10-Q 1 vctr-10q_20220331.htm 10-Q vctr-10q_20220331.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______                 

Commission file number 001-38388

 

 

Victory Capital Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

32-0402956

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

15935 La Cantera Parkway, San Antonio, Texas

 

78256

(Address of principal executive offices)

 

(Zip Code)

 

(216) 898-2400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 Par Value

VCTR

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

Accelerated filer

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No  

The number of outstanding shares of the registrant’s Common Stock, par value $0.01 per share as of April 30, 2022 was 68,594,219.

Auditor’s PCAOB ID Number: 42   Auditor Name: Ernst & Young LLP          Auditor Location: Cleveland, Ohio

 

 

 


 

 

 

TABLE OF CONTENTS

 

Forward‑Looking Statements

This report includes forward-looking statements, including in the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These forward‑looking statements include, without limitation, statements regarding our industry, business strategy, plans, goals and expectations concerning our market position, future operations, margins, profitability, future efficiencies, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words “may,” “believes,” “intends,” “seeks,” “anticipates,” “plans,” “estimates,” “expects,” “should,” “assumes,” “continues,” “could,” “will,” “future” and the negative of these or similar terms and phrases are intended to identify forward‑looking statements in this report.

Forward‑looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward‑looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following; reductions in assets under management (“AUM”) based on investment performance, client withdrawals, difficult market conditions and other factors such as a pandemic; the nature of our contracts and investment advisory agreements; our ability to maintain historical returns and sustain our historical growth; our dependence on third parties to market our strategies and provide products or services for the operation of our business; our ability to retain key investment professionals or members of our senior management team; our reliance on the technology systems supporting our operations; our ability to successfully acquire and integrate new companies; the concentration of our investments in long only small‑ and mid‑cap equity and U.S. clients; risks and uncertainties associated with non‑U.S. investments; our efforts to establish and develop new teams and strategies; the ability of our investment teams to identify appropriate investment opportunities; our ability to limit employee misconduct; our ability to meet the guidelines set by our clients; our exposure to potential litigation (including administrative or tax proceedings) or regulatory actions; our ability to implement effective information and cyber security policies, procedures and capabilities; our substantial indebtedness; the potential impairment of our goodwill and intangible assets; disruption to the operations of third parties whose functions are integral to our exchange traded fund (“ETF”) platform; our determination that we are not required to register as an “investment company” under the 1940 Act; the fluctuation of our expenses; our ability to respond to recent trends in the investment management industry; the level of regulation on investment management firms and our ability to respond to regulatory developments; the competitiveness of the investment management industry; the level of control over us retained by Crestview Partners II GP, L.P. (“Crestview GP”); our status as an emerging growth company; and other risks and factors included, but not limited to, those listed under the caption “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2022, which is accessible on the SEC’s website at www.sec.gov.

In light of these risks, uncertainties and other factors, the forward‑looking statements contained in this report might not prove to be accurate. All forward‑looking statements speak only as of the date made and we undertake no obligation to update or revise publicly any forward‑looking statements, whether as a result of new information, future events or otherwise.

 

2


Table of Contents

 

 

PART I—FINANCIAL INFORMATION

Item 1.  Financial Statements

Victory Capital Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except shares data)

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

38,550

 

 

$

69,533

 

Receivables

 

 

93,713

 

 

 

104,305

 

Prepaid expenses

 

 

7,914

 

 

 

6,654

 

Investments, at fair value

 

 

32,388

 

 

 

31,724

 

Property and equipment, net

 

 

24,760

 

 

 

25,295

 

Goodwill

 

 

981,805

 

 

 

981,805

 

Other intangible assets, net

 

 

1,341,140

 

 

 

1,349,797

 

Other assets

 

 

52,322

 

 

 

10,633

 

Total assets

 

$

2,572,592

 

 

$

2,579,746

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

47,587

 

 

$

62,102

 

Accrued compensation and benefits

 

 

43,388

 

 

 

53,905

 

Consideration payable for acquisition of business

 

 

305,553

 

 

 

309,380

 

Deferred tax liability, net

 

 

76,176

 

 

 

63,120

 

Other liabilities

 

 

53,085

 

 

 

33,388

 

Long-term debt, net

 

 

1,060,529

 

