vctr_Current_Folio_10Q

Table of Contents

 

 

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, 2018

 

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.)

 

 

 

4900 Tiedeman Road 4th Floor

 

 

Brooklyn, OH

 

44144

(Address of principal executive offices)

 

(Zip Code)

 

(216) 898-2400

(Registrant’s telephone number, including area code)

 

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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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 Class A common stock, par value $0.01 per share and Class B common stock, par value $0.01 per share, as of October 26, 2018 were 14,383,572 and 53,361,542, respectively.

 

 

 

 

 

 

 


 

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TABLE OF CONTENTS

PART I FINANCIAL INFORMATION 

6

 

 

Item 1 

Financial Information

6

Item 2 

Management Discussion and Analysis of Financial Condition and Results of Operation

30

Item 3 

Quantitative and Qualitative Disclosures About Market Risk

50

Item 4 

Controls and Procedures

51

 

 

 

PART II OTHER INFORMATION 

52

 

 

Item 1. 

Legal Proceedings

52

Item 1A. 

Risk Factors

52

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

55

Item 3. 

Defaults Upon Senior Securities

56

Item 4. 

Mine Safety Disclosures

56

Item 5 

Other Information

56

Item 6 

Exhibits

57

 

Signatures

58

 

In this report, when we refer to:

·

the “2014 Credit Agreement,” we are referring to the credit agreement dated as of October 31, 2014 (as amended);

·

“CEMP,” we are referring to Compass Efficient Model Portfolios, LLC;

·

the “CEMP Acquisition,” we are referring to our acquisition of the CEMP business in 2015;

·

“Cerebellum,” we are referring to Cerebellum Capital, LLC;

·

“Crestview,” we are referring to Crestview Advisors, L.L.C.;

·

“Crestview GP,” we are referring to Crestview Partners II GP, L.P.;

·

“ETFs,” we are referring to exchange‑traded funds;

·

the “Existing Credit Agreement,” we are referring to the credit agreement dated as of February 12, 2018;

·

“Harvest,” we are referring to Harvest Volatility Management, LLC.;

·

the “Harvest Acquisition,” we are referring to the acquisition of Harvest;

·

the “Harvest Commitment Letter,” we are referring to the commitment letter entered into on September 21, 2018 (as amended from time to time) with Royal Bank of Canada and Barclays Bank PLC;

·

the “Harvest Purchase Agreement,” we are referring to the purchase agreement entered into on September 21, 2018 between the Company, Harvest, the members of Harvest listed on Annex A thereto (collectively

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the “Members”), Curtis Brockelman, Jr. and LPC Harvest, LP, each solely in their joint capacity as Members’ Representative, to purchase 100% of the outstanding equity interests of Harvest;

·

“IPO,” we are referring to the initial public offering of Class A common stock of Victory Capital Holdings, Inc.;

·

“Members” has the meaning set forth in the definition of “Harvest Purchase Agreement”;

·

“Munder,” we are referring to our Munder Capital Management Franchise;

·

the “Munder Acquisition,” we are referring to our acquisition of Munder Capital in 2014;

·

“Munder Capital,” we are referring to Munder Capital Management;

·

the “RS Acquisition,” we are referring to our acquisition of RS Investments in 2016;

·

“RS Investments,” we are referring to RS Investment Management Co. LLC;

·

“Reverence Capital,” we are referring to Reverence Capital Partners, LP;

·

“USAA Acquired Company” and “USAA Acquired Companies” have the respective meanings set forth in the definition of “USAA Stock Purchase Agreement”;

·

the “USAA AMCO Acquisition,” we are referring to the pending acquisition of USAA Asset Management Company and its mutual fund and ETF businesses and USAA 529 College Savings Plan and USAA Transfer Agency Company d/b/a USAA Shareholder Account Services pursuant to the USAA Stock Purchase Agreement;

·

the “USAA AMCO Credit Facilities Commitment Letter,” we are referring to the commitment letter entered into on November 6, 2018 (as amended from time to time) with Barclays Bank PLC and Royal Bank of Canada, a copy of which was filed as an exhibit to the Company’s Form 8-K that was filed with the Securities and Exchange Commission on November 9, 2018;

