10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______                 

Commission file number 001-38388

Victory Capital Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware	32-0402956
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
15935 La Cantera Parkway, San Antonio, Texas	78256
(Address of principal executive offices)	(Zip Code)

(216) 898-2400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.01 Par Value	VCTR	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒  No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒  No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒	Non-accelerated filer ☐	Smaller reporting company ☐
			Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐  No  ☒

The number of outstanding shares of the registrant’s Class A common stock, par value $0.01 per share, and Class B common stock, par value $0.01 per share, as of October 31, 2020 was 16,304,521 and 51,175,828 respectively.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1.	Financial Information	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	42
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	44
	Signatures	45

Forward‑Looking Statements

This report includes forward-looking statements, including in the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These forward‑looking statements include, without limitation, statements regarding our industry, business strategy, plans, goals and expectations concerning our market position, future operations, margins, profitability, future efficiencies, capital expenditures, liquidity and capital resources and other financial and operating information. When used in this discussion, the words “may,” “believes,” “intends,” “seeks,” “anticipates,” “plans,” “estimates,” “expects,” “should,” “assumes,” “continues,” “could,” “will,” “future” and the negative of these or similar terms and phrases are intended to identify forward‑looking statements in this report.

Forward‑looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward‑looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following; reductions in assets under management (“AUM”) based on investment performance, client withdrawals, difficult market conditions and other factors such as a pandemic; the nature of our contracts and investment advisory agreements; our ability to maintain historical returns and sustain our historical growth; our dependence on third parties to market our strategies and provide products or services for the operation of our business; our ability to retain key investment professionals or members of our senior management team; our reliance on the technology systems supporting our operations; our ability to successfully acquire and integrate new companies; the concentration of our investments in long only small‑ and mid‑cap equity and U.S. clients; risks and uncertainties associated with non‑U.S. investments; our efforts to establish and develop new teams and strategies; the ability of our investment teams to identify appropriate investment opportunities; our ability to limit employee misconduct; our ability to meet the guidelines set by our clients; our exposure to potential litigation (including administrative or tax proceedings) or regulatory actions; our ability to implement effective information and cyber security policies, procedures and capabilities; our substantial indebtedness; the potential impairment of our goodwill and intangible assets; disruption to the operations of third parties whose functions are integral to our exchange traded fund (“ETF”) platform; our determination that we are not required to register as an “investment company” under the 1940 Act; the fluctuation of our expenses; our ability to respond to recent trends in the investment management industry; the level of regulation on investment management firms and our ability to respond to regulatory developments; the competitiveness of the investment management industry; the dual class structure of our common stock; the level of control over us retained by Crestview Partners II GP, L.P. (“Crestview GP”); our status as an emerging growth company and a controlled company; our ability to integrate the USAA Asset Management Company (“USAA Adviser”) and the Victory Capital Transfer Agency, Inc. (“VCTA”), formally known as the USAA Transfer Agency Company d/b/a USAA Shareholder Account Services (together with USAA Adviser, the “USAA Acquired Companies”); and other risks and factors included, but not limited to, those listed under the caption “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission (the “SEC”) on March 13, 2020, which is accessible on the SEC’s website at www.sec.gov.

In light of these risks, uncertainties and other factors, the forward‑looking statements contained in this report might not prove to be accurate. All forward‑looking statements speak only as of the date made and we undertake no obligation to update or revise publicly any forward‑looking statements, whether as a result of new information, future events or otherwise.

2

PART I—FINANCIAL INFORMATION

Item 1.  Financial Statements

Victory Capital Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except shares data)

	September 30, 2020			December 31, 2019
Assets
Cash and cash equivalents	$	56,284		$	37,121
Receivables		79,196			95,093
Prepaid expenses		5,335			4,852
Investments		19,617			19,076
Property and equipment, net		18,741			13,240
Goodwill		404,750			404,750
Other intangible assets, net		1,165,763			1,175,471
Other assets		4,305			3,706
Total assets	$	1,753,991		$	1,753,309
Liabilities and stockholders' equity
Accounts payable and accrued expenses	$	56,313		$	89,203
Accrued compensation and benefits		40,859			54,842
Consideration payable for acquisition of business		120,500			118,700
Deferred tax liability, net		28,117			5,486
Other liabilities		32,768			22,668
Long-term debt, net		815,877			924,539
Total liabilities		1,094,434			1,215,438
Stockholders' equity
Class A common stock, $0.01 par value per share: 2020 - 400,000,000 shares authorized, 19,350,111 shares issued and 16,438,709 shares outstanding; 2019 - 400,000,000 shares authorized, 18,099,772 shares issued and 16,414,617 shares outstanding		193			181
Class B common stock, $0.01 par value per share: 2020 - 200,000,000 shares authorized, 54,400,113 shares issued and 51,165,503 shares outstanding; 2019 - 200,000,000 shares authorized, 53,937,394 shares issued and 51,281,512 shares outstanding		544			539
Additional paid-in capital		641,467			624,766
Class A treasury stock, at cost: 2020 - 2,911,402 shares; 2019 - 1,685,155 shares		(42,488	)		(21,524	)
Class B treasury stock, at cost: 2020 - 3,234,610 shares; 2019 - 2,655,882 shares		(42,576	)		(31,386	)
Accumulated other comprehensive loss		(8,987	)		—
Retained earnings (deficit)		111,404			(34,705	)
Total stockholders' equity		659,557			537,871
Total liabilities and stockholders' equity	$	1,753,991		$	1,753,309

See the accompanying notes to the unaudited condensed consolidated financial statements.

3

Victory Capital Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Revenue
Investment management fees	$	137,240		$	155,406		$	414,153		$	307,859
Fund administration and distribution fees		51,416			59,574			160,810			85,960
Total revenue		188,656			214,980			574,963			393,819
Expenses
Personnel compensation and benefits		47,375			55,556			144,051			125,599
Distribution and other asset-based expenses		39,123			57,202			135,613			89,151
General and administrative		13,196			17,654			38,373			31,828
Depreciation and amortization		3,936			7,768			12,152			18,253
Change in value of consideration payable for acquisition of business		2,000			—			1,800			(14	)
Acquisition-related costs		1,148			16,386			1,056			21,950
Restructuring and integration costs		1,285			4,841			4,888			6,629
Total operating expenses		108,063			159,407			337,933			293,396
Income from operations		80,593			55,573			237,030			100,423
Other (expense) income
Interest income and other (expense) income		1,120			2,742			(86	)		5,231
Interest expense and other financing costs		(8,187	)		(16,856	)		(29,305	)		(26,000	)
Loss on debt extinguishment		(758	)		(7,409	)		(1,675	)		(7,409	)
Total other expense, net		(7,825	)		(21,523	)		(31,066	)		(28,178	)
Income before income taxes		72,768			34,050			205,964			72,245
Income tax expense		(17,027	)		(8,058	)		(48,337	)		(17,343	)
Net income	$	55,741		$	25,992		$	157,627		$	54,902
Earnings per share of common stock
Basic	$	0.82		$	0.38		$	2.33		$	0.81
Diluted	$	0.76		$	0.35		$	2.14		$	0.75
Weighted average number of shares outstanding
Basic		67,743			67,724			67,785			67,610
Diluted		73,437			73,671			73,703			73,300
Dividends declared per share of common stock	$	0.06		$	0.05		$	0.16		$	0.05

See the accompanying notes to the unaudited condensed consolidated financial statements.

4

Victory Capital Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net income	$	55,741		$	25,992		$	157,627		$	54,902
Other comprehensive loss, net of tax
Net unrealized loss on cash flow hedges		(621	)		—			(8,970	)		—
Net unrealized gain (loss) on foreign currency translation		37			(25	)		(17	)		(21	)
Total other comprehensive loss, net of tax		(584	)		(25	)		(8,987	)		(21	)
Comprehensive income	$	55,157		$	25,967		$	148,640		$	54,881

See the accompanying notes to the unaudited condensed consolidated financial statements.

5

Victory Capital Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(In thousands)

															Accumulated
												Additional			Other			Retained
	Common Stock					Treasury Stock						Paid-In			Comprehensive			(Deficit)
	Class A		Class B			Class A			Class B			Capital			Loss			Earnings			Total
Balance, December 31, 2019	$	181	$	539		$	(21,524	)	$	(31,386	)	$	624,766		$	—		$	(34,705	)	$	537,871
Issuance of common stock		—		—			—			—			26			—			—			26
Share conversion - Class B to A		4		(4	)		—			—			—			—			—			—
Repurchase of shares		—		—			(4,394	)		—			—			—			—			(4,394	)
Shares withheld related to net settlement of equity awards		—		—			—			(8,787	)		—			—			—			(8,787	)
Vesting of restricted share grants		—		7			—			—			(7	)		—			—			—
Exercise of options		—		3			—			—			1,690			—			—			1,693
Other comprehensive loss		—		—			—			—			—			(4,887	)		—			(4,887	)
Share-based compensation		—		—			—			—			5,993			—			—			5,993
Dividends paid		—		—			—			—			—			—			(3,601	)		(3,601	)
Net income		—		—			—			—			—			—			57,166			57,166
Balance, March 31, 2020		185		545			(25,918	)		(40,173	)		632,468			(4,887	)		18,860			581,080
Issuance of common stock		—		—			—			—			32			—			—			32
Share conversion - Class B to A		2		(2	)		—			—			—			—			—			—
Repurchase of shares		—		—			(7,186	)		—			—			—			—			(7,186	)
Shares withheld related to net settlement of equity awards		—		—			—			(739	)		—			—			—			(739	)
Vesting of restricted share grants		—		2			—			—			(2	)		—			—			—
Exercise of options		—		—			—			—			1			—			—			1
Other comprehensive loss		—		—			—			—			—			(3,516	)		—			(3,516	)
Share-based compensation		—		—			—			—			3,887			—			—			3,887
Dividends paid		—		—			—			—			—			—			(3,439	)		(3,439	)
Net income		—		—			—			—			—			—			44,720			44,720
Balance, June 30, 2020	$	187	$	545		$	(33,104	)	$	(40,912	)	$	636,386		$	(8,403	)	$	60,141		$	614,840
Issuance of common stock		—		—			—			—			35			—			—			35
Share conversion - Class B to A		6		(6	)		—			—			—			—			—			—
Repurchase of shares		—		—			(9,384	)		—			—			—			—			(9,384	)
Shares withheld related to net settlement of equity awards		—		—			—			(1,664	)		—			—			—			(1,664	)
Vesting of restricted share grants		—		2									(2	)		—			—			—
Exercise of options		—		3			—			—			1,425			—			—			1,428
Other comprehensive loss		—		—			—			—			—			(584	)		—			(584	)
Share-based compensation		—		—			—			—			3,623			—			—			3,623
Dividends paid		—		—			—			—			—			—			(4,478	)		(4,478	)
Net income		—		—			—			—			—			—			55,741			55,741
Balance, September 30, 2020	$	193	$	544		$	(42,488	)	$	(42,576	)	$	641,467		$	(8,987	)	$	111,404		$	659,557

See the accompanying notes to the unaudited condensed consolidated financial statements.

6

Victory Capital Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(In thousands)

															Accumulated
												Additional			Other
	Common Stock					Treasury Stock						Paid-In			Comprehensive			Retained
	Class A		Class B			Class A			Class B			Capital			(Loss) Income			Deficit			Total
Balance, December 31, 2018	$	153	$	553		$	(8,045	)	$	(21,719	)	$	604,401		$	(86	)	$	(119,709	)	$	455,548
Issuance of common stock		—		—			—			—			13			—			—			13
Share conversion - Class B to A		4		(4	)		—			—			—			—			—			—
Repurchase of shares		—		—			(1,344	)		—			—			—			—			(1,344	)
Shares withheld related to net settlement of equity awards		—		—			—			(318	)		—			—			—			(318	)
Exercise of options		—		1			—			—			220			—			—			221
Cumulative effect of adoption of ASU 2016-01 and 2018-02		—		—			—			—			—			62			(62	)		—
Other comprehensive income		—		—			—			—			—			12			—			12
Share-based compensation		—		—			—			—			1,547			—			—			1,547
Dividends paid		—		—			—			—			—			—			(41	)		(41	)
Net income		—		—			—			—			—			—			14,527			14,527
Balance, March 31, 2019		157		550			(9,389	)		(22,037	)		606,181			(12	)		(105,285	)		470,165
Issuance of common stock		—		—			—			—			16			—			—			16
Share conversion - Class B to A		8		(8	)		—			—			—			—			—			—
Repurchase of shares		—		—			(1,948	)		—			—			—			—			(1,948	)
Shares withheld related to net settlement of equity awards		—		—			—			(123	)		—			—			—			(123	)
Exercise of options		—		2			—			—			733			—			—			735
Other comprehensive loss		—		—			—			—			—			(8	)		—			(8	)
Share-based compensation		—		—			—			—			3,755			—			—			3,755
Dividends paid		—		—			—			—			—			—			(24	)		(24	)
Net income		—		—			—			—			—			—			14,383			14,383
Balance, June 30, 2019	$	165	$	544		$	(11,337	)	$	(22,160	)	$	610,685		$	(20	)	$	(90,926	)	$	486,951
Issuance of common stock		—		—			—			—			15			—			—			15
Share conversion - Class B to A		13		(13	)		—			—			—			—			—			—
Repurchase of shares		—		—			(5,103	)		—			—			—			—			(5,103	)
Shares withheld related to net settlement of equity awards		—		—			—			(4,001	)		—			—			—			(4,001	)
Vesting of restricted share grants		—		1			—			—			(1	)		—						—
Exercise of options		—		5			—			—			1,956			—						1,961
Other comprehensive income/(loss)		—		—			—			—			—			(25	)		—			(25	)
Share-based compensation		—		—			—			—			4,814			—			—			4,814
Dividends paid		—		—			—			—			—			—			(3,919	)		(3,919	)
Net income		—		—			—			—			—			—			25,992			25,992
Balance, September 30, 2019	$	178	$	537		$	(16,440	)	$	(26,161	)	$	617,469		$	(45	)	$	(68,853	)	$	506,685

See the accompanying notes to the unaudited condensed consolidated financial statements.

7

Victory Capital Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities
Net income	$	157,627		$	54,902
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for deferred income taxes		25,439			3,310
Depreciation and amortization		12,152			18,253
Deferred financing costs and derivative and accretion expense		3,411			2,612
Stock-based and deferred compensation		14,187			13,928
Change in fair value of contingent consideration obligations		1,800			(14	)
Unrealized depreciation (appreciation) on investments		1,432			(1,409	)
Net gain on equity method investment		—			(2,683	)
Loss on debt extinguishment		1,675			7,409
Changes in operating assets and liabilities:
Receivables		15,487			(11,366	)
Prepaid expenses		(483	)		(1,955	)
Other assets		(11	)		(43	)
Accounts payable and accrued expenses		(34,160	)		74,713
Accrued compensation and benefits		(13,994	)		8,501
Other liabilities		(1,842	)		1,527
Net cash provided by operating activities		182,720			167,685
Cash flows from investing activities
Purchases of property and equipment		(7,046	)		(2,920	)
Purchases of trading securities		(5,252	)		(4,606	)
Sales of trading securities		3,279			2,342
Purchases of available-for-sale securities		(275	)		(104	)
Sales of available-for-sale securities		274			104
(Purchase) sale of equity method investment		(1,500	)		10,572
Acquisition of business		—			(851,276	)
Net cash used in investing activities		(10,520	)		(845,888	)
Cash flows from financing activities
Issuance of Class A common stock, net of underwriter discount		93			44
Issuance of Class B common stock from exercise of stock options		3,122			2,917
Repurchase of common stock		(22,821	)		(9,342	)
Payments of taxes related to net share settlement of equity awards		(9,145	)		(3,497	)
Proceeds from long-term senior debt		—			1,088,503
Payment of debt financing fees		—			(19,820	)
Repayments and repurchases of long-term senior debt		(113,387	)		(343,000	)
Repayment of promissory note		—			(96	)
Payment of dividends		(11,518	)		(3,984	)
Receipt (payment) of consideration for acquisition		649			(6,017	)
Net cash (used in) provided by financing activities		(153,007	)		705,708
Effect of changes of foreign exchange rate on cash and cash equivalents		(30	)		(33	)
Net increase in cash and cash equivalents		19,163			27,472
Cash and cash equivalents, beginning of period		37,121			51,491
Cash and cash equivalents, end of period	$	56,284		$	78,963
Supplemental cash flow information
Cash paid for interest	$	32,371		$	8,216
Cash paid for income taxes		27,729			9,540

See the accompanying notes to the unaudited condensed consolidated financial statements.

8

Victory Capital Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)

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., 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”) of USAA Adviser and 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 ETF businesses and its 529 College Savings Plan (collectively, the “USAA Mutual Fund Business”). Refer to Note 4, Acquisitions, for further details on the acquisition.

VCM is a registered investment adviser managing assets through open-end mutual funds, separately managed accounts, unified management accounts, ETFs, collective trust funds, wrap separate account programs and Undertakings Collective Investment in Transferable Securities (“UCITs”). VCM also provides mutual fund administrative services for the Victory Portfolios, Victory Variable Insurance Funds, Victory Institutional Funds and the mutual fund series of the Victory Portfolios II (collectively, the “Victory Funds”), a family of open-end mutual funds, the VictoryShares (the Company’s ETF brand), as well as the USAA Mutual Fund Business, which includes 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. VCS is registered with the SEC as an introducing broker-dealer and serves as distributor and underwriter for the Victory Funds and USAA Funds. VCTA is registered with the SEC as a transfer agent for the USAA Funds.

NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for complete annual financial statements. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

In the opinion of management, the consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial condition, results of operations, and cash flows for the interim periods presented. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the operations of the Company and its wholly-owned subsidiaries, after elimination of all intercompany balances and transactions.

On September 20, 2020, the Company acquired a 15% equity interest in Alderwood Partners LLP (“Alderwood”). Alderwood’s operating entity, Alderwood Capital, is a London-based investment advisory firm focused on taking minority stakes in specialist boutique asset management businesses. The Company analyzed its investment in Alderwood under the voting interest model and determined that it would not consolidate Alderwood as it does not have a controlling financial interest.

The Company’s involvement with non-consolidated variable interest entities (“VIEs”) include sponsored investment funds and, in 2019, an equity method investment. For further discussion regarding VIEs, refer to Note 2, Significant Accounting Policies, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. For further discussion regarding equity method investments, refer to Note 15, Equity Method Investment.

Use of Estimates and Assumptions

The preparation of the unaudited condensed 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 and the notes. Actual results may ultimately differ materially from those estimates.

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On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The global spread of COVID-19 has created significant volatility, uncertainty, and economic disruption. COVID-19 did not have a material adverse effect on our reported results for the three and nine months ended September 30, 2020.

New Accounting Pronouncements

Accounting Standards Adopted in 2020

• Derivatives and Hedging: Effective January 1, 2020, the Company early adopted Accounting Standards Update (“ASU”) 2017-12 (“ASU 2017-12”), Derivatives and Hedging (Topic 815) and ASU 2019-04, Codification Improvements to Topic 815, Derivatives and Hedging (“ASU 2019-04”). ASU 2017-12 improves and simplifies accounting rules for hedge accounting to better present the economic results of an entity’s risk management activities in its financial statements and improves the disclosures of hedging arrangements. Various provisions of ASU 2017-12 were subsequently clarified by the Financial Accounting Standards Board (“FASB”) in April 2019 through the issuance of ASU 2019-04. The Company did not have any existing hedging relationships at the time of adoption; therefore, the adoption of ASU 2017-12 and ASU 2019-04 had no impact on our consolidated financial statements.

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 (notional amount of $450 million). The Swap was designated as a cash flow hedge and the initial prospective quantitative hedge effectiveness assessment was deemed highly effective. Under ASU 2017-12, the Company has the option to perform subsequent assessments of hedge effectiveness qualitatively. The Company has elected to assess the Swap’s hedge effectiveness qualitatively and will verify and document on a quarterly basis that facts and circumstances have not changed.

Recently Issued Accounting Standards

• Subsequent Measurement of Goodwill: In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) (“ASU 2017-04”) which simplifies the test for goodwill impairment. ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill (step two) to measure a goodwill impairment charge. Goodwill impairment will be based upon the results of step one of the impairment test, which is defined as the excess of the carrying amount of a reporting unit over its fair value, not to exceed the carrying amount of goodwill allocated to that reporting unit. The effective date for calendar-year public business entities was January 1, 2020. Due to the Company’s status as an emerging growth company (“EGC”), the new guidance will be effective for the Company’s fiscal year that begins on January 1, 2021 and requires a prospective approach to adoption. Early adoption is permitted for interim or annual goodwill impairment tests. The impact of this new guidance will depend upon the performance of the Company’s one reporting unit and the market conditions impacting the fair value.

• Leases: In February 2016, the FASB issued ASU 2016‑02, Leases (Topic 842) (the “New Lease Standard”) which supersedes previous lease guidance, Accounting Standards Codification (“ASC”) Topic 840 (“ASC Topic 840”). The New Lease Standard requires lessees to recognize a right-of-use asset and a lease liability for all leases (with the exception of short-term leases) on their balance sheet at the commencement date and recognize expenses on their income statement similar to ASC Topic 840 guidance. In addition, the FASB issued ASU 2018-11, Leases Targeted Improvements, which provides a package of practical expedients for entities to apply upon adoption. The effective date for calendar-year public business entities was January 1, 2019. In June 2020, the FASB deferred the effective date of the New Lease Standard for private companies and other companies who had not yet been required to adopt the standard. Due to the Company’s EGC status, the New Lease Standard will be adopted on January 1, 2022.

Management has assessed and evaluated the Company’s portfolio of active real estate leases and is currently surveying the business for other leases. As outlined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, the Company has approximately $23 million in undiscounted, future minimum cash commitments under net operating leases. The New Lease Standard is expected to result in a gross up of assets and liabilities on the Consolidated Balance Sheets and to have no material impact on the Consolidated Statements of Operations or the Company’s liquidity or debt covenant compliance under the current credit agreement.

• Expected Credit Losses: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 creates a new model for determining current expected credit losses (“CECL”) on trade and other receivables, net investments in leases, contract assets and long-term receivables. The CECL impairment model requires companies to consider the risk of loss even if it is remote and to include forecasts of future economic conditions as well as information about past events and current conditions. The effective date for calendar-year public business entities is January 1, 2020. As an EGC, the Company currently expects to adopt ASU 2016-13 on January 1, 2023. The Company is currently reviewing the effect of this new standard on its consolidated financial statements.

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NOTE 3. Revenue RECOGNITION

In accordance with the new revenue recognition standard requirements, the following table disaggregates our revenue by type and product:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2020			2019			2020			2019
Investment management fees
Mutual funds (Victory/USAA Funds)	$	112,983		$	125,928		$	337,355		$	228,855
ETFs (VictoryShares)		2,890			3,116			8,498			7,172
Separate accounts and other vehicles		24,318			26,512			71,920			72,379
Performance-based fees
Mutual funds (USAA Funds)		(2,699	)		—			(2,699	)		—
Separate accounts and other vehicles		(252	)		(150	)		(921	)		(547	)
Total investment management fees	$	137,240		$	155,406		$	414,153		$	307,859
Fund administration and distribution fees
Administration fees
Mutual funds (Victory/USAA Funds)	$	27,605		$	30,098		$	83,948		$	40,734
ETFs (VictoryShares)		370			378			1,055			924
Distribution fees
Mutual funds (Victory/USAA Funds)		6,296			7,674			18,999			22,878
Transfer agent fees
Mutual funds (USAA Funds)		17,145			21,424			56,808			21,424
Total fund administration and distribution fees	$	51,416		$	59,574		$	160,810		$	85,960
Total revenue	$	188,656		$	214,980		$	574,963		$	393,819

The following table presents balances of receivables:

(in thousands)	September 30, 2020		December 31, 2019
Customer receivables
Mutual funds (Victory/USAA Funds)	$	55,383	$	64,407
ETFs (VictoryShares)		1,196		1,391
Separate accounts and other vehicles		19,519		27,836
Receivables from contracts with customers		76,098		93,634
Non-customer receivables		3,098		1,459
Total receivables	$	79,196	$	95,093

Revenue

The Company’s revenue includes fees earned from providing;

• investment management services,

• fund administration services,

• 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.

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

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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.

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 and VictoryShares and may subsidize certain share classes of the Victory Funds, USAA Funds and VictoryShares to ensure that specified operating expenses attributable to such share classes do not exceed a specified percentage. These waivers 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 and VictoryShares for waivers and expense reimbursements represent consideration payable to customers, which is recorded in accounts payable and accrued expenses in the unaudited Condensed 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 base investment management fee and a performance fee adjustment to the base 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 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.

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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.

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 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 it represents variable consideration and is recognized as uncertainties are resolved. The Company’s distribution fee revenue is recorded in fund administration and distribution fees in the unaudited Condensed 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 contract 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 1.00% of the purchase price of the Class C shares sold by the dealer or institution. When the Company makes an upfront payment to a dealer or institution for the sale of Class C shares, the Company capitalizes the cost of such payment, which is recorded in Prepaid expenses in the unaudited Condensed Consolidated Balance Sheets and amortizes the cost over a 12-month period, the estimated period of benefit.

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 limited 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 other vehicles for which a quotation or price evaluation is not readily available from a pricing service. For the periods presented, a de minimis amount of the AUM was priced in this manner.

NOTE 4. ACQUISITIONS

USAA AMCO Acquisition

On and effective July 1, 2019, the Company completed the USAA AMCO Acquisition, acquiring 100% of the outstanding common stock of the USAA Acquired Companies and the USAA Mutual Fund Business. The USAA AMCO Acquisition expands and diversifies the Company’s investment platform, particularly in the fixed income and solutions asset classes, and increases the Company’s size and scale. Additional products added to the Company’s investment platforms 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 and services using the USAA brand and the opportunity to offer its products to USAA members through a direct distribution channel.

Purchase Price

During the first quarter of 2020, the Company received a post-closing purchase price adjustment of $0.7 million in cash from the sellers related to net working capital adjustments. No further adjustments were recorded through the end of the measurement period on June 30, 2020. There has been no change in the goodwill balance from December 31, 2019 to September 30, 2020.

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Total cumulative consideration paid for the USAA AMCO Acquisition was $949.4 million, comprised of $851.3 million of cash paid at closing plus the acquisition date value of contingent payments due to sellers of $98.8 million less $0.7 million in net working capital adjustments settled in the first quarter of 2020.

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 years following the closing. To receive any contingent payment in respect of “non-managed money”-related assets for a given year, annual revenue from “non-managed money”-related assets must be at least 80% of the revenue run-rate (as calculated under the Stock Purchase Agreement) of the USAA Adviser’s “non-managed money”-related assets under management as of the closing date, and to achieve the maximum contingent payment for a given year, such annual revenue must total at least 100% of that closing date revenue run-rate. Annual contingent payments in respect of “non-managed money”-related assets are subject to certain “catch-up” provisions set forth in the USAA Stock Purchase Agreement.

