UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM to
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Act.
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Aggregate market value of Common Stock held by non-affiliates of the registrant as of June 30, 2022 was $
The number of outstanding shares of the registrant's Common Stock, par value $0.01 per share as of February 28, 2023 was
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement related to its 2023 Annual Stockholders’ Meeting to be filed within 120 days of the end of the fiscal year ended December 31, 2022, are incorporated by reference into Part III hereof. Except with respect to information specifically incorporated by reference in this Annual Report on Form 10-K, the registrant’s proxy statement is not deemed to be filed as part hereof.
Auditor’s PCAOB ID Number:
TABLE OF CONTENTS
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Forward‑Looking Statements
This Annual Report on Form 10-K contains forward‑looking statements within the meaning of federal securities law. The forward‑looking statements may include, without limitation, statements concerning our current expectations, estimates, assumptions, and beliefs concerning future events, conditions, plans, and strategies that are not historical fact. Any statement that is not historical in nature is a forward-looking statement and may be identified by the use of words and phrases such as “may,” “believes,” “intends,” “seeks,” “anticipates,” “plans,” “estimates,” “expects,” “should,” “assumes,” “continues,” “could,” “will,” “future” and the negative of these or similar phrases.
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. Such forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties.
Many factors mentioned in “Item 1A. Risk Factors” will be important in determining future results. Should one or more of these risks or assumptions materialize, or should the underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. You are advised, however, to consult any further disclosures we make on related subjects in the quarterly, periodic and annual reports we file with the United States Securities and Exchange Commission (the “SEC”). 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.
The following text is qualified in its entirety by reference to the more detailed information and consolidated financial statements (including the notes thereto) appearing elsewhere in this Annual Report on Form 10-K. Unless the context otherwise requires, references in this Annual Report to “we,” “our,” “us,” “Victory” or the “Company” shall mean Victory Capital Holdings, Inc., (“VCH”) a Delaware corporation, and its wholly-owned subsidiaries. All references to years, unless otherwise noted, refer to our fiscal year which ends on December 31.
Note Regarding Third-Party Information
This Annual Report on Form 10-K includes certain market and industry data and forecasts related thereto that we rely on and refer to. We obtained this information and these statistics from sources other than us, which we have supplemented where necessary with information from publicly available sources and our own internal estimates. We use these sources and estimates and believe them to be reliable, but we cannot give any assurance that any of the projected results will be achieved.
Item 1. Business
Overview
We are a diversified global asset management firm with $153.0 billion in total assets under management (“AUM”) as of December 31, 2022. Our differentiated business model combines boutique investment qualities of traditional and alternative investment managers with the benefits of an integrated, centralized (not standardized) operating and distribution platform.
Victory Capital provides specialized investment strategies to institutions, intermediaries, retirement platforms and individual investors. With 12 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”), Environmental, Social, and Governance (“ESG”) and impact investment strategies, 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 December 31, 2022, our Franchises and our Solutions Platform collectively managed a diversified set of 128 investment strategies.
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Our design logos and the marks “Victory Capital,” “Victory Capital Management,” “Victory Funds,” “VictoryShares,” “Victory Capital inVest,” “VictoryConnect,” “CEMP,” “CEMP Volatility Weighted Indexes,” “INCORE Capital Management,” “Integrity,” “Integrity Asset Management,” “inVest,” “Munder,” “Munder Capital Management,” “New Energy Capital,” “THB,” “The Munder Funds,” “The Road to Victory,” “NewBridge,” “NewBridge Asset Management,” “RS Funds,” “RS Investments,” “Sophus Capital,” “Sycamore Capital,” “Trivalent Investments,” “USAA Investments,” “USAA Mutual Funds,” and “WestEnd Advisors,” are pending, owned, or licensed for a period of time by us or one of our subsidiaries. All other trademarks, service marks and trade names appearing in this report are the property of their respective owners.
In the early part of the second quarter of 2023, as part of a broader rebranding strategy, the USAA Mutual Funds Trust will be renamed Victory Portfolios III, and the funds in the Trust will be rebranded as Victory Funds.
Business History and Organization
Victory Capital Holdings, Inc. was formed in 2013 for the purpose of acquiring Victory Capital Management (“VCM”) and Victory Capital Services, Inc. (“VCS”) from KeyCorp. VCM is a U.S. registered investment adviser (“RIA”) managing assets through open-end mutual funds, institutional separate accounts, CITs, wrap account programs, UCITs, private funds, and ETFs. VCM also provides mutual fund administrative services for the Victory Portfolios, Victory Variable Insurance Funds, and the mutual fund series of the Victory Portfolios II (collectively, the “Victory Funds”), a family of open-end mutual funds; and VictoryShares (the Company’s ETF brand), as well as USAA branded investment products, which includes the USAA Mutual Fund Trust, a family of open-end mutual funds (the “USAA Funds”). In 2021, the Company acquired WestEnd Advisors (“WestEnd”), which maintains its own RIA, which is an affiliate RIA that receives certain services from VCM. VCM employs all of the Company’s United States investment professionals across all 12 Franchises and its Solutions Platform. VCM’s wholly owned subsidiaries include RS Investment Management (Singapore) Pte. Ltd., RS Investments (Hong Kong) Limited, and RS Investments (UK) Limited, Victory Capital Digital Assets, LLC and NEC Pipeline LLC. VCS is registered with the SEC as an introducing broker-dealer and serves as distributor and underwriter for the Victory Funds and USAA Funds and for municipal fund securities issued by the Nevada College Savings Trust Fund under the USAA 529 Education Savings Plan. VCS also serves as placement agent for certain private funds managed by VCM. During the early part of the second quarter of 2023, the Direct Investor Business will be expanded to include brokerage capabilities through VCS. VCH indirectly owns Victory Capital Transfer Agency, Inc. (“VCTA”), a transfer agent registered with the SEC that acts as transfer agent for the USAA Funds.
Our Growth Strategy
We have a purposeful strategy designed to achieve continued measured profitable growth and success for our clients, our employees, and our shareholders. The growth we pursue is both organic and inorganic.
Organic Growth – We seek to grow organically by offering strategies that are value-added and solution oriented to investment portfolios with strong risk-adjusted performance track records over the long term. A key driver of our growth strategy lies in enhancing the strength of our existing Franchises. We primarily do this by providing them with access to our operating platform, technology, distribution, marketing, and other support functions. Largely unencumbered by the burdens of administrative and operational tasks, our investment professionals can focus on delivering investment excellence and maintaining strong client relationships. We also help our Franchises through new product development and product packaging. We believe we are well positioned to help our Franchises grow their product offerings and diversify their client base, with the ability to offer their strategies in multiple investment vehicles to meet the unique needs of diverse clients.
We continually evaluate and make investments to improve our operating platform. Recent initiatives include investments in data and analytics, technology, distribution, and marketing to enhance organic growth in our business and increase efficiencies in our distribution channels.
Inorganic Growth – We supplement our organic growth through strategic acquisitions. We primarily seek to acquire investment management firms that will add high quality investment teams, enhance our growth and financial profile, improve our diversification by asset class and investment strategy, achieve our integration expectations, and expand our distribution capabilities.
One of our key advantages in a competitive mergers and acquisition environment is our ability to provide access to multiple distribution channels. Our distribution and marketing platforms drive organic growth at our acquired Franchises both by opening new distribution channels and penetrating deeper into existing ones. This support
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received from our sales and marketing professionals allows our investment professionals to focus primarily on delivering investment excellence.
Since our management‑led buyout with Crestview Partners II GP, L.P. (“Crestview GP”) from KeyCorp in 2013, we have successfully closed seven acquisitions, made and exited two minority investments, and through December 31, 2022, grown our AUM more than 750% from $17.9 billion to $153.0 billion. We understand the need to execute transactions while minimizing disruption to the investment teams and to the client experience. Our team is very experienced and has a history of success in meeting those objectives. Previous acquisitions have evolved and diversified our products resulting in a mix of compelling investment strategies in asset classes where we can be successful and earn sustainable management fees.
We regularly evaluate potential acquisition candidates and maintain a strong network of industry participants and advisors who provide opportunities to establish potential target relationships and source transactions. Our management team leads and participates in our acquisition strategy, leveraging their many years of experience actively operating our Company on a day‑to‑day basis to successfully source, execute, integrate, and ultimately operate acquired businesses.
We believe, based on our successful acquisition track record, that there is a significant opportunity for us to continue to profitably grow through additional acquisitions, as industry dynamics have expanded the universe of potential acquisition targets.
Alternative Investments – In 2021, we launched our alternative investments platform with the acquisition of New Energy Capital (“NEC”). We offer both opened-end liquid alternative investments as well as closed-end private funds. Given our multi-faceted distribution channels, combined with our ability to develop investment vehicles to deliver these strategies, we are ideally situated to play a meaningful role in democratizing access to alternative investments for retail investors.
With attractive fee rates, margins, longer capital commitments compared with our liquid products, and less likelihood of being disintermediated by non-active strategies, we remain interested in adding additional alternative investment capabilities. We are committed to maintaining the same guiding principles with alternative Investment Franchises that led to success with our traditional Investment Franchises.
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Diversification Strategy
We offer an array of equity, fixed income, investment models, alternative investments, closed end private funds, and solutions strategies that encompass a diverse spectrum of market capitalization segments, industry sectors, investment styles and approaches. We believe that these strategies are positioned to attract positive net flows and sustainable fee rates over the long term and provide us with a next generation investment management platform. As illustrated below, as of December 31, 2022, our current business is well diversified from multiple perspectives, including by asset class, by investment vehicle, and by Franchises and our Solutions Platform.
Asset Class Mix
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Vehicle Mix
Franchise/Platform Mix
Data as of December 31, 2022, values may not total 100% due to rounding.
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Within individual asset classes and strategies, our Franchises employ different investment approaches. This diversification reduces the correlation between investment return streams generated by multiple Franchises investing within the same asset class. For example, we have two Franchises (Trivalent and Sophus) focused on Emerging Markets within global/non‑U.S. equity, each with a different investment approach. Trivalent’s investment team primarily focuses on quantitative analysis for stock selection, combined with some fundamental analysis. Sophus employs a front‑end quantitative screen to first rank stocks, then further applies fundamental research to make its investment decisions. Due to the differences in investment approaches, each Franchise has a different return profile for investors in different market environments while maintaining desired asset class exposure.
Our multi‑channel distribution capabilities provide another degree of diversification, with approximately 34% of our AUM from direct investor clients, 37% from retail clients, and 29% from institutional clients, as of December 31, 2022. Within these channels, clients are further diversified among intermediary (broker dealer and RIAs) platforms, sub advisory relationships, corporate and public entities, insurance companies, 529 Education Saving Plan participants, Taft-Hartley plans, endowments, and Family Offices. We believe this broad diversification of customers has a stabilizing effect on revenue, as various types of investors have unique demand patterns and respond differently to trends and market cycles.
Our Investment Franchises
We own 100% of the equity in each of our 12 Investment Franchises. With no Investment Franchise accounting for more than 21% of total AUM, we are well diversified across asset classes and investment approaches. Our Franchises are independent from one another from an investment process perspective, maintain their own separate brands and logos, which have been built over time, and are led by dedicated Chief Investment Officers (“CIOs”). We customize each Franchise’s integration with our operating platform to optimize their investment processes.
INCORE Capital Management – INCORE Capital Management is comprised of three teams managing convertible bond strategies, short-term U.S. government securities, and niche and customized fixed income strategies focusing on exploiting structural inefficiencies in the U.S. fixed income markets. INCORE conducts extensive research that includes identifying slower prepayment rates on mortgages, market inefficiencies along areas of the yield curve, and proprietary quantitative credit quality modeling. INCORE is based in Birmingham, MI, and Brooklyn, OH and managed $5.8 billion in AUM as of December 31, 2022. Our INCORE Investment Franchise includes 12 investment professionals with an average industry experience of approximately 22 years.
Integrity Asset Management – Integrity Asset Management utilizes a dynamic value‑oriented approach to U.S. mid‑ and small‑capitalization companies. Integrity conducts fundamental stock research to find attractive companies that have compelling discounts to the prevailing market conditions. Integrity is based in Rocky River, OH, and managed $4.7 billion in AUM as of December 31, 2022. Our Integrity Investment Franchise includes 10 investment professionals with an average industry experience of approximately 23 years.
Munder Capital Management – Munder Capital Management has an experienced team utilizing a “Growth‑at‑a‑Reasonable‑Price” strategy in the U.S. equity markets designed to generate consistently strong performance over a market cycle. Munder performs extensive fundamental research in order to find attractive growth companies that it expects will exceed market expectations. Of the companies with independently determined growth attributes, valuation is applied to find the most inexpensive growth companies. Munder is based in Birmingham, MI, and managed $1.3 billion in AUM as of December 31, 2022. Our Munder Investment Franchise includes five investment professionals with an average industry experience of approximately 25 years.
New Energy Capital – NEC manages alternative investments in private closed end funds, with investment periods ranging between five and 10 years. NEC was one of the first investors to focus on clean energy and infrastructure investments of small-and mid-sized clean energy infrastructure projects and companies. NEC’s investments provide growth capital in all forms across the capital structure from credit to equity, as well as hybrid financing arrangements. Based in Hanover, NH, our NEC Investment Franchise includes seven investment professionals with an average industry experience of approximately 13 years.
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NewBridge Asset Management – NewBridge Asset Management applies a high conviction growth‑oriented strategy focusing on U.S. large‑capitalization companies experiencing superior long‑term growth rates with strong management teams. Most of NewBridge’s team has worked together since 1996 doing fundamental research on high growth companies. NewBridge portfolios usually holds between 25 and 35 securities. NewBridge is based in New York, NY. Our NewBridge Investment Franchise includes four investment professionals with an average industry experience of approximately 25 years.
RS Investments – RS Investments is made up of three distinct investment teams: (i) RS Value, (ii) RS Growth and (iii) RS Global. RS Value and RS Growth apply an original and proprietary fundamental approach to investing in value and growth‑oriented U.S. equity strategies. The RS Value and RS Growth teams conduct hundreds of company research meetings each year. RS Global utilizes a highly disciplined quantitative approach to managing core‑oriented global and international equity strategies. RS Investments is based in San Francisco, CA, and managed $6.5 billion in AUM as of December 31, 2022. Our RS Investments Investment Franchise team total 25 members including 17 investment professionals with an average industry experience of approximately 22 years.
Sophus Capital – Sophus Capital utilizes a disciplined quantitative process that accesses market conditions in emerging equity markets and rank orders attractive companies that are further researched from a fundamental basis. Sophus’ team members travel to companies to conduct fundamental research. Sophus is based in Des Moines, IA, with employees in London, Hong Kong, and Singapore, and managed $3.1 billion in AUM as of December 31, 2022. Our Sophus Investments Franchise includes 10 investment professionals with an average industry experience of approximately 19 years.
Sycamore Capital – Sycamore Capital applies a quality value‑oriented approach to U.S. mid‑ and small‑ capitalization companies. Sycamore conducts fundamental research to find companies with strong high‑quality balance sheets that are undervalued versus comparable high-quality companies. Sycamore is based in Cincinnati, OH, and managed $32.1 billion in AUM as of December 31, 2022. Our Sycamore Investment Franchise has a team of 15 including 11 investment professionals with an average industry experience of approximately 17 years.
THB Asset Management – Founded in 1982, and formerly known as Thomson, Hortsmann & Bryant, THB Asset Management (“THB”) manages equity assets in capacity constrained, micro-cap, small-cap, and mid-cap asset classes, including strategies managing U.S., international and global portfolios. THB was an early adopter of introducing ESG factors into their investment process and security selection. THB serves clients in the U.S. and in Europe and Australia. Based in Norwalk, CT, our THB Investments Franchise includes eight investment professionals with an average industry experience of approximately 13 years.
Trivalent Investments – Trivalent Investments utilizes a disciplined approach to stock selection across large to small companies in the international and emerging markets space. Trivalent’s investment strategy is primarily a proprietary quantitative process that drives stock selection across various countries. Trivalent frequently conducts reviews of stock selection rankings within a portfolio construction and risk management context in order to isolate performance to stock selection. Trivalent is based in Boston, MA, and managed $4.4 billion in AUM as of December 31, 2022. Our Trivalent Investment Franchise includes six investment professionals with an average industry experience of approximately 28 years.
USAA Investments – The team at USAA Investments utilizes a rigorous process rooted in a team-oriented approach among portfolio managers, research analysts and traders. Their taxable and tax-exempt portfolios are built bond by bond using a fundamental, bottom up, credit and yield-focused analysis. USAA Investments is based in San Antonio, TX, and managed $23.0 billion in AUM as of December 31, 2022. Our USAA Investment Franchise has a team of 34 including 29 investment professionals with an average industry experience of approximately 23 years. In the early part of the second quarter of 2023, USAA Investments will be renamed “Victory Income Investors.”
WestEnd Advisors – WestEnd, is a third-party ETF model strategist providing turnkey, core model allocation strategies serving as holistic solutions and complementary sources of alpha. WestEnd is based in Charlotte, NC, and had assets under advisement (“AUA”) and AUM totaling $16.9 billion as of December 31, 2022. Our WestEnd Investment Franchise has a team of 27 including 7 investment professionals averaging approximately 12 years of industry experience.
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Solutions Platform
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. Our Solutions Platform is based in San Antonio, TX, and managed $54.0 billion in AUM as of December 31, 2022. The Solutions Platform team of 13 includes 9 investment professionals with an average industry experience of approximately 16 years.
Our Products and Investment Performance
As of December 31, 2022, our 12 Franchises and Solutions Platform offered 128 investment strategies with the majority consisting of fixed income, U.S. small‑ and mid‑cap equities, global/non‑U.S. equities and solutions. These asset classes collectively comprised 88% of our $153.0 billion of total AUM, and 90% of long-term AUM, as of December 31, 2022.
Product Mix – Our investment strategies are offered through actively and passively managed mutual funds, rules-based and active ETFs, institutional separate accounts, VIPs, ESG and impact investment strategies, alternative investments, private closed end funds, and a 529 Education Savings Plan. Victory Capital’s strategies are sold directly to investors as well as through third-party investment products, including mutual funds, third-party ETF model strategies, retail SMAs and UMAs through wrap account programs, CITs, and UCITs.. Our product mix could expand, as we can add investment vehicles to strategies offered by our Franchises.
Investment Performance – Our Franchises have established a long track record of benchmark‑relative outperformance, including prior to their acquisition by us. As of December 31, 2022, 79% of our strategies by AUM had returns in excess of their respective benchmarks over a ten‑year period, 79% over a five‑year period, 84% over a three‑year period, and 54% over a one-year period. On an equal‑weighted basis, 67% of our strategies have outperformed their benchmarks over a ten‑year period, 63% over a five‑year period, 70% over a three‑year period, and 59% over a one-year period. We consider both the AUM‑weighted and equal‑weighted metrics in evaluating our investment performance. The advantage of the AUM‑weighted metric is that it reflects the investment performance of our Company as a whole, indicating whether we tend to outperform our benchmarks for the assets we manage. The disadvantage is that the metric fails to capture the overall effectiveness of our individual investment strategies; it does not capture whether most of our strategies tend to outperform their respective benchmarks. Conversely, the equal‑weighted metric reflects the overall effectiveness of our individual investment strategies but fails to capture the investment performance of our Company as a whole.
The table below sets forth our 10 largest strategies by AUM as of December 31, 2022, and their average annual total returns compared to their respective benchmark index over the one‑, three‑, five‑ and 10‑year periods ended December 31, 2022. These strategies represented approximately 43% of our total AUM as of December 31, 2022.
Strategy/Benchmark Index |
1 year |
|
3 years |
|
5 years |
|
10 years |
|
|
Sycamore Mid Cap Value |
(1.92) |
% |
12.28 |
% |
10.69 |
% |
14.00 |
% |
|
Russell MidCap Value |
(12.03) |
% |
5.82 |
% |
5.72 |
% |
10.11 |
% |
|
Excess Return |
10.11 |
% |
6.46 |
% |
4.97 |
% |
3.89 |
% |
|
|
|
|
|
|
|
|
|
|
|
Victory US 500 |
(19.18) |
% |
7.87 |
% |
9.55 |
% |
12.62 |
% |
|
S&P 500 |
(18.11) |
% |
7.66 |
% |
9.42 |
% |
12.56 |
% |
|
Excess Return |
(1.07) |
% |
0.21 |
% |
0.13 |
% |
0.06 |
% |
|
|
|
|
|
|
|
|
|
|
|
Sycamore Small Cap Value |
(5.78) |
% |
8.07 |
% |
8.38 |
% |
12.47 |
% |
|
Russell 2000 Value |
(14.48) |
% |
4.70 |
% |
4.13 |
% |
8.48 |
% |
|
Excess Return |
8.70 |
% |
3.37 |
% |
4.25 |
% |
3.99 |
% |
10
|
|
|
|
|
|
|
|
|
Global Balanced |
(17.52) |
% |
3.63 |
% |
5.41 |
% |
7.46 |
% |
Global Balanced Benchmark |
(16.49) |
% |
2.02 |
% |
3.76 |
% |
5.77 |
% |
Excess Return |
(1.03) |
% |
1.61 |
% |
1.65 |
% |
1.69 |
% |
USAA Income |
(12.96) |
% |
(1.56) |
% |
1.09 |
% |
2.40 |
% |
Bloomberg US Aggregate |
(13.01) |
% |
(2.71) |
% |
0.02 |
% |
1.06 |
% |
Excess Return |
0.05 |
% |
1.15 |
% |
1.07 |
% |
1.34 |
% |
|
|
|
|
|
|
|
|
|
Global Equity |
(19.00) |
% |
6.77 |
% |
8.13 |
% |
10.65 |
% |
MSCI ACWI |
(18.36) |
% |
4.00 |
% |
5.23 |
% |
7.98 |
% |
Excess Return |
(0.64) |
% |
2.77 |
% |
2.90 |
% |
2.67 |
% |
|
|
|
|
|
|
|
|
|
Trivalent International Small-Cap Equity |
(22.32) |
% |
0.80 |
% |
1.24 |
% |
8.26 |
% |
S&P Dev ex-US SmallCap |
(21.81) |
% |
(0.96) |
% |
(0.42) |
% |
5.46 |
% |
Excess Return |
(0.51) |
% |
1.76 |
% |
1.66 |
% |
2.80 |
% |
|
|
|
|
|
|
|
|
|
USAA Tax Exempt Intermediate-Term |
(7.66) |
% |
(0.12) |
% |
1.75 |
% |
2.54 |
% |
Bloomberg US Municipal 1-15 Year |
(5.95) |
% |
(0.22) |
% |
1.44 |
% |
1.95 |
% |
Excess Return |
(1.71) |
% |
0.10 |
% |
(0.31) |
% |
0.59 |
% |
|
|
|
|
|
|
|
|
|
USAA NASDAQ-100 |
(32.38) |
% |
8.69 |
% |
12.37 |
% |
16.44 |
% |
NASDAQ-100 Total Return |
(32.38) |
% |
8.68 |
% |
12.36 |
% |
16.45 |
% |
Excess Return |
0.00 |
% |
0.01 |
% |
0.01 |
% |
(0.01) |
% |
|
|
|
|
|
|
|
|
|
Sophus Emerging Markets |
(21.21) |
% |
(3.71) |
% |
(1.90) |
% |
--- |
% |
MSCI EM |
(20.09) |
% |
(2.69) |
% |
(1.40) |
% |
1.44 |
% |
Excess Return |
(1.12) |
% |
(1.02) |
% |
(0.50) |
% |
NA |
% |
A high percentage of our mutual fund and ETF assets have four- or five-star Morningstar ratings. As of December 31, 2022, 44 of our Victory Capital mutual funds and ETFs, with Morningstar overall ratings, earned ratings of four or five stars overall and 62% of our mutual fund and ETF AUM were rated four or five stars overall by Morningstar. Over a three‑year and five‑year basis, 52% and 58% of our fund AUM achieved four- or five-star ratings, respectively.
Competitive Strengths
We believe we have significant competitive strengths that position us for sustained growth and shareholder value creation over the long term.
Integrated Model Providing Centralized Distribution, Marketing, and Support Functions to Investment Franchises, which maintain complete Investment Autonomy – Our highly integrated model allows us to achieve benefits from both our substantial scale and the focus of our specialized investment managers. Our Franchises retain investment autonomy while benefiting from our centralized operating platform. We have demonstrated an ability to incorporate our Franchises onto our flexible infrastructure without significantly increasing incremental fixed costs, which is a key component to the scalability of our business model. This structure enables our Franchises to focus their efforts on the investment process, providing them with a scaled platform to enhance their investment performance and consequently their growth prospects. Centralized operations allow our Franchises to customize their desired investment support functions in ways that are best suited for their investment workflow. Through our unified distribution platform, our Franchises can efficiently sell their products to institutional investors, retirement plans, wealth managers, as well as through retail and retirement intermediaries of all sizes, where it can be challenging for smaller managers to gain access, and directly to investors.
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Within our model, each Franchise retains its own brand and logo, which has been built over time. Unlike other models with unified branding, there is no requirement for newly acquired Franchises to adjust their product set due to pre‑existing products on our platform; they are marketed under their own brand as they were previously. Because of this dynamic, we have the flexibility to add new Franchises either to gain greater exposure to certain asset classes or increase capacity in places where we already have exposure.
Proven Acquirer with Compelling Value Proposition – We believe our platform allows us to continue to be a strategic acquirer within the investment management industry, providing us with an opportunity to further grow and scale our business. Through numerous transactions, we have demonstrated an ability to successfully source, execute and integrate new Franchises.
We believe our unique business model is compelling for potential acquisition prospects. Under our model, Franchises retain the brands they have built as well as autonomy over their investment decisions, while simultaneously benefiting from the ability to leverage our centralized distribution, marketing, and operations platform. Our model reduces the administrative burdens borne by our Investment Franchises and allows them instead to focus on the investment process, which we believe can enhance their investment performance. By offering a platform on which Franchises can focus on their core competencies, grow their client base faster and participate in a revenue share program, we believe we are providing an attractive proposition. Furthermore, we believe equity in Victory Capital is attractive to Franchise investment personnel, as these personnel receive the advantage of sharing in the potential upside of the entirety of our diversified investment management business.
Because we integrate a significant portion of most of our Franchises’ distribution, operational and administrative functions, we have been able to extract significant expense synergies from certain acquisitions, enabling us to create greater value from transactions.
We will seek to continue to augment our differentiated investment management platform by focusing on acquisition candidates that can make our investment platform better, that expand our distribution or investment capabilities, that optimize our operating platform and/or achieve our integration and synergy expectations.
Portfolio of Investment Strategies with Potential for Outperformance – In assembling our portfolio of Franchises, we have selected investment managers offering strategies in asset classes where active managers have shown an established track record of outperformance relative to benchmarks through security and sector selection, and portfolio construction. We continue to build our platform to address the needs of clients who would like exposure to asset classes that have potential for alpha generation. We find that macro industry trends of asset flows moving from actively managed strategies to passive ones are less pronounced in certain of our asset classes.
Diversified Platform Across Investment Strategies, Franchises and Client Type – We have strategically built an investment platform that is diversified by investment strategy, Franchise, and client type. Within each asset class, Franchises with overlapping investment mandates still contribute to our diversification by pursuing different investment philosophies and/or processes. For example, U.S. mid cap equities, which accounted for approximately 18% of total AUM as of December 31, 2022, consists of five Franchises, each following a different
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investment strategy. We believe the diversity in investment styles reduces the correlation between the return profiles of strategies within the same asset class, and consequently provides an additional layer of diversification of AUM and revenue stability.
Our AUM also is well diversified at the Franchise level, with no Franchise accounting for more than 21% of total AUM. Furthermore, we believe our Franchises’ brand independence reduces the impact of each individual Franchise’s performance on clients’ perceptions of the other Franchises. The distribution of AUM by Franchise and the number of Franchises, as well as succession planning, mitigates the level of key man risk typically associated with investment management businesses.
We believe our client base serves as another important diversifying element, as different client segments have shown to have distinct characteristics, including asset class and product preferences, sales and redemptions trends, and exposure to secular trends. We strive to maintain a balance between direct investor, retail clients, and institutional clients with 34%, 37% and 29% of our AUM as of December 31, 2022, in each of these channels, respectively. We also have the capability to deliver our strategies in investment vehicles designed to meet the needs and preferences of investors in each channel. These investment vehicles include actively and passively managed open-end mutual funds with channel‑specific share classes, rules-based and active ETFs, third-party ETF model strategies, SMAs, UMAs, VIPs, CITs, wrap account programs, UCITs, alternative investments, private closed end funds, and a 529 Education Savings Plan. If a strategy is currently not offered in the wrapper of choice for a client, we have the infrastructure and ability to create a new investment vehicle, which helps our Franchises further diversify their client bases.
Attractive Financial Profile – Our revenues are recurring in nature, as they are based on the level of client assets we manage. Most of our strategies are in asset classes that require specialized skill, are in demand and typically command attractive fee rates. With the growth of our Solutions Platform and third-party ETF model strategies, our average fee rate is likely to decline as those businesses continue to grow and represent an increasing proportion of our total AUM. Despite their lower average fee rates, by managing these competitively priced strategies on our integrated platform we can earn higher than our average margins on these products.
Because we largely outsource our middle‑ and back‑office functions, as well as technology support, we have relatively minimal capital expenditure requirements. Our integrated platform allows us the ability to make investments that can benefit each Franchise and our Solutions Platform. Approximately two‑thirds of our operating expenses are variable in nature, consisting of the incentive compensation pool for employees, sales commissions, third‑party distribution costs, sub‑advising and the fees we pay to certain of our vendors. This automatic flexing of our expense base helps to support profitability throughout various market cycles.
We have identified three primary net income growth drivers; (i) we grow our AUM organically through inflows into our strategies and the market appreciation of those strategies; (ii) we have a proven ability to grow via strategic and synergistic acquisitions; and (iii) we have constructed a scalable and efficient platform.
Economic and Structural Alignment of Interests Promotes Ownership Culture – Through our revenue share compensation model for our Franchises and broad employee ownership, we have structurally aligned our employees’ interests with those of our clients and other shareholders and have created an ownership culture that encourages employees to act in the best interests of clients and our Company shareholders, as well as to think long term. We believe the high percentage of employee ownership creates a collective alignment with our success. Additionally, our employees invest in products managed by our Franchises and Solutions Platform, providing direct alignment with the interests of our clients. As of December 31, 2022, 68% of our employees held nearly 20% of the equity in our Company. In addition to being aligned with our financial success through their equity ownership, our current employees collectively have invested nearly $200 million in products we manage as of December 31, 2022.
We directly align the compensation paid to our investment teams with the performance of their respective Franchises by structuring formula‑based revenue sharing on the products they manage. We believe that compensation based on revenue rather than profits encourages investment professionals to focus their attention on investment performance, while encouraging them to provide good client service, focus on client retention and attract new assets. We believe the formula‑based, client‑aligned nature of our revenue sharing reduces complexity and fosters a culture of transparency where Franchises understand how, and on what terms, they are being measured to earn compensation.
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Integrated Distribution, Marketing and Operations
The centralization of our distribution, marketing and operational functions is a key component in our model, allowing our Franchises to focus on their core competencies of security and sector selection, portfolio construction, and client service. In addition, we believe it provides our Franchises with the benefits of operating at scale, providing them with access to a larger number of clients as well as a more streamlined cost structure. As of December 31, 2022, we had 512 full-time employees with 184 in investment management, 238 in sales and marketing roles and 90 in management and support functions.
Our centralized distribution and marketing functions lead the sales effort for our institutional, retail intermediary, and direct investor channels. Our sales teams are staffed with accomplished professionals that are given specific training on how to position each of our strategies. Our distribution teams have historically focused on developing strategic long-term relationships with institutional consultants, institutional asset owners, retail and retirement intermediaries, RIAs, Family Offices, the Direct Channel, and bank trust departments. Complementing these relationships, we use data extensively to enhance the effectiveness of our distribution teams. Investments in data packs from intermediaries, artificial intelligence initiatives, and predictive analytics — used to determine specific financial advisors’ propensities to buy or sell products —further enhance efficiencies.
These relationships can enhance our platform’s overall reach and allow our Franchises and Solutions Platform to access more clients. To ensure high levels of client service, our sales teams liaise regularly with product specialists at our Franchises. The specialists are tasked with responding to institutional client and retail inquiries on product performance and educating prospective investors and retail partners in coordination with the relevant internal sales team members. Our distribution and marketing professionals collaborate closely with our Franchises’ product specialists in order to attract new clients while also servicing and generating additional sales from existing clients.
Direct Investor Business – In 2020, we launched a new digital platform to directly serve investors which features a client-centric modern design. Visitors to the site are presented with channel-specific content, useful investment tools and calculators, and timely investment insights from the Company’s investment experts. At our direct investor business contact center, we have approximately 170 sales and service professionals focused on assisting our direct investors (the “Investors”). They engage with thousands of Investors everyday via phone, chat or email depending on the Investor’s preference. We also have a mobile application that streamlines service for Investors and enhances internal efficiency. Through these interactions we provide Investors with account servicing, portfolio reviews, college planning assistance and investment guidance at no additional cost to the Investor. Many of our direct investor business contact center professionals are Financial Industry Regulatory Authority (“FINRA”) licensed, so they are well qualified to serve the Investors’ investment needs. During the early part of the second quarter of 2023, the Direct Investor Business will be expanded to include brokerage capabilities through our broker-dealer entity VCS. Investors will be able to leverage our open architecture brokerage option and establish brokerage accounts to invest in mutual funds and ETFs from our platform along with individual stocks and products managed by third-party providers including cash management capabilities.
Institutional Sales – Our institutional sales team attracts and builds relationships with institutional clients, a wide range of institutional consultants and mutual fund complexes and other organizations seeking sub‑advisers. Our institutional clientele includes more than 400 corporations, public funds, non‑profit organizations, Taft‑Hartley plans, sub‑advisory clients, international clients, sovereign wealth funds, and insurance companies. Our institutional sales and client‑service professionals manage existing client relationships, serve consultants and prospects and/or focus on specific segments. They have extensive experience and a comprehensive understanding of our investment activities. Our client‑facing institutional sales professionals have an average of more than 20 years of industry tenure, and they are supported by a separate team dedicated to handling requests for proposals, or RFPs, from prospective clients.
Retail Sales – Our retail sales team includes regional external wholesalers, retirement specialists, RIA specialists, national account specialists, all of whom are supported by an internal sales desk. We also have a team of 10 distribution professionals specializing in the sale of third-party ETF model strategies. Additionally, we have a growing team focused on RIA, Bank Trust & Multi Family Offices with exceptional product knowledge to enhance the growth in this sub-channel within our retail sales. In the retail channel, we focus on gathering assets through intermediaries, such as banks, broker‑dealers, wirehouses, retirement platforms and RIA networks. We offer mutual funds, ETFs, third-party ETF models, and separately managed wrap and unified
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managed accounts on intermediary and retirement platforms. We have agreements with many of the largest platforms in our retail channel, which has provided an opportunity to place our retail products on those platforms. Further, to enhance our presence on large distribution platforms, we have focused our efforts on servicing intermediary home offices and research departments. These efforts have led to strong growth in platform penetration, as measured by investment products on approved and recommended lists, as well as our inclusion in model portfolios. This penetration provides the opportunity for us to sell more products through distribution platforms. We have several products on the research recommended/model portfolios of the top U.S. intermediary platforms. We also have several products on the recommended list of the top retirement platforms.
Marketing – Our distribution efforts are supplemented by our marketing function, which is primarily responsible for enhancing the visibility and quality of our portfolio of brands. They are specifically tasked with managing corporate, Franchise and Solutions Platform branding efforts, database management, the development of marketing materials, our website, digital marketplace, digital marketing and social media efforts, and the publishing of white papers.
Operations – Our highly centralized operations functions provide our Franchises and Solutions Platform with the support they need so that they can focus on their investment processes. Our Investment Franchises share operating functions such as trading platforms, risk and compliance, middle- and back‑office support, technology, data and analytics, finance, human resources, accounting, and legal. Although our operations are highly centralized, we do allow our Franchises a degree of customization with respect to their desired investment support functions, which we believe helps them maintain their unique investment processes and minimize disruptions.
We outsource certain middle‑ and back‑office activities, such as sub-transfer agent, trade settlement, portfolio analytics, custodian reconciliation, portfolio accounting, corporate action processing, performance calculation and client reporting, to scaled, recognized service providers, who provide their services to us on a variable‑cost basis. Systems and processes are customized as necessary to support our investment processes and operations. We maintain relationships with multiple vendors for most of our outsourced functions, which we believe mitigates vendor‑specific risk. We also have cyber and information security, business continuity and data privacy programs in place to help mitigate risk.
Outsourcing these functions enables us to grow our AUM, both organically and through acquisitions, without the incremental capital expenditures and working capital that would typically be needed. Under our direction and oversight, our outsourced model enhances our ability to integrate our acquisitions, as we are experienced in working with our vendors to efficiently bring additional Franchises onto our platform in a cost‑efficient manner.
We believe both the scalability of our business and our cost structure, in which approximately two‑thirds of our operating expenses are variable, drives industry-leading margins and facilitates free cash flow conversion. Additionally, we believe having most of our expenses tied to AUM and the number of client accounts provides downside margin protection should there be sustained net outflows or adverse market conditions.
Competition
Our investment products are sold in the traditional institutional channels, through intermediary and retirement distribution platforms, and directly to investors. We face competition with other investment firms in attracting and retaining assets. Additionally, we compete with other acquirers of investment management firms, including independent, integrated investment management firms and multi‑boutique businesses, insurance companies, banks, and other financial institutions.
We compete with other managers offering similar strategies. Some of these organizations have greater financial resources and capabilities than we can offer and have strong performance track records. We effectively compete with other investment management firms for client assets based on the following primary factors: (i) our investment performance track record of delivering alpha; (ii) the specialized nature of our investment strategies; (iii) fees charged; (iv) access to distribution channels; (v) client service; and (vi) our employees’ alignment of interests with investors.
We compete with other potential acquirers of investment management firms primarily on the basis of the following factors: (i) the strength of our distribution relationships; (ii) the value we add through our shared distribution, marketing and operations platforms; (iii) the investment autonomy Franchises retain post acquisition; (iv) the tenure and continuity of our management and investment professionals; and (v) the value that can be delivered to the seller through realization of synergies created by the combination of the businesses.
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Our ability to continue to compete effectively will also depend upon our ability to retain our current investment professionals and employees and to attract highly qualified new investment professionals and employees. For additional information concerning the competitive risks that we face, refer to “Risk Factors — Industry Risks — The investment management industry is intensely competitive.”
Human Capital
We have created a strong alignment of interests with clients and shareholders through employee ownership, our Franchise revenue share structure, and employee investments in our products. Notably, a significant number of our employee shareholders acquired their equity in connection with the management‑led buyout with Crestview GP from KeyCorp, as well as in connection with the acquisitions of RS Investments and Munder. We believe the opportunity to own equity in a well‑diversified investment management company promotes long-term thinking and client alignment and is attractive, both to existing employees and those who join as part of acquisitions. We principally compensate our investment professionals through a revenue share program, which we believe further incentivizes our investment professionals to focus on investment performance and client retention, while simultaneously minimizing potential distractions from an expense allocation process that would be involved in a profit‑sharing program. We believe the combination of these mechanisms promotes long‑term thinking and enhances both the client experience and the creation of value for our shareholders.
Our senior management team, Franchises’ CIOs and sales leaders are highly experienced in the industry, each bringing significant expertise to his or her role, having tenures on average of more than 20 years.
As an asset management firm, we are in the human capital business. As such, we value and appreciate our most important asset—our people. We employ “owners,” not employees. Accordingly, we strive to offer competitive compensation and employee benefits to all employees. We want them to own their contribution to Victory Capital’s success. In recognition of this mission, Victory Capital has established an equity awards program that most employees participate in. As of December 31, 2022, we had 512 employees, with 68% holding ownership interests in our Company that totaled nearly 20% of the equity in our firm. Our employees also held approximately $200 million of their personal assets in our investment products at year-end.
We believe that doing our part to maintain the health and welfare of our employees is a critical element for achieving commercial success. As such, we provide our employees with comprehensive health benefits and offer a wellness program which focuses on employee health strategies and includes a discount to employee medical premiums for the completion of certain wellness initiatives. In addition, we offer employee assistance programs, including confidential assistance for financial, mental, and physical well-being. Finally, the well-being of our employees is enhanced when they can give back to their local communities or charities and we have programs that encourage our employees to give back to their local communities.
We recognize and appreciate the importance of creating an environment in which all employees feel valued, included, and empowered to do their best work and as a result our Diversity, Inclusion, Cohesion, and Engagement Committee is charged with integrating a diversity strategy that drives best practices, goals, and objectives. The Committee’s mission is to foster an environment that attracts the best talent, values diversity of life experiences and perspectives, and encourages innovation and excellence. We also support a number of Employee Resource Groups which are employee-driven and provide support, leadership and connection to our diverse marketplace.
We encourage you to review our Corporate Responsibility Report (located on our website) for more detailed information regarding our human capital programs and initiatives. Nothing on our website is deemed incorporated by reference into this Report.
Regulatory Environment and Compliance
Our business is subject to extensive regulation in the United States at the federal level and, to a lesser extent, the state level, as well as regulation by self‑regulatory organizations, and outside the United States. Under these laws and regulations, agencies that regulate investment advisers have broad administrative powers, including the power to limit, restrict or prohibit an investment adviser from carrying on its business in the event that it fails to comply with such laws and regulations. Possible sanctions that may be imposed include the suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of investment adviser registration and other registrations, censures, and fines.
SEC Investment Adviser and Investment Company Registration / Regulation – VCM and WestEnd are both registered with the SEC as investment advisers under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), and the Victory Funds, USAA Funds, VictoryShares and several of the investment
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companies we sub‑advise are registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Advisers Act and the 1940 Act, together with the SEC’s regulations and interpretations thereunder, impose substantive and material restrictions and requirements on the operations of advisers and registered funds. The SEC is authorized to institute proceedings and impose sanctions for violations of the Advisers Act and the 1940 Act, ranging from fines and censures to termination of an adviser’s registration. As an investment adviser, we have a fiduciary duty to our clients. The SEC has interpreted that duty to impose standards, requirements, and limitations on, among other things: trading for proprietary, personal and client accounts; allocations of investment opportunities among clients; our use of soft dollars; execution of transactions; and recommendations to clients. We manage accounts for clients on a discretionary basis, with authority to buy and sell securities for each portfolio, select broker‑dealers to execute trades and negotiate brokerage commission rates. In connection with certain of these transactions, we receive soft dollar credits from broker‑dealers that have the effect of reducing certain of our expenses. All our soft dollar arrangements are intended to be within the safe harbor provided by Section 28(e) of the Exchange Act. If our ability to use soft dollars were reduced or eliminated as a result of the implementation of statutory amendments or new regulations, our operating expenses would increase. In addition, we also advise clients on a non-discretionary basis where we provide actively managed models using non-proprietary products. This is often referred to as assets under advisement.
As registered investment advisers, VCM and WestEnd are subject to many additional requirements that cover, among other things: disclosure of information about our business to clients; maintenance of written policies and procedures; maintenance of extensive books and records; restrictions on the types of fees we may charge; custody of client assets; client privacy; advertising; and solicitation of clients. The SEC has authority to inspect any investment adviser and typically inspects a registered adviser periodically to determine whether the adviser is conducting its activities (i) in accordance with applicable laws, (ii) in a manner that is consistent with disclosures made to clients and (iii) with adequate systems and procedures to ensure compliance.
For the year ended December 31, 2022, 81% of our total revenues were derived from our services to investment companies registered under the 1940 Act—i.e., mutual funds and ETFs. The 1940 Act imposes significant requirements and limitations on a registered fund, including with respect to its capital structure, investments, and transactions. While we exercise broad discretion over the day‑to‑day management of the business and affairs of the Victory Funds, USAA Funds, VictoryShares and the investment portfolios of the Victory Funds, USAA Funds, and VictoryShares and the funds we sub‑advise, the funds are subject to oversight of and governance by each fund’s board of directors. Under the 1940 Act, a majority of the directors of our registered funds must not be “interested persons” with respect to us (sometimes referred to as the “independent director” requirement) in order to rely on certain exemptive rules under the 1940 Act relevant to the operation of registered funds. The responsibilities of the fund’s board include, among other things: approving our investment advisory agreement with the fund (or, for sub‑advisory arrangements, our sub‑advisory agreement with the fund’s investment adviser); approving other service providers; determining the method of valuing assets; and monitoring transactions involving affiliates. Our investment advisory agreements with these funds may be terminated by the funds on not more than 60 days’ notice and are subject to annual renewal by the fund’s board after the initial term of one to two years. The 1940 Act also imposes on investment advisers or sub‑advisers to a registered fund a fiduciary duty with respect to the receipt of the advisers’ investment management fees or the sub-advisers’ sub‑advisory fees. That fiduciary duty may be enforced by the SEC, by administrative action or by litigation by investors in the fund pursuant to a private right of action.
As required by the Advisers Act, our investment advisory agreements may not be assigned without the client’s consent. Under the 1940 Act, investment advisory agreements with registered funds (such as the mutual funds and ETFs we manage) terminate automatically upon assignment. The term “assignment” is broadly defined and includes direct assignments as well as assignments that may be deemed to occur upon the transfer, directly or indirectly, of a “controlling block” of our outstanding voting securities. Refer to “Risk Factors—Business Risks—An assignment could result in termination of our investment advisory agreements to manage SEC‑registered funds and could trigger consent requirements in our other investment advisory agreements.”
SEC Broker‑Dealer Registration / FINRA Regulation – VCS is subject to regulation by the SEC, FINRA and various states. In addition, certain of our employees are registered with FINRA and such states and subject to SEC, state and FINRA regulation. The failure of these companies and/or employees to comply with relevant regulation could have a material adverse effect on our business.
SEC Transfer Agent Registration – VCTA is a SEC-registered transfer agent. Our registered transfer agent is subject to the 1934 Act and the rules and regulations promulgated thereunder. These laws and regulations generally grant the SEC and other supervisory bodies broad administrative powers to address non-compliance
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with regulatory requirements. Sanctions that may be imposed for non-compliance with these requirements include the suspension of individual employees, limitations on engaging in certain activities for specified periods of time or for specified types of clients, the revocation of registrations, other censures, and significant fines.
ERISA‑Related Regulation – We are a fiduciary under Employee Retirement Income Security Act (“ERISA”) with respect to assets that we manage for benefit plan clients subject to ERISA. ERISA, the regulations promulgated thereunder, and applicable provisions of the Internal Revenue Code impose certain duties on persons who are fiduciaries under ERISA, prohibit certain transactions involving ERISA plan clients and impose monetary penalties for violations of these prohibitions. The duties under ERISA require, among other obligations, that fiduciaries perform their duties solely in the interests of ERISA plan participants and beneficiaries.
CFTC Regulation – VCM is registered with the Commodity Futures Trading Commission (the “CFTC”) as a commodity operator and is a member of the National Futures Association (“NFA”), a self‑regulatory organization for the U.S. derivatives industry. In addition, certain of our employees are registered with the CFTC and members of NFA. Registration with the CFTC and NFA membership subjects VCM to regulation by the CFTC and the NFA including, but not limited to, reporting, recordkeeping, disclosure, self‑examination and training requirements. Registration with the CFTC also subjects VCM to periodic on‑site audits. Each of the CFTC and NFA is authorized to institute proceedings and impose sanctions for violations of applicable regulations.
Non‑U.S. Regulation – In addition to the extensive regulation to which we are subject in the United States, we are subject to regulation internationally. Our business also is subject to the rules and regulations of the countries in which we market our funds or services and conduct investment activities.
In Singapore, we are subject to, among others, the Securities and Futures Act (“SFA”), the Financial Advisers Act (“FAA”), and the subsidiary legislation promulgated pursuant to these acts, which are administered by the Monetary Authority of Singapore (“MAS”). We and our employees conducting regulated activities specified in the SFA and/or the FAA are required to be licensed with the MAS. Failure to comply with applicable laws, regulations, codes, directives, notices, and guidelines issued by the MAS may result in penalties including fines, censures and the suspension or revocation of licenses granted by the MAS.
VCM is also authorized by the Central Bank of Ireland, which regulates our Irish business activities, to act as an investment manager to Irish UCITS fund. We have historically operated in Australia based on a “sufficient equivalence relief” exemption from local licensing with the Australian Securities and Investments commission. In 2021, we applied for a Foreign Australian Financial Services License which was granted on June 15, 2021.
Compliance – Our legal and compliance functions consist of 13 professionals as of December 31, 2022. This group is responsible for all legal and regulatory compliance matters, as well as for monitoring adherence to client investment guidelines. Our legal and compliance teams work through a well‑established reporting and communication structure to ensure we have a consistent and holistic program for legal and regulatory compliance. Senior management also is involved at various levels in all these functions. We cannot assure that our legal and compliance functions will be effective to prevent all losses. Refer to “Item 1A. Risk Factors— General Risks — If our techniques for managing risk are ineffective, we may be exposed to material unanticipated losses.”
For more information about our regulatory environment, refer to “Risk Factors — Legal and Regulatory Risks — As an investment management firm, we are subject to extensive regulation” and “Risk Factors — Legal and Regulatory Risks —The regulatory environment in which we operate is subject to continual change and regulatory developments designed to increase oversight may materially adversely affect our business.”
Available Information
We routinely file annual, quarterly, and current reports, proxy statements and other information required by the SEC. Our SEC filings are available to the public from the SEC’s public internet site at https://www.sec.gov.
We maintain a public internet site at ir.vcm.com and make available free of charge through this site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and Forms 3, 4 and 5 filed on behalf of directors and executive officers, as well as any amendments to those reports filed or furnished pursuant to the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also post on our website the charters for our board of directors’ Audit Committee, Nominating, Governance and Sustainability Committee and Compensation Committee, as well as our Corporate Governance Guidelines, our Corporate Responsibility Statement, and our Code of Business Conduct and Ethics governing our directors, officers, and employees. The information on our website is not incorporated by reference into this annual report.
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Item 1A. Risk Factors.
The risks described below are not the only ones facing us. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition or results of operations. In such case the trading price of our common stock could decline. This report also contains forward‑looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward‑looking statements as a result of specific factors, including the risks and uncertainties described below.
Risk Factors Summary
The following is a summary of risks and uncertainties that affect our business, financial condition or results of operations. We are providing the following summary of risk factors to enhance readability of our risk factor disclosure. Material risks that may adversely affect our business, financial condition or results of operations include, but are not limited to, the following:
Market and Investment Performance Risks
Business Risks
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Merger and Acquisition Risks
Indebtedness Risks
Capital Structure and Public Company Risks
Legal and Regulatory Risks
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Industry Risks
Third Party Risks
Operational and Cybersecurity Risks
General Risks
Market and Investment Performance Risks
We earn substantially all of our revenues based on AUM, and any reduction in AUM would reduce our revenues and profitability. AUM fluctuates based on many factors, including investment performance, client withdrawals and difficult market conditions.
We earn substantially all of our revenues from asset‑based fees from investment management products and services to individuals and institutions. Therefore, if our AUM declines, our fee revenue will decline, which will reduce our profitability as certain of our expenses are fixed. There are several reasons that AUM could decline:
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Any of these factors could reduce our AUM and revenues and, if our revenues decline without a commensurate reduction in our expenses, would lead to a reduction in our net income.
The ongoing conflict in Ukraine has, and will likely continue to, negatively impact the global economy.
The military conflict in Ukraine and the ongoing geopolitical tensions have created significant volatility, uncertainty and economic disruption. The United States, European Union and other countries announced economic sanctions against Russia. While it has not had a material adverse effect on our business, operations and financial results, the extent to which the conflict impacts our business, operations and financial results going forward will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the conflict; governmental and business actions that have been and continue to be taken in response to the conflict, the impact of the conflict on economic activity and any retaliatory actions taken by Russia.
If our strategies perform poorly, clients could redeem their assets and we could suffer a decline in our AUM, which would reduce our earnings.
The performance of our strategies is critical in retaining existing client assets as well as attracting new client assets. If our strategies perform poorly for any reason, our earnings could decline because:
Our strategies can perform poorly for a number of reasons, including: general market conditions; investor sentiment about market and economic conditions; investment styles and philosophies; investment decisions; global events; the performance of the companies in which our strategies invest and the currencies in which those investment are made; the fees we charge; the liquidity of securities or instruments in which our strategies
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invest; and our inability to identify sufficient appropriate investment opportunities for existing and new client assets on a timely basis. In addition, while we seek to deliver long‑term value to our clients, volatility may lead to under‑performance in the short term, which could adversely affect our results of operations.
In addition, when our strategies experience strong results relative to the market, clients’ allocations to our strategies typically increase relative to their other investments and we sometimes experience withdrawals as our clients rebalance their investments to fit their asset allocation preferences despite our strong results.
While clients do not have legal recourse against us solely on the basis of poor investment results, if our strategies perform poorly, we are more likely to become subject to litigation brought by dissatisfied clients. In addition, to the extent clients are successful in claiming that their losses resulted from fraud, negligence, willful misconduct, breach of contract or other similar misconduct, these clients may have remedies against us, the mutual funds and other pooled investment vehicles we advise and/or our investment professionals under various U.S. and non‑U.S. laws.
The historical returns of our strategies may not be indicative of their future results or of the strategies we may develop in the future.
The historical returns of our strategies and the ratings and rankings we or the mutual funds, ETFs and other pooled investment vehicles that we advise have received in the past should not be considered indicative of the future results of these strategies or of any other strategies that we may develop in the future. The investment performance we achieve for our clients varies over time and the variance can be wide. The ratings and rankings we or the mutual funds, ETFs and other pooled investment vehicles that we advise have received are typically revised monthly. Our strategies’ returns have benefited during some periods from investment opportunities and positive economic and market conditions. In other periods, general economic and market conditions have negatively affected investment opportunities and our strategies’ returns. These negative conditions may occur again, and in the future, we may not be able to identify and invest in profitable investment opportunities within our current or future strategies.
New strategies that we launch or acquire in the future may present new and different investment, regulatory, operational, distribution and other risks than those presented by our current strategies. New strategies may invest in instruments with which we have no or limited experience, create portfolios that present new or different risks or have higher performance expectations that are more difficult to meet. Any real or perceived problems with future strategies or vehicles could cause a disproportionate negative impact on our business and reputation.
We may support our money market funds to maintain their stable net asset values, or other products we manage, which could affect our revenues or operating results.
Approximately 2% of our AUM as of December 31, 2022, consisted of assets in money market funds. Money market funds seek to preserve a stable net asset value. Market conditions could lead to severe liquidity or security pricing issues, which could impact the NAV of money market funds. If the NAV of a money market fund managed by our asset managers were to fall below its stable net asset value, we would likely experience significant redemptions in AUM and reputational harm, which could have a material adverse effect on our revenues or net income. If a money market fund's stable NAV comes under pressure, we may elect, to provide credit, liquidity, or other support to the fund. We may also elect to provide similar or other support, including by providing liquidity to a fund, to other products we manage for any number of reasons. If we elect to provide support, we could incur losses from the support we provide and incur additional costs, including financing costs, in connection with the support. These losses and additional costs could be material and could adversely affect our earnings. In addition, certain proposed regulatory reforms could adversely impact the operating results of our money market funds.
The performance of our strategies or the growth of our AUM may be constrained by unavailability of appropriate investment opportunities.
The ability of our investment teams to deliver strong investment performance depends in large part on their ability to identify appropriate investment opportunities in which to invest client assets. If the investment team for any of our strategies is unable to identify sufficient appropriate investment opportunities for existing and new client assets on a timely basis, the investment performance of the strategy could be adversely affected. In addition, if we determine that sufficient investment opportunities are not available for a strategy, we may choose to limit the growth of the strategy by limiting the rate at which we accept additional client assets for management under the strategy, closing the strategy to all or substantially all new investors or otherwise taking action to limit
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the flow of assets into the strategy. If we misjudge the point at which it would be optimal to limit access to or close a strategy, the investment performance of the strategy could be negatively impacted. The risk that sufficient appropriate investment opportunities may be unavailable is influenced by a number of factors, including general market conditions, but is particularly acute with respect to our strategies that focus on small‑ and mid‑cap equities, and is likely to increase as our AUM increases, particularly if these increases occur very rapidly. By limiting the growth of strategies, we may be managing the business in a manner that reduces the total amount of our AUM and our investment management fees over the short term.
Business Risks
The COVID-19 and other pandemics have, and will likely continue to have, a negative impact on the global economy and interrupt normal business activity.
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The global spread of COVID-19 created significant volatility, uncertainty and economic disruption. While COVID-19 did not have a material adverse effect on our business, operations and financial results as of December 31, 2022, the extent to which the pandemic and other pandemics impact our business, operations and financial results will depend on numerous factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; and the effect on our ability to sell and provide our services.
The loss of key investment professionals or members of our senior management team could have a material adverse effect on our business.
We depend on the skills and expertise of our portfolio managers and other investment professionals and our success depends on our ability to retain the key members of our investment teams, who possess substantial experience in investing and have been primarily responsible for the historical investment performance we have achieved.
Because of the tenure and stability of our portfolio managers, our clients may attribute the investment performance we have achieved to these individuals. The departure of a portfolio manager could cause clients to withdraw assets from the strategy, which would reduce our AUM, investment management fees and our net income. The departure of a portfolio manager also could cause consultants and intermediaries to stop recommending a strategy, clients to refrain from allocating additional assets to the strategy or delay such additional assets until a sufficient new track record has been established and could also cause the departure of other portfolio managers or investment professionals. We have instituted succession planning at our Franchises in an attempt to minimize the disruption resulting from these potential changes, but we cannot predict whether such efforts will be successful.
We also rely upon the contributions of our senior management team to establish and implement our business strategy and to manage the future growth of our business. The loss of any of the senior management team could limit our ability to successfully execute our business strategy or adversely affect our ability to retain existing and attract new client assets and related revenues.
Any of our investment or management professionals may resign at any time, join our competitors or form a competing company. Although many of our portfolio managers and each of our named executive officers are subject to post‑employment non‑compete obligations, these non‑competition provisions may not be enforceable or may not be enforceable to their full extent. In addition, we may agree to waive non‑competition provisions or other restrictive covenants applicable to former investment or management professionals in light of the circumstances surrounding their relationship with us. We do not generally carry “key man” insurance that would provide us with proceeds in the event of the death or disability of any of the key members of our investment or management teams.
Competition for qualified investment and management professionals is intense and we may fail to successfully attract and retain qualified personnel in the future. Our ability to attract and retain these personnel will depend heavily on the amount and structure of compensation and opportunities for equity ownership we offer. Any cost‑reduction initiative or adjustments or reductions to compensation or changes to our equity ownership culture could cause instability within our existing investment teams and negatively impact our ability to retain key personnel. In addition, changes to our management structure, corporate culture and corporate governance arrangements could negatively impact our ability to retain key personnel.
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We derive substantially all of our revenues from contracts and relationships that may be terminated upon short or no notice.
