What changed in this filing

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Item 1. Financial Statements

2021-05-07 compared with 2020-11-06 · 228 added, 360 removed, 431 unchanged (58% of the section changed)

4 unchanged sentences

(In thousands, except shares data)

September 30, 2020

March 31, 2021

December 31, 2020

1 unchanged sentence

Prepaid expenses

Investments, at fair value

Property and equipment, net

22 unchanged sentences

2020 - 3,430,757 shares

Accumulated other comprehensive loss

Retained earnings (deficit)

Accumulated other comprehensive income (loss)

Retained earnings

Total stockholders' equity

5 unchanged sentences

(In thousands, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Investment management fees

10 unchanged sentences

Income from operations

Other (expense) income

Interest income and other (expense) income

Other income (expense)

Interest income and other income (expense)

Interest expense and other financing costs

Loss on debt extinguishment

Total other expense, net

Total other income (expense), net

Income before income taxes

8 unchanged sentences

(In thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Other comprehensive loss, net of tax

Net unrealized loss on cash flow hedges

Net unrealized gain (loss) on foreign currency translation

Total other comprehensive loss, net of tax

Three Months Ended March 31,

Other comprehensive income (loss), net of tax

Net unrealized income (loss) on cash flow hedges

Net unrealized income (loss) on foreign currency translation

Total other comprehensive income (loss), net of tax

Comprehensive income

6 unchanged sentences

Comprehensive

Income (Loss)

Balance, December 31, 2020

9 unchanged sentences

Balance, March 31, 2021

Issuance of common stock

Share conversion - Class B to A

Repurchase of shares

Shares withheld related to net settlement of equity awards

Vesting of restricted share grants

Exercise of options

Other comprehensive loss

Share-based compensation

Dividends paid

Balance, June 30, 2020

Issuance of common stock

Share conversion - Class B to A

Repurchase of shares

Shares withheld related to net settlement of equity awards

Vesting of restricted share grants

Exercise of options

Other comprehensive loss

Share-based compensation

Dividends paid

Balance, September 30, 2020

See the accompanying notes to the unaudited condensed consolidated financial statements.

Victory Capital Holdings, Inc.

and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity (U naudited)

(In thousands)

Treasury Stock

6 unchanged sentences

Shares withheld related to net settlement of equity awards

Exercise of options

Cumulative effect of adoption of ASU 2016-01 and 2018-02

Other comprehensive income

Share-based compensation

Dividends paid

Balance, March 31, 2019

Issuance of common stock

Share conversion - Class B to A

Repurchase of shares

Shares withheld related to net settlement of equity awards

Exercise of options

Other comprehensive loss

Share-based compensation

Dividends paid

Balance, June 30, 2019

Issuance of common stock

Share conversion - Class B to A

Repurchase of shares

Shares withheld related to net settlement of equity awards

Vesting of restricted share grants

Exercise of options

Other comprehensive income/(loss)

Other comprehensive loss

Share-based compensation

Dividends paid

Balance, September 30, 2019

Balance, March 31, 2020

See the accompanying notes to the unaudited condensed consolidated financial statements.

3 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities

6 unchanged sentences

Unrealized depreciation (appreciation) on investments

Net gain on equity method investment

Loss on equity method investment

Loss on debt extinguishment

7 unchanged sentences

Purchases of property and equipment

Purchases of trading securities

Sales of trading securities

Purchases of available-for-sale securities

Sales of available-for-sale securities

(Purchase) sale of equity method investment

Acquisition of business

Purchases of investments

Sales of investments

Cost of asset acquisition

Net cash used in investing activities

4 unchanged sentences

Payments of taxes related to net share settlement of equity awards

Proceeds from long-term senior debt

Payment of debt financing fees

Repayments and repurchases of long-term senior debt

Repayment of promissory note

Repayment of long-term senior debt

Payment of dividends

Receipt (payment) of consideration for acquisition

Net cash (used in) provided by financing activities

Receipt of consideration for acquisition

Net cash used in financing activities

Effect of changes of foreign exchange rate on cash and cash equivalents

14 unchanged sentences

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”) of USAA Adviser and VCTA, formerly known as the USAA Transfer Agency Company d/b/a USAA Shareholder Account Services.

On and effective July 1, 2019, the Company completed the acquisition (the “USAA AMCO Acquisition”) of USAA Asset Management Company (“USAA Adviser”) and the Victory Capital Transfer Agency, Inc.

(“VCTA”), formerly known as the USAA Transfer Agency Company d/b/a USAA Shareholder Account Services (together with USAA Adviser, the “USAA Acquired Companies”).

The USAA AMCO Acquisition includes USAA’s mutual fund and ETF businesses and its 529 College Savings Plan (collectively, the “USAA Mutual Fund Business”).

Refer to Note 4, Acquisitions, for further details on the acquisition.

VCM is a registered investment adviser managing assets through open-end mutual funds, separately managed accounts, unified management accounts, ETFs, collective trust funds, wrap separate account programs and Undertakings Collective Investment in Transferable Securities (“UCITs”).

On March 1, 2021, the Company completed the acquisition of THB Asset Management (“THB”), resulting in THB becoming the Company’s tenth investment franchise.

At March 1, 2021, the THB AUM that was acquired totaled $ 547 million.

THB manages responsible investment portfolios in the micro-cap, small-cap and mid-cap asset classes, including U.S., global and international strategies.

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, 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, Victory Institutional 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), as well as the USAA Mutual Fund Business, which includes 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.

VCS is registered with the SEC as an introducing broker-dealer and serves as distributor and underwriter for the Victory Funds and USAA Funds.

VCM’s three wholly-owned subsidiaries are RS Investment Management (Singapore) Pte.

Ltd., RS Investments (Hong Kong) Limited, and RS Investments (UK) Limited.

VCS is registered with the SEC as a limited purpose broker-dealer and serves as distributor and underwriter for the Victory Funds and USAA Funds.

VCTA is registered with the SEC as a transfer agent for the USAA Funds.

5 unchanged sentences

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.

Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Principles of Consolidation

3 unchanged sentences

The Company analyzed its investment in Alderwood under the voting interest model and determined that it would not consolidate Alderwood as it does not have a controlling financial interest.

