What changed in this filing

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Item 1. Financial Statements

2022-05-09 compared with 2021-11-08 · 393 added, 332 removed, 453 unchanged (62% of the section changed)

4 unchanged sentences

(In thousands, except shares data)

September 30, 2021

March 31, 2022

December 31, 2021

13 unchanged sentences

Stockholders' equity

Class A common stock, $ 0.01 par value per share:

2021 - 400,000,000 shares authorized, 20,149,558 shares issued and 16,203,371 shares outstanding;

2020 - 400,000,000 shares authorized, 19,388,671 shares issued and 16,205,689 shares outstanding

Class B common stock, $ 0.01 par value per share:

Common stock, $ 0.01 par value per share:

2022 - 600,000,000 shares authorized, 77,947,578 shares issued and 68,789,615 shares outstanding;

1 unchanged sentence

Additional paid-in capital

Class A treasury stock, at cost:

2021 - 3,946,187 shares;

2020 - 3,182,982 shares

Class B treasury stock, at cost:

Treasury stock, at cost:

2022 - 9,157,963 shares;

2021 - 8,579,593 shares

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Retained earnings

6 unchanged sentences

(In thousands, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Investment management fees

10 unchanged sentences

Income from operations

Other (expense) income

Interest income and other (expense) income

Other income (expense)

Interest income and other income (expense)

Interest expense and other financing costs

Loss on debt extinguishment

Total other expense, net

Total other income (expense), net

Income before income taxes

8 unchanged sentences

(In thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Other comprehensive income (loss), net of tax

Net unrealized income (loss) on cash flow hedges

Net unrealized income (loss) on foreign currency translation

Net unrealized income on cash flow hedges

Net unrealized loss on foreign currency translation

Total other comprehensive income (loss), net of tax

5 unchanged sentences

(In thousands)

Treasury Stock

Comprehensive

(Loss) Income

Balance, December 31, 2021

Issuance of common stock

Share conversion - Class B to A

Repurchase of shares

6 unchanged sentences

Balance, March 31, 2022

Issuance of common stock

Share conversion - Class B to A

Repurchase of shares

Shares withheld related to net settlement of equity awards

Vesting of restricted share grants

Exercise of options

Other comprehensive loss

Share-based compensation

Dividends paid

Balance, June 30, 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

8 unchanged sentences

Exercise of options

Other comprehensive loss

Other comprehensive income

Share-based compensation

1 unchanged sentence

Balance, March 31, 2021

Issuance of common stock

Share conversion - Class B to A

Repurchase of shares

Shares withheld related to net settlement of equity awards

Vesting of restricted share grants

Exercise of options

Other comprehensive loss

Share-based compensation

Dividends paid

Balance, June 30, 2020

Issuance of common stock

Share conversion - Class B to A

Repurchase of shares

Shares withheld related to net settlement of equity awards

Vesting of restricted share grants

Exercise of options

Other comprehensive loss

Share-based compensation

Dividends paid

Balance, September 30, 2020

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

3 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities

5 unchanged sentences

Change in fair value of contingent consideration obligations

Unrealized (appreciation) depreciation on investments

Unrealized depreciation (appreciation) on investments

Noncash lease expense

Loss on equity method investment

11 unchanged sentences

Purchase of equity method investment

Cost of asset acquisition

Acquisition of business and assets, net of cash acquired

Net cash used in investing activities

Cash flows from financing activities

Issuance of Class A common stock

Issuance of Class B common stock from exercise of stock options

Issuance of common stock

Repurchase of common stock

Payments of taxes related to net share settlement of equity awards

Repayments and repurchases of long-term senior debt

Repayment of long-term senior debt

Payment of dividends

Receipt of consideration for acquisition

Net cash used in financing activities

6 unchanged sentences

Cash paid for income taxes

Noncash items

Operating lease right-of-use assets obtained in exchange for new operating lease liabilities

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

7 unchanged sentences

On February 12, 2018, the Company completed the initial public offering (the “IPO”) of its Class A common stock, which trades on the NASDAQ under the symbol “VCTR.”

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

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

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

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

(“VCTA”), formally known as the USAA Transfer Agency Company d/b/a USAA Shareholder Account Services.

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

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

VCM is a registered investment adviser managing assets through mutual funds, institutional separate accounts, separately managed account products, unified managed account products, third-party ETF model strategies, collective trust funds, private funds, undertakings for the collective investment in transferrable securities, other pooled vehicles and ETFs.

VCM also provides mutual fund administrative services for the Victory Portfolios, Victory Variable Insurance Funds and the mutual fund series of the Victory Portfolios II (collectively, the “Victory Funds”), a family of open-end mutual funds, the VictoryShares (the Company’s ETF brand), as well as the USAA Mutual Fund Business, which includes the USAA Mutual Fund Trust, a family of open-end mutual funds (the “USAA Funds”).

Additionally, VCM employs all of the Company’s United States investment professionals across its Franchises and Solutions, which are not separate legal entities.

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

Ltd., RS Investments (Hong Kong) Limited, RS Investments (UK) Limited, Victory Capital Digital Assets, LLC and NEC Pipeline LLC.

VCS is registered with the SEC as an introducing broker-dealer and serves as distributor and underwriter for the Victory Funds, the USAA Funds and the USAA 529 Education Savings Plan as well as placement agent for certain private funds managed by VCM.

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

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

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

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

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

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

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

On November 1, 2021, the Company completed the acquisition of New Energy Capital Partners (“NEC”), resulting in NEC becoming the Company’s eleventh investment franchise.

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

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.

VCM also provides mutual fund administrative services for the Victory Portfolios, Victory Variable Insurance Funds, Victory Institutional Funds and the mutual fund series of the Victory Portfolios II (collectively, the “Victory Funds”), a family of open-end mutual funds, the VictoryShares (the Company’s ETF brand), as well as the USAA Mutual Fund Business, which includes the USAA Mutual Fund Trust, a family of open-end mutual funds (the “USAA Funds”).

Additionally, VCM employs all of the Company’s United States investment professionals across its Franchises and Solutions, which are not separate legal entities.

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

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

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

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

At November 1, 2021, the NEC AUM that was acquired totaled $ 795 million.

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

On December 31, 2021, the Company completed the acquisition of WestEnd Advisors, LLC (“WestEnd”), resulting in WestEnd becoming the Company’s twelfth investment franchise.

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

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

At December 31, 2021, the WestEnd AUM that was acquired totaled $ 19.3 billion.

WestEnd is a wholly-owned subsidiary of Victory Capital Holdings, Inc.

and is the Company’s second registered investment adviser.