We derive substantially all of our revenues from investment advisory and sub‑advisory agreements as well as fund administration and accounting, agreements with the Victory Funds, USAA Funds and VictoryShares and transfer agency agreements with the USAA Funds, all of which are terminable by clients or our funds’ boards upon short notice or no notice.
Our investment advisory agreements with registered funds, which are funds registered under the Investment Company Act of 1940, as amended, or the 1940 Act, including mutual funds and ETFs, are generally terminable by the funds’ boards or a vote of a majority of the funds’ outstanding voting securities on not more than 60 days’ written notice, as required by law. After an initial term (not to exceed two years), each registered fund’s investment advisory agreement must be approved and renewed annually by that fund’s board, including by its independent members. We maintain a long history of renewing these agreements. In addition, all of our separate account clients and certain of the mutual funds that we sub‑advise have the ability to re‑allocate all or any portion of the assets that we manage away from us at any time with little or no notice. When a sub‑adviser terminates its sub‑advisory agreement to manage a fund that we advise there is a risk that investors in the fund could redeem their assets in the fund, which would cause our AUM to decrease. Similarly, our fund administration, accounting, and transfer agency agreements are subject to annual fund board approval.
These investment advisory and other agreements and client relationships may be terminated or not renewed for any number of reasons. The decrease in revenues that could result from the termination of a material client relationship or group of client relationships could have a material adverse effect on our business.
Investors in certain funds that we advise can redeem their assets from those funds at any time without prior notice.
Investors in the mutual funds and certain other pooled investment vehicles that we advise or sub‑advise may redeem their assets from those funds at any time on fairly limited or no prior notice, thereby reducing our AUM. These investors may redeem for any number of reasons, including general financial market conditions, global events, the absolute or relative investment performance we have achieved, or their own financial conditions and requirements. In a declining stock market, the pace of redemptions could accelerate. Poor investment performance relative to other funds tends to result in decreased client commitments and increased redemptions. For the year ended December 31, 2022, we generated approximately 85% of our total revenues from mutual funds and other pooled investment vehicles that we advise (including our proprietary mutual funds, or the Victory Funds, USAA Funds, VictoryShares, and other entities for which we are adviser or sub‑adviser). The redemption of assets from those funds could adversely affect our revenues and have a material adverse effect on our earnings.
Investment recommendations provided to our direct investor channel may not be suitable or fulfill regulatory requirements; representatives may not disclose or address conflicts of interest, conduct inadequate due diligence, provide inadequate disclosure; transactions subject to human error or fraud.
The direct channel serves existing or potential individual investors who invest in our proprietary Mutual Funds, ETFs and the USAA 529 Education Savings Plan. As of April 24, 2023, Investors will have the ability to invest in third party mutual funds, third party ETFs and individual equity securities listed on major U.S. exchanges on a self-directed basis. Our broker-dealer subsidiary has a dedicated retail investor-facing sales team who discuss the merits of investing in our proprietary products. The sales team provides recommendations based on the investor’s needs to aid them in their decision making. Our sales team’s recommendations may not fulfill regulatory requirements as a result of their failing to collect sufficient information about an investor or failing to understand the investor’s needs or risk tolerances. Risks associated with providing recommendations also include those arising from how we disclose and address actual or potential conflicts of interest, inadequate due diligence, inadequate disclosure, human error and fraud. In addition, Regulation Best Interest imposes heightened conduct standards, suitability analysis and disclosure requirements when we provide recommendations to retail investors. To the extent that we fail to satisfy regulatory requirements, fail to know our investors, improperly advise these investors, or risks associated with providing investment recommendations otherwise materialize, we could be found liable for losses suffered by such investors, or could be subject to regulatory fines, and penalties, any of which could harm our reputation and business.
We may be subject to claims of unsuitable investments. If individual investors suffer losses on their investment they may seek compensation from us on the basis of allegations that their investments were not suitable or that
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the fund prospectuses or other marketing materials contained material errors or were misleading. Despite the controls relating to disclosure in fund prospectuses and marketing materials, it is possible that such action may be successful, which in turn could adversely affect the business, financial condition and results of operations.
The significant growth we have experienced over the past few years may be difficult to sustain and our growth strategy is dependent in part upon our ability to make and successfully integrate new strategic acquisitions.
Our AUM has increased from $17.9 billion following our 2013 management‑led buyout with Crestview GP from KeyCorp to $153.0 billion as of December 31, 2022, primarily as a result of acquisitions. The absolute measure of our AUM represents a significant rate of growth that may be difficult to sustain. The continued long‑term growth of our business will depend on, among other things, successfully making new acquisitions, retaining key investment professionals, maintaining existing strategies and selectively developing new, value‑added strategies. There is no certainty that we will be able to identify suitable candidates for acquisition at prices and terms we consider attractive, consummate any such acquisition on acceptable terms, have sufficient resources to complete an identified acquisition or that our strategy for pursuing acquisitions will be effective. In addition, any acquisition can involve a number of risks, including the existence of known, unknown or contingent liabilities. An acquisition may impose additional demands on our staff that could strain our operational resources and require expenditure of substantial legal, investment banking and accounting fees. We may be required to issue additional shares of common stock or spend significant cash to consummate an acquisition, resulting in dilution of ownership or additional debt leverage, or spend additional time and money on facilitating the acquisition that otherwise would be spent on the development and expansion of our existing business.
We may not be able to successfully manage the process of integrating an acquired company’s people and other applicable assets to extract the value and synergies projected to be realized in connection with the acquisition. The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of one or more of our combined businesses and the possible loss of key personnel and AUM. The diversion of management’s attention and any delays or difficulties encountered in connection with acquisitions and the integration of an acquired company’s operations could have an adverse effect on our business.
Our business growth will also depend on our success in achieving superior investment performance from our strategies, as well as our ability to maintain and extend our distribution capabilities, to deal with changing market and industry conditions, to maintain adequate financial and business controls and to comply with new legal and regulatory requirements arising in response to both the increased sophistication of the investment management industry and the significant market and economic events of the last decade.
We may not be able to manage our growing business effectively or be able to sustain the level of growth we have achieved historically.
Our expenses are subject to fluctuations that could materially impact our results of operations.
Our results of operations are dependent upon the level of our expenses, which can vary from period to period. We have certain fixed expenses that we incur as a going concern, and some of those expenses are not subject to adjustment. If our revenues decrease, without a corresponding decrease in expenses, our results of operations would be negatively impacted. While a majority of our expenses are variable, and we attempt to project expense levels in advance, there is no guarantee that an unforeseen expense will not arise or that we will be able to adjust our variable expenses quickly enough to match a declining revenue base. Consequently, either event could have either a temporary or permanent negative impact on our results of operations.
A significant proportion of our existing AUM is managed in long‑only investments.
As of December 31, 2022, approximately 78% of our AUM was invested in U.S. and international equity. Under market conditions in which there is a general decline in the value of equity securities, the AUM in each of our equity strategies is likely to decline. Unlike some of our competitors, we do not currently offer strategies that invest in privately held companies or take short positions in equity securities, which could offset some of the poor performance of our long‑only equity strategies under such market conditions. Even if our investment performance remains strong during such market conditions relative to other long‑only equity strategies, investors may choose to withdraw assets from our management or allocate a larger portion of their assets to non‑long‑only or non‑equity strategies. In addition, the prices of equity securities may fluctuate more widely than the prices of other types of securities, making the level of our AUM and related revenues more volatile.
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As of December 31, 2022, of the 78% of our AUM invested in U.S. and international equity approximately 28% of the AUM was concentrated in small‑ and mid‑cap equities. As a result, a substantial portion of our operating results depends upon the performance of those investments, and our ability to retain client assets in those investments. If a significant portion of the investors in such investments decided to withdraw their assets or terminate their investment advisory agreements for any reason, including poor investment performance or adverse market conditions, our revenues from those investments would decline, which would have a material adverse effect on our earnings and financial condition.
As of December 31, 2022, approximately 19% of our total AUM was invested in U.S. taxable and tax-exempt fixed-income and money market securities. While fixed-income is typically considered less volatile than the equity markets, it does exhibit different types of risks such as interest rate risk, credit risk, and over-the-counter liquidity risk. Also, retention of fixed income AUM depends upon the performance of those investments, and our ability to retain client assets in those investments. If a significant portion of the investors in such investments decided to withdraw their assets or terminate their investment advisory agreements for any reason, including poor investment performance or adverse market conditions, our revenues from those investments would decline, which would have a material adverse effect on our earnings and financial condition. Money market securities are about 2% of total AUM and are considered a low risk asset category.
In addition, we have historically derived substantially all of our revenue from clients in the United States. If economic conditions weaken or slow, particularly in the United States, this could have a substantial adverse impact on our results of operations.
New lines of business or new products and services may subject us to additional risk.
From time to time, we may implement new lines of business or offer new products and services within existing lines of business. For example, during the early part of the second quarter of 2023, the Direct Investor Business will be expanded to include brokerage capabilities through VCS, our broker dealer entity. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services, we may invest significant time and resources and price and profitability targets may not prove feasible. External factors, such as competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business and/or a new product or service. Furthermore, strategic planning remains important as we adopt innovative products, services, and processes in response to the evolving demands for financial services and the entrance of new competitors. Any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls, so we must responsibly innovate in a manner that is consistent with sound risk management and is aligned with the overall business strategies. Failure to successfully manage these risks in the development and implementation of new lines of business and/or new products or services could have a material adverse effect on our business, results of operations and financial condition.
Our efforts to establish and develop new teams and strategies may be unsuccessful and could negatively impact our results of operations and could negatively impact our reputation and culture.
We seek to add new investment teams that invest in a way that is consistent with our philosophy of offering high value‑added strategies. We also look to offer new strategies managed by our existing teams. We expect the costs associated with establishing a new team and/or strategy initially to exceed the revenues generated, which will likely negatively impact our results of operations. If new strategies, whether managed by a new team or by an existing team, invest in instruments, or present operational issues and risks, with which we have little or no experience, it could strain our resources and increase the likelihood of an error or failure.
In addition, the historical returns of our existing strategies may not be indicative of the investment performance of any new strategy, and the poor performance of any new strategy could negatively impact the reputation of our other strategies.
We may support the development of new strategies by making one or more seed investments using capital that would otherwise be available for our general corporate purposes and acquisitions. Making such a seed investment could expose us to potential capital losses.
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An assignment could result in termination of our investment advisory agreements and could trigger consent requirements in our other investment advisory agreements.
Under the 1940 Act, each of the investment advisory agreements between registered funds and our subsidiary, VCM, and investment sub‑advisory agreements between the investment adviser to a registered fund and VCM, will terminate automatically in the event of its assignment, as defined in the 1940 Act.
Assignment, as generally defined under the 1940 Act and the Investment Advisers Act of 1940, as amended, or the Advisers Act, includes direct assignments as well as assignments that may be deemed to occur, under certain circumstances, upon the direct or indirect transfer of a “controlling block” of our outstanding voting securities. A transaction is not an assignment under the 1940 Act or the Advisers Act if it does not result in a change of actual control or management of VCM.
Upon the occurrence of such an assignment, VCM could continue to act as adviser or sub‑adviser to any such registered fund only if that fund’s board and shareholders approved a new investment advisory agreement, except in the case of certain of the registered funds that we sub‑advise for which only board approval would be necessary pursuant to a manager‑of‑managers SEC exemptive order. In addition, as required by the Advisers Act, each of the investment advisory agreements for the separate accounts and pooled investment vehicles we manage provides that it may not be assigned, as defined in the Advisers Act, without the consent of the client. In addition, the investment advisory agreements for certain pooled investment vehicles we manage outside the U.S. contain provisions requiring board approval and or client consent before they can be assigned. If an assignment were to occur, we cannot be certain that we would be able to obtain the necessary approvals from the boards and shareholders of the registered funds we advise or the necessary consents from our separate account or pooled investment vehicle clients.
If an assignment of an investment advisory agreement is deemed to occur, and our clients do not consent to the assignment or enter into a new agreement, our results of operations could be materially and adversely affected.
Our failure to comply with investment guidelines set by our clients, including the boards of registered funds, and limitations imposed by applicable law, could result in damage awards against us and a loss of AUM, either of which could adversely affect our results of operations or financial condition.
When clients retain us to manage assets on their behalf, they generally specify certain guidelines regarding investment allocation and strategy that we are required to follow in managing their assets. The boards of registered funds we manage generally establish similar guidelines regarding the investment of assets in those funds. We are also required to invest the registered funds’ assets in accordance with limitations under the 1940 Act and applicable provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. Other clients, such as plans subject to the Employee Retirement Income Security Act of 1974, as amended, or ERISA, or non‑U.S. funds and pooled investment vehicles, require us to invest their assets in accordance with applicable law. Our failure to comply with any of these guidelines and other limitations could result in losses to clients or investors in a fund which, depending on the circumstances, could result in our obligation to make clients or fund investors whole for such losses. If we believed that the circumstances did not justify a reimbursement, or clients and investors believed the reimbursement we offered was insufficient, they could seek to recover damages from us or could withdraw assets from our management or terminate their investment advisory agreement with us. Any of these events could harm our reputation and materially adversely affect our business.
We provide a broad range of services to the Victory Funds, USAA Funds, VictoryShares and sub‑advised mutual funds which may expose us to liability.
We provide a broad range of administrative services to the Victory Funds, the USAA Funds and VictoryShares, including providing personnel to the Victory Funds, the USAA Funds and VictoryShares to serve as directors and officers, the preparation or supervision of the preparation of the Victory Funds’, USAA Funds’ and VictoryShares’ regulatory filings, maintenance of board calendars and preparation or supervision of the preparation of board meeting materials, management of compliance and regulatory matters, provision of shareholder services and communications, accounting services, including the supervision of the activities of the Victory Funds’, USAA Funds’ and VictoryShares’ accounting services provider in the calculation of the funds’ net asset values, supervision of the preparation of the Victory Funds’, USAA Funds’ and VictoryShares’ financial statements and coordination of the audits of those financial statements, tax services, including calculation of dividend and distribution amounts and supervision of tax return preparation, supervision of the
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work of the USAA Funds’, Victory Funds’ and VictoryShares’ other service providers, VCTA acting as transfer agent to the USAA Funds and VCS acting as a distributor for the Victory Funds and USAA Funds. If we make a mistake in the provision of those services, the Victory Funds, USAA Funds or VictoryShares could incur costs for which we might be liable. In addition, if it were determined that the Victory Funds, USAA Funds or VictoryShares failed to comply with applicable regulatory requirements as a result of action or failure to act by our employees, we could be responsible for losses suffered or penalties imposed. In addition, we could have penalties imposed on us, be required to pay fines or be subject to private litigation, any of which could decrease our future income or negatively affect our current business or our future growth prospects. Although less extensive than the range of services we provide to the Victory Funds, USAA Funds’ and VictoryShares, we also provide a limited range of services, in addition to investment management services, to sub‑advised mutual funds.
In addition, we from time to time provide information to the funds for which we act as sub‑adviser (or to a person or entity providing administrative services to such a fund), and to the UCITS, for which we act as investment manager (or to the promotor of the UCITS or a person or entity providing administrative services to such a UCITS), which is used by those funds or UCITS in their efforts to comply with various regulatory requirements. If we make a mistake in the provision of those services, the sub‑advised fund or UCITS could incur costs for which we might be liable. In addition, if it were determined that the sub‑advised fund or UCITS failed to comply with applicable regulatory requirements as a result of action or failure to act by our employees, we could be responsible for losses suffered or penalties imposed. In addition, we could have penalties imposed on us, be required to pay fines or be subject to private litigation, any of which could decrease our future income or negatively affect our current business or our future growth prospects.
Potential impairment of goodwill and intangible assets could result in not realizing the value of these assets.
As of December 31, 2022, our goodwill and intangible assets totaled $2.3 billion. The value of these assets may not be realized for a variety of reasons, including, but not limited to, significant redemptions, loss of clients, damage to brand name and unfavorable economic conditions. In accordance with the guidance under Financial Accounting Standards Board, or FASB, ASC 350‑20, Intangibles—Goodwill and Other, we review the carrying value of goodwill and intangible assets not subject to amortization on an annual basis, or more frequently if indications exist suggesting that the fair value of our intangible assets may be below their carrying value. Determining goodwill and intangible assets, and evaluating them for impairment, requires significant management estimates and judgment, including estimating value and assessing useful life in connection with the allocation of purchase price in the acquisition creating them. We evaluate the value of intangible assets subject to amortization on an annual basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Should such reviews indicate impairment, a reduction of the carrying value of the intangible asset could occur.
If we were deemed an investment company required to register under the 1940 Act, we would become subject to burdensome regulatory requirements and our business activities could be restricted.
Generally, a company is an “investment company” required to register under the 1940 Act if, absent an applicable exception or exemption, it (i) is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or (ii) engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
We hold ourselves out as an investment management firm and do not propose to engage primarily in the business of investing, reinvesting or trading in securities. We believe we are engaged primarily in the business of providing investment management services and not in the business of investing, reinvesting or trading in securities. We also believe our primary source of income is properly characterized as income earned in exchange for the provision of services. We believe less than 40% of our total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis comprise assets that could be considered investment securities.
We intend to conduct our operations so that we will not be deemed an investment company required to register under the 1940 Act. However, if we were to be deemed an investment company required to register under the 1940 Act, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to
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transact with our affiliates, could make it impractical for us to continue our business as currently conducted and could have a material adverse effect on our financial performance and operations.
Merger and Acquisition Risks
We may not realize the benefits we expect from mergers and acquisitions because of integration difficulties and other challenges.
We regularly review, and from time to time have discussions on and engage in, potential transactions, including potential acquisitions of other asset managers or their assets, consolidations, equity method investments or similar transactions, some of which may be material. The success of these transactions will depend in large part on the success of integrating the personnel, operations, strategies, technologies and other components of the businesses following the completion of the transaction. The Company may fail to realize some or all of the anticipated benefits if the integration process takes longer than expected or is more costly than expected. The failure of the Company to meet the challenges involved in successfully integrating the operations or to otherwise realize any of the anticipated benefits could impair the operations of the Company. Potential difficulties that we may encounter in the integration process include the following:
The anticipated benefits and synergies include the elimination of duplicative personnel, realization of efficiencies in consolidating duplicative corporate, business support functions and amortization of purchased intangibles for tax purposes. However, these anticipated benefits and synergies assume a successful integration and are based on projections, which are inherently uncertain, and other assumptions. Even if integration is successful, anticipated benefits and synergies may not be achieved.
Certain liabilities resulting from acquisitions are estimated and could lead to a material impact on earnings.
Through our acquisition activities, we may record liabilities for future contingent earnout payments that are to be settled in cash. The fair value of these liabilities is assessed on a quarterly basis and changes in assumptions used to determine the amount of the liability could lead to an adjustment that may have a material impact, favorable or unfavorable, on our results of operations.
Indebtedness Risks
Our substantial indebtedness may expose us to material risks.
As of December 31, 2022, we had approximately $1,002 million of outstanding debt that consisted of (i) an existing term loan balance of $631 million and (ii) incremental term loans in an aggregate principal amount of $371 million. In addition, we maintain a $100.0 million revolving credit facility, though no amounts were outstanding as of December 31, 2022.
Our substantial indebtedness may make it more difficult for us to withstand or respond to adverse or changing business, regulatory and economic conditions or to take advantage of new business opportunities or make necessary capital expenditures. In addition, the 2019 Credit Agreement contains financial and operating
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covenants that may limit our ability to conduct our business. While we are currently in compliance in all material respects with the financial and operating covenants under the 2019 Credit Agreement, we cannot assure that at all times in the future we will satisfy all such financial and operating covenants (or any such covenants applicable at the time) or obtain any required waiver or amendment, in which event all outstanding indebtedness could become immediately due and payable. This could result in a substantial reduction in our liquidity and could challenge our ability to meet future cash needs of the business.
To the extent we service our debt from our cash flow, such cash will not be available for our operations or other purposes. Because of our significant debt service obligations, the portion of our cash flow used to service those obligations could be substantial if our revenues decline, whether because of market declines or for other reasons. Any substantial decrease in net operating cash flows or any substantial increase in expenses could make it difficult for us to meet our debt service requirements or force us to modify our operations. Our ability to repay the principal amount of any outstanding loans under the 2019 Credit Agreement, to refinance our debt or to obtain additional financing through debt or the sale of additional equity securities will depend on our performance, as well as financial, business and other general economic factors affecting the credit and equity markets generally or our business in particular, many of which are beyond our control. Any such alternatives may not be available to us on satisfactory terms or at all.
2020 Debt Refinancing
On January 17, 2020, we entered into the First Amendment (the “First 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 First Amendment, the Company refinanced the existing term loans (the “2019 Term Loans”) with replacement term loans in an aggregate principal amount of $952.0 million (the “2020 Term Loans”). The 2020 Term Loans provided for substantially the same terms as the 2019 Term Loans, including the same maturity date of July 1, 2026, except that the 2020 Term Loans provide for a reduced applicable margin on LIBOR of 75 basis points. The applicable margin on LIBOR under the 2020 Term Loans was 2.50%, compared to 3.25% under the 2019 Term Loans.
2021 Debt Refinancing
On February 18, 2021, we entered into the Second Amendment (the “Second Amendment”) to the 2019 Credit Agreement (as amended by the First Amendment to the Credit Agreement dated as of January 17, 2020, the “2020 Term Loans”) with the other loan parties thereto, Barclays Bank PLC, as administrative agent and collateral agent, the Royal Bank of Canada as fronting bank, and the lenders party thereto from time to time. Pursuant to the Second Amendment, the Company refinanced the 2020 Term Loans with replacement term loans in an aggregate principal amount of $755.7 million (the “Repriced Term Loans”). The Repriced Term Loans provide for substantially the same terms as the Existing Term Loans, including the same maturity date of July 1, 2026, except that the Repriced Term Loans provide for a reduced applicable margin on LIBOR of 25 basis points. The applicable margin on LIBOR under the Repriced Term Loans is 2.25%, compared to 2.50% under the Existing Term Loans.
2021 Incremental Term Loans
On December 31, 2021, we 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 acquisition of 100% of the equity interest of WestEnd Advisors, LLC and to pay fees and expenses incurred in connection therewith. The 2021 Incremental Term Loans will mature in December 2028 and will 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 its debt from LIBOR to a rate based on the secured overnight financing rate (“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.
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The LIBOR rate loans outstanding as of the Fourth Amendment’s effective date continued as LIBOR rate loans until the end of their 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.
Capital Structure and Public Company Risks
A relatively large percentage of our Common Stock is concentrated with a small number of shareholders, which could increase the volatility in our stock trading and affect our share price.
A large percentage of our common stock is held by a limited number of shareholders. If our larger shareholders decide to liquidate their positions, it could cause significant fluctuation in the share price of our common stock. Public companies with a relatively concentrated level of institutional shareholders, such as we have, often have difficulty generating trading volume in their stock, which may increase the volatility in the price of our common stock.
Crestview GP beneficially owns a significant amount of our common stock and its interests may conflict with ours or other shareholders’ in the future.
Crestview GP does not hold any of our common stock, but beneficially owns 36.0% of our common stock as of December 31, 2022. As a result, Crestview GP has the ability to elect several members of our board of directors and thereby significantly influence our policies and operations, including the appointment of management, future issuances of our common stock or other securities, the payment of dividends, if any, on our common stock, the incurrence of debt by us, amendments to our amended and restated certificate of incorporation and amended and restated bylaws, and the entering into of extraordinary transactions. Crestview GP may also be able to significantly influence all matters requiring shareholder approval including without limitation a change in control of us or a change in the composition of our board of directors and or precluding any acquisition of us. This significant voting control could deprive other shareholders of an opportunity to receive a premium for shares of their common stock as part of a sale of us and ultimately might affect the market price of our common stock. Further, the interests of Crestview GP may not in all cases be aligned with other shareholders’ interests.
In addition, Crestview GP may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to other shareholders. For example, Crestview GP could influence us to make acquisitions that increase our indebtedness or sell revenue‑generating assets. Crestview GP is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Our amended and restated certificate of incorporation provides that none of Crestview GP or Reverence Capital or any of their respective affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. Crestview GP or Reverence Capital also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us, which could have an adverse effect on our growth prospects.
The market price of our Common Stock is likely to be volatile and could decline.
The stock market in general has been highly volatile. As a result, the market price and trading volume for our Common Stock may also be highly volatile, and investors our Common Stock may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. Factors that could cause the market price of our Common Stock to fluctuate significantly include:
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Any of these factors may result in large and sudden changes in the trading volume and market price of our Common Stock.
Following periods of volatility in the market price of a company’s securities, shareholders often file securities class‑action lawsuits against such company. Our involvement in a class‑action lawsuit could divert our senior management’s attention and, if adversely determined, could have a material and adverse effect on our business, financial condition and results of operations.
Future sales of shares by shareholders could cause our stock price to decline.
Sales of substantial amounts of our Common Stock in the public market, or the perception that these sales could occur, could cause the market price of our Common Stock to decline. As of February 28, 2023, 67,578,282 shares of our Common Stock are outstanding. Shares of our Common Stock are freely tradable without restriction under the Securities Act, unless purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act.
In the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition or employee arrangement, or in certain other circumstances. Any of these issuances could result in substantial dilution to our existing shareholders and could cause the trading price of our Common Stock to decline.
If securities or industry analysts publish misleading or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our Common Stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of these analysts downgrades our shares or publishes misleading or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our shares could decrease, which could cause our stock price or trading volume to decline.
We are an “emerging growth company,” and any decision on our part to comply with certain reduced disclosure requirements applicable to emerging growth companies could make our Common Stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Start-ups Act, or the JOBS Act, enacted in April 2012, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies, including, but not limited to, reduced disclosure obligations regarding executive compensation (including Chief Executive Officer pay ratio disclosure) in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an emerging growth company, we have elected to use the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies. We may take advantage of these exemptions until such time that we are no longer an emerging growth company.
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We will lose our emerging growth company status upon the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of our IPO, (b) in which we have annual gross revenues of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which requires the market value of our common stock held by non-affiliates to equal or exceed $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the preceding three-year period.
We expect to lose emerging growth company status and becomesubject to the SEC’s internal control over financial reporting management and auditor attestation requirements and all reporting requirements applicable to other public companies beginning with our Annual Report on Form 10-K for the year ending December 31, 2023.
Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we are unable to conclude that we have effective internal control over financial reporting, investors could lose confidence in the reliability of our financial statements.
Any decision on our part to comply with certain reduced disclosure requirements applicable to emerging growth companies for the period we remain an emerging growth company could make our Common Stock less attractive to investors.
We cannot predict whether investors will find our Common Stock less attractive if we choose to rely on one or more of the exemptions described above. If investors find our Common Stock less attractive as a result of any decisions to reduce future disclosure, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we are no longer an “emerging growth company.”
Prior to February 2018, we operated as a private company and had not been subject to the same financial and other reporting and corporate governance requirements of a public company. As a public company, we are now required to file annual, quarterly and other reports with the SEC. We need to prepare and timely file financial statements that comply with SEC reporting requirements. We also are subject to other reporting and corporate governance requirements under the listing standards of NASDAQ and the Sarbanes‑Oxley Act, which impose significant compliance costs and obligations upon us. Being a public company requires a significant commitment of additional resources and management oversight, which add to operating costs. These changes place significant additional demands on our finance and accounting staff, which may not have prior public company experience or experience working for a newly public company, and on our financial accounting and information systems, and we may need to, in the future, hire additional accounting and financial staff with appropriate public company reporting experience and technical accounting knowledge. Other expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses. As a public company, we are required, among other things, to:
In particular, the Sarbanes‑Oxley Act requires us to document and test the effectiveness of our internal control over financial reporting in accordance with an established internal control framework, and to report on our conclusions as to the effectiveness of our internal controls. Currently we choose to utilize the exemption pursuant to Section 404(b) of the Sarbanes-Oxley Act for “emerging growth companies” whereby our independent registered public accounting firm is not required to provide an attestation report on the effectiveness of our internal control over financial reporting. As described in the previous risk factor, we could potentially qualify as an emerging growth company until December 31, 2023. In addition, we are required under
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the Exchange Act to maintain disclosure controls and procedures and internal control over financial reporting. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we are unable to conclude that we have effective internal control over financial reporting, investors could lose confidence in the reliability of our financial statements. This could result in a decrease in the value of our Common Stock. Failure to comply with the Sarbanes‑Oxley Act could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities.
Failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, operating results and stock price.
Section 404 of the Sarbanes-Oxley Act and related SEC rules require that we perform an annual management assessment of the design and effectiveness of our internal control over financial reporting. Our assessment concluded that our internal control over financial reporting was effective as of December 31, 2021; however, there can be no assurance that we will be able to maintain the adequacy of our internal control over financial reporting, as such standards are modified, supplemented or amended from time to time in future periods. Accordingly, we cannot assure that we will be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal control is necessary for us to produce reliable financial reports and is important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our Common Stock could drop significantly.
Our ability to pay regular dividends is subject to our Board’s discretion and Delaware law.
We intend to pay dividends to holders of our Common Stock as described in “Dividend Policy.” Our board of directors may, in its sole discretion, change the amount or frequency of dividends or discontinue the payment of dividends entirely. 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 Fourth Amendment to the 2019 Credit Agreement) and legal, tax, regulatory and such other factors as we may deem relevant.
Future offerings of debt or equity securities may rank senior to our Common Stock.
If we decide to issue debt securities in the future, which would rank senior to shares of our common stock, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. We and, indirectly, our shareholders will bear the cost of issuing and servicing such securities. We may also issue preferred equity, which will have superior rights relative to our common stock, including with respect to voting and liquidation.
Furthermore, if our future access to public markets is limited or our performance decreases, we may need to carry out a private placement or public offering of our Common Stock at a lower price than the price at which investors purchased their shares.
Because our decision to issue debt, preferred or other equity or equity‑linked securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our Common Stock will bear the risk of our future offerings reducing the market price of our Common Stock and diluting the value of their shareholdings in us.
Provisions in our charter documents could discourage a takeover that shareholders may consider favorable.
Certain provisions in our governing documents could make a merger, tender offer or proxy contest involving us difficult, even if such events would be beneficial to the interests of our shareholders. Among other things, these provisions:
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These provisions may delay or prevent attempts by our shareholders to replace members of our management by making it more difficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management. Anti‑takeover provisions could depress the price of our common stock by acting to delay or prevent a change in control of us.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits.
Legal and Regulatory Risks
As an investment management and brokerage firm, we are subject to extensive regulation.
Investment management firms are subject to extensive regulation in the United States, primarily at the federal level, including regulation by the SEC under the 1940 Act and the Advisers Act, by the U.S. Department of Labor, or the DOL, under ERISA, by the Commodity Futures Trading Commission, or the CFTC, by the National Futures Association, or NFA, under the Commodity Exchange Act, and by the Financial Industry Regulatory Authority, Inc., or FINRA. The U.S. mutual funds and ETFs we manage are registered with and regulated by the SEC as investment companies under the 1940 Act. The Advisers Act imposes numerous obligations on investment advisers, including recordkeeping, advertising, compliance and operating requirements, disclosure obligations and prohibitions on fraudulent activities. The 1940 Act imposes similar obligations, as well as additional detailed operational requirements, on registered funds, which must be adhered to by their investment advisers. Investment advisers also are subject to certain state securities laws and regulations. Non-compliance with the Advisers Act, the 1940 Act or other federal and state securities laws and regulations could result in investigations, sanctions, disgorgement, fines and reputational damage.
Trading and investment activities conducted by the investment adviser for its client accounts are regulated under the Exchange Act, as well as the rules of various securities exchanges and self-regulatory organizations, including laws governing trading on inside information, market manipulation and a broad number of technical requirements (e.g., short sale limits, volume limitations and reporting obligations) and market regulation policies. Violation of any of these laws and regulations could result in fines or sanctions, as well as restrictions on the investment management firm’s activities and damage to its reputation.
Certain client accounts subject the investment adviser to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and to regulations promulgated thereunder by the DOL, since we act as a “fiduciary” under ERISA with respect to benefit plan clients that are subject to ERISA. ERISA and applicable provisions of the Internal Revenue Code impose certain duties on persons who are fiduciaries under ERISA,
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require the investment adviser to carry bonds insuring against losses caused by fraud or dishonesty, prohibit certain transactions involving ERISA plan clients and impose excise taxes for violations of these prohibitions, and mandate certain required periodic reporting and disclosures. ERISA also imposes additional compliance, reporting and operational requirements on investment advisers that otherwise are not applicable to clients that are not subject to ERISA.
With the expansion of the Direct Investor Business to include brokerage capabilities through our broker-dealer entity VCS.Investors will be able to leverage our open architecture brokerage option and establish brokerage accounts to invest in mutual funds and ETFs from our platform along with individual stocks and products managed by third-party providers including cash management capabilities, these brokerage activities are likely to result in increased focus from FINRA as we will have to comply with extensive regulations imposed by FINRA.
We have also expanded our distribution effort into non‑U.S. markets through partnered distribution efforts and product offerings, including Australia, Europe, Japan, Singapore and Hong Kong. In the future, we may further expand our business outside of the United States in such a way or to such an extent that we may be required to register with additional foreign regulatory agencies or otherwise comply with additional non‑U.S. laws and regulations that do not currently apply to us and with respect to which we do not have compliance experience. Our lack of experience in complying with any such non‑U.S. laws and regulations may increase our risk of being subject to regulatory actions and becoming party to litigation in such non‑U.S. jurisdictions, which could be more expensive. Moreover, being subject to regulation in multiple jurisdictions may increase the cost, complexity and time required for engaging in transactions that require regulatory approval.
Accordingly, we face the risk of significant intervention by regulatory authorities, including extended investigation and surveillance activity, adoption of costly or restrictive new regulations and judicial or administrative proceedings that may result in substantial penalties. Among other things, we could be fined, lose our licenses or be prohibited or limited from engaging in some of our business activities or corporate transactions. The requirements imposed by our regulators are designed to ensure the integrity of the financial markets and to protect clients and other third parties who deal with us and are not designed to protect our shareholders. Consequently, these regulations often serve to limit our activities, including through net capital, client protection and market conduct requirements.
The regulatory environment in which we operate is subject to continual change and regulatory developments designed to increase oversight may materially adversely affect our business.
We operate in a legislative and regulatory environment that is subject to continual change, the nature of which we cannot predict. We may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other U.S. or non‑U.S. governmental regulatory authorities or self‑regulatory organizations that supervise the financial markets. The SEC and its staff are currently engaged in various initiatives and reviews that seek to improve and modernize the regulatory structure governing the asset management industry, and registered investment companies in particular. In addition, more recently the SEC has also adopted rules, many of which are currently in an implementation period, which will increase our public reporting and disclosure requirements, which could be costly and may impede the Company’s growth.
Key initiatives and rules that the SEC is contemplating that are likely to impact our business include:
Consumer Privacy Protection Laws
In November 2020, California voters approved the CPRA, which amends the existing California Consumer Privacy Act (“CCPA”) and provides new and additional rights and obligations to the existing law.
Money Market Reforms
In December 2021, the SEC proposed amendments to certain rules that govern money market funds under the Investment Company Act of 1940. The proposed amendments would improve the resilience and transparency of money market funds.
SEC Proposed Rules on Private Fund Advisers
In February 2022, the SEC proposed new rules and amendments to enhance regulation of private fund advisors. The changes would mandate certain client reporting and event driven disclosure, enact audit requirements, and prohibit certain activities that the SEC deems contrary to the public interest or has a material
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negative effect on other investors. The amendments also would require all advisors to document their annual compliance review in writing.
Cybersecurity Risk Governance – Public Operating Companies
In February 2022, the SEC proposed new cybersecurity risk management rules and amendments to enhance cybersecurity preparedness and improve the resilience of investment advisers and investment companies against cybersecurity threats and attacks.
The Enhancement and Standardization of Climate-Related Disclosures for Investors
In March 2022, the SEC proposed a rule that would require registrants to provide certain climate-related information in their registration statements and annual reports. The proposed rules would require information about a registrant’s climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition.
Investment Company Names Rule
In May 2022, the SEC proposed amendments to Rule 35d-1 under the Investment Company Act of 1940, the fund “Names Rule.” The proposed amendments would further serve the SEC’s mission of investor protection by:
ESG Disclosures for Investment Advisers and Investment Companies
In May 2022, the SEC proposed amendments to rules and disclosure forms to promote consistent, comparable, and reliable information for investors concerning funds’ and advisers’ incorporation of ESG factors.
Proxy Solicitation Rule Amendments
In July 2022, the SEC adopted rule amendments that will impose additional disclosure and procedural requirements on proxy advisors like ISS as conditions from being able to continue relying on exemptions from the information and filing requirements of the federal proxy rules. The SEC also concurrently published supplemental guidance to assist investment advisers in fulfilling their proxy voting responsibilities when relying on proxy advisors for their advice and or voting execution platforms.
Tailored Shareholder Reports for Mutual Funds and Exchange-Traded Funds
In October 2022, the SEC adopted rules and amendments that will require open-end investment companies to transmit concise and visually engaging annual and semi-annual reports to shareholders that highlight key information that is particularly important for retail investors to assess and monitor their fund investments.
Outsourcing by Investment Advisers
In October 2022, the SEC proposed a new rule under the Investment Advisers Act of 1940 designed to prohibit registered investment advisers from outsourcing certain services or functions without first meeting minimum requirements. The proposed rule would require advisers to conduct due diligence prior to engaging a service provider to perform certain services or functions.
Open-End Fund Liquidity Risk Management and Swing Pricing
In November 2022, the SEC proposed amendments to better prepare open-end management investment companies for stressed conditions and mitigate dilution of shareholders’’ interests. The rule and form amendments would improve on the existing framework by:
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SEC Proposed Regulation Best Execution
In December 2022, the SEC proposed a new rule, Regulation Best Execution, that would establish a best execution standard for brokers-dealers.
Shortening the Securities Transaction Settlement Cycle
In February 2023, the SEC adopted rules to shorten the settlement cycle for most securities transactions from two business days after trade date (T+2) to one (T+1). The compliance date for these rules are set for Tuesday May, 28, 2024.
SEC Proposed Enhancements to Custody Rule
In February 2023, the SEC proposed amendments to and a redesignation of the current custody rule, currently designated as Rule 206(4)-2. The proposal redesignates the custody rule as rule 223-1 and would enhance the rule’s protections and subject a broader array of client assets and advisory activities to the enhanced protections.
Industry Risks
Recent trends in the investment management industry could reduce our AUM, revenues and net income.
Certain passive products and asset classes, such as index and certain types of ETFs, are becoming increasingly popular with investors, including institutional investors. In recent years, across the investment management industry, passive products have experienced inflows and traditional actively managed products have experienced outflows, in each case, in the aggregate. In order to maintain appropriate fee levels in a competitive environment, we must be able to continue to provide clients with investment products and services that are viewed as appropriate in relation to the fees charged, which may require us to demonstrate that our strategies can outperform such passive products. If our clients, including our funds’ boards, were to view our fees as being high relative to the market or the returns provided by our investment products, we may choose to reduce our fee levels or existing clients may withdraw their assets in order to invest in passive products, and we may be unable to attract additional commitments from existing and new clients, which would lead to a decline in our AUM and market share. To the extent we offer such passive products, we may not be able to compete with other firms offering similar products.
Our revenues and net income are dependent on our ability to maintain current fee levels for the products and services we offer. The competitive nature of the investment management industry has led to a trend toward lower fees in certain segments of the investment management market. Our ability to sustain fee levels depends on future growth in specific asset classes and distribution channels. These factors, as well as regulatory changes, could further inhibit our ability to sustain fees for certain products. A reduction in the fees charged by us could reduce our revenues and net income.
Our fees vary by asset class and produce different revenues per dollar of AUM based on factors such as the type of assets being managed, the applicable strategy, the type of client and the client fee schedule. Institutional clients may have significant negotiating leverage in establishing the terms of an advisory relationship, particularly with respect to the level of fees paid, and the competitive pressure to attract and retain institutional clients may impact the level of fee income earned by us. We may decline to manage assets from potential clients who demand lower fees even though such assets would increase our revenue and AUM in the short term.
The investment management industry is intensely competitive.
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The investment management industry is intensely competitive, with competition based on a variety of factors, including investment performance, fees, continuity of investment professionals and client relationships, the quality of services provided to clients, corporate positioning and business reputation, continuity of selling arrangements with intermediaries and differentiated products. A number of factors, including the following, serve to increase our competitive risks:
Additionally, intermediaries through which we distribute our funds may also sell their own proprietary funds and investment products, which could limit the distribution of our strategies. If we are unable to compete effectively, our earnings could be reduced and our business could be materially adversely affected.
Third Party Risks
We depend primarily on third parties to market and sell our products.
Our ability to attract additional assets to manage is highly dependent on our access to third‑party intermediaries. We gain access to investors in the Victory Funds, USAA Funds and VictoryShares primarily through consultants, 401(k) platforms, broker‑dealers, financial advisors and mutual fund platforms through which shares of the funds are sold. We have relationships with certain third‑party intermediaries through which we access clients in multiple distribution channels.
We compensate most of the intermediaries through which we gain access to investors in the Victory Funds and VictoryShares by paying fees, most of which are a percentage of assets invested in the Victory Funds and VictoryShares through that intermediary and with respect to which that intermediary provides shareholder and administrative services. The allocation of such fees between us and the Victory Funds and VictoryShares is determined by the board of the Victory Funds and VictoryShares and the board of the USAA Funds, based on information and a recommendation from us, with the intent of allocating to us all costs attributable to marketing and distribution of (i) shares of the Victory Funds and USAA Funds not otherwise covered by distribution fees paid pursuant to a distribution and service plan adopted in accordance with Rule 12b‑1 under the 1940 Act and (ii) VictoryShares.
In the future, our expenses in connection with those intermediary relationships could increase if the portion of those fees determined to be in connection with marketing and distribution, or otherwise allocated to us, increased. Clients of these intermediaries may not continue to be accessible to us on terms we consider commercially reasonable, or at all. The absence of such access could have a material adverse effect on our results of operations.
We access institutional clients primarily through consultants. Our institutional business is dependent upon referrals from consultants. Many of these consultants review and evaluate our products and our firm from time to time. Poor reviews or evaluations of either a particular strategy or us as an investment management firm may result in client withdrawals or may impair our ability to attract new assets through these consultants.
We rely on third parties to provide products or services for the operation of our business, and a failure or inability by such parties to provide these products or services could materially adversely affect our business.
We have determined, based on an evaluation of various factors, that it is more efficient to use third parties for certain functions and services. As a result, we have contracted with a limited number of third parties to provide critical operational support, such as middle‑ and back‑office functions, information technology services and various fund administration and accounting roles, and the funds contract with third parties in custody, transfer agent and sub transfer agent roles. The third parties with which we do business may also be sources of
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cybersecurity or other technological risks. While we engage in certain actions to reduce the exposure, such as collaborating to develop secure transmission capabilities, performing security control assessments and limiting third party access to the least privileged level necessary to perform job functions, our business would be disrupted if key service providers become unable to continue to perform the services upon which we depend or fail to protect against or respond to cyber-attacks, data breaches or other incidents. Moreover, to the extent our third‑party providers increase their pricing, our financial performance will be negatively impacted. In addition, upon termination of a third‑party contract, we may encounter difficulties in replacing the third‑party on favorable terms, transitioning services to another vendor, or in assuming those responsibilities ourselves, which may have a material adverse effect on our business.
Operational and Cybersecurity Risks
Operational risks may disrupt our business, result in losses or limit our growth.
We are heavily dependent on the capacity and reliability of the communications, information and technology systems supporting our operations, whether developed, owned and operated by us or by third parties. We also rely on manual workflows and a variety of manual user controls. Operational risks such as trading or other operational errors or interruption of our financial, accounting, trading, compliance and other data processing systems, whether caused by human error, fire, other natural disaster or pandemic, power or telecommunications failure, cyber‑attack or viruses, act of terrorism or war or otherwise, could result in a disruption of our business, liability to clients, regulatory intervention or reputational damage, and thus materially adversely affect our business. The potential for some types of operational risks, including, for example, trading errors, may be increased in periods of increased volatility, which can magnify the cost of an error. Insurance and other safeguards might not be available or might only partially reimburse us for our losses.
Although we have backup systems in place, our backup procedures and capabilities in the event of a failure or interruption may not be adequate. As our client base, number and complexity of strategies and client relationships increase, developing and maintaining our operational systems and infrastructure may become increasingly challenging. We may also suffer losses due to employee negligence, fraud or misconduct. Non‑compliance with policies, employee misconduct, negligence or fraud could result in legal liability, regulatory sanctions and serious reputational or financial harm. In recent years, a number of multinational financial institutions have suffered material losses due to the actions of “rogue traders” or other employees. It is not always possible to deter or detect employee misconduct and the precautions we take to prevent and detect this activity may not always be effective. Employee misconduct could have a material adverse effect on our business.
Failure to implement effective information and cyber security policies, procedures and capabilities could disrupt operations and cause financial losses.
We electronically receive, process, store and transmit sensitive information of our clients including personal data, such as, without limitation, names and addresses, social security numbers, driver's license numbers, such information is necessary to support our clients’ investment transactions. The uninterrupted operation of our information systems, as well as the confidentiality of the customer information that resides on such systems, is critical to our successful operation. Bad actors may attempt to harm us by gaining access to confidential or proprietary client information, often with the intent of stealing from or defrauding us or our clients. In some cases, they seek to disrupt our ability to conduct our business, including by destroying information maintained by us. For that reason, cybersecurity is one of the principal operational risks we face as a provider of financial services and our operations rely on the effectiveness of our information and cyber security policies, procedures and capabilities to provide secure processing, storage and transmission of confidential and other information in our computer systems, software, networks and mobile devices and on the computer systems, software, networks and mobile devices of third parties on which we rely. Although we maintain a system of internal controls designed to provide reasonable assurance that fraudulent activity is either prevented or detected on a timely basis and we take other protective measures and endeavor to modify them as circumstances warrant, our computer systems, software, networks and mobile devices may be vulnerable to cyber‑attacks, sabotage, unauthorized access, computer viruses, worms or other malicious code, and other events that have a security impact. In addition, our interconnectivity with service providers and other third parties may be adversely affected if any of them are subject to a successful cyber-attack or other information security event. While we collaborate with service providers and other third parties to develop secure transmission capabilities and other measures to protect against cyber-attacks, we cannot ensure that we or any third party has all appropriate controls in place to protect the confidentiality of such information.
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An externally caused information security incident, such as a cyber attack, virus or worm, or an internally caused issue, such as failure to control access to sensitive systems, could materially interrupt business operations or cause disclosure or modification of sensitive or confidential client or competitive information and could result in material financial loss, loss of competitive position, regulatory actions, breach of clients contracts, reputational harm or legal liability. If one or more such events occur, it could potentially jeopardize our or our clients’, employees’ or counterparties’ confidential and other information processed and stored in, and transmitted through, our or third‑party computer systems, software, networks and mobile devices, or otherwise cause interruptions or malfunctions in our, our clients’, our counterparties’ or third parties’ operations. As a result, we could experience material financial loss, loss of competitive position, regulatory fines and/or sanctions, breach of client contracts, reputational harm or legal liability, which, in turn, could have an adverse effect on our financial condition and results of operations.
As a provider of financial services, we are bound by the disclosure limitations and if we fail to comply with these regulations and industry security requirements, we could be exposed to damages from legal actions from clients, governmental proceedings, governmental notice requirements, and the imposition of fines or prohibitions on the services we provide. Additionally, some of our client contracts require us to indemnify clients in the event of a cyber breach if our systems do not meet minimum security standards. We may be required to spend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against fully or not fully covered through any insurance that we maintain.
Increasing government and regulatory scrutiny of the measures taken by companies to protect against cyber-attacks and data privacy breaches, and have resulted in heightened security requirements, including additional regulatory expectations for oversight of vendors and service providers. If more restrictive privacy laws, rules or industry security requirements are adopted in the future on the Federal or State level, or by a specific industry body, they could have an adverse impact on us through increased costs or business restrictions.
Any inability to prevent security or privacy breaches, or the perception that such breaches may occur, could cause our existing clients to lose confidence in our systems and terminate their agreements with us, inhibit our ability to attract new clients, result in increasing regulation, or bring about other adverse consequences from the government agencies that regulate our business.
Disruption to the operations of third parties whose functions are integral to our ETF platform may adversely affect the prices at which VictoryShares trade, particularly during periods of market volatility.
Shares of ETFs, such as VictoryShares, trade on stock exchanges at prices at, above or below the ETF’s most recent net asset value. While ETFs utilize a creation/redemption feature and arbitrage mechanism designed to make it more likely that the ETF’s shares normally will trade at prices close to the ETF’s net asset value, exchange prices may deviate significantly from the ETF’s net asset value. ETF market prices are subject to numerous potential risks, including trading halts invoked by a stock exchange, inability or unwillingness of market makers, authorized participants, settlement systems or other market participants to perform functions necessary for an ETF’s arbitrage mechanism to function effectively, or significant market volatility. If market events lead to incidences where ETFs trade at prices that deviate significantly from an ETF’s net asset value, or trading halts are invoked by the relevant stock exchange or market, investors may lose confidence in ETF products and redeem their holdings, which may cause our AUM, revenue and earnings to decline.
General Risks
Reputational harm could result in a loss of AUM and revenues.
The integrity of our brands and reputation is critical to our ability to attract and retain clients, business partners and employees and maintain relationships with consultants. We operate within the highly regulated financial services industry and various potential scenarios could result in harm to our reputation. They include internal operational failures, failure to follow investment or legal guidelines in the management of accounts, intentional or unintentional misrepresentation of our products and services in offering or advertising materials, public relations information, litigation (whether substantiated or not), social media or other external communications, employee misconduct or investments in businesses or industries that are controversial to certain special interest groups. Any real or perceived conflict between our and our shareholders’ interests and our clients’ interests, as well as any fraudulent activity or other exposure of client assets or information, may harm our reputation. The negative publicity associated with any of these factors could harm our reputation and adversely impact relationships with existing and potential clients, third‑party distributors, consultants and other business partners
42
and subject us to regulatory sanctions or litigation. Damage to our brands or reputation could negatively impact our standing in the industry and result in loss of business in both the short term and the long term.
Additionally, while we have ultimate control over the business activities of our Franchises, they generally have the autonomy to manage their day‑to‑day operations, and if we fail to intervene in potentially serious matters that may arise, our reputation could be damaged and our results of operations could be materially adversely affected.
If our techniques for managing risk are ineffective, we may be exposed to material unanticipated losses.
In order to manage the significant risks inherent in our business, we must maintain effective policies, procedures and systems that enable us to identify, monitor and mitigate our exposure to operational, legal and reputational risks, including from the investment autonomy of our Franchises. Our risk management methods may prove to be ineffective due to their design or implementation, or as a result of the lack of adequate, accurate or timely information or otherwise. If our risk management efforts are ineffective, we could suffer losses that could have a material adverse effect on our financial condition or operating results. Additionally, we could be subject to litigation, particularly from our clients or investors, and sanctions or fines from regulators.
Our techniques for managing operational, legal and reputational risks in client portfolios may not fully mitigate the risk exposure in all economic or market environments, including exposure to risks that we might fail to identify or anticipate. Because our clients invest in our strategies in order to gain exposure to the portfolio securities of the respective strategies, we have not adopted corporate‑level risk management policies to manage market, interest rate or exchange rate risks that could affect the value of our overall AUM.
Certain of our strategies invest principally in the securities of non‑U.S. companies, which involve foreign currency exchange, tax, political, social and economic uncertainties and risks.
As of December 31, 2022, approximately 9% of our total AUM was invested in strategies that primarily invest in securities of non‑U.S. companies and securities denominated in currencies other than the U.S. dollar. Fluctuations in foreign currency exchange rates could negatively affect the returns of our clients who are invested in these securities. In addition, an increase in the value of the U.S. dollar relative to non‑U.S. currencies is likely to result in a decrease in the U.S. dollar value of our AUM, which, in turn, would likely result in lower revenue and profits.
Investments in non‑U.S. issuers may also be affected by tax positions taken in countries or regions in which we are invested as well as political, social and economic uncertainty. Declining tax revenues may cause governments to assert their ability to tax the local gains and/or income of foreign investors (including our clients), which could adversely affect client interests in investing outside their home markets. Many financial markets are not as developed, or as efficient, as the U.S. financial markets, and, as a result, those markets may have limited liquidity and higher price volatility and may lack established regulations. Liquidity may also be adversely affected by political or economic events, government policies, and social or civil unrest within a particular country, and our ability to dispose of an investment may also be adversely affected if we increase the size of our investments in smaller non‑U.S. issuers. Non‑U.S. legal and regulatory environments, including financial accounting standards and practices, may also be different, and there may be less publicly available information about such companies. These risks could adversely affect the performance of our strategies that are invested in securities of non‑U.S. issuers and may be particularly acute in the emerging or less developed markets in which we invest. In addition to our Trivalent and Sophus Franchises, certain of our other Franchises and Solutions Platform invest in emerging or less developed markets.
The expansion of our business outside of the United States raises tax and regulatory risks, may adversely affect our profit margins and places additional demands on our resources and employees.
We have expanded and intend to continue to expand our distribution efforts into non‑U.S. markets through partnered distribution efforts and product offerings, including Europe, Japan, Singapore, Hong Kong and Australia. For example, we organized and serve as investment manager of Irish‑domiciled UCIT fund. Clients outside the United States may be adversely affected by political, social and economic uncertainty in their respective home countries and regions, which could result in a decrease in the net client cash flows that come from such clients. This expansion has required and will continue to require us to incur a number of up‑front expenses, including those associated with obtaining and maintaining regulatory approvals and office space, as well as additional ongoing expenses, including those associated with leases, the employment of additional support staff and regulatory compliance.
43
Non‑U.S. clients may be less accepting of the U.S. practice of payment for certain research products and services through soft dollars (“soft dollars” are a means of paying brokerage firms for their services through commission revenue, rather than through direct payments) or such practices may not be permissible in certain jurisdictions, which could have the effect of increasing our expenses. In addition, the European Commission adopted several acts under the revised Markets in Financial Instruments Directive (known as “MiFID II”) that prevent the “bundling” of the cost of research together with trading commissions. As a result, clients subject to MiFID II may be unable to use soft dollars to pay for research services in the United Kingdom and in Europe.
Our U.S.‑based employees routinely travel outside the United States as a part of our investment research process or to market our services and may spend extended periods of time in one or more non‑U.S. jurisdictions. Their activities outside the United States on our behalf may raise both tax and regulatory issues. If and to the extent we are incorrect in our analysis of the applicability or impact of non‑U.S. tax or regulatory requirements, we could incur costs or penalties or be the subject of an enforcement or other action. Operating our business in non‑U.S. markets is generally more expensive than in the United States. In addition, costs related to our distribution and marketing efforts in non‑U.S. markets generally have been more expensive than comparable costs in the United States. To the extent that our revenues do not increase to the same degree as our expenses increase in connection with our continuing expansion outside the United States, our profitability could be adversely affected. Expanding our business into non‑U.S. markets may also place significant demands on our existing infrastructure and employees.
We are also subject to a number of laws and regulations governing payments and contributions to political persons or other third parties, including restrictions imposed by the Foreign Corrupt Practices Act (the “FCPA”), as well as trade sanctions administered by the Office of Foreign Assets Control, or OFAC, the U.S. Department of Commerce and the U.S. Department of State. Similar laws in non‑U.S. jurisdictions may also impose stricter or more onerous requirements and implementing them may disrupt our business or cause us to incur significantly more costs to comply with those laws. Different laws may also contain conflicting provisions, making compliance with all laws more difficult. Any determination that we have violated the FCPA or other applicable anti‑corruption laws or sanctions could subject us to, among other things, civil and criminal penalties, material fines, profit disgorgement, injunctions on future conduct, securities litigation and a general loss of investor confidence, any one of which could adversely affect our business prospects, financial condition, or results of operations. While we have developed and implemented policies and procedures designed to ensure strict compliance by us and our personnel with the FCPA and other anti‑corruption laws or sanctions in jurisdictions in which we operate, such policies and procedures may not be effective in all instances to prevent violations.
On June 23, 2016, the United Kingdom (“UK”) held a referendum in which voters approved an exit from the EU, commonly referred to as "Brexit". The UK’s withdrawal from the EU occurred on January 31, 2020, and the UK remained in the EU’s customs union and single market until December 31, 2020 (the “Transition Period”). The UK and the EU agreed a Trade and Cooperation Agreement on December 24, 2020 (the “TCA”), which is intended to be operative from the end of the Transition Period. The TCA was ratified by the UK on December 30, 2020 and is expected to come into full force in February 2021 once relevant EU institutions have also ratified the TCA. Until then, the TCA governs the UK's relationship with the EU on an interim basis. While the TCA regulates a number of important areas, significant parts of the UK economy are not addressed in detail by the TCA, including in particular the services sector, which represents the largest component of the UK’s economy. A number of issues, particularly in relation to the financial services sector, remain to be resolved through further bilateral negotiations, which are currently expected to begin in the early part of 2021. Although we do not currently expect Brexit to have a major impact on our business, the new relationship between the UK and the EU could in the short-term, and possibly for longer, cause disruptions to and create uncertainty in the UK and European economies and any negative impact to overall investor confidence or instability in the global macroeconomic environment could have an adverse economic impact on our results of operations.
Failure to properly address conflicts of interest could harm our reputation, business and results of operations.
As we have expanded the scope of our businesses and our client base, we must continue to address conflicts between our interests and those of our clients. In addition, the SEC and other regulators have increased their scrutiny of potential conflicts of interest. We have procedures and controls that are reasonably designed to address these issues. However, appropriately dealing with conflicts of interest is complex and difficult and if we fail, or appear to fail, to deal appropriately with conflicts of interest, we could face reputational damage, litigation or regulatory proceedings or penalties, any of which may adversely affect our revenues or net income.
44
Insurance may not be available on a cost-effective basis to protect us from liability.
We face the inherent risk of liability related to litigation from clients, third-party vendors or others and actions taken by regulatory agencies. To help protect against these potential liabilities, we purchase insurance in amounts, and against risks, that we consider appropriate, where such insurance is available at prices, we deem acceptable. There can be no assurance, however, that a claim or claims will be covered by insurance or, if covered, will not exceed the limits of available insurance coverage, that any insurer will remain solvent and will meet its obligations to provide us with coverage or that insurance coverage will continue to be available with sufficient limits at a reasonable cost. Insurance costs are impacted by market conditions and the risk profile of the insured and may increase significantly over relatively short periods. In addition, certain insurance coverage may not be available or may only be available at prohibitive costs. Renewals of insurance policies may expose us to additional costs through higher premiums or the assumption of higher deductibles or co-insurance liability.
Item 1B. Unresolved Staff Comments.
None
Item 2. Properties.
The Company leases its principal executive offices, which are located in San Antonio, TX. In the United States, the Company also leases office space in Brooklyn, OH; Birmingham, MI; Boston, MA; Rocky River, OH; Cincinnati, OH; Charlotte, NC; Denver, CO; Des Moines, IA; Hanover, NH; New York, NY; Norwalk, CT; and San Francisco, CA. Outside the United States, the Company leases office space in Singapore. The Company believes its existing facilities are adequate to meet its current and future business requirements.
