10-Q 1 vctr-20230930.htm 10-Q 10-Q
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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 September 30, 2023

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

 

img131227975_0.jpg 

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 October 31, 2023 was 65,989,429.

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

 

 

 

 


 

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Information

3

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

42

Item 4.

Controls and Procedures

43

 

 

 

PART II OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 3.

Defaults Upon Senior Securities

44

Item 4.

Mine Safety Disclosures

45

Item 5.

Other Information

45

Item 6.

Exhibits

45

 

Signatures

46

 

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 the conflicts in Ukraine and Israel or 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.; our status as an emerging growth company ("EGC"); 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, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 6, 2023, 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)

 

 

 

September 30, 2023

 

 

December 31, 2022

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

107,987

 

 

$

38,171

 

Receivables

 

 

95,174

 

 

 

84,473

 

Prepaid expenses

 

 

6,458

 

 

 

8,443

 

Investments, at fair value

 

 

29,858

 

 

 

27,266

 

Property and equipment, net

 

 

21,203

 

 

 

21,146

 

Goodwill

 

 

981,805

 

 

 

981,805

 

Other intangible assets, net

 

 

1,287,542

 

 

 

1,314,637

 

Other assets

 

 

61,778

 

 

 

64,958

 

Total assets

 

$

2,591,805

 

 

$

2,540,899

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

59,552

 

 

$

50,862

 

Accrued compensation and benefits

 

 

52,167

 

 

 

58,458

 

Consideration payable for acquisition of business

 

 

249,636

 

 

 

230,400

 

Deferred tax liability, net

 

 

124,995

 

 

 

108,138

 

Other liabilities

 

 

40,996

 

 

 

42,117

 

Long-term debt, net

 

 

988,323

 

 

 

985,514

 

Total liabilities

 

 

1,515,669

 

 

 

1,475,489

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, $0.01 par value per share: 2023 - 600,000,000 shares authorized, 82,224,284 shares issued and 65,911,628 shares outstanding; 2022 - 600,000,000 shares authorized, 80,528,137 shares issued and 67,325,534 shares outstanding

 

 

822

 

 

 

805

 

Additional paid-in capital

 

 

723,252

 

 

 

705,466

 

Treasury stock, at cost: 2023 - 16,312,656 shares; 2022 - 13,202,603 shares

 

 

(384,462

)

 

 

(285,425

)

Accumulated other comprehensive income

 

 

34,220

 

 

 

35,442

 

Retained earnings

 

 

702,304

 

 

 

609,122

 

Total stockholders' equity

 

 

1,076,136

 

 

 

1,065,410

 

Total liabilities and stockholders' equity

 

$

2,591,805

 

 

$

2,540,899

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

163,953

 

 

$

160,770

 

 

$

480,199

 

 

$

508,364

 

Fund administration and distribution fees

 

 

45,735

 

 

 

46,490

 

 

 

135,035

 

 

 

144,921

 

Total revenue

 

 

209,688

 

 

 

207,260

 

 

 

615,234

 

 

 

653,285

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Personnel compensation and benefits

 

 

54,501

 

 

 

56,869

 

 

 

167,043

 

 

 

179,352

 

Distribution and other asset-based expenses

 

 

38,160

 

 

 

39,019

 

 

 

113,158

 

 

 

123,471

 

General and administrative

 

 

13,947

 

 

 

12,301

 

 

 

39,585

 

 

 

38,984

 

Depreciation and amortization

 

 

12,333

 

 

 

10,686

 

 

 

33,663

 

 

 

32,051

 

Change in value of consideration payable for acquisition of business

 

 

10,336

 

 

 

(10,500

)

 

 

19,236

 

 

 

(40,600

)

Acquisition-related costs

 

 

116

 

 

 

189

 

 

 

134

 

 

 

449

 

Restructuring and integration costs

 

 

246

 

 

 

56

 

 

 

275

 

 

 

73

 

Total operating expenses

 

 

129,639

 

 

 

108,620

 

 

 

373,094

 

 

 

333,780

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

80,049

 

 

 

98,640

 

 

 

242,140

 

 

 

319,505

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income and other income (expense)

 

 

1,452

 

 

 

(1,446

)

 

 

4,967

 

 

 

(5,096

)

Interest expense and other financing costs

 

 

(15,580

)

 

 

(11,479

)

 

 

(44,721

)

 

 

(30,637

)

Loss on debt extinguishment

 

 

 

 

 

(369

)

 

 

 

 

 

(2,887

)

Total other expense, net

 

 

(14,128

)

 

 

(13,294

)

 

 

(39,754

)

 

 

(38,620

)

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

65,921

 

 

 

85,346

 

 

 

202,386

 

 

 

280,885

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(13,914

)

 

 

(12,582

)

