What changed in this filing

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Item 1. Financial Statements

2021-11-08 compared with 2021-08-06 · 191 added, 125 removed, 594 unchanged (35% of the section changed)

4 unchanged sentences

(In thousands, except shares data)

June 30, 2021

September 30, 2021

December 31, 2020

35 unchanged sentences

(In thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Investment management fees

13 unchanged sentences

Interest expense and other financing costs

Gain (loss) on debt extinguishment

Loss on debt extinguishment

Total other expense, net

9 unchanged sentences

(In thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Other comprehensive income (loss), net of tax

18 unchanged sentences

Exercise of options

Other comprehensive loss

Other comprehensive income

Share-based compensation

11 unchanged sentences

Balance, June 30, 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 income

Share-based compensation

Dividends paid

Balance, September 30, 2021

Treasury Stock

22 unchanged sentences

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.

3 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities

12 unchanged sentences

Accrued compensation and benefits

Deferred compensation plan liability

Other liabilities

4 unchanged sentences

Sales of investments

Purchase of equity method investment

Cost of asset acquisition

1 unchanged sentence

Cash flows from financing activities

Issuance of Class A common stock, net of underwriter discount

Issuance of Class A common stock

Issuance of Class B common stock from exercise of stock options

29 unchanged sentences

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

On September 13, 2021, the Company announced that VCM had reached a definitive agreement to acquire 100 % of New Energy Capital Partners (“NEC”).

Founded in 2004 and based in Hanover, New Hampshire, NEC is an alternative asset management firm focused on debt and equity investments in clean energy infrastructure projects and companies.

On November 1, 2021, the acquisition of NEC was completed, resulting in NEC becoming the Company’s eleventh investment franchise.

On September 24, 2021, the Company filed a Registration Statement on Form S-3 on behalf of Crestview Victory, Crestview, Reverence Capital Partners Opportunities Fund I, L.P., Reverence Capital Partners Opportunities Fund I (Cayman), L.P., and Reverence Capital Partners Opportunities Fund I (AI), L.P.

(collectively, the “Reverence Capital Funds”) and RCP Lake Co-Invest, L.P.

(the “Selling Shareholders”) to permit the Selling Shareholders to sell up to 44,973,804 shares of the Company’s Class A common stock from time to time.

On October 13, 2021, the Form S-3 was declared effective.

On September 27, 2021, the Company announced that its Board of Directors approved amendments to its corporate charter and bylaws to eliminate the Company’s dual-class share structure.

The charter amendment is subject to shareholder approval at a Special Meeting of Stockholders scheduled for November 19, 2021.

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.

11 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 six-month periods ending June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Certain prior period amounts have been reclassified to conform to the current year presentation.

Operating results for the

three- and nine -month period s end ing September 30 , 20 2 1 are not necessarily indicative of the results that may be expected for the year ending December 31, 20 2 1 .

Principles of Consolidation

10 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 six months ended June 30, 2021.

COVID-19 did not have a material adverse effect on our reported results for the three and nine months ended September 30, 2021.

New Accounting Pronouncements

21 unchanged sentences

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.

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”).

5 unchanged sentences

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.

As outlined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, the Company has approximately $ 16.5 million in undiscounted, future minimum cash commitments under net operating leases.

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 the current credit agreement.

1 unchanged sentence

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

19 unchanged sentences

(in thousands)

June 30, 2021

September 30, 2021

December 31, 2020

14 unchanged sentences

Variable consideration is included in the transaction price only when it is probable that a significant reversal of such revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

Investment management, fund adminis t ration and fund distribution fees are generally considered variable consideration as they are typically calculated as a percentage of AUM.

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.

32 unchanged sentences

Fund transfer agent fees are determined based on the contractual rate applied to either the average daily net assets of the USAA Funds for which transfer agent services are provided or number of accounts in the USAA Funds.

Revenue is recorded on a monthly basis when the value of

consideration is measured using actual average daily net assets or actual number of accounts and constraints are removed.