Item 3. Legal Proceedings.
From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. The Company is not currently a party to any material legal proceedings.
Item 4. Mine Safety Disclosures.
Not applicable
45
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
Shares of the Company’s Common Stock are listed and trade on NASDAQ under the symbol “VCTR”. As of December 31, 2022, there were approximately 3,000 beneficial shareholders of the Company’s Common Stock.
Performance Graph
The following graph shows a comparison from February 8, 2018 (the date our Common Stock commenced trading on NASDAQ) through December 31, 2022 of the cumulative total return of our Common Stock, the Standard & Poor’s 500 Stock Index (S&P 500 Index) and a peer group comprised of Affiliated Managers Group, Inc., Artisan Partners Asset Management Inc., BrightSphere Investment Group plc, Eaton Vance Corp., and Virtus Investment Partners, Inc. Eaton Vance Corp. was acquired and ceased to publicly trade on March 1, 2021. The graph assumes that $100 was invested at the market close on February 8, 2018 in our common stock, the S&P 500 Index and the peer group and assumes reinvestment of any dividends. The stock price performance of the following graph is not necessarily indicative of future stock price performance.
46
Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
The following table sets out information regarding purchases of equity securities by the Company for the three months ended December 31, 2022.
|
|
Total |
|
|
Average |
|
|
Total |
|
|
Approximate |
|
||||
Period |
|
Purchased(1) |
|
|
Stock |
|
|
or Programs |
|
|
(in millions)(2) |
|
||||
October 1-31, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
66.8 |
|
November 1-30, 2022 |
|
|
784,615 |
|
|
|
30.52 |
|
|
|
784,615 |
|
|
|
42.9 |
|
December 1-31, 2022 |
|
|
557,392 |
|
|
|
28.27 |
|
|
|
497,392 |
|
|
|
28.8 |
|
Total |
|
|
1,342,007 |
|
|
$ |
29.58 |
|
|
|
1,282,007 |
|
|
|
|
Dividend Policy
In 2019, the Company announced the initiation of quarterly cash dividends and paid its first quarterly dividend in September of that year. During 2020, the Board authorized two increases in the quarterly cash dividend. In August 2020, the dividend was increased by 20%; and, in November, the dividend was increased by 17%. Combined, the two increases resulted in the quarterly cash dividend growing by 40%, from $0.05 per share in the first quarter of 2020, to $0.07 per share in the fourth quarter of 2020. During 2021, the Board authorized four increases in the quarterly cash dividend. Combined, the four increases resulted in the quarterly cash dividend growing by approximately 143%, from $0.07 per share in the fourth quarter of 2020, to $0.17 per share in the fourth quarter of 2021. During 2022, the Board authorized a $0.25 per share quarterly cash dividend, an increase of $0.08, or 47%, from the $0.17 per share in the fourth quarter of 2021.
Holders of restricted stock awards on the Company’s Common Stock that are unvested at the time quarterly dividends are declared are entitled to be paid these dividends as and when the restricted stock vests. Potential future dividend payments will be at the sole discretion of our board of directors and will depend upon then‑existing conditions, including capital requirements to execute our growth strategy, results of operations, financial condition, projected cash flow, and terms associated with our current credit facility or any future financing. Potential increases to the Company’s cash dividend rate will be assessed annually.
47
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Unless the context otherwise requires, references in this Annual Report on Form 10-K 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 Annual Report on Form 10-K is to provide a discussion and analysis, from management’s perspective, of the key performance indicators and material information necessary to assess our financial condition, results of operations, liquidity and cash flows for the year ended December 31, 2022. In addition, we also discuss the Company’s contractual obligations and off-balance sheet arrangements. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this report. In addition to historical information, this discussion and analysis contains forward‑looking statements that involve risks, uncertainties and assumptions, which could cause actual results to differ materially from management’s expectations. Please refer to the sections of this report entitled “Forward‑Looking Statements” and “Risk Factors.”
Overview
Our Business – Victory is a diversified global asset management firm with $153.0 billion in AUM as of December 31, 2022. 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 12 autonomous Investment Franchises and a Solutions Platform, Victory offers a wide array of investment products, including actively and passively managed mutual funds, rules-based and active ETFs, institutional separate accounts, VIPs, ESG and impact investment strategies, 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 SMAs and UMAs through wrap account programs, CITs, and UCITs. As of December 31, 2022, our Franchises and our Solutions Platform collectively managed a diversified set of 128 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, 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 RIA 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 clients including USAA members, the military community, and other individual clients.
48
We have grown our AUM from $17.9 billion following the management-led buyout with Crestview GP in August 2013 to $153.0 billion at December 31, 2022. 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 pursuant to the WestEnd purchase agreement (as amended, the “WestEnd Purchase Agreement”), resulting in WestEnd becoming the Company’s twelfth investment franchise. 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. At December 31, 2021, the WestEnd acquired assets totaled $19.3 billion. The WestEnd acquired assets had no economic impact on operations in 2021 and no effect on asset flows, average assets, revenues or earnings in the full-year period ended December 31, 2021.
The aggregate purchase price (the “WestEnd Purchase Price”) for the WestEnd Acquisition was estimated at $716.1 million, net of cash acquired, which includes (i) $475.8 million in cash paid at closing (the “WestEnd Closing”) net of cash acquired plus the acquisition date value of contingent payments due to sellers of $239.7 million plus $0.6 million paid in cash in April 2022 for net working capital adjustments. The contingent earn-out payments are based on net revenue of the WestEnd business during each of the first four years following the WestEnd Closing, subject to certain “catch-up” provisions over a five and one half year period following the WestEnd Closing. A maximum of $320.0 million ($80.0 million per year) in earn-out payments may be paid.
The estimated fair value of contingent consideration payable to sellers was estimated at $202.7 million at December 31, 2022 as compared to $239.7 million at December 31, 2021 and is included in consideration payable for acquisition of business in the Consolidated Balance Sheets. The decrease in the liability of $37.0 million for the year ended December 31, 2022 was recorded in change in value of consideration payable for acquisition of business in the Consolidated Statements of Operations. 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 NEC, resulting in NEC becoming the Company’s eleventh investment franchise. 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. At November 1, 2021, the NEC AUM that was acquired totaled $795.0 million.
The estimated purchase price for the NEC Acquisition is $63.1 million, which includes $62.8 million in cash paid at closing, net of cash acquired, and $0.3 million paid in cash in March 2022 for net working capital adjustments. Under the terms of the purchase agreement, the Company will pay up to an additional $35.0 million in cash based on net revenue growth over a six year period following the closing date. Refer to Note 4, Acquisitions, for further details on the NEC Acquisition.
THB Acquisition (the “THB Acquisition”) – On March 1, 2021, the Company completed the acquisition of certain assets of THB, resulting in THB becoming the Company’s tenth investment franchise. The acquisition expanded and diversified our investment platform, adding capacity constrained asset classes. THB manages responsible investment portfolios in the micro-cap, small-cap and mid-cap assets classes, including U.S., global and international strategies. At March 1, 2021, the THB AUM that was acquired totaled $547 million.
Nominal consideration was paid for the assets of THB. The THB investment team shares in the revenue generated on their products and benefit from our centralized operational, marketing and distribution platforms. THB has significant room for AUM growth across its product set, which we think will significantly accelerate with our distribution support. Refer to Note 4, Acquisitions, for further details on the THB Acquisition.
USAA AMCO Acquisition – On July 1, 2019, the Company completed the acquisition (the “USAA AMCO Acquisition”) of USAA Asset Management (“USAA Adviser”) and 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. The acquisition also provided the Company the rights to offer products and services using the USAA brand and the opportunity to offer its products to USAA members through a direct distribution channel.
A maximum of $150.0 million ($37.5 million per year) in contingent payments is payable to sellers based on the annual revenue of USAA Adviser attributable to all “non-managed money”-related AUM in each of the first four
49
years following the closing date. In the fourth quarter of 2020, we paid $37.5 million in cash to sellers for the first annual contingent payment. In the fourth quarter of 2021, we paid $37.5 million in cash to sellers for the second annual contingent payment. On October 7, 2022, the Company paid $37.5 million in cash to sellers for the third annual earn out period for the USAA AMCO Acquisition.
The estimated fair value of contingent consideration payable to sellers was estimated at $27.7 million at December 31, 2022 as compared to $68.8 million at December 31, 2021 and is included in consideration payable for acquisition of business in the Consolidated Balance Sheets. The decrease in the fair value of the liability of $3.6 million for the year ended December 31, 2022 was recorded in change in value of consideration payable for acquisition of business in the Consolidated Statements of Operations. Refer to Note 4, Acquisitions, for further details on the USAA AMCO Acquisition.
Alderwood - The Company owned a 15% equity interest in Alderwood Partners LLP (“Alderwood”) from September 20, 2020 through July 31, 2022, when the Company retired as a member of Alderwood. The Company analyzed its investment in Alderwood under the voting interest model and determined that it did not have a controlling financial interest. The Company accounted for its Alderwood investment using the equity method of accounting. Refer to Note 13, Equity Method Investment, for additional information on Alderwood.
Business Highlights in 2022
Assets under management:
Investment performance:
2022 corporate ESG initiatives:
50
2022 investing ESG initiatives:
Financial highlights:
51
Other:
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The Fortune annual list ranks the top performing, publicly traded companies in revenues, profits and stock returns over the three-year period ended April 30, 2022.
Key Performance Indicators
The following table presents the key performance indicators we focus on when reviewing our results:
|
|
Year Ended December 31, |
|
|
||||||||||||
($ in millions, except for basis points and percentages) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
||||||
AUM at period end |
|
$ |
|
152,952 |
|
|
$ |
|
183,654 |
|
|
$ |
|
147,241 |
|
|
Average AUM |
|
|
|
164,025 |
|
|
|
|
158,590 |
|
|
|
|
136,422 |
|
|
Gross flows |
|
|
|
33,934 |
|
|
|
|
28,254 |
|
|
|
|
35,857 |
|
|
Net short term flows |
|
|
|
(187 |
) |
|
|
|
(528 |
) |
|
|
|
(8,441 |
) |
|
Net long term flows |
|
|
|
(2,545 |
) |
|
|
|
(3,952 |
) |
|
|
|
(10,911 |
) |
|
Net flows |
|
|
|
(2,732 |
) |
|
|
|
(4,480 |
) |
|
|
|
(19,352 |
) |
|
Total revenue |
|
|
|
854.8 |
|
|
|
|
890.3 |
|
|
|
|
775.4 |
|
|
Revenue on average AUM |
|
|
|
52.1 |
|
bps |
|
|
56.1 |
|
bps |
|
|
56.8 |
|
bps |
Net income |
|
|
|
275.5 |
|
|
|
|
278.4 |
|
|
|
|
212.5 |
|
|
Adjusted EBITDA(1) |
|
|
|
424.2 |
|
|
|
|
449.0 |
|
|
|
|
377.3 |
|
|
Adjusted EBITDA margin(1)(2) |
|
|
|
49.6 |
|
% |
|
|
50.4 |
|
% |
|
|
48.7 |
|
% |
Adjusted Net Income(1) |
|
|
|
293.8 |
|
|
|
|
329.0 |
|
|
|
|
258.5 |
|
|
Tax benefit of goodwill and acquired intangibles(3) |
|
|
|
37.5 |
|
|
|
|
28.0 |
|
|
|
|
27.0 |
|
|
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.
52
Valuation of Assets Under Management
The fair value of assets under management of the Victory Funds, USAA Funds and VictoryShares is primarily determined using quoted market prices or independent third-party pricing services or broker price quotes. In certain circumstances, a quotation or price evaluation is not readily available from a pricing service. In these cases, pricing is determined by management based on a prescribed valuation process that has been approved by the directors/trustees of the sponsored products. The same prescribed valuation process is used to price securities in separate accounts and the Company’s other non-alternative investment vehicles for which a quotation or price evaluation is not readily available from a pricing service.
For certain alternative investment vehicles, including the NEC funds, AUM represents limited partner capital commitments during the commitment period of the fund. Following the earlier of the termination of the commitment period and the beginning of any commitment period for a successor fund, AUM generally represents, depending on the fund, the lesser of a) the net asset value of the fund and b) the aggregated adjusted cost basis of each unrealized portfolio investment or the limited partner capital commitments reduced by the amount of capital contributions used to make portfolio investments that have been disposed. The fair value of Level III assets held by alternative investment vehicles is determined under the respective valuation policy for each fund. The valuation policies address the fact that substantially all the investments of a fund may not have readily available market information and therefore the fair value for these assets is typically determined using unobservable inputs and models that may include subjective assumptions. AUM reported by the Company for alternative investment vehicles may not necessarily equal the funds’ net asset values or the total fair value of the funds’ portfolio investments as AUM represents the basis for calculating management fees. For the periods presented, less than one percent of the Company’s total AUM were Level III assets priced without using a quoted market price, broker price quote or pricing service quotation.
AUM by Asset Class – the following table presents our AUM by asset class as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
As of December 31, |
|
||||||||||||||||||||||
(in millions) |
|
2022 |
|
|
2021(1)(3) |
|
|
2020(3) |
|
|
2019(2)(3) |
|
|
2018(3) |
|
||||||||||
Fixed Income |
|
$ |
|
26,353 |
|
|
$ |
|
35,154 |
|
|
$ |
|
36,639 |
|
|
$ |
|
38,011 |
|
|
$ |
|
6,872 |
|
Solutions |
|
|
|
51,507 |
|
|
|
|
60,364 |
|
|
|
|
33,676 |
|
|
|
|
31,616 |
|
|
|
|
3,761 |
|
U.S. Mid Cap Equity |
|
|
|
27,892 |
|
|
|
|
30,578 |
|
|
|
|
26,230 |
|
|
|
|
26,347 |
|
|
|
|
20,297 |
|
U.S. Small Cap Equity |
|
|
|
15,103 |
|
|
|
|
20,094 |
|
|
|
|
18,368 |
|
|
|
|
17,346 |
|
|
|
|
12,948 |
|
U.S. Large Cap Equity |
|
|
|
10,973 |
|
|
|
|
15,766 |
|
|
|
|
14,230 |
|
|
|
|
14,091 |
|
|
|
|
3,759 |
|
Global / Non-U.S. Equity |
|
|
|
14,160 |
|
|
|
|
16,050 |
|
|
|
|
14,141 |
|
|
|
|
12,754 |
|
|
|
|
5,080 |
|
Alternative Investments |
|
|
|
3,663 |
|
|
|
|
2,548 |
|
|
|
|
422 |
|
|
|
|
81 |
|
|
|
|
46 |
|
Total Long-Term Assets |
|
$ |
|
149,649 |
|
|
$ |
|
180,554 |
|
|
$ |
|
143,707 |
|
|
$ |
|
140,245 |
|
|
$ |
|
52,763 |
|
Money Market / Short-Term Assets |
|
|
|
3,302 |
|
|
|
|
3,100 |
|
|
|
|
3,534 |
|
|
|
|
11,587 |
|
|
|
|
— |
|
Total |
|
$ |
|
152,952 |
|
|
$ |
|
183,654 |
|
|
$ |
|
147,241 |
|
|
$ |
|
151,832 |
|
|
$ |
|
52,763 |
|
53
Asset Flows by Asset Class – the following table summarizes our asset flows by asset class for the periods indicated:
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
U.S. Mid |
|
|
Small |
|
|
|
|
|
|
Large |
|
|
Global / |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money |
|
|
|
|
|
|
|||||||||||||||
|
|
Cap |
|
|
Cap |
|
|
Fixed |
|
|
Cap |
|
|
Non-U.S. |
|
|
|
|
|
|
Alternative |
|
|
|
Total |
|
|
|
Market / |
|
|
|
|
|
|
||||||||||||||||||
(in millions) |
|
Equity |
|
|
Equity |
|
|
Income |
|
|
Equity |
|
|
Equity |
|
|
Solutions |
|
|
Investments |
|
|
|
Long-term |
|
|
|
Short-term |
|
|
|
Total |
|
||||||||||||||||||||
Year Ended December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Beginning AUM |
|
$ |
|
30,578 |
|
|
$ |
|
20,094 |
|
|
$ |
|
35,154 |
|
|
$ |
|
15,766 |
|
|
$ |
|
16,050 |
|
|
$ |
|
60,364 |
|
|
$ |
|
2,548 |
|
|
|
$ |
|
180,554 |
|
|
|
$ |
|
3,100 |
|
|
|
$ |
|
183,654 |
|
Gross client cash inflows |
|
|
|
6,859 |
|
|
|
|
3,162 |
|
|
|
|
5,524 |
|
|
|
|
406 |
|
|
|
|
4,149 |
|
|
|
|
8,169 |
|
|
|
|
5,045 |
|
|
|
|
|
33,313 |
|
|
|
|
|
621 |
|
|
|
|
|
33,934 |
|
Gross client cash outflows |
|
|
|
(6,919 |
) |
|
|
|
(5,214 |
) |
|
|
|
(9,545 |
) |
|
|
|
(1,498 |
) |
|
|
|
(3,111 |
) |
|
|
|
(6,247 |
) |
|
|
|
(3,324 |
) |
|
|
|
|
(35,858 |
) |
|
|
|
|
(807 |
) |
|
|
|
|
(36,666 |
) |
Net client cash flows |
|
|
|
(60 |
) |
|
|
|
(2,053 |
) |
|
|
|
(4,020 |
) |
|
|
|
(1,093 |
) |
|
|
|
1,038 |
|
|
|
|
1,921 |
|
|
|
|
1,721 |
|
|
|
|
|
(2,545 |
) |
|
|
|
|
(187 |
) |
|
|
|
|
(2,732 |
) |
Market appreciation / (depreciation) |
|
|
|
(2,641 |
) |
|
|
|
(2,965 |
) |
|
|
|
(3,345 |
) |
|
|
|
(3,328 |
) |
|
|
|
(3,153 |
) |
|
|
|
(10,887 |
) |
|
|
|
(215 |
) |
|
|
|
|
(26,533 |
) |
|
|
|
|
39 |
|
|
|
|
|
(26,495 |
) |
Realizations and distributions |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(376 |
) |
|
|
|
|
(376 |
) |
|
|
|
|
— |
|
|
|
|
|
(376 |
) |
Acquired assets / Net transfers |
|
|
|
14 |
|
|
|
|
27 |
|
|
|
|
(1,436 |
) |
|
|
|
(372 |
) |
|
|
|
226 |
|
|
|
|
107 |
|
|
|
|
(16 |
) |
|
|
|
|
(1,450 |
) |
|
|
|
|
350 |
|
|
|
|
|
(1,100 |
) |
Ending AUM |
|
$ |
|
27,892 |
|
|
$ |
|
15,103 |
|
|
$ |
|
26,353 |
|
|
$ |
|
10,973 |
|
|
$ |
|
14,160 |
|
|
$ |
|
51,507 |
|
|
$ |
|
3,663 |
|
|
|
$ |
|
149,649 |
|
|
|
$ |
|
3,302 |
|
|
|
$ |
|
152,952 |
|
Year Ended December 31, 2021(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Beginning AUM |
|
$ |
|
26,230 |
|
|
$ |
|
18,368 |
|
|
$ |
|
36,639 |
|
|
$ |
|
14,230 |
|
|
$ |
|
14,141 |
|
|
$ |
|
33,676 |
|
|
$ |
|
422 |
|
|
|
$ |
|
143,706 |
|
|
|
$ |
|
3,534 |
|
|
|
$ |
|
147,241 |
|
Gross client cash inflows |
|
|
|
5,935 |
|
|
|
|
4,562 |
|
|
|
|
6,756 |
|
|
|
|
364 |
|
|
|
|
2,822 |
|
|
|
|
6,217 |
|
|
|
|
1,213 |
|
|
|
|
|
27,869 |
|
|
|
|
|
386 |
|
|
|
|
|
28,254 |
|
Gross client cash outflows |
|
|
|
(7,742 |
) |
|
|
|
(5,644 |
) |
|
|
|
(9,000 |
) |
|
|
|
(1,565 |
) |
|
|
|
(2,362 |
) |
|
|
|
(5,305 |
) |
|
|
|
(201 |
) |
|
|
|
|
(31,820 |
) |
|
|
|
|
(914 |
) |
|
|
|
|
(32,734 |
) |
Net client cash flows |
|
|
|
(1,807 |
) |
|
|
|
(1,082 |
) |
|
|
|
(2,244 |
) |
|
|
|
(1,202 |
) |
|
|
|
460 |
|
|
|
|
912 |
|
|
|
|
1,012 |
|
|
|
|
|
(3,952 |
) |
|
|
|
|
(528 |
) |
|
|
|
|
(4,480 |
) |
Market appreciation / (depreciation) |
|
|
|
6,169 |
|
|
|
|
2,685 |
|
|
|
|
649 |
|
|
|
|
2,766 |
|
|
|
|
1,662 |
|
|
|
|
6,611 |
|
|
|
|
30 |
|
|
|
|
|
20,573 |
|
|
|
|
|
10 |
|
|
|
|
|
20,583 |
|
Realizations and distributions |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
Acquired assets / Net transfers |
|
|
|
(14 |
) |
|
|
|
122 |
|
|
|
|
110 |
|
|
|
|
(28 |
) |
|
|
|
(214 |
) |
|
|
|
19,165 |
|
|
|
|
1,084 |
|
|
|
|
|
20,226 |
|
|
|
|
|
84 |
|
|
|
|
|
20,310 |
|
Ending AUM |
|
$ |
|
30,578 |
|
|
$ |
|
20,094 |
|
|
$ |
|
35,154 |
|
|
$ |
|
15,766 |
|
|
$ |
|
16,050 |
|
|
$ |
|
60,364 |
|
|
$ |
|
2,548 |
|
|
|
$ |
|
180,554 |
|
|
|
$ |
|
3,100 |
|
|
|
$ |
|
183,654 |
|
Year Ended December 31, 2020(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Beginning AUM |
|
$ |
|
26,347 |
|
|
$ |
|
17,346 |
|
|
$ |
|
38,010 |
|
|
$ |
|
14,091 |
|
|
$ |
|
12,754 |
|
|
$ |
|
31,616 |
|
|
$ |
|
81 |
|
|
|
$ |
|
140,245 |
|
|
|
$ |
|
11,587 |
|
|
|
$ |
|
151,832 |
|
Gross client cash inflows |
|
|
|
4,144 |
|
|
|
|
4,458 |
|
|
|
|
6,512 |
|
|
|
|
695 |
|
|
|
|
2,495 |
|
|
|
|
4,517 |
|
|
|
|
380 |
|
|
|
|
|
23,201 |
|
|
|
|
|
12,656 |
|
|
|
|
|
35,857 |
|
Gross client cash outflows |
|
|
|
(7,605 |
) |
|
|
|
(5,201 |
) |
|
|
|
(9,151 |
) |
|
|
|
(2,631 |
) |
|
|
|
(2,551 |
) |
|
|
|
(6,931 |
) |
|
|
|
(44 |
) |
|
|
|
|
(34,112 |
) |
|
|
|
|
(21,097 |
) |
|
|
|
|
(55,209 |
) |
Net client cash flows |
|
|
|
(3,460 |
) |
|
|
|
(742 |
) |
|
|
|
(2,639 |
) |
|
|
|
(1,936 |
) |
|
|
|
(56 |
) |
|
|
|
(2,413 |
) |
|
|
|
336 |
|
|
|
|
|
(10,911 |
) |
|
|
|
|
(8,441 |
) |
|
|
|
|
(19,352 |
) |
Market appreciation / (depreciation) |
|
|
|
3,436 |
|
|
|
|
1,959 |
|
|
|
|
1,507 |
|
|
|
|
1,935 |
|
|
|
|
1,433 |
|
|
|
|
4,460 |
|
|
|
|
5 |
|
|
|
|
|
14,736 |
|
|
|
|
|
58 |
|
|
|
|
|
14,794 |
|
Realizations and distributions |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
Acquired assets / Net transfers |
|
|
|
(93 |
) |
|
|
|
(195 |
) |
|
|
|
(240 |
) |
|
|
|
139 |
|
|
|
|
10 |
|
|
|
|
14 |
|
|
|
|
1 |
|
|
|
|
|
(364 |
) |
|
|
|
|
331 |
|
|
|
|
|
(33 |
) |
Ending AUM |
|
$ |
|
26,230 |
|
|
$ |
|
18,368 |
|
|
$ |
|
36,639 |
|
|
$ |
|
14,230 |
|
|
$ |
|
14,141 |
|
|
$ |
|
33,676 |
|
|
$ |
|
422 |
|
|
|
$ |
|
143,706 |
|
|
|
$ |
|
3,534 |
|
|
|
$ |
|
147,241 |
|
AUM by Distribution Channel – the following table presents our AUM by distribution channel as of the dates indicated:
|
|
As of December 31, |
|
|
||||||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
||||||||||||||||||
(in millions) |
|
Amount |
|
|
% of total |
|
|
Amount |
|
|
% of total |
|
|
Amount |
|
|
% of total |
|
|
|||||||||
Direct |
|
$ |
|
52,551 |
|
|
|
34 |
|
% |
$ |
|
68,817 |
|
|
|
37 |
|
% |
$ |
|
68,749 |
|
|
|
46 |
|
% |
Institutional |
|
|
|
44,510 |
|
|
|
29 |
|
% |
|
|
49,697 |
|
|
|
27 |
|
% |
|
|
40,840 |
|
|
|
28 |
|
% |
Retail |
|
|
|
55,891 |
|
|
|
37 |
|
% |
|
|
65,140 |
|
|
|
36 |
|
% |
|
|
37,651 |
|
|
|
26 |
|
% |
Total AUM(1) |
|
$ |
|
152,952 |
|
|
|
100 |
|
% |
$ |
|
183,654 |
|
|
|
100 |
|
% |
$ |
|
147,241 |
|
|
|
100 |
|
% |
54
Assets Flows by Vehicle – the following table summarizes our asset flows by vehicle for the periods indicated:
|
|
|
|
|
|
|
|
|
|
Separate Accounts |
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
and Other |
|
|
|
|
|
|||||
(in millions) |
|
Mutual Funds(1) |
|
|
ETFs(2) |
|
|
Vehicles(3) |
|
|
Total |
|
||||||||
Year Ended December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beginning AUM |
|
$ |
|
124,142 |
|
|
$ |
|
4,871 |
|
|
$ |
|
54,641 |
|
|
$ |
|
183,654 |
|
Gross client cash inflows |
|
|
|
21,198 |
|
|
|
|
2,043 |
|
|
|
|
10,692 |
|
|
|
|
33,934 |
|
Gross client cash outflows |
|
|
|
(27,703 |
) |
|
|
|
(572 |
) |
|
|
|
(8,391 |
) |
|
|
|
(36,666 |
) |
Net client cash flows |
|
|
|
(6,505 |
) |
|
|
|
1,472 |
|
|
|
|
2,302 |
|
|
|
|
(2,732 |
) |
Market appreciation / (depreciation) |
|
|
|
(17,092 |
) |
|
|
|
(724 |
) |
|
|
|
(8,679 |
) |
|
|
|
(26,495 |
) |
Realization and distributions |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(376 |
) |
|
|
|
(376 |
) |
Acquired assets / Net transfers |
|
|
|
(1,098 |
) |
|
|
|
9 |
|
|
|
|
(11 |
) |
|
|
|
(1,100 |
) |
Ending AUM |
|
$ |
|
99,447 |
|
|
$ |
|
5,627 |
|
|
$ |
|
47,877 |
|
|
$ |
|
152,952 |
|
Year Ended December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beginning AUM |
|
$ |
|
112,998 |
|
|
$ |
|
3,976 |
|
|
$ |
|
30,267 |
|
|
$ |
|
147,241 |
|
Gross client cash inflows |
|
|
|
19,070 |
|
|
|
|
849 |
|
|
|
|
8,335 |
|
|
|
|
28,254 |
|
Gross client cash outflows |
|
|
|
(23,345 |
) |
|
|
|
(375 |
) |
|
|
|
(9,014 |
) |
|
|
|
(32,734 |
) |
Net client cash flows |
|
|
|
(4,275 |
) |
|
|
|
474 |
|
|
|
|
(678 |
) |
|
|
|
(4,480 |
) |
Market appreciation / (depreciation) |
|
|
|
15,638 |
|
|
|
|
828 |
|
|
|
|
4,117 |
|
|
|
|
20,583 |
|
Realization and distributions |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
Acquired assets / Net transfers(4) |
|
|
|
(219 |
) |
|
|
|
(407 |
) |
|
|
|
20,936 |
|
|
|
|
20,310 |
|
Ending AUM |
|
$ |
|
124,142 |
|
|
$ |
|
4,871 |
|
|
$ |
|
54,641 |
|
|
$ |
|
183,654 |
|
Year Ended December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beginning AUM |
|
$ |
|
118,605 |
|
|
$ |
|
4,213 |
|
|
$ |
|
29,014 |
|
|
$ |
|
151,832 |
|
Gross client cash inflows |
|
|
|
31,172 |
|
|
|
|
492 |
|
|
|
|
4,192 |
|
|
|
|
35,857 |
|
Gross client cash outflows |
|
|
|
(48,398 |
) |
|
|
|
(913 |
) |
|
|
|
(5,898 |
) |
|
|
|
(55,209 |
) |
Net client cash flows |
|
|
|
(17,226 |
) |
|
|
|
(420 |
) |
|
|
|
(1,705 |
) |
|
|
|
(19,352 |
) |
Market appreciation / (depreciation) |
|
|
|
11,746 |
|
|
|
|
183 |
|
|
|
|
2,864 |
|
|
|
|
14,794 |
|
Realization and distributions |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
Acquired assets / Net transfers |
|
|
|
(127 |
) |
|
|
|
— |
|
|
|
|
94 |
|
|
|
|
(33 |
) |
Ending AUM |
|
$ |
|
112,998 |
|
|
$ |
|
3,976 |
|
|
$ |
|
30,267 |
|
|
$ |
|
147,241 |
|
December 31, 2022 AUM – Our total AUM at December 31, 2022 decreased by $30.7 billion, or 16.7%, to $153.0 billion from $183.7 billion at December 31, 2021, primarily driven by negative market movement and net outflows of $26.5 billion and $2.7 billion, respectively.
Net outflows were driven by $4.0 billion in fixed income strategies, $2.1 billion our U.S. small cap equity strategies, $1.1 billion in our U.S. large cap equity strategies, and $0.2 billion in money market and short-term strategies, partially offset by $1.9 billion in net inflows into our Solutions Platform, $1.7 billion into our alternative investment strategies, and $1.0 billion into our global/non-U.S. equity strategies.
December 31, 2021 AUM – Our total AUM at December 31, 2021 increased by $36.4 billion, or 24.7%, to $183.7 billion from $147.2 billion at December 31, 2020, primarily driven by the combination of net acquired assets and positive market movement of $20.3 billion and $20.6 billion, respectively, partially offset by net outflows of $4.5 billion.
55
The net outflows were driven by $2.2 billion in fixed income strategies, $1.8 billion our U.S. mid cap equity strategies, $1.2 billion in our U.S. large cap equity strategies, $1.1 billion in our U.S. small cap equity strategies and $0.5 billion in money market and short-term strategies, partially offset by $1.9 billion in net inflows into our Solutions Platform and $0.5 billion into our global/non-U.S. equity strategies.
December 31, 2020 AUM – Our total AUM at December 31, 2020 was $147.2 billion, a decrease of $4.6 billion, or 3.0%, compared to $151.8 billion at December 31, 2019. The decrease in AUM during 2020 was due to net outflows of $19.4 billion partially offset by $14.8 billion in positive market movement. Short-term money market assets accounted for $3.5 billion, or 2.4% of the total AUM at December 31, 2020.
The net outflows were driven by $8.4 billion in money market and short-term strategies, $3.5 billion in our U.S. mid cap equity strategies, $2.6 billion in our fixed income strategies, $2.1 billion in our Solutions Platform, $1.9 billion in our U.S. large cap equity strategies and $0.7 billion in our U.S. small cap equity strategies.
GAAP Results of Operations
Our GAAP revenues principally consist of: (i) investment management fees, which are based on our overall weighted average fee rate charged to our clients and our level of AUM and (ii) fund administration and distribution fees, which are asset‑based fees earned from open‑end mutual funds for administration and distribution services. Fund administration and fund distribution fees also include fund transfer agent fees (related to the USAA Funds), which are based on a contractual rate applied to average AUM or the number of accounts in these funds.
The Company has contractual arrangements with third parties to provide certain advisory, administration, transfer agent and distribution services. Management considers whether we are acting as the principal service provider or as an agent to determine whether revenue should be recorded based on the gross amount payable by the customer or net of payments to third-party service providers, respectively. Victory is considered a principal service provider if we control the service that is transferred to the customer. We are considered an agent when we arrange for the service to be provided by another party and do not control the service.
Investment Management Fees – Investment management fees are earned from managing clients’ assets. Our investment management fee revenue fluctuates based on a number of factors, including the total value of our AUM, the composition of AUM across investment strategies and vehicles, changes in the investment management fee rates on our products and the extent to which we enter into fee arrangements that differ from our standard fee schedule as well as the extent to which our fund expenses exceed fund caps. Investment management fees are earned based on a percentage of AUM as delineated in the respective investment management agreements. Our investment management fees are calculated based on daily average AUM, monthly average AUM or point in time AUM.
Fund Administration and Distribution Fees – Fund administration fees are primarily asset‑based fees earned from open‑end funds for administration services. Fund administration fees fluctuate based on the level of average open‑end fund AUM and the fee rates charged for these services.
Fund distribution fees are asset‑based fees earned from open‑end funds for distribution services. Fund distribution fees fluctuate based on the level of average open‑end fund AUM and the composition of those assets across share classes that pay varying levels of fund distribution fees.
The Company has contractual arrangements with a third party to provide certain sub-administration services. We are the primary obligor under the contracts with the Victory Funds, USAA Funds and VictoryShares and have the ability to select the service provider and establish pricing. As a result, fund administration fees and sub-administration expenses are recorded on a gross basis. VCS has contractual arrangements with third parties to provide certain distribution services. VCS is the primary obligor under the contracts with the Victory Funds and USAA Funds and has the ability to select the service provider and establish pricing. Substantially all of VCS’s revenue is recorded gross of payments made to third parties.
Fund transfer agent fees are earned for providing mutual fund shareholder services. Transfer agent fees fluctuate based on the level of average AUM and the number of accounts in the USAA Funds.
The Company has contractual arrangements with a third party to provide certain sub-transfer agent services. We are the primary obligor under the transfer agency contracts with the USAA Funds and have the ability to select the service provider and establish pricing. As a result, fund transfer agent fees and sub-transfer agent expenses are recorded on a gross basis.
56
GAAP Expenses
Our GAAP expenses principally consist of: (i) personnel compensation and benefits; (ii) distribution and other asset‑based expenses; (iii) general and administrative expenses; (iv) depreciation and amortization charges; and (v) acquisition‑related expenses comprising of changes in the fair value of contingent acquisition payments and restructuring and acquisition costs.
Personnel Compensation and Benefits – Personnel compensation and benefits is our most significant category of expense. Personnel compensation and benefits consists of (i) salaries, payroll related taxes and employee benefits, (ii) incentive compensation, (iii) sales‑based compensation, (iv) compensation expense related to equity awards granted to employees and directors and (v) acquisition‑related compensation in the form of cash retention bonuses and certain transaction-related compensatory payment arrangements.
Incentive compensation is the largest component of the total compensation of our employees. The aggregate amount of cash incentive compensation is funded by a pool that is based on a percentage of total Company earnings (before taking into account incentive compensation). This incentive pool is used to pay the investment teams a percentage of the revenue earned by their respective Franchise on a quarterly basis. This incentive pool is also used to pay incentive compensation to senior management and other non‑investment employees on an annual basis. Incentive compensation paid to senior management and to other non‑investment employees is discretionary and subjectively determined based on Company and individual performance and the total amount of the incentive compensation pool.
Distribution and Other Asset‑based Expenses – Distribution and other asset‑based expenses consists of: (i) broker‑dealer distribution fees and platform distribution fees and (ii) sub‑administration, sub-transfer agent, sub‑advisory expenses and middle‑office expenses.
Broker‑dealer distribution fees are paid by VCS as the broker‑dealer for the Victory Funds and USAA Funds to third‑party distributors. The Victory Funds and USAA Funds pay VCS for distribution services and VCS, in turn, pays third‑party distributors.
Platform distribution fees are paid by VCM as the investment adviser to the Victory Funds and USAA Funds. Platform distribution fees are paid to financial advisors, retirement plan providers and intermediaries for servicing and administering accounts invested in shares of the Victory Funds and USAA Funds. Distribution fees typically vary based on the level of AUM and the composition of those assets across share classes.
Sub‑administration, sub-transfer agent, sub‑advisory and middle‑office expenses consist of fees paid to our sub‑administrators of the Victory Funds, VictoryShares and USAA Funds, fees paid to our sub-transfer agent for the USAA Funds, fees paid to sub‑advisers on certain Victory Funds and USAA Funds and fees paid to vendors to which we outsource middle‑office functions.
57
General and Administrative Expenses – General and administrative expenses primarily consist of investment research and technology costs, professional and marketing fees, travel, rent and insurance expenses.
Depreciation and Amortization – Depreciation and amortization expense consists primarily of the depreciation of property and equipment as well as the amortization of acquired intangibles that have a definite life. These intangibles include customer relationships, investment advisory contracts, intellectual property and non‑compete clauses acquired in connection with a business or asset acquisition. Both depreciation and amortization are recorded ratably over the assets’ useful lives.
Acquisition‑Related Costs – Acquisition‑related costs include legal fees, advisory services, mutual fund proxy voting costs and other one‑time expenses related to acquisitions.
Restructuring and Integration Costs – Restructuring and integration costs include costs incurred in connection with business combinations, including the increase in the fair value of contingent acquisition payments, asset purchases and changes in business strategy. These include severance expenses related to one‑time benefit arrangements, contract termination and other costs to integrate investment platforms, products and personnel into existing systems, processes and service provider arrangements and restructuring the business to capture operating expense synergies.
Other non‑operating items of income and expense consist of: (i) interest income and other income (expense); (ii) interest expense and other financing costs; (iii) loss on debt extinguishment; and (iv) income tax expense.
Interest Income and Other Income (Expense) – Interest income and other income (expense) consists primarily of interest income, gains (losses) on investments and dividend income on investments.
Interest Expense and Other Financing Costs – Interest expense and other financing costs consists primarily of interest expense attributable to long‑term debt. Refer to “Liquidity and Capital Resources” for more information.
Loss on Debt Extinguishment – Loss on debt extinguishment consists of the write-off of unamortized debt issuance costs and unamortized debt discount as a result of debt refinancing, the acceleration of the paydown of debt principal and debt repurchased and retired in open market transactions.
Income Tax Expense – The provision for income taxes includes U.S. federal, state and local taxes, and foreign income taxes payable by certain of our subsidiaries. The effective tax rate is primarily driven by state and local taxes and excess tax benefits on share-based compensation. The portion of the effective income tax rate attributable to state and local income taxes varies from year to year depending on amounts of income apportioned to each jurisdiction, whether we file income tax returns on a unitary or separate return basis and with changes in tax laws.
58
The following table presents our GAAP results of operations for the years ended December 31, 2022, 2021 and 2020 (in thousands except per share data).
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
||||||
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
||||||
|
2022 |
|
|
2021 |
|
|
2020 |
|
||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|||
Investment management fees |
$ |
|
664,710 |
|
|
$ |
|
674,539 |
|
|
$ |
|
562,036 |
|
Fund administration and distribution fees |
|
|
190,090 |
|
|
|
|
215,726 |
|
|
|
|
213,315 |
|
Total revenue |
|
|
854,800 |
|
|
|
|
890,265 |
|
|
|
|
775,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|||
Personnel compensation and benefits |
|
|
238,198 |
|
|
|
|
234,833 |
|
|
|
|
197,158 |
|
Distribution and other asset-based expenses |
|
|
161,105 |
|
|
|
|
176,385 |
|
|
|
|
175,687 |
|
General and administrative |
|
|
52,373 |
|
|
|
|
53,722 |
|
|
|
|
51,218 |
|
Depreciation and amortization |
|
|
43,201 |
|
|
|
|
18,840 |
|
|
|
|
16,381 |
|
Change in value of consideration payable for acquisition of business |
|
|
(40,600 |
) |
|
|
|
13,800 |
|
|
|
|
11,300 |
|
Acquisition-related costs |
|
|
534 |
|
|
|
|
16,262 |
|
|
|
|
1,108 |
|
Restructuring and integration costs |
|
|
881 |
|
|
|
|
2,578 |
|
|
|
|
7,786 |
|
Total operating expenses |
|
|
455,692 |
|
|
|
|
516,420 |
|
|
|
|
460,638 |
|
Income from operations |
|
|
399,108 |
|
|
|
|
373,845 |
|
|
|
|
314,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|||
Interest income and other income (expense) |
|
|
(2,463 |
) |
|
|
|
6,045 |
|
|
|
|
3,703 |
|
Interest expense and other financing costs |
|
|
(43,964 |
) |
|
|
|
(24,652 |
) |
|
|
|
(37,005 |
) |
Loss on debt extinguishment |
|
|
(2,648 |
) |
|
|
|
(4,596 |
) |
|
|
|
(2,871 |
) |
Total other income (expense), net |
|
|
(49,075 |
) |
|
|
|
(23,203 |
) |
|
|
|
(36,173 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Income before income taxes |
|
|
350,033 |
|
|
|
|
350,642 |
|
|
|
|
278,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Income tax expense |
|
|
(74,522 |
) |
|
|
|
(72,253 |
) |
|
|
|
(66,018 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Net income |
$ |
|
275,511 |
|
|
$ |
|
278,389 |
|
|
$ |
|
212,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Earnings per share of common stock |
|
|
|
|
|
|
|
|
|
|
|
|||
Basic |
$ |
|
4.02 |
|
|
$ |
|
4.10 |
|
|
$ |
|
3.14 |
|
Diluted |
$ |
|
3.81 |
|
|
$ |
|
3.75 |
|
|
$ |
|
2.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|||
Basic |
|
|
68,481 |
|
|
|
|
67,976 |
|
|
|
|
67,710 |
|
Diluted |
|
|
72,266 |
|
|
|
|
74,151 |
|
|
|
|
73,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Dividends declared per share of common stock |
$ |
|
1.00 |
|
|
$ |
|
0.53 |
|
|
$ |
|
0.23 |
|
59
Investment Management Fees
2022 compared to 2021 – Investment management fees decreased $9.8 million, or 1.5%, to $664.7 million in 2022 from $674.5 million in 2021 due to decrease in revenue realization due to a shift in asset class and product mix, partially offset by an increase in average AUM. Average AUM was $164.0 billion in 2022 compared to $158.6 billion in 2021.
2021 compared to 2020 – Investment management fees increased $112.5 million, or 20.0%, to $674.5 million in 2021 from $562.0 million in 2020 due to an increase in average AUM year over year, partially offset by a decrease in revenue realization due to a shift in asset class and product mix. Average AUM was $158.6 billion in 2021 compared to $136.4 billion in 2020, mostly attributable to market appreciation.
Fund Administration and Distribution Fees
2022 compared to 2021 – Fund administration and distribution fees decreased $25.6 million, or 11.9%, to $190.1 million in 2022 compared to $215.7 million in 2021. The decrease is due primarily to lower mutual fund average net assets.
2021 compared to 2020 – Fund administration and distribution fees were relatively flat, increasing $2.4 million, or 1.1% to $215.7 million in 2021 compared to $213.3 million in 2020. The increase is due to an increase in fund administration fees, partially offset by a decrease in transfer agent fees and a shift in the mix of assets to lower 12b-1 paying share classes.
Personnel Compensation and Benefits
The following table presents the components of GAAP compensation expense for the year ended December 31, 2022, 2021 and 2020:
|
|
Year Ended December 31, |
|
||||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
||||||
Salaries, payroll related taxes and employee benefits |
|
$ |
|
87,819 |
|
|
$ |
|
87,101 |
|
|
$ |
|
76,304 |
|
Incentive compensation |
|
|
|
94,511 |
|
|
|
|
108,952 |
|
|
|
|
87,412 |
|
Sales-based compensation(1) |
|
|
|
27,589 |
|
|
|
|
19,249 |
|
|
|
|
14,158 |
|
Equity awards granted to employees and directors(2) |
|
|
|
17,816 |
|
|
|
|
17,625 |
|
|
|
|
18,096 |
|
Acquisition and transaction-related compensation |
|
|
|
10,463 |
|
|
|
|
1,906 |
|
|
|
|
1,188 |
|
Total personnel compensation and benefits expense |
|
$ |
|
238,198 |
|
|
$ |
|
234,833 |
|
|
$ |
|
197,158 |
|
2022 compared to 2021 – Personnel compensation and benefits were $238.2 million in 2022, an increase of $3.4 million, or 1.4%, from $234.8 million in 2021 primarily due to an increase in variable costs such as sales-based compensation. Also contributing was an increase in headcount and acquisition and transaction-related compensation as a result of the WestEnd and NEC acquisitions in the fourth quarter of 2021. Partially offsetting the increase was a decrease in incentive compensation as a result of a decline in operating results. Salaries, payroll related taxes and employee benefits were $87.8 million and $87.1 million, respectively, for the years ended December 31, 2022 and 2021. Incentive compensation and equity awards granted to employees and directors were $94.5 million and $17.8 million, respectively, for the year ended December 31, 2022, compared to $109.0 million and $17.6 million, respectively, for the same period in 2021.
2021 compared to 2020 – Personnel compensation and benefits were $234.8 million in 2021, an increase of $37.7 million, or 19.1%, from $197.2 million in 2020 primarily attributable to an increase in salaries, payroll related taxes and employee benefits, incentive compensation and sales-based compensation due to an increase in headcount and an increase in operating results, resulting in an increase in variable costs such as the incentive compensation pool for employees, sales commissions, and third-party distribution costs. Salaries, payroll related taxes and employee benefits were $87.1 million and $76.3 million, respectively, for the years
60
ended December 31, 2021 and 2020. Incentive compensation and equity awards granted to employees and directors were $109.0 million and $17.6 million, respectively, for the year ended December 31, 2021, compared to $87.4 million and $18.1 million, respectively, for the same period in 2020.
Distribution and Other Asset‑based Expenses
The following table presents the components of distribution and other asset‑based expenses for the year ended December 31, 2022, 2021 and 2020:
|
|
Year Ended December 31, |
|
||||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
||||||
Broker-dealer distribution fees |
|
$ |
|
22,703 |
|
|
$ |
|
26,008 |
|
|
$ |
|
22,936 |
|
Platform distribution fees |
|
|
|
98,155 |
|
|
|
|
108,245 |
|
|
|
|
115,614 |
|
Sub-administration |
|
|
|
16,261 |
|
|
|
|
17,129 |
|
|
|
|
15,144 |
|
Sub-advisory |
|
|
|
13,573 |
|
|
|
|
14,124 |
|
|
|
|
12,174 |
|
Middle-office |
|
|
|
10,413 |
|
|
|
|
10,879 |
|
|
|
|
9,820 |
|
Total distribution and other asset-based expenses |
|
$ |
|
161,105 |
|
|
$ |
|
176,385 |
|
|
$ |
|
175,688 |
|
2022 compared to 2021 – Distribution and other asset‑based expenses are primarily based on AUM. Distribution and other asset-based expenses decreased $15.3 million, or 8.7%, to $161.1 million in 2022 compared to $176.4 million in 2021, primarily due to a change in vehicle mix and our underlying distribution platforms.
2021 compared to 2020 – Distribution and other asset‑based expenses are primarily based on AUM. Distribution and other asset-based expenses were relatively flat, increasing $0.7 million, or 0.4%, to $176.4 million in 2021 compared to $175.7 million in 2020, primarily due to an increase in broker dealer distribution fees as a result of higher average AUM over the comparable period offset by a change in asset mix of our underlying retail distribution platforms.
General and Administrative Expenses
2022 compared to 2021 – General and administrative expenses were $52.4 million in 2022 compared to $53.7 million in 2021. The decrease of $1.3 million, or 2.5%, was primarily due to decreases in technology and professional fees.
2021 compared to 2020 – General and administrative expenses were $53.7 million in 2021 compared to $51.2 million in 2020. The increase of $2.5 million, or 4.9%, was primarily due to increases in technology and professional fees partially offset by a reduction in transition service agreement costs related to the USAA AMCO Acquisition, which ended in the fourth quarter of 2020.
Depreciation and Amortization
2022 compared to 2021 – Depreciation and amortization increased by $24.4 million, 129.3%, to $43.2 million in 2022, from $18.8 million in 2021, primarily due to the increase in amortization expense related to definite lived intangible assets in connection with the WestEnd and NEC acquisitions in the fourth quarter of 2021.
2021 compared to 2020 – Depreciation and amortization increased by $2.5 million, 15.0%, to $18.8 million in 2021, from $16.4 million in 2020, due to the addition of depreciation expense related to the launch of the Company’s direct investor digital platform, which went live in November 2020.
Change in Value of Consideration Payable for Acquisition of Business
2022 compared to 2021 - The change in value of consideration payable for acquisition of business decreased $54.4 million as a result of decreases of $3.6 million and $37.0 million in the fair value of the contingent consideration associated with the USAA AMCO and WestEnd Acquisitions, respectively, for the year ended December 31, 2022 compared to an increase of $13.8 million associated with the USAA AMCO Acquisition for
61
the year ended December 31, 2021. Refer to Note 4, Acquisitions, for further details on the fair value of contingent consideration payable.
2021 compared to 2020 - The change in value of consideration payable for acquisition of business increased $2.5 million as a result of an increase in the fair value of the contingent consideration associated with the USAA AMCO acquisition of $13.8 million for the year ended December 31, 2021 compared to an increase of $11.3 million in the prior year. Refer to Note 4, Acquisitions, for further details on the fair value of contingent consideration payable.
Acquisition‑Related Costs
2022 compared to 2021 – Acquisition-related costs decreased $15.7 million to $0.5 million for the year ended December 31, 2022 compared to $16.3 million in the prior year. The decrease is primarily due to the NEC and WestEnd acquisitions which closed on November 1, 2021 and December 31, 2021, respectively. The 2021 acquisition-related expenses include various transaction costs such as legal and filing fees and other professional fees as well as an estimated liability for potential one-time payments related to a prior acquisition.
2021 compared to 2020 – Acquisition-related costs increased $15.2 million to $16.3 million for the year ended December 31, 2021 compared to $1.1 million in the prior year. The increase is primarily due to the NEC and WestEnd acquisitions which closed on November 1, 2021 and December 31, 2021, respectively. The 2021 acquisition-related expenses include various transaction costs such as legal and filing fees and other professional fees as well as an estimated liability for potential one-time payments related to a prior acquisition.
Restructuring and Integration Costs
2022 compared to 2021 – Restructuring and integration costs decreased $1.7 million to $0.9 million for the year ended December 31, 2022 compared to $2.6 million in the prior year. The decrease is due to personnel restructuring within the direct to investor business.
2021 compared to 2020 – Restructuring and integration costs decreased $5.2 million, or 66.9%, to $2.6 million for the year ended December 31, 2021 compared to $7.8 million in the prior year. The decrease is due to higher integration and conversion costs associated with the USAA AMCO Acquisition recorded in 2020 compared to personnel restructuring costs within the direct investor business recorded in 2021.
Interest Income and Other Income (Expense)
2022 compared to 2021 – Interest income and other income (expense) was expense of $2.5 million in 2022 compared to income of $6.0 million in 2021. The decrease was due to decrease in the net unrealized fair value of deferred compensation plan investments in 2022 compared to an increase in dividend income and unrealized gains on deferred compensation plan investments in 2021.
2021 compared to 2020 – Interest income and other income (expense) was income of $6.0 million in 2021, compared to income of $3.7 million in 2020. The increase was due to an increase in dividend income and unrealized gains on deferred compensation plan investments over the comparable period.
Interest Expense and Other Financing Costs
2022 compared to 2021 – Interest expense and other financing costs increased $19.3 million to $44.0 million in 2022 from $24.7 million in 2021. The expense increase is primarily due to an increase in interest expense as a result of a higher debt principal balance resulting from our incremental borrowing in December 2021 to fund the WestEnd Acquisition. Also contributing was a higher average interest rate over the comparable period.
2021 compared to 2020 – Interest expense and other financing costs decreased by $12.4 million, or 33.4%, to $24.7 million in 2021, from $37.0 million in 2020. The expense decrease is primarily due to a decrease in interest expense as a result of a lower debt principal balance and a lower average interest rate over the comparable period.
62
Loss on Debt Extinguishment
2022 compared to 2021 – Loss on debt extinguishment decreased by $1.9 million to $2.6 million in 2022 compared to $4.6 million in the prior year. The decrease is due to expenses incurred in 2021 related to entering into the Second Amendment to the Credit Agreement.
2021 compared to 2020 – Loss on debt extinguishment increased by $1.7 million, or 60.1%, to $4.6 million in 2021 compared to $2.9 million in the prior year. The increase is largely due to repayments of term loan principal and entering into the Second Amendment to the Credit Agreement in February 2021. Also contributing, but to a lesser extent, were unamortized debt issuance and unamortized debt discount expenses which were partially offset by gains recognized on repurchases and retirement of outstanding debt below par in the open market in 2020.
Income Tax Expense
2022 compared to 2021 – Our effective tax rate increased 0.7% from 20.6% in 2021 to 21.3% in 2022. The change in the effective tax rate was primarily due to increased non-deductible expenses. Refer to Note 10, Income Taxes, to the audited financial statements for further details on income taxes.
2021 compared to 2020 – Our effective tax rate decreased 3.1% from 23.7% in 2020 to 20.6% in 2021. The decrease in the effective tax rate was primarily due to higher excess tax benefits on share-based compensation. Refer to Note 10, Income Taxes, to the audited financial statements for further details on income taxes.
Effects of Inflation
Inflation did not have a material effect on our consolidated results of operations. Inflationary pressures can result in increases to our cost structure. Certain large expense components such as compensation and distribution expenses are predominately variable and move in tandem with revenues. To the degree that these expense increases are not recoverable or cannot be counterbalanced through price increases due to the competitive environment, our profitability could be negatively impacted. In addition, the value of the fixed income assets that we manage may be negatively impacted when inflationary expectations result in a rising interest rate environment. Declines in the values of AUM could lead to reduced revenues as investment management fees are generally earned as a percentage of AUM.
Supplemental Non‑GAAP Financial Information
We report our financial results in accordance with GAAP. Our management uses non‑GAAP performance measures to evaluate the underlying operations of our business. Non‑GAAP financial measures are used to supplement GAAP results to provide a more complete understanding of the factors and trends affecting our business than GAAP results alone. Due to our acquisitive nature, there are a number of acquisition and restructuring related expenses included in GAAP measures that we believe distort the underlying economics 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.
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. Specifically, we make use of the non‑GAAP financial measures “Adjusted EBITDA” and “Adjusted Net Income.”
63
The following table sets forth a reconciliation from GAAP financial measures to non‑GAAP measures for the periods indicated:
|
|
Year Ended December 31, |
|
||||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
||||||
Reconciliation of non-GAAP financial measures: |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Net income (GAAP) |
|
$ |
|
275,511 |
|
|
$ |
|
278,389 |
|
|
$ |
|
212,522 |
|
Income tax expense |
|
|
|
(74,522 |
) |
|
|
|
(72,253 |
) |
|
|
|
(66,018 |
) |
Income before income taxes |
|
$ |
|
350,033 |
|
|
$ |
|
350,642 |
|
|
$ |
|
278,540 |
|
Interest expense(1) |
|
|
|
41,024 |
|
|
|
|
24,285 |
|
|
|
|
33,724 |
|
Depreciation(2) |
|
|
|
8,045 |
|
|
|
|
6,209 |
|
|
|
|
3,551 |
|
Other business taxes(3) |
|
|
|
2,118 |
|
|
|
|
1,657 |
|
|
|
|
(2,556 |
) |
Amortization of acquisition-related intangible assets(4) |
|
|
|
35,160 |
|
|
|
|
12,631 |
|
|
|
|
12,830 |
|
Share-based compensation(5) |
|
|
|
10,143 |
|
|
|
|
13,110 |
|
|
|
|
15,020 |
|
Acquisition, restructuring and exit costs(6) |
|
|
|
(28,722 |
) |
|
|
|
34,546 |
|
|
|
|
29,463 |
|
Debt issuance costs(7) |
|
|
|
5,620 |
|
|
|
|
5,589 |
|
|
|
|
6,546 |
|
Losses from equity method investments(8) |
|
|
|
825 |
|
|
|
|
331 |
|
|
|
|
193 |
|
Adjusted EBITDA |
|
$ |
|
424,246 |
|
|
$ |
|
449,000 |
|
|
$ |
|
377,311 |
|
|
|
Year Ended December 31, |
|
||||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
||||||
Reconciliation of non-GAAP financial measures: |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Net income (GAAP) |
|
$ |
|
275,511 |
|
|
$ |
|
278,389 |
|
|
$ |
|
212,522 |
|
Adjustments to reflect the operating performance of the Company: |
|
|
|
|
|
|
|
|
|
|
|
|
|||
i. Other business taxes(3) |
|
|
|
2,118 |
|
|
|
|
1,657 |
|
|
|
|
(2,556 |
) |
ii. Amortization of acquisition-related intangible assets(4) |
|
|
|
35,160 |
|
|
|
|
12,631 |
|
|
|
|
12,830 |
|
iii. Share-based compensation(5) |
|
|
|
10,143 |
|
|
|
|
13,110 |
|
|
|
|
15,020 |
|
iv. Acquisition, restructuring and exit costs(6) |
|
|
|
(28,722 |
) |
|
|
|
34,546 |
|
|
|
|
29,463 |
|
v. Debt issuance costs(7) |
|
|
|
5,620 |
|
|
|
|
5,589 |
|
|
|
|
6,546 |
|
Tax effect of above adjustments(9) |
|
|
|
(6,080 |
) |
|
|
|
(16,883 |
) |
|
|
|
(15,326 |
) |
Adjusted Net Income |
|
$ |
|
293,750 |
|
|
$ |
|
329,039 |
|
|
$ |
|
258,499 |
|
Tax benefit of goodwill and acquired intangibles(10) |
|
$ |
|
37,490 |
|
|
$ |
|
28,012 |
|
|
$ |
|
26,992 |
|
Adjustments made to GAAP Net Income to calculate Adjusted EBITDA and Adjusted Net Income, as applicable, are:
64
The following table presents the components of acquisition, restructuring and exit costs for the periods indicated:
|
|
Year Ended December 31, |
|
||||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
||||||
Acquisition-related costs |
|
$ |
|
534 |
|
|
$ |
|
16,262 |
|
|
$ |
|
1,108 |
|
Change in value of consideration payable for acquisition of business |
|
|
|
(40,600 |
) |
|
|
|
13,800 |
|
|
|
|
11,300 |
|
Restructuring and integration costs |
|
|
|
881 |
|
|
|
|
2,578 |
|
|
|
|
7,786 |
|
General and administrative |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
8,081 |
|
Personnel compensation and benefits |
|
|
|
10,463 |
|
|
|
|
1,906 |
|
|
|
|
1,188 |
|
Total acquisition, restructuring and exit costs |
|
$ |
|
(28,722 |
) |
|
$ |
|
34,546 |
|
|
$ |
|
29,463 |
|
Liquidity, Capital Resources and Contractual Obligations
Sources and Uses of Cash – We generate strong cash flows from operations that allow us to meet our cash requirements. Our primary uses of cash include: (i) repayment of our debt obligations, (ii) funding of acquisitions, (iii) payment of contingent consideration for previous acquisitions, and (iv) working capital needs. Cash flows from operations also allow us to meet certain other cash uses such as quarterly cash dividends and the repurchase of our Common Stock. We believe we have sufficient liquidity and capital resources to continue to paydown our debt obligations as well as to continue focusing on acquisition candidates.
