10-Q 1 vctr-20180630x10q.htm 10-Q vctr_Current_Folio_10Q

 

 

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 JUNE 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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. (Check one):

 

Large accelerated filer ☐

 

Accelerated filer ☐

Non-accelerated filer ☒

(Do not check if a smaller reporting company)

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 July 27, 2018 were 12,905,398 and 55,002,559, respectively.

 

 

 

 


 

TABLE OF CONTENTS

 

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;

·

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

·

“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;

·

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

·

“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;

·

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

2


 

·

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;

·

“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;

·

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;

·

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

·

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

·

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

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;

3


 

·

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 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 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.

4


 

PART I—FINANCIAL INFORMATION

Item 1.Financial Statements.

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except for shares)

 

 

 

 

 

 

 

 

    

June 30, 2018

    

December 31, 2017

ASSETS

 

 

  

 

 

  

Cash and cash equivalents

 

$

15,162

 

$

12,921

Receivables

 

 

51,813

 

 

55,917

Prepaid expenses

 

 

2,855

 

 

5,441

Investments

 

 

13,466

 

 

11,336

Property and equipment, net

 

 

8,975

 

 

8,844

Goodwill

 

 

284,108

 

 

284,108

Other intangible assets, net

 

 

397,130

 

 

408,000

Other assets

 

 

7,735

 

 

6,055

Total assets

 

$

781,244

 

$

792,622

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

  

 

 

  

Accounts payable and accrued expenses

 

$

17,356

 

$

21,996

Accrued compensation and benefits

 

 

23,771

 

 

29,305

Consideration payable for acquisition of business

 

 

10,133

 

 

9,856

Deferred tax liability, net

 

 

4,409

 

 

4,068

Other liabilities

 

 

16,929

 

 

12,989

Long-term debt

 

 

287,907

 

 

483,225

Total liabilities

 

 

360,505

 

 

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, 12,971,510 shares issued and 12,905,398 shares outstanding ; 2017 - no shares authorized, issued and outstanding

 

 

130

 

 

 —

Class B common stock, $0.01 par value per share: 2018 - 200,000,000  shares authorized, 57,059,845 shares issued and 54,995,788 shares outstanding; 2017 - no shares authorized, issued and outstanding

 

 

570

 

 

 —

Additional paid-in capital

 

 

595,191

 

 

435,334

Class A treasury stock, at cost: 2018 - 66,112 shares; 2017 - no shares

 

 

(720)

 

 

 —

Class B treasury stock, at cost: 2018 and 2017 - 2,064,057 shares

 

 

(20,899)

 

 

(20,899)

Accumulated other comprehensive income

 

 

47

 

 

64

Retained deficit

 

 

(153,580)

 

 

(183,888)

Total stockholders' equity

 

 

420,739

 

 

231,183

Total liabilities and stockholders' equity

 

$

781,244

 

$

792,622

 

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

5


 

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

    

2018

    

2017

    

2018

    

2017

 

Revenue

 

 

  

 

 

  

 

 

  

 

 

  

 

Investment management fees

 

$

88,998

 

$

84,474

 

$

178,128

 

$

168,589

 

Fund administration and distribution fees

 

 

15,401

 

 

16,460

 

 

31,235

 

 

33,006

 

Total revenue

 

 

104,399

 

 

100,934

 

 

209,363

 

 

201,595

 

Expenses

 

 

  

 

 

  

 

 

  

 

 

  

 

Personnel compensation and benefits

 

 

37,140

 

 

35,025

 

 

73,943

 

 

70,675

 

Distribution and other asset-based expenses

 

 

24,127

 

 

26,544

 

 

49,288

 

 

53,425

 

General and administrative

 

 

7,088

 

 

8,261

 

 

16,144

 

 

17,182

 

Depreciation and amortization

 

 

5,931

 

 

8,131

 

 

12,343

 

 

16,285

 

Change in value of consideration payable for acquisition of business

 

 

(4)

 

 

(25)

 

 

(4)

 

 

(25)

 

Acquisition-related costs

 

 

(5)

 

 

228

 

 

(5)

 

 

591

 

Restructuring and integration costs

 

 

438

 

 

3,331

 

 

702

 

 

4,461

 

Total operating expenses

 

 

74,715

 

 

81,495

 

 

152,411

 

 

162,594

 

Income from operations

 

 

29,684

 

 

19,439

 

 

56,952

 

 