 

 

1,127,924

 

Total liabilities

 

 

1,586,318

 

 

 

1,649,819

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value per share:

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

2021 - 600,000,000 shares authorized, 77,242,372 shares issued and 68,662,779 shares outstanding

 

 

779

 

 

 

772

 

Additional paid-in capital

 

 

678,812

 

 

 

673,572

 

Treasury stock, at cost: 2022 - 9,157,963 shares; 2021 - 8,579,593 shares

 

 

(171,954

)

 

 

(153,200

)

Accumulated other comprehensive income

 

 

22,171

 

 

 

5,972

 

Retained earnings

 

 

456,466

 

 

 

402,811

 

Total stockholders' equity

 

 

986,274

 

 

 

929,927

 

Total liabilities and stockholders' equity

 

$

2,572,592

 

 

$

2,579,746

 

 

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

3


Table of Contents

Victory Capital Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Revenue

 

 

 

 

 

 

 

 

Investment management fees

 

$

179,465

 

 

$

160,284

 

Fund administration and distribution fees

 

 

50,554

 

 

 

52,665

 

Total revenue

 

 

230,019

 

 

 

212,949

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

Personnel compensation and benefits

 

 

64,901

 

 

 

59,006

 

Distribution and other asset-based expenses

 

 

43,584

 

 

 

42,103

 

General and administrative

 

 

12,762

 

 

 

13,310

 

Depreciation and amortization

 

 

10,607

 

 

 

4,385

 

Change in value of consideration payable for acquisition of business

 

 

(3,500

)

 

 

2,500

 

Acquisition-related costs

 

 

117

 

 

 

(164

)

Restructuring and integration costs

 

 

9

 

 

 

2,053

 

Total operating expenses

 

 

128,480

 

 

 

123,193

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

101,539

 

 

 

89,756

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest income and other income (expense)

 

 

(207

)

 

 

2,734

 

Interest expense and other financing costs

 

 

(9,233

)

 

 

(6,845

)

Loss on debt extinguishment

 

 

(1,555

)

 

 

(2,781

)

Total other income (expense), net

 

 

(10,995

)

 

 

(6,892

)

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

90,544

 

 

 

82,864

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(19,271

)

 

 

(17,662

)

 

 

 

 

 

 

 

 

 

Net income

 

$

71,273

 

 

$

65,202

 

 

 

 

 

 

 

 

 

 

Earnings per share of common stock

 

 

 

 

 

 

 

 

Basic

 

$

1.04

 

 

$

0.96

 

Diluted

 

$

0.97

 

 

$

0.88

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

68,747

 

 

 

67,761

 

Diluted

 

 

73,652

 

 

 

74,108

 

 

 

 

 

 

 

 

 

 

Dividends declared per share of common stock

 

$

0.25

 

 

$

0.09

 

 

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

4


Table of Contents

Victory Capital Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Net income

 

$

71,273

 

 

$

65,202

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

Net unrealized income on cash flow hedges

 

 

16,276

 

 

 

10,773

 

Net unrealized loss on foreign currency translation

 

 

(77

)

 

 

(2

)

Total other comprehensive income (loss), net of tax

 

 

16,199

 

 

 

10,771

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

87,472

 

 

$

75,973

 

 

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

5


Table of Contents

Victory Capital Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Treasury

 

 

Paid-In

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Income

 

 

Earnings

 

 

Total

 

Balance, December 31, 2021

 

$

772

 

 

$

(153,200

)

 

$

673,572

 

 

$

5,972

 

 

$

402,811

 

 

$

929,927

 

Issuance of common stock

 

 

 

 

 

 

 

 

69

 

 

 

 

 

 

 

 

 

69

 

Repurchase of shares

 

 

 

 

 

(9,437

)

 

 

 

 

 

 

 

 

 

 

 

(9,437

)

Shares withheld related to net settlement of equity awards

 

 

 

 

 

(9,317

)

 

 

 

 

 

 

 

 

 

 

 

(9,317

)

Vesting of restricted share grants

 

 

5

 

 

 

 

 

 

(5

)

 

 

 

 

 

 

 

 

 

Exercise of options

 

 

2

 

 

 

 

 

 

1,231

 

 

 

 

 

 

 

 

 

1,233

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

16,199

 