The Company’s involvement with non-consolidated variable interest entities (“VIEs”) include sponsored investment funds and, in 2019, an equity method investment.

For further discussion regarding VIEs, refer to Note 2, Significant Accounting Policies, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

For further discussion regarding equity method investments, refer to Note 15, Equity Method Investment.

The Company’s involvement with non-consolidated variable interest entities (“VIEs”) include 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, 2020.

Use of Estimates and Assumptions

3 unchanged sentences

The global spread of COVID-19 has created significant volatility, uncertainty, and economic disruption.

COVID-19 did not have a material adverse effect on our reported results for the three and nine months ended September 30, 2020 .

COVID-19 did not have a material adverse effect on the Company’s reported results for the three months ended March 31, 2021.

New Accounting Pronouncements

Accounting Standards Adopted in 2021

Derivatives and Hedging:

Effective January 1, 2020 , the Company early adopted Accounting Standards Update (“ASU”) 2017-12 (“ASU 2017-12”), Derivatives and Hedging (Topic 815) and ASU 2019-04, Codification Improvements to Topic 815, Derivatives and Hedging (“ASU 2019-04”).

ASU 2017-12 improves and simplifies accounting rules for hedge accounting to better present the economic results of an entity’s risk management activities in its financial statements and improves the disclosures of hedging arrangements.

Various provisions of ASU 2017-12 were subsequently clarified by the Financial Accounting Standards Board (“FASB”) in April 2019 through the issuance of ASU 2019-04.

The Company did not have any existing hedging relationships at the time of adoption;

therefore, the adoption of ASU 2017-12 and ASU 2019-04 had no impact on our consolidated financial statements.

On March 27, 2020, the Company entered into an interest rate swap transaction (the “Swap”) to manage interest rate risk associated with a portion of its floating-rate long term debt (notional amount of $ 450 million).

The Swap was designated as a cash flow hedge and the initial prospective quantitative hedge effectiveness assessment was deemed highly effective.

Under ASU 2017-12, the Company has the option to perform subsequent assessments of hedge effectiveness qualitatively.

The Company has elected to assess the Swap’s hedge effectiveness qualitatively and will verify and document on a quarterly basis that facts and circumstances have not changed.

Recently Issued Accounting Standards

Internal-Use Software:

Effective January 1, 2021 , the Company adopted, on a prospective basis, Accounting Standards Update (“ASU”) 2018-15 (“ASU 2018-15”), "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)," which aligns the requirements for capitalizing implementation costs incurred in a service contract hosting arrangement with those of developing or obtaining internal-use software.

The adoption had no impact on the Company’s consolidated financial statements.

Subsequent Measurement of Goodwill:

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) (“ASU 2017-04”) which simplifies the test for goodwill impairment.

Effective January 1, 2021 , the Company adopted, on a prospective basis, ASU 2017-04 (“ASU 2017-04”), “Intangibles – Goodwill and Other (Topic 350)” (“ASU 2017-04”) which simplifies the test for goodwill impairment.

ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill (step two) to measure a goodwill impairment charge.

Goodwill impairment will be based upon the results of step one of the impairment test, which is defined as the excess of the carrying amount of a reporting unit over its fair value, not to exceed the carrying amount of goodwill allocated to that reporting unit.

The effective date for calendar-year public business entities was January 1, 2020.

Due to the Company’s status as an emerging growth company (“EGC”), the new guidance will be effective for the Company’s fiscal year that begins on January 1, 2021 and requires a prospective approach to adoption.

Early adoption is permitted for interim or annual goodwill impairment tests.

The impact of this new guidance will depend upon the performance of the Company’s one reporting unit and the market conditions impacting the fair value.

The adoption had no impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards

Reference Rate Reform:

In March 2020, the Financial Accounting Standards Board (the “FASB”) issued ASU 2020-04, (“ASU 2020-04”), “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 contains optional practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The amendments in this guidance are effective for all entities through December 31, 2022.

The Company is currently evaluating the effect of this new standard on its consolidated financial statements.

Expected Credit Losses:

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”).

ASU 2016-13 creates a new model for determining current expected credit losses (“CECL”) on trade and other receivables, net investments in leases, contract assets and long-term receivables.

The CECL impairment model requires companies to consider the risk of loss even if it is remote and to include forecasts of future economic conditions as well as information about past events and current conditions.

The effective date for calendar-year public business entities is January 1, 2020.

As an emerging growth company (“EGC”), the Company will adopt ASU 2016-13 on January 1, 2023 and is currently reviewing the effect of this new standard on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016‑02, “Leases (Topic 842)” (the “New Lease Standard”) which supersedes previous lease guidance, Accounting Standards Codification (“ASC”) Topic 840 (“ASC Topic 840”).

3 unchanged sentences

In June 2020, the FASB deferred the effective date of the New Lease Standard for private companies and other companies who had not yet been required to adopt the standard.

Due to the Company’s EGC status, the New Lease Standard will be adopted on January 1, 2022.

Due to Victory’s EGC status, the Company will adopt the New Lease Standard on January 1, 2022.

Management has assessed and evaluated the Company’s portfolio of active real estate leases and is currently surveying the business for other leases.

As outlined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, the Company has approximately $ 16.7 million in undiscounted, future minimum cash commitments under net operating leases.

The New Lease Standard is expected to result in a gross up of assets and liabilities on the Consolidated Balance Sheets and to have no material impact on the Consolidated Statements of Operations or the Company’s liquidity or debt covenant compliance under the current credit agreement.

Expected Credit Losses:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13 creates a new model for determining current expected credit losses (“CECL”) on trade and other receivables, net investments in leases, contract assets and long-term receivables.

The effective date for calendar-year public business entities is January 1, 2020.

As an EGC, the Company currently expects to adopt ASU 2016-13 on January 1, 2023.

The Company is currently reviewing the effect of this new standard on its consolidated financial statements.

The New Lease Standard is expected to result in a gross up on the Consolidated Balance Sheets and to have no material impact to the Consolidated Statements of Operations, liquidity or the Company’s debt covenant compliance under our current credit agreement.

