0001564590-22-010080.txt : 20220314 0001564590-22-010080.hdr.sgml : 20220314 20220314161154 ACCESSION NUMBER: 0001564590-22-010080 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 26 CONFORMED PERIOD OF REPORT: 20211231 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20220314 DATE AS OF CHANGE: 20220314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Victory Capital Holdings, Inc. CENTRAL INDEX KEY: 0001570827 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-38388 FILM NUMBER: 22736677 BUSINESS ADDRESS: STREET 1: 4900 TIEDEMANN ROAD STREET 2: 4TH FLOOR CITY: BROOKLYN STATE: OH ZIP: 44144 BUSINESS PHONE: 216-898-2400 MAIL ADDRESS: STREET 1: 4900 TIEDEMANN ROAD STREET 2: 4TH FLOOR CITY: BROOKLYN STATE: OH ZIP: 44144 8-K/A 1 vctr-8ka_20211231.htm 8-K/A vctr-8ka_20211231.htm
true 0001570827 0001570827 2021-12-31 2021-12-31

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

March 14, 2022 (December 31, 2021)

Date of Report (date of earliest event reported)

Victory Capital Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

001-38388

32-0402956

(State or other jurisdiction

(Commission

(IRS Employer

of incorporation)

File Number)

Identification No.)

 

 

 

 

 

 

15935 La Cantera Parkway; San Antonio, TX

 

78256

(Address of principal executive offices)

 

(Zip Code)

 

(216) 898-2400

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrants under any of the following provisions (see General Instruction A.2. below):

    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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, Par Value $0.01

VCTR

NASDAQ

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.

 

 

 


 

 

Item 2.01. Completion of Acquisition or Disposition of Assets.

 

On and effective December 31, 2021, Victory Capital Holdings, Inc., a Delaware corporation (“Victory,” or the “Company”), completed the acquisition (the “WestEnd Acquisition”) of 100% of the equity interests in WestEnd Advisors, LLC (“WestEnd”) for an estimated total purchase price of $716.1 million, net of cash acquired, which consists of $475.8 million in cash paid at closing net of cash acquired plus $239.7 million for the acquisition date estimated fair value of future cash payments of contingent consideration plus an estimated $0.6 million in cash payable in the second quarter of 2022 for net working capital adjustments.

 

The purchase price remains subject to certain post-closing adjustments. A maximum of $320.0 million ($80.0 million per year) in contingent earn-out payments may be paid. The contingent earn-out payments are based on net revenue of the WestEnd business during each of the first four years following the closing date, subject to certain “catch-up” provisions over a five and one half year period following the closing date.

 

The purchase price was financed by entering into the Third Amendment to the Credit Agreement (the “Third Amendment”), dated as of July 1, 2019 (as amended by the First Amendment to Credit Agreement, dated as of January 17, 2020, and the Second Amendment to Credit Agreement, dated as of February 18, 2021) with the guarantors party thereto, Barclays Bank PLC, as administrative agent, and the lenders party thereto from time to time.

Pursuant to the Third Amendment, the Company obtained incremental term loans (the “2021 Incremental Term Loans”) in an aggregate principal amount of $505.0 million. The 2021 Incremental Term Loans will mature in 2028 and will bear interest at an annual rate equal to, at the option of the Company, either LIBOR (adjusted for reserves and subject to a 50 basis point floor) plus a margin of 2.25% or an alternate base rate plus a margin of 1.25%. The 2021 Incremental Term Loans will amortize at a rate of 1.00% per annum.

This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by the Company on January 5, 2022 in order to include the financial statements of WestEnd and the pro forma financial information required by Item 9.01 of Form 8-K. The pro forma financial information included in this Form 8-K/A has been presented for informational purposes only, as required by Form 8-K. It does not purport to represent the actual results of operations that Victory and WestEnd would have achieved had the companies been combined during the periods presented in the pro forma financial information and is not intended to project the future results of operations that the combined company may achieve after Victory’s acquisition of WestEnd. Except as described above, all other information in Victory’s Current Report on Form 8-K filed on January 5, 2022 remains unchanged.

 

Item 9.01. Financial Statements and Exhibits.

(a)

Financial Statements of Business Acquired.

 

 

The audited financial statements of WestEnd as of and for the years ended December 31, 2020 and 2019 and the related notes to the financial statements incorporated herein by reference to Exhibit 99.2 to this Form 8-K/A.

 

 

The unaudited financial statements of WestEnd as of September 30, 2021 and for the nine months ended September 30, 2021 and 2020 and the related notes to the financial statements incorporated herein by reference to Exhibit 99.3 to this Form 8-K/A.

 

(b)

Pro Forma Financial Information.

 

 

The unaudited pro forma condensed combined financial statements, and the related notes thereto, of Victory and WestEnd, as of and for the nine months ended September 30, 2021 and as of and for the year ended December 31, 2020 incorporated herein by reference to Exhibit 99.4 to this Form 8-/A.

 

- 2 -


 

 

(c)

Exhibits.

 

 

 

Exhibit

    

 

Number

 

Description

2.1

 

Unit Purchase Agreement, dated as of November 4, 2021, by and among the Company, WestEnd Advisors, LLC, and the other parties listed thereto (incorporated by reference to Exhibit 2.1 of the Company’s Form 10-Q dated November 8, 2021).

10.1

 

Third Amendment, dated as of December 31, 2021, to the Credit Agreement, dated as of July 1, 2019 (as amended by the First Amendment to Credit Agreement, dated as of January 17, 2020, and the Second Amendment to Credit Agreement, dated as of February 18, 2021), by and among the Company, the guarantors party thereto, Barclays Bank PLC, as administrative agent, and the lenders party thereto from time to time (filed as Exhibit 10.1 to the Company’s Form 8-K, File No. 001-38388, on January 5, 2022 and incorporated herein by reference).

23.1

 

Consent of GreerWalker, LLP.

 

99.1

 

Press Release, dated January 3, 2022 (filed as Exhibit 99.1 to the Company’s Form 8-K, File No. 001-38388, on January 5, 2022 and incorporated herein by reference).

 

99.2

 

Audited financial statements of WestEnd as of and for the years ended December 31, 2020 and 2019.

 

99.3

 

Unaudited financial statements of WestEnd as of September 30, 2021 and for the nine months ended September 30, 2021 and 2020.

 

99.4

 

The unaudited pro forma condensed combined financial statements, and the related notes thereto, of Victory and WestEnd, as of and for the nine months ended September 30, 2021 and as of and for the year ended December 31, 2020.

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 


- 3 -


 

 

SIGNATURE(S)

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

 

    

VICTORY CAPITAL HOLDINGS, INC.

 

 

 

 

 

 

Date: March 14, 2022

 

By:

/s/ MICHAEL D. POLICARPO

 

 

 

Name: Michael D. Policarpo

 

 

 

Title: President, Chief Financial Officer and Chief Administrative Officer

 

- 4 -

EX-23.1 2 vctr-ex231_7.htm EX-23.1 vctr-ex231_7.htm


Exhibit 23.1

Consent of Independent Accountants

We hereby consent to the use in this Current Report on Form 8K/A of Victory Capital Holdings, Inc. of our report dated March 16, 2021 except for the change in the manner in which the company accounts for redeemable units as discussed in Note 1 to the financial statements, as to which the date is March 10, 2022, relating to the financial statements, which appear in such Form 8K/A.

/s/ GreerWalker LLP

Charlotte, NC

March 11, 2022

 

EX-99.2 3 vctr-ex992_8.htm EX-99.2 vctr-ex992_8.htm

Exhibit 99.2

 

 

 

FINANCIAL STATEMENTS FOR THE YEARS ENDED

DECEMBER 31, 2020 AND 2019

AND INDEPENDENT AUDITORS’ REPORT


 

 


 

      

 

 

 

 

INDEPENDENT AUDITORS' REPORT

 

To the Members of WestEnd Advisors, LLC:

 

We have audited the accompanying financial statements of WestEnd Advisors, LLC (the “Company”) which comprise the balance sheets as of December 31, 2020 and 2019, and the related statements of income, changes in redeemable units and members’ deficit, and cash flows for the years then ended, and the related notes to the financial statements.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these financial statements in accordance with generally accepted accounting principles in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ Responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of WestEnd Advisors, LLC as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in accordance with generally accepted accounting principles in the United States of America.

 

 

 

 


      

 

 

 

 

Emphasis of Matter

 

As discussed in Note 1 to the financial statements, the Company changed the manner in which it accounts for redeemable units in 2021.  Our opinion is not modified with respect to this matter.

Certified Public Accountants

March 16, 2021, except for the change in the manner in which the Company accounts for redeemable units as discussed in Note 1 to the financial statements, as to which the date is March 10, 2022.

Charlotte, NC

 

 

 


 

 

 

 

WESTEND ADVISORS, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEETS

 

 

 

 

 

 

 

 

DECEMBER 31, 2020 AND 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

2020

 

 

2019

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,286,949

 

 

$

985,922

 

Accounts receivable

 

 

1,224,879

 

 

 

911,740

 

Prepaid expenses

 

 

201,682

 

 

 

171,381

 

Total current assets

 

 

2,713,510

 

 

 

2,069,043

 

 

 

 

 

 

 

 

 

 

PROPERTY:

 

 

 

 

 

 

 

 

Computer equipment

 

 

471,391

 

 

 

383,122

 

Leasehold improvements

 

 

63,014

 

 

 

63,014

 

Furniture and fixtures

 

 

126,350

 

 

 

124,328

 

Leasehold improvements in progress

 

 

53,662

 

 

 

-

 

Total

 

 

714,417

 

 

 

570,464

 

Less accumulated depreciation

 

 

406,120

 

 

 

326,116

 

Property, net

 

 

308,297

 

 

 

244,348

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

3,021,807

 

 

$

2,313,391

 

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE UNITS AND MEMBERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

40,764

 

 

$

66,676

 

Accrued expenses

 

 

1,028,552

 

 

 

496,811

 

Accrued distributions to Class B member

 

 

1,401,696

 

 

 

725,511

 

Deferred revenue

 

 

-

 

 

 

1,818

 

Current portion of notes payable

 

 

773,894

 

 

 

860,666

 

Total current liabilities

 

 

3,244,906

 

 

 

2,151,482

 

 

 

 

 

 

 

 

 

 

NON-CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accrued rent

 

 

8,454

 

 

 

21,740

 

Notes payable, less current portion

 

 

1,024,090

 

 

 

1,833,602

 

Total non-current liabilities

 

 

1,032,544

 

 

 

1,855,342

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

4,277,450

 

 

 

4,006,824

 

 

 

 

 

 

 

 

 

 

REDEEMABLE UNITS

 

 

42,495,727

 

 

 

29,983,300

 

 

 

 

 

 

 

 

 

 

MEMBERS' DEFICIT

 

 

(43,751,370

)

 

 

(31,676,733

)

 

 

 

 

 

 

 

 

 

TOTAL

 

$

3,021,807

 

 

$

2,313,391

 

 

 

See notes to financial statements.