The Company’s fund transfer agent f ee revenue is recorded in fund administration and distribution fees in the unaudited Condensed Consolidated Statements of Operations.

Revenue is recorded on a monthly basis when the value of consideration is measured using actual average daily net assets or actual number of accounts and constraints are removed.

The Company’s fund transfer agent fee revenue is recorded in fund administration and distribution fees in the unaudited Condensed Consolidated Statements of Operations.

The Company also receives fees for sub-transfer agency services under contracts with the Victory Funds for member class shares.

21 unchanged sentences

The fair value of assets under management of the Victory Funds, USAA Funds and VictoryShares is primarily determined using quoted market prices or independent third-party pricing services or broker price quotes.

In limited circumstances, a quotation or price evaluation is not readily available from a pricing service.

In limited circumstances, a quotation or price

evaluation is not readily available from a pricing service.

In these cases, pricing is determined by management based on a prescribed valuation process that has been approved by the directors/trustees of the sponsored products.

1 unchanged sentence

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

NEC Acquisition

On September 13, 2021, the Company announced that VCM had reached a definitive agreement to acquire 100 % of NEC.

Founded in 2004 and based in Hanover, New Hampshire, NEC is an alternative asset management firm focused on debt and equity investments in clean energy infrastructure projects and companies.

On November 1, 2021, the acquisition of NEC was completed, resulting in NEC becoming the Company’s eleventh investment franchise.

Under the terms of the purchase agreement, the Company paid the sellers approximately $ 65 million in cash at closing and will pay up to an additional $ 35 million in cash based on revenue growth over a six year period following the closing date.

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.

On March 1, 2021, the Company completed the acquisition of certain assets of 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.

9 unchanged sentences

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 as of June 30, 2021.

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 as of September 30, 2021.

The estimated fair value of contingent consideration payable to sellers is determined using the real options method.

3 unchanged sentences

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 June 30, 2021 and December 31, 2020 are as follows and are approximate values:

June 30, 2021

Significant inputs to the valuation of contingent consideration payable to sellers as of September 30, 2021 and December 31, 2020 are as follows and are approximate values:

September 30, 2021

December 31, 2020

7 unchanged sentences

$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 $ 100.7 million at June 30, 2021 as compared to $ 92.5 million at December 31, 2020.

The increase in the liability of $ 5.7 million and $ 8.2 million in the three and six months ended June 30, 2021, respectively, and an increase of $ 5.3 million and decrease of $ 0.2 million for the three and six months ended June 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 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 $ 103.1 million at September 30, 2021, which included $ 37.5 million expected to be paid for the second earnout period, as compared to $ 92.5 million at December 31, 2020.

The increase in the liability of $ 2.4 million and $ 10.6 million in the three and nine months ended September 30, 2021, respectively, and an increase of $ 2.0 million and $ 1.8 million for 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 .

Acquisition-Related Costs

Costs related to acquisitions are summarized below and include legal and filing fees, advisory services, mutual fund proxy voting costs and other one-time expenses related to the transactions.

Costs related to acquisitions include legal and filing fees, advisory services, mutual fund proxy voting costs and other one-time expenses related to completed and potential transactions.

These costs are included in acquisition-related costs in the unaudited Condensed Consolidated Statements of Operations.

Acquisition-related costs

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

USAA AMCO Acquisition

Total acquisition-related costs

For the three and nine months ended September 30, 2021, the Company recorded $ 6.0 million and $ 6.3 million, respectively, in acquisition-related costs related to the NEC, THB and USAA AMCO acquisitions and other transactions.

Included in these amounts is an estimated liability for one-time payments related to the USAA AMCO Acquisition for assets not acquired in the transaction.

Restructuring and Integration Costs

In connection with business combinations, asset purchases and changes in business strategy, the Company incurs costs integrating investment platforms, products and personnel into existing systems, processes and service provider arrangements and restructuring the business to capture operating expense synergies.