Revenue RECOGNITION

In accordance with the new 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 accordance with the revenue recognition standard requirements, the following table disaggregates our revenue by type and product:

Three Months Ended March 31,

(in thousands)

19 unchanged sentences

(in thousands)

September 30, 2020

March 31, 2021

December 31, 2020

15 unchanged sentences

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 volatility.

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 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.

10 unchanged sentences

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 and VictoryShares and may subsidize certain share classes of the Victory Funds, USAA Funds and VictoryShares to ensure that specified operating expenses attributable to such share classes do not exceed a specified percentage.

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 and VictoryShares 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.

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.

2 unchanged sentences

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 base investment management fee and a performance fee adjustment to the base 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.

Fulcrum fee arrangements include a base investment management fee and a performance fee adjustment, increasing or decreasing the base 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 took effect on July 1, 2020 and 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.

3 unchanged sentences

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.

5 unchanged sentences

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 has contractual arrangements with a third party to provide certain sub-transfer agent services.

24 unchanged sentences

For the periods presented, a de minimis amount of the AUM was priced in this manner.

THB Acquisition

On March 1, 2021, the Company completed the acquisition of certain assets of THB Asset Management (“THB”), including without limitation, (i) certain investment advisory and business contracts, (ii) certain books and records, (iii) the investment performance track record, and (iv) all business intellectual property and proprietary software, and hired the THB investment team, resulting in THB becoming the Company’s tenth investment franchise.

At March 1, 2021, the THB AUM that was acquired totaled $ 547 million.

THB manages responsible investment portfolios in the micro-cap, small-cap and mid-cap asset classes, including U.S., global and international strategies.

Because substantially all of the fair value of the acquired assets was concentrated in a single identifiable asset, the transaction was accounted for as an asset acquisition.

Estimated acquisition costs of $ 0.6 million were allocated to a definite-lived customer relationship intangible asset.

USAA AMCO Acquisition

On and effective July 1, 2019, the Company completed the USAA AMCO Acquisition, acquiring 100 % of the outstanding common stock of the USAA Acquired Companies and the USAA Mutual Fund Business.

The USAA AMCO Acquisition expands and diversifies the Company’s investment platform, particularly in the fixed income and solutions asset classes, and increases the Company’s size and scale.

Additional products added to the Company’s investment platforms include target date and target risk strategies, managed volatility mutual funds, active fixed income ETFs, sub-advised and multi-manager equity funds.

The acquisition also added to the Company’s lineup of asset allocation portfolios and smart beta equity ETFs and 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.

Purchase Price

During the first quarter of 2020, the Company received a post-closing purchase price adjustment of $ 0.7 million in cash from the sellers related to net working capital adjustments.

No further adjustments were recorded through the end of the measurement period on June 30, 2020.

There has been no change in the goodwill balance from December 31, 2019 to September 30, 2020.

Total cumulative consideration paid for the USAA AMCO Acquisition was $ 949.4 million, comprised of $ 851.3 million of cash paid at closing plus the acquisition date value of contingent payments due to sellers of $ 98.8 million less $ 0.7 million in net working capital adjustments settled in the first quarter of 2020.

On and effective July 1, 2019, the Company completed the USAA AMCO Acquisition which 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.

1 unchanged sentence

Annual contingent payments in respect of “non-managed money”-related assets are subject to certain “catch-up” provisions set forth in the USAA Stock Purchase Agreement.

The Company accounted for the acquisition in accordance with ASC 805, Business Combinations.

Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of the USAA AMCO 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 $ 120.6 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 expected future earnings and cash flows, as well as the synergies created by the integration of the USAA Acquired Companies within our organization.

The following table summarizes the estimated amounts of identified acquired assets and liabilities assumed as of the acquisition date:

(in thousands)

Cash and cash equivalents

Investment management fees receivable

Fund administration and distribution fees receivable

Other receivables and prepaid expenses

Property and equipment

Other intangible assets (1)

Accounts payable and accrued expenses

Accrued compensation and benefits

Payable to members and custodians

Contingent consideration payable to sellers

Total purchase price consideration

Includes $ 750.2 million for indefinite-lived investment advisory contracts, $ 19.1 million for indefinite-lived transfer agent contracts, $ 0.8 million for indefinite-lived distribution contracts, $ 38.2 million for definite-lived trade name assets and $ 0.4 million for definite-lived lease-related assets, all of which were recorded in other intangible assets, net on the unaudited Condensed Consolidated Balance Sheets.

Contingent Consideration

The Company expects to pay to sellers in the fourth quarter of 2020 the maximum amount of $ 37.5 million for the first annual earnout period for the USAA AMCO Acquisition.

The fair value of contingent consideration payable to sellers at September 30, 2020 was estimated to be $ 120.5 million, which includes the $37.5 million expected to be paid for the first earnout period, as compared to $ 118.7 million at December 31, 2019.

The increase in the contingent consideration liability of $ 2.0 million and $ 1.8 million in the three and nine months ended September 30, 2020, respectively, was recorded in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.

The fair value of the USAA AMCO Acquisition contingent consideration payable was estimated using the real options method.

Revenue related to “non-managed money” assets was simulated in a risk-neutral framework to calculate expected probability-weighted earn out payments, which were then discounted from the expected payment dates at the relevant cost of debt.

During the fourth quarter of 2020, the Company paid $ 37.5 million in cash to sellers for the first annual earn out period.

A maximum of $ 112.5 million in contingent consideration ($ 37.5 million per year for the remaining 3 years of the earn out period) was payable to sellers at March 31, 2021.

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, which adjusts the projected revenue growth rate to a risk-neutral expected growth rate, revenue volatility and discount rate.

As of September 30, 2020, the projected annual growth rate for “non-managed money” revenue was approximately 3 %.

The market price of risk and revenue volatility of approximately 7 % and 16 %, respectively, were based on data for comparable companies.

the contingent consideration represents a subordinate, unsecured claim of the Company, the Company has assessed a discount rate of approximately 4.5 %, which incorporates adjustments for credit risk and the subordination of the contingent consideration.

Total estimated undiscounted earn out payments ranged from $ 128 million to $ 150 million, the maximum amount payable to sellers.

