What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2020-11-06 · 154 added, 258 removed, 252 unchanged (62% of the section changed)

1 unchanged sentence

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.

The following discussion is intended to assist in the understanding of our financial position at September 30, 2020 and December 31, 2019, results of operations for the three and nine months ended September 30, 2020 and 2019, and cash flows for the nine months ended September 30, 2020 and 2019, and 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, 2019.

The following discussion is intended to assist in the understanding of our financial position at March 31, 2021 and December 31, 2020, results of operations for the three months ended March 31, 2021 and 2020, and cash flows for the three months ended March 31, 2021 and 2020, and 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, 2020.

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, 2020.

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) a pandemic.

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

We are closely monitoring the impact of the outbreak of COVID-19 on all aspects of our business.

While COVID-19 did not have a material adverse effect on our reported results for our first three quarters, the extent to which the COVID-19 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.

We are a diversified global asset management firm operating a next generation business model combining boutique investment qualities with the benefits of a fully integrated, centralized operating and distribution platform.

We have $132.7 billion in assets under management (“AUM”) as of September 30, 2020.

Our differentiated model features a scalable operating platform that provides centralized distribution, marketing and operations infrastructure to our Franchises and Solutions.

Our Business – We are a diversified global asset management firm with $154.3 billion in assets under management as of March 31, 2021.

The Company operates a next-generation business model combining boutique investment qualities with the benefits of a fully integrated, centralized operating and distribution platform.

We provide specialized investment strategies to institutions, intermediaries, retirement platforms and individual investors.

With 10 autonomous Investment Franchises and a Solutions Platform, Victory Capital offers a wide array of investment styles and investment vehicles including, actively managed mutual funds, institutional separate accounts, separately managed accounts, unified managed account products, collective trust funds, private funds, undertakings for the collective investment in transferrable securities, other pooled vehicles and ETFs.

Our earnings are primarily driven by asset-based fees charged for services related to the investment strategies we deliver and consist of investment management, fund administration and distribution fees.

Our Franchises are operationally integrated, but are separately branded and make investment decisions independently from one another within guidelines established by their respective investment mandates.

Franchises – Our Franchises are operationally integrated but are separately branded and make investment decisions independently from one another within guidelines established by their respective investment mandates.

Our 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.

Victory Capital Management Inc.

(“VCM”) employs all of the Company’s United States investment professionals across our Franchises, which are not separate legal entities.

Our Solutions Platform consists of multi-Franchise and customized solutions strategies that are primarily rules-based.

We offer our Solutions Platform through a variety of vehicles, including separate accounts, unified managed accounts (“UMA”), mutual funds and VictoryShares which is our exchange traded fund (“ETF”) brand.

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-Franchise and customized solutions strategies that are primarily rules-based.

We offer our Solutions Platform through a variety of vehicles, including separate accounts, mutual funds and VictoryShares which is our ETF brand.

Like our Franchises, our Solutions Platform is operationally integrated and supported by our centralized distribution, marketing and operational support functions.

Our approach furthers our commitment to rules‑based investing and includes single and multi‑factor strategies designed to provide a variety of outcomes, including maximum diversification, dividend income, downside mitigation, minimum volatility, thematic and targeted factor exposure.

Our centralized operations functions provide our Franchises and Solutions Platform with the support they need so that they can focus on their investment processes.

Our centralized operations functions include trading platforms, risk and compliance, middle‑ and back‑office support, technology, finance, human resources, accounting and legal.

Although our operations are centralized, we do allow our Franchises a degree of customization with respect to their desired investment support functions, which we believe helps them maintain their individualized investment processes and minimize undue disruptions.

We outsource certain middle ‑ and back ‑office activities, such as sub-transfer agent, trade settlement, portfolio analytics, custodian reconciliation, portfolio accounting, corporate action processing, performance calculation and client reporting, to scaled, recognized service providers, who provide their services to us on a variable ‑cost basis.

Systems and processes are customized as necessary to support our investment processes and operations.

We maintain relationships with multiple vendors for the majority of our outsourced functions, which we believe mitigates vendor ‑specific risk.

We also have information security, business continuity and data privacy programs in place to help mitigate risk.

Outsourcing these functions enables us to grow our AUM, both organically and through acquisitions, without the incremental capital expenditures and working capital that would typically be needed.

Under our direction and oversight, our outsourced model enhances our ability to integrate our acquisitions, as we are experienced in working with our vendors to efficiently bring additional Franchises onto our platform in a cost‑efficient manner.

We believe both the scalability of our business and our cost structure, in which approximately two‑thirds of our operating expenses are variable, should drive industry-leading margins and facilitate free cash flow conversion.

Additionally, we believe having a majority of our expenses tied to AUM and the number of client accounts provides downside margin protection should there be sustained net outflows or adverse market conditions.

Professionals within our institutional, retail and direct distribution channels and marketing organization sell our products through our centralized distribution model.

Our approach to rules‑based investing includes single and multi‑factor strategies designed to provide a variety of outcomes, including maximum diversification, dividend income, downside mitigation, minimum volatility, thematic and targeted factor exposure.

Professionals within our institutional and retail distribution channels, direct to 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 distribution channel serves the investment needs of individual clients including USAA members and the military community.

We have grown our AUM from $17.9 billion following the management-led buyout with Crestview Partners II GP, L.P.

(“Crestview GP”) in August 2013 to $132.7 billion at September 30, 2020.

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 distribution channels with deep penetration.

USAA AMCO Acquisition

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

Our direct to 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 $154.3 billion at March 31, 2021.