The Company accounted for the acquisition in accordance with ASC 805, Business Combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of the USAA AMCO Acquisition. The Company used an independent valuation specialist to assist with the determination of fair value for certain of the acquired assets and assumed liabilities disclosed below.      

The excess purchase price over the estimated fair values of assets acquired and liabilities assumed of $120.6 million was recorded to goodwill in the unaudited Condensed Consolidated Balance Sheets, all of which is expected to be deductible for tax purposes. The goodwill arising from the acquisition primarily results from expected future earnings and cash flows, as well as the synergies created by the integration of the USAA Acquired Companies within our organization.

The following table summarizes the estimated amounts of identified acquired assets and liabilities assumed as of the acquisition date:

(in thousands)
Cash and cash equivalents	$	17,473
Investment management fees receivable		25,353
Fund administration and distribution fees receivable		4,779
Other receivables and prepaid expenses		299
Property and equipment		1,165
Other intangible assets(1)		808,670
Goodwill		120,643
Accounts payable and accrued expenses		(5,575	)
Accrued compensation and benefits		(5,907	)
Payable to members and custodians		(17,473	)
Contingent consideration payable to sellers		(98,800	)
Total purchase price consideration	$	850,627

⁽¹⁾ Includes $750.2 million for indefinite-lived investment advisory contracts, $19.1 million for indefinite-lived transfer agent contracts, $0.8 million for indefinite-lived distribution contracts, $38.2 million for definite-lived trade name assets and $0.4 million for definite-lived lease-related assets, all of which were recorded in other intangible assets, net on the unaudited Condensed Consolidated Balance Sheets.

Contingent Consideration

The Company expects to pay to sellers in the fourth quarter of 2020 the maximum amount of $37.5 million for the first annual earnout period for the USAA AMCO Acquisition. The fair value of contingent consideration payable to sellers at September 30, 2020 was estimated to be $120.5 million, which includes the $37.5 million expected to be paid for the first earnout period, as compared to $118.7 million at December 31, 2019.

The increase in the contingent consideration liability of $2.0 million and $1.8 million in the three and nine months ended September 30, 2020, respectively, was recorded in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.

The fair value of the USAA AMCO Acquisition contingent consideration payable was estimated using the real options method. Revenue related to “non-managed money” assets was simulated in a risk-neutral framework to calculate expected probability-weighted earn out payments, which were 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.

As of September 30, 2020, the projected annual growth rate for “non-managed money” revenue was approximately 3%. The market price of risk and revenue volatility of approximately 7% and 16%, respectively, were based on data for comparable companies. As

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the contingent consideration represents a subordinate, unsecured claim of the Company, the Company has assessed a discount rate of approximately 4.5%, which incorporates adjustments for credit risk and the subordination of the contingent consideration. Total estimated undiscounted earn out payments ranged from $128 million to $150 million, the maximum amount payable to sellers.

Actual and Pro Forma Results for USAA Acquired Companies

Revenue of the USAA Acquired Companies is included in the Company’s results as from July 1, 2019. For the six months ended June 30, 2020, revenue of the USAA Acquired Companies was $221.3 million. Net income attributable to the USAA Acquired Companies for the six months ended June 30, 2020 is impractical to determine as the Company does not prepare discrete financial information at level.

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, 2018. 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 Victory and the USAA Acquired Companies have been adjusted to give effect to unaudited pro forma events that are directly attributable to the transaction, factually supportable and expected to have continuing impact on the combined results. These amounts have been calculated after adjusting the results of the USAA Acquired Companies to reflect additional interest expense, distribution costs, share-based compensation expense, income taxes and intangible asset amortization that would have been expensed assuming the fair value adjustments had been applied on January 1, 2018. In addition, Victory’s and the USAA Acquired Companies’ results were adjusted to remove incentive compensation, legal fees and mutual fund proxy costs directly attributable to the acquisition.

	Unaudited
	Nine Months Ended
(in thousands, except per share amount)	September 30, 2019
Revenue	$	632.9
Net income	$	76.5
Earnings per share of common stock
Basic	$	1.13
Diluted	$	1.04
Weighted average number of shares outstanding
Basic		67,610
Diluted		73,300

Acquisition-Related Costs

Costs related to acquisitions 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. These costs are included in acquisition-related costs in the unaudited Condensed Consolidated Statements of Operations.

	Acquisition-related costs
	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
USAA AMCO Acquisition	$	776	$	16,235	$	664	$	21,043
Other		372		151		392		907
Total acquisition-related costs	$	1,148	$	16,386	$	1,056	$	21,950

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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 the rollforward of restructuring and integration liabilities, which are recorded in accounts payable and accrued expenses in the unaudited Condensed Consolidated Balance Sheets, for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2020			2019			2020			2019
Liability balance, beginning of period	$	2.8		$	1.5		$	3.0		$	0.1
Severance Expense - USAA AMCO		—			3.7			0.9			5.2
Integration costs - USAA AMCO		1.3			1.1			4.0			1.4
Total restructuring and integration costs		1.3			4.8			4.9			6.6
Settlement of liabilities		(1.2	)		(4.4	)		(5.0	)		(4.8	)
Liability balance, end of period	$	2.9		$	1.9		$	2.9		$	1.9

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:

• Level 1—Valuation inputs are unadjusted quoted market prices for identical assets or liabilities in active markets.

• Level 2—Valuation inputs are quoted prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets and liabilities in active markets and other observable inputs directly or indirectly related to the asset or liability being measured.

• Level 3—Valuation inputs are unobservable and significant to the fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

The table below shows liabilities measured at fair value on a recurring basis.

	As of September 30, 2020
(in thousands)	Total			Level 1		Level 2			Level 3
Financial Liabilities
Interest Rate Swap Liability	$	(11,772	)	$	-	$	(11,772	)	$	-
Contingent Consideration Arrangements(1)		(120,500	)		-		-			(120,500	)
Total Financial Liabilities	$	(132,272	)	$	-	$	(11,772	)	$	(120,500	)

	As of December 31, 2019
(in thousands)	Total			Level 1		Level 2		Level 3
Financial Liabilities
Contingent Consideration Arrangements(1)	$	(118,700	)	$	-	$	-	$	(118,700	)
Total Financial Liabilities	$	(118,700	)	$	-	$	-	$	(118,700	)

(1) Refer to Note 4, Acquisitions, for further information regarding the Company’s contingent consideration arrangements.

The Swap liability represents amounts owed as of September 30, 2020 under a floating-to-fixed interest rate swap transaction entered into by the Company on March 27, 2020. The Swap effectively fixed the interest rate at 3.465% on $450 million of the outstanding Term Loan balance through the Term Loan’s maturity in July 2026. The fair value of the Swap is included in other liabilities on the unaudited Condensed Consolidated Balance Sheets at September 30, 2020. 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 14, Derivatives, for further detail on the Swap.

The contingent consideration arrangement liabilities represent the USAA AMCO Acquisition estimated earn-out payment liability, which is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets.

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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.  An increase in 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 “non-managed money” 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.

Changes in the fair value of the liability, realized or unrealized, are recorded in earnings and are included in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.

The following table presents the balance of the contingent consideration arrangement liabilities at December 31, 2019 and September 30, 2020, respectively.

(in thousands)	Contingent Consideration Liabilities
Balance, December 31, 2019	$	(118,700	)
USAA AMCO change in fair value measurement		(1,800	)
Balance, September 30, 2020	$	(120,500	)

There were no transfers between any of the Level 1, 2 and 3 categories in the fair value measurement hierarchy from December 31, 2019 to September 30, 2020. The Company recognizes transfers at the end of the reporting period.

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 September 30, 2020 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.

The fair value of the Company’s money market investment ($10.1 million within cash and cash equivalents), available-for-sale investments and trading securities are measured using Level 1 inputs, which are the market prices for shares in these open-end mutual funds.

NOTE 6.  Related-Party Transactions

The Company considers certain funds that it manages, including the Victory Funds, the USAA Funds, the VictoryShares and collective trust funds that it sponsors (the “Victory Collective Funds”), to be related parties as a result of our 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. We also receive investment management fees from the VictoryShares and Victory Collective Funds under VCM’s advisory contracts with these funds and administrative fees from the VictoryShares. In addition, we receive transfer agent fees in accordance with a contract that VCTA has with the USAA Funds.

The table below presents balances and transactions involving related parties included in the unaudited Condensed Consolidated Balance Sheets and unaudited Condensed Consolidated Statements of Operations.

• Included in cash and cash equivalents is cash held in the USAA Treasury Money Market Fund.

• Included in receivables (fund administration and distribution fees) are amounts due from the Victory Funds and USAA Funds for compliance services and amounts due from the USAA Funds for transfer agent services.

• Included in revenue (fund administration and distribution fees) are amounts earned for compliance services and transfer agent services.

• Realized and unrealized gains and losses and dividend income on investments in the Victory Funds and USAA Funds classified as available-for-sale securities and investments in the Victory Funds and USAA Funds classified as trading securities and dividend income on investments in the USAA Treasury Money Market Fund are recorded in interest income and other income (expense) in the unaudited Condensed Consolidated Statements of Operations.

• Amounts due to the Victory Funds, USAA Funds and VictoryShares for waivers of investment management fees and reimbursements of fund operating expenses are included in accounts payable and accrued expenses in the unaudited Condensed Consolidated Balance Sheets and represent consideration payable to customers.

17

(in thousands)	September 30, 2020		December 31, 2019
Related party assets
Cash and cash equivalents	$	10,088	$	10,060
Receivables (investment management fees)		41,008		47,872
Receivables (fund administration and distribution fees)		16,960		19,313
Investments (available-for-sale securities, fair value)		785		771
Investments (trading securities, fair value)		18,518		17,914
Total	$	87,359	$	95,930
Related party liabilities
Accounts payable and accrued expenses (fund reimbursements)	$	5,330	$	4,316

	Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	2020		2019			2020			2019
Related party revenue
Investment management fees	$	115,376	$	130,361		$	348,653		$	239,869
Fund administration and distribution fees		51,416		59,574			160,809			85,960
Total	$	166,792	$	189,935		$	509,462		$	325,829
Related party other income (expense)
Interest income and other income (expense)	$	828	$	(342	)	$	(1,268	)	$	1,473

NOTE 7. Investments

As of September 30, 2020 and December 31, 2019, the Company held both available-for-sale securities and trading securities. Available-for-sale investments consist entirely of seed capital investments in certain Victory Funds and USAA Funds. Trading securities are held under a deferred compensation plan and include Victory Funds, USAA Funds and third party mutual funds.

Available‑For‑Sale Securities

A summary of the cost and fair value of investments classified as available-for-sale were as follows:

			Gross Unrealized					Fair
(in thousands)	Cost		Gains		(Losses)			Value
As of September 30, 2020	$	702	$	90	$	(7	)	$	785
As of December 31, 2019		696		85		(10	)		771

Unrealized and realized gains and losses on available‑for‑sale investments are recognized in the accompanying unaudited Condensed Consolidated Statements of Operations as “Interest income and other income (expense).” There were no proceeds from sales and realized gains and losses from available-for-sale securities for the three months ended September 30, 2020 and 2019. For the nine month periods ended September 30, 2020 and 2019 proceeds from sales and realized gains and losses from available-for-sale securities were as follows:

	Sale		Realized
(in thousands)	Proceeds		Gains		(Losses)
For the nine months ended September 30, 2020	$	274	$	18	$	(13	)
For the nine months ended September 30, 2019		104		4		—

Trading Securities

A summary of the cost and fair value of investments classified as trading securities were as follows:

			Gross Unrealized					Fair
(in thousands)	Cost		Gains		(Losses)			Value
As of September 30, 2020	$	20,420	$	449	$	(2,037	)	$	18,832
As of December 31, 2019		18,670		733		(1,098	)		18,305

18

Unrealized and realized gains and losses on trading securities are recorded in interest income and other income (expense) in the unaudited Condensed Consolidated Statements of Operations. Proceeds from sales and realized gains and losses from trading securities in the periods ended September 30, 2020 and 2019 were as follows:

	Sale		Realized
(in thousands)	Proceeds		Gains		(Losses)
For the three months ended September 30, 2020	$	1,289	$	48	$	(166	)
For the three months ended September 30, 2019		908		1		(29	)

	Sale		Realized
(in thousands)	Proceeds		Gains		(Losses)
For the nine months ended September 30, 2020	$	3,279	$	85	$	(308	)
For the nine months ended September 30, 2019		2,342		15		(60	)

NOTE 8.  Income Taxes

The effective tax rate for the three and nine months ended September 30, 2020 and 2019 differs from the United States federal statutory rate primarily as a result of state and local income taxes, excess tax benefits on share-based compensation and certain non-deductible expenses and for the periods in 2019, expense related to recognizing a liability for unrecorded tax benefits.

For the three months ended September 30, 2020 and 2019, the provision for income taxes was $17.0 million and $8.1 million, or 23.4% and 23.7%, of pre-tax income respectively. For the nine months ended September 30, 2020 and 2019, the provision for income taxes was $48.3 million and $17.3 million, or 23.5% and 24.0% of pre-tax income, respectively.

The effective tax rate for the three and nine months ended September 30, 2020 was slightly lower than the effective tax rate for the same periods in 2019 due to the combination of decreased excess tax benefits on share-based compensation and decreased expense related to state uncertain tax positions.

No valuation allowance was recorded for deferred tax assets in the periods ended September 30, 2020 and 2019.

At September 30, 2020, the Company had no liability for gross unrecognized tax benefits. It had a $0.1 million liability for interest and penalties on previously unrecognized gross tax benefits, which is included in “Other liabilities” in the accompanying unaudited Condensed Consolidated Balance Sheets. The Company expects that the amount of unrecognized tax benefits will change in the next 12 months; however, the Company does not expect the change to have a material impact on its consolidated financial statements.

The following table presents the changes in gross unrecognized tax benefits, excluding interest and penalties, for the three and nine months ended September 30, 2020 and 2019.

(in thousands)	2020			2019
Beginning balance, January 1	$	2,582		$	—
Additions based on tax positions related to current period		280			—
Reductions related to settlement of tax matters		(908	)		—
Ending balance, March 31	$	1,954		$	—
Additions based on tax positions related to current period		—			—
Reductions related to settlement of tax matters		(1,954	)		—
Ending balance, June 30	$	—		$	—
Additions based on tax positions related to current period		—			—
Reductions related to settlement of tax matters		—			—
Ending balance, September 30	$	—		$	—

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NOTE 9.  Debt

2020 Debt Repricing

Concurrent with the USAA AMCO Acquisition on July 1, 2019, the Company (i) entered into the 2019 Credit Agreement, (ii) repaid all indebtedness outstanding under the previous credit agreement (dated February 2018), and (iii) terminated the previous credit agreement.

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 repriced the existing term loans (the “Existing Term Loans”) with replacement term loans in an aggregate principal amount of $952.0 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 2026, except that the Repriced Term Loans provide for a reduced applicable margin on LIBOR of 75 basis points. The applicable margin on LIBOR under the Repriced Term Loans is 2.50%, compared to 3.25% under the Existing Term Loans.

The following table summarizes the components of long-term debt under the 2019 Credit Agreement in the unaudited Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019:

(in thousands)	September 30, 2020			December 31, 2019
Term loan principal outstanding	$	837,239		$	952,000
Unamortized debt issuance costs		(7,959	)		(17,230	)
Unamortized debt discount		(13,403	)		(10,231	)
Long-term debt, net	$	815,877		$	924,539

The 2019 Credit Agreement contains customary affirmative and negative covenants, including covenants that affect, among other things, the ability of the first lien leverage ratio, measured as of the last day of each fiscal quarter on which outstanding borrowings under the revolving credit facility exceed 35.0% of the commitments thereunder (excluding certain letters of credit), of no greater than 3.80 to 1.00. As of September 30, 2020, there were no outstanding borrowings under the revolving credit facility and the Company was in compliance with its financial performance covenant.

A total of $114.8 million of the outstanding term loans under the 2019 Credit Agreement was repaid or repurchased and retired during the first nine months of 2020. The Company repaid $38.0 million in outstanding term loans in the first three months of 2020 and recorded a $1.0 million loss on debt extinguishment. During the three months ended June 30, 2020, the Company repaid or repurchased and retired $33.3 million of outstanding term loans and recorded a $0.1 million gain on debt extinguishment. During the three months ended September 30, 2020, the Company repaid or repurchased and retired $43.5 million of outstanding term loans and recorded a $0.8 million loss on debt extinguishment. Refer to Note 16, Subsequent Events, for information related to term loan activity subsequent to September 30, 2020.

2020 Swap Transaction

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. Refer to Note 14, Derivatives, for further information on the Swap.

20

Interest Expense

As of September 30, 2020, the term loans under the 2019 Credit Agreement had an interest period of three months and an interest rate of 2.80%. Including the impact of amortization of debt issuance costs and original issue discount described herein, the effective yield for term loans under the 2019 Credit Agreement as of September 30, 2020 was 3.23%. The following table summarizes the components of interest expense and other financing costs in the unaudited Condensed Consolidated Statements of Operations for the periods ended September 30, 2020 and 2019:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Interest expense	$	6,236	$	15,308	$	25,260	$	22,931
Amortization of debt issuance costs		739		920		2,275		1,650
Amortization of debt discount		367		475		1,136		768
Interest rate swap expense		724		153		205		—
Other		121		—		429		651
Total	$	8,187	$	16,856	$	29,305	$	26,000

NOTE 10. Equity

Shares Rollforward

The following tables present the changes in the number of shares of common stock issued and repurchased (in thousands):

	Shares of Common Stock Issued					Shares of Treasury Stock
	Class A		Class B			Class A			Class B
Balance, December 31, 2019		18,100		53,937			(1,685	)		(2,656	)
Issuance of shares		2		—			—			—
Share conversion - Class B to A		406		(406	)		—			—
Repurchase of shares		—		—			(240	)		—
Vesting of restricted share grants		—		719			—			—
Exercise of options		—		288			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(445	)
Balance, March 31, 2020		18,508		54,538			(1,925	)		(3,101	)
Issuance of shares		2		—			—			—
Share conversion - Class B to A		207		(207	)		—			—
Repurchase of shares		—		—			(457	)		—
Vesting of restricted share grants		—		173			—			—
Exercise of options		—		—			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(43	)
Balance, June 30, 2020		18,717		54,504			(2,382	)		(3,144	)
Issuance of shares		2		—			—			—
Share conversion - Class B to A		631		(631	)		—			—
Repurchase of shares		—		—			(529	)		—
Vesting of restricted share grants		—		197			—			—
Exercise of options		—		330			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(91	)
Balance, September 30, 2020		19,350		54,400			(2,911	)		(3,235	)

21

	Shares of Common Stock Issued					Shares of Treasury Stock
	Class A		Class B			Class A			Class B
Balance, December 31, 2018		15,281		55,284			(856	)		(2,147	)
Issuance of shares		1		—			—			—
Share conversion - Class B to A		382		(382	)		—			—
Repurchase of shares		—		—			(123	)		—
Vesting of restricted share grants		—		40			—			—
Exercise of options		—		72			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(29	)
Balance, March 31, 2019		15,664		55,014			(979	)		(2,176	)
Issuance of shares		1		—			—			—
Share conversion - Class B to A		809		(809	)		—			—
Repurchase of shares		—		—			(113	)		—
Vesting of restricted share grants		—		4			—			—
Exercise of options		—		150			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(8	)
Balance, June 30, 2019		16,474		54,359			(1,092	)		(2,184	)
Issuance of shares		1		—			—			—
Share conversion - Class B to A		1,331		(1,331	)		—			—
Repurchase of shares		—		—			(300	)		—
Vesting of restricted share grants		—		169			—			—
Exercise of options		—		487			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(216	)
Balance, September 30, 2019		17,806		53,684			(1,392	)		(2,400	)

Share Repurchase Program

The share repurchase programs authorized in 2018 and 2019, each for $15.0 million of the Company’s Class A common stock were completed in September 2019 and June 2020, respectively.

In May 2020, the Company’s Board of Directors authorized the Company to repurchase up to an additional $15.0 million of the Company’s Class A common stock in the open market or in privately negotiated transactions (“2020 Share Repurchase Program”).

As of September 30, 2020, a total of 2,911,402 shares of Class A common stock had been repurchased under authorized share repurchase programs at a total cost of $42.5 million for an average price of $14.59 per share. As of September 30, 2020, $2.5 million was available for future purchases and on October 29, 2020, the 2020 Share Repurchase Program was completed. On November 2, 2020, the Company’s Board of Directors authorized the Company to repurchase up to an additional $15.0 million of the Company’s Class A common stock through December 31, 2022 in open market or privately negotiated transactions (“Additional 2020 Share Repurchase Program”). The amount and timing of the purchases under the 2020 Additional Share Repurchase Program will depend on a number of factors including the price and availability of the Company’s shares, trading volume, capital availability, Company performance and general economic and market conditions. The Additional 2020 Share Repurchase Program can be suspended or discontinued at any time. The Additional 2020 Share Repurchase Program expires when $15 million shares of Class A common stock are repurchased or on December 31, 2022.

Quarterly Dividends

During the three months ended September 30, 2020, the Company paid a quarterly dividend of $4.1 million. Dividends paid during the nine months ended September 30, 2020 totaled $11.5 million, comprised of $10.8 million in quarterly dividends and $0.7 million in cash bonuses and distributions related to dividends previously declared upon vesting of restricted stock and stock option awards.

NOTE 11. Share‑Based Compensation

Current Period Activity

During the three months ended September 30, 2020, the Company issued restricted stock awards for 484,010 shares of common stock, of which awards for 11,997 shares were fully vested on the grant date, awards for 57,576 shares vest based on service over a three year period, and awards for 414,437 shares vest based on service over a thirty month period. For the nine months ended September 30, 2020, the Company issued restricted stock awards for 781,843 shares of common stock, of which awards for 30,976 shares were fully vested on the grant date, awards for 336,430 shares vest based on service over a three year period and awards for 414,437 shares vest based on service over a thirty month period.

22

Stock option award and restricted stock award activity during the nine months ended September 30, 2020 and 2019 was as follows:

	Shares Subject to Stock Option Awards
	Nine Months Ended September 30,
	2020							2019
	Avg wtd		Avg wtd					Avg wtd		Avg wtd
	grant-date		exercise					grant-date		exercise
	fair value		price		Units			fair value		price		Units
Outstanding at beginning of period	$	3.83	$	6.27		7,880,167		$	3.79	$	6.12		9,070,052
Granted		—		—		—			7.25		17.64		31,178
Forfeited		5.86		12.40		(8,746	)		5.00		9.63		(247,403	)
Exercised		3.44		5.06		(617,412	)		3.15		4.11		(708,949	)
Outstanding at end of the period	$	3.86	$	6.36		7,254,009		$	3.82	$	6.24		8,144,878
Vested	$	3.73	$	5.97		6,641,955		$	3.59	$	5.51		6,860,289
Unvested		5.30		10.67		612,054			5.06		10.12		1,284,589

	Restricted Stock Awards
	Nine Months Ended September 30,
	2020					2019
	Avg wtd grant-					Avg wtd grant-
	date fair value		Units			date fair value		Units
Unvested at beginning of period	$	14.29		3,215,619		$	13.17		2,997,856
Granted		16.65		781,843			16.27		1,192,145
Vested		14.35		(1,089,780	)		11.06		(212,929	)
Forfeited		15.88		(78,839	)		13.49		(433,549	)
Unvested at end of period	$	14.98		2,828,843		$	14.25		3,543,523

Dividend Payments

At September 30, 2020 and December 31, 2019, the amount of cash bonuses and distributions related to dividends previously declared on unvested and outstanding restricted share awards and stock options totaled $1.0 million and $1.3 million, respectively, which was not recorded as a liability as of the balance sheet date. A liability will be recorded for these cash bonuses and dividends when the restricted shares and options vest.

Share-Based Compensation Expense

The Company recorded $3.6 million and $4.8 million of share-based compensation expense in the three months ended September 30, 2020 and 2019, respectively, and $13.5 million and $10.1 million of share-based compensation in the nine months ended September 30, 2020 and 2019, respectively, in personnel compensation and benefits in the unaudited Condensed Consolidated Statements of Operations.

NOTE 12. Earnings Per Share

The following table sets forth the reconciliation of basic earnings per share and diluted earnings per share from net income for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands except per share amounts)	2020		2019		2020		2019
Net income	$	55,741	$	25,992	$	157,627	$	54,902
Shares:
Basic: Weighted average number of shares outstanding		67,743		67,724		67,785		67,610
Plus: Incremental shares from assumed conversion of dilutive instruments		5,694		5,947		5,918		5,690
Diluted: Weighted average number of shares outstanding		73,437		73,671		73,703		73,300
Earnings per share
Basic:	$	0.82	$	0.38	$	2.33	$	0.81
Diluted:	$	0.76	$	0.35	$	2.14	$	0.75

23

Outstanding instruments excluded from the computation of weighted average shares for diluted earnings per share because the effect would be anti-dilutive totaled 43 thousand and 0.3 million for the three months ended September 30, 2020 and 2019, respectively, and 43 thousand and 1.3 million for the nine months ended September 30, 2020 and 2019, respectively. Holders of non-vested share-based compensation awards do not have rights to receive nonforfeitable dividends on the shares covered by the awards.

NOTE 13. Accumulated Other Comprehensive Loss

The following table presents changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2020 and 2019.

	Available-for-						Cumulative
	Sale			Cash Flow			Translation
(in thousands)	Securities			Hedges			Adjustment			Total
Balance, December 31, 2019	$	—		$	—		$	—		$	—
Other comprehensive loss before reclassification and tax		—			(11,977	)		(23	)		(12,000	)
Tax impact		—			2,853			6			2,859
Reclassifications, before tax		—			205			—			205
Tax impact		—			(51	)		—			(51	)
Net current period other comprehensive loss		—			(8,970	)		(17	)		(8,987	)
Balance, September 30, 2020	$	—		$	(8,970	)	$	(17	)	$	(8,987	)
Balance, December 31, 2018	$	(59	)	$	—		$	(27	)	$	(86	)
Other comprehensive income before reclassification and tax		—			—			(28	)		(28	)
Tax impact		—			—			7			7
Net current period other comprehensive income		—			—			(21	)		(21	)
Cumulative effect of adoption of ASU 2016-01 and 2018-02		59			—			3			62
Balance, September 30, 2019	$	—		$	—		$	(45	)	$	(45	)

NOTE 14. DERIVATIVES

Interest Rate Swaps

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 Swap, the Company pays interest at a fixed rate of interest and receive interest that varies with the three-month LIBOR rate. The notional value, fixed rate of interest and expiration date of the Swap as of September 30, 2020 was $450 million – 3.465% – July 1, 2026. Refer to Note 5, Fair Value Measurements, for additional disclosures regarding fair value measurements.

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. For the three months ended September 30, 2020 and 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 loss, 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 payable to the Swap counterparty at September 30, 2020 of $0.7 million is recorded in other liabilities on the unaudited Condensed Consolidated Balance Sheets.