The following table presents our liquidity position as of December 31, 2022 and 2021:
|
|
December 31, |
|
|
December 31, |
|
||||
(in thousands) |
|
2022 |
|
|
2021 |
|
||||
Cash and cash equivalents(1) |
|
$ |
|
38,171 |
|
|
$ |
|
69,533 |
|
Accounts and other receivables(2) |
|
|
|
84,473 |
|
|
|
|
104,305 |
|
Undrawn commitment on revolving credit facility(3) |
|
|
|
100,000 |
|
|
|
|
100,000 |
|
Accounts and other payables(4) |
|
|
|
(109,320 |
) |
|
|
|
(121,057 |
) |
December 31, 2021 includes the required principal amortization of 1.00% per annum related to the Company’s term loan.
Excludes $28.0 million and $36.6 million at December 31, 2022 and 2021, respectively, related to the estimated fair value of the contingent consideration that is expected to be paid over the next twelve month period resulting from the USAA AMCO and WestEnd Acquisitions.
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
65
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%.
Original issue discount was $2.5 million for the 2021 Incremental Term Loans. The Company incurred a total of $9.1 million of other third party costs related to the 2021 Incremental Term Loans, which were recorded as term loan debt issuance costs.
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
On March 27, 2020, the Company executed a floating-to-fixed interest rate swap transaction (“Swap”) 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. 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 (“the Swap Amendment”) 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. There was no change to the $450 million notional value, the July 1, 2026 expiration date, the quarterly payment frequency or the designated three-month maturity from the Swap Amendment. The interest rate effectively fixed by the Swap on $450 million of the Company’s outstanding term loan debt through July 1, 2026 changed from 3.215% to 3.149% as a result of the Swap Amendment.
At December 31, 2022 and 2021, the $450 million notional value Swap had a fair value of $46.9 million and $7.8 million, respectively, which was included in other assets on the Consolidated Balance Sheets. For the years ended December 31, 2022 and 2021, the Company recognized income, net of tax, of $29.7 million and $13.5 million, respectively, in accumulated other comprehensive income (loss). For the years ended December 31, 2022 and 2021, the Company reclassified income of $3.7 million and a loss of $3.6 million, respectively, from accumulated other comprehensive income (loss) to interest expense and other financing costs on the Consolidated Statements of Operations. Refer to Note 12, Derivatives, for further information on the Swap.
Contingent Consideration
At December 31, 2022 and 2021, the Company had $230.4 million and $309.4 million, respectively, in contingent consideration that is estimated to be payable over the next one and three years resulting from the USAA AMCO and WestEnd Acquisitions. For the years ended December 31, 2022 and 2021, the Company recorded a decrease of $3.6 million and an increase of $13.8 million, respectively, in contingent payment liabilities associated with the USAA AMCO Acquisition. For the year ended December 31, 2022, the Company recorded a decrease of $37.0 million in contingent payment liabilities associated WestEnd Acquisition, which is included in consideration payable for acquisition of business in the Consolidated Balance Sheets.
66
Advertising and Marketing Costs
In December 2022, the Company entered into a long-term partnership with Spurs Sports & Entertainment and executed naming rights and partnership agreements for the team’s new performance center. The agreements, which end in 2033, grant the Company exclusive naming rights, sponsorship, signage, advertising and other promotional rights and benefits for the new performance center.
Payments made under the agreements are deferred and expensed on a straight-line basis over the term of the arrangement. The related advertising and marketing expense is recorded in general and administrative expense in the Consolidated Statements of Operations. The balance of amounts paid less amortized expense are included in the Consolidated Balance Sheets in other assets when cumulative payments exceed amortized expense and in other liabilities when amortized expense exceeds cumulative payments.
Capital Requirements
VCS 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. VCS and our non‑U.S. subsidiaries were in compliance with these requirements as of and for the years ended December 31, 2022, 2021 and 2020.
Cash Flows – The following table is derived from our Consolidated Statements of Cash Flows for the year ended December 31, 2022, 2021 and 2020.
|
|
Year Ended December 31, |
|
||||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
||||||
Net cash provided by operating activities |
|
$ |
|
335,211 |
|
|
$ |
|
376,196 |
|
|
$ |
|
250,616 |
|
Net cash used in investing activities |
|
|
|
(6,317 |
) |
|
|
|
(556,588 |
) |
|
|
|
(12,340 |
) |
Net cash (used in) provided by financing activities |
|
|
|
(360,186 |
) |
|
|
|
227,217 |
|
|
|
|
(252,696 |
) |
Operating Activities
2022 compared to 2021 – Cash provided by operating activities was $335.2 million in 2022, compared to $376.2 million in 2021. The $41.0 million net decrease in cash provided by operating activities was due to the combination of a $24.0 million decrease in working capital and a $14.2 million decrease in non-cash items.
2021 compared to 2020 – Cash provided by operating activities was $376.2 million in 2021, compared to $250.6 million in 2020. The $125.6 million net increase in cash provided by operating activities was due to the combination of a $65.9 million increase in net income and a $67.2 million net increase in working capital as a result of timing of account payable and accrued expenses. Partially offsetting were adjustments for certain non-cash items totaling $7.5 million.
Investing Activities
2022 compared to 2021 – Cash used in investing activities decreased by $550.3 million to $6.3 million in 2022, from $556.6 million in 2021. The decrease was primarily due to $539.3 million paid in cash in the fourth quarter of 2021 related to the November 1, 2021 and December 31, 2021 closings of the NEC and WestEnd acquisitions, respectively.
2021 compared to 2020 – Cash used in investing activities increased by $544.3 million to $556.6 million in 2021, from $12.3 million in 2020. The increase was primarily due to $539.3 million paid in cash in the fourth quarter of 2021 related to the November 1, 2021 and December 31, 2021 closings of the NEC and WestEnd acquisitions, respectively.
Financing Activities
2022 compared to 2021 – Cash used in financing activities increased $587.4 million to $360.2 million in 2022 compared to cash provided by financing activities of $227.2 million in 2021. The increase was primarily due to
67
term loan prepayments, repurchases of our Common Stock, payment of dividends and payment of taxes related to settlement of equity awards and payment of consideration for acquisition of $149.1 million, $101.2 million, $69.2 million, $31.1 million and $23.8 million, respectively, during 2022.
2021 compared to 2020 – Cash provided by financing activities increased $479.9 million to $227.2 million in 2021 compared to cash used in financing activities of $252.7 million in 2020. The increase was due to $502.5 million of net proceeds from the Incremental Term Loans received in 2021, which was partially offset by term loan prepayments, repurchases of our Common Stock, payment of dividends and payment of taxes related to settlement of equity awards and payment of consideration for acquisition of $142.0 million, $31.5 million, $37.2 million, $26.7 million and $37.5 million, respectively, during 2021.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in accordance with GAAP is based on the selection and application of accounting policies that require us to make significant estimates and assumptions that in certain circumstances affect amounts reported in the audited consolidated financial statements. In preparing these financial statements, our estimates and judgements are based on historical experience, information from third-party valuation professionals and various other assumptions, giving due consideration to materiality. We consider the accounting policies discussed below to be critical to the understanding of our consolidated financial statements. Actual results could differ from our estimates and assumptions, and any such difference could be material to our consolidated financial statements. Significant accounting policies are described more fully in Note 2, Significant Accounting Policies, to the audited consolidated financial statements.
Business Combinations – We recognize and measure identifiable assets acquired and liabilities assumed in business combinations as of the acquisition date at fair value. The process of determining the fair value of identifiable intangible assets at the date of acquisition utilizes an income approach and requires significant estimates and judgment as to expectations for earnings on the related managed assets acquired, redemption rates, growth rates from sales efforts, the effects of market conditions and a discount rate. The process for estimating the fair value of acquired trade names considers comparable royalty rates and projected revenue streams. We typically utilize an independent valuation expert to assist with these valuations.
We recognize and measure contingent consideration liabilities at fair value as of the acquisition date using an option pricing model and Monte Carlo simulation. These valuations require significant estimates and judgments related to projected revenue growth rates, adjustments for market-based risk, volatility and discount rates. The fair value of contingent consideration liabilities is remeasured at each reporting period, typically using the same methodology used to determine the acquisition date fair value. Any change in the fair value estimate subsequent to the acquisition date is recorded in the earnings of that period.
Goodwill and Indefinite‑lived Intangible Assets – The accounting for goodwill and indefinite‑lived intangible assets requires significant estimates and judgment in the ongoing evaluation for impairment, and for indefinite-lived intangible assets, reconsideration of an asset’s useful life. Changes in these assumptions or estimates could materially affect the determination of the fair value of goodwill and indefinite-lived intangible assets.
The Company tests goodwill and indefinite-lived intangibles for impairment on an annual basis, or more frequently if facts and circumstances indicate that goodwill may be impaired. Factors that could trigger an impairment review include underperformance relative to historical or projected future operating results, significant changes in the Company's use of the acquired assets in a business combination or strategy for the Company's overall business, significant negative industry or economic trends and significant decreases in the Company’s market capitalization. The Company conducts the annual impairment assessment as of October 1st and uses a qualitative approach to test for potential impairment of goodwill. If, after considering various factors, management determines that it is more likely than not that goodwill is impaired, the fair value of the reporting unit is compared to its carrying amount. A goodwill impairment charge is recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value. The assumptions used to estimate fair value include management's estimates of future growth rates, operating cash flows, discount rates and terminal value. These assumptions and estimates can change in future periods based on market movement and factors impacting the expected business performance. Changes in assumptions or estimates could materially affect the determination of our fair value.
Because the advisory, distribution and transfer agent contracts are with the funds, renewable annually and have a history of being renewed, industry practice under GAAP is to consider the contract lives to be indefinite
68
and, as a result, not amortizable. For these fund contracts as well as the trade name indefinite-lived intangible assets, we consider (i) macroeconomic and entity‑specific factors, including changes to legal, regulatory or contractual provisions of the renewable advisory and distribution contracts, (ii) the effects of obsolescence, demand, competition and other economic factors that could impact the funds’ projected performance and (iii) the existence or expectation of significant changes in the level and mix of managed assets.
In addition, for indefinite-lived intangible assets, we consider whether events or circumstances continue to support an indefinite useful life. Indicators monitored by us that may indicate an indefinite useful life is no longer supported generally include (i) changes in the use of the asset, (ii) a significant decline in the level of managed assets and (iii) significant reductions in underlying operating cash flows.
Indefinite-lived intangible assets are combined into a single unit of accounting for purposes of testing impairment if they operate as a single asset and represent as a group the highest and best use of the assets. If actual changes in the underlying managed assets or other conditions, such as redemption rates or changes to contractual provisions, indicate that it is more likely than not that the asset is impaired, or if the estimated useful life is reduced, we perform a quantitative approach to estimate the fair value of the intangible asset. The process of estimating the fair value of the intangible asset requires us to estimate the level and mix of managed assets, considering future redemption rates, growth rates, market appreciation/depreciation and a discount rate. If the carrying value of the intangible asset exceeds its fair value, we recognize an impairment charge equal to that excess.
Item 7A. Qualitative and Quantitative Disclosures Regarding Market Risk.
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 $153 billion at December 31, 2022. 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 $79.6 million at our weighted-average fee rate of 52 basis points for the year ended December 31, 2022. 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 and USAA 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 $93.3 million at the Victory Funds’ and USAA Funds’ aggregate weighted-average fee rate of 61 basis points for the year ended December 31, 2022. 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 $49.0 million at the weighted-average fee rate across all of our institutional separate accounts of 32 basis points for the year ended December 31, 2022.
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.
69
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 9% 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 $1.4 billion, which would cause an annualized increase or decrease in revenues of approximately $7.3 million at our weighted-average fee rate for the business of 52 basis points for the year ended December 31, 2022.
We operate in several foreign countries and incur operating expenses associated with these operations. In addition, we have revenue and revenue-sharing arrangements that are denominated in non-U.S. currencies. We do not believe foreign currency fluctuations materially affect our results of operations.
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. There is no change to the $450 million notional value, the July 1, 2026 expiration date, the quarterly payment frequency or the designated three-month maturity from the Swap Amendment. The interest rate effectively fixed by the Swap on $450 million of the Company’s outstanding term loan debt through July 1, 2026 changed from 3.215% to 3.149% as a result of the Swap Amendment. Refer to Note 12, Derivatives, for further information on the Swap. At December 31, 2022, we were exposed to interest rate risk as a result of the unhedged amounts outstanding under the 2019 Credit Agreement, as amended. Refer to Note 11, Debt, for a description of the amounts outstanding as of such date and the applicable interest rate.
70
Item 8. Financial Information and Supplementary Data.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Victory Capital Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Victory Capital Holdings, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
Basis for the Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2013.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 6, 2023
71
Victory Capital Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except for shares)
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December 31, 2022 |
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December 31, 2021 |
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Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Investment management fees receivable |
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Fund administration and distribution fees receivable |
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Other receivables |
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Prepaid expenses |
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Investments in proprietary funds, at fair value |
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Deferred compensation plan investments, at fair value |
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Property and equipment, net |
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Goodwill |
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Other intangible assets, net |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders' equity |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Accrued compensation and benefits |
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Consideration payable for acquisition of business |
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Deferred compensation plan liability |
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Deferred tax liability, net |
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Other liabilities |
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Long-term debt, net |
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Total liabilities |
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Stockholders' equity |
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Common stock, $ |
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Additional paid-in capital |
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Class A treasury stock, at cost: 2022 - |
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( |
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( |
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Accumulated other comprehensive income |
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Retained earnings |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
72
Victory Capital Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except for shares)
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Year Ended |
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Year Ended |
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Year Ended |
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December 31, |
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December 31, |
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December 31, |
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2022 |
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2021 |
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2020 |
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Revenue |
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Investment management fees |
$ |
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$ |
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$ |
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Fund administration and distribution fees |
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Total revenue |
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Expenses |
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Personnel compensation and benefits |
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Distribution and other asset-based expenses |
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General and administrative |
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Depreciation and amortization |
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Change in value of consideration payable for acquisition of business |
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( |
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Acquisition-related costs |
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Restructuring and integration costs |
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Total operating expenses |
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Income from operations |
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Other income (expense) |
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Interest income and other income (expense) |
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( |
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Interest expense and other financing costs |
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( |
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( |
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( |
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Loss on debt extinguishment |
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( |
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( |
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( |
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Total other income (expense), net |
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( |
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( |
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( |
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Income before income taxes |
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Income tax expense |
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( |
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( |
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( |
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Net income |
$ |
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$ |
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$ |
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Earnings per share of common stock |
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Basic |
$ |
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$ |
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$ |
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Diluted |
$ |
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$ |
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$ |
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Weighted average number of shares outstanding |
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Basic |
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Diluted |
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Dividends declared per share of common stock |
$ |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
73
Victory Capital Holdings, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
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Year Ended |
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Year Ended |
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Year Ended |
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December 31, |
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December 31, |
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December 31, |
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2022 |
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2021 |
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2020 |
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Net income |
$ |
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$ |
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$ |
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Other comprehensive income (loss), net of tax |
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Net unrealized income (loss) on cash flow hedges |
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( |
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Net unrealized income (loss) on foreign currency translation |
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( |
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( |
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Total other comprehensive income (loss), net of tax |
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( |
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Comprehensive income |
$ |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
74
Victory Capital Holdings, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(in thousands)
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Accumulated |
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Additional |
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Other |
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Retained |
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Common Stock |
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Treasury Stock |
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Paid-In |
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Comprehensive |
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Earnings |
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Common Stock |
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Class B |
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Common Stock |
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Class B |
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Capital |
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Income (Loss) |
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(Deficit) |
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Total |
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||||||||||||||||
Balance, December 31, 2019 |
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$ |
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$ |
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$ |
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( |
) |
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$ |
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( |
) |
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$ |
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$ |
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— |
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$ |
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( |
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$ |
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Issuance of common stock |
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— |
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— |
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— |
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— |
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— |
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Conversion of Class B shares to Common Stock |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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— |
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Repurchase of shares |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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— |
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( |
) |
Shares withheld related to net settlement of equity awards |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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( |
) |
Vesting of restricted share grants |
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— |
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— |
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— |
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( |
) |
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— |
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|
— |
|
|
|
|
— |
|
|
Exercise of options |
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|||
Other comprehensive loss |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
( |
) |
Share-based compensation |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
||
Dividends paid |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
( |
) |
Net income |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
||
Balance, December 31, 2020 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
( |
) |
|
$ |
|
( |
) |
|
$ |
|
|
|
$ |
|
( |
) |
|
$ |
|
|
|
$ |
|
|
|||||
Issuance of common stock |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
||
Conversion of Class B shares to Common Stock |
|
|
|
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Repurchase of shares |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
Shares withheld related to net settlement of equity awards |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
Vesting of restricted share grants |
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Exercise of options |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
||||
Elimination of Class B share class |
|
|
|
|
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
||
Other comprehensive income |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||
Share-based compensation |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
||
Dividends paid |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
( |
) |
Net income |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
||
Balance, December 31, 2021 |
|
$ |
|
|
|
$ |
|
— |
|
|
$ |
|
( |
) |
|
$ |
|
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||||
Issuance of common stock |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
||
Repurchase of shares |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
Shares withheld related to net settlement of equity awards |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
Vesting of restricted share grants |
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Exercise of options |
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|||
Other comprehensive income |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||
Share-based compensation |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
||
Dividends paid |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
( |
) |
Net income |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
||
Balance, December 31, 2022 |
|
$ |
|
|
|
$ |
|
— |
|
|
$ |
|
( |
) |
|
$ |
|
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of the consolidated financial statements.
75
Victory Capital Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
||||||
|
2022 |
|
|
2021 |
|
|
2020 |
|
||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|||
Net income |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|||
Provision for deferred income taxes |
|
|
|
|
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|||
Deferred financing costs and derivative and accretion expense |
|
|
|
|
|
|
|
|
|
|
|
|||
Share-based and deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|||
Change in fair value of contingent consideration obligations |
|
|
( |
) |
|
|
|
|
|
|
|
|
||
Unrealized (appreciation) depreciation on investments |
|
|
|
|
|
|
( |
) |
|
|
|
( |
) |
|
Noncash lease expense |
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
Loss on equity method investment |
|
|
|
|
|
|
|
|
|
|
|
|||
Loss on debt extinguishment |
|
|
|
|
|
|
|
|
|
|
|
|||
Loss on disposal of property and equipment due to restructuring |
|
|
|
|
|
|
— |
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||
Investment management fees receivable |
|
|
|
|
|
|
( |
) |
|
|
|
|
||
Fund administration and distribution fees receivable |
|
|
|
|
|
|
( |
) |
|
|
|
|
||
Other receivables |
|
|
|
|
|
|
( |
) |
|
|
|
( |
) |
|
Prepaid expenses |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
Other assets |
|
|
( |
) |
|
|
|
|
|
|
|
( |
) |
|
Accounts payable and accrued expenses |
|
|
( |
) |
|
|
|
|
|
|
|
( |
) |
|
Accrued compensation and benefits |
|
|
|
|
|
|
|
|
|
|
( |
) |
||
Deferred compensation plan liability |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
Other liabilities |
|
|
( |
) |
|
|
|
|
|
|
|
( |
) |
|
Payment of consideration for acquisition |
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|||
Purchases of property and equipment |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
Purchases of deferred compensation plan investments |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
Sales of deferred compensation plan investments |
|
|
|
|
|
|
|
|
|
|
|
|||
Purchases of proprietary funds |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
Sales of proprietary funds |
|
|
|
|
|
|
|
|
|
|
|
|||
Purchase of equity method investment |
|
|
|
|
|
|
— |
|
|
|
|
( |
) |
|
Acquisition of business, net of cash acquired |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
— |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|||
Issuance of common stock |
|
|
|
|
|
|
|
|
|
|
|
|||
Repurchase of common stock |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
Payments of taxes related to net share settlement of equity awards |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
Proceeds from long-term senior debt |
|
|
|
|
|
|
|
|
|
|
— |
|
||
Payment of debt financing fees |
|
|
|
|
|
|
( |
) |
|
|
|
— |
|
|
Repayment and repurchases of long-term senior debt |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
Payment of dividends |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
Payment of consideration for acquisition |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Effect of changes of foreign exchange rate on cash and cash equivalents |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Net (decrease) increase in cash and cash equivalents |
|
|
( |
) |
|
|
|
|
|
|
|
( |
) |
|
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|||
Cash and cash equivalents, end of period |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|||
Cash paid for interest |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||
Cash paid for income taxes |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
76
Victory Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 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,” “Victory,” or in the first-person notations of “we,” “us,” and “our”), was formed on February 13, 2013 for the purpose of acquiring Victory Capital Management Inc. (“VCM”) and Victory Capital Services, Inc. (“VCS”), formerly known as Victory Capital Advisers, Inc., which occurred on August 1, 2013. On February 12, 2018, the Company completed the initial public offering (the “IPO”) of its Class A common stock, which trades on the NASDAQ under the symbol “VCTR.”
On and effective July 1, 2019, the Company completed the acquisition (the “USAA AMCO Acquisition” or “USAA AMCO”) of USAA Asset Management Company (“USAA Adviser”) and Victory Capital Transfer Agency, Inc. (“VCTA”), formerly known as the USAA Transfer Agency Company d/b/a USAA Shareholder Account Services. The USAA AMCO Acquisition includes USAA’s mutual fund and exchange traded fund (“ETF”) businesses and its 529 Education Savings Plan. Refer to Note 4, Acquisitions, for further details on the acquisition.
VCM is a registered investment adviser managing assets through mutual funds, institutional separate accounts, separately managed account products, unified managed account products, third-party ETF model strategies, collective trust funds, private funds, undertakings for the collective investment in transferrable securities, other pooled vehicles and ETFs. VCM also provides mutual fund administrative services for the Victory Portfolios, Victory Variable Insurance Funds and the mutual fund series of the Victory Portfolios II (collectively, the “Victory Funds”), a family of open-end mutual funds, the VictoryShares (the Company’s ETF brand) and the USAA Mutual Fund Trust, a family of open-end mutual funds (the “USAA Funds”). Additionally, VCM employs all of the Company’s United States investment professionals across its Franchises and Solutions, which are not separate legal entities. VCM’s wholly-owned subsidiaries include RS Investment Management (Singapore) Pte. Ltd., RS Investments (Hong Kong) Limited, RS Investments (UK) Limited, Victory Capital Digital Assets, LLC and NEC Pipeline LLC. VCS is registered with the SEC as an introducing broker-dealer and serves as distributor and underwriter for the Victory Funds, the USAA Funds and the USAA 529 Education Savings Plan as well as placement agent for certain private funds managed by VCM. VCTA is registered with the SEC as a transfer agent for the USAA Funds.
On March 1, 2021, the Company completed the acquisition of THB Asset Management (“THB”), resulting in THB becoming the Company’s tenth investment franchise. THB manages responsible investment portfolios in the micro-cap, small-cap and mid-cap asset classes, including U.S., global and international strategies. At March 1, 2021, the THB AUM that was acquired totaled $
On November 1, 2021, the Company completed the acquisition of New Energy Capital Partners (“NEC”), resulting in NEC becoming the Company’s eleventh investment franchise. Founded in 2004 and based in Hanover, New Hampshire, NEC is an alternative asset management firm focused on debt and equity investments in clean energy infrastructure projects and companies. At November 1, 2021, the NEC AUM that was acquired totaled $
On December 31, 2021, the Company completed the acquisition of WestEnd Advisors, LLC (“WestEnd”), resulting in WestEnd becoming the Company’s twelfth investment franchise. Founded in 2004, and headquartered in Charlotte, North Carolina, 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 Separately Managed Account (SMA) structures. At December 31, 2021, the WestEnd AUM that was acquired totaled $
Changes in Capital Structure
On February 12, 2018, the Company completed the initial public offering (“IPO”) of its Class A common stock. The Company issued
77
On September 27, 2021, the Board of Directors approved amendments to the Company’s corporate charter and bylaws to eliminate the Company’s dual-class share structure. On November 19, 2021, the Company’s stockholders voted on and approved an amendment to the Company’s Restated Certificate of Incorporation (the “Amendment”), as amended, to eliminate the Company’s dual-class stock structure. The Amendment (i) converted all the shares of Class B Common Stock into an equal number of shares of Class A Common Stock (the “Conversion”), (ii) deleted provisions no longer applicable following the Conversion, (iii) renamed our Class A Common Stock as “Common Stock.”
On July 1, 2019, concurrent with the USAA AMCO Acquisition, the Company (i) entered into the 2019 Credit Agreement, (ii) repaid all indebtedness outstanding under the 2018 Credit Agreement and (iii) terminated the 2018 Credit Agreement. The 2019 Credit Agreement was entered into among the Company, as borrower, the lenders from time to time party thereto and Barclays Bank PLC, as administrative agent and collateral agent, pursuant to which the Company obtained
On January 17, 2020, the Company entered into the First Amendment to the 2019 Credit Agreement. Pursuant to the First Amendment, the Company refinanced the existing term loans (the “2019 Term Loans”) with replacement term loans (the “2020 Term Loans”) in an aggregate principal amount of $
On February 18, 2021, the Company entered into the Second Amendment (the “Second Amendment”) to the 2019 Credit Agreement, as amended, 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 refinanced the 2020 Term Loans with replacement term loans in an aggregate principal amount of $
On December 31, 2021, the Company entered into the Third Amendment to the Credit Agreement (the “Third Amendment”), dated as of July 1, 2019 (as amended by the First Amendment to Credit Agreement, dated as of January 17, 2020, and the Second Amendment to Credit Agreement, dated as of February 18, 2021) 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 $
On September 23, 2022, the Company entered into the
Refer to Note 4, Acquisitions, for further information on the USAA AMCO and WestEnd Acquisitions and Note 11, Debt, for additional information on the Company’s debt structure.
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NOTE 2. Significant Accounting Policies
Basis of Presentation
The Company prepares its consolidated financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
On November 19, 2021, the Company’s stockholders voted on and approved the Amendment eliminating the Company’s dual-class stock structure. Upon the filing of the Amendment on November 23, 2021, all the shares of Class B common stock were converted into an equal number of shares of Class A common stock and the Company’s Class A common stock was renamed as “Common Stock.” All references within this document to Class A common stock for periods prior to November 23, 2021 have been updated for the renaming.
Principles of Consolidation
The consolidated financial statements include the operations of the Company and its wholly‑owned subsidiaries, after elimination of all significant intercompany transactions and balances. Certain prior year amounts have been reclassified to conform to the current year presentation.
The Company evaluates entities in which it invests and investment funds that it sponsors to determine whether the Company has a controlling financial interest in these entities and is required to consolidate them. A controlling financial interest generally exists if (i) the Company holds greater than
The Company’s involvement with non‑consolidated sponsored investment funds that are considered VIEs include providing investment advisory, fund administration, fund compliance, fund transfer agent, fund distribution services and other management services and/or holding a minority interest. At December 31, 2022 and 2021, the Company's investments in and maximum risk of loss related to unconsolidated sponsored VIE investment funds totaled $
Upon the completion of the NEC Acquisition on November 1, 2021, VCM became the manager of certain general partner entities associated with the NEC Funds. The Company has no equity investment in these general partner entities, which are non-consolidated VIEs, nor in the NEC Funds and has no share of these general partner entities’ income or losses.
The Company owned a
The Company applies the equity method of accounting to investments where it does not hold a controlling equity interest, but has the ability to exercise significant influence over operating and financial matters. In the event that management identifies an other than temporary decline in the estimated fair value of an equity method investment to an amount below its carrying value, the investment is written down to its estimated fair value.
Use of Estimates and Assumptions
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may ultimately differ from those estimates and the differences may be material.
Revenue Recognition
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The Company accounts for revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. The Company’s revenue includes fees earned from providing investment management services, fund administration services, fund compliance, fund transfer agent services and fund distribution services.
Revenue is recognized for each distinct performance obligation identified in customer contracts when the performance obligation has been satisfied by transferring services to a customer either over time or at the point in time when the customer obtains control of the service. Revenue is recognized in the amount of variable or fixed consideration allocated to the satisfied performance obligation that Victory expects to be entitled to in exchange for transferring services to a customer. Variable consideration is included in the transaction price only when it is probable that a significant reversal of such revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
For further information on the Company’s various revenue streams, refer to Note 3, Revenue.
Distribution and Other Asset‑Based Expenses
Distribution and other asset‑based expenses include (i) broker dealer distribution fees, (ii) platform distribution fees, (iii) sub‑administration, third party sub-transfer agent and sub‑advisory expenses. These expenses are accrued on a monthly basis and are generally calculated as a percentage of AUM and vary as levels of AUM change from inflows, outflows and market movement and with the number of days in the month.
Also included in distribution and other asset‑based expenses are middle office expenses. Middle office expenses are accrued on a monthly basis and vary with changes in mutual fund, institutional and wrap separate account AUM levels, the number of accounts and volume of account transaction activity.
Restructuring and Integration Costs
In connection with business combinations, asset purchases and changes in business strategy, the Company incurs costs integrating investment platforms, products and personnel into existing systems, processes and service provider arrangements and restructuring the business to capture operating expense synergies.
These costs include severance‑related expenses related to one‑time benefit arrangements and contract termination costs. A liability for restructuring costs is recognized only after management has developed a formal plan to which it has committed. The costs included in the restructuring liability are those costs that are either incremental or incurred as a direct result of the plan, or are the result of a continuing contractual obligation with no continuing economic benefit to the Company, or a penalty incurred to cancel the contractual obligation. Severance expense is recorded when management has committed to a plan for a reduction in workforce, the plan has been communicated to employees and it is unlikely that there will be significant changes to the plan.
Contract termination liabilities are recorded for contract termination costs when the Company terminates a contract or stops using the product or service covered by the contract. Contract termination liabilities are recognized and measured at fair value. Contract termination costs are recorded in restructuring and integration costs in the Consolidated Statements of Operations.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash at banks, money market accounts and funds and short‑term liquid investments with original maturities of three months or less at the time of purchase. For the Company and certain subsidiaries, cash deposits at a financial institution may exceed Federal Deposit Insurance Corporation insurance limits.
Investments
Investments in Proprietary Funds
Investments in proprietary funds include investments in affiliated mutual funds and are recorded in investments in proprietary funds, at fair value in the Consolidated Balance Sheets. Changes in fair value are recognized in other income (expense) in the Consolidated Statements of Operations. The cost of securities sold is determined using the specific identification method. Dividend income is accrued on the declaration date and is included in other income in the Consolidated Statements of Operations. Transactions are recorded on a trade‑date basis.
The Company periodically reviews each individual security that is in an unrealized loss position to determine if the impairment is other‑than‑temporary. Factors that are considered in determining whether other‑than‑temporary declines in value have occurred include the severity and duration of the unrealized loss
80
and the Company’s ability and intent to hold the security for a length of time sufficient to allow for recovery of such unrealized losses. Impairment charges are recorded in other income (expense) in the Consolidated Statements of Operations.
Deferred Compensation Plan Investments
Deferred compensation plan investments include investments in affiliated and third party mutual funds held in a rabbi trust under a deferred compensation plan. Deferred compensation plan investments are recorded at fair value in the Consolidated Balance Sheets. Changes in value in deferred compensation plan investments are recognized by the Company in other income (expense) in the Consolidated Statements of Operations.
The Company's investments in proprietary funds and deferred compensation plan investments are valued through the use of quoted market prices available in an active market, which is the net asset value of the funds.
Derivative Financial Instruments
On March 27, 2020, the Company entered into an interest rate swap transaction (the “Swap”) to manage interest rate risk associated with a portion of its floating-rate long-term debt. The Company does not purchase or hold any derivative instruments for trading or speculative purposes.
The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how the Company reflects the change in fair value of the derivative instrument. A derivative qualifies for hedge accounting treatment if, at inception, it meets defined correlation and effectiveness criteria. These criteria require that the anticipated cash flows and/or changes in fair value of the hedging instrument substantially offset those of the position being hedged. The Swap is assessed for effectiveness and continued qualification for hedge accounting on a quarterly basis. Since inception, the Swap was deemed to be highly effective.
The Swap is designated as a cash flow hedge. Accordingly, the Swap is measured at fair value with mark-to-market gains or losses deferred and included in accumulated other comprehensive income (loss) (“AOCI(L)”), net of tax, to the extent the hedge is determined to be effective. Gains or losses from the Swap are reclassified to interest expense in the same period during which the hedged transaction affects earnings. Refer to Note 12, Derivatives, for further information.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation. Depreciation and amortization is computed using the straight‑line method over the estimated useful lives of the related assets, generally to
Leases
The Company’s leases consist primarily of real estate leases for office space. The Company determines if an arrangement is a lease at contract inception. A lease liability and a corresponding right-of-use ("ROU") asset are recognized on the commencement date for leases with terms longer than
81
reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term and is recorded in general and administrative expenses on the Consolidated Statements of Operations.
Capitalized Service Contract Implementation Costs
The Company follows the internal-use software guidance in ASC 350-40 to determine for hosting arrangements that are service contracts which implementation costs to capitalize as assets. Costs incurred in the software application development stage such as customization, integration with Company software, coding and configuration are capitalized. Costs incurred in the preliminary project and post-implementation stages are expensed as incurred.
Capitalized service contract implementation costs are expensed over the fixed, noncancelable term of the contract plus any reasonably certain renewal periods. The estimated term of the hosting arrangement is reassessed periodically, and any change is accounted for as a change in accounting estimate, with the remaining deferred costs recognized over the rest of the revised period. Amortization begins when the related component of the arrangement is ready for its intended use, and costs are evaluated for impairment on an annual basis.
Segment Reporting
The Company operates in one business segment that provides investment management services and products to institutional, intermediary, retirement platforms and individual investors. Our determination that we had
Goodwill
Goodwill represents the excess cost of the acquisition over the fair value of net assets acquired in a business combination. For goodwill impairment testing purposes, the Company has determined that there is only one reporting unit.
The Company tests goodwill for impairment on an annual basis, or more frequently if facts and circumstances indicate that goodwill may be impaired. Factors that could trigger an impairment review include underperformance relative to historical or projected future operating results, significant changes in the Company's use of the acquired assets in a business combination or strategy for the Company's overall business, significant negative industry or economic trends and significant decreases in the Company’s market capitalization. The Company conducts the annual impairment assessment as of October 1st and uses a qualitative approach to test for potential impairment of goodwill. If, after considering various factors, management determines that it is more likely than not that goodwill is impaired, the fair value of the reporting unit is compared to its carrying amount. A goodwill impairment charge is recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value. The assumptions used to estimate fair value include management's estimates of future growth rates, operating cash flows, discount rates and terminal value. These assumptions and estimates can change in future periods based on market movement and factors impacting the expected business performance. Changes in assumptions or estimates could materially affect the determination of our fair value.
Intangible Assets
Intangible assets acquired in a business combination are initially recognized and measured at fair value. Intangible assets acquired by the Company outside of a business combination are initially recognized and measured based on the Company's cost to acquire the intangible assets. If a group of assets is acquired, the cost is allocated to individual assets based on their relative fair value. In valuing these assets, we make assumptions regarding useful lives and projected growth rates, and significant judgment is required.
Definite‑lived intangible assets represent the value of acquired customer relationships in or with institutional separate accounts, collective funds, intermediary wrap separate account (wrap SMA), unified managed account/model (UMA) intermediaries and private funds. Definite‑lived intangible assets also include intellectual property, advisory contracts that do not have a sufficient history of annual renewal, definite-lived trade name assets, lease-related assets and non‑competition agreements.
The Company amortizes definite‑lived identifiable intangible assets on a straight‑line basis over a period that is shorter than the asset's economic life as the pattern of economic benefit cannot be reliably determined.
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Management periodically evaluates the remaining useful lives and carrying values of the intangible assets to determine whether events and circumstances indicate that a change in the useful life or impairment in value may have occurred. Indicators of impairment monitored by management include a decline in the level of managed assets, changes to contractual provisions underlying certain intangible assets and reductions in underlying operating cash flows. Should there be an indication of a change in the useful life or impairment in value of the definite‑lived intangible assets, we compare the carrying value of the asset to the projected undiscounted cash flows expected to be generated from the underlying asset over its remaining useful life to determine whether impairment has occurred. If the carrying value of the asset exceeds the undiscounted cash flows, the asset is written down to its fair value determined using discounted cash flows. The Company writes off the cost and accumulated amortization balances for all fully amortized intangible assets.
Indefinite‑lived intangible assets include trade names and contracts for fund advisory, distribution and transfer agent services where the Company expects to, and has the ability to continue to manage these funds indefinitely, the contracts have annual renewal provisions, and there is a high likelihood of continued renewal based on historical experience. Trade names are considered indefinite‑lived intangible assets when they are expected to generate cash flows indefinitely.
Indefinite‑lived intangible assets are reviewed for impairment annually as of October 1st using a qualitative approach which requires that positive and negative evidence collected as a result of considering various factors be weighed in order to determine whether it is more likely than not that an indefinite‑lived intangible asset is impaired. In addition, periodically management reconsiders whether events or circumstances continue to support an indefinite useful life. Indicators monitored by management that may indicate an indefinite useful life is no longer supported include a significant decline in the level of managed assets, changes to legal, regulatory or contractual provisions of the renewable investment advisory contracts and reductions in underlying operating cash flows.
Indefinite-lived intangible assets are combined into a single unit of accounting for purposes of testing impairment if they operate as a single asset and represent as a group the highest and best use of the assets. If the qualitative approach indicates that it is more likely than not that an indefinite-lived intangible asset is impaired, the Company estimates the fair value of the indefinite‑lived intangible asset and compares it to the book value of the asset to determine whether an impairment charge is necessary. Impairment is indicated when the carrying value of the intangible asset exceeds its fair value.
Investment Management Fees Receivable and Fund Administration and Distribution Fees Receivable
Investment management fees receivable include investment management fees due from the Victory Funds, USAA Funds, VictoryShares and other pooled funds sponsored by Victory and investment management fees due from non-affiliated parties. Fund administration and distribution fees receivable include administration, compliance and distribution fees due from the Victory Funds, USAA Funds and VictoryShares and transfer agent fees due from the USAA Funds and sub-transfer agent fees due from the Victory Funds.
Provision for credit losses on these receivables is made in amounts required to maintain an adequate allowance to cover anticipated losses. All investment management fees receivable and fund administration and distribution fees receivable were determined to be collectible as of December 31, 2022, 2021 and 2020, and accordingly,
Other Receivables
Other receivables primarily include income and other taxes receivable and were determined to be collectible as of December 31, 2022, 2021 and 2020.
Advertising and Marketing Costs
In December 2022, the Company entered into a long-term partnership with Spurs Sports & Entertainment and executed naming rights and partnership agreements for the team’s new performance center. The agreements, which end in 2033, grant the Company exclusive naming rights, sponsorship, signage, advertising and other promotional rights and benefits for the new performance center.
Payments made under the agreements are deferred and expensed on a straight-line basis over the term of the arrangement. The related advertising and marketing expense is recorded in general and administrative expense in the Consolidated Statements of Operations. The balance of amounts paid less amortized expense are
83
included in the Consolidated Balance Sheets in other assets when cumulative payments exceed amortized expense and in other liabilities when amortized expense exceeds cumulative payments.
Share‑Based Compensation Arrangements
Compensation expense related to share‑based payments is measured at the grant date based on the fair value of the award. The fair value of each option granted is estimated using the Black‑Scholes option valuation model. The fair value of restricted share awards with service based vesting conditions and performance based vesting conditions is based on the market price of our stock on the date of grant. The fair value of restricted share awards subject to market conditions is estimated based on a probability-weighted expected value analysis. Compensation expense is recognized on a straight‑line basis over the total vesting period of the award for the service portion of restricted share awards and stock option awards. Compensation expense is recognized on an accelerated basis over the derived service period for awards that vest based on market conditions and on an accelerated basis over the requisite service period for awards with performance conditions if it is probable that the performance conditions will be satisfied. Compensation expense is adjusted for actual forfeitures in the period the forfeiture occurs. The corresponding credit for restricted share and stock option compensation expense is recorded to additional paid in capital.
When changes are made to the terms of an equity award that result in a change in the fair value of the equity award immediately before and after the change, the Company applies modification accounting, treating the change as an exchange of the original award for a new award. The calculation of the incremental value associated with the modified award is based on the excess of the fair value of the modified award over the fair value of the original award measured immediately before its terms are modified.
Earnings Per Share
The calculation of basic earnings per share is based on the weighted average number of shares of the Company’s Common Stock outstanding during the period. Diluted earnings per share is similar to basic earnings per share, but adjusts for the dilutive effect of the potential issuance of incremental shares of the Company’s Common Stock. The Company had vested and unvested stock options and unvested restricted stock grants outstanding during the periods presented and applies the treasury stock method to these securities in its calculation of diluted earnings per share. The treasury stock method assumes that the proceeds of exercise are used to purchase common stock at the average market price for the period. The Company does not have any participating securities that would require the use of the two‑class method of computing earnings per share.
Deferred Financing Fees
The costs of obtaining term loan financing are capitalized in long‑term debt in the Consolidated Balance Sheets and amortized to interest expense and other financing costs in the Consolidated Statements of Operations over the term of the respective financing using the effective interest method. The costs of obtaining revolving line of credit financing are capitalized in other assets in the Consolidated Balance Sheets and amortized to interest expense and other financing costs in the Consolidated Statements of Operations on a straight‑line basis over the term of the facility.
The Company expenses the portion of unamortized debt financing costs associated with paydowns of principal in excess of required loan amortization payments. Management considers this debt to be partially settled. Deferred financing costs expensed due to partial settlements of debt are recorded in loss on debt extinguishment in the Consolidated Statements of Operations.
Debt Modification
Gains and losses on debt modifications that are considered extinguishments are recognized in current earnings. Debt modifications that are not considered extinguishments are accounted for prospectively through yield adjustments, based on the revised terms. Legal fees and other costs incurred with third parties that are directly related to debt modifications are expensed as incurred and generally are included in general and administrative expense in the Consolidated Statements of Operations. The Company expensed $
Treasury Stock
84
Acquisitions of treasury stock are recorded at cost. Treasury stock held is reported as a deduction from stockholders' equity in the Consolidated Balance Sheets. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on a specific‑identification basis. Additional paid‑in capital from treasury stock transactions is increased as the Company reissues treasury stock for more than the cost of the shares. If the Company issues treasury stock for less than its cost, additional paid‑in capital from treasury stock transactions is reduced to no less than zero. Once this account is at zero, any further required reductions are recorded to retained earnings in the Consolidated Balance Sheets.
Foreign Currency Transactions
The financial statements of the Company’s subsidiaries which operate outside of the United States (U.S.) are measured using the local currency as the functional currency. Adjustments to translate those statements into U.S. dollars are recorded in other comprehensive income (loss), which were immaterial in amount at December 31, 2022, 2021 and 2020.
Transactions denominated in currencies other than the functional currency are recorded using the exchange rate on the date of the transaction. Exchange differences arising on the settlement of financial assets and liabilities are recorded in other income (expense) in the Consolidated Statements of Operations. Foreign exchange gains and losses for the years ended December 31, 2022, 2021 and 2020 were immaterial.
Income Taxes
Income taxes are accounted for using the assets and liability method as required by ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax liabilities are generally attributable to indefinite‑lived intangible assets, share-based compensation expense, goodwill, depreciation, debt issuance costs and mark-to-market gains on the Swap. Deferred tax assets are generally attributable to definite‑lived intangible assets, deferred compensation and acquisition-related costs. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company assesses whether a valuation allowance should be established against its deferred income tax assets based on consideration of all available evidence, both positive and negative, using a more-likely-than-not standard. The assessment considers, among other matters, recent operating results, forecasts of future profitability, the duration of statutory carry back and carry forward periods and the Company's experience with tax attributes expiring unused. Changes in circumstances could cause the Company to revalue its deferred tax balances with the resulting change impacting the Consolidated Statements of Operations in the period of the change.
The Company records income tax liabilities pursuant to ASC 740, Income Taxes, which prescribes the recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de‑recognition, classification of interest and penalties, accounting in interim periods, disclosure and transition. For tax positions meeting a more‑likely‑than‑not threshold, the amount recognized in the financial statements is the largest amount of benefit greater than 50% likely of being sustained. The more‑likely‑than‑not threshold must continue to be met in each reporting period to support continued recognition of the benefit. The Company's accounting policy with respect to interest and penalties related to tax uncertainties is to classify these amounts as income taxes.
Loss Contingencies
The Company continuously reviews investor, client, employee or vendor complaints and pending or threatened litigation. The Company evaluates the likelihood that a loss contingency exists under the criteria of applicable accounting standards through consultation with legal counsel and records a loss contingency, inclusive of legal costs, if the contingency is probable and reasonably estimable at the date of the financial statements.
Business Combinations
The Company accounts for business combinations under the acquisition method of accounting and allocates the purchase price to the assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. The fair values are determined in accordance with the guidance in ASC 820, Fair Value Measurement, based on valuations performed by the Company and independent valuation specialists.
85
Asset Acquisitions
When a group of assets is acquired that does constitute a business, the Company accounts for the transaction as an asset acquisition. The cost of the acquisition, which includes transaction costs directly related to the transaction and consideration paid, is allocated on a relative fair value basis to the net assets acquired.
Contingent and Deferred Payment Arrangements
The Company periodically enters into contingent and/or deferred payment arrangements in connection with its business combinations. Liabilities under contingent and deferred payment arrangements are recorded in consideration payable for acquisition of business in the Consolidated Balance Sheets. In contingent payment arrangements, the Company agrees to pay additional consideration to the sellers based on future performance, such as future net revenue levels. The Company estimates the fair value of these potential future obligations at the time a business combination is consummated and records a liability in the Consolidated Balance Sheets at estimated fair value. In deferred payment arrangements, the Company records a liability in the Consolidated Balance Sheets at the time a business combination is consummated for the present value, which is the estimated fair value, of the future fixed dollar contractual payments.
Contingent payment obligations are remeasured at fair value each reporting date taking into consideration changes in expected payments, and the change in fair value is recorded in the current period as a gain or loss. Gains and losses resulting from changes in the fair value of contingent payment obligations are reflected in change in value of consideration payable for acquisition of business in the Consolidated Statements of Operations.
The Company accretes obligations under deferred payment arrangements to their expected payment amounts over the period covered by the arrangement.
Compensatory Payment Arrangements
In connection with business combinations, the Company evaluates whether any portion of the transaction consideration is in exchange for elements other than the acquired business and should be accounted for as a separate transaction apart from the business combination. If based on the substance of the contingent payment arrangement, the Company determines that the payments are compensation for post-acquisition employee services, the Company considers this a compensatory payment arrangement and no liability is recorded for the payments on the acquisition date. The related expense, which is the total amount of compensation management estimates will be paid, is accrued on a straight-line basis over the estimated service period, which is the time period when management determines that it is probable that the performance conditions will be achieved. At each reporting date, cumulative expense recognized under the compensatory payment arrangement will be at least equal to the cumulative dollar amount actually paid out and currently payable under the terms of the related purchase agreement. If there is a significant change in the estimated service period and/or estimated total compensation amount, management generally adjusts the amount of expense recorded on a prospective basis. Expense recognized under compensatory payment arrangements is recorded in personnel compensation and benefits in the Consolidated Statements of Operations and the related liability is included in accrued compensation and benefits in the Consolidated Balance Sheets.
New Accounting Pronouncements
Accounting Standards Adopted in 2022
The Company adopted the New Lease Standard using the modified retrospective method of applying the new standard at the adoption date. We elected the package of practical expedients permitted under the transition guidance which allowed us to carry forward historical lease classifications for existing and expired leases and not reassess existing lease initial direct costs. In addition, we elected for all classes of underlying assets not to separate lease and non-lease
86
components of a contract. We also elected the practical expedients to determine the likelihood of an extension or reduction in lease terms at commencement through adoption of the New Lease Standard and to not apply the New Lease Standard to leases with terms of one year or less.
The adoption of the New Lease Standard resulted in the recognition of $
The following table presents the impact of adopting the New Lease Standard on our consolidated balance sheet.
(in millions) |
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Balance at December 31, 2021 |
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New Lease Standard |
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Balance at January 1, 2022 |
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Total assets |
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Total liabilities |
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Total liabilities and stockholders' equity |
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The lease liability recorded for our operating leases on January 1, 2022 was based on the present value of the remaining minimum lease payments discounted using our secured incremental borrowing rate on that date for the average remaining term for our lease portfolio.
During the third quarter of 2022, the Company elected to apply certain optional expedients available under ASC 848 providing relief from contract modification and hedge accounting requirements to amendments made to its 2019 credit agreement and interest rate swap (the “Swap”) agreement to transition the referenced interest rate from LIBOR to a rate based on the secured overnight financing rate (“SOFR”). As a result, the Company was not required to evaluate whether the modifications to the 2019 Credit Agreement and the Swap agreement resulted in the establishment of new contracts or the continuation of existing contracts and elected not to remeasure the contracts at the modification date or reassess previous accounting determinations. The modified contracts are accounted for, and presented as, continuations of the existing contracts. The Company also elected to change the contractual terms of the Swap without dedesignating the hedging relationship.
Prior to amending the Swap, the Company elected to use the guidance in ASC 848 to assert that it remained probable that the hedged forecasted transaction would occur.
Recently Issued Accounting Standards
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NOTE 3. Revenue
In accordance with revenue recognition standard requirements, the following table disaggregates our revenue by type and product:
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Year Ended December 31, |
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(in thousands) |
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2022 |
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2021 |
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2020 |
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Investment management fees |
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Mutual funds (Victory/USAA Funds) |
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$ |
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$ |
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$ |
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ETFs (VictoryShares) |
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Separate accounts and other vehicles |
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Performance-based fees |
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Mutual funds (USAA Funds) |
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( |
) |
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( |
) |
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( |
) |
Separate accounts and other vehicles |
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( |
) |
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Total investment management fees |
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$ |
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$ |
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$ |
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Fund administration and distribution fees |
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Administration fees |
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Mutual funds (Victory/USAA Funds) |
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$ |
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$ |
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$ |
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ETFs (VictoryShares) |
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Distribution fees |
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Mutual funds (Victory/USAA Funds) |
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Transfer agent fees |
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Mutual funds (USAA Funds) |
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Total fund administration and distribution fees |
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$ |
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$ |
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$ |
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Total revenue |
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$ |
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$ |
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$ |
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The following table presents balances of receivables:
(in thousands) |
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December 31, 2022 |
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December 31, 2021 |
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Customer receivables |
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Mutual funds (Victory/USAA Funds) |
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$ |
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$ |
|
|
||
ETFs (VictoryShares) |
|
|
|
|
|
|
|
|
||
Separate accounts and other vehicles |
|
|
|
|
|
|
|
|
||
Receivables from contracts with customers |
|
|
|
|
|
|
|
|
||
Non-customer receivables |
|
|
|
|
|
|
|
|
||
Total receivables |
|
$ |
|
|
|
$ |
|
|
||
|
|
|
|
|
|
|
|
|
||
Investment management fees receivable |
|
$ |
|
|
|
$ |
|
|
||
Fund administration and distribution fees receivable |
|
|
|
|
|
|
|
|
||
Other receivables |
|
|
|
|
|
|
|
|
||
Total receivables |
|
$ |
|
|
|
$ |
|
|
88
Revenue
The Company’s revenue includes fees earned from providing;
Revenue is recognized for each distinct performance obligation identified in customer contracts when the performance obligation has been satisfied by transferring services to a customer either over time or at the point in time when the customer obtains control of the service. Revenue is recognized in the amount of variable or fixed consideration allocated to the satisfied performance obligation that Victory expects to be entitled to in exchange for transferring services to a customer. Variable consideration is included in the transaction price only when it is probable that a significant reversal of such revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Investment management, fund administration and fund distribution fees are generally considered variable consideration as they are typically calculated as a percentage of AUM. Fund transfer agent fees are also considered variable consideration as they are calculated as a percentage of AUM or based on the number of accounts in the fund. In such cases, the amount of fees earned is subject to factors outside of the Company’s control including customer or underlying investor contributions and redemptions and financial market volatility. These fees are considered constrained and are excluded from the transaction price until the asset values or number of accounts on which the customer is billed are calculated and the value of consideration is measurable.
The Company has contractual arrangements with third parties to provide certain advisory, administration, transfer agent and distribution services. Management considers whether we are acting as the principal service provider or as an agent to determine whether revenue should be recorded based on the gross amount payable by the customer or net of payments to third-party service providers, respectively. Victory is considered a principal service provider if we control the service that is transferred to the customer. We are considered an agent when we arrange for the service to be provided by another party and do not control the service.
Investment Management Fees
Investment management fees are received in exchange for investment management services that represent a series of distinct incremental days of investment management service. Control of investment management services is transferred to the customers over time as these customers receive and consume the benefits provided by these services. Investment management fees are calculated as a contractual percentage of AUM and are generally paid in arrears on a monthly or quarterly basis.
AUM represents the financial assets the Company manages for clients on either a discretionary or non-discretionary basis. In general, AUM reflects the valuation methodology that corresponds to the basis used for determining revenue such as net asset value for the Victory Funds, USAA Funds and certain other pooled funds and account market value for separate accounts. For the NEC Funds, AUM represents limited partner capital commitments during the commitment period of the fund. Following the earlier of the termination of the commitment period and the beginning of any commitment period for a successor fund, AUM generally represents, depending on the fund, the lesser of a) the net asset value of the fund and b) the aggregated adjusted cost basis of each unrealized portfolio investment or the limited partner capital commitments reduced by the amount of capital contributions used to make portfolio investments that have been disposed.
Investment management fees are recognized as revenue using a time-based output method to measure progress. Revenue is recorded at month end or quarter end when the value of consideration is measured. The amount of investment management fee revenue varies from one reporting period to another as levels of AUM change (from inflows, outflows and market movements) and as the number of days in the reporting period change.
The Company may waive certain fees for investment management services provided to the Victory Funds, USAA Funds, VictoryShares and other pooled investment vehicles and may subsidize certain share classes of the Victory Funds, USAA Funds, VictoryShares and other pooled investment vehicles to ensure that specified operating expenses attributable to such share classes do not exceed a specified percentage. These waivers
89
and reimbursements reduce the transaction price allocated to investment management services and are recognized as a reduction to investment management fees revenue. The amounts due to the Victory Funds, USAA Funds, VictoryShares and other pooled investment vehicles for waivers and expense reimbursements represent consideration payable to customers, which is recorded in accounts payable and accrued expenses in the Consolidated Balance Sheets, and no distinct services are received in exchange for these payments.
Performance-based investment management fees, which include fees under performance fee and fulcrum fee arrangements, are included in the transaction price for providing investment management services. Performance-based investment management fees are calculated as a percentage of investment performance on a client’s account versus a specified benchmark or hurdle based on the terms of the contract with the customer. Performance-based investment management fees are variable consideration and are recognized as revenue when and to the extent that it is probable that a significant reversal of the cumulative revenue for the contractual performance period will not occur. Performance-based investment management fees recognized as revenue in the current period may pertain to performance obligations satisfied in prior periods. Fulcrum fee arrangements include a performance fee adjustment that increases or decreases the total investment management fee depending on whether the assets being managed experienced better or worse investment performance than the index specified in the customer’s contract. The performance fee adjustment arrangement with certain equity and fixed income USAA Funds took effect on July 1, 2020 and is calculated monthly based on the investment performance of those funds relative to their specified benchmark indexes over the discrete performance period ending with that month.
Fund Administration Fees
The Company recognizes fund administration fees as revenue using a time-based output method to measure progress. Fund administration fees are determined based on the contractual rate applied to average daily net assets of the Victory Funds, USAA Funds and VictoryShares for which administration services are provided. Revenue is recorded on a monthly basis when the value of consideration is measured using actual average daily net assets and constraints are removed. The Company’s fund administration fee revenue is recorded in fund administration and distribution fees in the Consolidated Statements of Operations.
The Company has contractual arrangements with a third party to provide certain sub-administration services. We are the primary obligor under the contracts with the Victory Funds, USAA Funds and VictoryShares and have the ability to select the service provider and establish pricing. As a result, fund administration fees and sub-administration expenses are recorded on a gross basis.
Fund Transfer Agent Fees
The Company recognizes fund transfer agent fees using a time-based output method to measure progress. Fund transfer agent fees are determined based on the contractual rate applied to either the average daily net assets of the USAA Funds for which transfer agent services are provided or number of accounts in the USAA Funds. Revenue is recorded on a monthly basis when the value of consideration is measured using actual average daily net assets or actual number of accounts and constraints are removed. The Company’s fund transfer agent fee revenue is recorded in fund administration and distribution fees in the Consolidated Statements of Operations.
The Company also receives fees for sub-transfer agency services under contracts with the Victory Funds for member class shares. Sub-transfer agency fees are recognized and recorded in a manner similar to fund transfer agent fees and are recorded in fund administration and distribution fees in the Consolidated Statements of Operations.
The Company has contractual arrangements with a third party to provide certain sub-transfer agent services. As the Company is the primary obligor under the transfer agency contracts with the USAA Funds and has the ability to select the service provider and establish pricing, fund transfer agent fees and sub-transfer agent expenses are recorded on a gross basis.
Fund Distribution Fees
The Company receives compensation for sales and sales-related services promised under distribution contracts with the Victory Funds and USAA Funds. Revenue is measured in an amount that reflects the consideration to which the Company expects to be entitled in exchange for providing distribution services. Distribution fees are generally calculated as a percentage of average net assets in the Victory Funds and USAA
90
Funds. The Company’s performance obligation is satisfied at the point in time when control of the services is transferred to customers, which is upon investor subscription or redemption.
Based on the nature of the calculation, the revenue for these services is accounted for as variable consideration. The Company may recognize distribution fee revenue in the current period that pertains to performance obligations satisfied in prior periods as variable consideration is recognized only when uncertainties are resolved. The Company’s distribution fee revenue is recorded in fund administration and distribution fees in the Consolidated Statements of Operations.
The Company has contractual arrangements with third parties to provide certain distribution services. The Company is the primary obligor under the contracts with the Victory Funds and USAA Funds and has the ability to select the service provider and establish pricing. Substantially all of the Company’s revenue is recorded gross of payments made to third parties.
Costs Incurred to Obtain or Fulfill Customer Contracts
The Company is required to capitalize certain costs directly related to the acquisition or fulfillment of a contact with a customer. Victory has not identified any sales-based compensation or similar costs that meet the definition of an incremental cost to acquire a contract and as such we have no intangible assets related to contract acquisitions.