THB Asset Management Acquisition – Effective March 1, 2021, the Company completed the acquisition of certain assets of THB Asset Management (“THB”).

The acquisition expands and diversifies our investment platform, adding capacity constrained assets classes that we like and know well.

The team manages strategies in U.S.

micro-cap, small-cap and mid-cap assets classes as well as international small cap and global small cap portfolios;

all of which are asset classes in which active management is an important part of a well-diversified portfolio.

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

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 environmental, social and governance (“ESG”) considerations fully integrated into their investment processes.

THB was an early adopter of responsible investment practices and have been managing responsible investment portfolios for decades.

Nominal consideration was paid for the assets of THB.

The THB investment team will share 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.

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

(“VCTA”), formally known as the USAA Transfer Agency Company.

The transformative acquisition increased AUM by $81.1 billion and significantly impacted our financial results.

The acquisition not only increased AUM and revenue, but also introduced additional personnel expenses and new and additional operating expenses such as third party distribution costs, expenses related to a transfer services agreement with USAA, 529 College Savings Plan, and direct distribution channel expenses that the Company did not incur prior to the acquisition.

The acquisition expanded and diversified our investment platform, particularly in the fixed income and solutions asset classes, and increased our size and scale.

The acquisition increased AUM and revenue and introduced additional personnel expenses and new and additional operating expenses.

In conjunction with the USAA AMCO Acquisition, the Company entered into the 2019 Credit Agreement, dated July 1, 2019, and obtained a seven-year term loan in an aggregate principal amount of $1.1 billion.

All indebtedness outstanding under the previous credit agreement was repaid and terminated as of July 1, 2019.

The USAA AMCO Acquisition expanded and diversified our investment platform, particularly in the fixed income and solutions asset classes, and increased our size and scale.

Additional products added to our investments platform include target date and target risk strategies, managed volatility mutual funds, active fixed income ETFs, sub-advised and multi-manager equity funds.

We have also added to our lineup of asset allocation portfolios and smart beta equity ETFs.

Through the acquisition, the Company has the rights to offer products and services using the USAA brand for a period of time and the opportunity to offer its products to USAA members through a direct distribution channel.

In addition, we have entered into a referral agreement with USAA for members that are interested in investing in USAA Funds or the USAA 529 College Savings Plan.

Total consideration for the USAA AMCO Acquisition was $949.4 million, comprising of $851.3 million of cash paid at closing plus $98.8 million as the estimated fair value of contingent consideration as of the acquisition date less $0.7 million in net working capital adjustments settled in the first quarter of 2020.

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.

The estimated fair value of contingent consideration arrangements as of September 30, 2020 was $120.5 million and consist of the USAA AMCO 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 on the USAA AMCO Acquisition.

In 2020, we paid $37.5 million in cash to sellers for the first annual contingent payment.

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

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.

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.

COVID-19 continues to impact the manner in which we operate.

As of the date of this filing, the majority of our employees are working from home and our employees have significantly reduced business travel.

Additionally, many third-party vendors on whom we rely for certain critical functions are also operating in remote environments.

Given the continued uncertainty surrounding COVID-19, it is difficult to predict how long such remote working conditions and travel restrictions will last, however;

we believe we are operating well under these circumstances, benefitting from the flexible and highly mobile operating environment we have built.

Business Highlights

Assets under management :

AUM at September 30, 2020 increased by $3.6 billion, or 2.8%, to $132.7 billion from $129.1 billion at June 30, 2020, driven by positive market action of $6.6 billion partially offset by net outflows of $3.0 billion.

Net flows for the quarter ended September 30, 2020 were comprised of $2.9 billion of long-term outflows and $0.1 billion of short-term outflows.

AUM at September 30, 2020 and 2019 was $132.7 billion and $145.8 billion, respectively.

We generated $5.4 billion in gross flows and $3.0 billion in net outflows for the three months ended September 30, 2020 compared to $11.9 billion in gross flows and $0.7 billion in net inflows for the same period in 2019.

AUM at September 30, 2020 and 2019 was $132.7 billion and $145.8 billion, respectively.

We generated $30.0 billion in gross flows and $17.8 billion in net outflows for the nine months ended September 30, 2020 compared to $22.5 billion in gross flows and $3.2 billion in net inflows for the same period in 2019.

Net flows for nine months ended September 30, 2020 were comprised of $9.4 billion of long-term outflows and $8.3 billion of short-term outflows.

AUM at March 31, 2021 increased $7.1 billion, or 4.8%, to $154.3 billion from $147.2 billion at December 31, 2020, driven by positive market action of $7.7 billion and acquired assets of $547 million partially offset by net outflows of $1.2 billion.

Net flows for the quarter ended March 31, 2021 were comprised of $1.0 billion of long-term outflows and $0.2 billion of short-term outflows.

AUM at March 31, 2021 and 2020 was $154.3 billion and $123.8 billion, respectively.

We generated $6.8 billion in gross sales including $0.1 billion in short-term gross sales and $1.2 billion in net outflows for the three months ended March 31, 2021 compared to $14.9 billion in gross flows inclusive of $7.7 billion in short-term gross sales and $2.9 billion in net outflows for the same period in 2020.

We experienced $7.7 billion in market appreciation for the three months ended March 31, 2021 compared to $25.2 billion in negative market action for the same period in 2020.

Investment performance :

2 unchanged sentences

On an equal-weighted basis, 58% of our strategies have outperformed their benchmarks over a one-year period, 53% over a three-year period, 61% over a five-year period and 66% over a ten-year period.

