess collectability. We continue to actively monitor the impact of the COVID-19 pandemic on the collectability of certain receivables. We maintained a $100.0 million revolving credit facility at September 30, 2022 and December 31, 2021 (under the 2019 Credit Agreement) which had approximately $100.0 million undrawn as of September 30, 2022 and December 31, 2021.
2021 Debt Repricing
On February 18, 2021, the Company entered into the Second Amendment (the “Second Amendment”) to the 2019 Credit Agreement with the other loan parties thereto, Barclays Bank PLC, as administrative agent, and the Royal Bank of Canada as fronting bank. Pursuant to the Second Amendment, the Company repriced the existing term loans with replacement term loans in an aggregate principal amount of $755.7 million (the “Repriced Term Loans”). The Repriced Term Loans have substantially the same terms as the previously existing
42
term loans, including the same maturity date of July 2026, except that the Repriced Term Loans provide for a reduced applicable margin on LIBOR of 25 basis points. After the Second Amendment, the applicable margin on LIBOR under the Repriced Term Loans is 2.25%.
2021 Incremental Term Loans
On December 31, 2021, the Company entered into the Third Amendment (the “Third Amendment”) to the 2019 Credit Agreement with the guarantors party thereto, Barclays Bank PLC, as administrative agent, and the lenders party thereto from time to time. Pursuant to the Third Amendment, the Company obtained incremental term loans (the “2021 Incremental Term Loans”) in an aggregate principal amount of $505.0 million and used the proceeds to fund the WestEnd Acquisition and to pay fees and expenses incurred in connection therewith. The 2021 Incremental Term Loans mature in December 2028 and bear interest at an annual rate equal to, at the option of the Company, either LIBOR (adjusted for reserves and subject to a 50 basis point floor) plus a margin of 2.25% or an alternate base rate plus a margin of 1.25%.
Original issue discount was $2.5 million for the 2021 Incremental Term Loans. The Company incurred a total of $9.1 million of other third party costs related to the 2021 Incremental Term Loans, which were recorded as term loan debt issuance costs.
2022 LIBOR to Term SOFR Rate Transition
The 2019 Credit Agreement provides a mechanism for determining an alternative interest rate following the phase-out of LIBOR, which for the three-month rate is expected to occur following the publication of LIBOR rates on June 30, 2023. On September 23, 2022, the Company entered into the Fourth Amendment (the “Fourth Amendment”) to the 2019 Credit Agreement to change the interest rate on its debt from LIBOR to a rate based on the secured overnight financing rate (“SOFR”) plus a ten-basis point credit spread adjustment. There was no change to the applicable margin on the referenced rate as a result of the Fourth Amendment.
The LIBOR rate loans outstanding as of the Fourth Amendment’s effective date continued as LIBOR rate loans until the end of their current interest periods. The 2021 Incremental Term Loans converted into Term SOFR loans on September 30, 2022, while the Repriced Term Loans converted into Term SOFR loans on October 6, 2022. Also on October 6, 2022, the interest periods for the Repriced Term Loans and 2021 Incremental Term Loans were aligned and the three-month Term SOFR rate was elected for all the Company’s term loans. Refer to Note 17, Subsequent Events, for information related to term loan activity subsequent to September 30, 2022.
2020 Swap Transaction
On March 27, 2020, the Company executed a floating-to-fixed interest rate swap transaction (“Swap”) to effectively fix the interest rate at 3.465% on $450 million of its outstanding Term Loan through the Term Loan maturity date of July 2026. Pursuant to the Second Amendment, the Company lowered the spread on the Term Loan by 0.25% resulting in a new fixed rate of 3.215% on the $450 million of Term Loan subject to the Swap. On September 26, 2022, the Company and the Swap counterparty executed an amendment to the Swap (“the Swap Amendment”) to update LIBOR conventions to SOFR conventions and to modify the fixed rate for the change from three-month LIBOR to three-month Term SOFR effective on October 6, 2022. There was no change to the $450 million notional value, the July 1, 2026 expiration date, the quarterly payment frequency or the designated three-month maturity from the Swap Amendment. The interest rate effectively fixed by the Swap on $450 million of the Company’s outstanding term loan debt through July 1, 2026 changed from 3.22% to 3.15% as a result of the Swap Amendment.