4

 

 


 

 

 

WESTEND ADVISORS, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STATEMENTS OF INCOME

 

 

 

 

 

 

 

 

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

REVENUES

 

$

23,049,762

 

 

$

15,071,206

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Personnel costs

 

 

9,432,128

 

 

 

6,788,527

 

Technology

 

 

463,684

 

 

 

412,740

 

Insurance

 

 

218,239

 

 

 

215,445

 

Professional and consulting fees

 

 

197,617

 

 

 

233,530

 

Occupancy

 

 

166,228

 

 

 

158,996

 

Travel and entertainment

 

 

149,679

 

 

 

491,165

 

Marketing

 

 

116,365

 

 

 

232,745

 

Office expenses

 

 

101,993

 

 

 

38,609

 

Depreciation

 

 

82,005

 

 

 

46,910

 

Telecommunications

 

 

41,074

 

 

 

27,245

 

Other expenses

 

 

48,844

 

 

 

45,085

 

Total

 

 

11,017,856

 

 

 

8,690,997

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

 

12,031,906

 

 

 

6,380,209

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

Interest income

 

 

68

 

 

 

249

 

Interest expense

 

 

(126,460

)

 

 

(25,392

)

Total

 

 

(126,392

)

 

 

(25,143

)

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

11,905,514

 

 

$

6,355,066

 

 

 

 

 

 

 

 

 

 

 

 

See notes to financial statements.

 

5

 

 


 

 

 

 

WESTEND ADVISORS, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STATEMENTS OF CHANGES IN REDEEMABLE UNITS AND MEMBERS' DEFICT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable Units

 

 

Members'

 

 

 

Class A

 

 

 

 

Class B

 

 

Total

 

 

Deficit

 

BALANCE, DECEMBER 31, 2018

 

$

11,872,486

 

 

 

 

$

15,255,615

 

 

$

27,128,101

 

 

$

(27,895,390

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

3,675,218

 

 

 

 

 

2,679,848

 

 

 

6,355,066

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REDEMPTION OF MEMBER'S CLASS A INTEREST

 

 

(1,621,559

)

 

 

 

 

-

 

 

 

(1,621,559

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DISTRIBUTIONS TO MEMBERS

 

 

(2,979,803

)

 

 

 

 

(2,679,848

)

 

 

(5,659,651

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHANGE IN VALUE OF REDEEMABLE UNITS

 

 

1,132,930

 

 

 

 

 

2,648,413

 

 

 

3,781,343

 

 

 

(3,781,343

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, DECEMBER 31, 2019

 

 

12,079,272

 

 

 

 

 

17,904,028

 

 

 

29,983,300

 

 

 

(31,676,733

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

7,597,014

 

 

 

 

 

4,308,500

 

 

 

11,905,514

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DISTRIBUTIONS TO MEMBERS

 

 

(7,159,224

)

 

 

 

 

(4,308,500

)

 

 

(11,467,724

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHANGE IN VALUE OF REDEEMABLE UNITS

 

 

4,068,331

 

 

 

 

 

8,006,306

 

 

 

12,074,637

 

 

 

(12,074,637

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, DECEMBER 31, 2020

 

$

16,585,393

 

 

 

 

$

25,910,334

 

 

$

42,495,727

 

 

$

(43,751,370

)

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to financial statements.

6

 

 


 

 

 

WESTEND ADVISORS, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

11,905,514

 

 

$

6,355,066

 

Adjustments to reconcile net income to net cash

 

 

 

 

 

 

 

 

provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

82,005

 

 

 

46,910

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(313,139

)

 

 

(241,503

)

Prepaid expenses

 

 

(30,301

)

 

 

(17,524

)

Accounts payable

 

 

(25,912

)

 

 

19,735

 

Accrued expenses

 

 

518,455

 

 

 

119,828

 

Deferred revenue

 

 

(1,818

)

 

 

668

 

Net cash provided by operating activities

 

 

12,134,804

 

 

 

6,283,180

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property

 

 

(145,954

)

 

 

(187,804

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Principal payments on notes payable

 

 

(2,196,284

)

 

 

(536,354

)

Proceeds from note payable

 

 

1,300,000

 

 

 

-

 

Distributions to members

 

 

(10,791,539

)

 

 

(5,568,339

)

Net cash applied to financing activities

 

 

(11,687,823

)

 

 

(6,104,693

)

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

301,027

 

 

 

(9,317

)

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

 

 

985,922

 

 

 

995,239

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, END OF YEAR

 

$

1,286,949

 

 

$

985,922

 

 

 

 

 

 

 

 

 

 

See notes to financial statements.

7

 

 


 

 

WESTEND ADVISORS, LLC

 

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

1.SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

 

Operations - WestEnd Advisors, LLC (the “Company”) is an investment advisor registered with the U.S Securities and Exchange Commission and headquartered in Charlotte, North Carolina.  The Company provides discretionary and non-discretionary portfolio management services to institutional and individual investors located in North America. The Company’s principal investment offerings are its Large-Cap Core Equity, US Sector Exchange-Traded Fund (“ETF”), Global Equity ETF, Global Balanced ETF and Global Conservative ETF strategies.

 

Change in Accounting Principle - The Company’s financial statements have been adjusted to conform to the requirements of Regulation S-X. Under SEC Accounting Series Release (“ASR”) 268, “Presentation in Financial Statements of ‘Preferred Redeemable Stock’,” units that are redeemable in cash or other assets at the option of the holder or upon the occurrence of an event that is not solely within the control of the issuer are to be classified as temporary equity and measured at the value of the redemption right. Under the terms of the Company’s operating agreement, the Class A units are required to be redeemed upon the death or disability of the holder, and Class B units are required to be redeemed at the end of their fifteen-year term. To conform to the requirements of ASR 268, the redemption value of Class A and Class B units at December 31, 2018 was calculated at $27,128,101, and these amounts were reclassified from members’ equity (permanent equity) to redeemable units (temporary equity).

 

Use of Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosures.  Accordingly, the actual amounts could differ from those estimates.  Any adjustments applied to estimated amounts are recognized in the year in which such adjustments are determined.

 

Cash and Cash Equivalents - The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains cash deposits with financial institutions that, at times, may exceed federally insured limits.  

 

Accounts Receivable - The Company extends credit to its customers. By their nature, all accounts receivable involve risk, including the credit risk of nonpayment by customers. The Company’s standard payment terms and conditions generally require payment within thirty days of the invoice date; however, timing of payment with specific customers may be separately negotiated. Accounts receivable are considered past due based on contractual and invoice terms.  Accounts deemed uncollectible are charged directly to bad debt expense.  As of December 31, 2020 and 2019, all remaining accounts receivable were considered collectible by management. Accordingly, no allowances have been provided in the accompanying financial statements.  The Company did not incur bad debt expense on customer accounts during the years ended December 31, 2020 or 2019.

 

Property - Property is recorded at cost.  Depreciation is computed using the straight-line method based on the estimated useful lives of the respective assets.

 

Revenue Recognition - The Company’s revenue represents fees earned from providing portfolio management services. The Company enters into contracts with customers to provide portfolio management services. Each contract requires a series of distinct services that are substantially the same and have the same pattern of transfer, representing a single performance obligation. Performance obligations are satisfied, and revenues are earned as services are provided on a daily basis using a time-based output method to measure progress.

 

8

 

 


 

 

 

Portfolio management fees are considered variable consideration as they are typically calculated as a percentage of AUM. 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 market value of assets under management is known at month or quarter end. 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 uncertainties associated with the variable consideration is subsequently resolved.

 

The timing of when the Company receives payments from customers for portfolio management services varies in accordance with the agreedupon contractual terms. Certain of the Company’s customers are billed after the service is performed, which results in the recording of accounts receivable and accrued revenue. Deferred revenue is recorded in instances where a client pays fees in advance.  Most of the Company’s revenue is earned from customers who pay fees on a monthly or quarterly basis in advance.  As this revenue is fully earned by the end of each calendar quarter, no deferred revenue is recorded as of December 31, 2020 and 2019.

 

The nature, amount, timing and uncertainty of the Company’s revenue and cash flows are impacted by various economic factors, including the general performance of the market economy, investor interest in the Company’s investment strategies, and the composition of the Company’s customer base. The Company’s investment strategies are primarily delivered to investors through broker-dealers and investment advisors utilizing unified management accounts.

 

The Company is required to capitalize certain costs directly related to the acquisition or fulfillment of a contact with a customer. The Company 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 has no intangible assets related to contract acquisitions. Costs to fulfill contracts, such as commissions, are expensed when incurred because the constraints surrounding variable consideration prevent management from determining whether or not such costs would be recovered by future revenues.

 

For further information on the Company’s revenue and customers, refer to Note 3.