Industry achievements and recognition :

We ranked 7 th in “Barron’s Best Fund Families of 2019” for the five-year period and 10 th for the 10-year period ended December 31, 2019.

We ranked 17 th overall on a one-year basis for 2019.

This is the 3 rd consecutive year that we have been ranked among the top 10 best fund families and the 6 th consecutive year that we have been ranked among the top 25 best fund families by Barron’s .

In July 2020, Victory Capital became a signatory to the United Nations-supported Principles for Responsible Investment, broadening our commitment to responsible investing and formalizing what our autonomous Investment Franchises and Solutions Platform have been doing for many years.

Each of our Investment Franchises follows an approach to incorporating environmental, social and governance (“ESG”) considerations that best suits its own investment process or the objectives of its clients.

Financial highlights :

Total revenue for the three months ended September 30, 2020 was $188.7 million compared to $215.0 million for the same period in 2019.

For the nine months ended September 30, 2020 and 2019, total revenue was $575.0 million and $393.8 million, respectively.

Net income was $55.7 million for the three months ended September 30, 2020 compared to $26.0 million for the same period in 2019.

For the nine months ended September 30, 2020 and 2019, net income was $157.6 million and $54.9 million, respectively.

Adjusted EBITDA was $95.6 million for the three months ended September 30, 2020, or 50.7% of revenue, compared to $96.3 million, or 44.8% of revenue, for the same period in 2019.

For the nine months ended September 30, 2020, Adjusted EBITDA was $273.5 million, or 47.6% of revenue, compared to $166.5 million, 42.3% of revenue, for the same period in 2019.

Total revenue for the three months ended March 31, 2021 was $212.9 million compared to $204.4 million for the same period in 2020.

Net income was $65.2 million for the three months ended March 31, 2021 compared to $57.2 million for the same period in 2020.

Adjusted EBITDA was $106.8 million for the three months ended March 31, 2021, or 50.2% of revenue, compared to $91.5 million, or 44.8% of revenue, for the same period in 2020.

Refer to “Supplemental Non-GAAP Financial Information” for further information about the Adjusted EBITDA calculation and reconciliation of generally accepted accounting principles (“GAAP”) net income to Adjusted EBITDA.

Adjusted Net Income with tax benefit was $73.4 million for the three months ended September 30, 2020 compared to $67.3 million for the three months ended September 30, 2019.

For the nine months ended September 30, 2020, Adjusted Net Income with tax benefit was $206.9 million compared to $120.3 million for the same period in 2019.

Adjusted Net Income with tax benefit was $83.6 million for the three months ended March 31, 2021 compared to $68.5 million for the three months ended March 31, 2020.

Refer to “Supplemental Non-GAAP Financial Information” for further information about the Adjusted Net Income calculation and reconciliation of GAAP net income to Adjusted Net Income.

1 unchanged sentence

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,

Three Months Ended March 31,

($ in millions, except for basis points and percentages)

28 unchanged sentences

The following table presents our AUM by asset class as of the dates indicated:

September 30,

(in millions)

7 unchanged sentences

(in millions)

For the Three Months Ended September 30, 2020

Beginning AUM

Gross client cash inflows

Gross client cash outflows

Net client cash flows

Market appreciation / (depreciation)

Net transfers

For the Three Months Ended September 30, 2019

Beginning AUM

Gross client cash inflows

Gross client cash outflows

Net client cash flows

Market appreciation / (depreciation)

Net transfers

(in millions)

Nine Months Ended

September 30, 2020

For the Three Months Ended March 31, 2021

Beginning AUM

4 unchanged sentences

Net transfers

Nine Months Ended

September 30, 2019

For the Three Months Ended March 31, 2020

Beginning AUM

5 unchanged sentences

The following table presents our AUM by distribution channel as of the dates indicated:

As of September 30,

As of March 31,

(in millions)

5 unchanged sentences

Mutual Funds(1)

Three Months Ended September 30, 2020

Beginning AUM

Gross client cash inflows

Gross client cash outflows

Net client cash flows

Market appreciation (depreciation)

Net transfers

Three Months Ended September 30, 2019

Beginning AUM

Gross client cash inflows

Gross client cash outflows

Net client cash flows

Market appreciation (depreciation)

Net transfers

(in millions)

Mutual Funds (1)

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Beginning AUM

4 unchanged sentences

Net transfers

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

Beginning AUM

7 unchanged sentences

funds of funds) in order to adjust for double counting.

Includes collective trust funds, wrap program separate accounts and unified managed accounts or UMAs.

September 30, 2020 AUM compared to June 30, 2020 AUM .

At September 30, 2020, our total AUM was $132.7 billion, an increase of $3.6 billion, or 2.8%, from $129.1 billion at June 30, 2020, primarily driven by positive market action of $6.6 billion partially offset by net outflows of $3.0 billion.

Net outflows were driven by our U.S.

mid cap equity and U.S.

large cap equity strategies as well as our Solutions platform of $1.1 billion, $0.6 billion and $0.5 billion, respectively.

September 30, 2020 AUM compared to December 31, 2019 AUM .

Total AUM decreased by $19.2 billion, or 12.6%, to $132.7 billion at September 30, 2020 compared to $151.8 billion at December 31, 2019.

The decrease in AUM was primarily due to net outflows of $17.8 billion and negative market action of $1.4 billion.

The net outflows were driven by $8.3 billion of money market and short-term assets, $2.6 billion in our fixed income strategies, $2.5 billion in our U.S.

mid cap equity strategies, and $1.9 billion in our Solutions Platform.