The following table summarizes the classification of the Swap in the unaudited Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019 (in thousands):

Balance Sheets	Description	September 30, 2020		December 31, 2019
Other liabilities	Fair value of interest rate swap	$	11,772	$	—
	Notional amount		450,000		—

24

The following tables summarize the effects of the Swap in the unaudited Condensed Consolidated Statements of Operations and unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019 and (in thousands):

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
Statement of Operations	Description	2020		2019		2020		2019
Interest expense and other financing costs	Loss reclassified from AOCL	$	724	$	—	$	205	$	—

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
Statements of Comprehensive Income	Description	2020		2019		2020		2019
Other comprehensive loss	Loss recognized in AOCL, net of tax	$	621	$	—	$	8,970	$	—

NOTE 15. EQUITY METHOD INVESTMENT

On September 20, 2020, the Company acquired, through a wholly owned subsidiary, a 15% interest voting share and income share in Alderwood. Alderwood’s operating entity, Alderwood Capital, is a London-based investment advisory firm focused on taking minority stakes in specialist boutique asset management businesses. The Company has commitments to contribute additional capital of $4.5 million to Alderwood and $50 million to a private fund to be launched by Alderwood, subject to certain terms and conditions.

The Company analyzed its investment in Alderwood under the voting interest model and determined that it does not have a controlling financial interest over Alderwood and should not consolidate under the voting interest model.

Given the level of ownership interest in Alderwood, which is an English limited liability partnership, and the fact that Alderwood will maintain specific ownership accounts for investors, the Company accounts for its investment in Alderwood using the equity method of accounting.

For the three and nine months ended September 30, 2020, the Company recorded no gains or losses from its equity investment in Alderwood. For the three and nine months ended September 30, 2019, the Company recognized a $2.9 million gain on sale of its equity investment in Cerebellum Capital, LLC (“Cerebellum”). Gains and losses on equity method investments, including the gain on sale of the Cerebellum equity investment, are recorded in “Interest income and other income (expense)” in the unaudited Condensed Consolidated Statements of Operations.

Equity method investments are recorded in “Other assets” in the unaudited Condensed Consolidated Balance Sheets. At September 30, 2020, the Company had a $1.5 million investment in Alderwood and no longer held an equity investment in Cerebellum.

NOTE 16. SUBSEQUENT EVENTS

Subsequent to September 30, 2020, the Company repaid $20.0 million in term loan principal, for a total debt reduction of $282.8 million since July 1, 2019.

On November 4, 2020, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.07 per share on the Company’s common stock, an increase of 17% and 40%, respectively, over the third quarter 2020 and second quarter 2020 quarterly cash dividend. The dividend is payable on December 28, 2020, to stockholders of record on December 10, 2020.

On November 4, 2020, the Company announced that its Board of Directors approved the Additional 2020 Share Repurchase Program authorizing the repurchase of up to $15 million of its Class A Common Stock through December 31, 2022. Under the new program, the Company may purchase its shares from time to time in the open market or in privately negotiated transactions. The amount and timing of the purchases will depend on a number of factors including the price and availability of the Company’s shares, trading volume, capital availability, Company performance and general economic and market conditions. The share repurchase program may be suspended or discontinued at any time.

On November 4, 2020, the Company announced the planned acquisition of THB Asset Management (“THB”), an investment management company headquartered in Norwalk, Connecticut. THB currently manages approximately $435 million in the micro-cap, small-cap and mid-cap asset classes, including U.S., global and international strategies. Aligning with the Company’s responsible

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investing initiatives, all of THB’s strategies have environmental, social and governance (“ESG”) considerations fully integrated into their investment processes.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

The following discussion is intended to assist in the understanding of our financial position at September 30, 2020 and December 31, 2019, results of operations for the three and nine months ended September 30, 2020 and 2019, and cash flows for the nine months ended September 30, 2020 and 2019, and should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2019. This discussion and analysis contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q and in “Item 1A. Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2019.

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) a pandemic. The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption. We are closely monitoring the impact of the outbreak of COVID-19 on all aspects of our business. While COVID-19 did not have a material adverse effect on our reported results for our first three quarters, the extent to which the COVID-19 pandemic 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 pandemic; governmental, business and individuals’ actions that have been and continue to be 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.

Overview

We are a diversified global asset management firm operating a next generation business model combining boutique investment qualities with the benefits of a fully integrated, centralized operating and distribution platform. We have $132.7 billion in assets under management (“AUM”) as of September 30, 2020. Our differentiated model features a scalable operating platform that provides centralized distribution, marketing and operations infrastructure to our Franchises and Solutions. Our earnings are primarily driven by asset-based fees charged for services related to the investment strategies we deliver and consist of investment management, fund administration and distribution fees.

Franchises

Our Franchises are operationally integrated, but are separately branded and make investment decisions independently from one another within guidelines established by their respective investment mandates. Our 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. Victory Capital Management Inc. (“VCM”) employs all of the Company’s United States investment professionals across our Franchises, which are not separate legal entities.

Solutions

Our Solutions Platform consists of multi-Franchise and customized solutions strategies that are primarily rules-based. We offer our Solutions Platform through a variety of vehicles, including separate accounts, unified managed accounts (“UMA”), mutual funds and VictoryShares which is our exchange traded fund (“ETF”) brand. Like our Franchises, our Solutions Platform is operationally integrated and supported by our centralized distribution, marketing and operational support functions. Our approach furthers our commitment to rules‑based investing and includes single and multi‑factor strategies designed to provide a variety of outcomes, including maximum diversification, dividend income, downside mitigation, minimum volatility, thematic and targeted factor exposure.

Operations

Our centralized operations functions provide our Franchises and Solutions Platform with the support they need so that they can focus on their investment processes. Our centralized operations functions include trading platforms, risk and compliance, middle‑ and back‑office support, technology, finance, human resources, accounting and legal. Although our operations are 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 individualized investment processes and minimize undue disruptions.

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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 the majority of our outsourced functions, which we believe mitigates vendor‑specific risk. We also have 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, should drive industry-leading margins and facilitate free cash flow conversion. Additionally, we believe having a majority 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.

Professionals within our institutional, retail and direct distribution channels 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 distribution channel serves the investment needs of individual clients including USAA members and the military community.

We have grown our AUM from $17.9 billion following the management-led buyout with Crestview Partners II GP, L.P. (“Crestview GP”) in August 2013 to $132.7 billion at September 30, 2020. 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 distribution channels with deep penetration.

USAA AMCO Acquisition

Effective July 1, 2019, the Company completed the acquisition (the “USAA AMCO Acquisition”) of USAA Asset Management Company (“USAA Adviser”) and Victory Capital Transfer Agency, Inc. (“VCTA”), formally known as the USAA Transfer Agency Company. The transformative acquisition increased AUM by $81.1 billion and significantly impacted our financial results. The acquisition not only increased AUM and revenue, but also introduced additional personnel expenses and new and additional operating expenses such as third party distribution costs, expenses related to a transfer services agreement with USAA, 529 College Savings Plan, and direct distribution channel expenses that the Company did not incur prior to the acquisition. In conjunction with the USAA AMCO Acquisition, the Company entered into the 2019 Credit Agreement, dated July 1, 2019, and obtained a seven-year term loan in an aggregate principal amount of $1.1 billion. All indebtedness outstanding under the previous credit agreement was repaid and terminated as of July 1, 2019.

The USAA AMCO Acquisition expanded and diversified our investment platform, particularly in the fixed income and solutions asset classes, and increased our size and scale. Additional products added to our investments platform include target date and target risk strategies, managed volatility mutual funds, active fixed income ETFs, sub-advised and multi-manager equity funds. We have also added to our lineup of asset allocation portfolios and smart beta equity ETFs. Through the acquisition, the Company has the rights to offer products and services using the USAA brand for a period of time and the opportunity to offer its products to USAA members through a direct distribution channel. In addition, we have entered into a referral agreement with USAA for members that are interested in investing in USAA Funds or the USAA 529 College Savings Plan. 

Total consideration for the USAA AMCO Acquisition was $949.4 million, comprising of $851.3 million of cash paid at closing plus $98.8 million as the estimated fair value of contingent consideration as of the acquisition date less $0.7 million in net working capital adjustments settled in the first quarter of 2020. 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 years following the closing date.

The estimated fair value of contingent consideration arrangements as of September 30, 2020 was $120.5 million and consist of the USAA AMCO earn-out payment liability, which is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets. Refer to Note 4, Acquisitions, for further details on the USAA AMCO Acquisition.

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Business Highlights

Assets under management:

• AUM at September 30, 2020 increased by $3.6 billion, or 2.8%, to $132.7 billion from $129.1 billion at June 30, 2020, driven by positive market action of $6.6 billion partially offset by net outflows of $3.0 billion. Net flows for the quarter ended September 30, 2020 were comprised of $2.9 billion of long-term outflows and $0.1 billion of short-term outflows.

• AUM at September 30, 2020 and 2019 was $132.7 billion and $145.8 billion, respectively. We generated $5.4 billion in gross flows and $3.0 billion in net outflows for the three months ended September 30, 2020 compared to $11.9 billion in gross flows and $0.7 billion in net inflows for the same period in 2019.

• AUM at September 30, 2020 and 2019 was $132.7 billion and $145.8 billion, respectively. We generated $30.0 billion in gross flows and $17.8 billion in net outflows for the nine months ended September 30, 2020 compared to $22.5 billion in gross flows and $3.2 billion in net inflows for the same period in 2019. Net flows for nine months ended September 30, 2020 were comprised of $9.4 billion of long-term outflows and $8.3 billion of short-term outflows.

Investment performance:

• 39 of our Victory Capital mutual funds and ETFs had overall Morningstar ratings of four or five stars and 67% of our fund and ETF AUM were rated four or five stars overall by Morningstar. 55% of our strategies by AUM had investment returns in excess of their respective benchmarks over a one-year period, 70% over a three-year period, 69% over a five-year period and 75% over a ten-year period. On an equal-weighted basis, 43% of our strategies have outperformed their benchmarks over a one-year period, 50% over a three-year period, 53% over a five-year period and 64% over a ten-year period.

Industry achievements and recognition:

• We ranked 7^th in “Barron’s Best Fund Families of 2019” for the five-year period and 10^th for the 10-year period ended December 31, 2019. We ranked 17^th overall on a one-year basis for 2019. This is the 3^rd consecutive year that we have been ranked among the top 10 best fund families and the 6^th consecutive year that we have been ranked among the top 25 best fund families by Barron’s.

• In July 2020, Victory Capital became a signatory to the United Nations-supported Principles for Responsible Investment, broadening our commitment to responsible investing and formalizing what our autonomous Investment Franchises and Solutions Platform have been doing for many years. Each of our Investment Franchises follows an approach to incorporating environmental, social and governance (“ESG”) considerations that best suits its own investment process or the objectives of its clients.

Financial highlights:

• Total revenue for the three months ended September 30, 2020 was $188.7 million compared to $215.0 million for the same period in 2019. For the nine months ended September 30, 2020 and 2019, total revenue was $575.0 million and $393.8 million, respectively.

• Net income was $55.7 million for the three months ended September 30, 2020 compared to $26.0 million for the same period in 2019. For the nine months ended September 30, 2020 and 2019, net income was $157.6 million and $54.9 million, respectively.

• Adjusted EBITDA was $95.6 million for the three months ended September 30, 2020, or 50.7% of revenue, compared to $96.3 million, or 44.8% of revenue, for the same period in 2019. For the nine months ended September 30, 2020, Adjusted EBITDA was $273.5 million, or 47.6% of revenue, compared to $166.5 million, 42.3% of revenue, for the same period in 2019. Refer to “Supplemental Non-GAAP Financial Information” for further information about the Adjusted EBITDA calculation and reconciliation of generally accepted accounting principles (“GAAP”) net income to Adjusted EBITDA.

• Adjusted Net Income with tax benefit was $73.4 million for the three months ended September 30, 2020 compared to $67.3 million for the three months ended September 30, 2019. For the nine months ended September 30, 2020, Adjusted Net Income with tax benefit was $206.9 million compared to $120.3 million for the same period in 2019. Refer to “Supplemental Non-GAAP Financial Information” for further information about the Adjusted Net Income calculation and reconciliation of GAAP net income to Adjusted Net Income.

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Key Performance Indicators

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

	Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions, except for basis points and percentages)	2020			2019			2020			2019
AUM at period end	$	132,662		$	145,832		$	132,662		$	145,832
Average AUM		133,096			145,904			135,378			87,670
Gross flows		5,433			11,905			29,935			22,457
Net short term flows		(96	)		(65	)		(8,311	)		(65	)
Net long term flows		(2,878	)		726			(9,445	)		3,314
Net flows		(2,974	)		661			(17,756	)		3,249
Total revenue		188.7			215.0			575.0			393.8
Revenue on average AUM	56.4 bps			58.5 bps			56.7 bps			60.1 bps
Net income		55.7			26.0			157.6			54.9
Adjusted EBITDA(1)		95.6			96.3			273.5			166.5
Adjusted EBITDA Margin(2)		50.7	%		44.8	%		47.6	%		42.3	%
Adjusted Net Income(1)		66.7			60.5			186.7			106.8
Tax benefit of goodwill and acquired intangibles(3)		6.7			6.8			20.2			13.5

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

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

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

Assets Under Management

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

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

	As of
	September 30,
(in millions)	2020		2019
Fixed Income	$	35,848	$	37,784
Solutions		30,767		29,579
U.S. Mid Cap Equity		22,540		25,479
U.S. Small Cap Equity		14,453		16,266
U.S. Large Cap Equity		13,242		13,488
Global / Non-U.S. Equity		11,974		11,532
Other		207		243
Total Long-Term Assets	$	129,031	$	134,371
Money Market & Short-Term Assets		3,631		11,460
Total	$	132,662	$	145,832

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

	U.S. Mid			U.S. Small						U.S. Large			Global /												Money
	Cap			Cap			Fixed			Cap			Non-U.S.									Total			Market /
(in millions)	Equity			Equity			Income			Equity			Equity			Solutions			Other			Long-term			Short-term			Total
For the Three Months Ended September 30, 2020
Beginning AUM	$	22,483		$	14,083		$	35,622		$	12,524		$	11,130		$	29,305		$	195		$	125,343		$	3,727		$	129,070
Gross client cash inflows		760			1,061			1,470			147			463			1,155			11			5,067			367			5,433
Gross client cash outflows		(1,890	)		(1,175	)		(1,850	)		(753	)		(568	)		(1,694	)		(16	)		(7,944	)		(463	)		(8,408	)
Net client cash flows		(1,129	)		(114	)		(380	)		(606	)		(105	)		(539	)		(5	)		(2,878	)		(96	)		(2,974	)
Market appreciation / (depreciation)		1,259			591			607			1,141			948			2,001			19			6,566			1			6,566
Net transfers		(73	)		(107	)		(2	)		182			1			—			(1	)		—			—			—
Ending AUM	$	22,540		$	14,453		$	35,848		$	13,242		$	11,974		$	30,767		$	207		$	129,031		$	3,631		$	132,662
For the Three Months Ended September 30, 2019
Beginning AUM	$	24,203		$	15,278		$	7,300		$	4,108		$	5,498		$	6,919		$	771		$	64,077		$	—		$	64,077
Gross client cash inflows		880			779			4,071			166			326			1,207			28			7,456			4,449			11,905
Gross client cash outflows		(1,396	)		(1,069	)		(1,789	)		(497	)		(566	)		(1,296	)		(118	)		(6,730	)		(4,514	)		(11,244	)
Net client cash flows		(516	)		(290	)		2,282			(331	)		(240	)		(89	)		(90	)		726			(65	)		661
Market appreciation / (depreciation)		(26	)		(249	)		528			(301	)		(192	)		225			(83	)		(98	)		44			(54	)
Net transfers		1,818			1,527			27,674			10,012			6,465			22,523			(354	)		69,665			11,482			81,147
Ending AUM	$	25,479		$	16,266		$	37,784		$	13,488		$	11,532		$	29,579		$	243		$	134,371		$	11,460		$	145,832

				U.S.						U.S.
	U.S. Mid			Small						Large			Global /												Money
	Cap			Cap			Fixed			Cap			Non-U.S.									Total			Market /
(in millions)	Equity			Equity			Income			Equity			Equity			Solutions			Other			Long-term			Short-term			Total
Nine Months Ended September 30, 2020
Beginning AUM	$	26,347		$	17,346		$	37,973		$	14,091		$	12,603		$	31,649		$	236		$	140,245		$	11,587		$	151,832
Gross client cash inflows		3,177			3,291			4,918			600			1,570			3,917			32			17,506			12,429			29,935
Gross client cash outflows		(5,666	)		(3,878	)		(7,515	)		(2,159	)		(1,827	)		(5,855	)		(52	)		(26,951	)		(20,740	)		(47,691	)
Net client cash flows		(2,489	)		(587	)		(2,597	)		(1,558	)		(256	)		(1,938	)		(20	)		(9,445	)		(8,311	)		(17,756	)
Market appreciation / (depreciation)		(1,220	)		(2,142	)		749			520			(399	)		1,045			(13	)		(1,461	)		48			(1,413	)
Net transfers		(99	)		(164	)		(278	)		190			27			11			5			(307	)		307			—
Ending AUM	$	22,540		$	14,453		$	35,848		$	13,242		$	11,974		$	30,767		$	207		$	129,031		$	3,631		$	132,662
Nine Months Ended September 30, 2019
Beginning AUM	$	20,019		$	12,948		$	6,836		$	3,759		$	4,610		$	3,767		$	823		$	52,763		$	—		$	52,763
Gross client cash inflows		4,656			2,500			4,880			214			1,024			4,578			155			18,008			4,449			22,457
Gross client cash outflows		(5,021	)		(3,052	)		(2,502	)		(809	)		(1,048	)		(1,940	)		(321	)		(14,694	)		(4,514	)		(19,208	)
Net client cash flows		(365	)		(552	)		2,378			(595	)		(24	)		2,638			(166	)		3,314			(65	)		3,249
Market appreciation / (depreciation)		4,006			2,345			896			316			480			649			(60	)		8,631			44			8,675
Net transfers		1,820			1,526			27,674			10,007			6,465			22,525			(354	)		69,661			11,482			81,143
Ending AUM	$	25,479		$	16,266		$	37,784		$	13,488		$	11,532		$	29,579		$	243		$	134,372		$	11,460		$	145,832

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

	As of September 30,
	2020					2019
(in millions)	Amount		% of total			Amount		% of total
Direct	$	65,261		49	%	$	71,925		49	%
Institutional		34,814		26	%		38,246		26	%
Retail		32,587		25	%		35,661		25	%
Total AUM(1)	$	132,662		100	%	$	145,832		100	%

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

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

							Separate
							Accounts and
							Other
(in millions)	Mutual Funds (1)			ETFs (2)			Vehicles (3)			Total
Three Months Ended September 30, 2020
Beginning AUM	$	100,430		$	3,462		$	25,179		$	129,070
Gross client cash inflows		4,251			18			1,164			5,433
Gross client cash outflows		(6,847	)		(139	)		(1,421	)		(8,408	)
Net client cash flows		(2,596	)		(121	)		(257	)		(2,974	)
Market appreciation (depreciation)		5,151			147			1,269			6,566
Net transfers		(63	)		—			63			—
Ending AUM	$	102,921		$	3,488		$	26,254		$	132,662
Three Months Ended September 30, 2019
Beginning AUM	$	34,258		$	3,093		$	26,726		$	64,077
Gross client cash inflows		8,383			245			3,277			11,905
Gross client cash outflows		(9,643	)		(258	)		(1,343	)		(11,244	)
Net client cash flows		(1,260	)		(13	)		1,934			661
Market appreciation (depreciation)		267			4			(325	)		(54	)
Net transfers		80,806			782			(441	)		81,147
Ending AUM	$	114,071		$	3,867		$	27,894		$	145,832

							Separate
							Accounts and
							Other
(in millions)	Mutual Funds (1)			ETFs (2)			Vehicles (3)			Total
Nine Months Ended September 30, 2020
Beginning AUM	$	118,605		$	4,213		$	29,014		$	151,832
Gross client cash inflows		26,617			363			2,954			29,935
Gross client cash outflows		(42,204	)		(814	)		(4,673	)		(47,691	)
Net client cash flows		(15,587	)		(451	)		(1,718	)		(17,756	)
Market appreciation (depreciation)		(33	)		(274	)		(1,105	)		(1,413	)
Net transfers		(63	)		—			63			—
Ending AUM	$	102,921		$	3,488		$	26,254		$	132,662
Nine Months Ended September 30, 2019
Beginning AUM	$	30,492		$	2,956		$	19,315		$	52,763
Gross client cash inflows		12,760			594			9,103			22,457
Gross client cash outflows		(15,403	)		(789	)		(3,016	)		(19,208	)
Net client cash flows		(2,643	)		(195	)		6,087			3,249
Market appreciation (depreciation)		5,421			323			2,931			8,675
Net transfers		80,802			782			(441	)		81,143
Ending AUM	$	114,071		$	3,867		$	27,894		$	145,832

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

(2) Excludes assets managed for other proprietary product (i.e. funds of funds) in order to adjust for double counting.

(3) Includes collective trust funds, wrap program separate accounts and unified managed accounts or UMAs.

September 30, 2020 AUM compared to June 30, 2020 AUM. At September 30, 2020, our total AUM was $132.7 billion, an increase of $3.6 billion, or 2.8%, from $129.1 billion at June 30, 2020, primarily driven by positive market action of $6.6 billion partially offset by net outflows of $3.0 billion.

Net outflows were driven by our U.S. mid cap equity and U.S. large cap equity strategies as well as our Solutions platform of $1.1 billion, $0.6 billion and $0.5 billion, respectively.

September 30, 2020 AUM compared to December 31, 2019 AUM. Total AUM decreased by $19.2 billion, or 12.6%, to $132.7 billion at September 30, 2020 compared to $151.8 billion at December 31, 2019. The decrease in AUM was primarily due to net outflows of $17.8 billion and negative market action of $1.4 billion. The net outflows were driven by $8.3 billion of money market and short-term assets, $2.6 billion in our fixed income strategies, $2.5 billion in our U.S. mid cap equity strategies, and $1.9 billion in our Solutions Platform. Money market and short-term net outflows were primarily due to The Charles Schwab Company’s acquisition of USAA’s Investment Management Company in May 2020.

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GAAP Results of Operations

The following table presents our GAAP results of operations for the three and nine months ended September 30, 2020 and 2019. The USAA AMCO Acquisition that closed on July 1, 2019 significantly impacted our financial results for the nine months ended September 30, 2020 when compared to the nine months ended September 30, 2019.

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share data)	2020			2019			2020			2019
Revenue
Investment management fees	$	137,240		$	155,406		$	414,153		$	307,859
Fund administration and distribution fees		51,416			59,574			160,810			85,960
Total revenue		188,656			214,980			574,963			393,819
Expenses
Personnel compensation and benefits		47,375			55,556			144,051			125,599
Distribution and other asset-based expenses		39,123			57,202			135,613			89,151
General and administrative		13,196			17,654			38,373			31,828
Depreciation and amortization		3,936			7,768			12,152			18,253
Change in value of consideration payable for acquisition of business		2,000			—			1,800			(14	)
Acquisition-related costs		1,148			16,386			1,056			21,950
Restructuring and integration costs		1,285			4,841			4,888			6,629
Total operating expenses		108,063			159,407			337,933			293,396
Income from operations		80,593			55,573			237,030			100,423
Other income (expense)
Interest income and other income (expense)		1,120			2,742			(86	)		5,231
Interest expense and other financing costs		(8,187	)		(16,856	)		(29,305	)		(26,000	)
Loss on debt extinguishment		(758	)		(7,409	)		(1,675	)		(7,409	)
Total other expense, net		(7,825	)		(21,523	)		(31,066	)		(28,178	)
Income before income taxes		72,768			34,050			205,964			72,245
Income tax expense		(17,027	)		(8,058	)		(48,337	)		(17,343	)
Net income	$	55,741		$	25,992		$	157,627		$	54,902
Earnings per share of common stock
Basic	$	0.82		$	0.38		$	2.33		$	0.81
Diluted	$	0.76		$	0.35		$	2.14		$	0.75
Weighted average number of shares outstanding
Basic		67,743			67,724			67,785			67,610
Diluted		73,437			73,671			73,703			73,300
Dividends declared per share of common stock	$	0.06		$	0.05		$	0.16		$	0.05

Investment Management Fees

Three months ended September 30, 2020 compared to September 30, 2019. Investment management fees decreased by $18.2 million, or 11.7%, to $137.2 million for the three months ended September 30, 2020 compared to $155.4 million for the same period in 2019 due to the combination of a decrease in average AUM and a decrease in investment management fee realization over the comparable period. Average AUM decreased $12.8 billion, or 8.7%, to $133.1 billion for the three months ended September 30, 2020 compared to $145.9 billion for the same period in 2019, largely attributable to net outflows.

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Nine months ended September 30, 2020 compared to September 30, 2019.  Investment management fees increased by $106.3 million, or 34.5%, to $414.2 million for the nine months ended September 30, 2020 from $307.9 million for the same period in 2019 largely attributable to acquired assets in the USAA AMCO acquisition. Average AUM was $135.4 billion and $87.7 billion, respectively, for the nine months ended September 30, 2020 and 2019.

Fund Administration and Distribution Fees

Three months ended September 30, 2020 compared to September 30, 2019.  Fund administration and distribution fees decreased by $8.2 million, or 13.7%, to $51.4 million for the three months ended September 30, 2020 compared to $59.6 million for the same period in 2019 due to the combination of a decrease in average mutual fund AUM over the comparable period and a shift in the mix of assets to lower 12b-1 paying share classes.

Nine months ended September 30, 2020 compared to September 30, 2019.  Fund administration and distribution fees increased by $74.9 million, or 87.1%, to $160.8 million for the nine months ended September 30, 2020 from $86.0 million for the same period in 2019 due to the addition of $56.8 million in transfer agent fees related to the USAA AMCO Acquisition, partially offset by a decline in fee realization due to 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 personnel compensation and benefits expense for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Salaries, payroll related taxes and employee benefits	$	17,782	$	16,647	$	54,769	$	44,158
Incentive compensation		22,306		29,493		63,639		60,137
Sales-based compensation(1)		3,086		3,397		10,374		9,984
Equity awards granted to employees and directors(2)		4,201		4,814		14,081		10,115
Acquisition and transaction-related compensation		—		1,205		1,188		1,205
Total personnel compensation and benefits expense	$	47,375	$	55,556	$	144,051	$	125,599

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

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

Three months ended September 30, 2020 compared to September 30, 2019.  Personnel compensation and benefits were $47.4 million for the three months ended September 30, 2020, a decrease of $8.2 million, or 14.7%, from $55.6 million for the same period in 2019 primarily attributable to a decrease in incentive compensation. Incentive compensation and equity awards granted to employees and directors were $22.3 million and $4.2 million, respectively, for the three months ended September 30, 2020, compared to $29.5 million and $4.8 million, respectively, for the same period in 2019. Salaries, payroll related taxes and employee benefits increased $1.1 million to $17.8 million for the three months ended September 30, 2020 compared to $16.6 million for the same period in 2019 primarily attributable to an increase in headcount.