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

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

On November 19, 2021, the Company’s stockholders voted on and approved the Amendment eliminating the Company’s dual-class stock structure.

Upon the filing of the Amendment on November 23, 2021, all shares of Class B common stock were converted into an equal number of shares of Class A common stock and the Company’s Class A common stock was renamed as “Common Stock.” All references within this document to Class A common stock for periods prior to November 23, 2021 have been updated for the renaming.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting.

Accordingly, they do not include all of the information and notes required by GAAP for complete annual financial statements.

As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the

consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

In the opinion of management, the consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial condition, results of operations, and cash flows for the interim periods presented.

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

Operating results for the

three- and nine -month 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 .

Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

Principles of Consolidation

2 unchanged sentences

Alderwood’s operating entity, Alderwood Capital, is a London-based investment advisory firm focused on taking minority stakes in specialist boutique asset management businesses.

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

The Company’s involvement with non-consolidated variable interest entities (“VIEs”) include sponsored investment funds.

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

The Company accounts for this investment using the equity method of accounting.

The Company’s involvement with non-consolidated variable interest entities (“VIEs”) includes sponsored investment funds.

For further discussion regarding VIEs, refer to Note 2, Significant Accounting Policies, in our Annual Report on Form 10-K for the year ended December 31, 2021.

4 unchanged sentences

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

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

Financial markets experienced significant declines during the first quarter of 2020, although certain markets, including domestic equity securities, experienced recoveries that more than offset the first quarter decline.

While COVID-19 did not have a material adverse effect on our business, operations and financial results, the extent to which the pandemic impacts our business, operations and financial results going forward will depend on numerous evolving factors that we may not be able to accurately predict, including:

the duration and scope of the pandemic;

governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic;

the impact of the pandemic on economic activity and actions taken in response;

and the effect on our ability to sell and provide our services.

Lease Accounting Policy

The Company’s leases consist primarily of real estate leases for office space.

The Company determines if an arrangement is a lease at contract inception.

A lease liability and a corresponding right of use ("ROU") asset are recognized on the commencement date for leases with terms longer than one year.

Lease liabilities represent an obligation to make lease payments arising from a lease while ROU assets represent a right to use an underlying asset during the lease term.

The lease liability is measured at the present value of the future lease payments over the lease term generally using the Company's incremental borrowing rate, which is determined through market sources.

Lease components and non-lease components such as fixed maintenance and other costs are combined into one lease component and capitalized in lease liabilities.

Variable lease payments, such as utilities and common area maintenance charges, are excluded from lease liabilities and expensed as incurred.

The variable lease payments are determined based on terms in the lease contracts and primarily relate to usage of the ROU asset and services received from the lessor.

A ROU asset is measured initially as the value of the lease liability plus initial direct costs and prepaid lease payments and less lease incentives received.

The lease term includes periods covered by options to extend the lease when it is reasonably certain that we will exercise that option.

Lease expense is recognized on a straight-line basis over the lease term and is recorded in general and administrative expenses on the unaudited Condensed Consolidated Statements of Operations.

New Accounting Pronouncements

Accounting Standards Adopted in 2022

Effective January 1, 2022 , the Company adopted ASU 2016‑02, “Leases (Topic 842)” (the “New Lease Standard”) which supersedes previous lease guidance, Accounting Standards Codification (“ASC”) Topic 840 (“ASC Topic 840”).

The New Lease Standard required lessees to recognize a right-of-use (“ROU”) asset and a lease liability for all leases (with the exception of short-term leases) on their balance sheet at the commencement date and recognize expenses on their income statement similar to ASC Topic 840 guidance.

In addition, the FASB issued ASU 2018-11, “Leases Targeted Improvements,” which provided a package of practical expedients for entities to apply upon adoption.

The Company adopted the New Lease Standard using the modified retrospective method of applying the new standard at the adoption date.

We elected the package of practical expedients permitted under the transition guidance which allowed us to carry forward historical lease classification s for existing and expired leases and not reassess existing lease initial direct costs.

In addition, we elected for all classes of underlying assets not to separate lease and non-lease components of a contract.

We also elected the practical expedients to determine the likelihood of an extension or reduction in lease terms at commencement through adoption of the New Lease Standard and to not apply the New Lease Standard to leases with terms of one year or less.

The adoption of the New Lease Standard resulted in the recognition of $ 18.7 million of operating lease ROU assets and the corresponding operating lease liabilities on the unaudited Condensed Consolidated Balance Sheet and the reclassification of $ 1.7 million of deferred rent liabilities relating to these leases, reducing operating lease ROU assets.

The consolidated balance sheet prior to January 1, 2022 was not restated and continues to be reported under the Legacy ASC Topic 840, which did not require the recognition of operating lease ROU assets and liabilities.

The expense recognition for operating leases and finance leases under the New Lease Standard is consistent with the Legacy ASC Topic 840.

As a result, there is no significant impact to our results of operations, liquidity or debt covenant compliance under our current credit agreements.

The following table presents the impact of adopting the New Lease Standard on our consolidated balance sheet (in thousands).

Balance at December 31, 2021

New Lease Standard

Balance at January 1, 2022

Total liabilities

Total liabilities and stockholders' equity

The lease liability recorded for our operating leases on January 1, 2022 was based on the present value of the remaining minimum lease payments discounted using our secured incremental borrowing rate on that date for the average remaining term for our lease portfolio.

Accounting Standards Adopted in 2021

Internal-Use Software:

9 unchanged sentences

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

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

The amendments in this guidance are effective for all entities from March 12, 2020 through December 31, 2022, and the amendments for contract modifications may be applied as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020.

Interest payable on the Company’s outstanding term loans under the 2019 Credit Agreement and amounts receivable or payable under the Company’s Swap are based on the three month LIBOR rate.

The Company is currently assessing the practical expedients and exceptions available under ASU 2020-04 as it prepares for the future discontinuance of this LIBOR rate.

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

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

Currently, the Company elects to use the three-month LIBOR rate plus the margin on LIBOR required by the 2019 Credit Agreement to pay interest on its debt.

The 2019 Credit Agreement provides for a mechanism for determining an alternative interest rate following the phase-out of LIBOR, which for the three-month rate is expected to occur following the publication of LIBOR rates on June 30, 2023.

Expected Credit Losses:

2 unchanged sentences

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

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

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

As an emerging growth company (“EGC”), the

Company will adopt ASU 2016-13 on January 1, 2023 and is currently reviewing the effect of this new standard on its consolidated financial statements .

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

The New Lease Standard requires lessees to recognize a right-of-use asset and a lease liability for all leases (with the exception of short-term leases) on their balance sheet at the commencement date and recognize expenses on their income statement similar to ASC Topic 840 guidance.

