What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-09 compared with 2021-11-08 · 170 added, 278 removed, 245 unchanged (65% of the section changed)

1 unchanged sentence

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “Company,” “Victory,” or in the first-person notations of “we,” “us,” and “our” shall mean Victory Capital Holdings, Inc., a Delaware corporation, and its wholly-owned subsidiaries.

The following discussion is intended to assist in the understanding of our financial position at September 30, 2021 and December 31, 2020, results of operations for the three and nine months ended September 30, 2021 and 2020, and cash flows for the nine months ended September 30, 2021 and 2020, and should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2020.

The objective of this section of the Quarterly Report on Form 10-Q is intended to provide a discussion and analysis, from management’s perspective, of the key performance indicators and material information necessary to assess our financial condition and results of operations for the three months ended March 31, 2022 and 2021 and cash flows for the three months ended March 31, 2022 and 2021.

In addition, we also discuss the Company’s contractual and off-balance sheet arrangements.

This discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2021.

This discussion and analysis contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q and in “Item 1A.

Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2021.

Our Business – We are a diversified global asset management firm with $159.9 billion in assets under management as of September 30, 2021.

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

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

With 1 0 autonomous Investment Franchises and a Solutions Platform, Victory Capital offers a wide array of investment styles and investment vehicles including, actively managed mutual funds, institutional separate accounts, separately managed accounts, unified managed account products, collective trust funds, private funds, undertakings for the collective investment in transferrable securities, other pooled vehicles and ETFs.

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

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

Our integrated model creates a supportive environment in which our investment professionals, largely unencumbered by administrative and operational responsibilities, can focus on their pursuit of investment excellence.

Victory Capital Management Inc.

Our Business – Victory is a diversified global asset management firm with $178.1 billion in AUM as of March 31, 2022.

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

The Company provides specialized investment strategies to institutions, intermediaries, retirement platforms and individual investors.

With 12 autonomous Investment Franchises and a Solutions Platform, Victory offers a wide array of investment products, including actively and passively managed mutual funds, rules-based and active ETFs, institutional separate accounts, VIPs, ESG and impact investment strategies, alternative investments, private closed end funds, and a 529 Education Savings Plan.

Victory Capital’s strategies are also offered through third-party investment products, including mutual funds, third-party ETF model strategies, retail SMAs and UMAs through wrap account programs, CITs, and UCITs.

As of March 31, 2022, our Franchises and our Solutions Platform collectively managed a diversified set of 129 investment strategies for a wide range of institutional and retail clients and direct investors.

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

Our largely integrated model creates a supportive environment in which our investment professionals, largely unencumbered by administrative and operational responsibilities, can focus on their pursuit of investment excellence.

VCM employs all of our U.S.

investment professionals across our Franchises, which are not separate legal entities.

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

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

Solutions – Our Solutions Platform consists of multi-asset, multi-manager, quantitative, rules-based, factor-based, and customized portfolios.

These strategies are designed to achieve specific return characteristics, with products that include values-based and thematic outcomes and exposures.

We offer our Solutions Platform through a variety of vehicles, including separate accounts, mutual funds, UMA accounts, rules-based and active ETFs under our VictoryShares ETF brand.

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

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

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

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

Our institutional sales team focuses on cultivating relationships with institutional consultants, who account for the majority of the institutional market, as well as asset allocators seeking sub-advisers.

Our retail sales team offers intermediary and retirement platform clients, including broker-dealers, retirement platforms and RIA networks, mutual funds and ETFs as well as SMAs through wrap fee programs and access to our investment models through UMAs.

Our direct to investor business serves the investment needs of individual clients including USAA members and the military community.

We have grown our AUM from $17.9 billion following the management-led buyout with Crestview GP in August 2013 to $159.9 billion at September 30, 2021.

We attribute this growth to our success in sourcing acquisitions and evolving them into organic growers, generating strong investment returns, and developing institutional, retail, and direct to investor channels with deep penetration.

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

The acquisition expanded and diversified our investment platform, adding capacity constrained assets classes.

The team manages strategies in U.S.

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

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

Our direct investor business serves the investment needs of clients including USAA members, the military community, and other individual clients.

We have grown our AUM from $17.9 billion following the management-led buyout with Crestview GP in August 2013 to $178.1 billion at March 31, 2022.

WestEnd Acquisition (the “WestEnd Acquisition”) – On December 31, 2021, the Company completed the acquisition of 100% of the equity interests of WestEnd pursuant to the WestEnd purchase agreement (as amended, the “WestEnd Purchase Agreement”), resulting in WestEnd becoming the Company’s twelfth investment franchise.

Founded in 2004, and headquartered in Charlotte, NC, WestEnd provides financial advisors with a turnkey, core model allocation strategies serving as holistic solutions and complementary sources of alpha.

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

At December 31, 2021, the WestEnd acquired assets totaled $19.3 billion.

The WestEnd acquired assets had no economic impact on operations in 2021 and no effect on asset flows, average assets, revenues or earnings in the full-year period ended December 31, 2021.

The aggregate purchase price (the “WestEnd Purchase Price”) for the WestEnd Acquisition is estimated at $716.1 million, net of cash acquired, which includes (i) $475.8 million in cash paid at closing (the “WestEnd Closing”) net of cash acquired plus the acquisition date value of contingent payments due to sellers of $239.7 million plus an estimated $0.6 million payable in cash in the first half of 2022 for net working capital adjustments.

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

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

The estimated fair value of contingent consideration payable to sellers was estimated at $239.0 million at March 31, 2022 as compared to $239.7 million at December 31, 2021 and is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets.