Nine months ended September 30, 2020 compared to September 30, 2019.  Personnel compensation and benefits increased by $18.5 million, or 14.7%, to $144.1 million for the nine months ended September 30, 2020 from $125.6 million for the same period in 2019 primarily attributable to an increase in the headcount due to the USAA AMCO Acquisition. Salaries, payroll related taxes and employee benefits were $54.8 million and $44.2 million, respectively, for the nine months ended September 30, 2020 and 2019. Incentive compensation and equity awards granted to employees and directors were $63.6 million and $14.1 million, respectively, for the nine months ended September 30, 2020, compared to $60.1 million and $10.1 million, respectively, for the same period in 2019.

Distribution and Other Asset‑Based Expenses

The following table presents the components of distribution and other asset-based expenses for the three and nine months ended September 30, 2020 and 2019:

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	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Broker-dealer distribution fees	$	5,594	$	6,974	$	17,045	$	20,914
Platform distribution fees		24,082		36,293		90,971		45,856
Sub-administration		3,894		7,881		11,182		11,296
Sub-advisory		3,057		3,454		9,116		5,074
Middle-office		2,496		2,600		7,299		6,011
Total distribution and other asset-based expenses	$	39,123	$	57,202	$	135,613	$	89,151

Three months ended September 30, 2020 compared to September 30, 2019.  Distribution and other asset-based expenses are primarily based on AUM. For the three months ended September 30, 2020, distribution and other asset-based expenses were $39.1 million, a decrease of $18.1 million, or 31.6%, from $57.2 million for the same period in 2019, primarily due to the combination of a decrease in average mutual fund AUM over the comparable period and a change in asset mix of our underlying retail distribution platforms.

Nine months ended September 30, 2020 compared to September 30, 2019. Distribution and other asset-based expenses were $135.6 million for the nine months ended September 30, 2020, an increase of $46.5 million, or 52.1%, from $89.2 million for the same period in 2019 due primarily to the USAA AMCO Acquisition. The acquisition introduced new operating expenses that the Company did not incur prior to the acquisition, such as platform distribution costs paid to third parties and USAA, sub-transfer agent service costs and 529 College Savings Plan expenses.

General and Administrative

Three months ended September 30, 2020 compared to September 30, 2019. General and administrative expenses were $13.2 million for the three months ended September 30, 2020 compared to $17.7 million for the same period in 2019. The decrease of $4.5 million, or 25.3%, was primarily due to the combination of a decrease in costs associated with the transition service agreement related to the USAA AMCO Acquisition and expenses associated with travel and entertainment.  

Nine months ended September 30, 2020 compared to September 30, 2019.  For the nine months ended September 30, 2020 and 2019, general and administrative expenses were $38.4 million and $31.8 million, respectively, for a year over year increase of $6.6 million, or 20.6%. The increase was primarily due to additional, ongoing costs associated with the transition service agreement related to the USAA AMCO Acquisition. Also contributing, but to a lesser extent, were increases in facility, technology and professional fees.

Depreciation and Amortization

Three months ended September 30, 2020 compared to September 30, 2019. Depreciation and amortization decreased by $3.8 million, or 49.3%, to $3.9 million for the three months ended September 30, 2020 from $7.8 million for the same period in 2019, due to a reduction in amortization expense related to definite-lived intangible assets in connection with the Munder Capital Management acquisition that became fully amortized in the fourth quarter of 2019.

Nine months ended September 30, 2020 compared to September 30, 2019. Depreciation and amortization decreased by $6.1 million, or 33.4%, to $12.2 million for the nine months ended September 30, 2020 from $18.3 million for the same period in 2019, due to the same factor as discussed above in the quarterly section.

Change in Value of Consideration Payable for Acquisition of Business

Three months ended September 30, 2020 compared to September 30, 2019. The fair value of the contingent consideration associated with the USAA AMCO acquisition increased by $2.0 million, resulting in a change in the estimated fair value of consideration payable of $2.0 million for the three months ended September 30, 2020. Refer to Note 4, Acquisitions, for further details on the fair value of contingent consideration payable.

Nine months ended September 30, 2020 compared to September 30, 2019. The fair value of the contingent consideration associated with the USAA AMCO acquisition increased by $1.8 million, resulting in a change in the estimated fair value of consideration payable of $1.8 million for the nine months ended September 30, 2020. Refer to Note 4, Acquisitions, for further details on the fair value of contingent consideration payable.

Acquisition‑Related Costs

Three months ended September 30, 2020 compared to September 30, 2019. Acquisition-related costs were $1.1 million and $16.4 million for the three months ended September 30, 2020 and 2019, respectively. The expense decrease is primarily due to costs recorded as a result of the USAA AMCO acquisition in July 2019 and include various transaction costs such as legal and filing fees and other professional fees.

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Nine months ended September 30, 2020 compared to September 30, 2019.  Acquisition-related costs for the nine months ended September 30, 2020 and 2019 were $1.1 million and $22.0 million, respectively. The expense decrease was due to the same factors as discussed above in the quarterly section. 

Restructuring and Integration Costs

Three months ended September 30, 2020 compared to September 30, 2019. Restructuring and integration costs for the three months ended September 30, 2020 were $1.3 million and $4.8 million for the three months ended September 30, 2019. The decrease is primarily due to a decrease in severance costs related to the USAA AMCO Acquisition.

Nine months ended September 30, 2020 compared to September 30, 2019.  Restructuring and integration costs were $4.9 million and $6.6 million, respectively, for the nine months ended September 30, 2020 and 2019, with the decrease due to the same factors as discussed above in the quarterly section.

Interest Income and Other Income (Expense)

Three months ended September 30, 2020 compared to September 30, 2019. Interest income and other income (expense) was income of $1.1 million for the three months ended September 30, 2020 compared to income of $2.7 million for the same period in 2019. The decrease was primarily due to a gain on sale of an equity method investment in Cerebellum Capital, LLC (“Cerebellum Capital”) recorded for the three months ended September 30, 2019.

Nine months ended September 30, 2020 compared to September 30, 2019.  For the nine months ended September 30, 2020 and 2019, interest income and other income/(expense) was expense of $0.1 million and income of $5.2 million, respectively. The decrease was primarily due to the same factors as discussed above in the quarterly section, as well as net unrealized gains on deferred compensation plan investments and higher yields on our cash invested in money market accounts recorded for the nine months ended September 30, 2019.

Interest Expense and Other Financing Costs

Three months ended September 30, 2020 compared to September 30, 2019. Interest expense and other financing costs were $8.2 million for the three months ended September 30, 2020, compared to $16.9 million for the same period in 2019. The expense decrease is largely due to a decrease in interest payments as a result of a decline in our term loan interest rate and a lower debt principal balance.

Nine months ended September 30, 2020 compared to September 30, 2019.  For the nine months ended September 30, 2020 and 2019, interest expense and other financing costs were $29.3 million and $26.0 million, respectively. The expense increase is primarily due to the increase in interest payments as a result of a higher debt principal balance over the comparable period as a result of the Company entering into the 2019 Credit Agreement on July 1, 2019 in conjunction with the USAA AMCO acquisition.

Loss on Debt Extinguishment

Three months ended September 30, 2020 compared to September 30, 2019. For the three months ended September 30, 2020 and 2019, loss on debt extinguishment was $0.8 million and $7.4 million, respectively. The expense decrease is primarily due to the write-off of unamortized debt issuance costs and unamortized debt discount in the third quarter of 2019 as a result of the termination of the previous credit agreement, dated February 2018.

Nine months ended September 30, 2020 compared to September 30, 2019. Loss on debt extinguishment was $1.7 million and $7.4 million for the nine months ended September 30, 2020 and 2019, respectively. The expense decrease was due to the same factors as discussed above in the quarterly section.

Income Tax Expense

Three months ended September 30, 2020 compared to September 30, 2019.  The effective tax rate for the three months ended September 30, 2020 and 2019 was 23.4% and 23.7%, respectively. The slight decrease in the effective tax rate was due to the combination of decreased excess tax benefits on share-based compensation and decreased expense related to state uncertain tax positions over the comparable period. Refer to Note 8, Income Taxes, for further details on our income taxes. 

Nine months ended September 30, 2020 compared to September 30, 2019. For the nine months ended September 30, 2020 and 2019, the effective tax rate was 23.5% and 24.0%, respectively. The change in the effective tax rate was due to the same factors as discussed above in the quarterly section. Refer to Note 8, Income Taxes, for further details on our income taxes. 

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Supplemental Non‑GAAP Financial Information

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

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

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2020			2019			2020			2019
Reconciliation of non-GAAP financial measures:
Net income (GAAP)	$	55,741		$	25,992		$	157,627		$	54,902
Income tax expense		(17,027	)		(8,058	)		(48,337	)		(17,343	)
Income before income taxes	$	72,768		$	34,050		$	205,964		$	72,245
Interest expense(1)		7,497			18,388			26,292			25,854
Depreciation(2)		814			682			2,444			1,865
Other business taxes(3)		256			146			(2,821	)		1,125
Amortization of acquisition-related intangible assets(4)		3,122			7,086			9,708			16,388
Stock-based compensation(5)		2,806			4,326			11,246			9,125
Acquisition, restructuring and exit costs(6)		6,996			24,452			15,559			31,804
Debt issuance costs(7)		1,386			10,002			5,087			10,732
Losses from equity method investments(8)		—			(2,837	)		—			(2,683	)
Adjusted EBITDA	$	95,645		$	96,295		$	273,479		$	166,455

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2020			2019			2020			2019
Reconciliation of non-GAAP financial measures:
Net income (GAAP)	$	55,741		$	25,992		$	157,627		$	54,902
Adjustments to reflect the operating performance of the Company:
i.        Other business taxes(3)		256			146			(2,821	)		1,125
ii.       Amortization of acquisition-related intangible assets(4)		3,122			7,086			9,708			16,388
iii.      Stock-based compensation(5)		2,806			4,326			11,246			9,125
iv.      Acquisition, restructuring and exit costs(6)		6,996			24,452			15,559			31,804
v.       Debt issuance costs(7)		1,386			10,002			5,087			10,732
Tax effect of above adjustments(9)		(3,642	)		(11,503	)		(9,695	)		(17,293	)
Adjusted Net Income	$	66,665		$	60,501		$	186,711		$	106,783
Tax benefit of goodwill and acquired intangibles(10)	$	6,745		$	6,802		$	20,218		$	13,523

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

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

(2) Adding back depreciation on property and equipment.

(3) Adding back other business taxes.

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

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

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

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	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Acquisition-related costs	$	1,148	$	16,386	$	1,056	$	21,950
Restructuring and integration costs		1,285		4,841		4,888		6,629
Change in value of consideration payable for acquisition of business		2,000		—		1,800		—
General and administrative		2,563		2,020		6,627		2,020
Personnel compensation and benefits		—		1,205		1,188		1,205
Total acquisition, restructuring and exit costs	$	6,996	$	24,452	$	15,559	$	31,804

(7) Adding back debt issuance costs.

(8) We adjust for earnings/losses on equity method investments.

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

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

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

Liquidity and Capital Resources

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

We cannot predict the duration or scope of the COVID-19 pandemic, its impact on our business, and the potential negative financial impact to our results, but the Company has actively positioned itself so that our cash flows from operations and financing sources will be sufficient to meet our needs. During the period of uncertainty related to the COVID-19 pandemic, we will continue to monitor our liquidity.

The following table shows our liquidity position as of September 30, 2020 and December 31, 2019.

	September 30,			December 31,
(in thousands)	2020			2019
Cash and cash equivalents	$	56,284		$	37,121
Accounts and other receivables		79,196			95,093
Undrawn commitment on revolving credit facility		100,000			100,000
Accounts and other payables		(97,172	)		(144,045	)

We manage our cash balances in order to fund our day-to-day operations. Our accounts receivable consists primarily of investment management fees that have been earned but not yet received from clients, income and other taxes receivable, and amounts receivable from the funds. We perform a review of our receivables on a monthly basis to assess collectability. We continue to actively monitor the impact of the COVID-19 pandemic on the collectability of certain receivables. We maintained a $100.0 million revolving credit facility at September 30, 2020 and December 31, 2019 (under the 2019 Credit Agreement) which had $100.0 million undrawn as of September 30, 2020 and December 31, 2019.

2019 Credit Agreement and 2020 Debt Repricing

In conjunction with the USAA AMCO Acquisition, the Company entered into the 2019 Credit Agreement, dated July 1, 2019, and obtained a seven-year term loan in an aggregate principal amount of $1.1 billion. All indebtedness outstanding under the previous credit agreement was repaid and terminated as of July 1, 2019. As of September 30, 2020, the Company has repaid or repurchased and retired $262.8 million of the outstanding term loans under the 2019 Credit Agreement. As of September 30, 2020, we were in compliance with our financial performance covenant. Refer to Note 4, Acquisitions, to the unaudited condensed consolidated financial statements for further details on the USAA AMCO Acquisition, as well as Note 9, Debt, for further information on the 2019 Credit Agreement.

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

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First Amendment, the Company repriced the existing term loans (the “Existing Term Loans”) with replacement term loans in an aggregate principal amount of $952.0 (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 2026, except that the Repriced Term Loans provide for a reduced applicable margin on LIBOR of 75 basis points. The applicable margin on LIBOR under the Repriced Term Loans is 2.50%, compared to 3.25% under the Existing Term Loans. Refer to Note 9, Debt, for further information on the repricing.

In April 2020, the Company established a trading account to opportunistically take advantage of potential short-term trading arbitrage with respect to our term loan. An alternative to principal prepayments, this allows us to buy back our outstanding term loan in the open market and retire the debt. This alternative is preferable to principal prepayments when our debt trades at a discount to par. A total of $114.8 million of the outstanding term loans under the 2019 Credit Agreement was repaid or repurchased and retired during the first nine months of 2020. The Company repaid $38.0 million in outstanding term loans in the first three months of 2020 and recorded a $1.0 million loss on debt extinguishment. During the three months ended June 30, 2020, the Company repaid or repurchased and retired $33.3 million in outstanding term loans and recorded a $0.1 million gain on debt extinguishment. During the three months ended September 30, 2020, the Company repaid or repurchased and retired $43.5 million in outstanding term loans and recorded a $0.8 million loss on debt extinguishment. Subsequent to September 30, 2020, we reduced the outstanding term loan principal by an additional $20.0 million through prepayments, for a total debt reduction of $282.8 million since July 1, 2019.

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. At September 30, 2020, the $450 million notional value Swap had a fair value of $11.8 million, which was included in other liabilities on the unaudited Condensed Consolidated Balance Sheets. For the three and nine months ended September 30, 2020, the Company recognized a loss, net of tax, of $0.7 million and $9.0 million, respectively, in accumulated other comprehensive loss. For the three and nine months ended September 30, 2020, the Company reclassified a loss of $0.7 million and $0.2 million, respectively, from accumulated other comprehensive loss to interest expense and other financing costs on the unaudited Condensed Consolidated Statements of Operations. Refer to Note 14, Derivatives, for further information on the Swap.

Capital Requirements

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

Cash Flows

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

	Nine Months Ended September 30,
(in thousands)	2020			2019
Net cash provided by operating activities	$	182,720		$	167,685
Net cash used in investing activities		(10,520	)		(845,888	)
Net cash used in financing activities		(153,007	)		705,708

Operating Activities – Cash provided by operating activities during the nine months ended September 30, 2020 was $182.7 million, compared to $167.7 million of cash provided by operating activities for the same period in 2019. The $15.0 million increase in cash provided by operating activities was primarily due to a $102.7 million and $18.7 million increase in net income and non-cash items, partially offset by a $106.4 million net decrease in working capital source of cash.

The net decrease in working capital source of cash was primarily due to accrued expenses and compensation which was a $48.7 million use of cash for the nine months ended September 30, 2020 compared to a $77.3 million source of cash for the same period last year due to the timing of new operating expenses as a result of the USAA AMCO Acquisition. The acquisition introduced new operating expenses that the Company did not incur prior to the acquisition, such as distribution costs paid to third parties and USAA, sub-transfer agent service costs, 529 College Savings Plan expenses, and direct member channel expenses.

Investing Activities – Cash used in investing activities during the nine months ended September 30, 2020 was $10.5 million and consisted of property and equipment purchases of $7.0 million, $1.6 million of net trading activity and $1.5 million for an equity investment in Alderwood Partners LLP (“Alderwood”).

Cash used in investing activities during the nine months ended September 30, 2019 was $845.9 million and consisted primarily of $851.3 million paid in cash at the July 1, 2019 closing of the USAA AMCO Acquisition, partially offset by $10.6 million in proceeds from the Company selling 100% of its equity investment in Cerebellum Capital, LLC (“Cerebellum”).

39

Financing Activities – Cash used in financing activities during the nine months ended September 30, 2020 was $153.0 million and was mostly attributable to repayment of long-term debt under the 2019 Credit Agreement, repurchases of common stock, payment of dividends, and net activity related to stock-based equity awards of $113.4 million, $22.8 million, $11.5 million, and $5.9 million, respectively.

Cash provided by financing activities during the nine months ended September 30, 2019 was $705.7 million and was mostly attributable to $1,069 million of net proceeds from the 2019 Credit Agreement, partially offset by the repayment and termination of the previous credit agreement (dated February 2018) of $280.0 million. The Company also paid $63.0 million of the outstanding term loans under the 2019 Credit Agreement in the third quarter of 2019 and a dividend to stockholders in the amount of $3.4 million and $0.5 million in cash bonuses and distributions related to dividends previously declared upon vesting of restricted stock and stock option awards.

Contractual Obligations

On January 17, 2020, we entered into 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 repriced its Term Loan, lowering the interest rate spread by 75 basis points, from 3.25% over LIBOR, to 2.50% over LIBOR. On March 27, 2020, the Company executed 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. As of September 30, 2020, the Company recorded an $11.8 million liability, representing the fair value of the swap, which is included in other liabilities in the unaudited Condensed Consolidated Balance Sheets. Refer to Note 14, Derivatives, for further discussion regarding the swap transaction.

For the nine month period ended September 30, 2020, the Company recorded a $1.8 million increase in contingent consideration arrangement liabilities representing the USAA AMCO Acquisition earn-out payment liability, which is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets. 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 years following the closing.

There were no other significant changes to our contractual obligations as reported in our Annual Report on Form 10-K for the year ended December 31, 2019.

Off‑Balance Sheet Arrangements

In connection with dividends declared in February 2017 and December 2017, holders of restricted stock awards that were unvested at the time such dividends were declared are entitled to be paid the dividends as and when the restricted stock vests. Holders of stock options that were unvested at the time the December 2017 dividend was declared are entitled to receive a cash bonus equivalent of the December 2017 dividend as and when their stock options vest.

The Company announced the initiation of quarterly cash dividends in August 2019. Holders of restricted stock awards that are unvested at the time the quarterly dividends are declared are entitled to be paid these dividends as and when the restricted stock vests.

As of September 30, 2020 and December 31, 2019, the amount of cash bonuses and distributions related to dividends previously declared on unvested and outstanding restricted share awards and stock options totaled $1.0 million and $1.3 million, respectively, which was not recorded as a liability as of the balance sheet date. A liability will be recorded for these cash bonuses and dividends when the restricted shares and options vest.

On September 20, 2020, the Company acquired, through a wholly owned subsidiary, a 15% interest in Alderwood. Alderwood’s operating entity, Alderwood Capital, is a London-based investment advisory firm focused on taking minority stakes in specialist boutique asset management businesses. The Company has commitments to contribute additional capital of $4.5 million to Alderwood and $50 million to a private fund to be launched by Alderwood, upon the satisfaction of certain conditions. Until these conditions are satisfied, the Company does not have an obligation to contribute the additional capital and has not met the recognition criteria for a liability. Refer to Note 15, Equity Method Investment, for further discussion regarding the investment.

Critical Accounting Policies and Estimates

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

40

Item 3.  Quantitative and Qualitative Disclosures About 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 $133 billion at September 30, 2020. 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 $74.5 million at our weighted-average fee rate of 56 basis points for the quarter ended September 30, 2020. 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 $83.8 million at the Victory Funds’ and USAA Funds’ aggregate weighted-average fee rate of 63 basis points for the quarter ended September 30, 2020. 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 $46.6 million at the weighted-average fee rate across all of our institutional separate accounts of 35 basis points for the quarter ended September 30, 2020.

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

Exchange Rate Risk

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

We have not adopted a corporate-level risk management policy to manage this exchange rate risk. Assuming 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 $1,197 million, which would cause an annualized increase or decrease in revenues of approximately $6.7 million at our weighted-average fee rate for the business of 56 basis points for the quarter ended September 30, 2020.

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. Refer to Note 14, Derivatives, for further information on the Swap. At September 30, 2020, we were exposed to interest rate risk as a result of the unhedged amounts outstanding under the 2019 Credit Agreement. Refer to Note 9, Debt, for a description of the amounts outstanding as of such date and the applicable interest rate.

41

Item 4.  Controls and Procedures

Disclosure Controls and Procedures

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

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) at September 30, 2020. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

42

PART II—OTHER INFORMATION

Item 1.  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 1A.  Risk Factors

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

Our results of operations could be materially adversely impacted by the COVID-19 pandemic.

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The global spread of COVID-19 has created significant volatility, uncertainty, and economic disruption.  In particular, global financial markets have seen increased volatility and significant changes in the value of investments. The extent to which the COVID-19 pandemic impacts our business, operations, and financial results will depend on numerous evolving factors that are outside of our control and that we may not be able to accurately predict, including: the duration and scope of the pandemic, actions taken in response to the pandemic, the impact of the pandemic on economic activity, the impact on our vendors, and the effect on our employees’ productivity. Any of these events could cause or contribute to the risks and uncertainties enumerated in the Annual Report and could materially adversely affect our business, financial condition, results of operations and/or stock price.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer purchases of equity securities.

The share repurchase program authorized in 2019 for $15.0 million of the Company’s Class A common stock was completed in June 2020. On May 26, 2020, the Company’s Board of Directors approved a common stock repurchase program authorizing the Company to repurchase up to an aggregate of $15.0 million of the Company’s Class A common stock through December 31, 2021 (“2020 Share Repurchase Program”). On November 4, 2020, the Company announced that its Board of Directors approved a new common stock repurchase program authorizing the repurchase of up to $15 million of its Class A Common Stock through December 31, 2022 (“Additional 2020 Share Repurchase Program”). Under the Additional 2020 Share Repurchase Program, which commenced immediately upon completion of the 2020 Share Repurchase Program, the Company may purchase its shares in privately negotiated transactions, through block trades, pursuant to open market purchases, or pursuant to any trading plan adopted in compliance with Rule 10b5-1. The Board’s authorization does not obligate the Company to acquire any particular amount of Class A common stock, and may be modified, suspended or terminated at any time. The following table sets out information regarding purchases of equity securities by the Company for the three months ended September 30, 2020.

					Total Number of Shares		Approximate Dollar Value
	Total Number of		Average Price		of Class A Common		That May Yet Be Purchased
	Shares of Class A		Paid Per Share		Stock Purchased as Part of		Under Outstanding
	Common Stock		of Class A		Publicly Announced		Plans or Programs
Period	Purchased		Common Stock		Plans or Programs		(in millions)
July 1-31, 2020		167,945	$	18.42		167,945	$	8.8
August 1-31, 2020		176,085		17.85		176,085		5.7
September 1-30, 2020		185,319		16.97		185,319		2.5
Total		529,349	$	17.72		529,349

Item 3.  Defaults Upon Senior Securities

None

43

Item 4.  Mine Safety Disclosures

Not applicable

Item 5.  Other Information

None

Item 6. Exhibits

EXHIBIT INDEX

Exhibit No.	Description
31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002
101	The following information formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, (ii) Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019, (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, (v) Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2020 and 2019 and the three months ended June 30, 2020 and 2019 and the three months ended September 30, 2020 and 2019 and, (vi) Notes to Unaudited Condensed Consolidated Financial Statements for the three months ended September 30, 2020 and 2019.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

44

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 November, 2020.

