UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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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
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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(I.R.S. Employer |
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incorporation or organization) |
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Identification No.) |
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
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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.
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).
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.
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Large accelerated filer ☐ |
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Non-accelerated filer ☐ |
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Smaller reporting company |
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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
The number of outstanding shares of the registrant’s Common Stock, par value $0.01 per share as of April 30, 2022 was
Auditor’s PCAOB ID Number: 42 Auditor Name: Ernst & Young LLP Auditor Location: Cleveland, Ohio
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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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
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Victory Capital Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except shares data)
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March 31, 2022 |
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December 31, 2021 |
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Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Receivables |
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Prepaid expenses |
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Investments, at fair value |
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Property and equipment, net |
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Goodwill |
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Other intangible assets, net |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders' equity |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Accrued compensation and benefits |
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Consideration payable for acquisition of business |
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Deferred tax liability, net |
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Other liabilities |
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Long-term debt, net |
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Total liabilities |
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Stockholders' equity |
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Common stock, $ 2022 - 2021 - |
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Additional paid-in capital |
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Treasury stock, at cost: 2022 - |
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Accumulated other comprehensive income |
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Retained earnings |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See the accompanying notes to the unaudited condensed consolidated financial statements.
3
Victory Capital Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Revenue |
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Investment management fees |
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$ |
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$ |
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Fund administration and distribution fees |
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Total revenue |
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Expenses |
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Personnel compensation and benefits |
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Distribution and other asset-based expenses |
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General and administrative |
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Depreciation and amortization |
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Change in value of consideration payable for acquisition of business |
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Acquisition-related costs |
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( |
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Restructuring and integration costs |
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Total operating expenses |
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Income from operations |
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Other income (expense) |
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Interest income and other income (expense) |
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( |
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Interest expense and other financing costs |
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( |
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( |
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Loss on debt extinguishment |
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( |
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( |
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Total other income (expense), net |
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( |
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( |
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Income before income taxes |
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Income tax expense |
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( |
) |
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( |
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Net income |
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$ |
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$ |
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Earnings per share of common stock |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted average number of shares outstanding |
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Basic |
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Diluted |
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Dividends declared per share of common stock |
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$ |
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$ |
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See the accompanying notes to the unaudited condensed consolidated financial statements.
4
Victory Capital Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Net income |
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$ |
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$ |
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Other comprehensive income (loss), net of tax |
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Net unrealized income on cash flow hedges |
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Net unrealized loss on foreign currency translation |
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( |
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Total other comprehensive income (loss), net of tax |
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Comprehensive income |
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$ |
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$ |
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See the accompanying notes to the unaudited condensed consolidated financial statements.
5
Victory Capital Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(In thousands)
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Accumulated |
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Additional |
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Other |
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Common |
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Treasury |
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Paid-In |
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Comprehensive |
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Retained |
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Stock |
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Stock |
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Capital |
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Income |
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Earnings |
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Total |
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Balance, December 31, 2021 |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock |
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— |
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— |
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— |
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— |
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Repurchase of shares |
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— |
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( |
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— |
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— |
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— |
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( |
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Shares withheld related to net settlement of equity awards |
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— |
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( |
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— |
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— |
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— |
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( |
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Vesting of restricted share grants |
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— |
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( |
) |
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— |
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— |
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— |
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Exercise of options |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Dividends paid |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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Net income |
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— |
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— |
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— |
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— |
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Balance, March 31, 2022 |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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$ |
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Treasury Stock |
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Paid-In |
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Comprehensive |
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Retained |
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Common Stock |
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Class B |
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Common Stock |
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Class B |
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Capital |
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(Loss) Income |
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Earnings |
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Total |
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Balance, December 31, 2020 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Issuance of common stock |
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— |
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— |
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— |
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— |
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— |
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— |
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Share conversion - Class B to A |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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— |
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Repurchase of shares |
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— |
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|
— |
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( |
) |
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|
— |
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— |
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— |
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— |
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( |
) |
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Shares withheld related to net settlement of equity awards |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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( |
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Vesting of restricted share grants |
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— |
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— |
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— |
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( |
) |
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— |
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Exercise of options |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Dividends paid |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance, March 31, 2021 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
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$ |
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$ |
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|
See the accompanying notes to the unaudited condensed consolidated financial statements.
6
Victory Capital Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Cash flows from operating activities |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Provision for deferred income taxes |
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Depreciation and amortization |
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Deferred financing costs and derivative and accretion expense |
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|
|
Stock-based and deferred compensation |
|
|
|
|
|
|
|
|
|
Change in fair value of contingent consideration obligations |
|
|
( |
) |
|
|
|
|
|
Unrealized depreciation (appreciation) on investments |
|
|
|
|
|
|
( |
) |
|
Noncash lease expense |
|
|
|
|
|
|
— |
|
|
Loss on equity method investment |
|
|
|
|
|
|
|
|
|
Loss on debt extinguishment |
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Receivables |
|
|
|
|
|
|
( |
) |
|
Prepaid expenses |
|
|
( |
) |
|
|
( |
) |
|
Other assets |
|
|
( |
) |
|
|
— |
|
|
Accounts payable and accrued expenses |
|
|
( |
) |
|
|
|
|
|
Accrued compensation and benefits |
|
|
( |
) |
|
|
( |
) |
|
Other liabilities |
|
|
( |
) |
|
|
( |
) |
|
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Purchases of investments |
|
|
( |
) |
|
|
( |
) |
|
Sales of investments |
|
|
|
|
|
|
|
|
|
Purchase of equity method investment |
|
|
( |
) |
|
|
— |
|
|
Acquisition of business and assets, net of cash acquired |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
( |
) |
|
|
( |
) |
|
Payments of taxes related to net share settlement of equity awards |
|
|
( |
) |
|
|
( |
) |
|
Repayment of long-term senior debt |
|
|
( |
) |
|
|
( |
) |
|
Payment of dividends |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
Effect of changes of foreign exchange rate on cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
( |
) |
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
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