Direct costs incurred to fulfill services under the Company’s distribution contracts include sales commissions paid to third party dealers for the sale of Class C Shares. The Company may pay upfront sales commissions to dealers and institutions that sell Class C shares of the participating Victory Funds at the time of such sale. Upfront sales commission payments with respect to Class C shares equal
Valuation of AUM and fund investments
The fair value of assets under management of the Victory Funds, USAA Funds and VictoryShares is primarily determined using quoted market prices or independent third-party pricing services or broker price quotes. In certain circumstances, a quotation or price evaluation is not readily available from a pricing service. In these cases, pricing is determined by management based on a prescribed valuation process that has been approved by the directors/trustees of the sponsored products. The same prescribed valuation process is used to price securities in separate accounts and the Company’s other non-alternative investment vehicles for which a quotation or price evaluation is not readily available from a pricing service.
The fair value of Level III assets held by alternative investment vehicles is determined under the respective valuation policy for each fund. The valuation policies address the fact that substantially all the investments of a fund may not have readily available market information and therefore the fair value for these assets is typically determined using unobservable inputs and models that may include subjective assumptions. AUM reported by the Company for alternative investment vehicles may not necessarily equal the funds’ net asset values or the total fair value of the funds’ portfolio investments as AUM represents the basis for calculating management fees.
For the periods presented, less than one percent of the Company’s total AUM were Level III assets priced without using a quoted market price, broker price quote or pricing service quotation.
NOTE 4. ACQUISITION
USAA AMCO Acquisition
On July 1, 2019, the Company completed the USAA AMCO Acquisition. The USAA AMCO Acquisition expanded and diversified the Company’s investment platform, particularly in the fixed income and solutions asset classes, and increased the Company’s size and scale. Additional products added to the investments platform include target date and target risk strategies, managed volatility mutual funds, active fixed income ETFs, sub-advised and multi-manager equity funds. The acquisition also added to the Company’s lineup of asset allocation portfolios and smart beta equity ETFs and provided the Company the rights to offer products
91
and services using the USAA brand and the opportunity to offer its products to USAA members through a direct investor channel.
Contingent Consideration
Under the terms of the purchase agreement for the USAA AMCO Acquisition, a maximum of $
The estimated fair value for contingent consideration payable to sellers is estimated using the real options method. Revenue related to “non-managed money” assets is simulated in a risk-neutral framework to calculate expected probability-weighted earn out payments, which are then discounted from the expected payment dates at the relevant cost of debt. Significant assumptions and inputs include the “non-managed money” revenue projected annual growth rate, the market price of risk, which adjusts the projected revenue growth rate to a risk-neutral expected growth rate, revenue volatility and discount rate. The market price of risk and revenue volatility are based on data for comparable companies. As the contingent consideration represents a subordinate, unsecured claim of the Company, the Company assesses a discount rate which incorporates adjustments for credit risk and the subordination of the contingent consideration
The fair value of contingent consideration payable to sellers was estimated at $
As of December 31, 2022, the Company has paid a total of $
Significant inputs to the valuation of contingent consideration payable to sellers as of December 31, 2022 and 2021 and the acquisition date are as follows and are approximate values:
|
|
|
|
|
|
|
|
July 1, 2019 |
|
|
|||
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
|
Acquisition Date |
|
|
|||
Non-managed money revenue |
|
|
|
% |
|
|
% |
|
|
% |
|||
Market price of risk |
|
|
|
% |
|
|
% |
|
|
% |
|||
Revenue volatility |
|
|
|
% |
|
|
% |
|
|
% |
|||
Discount rate |
|
|
|
% |
|
|
% |
|
|
% |
|||
Years remaining in earn out period |
|
|
|
|
|
|
|
|
|
|
|||
Undiscounted estimated remaining earn out payments $ millions |
|
$ |
|
|
$ |
|
|
$ |
|
|
USAA Acquired Companies
Revenue of the USAA Acquired Companies for the six months ended June 30, 2020, was as follows:
|
|
Unaudited |
|
|
|
Six Months Ended |
|
(in millions) |
|
June 30, 2020 |
|
Revenue |
|
$ |
Net income attributable to the USAA Acquired Companies for the first six months of 2020 is impractical to determine as the Company does not prepare discrete financial information at that level.
THB Acquisition
On March 1, 2021, the Company completed the acquisition of certain assets of THB, including without limitation, (i) certain investment advisory and business contracts, (ii) certain books and records, (iii) the investment performance track record, and (iv) all business intellectual property and proprietary software. In addition, the
92
Company hired the THB investment team and acquired THB AUM of $
Because substantially all of the fair value of the acquired assets was concentrated in a single identifiable asset, the transaction was accounted for as an asset acquisition. Estimated acquisition costs of $
NEC Acquisition
On November 1, 2021, VCM completed the acquisition of
The NEC Acquisition purchase price was $
Under the terms of the purchase agreement, the Company will pay up to an additional $
The Company determined that substantially all of the contingent payments payable per the NEC purchase agreement represent compensation for post-closing services. Accordingly, these contingent payments were excluded from the purchase price for the NEC Acquisition and a liability for these contingent payments was not recorded on the acquisition date. The Company recognizes compensation expense over the estimated service period on a straight-line basis in an amount equal to the total contingent payments currently forecasted to be paid. As of December 31, 2022 and 2021, the Company had recorded $
The NEC Acquisition purchase price of $
The excess purchase price over the estimated fair values of assets acquired and liabilities assumed of $
The following table presents the amounts of the assets acquired and liabilities assumed as of the acquisition date, net of cash acquired:
(in thousands) |
|
|
|
|
|
Investment management fees receivable |
|
$ |
|
|
|
Other receivables and prepaid expenses |
|
|
|
|
|
Property and equipment |
|
|
|
|
|
Other intangible assets (1) |
|
|
|
|
|
Goodwill |
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
|
( |
) |
Purchase price, net of cash acquired |
|
$ |
|
|
93
WestEnd Acquisition
On and effective December 31, 2021, the Company completed the acquisition of
The aggregate purchase price for the WestEnd Acquisition was $
In connection with the closing of the WestEnd Acquisition, the Company entered into the Third Amendment to the 2019 Credit Agreement and obtained incremental term loans in an aggregate principal amount of $
A total of $
The purchase price of $
The excess purchase price over the estimated fair values of assets acquired and liabilities assumed of $
The following table presents the estimated amounts of assets acquired and liabilities assumed as of the acquisition date, net of cash acquired:
(in thousands) |
|
|
|
|
|
Investment management fees receivable |
|
$ |
|
|
|
Prepaid expenses and other assets |
|
|
|
|
|
Property and equipment |
|
|
|
|
|
Other intangible assets (1) |
|
|
|
|
|
Goodwill |
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
|
( |
) |
Accrued compensation and benefits |
|
|
|
( |
) |
Other liabilities |
|
|
|
( |
) |
Purchase price, net of cash acquired |
|
$ |
|
|
The estimated fair value for contingent consideration payable to sellers is estimated using the real options method. WestEnd net revenue growth is simulated in a risk-neutral framework to calculate expected probability-weighted earn out payments, which are then discounted from the expected payment dates at the relevant cost of debt. Significant assumptions and inputs include the WestEnd net revenue projected annual growth rate, the market price of risk, which adjusts the projected revenue growth rate to a risk-neutral expected growth rate, revenue volatility and discount rate. The market price of risk and revenue volatility are based on data for comparable companies. As the contingent consideration represents a subordinate, unsecured claim of the
94
Company, the Company assesses a discount rate which incorporates adjustments for credit risk and the subordination of the contingent consideration.
A maximum of $
|
|
|
|
|
|
|
December 31, 2021 |
|
|
||
|
|
|
December 31, 2022 |
|
|
|
Acquisition Date |
|
|
||
Net revenue |
|
|
|
|
% |
|
|
|
% |
||
Market price of risk adjustment for revenue (continuous) |
|
|
|
|
% |
|
|
|
% |
||
Revenue volatility |
|
|
|
|
% |
|
|
|
% |
||
Discount rate |
|
|
|
|
% |
|
|
|
% |
||
Years remaining in earn out period |
|
|
|
|
|
|
|
|
|
||
Undiscounted estimated remaining earn out payments $ millions |
|
|
$ |
|
|
|
$ |
|
|
As the WestEnd Acquisition was effective at market close on December 31, 2021, the Company’s operating results for 2021 do not include WestEnd.
The following Unaudited Pro Forma Condensed Combined Statements of Operations are provided for illustrative purposes only and assume that the acquisition occurred on January 1, 2020. This unaudited information should not be relied upon as indicative of historical results that would have been obtained if the acquisition had occurred on that date, nor of the results that may be obtained in the future.
The historical consolidated financial information of the Company and WestEnd have been adjusted to give effect to unaudited pro forma events that are directly attributable to the WestEnd Acquisition. These amounts have been calculated after adjusting the results of WestEnd and the Company to reflect additional interest expense, intangible asset amortization, acquisition-related costs, transaction-related compensation costs and income taxes that would have been expensed assuming the WestEnd Acquisition was consummated on January 1, 2020.
|
|
Unaudited |
|
|||||||
|
|
Year Ended December 31, |
|
|||||||
(in thousands, except per share amount) |
|
2021 |
|
|
2020 |
|
||||
Revenue |
|
$ |
|
|
|
$ |
|
|
||
Net income |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Earnings per share of common stock |
|
|
|
|
|
|
|
|
||
Basic |
|
$ |
|
|
|
$ |
|
|
||
Diluted |
|
$ |
|
|
|
$ |
|
|
||
|
|
|
|
|
|
|
|
|
||
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
||
Basic |
|
|
|
|
|
|
|
|
||
Diluted |
|
|
|
|
|
|
|
|
Acquisition-related costs
Costs related to acquisitions of businesses and assets are summarized below and include legal and filing fees, advisory services, mutual fund proxy voting costs and other one‑time expenses related to the transactions. Included in USAA AMCO acquisition-related costs in 2021 is a liability for one-time payments for assets not acquired in the transaction.
Costs related to acquisitions were expensed in 2022, 2021 and 2020 and are included in acquisition‑related costs in the Consolidated Statements of Operations.
|
|
Acquisition-related costs |
|
||||||||||||
(in thousands) |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|||||
USAA AMCO |
|
$ |
|
- |
|
|
$ |
|
|
|
$ |
|
|
||
NEC |
|
|
|
|
|
|
|
|
|
|
|
- |
|
||
WestEnd |
|
|
|
|
|
|
|
|
|
|
|
- |
|
||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total acquisition-related costs |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
95
Restructuring and Integration Costs
In connection with business combinations, asset purchases and changes in business strategy, the Company incurs costs integrating investment platforms, products and personnel into existing systems, processes and service provider arrangements and restructuring the business to capture operating expense synergies.
The following table presents a rollforward of restructuring and integration liabilities, which as of December 31, 2022, 2021 and 2020 were included in accounts payable and accrued expenses on the Consolidated Balance Sheets.
(in millions) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
||||||
Liability balance, beginning of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||
Severance expense |
|
|
|
|
|
|
|
|
|
|
|
|
|||
USAA AMCO Acquisition |
|
|
|
— |
|
|
|
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
|
|
|
|
|
— |
|
||
Contract termination expense |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Integration costs |
|
|
|
|
|
|
|
|
|
|
|
|
|||
USAA AMCO Acquisition |
|
|
|
— |
|
|
|
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
|
|
|
|
|
— |
|
||
Restructuring and integration costs |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Settlement of liabilities |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
Liability balance, end of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
NOTE 5. Fair Value Measurements
The Company determines the fair value of certain financial and nonfinancial assets and liabilities. Fair value is determined based on the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value determinations utilize a valuation hierarchy based upon the transparency of inputs used in the valuation of an asset or liability.
Classification within the fair value hierarchy contains three levels:
96
The following table presents assets and liabilities measured at fair value on a recurring basis:
|
|
As of December 31, 2022 |
|
|||||||||||||
(in thousands) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market fund |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Investments in proprietary funds |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Deferred compensation plan investments |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Interest rate swap |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Total financial assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|||
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration arrangements |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
Total financial liabilities |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
As of December 31, 2021 |
|
|||||||||||||
(in thousands) |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments in proprietary funds |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Deferred compensation plan investments |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Interest rate swap |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Total financial assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|||
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration arrangements(1) |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
Total financial liabilities |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
(1) Contingent consideration arrangement liabilities of $
Level 1 assets consist of money market funds and open-end mutual funds. The fair values for these assets are determined utilizing quoted market prices for identical assets.
The interest rate swap (the “Swap”) asset represents amounts receivable under a floating-to-fixed interest rate swap transaction entered into by the Company on March 27, 2020. The fair value of the Swap is included in the Consolidated Balance Sheets in other assets at December 31, 2022 and 2021. Pricing was determined based on a third party, model-derived valuation in which all significant inputs are observable in active markets (Level 2). Refer to Note 12, Derivatives, for further detail on the Swap.
Contingent consideration arrangements include the USAA AMCO and WestEnd earn-out payment liabilities at December 31, 2022 and 2021. Contingent consideration arrangements are included in consideration payable for acquisition of business in the Consolidated Balance Sheets.
Significant unobservable inputs for the option pricing model used to determine the estimated fair value of the USAA AMCO Acquisition earn-out payment liability include the “non-managed money” revenue projected growth rate, revenue volatility, market price of risk and discount rate. Significant unobservable inputs for the option pricing model used to determine the estimated fair value of the WestEnd Acquisition earn-out payment liability include the WestEnd net revenue projected growth rate, revenue volatility, market price of risk and discount rate.
For both contingent consideration arrangements, an increase in the market price of risk, discount rate and revenue volatility results in a lower fair value for the earn-out payment liability, while an increase in the projected growth rate for revenue results in a higher fair value for the earn-out payment liability. Refer to Note 4, Acquisitions, for further details related to the valuation of contingent consideration payable related to the USAA AMCO Acquisition and WestEnd Acquisition.
Changes in the fair value of contingent consideration arrangement liabilities, realized or unrealized, are recorded in earnings and are included in change in value of consideration payable for acquisition of business in the Consolidated Statements of Operations.
97
The following table presents the balance of the contingent consideration arrangement liabilities at December 31, 2022, 2021 and 2020, respectively.
(in thousands) |
|
Contingent |
|
||
Balance, December 31, 2020 |
|
$ |
|
|
|
USAA AMCO second annual earn-out payment |
|
|
|
( |
) |
USAA AMCO change in fair value measurement |
|
|
|
|
|
WestEnd acquisition date contingent consideration liabilityUSAA AMCO change in fair value measurement |
|
|
|
|
|
Balance, December 31, 2021 |
|
$ |
|
|
|
USAA AMCO third annual earn-out payment |
|
|
|
( |
) |
USAA AMCO change in fair value measurement |
|
|
|
( |
) |
WestEnd change in fair value measurement |
|
|
|
( |
) |
Balance, December 31, 2022 |
|
$ |
|
|
There were
The net carrying value of accounts receivable and accounts payable approximates fair value due to the short‑term nature of these assets and liabilities. The fair value of our long-term debt at December 31, 2022 is considered to be its carrying value as the interest rate on the bank debt is variable and approximates current market rates. As a result, Level 2 inputs are utilized to determine the fair value of our long‑term debt.
NOTE 6. Related‑Party Transactions
The Company considers certain funds that it manages, including the Victory Funds, the USAA Funds, the VictoryShares, collective trust funds that it sponsors (the “Victory Collective Funds”), the NEC Funds and other pooled investment vehicles that it sponsors, to be related parties as a result of its advisory relationship.
The Company receives investment management, administrative, distribution and compliance fees in accordance with contracts that VCM and VCS have with the Victory Funds and the USAA Funds and has invested a portion of its balance sheet cash in the USAA Treasury Money Market Fund and earns interest on the amount invested in this fund.
The Company receives investment management, administrative and compliance fees in accordance with contracts that VCM has with the VictoryShares.
We also receive investment management fees from the Victory Collective Funds, the NEC Funds and other pooled investment vehicles under VCM’s advisory contracts with these funds. In addition, VCTA receives fees for transfer agency services under contracts with the USAA Funds and sub-transfer agency services under contracts with the Victory Funds for member class shares.
Director fees payable by the Company in cash and contributions made under the Director Deferred Compensation Plan for non-employee members of our Board of Directors are included in general and administrative expense in the Consolidated Statements of Operations.
The table below presents balances and transactions involving related parties included in the Consolidated Balance Sheets and Consolidated Statements of Operations.
98
(in thousands) |
|
2022 |
|
|
2021 |
|
||||
Related party assets |
|
|
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
||
Receivables (investment management fees) |
|
|
|
|
|
|
|
|
||
Receivables (fund administration and distribution fees) |
|
|
|
|
|
|
|
|
||
Prepaid expenses |
|
|
|
|
|
|
|
|
||
Investments (investments in proprietary funds, fair value) |
|
|
|
|
|
|
|
|
||
Investments (deferred compensation plan investments, fair value) |
|
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
|
$ |
|
|
||
|
|
|
|
|
|
|
|
|
||
Related party liabilities |
|
|
|
|
|
|
|
|
||
Accounts payable and accrued expenses (fund reimbursements) |
|
$ |
|
|
|
$ |
|
|
99
|
|
Year ended December 31, |
|
||||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
||||||
Related party revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Investment management fees |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||
Fund administration and distribution fees |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Related party expense |
|
|
|
|
|
|
|
|
|
|
|
|
|||
General and administrative |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Related party other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Interest income (expense) and other income (expense) |
|
$ |
|
( |
) |
|
$ |
|
|
|
$ |
|
|
NOTE 7. Investments
As of December 31, 2022 and 2021, the Company had investments in proprietary funds and deferred compensation plan investments. Investments in proprietary funds consist entirely of seed capital investments in certain Victory Funds and USAA Funds. Deferred compensation plan investments are held under deferred compensation plans and include Victory Funds, USAA Funds and third party mutual funds.
Unrealized and realized gains and losses on investments in proprietary funds and deferred compensation plan investments are recorded in earnings as interest income and other income (expense).
Investments in Proprietary Funds
The following table presents a summary of the cost and fair value of investments in proprietary funds:
|
|
|
|
|
|
Gross Unrealized |
|
|
Fair |
|
||||||||||
(in thousands) |
|
Cost |
|
|
Gains |
|
|
(Losses) |
|
|
Value |
|
||||||||
As of December 31, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
( |
) |
|
$ |
|
|
|||
As of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
The following table presents proceeds from sales of investments in proprietary funds and realized gains and losses recognized during the years ended December 31, 2022, 2021 and 2020:
|
|
Sale |
|
|
Realized |
|
|||||||||
(in thousands) |
|
Proceeds |
|
|
Gains |
|
|
(Losses) |
|
||||||
For the year ending December 31, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
( |
) |
||
For the year ending December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|||
For the year ending December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Deferred Compensation Plan Investments
The following table presents a summary of the cost and fair value of deferred compensation plan investments:
|
|
|
|
|
|
Gross Unrealized |
|
|
Fair |
|
||||||||||
(in thousands) |
|
Cost |
|
|
Gains |
|
|
(Losses) |
|
|
Value |
|
||||||||
As of December 31, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
( |
) |
|
$ |
|
|
|||
As of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
100
The following table presents proceeds from sales of deferred compensation plan investments and realized gains and losses recognized during the years ended December 31, 2022, 2021 and 2020:
|
|
Sale |
|
|
Realized |
|
|||||||||
|
|
Proceeds |
|
|
Gains |
|
|
(Losses) |
|
||||||
For the year ending December 31, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
( |
) |
||
For the year ending December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
||
For the year ending December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
( |
) |
NOTE 8. Property and Equipment
The following table presents property and equipment as of December 31, 2022 and 2021:
|
|
As of December 31, |
|
|||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
||||
Equipment, purchased software and implementation costs |
|
$ |
|
|
|
$ |
|
|
||
Leasehold improvements |
|
|
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
|
|
||
Accumulated depreciation and amortization |
|
|
|
( |
) |
|
|
|
( |
) |
Total property and equipment, net |
|
$ |
|
|
|
$ |
|
|
Depreciation and amortization expense for property and equipment was $
NOTE 9. Goodwill and Other Intangible Assets
The following table presents changes in the goodwill balance from December 31, 2021 to December 31, 2022:
|
|
As of December 31, |
|
|||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
||||
Balance, beginning of period |
|
$ |
|
|
|
$ |
|
|
||
Goodwill recorded in NEC acquisition |
|
|
|
|
|
|
|
|
||
Goodwill recorded in WestEnd acquisition |
|
|
|
|
|
|
|
|
||
Balance, end of period |
|
$ |
|
|
|
$ |
|
|
There were
101
Identifiable Intangible Assets
The following table presents a summary of definite‑lived intangible assets by type:
|
|
|
|
|
|
Fund |
|
|
|
|
|
Intellectual |
|
|
|
|
|
||||||||
|
|
Customer |
|
|
Advisory |
|
|
Trade |
|
|
Property/ |
|
|
|
|
|
|||||||||
(in thousands) |
|
Relationships |
|
|
Contracts |
|
|
Names |
|
|
Other |
|
|
Totals |
|
||||||||||
Gross book value - December 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||||
Accumulated amortization |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
Net book value - December 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||||
Weighted average useful life (yrs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross book value - December 31, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||||
Accumulated amortization |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
Net book value - December 31, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||||
Weighted average useful life (yrs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for definite‑lived intangible assets for the years ended December 31, 2022, 2021 and 2020 was $
The following table presents estimated amortization expense for definite‑lived intangible assets for each of the five succeeding years and thereafter:
2023 |
|
$ |
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total |
|
$ |
|
|
The following table presents a summary of indefinite‑lived intangible assets by type:
|
|
Fund |
|
|
|
|
|
|
|
|
|||||
|
|
Agent and |
|
|
Trade |
|
|
|
|
|
|||||
(in thousands) |
|
Contracts |
|
|
Names |
|
|
Totals |
|
||||||
December 31, 2020 balance |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||
Additions or transfers |
|
|
|
|
|
|
|
|
|
|
|
|
|||
December 31, 2021 balance |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||
Additions or transfers |
|
|
|
|
|
|
|
|
|
|
|
|
|||
December 31, 2022 balance |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
There were
102
NOTE 10. Income Taxes
The following table presents the provision for income taxes for the years ended December 31, 2022, 2021 and 2020:
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
||||||
Current tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||
State |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Foreign |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
||
Total current tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Deferred tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
|
|
|
|
|
|
|
|
|
|
|||
State |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Foreign |
|
|
|
( |
) |
|
|
|
|
|
|
|
( |
) |
|
Total deferred tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Income tax expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
As of December 31, 2022, 2021 and 2020, the Company had
The effective tax rate for the years ended December 31, 2022, 2021 and 2020 differs from the United States federal statutory rate primarily as a result of state and local income taxes and excess tax benefits on share-based compensation.
The following table presents the tax rates for the years ended December 31, 2022, 2021 and 2020.
|
|
2022 |
|
|
|
2021 |
|
|
|
2020 |
|
|
|||
Federal income tax at U.S. statutory rate |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|||
State income tax rate, net of federal tax benefit |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|||
Excess tax benefits on share-based compensation |
|
|
( |
) |
% |
|
|
( |
) |
% |
|
|
( |
) |
% |
Foreign taxes and other |
|
|
|
% |
|
|
( |
) |
% |
|
|
|
% |
||
Income tax expense |
|
|
|
% |
|
|
|
% |
|
|
|
% |
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax reporting purposes.
In assessing the realization of deferred tax assets, management considers the reversal of deferred tax liabilities as well as projections of future taxable income during the periods in which temporary differences are expected to reverse. Based on the consideration of these facts, the Company believes it is more likely than not that all of its gross deferred tax assets will be realized in the future, and as a result has not recorded a valuation allowance on these amounts as of December 31, 2022 and 2021.
103
(in thousands) |
|
2022 |
|
|
2021 |
|
||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
||
Definite-lived intangibles |
|
$ |
|
|
|
$ |
|
|
||
Share-based compensation expense |
|
|
|
|
|
|
|
|
||
Acquisition-related costs |
|
|
|
|
|
|
|
|
||
Deferred compensation |
|
|
|
|
|
|
|
|
||
Restructuring expenses |
|
|
|
|
|
|
|
|
||
Contingent consideration arrangements |
|
|
|
|
|
|
|
|
||
Goodwill |
|
|
|
— |
|
|
|
|
|
|
Unrealized loss on deferred compensation investments |
|
|
|
|
|
|
|
— |
|
|
R&E expenditures |
|
|
|
|
|
|
|
— |
|
|
Other |
|
|
|
|
|
|
|
|
||
Total deferred tax assets |
|
|
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
||
Indefinite-lived intangibles |
|
|
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
|
— |
|
|
Debt issuance costs |
|
|
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
|
|
|
||
OCI - Swap liability and cumulative translation adjustment |
|
|
|
|
|
|
|
|
||
Prepaid expenses |
|
|
|
|
|
|
|
|
||
Unrealized gain on deferred compensation investments |
|
|
|
— |
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
|
|
|
|
|
|
||
Net deferred tax liability |
|
$ |
|
( |
) |
|
$ |
|
( |
) |
As of December 31, 2022 and 2021, the Company had
In the normal course of business, the Company is subject to examination by federal and certain state and local tax regulators. As of December 31, 2022, U.S. federal income tax returns for 2019, 2020 and 2021 are open and therefore subject to examination. State and local income tax returns filed are generally subject to examination from 2018 to 2021.
We have analyzed our tax positions for all open years and have concluded that no additional provision for income tax is required in the consolidated financial statements. The Company does not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months.
NOTE 11. Debt
2019 Credit Agreement
On July 1, 2019, concurrent with the USAA AMCO Acquisition, the Company entered into the 2019 Credit Agreement, repaid all indebtedness outstanding under the prior credit agreement (the “2018 Credit Agreement”), and terminated the 2018 Credit Agreement.
The 2019 Credit Agreement was entered into among Victory, as borrower, the lenders from time to time party thereto and Barclays Bank PLC, as administrative agent and collateral agent, pursuant to which the Company obtained a
The obligations of the Company under the 2019 Credit Agreement are guaranteed by the Company’s domestic subsidiaries (other than VCS) (the “Guarantors”) and secured by substantially all of the assets of the Company and the Guarantors, subject in each case to certain customary exceptions.
The 2019 Credit Agreement contains customary affirmative and negative covenants, including covenants that affect, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness,
104
create liens, merge or dissolve, make investments, dispose of assets, engage in sale and leaseback transactions, make distributions and dividends and prepayments of junior indebtedness, engage in transactions with affiliates, enter into restrictive agreements, amend documentation governing junior indebtedness, modify its fiscal year and modify its organizational documents, subject to customary exceptions, thresholds, qualifications and “baskets.” In addition, the 2019 Credit Agreement contains a financial performance covenant, requiring a maximum first lien leverage ratio, measured as of the last day of each fiscal quarter on which outstanding borrowings under the revolving credit facility exceed
As of December 31, 2022, there were
2020 Debt Refinancing (First Amendment)
On January 17, 2020, the Company entered into the First Amendment (the “First 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 First Amendment, the Company refinanced the 2019 Term Loans with replacement term loans in an aggregate principal amount of $
The Company recognized a $
In 2020, a total of $
2021 Debt Repricing (Second Amendment)
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 2020 Term Loans with replacement term loans in an aggregate principal amount of $
2021 Incremental Term Loans (Third Amendment)
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 $
Original issue discount was $
105
2022 LIBOR to Term SOFR Rate Transition (Fourth Amendment)
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 its debt from LIBOR to a rate based on the secured overnight financing rate (“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.
The following table presents the components of long-term debt in the Consolidated Balance Sheets at December 31, 2022 and 2021.
|
|
|
|
|
|
|
|
|
|
Effective |
|
|||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Interest |
|
|||||
Term Loans |
|
|
|
|
|
|
|
|
|
|
|
|||
Due July 2026, |
|
$ |
|
— |
|
|
$ |
|
|
|
|
% |
||
Due July 2026, |
|
|
|
|
|
|
|
— |
|
|
|
% |
||
Due December 2028, |
|
|
|
— |
|
|
|
|
|
|
|
% |
||
Due December 2028, |
|
|
|
|
|
|
|
— |
|
|
|
% |
||
Term loan principal outstanding |
|
|
|
|
|
|
|
|
|
|
|
|||
Unamortized debt issuance costs |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
|
Unamortized debt discount |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
|
Long-term debt |
|
$ |
|
|
|
$ |
|
|
|
|
|
Debt issuance costs related to the 2019 Credit Agreement totaled $
In 2022, repayments of outstanding term loan principal and open market term loan debt repurchases and retirements totaled $
In 2021, a total of $
106
the repayments and repurchases of term loan principal, which consisted of the write-off of $
The following table presents the components of interest expense and other financing costs on the Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020.
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
||||||
Interest expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||
Amortization of debt issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Amortization of debt discount |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Interest rate swap (income) expense |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
NOTE 12. Derivatives
Interest Rate Swap
On March 27, 2020, the Company entered into the Swap to manage interest rate risk associated with a portion of its floating-rate long-term debt. The Company does not purchase or hold any derivative instruments for trading or speculative purposes. Under the terms of the original Swap agreement, the Company paid interest at a fixed rate of interest on a quarterly basis and received interest at the three-month LIBOR rate in effect for that quarter.
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. There was no change to the $
The Company elected to apply certain optional expedients available under ASC 848 providing relief from contract modification and hedge accounting requirements to the amendments to the Swap agreement. As a result, the Company was not required to evaluate whether the modifications to the Swap agreement resulted in the establishment of a new contract or the continuation of an existing contract and elected not to remeasure the contract at the modification date or reassess its previous accounting determination. The modified contract is accounted for, and presented as, a continuation of the existing contract. The Company also elected to change the contractual terms of the Swap without dedesignating the existing hedging relationship and redesignating a new hedging relationship.
The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how the Company reflects the change in fair value of the derivative instrument. A derivative qualifies for hedge accounting treatment if, at inception, it meets defined correlation and effectiveness criteria. These criteria require that the anticipated cash flows and/or changes in fair value of the hedging instrument substantially offset those of the position being hedged. The Swap is assessed for effectiveness and continued qualification for hedge accounting on a quarterly basis. Since inception, the Swap was deemed to be highly effective.
The Swap is designated as a cash flow hedge. Accordingly, the Swap is 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 is determined to be effective. Gains or losses from the Swap are reclassified to interest expense in the same period during which the hedged transaction affects earnings. The amount receivable from the Swap counterparty at December 31, 2022 of $
The following tables summarize the classification of the Swap in our consolidated financial statements (in thousands):
107
Balance Sheets |
Description |
|
December 31, 2022 |
|
|
December 31, 2021 |
|
||
Other assets |
Fair value of interest rate swap |
|
$ |
|
|
$ |
|
||
|
Notional amount |
|
|
|
|
|
|
|
|
|
Twelve Months Ended |
|
|||||||||
|
|
|
December 31, |
|
|||||||||
Statements of Operations |
Description |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|||
Interest income (expense) and other financing costs |
Income (loss) reclassified from AOCI(L) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
Twelve Months Ended |
|
|||||||||
|
|
|
December 31, |
|
|||||||||
Statements of Comprehensive Income |
Description |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|||
Other comprehensive income (loss) |
Income (loss) recognized in AOCI(L), net of tax |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
NOTE 13. Equity Method Investment
In September 2020, the Company acquired, through a wholly owned subsidiary, a
In January 2022, the Company signed an amendment to the Alderwood members’ agreement (“Alderwood Amendment”) and made an additional $
In July 2022, Alderwood decided to wind down its business and operations, including the business and operations of its private fund. On July 31, 2022, the Company’s wholly owned subsidiary retired as a member of Alderwood thereby terminating the Company’s commitment to contribute an additional $
Given the level of ownership interest in Alderwood, an English limited liability partnership, and the fact that Alderwood maintained specific ownership accounts for investors, the Company accounted for its investment in Alderwood using the equity method of accounting.
For the years ended December 31, 2022, 2021 and 2020, losses from equity method investments recorded in interest income and other income (expense) in the Consolidated Statements of Operations were $
NOTE 14. Equity
Equity Structure
Following the Company’s IPO in February 2018, authorized capital stock consisted of
The rights of the holders of Class A common stock and Class B common stock were identical, except voting and conversion rights. Each share of Class A common stock was entitled to
108
common stock was entitled to
Each share of Class B common stock was convertible into
In September 2021, the Company’s Board of Directors approved the elimination of the Company’s dual-class share structure, which was subsequently approved by the Company’s stockholders on November 19, 2021. On November 23, 2021 (the “Effective Date”), the Company filed an amended and restated certificate of incorporation authorizing capital stock consisting of
Each share of the Company’s Class A common stock issued and outstanding or held as treasury stock immediately prior to the Effective Date was renamed as Common Stock and became one share of Common Stock. For comparative purposes, we now refer to each share of stock that was previously known as Class A common stock as Common Stock.
Share Rollforward
The following tables present the changes in the number of shares of common stock issued and repurchased (in thousands):
|
|
Shares of Common Stock |
|
|
Shares of Treasury Stock |
|
||||||||||||||
|
|
Common Stock |
|
|
Class B |
|
|
Common Stock |
|
|
Class B |
|
||||||||
Balance, December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
( |
) |
||
Issuance of common stock |
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Conversion of Class B shares to Common Stock |
|
|
|
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
|
Repurchase of shares |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
Vesting of restricted share grants |
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
Exercise of options |
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
Shares withheld related to net settlement of equity awards |
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
Balance, December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
( |
) |
||
Issuance of shares |
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Conversion of Class B shares to Common Stock |
|
|
|
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
|
Repurchase of shares |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
Vesting of restricted share grants |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
||
Exercise of options |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
||
Shares withheld related to net settlement of equity awards |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
( |
) |
Elimination of Class B share class |
|
|
|
|
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
|
||
Balance, December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|||
Issuance of shares |
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Repurchase of shares |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
Vesting of restricted share grants |
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Exercise of options |
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Shares withheld related to net settlement of equity awards |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
Balance, December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
109
Shares Repurchased and Withheld
Share Repurchase Program
Six share repurchase programs were authorized from 2018 to 2021, each for $
On May 5, 2022, the Company’s Board of Directors approved a new share repurchase program (the “2022 Share Repurchase Program”) authorizing the repurchase of up to $
In 2022, the Company repurchased
As of December 31, 2022, a total of $
Shares Withheld for net settlement of employee equity awards
In 2022, the Company net settled
Dividend Payments
Dividends paid or payable for the year ended December 31, 2022 totaled $
Dividends paid or payable for the years ended December 31, 2021 and 2020 totaled $
NOTE 15. Share‑Based Compensation
Equity Incentive Plans
Prior to the Company’s IPO in 2018, equity-based awards were issued to executives, directors and key employees of the Company under the Victory Capital Holdings, Inc. Equity Incentive Plan (the “2013 Plan”) and the Outside Director Equity Incentive Plan (the “Director Plan”).
In connection with the IPO, the Company’s board of directors adopted, and the Company’s stockholders approved, the Victory Capital Holdings, Inc. 2018 Stock Incentive Plan (the “2018 Plan”), and the Victory Capital Holdings, Inc. 2018 Employee Stock Purchase Plan (the “ESPP Plan”), each of which became effective upon the completion of the IPO.
The 2018 Plan authorizes the grant of non-qualified stock options, incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards and other awards that may be settled in or based upon shares of the Company’s Common Stock.
110
A total of
The Compensation Committee of the Company’s board of directors approves the terms and conditions for offerings under the ESPP Plan. A total of
Under the Company’s approved offerings under the ESPP Plan, shares of Common Stock are available for purchase at
Grant Activity
In 2022, the company issued grants for
In 2021, the Company issued grants for
In 2020, the Company issued grants for
The following tables presents activity during the years ended December 31, 2022, 2021, and 2020 related to stock option awards and restricted stock awards.
|
|
Shares Subject to Stock Option Awards |
|
|||||||||||||||||||||||||||||||||||||||
|
|
Year to Date Ended December 31, |
|
|||||||||||||||||||||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|||||||||||||||||||||||||||||||||
|
|
Avg wtd |
|
|
Avg wtd |
|
|
|
|
|
Avg wtd |
|
|
Avg wtd |
|
|
|
|
|
Avg wtd |
|
|
Avg wtd |
|
|
|
|
|||||||||||||||
|
|
grant-date |
|
|
exercise |
|
|
|
|
|
grant-date |
|
|
exercise |
|
|
|
|
|
grant-date |
|
|
exercise |
|
|
|
|
|||||||||||||||
|
|
fair value |
|
|
price |
|
|
Units |
|
|
fair value |
|
|
price |
|
|
Units |
|
|
fair value |
|
|
price |
|
|
Units |
|
|||||||||||||||
Outstanding at beginning of period |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|||||||||
Forfeited |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
||||||
Exercised |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
||||||
Outstanding at end of the period |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|||||||||
Vested |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|||||||||
Unvested |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intrinsic value of stock options exercised in 2022, 2021, and 2020 was $
111
|
|
Restricted Stock Awards |
|
||||||||||||||||||||||||
|
|
For Year Ended December 31, |
|
||||||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
||||||||||||||||||
|
|
Avg wtd |
|
|
|
|
|
Avg wtd |
|
|
|
|
|
Avg wtd |
|
|
|
|
|||||||||
|
|
fair value |
|
|
Units |
|
|
fair value |
|
|
Units |
|
|
fair value |
|
|
Units |
|
|||||||||
Unvested at beginning of period |
|
$ |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
|
|
|
||||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Vested |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|||
Forfeited |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|||
Unvested at end of period |
|
$ |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
|
|
|
Share‑based compensation expense for equity awards is measured at the grant date, based on the estimated fair value of the award, and recognized over the requisite employee service period. Stock option awards have a
The Company uses the Common Stock closing price on the grant date as the grant date fair value of restricted share awards. For stock option awards, the grant date fair value of stock option awards is computed using Black‑Scholes option pricing framework.
Share-based Compensation Expense
The Company recorded $
As of December 31, 2022, the Company expects to recognize total share-based compensation expense of $
NOTE 16. LEASES
The Company determines if a contract is a lease at inception. We have leases primarily for office facilities and information technology equipment. All of our leases are classified as operating leases.
Supplemental balance sheet information related to the Company’s operating leases as of December 31, 2022 is as follows:
(in thousands) |
|
December 31, 2022 |
|
|
(1) |
|
$ |
|
|
Current portion of operating lease liabilities(2) |
|
|
|
|
Noncurrent portion of operating lease liabilities(2) |
|
|
|
|
|
$ |
|
|
|
December 31, 2022 |
|
|
Weighted-average remaining lease term |
|
|
||
Weighted-average discount rate |
|
|
% |
112
The components of lease expense and other lease information for the year ended December 31, 2022 are as follows:
|
|
Year Ended |
|
|
(in thousands) |
|
December 31, 2022 |
|
|
Operating lease cost |
|
$ |
|
|
Short-term lease cost |
|
|
|
|
Variable lease cost |
|
|
|
|
Gross lease cost |
|
$ |
|
|
Sub-lease income |
|
|
( |
) |
Net lease cost |
|
$ |
|
|
|
|
|
|
|
Other lease information |
|
|
|
|
Cash paid for amounts included in measurement of lease liabilities |
|
|
|
|
Operating cash flows for operating leases |
|
$ |
|
Our leases have remaining lease terms of
(in thousands) |
|
Operating |
|
||
2023 |
|
$ |
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total undiscounted lease payments |
|
|
|
|
|
Less: imputed interest |
|
|
|
|
|
Total lease liabilities |
|
$ |
|
|
NOTE 17. Employee Benefit Plans
The Company maintains a defined contribution 401(k) Plan (the “401(k) Plan”), covering substantially all employees who have met the eligibility requirements. The 401(k) Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 and the Economic Growth and Tax Relief Reconciliation Act of 2001. In 2022, 2021 and 2020 the Company recognized expense of $
The Company sponsors a deferred compensation plan for key investment professionals and executives (“Employee DC Plan”) as a means to reward and motivate them. The Company purchases mutual funds as directed by the plan participants to fund its related obligations. Such securities are held in a rabbi trust for the participants, and under the terms of the trust agreement, the assets of the trust are available to satisfy the claims of the Company’s general creditors in the event of bankruptcy.
Effective January 1, 2020, the Company created a deferred compensation plan for non-employee members of our board of directors (the “Director DC Plan”). Benefits payable under the Director DC Plan are payable from
113
the Company’s general assets. Amounts contributed under the Director DC Plan and earnings on those amounts are subject to the claims of the Company’s general creditors.
Gains and losses from fluctuations in value of deferred compensation plan investments are included in interest income and other income (expense) in the Consolidated Statements of Operations and are offset entirely by the corresponding changes in value of the deferred compensation liability. Changes in the value of the Employee DC Plan and Director DC Plan liabilities are recorded in personnel compensation and benefits and general and administrative expense, respectively, in the Consolidated Statements of Operations. Investments held under both deferred compensation plans are recorded in deferred compensation plan investments in the Consolidated Balance Sheets.
The following table presents the components of deferred compensation plan-related expense related to the Employee DC Plan.
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
||||||
Employee contributions |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||
Employer contributions |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Change in value of deferred compensation plan liability |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
||
Total |
|
$ |
|
( |
) |
|
$ |
|
|
|
$ |
|
|
Expense related to the Director DC plan was de minimis for the years ended December 31, 2022, 2021 and 2020.
NOTE 18. Earnings Per Share
The following table sets forth the computation of basic earnings per share and diluted earnings per share for the years ended December 31, 2022, 2021 and 2020:
|
|
Year Ended December 31, |
|
||||||||||||
(in thousands, except per share amounts) |
|
2022 |
|
|
2021 |
|
|
2020 |
|
||||||
Net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||
Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Basic weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Assumed conversion of dilutive instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Diluted weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Basic: |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|||
Diluted: |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
For the years ended December 31, 2022, 2021, and 2020, the number of outstanding instruments excluded from the above computations of weighted average shares for diluted earnings per share because the effects would be anti‑dilutive was de minimis. Holders of non‑vested share‑based compensation awards do not have rights to receive nonforfeitable dividends on the shares covered by the awards.
NOTE 19. Net Capital Requirements
VCS is subject to the SEC Uniform Net Capital Rule (Rule 15c3‑1 under the Exchange Act) administered by the SEC and FINRA, which requires the maintenance of minimum net capital, as defined, and requires that the ratio of aggregate indebtedness to net capital, cannot exceed 15 to 1. Net capital and the related net capital requirement may fluctuate on a daily basis.
At December 31, 2022, VCS had net capital under the Rule 15c3‑1 of $
114
million. The Company's ratio of aggregate indebtedness to net capital at December 31, 2022 and 2021 was
Capital requirements may limit the amount of cash available for dividend from VCS to the parent company. VCS's cash and cash equivalents are generally not available for corporate purposes.
NOTE 20. Accumulated Other Comprehensive INCOME (Loss)
The following table presents changes in accumulated other comprehensive income (loss) by component for the years ending December 31, 2022, 2021, and 2020.
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
||||
|
|
Cash Flow |
|
|
Translation |
|
|
|
|
|
|||||
(in thousands) |
|
Hedges (1) |
|
|
Adjustment |
|
|
Total |
|
||||||
Balance, December 31, 2019 |
|
$ |
|
— |
|
|
$ |
|
— |
|
|
$ |
|
— |
|
Other comprehensive (loss) income before reclassification and tax |
|
|
|
( |
) |
|
|
|
|
|
|
|
( |
) |
|
Tax impact |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
||
Reclassification adjustments, before tax |
|
|
|
|
|
|
|
— |
|
|
|
|
|
||
Tax impact |
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
( |
) |
Net current period other comprehensive (loss) income |
|
|
|
( |
) |
|
|
|
|
|
|
|
( |
) |
|
Balance, December 31, 2020 |
|
|
|
( |
) |
|
|
|
|
|
|
|
( |
) |
|
Other comprehensive income (loss) before reclassification and tax |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
||
Tax impact |
|
|
|
( |
) |
|
|
|
|
|
|
|
( |
) |
|
Reclassification adjustments, before tax |
|
|
|
|
|
|
|
— |
|
|
|
|
|
||
Tax impact |
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
( |
) |
Net current period other comprehensive income (loss) |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
||
Balance, December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Other comprehensive (loss) income before reclassification and tax |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
||
Tax impact |
|
|
|
( |
) |
|
|
|
|
|
|
|
( |
) |
|
Reclassification adjustments, before tax |
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
( |
) |
Tax impact |
|
|
|
|
|
|
|
— |
|
|
|
|
|
||
Net current period other comprehensive income (loss) |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
||
Balance, December 31, 2022 |
|
$ |
|
|
|
$ |
|
( |
) |
|
$ |
|
|
NOTE 21. Subsequent Events
On February 9, 2023, our Board of Directors declared a quarterly cash dividend of $
On January 26, 2023, the Board of Directors (the “Board”) of the Company voted to add Vice Admiral Mary Jackson to the Board as a Class II Director. Vice Admiral Jackson has over three decades of service in the United States Navy and currently serves on public and private company boards. Vice Admiral Jackson does not have any family relationships with any of the Company’s other officers or directors and does not have any direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K. Vice Admiral Jackson will receive standard directors fees.
In February 2023, the remaining $
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None
115
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Regulations under the Exchange Act require public companies, including us, to maintain “disclosure controls and procedures,” which are defined in Rule 13a-15(e) and Rule 15d-15(e) to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required or necessary disclosures.
In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible disclosure controls and procedures.
Based on the evaluation of the effectiveness of the disclosure controls and procedures by our management as of December 31, 2022, our chief executive officer and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022 using the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Based on our evaluation under the COSO framework, our management concluded that our internal control over financial reporting is effective as of December 31, 2022 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm with respect to our internal control over financial reporting due to an exemption established by the JOBS Act for “emerging growth companies.”
Changes in Internal Control over Financial Reporting
Regulations under the Exchange Act require public companies, including our company, to evaluate any change in our “internal control over financial reporting” as such term is defined in Rule 13a‑15(f) and Rule 15d‑15(f) of the Exchange Act. In connection with their evaluation of our disclosure controls and procedures, our chief executive officer and chief financial officer did not identify any change in our internal control over financial reporting during the most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None
116
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item is set forth in our definitive proxy statement required to be filed pursuant to Regulation 14A for the 2023 annual meeting of shareholders.
Item 11. Executive Compensation.
The information required by this Item is set forth in our definitive proxy statement required to be filed pursuant to Regulation 14A for the 2023 annual meeting of shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
The information required by this Item is set forth in our definitive proxy statement required to be filed pursuant to Regulation 14A for the 2023 annual meeting of shareholders.
The information required by this Item is set forth in our definitive proxy statement required to be filed pursuant to Regulation 14A for the 2023 annual meeting of shareholders.
Item 14. Principal Accountant Fees and Services.
The information required by this Item is set forth in our definitive proxy statement required to be filed pursuant to Regulation 14A for the 2023 annual meeting of shareholders.
117
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Item 16. Form 10‑K Summary.
None
EXHIBIT INDEX
Exhibit No. |
|
Description |
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
3.3 |
|
|
|
|
|
4.1 |
|
|
|
|
|
4.2 |
|
|
|
|
|
4.3 |
|
|
|
|
|
4.4 |
|
|
|
|
|
4.5 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2+ |
|
|
|
|
|
10.3 |
|
|
|
|
|
118
10.4+ |
|
|
|
|
|
10.5+ |
|
|
|
|
|
10.6+ |
|
|
|
|
|
10.7+ |
|
|
|
|
|
10.8+ |
|
|
|
|
|
10.9+ |
|
|
|
|
|
10.10+ |
|
|
|
|
|
10.11+ |
|
|
|
|
|
10.12+ |
|
|
|
|
|
10.13+ |
|
|
|
|
|
10.14+ |
|
|
|
|
|
10.15+ |
|
|
|
|
|
10.16+ |
|
|
|
|
|
10.17+ |
|
|
|
|
|
10.18+ |
|
|
|
|
|
10.19 |
|
119
|
|
|
|
|
|
10.20 |
|
|
|
|
|
10.21+ |
|
|
|
|
|
10.23 |
|
|
|
|
|
10.24 |
|
|
|
|
|
10.25 |
|
|
|
|
|
10.27 |
|
|
|
|
|
10.28 |
|
|
|
|
|
10.29+ |
|
|
|
|
|
10.30+ |
|
|
|
|
|
10.31+ |
|
|
|
|
|
10.32+ |
|
|
|
|
|
10.33 |
|
|
|
|
|
10.34 |
|
|
|
|
|
120
10.35 |
|
|
|
|
|
10.36 |
|
|
|
|
|
10.37 |
|
|
|
|
|
10.38* |
|
Fourth Amendment to the 2019 Credit Agreement dated as of September 23, 2022. |
|
|
|
21.1* |
|
|
|
|
|
23.1* |
|
|
|
|
|
31.1* |
|
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley |
|
|
|
31.2* |
|
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley |
|
|
|
32.1** |
|
|
|
|
|
32.2** |
|
|
|
|
|
101* |
|
The following information formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Audited Consolidated Balance Sheets as of December 31, 2022 and 2021, (ii) Audited Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020, (iii) Audited Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020, (iv) Audited Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020, (v) Audited Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2022, 2021 and 2020 and (vi) Notes to the Audited Consolidated Financial Statements. |
104* |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith
** Furnished herewith
+ This exhibit is a management contract or compensatory plan or arrangement.
121
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 6th day of March, 2023.
|
VICTORY CAPITAL HOLDINGS, INC. |
||
|
|
|
|
|
By: |
|
/s/ DAVID C. BROWN |
|
Name: |
|
David C. Brown |
|
Title: |
|
Chief Executive Officer and Chairman |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ DAVID C. BROWN David C. Brown |
|
Chief Executive Officer and Chairman (Principal Executive Officer) |
|
March 6, 2023 |
|
|
|
|
|
/s/ MICHAEL D. POLICARPO Michael D. Policarpo |
|
President, Chief Financial Officer and Chief Administrative Officer (Principal Financial Officer and Principal Accounting Officer) |
|
March 6, 2023 |
|
|
|
|
|
/s/ MILTON R. BERLINSKI Milton R. Berlinski |
|
Director |
|
March 6, 2023 |
|
|
|
|
|
/s/ ROBERT DELANEY Robert Delaney |
|
Director |
|
March 6, 2023 |
|
|
|
|
|
/s/ LAWRENCE DAVANZO Lawrence Davanzo |
|
Director |
|
March 6, 2023 |
|
|
|
|
|
/s/ RICHARD M. DEMARTINI Richard M. DeMartini |
|
Director |
|
March 6, 2023 |
|
|
|
|
|
/s/ JAMES B. HAWKES James B. Hawkes |
|
Director |
|
March 6, 2023 |
|
|
|
|
|
/s/ ROBERT J. HURST Robert J. Hurst |
|
Director |
|
March 6, 2023 |
|
|
|
|
|
/s/ KARIN HIRTLER‑GARVEY Karin Hirtler‑Garvey |
|
Director |
|
March 6, 2023 |
|
|
|
|
|
/s/ MARY JACKSON Mary Jackson |
|
Director |
|
March 6, 2023 |
|
|
|
|
|
/s/ ALAN H. RAPPAPORT Alan H. Rappaport |
|
Director |
|
March 6, 2023 |
122
Exhibit 10.38
Execution Version, conformed through First Amendment dated as of January 17, 2020 and, Second Amendment, dated as of February 18, 2021, Third Amendment dated as of December 31, 2021 and Fourth Amendment dated as of September 23, 2022
and Third Amendment dated as of December 31, 2021
CREDIT AGREEMENT BARCLAYS BANK PLC, |
LEGAL_US_E # 159035042.9
Table of Contents
Page
* RBC Capital Markets is a brand name for the capital markets activities of Royal Bank of Canada and its affiliates.
ii
LEGAL_US_E # 159035042.9
Table of Contents
Page
ARTICLE 1 DEFINITIONS 1
Section 1.01. Defined Terms 1
Section 1.02. Classification of Loans and Borrowings 6570
Section 1.03. Terms Generally 6570
Section 1.04. Accounting Terms; GAAP 6671
Section 1.05. Effectuation of Transactions 6772
Section 1.06. Timing of Payment or Performance 6772
Section 1.07. Times of Day 6772
Section 1.08. Cashless Rollovers 6772
Section 1.09. Certain Calculations and Tests 6873
Section 1.10. Divisions 6974
Section 1.11. Successor LIBO Rate Index 69[Reserved] 74
Section 1.12. Effect of Benchmark Transition Event 75
ARTICLE 2 THE CREDITS 7076
Section 2.01. Commitments 7076
Section 2.02. Loans and Borrowings 7078
Section 2.03. Requests for Borrowings 7178
Section 2.04. Swingline Loans 7279
Section 2.05. Letters of Credit 7481
Section 2.06. [Reserved] 7986
Section 2.07. Funding of Borrowings 7986
Section 2.08. Type; Interest Elections 8087
Section 2.09. Termination and Reduction of Commitments 8188
Section 2.10. Repayment of Loans; Evidence of Debt 8189
Section 2.11. Prepayment of Loans 8391
Section 2.12. Fees 8996
Section 2.13. Interest 9098
Section 2.14. Alternate Rate of Interest 9199
Section 2.15. Increased Costs 9199
Section 2.16. Break Funding Payments 93101
Section 2.17. Taxes 93101
Section 2.18. Payments Generally; Allocation of Proceeds; Sharing of Payments 97104
Section 2.19. Mitigation Obligations; Replacement of Lenders 98106
LEGAL_US_E # 159035042.9
Table of Contents
(Cont.)
Page
Section 2.20. Illegality 100108
Section 2.21. Defaulting Lenders 100108
Section 2.22. Incremental Credit Extensions 103111
Section 2.23. Extensions of Loans and Revolving Credit Commitments 107115
Section 2.24. Inability to Determine Rates 110118
ARTICLE 3 REPRESENTATIONS AND WARRANTIES 111119
Section 3.01. Organization; Powers 111119
Section 3.02. Authorization; Enforceability 111119
Section 3.03. Governmental Approvals; No Conflicts 111119
Section 3.04. Financial Condition; No Material Adverse Effect 111119
Section 3.05. Properties 112120
Section 3.06. Litigation and Environmental Matters 112120
Section 3.07. Compliance with Laws 112120
Section 3.08. Investment Company Status 113121
Section 3.09. Taxes 113121
Section 3.10. ERISA 113121
Section 3.11. Disclosure 113121
Section 3.12. Solvency 114122
Section 3.13. Capitalization and Subsidiaries 114122
Section 3.14. Security Interest in Collateral 114122
Section 3.15. Labor Disputes 114122
Section 3.16. Federal Reserve Regulations 114122
Section 3.17. Senior Indebtedness 114122
Section 3.18. Use of Proceeds 114122
Section 3.19. OFAC; PATRIOT ACT and FCPA 114122
Section 3.20. Certain Regulatory Matters. 115123
ARTICLE 4 CONDITIONS 116124
Section 4.01. Closing Date 116124
Section 4.02. Each Credit Extension 119127
ARTICLE 5 AFFIRMATIVE COVENANTS 120128
Section 5.01. Financial Statements and Other Reports 120128
Section 5.02. Existence 123131
Section 5.03. Payment of Taxes 124132
Section 5.04. Maintenance of Properties 124132
ii
LEGAL_US_E # 159035042.9
Table of Contents
(Cont.)
Page
Section 5.05. Insurance 124132
Section 5.06. Inspections 124132
Section 5.07. Maintenance of Book and Records 125133
Section 5.08. Compliance with Laws 125133
Section 5.09. Designation of Subsidiaries 125133
Section 5.10. Use of Proceeds 126134
Section 5.11. Covenant to Guarantee Obligations and Give Security 126134
Section 5.12. Maintenance of Ratings 128136
Section 5.13. Further Assurances 128136
ARTICLE 6 NEGATIVE COVENANTS 129137
Section 6.01. Indebtedness 129137
Section 6.02. Liens 134142
Section 6.03. [Reserved] 138146
Section 6.04. Restricted Payments; Restricted Debt Payments 138146
Section 6.05. Burdensome Agreements 142151
Section 6.06. [Reserved] 144152
Section 6.07. Fundamental Changes; Disposition of Assets 144152
Section 6.08. Sale and Lease-Back Transactions 148156
Section 6.09. Transactions with Affiliates 148156
Section 6.10. Lines of Business 150158
Section 6.11. Amendments or Waivers of Organizational Documents 150158
Section 6.12. Amendments of or Waivers with Respect to Restricted Debt 150158
Section 6.13. Fiscal Year 150158
Section 6.14. Financial Covenant 150158
ARTICLE 7 EVENTS OF DEFAULT 151160
Section 7.01. Events of Default 151160
ARTICLE 8 THE ADMINISTRATIVE AGENT 155163
Section 8.01. General Agency Provisions 155163
Section 8.02. Certain ERISA Matters 162171
ARTICLE 9 MISCELLANEOUS 164172
Section 9.01. Notices 164172
Section 9.02. Waivers; Amendments 166175
Section 9.03. Expenses; Indemnity 172181
Section 9.04. Waiver of Claim 174182
iii
LEGAL_US_E # 159035042.9
Table of Contents
(Cont.)