VICTORY CAPITAL HOLDINGS, INC.
By:	/s/ MICHAEL D. POLICARPO
	Name:	Michael D. Policarpo
	Title:	President, Chief Financial Officer and Chief Administrative Officer

45

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, David C. Brown, certify that:

1. I have reviewed this report on Form 10‑Q 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: November 6, 2020

By:	/s/ DAVID C. BROWN
	David C. Brown
	Chief Executive Officer and Chairman

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Michael D. Policarpo, certify that:

1. I have reviewed this annual report on Form 10‑Q 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: November 6, 2020

By:	/s/ MICHAEL D. POLICARPO
	Michael D. Policarpo
	President, Chief Financial Officer and Chief Administrative Officer

EX-32.1

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 Quarterly Report on Form 10‑Q 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

November 6, 2020

EX-32.2

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 Quarterly Report on Form 10‑Q 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

November 6, 2020

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2020	Oct. 31, 2020
Document Information [Line Items]
Entity Registrant Name	Victory Capital Holdings, Inc.
Entity Central Index Key	0001570827
Document Type	10-Q
Document Period End Date	Sep. 30, 2020
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Entity Ex Transition Period	false
Entity Interactive Data Current	Yes
Entity Small Business	false
Entity Emerging Growth Company	true
Entity Shell Company	false
Title of 12(b) Security	Class A Common Stock, $0.01 Par Value
Trading Symbol	VCTR
Security Exchange Name	NASDAQ
Entity Tax Identification Number	32-0402956
Entity File Number	001-38388
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	15935 La Cantera Parkway
Entity Address, City or Town	San Antonio
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	78256
City Area Code	216
Local Phone Number	898-2400
Document Quarterly Report	true
Document Transition Report	false
Class A
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		16,304,521
Class B
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		51,175,828

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Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Assets
Cash and cash equivalents	$ 56,284	$ 37,121
Receivables	79,196	95,093
Prepaid expenses	5,335	4,852
Investments	19,617	19,076
Property and equipment, net	18,741	13,240
Goodwill	404,750	404,750
Other intangible assets, net	1,165,763	1,175,471
Other assets	4,305	3,706
Total assets	1,753,991	1,753,309
Liabilities and stockholders' equity
Accounts payable and accrued expenses	56,313	89,203
Accrued compensation and benefits	40,859	54,842
Consideration payable for acquisition of business	120,500	118,700
Deferred tax liability, net	28,117	5,486
Other liabilities	32,768	22,668
Long-term debt, net	815,877	924,539
Total liabilities	1,094,434	1,215,438
Stockholders' equity
Additional paid-in capital	641,467	624,766
Accumulated other comprehensive loss	(8,987)
Retained earnings (deficit)	111,404	(34,705)
Total stockholders' equity	659,557	537,871
Total liabilities and stockholders' equity	1,753,991	1,753,309
Class A
Stockholders' equity
Common stock	193	181
Treasury stock, at cost	(42,488)	(21,524)
Class B
Stockholders' equity
Common stock	544	539
Treasury stock, at cost	$ (42,576)	$ (31,386)

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Sep. 30, 2020	Dec. 31, 2019
Class A
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	400,000,000	400,000,000
Common stock, shares issued	19,350,111	18,099,772
Common stock, shares outstanding	16,438,709	16,414,617
Treasury stock, shares	2,911,402	1,685,155
Class B
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	54,400,113	53,937,394
Common stock, shares outstanding	51,165,503	51,281,512
Treasury stock, shares	3,234,610	2,655,882

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Revenue
Total revenue	$ 188,656	$ 214,980	$ 574,963	$ 393,819
Expenses
Personnel compensation and benefits	47,375	55,556	144,051	125,599
Distribution and other asset-based expenses	39,123	57,202	135,613	89,151
General and administrative	13,196	17,654	38,373	31,828
Depreciation and amortization	3,936	7,768	12,152	18,253
Change in value of consideration payable for acquisition of business	2,000		1,800	(14)
Acquisition-related costs	1,148	16,386	1,056	21,950
Restructuring and integration costs	1,285	4,841	4,888	6,629
Total operating expenses	108,063	159,407	337,933	293,396
Income from operations	80,593	55,573	237,030	100,423
Other (expense) income
Interest income and other (expense) income	1,120	2,742	(86)	5,231
Interest expense and other financing costs	(8,187)	(16,856)	(29,305)	(26,000)
Loss on debt extinguishment	(758)	(7,409)	(1,675)	(7,409)
Total other expense, net	(7,825)	(21,523)	(31,066)	(28,178)
Income before income taxes	72,768	34,050	205,964	72,245
Income tax expense	(17,027)	(8,058)	(48,337)	(17,343)
Net income	$ 55,741	$ 25,992	$ 157,627	$ 54,902
Earnings per share of common stock
Basic	$ 0.82	$ 0.38	$ 2.33	$ 0.81
Diluted	$ 0.76	$ 0.35	$ 2.14	$ 0.75
Weighted average number of shares outstanding
Basic	67,743	67,724	67,785	67,610
Diluted	73,437	73,671	73,703	73,300
Dividends declared per share of common stock	$ 0.06	$ 0.05	$ 0.16	$ 0.05
Investment Management Fees
Revenue
Total revenue	$ 137,240	$ 155,406	$ 414,153	$ 307,859
Fund Administration and Distribution Fees
Revenue
Total revenue	$ 51,416	$ 59,574	$ 160,810	$ 85,960

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Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 55,741	$ 25,992	$ 157,627	$ 54,902
Other comprehensive loss, net of tax
Net unrealized loss on cash flow hedges	(621)		(8,970)
Net unrealized gain (loss) on foreign currency translation	37	(25)	(17)	(21)
Total other comprehensive loss, net of tax	(584)	(25)	(8,987)	(21)
Comprehensive income	$ 55,157	$ 25,967	$ 148,640	$ 54,881

XML

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock Class A	Common Stock Class B	Treasury Stock Class A	Treasury Stock Class B	Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss)	Accumulated Other Comprehensive Income (Loss) Cumulative Effect, Period of Adoption, Adjustment Revision of Prior Period, Adjustment	Retained (Deficit) Earnings	Retained (Deficit) Earnings Cumulative Effect, Period of Adoption, Adjustment Revision of Prior Period, Adjustment
Balance at beginning of period at Dec. 31, 2018	$ 455,548	$ 153	$ 553	$ (8,045)	$ (21,719)	$ 604,401	$ (86)		$ (119,709)
Balance at beginning of period (in shares) at Dec. 31, 2018		15,281	55,284	(856)	(2,147)
Increase (Decrease) in Stockholders' Equity
Issuance of common stock	13					13
Share conversion - Class B to A		$ 4	$ (4)
Repurchase of shares	(1,344)			$ (1,344)
Shares withheld related to net settlement of equity awards	(318)				$ (318)
Exercise of options	221		1			220
Other comprehensive income/(loss)	12						12
Share-based compensation	1,547					1,547
Dividends paid	(41)								(41)
Net income	14,527								14,527
Balance at end of period at Mar. 31, 2019	470,165	$ 157	$ 550	$ (9,389)	$ (22,037)	606,181	(12)		(105,285)
Balance at end of period (in shares) at Mar. 31, 2019		15,664	55,014	(979)	(2,176)
Balance at beginning of period at Dec. 31, 2018	455,548	$ 153	$ 553	$ (8,045)	$ (21,719)	604,401	(86)		(119,709)
Balance at beginning of period (in shares) at Dec. 31, 2018		15,281	55,284	(856)	(2,147)
Increase (Decrease) in Stockholders' Equity
Other comprehensive income/(loss)	(21)						(21)
Net income	54,902
Balance at end of period at Sep. 30, 2019	506,685	$ 178	$ 537	$ (16,440)	$ (26,161)	617,469	(45)		(68,853)
Balance at end of period (in shares) at Sep. 30, 2019		17,806	53,684	(1,392)	(2,400)
Increase (Decrease) in Stockholders' Equity
Cumulative effect of adoption of ASU 2016-01 and 2018-02								$ 62		$ (62)
Balance at beginning of period at Mar. 31, 2019	470,165	$ 157	$ 550	$ (9,389)	$ (22,037)	606,181	(12)		(105,285)
Balance at beginning of period (in shares) at Mar. 31, 2019		15,664	55,014	(979)	(2,176)
Increase (Decrease) in Stockholders' Equity
Issuance of common stock	16					16
Share conversion - Class B to A		$ 8	$ (8)
Repurchase of shares	(1,948)			$ (1,948)
Shares withheld related to net settlement of equity awards	(123)				$ (123)
Exercise of options	735		2			733
Other comprehensive income/(loss)	(8)						(8)
Share-based compensation	3,755					3,755
Dividends paid	(24)								(24)
Net income	14,383								14,383
Balance at end of period at Jun. 30, 2019	486,951	$ 165	$ 544	$ (11,337)	$ (22,160)	610,685	(20)		(90,926)
Balance at end of period (in shares) at Jun. 30, 2019		16,474	54,359	(1,092)	(2,184)
Increase (Decrease) in Stockholders' Equity
Issuance of common stock	15					15
Share conversion - Class B to A		$ 13	$ (13)
Repurchase of shares	(5,103)			$ (5,103)
Shares withheld related to net settlement of equity awards	(4,001)				$ (4,001)
Vesting of restricted share grants			1			(1)
Exercise of options	1,961		5			1,956
Other comprehensive income/(loss)	(25)						(25)
Share-based compensation	4,814					4,814
Dividends paid	(3,919)								(3,919)
Net income	25,992								25,992
Balance at end of period at Sep. 30, 2019	506,685	$ 178	$ 537	$ (16,440)	$ (26,161)	617,469	(45)		(68,853)
Balance at end of period (in shares) at Sep. 30, 2019		17,806	53,684	(1,392)	(2,400)
Increase (Decrease) in Stockholders' Equity
Cumulative effect of adoption of ASU 2016-01 and 2018-02								$ 62
Cumulative effect of adoption of ASU 2016-01 and 2018-02	(34,705)
Balance at beginning of period at Dec. 31, 2019	537,871	$ 181	$ 539	$ (21,524)	$ (31,386)	624,766			(34,705)
Balance at beginning of period (in shares) at Dec. 31, 2019		18,100	53,937	(1,685)	(2,656)
Increase (Decrease) in Stockholders' Equity
Issuance of common stock	26					26
Share conversion - Class B to A		$ 4	$ (4)
Repurchase of shares	(4,394)			$ (4,394)
Shares withheld related to net settlement of equity awards	(8,787)				$ (8,787)
Vesting of restricted share grants			7			(7)
Exercise of options	1,693		3			1,690
Other comprehensive income/(loss)	(4,887)						(4,887)
Share-based compensation	5,993					5,993
Dividends paid	(3,601)								(3,601)
Net income	57,166								57,166
Balance at end of period at Mar. 31, 2020	581,080	$ 185	$ 545	$ (25,918)	$ (40,173)	632,468	(4,887)		18,860
Balance at end of period (in shares) at Mar. 31, 2020		18,508	54,538	(1,925)	(3,101)
Balance at beginning of period at Dec. 31, 2019	537,871	$ 181	$ 539	$ (21,524)	$ (31,386)	624,766			(34,705)
Balance at beginning of period (in shares) at Dec. 31, 2019		18,100	53,937	(1,685)	(2,656)
Increase (Decrease) in Stockholders' Equity
Other comprehensive income/(loss)	(8,987)						(8,987)
Net income	157,627
Balance at end of period at Sep. 30, 2020	659,557	$ 193	$ 544	$ (42,488)	$ (42,576)	641,467	(8,987)		111,404
Balance at end of period (in shares) at Sep. 30, 2020		19,350	54,400	(2,911)	(3,235)
Balance at beginning of period at Mar. 31, 2020	581,080	$ 185	$ 545	$ (25,918)	$ (40,173)	632,468	(4,887)		18,860
Balance at beginning of period (in shares) at Mar. 31, 2020		18,508	54,538	(1,925)	(3,101)
Increase (Decrease) in Stockholders' Equity
Issuance of common stock	32					32
Share conversion - Class B to A		$ 2	$ (2)
Repurchase of shares	(7,186)			$ (7,186)
Shares withheld related to net settlement of equity awards	(739)				$ (739)
Vesting of restricted share grants			2			(2)
Exercise of options	1					1
Other comprehensive income/(loss)	(3,516)						(3,516)
Share-based compensation	3,887					3,887
Dividends paid	(3,439)								(3,439)
Net income	44,720								44,720
Balance at end of period at Jun. 30, 2020	614,840	$ 187	$ 545	$ (33,104)	$ (40,912)	636,386	(8,403)		60,141
Balance at end of period (in shares) at Jun. 30, 2020		18,717	54,504	(2,382)	(3,144)
Increase (Decrease) in Stockholders' Equity
Issuance of common stock	35					35
Share conversion - Class B to A		$ 6	$ (6)
Repurchase of shares	(9,384)			$ (9,384)
Shares withheld related to net settlement of equity awards	(1,664)				$ (1,664)
Vesting of restricted share grants			2			(2)
Exercise of options	1,428		3			1,425
Other comprehensive income/(loss)	(584)						(584)
Share-based compensation	3,623					3,623
Dividends paid	(4,478)								(4,478)
Net income	55,741								55,741
Balance at end of period at Sep. 30, 2020	659,557	$ 193	$ 544	$ (42,488)	$ (42,576)	$ 641,467	$ (8,987)		$ 111,404
Balance at end of period (in shares) at Sep. 30, 2020		19,350	54,400	(2,911)	(3,235)
Increase (Decrease) in Stockholders' Equity
Cumulative effect of adoption of ASU 2016-01 and 2018-02	$ 111,404

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash flows from operating activities
Net income	$ 157,627	$ 54,902
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for deferred income taxes	25,439	3,310
Depreciation and amortization	12,152	18,253
Deferred financing costs and derivative and accretion expense	3,411	2,612
Stock-based and deferred compensation	14,187	13,928
Change in fair value of contingent consideration obligations	1,800	(14)
Unrealized depreciation (appreciation) on investments	1,432	(1,409)
Net gain on equity method investment		(2,683)
Loss on debt extinguishment	1,675	7,409
Changes in operating assets and liabilities:
Receivables	15,487	(11,366)
Prepaid expenses	(483)	(1,955)
Other assets	(11)	(43)
Accounts payable and accrued expenses	(34,160)	74,713
Accrued compensation and benefits	(13,994)	8,501
Other liabilities	(1,842)	1,527
Net cash provided by operating activities	182,720	167,685
Cash flows from investing activities
Purchases of property and equipment	(7,046)	(2,920)
Purchases of trading securities	(5,252)	(4,606)
Sales of trading securities	3,279	2,342
Purchases of available-for-sale securities	(275)	(104)
Sales of available-for-sale securities	274	104
(Purchase) sale of equity method investment	(1,500)	10,572
Acquisition of business		(851,276)
Net cash used in investing activities	(10,520)	(845,888)
Cash flows from financing activities
Repurchase of common stock	(22,821)	(9,342)
Payments of taxes related to net share settlement of equity awards	(9,145)	(3,497)
Proceeds from long-term senior debt		1,088,503
Payment of debt financing fees		(19,820)
Repayments and repurchases of long-term senior debt	(113,387)	(343,000)
Repayment of promissory note		(96)
Payment of dividends	(11,518)	(3,984)
Receipt (payment) of consideration for acquisition	649	(6,017)
Net cash (used in) provided by financing activities	(153,007)	705,708
Effect of changes of foreign exchange rate on cash and cash equivalents	(30)	(33)
Net increase in cash and cash equivalents	19,163	27,472
Cash and cash equivalents, beginning of period	37,121	51,491
Cash and cash equivalents, end of period	56,284	78,963
Supplemental cash flow information
Cash paid for interest	32,371	8,216
Cash paid for income taxes	27,729	9,540
Class A
Cash flows from financing activities
Issuance of common stock, net of costs	93	44
Class B
Cash flows from financing activities
Issuance of common stock, net of costs	$ 3,122	$ 2,917

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Organization and Nature of Business

9 Months Ended

Sep. 30, 2020

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Organization and Nature of Business

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., 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”) of USAA Adviser and 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 ETF businesses and its 529 College Savings Plan (collectively, the “USAA Mutual Fund Business”). Refer to Note 4, Acquisitions, for further details on the acquisition.

VCM is a registered investment adviser managing assets through open-end mutual funds, separately managed accounts, unified management accounts, ETFs, collective trust funds, wrap separate account programs and Undertakings Collective Investment in Transferable Securities (“UCITs”). VCM also provides mutual fund administrative services for the Victory Portfolios, Victory Variable Insurance Funds, Victory Institutional Funds and the mutual fund series of the Victory Portfolios II (collectively, the “Victory Funds”), a family of open-end mutual funds, the VictoryShares (the Company’s ETF brand), as well as the USAA Mutual Fund Business, which includes 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. VCS is registered with the SEC as an introducing broker-dealer and serves as distributor and underwriter for the Victory Funds and USAA Funds. VCTA is registered with the SEC as a transfer agent for the USAA Funds.

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Basis of Presentation and Significant Accounting Policies

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies

NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for complete annual financial statements. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

In the opinion of management, the consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial condition, results of operations, and cash flows for the interim periods presented. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the operations of the Company and its wholly-owned subsidiaries, after elimination of all intercompany balances and transactions.

On September 20, 2020, the Company acquired a 15% equity interest in Alderwood Partners LLP (“Alderwood”). Alderwood’s operating entity, Alderwood Capital, is a London-based investment advisory firm focused on taking minority stakes in specialist boutique asset management businesses. The Company analyzed its investment in Alderwood under the voting interest model and determined that it would not consolidate Alderwood as it does not have a controlling financial interest.

The Company’s involvement with non-consolidated variable interest entities (“VIEs”) include sponsored investment funds and, in 2019, an equity method investment. For further discussion regarding VIEs, refer to Note 2, Significant Accounting Policies, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. For further discussion regarding equity method investments, refer to Note 15, Equity Method Investment.

Use of Estimates and Assumptions

The preparation of the unaudited condensed 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 and the notes. Actual results may ultimately differ materially from those estimates.

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The global spread of COVID-19 has created significant volatility, uncertainty, and economic disruption. COVID-19 did not have a material adverse effect on our reported results for the three and nine months ended September 30, 2020.

New Accounting Pronouncements

Accounting Standards Adopted in 2020

• Derivatives and Hedging: Effective January 1, 2020, the Company early adopted Accounting Standards Update (“ASU”) 2017-12 (“ASU 2017-12”), Derivatives and Hedging (Topic 815) and ASU 2019-04, Codification Improvements to Topic 815, Derivatives and Hedging (“ASU 2019-04”). ASU 2017-12 improves and simplifies accounting rules for hedge accounting to better present the economic results of an entity’s risk management activities in its financial statements and improves the disclosures of hedging arrangements. Various provisions of ASU 2017-12 were subsequently clarified by the Financial Accounting Standards Board (“FASB”) in April 2019 through the issuance of ASU 2019-04. The Company did not have any existing hedging relationships at the time of adoption; therefore, the adoption of ASU 2017-12 and ASU 2019-04 had no impact on our consolidated financial statements.

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 (notional amount of $450 million). The Swap was designated as a cash flow hedge and the initial prospective quantitative hedge effectiveness assessment was deemed highly effective. Under ASU 2017-12, the Company has the option to perform subsequent assessments of hedge effectiveness qualitatively. The Company has elected to assess the Swap’s hedge effectiveness qualitatively and will verify and document on a quarterly basis that facts and circumstances have not changed.

Recently Issued Accounting Standards

• Subsequent Measurement of Goodwill: In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) (“ASU 2017-04”) which simplifies the test for goodwill impairment. ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill (step two) to measure a goodwill impairment charge. Goodwill impairment will be based upon the results of step one of the impairment test, which is defined as the excess of the carrying amount of a reporting unit over its fair value, not to exceed the carrying amount of goodwill allocated to that reporting unit. The effective date for calendar-year public business entities was January 1, 2020. Due to the Company’s status as an emerging growth company (“EGC”), the new guidance will be effective for the Company’s fiscal year that begins on January 1, 2021 and requires a prospective approach to adoption. Early adoption is permitted for interim or annual goodwill impairment tests. The impact of this new guidance will depend upon the performance of the Company’s one reporting unit and the market conditions impacting the fair value.

• Leases: In February 2016, the FASB issued ASU 2016‑02, Leases (Topic 842) (the “New Lease Standard”) which supersedes previous lease guidance, Accounting Standards Codification (“ASC”) Topic 840 (“ASC Topic 840”). The New Lease Standard requires lessees to recognize a right-of-use asset and a lease liability for all leases (with the exception of short-term leases) on their balance sheet at the commencement date and recognize expenses on their income statement similar to ASC Topic 840 guidance. In addition, the FASB issued ASU 2018-11, Leases Targeted Improvements, which provides a package of practical expedients for entities to apply upon adoption. The effective date for calendar-year public business entities was January 1, 2019. In June 2020, the FASB deferred the effective date of the New Lease Standard for private companies and other companies who had not yet been required to adopt the standard. Due to the Company’s EGC status, the New Lease Standard will be adopted on January 1, 2022.

Management has assessed and evaluated the Company’s portfolio of active real estate leases and is currently surveying the business for other leases. As outlined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, the Company has approximately $23 million in undiscounted, future minimum cash commitments under net operating leases. The New Lease Standard is expected to result in a gross up of assets and liabilities on the Consolidated Balance Sheets and to have no material impact on the Consolidated Statements of Operations or the Company’s liquidity or debt covenant compliance under the current credit agreement.

• Expected Credit Losses: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 creates a new model for determining current expected credit losses (“CECL”) on trade and other receivables, net investments in leases, contract assets and long-term receivables. The CECL impairment model requires companies to consider the risk of loss even if it is remote and to include forecasts of future economic conditions as well as information about past events and current conditions. The effective date for calendar-year public business entities is January 1, 2020. As an EGC, the Company currently expects to adopt ASU 2016-13 on January 1, 2023. The Company is currently reviewing the effect of this new standard on its consolidated financial statements.

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Revenue Recognition

9 Months Ended

Sep. 30, 2020

Revenue From Contract With Customer [Abstract]

Revenue Recognition

NOTE 3. Revenue RECOGNITION

In accordance with the new revenue recognition standard requirements, the following table disaggregates our revenue by type and product:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2020			2019			2020			2019
Investment management fees
Mutual funds (Victory/USAA Funds)	$	112,983		$	125,928		$	337,355		$	228,855
ETFs (VictoryShares)		2,890			3,116			8,498			7,172
Separate accounts and other vehicles		24,318			26,512			71,920			72,379
Performance-based fees
Mutual funds (USAA Funds)		(2,699	)		—			(2,699	)		—
Separate accounts and other vehicles		(252	)		(150	)		(921	)		(547	)
Total investment management fees	$	137,240		$	155,406		$	414,153		$	307,859
Fund administration and distribution fees
Administration fees
Mutual funds (Victory/USAA Funds)	$	27,605		$	30,098		$	83,948		$	40,734
ETFs (VictoryShares)		370			378			1,055			924
Distribution fees
Mutual funds (Victory/USAA Funds)		6,296			7,674			18,999			22,878
Transfer agent fees
Mutual funds (USAA Funds)		17,145			21,424			56,808			21,424
Total fund administration and distribution fees	$	51,416		$	59,574		$	160,810		$	85,960
Total revenue	$	188,656		$	214,980		$	574,963		$	393,819

The following table presents balances of receivables:

(in thousands)	September 30, 2020		December 31, 2019
Customer receivables
Mutual funds (Victory/USAA Funds)	$	55,383	$	64,407
ETFs (VictoryShares)		1,196		1,391
Separate accounts and other vehicles		19,519		27,836
Receivables from contracts with customers		76,098		93,634
Non-customer receivables		3,098		1,459
Total receivables	$	79,196	$	95,093

Revenue

The Company’s revenue includes fees earned from providing;

• investment management services,

• fund administration services,

• 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.

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.

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 and VictoryShares and may subsidize certain share classes of the Victory Funds, USAA Funds and VictoryShares to ensure that specified operating expenses attributable to such share classes do not exceed a specified percentage. These waivers 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 and VictoryShares for waivers and expense reimbursements represent consideration payable to customers, which is recorded in accounts payable and accrued expenses in the unaudited Condensed 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 base investment management fee and a performance fee adjustment to the base 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 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 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.

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 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 it represents variable consideration and is recognized as uncertainties are resolved. The Company’s distribution fee revenue is recorded in fund administration and distribution fees in the unaudited Condensed 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 contract 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 1.00% of the purchase price of the Class C shares sold by the dealer or institution. When the Company makes an upfront payment to a dealer or institution for the sale of Class C shares, the Company capitalizes the cost of such payment, which is recorded in Prepaid expenses in the unaudited Condensed Consolidated Balance Sheets and amortizes the cost over a 12-month period, the estimated period of benefit.

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 limited 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 other vehicles for which a quotation or price evaluation is not readily available from a pricing service. For the periods presented, a de minimis amount of the AUM was priced in this manner.

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Acquisitions

9 Months Ended

Sep. 30, 2020

Business Combinations [Abstract]

Acquisitions

NOTE 4. ACQUISITIONS

USAA AMCO Acquisition

On and effective July 1, 2019, the Company completed the USAA AMCO Acquisition, acquiring 100% of the outstanding common stock of the USAA Acquired Companies and the USAA Mutual Fund Business. The USAA AMCO Acquisition expands and diversifies the Company’s investment platform, particularly in the fixed income and solutions asset classes, and increases the Company’s size and scale. Additional products added to the Company’s investment platforms 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 and services using the USAA brand and the opportunity to offer its products to USAA members through a direct distribution channel.

Purchase Price

During the first quarter of 2020, the Company received a post-closing purchase price adjustment of $0.7 million in cash from the sellers related to net working capital adjustments. No further adjustments were recorded through the end of the measurement period on June 30, 2020. There has been no change in the goodwill balance from December 31, 2019 to September 30, 2020.

Total cumulative consideration paid for the USAA AMCO Acquisition was $949.4 million, comprised of $851.3 million of cash paid at closing plus the acquisition date value of contingent payments due to sellers of $98.8 million less $0.7 million in net working capital adjustments settled in the first quarter of 2020.

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 years following the closing. To receive any contingent payment in respect of “non-managed money”-related assets for a given year, annual revenue from “non-managed money”-related assets must be at least 80% of the revenue run-rate (as calculated under the Stock Purchase Agreement) of the USAA Adviser’s “non-managed money”-related assets under management as of the closing date, and to achieve the maximum contingent payment for a given year, such annual revenue must total at least 100% of that closing date revenue run-rate. Annual contingent payments in respect of “non-managed money”-related assets are subject to certain “catch-up” provisions set forth in the USAA Stock Purchase Agreement.

The Company accounted for the acquisition in accordance with ASC 805, Business Combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of the USAA AMCO Acquisition. The Company used an independent valuation specialist to assist with the determination of fair value for certain of the acquired assets and assumed liabilities disclosed below.      

The excess purchase price over the estimated fair values of assets acquired and liabilities assumed of $120.6 million was recorded to goodwill in the unaudited Condensed Consolidated Balance Sheets, all of which is expected to be deductible for tax purposes. The goodwill arising from the acquisition primarily results from expected future earnings and cash flows, as well as the synergies created by the integration of the USAA Acquired Companies within our organization.

The following table summarizes the estimated amounts of identified acquired assets and liabilities assumed as of the acquisition date:

(in thousands)
Cash and cash equivalents	$	17,473
Investment management fees receivable		25,353
Fund administration and distribution fees receivable		4,779
Other receivables and prepaid expenses		299
Property and equipment		1,165
Other intangible assets(1)		808,670
Goodwill		120,643
Accounts payable and accrued expenses		(5,575	)
Accrued compensation and benefits		(5,907	)
Payable to members and custodians		(17,473	)
Contingent consideration payable to sellers		(98,800	)
Total purchase price consideration	$	850,627

^{(1) Includes $750.2 million for indefinite-lived investment advisory contracts, $19.1 million for indefinite-lived transfer agent contracts, $0.8 million for indefinite-lived distribution contracts, $38.2 million for definite-lived trade name assets and $0.4 million for definite-lived lease-related assets, all of which were recorded in other intangible assets, net on the unaudited Condensed Consolidated Balance Sheets.}

Contingent Consideration

The Company expects to pay to sellers in the fourth quarter of 2020 the maximum amount of $37.5 million for the first annual earnout period for the USAA AMCO Acquisition. The fair value of contingent consideration payable to sellers at September 30, 2020 was estimated to be $120.5 million, which includes the $37.5 million expected to be paid for the first earnout period, as compared to $118.7 million at December 31, 2019.

The increase in the contingent consideration liability of $2.0 million and $1.8 million in the three and nine months ended September 30, 2020, respectively, was recorded in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.

The fair value of the USAA AMCO Acquisition contingent consideration payable was estimated using the real options method. Revenue related to “non-managed money” assets was simulated in a risk-neutral framework to calculate expected probability-weighted earn out payments, which were 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.

As of September 30, 2020, the projected annual growth rate for “non-managed money” revenue was approximately 3%. The market price of risk and revenue volatility of approximately 7% and 16%, respectively, were based on data for comparable companies. As

the contingent consideration represents a subordinate, unsecured claim of the Company, the Company has assessed a discount rate of approximately 4.5%, which incorporates adjustments for credit risk and the subordination of the contingent consideration. Total estimated undiscounted earn out payments ranged from $128 million to $150 million, the maximum amount payable to sellers.