In addition, the FASB issued ASU 2018-11, Leases Targeted Improvements, which provides a package of practical expedients for entities to apply upon adoption.

The CECL impairment model requires companies to consider the risk of loss even if it is

remote and to include forecasts of future economic conditions as well as information about past events and current conditions.

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

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

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

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

As outlined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, the Company has approximately $ 16.5 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.

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 .

REVENUE RECOGNITION

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

Three Months Ended September 30,

Nine Months Ended September 30,

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

Three Months Ended March 31,

(in thousands)

19 unchanged sentences

(in thousands)

September 30, 2021

March 31, 2022

December 31, 2021

13 unchanged sentences

Revenue is recognized in the amount of variable or fixed consideration allocated to the satisfied performance obligation that Victory expects to be entitled to in exchange for transferring services to a customer.

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

Variable consideration is included in the

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

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

9 unchanged sentences

Control of investment management services is transferred to the customers over time as these customers receive and consume the benefits provided by these services.

Investment management fees are calculated as a contractual percentage of AUM and are generally paid in arrears on a monthly or quarterly basis.

Investment management fees are calculated as a contractual percentage of AUM and are primarily paid in arrears on a monthly or quarterly basis.

AUM represents the financial assets the Company manages for clients on either a discretionary or non-discretionary basis.

In general, AUM reflects the valuation methodology that corresponds to the basis used for determining revenue such as net asset value for the Victory Funds, USAA Funds and certain other pooled funds and account market value for separate accounts.

For the NEC Funds, AUM represents limited partner capital commitments during the commitment period of the fund.

Following the earlier of the termination of the commitment period and the beginning of any commitment period for a successor fund, AUM generally represents, depending on the fund, the lesser of a) the net asset value of the fund and b) the aggregated adjusted cost basis of each unrealized portfolio investment or the limited partner capital commitments reduced by the amount of capital contributions used to make portfolio investments that have been disposed.

Investment management fees are recognized as revenue using a time-based output method to measure progress.

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Performance-based investment management fees recognized as revenue in the current period may pertain to performance obligations satisfied in prior periods.

Fulcrum fee arrangements include a performance fee adjustment, increasing or decreasing the total investment management fee depending on whether the assets being managed experienced better or worse investment performance than the index specified in the customer’s contract.

The performance fee adjustment arrangement with certain equity and fixed income USAA Funds took effect on July 1, 2020 and is calculated monthly based on the investment performance of those funds relative to their specified benchmark indexes over the discrete performance period ending with that month.

Fulcrum fee arrangements include a performance fee adjustment that increases or decreases the total investment management fee depending on whether the assets being managed experienced better or worse investment performance than the index specified in the customer’s contract.

The performance fee adjustment arrangement with certain equity and fixed income USAA Funds is calculated monthly based on the investment performance of those funds relative to their specified benchmark indexes over the discrete performance period ending with that month.

Fund Administration Fees

1 unchanged sentence

Fund administration fees are determined based on the contractual rate applied to average daily net assets of the Victory Funds, USAA Funds and VictoryShares for which administration services are provided.

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

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

Revenue is recorded on a monthly basis when the value of

consideration is measured using actual average daily net assets and constraints are removed.

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

The Company has contractual arrangements with a third party to provide certain sub-administration services.

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

As the Company is the primary obligor under the transfer agency contracts with the USAA Funds and has the ability to select the service provider and establish pricing, fund transfer agent fees and sub-transfer agent expenses are recorded on a gross basis.

We are the primary obligor under the transfer agency contracts with the USAA Funds and have the ability to select the service provider and establish pricing.

As a result, fund transfer agent fees and sub-transfer agent expenses are recorded on a gross basis.

Fund Distribution Fees

7 unchanged sentences

The Company is the primary obligor under the contracts with the Victory Funds and USAA Funds and has the ability to select the service provider and establish pricing.

Substantially all of the Company’s revenue is recorded gross of payments made to third parties.

Substantially all of the Company’s fund distribution fees are recorded gross of payments made to third parties.

Costs Incurred to Obtain or Fulfill Customer Contracts

7 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.

The same prescribed valuation process is used to price securities in separate accounts and other vehicles for which a quotation or price evaluation is not readily available from a pricing service.

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, including without limitation, (i) certain investment advisory and business contracts, (ii) certain books and records, (iii) the investment performance track record, and (iv) all business intellectual property and proprietary software, and hired the THB investment team, resulting in THB becoming the Company’s tenth investment franchise.

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

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

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

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

The same prescribed valuation process is used to price securities in separate accounts and the Company’s other non-alternative investment vehicles for which a quotation or price evaluation is not readily available from a pricing service.

The fair value of Level III assets held by alternative investment vehicles is determined under the respective valuation policy for each fund.

The valuation policies address the fact that substantially all the investments of a fund may not have readily available market information and therefore the fair value for these assets is typically determined using unobservable inputs and models that may include subjective assumptions.

AUM reported by the Company for alternative investment vehicles may not necessarily equal the funds’ net asset values or the total fair value of the funds’ portfolio investments as AUM represents the basis for calculating management fees.

For the periods presented, less than one percent of the Company’s total AUM were Level III assets priced without a quoted market price, broker price quote or pricing service quotation.

USAA AMCO Acquisition

On and effective July 1, 2019, the Company completed the USAA AMCO Acquisition which expanded and diversified the Company’s investment platform and increased the Company’s size and scale.

The acquisition also provided the Company the rights to offer products and services using the USAA brand and the opportunity to offer its products to USAA members through a direct distribution channel.

A maximum of $ 150.0 million ($ 37.5 million per year) in contingent payments is payable to sellers based on the annual revenue of USAA Adviser attributable to all “non-managed money”-related AUM in each of the first four years following the closing.

Under the terms of the USAA AMCO Acquisition purchase agreement, a maximum of $ 150.0 million ($ 37.5 million per year) in contingent payments is payable to sellers based on the annual revenue of USAA Adviser attributable to all “non-managed money”-related AUM in each of the first four years following the closing.

To receive any contingent payment in respect of “non-managed money”-related assets for a given year, annual revenue from “non-managed money”-related assets must be at least 80 % of the revenue run-rate (as calculated under the Stock Purchase Agreement) of the USAA Adviser’s “non-managed money”-related assets under management as of the closing date, and to achieve the maximum contingent payment for a given year, such annual revenue must total at least 100 % of that closing date revenue run-rate.

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

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 September 30, 2021.

At March 31, 2022, a maximum of $ 75.0 million in contingent consideration ($ 37.5 million per year for the remaining 2 years of the earn out period) was payable to sellers.