39,001

 

Other income (expense)

 

 

  

 

 

  

 

 

  

 

 

  

 

Interest income and other income/(expense)

 

 

 8

 

 

(1,914)

 

 

(29)

 

 

(1,569)

 

Interest expense and other financing costs

 

 

(4,706)

 

 

(13,843)

 

 

(11,798)

 

 

(26,471)

 

Loss on debt extinguishment

 

 

 —

 

 

 —

 

 

(6,058)

 

 

 —

 

Total other income (expense), net

 

 

(4,698)

 

 

(15,757)

 

 

(17,885)

 

 

(28,040)

 

Income before income taxes

 

 

24,986

 

 

3,682

 

 

39,067

 

 

10,961

 

Income tax expense

 

 

(6,311)

 

 

(1,328)

 

 

(9,868)

 

 

(4,194)

 

Net income

 

$

18,675

 

$

2,354

 

$

29,199

 

$

6,767

 

Earnings per share - basic

 

$

0.27

 

$

0.04

 

$

0.45

 

$

0.12

 

Earnings per share - diluted

 

$

0.26

 

$

0.04

 

$

0.42

 

$

0.11

 

Weighted average shares outstanding - basic

 

 

67,948,732

 

 

54,825,386

 

 

64,791,435

 

 

54,819,604

 

Weighted average shares outstanding - diluted

 

 

72,135,290

 

 

58,985,367

 

 

69,352,895

 

 

58,872,192

 

Dividends declared per share

 

$

 —

 

$

 —

 

$

 —

 

$

2.19

 

 

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

6


 

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Income

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

    

2018

    

2017

    

2018

    

2017

 

Net income

 

$

18,675

 

$

2,354

 

$

29,199

 

$

6,767

 

Other comprehensive income, net of tax

 

 

  

 

 

  

 

 

  

 

 

  

 

Net unrealized income on available-for-sale securities

 

 

 7

 

 

16

 

 

12

 

 

46

 

Net unrealized income on cash flow hedges

 

 

 —

 

 

103

 

 

 —

 

 

195

 

Net unrealized gain (loss) on foreign currency translation

 

 

(58)

 

 

41

 

 

(29)

 

 

74

 

Total other comprehensive income (loss), net of tax

 

 

(51)

 

 

160

 

 

(17)

 

 

315

 

Comprehensive income

 

$

18,624

 

$

2,514

 

$

29,182

 

$

7,082

 

 

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

 

7


 

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

 

$

 —

$

 —

$

 —

 

$

 —

$

 —

$

 —

 

$

(4,556)

 

$

 —

 

$

 —

 

$

(4,556)

Redesignation of common stock

 

$

 —

$

572

$

(572)

 

$

 —

$

(20,899)

$

20,899

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Share conversion - Class B to A

 

$

 2

$

(2)

$

 —

 

$

 —

$

 —

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Repurchase of shares

 

$

 —

$

 —

$

 —

 

$

(720)

$

 —

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

(720)

Exercise of options

 

$

 —

$

 —

$

 —

 

$

 —

$

 —

$

 —

 

$

12

 

$

 —

 

$

 —

 

$

12

Fractional shares retired

 

$

 —

$

 —

$

 —

 

$

 —

$

 —

$

 —

 

$

(2)

 

$

 —

 

$

 —

 

$

(2)

Cumulative effect adjustment for adoption of ASU 2016-09

 

$

 —

$

 —

$

 —

 

$

 —

$

 —

$

 —

 

$

512

 

$

 —

 

$

1,306

 

$

1,818

Other comprehensive loss

 

$

 —

$

 —

$

 —

 

$

 —

$

 —

$

 —

 

$

 —

 

$

(17)

 

$

 —

 

$

(17)

Stock-based compensation

 

$

 —

$

 —

$

 —

 

$

 —

$

 —

$

 —

 

$

7,470

 

$

 —

 

$

 —

 

$

7,470

Dividend

 

$

 —

$

 —

$

 —

 

$

 —

$

 —

$

 —

 

$

 —

 

$

 —

 

$

(197)

 

$

(197)

Net income

 

$

 —

$

 —

$

 —

 

$

 —

$

 —

$

 —

 

$

 —

 

$

 —

 

$

29,199

 

$

29,199

Balance, June 30, 2018

 

$

130

$

570

$

 —

 

$

(720)

$

(20,899)

$

 —

 

$

595,191

 

$

47

 

$

(153,580)

 

$

420,739

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

 —

$

 —

$

 2

 

$

 —

$

 —

$

 —

 

$

1,910

 

$

 —

 

$

 —

 

$

1,912

Repurchase of shares

 

$

 —

$

 —

$

 —

 

$

 —

$

 —

$

(4,494)

 

$

 —

 

$

 —

 

$

 —

 

$

(4,494)

Equity awards modified to liabilities

 

$

 —

$

 —

$

 —

 

$

 —

$

 —

$

 —

 

$

(1,526)

 

$

 —

 

$

 —

 

$

(1,526)

Other comprehensive income

 

$

 —

$

 —

$

 —

 

$

 —

$

 —

$

 —

 

$

 —

 

$

315

 

$

 —

 

$

315

Stock-based compensation

 

$

 —

$

 —

$

 —

 

$

 —

$

 —

$

 —

 

$

5,862

 

$

 —

 

$

 —

 

$

5,862

Dividend

 

$

 —

$

 —

$

 —

 

$

 —

$

 —

$

 —

 

$

 —

 

$

 —

 

$

(119,950)

 

$

(119,950)

Other

 

$

 —

$

 —

$

 —

 

$

 —

$

 —

$

 —

 

$

 —

 

$

 —

 

$

(11)

 

$

(11)

Net income

 

$

 —

$

 —

$

 —

 

$

 —

$

 —

$

 —

 

$

 —

 

$

 —

 

$

6,767

 

$

6,767

Balance, June 30, 2017

 

$

 —

$

 —

$

567

 

$

 —

$

 —

$

(20,739)

 

$

427,993

 

$

(222)

 

$

(187,726)

 

$

219,873

 

8


 

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

 

160,650

(160,650)

 –

 

 –

 –

 –

Repurchase of shares

 

 –

 –

 –

 

(66,112)

 

 

Vesting of restricted share grants

 

 –

30,992

2,036

 

 –

 –

 –

Exercise of options

 

 –

5,000

 –

 

 –

 –

 –

Fractional shares retired

 

 –

(263)

 –

 

 –

 –

 –

Balance, June 30, 2018

 

12,971,510

57,059,845

 –

 

(66,112)

(2,064,057)

 –

 

 

 

 

 

 

 

 

 

 

 

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

 

 –

 –

201,649

 

 –

 –

 –

Repurchase of shares

 

 –

 –

 –

 

 –

 –

(332,660)

Vesting of restricted share grants

 

 –

 –

41,345

 

 –

 –

 –

Equity awards modified to liabilities

 

 –

 –

(6,657)

 

 –

 –

 –

Balance, June 30, 2017

 

 –

 –

56,741,658

 

 –

 –

(2,052,189)

 

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

 

9


 

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

 

    

2018

    

2017

    

Cash flows from operating activities

 

 

  

 

 

  

 

Net income

 

$

29,199

 

$

6,767

 

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

 

 

  

 

 

 

 

Provision for deferred income taxes

 

 

2,205

 

 

3,649

 

Depreciation and amortization

 

 

12,343

 

 

16,285

 

Deferred financing costs and derivative and accretion expense

 

 

1,646

 

 

3,330

 

Stock-based and deferred compensation

 

 

9,434

 

 

8,514

 

Change in fair value of contingent consideration obligations

 

 

(4)

 

 

(25)

 

Loss on other receivable

 

 

114

 

 

2,011

 

Unrealized depreciation (appreciation) on investments

 

 

(122)

 

 

(265)

 

Loss on equity method investment

 

 

339

 

 

173

 

Loss on debt extinguishment

 

 

6,058

 

 

 —

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Receivables

 

 

3,103

 

 

17,217

 

Prepaid expenses

 

 

(405)

 

 

(3,476)

 

Other assets

 

 

155

 

 

(26)

 

Accounts payable and accrued expenses

 

 

(2,220)

 

 

(7,954)

 

Accrued compensation and benefits

 

 

(5,529)

 

 

(18,549)

 

Other liabilities

 

 

3,276

 

 

(557)

 

Net cash provided by operating activities

 

 

59,592

 

 

27,094

 

Cash flows from investing activities

 

 

  

 

 

  

 

Purchases of property and equipment

 

 

(1,308)

 

 

(1,817)

 

Disposal of property and equipment due to restructuring

 

 

 —

 

 

1,407

 

Purchases of investments

 

 

(2,612)

 

 

(3,126)

 

Sales of investments

 

 

628

 

 

1,201

 

Equity method investment

 

 

(2,000)

 

 

 —

 

Net cash used in investing activities

 

 

(5,292)

 

 

(2,335)

 

Cash flows from financing activities

 

 

  

 

 

  

 

Issuance of Class A common stock, net of underwriter discount

 

 

156,549

 

 

 —

 

Payment of Class A common stock deferred offering costs

 

 

(4,289)

 

 

 —

 

Issuance of Class B common stock

 

 

10

 

 

1,912

 

Repurchase of common stock

 

 

(720)

 

 

(4,494)

 

Payment of equity awards modified to liabilities

 

 

 —

 

 

(1,803)

 

Proceeds from long-term senior debt

 

 

359,100

 

 

125,000

 

Repayment of draw on line of credit

 

 

 —

 

 

(3,500)

 

Payment of debt financing fees

 

 

(2,429)

 

 

(1,733)

 

Repayment of long-term senior debt

 

 

(559,750)

 

 

(15,877)

 

Repayment of promissory note

 

 

(287)

 

 

(287)

 

Payment of dividends

 

 

(197)

 

 

(119,950)

 

Payment of consideration for acquisition

 

 

 —

 

 

(5,535)

 

Net cash used in financing activities

 

 

(52,013)

 

 

(26,267)

 

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

 

 

(46)

 

 

 —

 

Net increase (decrease) in cash and cash equivalents

 

 

2,241

 

 

(1,508)

 

Cash and cash equivalents, beginning of period

 

 

12,921

 

 

16,441

 

Cash and cash equivalents, end of period

 

$

15,162

 

$

14,933

 

Supplemental cash flow information

 

 

  

 

 

  

 

Cash paid for interest

 

$

10,136

 

$

22,961

 

Cash paid for income taxes

 

 

4,837

 

 

343

 

Supplemental disclosure of non-cash item

 

 

  

 

 

  

 

Class A common stock offering costs reclassed from prepaid expenses to additional paid in capital

 

 

267

 

 

 —

 

Settlement of compensation liability with issuance of restricted share awards

 

 

180

 

 

 —

 

 

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

10


 

Victory Capital Holdings, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Quarters Ended June 30, 2018 and 2017

1. Organization and Nature of Business

Victory Capital Holdings, Inc., a Delaware corporation (along with its wholly-owned subsidiaries, collectively referred to as “the Company”) was formed on February 13, 2013 for the purpose of acquiring Victory Capital Management Inc. (“VCM”) and Victory Capital Advisers, Inc. (“VCA”), which occurred on August 1, 2013.

VCM is a registered investment adviser managing assets through open-end mutual funds, separately managed accounts, unified management accounts, ETFs, collective trust funds, wrap separate account programs and UCITs. VCM also provides mutual fund administrative services for the Victory Portfolios, Victory Variable Insurance Funds, Victory Institutional Funds and the mutual fund series of the Victory Portfolios II (collectively, “the Victory Funds”), a family of open-end mutual funds, and the VictoryShares (the Company’s ETF brand). VCM additionally employs all of the Company’s U.S. investment professionals across its Franchises and Solutions Platform, which are not separate legal entities. VCA is registered with the SEC as an introducing broker-dealer and serves as distributor and underwriter for the Victory Funds.

Changes in Capital Structure

On February 12, 2018, the Company completed the initial public offering (“IPO”) of its Class A common stock, which trades on NASDAQ under the symbol “VCTR”. The Company issued 11,700,000 shares of Class A common stock at a price of $13.00 per share at the closing of the IPO. On March 13, 2018, the Company issued an additional 1,110,860 shares of Class A common stock pursuant to the underwriters’ exercise of their option. The net proceeds totaled $156.5 million: $143.0 million received at the closing of the IPO and $13.5 million received at the subsequent closing of the underwriters’ exercise of their option, after deducting in each case underwriting discounts.

In connection with the IPO, the following transactions were completed:

·

The Company’s certificate of incorporation was amended and restated to, among other things, provide for Class A common stock and Class B common stock, specify voting rights for the Class A common stock and Class B common stock, establish a classified board of directors and adopt the 2018 Stock Incentive Plan and 2018 Employee Stock Purchase Plan.

·

All shares of common stock outstanding prior to the IPO were immediately converted into Class B common stock at a one-to-one ratio.