The decrease in the liability of $0.7 million for the three months ended March 31, 2022 was recorded in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.

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

NEC Acquisition (the “NEC Acquisition”) – On November 1, 2021, the Company completed the acquisition of 100% of the equity interests in NEC, resulting in NEC becoming the Company’s eleventh investment franchise.

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

At November 1, 2021, the NEC AUM that was acquired totaled $795.0 million.

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

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

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

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

The acquisition expanded and diversified our investment platform, adding capacity constrained asset classes.

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

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

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This will benefit all of our Franchises as we look to leverage THB’s distribution footprint to sell more of our investment strategies outside the U.S.

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

Aligning with the Company’s responsible investing initiatives, all of THB’s strategies have ESG considerations integrated into their investment processes.

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

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The THB investment team will share in the revenue generated on their products and benefit from our centralized operational, marketing and distribution platforms.

THB has significant room for AUM growth across its product set, which we think will significantly accelerate with our distribution support.

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

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

T HB has significant room for AUM growth across its product set, which we think will significantly accelerate with our distribution support.

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

USAA AMCO Acquisition – On July 1, 2019, the Company completed the acquisition (the “USAA AMCO Acquisition”) of USAA Asset Management (“USAA Adviser”) and VCTA, formally known as the USAA Transfer Agency Company.

The acquisition expanded and diversified the Company’s investment platform and increased the Company’s size and scale.

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

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

Subsequent to September 30, 2021, the Company paid $37.5 million in cash to sellers for the second annual contingent payment, resulting in a reduction of the liability to $65.6 million as of the date of filing.

The estimated fair value of contingent consideration payable to sellers was estimated at $103.1 million at September 30, 2021 as compared to $92.5 million at December 31, 2020 and is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets.

The increase in the liability of $10.6 million in the first nine months of 2021 was recorded

in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.

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

In the fourth quarter of 2021, we paid $37.5 million in cash to sellers for the second annual contingent payment.

The estimated fair value of contingent consideration payable to sellers was estimated at $66.0 million at March 31, 2022 as compared to $68.8 million at December 31, 2021 and is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets.

The decrease in the liability of $2.8 million for the three months ended March 31, 2022 was recorded in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.

Refer to Note 4, Acquisitions, for further details on the USAA AMCO Acquisition.

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

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

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

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

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

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

We believe that doing our part to maintain the health and welfare of our employees is a critical element for achieving commercial success.

As such, the Company has taken a proactive approach to addressing the ongoing COVID-19 pandemic’s impact on our employees in order to protect their health, encouraging and in some instances requiring working from home, and balancing these steps with a carefully considered return to office policy that complies with respective local guidelines for each of our offices.

Business Highlights

Assets under management :

AUM at September 30, 2021 decreased by $2.0 billion, or 1.3%, to $159.9 billion from $161.9 billion at June 30, 2021, driven by negative market action of $2.1 billion.

Net flows for the quarter ended September 30, 2021 were comprised of $131 million of net long-term inflows and $113 million of net short-term outflows.

AUM at September 30, 2021 and 2020 was $159.9 billion and $132.7 billion, respectively.

We generated $5.8 billion in gross flows and $18 million in positive net flows for the three months ended September 30, 2021 compared to $5.4 billion in gross flows and $3.0 billion in negative net flows for the same period in 2020.

Net flows for the three months ended September 30, 2021 were comprised of $131 million of long-term inflows and $113 million of short-term outflows.

AUM at September 30, 2021 and 2020 was $159.9 billion and $132.7 billion, respectively.

We generated $22.7 billion in gross flows and $1.0 billion in negative net flows for the nine months ended September 30, 2021 compared to $29.9 billion in gross flows and $17.8 billion in negative net flows for the same period in 2020.

Net flows for the nine months ended September 30, 2021 were comprised of $0.6 billion of net long-term outflows and $0.4 billion of net short-term outflows.

AUM at March 31, 2022 decreased by $5.6 billion, or 3.0%, to $178.1 billion from $183.7 billion at December 31, 2021, driven by negative market action of $8.3 billion and $0.3 billon of net transfers partially offset by net inflows of $3.0 billion.

Total gross flows for the first quarter were $11.1 billion, including long-term gross flows of $11.0 billion.

AUM at March 31, 2022 and 2021 was $178.1 billion and $154.3 billion, respectively.

We generated $11.1 billion in gross sales including $11.0 billion in long-term gross sales and $3.0 billion in total net inflows for the three months ended March 31, 2022 compared to $6.8 billion in gross flows inclusive of $6.7 billion in long-term gross sales and $1.2 billion in total net outflows for the same period in 2021.

We experienced $8.3 billion in negative market action for the three months ended March 31, 2022 compared to $7.7 billion in market appreciation for the same period in 2021.

Investment performance :

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Financial highlights :

Total revenue for the three months ended September 30, 2021 was $226.3 million compared to $188.7 million for the same period in 2020.

For the nine months ended September 30, 2021 and 2020, total revenue was $661.1 million and $575.0 million, respectively.

Net income was $74.2 million for the three months ended September 30, 2021 compared to $55.7 million for the same period in 2020.

For the nine months ended September 30, 2021 and 2020, net income was $208.6 million and $157.6 million, respectively.

Adjusted EBITDA was $115.0 million for the three months ended September 30, 2021, or 50.8% of revenue, compared to $95.6 million, or 50.7% of revenue, for the same period in 2020.

For the nine months ended September 30, 2021, Adjusted EBITDA was $334.1 million, or 50.5% of revenue, compared to $273.5 million, or 47.6% of revenue, for the same period in 2020.