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

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

Significant assumptions and inputs include the “non-managed money” revenue projected annual growth rate, the market price of risk, which adjusts the projected revenue growth rate to a risk-neutral expected growth rate, revenue volatility and discount rate.

The market price of risk and revenue volatility are based on data for comparable companies.

Significant assumptions and inputs include the “non-managed money” revenue projected annual growth rate, the market price of risk adjustment for revenue, which adjusts the projected revenue growth rate to a risk-neutral expected growth rate, revenue volatility and discount rate.

The market price of risk adjustment for revenue and revenue volatility are based on data for comparable companies.

As the contingent consideration represents a subordinate, unsecured claim of the Company, the Company assesses a discount rate which incorporates adjustments for credit risk and the subordination of the contingent consideration.

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

September 30, 2021

Significant inputs to the valuation of contingent consideration payable to sellers as of March 31, 2022 and December 31, 2021 are as follows and are approximate values:

March 31, 2022

December 31, 2021

Non-managed money revenue average annual growth rate

Market price of risk (continuous)

Market price of risk

Revenue volatility

2 unchanged sentences

Undiscounted estimated remaining earn out payments in millions

$105.9 - $112.5

$97.7 - $112.5

The estimated fair value of contingent consideration payable to sellers is recorded in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets and was estimated at $ 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 .

The estimated fair value of contingent consideration payable to sellers at March 31, 2022 was estimated at $ 66.0 million and is recorded in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets.

The decrease in the liability of $ 2.8 million from $ 68.8 million at December 31, 2021 was recorded in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.

THB Acquisition

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

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

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

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

NEC Acquisition

On November 1, 2021, VCM completed the acquisition of 100 % of the equity interests in NEC.

Founded in 2004 and based in Hanover, New Hampshire, NEC is an alternative asset management firm focused on debt and equity investments in clean energy infrastructure projects and companies through four active private closed-end funds (the “NEC Funds”).

The estimated purchase price for the NEC Acquisition is $ 63.1 million, which includes $ 62.8 million in cash paid at closing, net of cash acquired, and $ 0.3 million of net working capital adjustments paid in cash to sellers in March 2022.

Under the terms of the purchase agreement, the Company will pay up to an additional $ 35.0 million in cash based on net revenue growth over a six year period following the closing date.

The purchase agreement specifies net revenue and payment targets for the 36 -month, 48 -month and 60 -month periods beginning on November 30, 2021 (the “Start Date”) for the contingent payments.

It also provides for advance payments and catch-up payments to be made based on actual NEC net management fee revenue, as defined in the purchase agreement, as measured at the end of each 12 month anniversary of the Start Date over a six year period.

The maximum amount of contingent payments is due, less any contingent payments previously paid, upon the occurrence of certain specified events within a five year period following the Start Date.

The Company determined that substantially all of the contingent payments payable per the NEC purchase agreement represent compensation for post-closing services.

Accordingly, these contingent payments were excluded from the purchase price for the NEC Acquisition and a liability for these contingent payments was not recorded on the acquisition date.

The Company records compensation expense over the estimated service period on a straight-line basis in an amount equal to the total contingent payments currently forecasted to be paid.

In the first quarter of 2022, the Company recorded $ 1.8 million in NEC contingent payment compensation expense, which is included in personnel compensation and benefits in the unaudited Condensed Consolidated Statements of Operations.

At March 31, 2022, the liability for NEC contingent payments totaled $ 2.9 million, which is included in accrued compensation and benefits in the unaudited Condensed Consolidated Balance Sheets.

The NEC Acquisition purchase price of $ 63.1 million was allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date.

The Company used an independent valuation specialist to assist with the determination of fair value for certain of the acquired assets and assumed liabilities disclosed below.

The carried interests in the existing NEC Funds were not acquired in the transaction.

The excess purchase price over the estimated fair values of assets acquired and liabilities assumed of $ 41.0 million was recorded to goodwill in the unaudited Condensed Consolidated Balance Sheets, all of which is expected to be deductible for tax purposes.

The goodwill arising from the acquisition primarily results from future earnings and cash flows from new funds expected to be launched on the NEC alternative investment platform.

The following table presents the estimated amounts of assets acquired and liabilities assumed as of the acquisition date, net of cash acquired:

(in thousands)

Investment management fees receivable

Other receivables and prepaid expenses

Property and equipment

Other intangible assets (1)

Accounts payable and accrued expenses

Purchase price, net of cash acquired

Includes $ 14.0 million for definite-lived customer relationships with a 6 year estimated useful life and $ 9.7 million for definite-lived investment advisory contracts with a 2 year estimated useful life, which are recorded in other intangible assets, net on the unaudited Condensed Consolidated Balance Sheets.

As of March 31, 2022, the purchase price allocation for the NEC Acquisition is preliminary as all of the customary post-closing purchase adjustments have not been finalized.

The final purchase price allocation may reflect changes to the provisional valuations for accounts payable and accrued expenses.

Adjustments will be made, as necessary, during the measurement period of up to one year after the closing date.

WestEnd Acquisition

On December 31, 2021, the Company completed the acquisition of 100 % of the equity interests of WestEnd.

Founded in 2004, and headquartered in Charlotte, North Carolina, WestEnd is an ETF strategist advisor that provides financial advisors with a turnkey, core

model allocation strategy for either a holistic solution or complementary source of alpha.

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

The aggregate purchase price (the “WestEnd Purchase Price”) for the WestEnd Acquisition is estimated at $ 716.1 million, net of cash acquired, which includes (i) $ 475.8 million in cash paid at closing (the “WestEnd Closing”) net of cash acquired, plus the acquisition date value of contingent payments due to sellers of $ 239.7 million plus $ 0.6 million payable in cash for net working capital adjustments.

The contingent earn-out payments are based on net revenue of the WestEnd business during each of the first four years following the WestEnd Closing, subject to certain “catch-up” provisions over a five and one half year period following the WestEnd Closing.

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

In connection with the closing of the WestEnd Acquisition, the Company entered into the Third Amendment to the 2019 Credit Agreement and obtained incremental term loans in an aggregate principal amount of $ 505.0 million to fund the acquisition and pay fees and expenses related to the transaction.

Please refer to Note 9, Debt, for more information on the 2021 Incremental Term Loans.

A total of $ 2.9 million of the cash paid at closing was placed in escrow, of which $ 0.5 million was available for purchase price adjustments and $ 2.4 million is available to compensate the Company for eligible claims under the purchase agreement’s indemnification provisions.

In April 2022, the Company paid $ 0.6 million in cash to sellers for net working capital adjustments and the $ 0.5 million in escrow funds reserved for purchase price adjustments was released to sellers.