The following table presents the rollforward of restructuring and integration liabilities, which are recorded in accounts payable and accrued expenses in the unaudited Condensed Consolidated Balance Sheets, for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in millions)

Liability balance, beginning of period

Severance Expense - USAA AMCO

Severance Expense - THB

Integration costs - USAA AMCO

Integration costs - THB

Severance expense

Integration costs

Total restructuring and integration costs

1 unchanged sentence

Liability balance, end of period

Restructuring and integration costs incurred in the three and nine month periods in 2021 and 2020 primarily relate to the USAA AMCO Acquisition.

Fair Value Measurements

8 unchanged sentences

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

As of June 30, 2021

As of September 30, 2021

(in thousands)

6 unchanged sentences

Financial Liabilities

Interest Rate Swap Liability

Contingent Consideration Arrangements (1)

11 unchanged sentences

Total Financial Liabilities

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

Level 1 assets consist of money market funds and open-end mutual funds.

3 unchanged sentences

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 June 30, 2021 and in other liabilities as of December 31, 2020.

On February 18, 2021, pursuant to the Second Amendment, the Company lowered the spread on the Term Loan by 0.25 % resulting in a new fixed rate of 3.215 % on the $ 450 million of Term Loan subject to the Swap.

The fair value of the Swap is included in the unaudited Condensed Balance Sheets in other assets at September 30, 2021 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).

5 unchanged sentences

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 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 six months ended June 30, 2021.

Changes in the fair value of contingent consideration arrangement liabilit ies , realized or unrealized, are recorded in earnings and are included in c hange in value of consideration payable for acquisition of business in the u naudited Condensed Consolidated Statements of Operations.

The following table presents the change in contingent consideration arrangement liabilities for the nine months ended September 30, 2021.

(in thousands)

2 unchanged sentences

USAA AMCO change in fair value measurement

Balance, June 30, 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 June 30, 2021.

Balance, September 30, 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 September 30, 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 June 30, 2021 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 September 30, 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.

1 unchanged sentence

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 VC S 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.

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.

The Company receives investment management, administrative and compliance fees in accordance with contracts that VCM has with the VictoryShares.

9 unchanged sentences

(in thousands)

June 30, 2021

September 30, 2021

December 31, 2020

7 unchanged sentences

Accounts payable and accrued expenses (fund reimbursements)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

6 unchanged sentences

Interest income and other income (expense)

At June 30, 2021 and December 31, 2020, the Company had investments in proprietary funds and deferred compensation plan investments.

At September 30, 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.

5 unchanged sentences

(in thousands)

As of June 30, 2021

As of September 30, 2021

As of December 31, 2020

Unrealized and realized gains and losses on investments in proprietary funds are recognized in the accompanying unaudited Condensed Consolidated Statements of Operations as “Interest income and other income (expense).” Proceeds from sales and realized gains and losses from investments in proprietary funds in the periods ended June 30, 2021 and 2020 were as follows:

(in thousands)

For the three months ended June 30, 2021

For the three months ended June 30, 2020

There were no proceeds from sales and realized gains and losses from investments in proprietary funds for the three months ended September 30, 2021 and 2020.

Sales and realized gains and losses for the nine months ended September 30, 2021 and 2020 were as follows:

(in thousands)

For the six months ended June 30, 2021

For the six months ended June 30, 2020

For the nine months ended September 30, 2021

For the nine months ended September 30, 2020

Deferred Compensation Plan Investments

2 unchanged sentences

(in thousands)

As of June 30, 2021

As of September 30, 2021

As of December 31, 2020

Proceeds from sales of deferred compensation plan investments and realized gains and losses recognized during the three and six months ended June 30, 2021 and 2020 are as follows :

Proceeds from sales of deferred compensation plan investments and realized gains and losses recognized during the three and nine months ended September 30, 2021 and 2020 are as follows :

(in thousands)

For the three months ended June 30, 2021

For the three months ended June 30, 2020

For the three months ended September 30, 2021

For the three months ended September 30, 2020

(in thousands)

For the six months ended June 30, 2021

For the six months ended June 30, 2020

The effective tax rate for the three and six months ended June 30, 2021 and 2020 differs from the United States federal statutory rate primarily as a result of state and local income taxes and excess tax benefits on share-based compensation.