Total revenue for the three months ended March 31, 2022 was $230.0 million compared to $212.9 million for the same period in 2021.

Net income was $71.3 million for the three months ended March 31, 2022 compared to $65.2 million for the same period in 2021.

Adjusted EBITDA was $114.4 million for the three months ended March 31, 2022, or 49.7% of revenue, compared to $106.8 million, or 50.2% of revenue, for the same period in 2021.

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

Adjusted Net Income with tax benefit was $92.6 million for the three months ended September 30, 2021 compared to $73.4 million for the three months ended September 30, 2020.

For the nine months ended September 30, 2021, Adjusted Net Income with tax benefit was $263.4 million compared to $206.9 million for the same period in 2020.

Adjusted Net Income with tax benefit was $90.4 million for the three months ended March 31, 2022 compared to $83.6 million for the three months ended March 31, 2021.

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

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

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

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

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

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

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

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

On September 27, 2021, the Company issued a press release announcing 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.

On October 28, 2021, the Company announced it was named in the Top 10 of Fortune’s 100 Fastest-Growing Companies for 2021.

On November 4, 2021, the Company entered into the WestEnd Purchase Agreement, pursuant to which the Company has agreed to purchase 100% of the equity interests of WestEnd, on the terms and subject to the conditions set forth therein.

The WestEnd Acquisition is expected to close by the end of 2021, and is subject to the satisfaction of certain closing conditions.

Founded in 2004, and headquartered in Charlotte, North Carolina, WestEnd 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.

See Item 5, Other Information, for further details on the WestEnd Acquisition.

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 letter.

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.

Key Performance Indicators

The following table is a summary of key performance indicators utilized by management to assess results of operations:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

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

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

September 30,

(in millions)

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Large Cap Equity

Alternative Investments

Total Long-Term Assets

Money Market & Short-Term Assets

(1) Beginning in January 2022, the Company’s “Other” asset class has been categorized to Solutions, Fixed Income, Global / Non-U.S.

Equity, and Alternative Investments based on the underlying investment strategy.

Additionally, all assets managed using alternative investment strategies are now included in the Company’s Alternative Investments asset class.

Prior-period figures have been adjusted accordingly.

The following tables summarize our asset flows by asset class for the periods indicated:

(in millions)

For the Three Months Ended September 30, 2021

Beginning AUM

Gross client cash inflows

Gross client cash outflows

Net client cash flows

Market appreciation / (depreciation)

Net transfers

For the Three Months Ended September 30, 2020

Beginning AUM

Gross client cash inflows

Gross client cash outflows

Net client cash flows

Market appreciation / (depreciation)

Net transfers

(in millions)

Nine Months Ended

September 30, 2021

For the Three Months Ended March 31, 2022

Beginning AUM

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Market appreciation / (depreciation)

Realizations and distributions

Net transfers

Nine Months Ended

September 30, 2020

For the Three Months Ended March 31, 2021 (1)

Beginning AUM

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Net transfers

The nine months ended September 30, 2021 includes the transfer in of $547 million of assets associated with the THB Asset Management acquisition, which closed on March 1, 2021 partially offset by $250 million of seed capital that USAA liquidated and $25 million related to Victory’s closure of two mutual funds and an ETF.

(1) Beginning in January 2022, the Company’s “Other” asset class has been categorized to Solutions, Fixed Income, Global / Non-U.S.

Equity, and Alternative Investments based on the underlying investment strategy.

Additionally, all assets managed using alternative investment strategies are now included in the Company’s Alternative Investments asset class.

Prior-period figures have been adjusted accordingly.

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

As of September 30,

As of March 31,

(in millions)

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Mutual Funds(1)

Three Months Ended September 30, 2021

Beginning AUM

Gross client cash inflows

Gross client cash outflows

Net client cash flows

Market appreciation (depreciation)

Net transfers

Three Months Ended September 30, 2020

Beginning AUM

Gross client cash inflows

Gross client cash outflows

Net client cash flows

Market appreciation (depreciation)

Net transfers

(in millions)

Mutual Funds (1)

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Beginning AUM

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Market appreciation (depreciation)

Realizations and distributions

Net transfers

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Beginning AUM

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(1) Includes institutional and retail share classe s, money market and Variable Insurance Products or VIP funds.

Excludes assets managed for other proprietary product (i.e.

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

(2) Represents only ETF assets held by third parties.

Excludes ETF assets held by other Victory Capital products.

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

domiciled pooled vehicles.

September 30, 2021 AUM compared to June 30, 2021 AUM .

At September 30, 2021, our total AUM was $159.9 billion, a decrease of $2.0 billion, or 1.3%, from $161.9 billion at June 30, 2021, primarily driven by negative market action of $2.1 billion .

Net inflows into our fixed income and U.S small cap equity strategies of $0.3 billion and $0.2 billion, respectively, were partially offset by outflows from our U.S.

large cap and U.S.

mid cap equity strategies of $0.3 billion and $0.1 billion, respectively.

September 30, 2021 AUM compared to December 31, 2020 AUM .

Total AUM increased by $ 12.6 billion, or 8.6 %, to $ 159.9 billion at September 30, 2021 compared to $147.2 billion at December 31, 2020.

The increase in AUM was primarily due to positive market action of $ 13.4 billion and acquired assets of $547 million partially offset by net outflows of $1.0 billion and seed capital liquidation and fund closures of $275 million.