 

·

the “USAA Stock Purchase Agreement,” we are referring to the stock purchase agreement entered into on November 6, 2018 between the Company, USAA Investment Corporation, a Delaware corporation and, for certain limited purposes, USAA Capital Corporation, a Delaware corporation, to purchase 100% of the outstanding common stock of USAA Asset Management Company and USAA Transfer Agency Company d/b/a USAA Shareholder Account Services (each a “USAA Acquired Company” and collectively, the “USAA Acquired Companies”), a copy of which was filed as an exhibit to the Company’s Form 8-K that was filed with the Securities and Exchange Commission on November 9, 2018;

·

“VCA,” we are referring to Victory Capital Advisers, Inc., our broker‑dealer subsidiary registered with the Securities and Exchange Commission;

·

“VCM,” we are referring to Victory Capital Management Inc., our wholly owned registered investment adviser;

·

“Victory,” the “Company,” “we,” “our” or “us,” we are referring to Victory Capital Holdings, Inc. and its consolidated subsidiaries, except where otherwise stated or where it is clear that the term means only Victory Capital Holdings, Inc. exclusive of its subsidiaries;

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·

the “Victory Funds,” we are referring to the Victory Portfolios, Victory Variable Insurance Funds, Victory Institutional Funds and the mutual fund series of Victory Portfolio II, a family of open-end mutual funds; and

·

“VictoryShares,” we are referring to Victory’s ETF brand.

Forward‑Looking Statements

This report contains, and from time to time our management may make, forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements regarding future events and our future performance, as well as management’s current expectations, beliefs, plans, estimates, or projections relating to the future are forward-looking statements within the meaning of these laws. 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 AUM based on investment performance, client withdrawals, difficult market conditions and other factors;

·

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;

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·

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 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 dual class structure of our common stock;

·

the level of control over us retained by Crestview GP;

·

our status as an emerging growth company and a controlled company; and

·

other risks and factors included, but not limited to, those described in Part II, “Item 1A. Risk Factors,” and 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, 2017, filed with the SEC on March 29, 2018, 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.

 

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PART I—FINANCIAL INFORMATION

Item 1.Financial Statements.

Victory Capital Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except for shares)

 

 

 

 

 

 

 

 

    

September 30, 2018

    

December 31, 2017

Assets

 

 

  

 

 

  

Cash and cash equivalents

 

$

25,139

 

$

12,921

Receivables

 

 

50,421

 

 

55,917

Prepaid expenses

 

 

2,494

 

 

5,441

Investments

 

 

14,557

 

 

11,336

Property and equipment, net

 

 

8,632

 

 

8,844

Goodwill

 

 

284,108

 

 

284,108

Other intangible assets, net

 

 

392,331

 

 

408,000

Other assets

 

 

8,519

 

 

6,055

Total assets

 

$

786,201

 

$

792,622

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

  

 

 

  

Accounts payable and accrued expenses

 

$

16,854

 

$

21,996

Accrued compensation and benefits

 

 

30,326

 

 

29,305

Consideration payable for acquisition of business

 

 

5,788

 

 

9,856

Deferred tax liability, net

 

 

7,153

 

 

4,068

Other liabilities

 

 

15,803

 

 

12,989

Long-term debt

 

 

268,383

 

 

483,225

Total liabilities

 

 

344,307

 

 

561,439

 

 

 

 

 

 

 

Stockholders' equity:

 

 

  

 

 

  

Common stock, $0.01 par value per share: 2018 - no shares authorized, issued and outstanding; 2017 - 78,837,300 shares authorized, 57,182,730 issued and 55,118,673 shares outstanding

 

 

 —

 

 

572

Class A common stock, $0.01 par value per share: 2018 - 400,000,000 shares authorized, 14,787,264 shares issued and 14,429,567 shares outstanding; 2017 - no shares authorized, issued and outstanding

 

 

148

 

 

 —

Class B common stock, $0.01 par value per share: 2018 - 200,000,000 shares authorized, 55,639,613 shares issued and 53,492,633 shares outstanding; 2017 - no shares authorized, issued and outstanding