 

Accrued Rent - The Company recognizes lease expense on a straight-line basis over the term of the respective lease. Accrued rent arises from leases that provide for lease payments that differ from a straight-line basis.

 

Income Taxes - For income tax purposes, the Company is considered to be a partnership.  Accordingly, no provision for federal or state income taxes has been made in the accompanying financial statements since the members include their allocable share of the Company’s taxable income or loss in their respective individual income tax returns.

 

The Company records liabilities for income tax positions taken or expected to be taken when those positions are deemed uncertain to be upheld in an examination by taxing authorities. No liabilities for uncertain income tax positions were recorded as of December 31, 2020 and 2019.

 

Recent Accounting Pronouncements - In February 2016, the Financial Accounting Standards Board ("FASB") issued new guidance for the accounting for leases and issued additional guidance thereafter providing transition relief and a package of practical expedients to apply upon adoption of the new lease guidance. The new guidance requires lessees to recognize a right-of-use asset and a lease liability for substantially all leases on their balance sheet at the commencement date and recognize expense in the income statement similar to that recognized under existing lease guidance. The guidance is effective for the Company on January 1, 2022. The Company is currently evaluating the impact of adopting the guidance.

 

In June 2016, the FASB issued guidance creating a new model for determining current expected credit losses (“CECL”) on trade and other receivables. The new 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 in the CECL determination. The new guidance is effective for the Company on January 1, 2023. The Company is currently reviewing the effect of this new standard on its financial statements.

9

 

 


 

 

 

Subsequent Events - In preparing its financial statements, the Company has evaluated subsequent events through March 16, 2021, which is the date the financial statements were available to be issued.

 

2.NOTES PAYABLE

 

Notes payable as of December 31, 2020 and 2019 consisted of the following:

 

 

 

2020

 

 

2019

 

Note payable to a bank with monthly payments of $24,423, including interest, due through October 2025. This note accrues interest at 4.75%, is guaranteed by certain members of the Company, and is secured by the accounts receivable and certain property of the Company.

 

$

1,261,629

 

 

$

-

 

Note payable to a former member with annual payments of $342,185 plus accrued interest due through December 2021. This note accrued interest at 1.60% until December 31, 2019 and then prime (3.25% as of December 31, 2020) plus 1% thereafter. The outstanding balance, including accrued interest, was paid in full in February 2021.

 

 

342,185

 

 

 

684,369

 

Note payable to a former member with annual payments of $194,170 plus accrued interest due through December 2021. This note accrued interest at 1.60% until December 31, 2019 and then prime plus 1% thereafter. The outstanding balance, including accrued interest, was paid in full in February 2021.

 

 

194,170

 

 

 

388,340

 

Note payable to a former member with annual payments of $324,312,

plus interest accrued at the prime rate, subject to the modifications

described in footnote 5 below. The outstanding balance, including

accrued interest, was paid in full in August 2020.

 

 

-

 

 

 

1,621,559

 

Total

 

 

1,797,984

 

 

 

2,694,268

 

Less current portion

 

 

773,894

 

 

 

860,666

 

Long term portion

 

$

1,024,090

 

 

$

1,833,602

 

 

Scheduled maturities of the Company’s notes payable as of December 31, 2020 were as follows:

 

Year ending December 31:

 

 

 

 

2021

 

$

773,894

 

2022

 

 

249,234

 

2023

 

 

261,506

 

2024

 

 

274,318

 

2025

 

 

239,032

 

Total

 

$

1,797,984

 

 

3.REVENUE

 

The following table disaggregates total revenue by source for the years ended December 31, 2020 and 2019:

 

 

 

2020

 

 

2019

 

Portfolio management fees:

 

 

 

 

 

 

 

 

Unified management accounts

 

$

20,373,904

 

 

$

12,742,382

 

Separately managed wrap accounts

 

 

2,157,463

 

 

 

1,934,202

 

Institutional and private client separate accounts

 

 

518,395

 

 

 

394,622

 

Total

 

$

23,049,762

 

 

$

15,071,206

 

 

10

 

 


 

 

 

The following table presents the beginning and ending balances of accounts receivable resulting from contracts with customers for the years ended December 31, 2020 and 2019:

 

 

 

2020

 

 

2019

 

Accounts receivable, beginning of year

 

$

911,740

 

 

$

670,237

 

Accounts receivable, end of year

 

$

1,224,879

 

 

$

911,740

 

 

4.LEASE COMMITMENTS

 

The Company leases certain equipment and facilities from unrelated third parties under agreements classified as operating leases. These leases contain provisions for additional amounts to be paid by the Company for common area maintenance costs and other usage fees. Rent expense under these agreements totaled approximately $173,000 and $165,000 for the years ended December 31, 2020 and 2019, respectively.

 

Approximate future minimum lease payments under the above operating leases as of December 31, 2020, are as follows:

 

Year ending December 31:

 

 

 

 

2021

 

$

108,000

 

2022

 

 

288,000

 

2023

 

 

390,000

 

2024

 

 

398,000

 

2025

 

 

405,000

 

Thereafter

 

 

2,731,000

 

Total future minimum lease payments

 

$

4,320,000

 

 

5.EMPLOYEE BENEFIT PLAN

 

The Company maintains a retirement plan under which eligible employees can defer a portion of their compensation under the provisions of section 401(k) of the Internal Revenue Code.  Company matching and additional profit sharing contributions are made at the discretion of management. Company contributions to the plan totaled approximately $186,000 and $181,000 for the years ended December 31, 2020 and 2019, respectively.

 

6.REDEEMABLE UNITS AND MEMBERS' DEFICIT

 

The members of the Company are subject to an operating agreement which specifies the rights and obligations of its members.  In accordance with the terms of the agreement, each member's liability is limited to the capital they have contributed to the Company.  Among other things, the agreement stipulates the allocation of profits, losses and distributions to its members, as well as the terms and conditions under which ownership interests can be sold or transferred.  

 

Per the Company’s operating agreement there are two classes of member units: Class A units, which have voting rights, and Class B units, which do not have voting rights.  As of December 31, 2020 and 2019, there were 100 Class A units authorized and issued and 1,000 Class B units authorized and issued.  The Class B units entitle the Class B member to a 19.75% interest in the Company's gross revenues, net of certain expenses, for a period of 15 years from the date of issuance.  Distributions of this preferred interest to the Class B member are payable on a quarterly basis.  At the expiration of the 15 year period, the Class B Member will no longer be a member of the Company and is not entitled to future benefits.  If a liquidating event were to occur prior to the termination date, the Company would be required to pay a make-whole redemption price to the Class B member as specified by the agreement.

 

11

 

 


 

 

 

The operating agreement also requires the redemption of a Class A member’s interest in the event of death or disability.  Under certain circumstances, the agreement also allows the other Class A members to require, by unanimous consent, a Class A member to sell his interest to the Company. The purchase price and terms of such redemptions are defined by the agreement.

 

Effective December 31, 2019, the Company redeemed a Class A member’s interest, consisting of 24 Class A units, in exchange for a promissory note equal to the formula value of the member’s interest in the Company as defined by the operating agreement. (See Note 2.)  The former member is entitled to five annual installment payments due on December 31 of each calendar year.  The amount of each installment shall be equal to 20% of the then current formula value of the member’s interest. The initial installment due during the year ended December 31, 2020 is fixed at $324,312. Remaining installments will be determined on January 1 of each subsequent calendar year. The Company has the right to repay the entire remaining principal balance of the promissory note as then valued prior to December 31 of each calendar year.  Accordingly, as of December 31, 2019, the Company recorded the redemption amount of $1,621,559, which represented the amount they would have to pay if they paid the full amount prior to December 31, 2020.  The Company elected to repay the entire note balance in 2020. (See Note 2.) The 24 Class A units redeemed by the Company were reallocated to the remaining members as of December 31, 2019.

 

The Company considers Class A units to be redeemable equity since the Company is required to purchase a Class A member's interest upon death.  The Company considers Class B units to be redeemable equity since the term of the Class B member interest is limited to no more than 15 years.  Redeemable equity is recorded at its redemption value in redeemable units on the balance sheet with corresponding adjustments reflected in members’ deficit.  The redemption value of the Class B units at December 31, 2021 and 2020 is equal to a multiple of the Company’s trailing twelve-month revenue at those dates based on the formulas specified by the operating agreement. The redemption value of the Class A units at December 31, 2021 and 2020 is equal to the average of annual revenues for the last three trailing twelve-month periods as of those dates. Changes in the redemption value of redeemable units for each year are included in the statements of changes in redeemable units and members’ deficit.

 

7.CONCENTRATIONS

 

Revenue from the Company’s four largest customers accounted for approximately 68% and 73% of total revenue during the years ended December 31, 2020 and 2019, respectively.

 

Amounts owed from two customers accounted for approximately 73% of the Company’s total accounts receivable as of December 31, 2020.

 

8.CONTINGENCY

 

On March 10, 2020, the World Health Organization declared the coronavirus outbreak to be a pandemic. The outbreak is disrupting domestic and international economies and financial markets. The extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, its effect on financial markets, and its impact on the Company’s customers, employees and vendors, all of which are uncertain and cannot be predicted. Therefore, the extent to which COVID-19 may impact the Company’s financial condition or results of operations is uncertain.


9

12

 

 


 

 

.SUPPLEMENTAL CASH FLOW INFORMATION

 

Supplemental cash flow information for the years ended December 31, 2020 and 2019 was as follows:

 

 

 

2020

 

 

2019

 

Cash payments for interest

 

$

123,464

 

 

$

25,392

 

Non-cash transactions:

 

 

 

 

 

 

 

 

Distributions to Class B member accrued, but not paid

 

$

1,401,696

 

 

$

725,511

 

Class A member interest redeemed in exchange for issuance of

   note payable

 

$

-

 

 

$

1,621,559

 

 

10.EVENT (UNAUDITED) SUBSEQUENT TO THE INITIAL DATE (MARCH 16, 2021) OF THE INDEPENDENT AUDITORS' REPORT

 

Effective December 31, 2021, 100% of the members’ equity of the Company was acquired by Victory Capital Holdings, Inc.