For the three months ended June 30, 2021 and 2020, the provision for income taxes was $ 20.6 million and $ 14.5 million, or 22.9 % and 24.5 %, of pre-tax income respectively.

For the six months ended June 30, 2021 and 2020, the provision for income taxes was $ 38.3 million and $ 31.3 million, or 22.2 % and 23.5 % of pre-tax income, respectively.

The effective tax rate for the three and six months ended June 30, 2021 was lower than the effective tax rate for the same periods in 2020 mainly due to higher excess tax benefits on share-based compensation.

No valuation allowance was recorded for deferred tax assets in the periods ended June 30, 2021 and 2020.

For the nine months ended September 30, 2021

For the nine months ended September 30, 2020

The effective tax rate for the three and nine months ended September 30, 2021 and 2020 differs from the United States federal statutory rate primarily as a result of state and local income taxes and excess tax benefits on share-based compensation.

For the three months ended September 30, 2021 and 2020, the provision for income taxes was $ 18.2 million and $ 17.0 million, or 19.7 % and 23.4 %, of pre-tax income respectively.

For the nine months ended September 30, 2021 and 2020, the provision for income taxes was $ 56.5 million and $ 48.3 million, or 21.3 % and 23.5 % of pre-tax income, respectively.

The effective tax rate for the three and nine months ended September 30, 2021 was lower than the effective tax rate for the same periods in 2020 mainly due to higher excess tax benefits on share-based compensation.

No valuation allowance was recorded for deferred tax assets in the periods ended September 30, 2021 and 2020.

2020 Debt Repricing

7 unchanged sentences

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

During the six months ended June 30, 2021 and 2020, the Company incurred costs of $ 0.4 million and $ 0.9 million related to the Second Amendment and First Amendment, respectively, which were recorded in general and administrative expense in the unaudited Condensed Consolidated Statements of Operations ($ 0 for the three months ended June 30, 2021 and 2020).

The following table summarizes the components of long-term debt in the unaudited Condensed Consolidated Balance Sheets at June 30, 2021 and December 31, 2020:

During the nine months ended September 30, 2021 and 2020, the Company incurred costs of $ 0.4 million and $ 0.9 million related to the Second Amendment and First Amendment, respectively, which were recorded in general and administrative expense in the unaudited Condensed Consolidated Statements of Operations ($ 0 for the three months ended September 30, 2021 and 2020).

The following table summarizes the components of long-term debt in the unaudited Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020:

(in thousands)

June 30, 2021

September 30, 2021

December 31, 2020

7 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 June 30, 2021, there were no outstanding borrowings under the revolving credit facility and the Company was in compliance with its financial performance covenant.

Repayments of outstanding term loans under the 2019 Credit Agreement totaled $ 57.0 million and $ 107.0 million for the three and six months ended June 30, 2021, respectively.

Refer to Note 16, Subsequent Events, for information related to term loan activity subsequent to June 30, 2021.

The Company recognized a loss on debt extinguishment of $ 1.1 million and $ 3.9 million in the three and six months ended June 30, 2021, respectively, due to repayments of term loan principal and entering into the Second Amendment.

A total of $ 33.3 million and $ 71.3 million of the outstanding term loans under the 2019 Credit Agreement was repaid or repurchased and retired during the three and six months ended June 30, 2020 , respectively .

The Company recognized a net gain on debt extinguishment of $ 0.1 million and a net loss on debt extinguishment of $ 0.9 million in the three and six months ended June 30, 2020 due to term loan repurchases and repayments and entering into the First Amendment.