 

 

(44,435

)

 

 

(57,643

)

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

52,007

 

 

$

72,764

 

 

$

157,951

 

 

$

223,242

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share of common stock

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.79

 

 

$

1.06

 

 

$

2.38

 

 

$

3.25

 

Diluted

 

$

0.77

 

 

$

1.01

 

 

$

2.30

 

 

$

3.07

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

65,774

 

 

 

68,609

 

 

 

66,504

 

 

 

68,625

 

Diluted

 

 

67,676

 

 

 

71,877

 

 

 

68,636

 

 

 

72,797

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share of common stock

 

$

0.32

 

 

$

0.25

 

 

$

0.96

 

 

$

0.75

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

 

$

52,007

 

 

$

72,764

 

 

$

157,951

 

 

$

223,242

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized income (loss) on cash flow hedges

 

 

(56

)

 

 

10,024

 

 

 

(1,225

)

 

 

31,514

 

Net unrealized income (loss) on foreign currency translation

 

 

(11

)

 

 

(78

)

 

 

3

 

 

 

(365

)

Total other comprehensive income (loss), net of tax

 

 

(67

)

 

 

9,946

 

 

 

(1,222

)

 

 

31,149

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

51,940

 

 

$

82,710

 

 

$

156,729

 

 

$

254,391

 

 

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, 2022

 

$

805

 

 

$

(285,425

)

 

$

705,466

 

 

$

35,442

 

 

$

609,122

 

 

$

1,065,410

 

Issuance of common stock

 

 

 

 

 

 

 

 

60

 

 

 

 

 

 

 

 

 

60

 

Repurchase of shares

 

 

 

 

 

(32,903

)

 

 

 

 

 

 

 

 

 

 

 

(32,903

)

Shares withheld related to net settlement of equity awards

 

 

 

 

 

(11,656

)

 

 

 

 

 

 

 

 

 

 

 

(11,656

)

Vesting of restricted share grants

 

 

7

 

 

 

 

 

 

(7

)

 

 

 

 

 

 

 

 

 

Exercise of options

 

 

3

 

 

 

 

 

 

1,707

 

 

 

 

 

 

 

 

 

1,710

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(5,068

)

 

 

 

 

 

(5,068

)

Share-based compensation

 

 

 

 

 

 

 

 

4,252

 

 

 

 

 

 

 

 

 

4,252

 

Dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,524

)

 

 

(22,524

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

49,273

 

 

 

49,273

 

Balance, March 31, 2023

 

 

815

 

 

 

(329,984

)

 

 

711,478

 

 

 

30,374

 

 

 

635,871

 

 

 

1,048,554

 

Issuance of common stock

 

 

 

 

 

 

 

 

51

 

 

 

 

 

 

 

 

 

51

 

Repurchase of shares

 

 

 

 

 

(44,496

)

 

 

 

 

 

 

 

 

 

 

 

(44,496

)

Shares withheld related to net settlement of equity awards

 

 

 

 

 

(3,190

)

 

 

 

 

 

 

 

 

 

 

 

(3,190

)

Exercise of options

 

 

2

 

 

 

 

 

 

1,437

 

 

 

 

 

 

 

 

 

1,439

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

3,913

 

 

 

 

 

 

3,913

 

Share-based compensation

 

 

 

 

 

 

 

 

4,242

 

 

 

 

 

 

 

 

 

4,242

 

Dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,083

)

 

 

(21,083

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56,671

 

 

 

56,671

 

Balance, June 30, 2023

 

 

817

 

 

 

(377,670

)

 

 

717,208

 

 

 

34,287

 

 

 

671,459

 

 

 

1,046,101

 

Issuance of common stock

 

 

 

 

 

 

 

 

78

 

 

 

 

 

 

 

 

 

78

 

Repurchase of shares

 

 

 

 

 

98

 

 

 

 

 

 

 

 

 

 

 

 

98

 

Shares withheld related to net settlement of equity awards

 

 

 

 

 

(6,890

)

 

 

 

 

 

 

 

 

 

 

 

(6,890

)

Vesting of restricted share grants

 

 

1

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Exercise of options

 

 

4

 

 

 

 

 

 

2,072

 

 

 

 

 

 

 

 

 

2,076

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(67

)

 

 

 

 

 

(67

)

Share-based compensation

 

 

 

 

 

 

 

 

3,895

 

 

 

 

 

 

 

 

 

3,895

 

Dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,162

)

 

 

(21,162

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52,007

 

 

 

52,007

 

Balance, September 30, 2023

 

$

822

 

 

$

(384,462

)

 

$

723,252

 

 

$

34,220

 

 

$

702,304

 

 

$

1,076,136

 

 

6


Table of Contents

 

 

 

 

 

 

 

 

 

 

 

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