Page
Section 9.05. Successors and Assigns 174182
Section 9.06. Survival 182190
Section 9.07. Counterparts; Integration; Effectiveness 182191
Section 9.08. Severability 183191
Section 9.09. Right of Setoff 183191
Section 9.10. Governing Law; Jurisdiction; Consent to Service of Process 183192
Section 9.11. Waiver of Jury Trial 184193
Section 9.12. Headings 184193
Section 9.13. Confidentiality 184193
Section 9.14. No Fiduciary Duty 186194
Section 9.15. Several Obligations 186195
Section 9.16. USA PATRIOT Act 186195
Section 9.17. Disclosure of Agent Conflicts 186195
Section 9.18. Appointment for Perfection 186195
Section 9.19. Interest Rate Limitation 187195
Section 9.20. Conflicts 187195
Section 9.21. Release of Loan Guarantors 187195
Section 9.22. Judgment Currency 187196
Section 9.23. Acknowledgement and Consent to Bail-In of EEAAffected Financial Institution 188Institutions 196
Section 9.24. Acknowledgement Regarding Any Supported QFC 188197
iv
LEGAL_US_E # 159035042.9
SCHEDULES: |
|
|
Schedule 1.01(a) |
– |
Commitment Schedule |
Schedule 1.01(b) |
– |
Dutch Auction |
Schedule 1.01(c) |
– |
Mortgages |
Schedule 1.01(d) |
– |
Existing Investments |
Schedule 1.01(f) |
– |
Broker-Dealer Subsidiaries |
Schedule 1.01(g) |
– |
Introducing Broker Subsidiaries |
Schedule 3.05(a) |
– |
Fee Owned Real Estate Assets |
Schedule 3.13 |
– |
Subsidiaries |
Schedule 3.20 |
– |
Certain Regulatory Matters |
Schedule 5.09 |
– |
Unrestricted Subsidiaries |
Schedule 6.01(i) |
– |
Existing Indebtedness |
Schedule 6.02(l) |
– |
Existing Liens |
Schedule 6.07(bb) |
– |
Certain Dispositions |
Schedule 6.09(e) |
– |
Existing Transactions with Affiliates |
Schedule 9.01 |
– |
Borrower’s Website Address for Electronic Delivery |
EXHIBITS: |
|
|
Exhibit A-1 |
– |
Form of Assignment and Assumption |
Exhibit A-2 |
– |
Form of Affiliated Lender Assignment and Assumption |
Exhibit B |
– |
Form of Borrowing Request |
Exhibit C |
– |
Form of Compliance Certificate |
Exhibit D |
– |
Form of Interest Election Request |
Exhibit E |
– |
Form of Perfection Certificate |
Exhibit F |
– |
Form of Perfection Certificate Supplement |
Exhibit G |
– |
Form of Promissory Note |
Exhibit H |
– |
Form of Pledge and Security Agreement |
Exhibit I |
– |
Form of Guaranty Agreement |
Exhibit J-1 |
– |
Form of Patent Security Agreement |
Exhibit J-2 |
– |
Form of Trademark Security Agreement |
Exhibit J-3 |
– |
Form of Copyright Security Agreement |
Exhibit K |
– |
Form of Letter of Credit Request |
Exhibit L-1 |
– |
Form of U.S. Tax Compliance Certificate (For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes) |
Exhibit L-2 |
– |
Form of U.S. Tax Compliance Certificate (For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes) |
Exhibit L-3 |
– |
Form of U.S. Tax Compliance Certificate (For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes) |
Exhibit L-4 |
– |
Form of U.S. Tax Compliance Certificate (For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes) |
Exhibit M |
– |
Form of Solvency Certificate |
Exhibit N |
– |
Form of Prepayment Notice |
LEGAL_US_E # 159035042.9
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of July 1, 2019 (this “Agreement”), by and among Victory Capital Holdings, Inc., a Delaware corporation (the “Borrower”), the Lenders from time to time party hereto and Barclays Bank PLC (“Barclays”), as administrative agent and collateral agent for the Secured Parties (in such capacities, together with its successors and assigns in such capacities, the “Administrative Agent”), a Swingline Lender and an Issuing Bank.
RECITALS
WHEREAS, pursuant to the terms and conditions of the Stock Purchase Agreement, dated as of November 6, 2018 (including the exhibits and schedules thereto, the “Acquisition Agreement”), by and among the Borrower, USAA Investment Corporation, a Delaware corporation, and, solely for the express purposes set therein, USAA Capital Corporation, a Delaware corporation, on the Closing Date the Borrower will acquire (the “Acquisition”) 100% of the outstanding equity interests of each of USAA Asset Management Company, a Delaware corporation (“USAA Adviser”), and USAA Transfer Agency Company, a Delaware corporation (“USAA Transfer Agent” and, together with USAA Adviser, the “Targets”) from the current equity-holders thereof (the “Sellers”);
WHEREAS, in connection therewith, the Borrower has requested that the Lenders extend credit to the Borrower in the form of (a) Initial Term Loans made on the Closing Date in an aggregate principal amount of up to $1,100,000,000, the proceeds of which shall be used to finance all or a portion of the Transactions, and (b) Revolving Credit Commitments in an aggregate principal amount of $100,000,000, the proceeds of which shall be used to finance the working capital needs and other general corporate purposes of the Borrower and the Restricted Subsidiaries;
WHEREAS, in order to facilitate the Acquisition, the Borrower has requested that the Lenders authorize and ratify the Administrative Agent’s actions to enter into the escrow arrangements contemplated by the Escrow Agreement prior to the Closing Date; and
WHEREAS, the Lenders are willing to extend credit to the Borrower as so requested, subject to the terms and subject to the conditions set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
“2021 Incremental Term Loans” means the 2021 Incremental Term Loans as defined in the Third Amendment.
“2021 Incremental Term Loan Commitment” means the 2021 Incremental Term Loan Commitments as defined in the Third Amendment.
“2021 Incremental Term Lender” means, at any time, any Lender that has a 2021 Incremental Term Loan Commitment or 2021 Incremental Term Loan outstanding at such time.
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“2021 Incremental Term Loan Maturity Date” means, the date that is seven years from the Third Amendment Effective Date.
“2021 Incremental Term Loan Installment Date” has the meaning assigned to such term in Section 2.10(g).
“ABR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bear interest at a rate determined by reference to the Alternate Base Rate.
“ABR Borrowing” means any Borrowing at the Alternate Base Rate.
“ABR Loan” means a Loan that bears interest with reference to the Alternate Base Rate.
“ABR Revolving Borrowing” means any Borrowing of Revolving Loans at the Alternate Base Rate.
“ABR Revolving Loan” means a Revolving Loan that bears interest with reference to the Alternate Base Rate.
“Acceptable Compliance Certificate” has the meaning assigned to such term in the definition of Applicable Rate.
“Acceptable Intercreditor Agreement” means an intercreditor agreement the terms of which are reasonably satisfactory to the Administrative Agent, the Required Lenders and the Borrower.
“ACH” means automated clearing house transfers.
“Adjusted Term SOFR” means, for purposes of any calculation, the rate per annum equal to (a) Term SOFR for such calculation plus (b) the Term SOFR Adjustment; provided, that if Adjusted Term SOFR determined as provided above shall ever be less than 0.00%, then Adjusted Term SOFR shall be deemed to be 0.00%, provided, further that, solely with respect to the 2021 Incremental Term Loans, if Adjusted Term SOFR determined as provided above shall ever be less than 0.50%, then Adjusted Term SOFR shall be deemed to be 0.50%.
“Acquisition” has the meaning assigned to such term in the recitals to this Agreement.
“Acquisition Agreement” has the meaning assigned to such term in the recitals to this Agreement.
“Additional Agreement” has the meaning assigned to such term in Article 8.
“Additional Commitment” means any commitment hereunder added pursuant to Sections 2.22, 2.23 or 9.02(c).
“Additional Lender” has the meaning assigned to such term in Section 2.22(b).
“Additional Loans” means any Additional Revolving Loans and any Additional Term Loans.
“Additional Revolving Credit Commitments” means any revolving credit commitment added pursuant to Sections 2.22, 2.23 or 9.02(c)(ii).
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“Additional Revolving Credit Exposure” means, with respect to any Lender at any time, the aggregate Outstanding Amount at such time of all Additional Revolving Loans of such Lender, plus the aggregate Outstanding Amount at such time of such Lender’s LC Exposure and Swingline Exposure attributable to its Additional Revolving Credit Commitment.
“Additional Revolving Lender” means any Lender with an Additional Revolving Credit Commitment or any Additional Revolving Credit Exposure.
“Additional Revolving Loans” means any revolving loan added hereunder pursuant to Section 2.22, 2.23 or 9.02(c)(ii).
“Additional Term Lender” means any Lender with an Additional Term Loan Commitment or an outstanding Additional Term Loan.
“Additional Term Loan Commitment” means any term commitment added pursuant to Sections 2.22, 2.23 or 9.02(c)(i).
“Additional Term Loans” means any term loan added pursuant to Section 2.22, 2.23 or 9.02(c)(i).
“Administrative Agent” has the meaning assigned to such term in the preamble to this Agreement.
“Administrative Questionnaire” has the meaning assigned to such term in Section 2.22(d).
“Advisers Act” means the Investment Advisers Act of 1940.
“Affected Financial Institution” means (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Affiliate” means, as applied to any Person, any other Person directly or indirectly Controlling, Controlled by, or under common Control with, that Person. No Person shall be an “Affiliate” of the Borrower or any Subsidiary thereof solely because it is an unrelated portfolio company of any Sponsor and none of the Agents, any Lender (other than any Affiliated Lender or any Debt Fund Affiliate) or any of their respective Affiliates shall be considered an Affiliate of the Borrower or any Subsidiary thereof.
“Affiliated Lender” means any Non-Debt Fund Affiliate, the Borrower or any Subsidiary.
“Affiliated Lender Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Affiliated Lender (with the consent of any party whose consent is required by Section 9.05) and accepted by the Administrative Agent in the form of Exhibit A-2 or any other form (including electronic documentation generated by use of an electronic platform) approved by the Administrative Agent and the Borrower.
“Affiliated Lender Cap” has the meaning assigned to such term in Section 9.05(g)(iv).
“Agents” means, collectively, the Administrative Agent, the Lead Arrangers and the Syndication Agent.
“Agreement” has the meaning assigned to such term in the preamble to this Credit Agreement.
“Agreement Currency” has the meaning assigned to such term in Section 9.22.
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“Alternate Base Rate” means, for any day, a fluctuating rate per annum equal to the highest of (a) the Federal Funds Effective Rate, plus ½ of 1.00%, (b)greatest of (a) the Prime Rate in effect on such day and (c) LIBO Rate for a one month , (b) the Federal Funds Effective Rate in effect on such day plus ½ of 1.00% and (c) the sum of 1.00% plus Adjusted Term SOFR for an Interest Period as determinedof one month on such day, plus 1.00% (or if such day is not a Business Day, on the immediately preceding Business Day); provided that if the Prime Rate, Federal Funds Effective Rate or 1-Adjusted Term SOFR for an Interest Period of one month LIBO Rate is less than 0.00%, then such rate shall deemed to be 0.00%; provided, further that, solely with respect to the 2021 Incremental Term Loans, if the Prime Rate, Federal Funds Effective Rate or 1-Adjusted Term SOFR for an Interest Period of one month LIBO Rate is less than 0.50%, then such rate shall be deemed to be 0.50%.; provided, further that solely for purposes of the foregoing, Adjusted Term SOFR for any day shall be calculated using Adjusted Term SOFR for an Interest Period of one month on such day at approximately 11:00 a.m. (New York City time). Any change in the Alternate Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate or Adjusted Term SOFR shall be effective from and including the effective date of such change in the Prime Rate, the Federal Funds Effective Rate or Adjusted Term SOFR, respectively. If the Alternate Base Rate is being used as an alternate rate of interest pursuant to Section 2.14, then the Alternate Base Rate shall be determined without regard to clause (b) or (c), as applicable, of the preceding sentence until the circumstances giving rise to such inability no longer exist.
“Applicable Percentage” means, (a) with respect to any Term Lender of any Class, a percentage equal to a fraction the numerator of which is the aggregate outstanding principal amount of the Term Loans and unused Additional Term Loan Commitments of such Term Lender under the applicable Class and the denominator of which is the aggregate outstanding principal amount of the Term Loans and unused Term Commitments of all Term Lenders under the applicable Class and (b) with respect to any Revolving Lender of any Class, the percentage of the aggregate amount of the Revolving Credit Commitments of such Class represented by such Lender’s Revolving Credit Commitment of such Class; provided that for purposes of Section 2.21 and otherwise herein, when there is a Defaulting Lender, such Defaulting Lender’s Revolving Credit Commitment shall be disregarded for any relevant calculation. In the case of clause (b), in the event that the Revolving Credit Commitments of any Class have expired or been terminated, the Applicable Percentage of any Revolving Lender of such Class shall be determined on the basis of the Revolving Credit Exposure of such Revolving Lender attributable to its Revolving Credit Commitment of such Class, giving effect to any assignment thereof.
“Applicable Period” has the meaning assigned to such term in the definition of Applicable Rate.
“Applicable Rate” means, for any day: (a) (i) with respect to any Initial Term Loan prior to the First Amendment Effective Date, (A) that is an ABR Loan, 2.25% per annum or (B) that is a LIBO RateTerm SOFR Loan, 3.25% per annum, (ii) with respect to any Tranche B-1 Term Loan on and after the First Amendment Effective Date and prior to the Second Amendment Effective Date, (A) that is an ABR Loan, 1.50% per annum or (B) that is a LIBO RateTerm SOFR Loan, 2.50% per annum, (iii) with respect to any Tranche B-2 Term Loan on and after the Second Amendment Effective Date, (A) that is an ABR Loan, 1.25% per annum or (B) that is a LIBO RateTerm SOFR Loan, 2.25% per annum and (iv) with respect to 2021 Incremental Term Loans, (A) that is an ABR Loan, 1.25% per annum or (B) that is a LIBO RateTerm SOFR Loan, 2.25% per annum; (b) with respect to any Initial Revolving Loan, that is an ABR Loan or a LIBO RateTerm SOFR Loan, the percentage per annum as set forth in the pricing grid below for the appropriate Level; provided, however, that until the delivery of the financial statements and related Compliance Certificate for the first full Fiscal Quarter ending after the Closing Date pursuant to Section 5.01, the Applicable Rate shall be the rate set forth in “Level 1” of the pricing grid below; and (c) with respect to any Extended Term Loan or other Additional Term Loan of any Class
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or any Extended Revolving Loan or other Additional Revolving Loan of any Class, the rate or rates per annum specified in the applicable Refinancing Amendment, Incremental Facility Amendment or Extension Amendment.
Level |
First Lien Leverage Ratio |
Applicable Rate for Initial Revolving Loans (ABR Rate Loans) |
Applicable Rate for Initial Revolving Loans (LIBO RateTerm SOFR Loans) |
1 |
Greater than 2.50:1.00 |
2.25% |
3.25% |
2 |
Less than or equal to 2.50:1.00 but greater than 2.00:1.00 |
2.00% |
3.00% |
3 |
Less than or equal to 2.00:1.00 |
1.75% |
2.75% |
The Applicable Rate shall be re-determined quarterly on the first day immediately following the date of delivery to the Administrative Agent of a Compliance Certificate containing a reasonably detailed calculation of the First Lien Leverage Ratio pursuant to Section 5.01 (an “Acceptable Compliance Certificate”); provided that, if an Acceptable Compliance Certificate is not delivered to the Administrative Agent pursuant to Section 5.01, without constituting a waiver of any Default or Event of Default arising as a result thereof, then (i) the rate set forth in “Level 1” shall apply as of the first day after the date on which a Compliance Certificate was required to have been delivered but was not delivered and shall continue to so apply through but not including the date on which an Acceptable Compliance Certificate is delivered (and from and after delivery of such Acceptable Compliance Certificate, the pricing level shall be determined based on the First Lien Leverage Ratio set forth therein); provided, further, that, in the event that any calculation of the First Lien Leverage Ratio previously delivered pursuant to Section 5.01 is at any time restated or otherwise revised or the information set forth therein otherwise proves to be false or incorrect such that the Applicable Rate would have been higher than was otherwise in effect during any period (an “Applicable Period”), then, without constituting a waiver of any Default or Event of Default arising as a result thereof, (i) the rate set forth in “Level 1” shall apply as of the first day after the date on which a Compliance Certificate was required to have been delivered and shall continue to so apply through but not including the date on which a corrected Acceptable Compliance Certificate is delivered and (ii) the Borrower shall, within five (5) Business Days of written demand thereof by the Administrative Agent, pay to the Administrative Agent (for the benefit of the Lenders in accordance with this Agreement) the accrued additional interest with respect to such Loans owing as a result of such increased Applicable Rate for such Applicable Period.
“Applicable Revolving Credit Percentage” means, with respect to any Revolving Lender at any time, the percentage of the Total Revolving Credit Commitment at such time represented by such Revolving Lender’s Revolving Credit Commitments at such time; provided that for purposes of Section 2.21 and otherwise herein, when there is a Defaulting Lender, any such Defaulting Lender’s Revolving Credit Commitment shall be disregarded in the relevant calculations. In the event that (x) the Revolving Credit Commitments of any Class have expired or been terminated in accordance with the terms hereof (other than pursuant to Article 7), the Applicable Revolving Credit Percentage shall be recalculated without giving effect to the Revolving Credit Commitments of such Class or (y) the Revolving Credit Commitments of all Classes have terminated (or the Revolving Credit Commitments of any Class have terminated pursuant to Article 7), the Applicable Revolving Credit Percentage shall be determined based upon the Revolving Credit Commitments (or the Revolving Credit Commitments of such Class) most recently in effect, giving effect to any assignments thereof.
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“Approved Fund” means, with respect to any Lender, any Person (other than a natural person) that is engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities and is administered, advised or managed by (a) such Lender, (b) any Affiliate of such Lender or (c) any entity or any Affiliate of any entity that administers, advises or manages such Lender.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.05), and accepted by the Administrative Agent in substantially the form of Exhibit A-1 or any other form (including electronic documentation generated by use of an electronic platform) approved by the Administrative Agent and the Borrower.
“Available Amount” means, at any time, an amount equal to, without duplication:
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“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, as applicable, any tenor for such Benchmark or payment period for interest
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calculated with reference to such Benchmark, as applicable, that is or may be used for determining the length of an Interest Period pursuant to this Agreement as of such date and not including, for the avoidance of doubt, any tenor for such Benchmark that is then-removed from the definition of “Interest Period” pursuant to clause (d) of Section 1.12(d).
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation, rule or requirement for such EEA Member Country from time to time that is described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
“Banking Services” means each and any of the following bank services: commercial credit cards, stored value cards, purchasing cards, treasury management services, netting services, overdraft protections, check drawing services, automated payment services (including depository, overdraft, controlled disbursement, ACH transactions, return items and interstate depository network services), employee credit card programs, cash pooling services, operational foreign exchange management, current account facilities and any arrangements or services similar to any of the foregoing or otherwise in connection with Cash management and Deposit Accounts.
“Banking Services Obligations” means any and all obligations of any Loan Party, whether absolute or contingent and however and whenever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor) (a) under any arrangement that is in effect on the Closing Date between any Loan Party and a counterparty that is (or is an Affiliate of) any Lender or Agent as of the Closing Date or (b) under any arrangement that is entered into after the Closing Date by any Loan Party with any counterparty that is (or is an Affiliate of) any Lender or Agent at the time such arrangement is entered into, in each case in connection with Banking Services that have been designated to the Administrative Agent in writing by the Borrower as being Banking Services Obligations for the purposes of the Loan Documents, it being understood that each counterparty thereto shall be deemed (A) to appoint the Administrative Agent as its agent under the applicable Loan Documents and (B) to agree to be bound by the provisions of Article 8, Section 9.03 and Section 9.10 and any Acceptable Intercreditor Agreement as if it were a Lender.
“Bankruptcy Code” means Title 11 of the United States Code (11 U.S.C. § 101 et seq.).
“Barclays” has the meaning assigned to such term in the preamble to this Agreement.
“Benchmark” means, initially, Term SOFR Reference Rate; provided that if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred with respect to Term SOFR Reference Rate or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to clause (a) of Section 1.12.
“Benchmark Replacement” means, for any Available Tenor, the first alternative set forth in the order below that can be determined by the Administrative Agent with respect to any Benchmark
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Transition Event: (1) Daily Simple SOFR; or (2) the alternate benchmark rate that has been selected by the Administrative Agent and the Borrower as the replacement for the then-current Benchmark for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for the then-current Benchmark for Dollar-denominated syndicated credit facilities at such time. If the Benchmark Replacement as determined pursuant to clause (1) or (2) above would be less than 0.00%, the Benchmark Replacement will be deemed to be 0.00% for the purposes of this Agreement and the other Loan Documents; provided that, solely with respect to the 2021 Incremental Term Loans, if the Benchmark Replacement as determined pursuant to clause (1) or (2) above would be less than 0.50%, the Benchmark Replacement will be deemed to be 0.50% for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Conforming Changes” means, with respect to any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Alternate Base Rate,” the definition of “Business Day,” the definition of “Interest Period,” the definition of “US Government Securities Business Day,” timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) that the Administrative Agent and the Borrower decide may be appropriate to reflect the adoption and implementation of such Benchmark Replacement and to permit the administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of such Benchmark Replacement exists, in such other manner of administration as the Administrative Agent in consultation with the Borrower decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
“Benchmark Replacement Date” means the earliest to occur of the following events with respect to the then-current Benchmark: (1) in the case of clause (1) or (2) of the definition of “Benchmark Transition Event,” the later of (a) the date of the public statement or publication of information referenced therein and (b) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof) or (2) in the case of clause (3) of the definition of “Benchmark Transition Event,” the first date on which such Benchmark (or the published component used in the calculation thereof) has been determined and announced by or on behalf of the administrator of such Benchmark (or such component thereof) or the regulatory supervisor for the administrator of such Benchmark (or such component thereof) to be non-representative or non-compliant with or non-aligned with the International Organization of Securities Commissions (IOSCO) Principles for Financial Benchmarks; provided that such non-representativeness, non-compliance or non-alignment will be determined by reference to the most recent statement or publication referenced in such clause (3) and even if any Available Tenor of such Benchmark (or such component thereof) continues to be provided on such date. For the avoidance of doubt, the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (1) or (2) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
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“Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the then-current Benchmark: (1) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); (2) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or (3) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) or the regulatory supervisor for the administrator of such Benchmark (or such component thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are not, or as of a specified future date will not be, representative or in compliance with or aligned with the International Organization of Securities Commissions (IOSCO) Principles for Financial Benchmarks. For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Unavailability Period” means the period (if any) (x) beginning at the time that a Benchmark Replacement Date pursuant to clause (1) or (2) of that definition has occurred if, at such time, no Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 1.12 and (y) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 1.12.
“Beneficial Ownership Certification” means a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation, which certification shall be substantially similar in form and substance to the form of Certification Regarding Beneficial Owners of Legal Entity Customers published jointly, in May 2018, by the Loan Syndications and Trading Association and Securities Industry and Financial Markets Association.
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in Section 4975 of the Code or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.
“Board” means the Board of Governors of the Federal Reserve System of the U.S.
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“Borrower” has the meaning assigned to such term in the preamble to this Agreement.
“Borrower Tax Refund Receivable” means a receivable of the Borrower in respect of a refund of U.S. federal income taxes for the taxable year ended December 31, 2013.
“Borrowing” means any Loans of the same Type and Class made, converted or continued on the same date and, in the case of LIBO RateTerm SOFR Loans, as to which a single Interest Period is in effect.
“Borrowing Request” means a request by the Borrower for a Borrowing in accordance with Section 2.03 and substantially in the form attached hereto as Exhibit B or such other form that is reasonably acceptable to the Administrative Agent and the Borrower (including any form on an electronic platform or electronic transmission system as shall be approved by the Administrative Agent).
“Broker-Dealer Licenses and Memberships” means (a) the memberships of each Broker-Dealer Subsidiary with FINRA and (b) the licenses with Governmental Authorities of each Broker-Dealer Subsidiary, in each case, to the extent necessary and material to the normal conduct of the business of the applicable Broker-Dealer Subsidiary as a Registered Broker-Dealer or Introducing Broker, as applicable.
“Broker-Dealer Registrations” means the registrations of each Broker-Dealer Subsidiary with the SEC and all other Governmental Authorities which require registration and have jurisdiction over such Broker-Dealer Subsidiary, in each case, to the extent necessary and material to the normal conduct of the business of the applicable Broker-Dealer Subsidiary as a Registered Broker-Dealer or Introducing Broker, as applicable.
“Broker-Dealer Subsidiary” means (a) the Restricted Subsidiaries of the Borrower listed on Schedule 1.01(f) and any other Restricted Subsidiary of the Borrower that becomes a broker-dealer registered under the Exchange Act or associated persons thereof, as defined therein (a “Registered Broker-Dealer”), after the Closing Date and (b) the Restricted Subsidiaries listed on Schedule 1.01(g) and any other Restricted Subsidiary that is an introducing broker (“Introducing Broker”) that is required to register under the Commodity Exchange Act after the Closing Date.
“Builder Basket” has the meaning assigned to such term in clause (a)(ii) of the definition of “Available Amount.”
“Business Day” means any day other thanthat is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to closeremain closed and, if the applicable Business Day relates to notices, determinations, fundings, disbursements, settlements or payments in connection with the LIBO Rate or any LIBO Rate Loans, a day on which dealings in Dollar deposits are also carried on in the London interbank market.Term SOFR, Adjusted Term SOFR or any Term SOFR Loans, or any other dealings with respect to Term SOFR, Adjusted Term SOFR or any Term SOFR Loan, a day which is also a U.S. Government Securities Business Day.
“Capital Expenditures” means, with respect to the Borrower and the Restricted Subsidiaries for any period, the aggregate amount, without duplication, of (x) all expenditures (whether paid in cash or accrued as liabilities and including in all events all amounts expended or capitalized under Capital Leases) that would, in accordance with GAAP, be included as additions to property, plant and equipment, (y) other capital expenditures of such Person for such period (whether paid in cash or accrued as liabilities and including in all events all amounts expended or capitalized under Capital Leases) that are reported in the Borrower’s consolidated statement of cash flows for such period and (z) other capital expenditures of such
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Person for such period (whether paid in cash or accrued as liabilities and including in all events all amounts expended or capitalized under Capital Leases).
“Capital Lease” means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of such Person.
“Capital Stock” means any and all shares, interests, participations, preferred equity certificates, convertible preferred equity certificates or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including partnership interests and membership interests (whether general or limited), and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing, but excluding for the avoidance of doubt any Indebtedness convertible into or exchangeable for any of the foregoing.
“Captive Insurance Subsidiary” means any Restricted Subsidiary that is subject to regulation as an insurance company (or any Restricted Subsidiary thereof).
“Cash” means money, currency or a credit balance in any Deposit Account, in each case determined in accordance with GAAP.
“Cash Equivalents” means, as at any date of determination, (a) readily marketable securities (i) issued or directly and unconditionally guaranteed or insured as to interest and principal by the U.S. government or (ii) issued by any agency or instrumentality of the U.S. the obligations of which are backed by the full faith and credit of the U.S., in each case maturing within one year after such date and, in each case, repurchase agreements and reverse repurchase agreements relating thereto; (b) readily marketable direct obligations issued by any state of the U.S. or any political subdivision of any such state or any public instrumentality thereof or by any foreign government, in each case maturing within one year after such date and having, at the time of the acquisition thereof, a rating of at least A-2 from S&P or at least P-2 from Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, an equivalent rating from another nationally recognized statistical rating agency) and, in each case, repurchase agreements and reverse repurchase agreements relating thereto; (c) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-2 from S&P or at least P-2 from Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, an equivalent rating from another nationally recognized statistical rating agency); (d) deposits, money market deposits, time deposit accounts, certificates of deposit or bankers’ acceptances (or similar instruments) maturing within one year after such date and issued or accepted by any Lender or by any bank organized under, or authorized to operate as a bank under, the laws of the U.S., any state thereof or the District of Columbia or any political subdivision thereof or any foreign bank or its branches or agencies and that has capital and surplus of not less than $100,000,000 and, in each case, repurchase agreements and reverse repurchase agreements relating thereto; (e) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any commercial bank having capital and surplus of not less than $100,000,000; (f) shares of any investment fund that has (i) substantially all of its assets invested in the types of investments referred to in clauses (a) through (e) above, (ii) net assets of not less than $250,000,000 and (iii) a rating of at least A-2 from S&P or at least P-2 from Moody’s (or, if at any time either S&P or Moody’s are not rating such fund, an equivalent rating from another nationally recognized statistical rating agency); and (g) solely with respect to any Captive Insurance Subsidiary, any investment that such Captive Insurance Subsidiary is not prohibited to make in accordance with applicable law. The term “Cash Equivalents” shall also include (x) Investments of the type and maturity described in clauses (a) through (g) above in foreign obligors, which Investments or obligors (or the parent companies thereof) have the ratings described in such clauses or equivalent ratings from comparable foreign rating
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agencies and (y) other short-term Investments utilized by Foreign Subsidiaries in accordance with normal investment practices for cash management in Investments analogous to the Investments described in clauses (a) through (g) above or in the foregoing clause (x).
“CFC” means a “controlled foreign corporation” within the meaning of Section 957 of the Code.
“CFTC” means the Commodity Futures Trading Commission.
“Change in Law” means (a) the adoption or taking effect of any law, rule, regulation or treaty after the Closing Date, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority after the Closing Date or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the Closing Date; provided that, notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements and directives thereunder or issued in connection therewith or in implementation thereof and (y) all requests, rules, guidelines, requirements or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or U.S. or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case described in clauses (a), (b) and (c) above, be deemed to be a Change in Law, regardless of the date enacted, adopted, issued or implemented.
“Change of Control” means the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), including any group acting for the purpose of acquiring, holding or disposing of Securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act, but excluding any employee benefit plan or Person acting as the trustee, agent or other fiduciary or administrator therefor), other than one or more Permitted Holders, of Capital Stock representing more than the greater of (x) 35.0% of the total voting power of all of the outstanding voting Capital Stock of the Borrower and (y) the percentage of the total voting power of all of the outstanding voting Capital Stock of the Borrower owned, directly or indirectly, beneficially by the Permitted Holders, unless, in the case of each of clauses (x) and (y) above, one or more Permitted Holders has, at such time, the right or the ability, by voting power, contract or otherwise, to elect or designate for election at least a majority of the board of directors (or comparable governing body or managers) of the Borrower. Notwithstanding the foregoing, the right to acquire voting Capital Stock (so long as such Person does not have the right to direct the voting of the Capital Stock subject to such right) or any veto power in connection with the acquisition or disposition of voting Capital Stock will not cause a party to be a beneficial owner.
“Charge” means any charge, loss, expense, cost, accrual or reserve of any kind.
“Charged Amounts” has the meaning assigned to such term in Section 9.19.
“Class”, when used with respect to (a) any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Initial Term Loans, Additional Term Loans of any series established as a separate “Class” pursuant to Section 2.22, 2.23 or 9.02(c)(i), Initial Revolving Loans or Additional Revolving Loans of any series established as a separate “Class” pursuant to Section 2.22, 2.23 or 9.02(c)(ii), (b) any Commitment, refers to whether such Commitment is an Initial Term Loan Commitment, an Additional Term Loan Commitment of any series established as a separate “Class” pursuant to Section 2.21 or 9.02(c), an Initial Revolving Credit Commitment, an Additional Revolving Credit Commitment of any series established as a separate “Class” pursuant to Section 2.21 or 9.02(c)(ii), (c) any Lender, refers to whether such Lender has a Loan or Commitment of a particular Class and (d) any Revolving Credit
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Exposure, refers to whether such Revolving Credit Exposure is attributable to a Revolving Credit Commitment of a particular Class.
“Closing Date” means the date on which (a) the Escrow Funding Date shall have occurred, and (b) the Escrow Release Conditions shall have been met, which date shall have occurred on July 1, 2019.
“Code” means the Internal Revenue Code of 1986, as amended.
“Collateral” means any and all property of any Loan Party subject to a Lien under any Collateral Document and any and all other property of any Loan Party, now existing or hereafter acquired, that is or becomes subject to a Lien pursuant to any Collateral Document to secure the Secured Obligations. For the avoidance of doubt, in no event shall “Collateral” include any Excluded Asset.
“Collateral and Guarantee Requirement” means, at any time, subject to (x) the applicable limitations set forth in this Agreement or any other Loan Document, (y) the time periods (and extensions thereof) set forth in Section 5.11 and (z) the terms of any Acceptable Intercreditor Agreement, the requirement that:
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“Collateral Documents” means, collectively, (i) the Security Agreement, (ii) each Mortgage, (iii) each Intellectual Property Security Agreement, (iv) any supplement to any of the foregoing delivered to the Administrative Agent pursuant to the definition of “Collateral and Guarantee Requirement” and (v) each of the other instruments and documents pursuant to which any Loan Party grants a Lien on any Collateral as security for payment of the Secured Obligations.
“Commercial Letter of Credit” means any Letter of Credit issued for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services by the Borrower or any of its Subsidiaries in the ordinary course of business of such Person.
“Commercial Tort Claim” has the meaning set forth in Article 9 of the UCC.
“Commitment” means, with respect to each Lender, such Lender’s Initial Term Loan Commitment, Initial Revolving Credit Commitment and Additional Commitment, as applicable, in effect as of such time.
“Commitment Fee Rate” means, for any day: (a) with respect to the Initial Revolving Credit Commitments, the rate per annum as set forth in the pricing grid below for the appropriate Level; provided, however, that until the delivery of the financial statements and related Compliance Certificate for the first full Fiscal Quarter ending after the Closing Date pursuant to Section 5.01, the Commitment Fee Rate shall be the rate set forth in “Level 1” of the pricing grid below; and (b) with respect to Additional Revolving Credit Commitments of any Class, the rate or rates per annum specified in the applicable Refinancing Amendment, Incremental Facility Amendment or Extension Amendment.
Level |
First Lien Leverage Ratio |
Commitment Fee Rate |
1 |
Greater than 2.50:1.00 |
0.50% |
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2 |
Less than or equal to 2.50:1.00 but greater than 2.00:1.00 |
0.375% |
3 |
Less than or equal to 2.00:1.00 |
0.25% |
The Commitment Fee Rate shall be re-determined quarterly on the first day immediately following the date of delivery to the Administrative Agent of a Compliance Certificate containing a reasonably detailed, certified calculation of the First Lien Leverage Ratio pursuant to Section 5.01; provided that, if such certification is not provided in accordance with Section 5.01, without constituting a waiver of any Default or Event of Default arising as a result thereof, then (i) the pricing set forth in “Level 1” shall apply as of the first day after the date on which a Compliance Certificate was required to have been delivered but was not delivered, and shall continue to so apply through but not including the date on which such Compliance Certificate is so delivered (and therefrom, the pricing level shall be based off of the reasonably detailed calculations of the First Lien Leverage Ratio certified by the Borrower in such Compliance Certificate); provided, further, that, in the event that the certified calculation of the First Lien Leverage Ratio previously delivered pursuant to Section 5.01 is at any time restated or otherwise revised or the information set forth in such certification otherwise proves to be false or incorrect such that the Commitment Fee Rate would have been higher than was otherwise in effect during any Applicable Period, then, without constituting a waiver of any Default or Event of Default arising as a result thereof, (i) the pricing level set forth in “Level 1” shall apply as of the first day after which such Compliance Certificate was required to have been delivered pursuant to Section 5.01 and shall continue to so apply through but not including the date on which the correct certified calculation of the First Lien Leverage Ratio for such Applicable Period in a Compliance Certificate is so delivered and (ii) the Borrower shall, within five (5) Business Days of written demand thereof by the Administrative Agent, pay to the Administrative Agent (for the benefit of the Lenders in accordance with this Agreement) the accrued additional interest with respect to such Loans owing as a result of such increased Commitment Fee Rate for such Applicable Period.
“Commitment Schedule” means the Schedule attached hereto as Schedule 1.01(a) reflecting the Commitments in effect on the Closing Date.
“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.).
“Company” has the meaning assigned to such term in the preamble to this Agreement.
“Company Competitor” means any Person that is a direct competitor of the Borrower or any of its Subsidiaries.
“Competitor Debt Fund Affiliate” means, with respect to any Company Competitor or any Affiliate thereof, any debt fund, investment vehicle, regulated bank entity or unregulated lending entity that is (i) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of business and (ii) managed, sponsored or advised by any person that is Controlling, Controlled by or under common Control with the relevant Company Competitor or Affiliate thereof, but only to the extent that no personnel involved with the investment in the relevant Company Competitor makes (or has the right to make or participate with others in making) investment decisions on behalf of, or otherwise cause the direction of the investment policies of, such debt fund, investment vehicle, regulated bank entity or unregulated entity with respect to decisions involving any investment in debt of the Borrower or any of its Subsidiaries.
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“Compliance Certificate” means a Compliance Certificate substantially in the form of Exhibit C.
“Compliance Date” means the last day of any applicable Fiscal Quarter (commencing with the first full Fiscal Quarter ending after the Closing Date) if as of such date the aggregate Outstanding Amount of the Revolving Credit Exposure (excluding (i) for the first four full Fiscal Quarters ending after the Closing Date, any Revolving Loans funded on the Closing Date to fund any original issue discount or upfront fees implemented pursuant to the “market flex” provisions of the Fee Letter, (ii) any Letters of Credit under the Initial Revolving Facility, any Incremental Revolving Facility and any Replacement Revolving Facility that have been cash collateralized or otherwise backstopped in an amount equal to at least 103.0% of the Stated Amount thereof (minus any amount then on deposit in any cash collateral account established for the benefit of the relevant Issuing Bank) or otherwise cash collateralized in a manner reasonably satisfactory to the relevant Issuing Bank and (iii) non-cash collateralized or backstopped Letters of Credit in an aggregate outstanding amount not exceeding $2,500,000) exceeds an amount equal to 35.0% of the Total Revolving Credit Commitment.
“Confidential Information” has the meaning assigned to such term in Section 9.13.
“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“Consolidated Adjusted EBITDA” means, with respect to any Person on a consolidated basis for any period, the sum of:
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“Consolidated First Lien Debt” means, as to any Person at any date of determination, the aggregate principal amount of Consolidated Total Debt outstanding on such date that is secured by a first priority Lien on the Collateral.
“Consolidated Interest Expense” means, with respect to any Person for any period, the sum of (a) consolidated total interest expense of such Person and the Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including (and without duplication), amortization of any
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debt issuance cost or original issue discount, any premium paid to obtain payment, financial assurance or similar bonds, any interest capitalized during construction, any non‑cash interest payment, the interest component of any deferred payment obligation, the interest component of any payment under any Capital Lease (regardless of whether accounted for as interest expense under GAAP), any commission, discount or other fee or charge owed with respect to any letter of credit or bankers’ acceptance, any fee or expense paid to the Administrative Agent in connection with its services hereunder, any other bank, administrative agency (or trustee) or financing fee and any cost associated with any surety bond in connection with financing activities (whether amortized or immediately expensed)) plus (b) any cash dividend paid or payable in respect of Disqualified Capital Stock during such period other than to such Person or any Loan Party, plus (or, in the case of gains, minus) (c) any gains, losses or obligations arising from any Hedge Agreement or other derivative financial instrument issued by such Person for the benefit of such Person or its Subsidiaries, in each case determined on a consolidated basis for such period. For purposes of this definition, interest in respect of any Capital Lease shall be deemed to accrue at an interest rate reasonably determined by such Person to be the rate of interest implicit in such Capital Lease in accordance with GAAP.
“Consolidated Net Income” means, in respect of any period and as determined for any Person (the “Subject Person”) on a consolidated basis, an amount equal to the net income (loss) of such Subject Person and its Subsidiaries, determined in accordance with GAAP, but excluding, without duplication:
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There shall be included in Consolidated Net Income, without duplication, the amount of any cash tax benefits related to the tax amortization of intangible assets in the applicable period.
“Consolidated Secured Debt” means, as to any Person at any date of determination, the aggregate principal amount of Consolidated Total Debt outstanding on such date that is secured by a Lien on the Collateral.
“Consolidated Total Assets” means, at any date, all amounts that would, in conformity with GAAP, be set forth opposite the caption “total assets” (or any like caption) on a consolidated balance sheet of the applicable Person at such date.
“Consolidated Total Debt” means, as to any Person at any date of determination, the aggregate principal amount of all third party debt for borrowed money and the outstanding principal balance of all Indebtedness of such Person represented by notes, bonds, debentures and similar instruments, Capital Leases and purchase money Indebtedness (excluding, for the avoidance of doubt, undrawn letters of credit); provided that “Consolidated Total Debt” shall be calculated (i) net of the Unrestricted Cash Amount (to the extent the Unrestricted Cash Amount is greater than zero) and (ii) excluding any obligation, liability or indebtedness of such Person if, upon or prior to the maturity thereof, such Person has irrevocably deposited with the proper Person in trust or escrow the necessary funds (or evidences of indebtedness) for the payment, redemption or satisfaction of such obligation, liability or indebtedness, and thereafter such funds and evidences of such obligation, liability or indebtedness or other security so deposited are not included in the calculation of the Unrestricted Cash Amount.
“Consolidated Working Capital” means, as at any date of determination, the excess of Current Assets over Current Liabilities.
“Contractual Obligation” means, as applied to any Person, any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.
“Copyright” means the following: (a) all copyrights, rights and interests in copyrights, works protectable by copyright whether published or unpublished, copyright registrations and copyright applications; (b) all renewals of any of the foregoing; and (c) all rights corresponding to any of the foregoing.
“Credit Extension” means each of (i) the making of a Revolving Loan or (ii) the issuance, amendment, modification, renewal or extension of any Letter of Credit (other than any such amendment, modification, renewal or extension that does not increase the Stated Amount of the relevant Letter of Credit).
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“Credit Facilities” means the Revolving Facility and the Term Facility.
“Cure Amount” has the meaning assigned to such term in Section 6.14(b).
“Cure Period” has the meaning assigned to such term in Section 6.14(b).
“Cure Right” has the meaning assigned to such term in Section 6.14(b).
“Current Assets” means, at any date, all assets of the Borrower and the Restricted Subsidiaries which under GAAP would be classified as current assets (excluding any (i) Cash or Cash Equivalents (including Cash and Cash Equivalents held on deposit for third parties by the Borrower or any Restricted Subsidiary), (ii) permitted loans to third parties, (iii) deferred bank fees and derivative financial instruments related to Indebtedness, (iv) the current portion of current and deferred Taxes and (v) management fees receivables).
“Current Liabilities” means, at any date, all liabilities of the Borrower and the Restricted Subsidiaries which under GAAP would be classified as current liabilities, other than (i) current maturities of long term debt, (ii) outstanding revolving loans and letter of credit exposure, (iii) accruals of Consolidated Interest Expense (excluding Consolidated Interest Expense that is due and unpaid), (iv) obligations in respect of derivative financial instruments related to Indebtedness, (v) the current portion of current and deferred Taxes, (vi) liabilities in respect of unpaid earnouts, (vii) accruals relating to restructuring reserves, (viii) liabilities in respect of funds of third parties on deposit with the Borrower or any Restricted Subsidiary, (ix) management fees payables, (x) the current portion of any Capital Lease obligation, (xi) the current portion of any other long term liability for borrowed money, (xii) any liabilities that are not Indebtedness and will not be settled in cash or Cash Equivalents during the next succeeding 12-month period after such date, (xiii) the effects from applying purchase accounting, (xiv) any accrued professional liability risks, (xv) restricted marketable securities and (xvi) the current portion of deferred revenue.
“Daily Simple SOFR” means, for any day (a “SOFR Rate Day”), a rate per annum equal to the greater of (a) SOFR for the day (such day “i”) that is five U.S. Government Securities Business Days prior to (i) if such SOFR Rate Day is a U.S. Government Securities Business Day, such SOFR Rate Day or (ii) if such SOFR Rate Day is not a U.S. Government Securities Business Day, the U.S. Government Securities Business Day immediately preceding such SOFR Rate Day, in each case, as such SOFR is published by the SOFR Administrator on the SOFR Administrator’s Website, and (b) the Floor. If by 5:00 pm (New York City time) on the second (2nd) U.S. Government Securities Business Day immediately following any day “i”, the SOFR in respect of such day “i” has not been published on the SOFR Administrator’s Website and a Benchmark Replacement Date with respect to the Daily Simple SOFR has not occurred, then the SOFR for such day “i” will be the SOFR as published in respect of the first preceding U.S. Government Securities Business Day for which such SOFR was published on the SOFR Administrator’s Website; provided that any SOFR determined pursuant to this sentence shall be utilized for purposes of calculation of Daily Simple SOFR for no more than three (3) consecutive SOFR Rate Days. Any change in Daily Simple SOFR due to a change in SOFR shall be effective from and including the effective date of such change in SOFR without notice to the Borrower.
“Debt Fund Affiliate” means any Affiliate of any Sponsor (other than a natural Person) that is a bona fide debt fund or investment vehicle (in each case with one or more bona fide investors to whom its managers owe fiduciary duties independent of their fiduciary duties to such Sponsor) primarily engaged in, or advises funds or other investment vehicles that are engaged in, making, purchasing, holding or otherwise
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investing in commercial loans, bonds and similar extensions of credit or securities in the ordinary course of its activities and for which the personnel making the primary investment decisions are not personnel primarily engaged in making investment decisions in respect of any equity fund which has a direct or indirect equity investment in the Borrower or the Restricted Subsidiaries (“Equity Personnel”) or personnel controlled by such Equity Personnel.
“Debtor Relief Laws” means the Bankruptcy Code of the U.S., and all other liquidation, conservatorship, bankruptcy, general assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization or similar debtor relief laws of the U.S. or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
“Declined Proceeds” has the meaning assigned to such term in Section 2.11(b)(vi).
“Default” means any event or condition which, upon notice, lapse of time or both, would become an Event of Default.
“Defaulting Lender” means, subject to Section 2.21(f), any Lender that has (a) defaulted in its payment obligations under this Agreement, including to make a Loan within two Business Days of the date required to be made by it hereunder or to fund its participation in a Letter of Credit or Swingline Loan required to be funded by it hereunder within two Business Days of the date such obligation arose or such Loan, Letter of Credit was required to be made or funded unless such Lender, acting in good faith, notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, (b) notified the Administrative Agent, the Swingline Lender or any Issuing Bank or the Borrower in writing that it does not intend to satisfy any such obligation or has made a public statement to that effect (unless such writing or public statement (x) is made by such Lender acting in good faith, (y) relates to such Lender’s obligation to fund a Loan hereunder and (z) states that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) has not been satisfied), (c) made a public statement to the effect that it does not intend to comply with its funding obligations under this Agreement or under agreements in which it commits to extend credit generally, (d) failed, within two Business Days after the request of the Administrative Agent or the Borrower, to confirm in writing that it will comply with the terms of this Agreement relating to its obligations to fund prospective Loans and participations in then outstanding Letters of Credit and Swingline Loans; provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (d) upon receipt of such written confirmation by the Administrative Agent, (e) become (or any parent company thereof has become) insolvent or been determined by any Governmental Authority having regulatory authority over such Person or its assets, to be insolvent, or the assets or management of which has been taken over by any Governmental Authority or (f) (i) become (or any parent company thereof has become) the subject of (A) a bankruptcy or insolvency proceeding or (B) a Bail-In Action, (ii) has had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or custodian, appointed for it, or (iii) has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in, any such proceeding or appointment, unless in the case of any Lender subject to this clause (f), the Borrower and the Administrative Agent have each determined that such Lender intends, and has all approvals required to enable it (in form and substance satisfactory to each of the Borrower and the Administrative Agent), to continue to perform its obligations as a Lender hereunder; provided that no Lender shall be deemed to be a Defaulting Lender solely by virtue of (I) the ownership or acquisition of any Capital Stock in such Lender or its parent by any Governmental Authority or (II) in the case of any Lender or parent company which is a solvent Person, the precautionary appointment
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of an administrator, guardian, custodian or other similar official by a Governmental Authority under or based on the law of the country where such Person is subject to home jurisdiction supervision if applicable Requirements of Law require that such appointment not be made public; provided that such ownership interest or action does not result in or provide such Lender with immunity from the jurisdiction of courts within the U.S. or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contract or agreement to which such Lender is a party. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (f) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.21(f)) upon delivery of written notice of such determination to the Borrower, the Swingline Lender, each Issuing Bank and each Lender.
“Deposit Account” means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, excluding, for the avoidance of doubt, any investment property (within the meaning of the UCC) or any account evidenced by an instrument (within the meaning of the UCC).
“Derivative Transaction” means (a) any interest-rate transaction, including any interest-rate swap, basis swap, forward rate agreement, interest rate option (including a cap, collar or floor), and any other instrument linked to interest rates that gives rise to similar credit risks (including when-issued securities and forward deposits accepted), (b) any exchange-rate transaction, including any cross-currency interest-rate swap, any forward foreign-exchange contract, any currency option, and any other instrument linked to exchange rates that gives rise to similar credit risks, (c) any equity derivative transaction, including any equity-linked swap, any equity-linked option, any forward equity-linked contract, and any other instrument linked to equities that gives rise to similar credit risk and (d) any commodity (including precious metal) derivative transaction, including any commodity-linked swap, any commodity-linked option, any forward commodity-linked contract, and any other instrument linked to commodities that gives rise to similar credit risks; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees, members of management, managers or consultants of the Borrower or its Subsidiaries shall constitute a Derivative Transaction.
“Designated Non-Cash Consideration” means the fair market value (as determined by the Borrower in good faith) of non-Cash consideration received by the Borrower or any Restricted Subsidiary in connection with any Disposition pursuant to Section 6.07(h) that is designated as Designated Non-Cash Consideration pursuant to a certificate of a Responsible Officer of the Borrower, setting forth the basis of such valuation (which amount will be reduced by the amount of Cash or Cash Equivalents received in connection with a subsequent sale or conversion of such Designated Non-Cash Consideration to Cash or Cash Equivalents). A particular item of Designated Non-Cash Consideration will no longer be considered to be outstanding when and to the extent it has been paid, redeemed or otherwise retired or sold or otherwise Disposed of in compliance with Section 6.07.
“Disposition” or “Dispose” means the sale, lease, sublease, or other disposition of any property of any Person.
“Disqualified Capital Stock” means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, (a) matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable (other than for Qualified Capital Stock), pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof (other than for Qualified Capital Stock), in whole or in part, on or prior to 91 days following the Latest Maturity Date at the time such Capital Stock is
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issued (it being understood that if any such redemption is in part, only such part coming into effect prior to 91 days following the Latest Maturity Date shall constitute Disqualified Capital Stock), (b) is or becomes convertible into or exchangeable (unless at the sole option of the issuer thereof) for (i) debt securities or (ii) any Capital Stock that would constitute Disqualified Capital Stock, in each case at any time on or prior to 91 days following the Latest Maturity Date at the time such Capital Stock is issued, (c) contains any mandatory repurchase obligation, in whole or in part, which may come into effect prior to 91 days following the Latest Maturity Date at the time such Capital Stock is issued (it being understood that if any such repurchase obligation is in part, only such part coming into effect prior to 91 days following the Latest Maturity Date shall constitute Disqualified Capital Stock) or (d) provides for the scheduled payments of dividends in Cash on or prior to 91 days following the Latest Maturity Date at the time such Capital Stock is issued; provided that any Capital Stock that would not constitute Disqualified Capital Stock but for provisions thereof giving holders thereof (or the holders of any security into or for which such Capital Stock is convertible, exchangeable or exercisable) the right to require the issuer thereof to redeem such Capital Stock upon the occurrence of any change of control, Public Offering or any Disposition occurring prior to 91 days following the Latest Maturity Date at the time such Capital Stock is issued shall not constitute Disqualified Capital Stock if such Capital Stock provides that the issuer thereof will not redeem any such Capital Stock pursuant to such provisions prior to the Termination Date.
Notwithstanding the preceding sentence, (A) if such Capital Stock is issued pursuant to any plan for the benefit of directors, officers, employees, members of management, managers or consultants or by any such plan to such directors, officers, employees, members of management, managers or consultants, in each case in the ordinary course of business of the Borrower or any Restricted Subsidiary, such Capital Stock shall not constitute Disqualified Capital Stock solely because it may be required to be repurchased by the issuer thereof in order to satisfy applicable statutory or regulatory obligations, and (B) no Capital Stock held by any future, present or former employee, director, officer, manager, member of management or consultant (or their respective Affiliates or Immediate Family Members) of the Borrower (or any Parent Company or any Subsidiary) shall be considered Disqualified Capital Stock because such stock is redeemable or subject to repurchase pursuant to any management equity subscription agreement, stock option, stock appreciation right or other stock award agreement, stock ownership plan, put agreement, stockholder agreement or similar agreement that may be in effect from time to time.
“Disqualified Institution” means (a) any bank, financial institution or other institutional lender that is identified by name on or prior to November 6, 2018 in a written notice to the Lead Arrangers and (b) any Company Competitor or any Affiliate thereof that is identified by name prior to November 6, 2019 in a written notice to the Lead Arrangers and (c) any Affiliate of any Person described in clauses (a) or (b) that is clearly identifiable as an Affiliate solely on the basis of its name (it being understood and agreed that no Debt Fund Affiliate or Competitor Debt Fund Affiliate may be designated as a Disqualified Institution); provided that no written notice delivered pursuant to clauses (b) or (c) shall apply retroactively to disqualify any Person that has previously acquired an assignment or participation or allocation in any Credit Facility, subject to the provisions of Section 9.05(f). Notwithstanding the foregoing, each Loan Party and the Lenders acknowledge and agree that the Administrative Agent shall not have any responsibility or obligation to determine, inquire into or monitor whether any Lender, Participant or potential Lender or Participant is a Disqualified Institution or to inquire into, monitor or enforce the compliance with the provisions hereof related to Disqualified Institutions, and the Administrative Agent shall have no liability with respect to any assignment or participation made to a Disqualified Institution (provided that any such assignment or participation shall be subject to the terms of Section 9.05(c) or (f), as applicable) or disclosure of Confidential Information to any Disqualified Institution.
“Disqualified Person” has the meaning assigned to such term in Section 9.05(f)(ii).
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“Disregarded Domestic Person” means any Domestic Subsidiary (i) substantially all the assets of which consist of the equity or debt of one or more Foreign Subsidiaries that is a CFC or (ii) that is treated as a disregarded entity or partnership for U.S. federal income tax purposes and that holds no material assets other than equity of one or more CFCs.
“Dollars” or “$” refers to lawful money of the U.S.
“Domestic Subsidiary” means any Restricted Subsidiary that is incorporated or organized under the laws of the U.S., any state thereof or the District of Columbia.
“Dutch Auction” has the meaning assigned to such term on Schedule 1.01(b).
“ECF Prepayment Amount” has the meaning assigned to such term in Section 2.11(b)(i).
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a Subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“Effective Yield” means, as to any Indebtedness, the effective yield applicable thereto calculated by the Administrative Agent in consultation with the Borrower in a manner consistent with generally accepted financial practices, taking into account (a) interest rate margins, (b) interest rate floors (subject to the proviso set forth below), (c) any amendment to the relevant interest rate margins and interest rate floors prior to the applicable date of determination and (d) original issue discount and upfront or similar fees (based on an assumed four-year average life to maturity or lesser remaining average life to maturity), but excluding (i) any arrangement, commitment, structuring, underwriting, ticking, unused line fees or amendment fees (regardless of whether any such fees are paid to or shared in whole or in part with any lender) and (ii) any other fee that is not payable to all relevant lenders ratably; provided, however, that (A) to the extent that the LIBO Rate (with an Interest Period of three months)Adjusted Term SOFR or Alternate Base Rate (without giving effect to any floor specified in the definition thereof) is less than any floor applicable to loans in respect to which the Effective Yield is being calculated on the date on which the Effective Yield is determined, the amount of the resulting difference will be deemed added to the interest rate margin applicable to the relevant Indebtedness for purposes of calculating the Effective Yield and (B) to the extent that the LIBO Rate (for a period of three months)Adjusted Term SOFR or Alternate Base Rate (without giving effect to any floor specified in the definition thereof) is greater than any applicable floor on the date on which the Effective Yield is determined, the floor will be disregarded in calculating the Effective Yield.
“Eligible Assignee” means (a) any Lender, (b) any commercial bank, insurance company, finance company, financial institution, any fund that invests in loans or any other “accredited investor” (as defined in Regulation D of the Securities Act), (c) any Affiliate of any Lender, (d) any Approved Fund of any
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Lender and (e) to the extent permitted under Section 9.05(g), any Affiliated Lender or any Debt Fund Affiliate; provided that in any event, “Eligible Assignee” shall not include (i) any natural person or any entity owned and operated for the primary benefit of a natural person, (ii) any Disqualified Institution or (iii) except as permitted under Section 9.05(g), the Borrower or any of its Affiliates.
“Environmental Claim” means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), by any Governmental Authority or any other Person, arising (a) pursuant to or in connection with any actual or alleged violation of any Environmental Law or actual or alleged Environmental Liability; (b) in connection with any Hazardous Material or any actual or alleged Hazardous Materials Activity; or (c) in connection with any actual or alleged damage, injury, threat or harm to natural resources, the environment or human health and safety as a result of exposure to Hazardous Materials.
“Environmental Laws” means any and all applicable Requirements of Law and Governmental Authorizations relating to (a) environmental matters, including those relating to any Hazardous Materials Activity or (b) the generation, use, storage, transportation or disposal of or exposure to Hazardous Materials.
“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) any Hazardous Material Activities, (c) exposure to any Hazardous Materials, or (d) any contract pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“Equity Personnel” has the meaning assigned to such term in the definition of “Debt Fund Affiliate”.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate” means, as applied to any Person, (a) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of which that Person is a member, (b) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Code of which that Person is a member, and (c) solely for purpose of ERISA Section 302 and Code Section 412, any affiliated service group within the meaning of Code Section 414(m), of which that Person is a member.
“ERISA Event” means (a) a “reportable event” (as defined in Section 4043 of ERISA) with respect to a Pension Plan (unless notice has been waived under applicable regulations); (b) a withdrawal by any Loan Party or any ERISA Affiliate of a Loan Party from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations at any facility of any Loan Party or any ERISA Affiliate of a Loan Party as described in Section 4062(e) of ERISA; (c) a complete or partial withdrawal by any Loan Party or any ERISA Affiliate of a Loan Party from a Multiemployer Plan resulting in the imposition of Withdrawal Liability on any Loan Party or any ERISA Affiliate of a Loan Party or notification that a Multiemployer Plan is “insolvent” within the meaning of Section 4245 of ERISA or in “endangered” or “critical” status within the meaning of Section 432 of the Code or Section 305 of ERISA; (d) the filing of a notice of intent to terminate a Pension Plan under Section 4041(c) of ERISA, the treatment of a Pension Plan amendment as a termination under Section 4041(c) of ERISA, the commencement of proceedings by the PBGC to terminate a Pension Plan or the receipt by any Loan Party or any ERISA Affiliate of a Loan Party of notice of the treatment of a Multiemployer Plan amendment as a termination under Section 4041A of ERISA or of notice of the commencement of proceedings by the PBGC to terminate a Multiemployer Plan; (e) the termination of, or
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the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums payable but not delinquent under ERISA Section 4007, upon any Loan Party or ERISA Affiliate of any Loan Party, in connection with the termination of any Pension Plan; (g) with respect to a Pension Plan, the failure to satisfy the minimum funding standard of Section 412 or 430 of the Code or Section 302 or 303 of ERISA, whether or not waived; (h) a failure by Loan Party or any ERISA Affiliate of a Loan Party to make a required contribution to a Multiemployer Plan; or (i) the imposition of a Lien with respect to a Pension Plan pursuant to Section 303(k) of ERISA.
“Escrow Account” means a segregated account, under the control of the Escrow Agent that includes only the Escrow Amount, free from all Liens.
“Escrow Agent” means Barclays, solely in its capacity as escrow agent under the Escrow Agreement.
“Escrow Agreement” means that certain Escrow Account Terms and Conditions, dated as of June 28, 2019, among the Borrower, the Administrative Agent and the Escrow Agent, as amended, supplemented or modified from time to time.
“Escrow Amount” has the meaning assigned to such term in the Escrow Agreement.
“Escrow Funding Conditions” means the conditions set forth in Section 4.01 (other than Sections 4.01(j), (k) and (l)), which, in each case, shall be determined as if the provisions of this Agreement were in full force and in effect on the Escrow Funding Date.
“Escrow Funding Date” shall mean the date of funding of the Escrow Amount into the Escrow Account upon the satisfaction (or waiver in accordance with Section 9.02) of the Escrow Funding Conditions, which date shall have occurred on June 28, 2019.
“Escrow Release Conditions” means the delivery by the Administrative Agent of the Payment Instruction (as defined in the Escrow Agreement) to the Escrow Agent on the Escrow Funding Date directing the Escrow Agent to release the funds from the Escrow Account.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
“Event of Default” has the meaning assigned to such term in Article 7.