Actual and Pro Forma Results for USAA Acquired Companies

Revenue of the USAA Acquired Companies is included in the Company’s results as from July 1, 2019. For the six months ended June 30, 2020, revenue of the USAA Acquired Companies was $221.3 million. Net income attributable to the USAA Acquired Companies for the six months ended June 30, 2020 is impractical to determine as the Company does not prepare discrete financial information at level.

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, 2018. 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 Victory and the USAA Acquired Companies have been adjusted to give effect to unaudited pro forma events that are directly attributable to the transaction, factually supportable and expected to have continuing impact on the combined results. These amounts have been calculated after adjusting the results of the USAA Acquired Companies to reflect additional interest expense, distribution costs, share-based compensation expense, income taxes and intangible asset amortization that would have been expensed assuming the fair value adjustments had been applied on January 1, 2018. In addition, Victory’s and the USAA Acquired Companies’ results were adjusted to remove incentive compensation, legal fees and mutual fund proxy costs directly attributable to the acquisition.

	Unaudited
	Nine Months Ended
(in thousands, except per share amount)	September 30, 2019
Revenue	$	632.9
Net income	$	76.5
Earnings per share of common stock
Basic	$	1.13
Diluted	$	1.04
Weighted average number of shares outstanding
Basic		67,610
Diluted		73,300

Acquisition-Related Costs

Costs related to acquisitions 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. These costs are included in acquisition-related costs in the unaudited Condensed Consolidated Statements of Operations.

	Acquisition-related costs
	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
USAA AMCO Acquisition	$	776	$	16,235	$	664	$	21,043
Other		372		151		392		907
Total acquisition-related costs	$	1,148	$	16,386	$	1,056	$	21,950

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 the rollforward of restructuring and integration liabilities, which are recorded in accounts payable and accrued expenses in the unaudited Condensed Consolidated Balance Sheets, for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2020			2019			2020			2019
Liability balance, beginning of period	$	2.8		$	1.5		$	3.0		$	0.1
Severance Expense - USAA AMCO		—			3.7			0.9			5.2
Integration costs - USAA AMCO		1.3			1.1			4.0			1.4
Total restructuring and integration costs		1.3			4.8			4.9			6.6
Settlement of liabilities		(1.2	)		(4.4	)		(5.0	)		(4.8	)
Liability balance, end of period	$	2.9		$	1.9		$	2.9		$	1.9

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Fair Value Measurements

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

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:

• Level 1—Valuation inputs are unadjusted quoted market prices for identical assets or liabilities in active markets.

• Level 2—Valuation inputs are quoted prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets and liabilities in active markets and other observable inputs directly or indirectly related to the asset or liability being measured.

• Level 3—Valuation inputs are unobservable and significant to the fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

The table below shows liabilities measured at fair value on a recurring basis.

	As of September 30, 2020
(in thousands)	Total			Level 1		Level 2			Level 3
Financial Liabilities
Interest Rate Swap Liability	$	(11,772	)	$	-	$	(11,772	)	$	-
Contingent Consideration Arrangements(1)		(120,500	)		-		-			(120,500	)
Total Financial Liabilities	$	(132,272	)	$	-	$	(11,772	)	$	(120,500	)

	As of December 31, 2019
(in thousands)	Total			Level 1		Level 2		Level 3
Financial Liabilities
Contingent Consideration Arrangements(1)	$	(118,700	)	$	-	$	-	$	(118,700	)
Total Financial Liabilities	$	(118,700	)	$	-	$	-	$	(118,700	)

(1) Refer to Note 4, Acquisitions, for further information regarding the Company’s contingent consideration arrangements.

The Swap liability represents amounts owed as of September 30, 2020 under a floating-to-fixed interest rate swap transaction entered into by the Company on March 27, 2020. The Swap effectively fixed the interest rate at 3.465% on $450 million of the outstanding Term Loan balance through the Term Loan’s maturity in July 2026. The fair value of the Swap is included in other liabilities on the unaudited Condensed Consolidated Balance Sheets at September 30, 2020. 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 14, Derivatives, for further detail on the Swap.

The contingent consideration arrangement liabilities represent the USAA AMCO Acquisition estimated earn-out payment liability, which is included in consideration payable for acquisition of business in the unaudited Condensed 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.  An increase in 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 “non-managed money” 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.

Changes in the fair value of the liability, realized or unrealized, are recorded in earnings and are included in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.

The following table presents the balance of the contingent consideration arrangement liabilities at December 31, 2019 and September 30, 2020, respectively.

(in thousands)	Contingent Consideration Liabilities
Balance, December 31, 2019	$	(118,700	)
USAA AMCO change in fair value measurement		(1,800	)
Balance, September 30, 2020	$	(120,500	)

There were no transfers between any of the Level 1, 2 and 3 categories in the fair value measurement hierarchy from December 31, 2019 to September 30, 2020. The Company recognizes transfers at the end of the reporting period.

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 September 30, 2020 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.

The fair value of the Company’s money market investment ($10.1 million within cash and cash equivalents), available-for-sale investments and trading securities are measured using Level 1 inputs, which are the market prices for shares in these open-end mutual funds.

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Related-Party Transactions

9 Months Ended

Sep. 30, 2020

Related Party Transactions [Abstract]

Related-Party Transactions

NOTE 6.  Related-Party Transactions

The Company considers certain funds that it manages, including the Victory Funds, the USAA Funds, the VictoryShares and collective trust funds that it sponsors (the “Victory Collective Funds”), to be related parties as a result of our 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. We also receive investment management fees from the VictoryShares and Victory Collective Funds under VCM’s advisory contracts with these funds and administrative fees from the VictoryShares. In addition, we receive transfer agent fees in accordance with a contract that VCTA has with the USAA Funds.

The table below presents balances and transactions involving related parties included in the unaudited Condensed Consolidated Balance Sheets and unaudited Condensed Consolidated Statements of Operations.

• Included in cash and cash equivalents is cash held in the USAA Treasury Money Market Fund.

• Included in receivables (fund administration and distribution fees) are amounts due from the Victory Funds and USAA Funds for compliance services and amounts due from the USAA Funds for transfer agent services.

• Included in revenue (fund administration and distribution fees) are amounts earned for compliance services and transfer agent services.

• Realized and unrealized gains and losses and dividend income on investments in the Victory Funds and USAA Funds classified as available-for-sale securities and investments in the Victory Funds and USAA Funds classified as trading securities and dividend income on investments in the USAA Treasury Money Market Fund are recorded in interest income and other income (expense) in the unaudited Condensed Consolidated Statements of Operations.

• Amounts due to the Victory Funds, USAA Funds and VictoryShares for waivers of investment management fees and reimbursements of fund operating expenses are included in accounts payable and accrued expenses in the unaudited Condensed Consolidated Balance Sheets and represent consideration payable to customers.

(in thousands)	September 30, 2020		December 31, 2019
Related party assets
Cash and cash equivalents	$	10,088	$	10,060
Receivables (investment management fees)		41,008		47,872
Receivables (fund administration and distribution fees)		16,960		19,313
Investments (available-for-sale securities, fair value)		785		771
Investments (trading securities, fair value)		18,518		17,914
Total	$	87,359	$	95,930
Related party liabilities
Accounts payable and accrued expenses (fund reimbursements)	$	5,330	$	4,316

	Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	2020		2019			2020			2019
Related party revenue
Investment management fees	$	115,376	$	130,361		$	348,653		$	239,869
Fund administration and distribution fees		51,416		59,574			160,809			85,960
Total	$	166,792	$	189,935		$	509,462		$	325,829
Related party other income (expense)
Interest income and other income (expense)	$	828	$	(342	)	$	(1,268	)	$	1,473

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Investments

9 Months Ended

Sep. 30, 2020

Investments Debt And Equity Securities [Abstract]

Investments

NOTE 7. Investments

As of September 30, 2020 and December 31, 2019, the Company held both available-for-sale securities and trading securities. Available-for-sale investments consist entirely of seed capital investments in certain Victory Funds and USAA Funds. Trading securities are held under a deferred compensation plan and include Victory Funds, USAA Funds and third party mutual funds.

Available‑For‑Sale Securities

A summary of the cost and fair value of investments classified as available-for-sale were as follows:

			Gross Unrealized					Fair
(in thousands)	Cost		Gains		(Losses)			Value
As of September 30, 2020	$	702	$	90	$	(7	)	$	785
As of December 31, 2019		696		85		(10	)		771

Unrealized and realized gains and losses on available‑for‑sale investments are recognized in the accompanying unaudited Condensed Consolidated Statements of Operations as “Interest income and other income (expense).” There were no proceeds from sales and realized gains and losses from available-for-sale securities for the three months ended September 30, 2020 and 2019. For the nine month periods ended September 30, 2020 and 2019 proceeds from sales and realized gains and losses from available-for-sale securities were as follows:

	Sale		Realized
(in thousands)	Proceeds		Gains		(Losses)
For the nine months ended September 30, 2020	$	274	$	18	$	(13	)
For the nine months ended September 30, 2019		104		4		—

Trading Securities

A summary of the cost and fair value of investments classified as trading securities were as follows:

			Gross Unrealized					Fair
(in thousands)	Cost		Gains		(Losses)			Value
As of September 30, 2020	$	20,420	$	449	$	(2,037	)	$	18,832
As of December 31, 2019		18,670		733		(1,098	)		18,305

Unrealized and realized gains and losses on trading securities are recorded in interest income and other income (expense) in the unaudited Condensed Consolidated Statements of Operations. Proceeds from sales and realized gains and losses from trading securities in the periods ended September 30, 2020 and 2019 were as follows:

	Sale		Realized
(in thousands)	Proceeds		Gains		(Losses)
For the three months ended September 30, 2020	$	1,289	$	48	$	(166	)
For the three months ended September 30, 2019		908		1		(29	)

	Sale		Realized
(in thousands)	Proceeds		Gains		(Losses)
For the nine months ended September 30, 2020	$	3,279	$	85	$	(308	)
For the nine months ended September 30, 2019		2,342		15		(60	)

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Income Taxes

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 8.  Income Taxes

The effective tax rate for the three and nine months ended September 30, 2020 and 2019 differs from the United States federal statutory rate primarily as a result of state and local income taxes, excess tax benefits on share-based compensation and certain non-deductible expenses and for the periods in 2019, expense related to recognizing a liability for unrecorded tax benefits.

For the three months ended September 30, 2020 and 2019, the provision for income taxes was $17.0 million and $8.1 million, or 23.4% and 23.7%, of pre-tax income respectively. For the nine months ended September 30, 2020 and 2019, the provision for income taxes was $48.3 million and $17.3 million, or 23.5% and 24.0% of pre-tax income, respectively.

The effective tax rate for the three and nine months ended September 30, 2020 was slightly lower than the effective tax rate for the same periods in 2019 due to the combination of decreased excess tax benefits on share-based compensation and decreased expense related to state uncertain tax positions.

No valuation allowance was recorded for deferred tax assets in the periods ended September 30, 2020 and 2019.

At September 30, 2020, the Company had no liability for gross unrecognized tax benefits. It had a $0.1 million liability for interest and penalties on previously unrecognized gross tax benefits, which is included in “Other liabilities” in the accompanying unaudited Condensed Consolidated Balance Sheets. The Company expects that the amount of unrecognized tax benefits will change in the next 12 months; however, the Company does not expect the change to have a material impact on its consolidated financial statements.

The following table presents the changes in gross unrecognized tax benefits, excluding interest and penalties, for the three and nine months ended September 30, 2020 and 2019.

(in thousands)	2020			2019
Beginning balance, January 1	$	2,582		$	—
Additions based on tax positions related to current period		280			—
Reductions related to settlement of tax matters		(908	)		—
Ending balance, March 31	$	1,954		$	—
Additions based on tax positions related to current period		—			—
Reductions related to settlement of tax matters		(1,954	)		—
Ending balance, June 30	$	—		$	—
Additions based on tax positions related to current period		—			—
Reductions related to settlement of tax matters		—			—
Ending balance, September 30	$	—		$	—

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Debt

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Debt

NOTE 9.  Debt

2020 Debt Repricing

Concurrent with the USAA AMCO Acquisition on July 1, 2019, the Company (i) entered into the 2019 Credit Agreement, (ii) repaid all indebtedness outstanding under the previous credit agreement (dated February 2018), and (iii) terminated the previous credit agreement.

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 repriced the existing term loans (the “Existing Term Loans”) with replacement term loans in an aggregate principal amount of $952.0 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 2026, except that the Repriced Term Loans provide for a reduced applicable margin on LIBOR of 75 basis points. The applicable margin on LIBOR under the Repriced Term Loans is 2.50%, compared to 3.25% under the Existing Term Loans.

The following table summarizes the components of long-term debt under the 2019 Credit Agreement in the unaudited Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019:

(in thousands)	September 30, 2020			December 31, 2019
Term loan principal outstanding	$	837,239		$	952,000
Unamortized debt issuance costs		(7,959	)		(17,230	)
Unamortized debt discount		(13,403	)		(10,231	)
Long-term debt, net	$	815,877		$	924,539

The 2019 Credit Agreement contains customary affirmative and negative covenants, including covenants that affect, among other things, the ability of the first lien leverage ratio, measured as of the last day of each fiscal quarter on which outstanding borrowings under the revolving credit facility exceed 35.0% of the commitments thereunder (excluding certain letters of credit), of no greater than 3.80 to 1.00. As of September 30, 2020, there were no outstanding borrowings under the revolving credit facility and the Company was in compliance with its financial performance covenant.

A total of $114.8 million of the outstanding term loans under the 2019 Credit Agreement was repaid or repurchased and retired during the first nine months of 2020. The Company repaid $38.0 million in outstanding term loans in the first three months of 2020 and recorded a $1.0 million loss on debt extinguishment. During the three months ended June 30, 2020, the Company repaid or repurchased and retired $33.3 million of outstanding term loans and recorded a $0.1 million gain on debt extinguishment. During the three months ended September 30, 2020, the Company repaid or repurchased and retired $43.5 million of outstanding term loans and recorded a $0.8 million loss on debt extinguishment. Refer to Note 16, Subsequent Events, for information related to term loan activity subsequent to September 30, 2020.

2020 Swap Transaction

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. Refer to Note 14, Derivatives, for further information on the Swap.

Interest Expense

As of September 30, 2020, the term loans under the 2019 Credit Agreement had an interest period of three months and an interest rate of 2.80%. Including the impact of amortization of debt issuance costs and original issue discount described herein, the effective yield for term loans under the 2019 Credit Agreement as of September 30, 2020 was 3.23%. The following table summarizes the components of interest expense and other financing costs in the unaudited Condensed Consolidated Statements of Operations for the periods ended September 30, 2020 and 2019:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Interest expense	$	6,236	$	15,308	$	25,260	$	22,931
Amortization of debt issuance costs		739		920		2,275		1,650
Amortization of debt discount		367		475		1,136		768
Interest rate swap expense		724		153		205		—
Other		121		—		429		651
Total	$	8,187	$	16,856	$	29,305	$	26,000

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Equity

9 Months Ended

Sep. 30, 2020

Equity [Abstract]

Equity

NOTE 10. Equity

Shares Rollforward

The following tables present the changes in the number of shares of common stock issued and repurchased (in thousands):

	Shares of Common Stock Issued					Shares of Treasury Stock
	Class A		Class B			Class A			Class B
Balance, December 31, 2019		18,100		53,937			(1,685	)		(2,656	)
Issuance of shares		2		—			—			—
Share conversion - Class B to A		406		(406	)		—			—
Repurchase of shares		—		—			(240	)		—
Vesting of restricted share grants		—		719			—			—
Exercise of options		—		288			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(445	)
Balance, March 31, 2020		18,508		54,538			(1,925	)		(3,101	)
Issuance of shares		2		—			—			—
Share conversion - Class B to A		207		(207	)		—			—
Repurchase of shares		—		—			(457	)		—
Vesting of restricted share grants		—		173			—			—
Exercise of options		—		—			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(43	)
Balance, June 30, 2020		18,717		54,504			(2,382	)		(3,144	)
Issuance of shares		2		—			—			—
Share conversion - Class B to A		631		(631	)		—			—
Repurchase of shares		—		—			(529	)		—
Vesting of restricted share grants		—		197			—			—
Exercise of options		—		330			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(91	)
Balance, September 30, 2020		19,350		54,400			(2,911	)		(3,235	)

	Shares of Common Stock Issued					Shares of Treasury Stock
	Class A		Class B			Class A			Class B
Balance, December 31, 2018		15,281		55,284			(856	)		(2,147	)
Issuance of shares		1		—			—			—
Share conversion - Class B to A		382		(382	)		—			—
Repurchase of shares		—		—			(123	)		—
Vesting of restricted share grants		—		40			—			—
Exercise of options		—		72			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(29	)
Balance, March 31, 2019		15,664		55,014			(979	)		(2,176	)
Issuance of shares		1		—			—			—
Share conversion - Class B to A		809		(809	)		—			—
Repurchase of shares		—		—			(113	)		—
Vesting of restricted share grants		—		4			—			—
Exercise of options		—		150			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(8	)
Balance, June 30, 2019		16,474		54,359			(1,092	)		(2,184	)
Issuance of shares		1		—			—			—
Share conversion - Class B to A		1,331		(1,331	)		—			—
Repurchase of shares		—		—			(300	)		—
Vesting of restricted share grants		—		169			—			—
Exercise of options		—		487			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(216	)
Balance, September 30, 2019		17,806		53,684			(1,392	)		(2,400	)

Share Repurchase Program

The share repurchase programs authorized in 2018 and 2019, each for $15.0 million of the Company’s Class A common stock were completed in September 2019 and June 2020, respectively.

In May 2020, the Company’s Board of Directors authorized the Company to repurchase up to an additional $15.0 million of the Company’s Class A common stock in the open market or in privately negotiated transactions (“2020 Share Repurchase Program”).

As of September 30, 2020, a total of 2,911,402 shares of Class A common stock had been repurchased under authorized share repurchase programs at a total cost of $42.5 million for an average price of $14.59 per share. As of September 30, 2020, $2.5 million was available for future purchases and on October 29, 2020, the 2020 Share Repurchase Program was completed. On November 2, 2020, the Company’s Board of Directors authorized the Company to repurchase up to an additional $15.0 million of the Company’s Class A common stock through December 31, 2022 in open market or privately negotiated transactions (“Additional 2020 Share Repurchase Program”). The amount and timing of the purchases under the 2020 Additional Share Repurchase Program will depend on a number of factors including the price and availability of the Company’s shares, trading volume, capital availability, Company performance and general economic and market conditions. The Additional 2020 Share Repurchase Program can be suspended or discontinued at any time. The Additional 2020 Share Repurchase Program expires when $15 million shares of Class A common stock are repurchased or on December 31, 2022.

Quarterly Dividends

During the three months ended September 30, 2020, the Company paid a quarterly dividend of $4.1 million. Dividends paid during the nine months ended September 30, 2020 totaled $11.5 million, comprised of $10.8 million in quarterly dividends and $0.7 million in cash bonuses and distributions related to dividends previously declared upon vesting of restricted stock and stock option awards.

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Share-Based Compensation

9 Months Ended

Sep. 30, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Share-Based Compensation

NOTE 11. Share‑Based Compensation

Current Period Activity

During the three months ended September 30, 2020, the Company issued restricted stock awards for 484,010 shares of common stock, of which awards for 11,997 shares were fully vested on the grant date, awards for 57,576 shares vest based on service over a three year period, and awards for 414,437 shares vest based on service over a thirty month period. For the nine months ended September 30, 2020, the Company issued restricted stock awards for 781,843 shares of common stock, of which awards for 30,976 shares were fully vested on the grant date, awards for 336,430 shares vest based on service over a three year period and awards for 414,437 shares vest based on service over a thirty month period.

Stock option award and restricted stock award activity during the nine months ended September 30, 2020 and 2019 was as follows:

	Shares Subject to Stock Option Awards
	Nine Months Ended September 30,
	2020							2019
	Avg wtd		Avg wtd					Avg wtd		Avg wtd
	grant-date		exercise					grant-date		exercise
	fair value		price		Units			fair value		price		Units
Outstanding at beginning of period	$	3.83	$	6.27		7,880,167		$	3.79	$	6.12		9,070,052
Granted		—		—		—			7.25		17.64		31,178
Forfeited		5.86		12.40		(8,746	)		5.00		9.63		(247,403	)
Exercised		3.44		5.06		(617,412	)		3.15		4.11		(708,949	)
Outstanding at end of the period	$	3.86	$	6.36		7,254,009		$	3.82	$	6.24		8,144,878
Vested	$	3.73	$	5.97		6,641,955		$	3.59	$	5.51		6,860,289
Unvested		5.30		10.67		612,054			5.06		10.12		1,284,589

	Restricted Stock Awards
	Nine Months Ended September 30,
	2020					2019
	Avg wtd grant-					Avg wtd grant-
	date fair value		Units			date fair value		Units
Unvested at beginning of period	$	14.29		3,215,619		$	13.17		2,997,856
Granted		16.65		781,843			16.27		1,192,145
Vested		14.35		(1,089,780	)		11.06		(212,929	)
Forfeited		15.88		(78,839	)		13.49		(433,549	)
Unvested at end of period	$	14.98		2,828,843		$	14.25		3,543,523

Dividend Payments

At September 30, 2020 and December 31, 2019, the amount of cash bonuses and distributions related to dividends previously declared on unvested and outstanding restricted share awards and stock options totaled $1.0 million and $1.3 million, respectively, which was not recorded as a liability as of the balance sheet date. A liability will be recorded for these cash bonuses and dividends when the restricted shares and options vest.

Share-Based Compensation Expense

The Company recorded $3.6 million and $4.8 million of share-based compensation expense in the three months ended September 30, 2020 and 2019, respectively, and $13.5 million and $10.1 million of share-based compensation in the nine months ended September 30, 2020 and 2019, respectively, in personnel compensation and benefits in the unaudited Condensed Consolidated Statements of Operations.

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Earnings Per Share

9 Months Ended

Sep. 30, 2020

Earnings Per Share [Abstract]

Earnings Per Share

NOTE 12. Earnings Per Share

The following table sets forth the reconciliation of basic earnings per share and diluted earnings per share from net income for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands except per share amounts)	2020		2019		2020		2019
Net income	$	55,741	$	25,992	$	157,627	$	54,902
Shares:
Basic: Weighted average number of shares outstanding		67,743		67,724		67,785		67,610
Plus: Incremental shares from assumed conversion of dilutive instruments		5,694		5,947		5,918		5,690
Diluted: Weighted average number of shares outstanding		73,437		73,671		73,703		73,300
Earnings per share
Basic:	$	0.82	$	0.38	$	2.33	$	0.81
Diluted:	$	0.76	$	0.35	$	2.14	$	0.75

Outstanding instruments excluded from the computation of weighted average shares for diluted earnings per share because the effect would be anti-dilutive totaled 43 thousand and 0.3 million for the three months ended September 30, 2020 and 2019, respectively, and 43 thousand and 1.3 million for the nine months ended September 30, 2020 and 2019, respectively. Holders of non-vested share-based compensation awards do not have rights to receive nonforfeitable dividends on the shares covered by the awards.

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Accumulated Other Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2020

Accumulated Other Comprehensive Income Loss Net Of Tax [Abstract]

Accumulated Other Comprehensive Income (Loss)

NOTE 13. Accumulated Other Comprehensive Loss

The following table presents changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2020 and 2019.

	Available-for-						Cumulative
	Sale			Cash Flow			Translation
(in thousands)	Securities			Hedges			Adjustment			Total
Balance, December 31, 2019	$	—		$	—		$	—		$	—
Other comprehensive loss before reclassification and tax		—			(11,977	)		(23	)		(12,000	)
Tax impact		—			2,853			6			2,859
Reclassifications, before tax		—			205			—			205
Tax impact		—			(51	)		—			(51	)
Net current period other comprehensive loss		—			(8,970	)		(17	)		(8,987	)
Balance, September 30, 2020	$	—		$	(8,970	)	$	(17	)	$	(8,987	)
Balance, December 31, 2018	$	(59	)	$	—		$	(27	)	$	(86	)
Other comprehensive income before reclassification and tax		—			—			(28	)		(28	)
Tax impact		—			—			7			7
Net current period other comprehensive income		—			—			(21	)		(21	)
Cumulative effect of adoption of ASU 2016-01 and 2018-02		59			—			3			62
Balance, September 30, 2019	$	—		$	—		$	(45	)	$	(45	)

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Derivatives

9 Months Ended

Sep. 30, 2020

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivatives

NOTE 14. DERIVATIVES

Interest Rate Swaps

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 Swap, the Company pays interest at a fixed rate of interest and receive interest that varies with the three-month LIBOR rate. The notional value, fixed rate of interest and expiration date of the Swap as of September 30, 2020 was $450 million – 3.465% – July 1, 2026. Refer to Note 5, Fair Value Measurements, for additional disclosures regarding fair value measurements.

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. For the three months ended September 30, 2020 and 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 loss, 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 payable to the Swap counterparty at September 30, 2020 of $0.7 million is recorded in other liabilities on the unaudited Condensed Consolidated Balance Sheets.

The following table summarizes the classification of the Swap in the unaudited Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019 (in thousands):

Balance Sheets	Description	September 30, 2020		December 31, 2019
Other liabilities	Fair value of interest rate swap	$	11,772	$	—
	Notional amount		450,000		—

The following tables summarize the effects of the Swap in the unaudited Condensed Consolidated Statements of Operations and unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019 and (in thousands):

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
Statement of Operations	Description	2020		2019		2020		2019
Interest expense and other financing costs	Loss reclassified from AOCL	$	724	$	—	$	205	$	—

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
Statements of Comprehensive Income	Description	2020		2019		2020		2019
Other comprehensive loss	Loss recognized in AOCL, net of tax	$	621	$	—	$	8,970	$	—

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Equity Method Investment

9 Months Ended

Sep. 30, 2020

Equity Method Investments And Joint Ventures [Abstract]

Equity Method Investment

NOTE 15. EQUITY METHOD INVESTMENT

On September 20, 2020, the Company acquired, through a wholly owned subsidiary, a 15% interest voting share and income share in Alderwood. Alderwood’s operating entity, Alderwood Capital, is a London-based investment advisory firm focused on taking minority stakes in specialist boutique asset management businesses. The Company has commitments to contribute additional capital of $4.5 million to Alderwood and $50 million to a private fund to be launched by Alderwood, subject to certain terms and conditions.

The Company analyzed its investment in Alderwood under the voting interest model and determined that it does not have a controlling financial interest over Alderwood and should not consolidate under the voting interest model.

Given the level of ownership interest in Alderwood, which is an English limited liability partnership, and the fact that Alderwood will maintain specific ownership accounts for investors, the Company accounts for its investment in Alderwood using the equity method of accounting.

For the three and nine months ended September 30, 2020, the Company recorded no gains or losses from its equity investment in Alderwood. For the three and nine months ended September 30, 2019, the Company recognized a $2.9 million gain on sale of its equity investment in Cerebellum Capital, LLC (“Cerebellum”). Gains and losses on equity method investments, including the gain on sale of the Cerebellum equity investment, are recorded in “Interest income and other income (expense)” in the unaudited Condensed Consolidated Statements of Operations.