Net inflows into our Solutions platform and global / non-U.S.

equity strategies of $1.8 billion and $0.5 billion, respectively, were offset by outflows from our domestic equity strategies, fixed income strategies and money market and short-term assets of $2.3 billion, $0.6 billion and $0.4 million, respectively.

March 31, 2022 AUM compared to December 31, 2021 AUM.

At March 31, 2022, our total AUM was $178.1 billion, a decrease of $5.6 billion, or 3.0%, from $183.7 billion at December 31, 2021, primarily due to negative market action of $8.3 billion partially offset by net inflows of $3.0 billion.

Net inflows were driven by $1.5 billion into our Alternative investments platform, $1.3 billion in our Solutions platform, $0.6 billion in our global/non-U.S.

equity strategies and $0.6 billion in our U.S.

mid cap equity strategies partially offset by net outflows in our fixed income and U.S.

large cap equity strategies of $0.5 billion and $0.3 billion, respectively.

GAAP Results of Operations

The following table presents our GAAP results of operations for the three and nine months ended September 30, 2021 and 2020.

Three Months Ended September 30,

Nine Months Ended September 30,

The following table presents our GAAP results of operations for the three months ended March 31, 2022 and 2021.

Three Months Ended March 31,

(in thousands, except per share data)

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Loss on debt extinguishment

Total other expense, net

Total other income (expense), net

Income before income taxes

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Investment Management Fees

Three months ended September 30, 2021 compared to September 30, 2020 .

Investment management fees increased by $34.1 million, or 24.9%, to $171.4 million for the three months ended September 30, 2021 from $137.2 million for the same period in 2020 due to an

increase in average AUM over the comparable period , partially offset by a decline in revenue realization .

Average AUM was $ 1 62 .5 billion for the three months ended September 30 , 20 2 1 compared to $ 133.1 billion for the same period in 20 20 .

Nine months ended September 30, 2021 compared to September 30, 2020 .

Investment management fees increased by $85.5 million, or 20.6%, to $499.7 million for the nine months ended September 30, 2021 from $414.2 million for the same period in 2020 due to the same factors as discussed above in the quarterly section.

Average AUM was $157.3 billion and $135.4 billion, respectively, for the nine months ended September 30, 2021 and 2020.

Three months ended March 31, 2022 compared to March 31, 2021 .

Investment management fees increased by $19.2 million, or 12.0%, to $179.5 million for the three months ended March 31, 2022 from $160.3 million for the same period in 2021 due to an increase in average AUM year over year.

Average AUM was $176.9 billion for the three months ended March 31, 2022 compared to $151.1 billion for the same period in 2021.

Fund Administration and Distribution Fees

Three months ended September 30, 2021 compared to September 30, 2020 .

Fund administration and distribution fees increased by $3.5 million, or 6.8%, to $54.9 million for the three months ended September 30, 2021 from $51.4 million for the same period in 2020 due to an increase fund administration fees, partially offset by a decrease in transfer agent fees and a shift in the mix of assets to lower 12b-1 paying share classes.

Nine months ended September 30, 2021 compared to September 30, 2020 .

Fund administration and distribution fees were relatively flat, increasing $0.7 million, or 0.4%, to $161.5 million for the nine months ended September 30, 2021 from $160.8 million for the same period in 2020 due to the same factors as discussed above in the quarterly section.

Three months ended March 31, 2022 compared to March 31, 2021 .

Fund administration and distribution fees decreased by $2.1 million, or 4.0%, to $50.6 million for the three months ended March 31, 2022 from $52.7 million for the same period in 2021 mostly due to a decrease in fund administration fee as well as decrease in transfer agent fees .

Personnel Compensation and Benefits

The following table presents the components of GAAP personnel compensation and benefits expense for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table presents the components of GAAP personnel compensation and benefits expense for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(in thousands)

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

Three months ended September 30, 2021 compared to September 30, 2020 .

Personnel compensation and benefits were $55.8 million for the three months ended September 30, 2021, an increase of $8.5 million, or 17.9%, from $47.4 million for the same period in 2020 due to the combination of an increase in the headcount due to the launch of the new direct to investor digital platform and an increase in incentive compensation as a result of an increase in earnings over the comparable period.

Incentive compensation and equity awards granted to employees and directors were $27.7 million and $4.0 million, respectively, for the three months ended September 30, 2021, compared to $22.3 million and $3.6 million, respectively, for the same period in 2020.

Salaries, payroll related taxes and employee benefits were $19.6 million and $18.4 million, respectively, for the three months ended September 30, 2021 and 2020.

Nine months ended September 30, 2021 compared to September 30, 2020 .

Personnel compensation and benefits increased by $28.3 million, or 19.6%, to $172.3 million for the nine months ended September 30, 2021 from $144.1 million for the same period in 2020 due to the same factors as discussed above in the quarterly section.

Salaries, payroll related taxes and employee benefits were $67.6 million and $55.3 million, respectively, for the nine months ended September 30, 2021 and 2020.

Incentive compensation and equity awards granted to employees and directors were $76.5 million and $13.9 million, respectively, for the nine months ended September 30, 2021 compared to $63.6 million and $13.5 million, respectively, for the same period in 2020.

Three months ended March 31, 2022 compared to March 31, 2021 .

Personnel compensation and benefits were $64.9 million for the first quarter of 2022, an increase of $5.9 million, or 10.0%, from $59.0 million for the same period in 2021 attributable to an increase in headcount and acquisition and transaction-related compensation as a result of the WestEnd and NEC acquisitions in the fourth quarter of 2021.

Also contributing was an increase in variable costs such as sales commissions and the incentive compensation pool for employees.