The purchase price of $ 716.1 million was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of the WestEnd Acquisition.

The Company used an independent valuation specialist to assist with the determination of fair value for certain of the acquired assets and assumed liabilities disclosed below.

The excess purchase price over the estimated fair values of assets acquired and liabilities assumed of $ 536.0 million was recorded to goodwill in the unaudited Condensed Consolidated Balance Sheets, all of which is expected to be deductible for tax purposes.

The goodwill arising from the acquisition primarily results from revenue synergies expected from combining WestEnd and Victory distribution platforms and sales efforts .

The following table presents the estimated amounts of assets acquired and liabilities assumed as of the acquisition date, net of cash acquired:

(in thousands)

Investment management fees receivable

Prepaid expenses and other assets

Property and equipment

Other intangible assets (1)

Accounts payable and accrued expenses

Accrued compensation and benefits

Other liabilities

Purchase price, net of cash acquired

Includes $ 172.5 million for definite-lived customer relationship assets with a 10 year estimated useful life and $ 3.0 million for a definite-lived trade name asset with a 7 year estimated useful life, which are recorded in other intangible assets, net on the unaudited Condensed Consolidated Balance Sheets.

As of March 31, 2022, the purchase price allocation for the WestEnd Acquisition is preliminary as all customary post-closing purchase adjustments have not been finalized.

The final purchase price allocation may reflect changes to the provisional valuations for accounts payable and accrued expenses.

Adjustments will be made, as necessary, during the measurement period of up to one year after the closing date.

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

WestEnd net revenue growth is simulated in a risk-neutral framework to calculate expected probability-weighted earn out payments, which are then discounted from the expected payment dates at the relevant cost of debt.

Significant assumptions and inputs include the WestEnd net revenue projected annual growth rate, the market price of risk adjustment for revenue, which adjusts the projected revenue growth rate to a risk-neutral expected growth rate, revenue volatility and discount rate.

The market price of risk adjustment for revenue and revenue volatility are based on data for comparable companies.

A maximum of $ 320.0 million ($ 80.0 million per year) is payable to sellers in contingent payments.

The fair value of contingent consideration payable to sellers was estimated at $ 239.0 million at March 31, 2022, a decrease of $ 0.7 million from December 31, 2021.

Significant inputs to the valuation of contingent consideration payable to sellers as of March 31, 2022 and December 31, 2021 are as follows and are approximate values:

December 31, 2021

March 31, 2022

Acquisition Date

Net revenue average annual growth rate

Market price of risk adjustment for revenue (continuous)

Revenue volatility

Discount rate

Years remaining in earn out period

Undiscounted estimated remaining earn out payments $ millions

As the WestEnd Acquisition was effective at market close on December 31, 2021, the Company’s operating results for 2021 do not include WestEnd.

Actual and Pro Forma Results for WestEnd

WestEnd revenue for the three months ended March 31, 2022, was as follows:

Three Months Ended

(in millions)

March 31, 2022

Net income attributable to WestEnd for the three months ended March 31, 2022 is impractical to determine as the Company does not prepare discrete financial information at that level.

The following Unaudited Pro Forma Condensed Combined Statement of Operations is provided for illustrative purposes only and assumes that the acquisition occurred on January 1, 2020.

This unaudited information should not be relied upon as indicative of historical results that would have been obtained if the acquisition had occurred on that date, nor of the results that may be obtained in the future.

The historical unaudited consolidated financial information of the Company and WestEnd have been adjusted to give effect to unaudited pro forma events that are directly attributable to the WestEnd Acquisition.

These amounts have been calculated after adjusting the results of WestEnd and the Company to reflect additional interest expense, intangible asset amortization and income taxes that would have been expensed assuming the WestEnd Acquisition was consummated on January 1, 2020.

Three Months Ended

(in thousands, except per share amount)

March 31, 2021

Earnings per share of common stock

Weighted average number of shares outstanding

Acquisition-Related Costs

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.

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

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

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.

Acquisition-related costs

Three Months Ended March 31,

(in thousands)

Total acquisition-related costs

Restructuring and Integration Costs

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions)

1 unchanged sentence

Severance expense

USAA AMCO Acquisition

Integration costs

USAA AMCO Acquisition

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

7 unchanged sentences

These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

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

As of September 30, 2021

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

As of March 31, 2022

(in thousands)

Financial Assets

Money Market Fund

Investments in proprietary funds

5 unchanged sentences

Total Financial Liabilities

Contingent consideration arrangement liabilities of $ 305.0 million plus $ 0.6 million of consideration payable to sellers for WestEnd acquisition net working capital adjustments equal $ 305.6 million in consideration payable for acquisition of business on the unaudited Condensed Consolidated Balance Sheets as of March 31, 2022.

As of December 31, 2021

1 unchanged sentence

Financial Assets

Money Market Fund

Investments in proprietary funds

Deferred compensation plan investments

Interest rate swap asset

Total Financial Assets

Financial Liabilities

Interest Rate Swap Liability

Contingent consideration arrangements (1)

Total Financial Liabilities

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

Contingent consideration arrangement liabilities of $ 308.5 million plus $ 0.3 million and $ 0.6 million of consideration payable to sellers for estimated net working capital adjustments for the NEC and WestEnd acquisitions, respectively, equal $ 309.4 million in consideration payable for acquisition of business on the unaudited Condensed Consolidated Balance Sheets as of December 31, 2021.

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

3 unchanged sentences

The Swap effectively fixes the interest rate at 3.22 % on $ 450 million of the outstanding Term Loan balance through the Term Loan’s maturity in July 2026.

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.

The fair value of the Swap is included in other assets in the unaudited Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021.

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

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

The contingent consideration arrangement liabilities represent the USAA AMCO Acquisition estimated earn-out payment liability, which is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets.

Refer to Note 4, Acquisitions, for further details related to the contingent consideration arrangement.

Significant unobservable inputs for the option pricing model used to determine the estimated fair value of the USAA AMCO Acquisition earn-out payment liability include the “non-managed money” revenue projected growth rate, revenue volatility, market price of risk and discount rate.

An increase in market price of risk, discount rate and revenue volatility results in a lower fair value for the earn-out payment liability, while an increase in the projected growth rate for “non-managed money” revenue results in a higher fair value for the earn-out payment liability.

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 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.

Contingent consideration arrangements include the USAA AMCO earn-out payment liability and the WestEnd earn-out payment liability.

Contingent consideration arrangements are included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets.

Refer to Note 4, Acquisitions, for further details related to the contingent consideration arrangements.