Equity method investments are recorded in “Other assets” in the unaudited Condensed Consolidated Balance Sheets. At September 30, 2020, the Company had a $1.5 million investment in Alderwood and no longer held an equity investment in Cerebellum.

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Subsequent Events

9 Months Ended

Sep. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

NOTE 16. SUBSEQUENT EVENTS

Subsequent to September 30, 2020, the Company repaid $20.0 million in term loan principal, for a total debt reduction of $282.8 million since July 1, 2019.

On November 4, 2020, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.07 per share on the Company’s common stock, an increase of 17% and 40%, respectively, over the third quarter 2020 and second quarter 2020 quarterly cash dividend. The dividend is payable on December 28, 2020, to stockholders of record on December 10, 2020.

On November 4, 2020, the Company announced that its Board of Directors approved the Additional 2020 Share Repurchase Program authorizing the repurchase of up to $15 million of its Class A Common Stock through December 31, 2022. Under the new program, the Company may purchase its shares from time to time in the open market or in privately negotiated transactions. The amount and timing of the purchases will depend on a number of factors including the price and availability of the Company’s shares, trading volume, capital availability, Company performance and general economic and market conditions. The share repurchase program may be suspended or discontinued at any time.

On November 4, 2020, the Company announced the planned acquisition of THB Asset Management (“THB”), an investment management company headquartered in Norwalk, Connecticut. THB currently manages approximately $435 million in the micro-cap, small-cap and mid-cap asset classes, including U.S., global and international strategies. Aligning with the Company’s responsible

investing initiatives, all of THB’s strategies have environmental, social and governance (“ESG”) considerations fully integrated into their investment processes.

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Basis of Presentation and Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for complete annual financial statements. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

In the opinion of management, the consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial condition, results of operations, and cash flows for the interim periods presented. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Principles of Consolidation

Principles of Consolidation

The unaudited condensed consolidated financial statements include the operations of the Company and its wholly-owned subsidiaries, after elimination of all intercompany balances and transactions.

On September 20, 2020, the Company acquired a 15% equity interest in Alderwood Partners LLP (“Alderwood”). Alderwood’s operating entity, Alderwood Capital, is a London-based investment advisory firm focused on taking minority stakes in specialist boutique asset management businesses. The Company analyzed its investment in Alderwood under the voting interest model and determined that it would not consolidate Alderwood as it does not have a controlling financial interest.

The Company’s involvement with non-consolidated variable interest entities (“VIEs”) include sponsored investment funds and, in 2019, an equity method investment. For further discussion regarding VIEs, refer to Note 2, Significant Accounting Policies, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. For further discussion regarding equity method investments, refer to Note 15, Equity Method Investment.

Use of Estimates and Assumptions

Use of Estimates and Assumptions

The preparation of the unaudited condensed 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 and the notes. Actual results may ultimately differ materially from those estimates.

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The global spread of COVID-19 has created significant volatility, uncertainty, and economic disruption. COVID-19 did not have a material adverse effect on our reported results for the three and nine months ended September 30, 2020.

New Accounting Pronouncements

New Accounting Pronouncements

Accounting Standards Adopted in 2020

• Derivatives and Hedging: Effective January 1, 2020, the Company early adopted Accounting Standards Update (“ASU”) 2017-12 (“ASU 2017-12”), Derivatives and Hedging (Topic 815) and ASU 2019-04, Codification Improvements to Topic 815, Derivatives and Hedging (“ASU 2019-04”). ASU 2017-12 improves and simplifies accounting rules for hedge accounting to better present the economic results of an entity’s risk management activities in its financial statements and improves the disclosures of hedging arrangements. Various provisions of ASU 2017-12 were subsequently clarified by the Financial Accounting Standards Board (“FASB”) in April 2019 through the issuance of ASU 2019-04. The Company did not have any existing hedging relationships at the time of adoption; therefore, the adoption of ASU 2017-12 and ASU 2019-04 had no impact on our consolidated financial statements.

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 (notional amount of $450 million). The Swap was designated as a cash flow hedge and the initial prospective quantitative hedge effectiveness assessment was deemed highly effective. Under ASU 2017-12, the Company has the option to perform subsequent assessments of hedge effectiveness qualitatively. The Company has elected to assess the Swap’s hedge effectiveness qualitatively and will verify and document on a quarterly basis that facts and circumstances have not changed.

Recently Issued Accounting Standards

• Subsequent Measurement of Goodwill: In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) (“ASU 2017-04”) which simplifies the test for goodwill impairment. ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill (step two) to measure a goodwill impairment charge. Goodwill impairment will be based upon the results of step one of the impairment test, which is defined as the excess of the carrying amount of a reporting unit over its fair value, not to exceed the carrying amount of goodwill allocated to that reporting unit. The effective date for calendar-year public business entities was January 1, 2020. Due to the Company’s status as an emerging growth company (“EGC”), the new guidance will be effective for the Company’s fiscal year that begins on January 1, 2021 and requires a prospective approach to adoption. Early adoption is permitted for interim or annual goodwill impairment tests. The impact of this new guidance will depend upon the performance of the Company’s one reporting unit and the market conditions impacting the fair value.

• Leases: In February 2016, the FASB issued ASU 2016‑02, Leases (Topic 842) (the “New Lease Standard”) which supersedes previous lease guidance, Accounting Standards Codification (“ASC”) Topic 840 (“ASC Topic 840”). The New Lease Standard requires lessees to recognize a right-of-use asset and a lease liability for all leases (with the exception of short-term leases) on their balance sheet at the commencement date and recognize expenses on their income statement similar to ASC Topic 840 guidance. In addition, the FASB issued ASU 2018-11, Leases Targeted Improvements, which provides a package of practical expedients for entities to apply upon adoption. The effective date for calendar-year public business entities was January 1, 2019. In June 2020, the FASB deferred the effective date of the New Lease Standard for private companies and other companies who had not yet been required to adopt the standard. Due to the Company’s EGC status, the New Lease Standard will be adopted on January 1, 2022.

Management has assessed and evaluated the Company’s portfolio of active real estate leases and is currently surveying the business for other leases. As outlined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, the Company has approximately $23 million in undiscounted, future minimum cash commitments under net operating leases. The New Lease Standard is expected to result in a gross up of assets and liabilities on the Consolidated Balance Sheets and to have no material impact on the Consolidated Statements of Operations or the Company’s liquidity or debt covenant compliance under the current credit agreement.

• Expected Credit Losses: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 creates a new model for determining current expected credit losses (“CECL”) on trade and other receivables, net investments in leases, contract assets and long-term receivables. The CECL impairment model requires companies to consider the risk of loss even if it is remote and to include forecasts of future economic conditions as well as information about past events and current conditions. The effective date for calendar-year public business entities is January 1, 2020. As an EGC, the Company currently expects to adopt ASU 2016-13 on January 1, 2023. The Company is currently reviewing the effect of this new standard on its consolidated financial statements.

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Revenue Recognition (Tables)

9 Months Ended

Sep. 30, 2020

Revenue From Contract With Customer [Abstract]

Schedule of Disaggregation of Revenue by Type and Product

In accordance with the new revenue recognition standard requirements, the following table disaggregates our revenue by type and product:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2020			2019			2020			2019
Investment management fees
Mutual funds (Victory/USAA Funds)	$	112,983		$	125,928		$	337,355		$	228,855
ETFs (VictoryShares)		2,890			3,116			8,498			7,172
Separate accounts and other vehicles		24,318			26,512			71,920			72,379
Performance-based fees
Mutual funds (USAA Funds)		(2,699	)		—			(2,699	)		—
Separate accounts and other vehicles		(252	)		(150	)		(921	)		(547	)
Total investment management fees	$	137,240		$	155,406		$	414,153		$	307,859
Fund administration and distribution fees
Administration fees
Mutual funds (Victory/USAA Funds)	$	27,605		$	30,098		$	83,948		$	40,734
ETFs (VictoryShares)		370			378			1,055			924
Distribution fees
Mutual funds (Victory/USAA Funds)		6,296			7,674			18,999			22,878
Transfer agent fees
Mutual funds (USAA Funds)		17,145			21,424			56,808			21,424
Total fund administration and distribution fees	$	51,416		$	59,574		$	160,810		$	85,960
Total revenue	$	188,656		$	214,980		$	574,963		$	393,819

Schedule of Balances of Receivables from Contracts with Customers

The following table presents balances of receivables:

(in thousands)	September 30, 2020		December 31, 2019
Customer receivables
Mutual funds (Victory/USAA Funds)	$	55,383	$	64,407
ETFs (VictoryShares)		1,196		1,391
Separate accounts and other vehicles		19,519		27,836
Receivables from contracts with customers		76,098		93,634
Non-customer receivables		3,098		1,459
Total receivables	$	79,196	$	95,093

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Acquisitions (Tables)

9 Months Ended

Sep. 30, 2020

Acquisitions

Summary of Unaudited Pro Forma Information

	Unaudited
	Nine Months Ended
(in thousands, except per share amount)	September 30, 2019
Revenue	$	632.9
Net income	$	76.5
Earnings per share of common stock
Basic	$	1.13
Diluted	$	1.04
Weighted average number of shares outstanding
Basic		67,610
Diluted		73,300

Summary of Business Acquisition Related Cost

	Acquisition-related costs
	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
USAA AMCO Acquisition	$	776	$	16,235	$	664	$	21,043
Other		372		151		392		907
Total acquisition-related costs	$	1,148	$	16,386	$	1,056	$	21,950

Summary of Rollforward of Restructuring and Integration Liabilities

The following table presents the rollforward of restructuring and integration liabilities, which are recorded in accounts payable and accrued expenses in the unaudited Condensed Consolidated Balance Sheets, for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2020			2019			2020			2019
Liability balance, beginning of period	$	2.8		$	1.5		$	3.0		$	0.1
Severance Expense - USAA AMCO		—			3.7			0.9			5.2
Integration costs - USAA AMCO		1.3			1.1			4.0			1.4
Total restructuring and integration costs		1.3			4.8			4.9			6.6
Settlement of liabilities		(1.2	)		(4.4	)		(5.0	)		(4.8	)
Liability balance, end of period	$	2.9		$	1.9		$	2.9		$	1.9

USAA AMCO

Acquisitions

Summary of Allocation of Purchase Price

The following table summarizes the estimated amounts of identified acquired assets and liabilities assumed as of the acquisition date:

(in thousands)
Cash and cash equivalents	$	17,473
Investment management fees receivable		25,353
Fund administration and distribution fees receivable		4,779
Other receivables and prepaid expenses		299
Property and equipment		1,165
Other intangible assets(1)		808,670
Goodwill		120,643
Accounts payable and accrued expenses		(5,575	)
Accrued compensation and benefits		(5,907	)
Payable to members and custodians		(17,473	)
Contingent consideration payable to sellers		(98,800	)
Total purchase price consideration	$	850,627

^{(1) Includes $750.2 million for indefinite-lived investment advisory contracts, $19.1 million for indefinite-lived transfer agent contracts, $0.8 million for indefinite-lived distribution contracts, $38.2 million for definite-lived trade name assets and $0.4 million for definite-lived lease-related assets, all of which were recorded in other intangible assets, net on the unaudited Condensed Consolidated Balance Sheets.}

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Summary of Fair Value Measured at Fair Value on Recurring Basis

The table below shows liabilities measured at fair value on a recurring basis.

	As of September 30, 2020
(in thousands)	Total			Level 1		Level 2			Level 3
Financial Liabilities
Interest Rate Swap Liability	$	(11,772	)	$	-	$	(11,772	)	$	-
Contingent Consideration Arrangements(1)		(120,500	)		-		-			(120,500	)
Total Financial Liabilities	$	(132,272	)	$	-	$	(11,772	)	$	(120,500	)

	As of December 31, 2019
(in thousands)	Total			Level 1		Level 2		Level 3
Financial Liabilities
Contingent Consideration Arrangements(1)	$	(118,700	)	$	-	$	-	$	(118,700	)
Total Financial Liabilities	$	(118,700	)	$	-	$	-	$	(118,700	)

(1) Refer to Note 4, Acquisitions, for further information regarding the Company’s contingent consideration arrangements.

Summary of Contingent Consideration

The following table presents the balance of the contingent consideration arrangement liabilities at December 31, 2019 and September 30, 2020, respectively.

(in thousands)	Contingent Consideration Liabilities
Balance, December 31, 2019	$	(118,700	)
USAA AMCO change in fair value measurement		(1,800	)
Balance, September 30, 2020	$	(120,500	)

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Related-Party Transactions (Tables)

9 Months Ended

Sep. 30, 2020

Related Party Transactions [Abstract]

Summary of Related-Party Transactions

(in thousands)	September 30, 2020		December 31, 2019
Related party assets
Cash and cash equivalents	$	10,088	$	10,060
Receivables (investment management fees)		41,008		47,872
Receivables (fund administration and distribution fees)		16,960		19,313
Investments (available-for-sale securities, fair value)		785		771
Investments (trading securities, fair value)		18,518		17,914
Total	$	87,359	$	95,930
Related party liabilities
Accounts payable and accrued expenses (fund reimbursements)	$	5,330	$	4,316

	Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	2020		2019			2020			2019
Related party revenue
Investment management fees	$	115,376	$	130,361		$	348,653		$	239,869
Fund administration and distribution fees		51,416		59,574			160,809			85,960
Total	$	166,792	$	189,935		$	509,462		$	325,829
Related party other income (expense)
Interest income and other income (expense)	$	828	$	(342	)	$	(1,268	)	$	1,473

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Investments (Tables)

9 Months Ended

Sep. 30, 2020

Trading Securities

Gain (Loss) on Securities [Line Items]

Summary of Cost and Fair Value of Investments

A summary of the cost and fair value of investments classified as trading securities were as follows:

			Gross Unrealized					Fair
(in thousands)	Cost		Gains		(Losses)			Value
As of September 30, 2020	$	20,420	$	449	$	(2,037	)	$	18,832
As of December 31, 2019		18,670		733		(1,098	)		18,305

Summary of Proceeds and Realized Gains and Losses

Proceeds from sales and realized gains and losses from trading securities in the periods ended September 30, 2020 and 2019 were as follows:

	Sale		Realized
(in thousands)	Proceeds		Gains		(Losses)
For the three months ended September 30, 2020	$	1,289	$	48	$	(166	)
For the three months ended September 30, 2019		908		1		(29	)

	Sale		Realized
(in thousands)	Proceeds		Gains		(Losses)
For the nine months ended September 30, 2020	$	3,279	$	85	$	(308	)
For the nine months ended September 30, 2019		2,342		15		(60	)

Available For Sale Securities

Gain (Loss) on Securities [Line Items]

Summary of Cost and Fair Value of Investments

A summary of the cost and fair value of investments classified as available-for-sale were as follows:

			Gross Unrealized					Fair
(in thousands)	Cost		Gains		(Losses)			Value
As of September 30, 2020	$	702	$	90	$	(7	)	$	785
As of December 31, 2019		696		85		(10	)		771

Summary of Proceeds From Sales and Realized Gains and Losses From Available-for-sale Securities

There were no proceeds from sales and realized gains and losses from available-for-sale securities for the three months ended September 30, 2020 and 2019. For the nine month periods ended September 30, 2020 and 2019 proceeds from sales and realized gains and losses from available-for-sale securities were as follows:

	Sale		Realized
(in thousands)	Proceeds		Gains		(Losses)
For the nine months ended September 30, 2020	$	274	$	18	$	(13	)
For the nine months ended September 30, 2019		104		4		—

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Income Taxes (Tables)

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Schedule of Changes in Gross Unrecognized Tax Benefits Excluding Interest And Penalties

The following table presents the changes in gross unrecognized tax benefits, excluding interest and penalties, for the three and nine months ended September 30, 2020 and 2019.

(in thousands)	2020			2019
Beginning balance, January 1	$	2,582		$	—
Additions based on tax positions related to current period		280			—
Reductions related to settlement of tax matters		(908	)		—
Ending balance, March 31	$	1,954		$	—
Additions based on tax positions related to current period		—			—
Reductions related to settlement of tax matters		(1,954	)		—
Ending balance, June 30	$	—		$	—
Additions based on tax positions related to current period		—			—
Reductions related to settlement of tax matters		—			—
Ending balance, September 30	$	—		$	—

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Debt (Tables)

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Schedule of Components of Long-Term Debt

(in thousands)	September 30, 2020			December 31, 2019
Term loan principal outstanding	$	837,239		$	952,000
Unamortized debt issuance costs		(7,959	)		(17,230	)
Unamortized debt discount		(13,403	)		(10,231	)
Long-term debt, net	$	815,877		$	924,539

Schedule of Components of Interest Expense and Other Financing Costs

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Interest expense	$	6,236	$	15,308	$	25,260	$	22,931
Amortization of debt issuance costs		739		920		2,275		1,650
Amortization of debt discount		367		475		1,136		768
Interest rate swap expense		724		153		205		—
Other		121		—		429		651
Total	$	8,187	$	16,856	$	29,305	$	26,000

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Equity (Tables)

9 Months Ended

Sep. 30, 2020

Equity [Abstract]

Schedule of Changes in Number of Shares of Common Stock Issued and Repurchased

The following tables present the changes in the number of shares of common stock issued and repurchased (in thousands):

	Shares of Common Stock Issued					Shares of Treasury Stock
	Class A		Class B			Class A			Class B
Balance, December 31, 2019		18,100		53,937			(1,685	)		(2,656	)
Issuance of shares		2		—			—			—
Share conversion - Class B to A		406		(406	)		—			—
Repurchase of shares		—		—			(240	)		—
Vesting of restricted share grants		—		719			—			—
Exercise of options		—		288			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(445	)
Balance, March 31, 2020		18,508		54,538			(1,925	)		(3,101	)
Issuance of shares		2		—			—			—
Share conversion - Class B to A		207		(207	)		—			—
Repurchase of shares		—		—			(457	)		—
Vesting of restricted share grants		—		173			—			—
Exercise of options		—		—			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(43	)
Balance, June 30, 2020		18,717		54,504			(2,382	)		(3,144	)
Issuance of shares		2		—			—			—
Share conversion - Class B to A		631		(631	)		—			—
Repurchase of shares		—		—			(529	)		—
Vesting of restricted share grants		—		197			—			—
Exercise of options		—		330			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(91	)
Balance, September 30, 2020		19,350		54,400			(2,911	)		(3,235	)

	Shares of Common Stock Issued					Shares of Treasury Stock
	Class A		Class B			Class A			Class B
Balance, December 31, 2018		15,281		55,284			(856	)		(2,147	)
Issuance of shares		1		—			—			—
Share conversion - Class B to A		382		(382	)		—			—
Repurchase of shares		—		—			(123	)		—
Vesting of restricted share grants		—		40			—			—
Exercise of options		—		72			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(29	)
Balance, March 31, 2019		15,664		55,014			(979	)		(2,176	)
Issuance of shares		1		—			—			—
Share conversion - Class B to A		809		(809	)		—			—
Repurchase of shares		—		—			(113	)		—
Vesting of restricted share grants		—		4			—			—
Exercise of options		—		150			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(8	)
Balance, June 30, 2019		16,474		54,359			(1,092	)		(2,184	)
Issuance of shares		1		—			—			—
Share conversion - Class B to A		1,331		(1,331	)		—			—
Repurchase of shares		—		—			(300	)		—
Vesting of restricted share grants		—		169			—			—
Exercise of options		—		487			—			—
Shares withheld related to net settlement of equity awards		—		—			—			(216	)
Balance, September 30, 2019		17,806		53,684			(1,392	)		(2,400	)

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Share-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Schedule of Activity Related to Stock Options Awards, Restricted Stock Awards

Stock option award and restricted stock award activity during the nine months ended September 30, 2020 and 2019 was as follows:

	Shares Subject to Stock Option Awards
	Nine Months Ended September 30,
	2020							2019
	Avg wtd		Avg wtd					Avg wtd		Avg wtd
	grant-date		exercise					grant-date		exercise
	fair value		price		Units			fair value		price		Units
Outstanding at beginning of period	$	3.83	$	6.27		7,880,167		$	3.79	$	6.12		9,070,052
Granted		—		—		—			7.25		17.64		31,178
Forfeited		5.86		12.40		(8,746	)		5.00		9.63		(247,403	)
Exercised		3.44		5.06		(617,412	)		3.15		4.11		(708,949	)
Outstanding at end of the period	$	3.86	$	6.36		7,254,009		$	3.82	$	6.24		8,144,878
Vested	$	3.73	$	5.97		6,641,955		$	3.59	$	5.51		6,860,289
Unvested		5.30		10.67		612,054			5.06		10.12		1,284,589

	Restricted Stock Awards
	Nine Months Ended September 30,
	2020					2019
	Avg wtd grant-					Avg wtd grant-
	date fair value		Units			date fair value		Units
Unvested at beginning of period	$	14.29		3,215,619		$	13.17		2,997,856
Granted		16.65		781,843			16.27		1,192,145
Vested		14.35		(1,089,780	)		11.06		(212,929	)
Forfeited		15.88		(78,839	)		13.49		(433,549	)
Unvested at end of period	$	14.98		2,828,843		$	14.25		3,543,523

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2020

Earnings Per Share [Abstract]

Summary of Reconciliation of Basic Earnings Per Share and Diluted Earnings Per Share

The following table sets forth the reconciliation of basic earnings per share and diluted earnings per share from net income for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands except per share amounts)	2020		2019		2020		2019
Net income	$	55,741	$	25,992	$	157,627	$	54,902
Shares:
Basic: Weighted average number of shares outstanding		67,743		67,724		67,785		67,610
Plus: Incremental shares from assumed conversion of dilutive instruments		5,694		5,947		5,918		5,690
Diluted: Weighted average number of shares outstanding		73,437		73,671		73,703		73,300
Earnings per share
Basic:	$	0.82	$	0.38	$	2.33	$	0.81
Diluted:	$	0.76	$	0.35	$	2.14	$	0.75

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Accumulated Other Comprehensive Income (Loss) (Tables)

9 Months Ended

Sep. 30, 2020

Accumulated Other Comprehensive Income Loss Net Of Tax [Abstract]

Summary of Changes in Accumulated Other Comprehensive Income/(Loss) by Component

The following table presents changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2020 and 2019.

	Available-for-						Cumulative
	Sale			Cash Flow			Translation
(in thousands)	Securities			Hedges			Adjustment			Total
Balance, December 31, 2019	$	—		$	—		$	—		$	—
Other comprehensive loss before reclassification and tax		—			(11,977	)		(23	)		(12,000	)
Tax impact		—			2,853			6			2,859
Reclassifications, before tax		—			205			—			205
Tax impact		—			(51	)		—			(51	)
Net current period other comprehensive loss		—			(8,970	)		(17	)		(8,987	)
Balance, September 30, 2020	$	—		$	(8,970	)	$	(17	)	$	(8,987	)
Balance, December 31, 2018	$	(59	)	$	—		$	(27	)	$	(86	)
Other comprehensive income before reclassification and tax		—			—			(28	)		(28	)
Tax impact		—			—			7			7
Net current period other comprehensive income		—			—			(21	)		(21	)
Cumulative effect of adoption of ASU 2016-01 and 2018-02		59			—			3			62
Balance, September 30, 2019	$	—		$	—		$	(45	)	$	(45	)

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Derivatives (Tables) - Interest Rate Swap

9 Months Ended

Sep. 30, 2020

Summary of Classification of Swap in Unaudited Condensed Consolidated Balance Sheets

The following table summarizes the classification of the Swap in the unaudited Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019 (in thousands):

Balance Sheets	Description	September 30, 2020		December 31, 2019
Other liabilities	Fair value of interest rate swap	$	11,772	$	—
	Notional amount		450,000		—

Summary of Effects of Swap in Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income

The following tables summarize the effects of the Swap in the unaudited Condensed Consolidated Statements of Operations and unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019 and (in thousands):

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
Statement of Operations	Description	2020		2019		2020		2019
Interest expense and other financing costs	Loss reclassified from AOCL	$	724	$	—	$	205	$	—

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
Statements of Comprehensive Income	Description	2020		2019		2020		2019
Other comprehensive loss	Loss recognized in AOCL, net of tax	$	621	$	—	$	8,970	$	—

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Basis of Presentation and Significant Accounting Policies - Additional Information (Details) - USD ($)	Sep. 30, 2020	Sep. 20, 2020	Mar. 27, 2020	Dec. 31, 2019
Significant Accounting Policies [Line Items]
Future minimum cash commitments under operating leases				$ 23,000,000
Interest Rate Swap
Significant Accounting Policies [Line Items]
Notional amount	$ 450,000,000		$ 450,000,000
Accounting Standards Update 2017-12
Significant Accounting Policies [Line Items]
Change in Accounting Principle, Accounting Standards Update, Adopted [true false]	true
Change in Accounting Principle, Accounting Standards Update, Adoption Date	Jan. 01, 2020
Accounting Standards Update 2019-04
Significant Accounting Policies [Line Items]
Change in Accounting Principle, Accounting Standards Update, Adopted [true false]	true
Change in Accounting Principle, Accounting Standards Update, Adoption Date	Jan. 01, 2020
Alderwood Partners LLP
Significant Accounting Policies [Line Items]
Equity interest percentage		15.00%

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Revenue - Schedule of Disaggregation of Revenue by Type and Product (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Disaggregation of revenue
Total revenue	$ 188,656	$ 214,980	$ 574,963	$ 393,819
Investment Management Fees
Disaggregation of revenue
Total revenue	137,240	155,406	414,153	307,859
Investment Management Fees | Mutual Funds
Disaggregation of revenue
Total revenue	112,983	125,928	337,355	228,855
Investment Management Fees | ETF's
Disaggregation of revenue
Total revenue	2,890	3,116	8,498	7,172
Investment Management Fees | Separate Accounts and Other Vehicles
Disaggregation of revenue
Total revenue	24,318	26,512	71,920	72,379
Performance-based Investment Fees | Mutual Funds
Disaggregation of revenue
Total revenue	(2,699)		(2,699)
Performance-based Investment Fees | Separate Accounts and Other Vehicles
Disaggregation of revenue
Total revenue	(252)	(150)	(921)	(547)
Administration Fees | Mutual Funds
Disaggregation of revenue
Total revenue	27,605	30,098	83,948	40,734
Administration Fees | ETF's
Disaggregation of revenue
Total revenue	370	378	1,055	924
Fund Distribution Fees | Mutual Funds
Disaggregation of revenue
Total revenue	6,296	7,674	18,999	22,878
Transfer Agent Fees | Mutual Funds
Disaggregation of revenue
Total revenue	17,145	21,424	56,808	21,424
Fund Administration and Distribution Fees
Disaggregation of revenue
Total revenue	$ 51,416	$ 59,574	$ 160,810	$ 85,960