Actual and Pro Forma Results for USAA Acquired Companies

Revenue of the USAA Acquired Companies is included in the Company’s results as from July 1, 2019.

For the six months ended June 30, 2020, revenue of the USAA Acquired Companies was $ 221.3 million.

Net income attributable to the USAA Acquired Companies for the six months ended June 30, 2020 is impractical to determine as the Company does not prepare discrete financial information at level.

The following Unaudited Pro Forma Condensed Combined Statements of Operations are provided for illustrative purposes only and assume that the acquisition occurred on January 1, 2018.

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 consolidated financial information of Victory and the USAA Acquired Companies have been adjusted to give effect to unaudited pro forma events that are directly attributable to the transaction, factually supportable and expected to have continuing impact on the combined results.

These amounts have been calculated after adjusting the results of the USAA Acquired Companies to reflect additional interest expense, distribution costs, share-based compensation expense, income taxes and intangible asset amortization that would have been expensed assuming the fair value adjustments had been applied on January 1, 2018.

In addition, Victory’s and the USAA Acquired Companies’ results were adjusted to remove incentive compensation, legal fees and mutual fund proxy costs directly attributable to the acquisition.

Nine Months Ended

(in thousands, except per share amount)

September 30, 2019

Earnings per share of common stock

Weighted average number of shares outstanding

The market price of risk 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 March 31, 2021 and December 31, 2020 are as follows and are approximate values:

March 31, 2021

December 31, 2020

Non-managed money revenue average annual growth rate

Market price of risk

Revenue volatility

Discount rate

Years remaining in earn out period

Undiscounted estimated remaining earn out payments in millions

$99.6 - $112.5

$97.7 - $112.5

The estimated fair value of contingent consideration payable to sellers is recorded in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets and was estimated at $ 95.0 million at March 31, 2021 as compared to $ 92.5 million at December 31, 2020.

The increase in the liability of $ 2.5 million in the first quarter of 2021 was recorded in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.

Acquisition-Related Costs

2 unchanged sentences

Acquisition-related costs

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

3 unchanged sentences

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, 2020 and 2019:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions)

1 unchanged sentence

Severance expense - USAA AMCO

Integration costs - THB

Integration costs - USAA AMCO

12 unchanged sentences

The table below shows liabilities measured at fair value on a recurring basis.

As of September 30, 2020

As of March 31, 2021

(in thousands)

Financial Assets

Interest Rate Swap Asset

Total Financial Assets

Financial Liabilities

4 unchanged sentences

(in thousands)

Financial Assets

Interest Rate Swap Asset

Total Financial Assets

Financial Liabilities

Interest Rate Swap Liability

Contingent Consideration Arrangements

Total Financial Liabilities

Refer to Note 4, Acquisitions, for further information regarding the Company’s contingent consideration arrangements.

The Swap liability represents amounts owed as of September 30, 2020 under a floating-to-fixed interest rate swap transaction entered into by the Company on March 27, 2020.

The Swap effectively fixed the interest rate at 3.465 % on $ 450 million of the outstanding Term Loan balance through the Term Loan’s maturity in July 2026.

The fair value of the Swap is included in other liabilities on the unaudited Condensed Consolidated Balance Sheets at September 30, 2020.

Pricing was determined based on a third party, model-derived valuation in which all significant inputs are observable in active markets (Level 2).

The interest rate swap (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 Swap effectively fixes the interest rate at 3.465 % on $ 450

million of the outstanding Term Loan balance through the Term Loan’s maturity in July 2026.

The fair value of the Swap is included in the unaudited Condensed Balance Sheets in other assets at March 31, 202 1 and in other liabilities as of December 31, 2020 .

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 1 4 , Derivatives, for further detail on the Swap.

The contingent consideration arrangement liabilities represent the USAA AMCO Acquisition estimated earn-out payment liability, which is 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 arrangement.

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 and discount rate.

1 unchanged sentence

Refer to Note 4, Acquisitions, for further details related to the valuation of contingent consideration payable related to the USAA AMCO Acquisition.

Changes in the fair value of the liability, 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 balance of the contingent consideration arrangement liabilities at December 31, 2019 and September 30, 2020, respectively.

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 three months ended March 31, 2021.

(in thousands)

2 unchanged sentences

USAA AMCO change in fair value measurement

Balance, September 30, 2020

There were no transfers between any of the Level 1, 2 and 3 categories in the fair value measurement hierarchy from December 31, 2019 to September 30, 2020.

Balance, March 31, 2021

There were no transfers between any of the Level 1, 2 and 3 categories in the fair value measurement hierarchy from December 31, 2020 to March 31, 2021.

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, 2020 is considered to be its carrying value as the interest rate on the bank debt is variable and approximates current market rates.

The fair value of our long-term debt at March 31, 2021 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.

The fair value of the Company’s money market investment ($ 10.1 million within cash and cash equivalents), available-for-sale investments and trading securities are measured using Level 1 inputs, which are the market prices for shares in these open-end mutual funds .

The fair value of the Company’s money market investment ($ 10.1 million within cash and cash equivalents), investments in proprietary funds and deferred compensation plan investments are measured using Level 1 inputs, which are the market prices for shares in these open-end mutual funds .

Related-Party Transactions

The Company considers certain funds that it manages, including the Victory Funds, the USAA Funds, the VictoryShares and collective trust funds that it sponsors (the “Victory Collective Funds”), to be related parties as a result of our advisory relationship.

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 certain other 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 and has invested a portion of its balance sheet cash in the USAA Treasury Money Market Fund and earns interest on the amount invested in this fund.

We also receive investment management fees from the VictoryShares and Victory Collective Funds under VCM’s advisory contracts with these funds and administrative fees from the VictoryShares.

In addition, we receive transfer agent fees in accordance with a contract that VCTA has with 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 and certain other pooled investment vehicles 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.

Included in cash and cash equivalents is cash held in the USAA Treasury Money Market Fund.

Included in receivables (fund administration and distribution fees) are amounts due from the Victory Funds and USAA Funds for compliance services and amounts due from the USAA Funds for transfer agent services.