Significant unobservable inputs for the option pricing model used to determine the estimated fair value of the WestEnd Acquisition earn-out payment liability include the WestEnd net revenue projected growth rate, revenue volatility, market price of risk adjustment for revenue and discount rate.

For both the USAA AMCO and WestEnd contingent consideration arrangements, an increase in the market price of risk adjustment for revenue, discount rate and revenue volatility results in a lower fair value for the earn-out payment liability, while an increase in the projected growth rate for the relevant revenue base results in a higher fair value for the earn-out payment liability.

Refer to Note 4, Acquisitions, for further details related to the valuation of contingent consideration payable related to the USAA AMCO Acquisition and WestEnd 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 three months ended March 31, 2022.

(in thousands)

2 unchanged sentences

USAA AMCO change in fair value measurement

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.

WestEnd change in fair value measurement

Balance, March 31, 2022

There were no transfers between any of the Level 1, 2 and 3 categories in the fair value measurement hierarchy from December 31, 2021 to March 31, 2022.

The Company recognizes transfers at the end of the reporting period.

The net carrying value of accounts receivable and accounts payable approximates fair value due to the short‑term nature of these assets and liabilities.

The fair value of our long-term debt at September 30, 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 March 31, 2022 is considered to be its carrying value as the interest rate

on the bank debt is variable and approximates current market rates.

As a result, Level 2 inputs are utilized to determine the fair value of our long ‑term debt .

Related-Party Transactions

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

The Company receives investment management, administrative, distribution and compliance fees in accordance with contracts that VCM and VCS have with the Victory Funds and the USAA Funds and has invested a portion of its balance sheet cash in the USAA Treasury Money Market Fund and earns interest on the amount invested in this fund.

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

The Company receives investment management, administrative, distribution and compliance fees in accordance with contracts that VCM and VCS have with the Victory Funds and the USAA Funds.

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

We also receive investment management fees from the Victory Collective Funds and certain other pooled investment vehicles under VCM’s advisory contracts with these funds.

We also receive investment management fees from the Victory Collective Funds, the NEC Funds and other pooled funds under VCM’s advisory contracts with these funds.

In addition, VCTA receives fees for transfer agency services under contracts with the USAA Funds and sub-transfer agency services under contracts with the Victory Funds for member class shares.

1 unchanged sentence

The table below presents balances and transactions involving related parties included in the unaudited Condensed Consolidated Balance Sheets and unaudited Condensed Consolidated Statements of Operations.

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

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

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

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

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

Included in receivables (investment management fees) are amounts due from the Victory Funds, USAA Funds, VictoryShares, Victory Collective Funds and other pooled investment vehicles for investment management services.

Included in receivables (fund administration and distribution fees) are amounts due from the Victory Funds and USAA Funds for fund administration services and compliance services, amounts due from the VictoryShares for fund administration services, amounts due from the USAA Funds for transfer agent services, amounts due from the Victory Funds for sub-transfer agent services and amounts invoiced to the NEC Funds for costs paid by VCM.

Included in prepaid expenses are amounts paid by VCM that will be invoiced to the NEC Funds in the following period.

Included in revenue (investment management) are amounts earned for investment management services provided to the Victory Funds, the USAA Funds, the VictoryShares, the Victory Collective Funds, the NEC Funds and other pooled investment vehicles.

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

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

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

(in thousands)

September 30, 2021

March 31, 2022

December 31, 2021

Related party assets

Cash and cash equivalents

Receivables (investment management fees)

Receivables (fund administration and distribution fees)

Prepaid expenses

Investments (investments in proprietary funds, fair value)

2 unchanged sentences

Accounts payable and accrued expenses (fund reimbursements)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended

(in thousands)

4 unchanged sentences

General and administrative

Related party other income (expense)

Interest income and other income (expense)

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

Related party other (expense) income

Interest income and other (expense) income

At March 31, 2022 and December 31, 2021, the Company had investments in proprietary funds and deferred compensation plan investments.

Investments in proprietary funds consist entirely of seed capital investments in certain Victory Funds and USAA Funds.

5 unchanged sentences

(in thousands)

As of September 30, 2021

As of March 31, 2022

As of December 31, 2021

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:

Proceeds from sales of investments in proprietary funds and realized gains and losses recognized during the three months ended March 31, 2022 and 2021 are as follows:

(in thousands)

For the nine months ended September 30, 2021

For the nine months ended September 30, 2020

For the three months ended March 31, 2022

For the three months ended March 31, 2021

Deferred Compensation Plan Investments

2 unchanged sentences

(in thousands)

As of September 30, 2021

As of March 31, 2022

As of December 31, 2021

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 September 30, 2021

For the three months ended September 30, 2020

Proceeds from sales of deferred compensation plan investments and realized gains and losses recognized during the three months ended March 31, 2022 and 2021 are as follows:

(in thousands)

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

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.

For the three months ended March 31, 2022

For the three months ended March 31, 2021

The effective tax rate for the three months ended March 31, 2022 and 2021 differs from the United States federal statutory rate primarily as a result of state and local income taxes, excess tax benefits on share-based compensation and certain non-deductible expenses.

For the three months ended March 31, 2022 and 2021, the provision for income taxes was $ 19.3 million and $ 17.7 million, respectively, and the effective tax rate for each period was 21.3 %.

No valuation allowance was recorded for deferred tax assets for the three months ended March 31, 2022 and 2021 .

2021 Debt Repricing

On February 18, 2021, the Company entered into the Second Amendment (the “Second Amendment”) to the 2019 Credit Agreement with the other loan parties thereto, Barclays Bank PLC, as administrative agent, and the Royal Bank of Canada as fronting bank.

Pursuant to the Second Amendment, the Company repriced the existing term loans (the “Existing Term Loans”) with replacement term loans in an aggregate principal amount of $ 755.7 million (the “Repriced Term Loans”).

The Repriced Term Loans provide for substantially the same terms as the Existing Term Loans, including the same maturity date of July 2026 , except that the Repriced Term Loans provide for a reduced applicable margin on LIBOR of 25 basis points.

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

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:

Pursuant to the Second Amendment, the Company repriced the existing term loans (the “2020 Term Loans”) with replacement term loans in an aggregate principal amount of $ 755.7 million (the “Repriced Term Loans”).

The Repriced Term Loans provide for substantially the same terms as the 2020 Term Loans, including the same maturity date of July 2026 , except that the Repriced Term Loans provide for a reduced applicable margin on LIBOR of 25 basis points.

After the Second Amendment, the applicable margin on LIBOR under the Repriced Term Loans is 2.25 %.