 

 

556

 

 

 —

Additional paid-in capital

 

 

599,875

 

 

435,334

Class A treasury stock, at cost: 2018 - 357,697 shares; 2017 - no shares

 

 

(3,542)

 

 

 —

Class B treasury stock, at cost: 2018 - 2,146,980 shares; 2017 - 2,064,057 shares

 

 

(21,719)

 

 

(20,899)

Accumulated other comprehensive income

 

 

63

 

 

64

Retained deficit

 

 

(133,487)

 

 

(183,888)

Total stockholders' equity

 

 

441,894

 

 

231,183

Total liabilities and stockholders' equity

 

$

786,201

 

$

792,622

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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Victory Capital Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except for shares)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

 

    

2018

    

2017

    

2018

    

2017

 

Revenue

 

 

  

 

 

  

 

 

  

 

 

  

 

Investment management fees

 

$

92,525

 

$

86,016

 

$

270,653

 

$

254,605

 

Fund administration and distribution fees

 

 

15,557

 

 

16,372

 

 

46,792

 

 

49,378

 

Total revenue

 

 

108,082

 

 

102,388

 

 

317,445

 

 

303,983

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

  

 

 

  

 

 

  

 

 

  

 

Personnel compensation and benefits

 

 

38,027

 

 

36,097

 

 

111,970

 

 

106,772

 

Distribution and other asset-based expenses

 

 

24,269

 

 

24,801

 

 

73,557

 

 

78,226

 

General and administrative

 

 

6,951

 

 

8,867

 

 

23,095

 

 

26,049

 

Depreciation and amortization

 

 

5,574

 

 

7,055

 

 

17,917

 

 

23,340

 

Change in value of consideration payable for acquisition of business

 

 

 —

 

 

 —

 

 

(4)

 

 

(25)

 

Acquisition-related costs

 

 

1,451

 

 

844

 

 

1,446

 

 

1,435

 

Restructuring and integration costs

 

 

 —

 

 

483

 

 

702

 

 

4,944

 

Total operating expenses

 

 

76,272

 

 

78,147

 

 

228,683

 

 

240,741

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

31,810

 

 

24,241

 

 

88,762

 

 

63,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

  

 

 

  

 

 

  

 

 

  

 

Interest income and other income/(expense)

 

 

(200)

 

 

753

 

 

(229)

 

 

(816)

 

Interest expense and other financing costs

 

 

(4,458)

 

 

(11,688)

 

 

(16,256)

 

 

(38,159)

 

Loss on debt extinguishment

 

 

 —

 

 

(330)

 

 

(6,058)

 

 

(330)

 

Total other income (expense), net

 

 

(4,658)

 

 

(11,265)

 

 

(22,543)

 

 

(39,305)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

27,152

 

 

12,976

 

 

66,219

 

 

23,937

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(6,562)

 

 

(5,126)

 

 

(16,430)

 

 

(9,320)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

20,590

 

$

7,850

 

$

49,789

 

$

14,617

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.30

 

$

0.14

 

$

0.76

 

$

0.27

 

Diluted

 

$

0.29

 

$

0.13

 

$

0.71

 

$

0.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

67,972,313

 

 

54,961,161

 

 

65,816,557

 

 

54,867,257

 

Diluted

 

 

71,863,566

 

 

59,738,176

 

 

70,168,116

 

 

59,517,606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share of common stock

 

$

 —

 

$

 —

 

$

 —

 

$

2.19

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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Victory Capital Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Comprehensive Income
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

 

    

2018

    

2017

    

2018

    

2017

 

Net income

 

$

20,590

 

$

7,850

 

$

49,789

 

$

14,617

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

  

 

 

  

 

 

  

 

 

  

 

Net unrealized income on available-for-sale securities

 

 

22

 

 

13

 

 

34

 

 

59

 

Net unrealized income on cash flow hedges

 

 

 —

 

 

128

 

 

 —

 

 

323

 

Net unrealized gain (loss) on foreign currency translation

 

 

(6)

 

 

(16)

 

 

(35)

 

 

58

 

Total other comprehensive income (loss), net of tax

 

