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Item 2. Management’s Discussion and Analysis

2022-08-08 compared with 2022-05-09 · 208 added, 99 removed, 316 unchanged (49% of the section changed)

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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 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.

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 and six months ended June 30, 2022 and 2021 and cash flows for the six months ended June 30, 2022 and 2021.

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

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

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

Our Business – Victory is a diversified global asset management firm with $154.9 billion in AUM as of June 30, 2022.

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

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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.

As of June 30, 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.

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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.

We have grown our AUM from $17.9 billion following the management-led buyout with Crestview GP in August 2013 to $154.9 billion at June 30, 2022.

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 investor channels with deep penetration.

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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 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 paid in cash in April 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.

The estimated fair value of contingent consideration payable to sellers was estimated at $221.4 million at June 30, 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 $18.3 million for the six months ended June 30, 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.

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Nominal consideration was paid for the assets of THB.

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

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

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

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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.

The estimated fair value of contingent consideration payable to sellers was estimated at $57.0 million at June 30, 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 $11.8 million for the six months ended June 30, 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.

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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.

In July 2022, Alderwood decided to wind down its business and operations, including the business and operations of its private fund.

On July 31, 2022, the Company’s wholly owned subsidiary retired as a member of Alderwood thereby terminating the Company’s commitment to contribute an additional $3 million in capital to Alderwood and $50 million in capital to Alderwood’s private fund.

Alderwood returned the $1.5 million in capital the Company contributed pursuant to the Alderwood Amendment on July 27, 2022.

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

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Assets under management :

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.

AUM at June 30, 2022 decreased by $23.2 billion, or 13.0%, to $154.9 billion from $178.1 billion at March 31, 2022, driven by negative market action of $21.7 billion.

Net flows for the quarter ended June 30, 2022 were comprised of $0.6 billion of net long-term outflows and $0.1 billion of net short-term outflows.

AUM at June 30 , 202 2 and 202 1 was $1 5 4 .9 billion and $ 1 61 .

9 billion, respectively.

We generated $ 9.3 billion in gross flows and $ 0.7 billion in negative net flows for the three months ended June 30 , 202 2 compared to $ 10 .

1 billion in gross flows and $ 0.2 billion in positive net flows for the same period in 202 1 .

Net flows for the three months ended June 30 , 202 2 were comprised of $ 0.6 billion of long-term out flows and $ 0.1 billion of short-term outflows.

AUM at June 30, 2022 and 2021 was $154.9 billion and $161.9 billion, respectively.

We generated $20.5 billion in gross flows and $2.3 billion in positive net flows for the six months ended June 30, 2022 compared to $16.9 billion in gross flows and $1.0 billion in negative net flows for the same period in 2021.

Net flows for the six months ended June 30, 2022 were comprised of $2.4 billion of net long-term inflows and $0.1 billion of net short-term outflows.

Investment performance :

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Financial highlights :

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.

Total revenue for the three months ended June 30, 2022 was $216.0 million compared to $221.9 million for the same period in 2021.

For the six months ended June 30, 2022 and 2021, total revenue was $446.0 million and $434.9 million, respectively.

Net income was $79.2 million for the three months ended June 30, 2022 compared to $69.3 million for the same period in 2021.

For the six months ended June 30, 2022 and 2021, net income was $150.5 million and $134.5 million, respectively.

Adjusted EBITDA was $106.2 million for the three months ended June 30, 2022, or 49.2 % of revenue, compared to $112.2 million, or 50.6% of revenue, for the same period in 2021.

For the six months ended June 30, 2022, Adjusted EBITDA was $220.6 million, or 49.5% of revenue, compared to $219.1 million, or 50.4% 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 $90.4 million for the three months ended March 31, 2022 compared to $83.6 million for the three months ended March 31, 2021.

Adjusted Net Income with tax benefit was $80.7 million for the three months ended June 30, 2022 compared to $87.2 million for the three months ended June 30, 2021.

For the six months ended June 30, 2022, Adjusted Net Income with tax benefit was $171.1 million compared to $170.8 million for the same period in 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.