Included in revenue (fund administration and distribution fees) are amounts earned for compliance services and transfer agent services.

Realized and unrealized gains and losses and dividend income on investments in the Victory Funds and USAA Funds classified as available-for-sale securities and investments in the Victory Funds and USAA Funds classified as trading securities and dividend income on investments in the USAA Treasury Money Market Fund are recorded in interest income and other income (expense) in the unaudited Condensed Consolidated Statements of Operations.

Amounts due to the Victory Funds, USAA Funds and VictoryShares for waivers of investment management fees and reimbursements of fund operating expenses are included in accounts payable and accrued expenses in the unaudited Condensed Consolidated Balance Sheets and represent consideration payable to customers.

Included in revenue (fund administration and distribution fees) are amounts earned for compliance services, transfer agent services and sub-transfer agent services.

Realized and unrealized gains and losses and dividend income on investments in the Victory Funds and USAA Funds classified as investments in proprietary funds and deferred compensation plan investments and dividend income on investments in the USAA Treasury Money Market Fund are recorded in interest income and other income (expense) in the unaudited Condensed Consolidated Statements of Operations.

Amounts due to the Victory Funds, USAA Funds, VictoryShares and certain other pooled investment vehicles for waivers of investment management fees and reimbursements of fund operating expenses are included in accounts payable and accrued expenses in the unaudited Condensed Consolidated Balance Sheets and represent consideration payable to customers.

(in thousands)

September 30, 2020

March 31, 2021

December 31, 2020

3 unchanged sentences

Receivables (fund administration and distribution fees)

Investments (available-for-sale securities, fair value)

Investments (trading securities, fair value)

Investment in proprietary funds, fair value

Deferred compensation plan investments, fair value

Related party liabilities

Accounts payable and accrued expenses (fund reimbursements)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended

(in thousands)

2 unchanged sentences

Fund administration and distribution fees

Related party other income (expense)

Interest income and other income (expense)

As of September 30, 2020 and December 31, 2019, the Company held both available-for-sale securities and trading securities.

Available-for-sale investments consist entirely of seed capital investments in certain Victory Funds and USAA Funds.

Trading securities are held under a deferred compensation plan and include Victory Funds, USAA Funds and third party mutual funds.

Available‑For‑Sale Securities

A summary of the cost and fair value of investments classified as available-for-sale were as follows:

Related party expense

General and administrative

Related party other (expense) income

Interest income and other (expense) income

At March 31, 2021 and December 31, 2020, 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

(in thousands)

As of September 30, 2020

As of March 31, 2021

As of December 31, 2020

Unrealized and realized gains and losses on available‑for‑sale investments are recognized in the accompanying unaudited Condensed Consolidated Statements of Operations as “Interest income and other income (expense).” There were no proceeds from sales and realized gains and losses from available-for-sale securities for the three months ended September 30, 2020 and 2019.

For the nine month periods ended September 30, 2020 and 2019 proceeds from sales and realized gains and losses from available-for-sale securities were as follows:

Proceeds from sales of investments in proprietary funds and realized gains and losses recognized during the three months ended March 31, 2021 and 2020 are as follows:

(in thousands)

For the nine months ended September 30, 2020

For the nine months ended September 30, 2019

Trading Securities

A summary of the cost and fair value of investments classified as trading securities were as follows:

For the three months ended March 31, 2021

For the three months ended March 31, 2020

Deferred Compensation Plan Investments

The following table presents a summary of the cost and fair value of deferred compensation plan investments:

Gross Unrealized

(in thousands)

As of September 30, 2020

As of March 31, 2021

As of December 31, 2020

Unrealized and realized gains and losses on trading securities are recorded in interest income and other income (expense) in the unaudited Condensed Consolidated Statements of Operations.

Proceeds from sales and realized gains and losses from trading securities in the periods ended September 30, 2020 and 2019 were as follows:

(in thousands)

For the three months ended September 30, 2020

For the three months ended September 30, 2019

(in thousands)

For the nine months ended September 30, 2020

For the nine months ended September 30, 2019

The effective tax rate for the three and nine months ended September 30, 2020 and 2019 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 and for the periods in 2019, expense related to recognizing a liability for unrecorded tax benefits.

For the three months ended September 30, 2020 and 2019, the provision for income taxes was $ 17.0 million and $ 8.1 million, or 23.4 % and 23.7 %, of pre-tax income respectively.

For the nine months ended September 30, 2020 and 2019, the provision for income taxes was $ 48.3 million and $ 17.3 million, or 23.5 % and 24.0 % of pre-tax income, respectively.

The effective tax rate for the three and nine months ended September 30, 2020 was slightly lower than the effective tax rate for the same periods in 2019 due to the combination of decreased excess tax benefits on share-based compensation and decreased expense related to state uncertain tax positions.

No valuation allowance was recorded for deferred tax assets in the periods ended September 30, 2020 and 2019.

At September 30, 2020, the Company had no liability for gross unrecognized tax benefits.

It had a $ 0.1 million liability for interest and penalties on previously unrecognized gross tax benefits, which is included in “Other liabilities” in the accompanying unaudited Condensed Consolidated Balance Sheets.

The Company expects that the amount of unrecognized tax benefits will change in the next 12 months;

however, the Company does not expect the change to have a material impact on its consolidated financial statements.

The following table presents the changes in gross unrecognized tax benefits, excluding interest and penalties, for the three and nine months ended September 30, 2020 and 2019.

Proceeds from sales of deferred compensation plan investments and realized gains and losses recognized during the three months ended March 31, 2021 and 2020 are as follows:

(in thousands)

Beginning balance, January 1

Additions based on tax positions related to current period

Reductions related to settlement of tax matters

Ending balance, March 31

Additions based on tax positions related to current period

Reductions related to settlement of tax matters

Ending balance, June 30

Additions based on tax positions related to current period

Reductions related to settlement of tax matters

Ending balance, September 30

For the three months ended March 31, 2021

For the three months ended March 31, 2020

The effective tax rate for the three months ended March 31, 2021 and 2020 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, and for 2020, expense related to increasing the liability for previously unrecorded state tax benefits.