As of September 30, 2021, there were no outstanding borrowings under the revolving credit facility and the Company was in compliance with its financial performance covenant.

Refer to Note 16, Subsequent Events, for information related to borrowings under the revolving credit facility subsequent to September 30, 2021.

Repayments of outstanding term loans under the 2019 Credit Agreement totaled $ 35.0 million and $ 142.0 million for the three and nine months ended September 30, 2021, respectively.

The Company recognized a loss on debt extinguishment of $ 0.7 million and $ 4.6 million in the three and nine months ended September 30, 2021, respectively, due to repayments of term loan principal and entering into the Second Amendment.

A total of $ 43.5 million and $ 114.8 million of the outstanding term loans under the 2019 Credit Agreement was repaid or repurchased and retired during the three and nine months ended September 30, 2020, respectively.

The Company recognized a net loss on debt extinguishment of $ 0.8 million and $ 1.7 million in the three and nine months ended September 30, 2020 due to term loan repurchases and repayments and entering into the First Amendment.

On November 4, 2021, in connection with executing the WestEnd Purchase Agreement, the Company secured commitments for a $ 505.0 million senior secured incremental first lien term loan B facility.

See Note 16, Subsequent Events, for additional information on the incremental facility.

Interest Expense

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 June 30, 2021 and 2020 :

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

(in thousands)

2 unchanged sentences

Amortization of debt discount

Interest rate swap expense (income)

Interest rate swap expense

Shares Rollforward

17 unchanged sentences

Balance, June 30, 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, September 30, 2021

Shares of Common Stock Issued

15 unchanged sentences

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

Share Repurchase Program

On May 13, 2021, 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.

In May 2021, 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 Board’s authorization does not obligate the Company to acquire any particular amount of Class A common stock.

The amount and timing of purchases under the share repurchase program authorized in May 2021 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 and six months ended June 30, 2021, the Company repurchased 288,130 and 574,680 shares of Class A common stock at a total cost of $ 8.3 million and $ 15.4 million for an average price of $ 28.89 and $ 26.88 per share.

At June 30, 2021, a total of $ 11.7 million was available for future repurchases under the current share repurchase program, and a cumulative total of 3,757,662 shares of Class A common stock had been repurchased under programs authorized by the Company’s Board of Directors at a total cost of $ 63.3 million for an average price of $ 16.84 per share.

The program can be modified, 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 and nine months ended September 30, 2021, the Company repurchased 188,525 and 763,205 shares of Class A common stock at a total cost of $ 6.3 million and $ 21.7 million for an average price of $ 33.29 and $ 28.46 per share.

As of September 30, 2021, a total of $ 5.4 million was available for future repurchases under the current share repurchase program, and a cumulative total of 3,946,187 shares of Class A common stock had been repurchased under programs authorized by the Company’s Board of Directors at a total cost of $ 69.6 million for an average price of $ 17.63 per share.

Dividend Payments

Dividends paid or payable for the three and six months ended June 30, 2021 totaled $ 8.2 million and $ 14.7 million, respectively, and included $ 8.1 million and $ 14.2 million for quarterly dividends and $ 0.1 million and $ 0.5 million in cash bonuses and distributions related to dividends previously declared upon vesting of restricted stock and stock option awards.

Dividends paid or payable for the three and nine months ended September 30, 2021 totaled $ 10.8 million and $ 25.5 million, respectively, and included $ 10.2 million and $ 24.4 million for quarterly dividends and $ 0.6 million and $ 1.1 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 June 30, 2021, the Company issued restricted stock awards for 19,032 shares of common stock, of which awards for 9,536 shares were fully vested on the grant date, awards for 6,595 shares vest based on service over a two year period, and awards for 2,901 shares vest based on service over a three year period.

For the six months ended June 30, 2021, the Company issued restricted stock awards for 250,600 shares of common stock, of which awards for 19,104 shares were fully vested on the grant date, awards for 6,595 shares vest based on service over a two year period, and awards for 224,901 shares vest based on service over a three year period.