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

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

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(in millions)

For the Three Months Ended March 31, 2022

For the Three Months Ended June 30, 2022

Beginning AUM

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Net transfers

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

For the Three Months Ended June 30, 2021 (1)

Beginning AUM

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Prior-period figures have been adjusted accordingly.

(in millions)

Six Months Ended

June 30, 2022

Beginning AUM

Gross client cash inflows

Gross client cash outflows

Net client cash flows

Market appreciation / (depreciation)

Realizations and distributions

Net transfers

Six Months Ended

June 30, 2021 (1)

Beginning AUM

Gross client cash inflows

Gross client cash outflows

Net client cash flows

Market appreciation / (depreciation)

Net transfers

(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 March 31,

As of June 30,

(in millions)

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Mutual Funds (1)

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Beginning AUM

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Net transfers

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Beginning AUM

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Net transfers

(in millions)

Mutual Funds (1)

Six Months Ended June 30, 2022

Beginning AUM

Gross client cash inflows

Gross client cash outflows

Net client cash flows

Market appreciation (depreciation)

Realizations and distributions

Net transfers

Six Months Ended June 30, 2021

Beginning AUM

Gross client cash inflows

Gross client cash outflows

Net client cash flows

Market appreciation (depreciation)

Net transfers

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

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domiciled pooled vehicles.

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.

June 30, 2022 AUM compared to March 31, 2022 AUM .

At June 30, 2022, our total AUM was $154.9 billion, a decrease of $23.2 billion, or 13.0%, from $178.1 billion at March 31, 2022, primarily driven by negative market action of $21.7 billion .

Net inflows from our Solutions and alternative investments strategies of $0.5 billion and $1.7 billion, respectively, were offset by net outflows from our U.S.

small cap equity strategies and fixed income strategies of $1.1 billion and $1.3 billion, respectively.

June 30, 2022 AUM compared to December 31, 2021 AUM .

Total AUM decreased by $28.7 billion, or 15.6%, to $154.9 billion at June 30, 2022 compared to $183.7 billion at December 31, 2021.

The decrease in AUM was due to negative market action of $29.9 billion partially offset by net inflows of $2.3 billion.

Net inflows into our alternative investments and Solutions strategies of $3.2 billion and $1.8 billion, respectively, were partially offset by net outflows from fixed income strategies and U.S.

small cap equity strategies of $1.8 billion and $1.3 billion, respectively.

GAAP Results of Operations

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

Three Months Ended March 31,

The following table presents our GAAP results of operations for the three and six months ended June 30, 2022 and 2021.

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except per share data)

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Income from operations

Other income (expense)

Interest income and other income (expense)

Other (expense) income

Interest income and other (expense) income

Interest expense and other financing costs

Loss on debt extinguishment

Total other income (expense), net

Total other expense, net

Income before income taxes

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Investment Management Fees

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.

Three months ended June 30, 2022 compared to June 30, 2021 .

Investment management fees were relatively flat, increasing 0.1%, or $0.1 million, to $168.1 million for the three months ended June 30, 2022 from $168.0 million for the same period in 2021.

Six months ended June 30, 2022 compared to June 30, 2021 .

Investment management fees increased by $19.3 million, or 5.9%, to $347.6 million for the six months ended June 30, 2022 from $328.3 million for the same period in 2021 due to an increase in average AUM over the comparable period, partially offset by a decrease in revenue realization.

Fund Administration and Distribution Fees

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 .

Three months ended June 30, 2022 compared to June 30, 2021 .

Fund administration and distribution fees decreased by $6.0 million, or 11.1%, to $47.9 million for the three months ended June 30, 2022 compared to $53.9 million for the same period in 2021 due primarily to lower mutual fund average net assets.

Six months ended June 30, 202 2 compared to June 30, 20 2 1 .

Fund administration and distribution fees decreased $8.1 million , or 7.6 %, to $ 98.4 million for the six months ended June 30, 20 2 2 from $ 106.5 million for the same period in 20 2 1 due to the same factors as discussed above in the quarterly section.