2021 Incremental Term Loans

On December 31, 2021, the Company entered into the Third Amendment (the “Third Amendment”) to the 2019 Credit Agreement with the guarantors party thereto, Barclays Bank PLC, as administrative agent, and the lenders party thereto from time to time.

Pursuant to the Third Amendment, the Company obtained incremental term loans (the “2021 Incremental Term Loans”) in an aggregate principal amount of $ 505.0 million and used the proceeds to fund the WestEnd Acquisition and to pay fees and expenses incurred in connection therewith.

The 2021 Incremental Term Loans mature in December 2028 and bear interest at an annual rate equal to, at the option of the Company, either LIBOR (adjusted for reserves and subject to a 50 basis point floor) plus a margin of 2.25 % or an alternate base rate plus a margin of 1.25 %.

Original issue discount was $ 2.5 million for the 2021 Incremental Term Loans.

The Company incurred a total of $ 9.1 million of other third party costs related to the 2021 Incremental Term Loans, which were recorded as term loan debt issuance costs.

The following table presents the components of long-term debt in the unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021.

(in thousands)

September 30, 2021

March 31, 2022

December 31, 2021

Effective Interest Rate

Due July 2026, 2.73 % interest rate

Due July 2026, 2.39 % interest rate

Effective Interest Rate as of March 31, 2022

Due July 2026, 2.47 % interest rate, resets April 6, 2022

Due December 2028, 3.26 % interest rate, reset March 31, 2022

Term loan principal outstanding

2 unchanged sentences

Long-term debt, net

The 2019 Credit Agreement contains customary affirmative and negative covenants, including covenants that affect, among other things, the ability of the first lien leverage ratio, measured as of the last day of each fiscal quarter on which outstanding borrowings under the revolving credit facility exceed 35.0 % of the commitments thereunder (excluding certain letters of credit), of no greater than 3.80 to 1.00.

As of September 30, 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 September 30, 2021 and 2020 :

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

The Company elects to use the three-month LIBOR rate plus the margin on LIBOR required by the 2019 Credit Agreement to pay interest on its debt.

In addition, 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 March 31, 2022, there were no outstanding borrowings under the revolving credit facility and the Company was in compliance with the financial performance covenant.

Repayments of outstanding term loans under the 2019 Credit Agreement totaled $ 70.0 million and $ 50.0 million for the three months ended March 31, 2022 and 2021, respectively.

Refer to Note 17, Subsequent Events, for information related to term loan activity subsequent to March 31, 2022.

The Company recognized a $ 1.6 million loss on debt extinguishment in the three months ended March 31, 2022, due to repayments of term loan principal, which consisted of the write-off of $ 1.2 million and $ 0.4 million of unamortized debt issuance costs and debt discount, respectively.

During the three months ended March 31, 2021, the Company recognized a net loss on debt extinguishment of $ 2.8 million due to repayments of term loan principal and execution of the Second Amendment, which consisted of the write-off of $ 1.8 million and $ 1.0 million of unamortized debt issuance costs and debt discount, respectively.

The following table presents the components of interest expense and other financing costs on the unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021.

For the Three Months

Ended March 31,

(in thousands)

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Issuance of shares

Share conversion - Class B to A

Repurchase of shares

3 unchanged sentences

Balance, March 31, 2022

Issuance of shares

Share conversion - Class B to A

Repurchase of shares

Vesting of restricted share grants

Exercise of options

Shares withheld related to net settlement of equity awards

Balance, June 30, 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

8 unchanged sentences

Balance, March 31, 2021

Issuance of shares

Share conversion - Class B to A

Repurchase of shares

Vesting of restricted share grants

Exercise of options

Shares withheld related to net settlement of equity awards

Balance, June 30, 2020

Issuance of shares

Share conversion - Class B to A

Repurchase of shares

Vesting of restricted share grants

Exercise of options

Shares withheld related to net settlement of equity awards

Balance, September 30, 2020

Share Repurchase Program

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 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.

In December 2021, the Company’s Board of Directors authorized a sixth share repurchase program whereby the Company may repurchase up to an additional $ 15.0 million of the Company’s Common Stock in privately negotiated transactions, through block trades, pursuant to open market purchases, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the SEC.

The amount and timing of purchases under the share repurchase program authorized in December 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.

The December 2021 share repurchase program took effect in January 2022, immediately upon the completion of the May 2021 share repurchase program, and expires when $ 15 million of shares are repurchased or December 31, 2022 .

During the three months ended March 31, 2022, the Company repurchased 292,570 shares of Common Stock at a total cost of $ 9.4 million for an average price of $ 32.26 per share.

As of March 31, 2022, a total of $ 6.6 million was available for future repurchases under the current share repurchase program, and a cumulative total of 4,361,057 shares of Common Stock had been repurchased under programs authorized by the Company’s Board of Directors at a total cost of $ 83.4 million for an average price of $ 19.13 per share.

Dividend Payments

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.

Dividends paid or payable for the three months ended March 31, 2022 totaled $ 17.6 million and included $ 17.2 million for quarterly dividends and $ 0.4 million in cash bonuses and distributions related to dividends previously declared upon vesting of restricted stock and stock option awards.

At March 31, 2022 and December 31, 2021, the amount of cash bonuses and distributions related to dividends previously declared on unvested and outstanding restricted share awards and stock options totaled $ 0.8 million and $ 1.0 million, respectively, which was not recorded as a liability as of the balance sheet date.

A liability will be recorded for these cash bonuses and dividends when the restricted shares and options vest.

Share‑Based Compensation

Current Period Activity

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:

During the three months ended March 31, 2022, the Company issued restricted stock awards for 514,223 shares of Common Stock, of which awards for 7,995 shares were fully vested on the grant date, awards for 345,069 shares vest over two years , awards for 3,108 shares vest over thirty-three months and 158,051 shares vest over three years .

Stock option award and restricted stock award activity during the three months ended March 31, 2022 and 2021 was as follows:

Shares Subject to Stock Option Awards

Nine Months Ended September 30,

Three Months Ended March 31,

Outstanding at beginning of period

Outstanding at end of the period

Outstanding at end of period

Restricted Stock Awards

Nine Months Ended September 30,

Three Months Ended March 31,

Avg wtd grant-

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Unvested at end of period

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 $ 4.0 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.

Share-Based Compensation Expense

The Company recorded $ 3.9 million and $ 5.5 million of share-based compensation expense during the three months ended March 31, 2022 and 2021, respectively, in personnel compensation and benefits in the unaudited Condensed Consolidated Statements of Operations.