 

 

13

 

 

EX-99.3 4 vctr-ex993_9.htm EX-99.3 vctr-ex993_9.htm

Exhibit 99.3

 

 

FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED

SEPTEMBER 30, 2021 AND 2020

 



 

 

 

WESTEND ADVISORS, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEETS

 

 

 

 

 

 

 

 

SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

2021

 

 

2020

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,398,756

 

 

$

1,286,949

 

Accounts receivable

 

 

4,373,741

 

 

 

1,224,879

 

Other receivable

 

 

268,652

 

 

 

 

 

Prepaid expenses

 

 

298,560

 

 

 

201,682

 

Total current assets

 

 

8,339,709

 

 

 

2,713,510

 

 

 

 

 

 

 

 

 

 

PROPERTY:

 

 

 

 

 

 

 

 

Computer equipment

 

 

561,135

 

 

 

471,391

 

Leasehold improvements

 

 

1,443,253

 

 

 

63,014

 

Furniture and fixtures

 

 

388,200

 

 

 

126,350

 

Leasehold improvements in progress

 

 

 

 

 

 

53,662

 

Total

 

 

2,392,588

 

 

 

714,417

 

Less accumulated depreciation

 

 

314,232

 

 

 

406,120

 

Property, net

 

 

2,078,356

 

 

 

308,297

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

10,418,065

 

 

$

3,021,807

 

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE UNITS, AND MEMBERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

122,516

 

 

$

40,764

 

Accrued expenses

 

 

1,341,533

 

 

 

1,028,552

 

Accrued distributions to Class B member

 

 

2,455,417

 

 

 

1,401,696

 

Current portion of notes payable

 

 

243,629

 

 

 

773,894

 

Total current liabilities

 

 

4,163,095

 

 

 

3,244,906

 

 

 

 

 

 

 

 

 

 

NON-CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accrued rent

 

 

606,591

 

 

 

8,454

 

Notes payable, less current portion

 

 

838,227

 

 

 

1,024,090

 

Total non-current liabilities

 

 

1,444,818

 

 

 

1,032,544

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

5,607,913

 

 

 

4,277,450

 

 

 

 

 

 

 

 

 

 

REDEEMABLE UNITS

 

 

67,137,643

 

 

 

42,495,727

 

 

 

 

 

 

 

 

 

 

MEMBERS' DEFICIT

 

 

(62,327,491

)

 

 

(43,751,370

)

 

 

 

 

 

 

 

 

 

TOTAL

 

$

10,418,065

 

 

$

3,021,807

 

 

 

See notes to financial statements.

2

 


 

 

WESTEND ADVISORS, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STATEMENTS OF INCOME

 

 

 

 

 

 

 

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

REVENUES

 

$

32,356,217

 

 

$

15,681,970

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Personnel costs

 

 

6,439,405

 

 

 

4,687,017

 

Technology

 

 

407,611

 

 

 

329,885

 

Insurance

 

 

186,008

 

 

 

160,301

 

Professional and consulting fees

 

 

235,626

 

 

 

124,800

 

Occupancy

 

 

169,981

 

 

 

124,323

 

Travel and entertainment

 

 

118,645

 

 

 

130,512

 

Marketing

 

 

275,737

 

 

 

100,450

 

Office expenses

 

 

88,666

 

 

 

74,628

 

Depreciation

 

 

96,467

 

 

 

59,930

 

Telecommunications

 

 

46,411

 

 

 

30,315

 

Other expenses

 

 

62,067

 

 

 

34,342

 

Total

 

 

8,126,624

 

 

 

5,856,503

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

 

24,229,593

 

 

 

9,825,467

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

Interest income

 

 

19

 

 

 

57

 

Interest expense

 

 

(44,437

)

 

 

(99,285

)

Total

 

 

(44,418

)

 

 

(99,228

)

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

24,185,175

 

 

$

9,726,239

 

 

 

 

 

 

 

 

 

 

 

 

See notes to financial statements.

3

 


 

 

WESTEND ADVISORS, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STATEMENTS OF CHANGES IN REDEEMABLE UNITS AND MEMBERS' DEFICIT

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable Units

 

 

Members'

 

 

 

Class A

 

 

 

 

Class B

 

 

Total

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, DECEMBER 31, 2019

 

$

12,079,272

 

 

 

 

$

17,904,028

 

 

$

29,983,300

 

 

$

(31,676,733

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

6,819,435

 

 

 

 

 

2,906,804

 

 

 

9,726,239

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DISTRIBUTIONS TO MEMBERS

 

 

(4,183,284

)

 

 

 

 

(2,906,804

)

 

 

(7,090,088

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHANGE IN VALUE OF REDEEMABLE UNITS

 

 

259,403

 

 

 

 

 

4,928,272

 

 

 

5,187,675

 

 

 

(5,187,675

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, SEPTEMBER 30, 2020

 

$

14,974,826

 

 

 

 

$

22,832,300

 

 

$

37,807,126

 

 

$

(36,864,408

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, DECEMBER 31, 2020

 

$

16,585,393

 

 

 

 

$

25,910,334

 

 

$

42,495,727

 

 

$

(43,751,370

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

17,870,462

 

 

 

 

 

6,314,713

 

 

 

24,185,175

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DISTRIBUTIONS TO MEMBERS

 

 

(11,804,667

)

 

 

 

 

(6,314,713

)

 

 

(18,119,380

)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHANGE IN VALUE OF REDEEMABLE UNITS

 

 

1,911,585

 

 

 

 

 

16,664,536

 

 

 

18,576,121

 

 

 

(18,576,121

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, SEPTEMBER 30, 2021

 

$

24,562,773

 

 

 

 

$

42,574,870

 

 

$

67,137,643

 

 

$

(62,327,491

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to financial statements.

4

 


 

 

WESTEND ADVISORS, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

24,185,175

 

 

$

9,726,239

 

Adjustments to reconcile net income to net cash

 

 

 

 

 

 

 

 

provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

96,467

 

 

 

59,930

 

Loss on disposal of property

 

 

22,250

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,148,862

)

 

 

(224,144

)

Other receivable

 

 

(268,652

)

 

 

 

 

Prepaid expenses

 

 

(96,878

)

 

 

(59,173

)

Accounts payable

 

 

81,752

 

 

 

(40,167

)

Accrued expenses

 

 

312,981

 

 

 

361,296

 

Deferred revenue

 

 

-

 

 

 

(1,730

)

Accrued rent

 

 

317,692

 

 

 

(9,662

)

Net cash provided by operating activities

 

 

21,501,925

 

 

 

9,812,589

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property

 

 

(1,608,331

)

 

 

(90,628

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Principal payments on notes payable

 

 

(716,128

)

 

 

(1,621,559

)

Proceeds from note payable

 

 

-

 

 

 

1,300,000

 

Distributions to members

 

 

(17,065,659

)

 

 

(6,671,701

)

Net cash applied to financing activities

 

 

(17,781,787

)

 

 

(6,993,260

)

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

2,111,807

 

 

 

2,728,701

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

1,286,949

 

 

 

985,922

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

3,398,756

 

 

$

3,714,623

 

 

 

 

 

 

 

 

 

 

See notes to financial statements.

5

 


 

WESTEND ADVISORS, LLC

 

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

 

1.SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

 

Operations - WestEnd Advisors, LLC (the “Company”) is an investment advisor registered with the U.S Securities and Exchange Commission and headquartered in Charlotte, North Carolina.  The Company provides discretionary and non-discretionary portfolio management services to institutional and individual investors located in North America. The Company’s principal investment offerings are its Large-Cap Core Equity, US Sector Exchange-Traded Fund (“ETF”), Global Equity ETF, Global Balanced ETF and Global Conservative ETF strategies.

 

Change in Accounting Principle - The Company’s financial statements have been adjusted to conform to the requirements of Regulation S-X. Under SEC Accounting Series Release (“ASR”) 268, “Presentation in Financial Statements of ‘Preferred Redeemable Stock’,” units that are redeemable in cash or other assets at the option of the holder or upon the occurrence of an event that is not solely within the control of the issuer are to be classified as temporary equity and measured at the value of the redemption right. Under the terms of the Company’s operating agreement, the Class A units are required to be redeemed upon the death or disability of the holder, and Class B units are required to be redeemed at the end of their fifteen-year term. To conform to the requirements of ASR 268, the redemption value of Class A and Class B units at December 31, 2019 and December 31, 2020 was calculated at $29,983,300 and $42,495,727, respectively, and these amounts were reclassified from members’ equity (permanent equity) to redeemable units (temporary equity).

 

Use of Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosures.  Accordingly, the actual amounts could differ from those estimates.  Any adjustments applied to estimated amounts are recognized in the year in which such adjustments are determined.

 

Cash and Cash Equivalents - The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains cash deposits with financial institutions that, at times, may exceed federally insured limits.  

 

Accounts Receivable - The Company extends credit to its customers. By their nature, all accounts receivable involve risk, including the credit risk of nonpayment by customers. The Company’s standard payment terms and conditions generally require payment within thirty days of the invoice date; however, timing of payment with specific customers may be separately negotiated. Accounts receivable are considered past due based on contractual and invoice terms.  Accounts deemed uncollectible are charged directly to bad debt expense.  As of September 30, 2021 and December 31, 2020, all remaining accounts receivable were considered collectible by management. Accordingly, no allowances have been provided in the accompanying financial statements.  The Company did not incur bad debt expense on customer accounts during the nine months ended September 30, 2021 or 2020.

 

Property - Property is recorded at cost.  Depreciation is computed using the straight-line method based on the estimated useful lives of the respective assets.