At September 30, 2022, the $450 million notional value Swap had a fair value of $49.3 million, which was included in other assets on the unaudited Condensed Consolidated Balance Sheets. For the three and nine months ended September 30, 2022, the Company recognized income, net of tax, of $10.0 million and $31.5 million, respectively, in accumulated other comprehensive income (loss). For the three and nine months ended September 30, 2022, the Company reclassified income of $1.5 million and $0.6 million, respectively, from accumulated other comprehensive income (loss) to interest expense and other financing costs on the unaudited Condensed Consolidated Statements of Operations. Refer to Note 14, Derivatives, for further information on the Swap.
Contingent Consideration
At September 30, 2022, the Company had $267.9 million in contingent consideration that is estimated to be payable over the next two and four years resulting from the USAA AMCO and WestEnd Acquisitions, respectively. For the three and nine months ended September 30, 2022, the Company recorded an increase of $2.7 million and a decrease of $9.1 million, respectively, in contingent payment liabilities associated with the USAA AMCO Acquisition and decreases of $13.2 million and $31.5 million, respectively, in contingent payment liabilities associated WestEnd Acquisition, which is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets.
At September 30, 2022, the estimated fair value of the USAA AMCO Acquisition payments was $59.7 million, and a maximum of $75.0 million in contingent consideration ($37.5 million per year for the remaining 2 years of the earn out period) is potentially payable to sellers. On October 7, 2022, the Company paid $37.5 million in cash to sellers for the third annual earn out period for the USAA AMCO Acquisition. At September 30, 2022, the estimated fair value of the WestEnd Acquisition contingent payments was $208.2 million, and a maximum of $320.0 million in contingent consideration ($80.0 million per year for the remaining four years of the earn out period) is potentially payable to sellers.
43
There were no other significant changes to our contractual obligations as reported in our Annual Report on Form 10-K for the year ended December 31, 2021.
Capital Requirements
Victory Capital Services is a registered broker-dealer subject to the Uniform Net Capital requirements under the Exchange Act, which requires maintenance of certain minimum net capital levels. In addition, we have certain non-U.S. subsidiaries that have minimum capital requirements. As a result, such subsidiaries of our Company may be restricted in their ability to transfer cash to their parents.
Cash Flows
The following table is derived from our unaudited Condensed Consolidated Statements of Cash Flows:
|
|
Nine Months Ended September 30, |
|
|||||
(in thousands) |
|
2022 |
|
|
2021 |
|
||
Net cash provided by operating activities |
|
$ |
268,119 |
|
|
$ |
264,061 |
|
Net cash used in investing activities |
|
|
(7,657 |
) |
|
|
(11,032 |
) |
Net cash used in financing activities |
|
|
(263,078 |
) |
|
|
(210,985 |
) |
Operating Activities – Cash provided by operating activities during the nine months ended September 30, 2022 was $268.1 million, compared to $264.1 million of cash provided by operating activities for the same period in 2021. The $4.1 million increase in cash provided by operating activities due to a $14.6 million increase in net income partially offset by a $19.0 million decrease in non-cash items.
Cash provided by operating activities during the nine months ended September 30, 2021 was $264.1 million and comprised of $208.6 million and $64.3 million of cash provided by net income and non-cash items, partially offset by $8.9 million in working capital source of cash.
Investing Activities – Cash used in investing activities during the nine months ended September 30, 2022 was $7.7 million and consisted of primarily of property and equipment purchases of $4.3 million, $2.5 million of net trading activity and $0.8 million for acquisition of business and assets, net of cash acquired.
Cash used in investing activities during the nine months ended September 30, 2021 was $11.0 million and consisted of property and equipment purchases of $8.3 million and $2.1 million of net trading activity and $0.6 million for acquisition of business and assets, net of cash acquired.
Financing Activities – Cash used in financing activities during the nine months ended September 30, 2022 was $263.1 million and was mostly attributable to repayment of long-term debt under the 2019 Credit Agreement, repurchases of common stock, payment of dividends, and net activity related to stock-based equity awards of $134.0 million, $61.5 million, $52.1 million, and $27.9 million, respectively.
Cash used in financing activities during the nine months ended September 30, 2021 was $211.0 million and was mostly attributable to repayment of long-term debt under the 2019 Credit Agreement, repurchases of common stock, payment of dividends, and net activity related to stock-based equity awards of $142.0 million, $25.9 million, $25.4 million, and $22.1 million, respectively.
Critical Accounting Policies and Estimates
Our consolidated financial statements and the 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 the Company’s Annual Report on Form 10-K. A complete description of our significant accounting policies is included in our Annual Report on Form 10-K.