“Excess Cash Flow” means, for any Excess Cash Flow Period, any amount (if positive) equal to:
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“Excess Cash Flow Period” means each Fiscal Year, commencing with the Fiscal Year ending on December 31, 2020.
“Exchange Act” means the Securities Exchange Act of 1934 and the rules and regulations of the SEC promulgated thereunder.
“Excluded Assets” means each of the following:
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“Excluded Subsidiary” means:
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“Excluded Swap Obligation” means, with respect to any Loan Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Loan Guaranty of such Loan Guarantor of, or the grant by such Loan Guarantor of a security interest to secure, such Swap Obligation (or any Loan Guaranty thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Loan Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the Loan Guaranty of such Loan Guarantor or the grant of such security interest becomes effective with respect to such Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Loan Guaranty or security interest is or becomes illegal.
“Excluded Taxes” means, with respect to the Administrative Agent, any Lender or Issuing Bank, or any other recipient of any payment to be made by or on account of any obligation of any Loan Party hereunder, (a) Taxes (i) imposed on (or measured by) net income (however denominated) or franchise Taxes, in each case, imposed by the jurisdiction under the Requirements of Law under which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located or (ii) that are Other Connection Taxes, (b) any branch profits Taxes imposed by the U.S. or any similar tax imposed by any other jurisdiction described in clause a(i) or (ii), (c) any U.S. federal withholding Tax that is imposed on amounts payable to the relevant recipient pursuant to a law in effect at the time the relevant recipient becomes a party to this Agreement or acquires an interest in any Commitment (or designates a new lending office), except (i) pursuant to an assignment or designation of a new lending office under Section 2.19(b) and (ii) to the extent that the relevant recipient was entitled, immediately before designation of a new lending office (or, in the case of an assignment, to the extent the assignor was entitled immediately before assignment), to receive additional amounts from any Loan Party with respect to such withholding Tax pursuant to Section 2.17, (d) any Tax imposed as a result of a failure by the relevant recipient to comply with Section 2.17(f) and (e) any U.S. federal withholding Tax imposed pursuant to FATCA.
“Existing Credit Agreement” means that certain Credit Agreement dated as of February 12, 2018 by and among the Borrower, the lenders from time to time party thereto and Royal Bank of Canada, as administrative agent.
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“Extended Revolving Credit Commitment” has the meaning assigned to such term in Section 2.23(a)(i).
“Extended Revolving Loans” has the meaning assigned to such term in Section 2.23(a)(i).
“Extended Term Loans” has the meaning assigned to such term in Section 2.23(a)(ii).
“Extension” has the meaning assigned to such term in Section 2.23(a).
“Extension Amendment” means an amendment to this Agreement that is reasonably satisfactory to the Administrative Agent (for purposes of giving effect to Section 2.23) and the Borrower executed by each of (a) the Loan Parties, (b) the Administrative Agent and (c) each Lender that has accepted the applicable Extension Offer pursuant hereto and in accordance with Section 2.23.
“Extension Offer” has the meaning assigned to such term in Section 2.23(a).
“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations, official guidance or interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Code and any intergovernmental agreements (or related legislation or official administrative rules) implementing any of the foregoing.
“FCPA” has the meaning assigned to such term in Section 3.19(c).
“Federal Funds Effective Rate” means, for any day, the rate calculated by the Federal Reserve Bank of New York based on such day’s federal funds transactions by depository institutions (as determined in such manner as the Federal Reserve Bank of New York shall set forth on its public website from time to time) and published on the next succeeding Business Day by the Federal Reserve Bank of New York as the federal funds effective rate; provided, that if the Federal Funds Effective Rate for any day is less than zero, the Federal Funds Effective Rate for such day will be deemed to be zero.
“Fee Letter” means that certain fee letter dated as of November 6, 2018 between the Borrower and the Lead Arrangers (as amended by that certain Joinder Agreement to Project Eagle/Patriot Commitment Letter, dated as of November 30, 2018 between the Borrower and the Lead Arrangers and as further amended by that certain Amended and Restated Joinder Agreement to Project Eagle/Patriot Commitment Letter, dated as of December 3, 2018 between the Borrower and the Lead Arrangers).
“FINRA” means the Financial Industry Regulatory Authority or any other self-regulatory body which succeeds to the functions of the Financial Industry Regulatory Authority.
“First Amendment” means that certain First Amendment to this Amendment, dated as of January 17, 2020, among the Borrower, the other Loan Parties party thereto, the Lenders party thereto, and the Administrative Agent.
“First Amendment Effective Date” means the “First Amendment Effective Date” under and as defined in the First Amendment.
“First Lien Leverage Ratio” means the ratio, as of any date of determination, of (a) Consolidated First Lien Debt as of the last day of the Test Period then most recently ended to (b) Consolidated Adjusted
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EBITDA for the Test Period then most recently ended, in each case, of the Borrower and the Restricted Subsidiaries on a consolidated basis.
“First Priority” means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that, subject to any Acceptable Intercreditor Agreement, such Lien is senior in priority to any other Lien to which such Collateral is subject, other than any Permitted Lien.
“Fiscal Quarter” means a fiscal quarter of any Fiscal Year.
“Fiscal Year” means the fiscal year of the Borrower ending December 31 of each calendar year.
“Fixed Amounts” has the meaning assigned to such term in Section 1.09(d).
“Fixed Incremental Amount” means (a) the greater of $415,000,000 and 100.0% of Consolidated Adjusted EBITDA for the most recently ended Test Period minus (b) the aggregate outstanding principal amount of all Incremental Facilities and Incremental Equivalent Debt incurred or issued in reliance on the Fixed Incremental Amount.
“Flood Hazard Property” means any parcel of any Material Real Estate Asset subject to a Mortgage located in the U.S. in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards.
“Foreign Benefit Event” means with respect to any Foreign Pension Plan, (a) the failure of any such Foreign Pension Plan or any trust thereunder intended to qualify for tax exempt status under any Requirements of Law, (b) the existence of unfunded liabilities in excess of the amount permitted under any Requirements of Law, (c) the failure to make the required contributions or payments under any Requirements of Law on or before the due date for such contributions or payments, (d) the receipt of a notice by a Governmental Authority relating to its intention to terminate any such Foreign Pension Plan or to appoint a trustee or similar official to administer any such Foreign Pension Plan, or alleging the insolvency of any such Foreign Pension Plan, (e) the incurrence of any liability on account of the complete or partial termination of such Foreign Pension Plan or the complete or partial withdrawal of any participating employer therein, or (f) the occurrence of any transaction that is prohibited under any Requirements of Law and that could reasonably be expected to result in the incurrence of any liability by any Loan Party, or the imposition on any Loan Party of any fine, excise tax or penalty resulting from any noncompliance with any Requirement of Law, in the case of the acts, omissions, and occurrences described in clauses (a) through (f) above, only to the extent that such acts, omissions or occurrences could reasonably be expected to result in a Material Adverse Effect.
“Foreign Lender” means any Lender or Issuing Bank that is not a “United States person” within the meaning of Section 7701(a)(30) of the Code.
“Foreign Pension Plan” means any defined benefit pension plan or other similar program established or maintained outside the United States by any Loan Party for employees of any Loan Party residing outside the United States, which fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code.
“Foreign Subsidiary” means any Restricted Subsidiary that is not a Domestic Subsidiary.
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“GAAP” means generally accepted accounting principles in the U.S. in effect and applicable to the accounting period in respect of which reference to GAAP is made.
“Governmental Authority” means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, taxing, regulatory or administrative power or functions of or pertaining to any government or any court, in each case whether associated with a state or locality of the U.S., the U.S., or a foreign government (including any supranational bodies such as the European Union or the European Central Bank).
“Governmental Authorization” means any permit, license, authorization, plan, directive, consent order or consent decree of or from any Governmental Authority.
“Granting Lender” has the meaning assigned to such term in Section 9.05(e).
“Growth Available Incremental Amount” has the meaning assigned to such term in the definition of “Incremental Cap.”
“Guarantee” of or by any Person (the “Guarantor”) means any obligation, contingent or otherwise, of the Guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other monetary obligation of any other Person (the “Primary Obligor”) in any manner and including any obligation of the Guarantor (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other monetary obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other monetary obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the Primary Obligor so as to enable the Primary Obligor to pay such Indebtedness or other monetary obligation, (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or monetary obligation, (e) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other monetary obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part) or (f) secured by any Lien on any assets of such Guarantor securing any Indebtedness or other monetary obligation of any other Person, whether or not such Indebtedness or monetary other obligation is assumed by such Guarantor (or any right, contingent or otherwise, of any holder of such Indebtedness or other monetary obligation to obtain any such Lien); provided that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business, or customary and reasonable indemnity obligations in effect on the Closing Date or entered into in connection with any acquisition, Disposition or other transaction permitted under this Agreement (other than such obligations with respect to Indebtedness). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith.
“Hazardous Materials” means any chemical, material, substance or waste, or any constituent thereof that is defined, listed or regulated as hazardous, toxic, a pollutant or a contaminant under applicable Environmental Law.
“Hazardous Materials Activity” means any past, current, proposed or threatened activity, event or occurrence involving any Hazardous Material, including the storage, holding, presence, existence, location, Release, threatened Release, discharge, placement, generation, transportation, processing, construction,
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treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Material, and any corrective action or response action with respect to any of the foregoing.
“Hedge Agreement” means any agreement with respect to any Derivative Transaction between any Loan Party or any Restricted Subsidiary and any other Person.
“Hedging Obligations” means, with respect to any Person, the obligations of such Person under any Hedge Agreement.
“Immaterial Subsidiary” means, as of any date, any Restricted Subsidiary designated by the Borrower pursuant to written notice provided to the Administrative Agent as an “Immaterial Subsidiary”; provided that no Borrower may be designated as an Immaterial Subsidiary; provided, further, that (a) the gross assets of any Immaterial Subsidiary (after eliminating any intercompany obligations) shall not exceed 5.0% of Consolidated Total Assets of the Borrower and the Restricted Subsidiaries, and (b) the contribution to Consolidated Adjusted EBITDA of any Immaterial Subsidiary shall not exceed 5.0% of the Consolidated Adjusted EBITDA of the Borrower and the Restricted Subsidiaries, in each case, as of the last day of the most recently ended Test Period; and provided, further, that, if (i) the combined gross assets (after eliminating any intercompany obligations) of all Immaterial Subsidiaries exceeds 5.0% of Consolidated Total Assets of the Borrower and the Restricted Subsidiaries or (ii) the contribution to Consolidated Adjusted EBITDA of all Immaterial Subsidiaries exceeds 5.0% of Consolidated Adjusted EBITDA of the Borrower and the Restricted Subsidiaries, in each case, as of the last day of the most recently ended Test Period, the Borrower shall designate one or more of such Subsidiaries as non-Immaterial Subsidiaries pursuant to written notice provided to the Administrative Agent, such, after giving effect thereto, (x) the combined gross assets (after eliminating any intercompany obligations) of all Immaterial Subsidiaries does not exceed 5.0% of Consolidated Total Assets of the Borrower and the Restricted Subsidiaries and (y) the contribution to Consolidated Adjusted EBITDA of all Immaterial Subsidiaries does not exceed 5.0% of Consolidated Adjusted EBITDA of the Borrower and the Restricted Subsidiaries, in each case, as of the last day of the most recently ended Test Period.
“Immediate Family Member” means, with respect to any individual, such individual’s child, stepchild, grandchild or more remote descendant, parent, stepparent, grandparent, spouse, former spouse, domestic partner, former domestic partner, sibling, mother-in-law, father-in-law, son-in-law and daughter-in-law (including adoptive relationships), any trust, partnership or other bona fide estate-planning vehicle the only beneficiaries of which are any of the foregoing individuals, such individual’s estate (or an executor or administrator acting on its behalf), heirs or legatees or any private foundation or fund that is controlled by any of the foregoing individuals or any donor-advised fund of which any such individual is the donor.
“Incremental Cap” means:
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provided that (x) (I) the Borrower may elect to use amounts under clause (c) above (to the extent compliant therewith) prior to utilization of amounts under clauses (a) or (b) above; provided that, if the Borrower does not make such election, the Borrower will be deemed to have elected to use clause (c) above first and (II) Incremental Facilities and/or Incremental Equivalent Debt may be incurred simultaneously under clauses (a) through (c) above, and proceeds from any such incurrence may be utilized in a single transaction by first calculating the incurrence under clause (c) above and then calculating the incurrence under clauses (a) and/or (b) above specifying the amount so requested under each such clause and (y) the Borrower may re-designate any Incremental Facility or Incremental Equivalent Debt originally designated as incurred under clauses (a) and/or (b) above as having been incurred under clause (c) above so long as, at the time of such re-designation, the Borrower would be permitted to incur under clause (c) above the aggregate principal amount of such Incremental Facility or Incremental Equivalent Debt being so re-designated (for purposes of clarity, with any such re-designation having the effect of increasing the Borrower’s ability to incur indebtedness under clauses (a) and/or (b) above as of the date of such re-designation by the amount of the Incremental Facility or Incremental Equivalent Debt so re-designated); provided, further, that, unless the Borrower elects otherwise, any Incremental Facility or Incremental Equivalent Debt originally designated as incurred under clauses (a) and/or (b) above shall be automatically reclassified as having been incurred under clause (c) above if the Total Leverage Ratio, Secured Leverage Ratio or First Lien Leverage Ratio, as applicable, test under clause (c) above is satisfied at any time after the incurrence of such Incremental Facility or Incremental Equivalent Debt.
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“Incremental Commitment” means any commitment made by a lender to provide all or any portion of any Incremental Facility or Incremental Loan.
“Incremental Equivalent Debt” means Indebtedness in the form of secured or unsecured notes or loans or junior secured or unsecured notes or loans or commitments in respect of any of the foregoing issued, incurred or implemented in lieu of loans which would otherwise be permitted to be incurred under an Incremental Facility; provided that:
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“Incremental Facilities” has the meaning assigned to such term in Section 2.22(a).
“Incremental Facility Amendment” means an amendment to this Agreement that is reasonably satisfactory to the Administrative Agent (solely for purposes of giving effect to Section 2.22) and the Borrower executed by each of (a) the Loan Parties, (b) the Administrative Agent and (c) each Lender that agrees to provide all or any portion of the Incremental Facility being incurred pursuant thereto and in accordance with Section 2.22.
“Incremental Loans” has the meaning assigned to such term in Section 2.22(a).
“Incremental Revolving Commitment” means any commitment made by a lender to provide all or any portion of any Incremental Revolving Facility.
“Incremental Revolving Facility” has the meaning assigned to such term in Section 2.22(a).
“Incremental Revolving Facility Lender” means, with respect to any Incremental Revolving Facility, each Revolving Lender providing any portion of such Incremental Revolving Facility.
“Incremental Revolving Loans” has the meaning assigned to such term in Section 2.22(a).
“Incremental Term Facility” has the meaning assigned to such term in Section 2.22(a).
“Incremental Term Loans” has the meaning assigned to such term in Section 2.22(a).
“Incurrence-Based Amounts” has the meaning assigned to such term in Section 1.09(d).
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“Indebtedness” as applied to any Person means, without duplication:
provided that (i) in no event shall obligations under any Derivative Transaction be deemed “Indebtedness” for any calculation of the Total Leverage Ratio, the Secured Leverage Ratio, the First Lien Leverage Ratio or any other financial ratio under this Agreement and (ii) the amount of Indebtedness of any Person for purposes of clause (e) shall be deemed to be equal to the lesser of (A) the aggregate unpaid amount of such Indebtedness and (B) the fair market value of the property encumbered thereby as determined by such Person in good faith.
For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any third person (including any partnership in which such Person is a general partner and any unincorporated joint venture in which such Person is a joint venturer) to the extent such Person would be liable therefor under applicable Requirements of Law or any agreement or instrument by virtue of such Person’s ownership interest in such Person, (A) except to the extent the terms of such Indebtedness provide that such Person is not liable therefor and (B) only to the extent the relevant Indebtedness is of the type that would be included in the calculation of Consolidated Total Debt; provided that notwithstanding anything herein to the contrary,
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the term “Indebtedness” shall not include, and shall be calculated without giving effect to, (x) the effects of Accounting Standards Codification Topic 815 and related interpretations to the extent such effects would otherwise increase or decrease an amount of Indebtedness for any purpose hereunder as a result of accounting for any embedded derivatives created by the terms of such Indebtedness (it being understood that any such amounts that would have constituted Indebtedness hereunder but for the application of this proviso shall not be deemed an incurrence of Indebtedness hereunder) and (y) the effects of Statement of Financial Accounting Standards No. 133 and related interpretations to the extent such effects would otherwise increase or decrease an amount of Indebtedness for any purpose under this Agreement as a result of accounting for any embedded derivative created by the terms of such Indebtedness (it being understood that any such amounts that would have constituted Indebtedness under this Agreement but for the application of this sentence shall not be deemed to be an incurrence of Indebtedness under this Agreement). For the avoidance of doubt, Indebtedness shall exclude ordinary course intercompany payables among the Borrower and the Restricted Subsidiaries.
“Indemnified Taxes” means Taxes, other than Excluded Taxes or Other Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document.
“Indemnitee” has the meaning assigned to such term in Section 9.03(b).
“Information” has the meaning set forth in Section 3.11(a).
“Information Materials” means the Confidential Information Memorandum dated May 21, 2019 relating to the Borrower and its Subsidiaries and the Transactions.
“Initial Revolving Credit Commitment” means, with respect to each Lender, the commitment of such Lender to make Initial Revolving Loans (and acquire participations in Letters of Credit and Swingline Loans) hereunder as set forth on the Commitment Schedule, or in the Assignment and Assumption pursuant to which such Lender assumed its Initial Revolving Credit Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.09 or 2.19, (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.05 or (c) increased pursuant to Section 2.23. The aggregate amount of the Initial Revolving Credit Commitments as of the Closing Date is $100,000,000.
“Initial Revolving Credit Exposure” means, with respect to any Lender at any time, the aggregate Outstanding Amount at such time of all Initial Revolving Loans of such Lender, plus the aggregate amount at such time of such Lender’s LC Exposure and Swingline Exposure, in each case, attributable to its Initial Revolving Credit Commitment.
“Initial Revolving Credit Maturity Date” means the date that is five years after the Closing Date.
“Initial Revolving Facility” means the Initial Revolving Credit Commitments and the Initial Revolving Loans and other extensions of credit thereunder.
“Initial Revolving Lender” means any Lender with an Initial Revolving Credit Commitment or any Initial Revolving Credit Exposure.
“Initial Revolving Loan” means any revolving loan made by the Initial Revolving Lenders to the Borrower pursuant to Section 2.01(a)(ii).
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“Initial Term Lender” means any Lender with an Initial Term Loan Commitment or an outstanding Initial Term Loan.
“Initial Term Loan Commitment” means, with respect to each Term Lender, the commitment of such Term Lender to make Initial Term Loans under this Agreement in an aggregate amount not to exceed the amount set forth opposite such Term Lender’s name on the Commitment Schedule (or the Assignment and Assumption pursuant to which such Term Lender became a Lender), as the same may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant to (i) assignments by or to such Term Lender pursuant to Section 9.05 or (ii) increased from time to time pursuant to Section 2.22 or Section 2.23. The aggregate amount of the Initial Term Loan Commitments as of the Closing Date is $1,100,000,000.
“Initial Term Loans” means the term loans made by the Initial Term Lenders to the Borrower pursuant to Section 2.01(a)(i) on the Closing Date.
“Intellectual Property Security Agreement” means any agreement executed on or after the Closing Date confirming or effecting the grant of any Lien on IP Rights owned by any Loan Party to the Administrative Agent, for the benefit of the Secured Parties, in accordance with this Agreement, including a Patent Security Agreement substantially in the form of Exhibit J-1, a Trademark Security Agreement substantially in the form of Exhibit J-2 and a Copyright Security Agreement substantially in the form of Exhibit J-3.
“Interest Election Request” means a request by the Borrower in the form of Exhibit D or another form reasonably acceptable to the Administrative Agent to convert or continue a Borrowing in accordance with Section 2.08.
“Interest Payment Date” means, (a) with respect to any ABR Loan, the last Business Day of each March, June, September and December (commencing with the last Business Day of September, 2019) and the Initial Revolving Credit Maturity Date or the maturity date applicable to such Loan and, (b) with respect to any LIBO RateTerm SOFR Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a LIBO RateTerm SOFR Borrowing with an Interest Period of more than three months’ duration, each day that would have been anprior to the last day of such Interest Payment Date had successive Interest PeriodsPeriod that occurs at intervals of three months’ duration been applicable to such Borrowingafter the first day of such Interest Period.
“Interest Period” means with respect to any LIBO RateTerm SOFR Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months (or, to the extent consented to by all affected Lenders, twelve months or a shorter period) thereafter, as the Borrower may elect; provided that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. Notwithstanding the foregoing, solely with respect to the 2021 Incremental Term Loans outstanding on the Fourth Amendment Effective Date, such 2021 Incremental Term Loans may be converted into Term SOFR Loans with an initial Interest Period shorter than one month; provided that (1) such period shall end on the last
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day of the Interest Period that is then-applicable to the Initial Term Loans outstanding on the Fourth Amendment Effective Date, and (2) the interest with respect to the 2021 Incremental Term Loans for such period shall be accrued on the basis of Adjusted Term SOFR for an Interest Period of one month.
“Interpolated Rate” means, in relation to the LIBO Rate, the rate which results from interpolating on a linear basis between:
(a) the applicable LIBO Rate for the longest period (for which that LIBO Rate is available) which is less than the Interest Period of that Loan; and
(b) the applicable LIBO Rate for the shortest period (for which that LIBO Rate is available) which exceeds the Interest Period of that Loan, each as of approximately 11:00 a.m. (London, England time) two (2) Business Days prior to the commencement of such Interest Period of that Loan.
“Introducing Broker” has the meaning assigned to such term in the definition of the term “Broker-Dealer Subsidiary.”
“Investment” means (a) any purchase or other acquisition by the Borrower or any Restricted Subsidiary of any of the Securities of any other Person (other than any Loan Party), (b) the acquisition by purchase or otherwise (other than any purchase or other acquisition of inventory, materials, supplies or equipment in the ordinary course of business) of all or a substantial portion of the business, property or fixed assets of any other Person or any division or line of business or other business unit of any other Person and (c) any loan, advance or capital contribution by the Borrower or any Restricted Subsidiary to any other Person. Subject to Section 5.09, the amount of any Investment shall be the original cost of such Investment, plus the cost of any addition thereto that otherwise constitutes an Investment, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect thereto, less any cash repayments thereof and returns thereon (whether as a principal payment, distribution, dividend, redemption or sale but not in excess of the amount of the relevant initial Investment) and other than any such amount that increases the Available Amount.
“Investment Company Act” means the Investment Company Act of 1940 and the rules and regulations thereunder
“Investment Manager Subsidiary” means each Subsidiary that is duly registered, licensed or qualified as an investment adviser under the Advisers Act.
“Investment Vehicle” means (a) a separate account, investment strategy, fund or vehicle for collective investing (in whatever form of organization, including a corporation, limited liability company, partnership, association, trust or other entity, including each separate portfolio or series of any of the foregoing, and including any entity investing in collateralized loan obligations or collateralized debt obligations) that is managed directly or indirectly by the Borrower or any Restricted Subsidiary, (b) any separate account, investment strategy, fund or vehicle for collective investing that, upon the making of an Investment therein or upon the acquisition of the related management rights with respect thereto, would be an Investment Vehicle pursuant to clause (a) above, and (c) any entity created for the sole purpose of receiving funds to be invested in a separate account, investment strategy, fund or vehicle for collective investing that constitutes an Investment Vehicle pursuant to clauses (a) or (b) above.
“Investors” means, collectively, the Sponsors and the Management Investors.
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“IP Rights” has the meaning assigned to such term in Section 3.05(c).
“IRS” means the U.S. Internal Revenue Service.
“ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice, Inc. (or such later version thereof as may be acceptable to the applicable Issuing Bank and in effect at the time of issuance of such Letter of Credit).
“Issuing Bank” means, as the context may require, (a) each of Barclays, Royal Bank of Canada, Bank of Montreal, KeyBank National Association, JPMorgan Chase Bank, N.A., Bank of America, N.A. and Morgan Stanley Senior Funding, Inc. and (b) any other Revolving Lender that is appointed as an Issuing Bank in accordance with Section 2.05(i) hereof. Each Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by any Affiliate of such Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.
“Judgment Currency” has the meaning assigned to such term in Section 9.22.
“Junior Indebtedness” means any Indebtedness (other than Indebtedness among the Borrower and/or its Subsidiaries) of the Borrower or any Restricted Subsidiary that is expressly subordinated in right of payment to the Obligations with an individual outstanding principal amount in excess of the Threshold Amount.
“Junior Lien Indebtedness” means any Indebtedness that is secured by a security interest on the Collateral (other than Indebtedness among the Borrower and/or its Subsidiaries) that is expressly junior or subordinated to the Lien securing the Obligations with an individual outstanding principal amount in excess of the Threshold Amount.
“Latest Maturity Date” means, as of any date of determination, the latest maturity or expiration date applicable to any Loan or commitment hereunder at such time, including the latest maturity or expiration date of any Term Loan, Term Commitment, Revolving Loan or Revolving Credit Commitment.
“Latest Revolving Credit Maturity Date” means, as of any date of determination, the latest maturity or expiration date applicable to any Revolving Loan or Revolving Credit Commitment hereunder at such time.
“Latest Term Loan Maturity Date” means, as of any date of determination, the latest maturity or expiration date applicable to any Term Loan or Term Commitment hereunder at such time.
“LC Collateral Account” has the meaning assigned to such term in Section 2.05(j).
“LC Commitment” means (a) with respect to Barclays, $2,000,000, (b) with respect to Royal Bank of Canada, $2,000,000, (c) with respect to Bank of Montreal, $2,000,000, (d) with respect to KeyBank National Association, $2,000,000, (e) with respect to JPMorgan Chase Bank, N.A., $1,000,000, (f) with respect to Bank of America, N.A., $500,000, (g) with respect to Morgan Stanley Senior Funding, Inc., $500,000, and (h) with respect to any other Issuing Bank, an amount, not greater than the Letter of Credit Sublimit, agreed to by such Issuing Bank.
“LC Disbursement” means a payment or disbursement made by an Issuing Bank pursuant to a Letter of Credit.
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“LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time and (b) the aggregate principal amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Revolving Lender at any time shall equal its Applicable Percentage of the aggregate LC Exposure at such time. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the International Standby Practices (ISP98), such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn. Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the Stated Amount of such Letter of Credit in effect at such time; provided that with respect to any Letter of Credit that, by its terms or the terms of any document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.
“Lead Arrangers” means, collectively, the Term Lead Arrangers and Revolving Lead Arrangers.
“Legal Reservations” means the application of relevant Debtor Relief Laws, general principles of equity or principles of good faith and fair dealing.
“Lenders” means the Term Lenders, the Revolving Lenders, any Additional Lender, any lender with an Additional Commitment or an outstanding Additional Loan and any other Person that becomes a party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption. Unless the context otherwise requires, the term “Lenders” shall include the Swingline Lender and the Issuing Banks.
“Letter of Credit” means any letter of credit issued pursuant to this Agreement.
“Letter of Credit Reimbursement Loan” has the meaning assigned to such term in Section 2.05(e).
“Letter-of-Credit Right” has the meaning set forth in Article 9 of the UCC.
“Letter of Credit Sublimit” means $10,000,000, subject to increase in accordance with Section 2.22 hereof.
“LIBO Rate” means for any Interest Period as to any LIBO Rate Loan, (i) the rate per annum determined by the Administrative Agent to be the offered rate which appears on the page of the Reuters Screen which displays the London interbank offered rate administered by ICE Benchmark Administration Limited (such page currently being the LIBOR01 page) for deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period in Dollars, determined as of approximately 11:00 a.m. (London, England time), two Business Days prior to the commencement of such Interest Period, or (ii) in the event the rate referenced in the preceding clause (i) does not appear on such page or service or if such page or service shall cease to be available, the rate determined by the Administrative Agent to be the offered rate on such other page or other service which displays the LIBO Rate for deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period in Dollars, determined as of approximately 11:00 a.m. (London, England time) two Business Days prior to the commencement of such Interest Period; provided that if LIBO Rates are quoted under either of the preceding clauses (i) or (ii), but there is no such quotation for the Interest Period elected, the LIBO Rate shall be equal to the Interpolated Rate; and provided, further, that if any such rate determined pursuant to the preceding clauses (i) or (ii) is less than zero, the LIBO Rate will be deemed to be zero; provided, further, that
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solely with respect to the 2021 Incremental Term Loans, if any such rate determined pursuant to the preceding clauses (i) or (ii) is less than 0.50%, the LIBO Rate will be deemed to be 0.50%.
“LIBO Rate Borrowing” means any Borrowing at the LIBO Rate.
“LIBO Rate Loan” means a Loan that bears interest with reference to the LIBO Rate.
“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any Capital Lease having substantially the same economic effect as any of the foregoing), in each case, in the nature of security; provided that in no event shall an operating lease in and of itself be deemed to constitute a Lien.
“Loan Documents” means this Agreement, any Promissory Note, each Loan Guaranty, the Collateral Documents, each Refinancing Amendment, each Incremental Facility Amendment, each Extension Amendment and any other document or instrument designated by the Borrower and the Administrative Agent as a “Loan Document.” Any reference in this Agreement or any other Loan Document to a Loan Document shall include all appendices, exhibits or schedules thereto.
“Loan Guarantor” means (x) on the Closing Date, each Subsidiary of the Borrower that is not an Excluded Subsidiary on the Closing Date and (y) thereafter, each Subsidiary of the Borrower that is not an Excluded Subsidiary and that becomes a guarantor of the Secured Obligations pursuant to the terms of this Agreement, in each case, until such time as the relevant Subsidiary is released from its obligations under the Loan Guaranty in accordance with the terms and provisions hereof.
“Loan Guaranty” means (a) the Guaranty Agreement, substantially in the form of Exhibit I, executed by each Loan Party thereto and the Administrative Agent for the benefit of the Secured Parties and (b) each other guaranty agreement executed by any Person pursuant to Section 5.11 in substantially the form attached as Exhibit I or another form that is otherwise reasonably satisfactory to the Administrative Agent and the Borrower.
“Loan Parties” means the Borrower and each Loan Guarantor.
“Loans” means any Initial Term Loan, any Additional Term Loan, any Revolving Loan, any Additional Revolving Loan or any Swingline Loan.
“Management Investors” means the directors, officers and employees of the Borrower, any Restricted Subsidiary or any Parent Company who are (directly or indirectly through one or more Investment Vehicles) investors in the Borrower, any Restricted Subsidiary or any Parent Company.
“Margin Stock” has the meaning assigned to such term in Regulation U.
“Material Adverse Effect” means a material adverse effect on (i) the business, assets, financial condition or results of operations, in each case, of the Borrower and the Restricted Subsidiaries, taken as a whole, (ii) the rights and remedies (taken as a whole) of the Administrative Agent or the Lenders under the applicable Loan Documents or (iii) the ability of the Loan Parties (taken as a whole) to perform their payment obligations under the Loan Documents.
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“Material Debt Instrument” means any physical instrument evidencing any Indebtedness for borrowed money which is required to be pledged and delivered to the Administrative Agent (or its bailee) pursuant to the Security Agreement.
“Material Real Estate Asset” means (a) on the Closing Date, the Loan Parties’ fee-owned Real Estate Assets located in the United States and listed on Schedule 1.01(c) and (b) any fee-owned Real Estate Asset located in the United States and acquired by the Loan Parties after the Closing Date having a fair market value (as determined by the Borrower in good faith after taking into account any liabilities with respect thereto that impact such fair market value) in excess of $10,000,000 as of the date of acquisition thereof.
“Maturity Date” means (a) with respect to the Initial Revolving Facility, the Initial Revolving Credit Maturity Date, (b) with respect to the Tranche B-2 Term Loans, the Term Loan Maturity Date, (c) with respect to the 2021 Incremental Term Loans, the 2021 Incremental Term Loan Maturity Date, (d) with respect to any Replacement Term Loans or Replacement Revolving Facility, the final maturity date for such Replacement Term Loans or Replacement Revolving Facility, as the case may be, as set forth in the applicable Refinancing Amendment, (e) with respect to any Incremental Facility, the final maturity date set forth in the applicable Incremental Facility Amendment, and (f) with respect to any Extended Revolving Credit Commitment or Extended Term Loans, the final maturity date set forth in the applicable Extension Amendment.
“Maximum Rate” has the meaning assigned to such term in Section 9.19.
“MFN Adjustment Excluded Indebtedness” means (i) Incremental Term Loans or Incremental Equivalent Debt that are customary bridge loans and/or term A loans, and (ii) solely with respect to 2021 Incremental Term Loans, Incremental Term Loans or Incremental Equivalent Debt that are incurred in connection with a Permitted Acquisition or other permitted Investment.
“Minimum Extension Condition” has the meaning assigned to such term in Section 2.23(b).
“Moody’s” means Moody’s Investors Service, Inc. or any successor by merger or consolidation to its business.
“Mortgage” means any mortgage, deed of trust, deed to secure debt, trust deed or other agreement which conveys or evidences a Lien in favor of the Administrative Agent, for the benefit of the Administrative Agent and the relevant Secured Parties, on any Material Real Estate Asset constituting Collateral.
“Mortgage Policies” has the meaning assigned to such term in the definition of “Collateral and Guarantee Requirement”.
“Multiemployer Plan” means any Benefit Plan which is a “multiemployer plan” as defined in Section 3(37) of ERISA, that is subject to the provisions of Title IV of ERISA, and in respect of which any Loan Party or any ERISA Affiliate of a Loan Party, makes or is obligated to make contributions, or with respect to which any Loan Party or any ERISA Affiliate of a Loan Party has any obligation or liability.
“Net Insurance/Condemnation Proceeds” means an amount equal to: (a) any Cash payments or proceeds (including Cash Equivalents) received by the Borrower or any Restricted Subsidiary (i) under any casualty insurance policy in respect of a covered loss thereunder of any assets of the Borrower or any Restricted Subsidiary or (ii) as a result of the taking of any assets of the Borrower or any of the Restricted
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Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, minus (b) (i) any actual out-of-pocket costs and expenses incurred by the Borrower or any Restricted Subsidiary in connection with the adjustment, settlement or collection of any claims of the Borrower or the relevant Restricted Subsidiary in respect thereof, (ii) payment of the outstanding principal amount of, premium or penalty, if any, and interest and other amounts on any Indebtedness (other than the Secured Obligations, Indebtedness under any Credit Facility and any Indebtedness secured by a Lien on the Collateral that is pari passu with or expressly subordinated to the Lien on the Collateral securing the Secured Obligations) that is secured by a Lien on the assets in question and that is required to be repaid or otherwise comes due or would be in default under the terms thereof as a result of such loss, taking or sale, (iii) in the case of a taking, the reasonable out-of-pocket costs of putting any affected property in a safe and secure position, (iv) any selling costs and out-of-pocket expenses (including reasonable broker’s fees or commissions, legal fees, accountants’ fees, investment banking fees, survey costs, title insurance premiums, and related search and recording charges, deed or mortgage recording taxes, other customary expenses and brokerage, consultant and other customary fees actually incurred in connection therewith and transfer and similar Taxes and the Borrower’s good faith estimate of income Taxes paid or payable (including, without duplication, pursuant to Tax sharing arrangements or any Tax distribution)) in connection with any sale or taking of such assets as described in clause (a) of this definition, (v) any amounts provided as a reserve in accordance with GAAP against any liabilities under any indemnification obligation or purchase price adjustments associated with any sale or taking of such assets as referred to in clause (a) of this definition (provided that to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Insurance/Condemnation Proceeds) and (vi) in the case of any covered loss or taking from any non-Wholly-Owned Subsidiary, the pro rata portion thereof (calculated without regard to this clause (vi)) attributable to any minority interest and not available for distribution to or for the account of the Borrower or a Wholly-Owned Subsidiary as a result thereof.
“Net Proceeds” means (a) with respect to any Disposition (including any Prepayment Asset Sale), the Cash proceeds (including Cash Equivalents and Cash proceeds subsequently received (as and when received) in respect of non-cash consideration initially received), net of (i) selling costs and out-of-pocket expenses (including reasonable broker’s fees or commissions, legal fees, accountants’ fees, investment banking fees, survey costs, title insurance premiums, and related search and recording charges, deed or mortgage recording taxes, other customary expenses and brokerage, consultant and other customary fees actually incurred in connection therewith and transfer and similar Taxes and the Borrower’s good faith estimate of income Taxes paid or payable (including, without duplication, pursuant to Tax sharing arrangements or any Tax distributions) in connection with such Disposition), (ii) amounts provided as a reserve in accordance with GAAP against any liabilities under any indemnification obligation or purchase price adjustment associated with such Disposition (provided that to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Proceeds), (iii) the principal amount, premium or penalty, if any, interest and other amounts on any Indebtedness (other than the Secured Obligations and any other Indebtedness secured by a Lien that is pari passu with or expressly junior or subordinated to the Lien on the Collateral securing the Secured Obligations) which is secured by the asset sold in such Disposition and which is required to be repaid or otherwise comes due or would be in default and is repaid (other than any such Indebtedness that is assumed by the purchaser of such asset), (iv) Cash escrows (until released from escrow to the Borrower or any Restricted Subsidiary) from the sale price for such Disposition and (v) in the case of any Disposition by any non-Wholly-Owned Subsidiary, the pro rata portion of the Net Proceeds thereof (calculated without regard to this clause (v)) attributable to any minority interest and not available for distribution to or for the account of the Borrower or a Wholly-Owned Subsidiary as a result thereof; and (b) with respect to any issuance or incurrence of Indebtedness or Capital
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Stock, the Cash proceeds thereof, net of all Taxes and fees, commissions, costs, underwriting discounts and other fees and expenses incurred in connection therewith.
“Non-Consenting Lender” has the meaning assigned to such term in Section 2.19(b).
“Non-Debt Fund Affiliate” means each Sponsor and each Affiliate of such Sponsor (other than any Affiliate of such Sponsor that is a Debt Fund Affiliate).
“Non-Public Information” means material non-public information (within the meaning of United States federal securities laws) with respect to the Borrower or the Restricted Subsidiaries or any of their respective Securities.
“Not Otherwise Applied” means, with respect to the any proceeds of any transaction or event, that such proceeds were not (a) required to be applied to repay the Loans pursuant to Section 2.11(b), or (b) previously (or concurrently) applied in determining the permissibility of a transaction under the Loan Documents where such permissibility was (or may have been) contingent on the receipt or availability of such proceeds (including with respect to the making of any Investments, Restricted Payments or Restricted Debt Payments).
“Notice of Intent to Cure” has the meaning assigned to such term in Section 6.14(b).
“Obligations” means all unpaid principal of and accrued and unpaid interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, all LC Exposure, all accrued and unpaid fees and all expenses, reimbursements, indemnities and all other advances to, debts, liabilities and obligations of any Loan Party to the Lenders or to any Lender, the Administrative Agent, any Issuing Bank or any indemnified party arising under the Loan Documents in respect of any Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute, contingent, due or to become due, now existing or hereafter arising.
“OFAC” has the meaning assigned to such term in Section 3.19(a).
“Organizational Documents” means (a) with respect to any corporation, its certificate or articles of incorporation or organization and its by-laws, (b) with respect to any limited partnership, its certificate of limited partnership and its partnership agreement, (c) with respect to any general partnership, its partnership agreement, (d) with respect to any limited liability company, its articles of organization or certificate of formation, and its operating agreement, and (e) with respect to any other form of entity, such other organizational documents required by local Requirements of Law or customary under such jurisdiction to document the formation and governance principles of such type of entity. In the event that any term or condition of this Agreement or any other Loan Document requires any Organizational Document to be certified by a secretary of state or similar governmental official, the reference to any such “Organizational Document” shall only be to a document of a type customarily certified by such governmental official.
“Other Applicable Indebtedness” has the meaning assigned to such term in Section 2.11(b)(i).
“Other Connection Taxes” means, with respect to any Lender, any Issuing Bank or the Administrative Agent, Taxes imposed as a result of a present or former connection between such recipient and the jurisdiction imposing such Tax (other than connections arising solely from such recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received
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or perfected a security interest under, engaged in any other transaction pursuant to, or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Other Taxes” means any and all present or future stamp, court or documentary Taxes or any intangible, recording, filing or similar Taxes from any payment made hereunder or from the execution, delivery, performance, registration or enforcement of, from the receipt or perfection of a security interest under or otherwise with respect to, any Loan Document, but not including Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.19(b)), or for the avoidance of doubt, any Excluded Taxes.
“Outstanding Amount” means (a) with respect to any Term Loan or Revolving Loan on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of such Term Loan or Revolving Loan, as the case may be, occurring on such date, (b) with respect to any Letter of Credit, the aggregate amount available to be drawn under such Letter of Credit and (c) with respect to any LC Disbursement on any date, the amount of the aggregate outstanding amount of such LC Disbursement on such date after giving effect to any disbursements with respect to any Letter of Credit occurring on such date and any other changes in the aggregate amount of such LC Disbursement as of such date, including as a result of any reimbursements by the Borrower of such unreimbursed LC Disbursement.
“Parent Company” means any Person of which the Borrower is a direct or indirect Wholly-Owned Subsidiary.
“Participant” has the meaning assigned to such term in Section 9.05(c).
“Participant Register” has the meaning assigned to such term in Section 9.05(c).
“Patent” means the following: (a) any and all patents and patent applications; (b) all inventions described and claimed therein; (c) all reissues, divisions, continuations, renewals, extensions and continuations in part thereof; and (d) all rights corresponding to any of the foregoing.
“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
“Pension Plan” means any Benefit Plan (other than a Multiemployer Plan) subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code, in which any Loan Party or any ERISA Affiliate of a Loan Party maintains or contributes to or has an obligation to contribute to or otherwise has any liability or obligation.
“Perfection Certificate” means a certificate substantially in the form of Exhibit E.
“Perfection Certificate Supplement” means a supplement to the Perfection Certificate substantially in the form of Exhibit F.
“Perfection Requirements” means, with respect to Collateral, the filing of appropriate financing statements with the office of the Secretary of State of the state of organization of each Loan Party, the filing of appropriate assignments or notices with the U.S. Patent and Trademark Office and the U.S. Copyright Office, as applicable, the proper recording or filing, as applicable, of Mortgages and fixture filings with respect to any Material Real Estate Asset constituting Collateral, in each case in favor of the Administrative Agent for the benefit of the Secured Parties and the delivery to the Administrative Agent of any stock
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certificate or promissory note, together with instruments of transfer executed in blank, in each case, to the extent required by the applicable Loan Documents.
“Permitted Acquisition” means any acquisition made by the Borrower or any Restricted Subsidiary, whether by purchase, merger, amalgamation or otherwise, of all or substantially all of the assets of, or any business line, unit or division or product line (including research and development and related assets in respect of any product) of, any Person or of a majority of the outstanding Capital Stock of any Person who is engaged in a Similar Business (and, in any event, including any Investment in (x) any Restricted Subsidiary the effect of which is to increase the Borrower’s or any Restricted Subsidiary’s equity ownership in such Restricted Subsidiary or (y) any joint venture constituting a Subsidiary for the purpose of increasing the Borrower’s or such Restricted Subsidiary’s ownership interest in such joint venture); provided that (I) immediately after giving effect thereto, no Event of Default has occurred and is continuing, and (II) the total consideration paid (directly or indirectly) by Persons that are Loan Parties for (a) the Capital Stock of any Person that does not become a Loan Party or (b) in the case of an asset acquisition, assets that are not acquired by any Loan Party, when taken together with the total consideration for all such Persons and assets so acquired after the Closing Date, shall not exceed (together with any Investments in a non-Loan Party pursuant to clause (b)(iii) of the definition of Permitted Investment) the sum of (i) the greater of $145,000,000 and 35.0% of Consolidated Adjusted EBITDA for the most recently ended Test Period plus (ii) amounts otherwise available to be invested in a Restricted Subsidiary that is not a Loan Party under Section 6.04(a); provided that the limitation described in this proviso shall not apply to any acquisition to the extent (A) any such consideration is financed with the proceeds of sales of the Qualified Capital Stock of, or common equity capital contributions to, the Borrower or any Restricted Subsidiary or (B) the Person so acquired (or the Person owning the assets so acquired) becomes a Loan Guarantor even though such Person owns Capital Stock in Persons that are not otherwise required to become Loan Guarantors, if, in the case of this clause (B), at least 60.0% of the Consolidated Adjusted EBITDA of the Person(s) acquired in such acquisition (or the Persons owning the assets so acquired) (for this purpose and for the component definitions used in the definition of “Consolidated Adjusted EBITDA”, determined on a consolidated basis for such Person(s) and the Restricted Subsidiaries) is generated by Person(s) that will become Loan Guarantors (i.e., disregarding any Consolidated Adjusted EBITDA generated by Restricted Subsidiaries of such Persons that are not (or will not become) Loan Guarantors).
“Permitted Holders” means (a) the Investors and (b) any Person with which one or more Investors form a “group” (within the meaning of Section 14(d) of the Exchange Act) so long as, in the case of this clause (b), the relevant Investors beneficially own more than 50% of the relevant voting stock beneficially owned by the group.
“Permitted Investment” means the following:
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“Permitted Liens” means Liens permitted pursuant to Section 6.02.
“Person” means any natural person, firm, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or any other entity.
“Platform” has the meaning assigned to such term in Section 5.01.
“Prepayment Asset Sale” means any Disposition outside of the ordinary course of business by the Borrower or any Restricted Subsidiary made pursuant to Sections 6.07(h), 6.07(q) (but solely to the extent the related acquisition was financed with Term Loans, it being expressly understood and agreed that the Net Proceeds of any such Disposition shall be deemed to be Net Proceeds of a Prepayment Asset Sale in the same proportion as the related acquisition was financed by such Term Loans (i.e., if 30.0% of the purchase price for such acquisition was financed with Term Loans, 30.0% of the Net Proceeds of such Disposition shall be deemed to be the proceeds of a Prepayment Asset Sale)), 6.07(x), 6.07(aa), 6.07(bb) or 6.08.
“Prepayment Notice” means a notice by the Borrower of a prepayment in accordance with Section 2.11 and in substantially the form attached hereto as Exhibit N or such other form that is reasonably acceptable to the Administrative Agent and the Borrower.
“Primary Obligor” has the meaning assigned to such term in the definition of “Guarantee”.
“Prime Rate” means the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime loan” rate or, if such rate is no longer quoted therein, any similar rate quoted therein (as determined by the Administrative Agent) or any similar release by the Federal Reserve Board (as determined by the Administrative Agent).
“Pro Forma Basis” or “pro forma effect” means, with respect to any determination of the Total Leverage Ratio, the Secured Leverage Ratio, the First Lien Leverage Ratio, Consolidated Adjusted EBITDA or Consolidated Total Assets (including component definitions thereof) that each Subject Transaction shall be deemed to have occurred as of the first day of the applicable Test Period (or, in the case of Consolidated Total Assets, as of the last day of such Test Period) with respect to any test or covenant for which such calculation is being made and that:
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Notwithstanding anything to the contrary set forth in the immediately preceding paragraph, for the avoidance of doubt, when calculating the First Lien Leverage Ratio for purposes of Section 6.14(a) (other than for the purpose of determining pro forma compliance with Section 6.14(a) as a condition to taking any action under this Agreement), the events described in the immediately preceding paragraph that occurred subsequent to the end of the applicable Test Period shall not be given pro forma effect.
“Projections” means the financial projections of the Borrower and its Subsidiaries included in the Information Materials (or a supplement thereto).
“Promissory Note” means a promissory note of the Borrower payable to any Lender or its registered assigns, in substantially the form of Exhibit G, evidencing the aggregate outstanding principal amount of Loans of the Borrower to such Lender resulting from the Loans made by such Lender.
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“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“Public Company Costs” means Charges associated with, or in anticipation of, or preparation for, compliance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith and Charges relating to compliance with the provisions of the Securities Act and the Exchange Act (and, in each case, similar Requirements of Law under other jurisdictions), or the rules of national securities exchange companies with listed equity or debt securities, in each case as applicable to companies with equity or debt securities held by the public, including such Requirements of Law and rules relating to directors’, managers’ or employees’ compensation, fees and expense reimbursement, and including Charges relating to investor relations, shareholder meetings and reports to shareholders or debtholders, directors’ and officers’ insurance and other executive costs, related legal and other professional fees (including auditors’ and accountants’ fees), listing fees, filing fees and other costs and/or expenses associated with being a public company.
“Public Lenders” means Lenders that do not wish to receive Non-Public Information with respect to the Borrower and each of its Affiliates, Subsidiaries or Securities.
“Public Offering” means the issuance and sale by the Borrower or any Parent Company of its common Capital Stock in any underwritten primary public offering (other than a public offering pursuant to a registration statement on Form S-8) pursuant to an effective registration statement filed with the SEC in accordance with the Securities Act (whether alone or in connection with a secondary public offering) pursuant to which the net Cash proceeds are received by or contributed to the Borrower.
“Qualified Capital Stock” of any Person means any Capital Stock of such Person that is not Disqualified Capital Stock.
“Real Estate Asset” means, at any time of determination, all right, title and interest (fee, leasehold or otherwise) of any Loan Party in and to real property (including, but not limited to, land, improvements and fixtures thereon).
“Reference Time” with respect to any setting of the then-current Benchmark means (1) if such Benchmark is Term SOFR Reference Rate, 11:00 a.m. (New York City time) on the day that is two (2) U.S. Government Securities Business Days preceding the date of such setting, and (2) if such Benchmark is not Term SOFR Reference Rate, the time determined by the Administrative Agent in its reasonable discretion.
“Refinancing Amendment” means an amendment to this Agreement that is reasonably satisfactory to the Administrative Agent and the Borrower executed by (a) each of the Loan Parties, (b) the Administrative Agent and (c) each Lender that agrees to provide all or any portion of the Replacement Term Loans or the Replacement Revolving Facility, as applicable, being incurred pursuant thereto and in accordance with Section 9.02(c).
“Refinancing Credit Facilities Indebtedness” means Refinancing Indebtedness incurred in respect of Indebtedness permitted under Section 6.01(a).
“Refinancing Indebtedness” has the meaning assigned to such term in Section 6.01(p).
“Refunding Capital Stock” has the meaning assigned to such term in Section 6.04(a)(viii).
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“Register” has the meaning assigned to such term in Section 9.05(b)(iv).
“Registered Broker-Dealer” has the meaning assigned to such term in the definition of the term “Broker-Dealer Subsidiaries.”
“Regulation H” means Regulation H of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“Regulation T” means Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“Regulation U” means Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“Regulation X” means Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“Rejection Notice” has the meaning assigned to such term in Section 2.11(b)(vi).
“Related Funds” means with respect to any Lender that is an Approved Fund, any other Approved Fund that is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor.
“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, managers, officers, trustees, employees, partners, agents, advisors and other representatives of such Person and such Person’s Affiliates.
“Release” means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of any Hazardous Material into the indoor or outdoor environment.
“Relevant Governmental Body” means the Federal Reserve Board or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Federal Reserve Board or the Federal Reserve Bank of New York, or any successor thereto.
“Replaced Revolving Facility” has the meaning assigned to such term in Section 9.02(c)(ii).
“Replaced Term Loans” has the meaning assigned to such term in Section 9.02(c)(i).
“Replacement Revolving Facility” has the meaning assigned to such term in Section 9.02(c)(ii).
“Replacement Term Loans” has the meaning assigned to such term in Section 9.02(c)(i).
“Representative” has the meaning assigned to such term in Section 9.13.
“Repricing Transaction” means each of (a) the refinancing of all or a portion of the Tranche B-2 Term Loans or the 2021 Incremental Term Loans with the proceeds of any secured term loans (including any Replacement Term Loans) incurred by any Loan Party or any of their respective Subsidiaries having an Effective Yield (as determined on the date of initial incurrence thereof) that is less than the Effective Yield (as determined on such date) applicable to the Tranche B-2 Term Loans or 2021 Incremental Term
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Loans so refinanced and (b) any amendment, waiver or other modification of or to this Agreement that has the effect of reducing the Effective Yield applicable to the Tranche B-2 Term Loans or the 2021 Incremental Term Loans; provided that the primary purpose of such refinancing or amendment, waiver or other modification was to reduce the Effective Yield applicable to the Tranche B-2 Term Loans or the 2021 Incremental Term Loans; and provided, further, that in no event shall any such refinancing or amendment, waiver or other modification in connection with a Change of Control, Public Offering or Transformative Acquisition constitute a Repricing Transaction. Any determination by the Administrative Agent of the Effective Yield for purposes of the definition shall be conclusive and binding on all Lenders, and the Administrative Agent shall have no liability to any Person with respect to such determination absent bad faith, gross negligence or willful misconduct of the Administrative Agent.
“Required Excess Cash Flow Percentage” means, as of any date of determination, (a) if the First Lien Leverage Ratio is greater than 2.15:1.00, 50.0%, (b) if the First Lien Leverage Ratio is less than or equal to 2.15:1.00 and greater than 1.65:1.00, 25.0%, and (c) if the First Lien Leverage Ratio is less than or equal to 1.65:1.00, 0%; it being understood and agreed that, for purposes of this definition as it applies to the determination of the amount of Excess Cash Flow that is required to be applied to prepay the Term Loans under Section 2.11(b)(i) for any Excess Cash Flow Period, the First Lien Leverage Ratio shall be calculated as of the scheduled date of, and giving pro forma effect to, such prepayment.
“Required Lenders” means, at any time, Lenders having Loans and unused Commitments representing more than 50.0% of the sum of the total Loans and such unused Commitments at such time. The Loans and unused Commitments of any Defaulting Lender shall be disregarding in determining Required Lenders at any time.
“Required Prepayment Percentage” means, as of any date of determination, (a) if the First Lien Leverage Ratio is greater than 2.15:1.00, 100.0%, (b) if the First Lien Leverage Ratio is less than or equal to 2.15:1.00 and greater than 1.65:1.00, 50.0%, and (c) if the First Lien Leverage Ratio is less than or equal to 1.65:1.00, 0%; it being understood and agreed that, for purposes of this definition as it applies to the determination of the amount of Net Proceeds in respect of any Prepayment Asset Sale or Net Insurance/Condemnation Proceeds that is required to be applied to prepay the Term Loans under Section 2.11(b)(ii) at any time, the First Lien Leverage Ratio shall be calculated as of the scheduled date of, and giving pro forma effect to, such prepayment.
“Required Revolving Lenders” means, at any time, Lenders having Revolving Credit Exposure representing more than 50.0% of the sum of the total Revolving Credit Exposure at such time. The Revolving Credit Exposure of any Defaulting Lender shall be disregarding in determining Required Revolving Lenders at any time.
“Requirements of Law” means, with respect to any Person, collectively, the common law and all federal, state, local, foreign, national, multinational or international laws, statutes, codes, treaties, standards, rules and regulations, guidelines, ordinances, orders, judgments, writs, injunctions, decrees (including administrative or judicial precedents or authorities) and the interpretation or administration thereof by, and other determinations, directives, requirements or requests of any Governmental Authority, in each case whether or not having the force of law and that are applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
“Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
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“Responsible Officer” of any Person means the chief executive officer, the president, the chief financial officer, the treasurer, any assistant treasurer, any executive vice president, any senior vice president, any vice president or the chief operating officer of such Person and any other individual or similar official thereof responsible for the administration of the obligations of such Person in respect of this Agreement, and, as to any document delivered on the Closing Date, shall include any secretary or assistant secretary or any other individual or similar official thereof with substantially equivalent responsibilities of a Loan Party and, solely for purposes of notices given pursuant to Article 2, any other officer of the applicable Loan Party so designated by any of the foregoing officers in a notice to the Administrative Agent. Any document delivered hereunder that is signed by a Responsible Officer of any Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership or other action on the part of such Loan Party, and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.
“Responsible Officer Certification” means, with respect to the financial statements for which such certification is required, the certification of a Responsible Officer of the Borrower that such financial statements fairly present, in all material respects, in accordance with GAAP, the consolidated financial condition of the Borrower and its Subsidiaries as at the dates indicated and its consolidated income and cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments and the absence of footnotes.
“Restricted Debt” means (a) any unsecured Indebtedness, (b) any Junior Lien Indebtedness or (c) any Junior Indebtedness.
“Restricted Debt Payment” has the meaning set forth in Section 6.04(b).
“Restricted Foreign Subsidiary Amount” has the meaning set forth in Section 2.11(b)(v)(A).
“Restricted Investment” means any Investment other than a Permitted Investment.
“Restricted Joint Venture Amount” has the meaning set forth in Section 2.11(b)(v)(B).
“Restricted Payment” means (a) any dividend or other distribution on account of any shares of any class of the Capital Stock of the Borrower or any Restricted Subsidiary, except a dividend payable solely in shares of Qualified Capital Stock to the holders of such class, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value of any shares of any class of the Capital Stock of the Borrower or any Restricted Subsidiary, (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of the Capital Stock of the Borrower or any Restricted Subsidiary now or hereafter outstanding and (d) any Restricted Investment.
“Restricted Subsidiary” means, as to any Person, any direct or indirect Subsidiary of such Person other than any Unrestricted Subsidiary. Unless otherwise specified, “Restricted Subsidiary” shall mean any Restricted Subsidiary of the Borrower.
“Restricted Tax Amount” has the meaning set forth in Section 2.11(b)(v)(C).
“Revolving Borrowing” means any Borrowing of Revolving Loans.
“Revolving Credit Commitment” means any Initial Revolving Credit Commitment and any Additional Revolving Credit Commitment.
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“Revolving Credit Exposure” means, with respect to any Lender at any time, the aggregate Outstanding Amount at such time of such Lender’s Initial Revolving Credit Exposure and Additional Revolving Credit Exposure.
“Revolving Facility” means the Initial Revolving Facility, any Incremental Revolving Facility, any facility governing Extended Revolving Credit Commitments or Extended Revolving Loans and any Replacement Revolving Facility hereunder.
“Revolving Lead Arrangers” means, collectively, Barclays, RBC Capital Markets, BMO Capital Markets Corp., KeyBank National Association, JPMorgan Chase Bank, N.A., BofA Securities, Inc. and Morgan Stanley Senior Funding, Inc., in their respective capacities as joint lead arrangers and joint bookrunners in respect of the Revolving Facility.
“Revolving Lender” means any Initial Revolving Lender and any Additional Revolving Lender.
“Revolving Loans” means any Initial Revolving Loans and any Additional Revolving Loans.
“S&P” means Standard & Poor’s Financial Services LLC, a Subsidiary of S&P Global Inc., or any successor by merger or consolidation to its business.
“Sale and Lease-Back Transaction” has the meaning assigned to such term in Section 6.08.
“Scheduled Consideration” has the meaning assigned to such term in the definition of “Excess Cash Flow”.
“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of its functions.
“Second Amendment” means that certain Second Amendment to this Amendment, dated as of February 18, 2021, among the Borrower, the other Loan Parties party thereto, the Lenders party thereto, and the Administrative Agent.