Distribution and Other Asset‑Based Expenses

The following table presents the components of distribution and other asset-based expenses for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table presents the components of distribution and other asset-based expenses for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(in thousands)

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Total distribution and other asset-based expenses

Three months ended September 30, 2021 compared to September 30, 2020 .

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

For the three months ended September 30, 2021, distribution and other asset-based expenses were $44.9 million, an increase of $5.7 million, or 14.7%, from $39.1 million for the same period in 2020.

The increase is primarily due to an increase in platform and broker dealer distribution fees as a result of higher average AUM over the comparable period.

Nine months ended September 30, 2021 compared to September 30, 2020 .

Distribution and other asset-based expenses were $131.2 million for the nine months ended September 30, 2021, a decrease of $4.4 million, or 3.3%, from $135.6 million for the same period in 2020 primarily due to a change in asset mix of our underlying retail distribution platforms .

Three months ended March 31, 2022 compared to March 31, 2021 .

Distribution and other asset-based expenses were $43.6 million for the three months ended March 31, 2022, compared to $42.1 million for the same period in 2021.

The increase of $1.5 million, or 3.5% was primarily due to an increase in AUM partially offset by a change in vehicle mix and our underlying distribution platforms.

General and Administrative

Three months ended September 30, 2021 compared to September 30, 2020 .

General and administrative expenses were $13.8 million for the three months ended September 30, 2021 compared to $13.2 million for the same period in 2020.

The increase of $0.6 million, or 4.5%, was primarily due to increases in technology and professional fees partially offset by a reduction in transition service agreement costs related to the USAA AMCO Acquisition, which ended in the fourth quarter of 2020.

Nine months ended September 30, 2021 compared to September 30, 2020 .

For the nine months ended September 30, 2021 and 2020, general and administrative expenses were $40.8 million and $38.4 million, respectively, for a year over year increase of $2.4 million, or 6.4%.

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

Three months ended March 31, 2022 compared to March 31, 2021 .

General and administrative expenses were $12.8 million for the three months ended March 31, 2022 compared to $13.3 million for the same period in 2021.

The decrease of $0.5 million, or 4.1%, was primarily due to integration-related expenses in the first quarter of 2021 and no such expenses in 2022.

Depreciation and Amortization

Three months ended September 30, 2021 compared to September 30, 2020 .

Depreciation and amortization increased by $0.4 million, or 11.2%, to $4.4 million for the three months ended September 30, 2021 from $3.9 million for the same period in 2020, due to the addition of depreciation expense related to the launch of the Company’s new direct to investor digital platform, which went live in November 2020 .

Nine months ended September 30, 2021 compared to September 30, 2020 .

Depreciation and amortization increased by $1.3 million, or 10.7%, to $13.5 million for the nine months ended September 30, 2021 from $12.2 million for the same period in 2020, due to the same factors as discussed above in the quarterly section.

Three months ended March 31, 2022 compared to March 31, 2021 .

Depreciation and amortization increased by $6.2 million, or 141.9%, to $10.6 million for the three months ended March 31, 2022 from $4.4 million for the same period in 2021, primarily due to the increase in amortization expense related to definite-lived intangible assets in connection with the WestEnd and NEC acquisitions .

Change in Value of Consideration Payable for Acquisition of Business

Three months ended September 30, 2021 compared to September 30, 2020 .

The fair value of the contingent consideration associated with the USAA AMCO acquisition increased by $2.4 million, resulting in a change in the estimated fair value of consideration payable of $2.4 million for the three months ended September 30, 2021.

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

Nine months ended September 30, 2021 compared to September 30, 2020 .

The fair value of the contingent consideration associated with the USAA AMCO acquisition increased by $10.6 million, resulting in a change in the estimated fair value of consideration payable of $10.6 million for the nine months ended September 30, 2021.

Three months ended March 31, 2022 compared to March 31, 2021 .

The change in value of consideration payable for acquisition of business decreased $6.0 million as a result of decreases of $2.8 million and $0.7 million in the fair value of the contingent consideration associated with the USAA AMCO and WestEnd Acquisitions, respectively, for the three months ended March 31, 2022 compared to an increase of $2.5 million associated with the USAA AMCO Acquisition for the three months ended March 31, 2021.

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

Acquisition ‑Related Costs

Three months ended September 30, 2021 compared to September 30, 2020 .

Acquisition-related costs for the three months ended September 30, 2021 were $6.0 million and $1.1 million for the three months ended September 30, 2020.

The September 30, 2021 acquisition related costs were primarily related to an estimated liability for potential one-time payments related to a prior acquisition.

Nine months ended September 30, 202 1 compared to September 30, 20 20 .

Acquisition-related costs for the nine months ended September 30 , 20 2 1 and 20 20 were $ 6.3 million and $1.1 million, respectively.

The increase for the nine months ended September 30, 20 21 was due to the same factors as discussed above in the quarterly section.

Three months ended March 31, 2022 compared to March 31, 2021 .

Acquisition-related costs were relatively flat at $0.1 million and ($0.2) million for the three months ended March 31, 2022 and 2021, respectively.

Restructuring and Integration Costs

Three months ended September 30, 2021 compared to September 30, 2020 .

Restructuring and integration costs for the three months ended September 30, 2021 was $18 thousand and $1.3 million for the three months ended September 30, 2020.

The decrease is primarily due to integration and conversion costs related to the USAA AMCO Acquisition in 2020.

Nine months ended September 30, 2021 compared to September 30, 2020 .

Restructuring and integration costs were $2.5 million and $4.9 million, respectively, for the nine months ended September 30, 2021 and 2020.