Stock option award and restricted stock award activity during the six months ended June 30, 2021 and 2020 was as follows:

During the three months ended September 30, 2021, the Company issued restricted stock awards for 10,153 shares of common stock, of which awards for 8,178 shares were fully vested on the grant date and awards for 1,975 shares vest based on service over a three year period.

For the nine months ended September 30, 2021, the Company issued restricted stock awards for 260,753 shares of common stock, of which awards for 27,282 shares were fully vested on the grant date, awards for 6,595 shares vest based on service over a two year period, and awards for 226,876 shares vest based on service over a three year period.

Stock option award and restricted stock award activity during the nine months ended September 30, 2021 and 2020 was as follows:

Shares Subject to Stock Option Awards

Six Months Ended June 30,

Nine Months Ended September 30,

Outstanding at beginning of period

1 unchanged sentence

Restricted Stock Awards

Six Months Ended June 30,

Nine Months Ended September 30,

Avg wtd grant-

4 unchanged sentences

Unvested at end of period

At June 30, 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 $ 1.2 million, which was not recorded as a liability as of the balance sheet date.

At September 30, 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 $ 0.8 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.

The Company recorded $ 4.3 million and $ 3.9 million of share-based compensation expense in the three months ended June 30, 2021 and 2020, respectively, and $ 9.9 million of share-based compensation in the six months ended June 30, 2021 and 2020, in personnel compensation and benefits in the unaudited Condensed Consolidated Statements of Operations.

The Company recorded $ 4.0 million and $ 3.6 million of share-based compensation expense in the three months ended September 30, 2021 and 2020, respectively, and $ 13.9 million and $ 13.5 million of share-based compensation in the nine months ended September 30, 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 months ended June 30, 2021 and 2020:

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, 2021 and 2020:

Three Months Ended

Six 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 were de minimus in amount for the three months ended June 30, 2021 and for the six months ended June 30, 2021 and 2020.

Outstanding instruments excluded from the computation of weighted average shares for diluted earnings per share because the effect would be anti-dilutive was $ 0.6 million for the three months ended June 30, 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 Income (Loss )

The following table presents changes in accumulated other comprehensive income (loss) by component for the six months ended June 30, 2021 and 2020.

The following table presents changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2021 and 2020.

(in thousands)

1 unchanged sentence

Other comprehensive income (loss) before reclassification and tax

Reclassifications, before tax

Reclassification adjustments, before tax

Net current period other comprehensive income (loss)

Balance, June 30, 2021

Balance, September 30, 2021

Balance, December 31, 2019

Other comprehensive income (loss) before reclassification and tax

Reclassifications, before tax

Net current period other comprehensive income (loss)

Balance, June 30, 2020

Other comprehensive loss before reclassification and tax

Reclassification adjustments, before tax

Net current period other comprehensive loss

Balance, September 30, 2020

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

3 unchanged sentences

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 June 30, 2021 were $ 450 million – 0.965 % – July 1, 2026 .

The notional value, fixed rate of interest and expiration date of the Swap as of September 30, 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 and six months ended June 30, 2021 and since inception, the Swap was deemed to be highly effective.

For the three and nine months ended September 30, 2021 and since inception, the Swap was deemed to be highly effective.

The Swap is designated as a cash flow hedge.

1 unchanged sentence

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 June 30, 2021 of $ 0.8 million is recorded in other liabilities in the unaudited Condensed Consolidated Balance Sheets.

The following table summarizes the classification of the Swap in the unaudited Condensed Consolidated Balance Sheets at June 30, 2021 (in thousands):

The amount payable to the Swap counterparty at September 30, 2021 of $ 0.9 million is recorded in other liabilities in 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, 2021 (in thousands):

Balance Sheets

June 30, 2021

September 30, 2021

December 31, 2020

2 unchanged sentences

Notional amount

The following table summarizes the effects of the Swap in the unaudited Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020 (in thousands):

The following table summarizes the effects of the Swap in the unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Statement of Operations

Interest expense and other financing costs

(Loss) gain reclassified from AOCI(L)

Loss reclassified from AOCI(L)

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Statements of Comprehensive Income

7 unchanged sentences

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.