Money market and short-term net outflows were primarily due to The Charles Schwab Company’s acquisition of USAA’s Investment Management Company in May 2020.

(3) Includes collective trust funds, wrap program accounts, UMAs, UCITS, private funds and non-U.S.

domiciled pooled vehicles.

March 31, 2021 AUM compared to December 31, 2020 AUM.

At March 31, 2021, our total AUM was $154.3 billion, an increase of $7.1 billion, or 4.8%, from $147.2 billion at December 31, 2020, primarily due to positive market action of $7.7 billion and acquired assets of $547 million partially offset by net outflows of $1.2 billion.

Net inflows into our fixed income strategies of $0.3 billion were offset by net outflows in our U.S.

small cap equity and U.S.

large cap equity strategies of $0.6 billion and $0.3 billion, respectively, as well as net outflows in our Solutions platform and money markets of $0.2 billion each.

GAAP Results of Operations

The following table presents our GAAP results of operations for the three and nine months ended September 30, 2020 and 2019.

The USAA AMCO Acquisition that closed on July 1, 2019 significantly impacted our financial results for the nine months ended September 30, 2020 when compared to the nine months ended September 30, 2019.

Three Months Ended September 30,

Nine Months Ended September 30,

The following table presents our GAAP results of operations for the three months ended March 31, 2021 and 2020.

Three Months Ended March 31,

(in thousands, except per share data)

15 unchanged sentences

Loss on debt extinguishment

Total other expense, net

Total other income (expense), net

Income before income taxes

4 unchanged sentences

Investment Management Fees

Three months ended September 30, 2020 compared to September 30, 2019 .

Investment management fees decreased by $18.2 million, or 11.7%, to $137.2 million for the three months ended September 30, 2020 compared to $155.4 million for the same period in 2019 due to the combination of a decrease in average AUM and a decrease in investment management fee realization over the comparable period.

Average AUM decreased $12.8 billion, or 8.7%, to $133.1 billion for the three months ended September 30, 2020 compared to $145.9 billion for the same period in 2019, largely attributable to net outflows.

Nine months ended September 30, 20 20 compared to September 30 , 201 9 .

Investment management fees increased by $ 106.3 million, or 34.5 %, to $ 414.2 million for the nine months ended September 30, 20 20 from $ 307.9 million for the same period in 201 9 largely attributable to acquired assets in the USAA AMCO acquisition .

Average AUM was $ 135.4 billion and $ 87.7 billion , respectively, for the nine months ended September 30, 20 20 and 201 9 .

Three months ended March 31, 2021 compared to March 31, 2020 .

Investment management fees increased by $13.4 million, or 9.1%, to $160.3 million for the three months ended March 31, 2021 from $146.9 million for the same period in 2020 due to an increase in average AUM year over year.

Average AUM was $151.1 billion for the three months ended March 31, 2021 compared to $144.1 billion for the same period in 2020, largely attributable to positive market action.

Fund Administration and Distribution Fees

Three months ended September 30, 2020 compared to September 30, 2019 .

Fund administration and distribution fees decreased by $8.2 million, or 13.7%, to $51.4 million for the three months ended September 30, 2020 compared to $59.6 million for the same period in 2019 due to the combination of a decrease in average mutual fund AUM over the comparable period and a shift in the mix of assets to lower 12b-1 paying share classes.

Nine months ended September 30, 2020 compared to September 30, 2019 .

Fund administration and distribution fees increased by $74.9 million, or 87.1%, to $160.8 million for the nine months ended September 30, 2020 from $86.0 million for the same period in 2019 due to the addition of $56.8 million in transfer agent fees related to the USAA AMCO Acquisition, partially offset by a decline in fee realization due to a shift in the mix of assets to lower 12b-1 paying share classes.

Three months ended March 31, 2021 compared to March 31, 2020 .

Fund administration and distribution fees decreased by $4.9 million, or 8.5%, to $52.7 million for the three months ended March 31, 2021 from $57.5 million for the same period in 2020 due to the combination of a decrease in transfer agent fees and a shift in the mix of assets to lower 12b-1 paying share classes .

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, 2020 and 2019:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table presents the components of GAAP personnel compensation and benefits expense for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

(in thousands)

9 unchanged sentences

The value of the equity awards is recognized as compensation expense over the vesting period.

Three months ended September 30, 2020 compared to September 30, 2019 .

Personnel compensation and benefits were $47.4 million for the three months ended September 30, 2020, a decrease of $8.2 million, or 14.7%, from $55.6 million for the same period in 2019 primarily attributable to a decrease in incentive compensation.

Incentive compensation and equity awards granted to employees and directors were $22.3 million and $4.2 million, respectively, for the three months ended September 30, 2020, compared to $29.5 million and $4.8 million, respectively, for the same period in 2019.

Salaries, payroll related taxes and employee benefits increased $1.1 million to $17.8 million for the three months ended September 30, 2020 compared to $16.6 million for the same period in 2019 primarily attributable to an increase in headcount.

Nine months ended September 30, 2020 compared to September 30, 2019 .

Personnel compensation and benefits increased by $18.5 million, or 14.7%, to $144.1 million for the nine months ended September 30, 2020 from $125.6 million for the same period in 2019 primarily attributable to an increase in the headcount due to the USAA AMCO Acquisition.

Salaries, payroll related taxes and employee benefits were $54.8 million and $44.2 million, respectively, for the nine months ended September 30, 2020 and 2019.

Incentive compensation and equity awards granted to employees and directors were $63.6 million and $14.1 million, respectively, for the nine months ended September 30, 2020, compared to $60.1 million and $10.1 million, respectively, for the same period in 2019.