 

6

 


 

 

Revenue Recognition - The Company’s revenue represents fees earned from providing portfolio management services. The Company enters into contracts with customers to provide portfolio management services. Each contract requires a series of distinct services that are substantially the same and have the same pattern of transfer, representing a single performance obligation. Performance obligations are satisfied, and revenues are earned as services are provided on a daily basis using a time-based output method to measure progress.

 

Portfolio management fees are considered variable consideration as they are typically calculated as a percentage of assets under management. 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 market value of assets under management is known at month or quarter end. 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 uncertainties associated with the variable consideration is subsequently resolved.

 

The timing of when the Company receives payments from customers for portfolio management services varies in accordance with the agreedupon contractual terms. Certain of the Company’s customers are billed after the service is performed, which results in the recording of accounts receivable and accrued revenue. Deferred revenue is recorded in instances where a client pays fees in advance.  Most of the Company’s revenue is earned from customers who pay fees on a monthly or quarterly basis in advance.  As this revenue is fully earned by the end of each calendar quarter, no deferred revenue is recorded as of September 30, 2021 and December 31, 2020.

 

The nature, amount, timing and uncertainty of the Company’s revenue and cash flows are impacted by various economic factors, including the general performance of the market economy, investor interest in the Company’s investment strategies, and the composition of the Company’s customer base. The Company’s investment strategies are primarily delivered to investors through broker-dealers and investment advisors utilizing unified management accounts.

 

The Company is required to capitalize certain costs directly related to the acquisition or fulfillment of a contact with a customer. The Company 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 has no intangible assets related to contract acquisitions. Costs to fulfill contracts, such as commissions, are expensed when incurred because the constraints surrounding variable consideration prevent management from determining whether or not such costs would be recovered by future revenues.

 

For further information on the Company’s revenue and customers, refer to Note 3.

 

Accrued Rent - The Company recognizes lease expense on a straight-line basis over the term of the respective lease. Accrued rent arises from leases that provide for lease payments that differ from a straight-line basis.

 

Income Taxes - For income tax purposes, the Company is considered to be a partnership.  Accordingly, no provision for federal or state income taxes has been made in the accompanying financial statements since the members include their allocable share of the Company’s taxable income or loss in their respective individual income tax returns.

 

The Company records liabilities for income tax positions taken or expected to be taken when those positions are deemed uncertain to be upheld in an examination by taxing authorities. No liabilities for uncertain income tax positions were recorded as of September 30, 2021 and December 31, 2020.

7

 


 

 

Recent Accounting Pronouncements - In February 2016, the Financial Accounting Standards Board ("FASB") issued new guidance for the accounting for leases and issued additional guidance thereafter providing transition relief and a package of practical expedients to apply upon adoption of the new lease guidance. The new guidance requires lessees to recognize a right-of-use asset and a lease liability for substantially all leases on their balance sheet at the commencement date and recognize expense in the income statement similar to that recognized under existing lease guidance. The guidance is effective for the Company on January 1, 2022. The Company is currently evaluating the impact of adopting the guidance.

 

In June 2016, the FASB issued guidance creating a new model for determining current expected credit losses (“CECL”) on trade and other receivables. The new 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 in the CECL determination. The new guidance is effective for the Company on January 1, 2023. The Company is currently reviewing the effect of this new standard on its financial statements.

 

Subsequent Events - In preparing its financial statements, the Company has evaluated subsequent events through March 10, 2022, which is the date the financial statements were available to be issued.

 

2.NOTES PAYABLE

 

Notes payable as of September 30, 2021 and December 31, 2020 consisted of the following:

 

 

 

2021

 

 

2020

 

Note payable to a bank with monthly payments of $24,423, including

interest, due through October 2025. This note accrues interest at

4.75%, is guaranteed by certain members of the Company, and is

secured by the accounts receivable and certain property of the

Company.

 

$

1,081,856

 

 

$

1,261,629

 

Note payable to a former member with annual payments of $342,185

plus accrued interest due through December 2021. This note accrued

interest at 1.60% until December 31, 2019 and then prime (3.25% as

of December 31, 2021) plus 1% thereafter. The outstanding balance,

including accrued interest, was paid in full in February 2021.

 

-

 

 

 

342,185

 

Note payable to a former member with annual payments of $194,170

plus accrued interest due through December 2021. This note accrued

interest at 1.60% until December 31, 2019 and then prime plus 1%

thereafter. The outstanding balance, including accrued interest, was

paid in full in February 2021.

 

-

 

 

 

194,170

 

Total

 

 

1,081,856

 

 

 

1,797,984

 

Less current portion

 

 

243,629

 

 

 

773,894

 

Long term portion

 

$

838,227

 

 

$

1,024,090

 

 


8

 


 

 

Scheduled maturities of the Company’s notes payable as of September 30, 2021 were as follows:

 

Year ending December 31:

 

 

 

 

2021 (3 months)

 

$

57,855

 

2022

 

 

249,234

 

2023

 

 

261,506

 

2024

 

 

274,318

 

2025

 

 

238,943

 

Total

 

$

1,081,856

 

 

3.REVENUE

 

The following table disaggregates total revenue by source for the nine months ended September 30, 2021 and 2020:

 

 

 

2021

 

 

2020

 

Portfolio management fees:

 

 

 

 

 

 

 

 

Unified management accounts

 

$

29,319,459

 

 

$

13,727,012

 

Separately managed wrap accounts

 

 

2,761,952

 

 

 

1,547,301

 

Institutional and private client separate accounts

 

 

274,806

 

 

 

407,657

 

Total

 

$

32,356,217

 

 

$

15,681,970

 

 

The following table presents the beginning and ending balances of accounts receivable resulting from contracts with customers for the nine month periods ended September 30, 2021 and 2020:

 

 

 

2021

 

 

2020

 

Accounts receivable, December 31 (beginning of period)

 

$

1,224,879

 

 

$

911,740

 

Accounts receivable, September 30 (end of period)

 

$

4,373,741

 

 

$

1,135,884

 

 


9

 


 

 

4.LEASE COMMITMENTS

 

The Company leases certain equipment and facilities from unrelated third parties under agreements classified as operating leases. These leases contain provisions for additional amounts to be paid by the Company for common area maintenance costs and other usage fees. Rent expense under these agreements totaled approximately $168,000 and $125,000 for the nine months ended September 30, 2021 and 2020, respectively.

 

Approximate future minimum lease payments under the above operating leases as of September 30, 2021, are as follows:

 

Year ending December 31:

 

 

 

 

2021 (3 months)

 

$

1,000

 

2022

 

 

288,000

 

2023

 

 

390,000

 

2024

 

 

398,000

 

2025

 

 

405,000

 

Thereafter

 

 

2,731,000

 

Total future minimum lease payments

 

$

4,213,000

 

 

5.EMPLOYEE BENEFIT PLAN

 

The Company maintains a retirement plan under which eligible employees can defer a portion of their compensation under the provisions of section 401(k) of the Internal Revenue Code.  Company matching and additional profit sharing contributions are made at the discretion of management. Company contributions to the plan totaled approximately $141,000 and $127,000 for the nine months ended September 30, 2021 and 2020, respectively.

 

6.REDEEMABLE UNITS AND MEMBERS’ DEFICIT

 

The members of the Company are subject to an operating agreement which specifies the rights and obligations of its members.  In accordance with the terms of the agreement, each member's liability is limited to the capital they have contributed to the Company.  Among other things, the agreement stipulates the allocation of profits, losses and distributions to its members, as well as the terms and conditions under which ownership interests can be sold or transferred.

 

Per the Company’s operating agreement there are two classes of member units: Class A units, which have voting rights, and Class B units, which do not have voting rights.  As of September 30, 2021 and 2020, there were 100 Class A units authorized and issued and 1,000 Class B units authorized and issued.  The Class B units entitle the Class B member to a 19.75% interest in the Company's gross revenues, net of certain expenses, for a period of 15 years from the date of issuance.  Distributions of this preferred interest to the Class B member are payable on a quarterly basis.  At the expiration of the 15 year period, the Class B Member will no longer be a member of the Company and is not entitled to future benefits.  If a liquidating event were to occur prior to the termination date, the Company would be required to pay a make-whole redemption price to the Class B member as specified by the agreement.

 

The operating agreement also requires the redemption of a Class A member’s interest in the event of death or disability.  Under certain circumstances, the agreement also allows the other Class A members to require, by unanimous consent, a Class A member to sell his interest to the Company. The purchase price and terms of such redemptions are defined by the agreement.


Effective December 31, 2019, the Company redeemed a Class A member’s interest, consisting of 24 Class A units, in exchange for a promissory note equal to the formula value of the member’s interest in the Company as defined by the operating agreement. (See Note 2.)  The former member was entitled to five annual installment payments due on December 31 of each calendar year. The Company had the right to repay the entire remaining principal balance of the promissory note as then valued prior to December 31 of each calendar year.  

10

 


 

Accordingly, as of December 31, 2019, the Company recorded the redemption amount of $1,621,559, which represented the amount they would have to pay if they paid the full amount prior to December 31, 2020.  The Company elected to repay the entire note balance in August 2020. The 24 Class A units redeemed by the Company were reallocated to the remaining members as of December 31, 2019.

 

The Company considers Class A units to be redeemable equity since the Company is required to purchase a Class A member's interest upon death.  The Company considers Class B units to be redeemable equity since the term of the Class B member interest is limited to no more than 15 years.  Redeemable equity is recorded at its redemption value in redeemable units on the balance sheet with corresponding adjustments reflected in members’ deficit.  The redemption value of the Class B units at September 30, 2021 and 2020 is equal to a multiple of the Company’s trailing twelve-month revenue at those dates based on the formulas specified by the operating agreement. The redemption value of the Class A units at September 30, 2021 and 2020 is equal to the average of annual revenues for the last three trailing twelve-month periods as of those dates. Changes in the redemption value of redeemable units for the period ended September 30, 2021 and 2020 are included in the statements of changes in redeemable units and members’ deficit.