44
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk – Substantially all of our revenues are derived from investment management, fund administration and distribution fees, which are primarily based on the market value of our AUM. Accordingly, our revenues and net income may decline as a result of our AUM decreasing due to depreciation of our investment portfolios. In addition, such depreciation could cause our clients to withdraw their assets in favor of other investment alternatives that they perceive to offer higher returns or lower risk, which could cause our revenues and net income to decline further.
The value of our AUM was approximately $147 billion at September 30, 2022. A 10% increase or decrease in the value of our AUM, if proportionately distributed over all of our strategies, products and client relationships, would cause an annualized increase or decrease in our revenues of approximately $76.4 million at our weighted-average fee rate of 52 basis points for the quarter ended September 30, 2022. Because of declining fee rates from larger relationships and differences in our fee rates across investment strategies, a change in the composition of our AUM, in particular, an increase in the proportion of our total AUM attributable to strategies, clients or relationships with lower effective fee rates, could have a material negative impact on our overall weighted-average fee rate. The same 10% increase or decrease in the value of our total AUM, if attributed entirely to a proportionate increase or decrease in the AUM of the Victory Funds and USAA Funds, to which we provide a range of services in addition to those provided to institutional separate accounts, would cause an annualized increase or decrease in our revenues of approximately $89.7 million at the Victory Funds’ and USAA Funds’ aggregate weighted-average fee rate of 61 basis points for the quarter ended September 30, 2022. If the same 10% increase or decrease in the value of our total AUM was attributable entirely to a proportionate increase or decrease in the assets of our institutional separate accounts, it would cause an annualized increase or decrease in our revenues of approximately $47.0 million at the weighted-average fee rate across all of our institutional separate accounts of 32 basis points for the quarter ended September 30, 2022.
As is customary in the investment management industry, clients invest in particular strategies to gain exposure to certain asset classes, which exposes their investment to the benefits and risks of those asset classes. We believe our clients invest in each of our strategies in order to gain exposure to the portfolio securities of the respective strategies and may implement their own risk management program or procedures. We have not adopted a corporate‑level risk management policy regarding client assets, nor have we attempted to hedge at the corporate level or within individual strategies the market risks that would affect the value of our overall AUM and related revenues. Some of these risks, such as sector and currency risks, are inherent in certain strategies, and clients may invest in particular strategies to gain exposure to particular risks. While negative returns in our strategies and net client cash outflows do not directly reduce the assets on our balance sheet (because the assets we manage are owned by our clients, not us), any reduction in the value of our AUM would result in a reduction in our revenues.
Exchange Rate Risk – A portion of the accounts that we advise hold investments that are denominated in currencies other than the U.S. dollar. To the extent our AUM is denominated in currencies other than the U.S. dollar, the value of that AUM will decrease with an increase in the value of the U.S. dollar, or increase with a decrease in the value of the U.S. dollar. Each investment team monitors its own exposure to exchange rate risk and makes decisions on how to manage that risk in the portfolios they manage. We believe many of our clients invest in those strategies in order to gain exposure to non‑U.S. currencies, or may implement their own hedging programs. As a result, we generally do not hedge an investment portfolio’s exposure to non‑U.S. currency.
We have not adopted a corporate-level risk management policy to manage this exchange rate risk. Assuming 8% of our AUM are invested in securities denominated in currencies other than the U.S. dollar and excluding the impact of any hedging arrangement, a 10% increase or decrease in the value of the U.S. dollar would decrease or increase the fair value of our AUM by approximately $1.2 billion, which would cause an annualized increase or decrease in revenues of approximately $6.2 million at our weighted-average fee rate for the business of 52 basis points for the quarter ended September 30, 2022.
We operate in several foreign countries and incur operating expenses associated with these operations. In addition, we have revenue and revenue-sharing arrangements that are denominated in non-U.S. currencies. We do not believe foreign currency fluctuations materially affect our results of operations.
Interest Rate Risk – Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. On March 27, 2020, the Company executed the Swap, a floating-to-fixed interest rate swap transaction, to effectively fix the interest rate at 3.465% on $450 million of its outstanding Original Term Loan through the Original Term Loan maturity date of July 2026. On September 26, 2022, the Company and the Swap counterparty executed an amendment to the Swap to update LIBOR conventions to SOFR conventions and to modify the fixed rate for the change from three-month LIBOR to three-month Term SOFR effective on October 6, 2022. There was no change to the $450 million notional value, the July 1, 2026 expiration date, the quarterly payment frequency or the designated three-month maturity from the Swap Amendment. The interest rate effectively fixed by the Swap on $450 million of the Company’s outstanding term loan debt through July 1, 2026 changed from 3.22% to 3.15% as a result of the Swap Amendment. Refer to Note 14, Derivatives, for further information on the Swap. At September 30, 2022, we were exposed to interest rate risk as a result of the unhedged amounts outstanding under the 2019 Credit Agreement, as amended. Refer to Note 9, Debt, for a description of the amounts outstanding as of such date and the applicable interest rate.