“Second Amendment Effective Date” means the “Second Amendment Effective Date” under and as defined in the Second Amendment.
“Secured Hedging Obligations” means all Hedging Obligations (other than any Excluded Swap Obligations) under each Hedge Agreement that (a) is in effect on the Closing Date between any Loan Party and a counterparty that is a Lender or an Agent or any Affiliate of a Lender or an Agent as of the Closing Date or (b) is entered into after the Closing Date between any Loan Party and any counterparty that is (or is an Affiliate of) any Lender or any Agent at the time such Hedge Agreement is entered into, for which such Loan Party agrees to provide security and in each case that has been designated to the Administrative Agent in writing by the Borrower as being a Secured Hedging Obligation for purposes of the Loan Documents, it being understood that each counterparty thereto shall be deemed (A) to appoint the Administrative Agent as its agent under the applicable Loan Documents and (B) to agree to be bound by the provisions of Article 8, Sections 9.03 and Section 9.10 as if it were a Lender.
“Secured Leverage Ratio” means the ratio, as of any date of determination, of (a) Consolidated Secured Debt as of the last day of the Test Period then most recently ended to (b) Consolidated Adjusted EBITDA for the Test Period then most recently ended, in each case, of the Borrower and the Restricted Subsidiaries on a consolidated basis.
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“Secured Obligations” means all Obligations, together with (a) all Banking Services Obligations and (b) all Secured Hedging Obligations.
“Secured Parties” means (i) the Lenders and the Issuing Banks, (ii) the Administrative Agent, (iii) each counterparty to a Hedge Agreement with a Loan Party the obligations under which constitute Secured Hedging Obligations, (iv) each provider of Banking Services to any Loan Party the obligations under which constitute Banking Services Obligations, (v) the Lead Arrangers and (vi) the beneficiaries of each indemnification obligation undertaken by any Loan Party under any Loan Document.
“Securities” means any stock, shares, units, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing; provided that “Securities” shall not include any earn-out agreement or obligation or any employee bonus or other incentive compensation plan or agreement.
“Securities Act” means the Securities Act of 1933 and the rules and regulations of the SEC promulgated thereunder.
“Security Agreement” means the Pledge and Security Agreement, substantially in the form of Exhibit H, among the Loan Parties and the Administrative Agent for the benefit of the Secured Parties.
“Seed Capital Investment” means any “seed” or “early stage” investment in, or segregating of funds in, an Investment Vehicle in which the Borrower or one or more of the Restricted Subsidiaries has invested or is segregating capital for the purpose of establishing or maintaining an investment record in order to offer one or more products or investment strategies to third-party investors.
“Sellers” has the meaning assigned to such term in the recitals to this Agreement.
“Similar Business” means any Person the majority of the revenues of which are derived from a business that would be permitted by Section 6.10 if the references to “Restricted Subsidiaries” in Section 6.10 were read to refer to such Person.
“SOFR” means, with respect to any U.S. Government Securities Business Day, a rate per annum equal to the secured overnight financing rate for such U.S. Government Securities Business Day published by the SOFR Administrator on the SOFR Administrator’s Website on the immediately succeeding U.S. Government Securities Business Day.
“SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).
“SOFR Administrator’s Website” means the website of the Federal Reserve Bank of New York, currently at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR Administrator from time to time.
“Solvent” means that (a) the fair value of the assets of the Borrower and its Subsidiaries, on a consolidated basis, exceeds their debts and liabilities, subordinated, contingent or otherwise, on a consolidated basis, (b) the present fair saleable value of the property of the Borrower and its Subsidiaries,
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on a consolidated basis, is greater than the amount that will be required to pay the probable liability, on a consolidated basis, of their debts and other liabilities, subordinated, contingent or otherwise, on a consolidated basis, as such debts and other liabilities become absolute and matured in the ordinary course, (c) the Borrower and its Subsidiaries, on a consolidated basis, are able to pay their debts and liabilities, subordinated, contingent or otherwise, on a consolidated basis, as such liabilities become absolute and matured in the ordinary course and (d) the Borrower and its Subsidiaries, on a consolidated basis, are not engaged in, and are not about to engage in, business for which they have unreasonably small capital. For purposes hereof, (i) the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standards No. 5) and (ii) it is assumed that the indebtedness and other obligations incurred on the Closing Date will come due on their respective maturities.
“SPC” has the meaning assigned to such term in Section 9.05(e).
“Specified Acquisition Agreement Representations” means the representations made by or with respect to the Targets and their respective Subsidiaries in the Acquisition Agreement as are material to the interests of the Lenders (but only to the extent that the Borrower or its Affiliates have the right (taking into account any cure provisions) not to consummate the Acquisition, or to terminate their obligations (or otherwise do not have an obligation to close), under the Acquisition Agreement, as a result of a failure of such representations in the Acquisition Agreement to be true and correct).
“Specified Representations” means the representations and warranties set forth in Section 3.01 (relating to organizational existence and organizational power and authority of the Loan Parties to enter into the Loan Documents), Section 3.02, Section 3.03(b)(i), Section 3.08, Section 3.12, Section 3.14, Section 3.16, Section 3.18 and Sections 3.19(a)(ii), (b) (as it relates to the USA PATRIOT Act) and (c)(ii).
“Sponsors” means Crestview Partners II, L.P., Reverence Capital Partners and their respective Affiliates.
“Stated Amount” means, with respect to any Letter of Credit, at any time, the maximum amount available to be drawn thereunder, in each case determined (x) as if any future automatic increases in the maximum available amount provided for in any such Letter of Credit had in fact occurred at such time and (y) without regard to whether any conditions to drawing could then be met but after giving effect to all previous drawings made thereunder.
“Subject Loans” has the meaning assigned to such term in Section 2.11(b)(ii).
“Subject Proceeds” has the meaning assigned to such term in Section 2.11(b)(ii).
“Subject Transaction” means, with respect to any Test Period, (a) the Transactions, (b) any Permitted Acquisition or any other acquisition or similar Investment, whether by purchase, merger, amalgamation or otherwise, of all or substantially all of the assets of, or any business line, unit or division of, any Person or of a majority of the outstanding Capital Stock of any Person (and, in any event, including any Investment in (x) any Restricted Subsidiary the effect of which is to increase the Borrower’s or any Restricted Subsidiary’s respective equity ownership in such Restricted Subsidiary or (y) any joint venture for the purpose of increasing the Borrower’s or any Restricted Subsidiary’s respective ownership interest in such joint venture), in each case that is permitted by this Agreement, (c) any Disposition of all or substantially all of the assets or Capital Stock of any Subsidiary (or any business unit, line of business or
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division of the Borrower or a Restricted Subsidiary) not prohibited by this Agreement, (d) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary or an Unrestricted Subsidiary as a Restricted Subsidiary in accordance with Section 5.09 hereof or (e) any incurrence or repayment of Indebtedness or other event, that by the terms of the Loan Documents requires pro forma compliance with a test or covenant hereunder or requires such test or covenant to be calculated on a Pro Forma Basis.
“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity (whether or not existing as at the date hereof) of which more than 50% of the total voting power of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person or a combination thereof; provided that in determining the percentage of ownership interests of any Person controlled by another Person, no ownership interests in the nature of a “qualifying share” of the former Person shall be deemed to be outstanding; provided, further, that no Investment Vehicle shall be deemed hereunder to be a Subsidiary of the Borrower or any Subsidiary thereof. Unless otherwise specified, “Subsidiary” shall mean any Subsidiary of the Borrower.
“Successor Borrower” has the meaning assigned to such term in Section 6.07(a).
“Swap Obligations” means, with respect to any Loan Party, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of Section 1a(47) of the Commodity Exchange Act.
“Swingline Borrowing” means any Borrowing of Swingline Loans.
“Swingline Exposure” means, with respect to any Swingline Lender at any time, the aggregate Outstanding Amount at such time of all Swingline Loans of such Lender. The Swingline Exposure of any Revolving Lender at any time shall be its Applicable Percentage of the aggregate Swingline Exposure at such time.
“Swingline Lender” means Barclays, in its capacity as lender of Swingline Loans hereunder, and any other Revolving Lender approved by the Borrower and the Administrative Agent that agrees to act as the “Swingline Lender” hereunder; provided that Swingline Loans made by no more than one Swingline Lender may be outstanding at any time.
“Swingline Loan” means a Loan made pursuant to Section 2.04.
“Swingline Loan Commitment” means the obligation of a Swingline Lender to make Swingline Loans and of each Lender having a Revolving Credit Commitment to participate in Swingline Loans pursuant to Section 2.04(c).
“Swingline Sublimit” means $20,000,000.
“Syndication Agent” means Barclays, in its capacity as syndication agent.
“Target Refinancing” has the meaning assigned to such term in Section 4.01(l).
“Targets” has the meaning assigned to such term in the recitals to this Agreement.
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“Tax Group” has the meaning assigned to such term in Section 6.04(a)(i)(B).
“Taxes” means any and all present and future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Term Borrowing” means any Borrowing of Term Loans.
“Term Commitment” means any Initial Term Loan Commitment and any Additional Term Loan Commitment.
“Term Facility” means the Term Loans provided to or for the benefit of the Borrower pursuant to the terms of this Agreement.
“Term Lead Arrangers” means, collectively, Barclays, RBC Capital Markets and BMO Capital Markets Corp., in their respective capacities as joint lead arrangers and joint bookrunners in respect of the Term Facility.
“Term Lender” means any Initial Term Lender and any Additional Term Lender.
“Term Loan” means the Initial Term Loans and, if applicable, any Additional Term Loans.
“Term Loan Installment Date” has the meaning assigned to such term in Section 2.10(a).
“Term Loan Maturity Date” means the date that is seven years after the Closing Date.
“Term SOFR” means,
(a) for any calculation with respect to a SOFR Loan, Term SOFR Reference Rate for a tenor comparable to the applicable Interest Period on the day (such day, the “Periodic Term SOFR Determination Day”) that is two (2) U.S. Government Securities Business Days prior to the first day of such Interest Period, as such rate is published by Term SOFR Administrator; provided, however, that if as of 5:00 p.m. (New York City time) on any Periodic Term SOFR Determination Day Term SOFR Reference Rate for the applicable tenor has not been published by Term SOFR Administrator and a Benchmark Replacement Date with respect to Term SOFR Reference Rate has not occurred, then Term SOFR will be Term SOFR Reference Rate for such tenor as published by Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate for such tenor was published by Term SOFR Administrator so long as such first preceding U.S. Government Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such Periodic Term SOFR Determination Day, and
(b) for any calculation with respect to an ABR Loan on any day, Term SOFR Reference Rate for a tenor of one month on the day (such day, the “ABR Term SOFR Determination Day”) that is two (2) U.S. Government Securities Business Days prior to such day, as such rate is published by Term SOFR Administrator; provided, however, that if as of 5:00 p.m. (New York City time) on any ABR Term SOFR Determination Day Term SOFR Reference Rate for the applicable tenor has not been published by Term SOFR Administrator and a Benchmark Replacement Date with respect to Term SOFR Reference Rate has not occurred, then Term SOFR will be Term SOFR Reference Rate for such tenor as published by Term SOFR Administrator on the first preceding U.S.
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Government Securities Business Day for which such Term SOFR Reference Rate for such tenor was published by Term SOFR Administrator so long as such first preceding U.S. Government Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such ABR SOFR Determination Day;
provided, further, that if Term SOFR determined as provided above (including pursuant to the proviso under clause (a) or clause (b) above) shall ever be less than 0.00%, then Term SOFR shall be deemed to be 0.00%, provided, further that, solely with respect to the 2021 Incremental Term Loans, if Term SOFR determined as provided above (including pursuant to the proviso under clause (a) or clause (b) above) shall ever be less than 0.50%, then Term SOFR shall be deemed to be 0.50%.
“Term SOFR Adjustment” means a percentage equal to 0.10% per annum.
“Term SOFR Administrator” means the CME Group Benchmark Administration Limited (CBA) (or a successor administrator of Term SOFR Reference Rate selected by the Administrative Agent in its reasonable discretion).
“Term SOFR Borrowing” means, as to any Borrowing, the Term SOFR Loans comprising such Borrowing.
“Term SOFR Loan” means a Loan that bears interest at a rate based on Adjusted Term SOFR, other than pursuant to clause (c) of the definition of “Alternate Base Rate”.
“Term SOFR Reference Rate” means the forward-looking term rate based on SOFR.
“Termination Date” has the meaning assigned to such term in the lead-in to Article 5.
“Test Period” means, as of any date, (a) for purposes of determining actual compliance with Section 6.14(a), the period of four consecutive Fiscal Quarters then most recently ended for which financial statements under Section 5.01(a) or Section 5.01(b), as applicable, have been delivered (or are required to have been delivered) and (b) for any other purpose, the period of four consecutive Fiscal Quarters then most recently ended for which financial statements of the type described in Section 5.01(a) or Section 5.01(b), as applicable, have been delivered (or are required to have been delivered) or, if earlier, are internally available; it being understood and agreed that prior to the first delivery of financial statements of Section 5.01(a), “Test Period” means the most recent period of four consecutive Fiscal Quarters in respect of which financial statements for the Borrower are available.
“Third Amendment” means, that certain Third Amendment to Credit Agreement dated as of December 31, 2021 among the Borrower, the Administrative Agent and the Lenders party thereto.
“Third Amendment Effective Date” means, the date on which the conditions precedent set forth in Section 3 of the Third Amendment were satisfied or waived in accordance therewith, which date occurred on December 31, 2021
“Threshold Amount” means, as of any date of termination, an amount equal to $50,000,000.
“Total Leverage Ratio” means the ratio, as of any date of determination, of (a) Consolidated Total Debt outstanding as of the last day of the Test Period then most recently ended to (b) Consolidated Adjusted
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EBITDA for the Test Period then most recently ended, in each case of the Borrower and the Restricted Subsidiaries on a consolidated basis.
“Total Revolving Credit Commitment” means, at any time, the aggregate amount of the Revolving Credit Commitments, as in effect at such time.
“Trademark” means the following: (a) all trademarks, service marks, common law marks, trade names, trade dress, and logos, slogans and other indicia of origin under the Requirements of Law of any jurisdiction in the world, and the registrations and applications for registration thereof and the goodwill of the business symbolized by the foregoing; (b) all renewals of the foregoing; and (c) all rights corresponding to any of the foregoing.
“Tranche B-1 Term Commitments” means the “Tranche B-1 Term Commitments” as defined in the First Amendment.
“Tranche B-1 Term Loans” means the “Tranche B-1 Term Loans” as defined in the First Amendment.
“Tranche B-1 Term Loan Lender” means any Lender with a Tranche B-1 Term Loan Commitment or an outstanding Tranche B-1 Term Loan.
“Tranche B-2 Term Commitments” means the “Tranche B-2 Term Commitments” as defined in the Second Amendment.
“Tranche B-2 Term Loans” means the “Tranche B-2 Term Loans” as defined in the Second Amendment.
“Tranche B-2 Term Loan Lender” means any Lender with a Tranche B-2 Term Loan Commitment or an outstanding Tranche B-2 Term Loan.
“Transaction Costs” means fees, commissions, premiums, expenses and other transaction costs (including original issue discount or upfront fees) payable or otherwise borne by any Parent Company, the Borrower or its Subsidiaries in connection with the Transactions and the transactions contemplated thereby.
“Transactions” means, collectively, (a) the execution, delivery and performance by the Loan Parties of the Loan Documents to which they are a party and the Borrowing of Loans hereunder on the Closing Date, (b) the Victory Refinancing, (c) the Target Refinancing, (d) the Acquisition, (e) the escrow arrangement contemplated by the Escrow Agreement, and (f) the payment of the Transaction Costs.
“Transformative Acquisition” means any acquisition by the Borrower or any Restricted Subsidiary whether by purchase, merger or otherwise, of all or substantially all of the assets of, or any business line, unit or division of, any Person or of a majority of the outstanding Capital Stock of any Person that (i) is not permitted by the terms of the Loan Documents immediately prior to the consummation of such acquisition or (ii) if permitted by the terms of the Loan Documents immediately prior to the consummation of such acquisition, the terms of the Loan Documents would not provide the Borrower and the Restricted Subsidiaries with adequate flexibility for the continuation or expansion of their combined operations following such consummation, as determined by the Borrower acting in good faith.
“Treasury Capital Stock” has the meaning assigned to such term in Section 6.04(a)(viii).
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“Treasury Regulations” means the U.S. federal income tax regulations promulgated under the Code.
“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the LIBO RateAdjusted Term SOFR or the Alternate Base Rate.
“UCC” means the Uniform Commercial Code as in effect from time to time in the State of New York or any other state the laws of which are required to be applied in connection with the creation or perfection of security interests.
“Unrestricted Cash Amount” means, as to any Person on any date of determination, the amount of (a) unrestricted Cash and Cash Equivalents of such Person whether or not held in a Deposit Account pledged to secure the Secured Obligations (but excluding Cash and Cash Equivalents of any Subsidiary the income of which is excluded under clause (a)(i) of the definition of “Consolidated Net Income”) and (b) Cash and Cash Equivalents of such Person that are restricted as a result of the Credit Facilities and any other Indebtedness permitted hereunder to be secured by a Lien on the Collateral along with the Credit Facilities.
“Unrestricted Subsidiary” means any Subsidiary that is listed on Schedule 5.09 or designated by the Borrower as an Unrestricted Subsidiary after the Closing Date pursuant to Section 5.09 and any Subsidiary of any Unrestricted Subsidiary.
“U.S.” or “United States” means the United States of America.
“U.S. Government Securities Business Day” means any day except for (i) a Saturday, (ii) a Sunday or (iii) a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.
“USA PATRIOT Act” means The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L. No. 107-56 (signed into law October 26, 2001)).
“USPTO” means the United States Patent and Trademark Office.
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“U.S. Tax Compliance Certificate” has the meaning assigned to such term in Section 2.17(f)(ii)(B)(3).
“Victory Refinancing” has the meaning assigned to such term in Section 4.01(j).
“Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (a) the sum of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required scheduled payments of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (b) the then outstanding principal amount of such Indebtedness; provided that the effect of any prepayment made in respect of such Indebtedness shall be disregarded in making such calculation.
“Wholly-Owned Restricted Subsidiary” of any Person means a Restricted Subsidiary of such Person that is a Wholly-Owned Subsidiary of such Person.
“Wholly-Owned Subsidiary” of any Person means a Subsidiary of such Person, 100.0% of the outstanding Capital Stock of which (other than directors’ qualifying shares or shares required by Requirements of Law to be owned by a resident of the relevant jurisdiction) shall be owned by such Person or by one or more Wholly-Owned Subsidiaries of such Person.
“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
“Write-Down and Conversion Powers” means, (a) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule, and (b) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers.
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If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested LIBO RateTerm SOFR Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. The Administrative Agent shall advise each Lender of the details and amount of any Loan to be made as part of the relevant requested Borrowing (x) in the case of any ABR Borrowing, on the same Business Day of receipt of a Borrowing Request in accordance with this Section 2.03 or (y) in the case of any LIBO RateTerm SOFR Borrowing, no later than one Business Day following receipt of a Borrowing Request in accordance with this Section 2.03.
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If any such Interest Election Request requests a LIBO RateTerm SOFR Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.
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(A) on the last Business Day of each March, June, September and December (commencing with the last Business Day of the first Fiscal Quarter ending after the Closing Date) prior to the Term Loan Maturity Date (each such date being referred to as a “Term Loan Installment Date”) in a principal amount equal to 0.25% of the original principal amount of such Tranche B-2 Term Loans on a pro rata basis to the Initial Term Lenders (as such payments may be (x) reduced from time to time as a result of the application of prepayments in accordance with Section 2.11 and/or repurchases in accordance with Section 9.05(g) or (y) increased as a result of any increase in the amount of the Tranche B-2 Term Loans pursuant to Section 2.22(a)); and
(B) on the Term Loan Maturity Date, in an amount equal to the remainder of the principal amount of the Tranche B-2 Term Loans outstanding on such date, together in each case with accrued and unpaid interest on the principal amount to be paid to but excluding the date of such payment.
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then the Administrative Agent shall promptly give notice thereof to the Borrower and the Lenders by telephone or facsimile as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, which the Administrative Agent agrees promptly to do, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a LIBO RateTerm SOFR Borrowing shall be ineffective and such Borrowing shall be converted to an ABR Borrowing on the last day of the Interest Period applicable thereto, and (ii) if any Borrowing Request requests a LIBO RateTerm SOFR Borrowing, such Borrowing shall be made as an ABR Borrowing.
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and the result of any of the foregoing is to increase the cost to the relevant Lender of making or maintaining any LIBO RateTerm SOFR Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or Issuing Bank hereunder (whether of principal, interest or otherwise) in respect of any LIBO RateTerm SOFR Loan or Letter of Credit in an amount deemed by such Lender or Issuing Bank to be material, then, within thirty days after the Borrower’s receipt of the certificate contemplated by paragraph (c) of this Section 2.15, the Borrower will pay to such Lender or Issuing Bank, as applicable, such additional amount or amounts as will compensate such Lender or Issuing Bank, as applicable, for such additional costs incurred or reduction suffered; provided that the Borrower shall not be liable for such compensation (A) unless such Lender or Issuing Bank is generally charging such amounts to similarly situated borrowers under comparable syndicated credit facilities or (B) if (x) the relevant Change in Law occurs on a date prior to the date such Lender becomes a party hereto or (y) such Lender invokes Section 2.20.
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Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall promptly update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so. For purposes of this Section 2.17(f), the term “Lender” shall be deemed to include any Issuing Bank.
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On the Closing Date, on the date of any Credit Extension (if and to the extent required pursuant to the terms hereof) and on any other date required pursuant to the terms hereof, the Borrower hereby represents and warrants to the Lenders that:
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The representations and warranties set forth in Section 3.19 above made by or on behalf of any Foreign Subsidiary are subject to and limited by any Requirement of Law applicable to such Foreign Subsidiary; it being understood and agreed that to the extent that any Foreign Subsidiary is unable to make any representation or warranty set forth in Section 3.19 as a result of the application of this sentence, such Foreign Subsidiary shall be deemed to have represented and warranted that it is in compliance in all material respects with any equivalent Requirement of Law relating to anti-terrorism, anti-corruption or anti-money laundering that is applicable to such Foreign Subsidiary in its relevant local jurisdiction of organization.
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For purposes of determining whether the conditions specified in this Section 4.01 have been satisfied as of the Closing Date, by funding the Initial Term Loans hereunder, the Administrative Agent and each Lender shall be deemed to have consented to, approved or accepted, or to be satisfied with, each document or other matter required hereunder to be consented to or approved by or acceptable or satisfactory to the Administrative Agent or such Lender, as the case may be.
Notwithstanding the foregoing or anything to the contrary in this Agreement or any other Loan Document, to the extent any security interest in the intended Collateral (other than any Collateral the security interest in which may be perfected solely by the filing of a UCC financing statement or solely by the delivery of stock certificates of the Targets, the Borrower or any of their material Domestic Subsidiaries; provided that any such stock certificates of Subsidiaries of the Targets will be required to be delivered on the Closing Date only to the extent received from the Sellers, so long as the Borrower has used commercially reasonable efforts to cause the Sellers to deliver them to the Borrower on the Closing Date) is not perfected on the Closing Date after the Borrower’s use of commercially reasonable efforts to do so, the perfection of such security interest(s) will not constitute a condition precedent to the availability of the Initial Term Loans on the Closing Date but such security interest(s) will be required to be perfected within 60 days after the Closing Date.
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Each Credit Extension after the Closing Date shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (b) and (c) of this Section 4.02; provided, however, that the conditions set forth in this Section 4.02 shall not apply to any Credit Extension under any Incremental Facility Amendment, Refinancing Amendment or Extension Amendment unless in each case the lenders in respect thereof have required satisfaction of the same in the applicable Incremental Facility Amendment, Refinancing Amendment or Extension Amendment, as applicable.
From the Closing Date until the date on which all Revolving Credit Commitments have expired or terminated and the principal of and interest on each Loan and all fees, expenses and other amounts payable under any Loan Document (other than contingent indemnification and expense reimbursement obligations for which no claim or demand has been made) have been paid in full in immediately available funds and all Letters of Credit have expired or have been terminated (or have been collateralized or back-stopped by a letter of credit in an amount equal to 103.0% of the Stated Amount thereof or otherwise in a manner reasonably satisfactory to the relevant Issuing Bank) and all LC Disbursements have been reimbursed (such date, the “Termination Date”), the Borrower hereby covenants and agrees with the Lenders that:
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Documents required to be delivered pursuant to this Section 5.01 may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower (or a representative thereof) posts such documents (or provides a link thereto) at the website address listed on Schedule 9.01; (ii) on which such documents are delivered by the Borrower to the Administrative Agent for posting on behalf of the Borrower on IntraLinks/SyndTrak or another relevant secure website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); (iii) on which such documents are faxed to the Administrative Agent (or electronically mailed to an address provided by the Administrative Agent); or (iv) on which such items have been made available on the SEC website or the website of the relevant analogous
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governmental or private regulatory authority or securities exchange (including, for the avoidance of doubt, by way of “EDGAR”).
The Borrower and each Lender acknowledge that certain of the Lenders may be Public Lenders and, if documents or notices required to be delivered pursuant to this Section 5.01 or otherwise are being distributed through IntraLinks/IntraAgency, SyndTrak Online or another relevant secure website or other secure electronic information platform (the “Platform”), any document or notice that the Borrower has indicated contains Non-Public Information shall not be posted on that portion of the Platform designated for such Public Lenders. The Borrower agrees, upon the reasonable written request of the Administrative Agent, to clearly designate all information provided to the Administrative Agent by or on behalf of the Borrower which is suitable to make available to Public Lenders. If the Borrower has not indicated whether a document or notice delivered pursuant to this Section 5.01 contains Non-Public Information, the Administrative Agent shall post such document or notice solely on that portion of the Platform designated for Lenders who wish to receive material Non-Public Information with respect to the Borrower and its Subsidiaries and their securities; provided that any financial statements delivered pursuant to Section 5.01(a) and 5.01(b) and any Compliance Certificate shall be deemed suitable to make available to Public Lenders unless, with respect to any such document, the Borrower notifies the Administrative Agent that such document contains Non-Public Information; it being understood and agreed that from and after receipt of such notice, unless otherwise specified therein, such notice shall apply to all documents of the same type for all future periods.
Notwithstanding the foregoing, the obligations in this Section 5.01 may instead be satisfied with respect to any financial statements, budgets and Responsible Officer Certifications of the Borrower by furnishing (A) the applicable financial statements of any Parent Company or (B) Form 10-K or 10-Q, as applicable, of the Borrower or any Parent Company filed with the SEC or any securities exchange, in each case, within the time periods specified in such paragraphs and without any requirement to provide notice of such filing to the Administrative Agent or any Lender; provided that, with respect to each of clauses (A) and (B), (i) to the extent (1) such financial statements relate to any Parent Company and (2) either (x) such Parent Company (or any other Parent Company that is a Subsidiary of such Parent Company) has any material third party Indebtedness and/or material operations (as determined by the Borrower in good faith and other than any operations that are attributable solely to such Parent Company’s direct or indirect ownership of the Borrower and its Subsidiaries) or (y) there are material differences between the financial statements of such Parent Company and its consolidated Subsidiaries, on the one hand, and the Borrower and its consolidated Subsidiaries, on the other hand, such financial statements or Form 10-K or 10-Q, as applicable, shall be accompanied by unaudited consolidating information that summarizes in reasonable detail the differences between the information relating to such Parent Company and its consolidated Subsidiaries, on the one hand, and the information relating to the Borrower and its consolidated Subsidiaries on a stand-alone basis, on the other hand, which consolidating information shall be certified by a Responsible Officer of the Borrower as having been fairly presented in all material respects and (ii) to the extent such financial statements are in lieu of financial statements required to be provided under Section 5.01(b), such financial statements shall be accompanied by a report and opinion of an independent registered public accounting firm of nationally recognized standing, which report and opinion shall satisfy the applicable requirements set forth in Section 5.01(b) as if the references to the “Borrower” therein were references to such Parent Company.
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From the Closing Date and until the Termination Date, the Borrower covenants and agrees with the Lenders that:
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To the extent that any Collateral is Disposed of as permitted by this Section 6.07 to any Person other than a Loan Party, such Collateral shall be sold free and clear of the Liens created by the Loan Documents, which Liens shall be automatically released upon the consummation of such Disposition; it being understood and agreed that the Administrative Agent shall be authorized to take, and shall take, any actions it deems appropriate in order to effect the foregoing.
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then, (1) and in every such event (other than any breach or default under Section 6.14(a) as described in clause (c) of this Section 7.01 that does not then constitute an Event of Default with respect to the Term Loans in accordance with clause (c) of this Section 7.01 or an event with respect to the Borrower described in clause (f) or (g) of this Section 7.01), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the written request of the Required Lenders shall, by notice to the Borrower, take any of the following actions, at the same or different times: (i) terminate the Revolving Credit Commitments, and thereupon such Revolving Credit Commitments shall terminate immediately, (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower and (iii) require that the Borrower deposit in the LC Collateral Account an additional amount in Cash as reasonably requested by the Issuing Banks (not to exceed 103.0% of the relevant Stated Amount) of the then outstanding LC Exposure (minus the amount then on deposit in the LC Collateral Account); provided that upon the occurrence of an event with respect to the Borrower described in clauses (f) or (g) of this Section 7.01, any such Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower, and the obligation of the Borrower to Cash collateralize the outstanding Letters of Credit as aforesaid shall automatically become effective, in each case without further action of the Administrative Agent or any Lender and (2) upon the occurrence and during the continuance of an Event of Default pursuant to clause (c) of this Section 7.01 resulting from a breach or default under Section 6.14(a), at the written request of the Required Revolving Lenders the
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Administrative Agent shall, by notice to the Borrower, take any of the following actions, at the same or different times: (x) terminate the Revolving Credit Commitments, and thereupon such Revolving Credit Commitment shall terminate immediately, (y) declare the Revolving Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Revolving Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower to the Revolving Lenders accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower and (z) require that the Borrower deposit in the LC Collateral Account an additional amount in Cash as reasonably requested by the Issuing Banks (not to exceed 103.0% of the relevant Stated Amount) of the then outstanding LC Exposure (minus the amount then on deposit in the LC Collateral Account). Upon the occurrence and during the continuance of an Event of Default (other than an Event of Default resulting from a breach or default under Section 6.14(a) that does not then constitute an Event of Default with respect to the Term Loans in accordance with clause (c) of this Section 7.01), the Administrative Agent may, and at the request of the Required Lenders shall, exercise any rights and remedies provided to the Administrative Agent under the Loan Documents or at law or equity, including all remedies provided under the UCC. Upon the occurrence and during the continuance of an Event of Default pursuant to clause (c) of this Section 7.01 resulting from a breach or default under Section 6.14(a) that does not then constitute an Event of Default with respect to the Term Loans in accordance with clause (c) of this Section 7.01, at the written request of the Required Revolving Lenders the Administrative Agent shall exercise any rights and remedies provided to the Administrative Agent under the Loan Documents or at law or equity, including all remedies provided under the UCC (provided that any such exercise shall be solely for the benefit of the Revolving Lenders until such time as an Event of Default with respect to the Term Loans has occurred and is continuing).
Each of the Lenders and the Issuing Banks hereby irrevocably appoints Barclays (or any successor appointed pursuant hereto) to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf, including execution of the other Loan Documents, and to exercise such powers as are delegated to the Administrative Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the Issuing Banks (except as expressly set forth in this Article 8 with respect to consultation rights in connection with the appointment of a successor Administrative Agent), and neither the Borrower nor any other Loan Party shall have rights as a third-party beneficiary of any of such provisions.
Any Person serving as Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated, unless the context otherwise requires or unless such Person is in fact not a Lender or an Issuing Bank, include each Person serving as Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with any Loan Party or any Subsidiary of any Loan Party or other Affiliate thereof as if it were not the Administrative Agent hereunder. The Lenders acknowledge that, pursuant to such activities, the Administrative Agent or its Affiliates may receive information regarding any Loan Party or any of its Affiliates (including information that may be subject to confidentiality obligations in favor of such Loan Party or such Affiliate) and acknowledge that
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the Administrative Agent shall not be under any obligation to provide such information to them. The Lenders acknowledge that, pursuant to such activities, the Administrative Agent or its Affiliates may receive information regarding any Loan Party or any of its Affiliates (including information that may be subject to confidentiality obligations in favor of such Loan Party or such Affiliate) and acknowledge that the Administrative Agent shall not be under any obligation to provide such information to them.
The Administrative Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents, and its duties hereunder shall be administrative in nature. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or Event of Default exists, and the use of the term “agent” herein and in the other Loan Documents with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Requirements of Law; it being understood that such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary power, except discretionary rights and powers that are expressly contemplated by the Loan Documents and which the Administrative Agent is required to exercise as directed in writing by the Required Lenders or Required Revolving Lenders (or such other number or percentage of the Lenders as shall be necessary under the relevant circumstances as provided in Section 9.02); provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable Requirements of Law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law, and (c) except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders or Required Revolving Lenders (or such other number or percentage of the Lenders as is necessary, or as the Administrative Agent believes in good faith shall be necessary, under the relevant circumstances as provided in Section 9.02) or in the absence of its own gross negligence or willful misconduct, as determined by the final and non-appealable judgment of a court of competent jurisdiction, in connection with its duties expressly set forth herein. The Administrative Agent shall not be deemed to have knowledge of any Default or Event of Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or any Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or in connection with any Loan Document, (iii) the performance or observance of any covenant, agreement or other term or condition set forth in any Loan Document or the occurrence of any Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, (v) the creation, perfection or priority of any Lien on the Collateral or the existence, value or sufficiency of the Collateral, (vi) the satisfaction of any condition set forth in Article 4 or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent, (vii) any property, book or record of any Loan Party or any Affiliate thereof or (viii) the compliance or non-compliance by Affiliated Lenders with the terms hereof related to Affiliated Lenders.
If any Lender obtains knowledge of a Default or Event of Default, such Lender shall promptly notify the Administrative Agent and the other Lenders thereof in writing. Each Lender agrees that, except
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with the written consent of the Administrative Agent, it will not take any enforcement action hereunder or under any other Loan Document, accelerate the Obligations under any Loan Document, or exercise any right that it might otherwise have under applicable Requirements of Law or otherwise to credit bid at any foreclosure sale, UCC sale, any sale under Section 363 of the Bankruptcy Code or any other similar Disposition of Collateral. Notwithstanding the foregoing, a Lender may take action to preserve or enforce its rights against a Loan Party where a deadline or limitation period is applicable that would, absent such action, bar enforcement of the Obligations held by such Lender, including the filing of a proof of claim in a case under the Bankruptcy Code.
Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, the Borrower (on behalf of itself and the Restricted Subsidiaries), the Administrative Agent and each Secured Party agree that (i) no Secured Party shall have any right individually to realize upon any of the Collateral or to enforce the Loan Guaranty; it being understood and agreed that all powers, rights and remedies hereunder may be exercised solely by the Administrative Agent on behalf of the Secured Parties in accordance with the terms hereof, and all powers, rights and remedies under the other Loan Documents may be exercised solely by the Administrative Agent, and (ii) in the event of a foreclosure by the Administrative Agent on any of the Collateral pursuant to a public or private sale or in the event of any other Disposition (including pursuant to Section 363 of the Bankruptcy Code), (A) the Administrative Agent, as agent for and representative of the Secured Parties, shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such sale, to use and apply all or any portion of the Obligations as a credit on account of the purchase price for any Collateral payable by the Administrative Agent at such Disposition and (B) the Administrative Agent or any Lender may be the purchaser or licensor of all or any portion of such Collateral at any such Disposition.
No holder of any Secured Hedging Obligation or Banking Services Obligation in its respective capacity as such shall have any rights in connection with the management or release of any Collateral or of the obligations of any Loan Party under this Agreement.
Each of the Lenders hereby irrevocably authorizes (and by entering into a Hedge Agreement with respect to any Secured Hedging Obligation or by entering into documentation in connection with any Banking Services Obligation, each of the other Secured Parties hereby authorizes and shall be deemed to authorize) the Administrative Agent, on behalf of all Secured Parties to take any of the following actions upon the instruction of the Required Lenders:
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it being understood that no Lender shall be required to fund any amount in connection with any purchase of all or any portion of the Collateral by the Administrative Agent pursuant to the foregoing clauses (b), (c) or (d) without its prior written consent.
Each Secured Party agrees that the Administrative Agent is under no obligation to credit bid any part of the Secured Obligations or to purchase or retain or acquire any portion of the Collateral; provided that, in connection with any credit bid or purchase described under clauses (b), (c) or (d) of the preceding paragraph, the Secured Obligations owed to all of the Secured Parties (other than with respect to contingent or unliquidated liabilities as set forth in the next succeeding paragraph) may be, and shall be, credit bid by the Administrative Agent on a ratable basis.
With respect to any contingent or unliquidated claim that is a Secured Obligation, the Administrative Agent is hereby authorized, but is not required, to estimate the amount thereof for purposes of any credit bid or purchase described in the second preceding paragraph. In the event that the Administrative Agent, in its sole and absolute discretion, elects not to estimate any such contingent or unliquidated claim or any such claim cannot be estimated without unduly delaying the ability of the Administrative Agent to consummate any credit bid or purchase in accordance with the second preceding paragraph, then any contingent or unliquidated claims not so estimated shall be disregarded, shall not be credit bid, and shall not be entitled to any interest in the portion or the entirety of the Collateral purchased by means of such credit bid.
Each Secured Party whose Secured Obligations are credit bid under clauses (b), (c) or (d) of the third preceding paragraph is entitled to receive interests in the Collateral or any other asset acquired in connection with such credit bid (or in the Capital Stock of the acquisition vehicle or vehicles that are used to consummate such acquisition) on a ratable basis in accordance with the percentage obtained by dividing (x) the amount of the Secured Obligations of such Secured Party that were credit bid in such credit bid or other Disposition, by (y) the aggregate amount of all Secured Obligations that were credit bid in such credit bid or other Disposition.
In addition, in case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Loan Party, each Secured Party agrees that the Administrative Agent (irrespective of whether the principal of any Loan or LC Disbursement is then due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent has made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:
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Any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and each Issuing Bank to make such payments to the Administrative Agent and, in the event that the Administrative Agent consents to the making of such payments directly to the Lenders and the Issuing Banks, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amount due to the Administrative Agent under Sections 2.12 and 9.03.
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or any Issuing Bank any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or any Issuing Bank or to authorize the Administrative Agent to vote in respect of the claim of any Lender or any Issuing Bank in any such proceeding.
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) that it believes to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance, extension, renewal or increase of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the applicable Issuing Bank, the Administrative Agent may presume that such condition is satisfactory to such Lender or Issuing Bank unless the Administrative Agent has received notice to the contrary from such Lender or Issuing Bank prior to the making of such Loan or the issuance of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all of its duties and exercise its rights and powers under any Loan Document by or through any one or more sub-agents appointed by it. The Administrative Agent and any such sub-agent may perform any and all of their respective duties and exercise their respective rights and powers through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as the Administrative Agent. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and non-appealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.
The Administrative Agent may resign at any time by giving ten days’ written notice to the Lenders, the Issuing Banks and the Borrower. If the Administrative Agent is a Defaulting Lender (by reason of its insolvency) or an Affiliate of a Defaulting Lender (by reason of such Defaulting Lender’s insolvency),
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either the Required Lenders or the Borrower may, upon ten days’ notice, remove the Administrative Agent. Upon receipt of any such notice of resignation or delivery of any such notice of removal, the Required Lenders shall have the right, with the consent of the Borrower (not to be unreasonably withheld, conditioned or delayed), to appoint a successor Administrative Agent which shall be a commercial bank or trust company with offices in the U.S. having combined capital and surplus in excess of $1,000,000,000; provided that during the existence and continuation of an Event of Default under Section 7.01(a), Section 7.01(f) or Section 7.01(g), no consent of the Borrower shall be required. If no successor has been appointed as provided above and accepted such appointment within ten days after the retiring Administrative Agent gives notice of its resignation or the Administrative Agent receives notice of removal, then (a) in the case of a retirement, the retiring Administrative Agent may (but shall not be obligated to), on behalf of the Lenders and the Issuing Banks, appoint a successor Administrative Agent meeting the qualifications set forth above (including, for the avoidance of doubt, the consent of the Borrower, if applicable) or (b) in the case of a removal, the Borrower may, after consulting with the Required Lenders, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that (x) in the case of a retirement, if the Administrative Agent notifies the Borrower, the Lenders and the Issuing Banks that no qualifying Person has accepted such appointment or (y) in the case of a removal, the Borrower notifies the Required Lenders that no qualifying Person has accepted such appointment, then, in each case, such resignation or removal shall nonetheless become effective in accordance with such notice and (i) the retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent in its capacity as collateral agent for the Secured Parties for purposes of maintaining the perfection of the Lien on the Collateral securing the Secured Obligations, the retiring or removed Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (ii) all payments, communications and determinations required to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and each Issuing Bank directly (and each Lender and each Issuing Bank will cooperate with the Borrower to enable the Borrower to take such actions), until such time as the Required Lenders or the Borrower, as applicable, appoint a successor Administrative Agent, as provided above in this Article 8. Upon the acceptance of its appointment as Administrative Agent hereunder as a successor Administrative Agent, the successor Administrative Agent shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent (other than any rights to indemnity payments owed to the retiring or removed Administrative Agent), and the retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder (other than its obligations under Section 9.13 hereof). The fees payable by the Borrower to any successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor Administrative Agent; for the avoidance of doubt, the Borrower shall have no obligation to pay any fee to any successor Administrative Agent that is greater than or in addition to the fees payable to the Administrative Agent on the Closing Date. After the Administrative Agent’s resignation or removal hereunder and under the other Loan Documents, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring or removed Administrative Agent, its sub-agents and their respective Related Parties in respect of any action taken or omitted to be taken by any of them while the relevant Person was acting as Administrative Agent (including for this purpose holding any collateral security following the retirement or removal of the Administrative Agent). Notwithstanding anything to the contrary herein, no Disqualified Institution (nor any Affiliate thereof) may be appointed as a successor Administrative Agent.
Any resignation by Barclays as Administrative Agent pursuant to the immediately preceding paragraph of this Section 8.01 shall also constitute its resignation as an Issuing Bank, unless it remains a Lender; provided that, if Barclays does not remain a Lender (i) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of Barclays as retiring Issuing Bank and (ii)
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Barclays shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents as an Issuing Bank except with respect to Letters of Credit previously issued by it.
Each Lender and each Issuing Bank acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and each Issuing Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their respective Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or related agreement or any document furnished hereunder or thereunder. Except for notices, reports and other documents expressly required to be furnished to the Lenders and the Issuing Banks by the Administrative Agent herein, the Administrative Agent shall not have any duty or responsibility to provide any Lender or any Issuing Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any of the Loan Parties or any of their respective Affiliates which may come into the possession of the Administrative Agent or any of its Related Parties.
Notwithstanding anything to the contrary herein, none of the Lead Arrangers or the Syndication Agent shall have any right, power, obligation, liability, responsibility or duty under this Agreement, except in their respective capacities as the Administrative Agent, an Issuing Bank or a Lender hereunder, as applicable.
Each Secured Party irrevocably authorizes and instructs the Administrative Agent to, and the Administrative Agent shall:
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Upon the request of the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to release or subordinate its interest in particular types or items of property, or to release any Loan Party from its obligations under the Loan Guaranty or its Lien on any Collateral pursuant to this Article 8. In each case as specified in this Article 8, the Administrative Agent will (and each Lender, and each Issuing Bank hereby authorizes the Administrative Agent to), at the Borrower’s expense, execute and deliver to the applicable Loan Party such documents as such Loan Party may reasonably request to evidence the release of such item of Collateral from the assignment and security interest granted under the Collateral Documents or to subordinate its interest therein, or to release such Loan Party from its obligations under the Loan Guaranty, in each case in accordance with the terms of the Loan Documents and this Article 8. In connection with any such release or subordination of the Liens, the Borrower shall deliver a certificate of a Responsible Officer to the Administrative Agent requesting such release and/or subordination and certifying that such release and/or subordination, and any Liens incurred in connection therewith, and the Administrative Agent may rely exclusively upon such certificate as to whether such release and/or subordination and any such other Liens are permitted.
The Administrative Agent shall not be responsible for or have a duty to ascertain or inquire into any representation or warranty regarding the existence, value or collectability of the Collateral, the existence, priority or perfection of the Administrative Agent’s Lien thereon, or any certificate prepared by any Loan Party in connection therewith, nor shall the Administrative Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral.
The Administrative Agent is authorized to enter into any intercreditor, subordination, collateral trust or similar agreement (including any Acceptable Intercreditor Agreement) contemplated hereby with respect to any Indebtedness (a) that is (i) required or permitted to be subordinated hereunder or (ii) secured by Liens and (b) which contemplates an intercreditor, subordination or collateral trust agreement (any such other intercreditor, subordination, collateral trust or similar agreement, an “Additional Agreement”), and the Secured Parties party hereto acknowledge that any Additional Agreement is binding upon them. Each Secured Party party hereto hereby (a) agrees that they will be bound by, and will not take any action contrary to, the provisions of any Additional Agreement and (b) authorizes and instructs the Administrative Agent to enter into each Additional Agreement and to subject the Liens on the Collateral securing the Secured Obligations to the provisions thereof. The foregoing provisions are intended as an inducement to the Secured Parties to extend credit to the Borrower, and the Secured Parties are intended third-party beneficiaries of such provisions and the provisions of each Additional Agreement.
The Administrative Agent is authorized to enter into the Escrow Agreement and the transactions contemplated hereby in connection therewith, and each Secured Party authorizes (and ratifies) the Administrative Agent’s actions to perform its obligations and exercise its rights thereunder, including with respect to the Escrow Account, in connection therewith.
To the extent that the Administrative Agent (or any Affiliate thereof) is not reimbursed and indemnified by the Borrower, the Lenders will reimburse and indemnify the Administrative Agent (and any Affiliate thereof) in proportion to their respective Applicable Percentages (determined as if there were no Defaulting Lenders) for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by the Administrative Agent (or any Affiliate thereof) in performing its duties hereunder or under any other Loan Document or in any way relating to or arising out of this Agreement or any other Loan Document; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent’s (or such Affiliate’s) gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision).
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The Agents, the lead arrangers with respect to any Additional Term Loans or Additional Revolving Credit Commitments and their respective Affiliates each hereby informs the Lenders that each such Person is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with the transactions contemplated hereby, and that such Person has a financial interest in the transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive interest or other payments with respect to the Loans, the Letters of Credit, the Commitment and this Agreement, (ii) may recognize a gain if it extended the Loans, the Letters of Credit or the Commitment for an amount less than the amount being paid for an interest in the Loans, the Letters of Credit or the Commitment by such Lender or (iii) may receive fees or other payments in connection with the transactions contemplated hereby, the Loan Documents or otherwise, including structuring fees, commitment fees, arrangement fees, facility fees, upfront fees, underwriting fees, ticking fees, agency fees, administrative agent or collateral agent fees, utilization fees, minimum usage fees, letter of credit fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term out premiums, banker’s acceptance fees, breakage or other early termination fees or fees similar to the foregoing.
Victory Capital Holdings, Inc.
4900 Tiedeman Road 4th Floor
Brooklyn, OH 44144
Attention: Michael D. Policarpo
Email: mpolicarpo@vcm.com
Telephone: (216) 898-2552
Facsimile: (216) 898-2585
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Barclays Bank PLC
Barclays Debt Management
745 Seventh Avenue
New York, New York 10019
Attention: Peter Oberrender
Email: peter.oberrender@barclays.com and ltmny@barclays.com
Telephone: (212) 526-6687
With a copy (which shall not constitute notice), at:
Paul Hastings LLP
200 Park Avenue
New York, NY 10166
Attention: John H. Cobb
Email: johncobb@paulhastings.com
Telephone: (212) 318-6959
Facsimile: (212) 230-5169
Barclays Bank PLC
Barclays Debt Management
400 Jefferson Park
Whippany, New Jersey 07981
Attention: Kevin Leamy
Email: Kevin.leamy@barclays.com, with a copy to 12145455230@tls.ldsprod.com
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Barclays Bank PLC
745 Seventh Avenue
New York, New York 10019
Attention: Nnamdi Otudoh and Letter of Credit Department
Email: nnamdi.otudoh@barclays.com and XraLetterofCredit@barclays.com
Telephone: (212) 526-8527
Facsimile: (212) 412-5011
All such notices and other communications (A) sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when delivered in person or by courier service and signed for against receipt thereof or three Business Days after dispatch if sent by certified or registered mail, in each case, delivered, sent or mailed (properly addressed) to the relevant party as provided in this Section 9.01 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 9.01 or (B) sent by facsimile shall be deemed to have been given when sent and when receipt has been confirmed by telephone; provided that notices and other communications sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, such notices or other communications shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices and other communications delivered through electronic communications to the extent provided in clause (b) below shall be effective as provided in such clause (b).
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provided, further, that, in respect of each of sub-clauses (i) and (ii) of this clause (c), any Non-Debt Fund Affiliate and Debt Fund Affiliate shall (x) be permitted without the consent of the Administrative Agent to provide any Replacement Term Loans, it being understood that in connection therewith, the relevant Non-Debt Fund Affiliate or Debt Fund Affiliate, as applicable, shall be subject to the restrictions applicable to such Person under Section 9.05 as if such Replacement Term Loans were term loans acquired by assignment and (y) any Debt Fund Affiliate (but not any Non-Debt Fund Affiliate) may provide any Replacement Revolving Facility.
Each party hereto hereby agrees that this Agreement may be amended by each of the Borrower, the Administrative Agent and the lenders providing the relevant Replacement Term Loans or the Replacement Revolving Facility, as applicable, to the extent (but only to the extent) necessary to reflect the existence and terms of such Replacement Term Loans or Replacement Revolving Facility, as applicable, incurred or implemented pursuant thereto (including any amendment necessary to treat the loans and commitments subject thereto as a separate “tranche” and “Class” of Loans or commitments hereunder). It is understood that any Lender approached to provide all or a portion of any Replacement Term Loans or any Replacement Revolving Facility may elect or decline, in its sole discretion, to provide such Replacement Term Loans or Replacement Revolving Facility.
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Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and their respective successors and assigns, and the principal amounts and stated interest of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to any Participant’s interest in any Commitment, Loan, Letter of Credit or any other obligation under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such Commitment, Loan, Letter of Credit or other obligation is in registered form under Section 5f.103-1(c) of the U.S. Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and each Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
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(ii) If any assignment or participation under this Section 9.05 is made to any Affiliate of any Disqualified Institution without the Borrower’s prior written consent (any such person, a “Disqualified Person”), then the Borrower may, at its sole expense and effort, upon notice to the applicable Disqualified Person and the Administrative Agent, require such Disqualified Person to assign, without recourse (in accordance with and subject to the restrictions contained in this Section 9.05), all of its interests, rights and obligations under this Agreement to one or more Eligible Assignees; provided that (I) the relevant assignment shall otherwise comply with this Section 9.05 (except that (x) no registration and processing fee required under this Section 9.05 shall be required with any assignment pursuant to this paragraph and (y) any Term Loan acquired by any Affiliated Lender pursuant to this paragraph will not be included in calculating compliance with the Affiliated Lender Cap for a period of ninety days following such transfer) and (II) to the extent such Disqualified Institution has assigned its Loans to an Eligible Assignee (which is not an Affiliate of such Person) with the written consent of the Borrower (if applicable), the assignment to such Eligible Assignee shall be deemed effective for all purposes of the Loan Documents and no new assignment shall be required irrespective of such Disqualified Institution having previously held the applicable Loan. Nothing in this Section 9.05(f) shall be deemed to prejudice any right or remedy that the Borrower may otherwise have under this Agreement or at law or equity.
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Notwithstanding anything to the contrary contained herein, any Lender may, at any time, assign all or a portion of its rights and obligations under this Agreement in respect of its Term Loans to any Debt Fund Affiliate, and any Debt Fund Affiliate may, from time to time, purchase Term Loans (x) on a non-pro rata basis through Dutch Auctions open to all applicable Lenders or (y) on a non-pro rata basis through open market purchases without the consent of the Administrative Agent, in each case, notwithstanding the requirements set forth in subclauses (i) through (vii) of this clause (g); provided that the Loans and Commitments held by all Debt Fund Affiliates shall not account for more than 30.0% of the amounts included in determining whether the Required Lenders have (A) consented to any amendment, modification, waiver, consent or other action with respect to any of the terms of any Loan Document or any departure by any Loan Party therefrom, (B) otherwise acted on any matter related to any Loan Document or (C) directed or required the Administrative Agent or any Lender to undertake any action (or refrain from taking any action) with respect to or under any Loan Document (it being understood and agreed that any Term Loans held by Debt Fund Affiliates in excess of such 30.0% of such amounts will be deemed to be voted pro rata along with the votes of the Lenders eligible to vote under the relevant class of Lenders that are not Debt Fund Affiliates). Any Loans acquired by any Debt Fund Affiliate may (but shall not be required to) be contributed to the Borrower or any of its Subsidiaries for purposes of cancelling such Indebtedness (it being understood that any Loans so contributed shall be retired and cancelled immediately upon thereof); provided that upon any such cancellation, the aggregate outstanding principal amount of the relevant Class of Loans shall be deemed reduced, as of the date of such contribution, by the full par value of the aggregate principal amount of the Loans so contributed and cancelled, and each principal repayment installment with respect to the Term Loans pursuant to Section 2.10(a) shall be reduced pro rata by the full par value of the aggregate principal amount of any applicable Term Loans so contributed and cancelled.
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“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.
“Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b); (ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with, 12 U.S.C. 5390(c)(8)(D).
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
VICTORY CAPITAL HOLDINGS, INC.,
as the Borrower
By:
Name:
Title:
Signature Page to Victory Capital Credit Agreement
BARCLAYS BANK PLC,
as Administrative Agent, Swingline Lender, an Issuing Bank and a Lender
By:
Name:
Title:
Signature Page to Victory Capital Credit Agreement
ROYAL BANK OF CANADA,
as an Issuing Bank and a Lender
By:
Name:
Title:
Signature Page to Victory Capital Credit Agreement
BANK OF MONTREAL,
as an Issuing Bank and a Lender
By:
Name:
Title:
Signature Page to Victory Capital Credit Agreement
KEYBANK NATIONAL ASSOCIATION,
as an Issuing Bank and a Lender
By:
Name:
Title:
Signature Page to Victory Capital Credit Agreement
JPMORGAN CHASE BANK, N.A.,
as an Issuing Bank and a Lender
By:
Name:
Title:
Signature Page to Victory Capital Credit Agreement
BANK OF AMERICA, N.A.,
as an Issuing Bank and a Lender
By:
Name:
Title:
Signature Page to Victory Capital Credit Agreement
MORGAN STANLEY SENIOR FUNDING, INC.,
as an Issuing Bank and a Lender
By:
Name:
Title:
Signature Page to Victory Capital Credit Agreement
[],
as a Lender
By:
Name:
Title:
Signature Page to Victory Capital Credit Agreement
Schedule 1.01(a)
Commitment Schedule
Initial Revolving Credit Commitments
Lender |
Initial Revolving Credit Commitment |
Pro Rata Share |
Barclays Bank PLC |
$20,000,000.00 |
20.00% |
Royal Bank of Canada |
$20,000,000.00 |
20.00% |
Bank of Montreal |
$20,000,000.00 |
20.00% |
KeyBank National Association |
$20,000,000.00 |
20.00% |
JPMorgan Chase Bank, N.A. |
$10,000,000.00 |
10.00% |
Bank of America, N.A. |
$5,000,000.00 |
5.00% |
Morgan Stanley Senior Funding, Inc. |
$5,000,000.00 |
5.00% |
Total |
$100,000,000.00 |
100% |
Initial Term Loan Commitments
Lender |
Initial Term Loan Commitment |
Pro Rata Share |
Barclays Bank PLC |
$1,100,000,000.00 |
100.00% |
Total |
$1,100,000,000.00 |
100% |
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Exhibit 21.1
Subsidiaries of Victory Capital Holdings, Inc.
Name* |
|
Jurisdiction |
VCH Holdings, LLC |
|
Delaware |
Victory Capital Operating, LLC |
|
Delaware |
Victory Capital Management Inc. |
|
New York |
Victory Capital Services, Inc. |
|
Delaware |
Victory Company Transfer Agency, Inc. |
|
Delaware |
WestEnd Advisors, LLC |
|
North Carolina |
* The names of certain subsidiaries have been omitted. As of the end of the year covered by this report, the unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a “significant subsidiary” as that term is defined in Rule 1-02(w) of Regulation S-X under the Securities Exchange Act of 1934.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-3 No. 333- 259784), and
(2) Registration Statement (Form S-8 No. 333-222937) pertaining to the Victory Capital Holdings, Inc. Equity Incentive Plan, the Victory Capital Holdings, Inc. 2018 Stock Incentive Plan and the Victory Capital Holdings, Inc. 2018 Employee Stock Purchase Plan;
of our report dated March 6, 2023, with respect to the consolidated financial statements of Victory Capital Holdings, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2022.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 6, 2023
Exhibit 31.1
CERTIFICATIONS
I, David C. Brown, certify that:
1. I have reviewed this report on Form 10‑K of Victory Capital Holdings, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 6, 2023
By: |
/s/ DAVID C. BROWN |
|
David C. Brown |
|
Chief Executive Officer and Chairman |
Exhibit 31.2
CERTIFICATIONS
I, Michael D. Policarpo, certify that:
1. I have reviewed this annual report on Form 10‑K of Victory Capital Holdings, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 6, 2023
By: |
/s/ MICHAEL D. POLICARPO |
|
Michael D. Policarpo |
|
President, Chief Financial Officer and Chief Administrative Officer |
Exhibit 32.1
CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES‑OXLEY ACT OF 2002
I, David C. Brown, Chief Executive Officer of Victory Capital Holdings, Inc. (the “Company”), hereby certify pursuant to Section 1350 of chapter 63 of title 18 of the United States Code, and Section 906 of the Sarbanes‑Oxley Act of 2002, that, to the best of my knowledge: (1) the annual report on Form 10‑K of the Company to which this Exhibit is attached (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ DAVID C. BROWN |
|
David C. Brown |
|
Chief Executive Officer and Chairman |
|
March 6, 2023 |
|
Exhibit 32.2
CERTIFICATION OF CFO PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES‑OXLEY ACT OF 2002
I, Michael D. Policarpo, President, Chief Financial Officer and Chief Administrative Officer of Victory Capital Holdings, Inc. (the “Company”), hereby certify pursuant to Section 1350 of chapter 63 of title 18 of the United States Code, and Section 906 of the Sarbanes‑Oxley Act of 2002, that, to the best of my knowledge: (1) the annual report on Form 10‑K of the Company to which this Exhibit is attached (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ MICHAEL D. POLICARPO |
|
Michael D. Policarpo |
|
President, Chief Financial Officer and Chief Administrative Officer |
|
March 6, 2023 |
|
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