For the three months ended March 31, 2021 and 2020, the provision for income taxes was $ 17.7 million and $ 16.8 million, or 21.3 % and 22.7 %, of pre-tax income respectively.

The effective tax rate for the three months ended March 31, 2021 was lower than the effective tax rate for the same period in 2020 mainly due to higher excess tax benefits on share-based compensation.

No valuation allowance was recorded for deferred tax assets in the period ended March 31, 2021 and 2020.

2020 Debt Repricing

Concurrent with the USAA AMCO Acquisition on July 1, 2019, the Company (i) entered into the 2019 Credit Agreement, (ii) repaid all indebtedness outstanding under the previous credit agreement (dated February 2018), and (iii) terminated the previous credit agreement.

On January 17, 2020, the Company entered into the First Amendment (the “First 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 First Amendment, the Company repriced the existing term loans (the “Existing Term Loans”) with replacement term loans in an aggregate principal amount of $ 952.0 million (the “Repriced Term Loans”).

The Repriced Term Loans provide for substantially the same terms as the Existing 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 75 basis points.

The Company refinanced the 2019 term loans for a reduced applicable margin on LIBOR of 75 basis points .

After the January 2020 repricing, the applicable margin on LIBOR was 2.50 %, compared to 3.25 % under the 2019 term loans.

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 (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 provide for substantially the same terms as the Existing 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.

The applicable margin on LIBOR under the Repriced Term Loans is 2.25 %, compared to 2.50 % under the Existing Term Loans.

The following table summarizes the components of long-term debt under the 2019 Credit Agreement in the unaudited Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019:

The following table summarizes the components of long-term debt in the unaudited Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020:

(in thousands)

September 30, 2020

March 31, 2021

December 31, 2020

Effective Interest Rate

Due July 2026, 2.73 % interest rate

Due July 2026, 2.44 % interest rate

Term loan principal outstanding

3 unchanged sentences

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, 2020, there were no outstanding borrowings under the revolving credit facility and the Company was in compliance with its financial performance covenant.

A total of $ 114.8 million of the outstanding term loans under the 2019 Credit Agreement was repaid or repurchased and retired during the first nine months of 2020.

The Company repaid $ 38.0 million in outstanding term loans in the first three months of 2020 and recorded a $ 1.0 million loss on debt extinguishment.

During the three months ended June 30, 2020, the Company repaid or repurchased and retired $ 33.3 million of outstanding term loans and recorded a $ 0.1 million gain on debt extinguishment.

During the three months ended September 30, 2020, the Company repaid or repurchased and retired $ 43.5 million of outstanding term loans and recorded a $ 0.8 million loss on debt extinguishment.

Refer to Note 16, Subsequent Events, for information related to term loan activity subsequent to September 30, 2020.

2020 Swap Transaction

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 term loan through the term loan maturity date of July 2026.

Refer to Note 14, Derivatives, for further information on the Swap.

As of March 31, 2021, there were no outstanding borrowings under the revolving credit facility and the Company was in compliance with its financial performance covenant.

A total of $ 50.0 million of the outstanding term loans under the 2019 Credit Agreement was repaid in the first quarter of 2021.

Refer to Note 16, Subsequent Events, for information related to term loan activity subsequent to March 31, 2021.

During the three months ended March 31, 2020 and 2021, the Company incurred costs of $ 0.9 million and $ 0.4 million related to the First Amendment and Second Amendment, respectively, which were recorded in general and administrative expense in the unaudited Condensed Consolidated Statements of Operations.

The Company recognized a $ 1.1 million loss on debt extinguishment in the first quarter of 2020 due to repayments of term loan principal, consisting of the write-off of $ 0.7 million and $ 0.4 million of unamortized debt issuance costs and debt discount, respectively.

The Company recognized a $ 2.8 million loss on debt extinguishment in the first quarter of 2021 due to the Second Amendment and repayments of term loan principal, consisting of the write-off of $ 1.8 million and $ 1.0 million of unamortized debt issuance costs and debt discount, respectively.

Interest Expense

As of September 30, 2020, the term loans under the 2019 Credit Agreement had an interest period of three months and an interest rate of 2.80 %.

Including the impact of amortization of debt issuance costs and original issue discount described herein, the effective yield for term loans under the 2019 Credit Agreement as of September 30, 2020 was 3.23 %.

The following table summarizes the components of interest expense and other financing costs in the unaudited Condensed Consolidated Statements of Operations for the periods ended September 30, 2020 and 2019:

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

For the Three Months

Ended March 31,

(in thousands)

15 unchanged sentences

Balance, March 31, 2021

Issuance of shares

Share conversion - Class B to A

Repurchase of shares

Vesting of restricted share grants

Exercise of options

Shares withheld related to net settlement of equity awards

Balance, June 30, 2020

Issuance of shares

Share conversion - Class B to A

Repurchase of shares

Vesting of restricted share grants

Exercise of options

Shares withheld related to net settlement of equity awards

Balance, September 30, 2020

Shares of Common Stock Issued

8 unchanged sentences

Balance, March 31, 2020

Issuance of shares

Share conversion - Class B to A

Repurchase of shares

Vesting of restricted share grants

Exercise of options

Shares withheld related to net settlement of equity awards

Balance, June 30, 2019

Issuance of shares

Share conversion - Class B to A

Repurchase of shares

Vesting of restricted share grants

Exercise of options

Shares withheld related to net settlement of equity awards

Balance, September 30, 2019

Share Repurchase Program

The share repurchase programs authorized in 2018 and 2019, each for $ 15.0 million of the Company’s Class A common stock were completed in September 2019 and June 2020, respectively.

In May 2020, the Company’s Board of Directors authorized the Company to repurchase up to an additional $ 15.0 million of the Company’s Class A common stock in the open market or in privately negotiated transactions (“2020 Share Repurchase Program”).

As of September 30, 2020, a total of 2,911,402 shares of Class A common stock had been repurchased under authorized share repurchase programs at a total cost of $ 42.5 million for an average price of $ 14.59 per share.

As of September 30, 2020, $ 2.5 million was available for future purchases and on October 29, 2020, the 2020 Share Repurchase Program was completed.