 

7.CONCENTRATIONS

 

Revenue from the Company’s four largest customers accounted for approximately 72% and 73% of total revenue during the nine months ended September 30, 2021 and 2020, respectively.

 

Amounts owed from two customers accounted for approximately 88% of the Company’s total accounts receivable as of September 30, 2021.

 

8.SUPPLEMENTAL CASH FLOW INFORMATION

 

Supplemental cash flow information for the nine months ended September 30, 2021 and 2020 was as follows:

 

 

 

2021

 

 

2020

 

Cash payments for interest

 

$

44,437

 

 

$

52,997

 

Non-cash transactions:

 

 

 

 

 

 

 

 

Distributions to Class B member accrued, but not paid

 

$

2,455,417

 

 

$

1,143,898

 

Property purchases funded by lease incentive allowance

 

$

280,445

 

 

$

-

 

 

9.SUBSEQUENT EVENTS

 

Effective December 31, 2021, 100% of the members’ equity of the Company was acquired by Victory Capital Holdings, Inc.  In conjunction with the acquisition, the note payable to a bank referred to in Note 2 was paid in full.  

 

11

 

EX-99.4 5 vctr-ex994_6.htm EX-99.4 vctr-ex994_6.htm

Exhibit 99.4

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS

As of September 30, 2021 (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

Victory

 

 

 

 

 

 

Transaction

 

 

 

transaction

 

 

 

 

 

 

 

 

Capital

 

 

WestEnd

 

 

accounting

 

 

 

accounting

 

 

 

Pro forma

 

 

 

historical

 

 

historical

 

 

adjustments

 

Notes

 

adjustments

 

Notes

 

combined

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

64,740

 

 

$

3,399

 

 

$

(477,023

)

(a)

 

 

493,728

 

(a)

 

$

   84,844

 

Receivables

 

 

103,180

 

 

 

4,643

 

 

 

(59

)

(b)

 

 

 

 

 

107,764

 

Prepaid expenses

 

 

5,569

 

 

298

 

 

 

(42

)

(c)

 

 

 

 

 

5,825

 

Investments

 

 

29,801

 

 

 

 

 

 

 

 

 

 

 

29,801

 

Property and equipment, net

 

 

23,686

 

 

 

2,078

 

 

 

(67

)

(d)

 

 

 

 

 

25,697

 

Goodwill

 

 

404,750

 

 

 

 

 

536,023

 

(e)

 

 

 

 

 

940,773

 

Other intangible assets, net

 

 

1,154,235

 

 

 

 

 

175,500

 

(f)

 

 

 

 

 

1,329,735

 

Other assets

 

 

5,069

 

 

 

 

 

 

 

 

 

 

 

5,069

 

Total assets

 

$

1,791,030

 

 

$

10,418

 

 

$

234,332

 

 

 

$

493,728

 

 

 

$

2,529,508

 

LIABILITIES, REDEEMABLE UNITS AND EQUITY/(DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

54,058

 

 

$

122

 

 

$

8,113

 

(g)

 

356

 

(g)

 

$

   62,649

 

Accrued compensation and benefits

 

 

44,536

 

 

 

1,342

 

 

138

 

(h)

 

 

 

 

 

46,016

 

Consideration payable for acquisition of business

 

 

103,100

 

 

 

 

 

240,265

 

(i)

 

 

 

 

 

343,365

 

Deferred tax liability, net

 

 

56,914

 

 

 

 

 

 

 

 

 

 

 

56,914

 

Other liabilities

 

 

30,858

 

 

607

 

 

86

 

(j)

 

 

 

 

 

31,551

 

Long-term debt *

 

 

633,897

 

 

 

 

 

 

 

 

493,372

 

(k)

 

 

1,127,269

 

Accrued distributions to Class B member

 

 

 

 

2,455

 

 

 

(2,455

)

(l)

 

 

 

 

 

Notes payable

 

 

 

 

1,082

 

 

 

(1,082

)

(m)

 

 

 

 

 

Total liabilities

 

 

923,363

 

 

 

5,608

 

 

 

245,065

 

 

 

 

493,728

 

 

 

 

1,667,764

 

Redeemable units

 

 

 

 

67,137

 

 

 

(67,137

)

(n)

 

 

 

 

 

Equity and Members' Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

201

 

 

 

 

 

 

 

 

 

 

201

 

Class B common stock

 

563

 

 

 

 

 

 

 

 

 

 

563

 

Additional paid-in capital

 

 

665,898

 

 

 

 

 

 

 

 

 

 

 

665,898

 

Common Stock treasury stock

 

 

(69,565

)

 

 

 

 

 

 

 

 

 

 

(69,565

)

Class B treasury stock

 

 

(75,749

)

 

 

 

 

 

 

 

 

 

 

(75,749

)

Accumulated other comprehensive income (loss)

 

 

1,571

 

 

 

 

 

 

 

 

 

 

 

1,571

 

Retained earnings

 

 

344,748

 

 

 

 

 

(5,923

)

(o)

 

 

 

 

 

338,825

 

Members' deficit

 

 

 

 

(62,327

)

 

 

62,327

 

(n)

 

 

 

 

 

Total

 

 

867,667

 

 

 

(62,327

)

 

 

56,404

 

 

 

 

 

 

 

861,744

 

Total liabilities, redeemable units, equity and members' deficit

 

$

1,791,030

 

 

$

10,418

 

 

$

234,332

 

 

 

$

493,728

 

 

 

$

2,529,508

 

 

* Unamortized debit discount and debt issuance costs have been netted against debt balances in this line item


 

1


 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS

For the nine months ended September 30, 2021 (in thousands, except for earnings per share)

 

 

 

Victory

Capital

historical

 

 

WestEnd historical

 

 

Transaction

accounting

adjustments

 

 

Notes

 

Other

transaction

accounting

adjustments

 

 

Notes

 

Pro forma

combined

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

499,672

 

 

$

32,356

 

 

$

 

 

 

 

$

 

 

 

 

$

532,028

 

Fund administration and distribution fees

 

 

161,471

 

 

 

 

 

 

 

 

 

 

 

 

 

161,471

 

Total revenue

 

 

661,143

 

 

 

32,356

 

 

 

 

 

 

 

 

 

 

 

 

 

693,499

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personnel compensation and benefits

 

 

172,305

 

 

 

6,439

 

 

 

 

 

 

 

 

 

 

 

178,744

 

Distribution and other asset-based expenses

 

 

131,185

 

 

 

 

 

 

 

 

 

 

 

 

 

131,185

 

General and administrative

 

 

40,818

 

 

 

1,564

 

 

 

 

 

 

 

 

 

 

 

42,382

 

Depreciation and amortization

 

 

13,456

 

 

96

 

 

 

13,259

 

 

(p)

 

 

 

 

 

 

26,811

 

Change in value of consideration payable for acquisition of business

 

 

10,600

 

 

 

 

 

 

 

 

 

 

 

 

 

10,600

 

Acquisition-related costs

 

 

6,265

 

 

27

 

 

 

 

 

 

 

 

 

 

 

6,292

 

Restructuring and integration costs

 

 

2,493

 

 

 

 

 

 

 

 

 

 

 

 

 

2,493

 

Total operating expenses

 

 

377,122

 

 

 

8,126

 

 

 

13,259

 

 

 

 

 

 

 

 

 

398,507

 

Income (loss) from operations

 

 

284,021

 

 

 

24,230

 

 

 

(13,259

)

 

 

 

 

 

 

 

 

294,992

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income and other income

 

 

4,547

 

 

 

 

 

 

 

 

 

 

 

 

 

4,547

 

Interest expense and other financing costs

 

 

(18,853

)

 

 

(45

)

 

 

 

 

 

 

(11,623

)

 

(r)

 

 

(30,521

)

Loss on debt extinguishment

 

 

(4,596

)

 

 

 

 

 

 

 

 

 

 

 

 

(4,596

)

Total other income (expense), net

 

 

(18,902

)

 

 

(45

)

 

 

 

 

 

 

(11,623

)

 

 

 

 

(30,570

)

Income (loss) before income taxes

 

 

265,119

 

 

 

24,185

 

 

 

(13,259

)

 

 

 

 

(11,623

)

 

 

 

 

264,422

 

Income tax expense (benefit)

 

 

(56,472

)

 

 

 

 

(2,729

)

 

(q)

 

 

2,903

 

 

(s)

 

 

(56,298

)

Net income (loss)

 

$

208,647

 

 

$

24,185

 

 

$

(15,988

)

 

 

 

$

(8,720

)

 

 

 

$

208,124

 

Earnings per share of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

3.08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

3.07

 

Diluted

 

$

2.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2.81

 

Weighted average number of shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

67,840

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

67,840

 

Diluted

 

 

74,162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

74,162

 

Dividends declared per share

 

$

0.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

0.36

 

 


 

2


 

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS

For the year ended December 31, 2020 (in thousands, except for earnings per share)

 

 

 

Victory

Capital

historical

 

 

WestEnd

historical

 

 

Transaction

accounting

adjustments

 

 

Notes

 

Other

transaction

accounting

adjustments

 

 

Notes

 

Pro

forma

combined

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

562,036

 

 

$

23,050

 

 

$

 

 

 

 

 

 

 

 

 

$

585,086

 

Fund administration and distribution fees

 

 

213,315

 

 

 

 

 

 

 

 

 

 

 

 

 

 

213,315

 

Total revenue

 

 

775,351

 

 

 

23,050

 

 

 

 

 

 

 

 

 

 

 

798,401

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personnel compensation and benefits

 

 

197,158

 

 

 

9,432

 

 

 

4,656

 

 

(t)

 

 

 

 

 

 

211,246

 

Distribution and other asset-based expenses

 

 

175,687

 

 

 

 

 

 

 

 

 

 

 

 

 

175,687

 

General and administrative

 

 

51,218

 

 

 