Three months ended March 31, 2021 compared to March 31, 2020 .

Personnel compensation and benefits were $59.0 million for the three months ended March 31, 2021, an increase of $11.4 million, or 24.0%, from $47.6 million for the same period in 2020 primarily attributable to the combination of an increase in the change in deferred compensation plan liability as well as an increase in headcount due to the launch of the new direct to investor digital platform.

Incentive compensation and equity awards granted to employees and directors were $23.2 million and $5.5 million, respectively, for the three months ended March 31, 2021, compared to $20.5 million and $6.0 million, respectively, for the same period in 2020.

Salaries, payroll related taxes and employee benefits were $25.2 million and $16.6 million, respectively, for the three months ended March 31, 2021 and 2020.

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, 2020 and 2019:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table presents the components of distribution and other asset-based expenses for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

(in thousands)

4 unchanged sentences

Total distribution and other asset-based expenses

Three months ended September 30, 2020 compared to September 30, 2019 .

Distribution and other asset-based expenses are primarily based on AUM.

For the three months ended September 30, 2020, distribution and other asset-based expenses were $39.1 million, a decrease of $18.1 million, or 31.6%, from $57.2 million for the same period in 2019, primarily due to the combination of a decrease in average mutual fund AUM over the comparable period and a change in asset mix of our underlying retail distribution platforms.

Nine months ended September 30, 2020 compared to September 30, 2019 .

Distribution and other asset-based expenses were $135.6 million for the nine months ended September 30, 2020, an increase of $46.5 million, or 52.1%, from $89.2 million for the same period in 2019 due primarily to the USAA AMCO Acquisition.

The acquisition introduced new operating expenses that the Company did not incur prior to the acquisition, such as platform distribution costs paid to third parties and USAA, sub-transfer agent service costs and 529 College Savings Plan expenses.

Three months ended March 31, 2021 compared to March 31, 2020 .

Distribution and other asset-based expenses are based on amount and composition of AUM.

For the three months ended March 31, 2021, distribution and other asset-based expenses were $42.1 million, a decrease of $12.8 million, or 23.3%, from $54.9 million for the same period in 2020, primarily due to a change in asset mix of our underlying retail distribution platforms .

General and Administrative

Three months ended September 30, 2020 compared to September 30, 2019 .

General and administrative expenses were $13.2 million for the three months ended September 30, 2020 compared to $17.7 million for the same period in 2019.

The decrease of $4.5 million, or 25.3%, was primarily due to the combination of a decrease in costs associated with the transition service agreement related to the USAA AMCO Acquisition and expenses associated with travel and entertainment.

Nine months ended September 30, 2020 compared to September 30, 2019 .

For the nine months ended September 30, 2020 and 2019, general and administrative expenses were $38.4 million and $31.8 million, respectively, for a year over year increase of $6.6 million, or 20.6%.

The increase was primarily due to additional, ongoing costs associated with the transition service agreement related to the USAA AMCO Acquisition.

Also contributing, but to a lesser extent, were increases in facility, technology and professional fees.

Three months ended March 31, 2021 compared to March 31, 2020 .

General and administrative expenses were $13.3 million for the three months ended March 31, 2021 compared to $11.9 million for the same period in 2020.

The increase of $1.4 million, or 12.0%, was primarily due to increases in technology and professional fees partially offset by a reduction in transition service agreement costs related to the USAA AMCO Acquisition, which ended in the fourth quarter 2020.

Depreciation and Amortization

Three months ended September 30, 2020 compared to September 30, 2019 .

Depreciation and amortization decreased by $3.8 million, or 49.3%, to $3.9 million for the three months ended September 30, 2020 from $7.8 million for the same period in 2019, due to a reduction in amortization expense related to definite-lived intangible assets in connection with the Munder Capital Management acquisition that became fully amortized in the fourth quarter of 2019.

Nine months ended September 30, 2020 compared to September 30, 2019 .

Depreciation and amortization decreased by $6.1 million, or 33.4%, to $12.2 million for the nine months ended September 30, 2020 from $18.3 million for the same period in 2019, due to the same factor as discussed above in the quarterly section.

Three months ended March 31, 2021 compared to March 31, 2020 .

Depreciation and amortization increased by $0.3 million, or 8.3%, to $4.4 million for the three months ended March 31, 2021 from $4.1 million for the same period in 2020, due to the addition of depreciation expense related to the launch of the Company’s new direct to investor digital platform, which went live in November 2020.

Change in Value of Consideration Payable for Acquisition of Business

Three months ended September 30, 2020 compared to September 30, 2019 .

The fair value of the contingent consideration associated with the USAA AMCO acquisition increased by $2.0 million, resulting in a change in the estimated fair value of consideration payable of $2.0 million for the three months ended September 30, 2020.

Refer to Note 4, Acquisitions, for further details on the fair value of contingent consideration payable.

Nine months ended September 30, 2020 compared to September 30, 2019 .

The fair value of the contingent consideration associated with the USAA AMCO acquisition increased by $1.8 million, resulting in a change in the estimated fair value of consideration payable of $1.8 million for the nine months ended September 30, 2020.

Three months ended March 31, 2021 compared to March 31, 2020 .

The fair value of the contingent consideration associated with the USAA AMCO acquisition increased by $2.5 million, resulting in a change in the estimated fair value of consideration payable of $2.5 million for the three months ended March 31, 2021.

Refer to Note 4, Acquisitions, for further details on the fair value of contingent consideration payable.