Given the level of

ownership interest in Alderwood, which is an English limited liability partnership, and the fact that Alderwood will maintain specific ownership accounts for investors, the Company accounts for its investment in Alderwood using the equity method of accounting.

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

At June 30, 2021 and December 31, 2020, the Company’s equity method investment in Alderwood totaled $ 1.3 million and $ 1.4 million, respectively.

At September 30, 2021 and December 31, 2020, the Company’s equity method investment in Alderwood totaled $ 1.2 million and $ 1.4 million, respectively.

Gains and losses from equity method investments are recorded in interest income and other income (expense) in the unaudited Condensed Consolidated Statements of Operations.

For the three and six months ended June 30, 2021, losses from equity method investments were $ 0.1 million ($ 0 for the three and six months ended June 30, 2020).

For the three and nine months ended September 30, 2021, losses from equity method investments were $ 0.1 million and $ 0.2 million, respectively ($ 0 for the three and nine months ended September 30, 2020).

SUBSEQUENT EVENTS

Subsequent to June 30, 2021, the Company repaid $ 35 million of outstanding term loans for a total debt reduction of $ 453.8 million since July 1, 2019.

On August 5, 2021 , our Board of Directors declared a quarterly cash dividend of $ 0.15 per share on Victory common stock.

The dividend is payable on September 27, 2021 , to stockholders of record on September 10, 2021 .

On October 12, 2021, the Company paid $ 37.5 million in cash to sellers for the second annual earn out period for the USAA AMCO Acquisition.

On and effective November 1, 2021, the Company completed its acquisition of NEC.

The Company paid approximately $ 65 million in cash at closing, funded by cash on hand and $ 7.5 million in borrowings against its revolving line of credit.

On November 4, 2021 , our Board of Directors declared a quarterly cash dividend of $ 0.17 per share on Victory common stock.

The dividend is payable on December 10, 2021 , to stockholders of record on December 27, 2021 .

WestEnd Advisors, LLC Purchase Agreement

On November 4, 2021, the Company entered into a definitive agreement (the “WestEnd Purchase Agreement”) with WestEnd Advisors, LLC (“WestEnd”), pursuant to which the Company has agreed to purchase 100 % of the equity interests of WestEnd (the “WestEnd Acquisition”) on the terms and subject to the conditions therein.

Founded in 2004, and headquartered in Charlotte, North Carolina, WestEnd is an ETF strategist advisor that provides financial advisors with a turnkey, core model allocation strategy for either a holistic solution or complementary source of alpha.

The firm offers four primary ETF strategies and one large cap core strategy, all in tax efficient Separately Managed Account (SMA) structures.

The aggregate purchase price (the “WestEnd Purchase Price”) to be paid by the Company is (i) $ 480 million in cash, payable at the closing of the WestEnd acquisition (the “WestEnd Closing”) and (ii) contingent earn-out payments based on net revenue of the WestEnd business during each of the first four years following the WestEnd Closing, subject to certain “catch-up” provisions over a five and one half year period following the WestEnd Closing.

A maximum of $ 320.0 million ($ 80.0 million per year) in earn-out payments may be paid.

The WestEnd Purchase Price is subject to adjustments based on the level of client consents received, net working capital, debt, cash and unpaid transaction expenses.

Closing is subject to customary approvals, conditions and consents.

In connection with entering into the WestEnd Purchase Agreement, the Company secured commitments for a $ 505.0 million senior secured incremental first lien term loan B facility.

The availability of the incremental facility is subject to the satisfaction of certain customary conditions precedent.

Neither the closing of the incremental facility, nor the receipt of any other financing, is a condition to the WestEnd Closing.

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