On November 2, 2020, the Company’s Board of Directors authorized the Company to repurchase up to an additional $ 15.0 million of the Company’s Class A common stock through December 31, 2022 in open market or privately negotiated transactions (“Additional 2020 Share Repurchase Program”).

The amount and timing of the purchases under the 2020 Additional 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 Additional 2020 Share Repurchase Program can be suspended or discontinued at any time.

The Additional 2020 Share Repurchase Program expires when $ 15 million shares of Class A common stock are repurchased or on December 31, 2022.

Quarterly Dividends

During the three months ended September 30, 2020, the Company paid a quarterly dividend of $ 4.1 million.

Dividends paid during the nine months ended September 30, 2020 totaled $ 11.5 million, comprised of $ 10.8 million in quarterly dividends and $ 0.7 million in cash bonuses and distributions related to dividends previously declared upon vesting of restricted stock and stock option awards.

In November 2020, the Company’s Board of Directors authorized a share repurchase program whereby the Company may repurchase up to an additional $ 15.0 million of the Company’s Class A common stock in the open market or in privately negotiated transactions.

The amount and timing of purchases under the share repurchase program authorized in November 2020 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 program can be suspended or discontinued at any time and expires when $ 15 million shares of Class A common stock have been repurchased or on December 31, 2022.

During the three months ended March 31, 2021, the Company repurchased 286,550 shares of Class A common stock at a total cost of $ 7.1 million for an average price of $ 24.85 per share and $ 5.0 million was available for future repurchases under the current share repurchase program.

As of March 31, 2021, a cumulative total of 3,469,532 shares of Class A common stock had been repurchased under programs authorized by the Company’s Board of Directors at a total cost of $ 55.0 million for an average price of $ 15.84 per share.

Dividend Payments

Dividends paid during the three months ended March 31, 2021 totaled $ 6.5 million and included $ 6.1 million for the March 2021 quarterly dividend and $ 0.4 million in cash bonuses and distributions related to dividends previously declared upon vesting of restricted stock and stock option awards.

Share‑Based Compensation

Current Period Activity

During the three months ended September 30, 2020, the Company issued restricted stock awards for 484,010 shares of common stock, of which awards for 11,997 shares were fully vested on the grant date, awards for 57,576 shares vest based on service over a three year period, and awards for 414,437 shares vest based on service over a thirty month period.

For the nine months ended September 30, 2020, the Company issued restricted stock awards for 781,843 shares of common stock, of which awards for 30,976 shares were fully vested on the grant date, awards for 336,430 shares vest based on service over a three year period and awards for 414,437 shares vest based on service over a thirty month period.

Stock option award and restricted stock award activity during the nine months ended September 30, 2020 and 2019 was as follows:

During the three months ended March 31, 2021, the Company issued restricted stock awards for 231,568 shares of common stock, of which awards for 9,568 shares were fully vested on the grant date and awards for 222,000 shares vest based on service over a three year period.

Stock option award and restricted stock award activity during the three months ended March 31, 2021 and 2020 was as follows:

Shares Subject to Stock Option Awards

Nine Months Ended September 30,

Three Months Ended March 31,

Outstanding at beginning of period

Outstanding at end of the period

Outstanding at end of period

Restricted Stock Awards

Nine Months Ended September 30,

Three Months Ended March 31,

Avg wtd grant-

4 unchanged sentences

Unvested at end of period

Dividend Payments

At September 30, 2020 and December 31, 2019, 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 and $ 1.3 million, respectively, which was not recorded as a liability as of the balance sheet date.

At March 31, 2021 and December 31, 2020, 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 and $ 1.2 million, respectively, 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.

Share-Based Compensation Expense

The Company recorded $ 3.6 million and $ 4.8 million of share-based compensation expense in the three months ended September 30, 2020 and 2019, respectively, and $ 13.5 million and $ 10.1 million of share-based compensation in the nine months ended September 30, 2020 and 2019, respectively, in personnel compensation and benefits in the unaudited Condensed Consolidated Statements of Operations.

The Company recorded $ 5.5 million and $ 6.0 million of share-based compensation expense during the three months ended March 31, 2021 and 2020, respectively, in personnel compensation and benefits in the unaudited Condensed Consolidated Statements of Operations.

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, 2020 and 2019:

The following table sets forth the reconciliation of basic earnings per share and diluted earnings per share from net income for the three months ended March 31, 2021 and 2020:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands except per share amounts)

3 unchanged sentences

Earnings per share

Outstanding instruments excluded from the computation of weighted average shares for diluted earnings per share because the effect would be anti-dilutive totaled 43 thousand and 0.3 million for the three months ended September 30, 2020 and 2019, respectively, and 43 thousand and 1.3 million for the nine months ended September 30, 2020 and 2019, respectively.

There were no outstanding instruments excluded from the computation of weighted average shares for diluted earnings per share because the effect would be anti-dilutive for the three months ended March 31, 2021.

Outstanding instruments excluded from the computation of weighted average shares for diluted earnings per share because the effect would be anti-dilutive totaled 31 thousand shares for the three months ended March 31, 2020.

Holders of non-vested share-based compensation awards do not have rights to receive nonforfeitable dividends on the shares covered by the awards.

Accumulated Other Comprehensive Loss

The following table presents changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2020 and 2019.

Available-for-

Accumulated Other Comprehensive Income (Loss)

The following table presents changes in accumulated other comprehensive income (loss) by component for the three months ended March 31, 2021 and 2020.

(in thousands)

Balance, December 31, 2020

Other comprehensive income (loss) before reclassification and tax

Reclassification adjustments, before tax

Net current period other comprehensive income (loss)

Balance, March 31, 2021

Balance, December 31, 2019

Other comprehensive loss before reclassification and tax

Reclassifications, before tax

Net current period other comprehensive loss

Balance, September 30, 2020

Balance, December 31, 2018

Other comprehensive income before reclassification and tax

Net current period other comprehensive income

Cumulative effect of adoption of ASU 2016-01 and 2018-02

Balance, September 30, 2019

Balance, March 31, 2020

Reclassifications out of accumulated other comprehensive income (loss) related to cash flow hedges are recorded in interest expense and other financing costs.