Acquisition‑Related Costs

Three months ended September 30, 2020 compared to September 30, 2019 .

Acquisition-related costs were $1.1 million and $16.4 million for the three months ended September 30, 2020 and 2019, respectively.

The expense decrease is primarily due to costs recorded as a result of the USAA AMCO acquisition in July 2019 and include various transaction costs such as legal and filing fees and other professional fees.

Nine months ended September 30, 2020 compared to September 30, 2019 .

Acquisition-related costs for the nine months ended September 30 , 20 20 and 201 9 were $1.1 million and $ 22 .

0 million, respectively.

The expense decrease was due to the same factors as discussed above in the quarterly section.

Three months ended March 31, 2021 compared to March 31, 2020 .

Acquisition-related costs were relatively flat at ($0.2) million and ($0.1) million for the three months ended March 31, 2021 and 2020, respectively.

Restructuring and Integration Costs

Three months ended September 30, 2020 compared to September 30, 2019 .

Restructuring and integration costs for the three months ended September 30, 2020 were $1.3 million and $4.8 million for the three months ended September 30, 2019.

The decrease is primarily due to a decrease in severance costs related to the USAA AMCO Acquisition.

Nine months ended September 30, 2020 compared to September 30, 2019 .

Restructuring and integration costs were $4.9 million and $6.6 million, respectively, for the nine months ended September 30, 2020 and 2019, with the decrease due to the same factors as discussed above in the quarterly section.

Three months ended March 31, 2021 compared to March 31, 2020 .

Restructuring and integration costs for the three months ended March 31, 2021 and 2020 were $2.1 million and $1.0 million, respectively.

The increase is primarily due personnel restructuring within the direct to investor business.

Interest Income and Other Income/(Expense)

Three months ended September 30, 2020 compared to September 30, 2019 .

Interest income and other income (expense) was income of $1.1 million for the three months ended September 30, 2020 compared to income of $2.7 million for the same period in 2019.

The decrease was primarily due to a gain on sale of an equity method investment in Cerebellum Capital, LLC (“Cerebellum Capital”) recorded for the three months ended September 30, 2019.

Nine months ended September 30, 2020 compared to September 30, 2019 .

For the nine months ended September 30, 2020 and 2019, interest income and other income/(expense) was expense of $0.1 million and income of $5.2 million, respectively.

The decrease was primarily due to the same factors as discussed above in the quarterly section, as well as net unrealized gains on deferred compensation plan investments and higher yields on our cash invested in money market accounts recorded for the nine months ended September 30, 2019.

Three months ended March 31, 2021 compared to March 31, 2020 .

Interest income and other income/(expense) was income of $2.7 million for the three months ended March 31, 2021 compared to expense of $4.2 million for the same period in 2020.

The income for the three months ended March 31, 2021 was due to a $2.6 million increase in the net unrealized fair value of deferred compensation plan investments compared to a $4.8 million reduction in the net unrealized fair value of deferred compensation plan investments for the same period in 2020.

Interest Expense and Other Financing Costs

Three months ended September 30, 2020 compared to September 30, 2019 .

Interest expense and other financing costs were $8.2 million for the three months ended September 30, 2020, compared to $16.9 million for the same period in 2019.

The expense decrease is largely due to a decrease in interest payments as a result of a decline in our term loan interest rate and a lower debt principal balance.

Nine months ended September 30, 2020 compared to September 30, 2019 .

For the nine months ended September 30, 2020 and 2019, interest expense and other financing costs were $29.3 million and $26.0 million, respectively.

The expense increase is primarily due to the increase in interest payments as a result of a higher debt principal balance over the comparable period as a result of the Company entering into the 2019 Credit Agreement on July 1, 2019 in conjunction with the USAA AMCO acquisition.

Three months ended March 31, 2021 compared to March 31, 2020 .

Interest expense and other financing costs decreased $4.6 million to $6.8 million for the three months ended March 31, 2021, compared to $11.4 million for the same period in 2020 due a decrease in interest payments as a result of a lower debt principal balance and interest rate over the comparable period.

Loss on Debt Extinguishment

Three months ended September 30, 2020 compared to September 30, 2019 .

For the three months ended September 30, 2020 and 2019, loss on debt extinguishment was $0.8 million and $7.4 million, respectively.

The expense decrease is primarily due to the write-off of unamortized debt issuance costs and unamortized debt discount in the third quarter of 2019 as a result of the termination of the previous credit agreement, dated February 2018.

Nine months ended September 30, 2020 compared to September 30, 2019 .

Loss on debt extinguishment was $1.7 million and $7.4 million for the nine months ended September 30, 2020 and 2019, respectively.

The expense decrease was due to the same factors as discussed above in the quarterly section.

Three months ended March 31, 2021 compared to March 31, 2020 .

Loss on debt extinguishment was $2.8 million and $1.1 million, respectively, for the three months ended March 31, 2021 and 2020.

The Company wrote-off a pro-rata portion of the unamortized debt issuance costs and unamortized debt discount due to accelerating the paydown of debt principal under the 2019 Credit Agreement and 2021 term loan repricing.

The Company paid down $50.0 million of debt during the first quarter of 2021 compared to $38.0 million for the same period in 2020.

Refer to Note 9, Debt, for further details on the 2019 Credit Agreement.

Income Tax Expense

Three months ended September 30, 2020 compared to September 30, 2019 .

The effective tax rate for the three months ended September 30, 2020 and 2019 was 23.4% and 23.7%, respectively.

The slight decrease in the effective tax rate was due to the combination of decreased excess tax benefits on share-based compensation and decreased expense related to state uncertain tax positions over the comparable period.