 

16

 

 

125

 

 

(1)

 

 

440

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

20,606

 

$

7,975

 

$

49,788

 

$

15,057

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

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Victory Capital Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except for shares)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

 

 

 

 

Common Stock

 

Treasury Stock

 

Paid-In

 

Comprehensive

 

Retained

 

 

 

 

    

Class A

Class B

Pre-IPO

    

Class A

Class B

Pre-IPO

    

Capital

    

Income (Loss)

    

Deficit

    

Total

Balance, December 31, 2017

 

$

 —

$

 —

$

572

 

$

 —

$

 —

$

(20,899)

 

$

435,334

 

$

64

 

$

(183,888)

 

$

231,183

Issuance of Class A common stock, net of underwriter discount

 

 

128

 

 —

 

 —

 

 

 —

 

 —

 

 —

 

 

156,421

 

 

 —

 

 

 —

 

 

156,549

Class A common stock offering costs

 

 

 —

 

 —

 

 —

 

 

 —

 

 —

 

 —

 

 

(4,553)

 

 

 —

 

 

 —

 

 

(4,553)

Redesignation of common stock

 

 

 —

 

572

 

(572)

 

 

 —

 

(20,899)

 

20,899

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Share conversion - Class B to A

 

 

20

 

(20)

 

 —

 

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Repurchase of shares

 

 

 —

 

 —

 

 —

 

 

(3,542)

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3,542)

Shares withheld related to net settlement of equity awards

 

 

 —

 

 —

 

 —

 

 

 —

 

(820)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(820)

Vesting of restricted share grants

 

 

 —

 

 2

 

 —

 

 

 —

 

 —

 

 —

 

 

(2)

 

 

 —

 

 

 —

 

 

 —

Exercise of options

 

 

 —

 

 2

 

 —

 

 

 —

 

 —

 

 —

 

 

679

 

 

 —

 

 

 —

 

 

681

Shares issued under 2018 ESPP

 

 

 —

 

 —

 

 —

 

 

 —

 

 —

 

 —

 

 

12

 

 

 

 

 

 

 

 

12

Fractional shares retired

 

 

 —

 

 —

 

 —

 

 

 —

 

 —

 

 —

 

 

(2)

 

 

 —

 

 

 —

 

 

(2)

Cumulative effect adjustment for adoption of ASU 2016-09

 

 

 —

 

 —

 

 —

 

 

 —

 

 —

 

 —

 

 

512

 

 

 —

 

 

1,306

 

 

1,818

Other comprehensive loss

 

 

 —

 

 —

 

 —

 

 

 —

 

 —

 

 —

 

 

 —

 

 

(1)

 

 

 —

 

 

(1)

Stock-based compensation

 

 

 —

 

 —

 

 —

 

 

 —

 

 —

 

 —

 

 

11,474

 

 

 —

 

 

 —

 

 

11,474

Dividend

 

 

 —

 

 —

 

 —

 

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(694)

 

 

(694)

Net income

 

 

 —

 

 —

 

 —

 

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

49,789

 

 

49,789

Balance, September 30, 2018

 

$

148

$

556

$

 —

 

$

(3,542)

$

(21,719)

$

 —

 

$

599,875

 

$

63

 

$

(133,487)

 

$

441,894

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

 

 

 

 

Common Stock

 

Treasury Stock

 

Paid-In

 

Comprehensive

 

Retained

 

 

 

 

    

Class A

Class B

Pre-IPO

 

Class A

Class B

Pre-IPO

    

Capital

    

Income (Loss)

    

Deficit

    

Total

Balance, December 31, 2016

 

$

 —

$

 —

$

565

 

$

 —

$

 —

$

(16,245)

 

$

421,747

 

$

(537)

 

$

(74,532)

 

$

330,998

Issuance of common stock

 

 

 —

 

 —

 

 3

 

 

 —

 

 —

 

 —

 

 

3,029

 

 

 —

 

 

 —

 

 

3,032

Repurchase of shares

 

 

 —

 

 —

 

 —

 

 

 —

 

 —

 

(4,504)

 

 

 —

 

 

 —

 

 

 —

 