Personnel Compensation and Benefits

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,

The following table presents the components of GAAP personnel compensation and benefits expense for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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

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.

Three months ended June 30, 2022 compared to June 30, 2021 .

Personnel compensation and benefits were $57.6 million for the three months ended June 30, 2022, an increase of $0.1 million, or 0.2%, from $57.5 million for the same period in 2021.

Incentive compensation and equity awards granted to employees and directors were $23.4 million and $5.0 million, respectively, for the three months ended June 30, 2022, compared to $25.6 million and $4.3 million, respectively, for the same period in 2021.

Salaries, payroll related taxes and employee benefits were $18.9 million and $22.8 million, respectively, for the three months ended June 30, 2022 and 2021.

Six months ended June 30, 2022 compared to June 30, 2021 .

Personnel compensation and benefits increased by $6.0 million, or 5.2%, to $122.5 million for the six months ended June 30, 2022 from $116.5 million for the same period in 2021 due to an increase in variable costs such as sales-based compensation and the incentive compensation pool for employees.

Also contributing was 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.

Partially offsetting the increase was a $3.4 million decrease in the net unrealized fair value of deferred compensation plan investments.

Salaries, payroll related taxes and employee benefits were $42.7 million and $48.0 million, respectively, for the six months ended June 30, 2022 and 2021.

Incentive compensation and equity awards granted to employees and directors were $49.5 million and $8.9 million, respectively, for the six months ended June 30, 2022 compared to $48.8 million and $9.9 million, respectively, for the same period in 2021.

Distribution and Other Asset‑Based Expenses

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,

The following table presents the components of distribution and other asset-based expenses for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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Total distribution and other asset-based expenses

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.

Three months ended June 30, 2022 compared to June 30, 2021 .

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

For the three months ended June 30, 2022, distribution and other asset-based expenses were $40.9 million, a decrease of $3.4 million, or 7.6%, from $44.2 million for the same period in 2021.

The decrease is primarily due to a change in vehicle mix and our underlying distribution platforms partially offset by an increase in average AUM over the comparable period.

Six months ended June 30, 202 2 compared to June 30, 20 2 1 .

Distribution and other asset-based expenses were $ 84.5 million for the six months ended June 30 , 20 2 2 , a decrease of $ 1.9 million, or 2.2 %, from $ 86.3 million for the same period in 20 2 1 primarily due to same factors as discussed above in the quarterly section .

General and Administrative

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.

Three months ended June 30, 2022 compared to June 30, 2021 .

General and administrative expenses were $13.9 million for the three months ended June 30, 2022 compared to $13.7 million for the same period in 2021.

The increase of $0.2 million, or 1.5%, was primarily due to an increase in travel and entertainment related expenses.

Six months ended June 30, 2022 compared to June 30, 2021 .

For the six months ended June 30, 2022 and 2021, general and administrative expenses were $26.7 million and $27.0 million, respectively, for a year over year decrease of $0.3 million, or 1.3%.

The decrease was primarily due to a decrease in technology-related fees partially offset by an increase in travel and entertainment related expenses.

Depreciation and Amortization

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 .

Three months ended June 30, 2022 compared to June 30, 2021 .

Depreciation and amortization increased by $6.1 million, or 129.2%, to $10.8 million for the three months ended June 30, 2022 from $4.7 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.

Six months ended June 30, 2022 compared to June 30, 2021 .

Depreciation and amortization increased by $12.3 million, or 135.3%, to $21.4 million for the six months ended June 30, 2022 from $9.1 million for the same period in 2021, due to the same factors as discussed above in the quarterly section.

Change in Value of Consideration Payable for Acquisition of Business

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.

Three months ended June 30, 2022 compared to June 30, 2021 .

T he change in value of consideration payable for acquisition of business decreased $32.3 million as a result of decreases of $9.0 million and $17.6 million in the fair value of the contingent consideration associated with the USAA AMCO and WestEnd Acquisitions, respectively, for the three months ended June 30, 2022 compared to an increase of $5.7 million associated with the USAA AMCO Acquisition for the three months ended June 30, 2021.