Refer to Note 8, Income Taxes, for further details on our income taxes.

Nine months ended September 30, 2020 compared to September 30, 2019 .

For the nine months ended September 30, 2020 and 2019, the effective tax rate was 23.5% and 24.0%, respectively.

The change in the effective tax rate was due to the same factors as discussed above in the quarterly section.

Refer to Note 8, Income Taxes, for further details on our income taxes.

Three months ended March 31, 2021 compared to March 31, 2020 .

The effective tax rate for the three months ended March 31, 2021 and 2020 was 21.3% and 22.7%, respectively.

The decrease in the effective tax rate was primarily due to higher excess tax benefits on share-based compensation.

Supplemental Non‑GAAP Financial Information

4 unchanged sentences

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,

Three Months Ended March 31,

(in thousands)

10 unchanged sentences

Debt issuance costs (7)

Losses from equity method investments (8)

Earnings/losses from equity method investments (8)

Adjusted EBITDA

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

16 unchanged sentences

(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.

Adding back direct incremental costs of acquisitions, including restructuring costs.

Three Months Ended September 30,

Nine Months Ended September 30,

(6) Adding back direct incremental costs of acquisition s, including restructuring costs.

Three Months Ended March 31,

(in thousands)

9 unchanged sentences

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.

Acquired intangible assets and goodwill may be amortized for tax purposes, generally over a 15-

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.

5 unchanged sentences

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 will continue to monitor our liquidity.

The following table shows our liquidity position as of September 30, 2020 and December 31, 2019.

September 30,

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 March 31, 2021 and December 31, 2020.

(in thousands)

1 unchanged sentence

Accounts and other receivables

Undrawn commitment on revolving credit facility

Undrawn commitment on credit facility (1)

Accounts and other payables

The balance at March 31, 2021 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.

2 unchanged sentences

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, 2020 and December 31, 2019 (under the 2019 Credit Agreement) which had $100.0 million undrawn as of September 30, 2020 and December 31, 2019.

2019 Credit Agreement and 2020 Debt Repricing

We maintained a $100.0 million revolving credit facility at March 31, 2021 and December 31, 2020 (under the 2019 Credit Agreement) which had approximately $100.0 million undrawn as of March 31, 2021 and December 31, 2020.

2019 Credit Agreement and 2020 and 2021 Debt Repricing

All indebtedness outstanding under the previous credit agreement was repaid and terminated as of July 1, 2019.

As of September 30, 2020, the Company has repaid or repurchased and retired $262.8 million of the outstanding term loans under the 2019 Credit Agreement.

As of September 30, 2020, we were in compliance with our financial performance covenant.

During the first quarter, the Company reduced outstanding debt by an additional $50.0 million.

Subsequent to March 31, 2021, the Company reduced outstanding debt by $27.0 million, for a total debt reduction of $388.8 million since July 1, 2019.

As of March 31, 2021, we were in compliance with our financial performance covenant.

Refer to Note 4, Acquisitions, to the unaudited condensed consolidated financial statements for further details on the USAA AMCO Acquisition, as well as Note 9, Debt, for further information on the 2019 Credit Agreement.

On January 17, 2020, we 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 (the “Repriced Term Loans”).

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.

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.

On February 18, 2021, the Company entered into the Second Amendment (the “Second Amendment”) to the 2019 Credit Agreement, as amended, 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 refinanced the existing term loans (the “Existing Term Loans”) with replacement term loans in an aggregate principal amount of $755.7 (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 1, 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 2.50%, compared to 3.25% under the Existing Term Loans.

Refer to Note 9, Debt, for further information on the r epricing .

In April 2020, the Company established a trading account to opportunistically take advantage of potential short-term trading arbitrage with respect to our term loan.

An alternative to principal prepayments, this allows us to buy back our outstanding term loan in the open market and retire the debt.

This alternative is preferable to principal prepayments when our debt trades at a discount to par.

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 in 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 in outstanding term loans and recorded a $0.8 million loss on debt extinguishment.

Subsequent to September 30, 2020, we reduced the outstanding term loan principal by an additional $20.0 million through prepayments, for a total debt reduction of $282.8 million since July 1, 2019.

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

Refer to Note 9, Debt, for further information on the repricing.

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.

At September 30, 2020, the $450 million notional value Swap had a fair value of $11.8 million, which was included in other liabilities on the unaudited Condensed Consolidated Balance Sheets.

For the three and nine months ended September 30, 2020, the Company recognized a loss, net of tax, of $0.7 million and $9.0 million, respectively, in accumulated other comprehensive loss.

For the three and nine months ended September 30, 2020, the Company reclassified a loss of $0.7 million and $0.2 million, respectively, from accumulated other comprehensive loss to interest expense and other financing costs on the unaudited Condensed Consolidated Statements of Operations.

At March 31, 2021, the $450 million notional value Swap had a fair value of $4.2 million, which was included in other assets on the unaudited Condensed Consolidated Balance Sheets.

For the three months ended March 31, 2021, the Company recognized income, net of tax, of $10.8 million in accumulated other comprehensive income (loss).

For the three months ended March 31, 2021, the Company reclassified a loss of $0.8 million 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.

5 unchanged sentences

The following table is derived from our unaudited Condensed Consolidated Statements of Cash Flows:

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

2 unchanged sentences

Net cash used in financing activities

Operating Activities – Cash provided by operating activities during the nine months ended September 30, 2020 was $182.7 million, compared to $167.7 million of cash provided by operating activities for the same period in 2019.