 

(4,504)

Vesting of restricted share grants

 

 

 —

 

 —

 

 4

 

 

 —

 

 —

 

 —

 

 

(4)

 

 

 —

 

 

 —

 

 

 —

Equity awards modified to liabilities

 

 

 —

 

 —

 

 —

 

 

 —

 

 —

 

 —

 

 

(1,526)

 

 

 —

 

 

 —

 

 

(1,526)

Other comprehensive income

 

 

 —

 

 —

 

 —

 

 

 —

 

 —

 

 —

 

 

 —

 

 

440

 

 

 —

 

 

440

Stock-based compensation

 

 

 —

 

 —

 

 —

 

 

 —

 

 —

 

 —

 

 

9,960

 

 

 —

 

 

 —

 

 

9,960

Dividend

 

 

 —

 

 —

 

 —

 

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(121,129)

 

 

(121,129)

Other

 

 

 —

 

 —

 

 —

 

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(11)

 

 

(11)

Net income

 

 

 —

 

 —

 

 —

 

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

14,617

 

 

14,617

Balance, September 30, 2017

 

$

 —

$

 —

$

572

 

$

 —

$

 —

$

(20,749)

 

$

433,206

 

$

(97)

 

$

(181,055)

 

$

231,877

 

9


 

Table of Contents

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except for shares) (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares of Common Stock

 

Shares of Treasury Stock

 

 

Class A

Class B

Pre-IPO

 

Class A

Class B

Pre-IPO

Balance, December 31, 2017

 

 –

 –

57,182,730

 

 –

 –

(2,064,057)

Issuance of Class A common stock

 

12,810,860

 –

 –

 

 –

 –

 –

Redesignation of common stock

 

 –

57,184,766

(57,184,766)

 

 –

(2,064,057)

2,064,057

Share conversion - Class B to A

 

1,975,072

(1,975,072)

 –

 

 –

 –

 –

Repurchase of shares

 

 –

 –

 –

 

(357,697)

(82,923)

 –

Vesting of restricted share grants

 

 –

207,729

2,036

 

 –

 –

 –

Exercise of options

 

 –

222,453

 –

 

 –

 –

 –

Shares issued under 2018 ESPP

 

1,332

 –

 –

 

 –

 –

 –

Fractional shares retired

 

 –

(263)

 –

 

 –

 –

 –

Balance, September 30, 2018

 

14,787,264

55,639,613

 –

 

(357,697)

(2,146,980)

 –

 

 

 

 

 

 

 

 

 

 

 

Shares of Common Stock

 

Shares of Treasury Stock

 

 

Class A

Class B

Pre-IPO

 

Class A

Class B

Pre-IPO

Balance, December 31, 2016

 

 –

 –

56,505,321

 

 –

 –

(1,719,529)

Issuance of common stock

 

 –

 –

284,515

 

 –

 –

 –

Repurchase of shares

 

 –

 –

 –

 

 –

 –

(333,394)

Vesting of restricted share grants

 

 –

 –

339,701

 

 –

 –

 –

Vesting of director share grants

 

 –

 –

49,405

 

 –

 –

 –

Equity awards modified to liabilities

 

 –

 –

(6,658)

 

 –

 –

 –

Balance, September 30, 2017

 

 –

 –

57,172,284

 

 –

 –

(2,052,923)

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

10


 

Table of Contents

Victory Capital Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

 

    

2018

    

2017

    

Cash flows from operating activities

 

 

  

 

 

  

 

Net income

 

$

49,789

 

$

14,617

 

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

 

 

  

 

 

 

 

Provision for deferred income taxes

 

 

4,951

 

 

8,886

 

Depreciation and amortization

 

 

17,917

 

 

23,340

 

Deferred financing costs and derivative and accretion expense

 

 

2,270

 

 

4,976

 

Stock-based and deferred compensation

 

 

14,518

 

 

14,325

 

Change in fair value of contingent consideration obligations

 

 

(4)

 

 

(25)

 

Loss on other receivable

 

 

309

 

 

2,011

 

Unrealized depreciation (appreciation) on investments

 

 

(261)

 

 

(755)