Earnings Per Share

The following table sets forth the reconciliation of basic earnings per share and diluted earnings per share from net income for the three and nine months ended September 30, 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 months ended March 31, 2022 and 2021:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands except per share amounts)

3 unchanged sentences

Earnings per share

Outstanding instruments excluded from the computation of weighted average shares for diluted earnings per share because the effect would be anti-dilutive were de minimus in amount for the three months and nine months ended September 30, 2021 and 2020.

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

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 nine months ended September 30, 2021 and 2020.

The following table presents changes in accumulated other comprehensive income (loss) by component for the three months ended March 31, 2022 and 2021.

(in thousands)

3 unchanged sentences

Net current period other comprehensive income (loss)

Balance, September 30, 2021

Balance, March 31, 2022

Balance, December 31, 2020

Other comprehensive loss before reclassification and tax

Other comprehensive income (loss) before reclassification and tax

Reclassification adjustments, before tax

Net current period other comprehensive loss

Balance, September 30, 2020

Net current period other comprehensive income (loss)

Balance, March 31, 2021

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 September 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 March 31, 2022 were

$ 450 million – 0.965 % – July 1, 2026 .

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

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

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

For the three months ended March 31, 2022 and since inception, the Swap was deemed to be highly effective.

The Swap is designated as a cash flow hedge.

Accordingly, the Swap is measured at fair value with mark-to-market gains or losses deferred and included in accumulated other comprehensive income (loss), net of tax, to the extent the hedge is determined to be effective.

Accordingly, the Swap is measured at fair value with mark-to-market gains or losses deferred and included in accumulated other comprehensive income (loss) (“AOCI(L)”), net of tax, to the extent the hedge is determined to be effective.

Gains or losses from the Swap are reclassified to interest expense in the same period during which the hedged transaction affects earnings.

The amount payable to the Swap counterparty at September 30, 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):

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 March 31, 2022 of $ 0.8 million is recorded in other liabilities on the unaudited Condensed Consolidated Balance Sheets.

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

On March 31, 2022 and December 31, 2021, the Swap had a fair value of $ 29.2 million and $ 7.8 million and was recorded in other assets.

The following table summarizes the classification of the Swap in the unaudited Condensed Consolidated Balance Sheets and the notional amount at March 31, 2022 and December 31, 2021 (in thousands):

Balance Sheets

September 30, 2021

March 31, 2022

December 31, 2021

Other assets (Other liabilities)

Fair value of interest rate swap

Notional amount

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):

The following tables summarize the effects of the Swap in the unaudited Condensed Consolidated Statements of Operations and unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Statement of Operations

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Statements of Comprehensive Income

Other comprehensive income (loss)

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

Other comprehensive income

Income recognized in AOCI(L), net of tax

EQUITY METHOD INVESTMENT

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

On September 20, 2020, the Company acquired, through a wholly owned subsidiary, a 15 % interest voting share and income share in Alderwood and made a capital contribution to Alderwood of $ 1.5 million in cash.

Alderwood’s operating entity, Alderwood Capital, is a London-based investment advisory firm focused on taking minority stakes in specialist boutique asset management businesses.

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

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

On January 31, 2022, the Company signed an amendment to the Alderwood members’ agreement (“Alderwood Amendment”) and made an additional $ 1.5 million capital contribution to Alderwood.

The Alderwood Amendment reduced the Company’s commitment to contribute additional capital to Alderwood from $ 4.5 million to $ 3.0 million.

The Company also has commitments to contribute additional capital of $ 50.0 million to a private fund to be launched by Alderwood, subject to certain terms and conditions, including obtaining an agreed amount of aggregate legally binding commitments from investors in the private fund.

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.

For each of the periods ended March 31, 2022 and 2021, losses from equity method investments recorded in interest income and other income (expense) in the unaudited Condensed Consolidated Statements of Operations were $ 0.1 million.

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

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 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).

At March 31, 2022 and December 31, 2021, the Company held an equity investment in Alderwood of $ 2.5 million and $ 1.1 million, respectively.

The Company determines if a contract is a lease at inception.

We have leases primarily for office facilities and information technology equipment.

All of our leases are classified as operating leases.

Supplemental balance sheet information related to the Company’s operating leases as of March 31, 2022 was as follows (in thousands):

March 31, 2022

Operating lease ROU assets (1)

Current portion of operating lease liabilities (2)

Noncurrent portion of operating lease liabilities (2)

Total operating lease liabilities

ROU assets are recorded in other assets on the unaudited Condensed Consolidated Balance Sheets.

Current portion and noncurrent portion of operating lease liabilities are recorded in other liabilities on the unaudited Condensed Consolidated Balance Sheets.

March 31, 2022

Weighted-average remaining lease term

Weighted-average discount rate

The components of lease expense and other lease information as of and during the three-month period ended March 31, 2022 are as follows (in thousands):

March 31, 2022

Operating lease cost

Short-term lease cost

Variable lease cost

Gross lease cost

Sub-lease income

Net lease cost

Other lease information

Cash paid for amounts included in measurement of lease liabilities

Operating cash flows for operating leases

Our leases have remaining lease terms of 1 year to 10 years.

These leases generally contain renewal options for periods ranging from two to five years .

Because the Company is not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term, and associated potential option payments are excluded from lease payments.

Expenses associated with operating leases were $ 1.9 million and $ 1.8 million for the three months ended March 31, 2022 and 2021, respectively, and are recorded in general and administrative expenses on the unaudited Condensed Consolidated Statement of Operations.

Variable lease costs, such as utilities and common area maintenance charges, are excluded from lease liabilities and expensed as incurred.

The variable lease costs are determined based on terms in the lease contracts and primarily relate to usage of the ROU asset and services received from the lessor.

The following table summarizes the maturity of our operating lease liabilities as of March 31, 2022 (in thousands):

Total undiscounted lease payments

imputed interest

Total lease liabilities

SUBSEQUENT EVENTS

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.

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.

Subsequent to March 31, 2022, the Company reduced outstanding debt on the 2021 Incremental Term Loans by $ 20.0 million .

Subsequent to March 31, 2022, the Company’s Board of Directors approved a new common stock repurchase program authorizing the repurchase of up to $ 100 million of its common stock.

Under the new program, which will commence immediately upon completion of the current program, the Company may purchase its shares from time to time until December 31, 2023 in privately negotiated transactions, through block trades, pursuant to open market purchases, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the SEC.

The amount and timing of the purchases will depend on a number of factors including the price and availability of the Company's shares, trading volume, capital availability, Company performance and general economic and market conditions.

The share repurchase program may be suspended or discontinued at any time.

On May 5, 2022 , the Company’s Board of Directors also approved a regular quarterly cash dividend of $ 0.25 per share.

The dividend is payable on June 27, 2022 , to shareholders of record on June 10, 2022 .

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