The nine months ended September 30, 2021 restructuring and integration costs were related to personnel restructuring within the direct to investor business compared to integration and conversion costs associated with the USAA AMCO Acquisition in 2020.

Three months ended March 31, 2022 compared to March 31, 2021 .

Restructuring and integration costs for the three months ended March 31, 2022 and 2021 were $9 thousand and $2.1 million, respectively.

The decrease was due to personnel restructuring within the direct to investor business during the first quarter of 2021.

Interest Income and Other Income/(Expense)

Three months ended September 30, 2021 compared to September 30, 2020 .

Interest income and other income/(expense) was expense of $0.1 million for the three months ended September 30, 2021 compared to income of $1.1 million for the same period in 2020.

The expense for the three months ended September 30, 2021 was primarily due to a $0.7 million decrease in the net unrealized fair value of deferred compensation plan investments.

The income for the three months ended September 30, 2020 was primarily due to a $0.9 million increase in the net unrealized fair value of deferred compensation plan investments.

Nine months ended September 30, 2021 compared to September 30, 2020 .

For the nine months ended September 30, 2021 and 2020, interest income and other income/(expense) was income of $4.5 million and expense of $0.1 million, respectively.

The higher income for the nine months ended September 30, 2021 was primarily due to unrealized gains on deferred compensation plan investments and interest income on cash and cash equivalents.

The expense for the nine months ended September 30, 2020 was primarily due to a decrease in the net unrealized fair value of deferred compensation plan investments partially offset by interest income on cash and cash equivalents.

Three months ended March 31, 2022 compared to March 31, 2021 .

Interest income and other income/(expense) was expense of $0.2 million for the three months ended March 31, 2022 compared to income of $2.7 million for the same period in 2021.

The expense for the three months ended March 31, 2022 was due to a $0.3 million reduction in the net unrealized fair value of deferred compensation plan investments compared to a $2.6 million increase in the net unrealized fair value of deferred compensation plan investments for the same period in 2021.

Interest Expense and Other Financing Costs

Three months ended September 30, 2021 compared to September 30, 2020 .

Interest expense and other financing costs decreased $2.3 million to $5.9 million for the three months ended September 30, 2021, compared to $8.2 million for the same period in 2020 d ue to a decrease in interest payments as a result of a lower debt principal balance and lower average interest rate over the comparable period.

Nine months ended September 30, 2021 compared to September 30, 2020 .

For the nine months ended September 30, 2021 and 2020, interest expense and other financing costs were $18.9 million and $29.3 million, respectively.

The year-over-year decrease is primarily due to the same factors as discussed above in the quarterly section.

Three months ended March 31, 2022 compared to March 31, 2021 .

Interest expense and other financing costs increased $2.4 million to $9.2 million for the three months ended March 31, 2022, compared to $6.8 million for the same period in 2021 due to an increase in interest payments as a result of a higher debt principal balance over the comparable period.

Loss on Debt Extinguishment

Three months ended September 30, 2021 compared to September 30, 2020 .

Loss on debt extinguishment was $0.7 million for the three months ended September 30, 2021 compared to $0.8 million for the same period in 2020.

During the quarter ended September 30, 2021, the Company paid down $35.0 million of debt through prepayments and wrote off $0.7 million of a pro-rata portion of the unamortized debt issuance costs and unamortized debt discount due.

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

Three months ended March 31, 2022 compared to March 31, 2021 .

Loss on debt extinguishment was $1.6 million and $2.8 million, respectively, for the three months ended March 31, 2022 and 2021.

The decrease of $1.2 million is due to the one-time write-off of debt issuance and debt discount costs associated with the 2021 term loan repricing in February 2021 compared to no such write-off for the three months ended March 31, 2022.

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

Nine months ended September 30, 2021 compared to September 30, 2020 .

Loss on debt extinguishment was $4.6 million for the nine months ended September 30, 2021, due to repayments of term loan principal and entering into the Second Amendment .

Loss on debt extinguishment was $1.7 million for the nine months ended September 30, 2020, due to term loan repurchases and repayments and entering into the First Amendment.

Income Tax Expense

Three months ended September 30, 2021 compared to September 30, 2020 .

The effective tax rate for the three months ended September 30, 2021 and 2020 was 19.7% and 23.4%, respectively.

The decrease in the effective tax rate was primarily due to an increase in excess tax benefits on share-based compensation compared to the same period in 2020.

Nine months ended September 30, 2021 compared to September 30, 2020 .

For the nine months ended September 30, 2021 and 2020, the effective tax rate was 21.3% and 23.5%, respectively.

The decrease in the effective rate was primarily due to an increase in excess tax benefits on share-based compensation compared to the same period in 2020.

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

Three months ended March 31, 2022 compared to March 31, 2021 .

The effective tax rate for the three months ended March 31, 2022 and 2021 was flat at 21.3% and 21.3%, respectively.

Supplemental Non‑GAAP Financial Information

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The following table sets forth a reconciliation from GAAP financial measures to non-GAAP measures for the periods indicated:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

10 unchanged sentences

Debt issuance costs (7)

Losses from equity method investments (8)

Earnings/losses from equity method investments (8)

Adjusted EBITDA

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

15 unchanged sentences

(4) Adding back amortization expense on acquisition ‑related intangible assets.

Adding back stock‑based compensation associated with equity awards issued from pools created in connection with the management‑led buyout and various acquisitions and as a result of equity grants related to the IPO.

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

Three Months Ended September 30,

Nine Months Ended September 30,

(5) A dding back share-based compensation associated with equity awards issued from pools created in connection with the management‑led buyout and various acquisitions and as a result of equity grants related to the IPO.