1,504

 

 

 

 

 

 

 

 

 

 

 

52,722

 

Depreciation and amortization

 

 

16,381

 

 

82

 

 

 

17,679

 

 

(p)

 

 

 

 

 

 

34,142

 

Change in value of consideration payable for acquisition of business

 

 

11,300

 

 

 

 

 

 

 

 

 

 

 

 

 

11,300

 

Acquisition-related costs

 

 

1,108

 

 

 

 

 

20,304

 

 

(u)

 

 

 

 

 

 

21,412

 

Restructuring and integration costs

 

 

7,786

 

 

 

 

 

 

 

 

 

 

 

 

 

7,786

 

Total operating expenses

 

 

460,638

 

 

 

11,018

 

 

 

42,639

 

 

 

 

 

 

 

 

 

514,295

 

Income (loss) from operations

 

 

314,713

 

 

 

12,032

 

 

 

(42,639

)

 

 

 

 

 

 

 

 

284,106

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income and other income

 

 

3,703

 

 

 

 

 

 

 

 

 

 

 

 

 

3,703

 

Interest expense and other financing costs

 

 

(37,005

)

 

 

(126

)

 

 

 

 

 

 

(15,656

)

 

(r)

 

 

(52,787

)

Loss on debt extinguishment

 

 

(2,871

)

 

 

 

 

 

 

 

 

 

 

 

 

(2,871

)

Total other income (expense), net

 

 

(36,173

)

 

 

(126

)

 

 

 

 

 

 

(15,656

)

 

 

 

 

(51,955

)

Income (loss) before income taxes

 

 

278,540

 

 

 

11,906

 

 

 

(42,639

)

 

 

 

 

(15,656

)

 

 

 

 

232,151

 

Income tax expense (benefit)

 

 

(66,018

)

 

 

 

 

7,622

 

 

(q)

 

 

3,883

 

 

(s)

 

 

(54,514

)

Net income (loss)

 

$

212,522

 

 

$

11,906

 

 

$

(35,017

)

 

 

 

$

(11,773

)

 

 

 

$

177,637

 

Earnings per share of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

3.14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2.62

 

Diluted

 

$

2.88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2.41

 

Weighted average number of shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

67,710

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

67,710

 

Diluted

 

 

73,719

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

73,719

 

Dividends declared per share

 

$

0.23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

0.23

 

 

 

 

3


 

VICTORY CAPITAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

Background of Acquisition

On December 31, 2021, the Company completed the acquisition of 100% of the equity interests of WestEnd Advisors, LLC (“WestEnd”) pursuant to the WestEnd purchase agreement (as amended, the “WestEnd Purchase Agreement”), resulting in WestEnd becoming the Company’s 12th investment franchise (the “WestEnd Acquisition”). Founded in 2004 and based in Charlotte, North Carolina, WestEnd is a registered investment adviser providing financial advisors with turnkey, core model allocation strategies serving as holistic solutions and complementary sources of alpha. The firm offers four primary ETF strategies and one large cap core strategy, all in tax efficient SMA structures. WestEnd had assets under advisement and management totaling $19.3 billion as of December 31, 2021.

Purchase Price

The aggregate purchase price (the “WestEnd Purchase Price”) for the WestEnd Acquisition is estimated at $716.1 million, net of cash acquired, which includes (i) $475.8 million in cash paid at closing (the “WestEnd Closing”) net of cash acquired plus the acquisition date value of contingent payments due to sellers of $239.7 million plus an estimated $0.6 million in cash payable in the second quarter of 2022 for net working capital adjustments. The contingent earn-out payments are based on net revenue of the WestEnd business during each of the first four years following the WestEnd Closing, subject to certain “catch-up” provisions over a five and one half year period following the WestEnd Closing. A maximum of $320.0 million ($80.0 million per year) in earn-out payments may be paid. The WestEnd Purchase Price remains subject to adjustments based on net working capital, debt, cash and unpaid transaction expenses.

A total of $2.9 million of the cash paid at closing was placed in escrow, of which $0.5 million is available for purchase price adjustments and $2.4 million is available to compensate the Company for eligible claims under the purchase agreement’s indemnification provisions.

The purchase price of $716.1 million was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of the WestEnd 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 purchase price allocation for the WestEnd Acquisition is preliminary as customary post-closing purchase adjustments have not been finalized. The final purchase price allocation may reflect changes to the preliminary valuations for receivables and accounts payable and accrued expenses from net working capital adjustments. Adjustments will be made, as necessary, during the measurement period of up to one year after the closing date.

The excess estimated purchase price over the estimated fair values of assets acquired and liabilities assumed of $536.0 million was recorded to goodwill in the Consolidated Balance Sheets, all of which is expected to be deductible for tax purposes. The goodwill arising from the acquisition primarily results from revenue synergies expected from combining WestEnd and Victory distribution platforms and sales efforts.

Third Amendment to 2019 Credit Agreement

On December 31, 2021, in connection with the closing of the WestEnd Acquisition, the Company entered into the Third Amendment to the Credit Agreement (the “Third Amendment”), dated as of July 1, 2019 (as amended by the First Amendment to Credit Agreement, dated as of January 17, 2020, and the Second Amendment to Credit Agreement, dated as of February 18, 2021) with the guarantors party thereto, Barclays Bank PLC, as administrative agent, and the lenders party thereto from time to time.

 

4


Pursuant to the Third Amendment, the Company obtained incremental term loans (the “2021 Incremental Term Loans”) in an aggregate principal amount of $505.0 million and used the proceeds to fund the WestEnd Acquisition of 100% of the equity interests of WestEnd and to pay fees and expenses incurred in connection therewith. The 2021 Incremental Term Loans will mature in 2028 and will bear interest at an annual rate equal to, at the option of the Company, either LIBOR (adjusted for reserves and subject to a 50 basis point floor) plus a margin of 2.25% or an alternate base rate plus a margin of 1.25%. The 2021 Incremental Term Loans will amortize at a rate of 1.00% per annum.

Original issue discount was $2.5 million for the 2021 Incremental Term Loans. The Company incurred a total of $9.1 million of other third-party costs related to the 2021 Incremental Term Loans, which were recorded as term loan debt issuance costs.

Unaudited Pro Forma Financial Statements

The unaudited pro forma condensed combined financial statements are based on the Company’s historical consolidated financial statements and the historical consolidated financial statements of WestEnd as adjusted to give effect to the WestEnd Acquisition. The unaudited pro forma condensed combined balance sheet at September 30, 2021 gives effect to the WestEnd Acquisition as if it had been consummated on that day. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2021 and for the year ended December 31, 2020 give effect to the WestEnd Acquisition as if it had been consummated on January 1, 2020.

The transaction accounting adjustments for the acquisition consist of those necessary to account for the acquisition. Separately, the Company issued the 2021 Incremental Term Loans to fund the acquisition and related costs. The adjustments related to the issuance of this debt are shown in a separate column as “other transaction accounting adjustments.”

The unaudited pro forma condensed combined financial statements have been prepared using the acquisition method of accounting, which is based on the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 805, Business Combinations, and uses the fair value concepts defined in ASC 820, Fair Value Measurement. As the acquiror for accounting purposes, the Company has estimated the fair value of the assets acquired and liabilities assumed.

The unaudited pro forma condensed combined financial statements have been presented for illustrative purposes only and are not necessarily indicative of the financial condition or results of operations that would have been achieved had the acquisition occurred on the dates indicated. Further, they do not purport to project the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma condensed combined financial statements do not reflect the realization of revenue synergies from the acquisition following the completion of the business combination.

These unaudited pro forma condensed combined financial statements should be read in conjunction with (i) the accompanying notes to the unaudited pro forma condensed combined financial statements; (ii) the Company’s separate historical unaudited consolidated financial statements and the related notes included in the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2021; (iii) the Company’s separate historical audited consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020; (iv) WestEnd’s separate historical unaudited consolidated financial statements and related notes as of and for the nine months ended September 30, 2021, included in this Current Report on Form 8-K/A as Exhibit 99.3; and (v) WestEnd’s separate historical audited consolidated financial statements and related notes as of and for the year ended December 31, 2020, included in this Current Report on Form 8-K/A as Exhibit 99.2.

Accounting Policies

The accounting policies used in the presentation of the unaudited pro forma condensed combined financial statements are those used in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

 

 

5


 

NOTE 2. Preliminary Purchase Price Allocation

We have performed a preliminary valuation of assets acquired and liabilities assumed in the WestEnd Acquisition. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date:

 

(in millions)

    

 

 

Receivables

 

 

4.6 

 

Prepaid assets

 

 

0.3

 

Property and equipment, net

 

 

2.0

 

Goodwill

 

 

536.0

 

Other intangible assets, net

 

 

175.5 

 

Accounts payable and accrued expenses

 

 

(0.1)

 

Accrued compensation and benefits    

 

 

(1.5)

 

Other liabilities

 

 

(0.7)

 

Total purchase price consideration, net of cash acquired

 

$

716.1 

 

 

The following table summarizes additional information for the intangible assets acquired:

 

 

 

 

 

 

 

Pro Forma Amortization Expense

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

    

 

 

    

Estimated Useful

    

Nine Months Ended

    

Twelve Months Ended

 

(in thousands)

 

Estimated

 

Life in Years

 

September 30, 2021

 

December 31, 2020

 

Definite-Lived

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

 

172,500 

 

10

 

$

12,938 

 

$

17,250 

 

Trade name

 

 

3,000 

 

7

 

 

321 

 

 

429 

 

Total

 

 

175,500 

 

 

 

$

13,259 

 

$

17,679 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total intangible assets

 

$

175,500 

 

 

 

 

 

 

 

 

 

 

The preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma condensed combined financial statements. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final purchase price allocation could differ materially from the preliminary purchase price allocation used for the pro forma adjustments herein and may include changes to various balances, including intangible assets and goodwill.