The $15.0 million increase in cash provided by operating activities was primarily due to a $102.7 million and $18.7 million increase in net income and non-cash items, partially offset by a $106.4 million net decrease in working capital source of cash.

The net decrease in working capital source of cash was primarily due to accrued expenses and compensation which was a $48.7 million use of cash for the nine months ended September 30, 2020 compared to a $77.3 million source of cash for the same period last year due to the timing of new operating expenses as a result of the USAA AMCO Acquisition.

The acquisition introduced new operating expenses that the Company did not incur prior to the acquisition, such as distribution costs paid to third parties and USAA, sub-transfer agent service costs, 529 College Savings Plan expenses, and direct member channel expenses.

Investing Activities – Cash used in investing activities during the nine months ended September 30, 2020 was $10.5 million and consisted of property and equipment purchases of $7.0 million, $1.6 million of net trading activity and $1.5 million for an equity investment in Alderwood Partners LLP (“Alderwood”).

Cash used in investing activities during the nine months ended September 30, 2019 was $845.9 million and consisted primarily of $851.3 million paid in cash at the July 1, 2019 closing of the USAA AMCO Acquisition, partially offset by $10.6 million in proceeds from the Company selling 100% of its equity investment in Cerebellum Capital, LLC (“Cerebellum”).

Financing Activities – Cash used in financing activities during the nine months ended September 30 , 20 20 was $ 153.0 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 $ 113.4 million, $ 22.8 million , $ 11.5 million, and $ 5.9 million, respectively.

Cash provided by financing activities during the nine months ended September 30, 2019 was $705.7 million and was mostly attributable to $1,069 million of net proceeds from the 2019 Credit Agreement, partially offset by the repayment and termination of the previous credit agreement (dated February 2018) of $280.0 million.

The Company also paid $63.0 million of the outstanding term loans under the 2019 Credit Agreement in the third quarter of 2019 and a dividend to stockholders in the amount of $3.4 million and $0.5 million in cash bonuses and distributions related to dividends previously declared upon vesting of restricted stock and stock option awards.

Operating Activities – Cash provided by operating activities during the three months ended March 31, 2021 was $79.6 million, compared to $51.9 million of cash provided by operating activities for the same period in 2020.

The $27.7 million increase in cash provided by operating activities was primarily due to an $8.0 million increase in net income, $8.1 million increase in non-cash items, a $11.6 million net increase in working capital items.

Cash provided by operating activities during the three months ended March 31, 2020 was $51.9 million and consisted of $57.2 million of net income and $15.7 million of non-cash items, partially offset by $20.9 million in working capital items.

Investing Activities – Cash used in investing activities during the three months ended March 31, 2021 was $1.1 million and consisted of net trading activity of $0.7 million and $0.4 million of property and equipment purchases.

The nature of our trading activities is further described in Note 2, Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Cash used in investing activities during the three months ended March 31, 2020 was $2.2 million and consisted of net trading activity of $1.5 million and $0.7 million of property and equipment purchases.

Financing Activities – Cash used in financing activities during the three months ended March 31, 2021 was $70.8 million and was mostly attributable to repayment of long-term debt under the 2019 Credit Agreement, repurchases of common stock, payment of taxes related to net share settlements, and payment of dividends of $50.0 million, $7.7 million, $7.7 million and $6.4 million, respectively.

Cash used in financing activities during the three months ended March 31, 2020 was $49.6 million and was mostly attributable to repayment of long-term debt under the 2019 Credit Agreement, repurchases of common stock, and payment of dividends of $38.0 million, $6.0 million and $3.5 million, respectively.

Contractual Obligations

On January 17, 2020, we entered into 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 its Term Loan, lowering the interest rate spread by 75 basis points, from 3.25% over LIBOR, to 2.50% over LIBOR.

On March 27, 2020, the Company executed 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.

As of September 30, 2020, the Company recorded an $11.8 million liability, representing the fair value of the swap, which is included in other liabilities in the unaudited Condensed Consolidated Balance Sheets.

Refer to Note 14, Derivatives, for further discussion regarding the swap transaction.

For the nine month period ended September 30, 2020, the Company recorded a $1.8 million increase in contingent consideration arrangement liabilities representing the USAA AMCO Acquisition earn-out payment liability, which is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets.

On February 18, 2021, the Company entered into 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 its Term Loan, lowering the interest rate spread by 25 basis points, from 2.50% over LIBOR, to 2.25% over LIBOR.

For the three months ended March 31, 2021, the Company recorded a $2.5 million increase in the USAA AMCO Acquisition contingent payment liability, which is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets.

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.

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, 20 20 .

4 unchanged sentences

Holders of restricted stock awards that are unvested at the time the quarterly dividends are declared are entitled to be paid these dividends as and when the restricted stock vests.

As of 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.

As of 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.

On September 20, 2020, the Company acquired, through a wholly owned subsidiary, a 15% interest in Alderwood.

On September 20, 2020, the Company acquired, through a wholly owned subsidiary, a 15% interest in Alderwood and made a capital contribution 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.

1 unchanged sentence

Until these conditions are satisfied, the Company does not have an obligation to contribute the additional capital and has not met the recognition criteria for a liability.

On March 8, 2021, the Company announced that one of the conditions had been met.

Alderwood Capital had received authorization from the Financial Conduct Authority of the United Kingdom and Alderwood’s private fund had been formally launched to investors.

Refer to Note 15, Equity Method Investment, for further discussion regarding the investment.

5 unchanged sentences

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 2. Management’s Discussion and Analysis