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

Three Months Ended March 31,

(in thousands)

6 unchanged sentences

Adding back debt issuance costs.

We adjust for earnings/losses on equity method investments.

We adjust for losses (earnings) on equity method investments.

Subtracting an estimate of income tax expense applied to the sum of the adjustments above.

8 unchanged sentences

We cannot predict the duration or scope of the COVID-19 pandemic, its impact on our business, and the potential negative financial impact to our results, but the Company has actively positioned itself so that our cash flows from operations and financing sources will be sufficient to meet our needs.

During the period of uncertainty related to the COVID-19 pandemic, we will continue to monitor our liquidity.

The following table shows our liquidity position as of September 30, 2021 and December 31, 2020.

September 30,

During the period of uncertainty related to the COVID-19 pandemic, we continue to monitor our liquidity.

The following table shows our liquidity position as of March 31 , 20 2 2 and December 31, 20 2 1 .

(in thousands)

1 unchanged sentence

Accounts and other receivables

Undrawn commitment on revolving credit facility (1)

Undrawn commitment on credit facility (1)

Accounts and other payables

The balance at September 30, 2021 represents the Company’s $99.9 million revolving credit facility and a $0.1 million standby letter of credit used as collateral for THB’s real estate location.

The balance at March 31, 2022 represents the Company’s $99.9 million revolving credit facility and a $0.1 million standby letter of credit used as collateral for THB’s real estate location.

We manage our cash balances in order to fund our day-to-day operations.

2 unchanged sentences

We continue to actively monitor the impact of the COVID-19 pandemic on the collectability of certain receivables.

We maintained a $100.0 million revolving credit facility at September 30, 2021 and December 31, 2020 (under the 2019 Credit Agreement) which had approximately $100.0 million undrawn as of September 30, 2021 and December 31, 2020.

2019 Credit Agreement and 2020 and 2021 Debt Repricing

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

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

For the three and nine months ended September 30, 2021, the Company reduced outstanding debt by $35.0 million and $142.0 million, respectively, for a total debt reduction of $453.8 million since July 1, 2019.

As of September 30, 2021, we were in compliance with our financial performance covenant.

Refer to Note 4,

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

On January 17, 2020, the Company entered into the First Amendment (the “First Amendment”) to the 2019 Credit Agreement with the other loan parties thereto, Barclays Bank PLC, as administrative agent, and the Royal Bank of Canada as fronting bank.

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

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

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

Pursuant to the Second Amendment, the Company refinanced the existing term loans (the “Existing Term Loans”) with replacement term loans in an aggregate principal amount of $755.7 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 1, 2026, except that the Repriced Term Loans provide for a reduced applicable margin on LIBOR of 25 basis points.

We maintained a $100.0 million revolving credit facility at March 31, 2022 and December 31, 2021 (under the 2019 Credit Agreement) which had approximately $100.0 million undrawn as of March 31, 2022 and December 31, 2021.

2021 Debt Repricing and 2021 Incremental Term Loans

On February 18, 2021, the Company entered into the Second Amendment (the “Second Amendment”) to the 2019 Credit Agreement, dated as of July 1, 2019 (as amended by the First Amendment to Credit Agreement, dated as of January 17, 2020) , with the other loan parties thereto, Barclays Bank PLC, as administrative agent, and the Royal Bank of Canada as fronting bank.

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

The Repriced Term Loans provide for substantially the same terms as the term loans, including the same maturity date of July 1, 2026, except that the Repriced Term Loans provide for a reduced applicable margin on LIBOR of 25 basis points.

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

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

WestEnd Credit Facilities Commitments

On November 4, 2021, the Company entered into the WestEnd Purchase Agreement, pursuant to which the Company has agreed to purchase 100% of the equity interests of WestEnd on the terms and subject to the conditions therein.

In connection with entering into the WestEnd Purchase Agreement, on November 4, 2021 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.

Proceeds from the incremental facility are expected to be used to finance the WestEnd Acquisition and the payment of certain fees, commissions and expenses in connection therewith.

On December 31, 2021, the Company entered into the Third Amendment to the Credit Agreement (the “Third Amendment”), dated as of July 1, 2019 (as amended by the First Amendment to Credit Agreement, dated as of January 17, 2020, and the Second Amendment to Credit Agreement, dated as of February 18, 2021) 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 of 100% of the equity interests of WestEnd and to pay fees and expenses incurred in connection therewith.

The 2021 Incremental Term Loans will mature in 2028 and will 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%.

The 2021 Incremental Term Loans will amortize at a rate of 1.00% per annum.

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

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

Refer to Note 4, Acquisitions, for further details on the WestEnd Acquisition, as well as Note 11, Debt, for further information on the 2019 Credit Agreement.

2020 Swap Transaction

On March 27, 2020, the Company executed a floating-to-fixed interest rate swap transaction (“Swap”) to effectively fix the interest rate at 3.465% on $450 million of its outstanding Term Loan through the Term Loan maturity date of July 2026.

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.

At September 30, 2021, the $450 million notional value Swap had a fair value of $2.0 million, which was included in other assets on the unaudited Condensed Consolidated Balance Sheets.

For the three and nine months ended September 30, 2021, the Company recognized income, net of tax, of $1.3 million and $9.1 million, respectively, in accumulated other comprehensive income (loss).

For the three and nine months ended September 30, 2021, the Company reclassified a loss of $0.9 million and $2.6 million, respectively, from accumulated other comprehensive income (loss) to interest expense and other financing costs on the unaudited Condensed Consolidated Statements of Operations.