 

 

 

 

 

16,199

 

Share-based compensation

 

 

 

 

 

 

 

 

3,945

 

 

 

 

 

 

 

 

 

3,945

 

Dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,618

)

 

 

(17,618

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

71,273

 

 

 

71,273

 

Balance, March 31, 2022

 

$

779

 

 

$

(171,954

)

 

$

678,812

 

 

$

22,171

 

 

$

456,466

 

 

$

986,274

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

 

 

Common Stock

 

 

Class B

 

 

Common Stock

 

 

Class B

 

 

Capital

 

 

(Loss) Income

 

 

Earnings

 

 

Total

 

Balance, December 31, 2020

 

$

194

 

 

$

548

 

 

$

(47,844

)

 

$

(47,080

)

 

$

647,602

 

 

$

(7,460

)

 

$

161,581

 

 

$

707,541

 

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44

 

 

 

 

 

 

 

 

 

44

 

Share conversion - Class B to A

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of shares

 

 

 

 

 

 

 

 

(7,122

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,122

)

Shares withheld related to net settlement of equity awards

 

 

 

 

 

 

 

 

 

 

 

(10,916

)

 

 

 

 

 

 

 

 

 

 

 

(10,916

)

Vesting of restricted share grants

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

Exercise of options

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

789

 

 

 

 

 

 

 

 

 

790

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,771

 

 

 

 

 

 

10,771

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,547

 

 

 

 

 

 

 

 

 

5,547

 

Dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,481

)

 

 

(6,481

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

65,202

 

 

 

65,202

 

Balance, March 31, 2021

 

$

196

 

 

$

556

 

 

$

(54,966

)

 

$

(57,996

)

 

$

653,973

 

 

$

3,311

 

 

$

220,302

 

 

$

765,376

 

 

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

6


Table of Contents

Victory Capital Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

71,273

 

 

$

65,202

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Provision for deferred income taxes

 

 

7,894

 

 

 

6,269

 

Depreciation and amortization

 

 

10,607

 

 

 

4,385

 

Deferred financing costs and derivative and accretion expense

 

 

1,171

 

 

 

983

 

Stock-based and deferred compensation

 

 

4,792

 

 

 

9,471

 

Change in fair value of contingent consideration obligations

 

 

(3,500

)

 

 

2,500

 

Unrealized depreciation (appreciation) on investments

 

 

452

 

 

 

(2,720

)

Noncash lease expense

 

 

94

 

 

 

 

Loss on equity method investment

 

 

57

 

 

 

92

 

Loss on debt extinguishment

 

 

1,555

 

 

 

2,781

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

4,210

 

 

 

(6,730

)

Prepaid expenses

 

 

(1,260

)

 

 

(695

)

Other assets

 

 

(80

)

 

 

 

Accounts payable and accrued expenses

 

 

(8,819

)

 

 

13,573

 

Accrued compensation and benefits

 

 

(13,487

)

 

 

(14,987

)

Other liabilities

 

 

(146

)

 

 

(490

)

Net cash provided by operating activities

 

 

74,813

 

 

 

79,634

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,176

)

 

 

(393

)

Purchases of investments

 

 

(2,365

)

 

 

(2,626

)

Sales of investments

 

 

1,249

 

 

 

1,909

 

Purchase of equity method investment

 

 

(1,500

)

 

 

 

Acquisition of business and assets, net of cash acquired

 

 

(327

)

 

 

(30

)

Net cash used in investing activities

 

 

(4,119

)

 

 

(1,140

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Issuance of common stock

 

 

1,302

 

 

 

834

 

Repurchase of common stock

 

 

(10,193

)

 

 

(7,661

)

Payments of taxes related to net share settlement of equity awards

 

 

(5,373

)

 

 

(7,614

)

Repayment of long-term senior debt

 

 

(70,000

)

 

 

(50,000

)

Payment of dividends

 

 

(17,381

)

 

 

(6,393

)

Net cash used in financing activities

 

 

(101,645

)

 

 

(70,834

)

 

 

 

 

 

 

 

 

 

Effect of changes of foreign exchange rate on cash and cash equivalents

 

 

(32

)

 

 

(18

)

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

(30,983

)

 

 

7,642

 

Cash and cash equivalents, beginning of period