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

Six months ended June 30, 2022 compared to June 30, 2021 .

T he change in value of consideration payable for acquisition of business decreased $38.3 million as a result of decreases of $11.8 million and $18.3 million in the fair value of the contingent consideration associated with the USAA AMCO and WestEnd Acquisitions, respectively, for the six months ended June 30, 2022 compared to an increase of $8.2 million associated with the USAA AMCO Acquisition for the six months ended June 30, 2021.

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

Acquisition‑Related Costs

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.

Three months ended June 30, 2022 compared to June 30, 2021 .

Acquisition-related costs for the three months ended June 30, 2022 were $0.1 million and $0.4 million for the three months ended June 30, 2021.

Six months ended June 30, 2022 compared to June 30, 2021 .

Acquisition-related costs for the six months ended June 30, 2022 and 2021 were flat at $0.3 million, respectively.

Restructuring and Integration Costs

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.

Three months ended June 30, 2022 compared to June 30, 2021 .

Restructuring and integration costs for the three months ended June 30, 2022 was $8 thousand and $0.4 million for the three months ended June 30, 2021.

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

Six months ended June 30, 2022 compared to June 30, 2021 .

Restructuring and integration costs were $17 thousand and $2.5 million, respectively, for the six months ended June 30, 2022 and 2021.

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

Interest Income and Other Income (Expense)

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.

Three months ended June 30, 2022 compared to June 30, 2021 .

Interest income and other income/(expense) was expense of $3.4 million for the three months ended June 30, 2022 compared to income of $1.9 million for the same period in 2021.

The expense for the three months ended June 30, 2022 was primarily due to a $5.1 million decrease in the net unrealized fair value of deferred compensation plan investments.

The income for the three months ended June 30, 2021 was primarily due to a $1.5 million increase in the net unrealized fair value of deferred compensation plan investments.

Six months ended June 30, 202 2 compared to June 30, 20 2 1 .

For the six months ended June 30 , 20 2 2 and 20 2 1 , interest income and other income/(expense) was expense of $ 3 .

7 million and income of $ 4 .

7 million, respectively .

The expense for the six months ended June 30, 2022 was primarily due to a $5.5 million decrease in the net unrealized fair value of deferred compensation plan investments.

The income for the six months ended June 30, 2021 was primarily due to a $4.1 million increase in the net unrealized fair value of deferred compensation plan investments.

Interest Expense and Other Financing Costs

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.

Three months ended June 30, 2022 compared to June 30, 2021 .

Interest expense and other financing costs increased $3.8 million to $9.9 million for the three months ended June 30, 2022, compared to $6.2 million for the same period in 2021 d ue to an increase in interest expense as a result of a higher debt principal balance resulting from our incremental borrowing in December 2021 to fund the WestEnd Acquisition.

Also contributing was a higher average interest rate over the comparable period.

Six months ended June 30, 2022 compared to June 30, 2021 .

For the six months ended June 30, 2022 and 2021, interest expense and other financing costs were $19.2 million and $13.0 million, respectively.

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

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.

Three months ended June 30, 2022 compared to June 30, 2021 .

Loss on debt extinguishment was $1.0 million for the three months ended June 30, 2022 compared to $1.1 million for the same period in 2021.

During the quarter ended June 30, 2022, the Company paid down $45.0 million of debt through prepayments and wrote off $1.0 million of a pro-rata portion of the unamortized debt issuance costs and unamortized debt discount due.

During the quarter ended June 30, 2021, the Company paid down $57.0 million of debt through prepayments and wrote off $1.1 million of a pro-rata portion of the unamortized debt issuance costs and unamortized debt discount due .

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

Six months ended June 30, 2022 compared to June 30, 2021 .

Loss on debt extinguishment was $2.5 million for the six months ended June 30, 2022, due to repayments of term loan principal .

Loss on debt extinguishment was $3.9 million for the six months ended June 30, 2021, due to repayments of term loan principal and the one-time write-off of debt issuance and debt discount costs associated with the 2021 term loan repricing in February 2021.

Income Tax Expense

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.