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.

At March 31, 2022, the $450 million notional value Swap had a fair value of $29.2 million, which was included in other assets on the unaudited Condensed Consolidated Balance Sheets.

For the three months ended March 31, 2022 and 2021, the Company reclassified losses of $0.9 million and $0.8 million, respectively, from accumulated other comprehensive income (loss) to interest expense and other financing costs on the unaudited Condensed Consolidated Statements of Operations.

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

Contingent Consideration

At March 31, 2022, the Company had $305.0 million in contingent consideration that is estimated to be payable over the next two and four years resulting from the USAA AMCO and WestEnd Acquisitions, respectively.

For the three months ended March 31, 2022, the Company recorded decreases of $2.8 million and $0.7 million in contingent payment liabilities associated with the USAA AMCO Acquisition and WestEnd Acquisitions, respectively, which is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets.

At March 31, 2022, the estimated fair value of the USAA AMCO Acquisition payments was $66.0 million, and a maximum of $75.0 million in contingent consideration ($37.5 million per year for the remaining 2 years of the earn out period) is potentially payable to sellers.

At March 31, 2022, the estimated fair value of the WestEnd Acquisition contingent payments was $239.0 million, and a maximum of $320.0 million in contingent consideration ($80.0 million per year for the remaining four years of the earn out period) is potentially payable to sellers.

There were no other significant changes to our contractual obligations as reported in our Annual Report on Form 10-K for the year ended December 31, 2021.

Capital Requirements

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

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

2 unchanged sentences

Net cash used in financing activities

Operating Activities – Cash provided by operating activities during the nine months ended September 30, 2021 was $264.1 million, compared to $182.7 million of cash provided by operating activities for the same period in 2020.

The $81.3 million increase in cash provided by operating activities was primarily due to a $51.0 million increase in net income and $26.1 million increase in working capital source of cash.

Cash provided by operating activities during the nine months ended September 30, 2020 was $ 182.7 million and comprised of $ 157.6 million and $ 60.1 million of cash provided by net income and non-cash items, partially offset by $ 35.0 million in working capital source of cash.

Investing Activities – Cash used in investing activities during the nine months ended September 30, 2021 was $11.0 million and consisted of primarily of property and equipment purchases of $8.3 million and $2.1 million of net trading activity.

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

Financing Activities – Cash used in financing activities during the nine months ended September 30, 2021 was $211.0 million and was mostly attributable to repayment of long-term debt under the 2019 Credit Agreement, repurchases of common stock, payment of dividends, and net activity related to stock-based equity awards of $142.0 million, $25.9 million, $25.4 million, and $17.7 million, respectively.

Cash used in financing activities during the nine months ended September 30, 2020 was $153.0 million and was mostly attributable to repayment of long-term debt under the 2019 Credit Agreement, repurchases of common stock, payment of dividends, and net activity related to stock-based equity awards of $113.4 million, $22.8 million, $11.5 million, and $5.9 million, respectively.

Contractual Obligations

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

Pursuant to the Second Amendment, the Company repriced its Term Loan, lowering the interest rate spread by 25 basis points, from 2.50% over LIBOR, to 2.25% over LIBOR.

For the three and nine months ended September 30, 2021, the Company recorded an increase of $2.4 million and $10.6 million, respectively, in the USAA AMCO Acquisition contingent payment liability, which is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets.

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

A maximum of $112.5 million in contingent consideration ($37.5 million per year for the remaining 3 years of the earn out period) was payable to sellers at September 30, 2021.

Subsequent to September 30, 2021, the Company paid $37.5 million in cash to sellers for the second annual earn out period.

There were no other significant changes to our contractual obligations as reported in our Annual Report on Form 10-K for the year ended December 31, 2020.

Off‑Balance Sheet Arrangements

In connection with dividends declared in December 2017, holders of restricted stock awards that were unvested at the time such dividends were declared are entitled to be paid the dividends as and when the restricted stock vests.

Holders of stock options that were unvested at the time the December 2017 dividend was declared are entitled to receive a cash bonus equivalent of the December 2017 dividend as and when their stock options vest.

The Company announced the initiation of quarterly cash dividends in August 2019.

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

As of September 30, 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.

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

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

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, upon the satisfaction of certain conditions.

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

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

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

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

Operating Activities – Cash provided by operating activities during the three months ended March 31, 2022 was $74.8 million, compared to $79.6 million of cash provided by operating activities for the same period in 2021.

The $4.8 million decrease in cash provided by operating activities was primarily due to an $10.3 million increase in net working capital items partially offset by a $6.1 million increase in net income.

Cash provided by operating activities during the three months ended March 31, 2021 was $79.6 million and consisted of $65.2 million of net income and $23.8 million of non-cash items, partially offset by $9.3 million in working capital items.

Investing Activities – Cash used in investing activities during the three months ended March 31, 2022 was $4.1 million and consisted of net trading activity of $1.1 million, $1.2 million of property and equipment purchases and $1.5 million in the purchase of equity method investment in Alderwood.

The nature of our trading activities is further described in Note 2, Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

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

Financing Activities – Cash used in financing activities during the three months ended March 31, 2022 was $101.6 million and was mostly attributable to repayment of long-term debt under the 2019 Credit Agreement, payment of dividends, repurchases of common stock, and payment of taxes related to net share settlements of $70.0 million, $17.4 million, $10.2 million and $5.4 million, respectively.

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

Critical Accounting Policies and Estimates

4 unchanged sentences

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What changed 10-Q

Item 2. Management’s Discussion and Analysis