45
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 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 our management, including our principal executive and principal financial officers, as appropriate, to allow for timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) at September 30, 2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2022, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
46
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. The Company is not currently a party to any material legal proceedings.
Item 1A. Risk Factors
For a discussion of our potential risks and uncertainties, see the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC and the information contained in this report. The declaration, payment and determination of the amount of our quarterly dividends may change at any time. In making decisions regarding our quarterly dividends, we consider general economic and business conditions, our strategic plans and prospects, our businesses and investment opportunities, our financial condition and operating results, working capital requirements and anticipated cash needs, contractual restrictions (including under the terms of our 2019 Credit Agreement as amended) and legal, tax, regulatory and such other factors as we may deem relevant. There have been no material changes to the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Issuer purchases of equity securities.
On May 5, 2022, the Company’s Board of Directors approved a new share repurchase program (the “2022 Share Repurchase Program”) authorizing the repurchase of up to $100.0 million of the Company’s Common Stock. Under the 2022 Share Repurchase Program, which took effect in May 2022, the Company may purchase its shares from time to time until December 31, 2023 in privately negotiated transactions, through block trades, pursuant to open market purchases, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the SEC. The amount and timing of purchases under the 2022 Share Repurchase Program will depend on a number of factors including the price and availability of the Company’s shares, trading volume, capital availability, Company performance and general economic and market conditions. The 2022 Share Repurchase Program can be suspended or discontinued at any time.
During the three months ended September 30, 2022, the Company repurchased 819,472 shares of Common Stock at a total cost of $22.8 million for an average price of $27.86 per share. During the nine months ended September 30, 2022, 1,752,167 shares were repurchased at a total cost of $49.2 million for an average price of $28.06. As of September 30, 2022, a total of $66.8 million was available for future repurchases under the 2022 Share Repurchase Program, and a cumulative total of 5,820,654 shares of Common Stock had been repurchased under programs authorized by the Company’s Board of Directors at a total cost of $123.2 million for an average price of $21.16 per share.
The following table sets out information regarding purchases of equity securities by the Company for the three months ended September 30, 2022.
|
|
|
|
|
|
|
|
Total Number of Shares |
|
|
Approximate Dollar Value |
|
||||
|
|
Total Number of |
|
|
Average Price |
|
|
of Class A Common |
|
|
That May Yet Be Purchased |
|
||||
|
|
Shares of Class A |
|
|
Paid Per Share |
|
|
Stock Purchased as Part of |
|
|
Under Outstanding |
|
||||
|
|
Common Stock |
|
|
of Class A |
|
|
Publicly Announced |
|
|
Plans or Programs |
|
||||
Period |
|
Purchased |
|
|
Common Stock |
|
|
Plans or Programs |
|
|
(in millions) |
|
||||
July 1-31, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
89.7 |
|
August 1-31, 2022 |
|
|
362,515 |
|
|
|
28.37 |
|
|
|
362,515 |
|
|
|
79.4 |
|
September 1-30, 2022 |
|
|
456,957 |
|
|
|
27.45 |
|
|
|
456,957 |
|
|
|
66.8 |
|
Total |
|
|
819,472 |
|
|
$ |
27.86 |
|
|
|
819,472 |
|
|
|
|
|
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None
47
Item 6. Exhibits
EXHIBIT INDEX
|
|
|
Exhibit No. |
|
Description |
31.1 |
|
|
31.2 |
|
|
32.1 |
|
|
32.2 |
|
|
101 |
|
The following information formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, (ii) Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021, (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021, (v) Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2022 and 2021, the three months ended June 30, 2022 and 2021, and the three months ended September 30, 2022 and 2021 and, (vi) Notes to Unaudited Condensed Consolidated Financial Statements for the nine months ended September 30, 2022 and 2021. |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on this 7th day of November, 2022.
|
VICTORY CAPITAL HOLDINGS, INC. |
||
|
|
|
|
|
|
|
|
|
By: |
/s/ MICHAEL D. POLICARPO |
|
|
|
Name: |
Michael D. Policarpo |
|
|
Title: |
President, Chief Financial Officer and Chief Administrative Officer |
49