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Revenue - Schedule of Balances of Receivables from Contracts with Customers (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Disaggregation of revenue
Receivables from contracts with customers	$ 76,098	$ 93,634
Non-customer receivables	3,098	1,459
Total receivables	79,196	95,093
Mutual Funds
Disaggregation of revenue
Receivables from contracts with customers	55,383	64,407
ETF's
Disaggregation of revenue
Receivables from contracts with customers	1,196	1,391
Separate Accounts and Other Vehicles
Disaggregation of revenue
Receivables from contracts with customers	$ 19,519	$ 27,836

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Revenue - Additional Information (Details)	9 Months Ended
	Sep. 30, 2020
Class C
Disaggregation of revenue
Upfront sales commission percentage	1.00%

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Acquisitions - Additional Information (Details) - USD ($)		3 Months Ended			6 Months Ended	9 Months Ended		15 Months Ended
	Jul. 01, 2019	Dec. 31, 2020	Sep. 30, 2020	Mar. 31, 2020	Jun. 30, 2020	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Dec. 31, 2019
Acquisitions
Contingent consideration liability			$ 120,500,000			$ 120,500,000		$ 120,500,000	$ 118,700,000
Goodwill			404,750,000			404,750,000		404,750,000	404,750,000
Increase in contingent consideration liability						$ 1,800,000	$ (14,000)
Percentage of projected annual growth rate for non managed money revenue						3.00%
Percentage of market price risk						7.00%
Percentage of revenue volatility						16.00%
Discount rate						4.50%
Revenue							$ 632,900
Minimum
Acquisitions
Estimated undiscounted earn out payments						$ 128,000,000
Maximum
Acquisitions
Estimated undiscounted earn out payments						150,000,000
USAA AMCO
Acquisitions
Percentage of outstanding common stock acquired	100.00%
Working capital adjustment				$ 700,000
Change in goodwill						0
Total consideration								949,400,000
Payments to acquire business	$ 851,300,000
Contingent consideration liability	98,800,000		120,500,000			120,500,000		120,500,000	$ 118,700,000
Maximum aggregate contingent payment	150,000,000.0
Maximum annual contingent payment	$ 37,500,000
Period of time over which contingent payments will be made	4 years
Contingent consideration threshold percentage	80.00%
Annual revenue percentage requirement to achieve the maximum contingent payment	100.00%
Goodwill	$ 120,643,000		120,600,000			120,600,000		$ 120,600,000
Increase in contingent consideration liability			$ 2,000,000.0			$ 1,800,000
Revenue					$ 221,300,000
USAA AMCO | Scenario Forecast
Acquisitions
Business combination, earnout payments		$ 37,500

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Acquisitions - Summary of Allocation of Purchase Price (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019	Jul. 01, 2019
Acquisitions
Goodwill	$ 404,750	$ 404,750
Contingent consideration payable to sellers	(120,500)	(118,700)
USAA AMCO
Acquisitions
Cash and cash equivalents			$ 17,473
Investment management fees receivable			25,353
Fund administration and distribution fees receivable			4,779
Other receivables and prepaid expenses			299
Property and equipment			1,165
Other intangible assets			808,670
Goodwill	120,600		120,643
Accounts payable and accrued expenses			(5,575)
Accrued compensation and benefits			(5,907)
Payable to members and custodians			(17,473)
Contingent consideration payable to sellers	$ (120,500)	$ (118,700)	(98,800)
Total purchase price consideration			$ 850,627

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Acquisitions - Summary of Allocation of Purchase Price (Parenthetical) (Details) - USAA AMCO $ in Thousands	Jul. 01, 2019 USD ($)
Acquisitions
Other intangible assets, net	$ 808,670
Trade Name
Acquisitions
Other intangible assets, net	38,200
Lease-Related Assets
Acquisitions
Other intangible assets, net	400
Investment Advisory Contracts
Acquisitions
Other intangible assets, net	750,200
Transfer Agent Contracts
Acquisitions
Other intangible assets, net	19,100
Distribution Contracts
Acquisitions
Other intangible assets, net	$ 800

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Acquisitions - Summary of Unaudited Pro Forma Information (Details) $ / shares in Units, shares in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($) $ / shares shares
Business Combinations [Abstract]
Revenue | $	$ 632,900
Net income | $	$ 76,500
Basic | $ / shares	$ 1.13
Diluted | $ / shares	$ 1.04
Basic | shares	67,610
Diluted | shares	73,300

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Acquisitions - Summary of Acquisition Related Cost (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Acquisitions
Acquisition-related costs	$ 1,148	$ 16,386	$ 1,056	$ 21,950
USAA AMCO
Acquisitions
Acquisition-related costs	776	16,235	664	21,043
Other
Acquisitions
Acquisition-related costs	$ 372	$ 151	$ 392	$ 907

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Acquisitions - Summary of Rollforward of Restructuring and Integration Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Rollforward of restructuring and integration liabilities
Liability balance, beginning of period	$ 2,800	$ 1,500	$ 3,000	$ 100
Restructuring and integration costs	1,285	4,841	4,888	6,629
Settlement of liabilities	(1,200)	(4,400)	(5,000)	(4,800)
Liability balance, end of period	2,900	1,900	2,900	1,900
USAA AMCO
Rollforward of restructuring and integration liabilities
Integration costs - USAA AMCO	$ 1,300	1,100	4,000	1,400
USAA AMCO | Severence Expense
Rollforward of restructuring and integration liabilities
Restructuring charges		$ 3,700	$ 900	$ 5,200

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Fair Value Measurements - Summary of Financial Liabilities Measured at Fair Value on Recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Financial Liabilities
Interest Rate Swap Liability	$ (11,772)
Contingent Consideration Arrangements	(120,500)	$ (118,700)
Total Financial Liabilities	(132,272)	(118,700)
Level 2
Financial Liabilities
Interest Rate Swap Liability	(11,772)
Total Financial Liabilities	(11,772)
Level 3
Financial Liabilities
Contingent Consideration Arrangements	(120,500)	(118,700)
Total Financial Liabilities	$ (120,500)	$ (118,700)

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Fair Value Measurements - Additional Information (Details) - USD ($)		9 Months Ended
	Mar. 27, 2020	Sep. 30, 2020	Dec. 31, 2019
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Transfers between levels		$ 0	$ 0
Cash and Cash Equivalents | Level 1
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, fair value		10,100,000
Interest Rate Swap
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Notional amount	$ 450,000,000	$ 450,000,000
Rate of interest	3.465%	3.465%

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Fair Value Measurements - Summary of Contingent Consideration Arrangement Liabilities (Details) - Contingent Consideration Liability $ in Thousands	9 Months Ended
	Sep. 30, 2020 USD ($)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Beginning balance	$ (118,700)
Ending balance	(120,500)
USAA AMCO
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Change in fair value measurement	$ (1,800)

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Related-Party Transactions - Summary of Related-Party Transactions (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Related party assets
Cash and cash equivalents	$ 56,284		$ 56,284		$ 37,121
Related party revenue
Total revenue	188,656	$ 214,980	574,963	$ 393,819
Investment Management Fees
Related party revenue
Total revenue	137,240	155,406	414,153	307,859
Fund Administration and Distribution Fees
Related party revenue
Total revenue	51,416	59,574	160,810	85,960
VCH
Related party assets
Cash and cash equivalents	10,088		10,088		10,060
Receivables (investment management fees)	41,008		41,008		47,872
Receivables (fund administration and distribution fees)	16,960		16,960		19,313
Investments (available-for-sale securities, fair value)	785		785		771
Investments (trading securities, fair value)	18,518		18,518		17,914
Total	87,359		87,359		95,930
Related party liabilities
Accounts payable and accrued expenses (fund reimbursements)	5,330		5,330		$ 4,316
Related party revenue
Total revenue	166,792	189,935	509,462	325,829
Related party other income (expense)
Interest income and other income (expense)	828	(342)	(1,268)	1,473
VCH | Investment Management Fees
Related party revenue
Total revenue	115,376	130,361	348,653	239,869
VCH | Fund Administration and Distribution Fees
Related party revenue
Total revenue	$ 51,416	$ 59,574	$ 160,809	$ 85,960

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Investments - Summary of Cost and Fair Value of Investments Classified as Available-for-sale (Details) - Available For Sale Securities - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Schedule Of Available For Sale Securities [Line Items]
Cost	$ 702	$ 696
Gross Unrealized Gains	90	85
Gross Unrealized (Losses)	(7)	(10)
Available-for-sale securities, at fair value	$ 785	$ 771

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Investments - Additional Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Schedule Of Available For Sale Securities [Line Items]
Sale proceeds			$ 274,000	$ 104,000
Available For Sale Securities
Schedule Of Available For Sale Securities [Line Items]
Sale proceeds	$ 0	$ 0	274,000	104,000
Realized gains	0	0	18,000	$ 4,000
Realized losses	$ 0	$ 0	$ (13,000)

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Investments - Summary of Proceeds From Sales and Realized Gains and Losses From Available-for-sale Securities (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Proceeds and realized gains and losses recognized
Sale Proceeds			$ 274,000	$ 104,000
Available For Sale Securities
Proceeds and realized gains and losses recognized
Sale Proceeds	$ 0	$ 0	274,000	104,000
Realized Gains	0	0	18,000	$ 4,000
Realized (Losses)	$ 0	$ 0	$ (13,000)

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Investments - Summary of Cost and Fair Value of Investments Classified as Trading Securities (Details) - Trading Securities - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Schedule Of Trading Securities And Other Trading Assets [Line Items]
Cost	$ 20,420	$ 18,670
Gross Unrealized Gains	449	733
Gross Unrealized (Losses)	(2,037)	(1,098)
Trading securities, at fair value	$ 18,832	$ 18,305

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Investments - Summary of Proceeds and Realized Gains and Losses Classified as Trading Securities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Proceeds and realized gains and losses recognized
Sale Proceeds			$ 3,279	$ 2,342
Trading Securities
Proceeds and realized gains and losses recognized
Sale Proceeds	$ 1,289	$ 908	3,279	2,342
Realized Gains	48	1	85	15
Realized (Losses)	$ (166)	$ (29)	$ (308)	$ (60)

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Income Taxes - Additional Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Income Taxes [Line Items]
Income Tax Expense (Benefit)	$ 17,027,000	$ 8,058,000	$ 48,337,000	$ 17,343,000
Federal income tax at U.S. statutory rate	23.40%	23.70%	23.50%	24.00%
Valuation allowance, deferred tax assets	$ 0	$ 0	$ 0	$ 0
Unrecognized tax benefits	0		0
Other Liabilities
Income Taxes [Line Items]
Accrual for interest and penalties	$ 100,000		$ 100,000

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Income Taxes - Schedule of Changes in Gross Unrecognized Tax Benefits Excluding Interest and Penalties (Details) - USD ($) $ in Thousands	3 Months Ended
	Jun. 30, 2020	Mar. 31, 2020
Income Tax Disclosure [Abstract]
Beginning balance	$ 1,954	$ 2,582
Additions based on tax positions related to current period		280
Reductions related to settlement of tax matters	$ (1,954)	(908)
Ending balance		$ 1,954

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Debt - Additional Information (Details) - USD ($)				3 Months Ended				9 Months Ended
	Mar. 27, 2020	Jan. 17, 2020	Jul. 01, 2019	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Debt Instrument [Line Items]
Gain (loss) on debt extinguishment				$ (758,000)			$ (7,409,000)	$ (1,675,000)	$ (7,409,000)
Interest Rate Swap
Debt Instrument [Line Items]
Base Spread (as a percent)	3.465%							3.465%
Notional amount	$ 450,000,000			450,000,000				$ 450,000,000
Revolving Credit Facility
Debt Instrument [Line Items]
Outstanding borrowing				0				$ 0
Repriced Term Loans
Debt Instrument [Line Items]
Principal amount		$ 952,000,000.0
Debt maturity date		2026-07
Debt instrument interest rate description								Repriced Term Loans provide for a reduced applicable margin on LIBOR of 75 basis points.
Basis spread on variable rate, increase (decrease)		0.075%
Repriced Term Loans | London Interbank Offered Rate (LIBOR)
Debt Instrument [Line Items]
Base Spread (as a percent)		2.50%
Term Loans
Debt Instrument [Line Items]
Repayments of debt				43,500,000	$ 33,300,000	$ 38,000,000.0		$ 114,800,000
Gain (loss) on debt extinguishment				$ (800,000)	$ 100,000	$ (1,000,000.0)
Term Loans | London Interbank Offered Rate (LIBOR)
Debt Instrument [Line Items]
Base Spread (as a percent)		3.25%
Credit Agreement
Debt Instrument [Line Items]
Maximum percentage of borrowings for revolving credit facility as a percent of total commitments			35.00%
Maximum first lien leverage ratio on last day of quarter (as a percent)			380.00%
Average effective interest rate (as a percent)								2.80%
Effective interest rate (as a percent)				3.23%				3.23%

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Debt - Schedule of Components of Long-Term Debt (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Unamortized debt issuance costs	$ (7,959)	$ (17,230)
Unamortized debt discount	(13,403)	(10,231)
Long-term debt, net	815,877	924,539
Term Loans
Debt Instrument [Line Items]
Principal outstanding	$ 837,239	$ 952,000

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Debt - Schedule of Components of Interest Expense and Other Financing Costs (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Debt Disclosure [Abstract]
Interest expense	$ 6,236	$ 15,308	$ 25,260	$ 22,931
Amortization of debt issuance costs	739	920	2,275	1,650
Amortization of debt discount	367	475	1,136	768
Interest rate swap expense	724	153	205
Other	121		429	651
Total	$ 8,187	$ 16,856	$ 29,305	$ 26,000

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Equity - Schedule of Changes in Number of Shares of Common Stock Issued and Repurchased (Detail) - shares shares in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2020	Sep. 30, 2019
Common Stock | Class A
Balance at beginning of period (in shares)	18,717	18,508	18,100	16,474	15,664	15,281	18,100	15,281
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares	2	2	2	1	1	1
Share conversion - Class B to A	631	207	406	1,331	809	382
Balance at end of period (in shares)	19,350	18,717	18,508	17,806	16,474	15,664	19,350	17,806
Common Stock | Class B
Balance at beginning of period (in shares)	54,504	54,538	53,937	54,359	55,014	55,284	53,937	55,284
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Share conversion - Class B to A	(631)	(207)	(406)	(1,331)	(809)	(382)
Vesting of restricted share grants	197	173	719	169	4	40
Exercise of options	330		288	487	150	72
Balance at end of period (in shares)	54,400	54,504	54,538	53,684	54,359	55,014	54,400	53,684
Treasury Stock | Class A
Balance at beginning of period (in shares)	(2,382)	(1,925)	(1,685)	(1,092)	(979)	(856)	(1,685)	(856)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Repurchase of shares	(529)	(457)	(240)	(300)	(113)	(123)
Balance at end of period (in shares)	(2,911)	(2,382)	(1,925)	(1,392)	(1,092)	(979)	(2,911)	(1,392)
Treasury Stock | Class B
Balance at beginning of period (in shares)	(3,144)	(3,101)	(2,656)	(2,184)	(2,176)	(2,147)	(2,656)	(2,147)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Shares withheld related to net settlement of equity awards	(91)	(43)	(445)	(216)	(8)	(29)
Balance at end of period (in shares)	(3,235)	(3,144)	(3,101)	(2,400)	(2,184)	(2,176)	(3,235)	(2,400)

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Equity - Additional Information (Details) - USD ($)			3 Months Ended	9 Months Ended
	Nov. 04, 2020	Nov. 02, 2020	Sep. 30, 2020	Sep. 30, 2020	May 31, 2020	Aug. 31, 2019	Dec. 31, 2018
Number of shares acquired				2,911,402
Average cost of acquired shares (in dollars per share)				$ 14.59
Cost of acquired shares				$ 42,500,000
Remaining authorized amount for share repurchase program			$ 2,500,000	$ 2,500,000
Stock repurchase program expiration description				The Additional 2020 Share Repurchase Program expires when $15 million shares of Class A common stock are repurchased or on December 31, 2022.
Dividends paid			$ 4,100,000	$ 10,800,000
Total dividends				11,500,000
Special dividends paid				$ 700,000
Class A
Authorized amount for share repurchase program					$ 15,000,000.0	$ 15,000,000.0	$ 15,000,000.0
Class A | Subsequent Event
Authorized amount for share repurchase program	$ 15,000,000	$ 15,000,000.0
Share repurchase program expiration date	Dec. 31, 2022	Dec. 31, 2022

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Share-Based Compensation - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Amount of cash bonuses and distributions related to all dividends previously declared on unvested shares			$ 0.7
Stock based compensation expense	$ 3.6	$ 4.8	$ 13.5	$ 10.1
Restricted Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total number of restricted shares granted	484,010		781,843	1,192,145
Vested (in shares)			1,089,780	212,929
Restricted Shares | Three Year Vesting Period
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total number of restricted shares granted	57,576		336,430
Vested (in shares)	11,997		30,976
Vesting period from grant date	3 years		3 years
Restricted Shares | Thirty Month Vesting Period
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total number of restricted shares granted	414,437		414,437
Vesting period from grant date	30 months		30 months
Stock Options and Restricted Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Amount of cash bonuses and distributions related to all dividends previously declared on unvested shares			$ 1.0		$ 1.3

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Share-Based Compensation - Schedule of Activity Related to Stock Options Awards, Restricted Stock Awards (Details)	3 Months Ended	9 Months Ended
	Sep. 30, 2020 $ / shares shares	Sep. 30, 2020 $ / shares shares	Sep. 30, 2019 $ / shares shares
Stock Options
Avg wtd grant-date fair value
Outstanding at beginning of period		$ 3.83	$ 3.79
Granted			7.25
Forfeited		5.86	5.00
Exercised		3.44	3.15
Outstanding at end of the period	$ 3.86	3.86	3.82
Vested		3.73	3.59
Unvested		5.30	5.06
Avg wtd exercise price
Outstanding at beginning of period		6.27	6.12
Granted			17.64
Forfeited		12.40	9.63
Exercised		5.06	4.11
Outstanding at end of the period	6.36	6.36	6.24
Vested	$ 5.97	5.97	5.51
Unvested		$ 10.67	$ 10.12
Units
Outstanding at beginning of period | shares		7,880,167	9,070,052
Granted | shares			31,178
Reversal of Forfeited | shares		(8,746)
Forfeited | shares			(247,403)
Exercised | shares		(617,412)	(708,949)
Outstanding at end of the period | shares	7,254,009	7,254,009	8,144,878
Vested | shares		6,641,955	6,860,289
Unvested | shares	612,054	612,054	1,284,589
Restricted Shares
Avg wtd grant-date fair value
Unvested at beginning of period		$ 14.29	$ 13.17
Granted		16.65	16.27
Vested		14.35	11.06
Forfeited		15.88	13.49
Unvested at end of period	$ 14.98	$ 14.98	$ 14.25
Units
Unvested at beginning of period | shares		3,215,619	2,997,856
Granted | shares	484,010	781,843	1,192,145
Vested | shares		(1,089,780)	(212,929)
Forfeited | shares		(78,839)	(433,549)
Unvested at end of period | shares	2,828,843	2,828,843	3,543,523

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Earnings Per Share - Summary of Reconciliation of Basic Earnings Per Share and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Earnings Per Share Reconciliation [Abstract]
Net income	$ 55,741	$ 25,992	$ 157,627	$ 54,902
Shares:
Basic: Weighted average number of shares outstanding	67,743	67,724	67,785	67,610
Plus: Incremental shares from assumed conversion of dilutive instruments	5,694	5,947	5,918	5,690
Diluted: Weighted average number of shares outstanding	73,437	73,671	73,703	73,300
Earnings per share
Basic:	$ 0.82	$ 0.38	$ 2.33	$ 0.81
Diluted:	$ 0.76	$ 0.35	$ 2.14	$ 0.75

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Earnings Per Share - Additional Information (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Earnings Per Share [Abstract]
Number of shares excluded from the computations of weighted average shares for diluted earnings per share because the effects would be anti dilutive	43,000	300	43	1,300

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Accumulated Other Comprehensive Income (Loss) - Summary of Changes in Accumulated Other Comprehensive Income/(Loss) by Component (Details) - USD ($) $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Accumulated Other Comprehensive Income Loss [Line Items]
Balance at beginning of period	$ 614,840	$ 581,080	$ 537,871	$ 486,951	$ 470,165	$ 455,548	$ 537,871	$ 455,548
Total other comprehensive loss, net of tax	(584)	(3,516)	(4,887)	(25)	(8)	12	(8,987)	(21)
Cumulative effect of adoption of ASU 2016-01 and 2018-02	111,404						111,404		$ (34,705)
Balance at end of period	659,557	614,840	581,080	506,685	486,951	470,165	659,557	506,685
Available-for-Sale Securities
Accumulated Other Comprehensive Income Loss [Line Items]
Balance at beginning of period						(59)		(59)
Available-for-Sale Securities | Cumulative Effect of Adoption of ASU 2016-01 and 2018-02 | Revision of Prior Period, Adjustment
Accumulated Other Comprehensive Income Loss [Line Items]
Cumulative effect of adoption of ASU 2016-01 and 2018-02				59				59
Cash Flow Hedges
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive loss before reclassification and tax							(11,977)
Tax impact							2,853
Reclassifications, before tax							205
Tax impact							(51)
Total other comprehensive loss, net of tax							(8,970)
Balance at end of period	(8,970)						(8,970)
Cumulative Translation Adjustment
Accumulated Other Comprehensive Income Loss [Line Items]
Balance at beginning of period						(27)		(27)
Other comprehensive loss before reclassification and tax							(23)	(28)
Tax impact							6	7
Total other comprehensive loss, net of tax							(17)	(21)
Balance at end of period	(17)			(45)			(17)	(45)
Cumulative Translation Adjustment | Cumulative Effect of Adoption of ASU 2016-01 and 2018-02 | Revision of Prior Period, Adjustment
Accumulated Other Comprehensive Income Loss [Line Items]
Cumulative effect of adoption of ASU 2016-01 and 2018-02				3				3
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income Loss [Line Items]
Balance at beginning of period	(8,403)	(4,887)		(20)	(12)	(86)		(86)
Other comprehensive loss before reclassification and tax							(12,000)	(28)
Tax impact							2,859	7
Reclassifications, before tax							205
Tax impact							(51)
Total other comprehensive loss, net of tax	(584)	(3,516)	(4,887)	(25)	(8)	12	(8,987)	(21)
Balance at end of period	$ (8,987)	$ (8,403)	$ (4,887)	(45)	$ (20)	(12)	$ (8,987)	(45)
Accumulated Other Comprehensive Income (Loss) | Cumulative Effect of Adoption of ASU 2016-01 and 2018-02 | Revision of Prior Period, Adjustment
Accumulated Other Comprehensive Income Loss [Line Items]
Cumulative effect of adoption of ASU 2016-01 and 2018-02				$ 62		$ 62		$ 62

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Derivatives - Additional Information (Details) - USD ($)		9 Months Ended
	Mar. 27, 2020	Sep. 30, 2020
Derivative [Line Items]
Amount payable to swap		$ 11,772,000
Other Liabilities
Derivative [Line Items]
Amount payable to swap		700,000
Interest Rate Swap
Derivative [Line Items]
Notional amount	$ 450,000,000	$ 450,000,000
Rate of interest	3.465%	3.465%
Expiration date of swap		Jul. 01, 2026
Interest Rate Swap | Other Liabilities
Derivative [Line Items]
Amount payable to swap		$ 11,772,000

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Derivatives - Summary of Classification of Swap in Unaudited Condensed Consolidated Balance Sheets (Details) - USD ($)	Sep. 30, 2020	Mar. 27, 2020
Derivative [Line Items]
Amount payable to swap	$ 11,772,000
Interest Rate Swap
Derivative [Line Items]
Notional amount	450,000,000	$ 450,000,000
Other Liabilities
Derivative [Line Items]
Amount payable to swap	700,000
Other Liabilities | Interest Rate Swap
Derivative [Line Items]
Amount payable to swap	$ 11,772,000

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Derivatives - Summary of Effects of Swap in Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Derivative [Line Items]
Loss reclassified from AOCL	$ 8,187	$ 16,856	$ 29,305	$ 26,000
Loss recognized in AOCL, net of tax	(621)		(8,970)
Interest Rate Swap | Reclassified from AOCL | Other Comprehensive Loss | Cash Flow Hedges
Derivative [Line Items]
Loss recognized in AOCL, net of tax	621		8,970
Interest Rate Swap | Interest Expense and Other Financing Costs
Derivative [Line Items]
Loss reclassified from AOCL	$ 724		$ 205

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Equity Method Investment - Additional Information (Details) - USD ($)		3 Months Ended		9 Months Ended
	Sep. 20, 2020	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Alderwood Partners LLP
Schedule Of Equity Method Investments [Line Items]
Equity interest percentage	15.00%
Cerebellum | Private Fund
Schedule Of Equity Method Investments [Line Items]
Equity method commitments to contribute additional capital	$ 50,000,000
Cerebellum | Cerebellum Capital, LLC
Schedule Of Equity Method Investments [Line Items]
Gain (loss) on sale of equity method investment			$ 2,900,000		$ 2,900,000
Cerebellum | Alderwood Partners LLP
Schedule Of Equity Method Investments [Line Items]
Equity interest percentage	15.00%
Equity method commitments to contribute additional capital	$ 4,500,000
Gain (loss) on sale of equity method investment		$ 0		$ 0
Equity method investment		$ 1,500,000		$ 1,500,000

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Subsequent Events - Additional Information (Details) - USD ($)			3 Months Ended				9 Months Ended		16 Months Ended
	Nov. 04, 2020	Nov. 02, 2020	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Nov. 06, 2020	May 31, 2020	Aug. 31, 2019	Dec. 31, 2018
Subsequent Event [Line Items]
Dividends declared per share of common stock			$ 0.06			$ 0.05	$ 0.16	$ 0.05
Percentage of increase in dividend over the second quarter 2020			40.00%	17.00%
Class A
Subsequent Event [Line Items]
Authorized amount for share repurchase program										$ 15,000,000.0	$ 15,000,000.0	$ 15,000,000.0
Subsequent Event
Subsequent Event [Line Items]
Dividends declared per share of common stock	$ 0.07
Dividends, date of declared	Nov. 04, 2020
Dividends payable date	Dec. 28, 2020
Dividends payable, date of record	Dec. 10, 2020
Subsequent Event | THB Asset Management
Subsequent Event [Line Items]
Investment management company net asset	$ 435,000,000
Subsequent Event | Class A
Subsequent Event [Line Items]
Authorized amount for share repurchase program	$ 15,000,000	$ 15,000,000.0
Share repurchase program expiration date	Dec. 31, 2022	Dec. 31, 2022
Term Loans
Subsequent Event [Line Items]
Repayments of debt			$ 43,500,000	$ 33,300,000	$ 38,000,000.0		$ 114,800,000
Term Loans | Subsequent Event
Subsequent Event [Line Items]
Reduction in outstanding debt									$ 20,000,000.0
Repayments of debt									$ 282,800,000