Three months ended June 30, 2022 compared to June 30, 2021 .

The effective tax rate for the three months ended June 30, 2022 and 2021 was 24.6% and 22.9%, respectively.

The change in the effective tax rate was primarily due to lower excess tax benefits on share-based compensation and higher non-deductible expenses in 2022 compared to the same period in 2021.

Six months ended June 30, 2022 compared to June 30, 2021 .

For the six months ended June 30, 2022 and 2021, the effective tax rate was 23.0% and 22.2%, respectively.

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

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

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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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Adjusted EBITDA

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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Adding back amortization expense on acquisition‑related intangible assets.

(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,

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 June 30,

Six Months Ended June 30,

(in thousands)

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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 .

The following table shows our liquidity position as of June 30, 2022 and December 31, 2021.

(in thousands)

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Accounts and other receivables

Undrawn commitment on credit facility (1)

Undrawn commitment on revolving credit facility (1)

Accounts and other payables

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.

The balance at June 30, 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.

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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 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.

We maintained a $100.0 million revolving credit facility at June 30, 2022 and December 31, 2021 (under the 2019 Credit Agreement) which had approximately $100.0 million undrawn as of June 30, 2022 and December 31, 2021.

2021 Debt Repricing and 2021 Incremental Term Loans

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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.

Repayments of outstanding term loans under the 2019 Credit Agreement totaled $45.0 million and $115.0 million for the three and six months ended June 30, 2022, respectively.

Subsequent to June 30, 2022, we reduced outstanding principal by $25.6 million, consisting of a $19.0 million reduction on the 2021

Incremental Term Loans and a $ 6.6 million reduction on the Repriced Term Loans, through repayments and open market term loan debt repurchases and retirements .

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.

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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.

At June 30, 2022, the $450 million notional value Swap had a fair value of $36.1 million, which was included in other assets on the unaudited Condensed Consolidated Balance Sheets.

For the three and six months ended June 30, 2022, the Company recognized income, net of tax, of $5.2 million and $21.5 million, respectively, in accumulated other comprehensive income (loss).

For the three and six months ended June 30, 2022, the Company reclassified a loss of $0.1 million and $0.9 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.

At June 30, 2022, the Company had $278.4 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 and six months ended June 30, 2022, the Company recorded decreases of $9.0 million and $11.8 million, respectively, in contingent payment liabilities associated with the USAA AMCO Acquisition and $17.6 million and $18.3 million, respectively, in contingent payment liabilities associated WestEnd Acquisition, which is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets.

At June 30, 2022, the estimated fair value of the USAA AMCO Acquisition payments was $57.0 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 June 30, 2022, the estimated fair value of the WestEnd Acquisition contingent payments was $221.4 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.

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

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

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Net cash used in financing activities

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.

Operating Activities – Cash provided by operating activities during the six months ended June 30, 2022 was $165.1 million, compared to $164.2 million of cash provided by operating activities for the same period in 2021.

The $0.9 million increase in cash provided by operating activities due to a $16.0 million increase in net income partially offset by a $17.3 million decrease in non-cash items.

Cash provided by operating activities during the six months ended June 30, 2021 was $164.2 million and comprised of $134.5 million and $45.8 million of cash provided by net income and non-cash items, partially offset by $16.1 million in working capital source of cash.

Investing Activities – Cash used in investing activities during the six months ended June 30, 2022 was $7.2 million and consisted of primarily of property and equipment purchases of $2.9 million, $1.9 million of net trading activity and $1.5 million for an equity investment in Alderwood.

Cash used in investing activities during the six months ended June 30, 2021 was $7.3 million and consisted of property and equipment purchases of $5.6 million and $1.5 million of net trading activity.

Financing Activities – Cash used in financing activities during the six months ended June 30, 2022 was $184.6 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 $115.0 million, $29.4 million, $34.7 million, and $5.5 million, respectively.

Cash used in financing activities during the six months ended June 30, 2021 was $148.0 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 $107.0 million, $17.7 million, $14.6 million, and $8.6 million, respectively.

Critical Accounting Policies and Estimates

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis