# Victory Capital Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Victory Capital Holdings, Inc.](/companies/vctr.md) (CIK 1570827)
- Form: 10-Q
- Filed: 2024-11-08
- Accepted by EDGAR: Nov 8, 2024, 10:42 ET
- Period: 2024-09-30
- Accession: 0000950170-24-123762
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1570827/000095017024123762/vctr-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1570827/000095017024123762/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $225.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $661.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $120.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $315.8m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $25.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $63.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $82.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $211.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $1.24 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $3.21 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $1.26 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $3.28 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 66,057,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 66,044,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $248.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $1.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2024-01-01 to 2024-09-30 | $73.0m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $6.7m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-09-30 | $188.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2024-09-30 | $2.61bn | us-gaap:Assets |
| Total liabilities | at 2024-09-30 | $1.44bn | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $982.7m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2024-09-30 | $1.17bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 62,815 characters.

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “Company,” “Victory,” or in the first-person notations of “we,” “us,” and “our” shall mean Victory Capital Holdings, Inc., a Delaware corporation, and its wholly-owned subsidiaries.

### Objective

The objective of this section of the Quarterly Report on Form 10-Q is intended to provide a discussion and analysis, from management’s perspective, of the key performance indicators and material information necessary to assess our financial condition and results of operations for the three and nine months ended September 30, 2024 and 2023 and cash flows for the nine months ended September 30, 2024 and 2023. In addition, we also discuss the Company’s contractual and off-balance sheet arrangements. This discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2023. This discussion and analysis contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q and in “Item 1A. Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2023.

### Overview

**Our Business –** Victory is a diversified global asset management firm with total client assets of $181.1 billion, assets under management of $176.1 billion and other assets of $5.0 billion as of September 30, 2024. The Company operates a next-generation business model combining boutique investment qualities with the benefits of an integrated, centralized operating and distribution platform.

The Company provides specialized investment strategies to institutions, intermediaries, retirement platforms and individual investors with 11 autonomous Investment Franchises and a Solutions Platform. Victory Capital offers a wide array of investment products, including actively and passively managed mutual funds, rules-based and active exchange traded funds (“ETFs”), institutional separate accounts, variable insurance products (“VIPs”), alternative investments, private closed end funds, and a 529 Education Savings Plan. Victory Capital’s strategies are also offered through third-party investment products, including mutual funds, third-party ETF model strategies, retail separately managed accounts (“SMAs”) and unified managed accounts (“UMAs”) through wrap account programs, Collective Investment Trusts (“CITs”), and undertakings for the collective investment in transferable securities (“UCITs”). As of September 30, 2024, our Franchises and our Solutions Platform collectively managed a diversified set of 126 investment strategies for a wide range of institutional and retail clients and direct investors.

**Franchises –** Our Franchises are largely operationally integrated but are separately branded and make investment decisions independently from one another within guidelines established by their respective investment mandates. Our largely integrated model creates a supportive environment in which our investment professionals, largely unencumbered by administrative and operational responsibilities, can focus on their pursuit of investment excellence. VCM employs all of our U.S. investment professionals across our Franchises, which are not separate legal entities.

**Solutions –** Our Solutions Platform consists of multi‑asset, multi-manager, quantitative, rules-based, factor-based, and customized portfolios. These strategies are designed to achieve specific return characteristics, with products that include values-based and thematic outcomes and exposures. We offer our Solutions Platform through a variety of vehicles, including separate accounts, mutual funds, UMA accounts, and rules-based and active ETFs under our VictoryShares ETF brand. Like our Franchises, our Solutions Platform is operationally integrated and supported by our centralized distribution, marketing, and operational support functions.

Professionals within our institutional and retail distribution channels, direct investor business and marketing organization sell our products through our centralized distribution model. Our institutional sales team focuses on cultivating relationships with institutional consultants, who account for the majority of the institutional market, as well as asset allocators seeking sub-advisers. Our retail sales team offers intermediary and retirement platform clients, including broker-dealers, retirement platforms and registered investment adviser networks, mutual funds and ETFs as well as SMAs through wrap fee programs and access to our investment models through UMAs. Our direct investor business serves the investment needs of individual clients.

We have grown our total client assets from $17.9 billion following the management-led buyout with Crestview Partners II GP, L.P. in August 2013 to $181.1 billion at September 30, 2024. We attribute this growth to our success in sourcing acquisitions and evolving them into organic growers, generating strong investment returns, and developing institutional, retail, and direct investor channels with deep penetration.

**WestEnd Acquisition (the “WestEnd Acquisition”) –** On December 31, 2021, the Company completed the acquisition of 100% of the equity interests of WestEnd Advisors, LLC ("WestEnd") pursuant to the WestEnd purchase agreement (as amended, the “WestEnd Purchase Agreement”). Founded in 2004, and headquartered in Charlotte, NC, WestEnd is an ETF strategist advisor that provides financial advisors with a turnkey, core model allocation strategy for either a holistic solution or complementary source of alpha. The firm offers four primary ETF strategies and one large cap core strategy, all in tax efficient SMA structures. Refer to Note 4, Acquisitions, for further details on the WestEnd Acquisition.

**NEC Acquisition (the “NEC Acquisition”) –** On November 1, 2021, the Company completed the acquisition of 100% of the equity interests in New Energy Capital ("NEC"). Founded in 2004 and based in Hanover, NH, NEC is an alternative asset management firm focused on debt and equity investments in clean energy infrastructure projects and companies. Refer to Note 4, Acquisitions, for further details on the NEC Acquisition.

**USAA AMCO Acquisition –** On July 1, 2019, the Company completed the acquisition (the “USAA AMCO Acquisition”) of USAA Asset Management and Victory Capital Transfer Agency ("VCTA"), formally known as the USAA Transfer Agency Company. The acquisition expanded and diversified the Company’s investment platform and increased the Company’s size and scale. Refer to Note 4, Acquisitions, for further details on the USAA AMCO Acquisition.

**Amundi US Contribution -** On July 8, 2024, the Company, Amundi and, solely for certain provisions thereof, Amundi S.A., (“Amundi Parent,” and together with Amundi, the “Amundi Parties”) entered into the Contribution Agreement, pursuant to which, upon the terms and subject to the conditions set forth therein, Amundi will contribute to the Company, all of the shares of Amundi US. The contribution will result in Amundi US becoming a wholly owned subsidiary of Victory.

Amundi US, based in Boston, Massachusetts, is a wholly owned subsidiary of Amundi, which is headquartered in Paris, France. Amundi US’s activities are principally conducted by its wholly owned subsidiary Amundi US, Inc. Amundi US, Inc. specializes in providing and distributing investment solutions to a wide range of clients and investors, including institutional investors, corporations, central banks, sovereign wealth funds, and individual investors.

At the closing of the transactions contemplated by the Contribution Agreement (the “Closing”), in exchange for the shares of Amundi US, Amundi will receive 26.1% of the Company’s fully diluted shares after giving effect to that issuance (the “Base Share Consideration”). This will be composed of newly issued shares of the Company Common Stock, par value $0.01, representing 4.9% of the number of issued and outstanding shares of Company Common Stock, after giving effect to that issuance, and the balance in newly issued shares of a new class of the Company Preferred Stock. The Base Share Consideration is subject to customary adjustments based on the level of client consents received, Amundi US’s net working capital, debt, cash and transaction expenses as described in the Contribution Agreement.

At the Closing, the Company and Amundi will enter into a shareholder agreement (the “Shareholder Agreement”), pursuant to which, among other things, Amundi will be (i) will be granted certain resale shelf and piggyback registration rights in respect of the shares of Company Preferred Stock and Company Common Stock issued to it under the Contribution Agreement (the “Acquired Shares”), and (ii) is entitled to nominate two members of the Board for so long as it holds a certain amount of the Acquired Shares. In addition, for a period of three years following the Closing, Amundi will be subject to a customary “lock-up” of the Acquired Shares (subject to certain exceptions) and a standstill, which among other things, prohibits Amundi from acquiring additional equity securities of the Company (subject to certain exceptions).

The Amundi Parties, the Company, and VCM have also entered into an Off-Shore Master Distribution and Services Agreement and an On-Shore Master Distribution and Services Agreement which will become effective on the date of the Closing (except with respect to certain specified provisions set forth therein, which became effective as of the entry into such agreements).

The Closing of the transaction is expected to occur during the first quarter of 2025 and is subject to customary closing conditions, regulatory approvals and regulatory authorizations.

### Business Highlights

Assets under management:

- AUM at September 30, 2024 increased by $7.4 billion, or 4.4%, to $176.1 billion from $168.7 billion at June 30, 2024, driven by market appreciation of $10.1 billion and net outflows of $2.6 billion.
- AUM at September 30, 2024 and 2023 was $176.1 billion and $148.9 billion, respectively. We generated $6.1 billion in gross flows and $2.6 billion in net outflows for the three months ended September 30, 2024 compared to $5.1 billion in gross flows and $2.0 billion in net outflows for the same period in 2023.
- AUM at September 30, 2024 and 2023 was $176.1 billion and $148.9 billion, respectively. We generated $19.4 billion in gross flows and $5.5 billion in net outflows for the nine months ended September 30, 2024 compared to $17.0 billion in gross flows and $4.6 billion in net outflows for the same period in 2023. Net flows for the nine months ended September 30, 2024 were comprised of $5.4 billion and $0.1 billion of net long-term and short-term outflows, respectively.

Investment performance:

- 43 of our Victory Capital mutual funds and ETFs had overall Morningstar ratings of four or five stars and 67% of our fund and ETF AUM were rated four or five stars overall by Morningstar. 46% of our strategies by AUM had investment returns in excess of their respective benchmarks over a one-year period, 60% over a three-year period, 73% over a five-year period and 77% over a ten-year period. On an equal-weighted basis, 48% of our strategies have outperformed their benchmarks over a one-year period, 63% over a three-year period, 58% over a five-year period and 61% over a ten-year period.

Financial highlights:

- Total revenue for the three months ended September 30, 2024 was $225.6 million compared to $209.7 million for the same period in 2023. For the nine months ended September 30, 2024 and 2023, total revenue was $661.1 million and $615.2 million, respectively.
- Net income was $82.0 million for the three months ended September 30, 2024 compared to $52.0 million for the same period in 2023. For the nine months ended September 30, 2024 and 2023, net income was $211.9 million and $158.0 million, respectively.
- Adjusted EBITDA was $121.3 million for the three months ended September 30, 2024, or 53.7% of revenue, compared to $107.2 million, or 51.1% of revenue, for the same period in 2023. For the nine months ended September 30, 2024, Adjusted EBITDA was $350.1 million, or 53.0% of revenue, compared to $310.4 million, or 50.5% of revenue, for the same period in 2023. Refer to “Supplemental Non-GAAP Financial Information” for further information about the Adjusted EBITDA calculation and reconciliation of generally accepted accounting principles (“GAAP”) net income to Adjusted EBITDA.
- Adjusted Net Income with tax benefit was $89.0 million for the three months ended September 30, 2024 compared to $79.8 million for the three months ended September 30, 2023. For the nine months ended September 30, 2024, Adjusted Net Income with tax benefit was $258.0 million compared to $230.9 million for the same period in 2023. Refer to “Supplemental Non-GAAP Financial Information” for further information about the Adjusted Net Income calculation and reconciliation of GAAP net income to Adjusted Net Income.

### Key Performance Indicators

The following table is a summary of key performance indicators utilized by management to assess results of operations:

*($ in millions, except for basis points and percentages)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| AUM at period end | $176,113 | $148,879 | $176,113 | $148,879 |
| Average AUM | 171,876 | 156,491 | 167,631 | 153,983 |
| Gross flows | 5,876 | 4,955 | 18,640 | 16,294 |
| AUM net short-term flows | (5) | (19) | (147) | (345) |
| AUM net long-term flows | (2,631) | (2,000) | (5,361) | (4,250) |
| AUM net flows | (2,636) | (2,019) | (5,508) | (4,595) |
| Total revenue | 225.6 | 209.7 | 661.1 | 615.2 |
| Revenue realization on average AUM | 52.1 bps | 53.1 bps | 52.6 bps | 53.3 bps |
| Net income | 82.0 | 52.0 | 211.9 | 158.0 |
| Adjusted EBITDA(1) | 121.3 | 107.2 | 350.1 | 310.4 |
| Adjusted EBITDA margin(2) | 53.7% | 51.1% | 53.0% | 50.5% |
| Adjusted net income(1) | 78.9 | 70.3 | 228.0 | 202.3 |
| Tax benefit of goodwill and acquired intangibles(3) | 10.1 | 9.5 | 30.0 | 28.6 |

29

(1) Management utilizes Adjusted EBITDA and Adjusted net income to measure the operating profitability of the business. These measures eliminate the impact of one‑time acquisition, restructuring and integration costs and demonstrate the ongoing operating earnings metrics of the business. These measures are explained in more detail and reconciled to net income calculated in accordance with GAAP in “Supplemental Non‑GAAP Financial Information.”

(2) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total revenue.

(3) Represents the tax benefits associated with deductions allowed for intangibles and goodwill generated from prior acquisitions in which we received a step-up in basis for tax purposes. Acquired intangible assets and goodwill may be amortized for tax purposes, generally over a 15-year period. The tax benefit from amortization on these assets is included to show the full economic benefit of deductions for all acquired intangibles with a step-up in tax basis. Due to our acquisitive nature, tax deductions allowed on acquired intangible assets and goodwill provide us with a significant supplemental economic benefit.

The following table presents a reconciliation of our total client assets(1) as of the dates indicated:

*(in millions)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Beginning AUM | $168,681 | $157,161 | $161,322 | $147,762 |
| Beginning other assets | 5,094 | 4,461 | 5,289 | 5,190 |
| Beginning total client assets | 173,775 | 161,622 | 166,611 | 152,952 |
| AUM net cash flows | (2,636) | (2,019) | (5,508) | (4,595) |
| Other assets net cash flows | (446) | 300 | (952) | (791) |
| Total client assets net cash flows | (3,082) | (1,719) | (6,460) | (5,386) |
| AUM market appreciation (depreciation) | 10,076 | (4,755) | 20,337 | 7,335 |
| Other assets market appreciation (depreciation) | 333 | (134) | 644 | 228 |
| Total client assets market appreciation (depreciation) | 10,409 | (4,888) | 20,982 | 7,563 |
| AUM realizations and distributions | (2) | — | (2) | (73) |
| Acquired & divested assets / Net transfers | (7) | (1,508) | (38) | (1,549) |
| Ending AUM | 176,113 | 148,879 | 176,113 | 148,879 |
| Ending other assets | 4,981 | 4,627 | 4,981 | 4,627 |
| Ending total client assets | 181,094 | 153,506 | 181,094 | 153,506 |
| Average total client assets | 176,806 | 161,147 | 172,688 | 158,779 |

(1) Includes low-fee (2 to 4 bps) institutional assets, previously reported in the Solutions asset class within the by asset class table and in Separate Accounts and Other Pooled Vehicles within the by vehicle table. These assets are included as part of Victory’s Regulatory Assets Under Management reported in Form ADV Part 1.

The following table presents a reconciliation of our total AUM(1) as of the dates indicated:

*(in millions)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Beginning AUM | $168,681 | $157,161 | $161,322 | $147,762 |
| Gross client cash inflows | 6,120 | 5,149 | 19,375 | 16,959 |
| Gross client cash outflows | (8,756) | (7,168) | (24,882) | (21,554) |
| Net client cash flows | (2,636) | (2,019) | (5,508) | (4,595) |
| Market appreciation (depreciation) | 10,076 | (4,755) | 20,337 | 7,335 |
| Realizations and distributions | (2) | — | (2) | (73) |
| Acquired & divested assets / Net transfers | (7) | (1,508) | (38) | (1,549) |
| Ending AUM | 176,113 | 148,879 | 176,113 | 148,879 |
| Average AUM | 171,876 | 156,491 | 167,631 | 153,983 |

(1) Total AUM includes both discretionary assets under management and non-discretionary assets under advisement and excludes other assets.

The following table presents a reconciliation of our other assets (institutional)(1) as of the dates indicated:

*(in millions)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Beginning other assets (institutional) | $5,094 | $4,461 | $5,289 | $5,190 |
| Gross client cash inflows | — | 300 | 467 | 400 |
| Gross client cash outflows | (446) | — | (1,419) | (1,191) |
| Net client cash flows | (446) | 300 | (952) | (791) |
| Market appreciation (depreciation) | 333 | (134) | 644 | 228 |
| Realizations and distributions | — | — | — | — |
| Acquired & divested assets / Net transfers | — | — | — | — |
| Ending other assets (institutional) | 4,981 | 4,627 | 4,981 | 4,627 |
| Average other assets (institutional) | 4,930 | 4,656 | 5,057 | 4,796 |

(1) Includes low-fee (2 to 4 bps) institutional assets, previously reported in the Solutions asset class within the by asset class table and in Separate Accounts and Other Pooled Vehicles within the by vehicle table. These assets are included as part of Victory’s Regulatory Assets Under Management reported in Form ADV Part 1.

### Assets Under Management

Our profitability is largely affected by the level and composition of our AUM (including asset class and distribution channel) and the effective fee rates on our products. The amount and composition of our AUM are, and will continue to be, influenced by a number of factors, including; (i) investment performance, including fluctuations in the financial markets and the quality of our investment decisions; (ii) client flows into and out of our various strategies and investment vehicles; (iii) industry trends toward products or strategies that we either do or do not offer; (iv) our ability to attract and retain high quality investment, distribution, marketing and management personnel; (v) our decision to close strategies or limit growth of assets in a strategy when we believe it is in the best interest of our clients or conversely to re‑open strategies in part or entirely; and (vi) general investor sentiment and confidence. Our goal is to establish and maintain a client base that is diversified by Franchise and Solutions, asset class, distribution channel and vehicle. Due to rounding, AUM numbers presented in the tables below may not add up precisely to the totals provided.

The following table presents our AUM by asset class as of the dates indicated:

*(in millions)*

|  | As of September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Solutions | $62,544 | $49,371 |
| Fixed Income | 25,081 | 23,790 |
| U.S. Mid Cap Equity | 32,333 | 28,235 |
| U.S. Small Cap Equity | 15,591 | 14,650 |
| Global / Non-U.S. Equity | 19,752 | 14,807 |
| U.S. Large Cap Equity | 14,239 | 11,596 |
| Alternative Investments | 3,178 | 3,222 |
| **Total Long-Term Assets** | **172,720** | **145,671** |
| Money Market & Short-Term Assets | 3,393 | 3,208 |
| **Total AUM(1)** | **$176,113** | **$148,879** |

(1) Total AUM includes both discretionary assets under management and non-discretionary assets under advisement and excludes other assets.

The following tables summarize our asset flows by asset class for the periods indicated:

*(in millions)*

| For the Three Months Ended September 30, 2024 | U.S. Mid Cap Equity | U.S. Small Cap Equity | Fixed Income | U.S. Large Cap Equity | Global / Non-U.S. Equity | Solutions | Alternative Investments | Total Long-term | Money Market / Short-term | Total AUM(1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Beginning AUM | $31,015 | $15,182 | $24,398 | $13,983 | $18,459 | $58,936 | $3,390 | $165,362 | $3,320 | $168,681 |
| Gross client cash inflows | 975 | 584 | 1,344 | 73 | 578 | 2,143 | 179 | 5,876 | 244 | 6,120 |
| Gross client cash outflows | (2,300) | (1,278) | (1,640) | (486) | (485) | (1,877) | (443) | (8,509) | (249) | (8,756) |
| Net client cash flows | (1,325) | (694) | (296) | (413) | 94 | 265 | (263) | (2,632) | (5) | (2,636) |
| Market appreciation / (depreciation) | 2,649 | 1,105 | 973 | 690 | 1,212 | 3,368 | 51 | 10,048 | 27 | 10,076 |
| Realizations and distributions | — | — | — | — | — | — | (2) | (2) | — | (2) |
| Acquired & divested assets / Net transfers | (5) | (2) | 6 | (21) | (13) | (25) | 3 | (57) | 51 | (7) |
| Ending AUM | $32,333 | $15,591 | $25,081 | $14,239 | $19,752 | $62,544 | $3,178 | $172,720 | $3,393 | $176,113 |
| **For the Three Months Ended September 30, 2023** |  |  |  |  |  |  |  |  |  |  |
| Beginning AUM | $30,007 | $15,664 | $26,098 | $12,170 | $15,392 | $51,375 | $3,301 | $154,009 | $3,152 | $157,161 |
| Gross client cash inflows | 1,224 | 458 | 892 | 51 | 392 | 1,688 | 249 | 4,955 | 193 | 5,149 |
| Gross client cash outflows | (1,769) | (920) | (1,343) | (282) | (519) | (1,720) | (402) | (6,955) | (213) | (7,168) |
| Net client cash flows | (545) | (462) | (451) | (231) | (126) | (32) | (153) | (2,000) | (19) | (2,019) |
| Market appreciation / (depreciation) | (1,224) | (547) | (460) | (287) | (451) | (1,895) | 71 | (4,793) | 39 | (4,755) |
| Realizations and distributions | — | — | — | — | — | — | — | — | — | — |
| Acquired & divested assets / Net transfers | (2) | (5) | (1,397) | (57) | (8) | (78) | 3 | (1,545) | 37 | (1,508) |
| Ending AUM | $28,235 | $14,650 | $23,790 | $11,596 | $14,807 | $49,371 | $3,222 | $145,671 | $3,208 | $148,879 |

(1) Total AUM includes both discretionary assets under management and non-discretionary assets under advisement and excludes other assets.

*(in millions)*

| Nine Months Ended September 30, 2024 | U.S. Mid Cap Equity | U.S. Small Cap Equity | Fixed Income | U.S. Large Cap Equity | Global / Non-U.S. Equity | Solutions | Alternative Investments | Total Long-term | Money Market / Short-term | Total AUM(1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Beginning AUM | $30,604 | $15,959 | $24,355 | $12,635 | $16,772 | $54,296 | $3,431 | $158,051 | $3,271 | $161,322 |
| Gross client cash inflows | 3,353 | 1,650 | 3,925 | 209 | 2,227 | 6,343 | 935 | 18,642 | 734 | 19,375 |
| Gross client cash outflows | (5,804) | (2,980) | (4,514) | (1,127) | (1,871) | (6,472) | (1,234) | (24,002) | (881) | (24,882) |
| Net client cash flows | (2,451) | (1,330) | (589) | (918) | 356 | (129) | (299) | (5,360) | (147) | (5,508) |
| Market appreciation / (depreciation) | 4,196 | 1,014 | 1,265 | 2,595 | 2,713 | 8,390 | 34 | 20,207 | 129 | 20,337 |
| Realizations and distributions | — | — | — | — | — | — | (2) | (2) | — | (2) |
| Acquired & divested assets / Net transfers | (16) | (51) | 50 | (72) | (89) | (13) | 14 | (177) | 139 | (38) |
| Ending AUM | $32,333 | $15,591 | $25,081 | $14,239 | $19,752 | $62,544 | $3,178 | $172,720 | $3,393 | $176,113 |
| **Nine Months Ended September 30, 2023** |  |  |  |  |  |  |  |  |  |  |
| Beginning AUM | $27,892 | $15,103 | $26,353 | $10,973 | $14,160 | $46,317 | $3,663 | $144,460 | $3,302 | $147,762 |
| Gross client cash inflows | 4,083 | 2,186 | 2,952 | 222 | 1,329 | 4,427 | 1,095 | 16,294 | 666 | 16,959 |
| Gross client cash outflows | (3,988) | (2,921) | (4,239) | (957) | (1,648) | (5,141) | (1,650) | (20,544) | (1,010) | (21,554) |
| Net client cash flows | 95 | (735) | (1,287) | (735) | (319) | (715) | (555) | (4,250) | (345) | (4,595) |
| Market appreciation / (depreciation) | 237 | 280 | 203 | 1,488 | 1,044 | 3,792 | 180 | 7,224 | 111 | 7,335 |
| Realizations and distributions | — | — | — | — | — | — | (73) | (73) | — | (73) |
| Acquired & divested assets / Net transfers | 13 | 2 | (1,479) | (130) | (79) | (23) | 8 | (1,689) | 140 | (1,549) |
| Ending AUM | $28,235 | $14,650 | $23,790 | $11,596 | $14,807 | $49,371 | $3,222 | $145,671 | $3,208 | $148,879 |

(1) Total AUM includes both discretionary assets under management and non-discretionary assets under advisement and excludes other assets.

The following table presents our AUM by distribution channel as of the dates indicated:

*(in millions)*

|  | As of September 30, 2024 Amount | % of total | 2023 Amount | % of total |
| --- | ---: | ---: | ---: | ---: |
| Investor | $61,989 | 35% | $53,901 | 36% |
| Institutional | 43,295 | 25% | 37,165 | 25% |
| Retail | 70,829 | 40% | 57,813 | 39% |
| Total AUM(1)(2) | $176,113 | 100% | $148,879 | 100% |

(1) The allocation of AUM by distribution channel involves the use of estimates and the exercise of judgment.

(2) Total AUM includes both discretionary assets under management and non-discretionary assets under advisement and excludes other assets.

The following tables summarize our asset flows by vehicle for the periods indicated:

*(in millions)*

| For the Three Months Ended September 30, 2024 | Mutual Funds (1) | ETFs (2) | Separate Accounts and Other Pooled Vehicles (3) | Total AUM(4) |
| --- | ---: | ---: | ---: | ---: |
| Beginning AUM | $112,584 | $5,440 | $50,657 | $168,681 |
| Gross client cash inflows | 3,553 | 992 | 1,575 | 6,120 |
| Gross client cash outflows | (5,526) | (158) | (3,073) | (8,756) |
| Net client cash flows | (1,973) | 834 | (1,498) | (2,636) |
| Market appreciation (depreciation) | 6,443 | 426 | 3,208 | 10,076 |
| Realizations and distributions | — | — | (2) | (2) |
| Acquired & divested assets / Net transfers | (10) | (7) | 10 | (7) |
| Ending AUM | $117,044 | $6,694 | $52,375 | $176,113 |
| **For the Three Months Ended September 30, 2023** |  |  |  |  |
| Beginning AUM | $105,916 | $5,193 | $46,052 | $157,161 |
| Gross client cash inflows | 3,283 | 232 | 1,633 | 5,149 |
| Gross client cash outflows | (5,119) | (557) | (1,492) | (7,168) |
| Net client cash flows | (1,836) | (324) | 141 | (2,019) |
| Market appreciation (depreciation) | (2,925) | (165) | (1,665) | (4,755) |
| Realizations and distributions | — | — | — | — |
| Acquired & divested assets / Net transfers | (17) | 6 | (1,497) | (1,508) |
| Ending AUM | $101,138 | $4,710 | $43,031 | $148,879 |

*(in millions)*

| Nine Months Ended September 30, 2024 | Mutual Funds (1) | ETFs (2) | Separate Accounts and Other Pooled Vehicles (3) | Total AUM(4) |
| --- | ---: | ---: | ---: | ---: |
| Beginning AUM | $108,802 | $4,970 | $47,551 | $161,322 |
| Gross client cash inflows | 11,409 | 1,923 | 6,043 | 19,375 |
| Gross client cash outflows | (16,543) | (785) | (7,555) | (24,882) |
| Net client cash flows | (5,134) | 1,138 | (1,512) | (5,508) |
| Market appreciation (depreciation) | 13,624 | 550 | 6,164 | 20,337 |
| Realizations and distributions | — | — | (2) | (2) |
| Acquired & divested assets / Net transfers | (248) | 36 | 174 | (38) |
| Ending AUM | $117,044 | $6,694 | $52,375 | $176,113 |
| **Nine Months Ended September 30, 2023** |  |  |  |  |
| Beginning AUM | $99,447 | $5,627 | $42,688 | $147,762 |
| Gross client cash inflows | 11,468 | 625 | 4,866 | 16,959 |
| Gross client cash outflows | (15,388) | (1,211) | (4,955) | (21,554) |
| Net client cash flows | (3,921) | (586) | (89) | (4,595) |
| Market appreciation (depreciation) | 5,648 | (329) | 2,015 | 7,335 |
| Realizations and distributions | — | — | (73) | (73) |
| Acquired & divested assets / Net transfers | (36) | (3) | (1,511) | (1,549) |
| Ending AUM | $101,138 | $4,710 | $43,031 | $148,879 |

(1) Includes institutional and retail share classes, money market and Variable Insurance Products or VIP funds.

(2) Represents only ETF assets held by third parties. Excludes ETF assets held by other Victory Capital products.

(3) Includes collective trust funds, wrap program accounts, UMAs, UCITS, private funds and non-U.S. domiciled pooled vehicles.

(4) Total AUM includes both discretionary assets under management and non-discretionary assets under advisement and excludes other assets.

*September 30, 2024 AUM compared to June 30, 2024 AUM*. At September 30, 2024, our total AUM was $176.1 billion, an increase of $7.4 billion, or 4.4%, from $168.7 billion at June 30, 2024, driven by market appreciation of $10.1 billion and net outflows of $2.6 billion.

Net outflows were driven by our U.S. mid cap, U.S. small cap, U.S. large cap equity strategies, alternative investment strategies and our fixed income strategies of $1.3 billion, $0.7 billion, $0.4 billion, $0.3 billion and $0.3 billion, respectively, partially offset by net inflows of $0.3 billion in our Solutions platform.

*September 30, 2024 AUM compared to December 31, 2023 AUM.* Total AUM increased by $14.8 billion, or 9.2%, to $176.1 billion at September 30, 2024 compared to $161.3 billion at December 31, 2023. The increase in AUM was due to positive market action of $20.3 billion partially offset by net outflows of $5.5 billion.

Net outflows were driven by our U.S. mid cap, U.S. small cap, and U.S. large cap equity strategies, and our fixed income strategies of $2.5 billion, $1.3 billion, $0.9 billion, and $0.6 billion, respectively, partially offset by net inflows of $0.4 billion in our global/non-US equity strategies.

### GAAP Results of Operations

The following table presents our GAAP results of operations for the three and nine months ended September 30, 2024 and 2023.

*(in thousands, except per share data)*

| Revenue | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Investment management fees | $177,809 | $163,953 | $520,757 | $480,199 |
| Fund administration and distribution fees | 47,819 | 45,735 | 140,349 | 135,035 |
| **Total revenue** | **225,628** | **209,688** | **661,106** | **615,234** |
| **Expenses** |  |  |  |  |
| Personnel compensation and benefits | 43,243 | 54,501 | 158,357 | 167,043 |
| Distribution and other asset-based expenses | 36,828 | 38,160 | 109,565 | 113,158 |
| General and administrative | 14,029 | 13,947 | 42,426 | 39,585 |
| Depreciation and amortization | 7,510 | 12,333 | 22,662 | 33,663 |
| Change in value of consideration payable for acquisition of business | (1,600) | 10,336 | 2,400 | 19,236 |
| Acquisition-related costs | 5,075 | 116 | 9,150 | 134 |
| Restructuring and integration costs | 180 | 246 | 777 | 275 |
| **Total operating expenses** | **105,265** | **129,639** | **345,337** | **373,094** |
| **Income from operations** | **120,363** | **80,049** | **315,769** | **242,140** |
| **Other income (expense)** |  |  |  |  |
| Interest income and other income | 3,551 | 1,452 | 8,673 | 4,967 |
| Interest expense and other financing costs | (16,414) | (15,580) | (49,179) | (44,721) |
| Loss on debt extinguishment | — | — | (100) | — |
| **Total other expense, net** | **(12,863)** | **(14,128)** | **(40,606)** | **(39,754)** |
| **Income before income taxes** | **107,500** | **65,921** | **275,163** | **202,386** |
| **Income tax expense** | **(25,517)** | **(13,914)** | **(63,238)** | **(44,435)** |
| **Net income** | **$81,983** | **$52,007** | **$211,925** | **$157,951** |
| **Earnings per share of common stock** |  |  |  |  |
| Basic | $1.26 | $0.79 | $3.28 | $2.38 |
| Diluted | $1.24 | $0.77 | $3.21 | $2.30 |
| **Weighted average number of shares outstanding** |  |  |  |  |
| Basic | 64,875 | 65,774 | 64,667 | 66,504 |
| Diluted | 66,057 | 67,676 | 66,044 | 68,636 |
| **Dividends declared per share of common stock** | $0.41 | $0.32 | $1.115 | $0.96 |

### Investment Management Fees

*Three months ended September 30, 2024 compared to September 30, 2023.* Investment management fees increased 8.5%, or $13.9 million, to $177.8 million for the three months ended September 30, 2024 from $164.0 million for the same period in 2023 due to an increase in average AUM over the comparable period.

*Nine months ended September 30, 2024 compared to September 30, 2023.* Investment management fees increased by $40.6 million, or 8.4%, to $520.8 million for the nine months ended September 30, 2024 from $480.2 million due to the same factors discussed above in the quarterly section.

### Fund Administration and Distribution Fees

*Three months ended September 30, 2024 compared to September 30, 2023.* Fund administration and distribution fees increased by $2.1 million, or 4.6%, to $47.8 million for the three months ended September 30, 2024 compared to $45.7 million for the same period in 2023 due primarily to higher mutual fund average net assets.

*Nine months ended September 30, 2024 compared to September 30, 2023.* Fund administration and distribution fees increased by $5.3 million, or 3.9%, to $140.3 million for the nine months ended September 30, 2024 from $135.0 million for the same period in 2023 due to the same factors as discussed above in the quarterly section.

### Personnel Compensation and Benefits

The following table presents the components of GAAP personnel compensation and benefits expense for the three and nine months ended September 30, 2024 and 2023:

*(in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Salaries, payroll related taxes and employee benefits | $21,824 | $20,495 | $67,548 | $67,800 |
| Incentive compensation | 26,472 | 23,897 | 74,920 | 67,131 |
| Sales-based compensation(1) | 6,401 | 4,850 | 18,096 | 15,372 |
| Equity awards granted to employees and directors(2) | 3,714 | 3,895 | 11,448 | 12,389 |
| Acquisition and transaction-related compensation | (15,168) | 1,364 | (13,655) | 4,351 |
| **Total personnel compensation and benefits expense** | **$43,243** | **$54,501** | **$158,357** | **$167,043** |

(1) Represents sales-based commissions paid to our distribution teams. Sales-based compensation varies based on gross client cash flows and revenue earned on sales.

(2) Equity awards typically vest over several years based on service and the achievement of specific business and financial targets. The value of the equity awards is recognized as compensation expense over the vesting period.

*Three months ended September 30, 2024 compared to September 30, 2023.* Personnel compensation and benefits were $43.2 million for the three months ended September 30, 2024, a decrease of $11.3 million, or 20.7%, from $54.5 million for the same period in 2023 mostly attributable to a decrease in acquisition and transaction-related compensation of $15.2 million for the three months ended September 30, 2024, compared to an increase of $1.4 million for the same period in 2023. Excluding the impact of acquisition and transaction-related compensation over the comparable period, personnel compensation and benefits increased $3.9 million, or 7.2%, due to an increase in variable costs such as incentive and sales-based compensation. Incentive compensation and equity awards granted to employees and directors were $26.5 million and $3.7 million, respectively, for the three months ended September 30, 2024, compared to $23.9 million and $3.9 million, respectively, for the same period in 2023.

*Nine months ended September 30, 2024 compared to September 30, 2023.* Personnel compensation and benefits decreased by $8.7 million, or 5.2%, to $158.4 million for the nine months ended September 30, 2024 from $167.0 million for the same period in 2023 due to a decrease in acquisition and transaction-related compensation of $13.7 million for the nine months ended September 30, 2024, compared to an increase of $4.4 million for the same period in 2023, partially offset by an increase in variable costs such as incentive and sales-based compensation. Incentive compensation and equity awards granted to employees and directors were $74.9 million and $11.4 million, respectively, for the nine months ended September 30, 2024, compared to $67.1 million and $12.4 million, respectively, for the same period in 2023.

### Distribution and Other Asset‑Based Expenses

The following table presents the components of distribution and other asset-based expenses for the three and nine months ended September 30, 2024 and 2023:

*(in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Broker-dealer distribution fees | $5,049 | $5,114 | $15,060 | $15,428 |
| Platform distribution fees | 22,406 | 23,673 | 66,821 | 69,863 |
| Sub-administration | 4,313 | 4,032 | 12,590 | 11,900 |
| Sub-advisory | 2,330 | 2,693 | 7,008 | 8,120 |
| Middle-office | 2,730 | 2,648 | 8,086 | 7,847 |
| **Total distribution and other asset-based expenses** | **$36,828** | **$38,160** | **$109,565** | **$113,158** |

*Three months ended September 30, 2024 compared to September 30, 2023.* Distribution and other asset-based expenses are primarily based on AUM. For the three months ended September 30, 2024, distribution and other asset-based expenses were $36.8 million, a decrease of $1.3 million, or 3.5%, from $38.2 million for the same period in 2023. The decrease is primarily due to lower platform distribution fees over the comparable period.

*Nine months ended September 30, 2024 compared to September 30, 2023.* Distribution and other asset-based expenses were $109.6 million for the nine months ended September 30, 2024, a decrease of $3.6 million, or 3.2%, from $113.2 million for the same period in 2023 primarily due to a decrease in the same factors as discussed above in the quarterly section.

### General and Administrative

*Three months ended September 30, 2024 compared to September 30, 2023.* General and administrative expenses remained flat at $14.0 million and $13.9 million, respectively, for the three months ended September 30, 2024 and 2023.

*Nine months ended September 30, 2024 compared to September 30, 2023.* For the nine months ended September 30, 2024 and 2023, general and administrative expenses were $42.4 million and $39.6 million, respectively, for a year over year increase of $2.8 million, or 7.2%. The increase was primarily due to an increase in technology and marketing-related expenses.

### Depreciation and Amortization

*Three months ended September 30, 2024 compared to September 30, 2023.* Depreciation and amortization decreased by $4.8 million, or 39.1%, to $7.5 million for the three months ended September 30, 2024 from $12.3 million for the same period in 2023, due to the write-down of a trade name asset as a result of a change in the estimated remaining useful life during the three months ended September 30, 2023, with no such expense incurred during the current comparable period.

*Nine months ended September 30, 2024 compared to September 30, 2023.* Depreciation and amortization decreased by $11.0 million, or 32.7%, to $22.7 million for the nine months ended September 30, 2024 from $33.7 million for the same period in 2023 due to a decrease in amortization expense related to definite-lived intangible assets in connection with prior acquisitions and the same factors as discussed above in the quarterly section.

### Change in Value of Consideration Payable for Acquisition of Business

*Three months ended September 30, 2024 compared to September 30, 2023.* The change in value of consideration payable for acquisition of business decreased $11.9 million as a result of a decrease of $1.6 million in the fair value of the contingent consideration associated with the WestEnd Acquisition for the three months ended September 30, 2024, compared to an increase of $7.6 million and $2.7 million associated with the WestEnd Acquisition and USAA AMCO, respectively, for the three months ended September 30, 2023. Refer to Note 4, Acquisitions, for further details on the fair value of contingent consideration payable.

*Nine months ended September 30, 2024 compared to September 30, 2023.* The change in value of consideration payable for acquisition of business decreased $16.8 million due to the same factors as discussed above in the quarterly section. The change in the fair value of the contingent consideration associated with the WestEnd Acquisition increased $2.4 million, net for the nine months ended September 30, 2024, compared to an increase of $10.5 million, net and $8.7 million, associated with the WestEnd Acquisition and USAA AMCO, respectively, for the same period in 2023. Refer to Note 4, Acquisitions, for further details on the fair value of contingent consideration payable.

### Acquisition-Related Costs

*Three months ended September 30, 2024 compared to September 30, 2023.* Acquisition-related costs were $5.1 million and $0.1 million for the three months ended September 30, 2024 and 2023, respectively. The acquisition-related costs for the three months ended September 30, 2024 related to legal and professional fees associated with the Amundi transaction.

*Nine months ended September 30, 2024 compared to September 30, 2023.* Acquisition-related costs were $9.2 million and $0.1 million for the nine months ended September 30, 2024 and 2023, respectively. The acquisition-related costs for the nine months ended September 30, 2024 were related to the same factors discussed above in the quarterly section.

### Restructuring and Integration Costs

*Three months ended September 30, 2024 compared to September 30, 2023.* Restructuring and integration costs were $0.2 million for the three months ended September 30, 2024 and 2023, respectively, and were related to personnel restructuring. The restructuring and integration costs for the three months ended September 30, 2023 were due to the divestiture of certain INCORE accounts.

*Nine months ended September 30, 2024 compared to September 30, 2023.* Restructuring and integration costs were $0.8 million and $0.3 million for the nine months ended September 30, 2024 and 2023, respectively. The restructuring and integration costs for the nine months ended September 30, 2024 were related to the same factors discussed above in the quarterly section.

### Interest Income and Other Income

*Three months ended September 30, 2024 compared to September 30, 2023.* For the three months ended September 30, 2024 and 2023, interest income and other income was $3.6 million and $1.5 million, respectively. The income for the three months ended September 30, 2024 and 2023 was primarily due to dividend income and an increase in the net unrealized fair value of deferred compensation plan investments.

*Nine months ended September 30, 2024 compared to September 30, 2023.* For the nine months ended September 30, 2024 and 2023, interest income and other income was $8.7 million and $5.0 million, respectively. The income for the nine months ended September 30, 2024 and 2023 was related to the same factors discussed above in the quarterly section.

### Interest Expense and Other Financing Costs

*Three months ended September 30, 2024 compared to September 30, 2023.* Interest expense and other financing costs increased by $0.8 million to $16.4 million for the three months ended September 30, 2024, compared to $15.6 million for the same period in 2023 due to the interest rate swap ("Swap"). For the three months ended September 30, 2024, the Company recognized $4.2 million of deferred gains from the Swap monetization, compared to recognizing Swap income of $5.1 million for the same period in 2023.

*Nine months ended September 30, 2024 compared to September 30, 2023.* For the nine months ended September 30, 2024 and 2023, interest expense and other financing costs were $49.2 million and $44.7 million, respectively. The year-over-year increase is primarily due to a higher average interest rate and the impact of the Swap. For the nine months ended September 30, 2024, the Company recognized $12.5 million of deferred gains from the Swap monetization, compared to recognizing Swap income of $14.0 million for the same period in 2023. Refer to Note 9, Debt, for further details on the 2019 Credit Agreement, and Note 14, Derivatives, for further details on the Swap.

### Income Tax Expense

*Three months ended September 30, 2024 compared to September 30, 2023.* The effective tax rate for the three months ended September 30, 2024 and 2023 was 23.7% and 21.1%, respectively. The effective tax rate for the three months ended September 30, 2024 was higher than the effective tax rate for the same period in 2023 due primarily to lower excess tax benefits on share-based compensation.

*Nine months ended September 30, 2024 compared to September 30, 2023*. For the nine months ended September 30, 2024 and 2023, the effective tax rate was 23.0% and 22.0%, respectively. Refer to Note 8, Income Taxes, for further details on the Company's income taxes.

### Supplemental Non‑GAAP Financial Information

We use non-GAAP performance measures to evaluate the underlying operations of our business. Due to our acquisitive nature, there are a number of acquisition and restructuring related expenses included in GAAP measures that we believe distort the economic value of our organization and we believe that many investors use this information when assessing the financial performance of companies in the investment management industry. We have included these non-GAAP measures to provide investors with the same financial metrics used by management to assess the operating performance of our Company. The non-GAAP measures we report are Adjusted EBITDA and Adjusted Net Income.

The following table sets forth a reconciliation from GAAP financial measures to non-GAAP measures for the periods indicated:

*(in thousands)*

| Reconciliation of non-GAAP financial measures: | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| **Net income (GAAP)** | **$81,983** | **$52,007** | **$211,925** | **$157,951** |
| Income tax expense | (25,517) | (13,914) | (63,238) | (44,435) |
| **Income before income taxes** | **107,500** | **65,921** | **275,163** | **202,386** |
| Interest expense(1) | 15,649 | 14,660 | 46,828 | 42,288 |
| Depreciation(2) | 2,210 | 2,302 | 6,731 | 6,569 |
| Other business taxes(3) | 366 | 636 | 1,149 | 1,402 |
| Amortization of acquisition-related intangible assets(4) | 5,300 | 10,032 | 15,931 | 27,094 |
| Stock-based compensation(5) | 972 | 1,451 | 3,239 | 4,993 |
| Acquisition, restructuring and exit costs(6) | (11,513) | 11,463 | (1,328) | 23,396 |
| Debt issuance costs(7) | 775 | 762 | 2,404 | 2,266 |
| **Adjusted EBITDA** | **$121,259** | **$107,227** | **$350,117** | **$310,394** |

*(in thousands)*

| Reconciliation of non-GAAP financial measures: | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| **Net income (GAAP)** | **$81,983** | **$52,007** | **$211,925** | **$157,951** |
| Adjustments to reflect the operating performance of the Company: |  |  |  |  |
| i. Other business taxes(3) | 366 | 636 | 1,149 | 1,402 |
| ii. Amortization of acquisition-related intangible assets(4) | 5,300 | 10,032 | 15,931 | 27,094 |
| iii. Stock-based compensation(5) | 972 | 1,451 | 3,239 | 4,993 |
| iv. Acquisition, restructuring and exit costs(6) | (11,513) | 11,463 | (1,328) | 23,396 |
| v. Debt issuance costs(7) | 775 | 762 | 2,404 | 2,266 |
| Tax effect of above adjustments(8) | 1,025 | (6,085) | (5,349) | (14,786) |
| **Adjusted Net Income** | **$78,908** | **$70,266** | **$227,971** | **$202,316** |
| Tax benefit of goodwill and acquired intangibles(9) | $10,141 | $9,536 | $30,030 | $28,597 |

Adjustments made to GAAP Net Income to calculate Adjusted EBITDA and Adjusted Net Income, as applicable, are:

(1) Adding back interest paid on debt and other financing costs, net of interest income.

(2) Adding back depreciation on property and equipment.

(3) Adding back other business taxes.

(4) Adding back amortization expense on acquisition‑related intangible assets.

(5) Adding back stock‑based compensation associated with equity awards issued from pools created in connection with the management‑led buyout and various acquisitions and as a result of equity grants related to the IPO.

(6) Adding back direct incremental costs of acquisitions, including restructuring costs.

*(in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Acquisition-related costs | $5,075 | $116 | $9,150 | $134 |
| Restructuring and integration costs | 180 | 246 | 777 | 275 |
| Change in value of consideration payable for acquisition of business | (1,600) | 10,336 | 2,400 | 19,236 |
| Personnel compensation and benefits | (15,168) | 1,365 | (13,655) | 4,351 |
| Interest income and other income (expense) | — | (600) | — | (600) |
| **Total acquisition, restructuring and exit costs** | **$(11,513)** | **$11,463** | **$(1,328)** | **$23,396** |

(7) Adding back debt issuance costs.

(8) Subtracting an estimate of income tax expense applied to the sum of the adjustments above.

(9) Represents the tax benefits associated with deductions allowed for intangible assets and goodwill generated from prior acquisitions in which we received a step-up in basis for tax purposes. Acquired intangible assets and goodwill may be amortized for tax purposes, generally over a 15-year period. The tax benefit from amortization on these assets is included to show the full economic benefit of deductions for all acquired intangible assets with a step-up in tax basis. Due to our acquisitive nature, tax deductions allowed on acquired intangible assets and goodwill provide us with a significant supplemental economic benefit.

Non-GAAP measures should be considered in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. Our non-GAAP measures may differ from similar measures at other companies, even if similar terms are used to identify these measures.

### Liquidity and Capital Resources

Our primary uses of cash relate to repayment of our debt obligations, funding of acquisitions and working capital needs, repurchasing of shares and payment of dividends, which are all expected to be met through cash generated from our operations and available capital resources.

The following table shows our liquidity position as of September 30, 2024 and December 31, 2023.

*(in thousands)*

|  | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Cash and cash equivalents | $188,248 | $123,547 |
| Accounts and other receivables | 96,922 | 87,570 |
| Undrawn commitment on revolving credit facility (1) | 100,000 | 100,000 |
| Accounts and other payables | (106,851) | (111,933) |

(1) The balances at September 30, 2024 and December 31, 2023 represent the Company’s $99.9 million revolving credit facility and a $0.1 million standby letter of credit used as collateral for THB’s real estate location.

We manage our cash balances in order to fund our day-to-day operations. Our accounts receivable consists primarily of investment management fees that have been earned but not yet received from clients, income and other taxes receivable, and amounts receivable from the funds. We perform a review of our receivables on a monthly basis to assess collectability.

We maintained a $100.0 million revolving credit facility at September 30, 2024 and December 31, 2023 (under the 2019 Credit Agreement) which had approximately $100.0 million undrawn as of September 30, 2024 and December 31, 2023. On June 7, 2024, the Company entered into the Fifth Amendment to the 2019 Credit Agreement, extending the maturity date of the $100.0 million senior secured first lien revolving facility from July 1, 2024 to March 31, 2026, and decreasing the drawn interest rate margin by 0.50% per annum. The revolving facility otherwise remains subject to substantially the same terms as those set forth in the 2019 Credit Agreement. The Company incurred $1.0 million in upfront fees, arranger fees and other third party costs related to the Fifth Amendment to the 2019 Credit Agreement, which were recorded to revolving credit facility debt issuance cost in other assets.

### 2021 Debt Repricing

On February 18, 2021, the Company entered into the Second Amendment (the “Second Amendment”) to the 2019 Credit Agreement with the other loan parties thereto, Barclays Bank PLC, as administrative agent, and the Royal Bank of Canada as fronting bank. Pursuant to the Second Amendment, the Company repriced the existing term loans with replacement term loans in an aggregate principal amount of $755.7 million (the “Repriced Term Loans”). The Repriced Term Loans have substantially the same terms as the previously existing term loans, including the same maturity date of July 2026, except that the Repriced Term Loans provided for a reduced applicable margin on LIBOR of 25 basis points. After the Second Amendment, the applicable margin on LIBOR under the Repriced Term Loans was 2.25%.

### 2021 Incremental Term Loans

On December 31, 2021, the Company entered into the Third Amendment (the “Third Amendment”) to the 2019 Credit Agreement with the guarantors party thereto, Barclays Bank PLC, as administrative agent, and the lenders party thereto from time to time. Pursuant to the Third Amendment, the Company obtained incremental term loans (the “2021 Incremental Term Loans”) in an aggregate principal amount of $505.0 million and used the proceeds to fund the WestEnd Acquisition and to pay fees and expenses incurred in connection therewith. The 2021 Incremental Term Loans mature in December 2028 and bear interest at an annual rate equal to, at the option of the Company, either LIBOR (adjusted for reserves and subject to a 50 basis point floor) plus a margin of 2.25% or an alternate base rate plus a margin of 1.25%.

### 2022 LIBOR to Term SOFR Rate Transition

On September 23, 2022, the Company entered into the Fourth Amendment (the “Fourth Amendment”) to the 2019 Credit Agreement to change the interest rate on the Repriced Term Loans and 2021 Incremental Term Loans from LIBOR to a rate based on SOFR plus a ten-basis point credit spread adjustment. There was no change to the applicable margin on the referenced rate as a result of the Fourth Amendment.

The LIBOR rate loans outstanding as of the Fourth Amendment’s effective date continued as LIBOR rate loans until the end of their then current interest periods. The 2021 Incremental Term Loans converted into Term SOFR loans on September 30, 2022, while the Repriced Term Loans converted into Term SOFR loans on October 6, 2022. Also on October 6, 2022, the interest periods for the Repriced Term Loans and 2021 Incremental Term Loans were aligned and the three-month Term SOFR rate was elected for all the Company’s term loans.

### 2020 Swap Transaction

In the fourth quarter of 2023, the Company monetized the gain on the floating-to-fixed Swap transaction entered into in 2020 to effectively fix the interest rate on $450 million of its outstanding Term Loan through the Term Loan maturity date of July 2026.

The deferred gain on the termination of the Swap is being amortized on a straight-line basis through July 1, 2026 and is included in interest expense and other financing costs on the unaudited Condensed Consolidated Statements of Operations. As of September 30, 2024 and December 31, 2023, the unamortized deferred gain on Swap monetization was $29.1 million and $41.6 million, respectively, before tax.

The Swap was designated as a cash flow hedge. Prior to its termination, the Swap was measured at fair value with mark-to-market gains or losses deferred and included in AOCI(L), net of tax, to the extent the hedge was determined to be effective. Gains or losses were reclassified to interest expenses and other financing costs on the unaudited Condensed Consolidated Statements of Operations in the same period during which the hedged transaction affected earnings.

For the three and nine months ended September 30, 2023, the Company reclassified income of $5.1 million and $14.0 million, respectively, from accumulated other comprehensive income (loss) to interest expense and other financing costs on the unaudited Condensed Consolidated Statements of Operations as a result of changes in the fair value of the Swap.

Due to the termination of the Swap, there was no amount receivable from the Swap counterparty at September 30, 2024 and December 31, 2023. Refer to Note 14, Derivatives, for further information on the Swap.

### Contingent Consideration

At September 30, 2024, the Company had $139.6 million in contingent consideration that is estimated to be payable over the next year and three years resulting from the WestEnd Acquisition. For the three and nine months ended September 30, 2024, the Company recorded a decrease of $1.6 million and an increase of $2.4 million, respectively, in the contingent payment liability associated with the WestEnd Acquisition, which is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets. In March 2024, the Company paid $80.0 million in cash to sellers for the first WestEnd earn out period payment. At September 30, 2024, the estimated fair value of the WestEnd Acquisition contingent payments was $139.6 million, and a maximum of $240.0 million in contingent consideration ($80.0 million per year) is potentially payable to sellers.

There were no other significant changes to our contractual obligations as reported in our Annual Report on Form 10-K for the year ended December 31, 2023.

### Capital Requirements

Victory Capital Services is a registered broker-dealer subject to the Uniform Net Capital requirements under the Exchange Act, which requires maintenance of certain minimum net capital levels. In addition, we have certain non-U.S. subsidiaries that have minimum capital requirements. As a result, such subsidiaries of our Company may be restricted in their ability to transfer cash to their parents.

### Cash Flows

The following table is derived from our unaudited Condensed Consolidated Statements of Cash Flows:

*(in thousands)*

|  | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $248,168 | $233,190 |
| Net cash used in investing activities | (1,583) | (6,271) |
| Net cash used in financing activities | (182,010) | (157,092) |

***Operating Activities –*** Cash provided by operating activities during the nine months ended September 30, 2024 was $248.2 million, compared to $233.2 million of cash provided by operating activities for the same period in 2023. The $15.0 million increase in cash provided by operating activities is due to a $54.0 million increase in net income partially offset by a $31.8 million and $7.2 million decrease in non-cash and working capital items, respectively.

Cash provided by operating activities during the nine months ended September 30, 2023 was $233.2 million and comprised of $158.0 million and $87.7 million of net income and non-cash items, respectively, partially offset by $12.5 million in working capital source of cash.

***Investing Activities –*** Cash used in investing activities during the nine months ended September 30, 2024 was $1.6 million and consisted of primarily of property and equipment purchases of $1.1 million and $0.5 million of net trading activity.

Cash used in investing activities during the nine months ended September 30, 2023 was $6.3 million and consisted of primarily of property and equipment purchases of $4.4 million and $1.9 million of net trading activity.

***Financing Activities –*** Cash used in financing activities during the nine months ended September 30, 2024 was $182.0 million and was mostly attributable to payment of consideration for acquisition, payment of dividends, repayment of long-term debt, repurchases of common stock, and net activity related to stock-based equity awards of $80.0 million, $73.0 million, $9.5 million, $6.7 million, and $11.8 million, respectively.

Cash used in financing activities during the nine months ended September 30, 2023 was $157.1 million and was mostly attributable to repurchases of common stock, payment of dividends, and net activity related to stock-based equity awards of $81.8 million, $64.8 million, and $10.5 million, respectively.

### Critical Accounting Policies and Estimates

Our consolidated financial statements and the notes are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates. Actual results will vary from these estimates. A discussion of our critical accounting policies and estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K. A complete description of our significant accounting policies is included in our Annual Report on Form 10-K.

## Market risk

As filed, 6,169 characters.

### Market Risk

Substantially all of our revenues are derived from investment management, fund administration and distribution fees, which are primarily based on the market value of our AUM. Accordingly, our revenues and net income may decline as a result of our AUM decreasing due to depreciation of our investment portfolios. In addition, such depreciation could cause our clients to withdraw their assets in favor of other investment alternatives that they perceive to offer higher returns or lower risk, which could cause our revenues and net income to decline further.

The value of our AUM was approximately $176 billion at September 30, 2024. A 10% increase or decrease in the value of our AUM, if proportionately distributed over all of our strategies, products and client relationships, would cause an annualized increase or decrease in our revenues of approximately $91.5 million at our weighted-average fee rate of 52 basis points for the quarter ended September 30, 2024. Because of declining fee rates from larger relationships and differences in our fee rates across investment strategies, a change in the composition of our AUM, in particular, an increase in the proportion of our total AUM attributable to strategies, clients or relationships with lower effective fee rates, could have a material negative impact on our overall weighted-average fee rate. The same 10% increase or decrease in the value of our total AUM, if attributed entirely to a proportionate increase or decrease in the AUM of the Victory Funds, to which we provide a range of services in addition to those provided to institutional separate accounts, would cause an annualized increase or decrease in our revenues of approximately $103.8 million at the Victory Funds’ aggregate weighted-average fee rate of 59 basis points for the quarter ended September 30, 2024. If the same 10% increase or decrease in the value of our total AUM was attributable entirely to a proportionate increase or decrease in the assets of our institutional separate accounts, it would cause an annualized increase or decrease in our revenues of approximately $70.4 million at the weighted-average fee rate across all of our institutional separate accounts of 40 basis points for the quarter ended September 30, 2024.

As is customary in the investment management industry, clients invest in particular strategies to gain exposure to certain asset classes, which exposes their investment to the benefits and risks of those asset classes. We believe our clients invest in each of our strategies in order to gain exposure to the portfolio securities of the respective strategies and may implement their own risk management program or procedures. We have not adopted a corporate‑level risk management policy regarding client assets, nor have we attempted to hedge at the corporate level or within individual strategies the market risks that would affect the value of our overall AUM and related revenues. Some of these risks, such as sector and currency risks, are inherent in certain strategies, and clients may invest in particular strategies to gain exposure to particular risks. While negative returns in our strategies and net client cash outflows do not directly reduce the assets on our balance sheet (because the assets we manage are owned by our clients, not us), any reduction in the value of our AUM would result in a reduction in our revenues.

### Exchange Rate Risk

A portion of the accounts that we advise hold investments that are denominated in currencies other than the U.S. dollar. To the extent our AUM are denominated in currencies other than the U.S. dollar, the value of that AUM will decrease with an increase in the value of the U.S. dollar or increase with a decrease in the value of the U.S. dollar. Each investment team monitors its own exposure to exchange rate risk and makes decisions on how to manage that risk in the portfolios they manage. We believe many of our clients invest in those strategies in order to gain exposure to non‑U.S. currencies, or may implement their own hedging programs. As a result, we generally do not hedge an investment portfolio’s exposure to non‑U.S. currency.

We have not adopted a corporate-level risk management policy to manage this exchange rate risk. Assuming 11% of our AUM are invested in securities denominated in currencies other than the U.S. dollar and excluding the impact of any hedging arrangement, a 10% increase or decrease in the value of the U.S. dollar would decrease or increase the fair value of our AUM by approximately $1.9 billion, which would cause an annualized increase or decrease in revenues of approximately $10.1 million at our weighted-average fee rate for the business of 52 basis points for the quarter ended September 30, 2024.

### Interest Rate Risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. On March 27, 2020, the Company executed the Swap, a floating-to-fixed interest rate swap transaction, to effectively fix the interest rate at 3.465% on $450 million of its outstanding Term Loan through the Term Loan maturity date of July 2026. On February 18, 2021, pursuant to the Second Amendment, the Company lowered the spread on the Term Loan by 0.25% resulting in a new fixed rate of 3.215% on the $450 million of Term Loan subject to the Swap. On September 26, 2022, the Company and the Swap counterparty executed an amendment to the Swap to update LIBOR conventions to SOFR conventions and to modify the fixed rate for the change from three-month LIBOR to three-month Term SOFR effective on October 6, 2022. On October 30, 2023, the Company monetized the gain on the Swap and entered into an agreement to terminate the Swap, which was effective on October 30, 2023. Refer to Note 14, Derivatives, for further information on the Swap. At September 30, 2024, we were exposed to interest rate risk as a result of the amounts outstanding under the 2019 Credit Agreement, as amended. Refer to Note 9, Debt, for a description of the amounts outstanding as of such date and the applicable interest rate.

## Controls and procedures

As filed, 1,369 characters.

### Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow for timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) at September 30, 2024. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.

### Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 936 characters.

For a discussion of our potential risks and uncertainties, see the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC and the information contained in this report. The declaration, payment and determination of the amount of our quarterly dividends may change at any time. In making decisions regarding our quarterly dividends, we consider general economic and business conditions, our strategic plans and prospects, our businesses and investment opportunities, our financial condition and operating results, working capital requirements and anticipated cash needs, contractual restrictions (including under the terms of our 2019 Credit Agreement as amended) and legal, tax, regulatory and such other factors as we may deem relevant. There have been no material changes to the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2023.

Filed Nov 8, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-123762. Last ingested by Listed: Oct 30, 2026, 14:15 ET. No prices; not investment advice.