 

NOTE 3. PRO FORMA ADJUSTMENTS

 

The unaudited pro forma condensed combined financial statements do not reflect the costs of any integration activities including any revenue synergies expected to result from the acquisition. The unaudited pro forma condensed combined financial statements do, however, reflect the following adjustments, which are based on preliminary estimates and assumptions that are subject to change.

 

(a) Cash and cash equivalents adjustments, as follows:

 

(in millions)

    

 

 

Payment of cash consideration, net of cash acquired

 

 

(475.8)

 

Elimination of WestEnd cash not acquired

 

 

(3.4)

 

Payment of Company transaction costs

 

 

(2.0)

 

WestEnd cash received at closing for seller costs paid post-closing

 

 

4.2

 

Total from transaction accounting adjustments

 

$

(477.0) 

 

 

 

 

 

 

 

(in millions)

    

 

 

Proceeds from issuance of 2021 Incremental Term Loans, net of costs paid

 

$

493.7 

 

Total from other transaction accounting adjustments

 

$

493.7 

 

 

 

6


 

(b) Receivables adjustments, as follows:

(in millions)

    

 

 

Elimination of WestEnd receivables not acquired

 

$

(0.1) 

 

Total

 

$

(0.1) 

 

 

(c) Represents the elimination of WestEnd prepaid expenses not acquired.

(d) Property and equipment, net, as follows:

(in millions)

    

 

 

Elimination of WestEnd assets not acquired

 

$

(0.1) 

 

Total

 

$

(0.1) 

 

 

(e) Goodwill adjustments, as follows:

(in millions)

    

 

 

Cash consideration paid at closing, net of cash acquired

 

$

475.8 

 

Contingent consideration payable in cash

 

 

239.7

 

Cash consideration payable in first half of 2022

 

 

0.6 

 

Total purchase price consideration

 

$

716.1 

 

 

(in millions)

    

 

 

Total purchase price consideration

 

$

716.1 

 

Tangible net assets acquired

 

 

(4.6)

 

Identifiable intangible assets acquired

 

 

(175.5)

 

Consideration allocated to goodwill

 

$

536.0 

 

 

(f) Intangible assets adjustments, as follows:

(in millions)

    

 

 

Definite-lived intangible assets

 

$

175.5 

 

Total

 

$

175.5 

 

 

(g) Accounts payable and accrued expenses adjustments, as follows:

(in millions)

    

 

 

Company transaction costs accrued

 

$

5.9 

 

WestEnd transaction costs funded by seller and paid after closing

 

 

4.2 

 

Income tax impact of pre-tax changes in retained earnings

 

 

(2.0)

 

Total from transaction accounting adjustments

 

$

8.1 

 

 

(in millions)

    

 

 

Debt-related costs accrued

 

$

0.4 

 

Total from other transaction accounting adjustments

 

$

0.4 

 

 

(h) Accrued compensation and benefits adjustments, as follows:

(in millions)

    

 

 

Increase in WestEnd liabilities assumed

 

$

0.1 

 

Total

 

$

0.1 

 

 

(i) Consideration payable adjustments, as follows:

 

7


(in millions)

    

 

 

Contingent consideration payable, at fair value as of acquisition date*

 

 

239.7

 

Estimated net working capital adjustments payable in cash

 

 

0.6 

 

Total

 

$

240.3

 

     * Refer to Note 1, “Purchase Price,” for additional information.

(j) Other liabilities adjustments, as follows:

(in millions)

    

 

 

Increase in WestEnd liabilities assumed

 

$

0.1 

 

Total

 

$

0.1 

 

 

(k) Long-term debt adjustments, as follows:

(in millions)

    

 

 

Initial principal borrowed under 2021 Incremental Term Loans

 

$

505.0 

 

Increase to debt discount from 2021 Incremental Term Loans

 

 

(2.5)

 

Increase to debt issuance costs from 2021 Incremental Term Loans

 

 

(9.1)

 

Total

 

$

493.4 

 

 

The components of pro forma long-term debt are:

(in millions)

    

 

 

Term loan principal outstanding

 

$

1,151.2 

 

Unamortized debt issuance costs

 

 

(7.1)

 

Unamortized debt discount

 

 

(16.8)

 

Long-term debt

 

$

1,127.3 

 

 

(l) Accrued distributions to Class B member adjustments, as follows:

(in millions)

    

 

 

Elimination of WestEnd liability not assumed

 

$

(2.5)

 

Total

 

$

(2.5)

 

 

(m) Notes payable adjustments, as follows:

(in millions)

    

 

 

Elimination of WestEnd liability not assumed

 

$

(1.1)

 

Total

 

$

(1.1)

 

 

(n) Represents the elimination of WestEnd’s historical temporary and permanent equity balances.

(o) Retained earnings adjustments, as follows:

(in millions)

    

 

 

Company transaction costs incurred after the balance sheet date

 

 

(7.9)

 

Income tax impact on pre-tax changes in retained earnings, at 25%

 

 

2.0 

 

Total

 

$

(5.9)

 

 

(p) Represents amortization of newly acquired intangible assets for the nine months ended September 30, 2021 and for the year ended December 31, 2020. Assumes an estimated $175.5 million of definite-lived intangible assets and a weighted average amortization period of approximately 9.9 years. Refer to Note 2 for additional information.

(q) In accordance with the Securities and Exchange Commission guidelines, the income tax effects of the pro form adjustments have been calculated based on the blended statutory rates in effect during the periods for which the pro forma information is presented.

 

8


(in millions)

 

Nine

months

ended 30

September

2021

    

Year

ended

December

31, 2020

 

Income tax expense on WestEnd historical income

 

$

(6.0)

 

$

(3.0)

 

Income tax impact of pretax adjustments

 

 

3.3

 

 

10.6

 

Total

 

$

(2.7)

 

$

7.6

 

 

(r) Represents the impact on long-term debt costs from the 2021 Incremental Term Loans as if the 2021 Incremental Term Loans had been issued on January 1, 2020 and assumes an interest rate of 2.75%, which is the interest rate in effect upon entering into the Third Agreement. Each 0.125% change in the assumed interest rate for the long-term debt would increase or decrease pro forma interest expense by approximately $0.5 million and $0.6 million, respectively, for the nine months ended September 30, 2021 and for the year ended December 31, 2020.

(in millions)

 

 

Nine

months

ended 30

September

2021

    

Year

ended

December

31, 2020

 

Elimination of interest expense on WestEnd debt

 

$

-

 

$

0.1

 

Interest expense on 2021 Incremental Term Loans

 

 

(10.3)

 

 

(14.1)

 

Amortization of 2021 Incremental Term Loans debt discount

 

 

(0.3)

 

 

(0.4)

 

Amortization of 2021 Incremental Term Loans debt issuance costs

 

 

(1.0)

 

 

(1.3)

 

Total

 

$

(11.6)

 

$

(15.7)

 

 

(s) In accordance with the Securities and Exchange Commission guidelines, the income tax effects of the other transaction accounting adjustments have been calculated based on the blended statutory rates in effect during the periods for which the pro forma information is presented.

 

(t) Represents one-time WestEnd employee compensation payable in connection with the WestEnd Acquisition, with $2.0 million payable upon the closing of the transaction and $2.7 million payable upon the first anniversary of the closing date subject to certain conditions. The $2.0 million payable upon the closing of the transaction is a seller transaction cost. The Company will accrue the remaining $2.7 million of compensation expense over the twelve-month period following closing. The $4.7 million total expense is reflected as personnel compensation and benefits expense in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020. These costs will not affect the Company’s income statement beyond 12 months after the acquisition date.

(u) Represents the accrual of additional acquisition-related costs of $7.9 million and $12.4 million incurred by the Company and WestEnd, respectively, subsequent to September 30, 2021. The remaining acquisition-related costs of $0.2 million incurred by the Company are included in the Company’s historical income statement for the nine months ended September 30, 2021. These costs include legal fees, investment banking fees, accounting fees and other one-time costs directly related to the WestEnd Acquisition and will not affect the Company’s income statement beyond 12 months after the acquisition date.

 

9

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Document and Entity Information
Dec. 31, 2021
Cover [Abstract]  
Document Type 8-K/A
Amendment Flag true
Amendment Description This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by the Company on January 5, 2022 in order to include the financial statements of WestEnd and the pro forma financial information required by Item 9.01 of Form 8-K. The pro forma financial information included in this Form 8-K/A has been presented for informational purposes only, as required by Form 8-K. It does not purport to represent the actual results of operations that Victory and WestEnd would have achieved had the companies been combined during the periods presented in the pro forma financial information and is not intended to project the future results of operations that the combined company may achieve after Victory’s acquisition of WestEnd. Except as described above, all other information in Victory’s Current Report on Form 8-K filed on January 5, 2022 remains unchanged.
Document Period End Date Dec. 31, 2021
Entity Registrant Name Victory Capital Holdings, Inc.
Entity Central Index Key 0001570827
Entity File Number 001-38388
Entity Incorporation, State or Country Code DE
Entity Tax Identification Number 32-0402956
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
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Title of 12(b) Security Class A Common Stock, Par Value $0.01
Trading Symbol VCTR
Security Exchange Name NASDAQ
Entity Emerging Growth Company true
Entity Ex Transition Period false

XML 20 vctr-8ka_20211231_htm.xml IDEA: XBRL DOCUMENT 0001570827 2021-12-31 2021-12-31 true 0001570827 8-K/A 2021-12-31 Victory Capital Holdings, Inc. DE 001-38388 32-0402956 15935 La Cantera Parkway San Antonio TX 78256 216 898-2400 false false false false Class A Common Stock, Par Value $0.01 VCTR NASDAQ true false This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by the Company on January 5, 2022 in order to include the financial statements of WestEnd and the pro forma financial information required by Item 9.01 of Form 8-K. The pro forma financial information included in this Form 8-K/A has been presented for informational purposes only, as required by Form 8-K. 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