Interest Rate Swaps

1 unchanged sentence

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 and receive interest that varies with the three-month LIBOR rate.

The notional value, fixed rate of interest and expiration date of the Swap as of September 30, 2020 was $ 450 million – 3.465 % – July 1, 2026 .

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.

The notional value, fixed rate of interest and expiration date of the Swap as of March 31, 2021 were $ 450 million – 0.965 % – July 1, 2026 .

Refer to Note 5, Fair Value Measurements, for additional disclosures regarding fair value measurements.

3 unchanged sentences

The Swap is assessed for effectiveness and continued qualification for hedge accounting on a quarterly basis.

For the three months ended September 30, 2020 and since inception, the Swap was deemed to be highly effective.

For the three months ended March 31, 2021 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 loss, net of tax, to the extent the hedge is determined to be effective.

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.

The amount payable to the Swap counterparty at September 30, 2020 of $ 0.7 million is recorded in other liabilities on the unaudited Condensed Consolidated Balance Sheets.

The following table summarizes the classification of the Swap in the unaudited Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019 (in thousands):

The amount payable to the Swap counterparty at March 31, 2021 of $ 0.8 million is recorded in other liabilities on the unaudited Condensed Consolidated Balance Sheets.

All derivative instruments are recorded on the unaudited Condensed Consolidated Balance Sheets at fair value as an asset (if the derivative is in a gain position) or a liability (if the derivative is in a loss position).

On March 31, 2021, the Swap had a fair value of $ 4.2 million and was recorded in other assets.

On December 31, 2020, the Swap had a fair value of $ 10.0 million and was recorded in other liabilities.

The following table summarizes the classification of the Swap in the unaudited Condensed Consolidated Balance Sheets and the notional amount at March 31, 2021 and December 31, 2020 (in thousands):

Balance Sheets

September 30, 2020

March 31, 2021

December 31, 2020

Other liabilities

Other assets (Other liabilities)

Fair value of interest rate swap

Notional amount

The following tables summarize the effects of the Swap in the unaudited Condensed Consolidated Statements of Operations and unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019 and (in thousands):

The following tables summarize the effects of the Swap in the unaudited Condensed Consolidated Statements of Operations and unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Statement of Operations

Interest expense and other financing costs

Loss reclassified from AOCL

Loss reclassified from AOCI(L)

Three Months Ended

Nine Months Ended

September 30,

Statements of Comprehensive Income

Other comprehensive loss

Loss recognized in AOCL, net of tax

Other comprehensive income (loss)

Income (loss) recognized in AOCI(L), net of tax

EQUITY METHOD INVESTMENT

1 unchanged sentence

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 has commitments to contribute additional capital of $ 4.5 million to Alderwood and $ 50 million to a private fund to be launched by Alderwood, subject to certain terms and conditions.

The Company has commitments to contribute additional capital of $ 4.5 million to Alderwood and $ 50 million to a private fund to be launched by Alderwood, subject to certain terms and conditions, which include receipt of required regulatory approvals from the Financial Conduct Authority of the United Kingdom and obtaining an agreed amount of aggregate legally binding commitments from investors in the private fund.

On March 8, 2021, the Company announced that Alderwood Capital had received authorization from the Financial Conduct Authority of the United Kingdom and that Alderwood’s private fund had been formally launched to institutional investors.

The Company analyzed its investment in Alderwood under the voting interest model and determined that it does not have a controlling financial interest over Alderwood and should not consolidate under the voting interest model.

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.

For the three and nine months ended September 30, 2020, the Company recorded no gains or losses from its equity investment in Alderwood.

For the three and nine months ended September 30, 2019, the Company recognized a $ 2.9 million gain on sale of its equity investment in Cerebellum Capital, LLC (“Cerebellum”).

Gains and losses on equity method investments, including the gain on sale of the Cerebellum equity investment, are recorded in “Interest income and other income (expense)” in the unaudited Condensed Consolidated Statements of Operations.

Equity method investments are recorded in other assets in the unaudited Condensed Consolidated Balance Sheets.

At September 30, 2020, the Company had a $ 1.5 million investment in Alderwood and no longer held an equity investment in Cerebellum.

At March 31, 2021 and December 31, 2020, the Company’s equity method investment in Alderwood totaled $ 1.4 million.

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 months ended March 31, 2021, losses from equity method investments were no t material to our consolidated results of operations ($ 0 for the three months ended March 31, 2020).

SUBSEQUENT EVENTS

Subsequent to September 30, 2020, the Company repaid $ 20.0 million in term loan principal, for a total debt reduction of $ 282.8 million since July 1, 2019.

On November 4, 2020 , the Company announced that its Board of Directors declared a quarterly cash dividend of $ 0.07 per share on the Company’s common stock, an increase of 17 % and 40 %, respectively, over the third quarter 2020 and second quarter 2020 quarterly cash dividend.

The dividend is payable on December 28, 2020 , to stockholders of record on December 10, 2020 .

On November 4, 2020, the Company announced that its Board of Directors approved the Additional 2020 Share Repurchase Program authorizing the repurchase of up to $ 15 million of its Class A Common Stock through December 31, 2022 .

Under the new program, the Company may purchase its shares from time to time in the open market or in privately negotiated transactions.

The amount and timing of the purchases 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 share repurchase program may be suspended or discontinued at any time.

On November 4, 2020, the Company announced the planned acquisition of THB Asset Management (“THB”), an investment management company headquartered in Norwalk, Connecticut.

THB currently manages approximately $ 435 million in the micro-cap, small-cap and mid-cap asset classes, including U.S., global and international strategies.

Aligning with the Company’s responsible

investing initiatives, all of THB’s strategies have environmental, social and governance (“ESG”) considerations fully integrated into their investment processes.

Subsequent to March 31, 2021, the Company repaid $ 27 million of outstanding term loans for a total debt reduction of $ 388.8 million since July 1, 2019.

On May 6, 2021 , our Board of Directors declared a quarterly cash dividend of $ 0.12 per share on Victory common stock.

The dividend is payable on June 25, 2021 , to stockholders of record on June 10, 2021 .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements