10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2024


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

For the transition period from ______ to ______

Commission file number 001-38388

Victory Capital Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware		32-0402956
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

15935 La Cantera Parkway, San Antonio, Texas		78256
(Address of principal executive offices)		(Zip Code)

(216) 898-2400

(Registrant’s telephone number, including area code)

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



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

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

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

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


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

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

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

The number of outstanding shares of the registrant’s Common Stock, par value $0.01 per share as of April 30, 2024 was 64,709,914.

Auditor’s PCAOB ID Number: 42 Auditor Name: Ernst & Young LLP Auditor Location: Cleveland, Ohio

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PART I — FINANCIAL INFORMATION

Item 1.	Financial Information	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	39
Item 6.	Exhibits	39
	Signatures	40

Forward‑Looking Statements

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

Forward‑looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Although we believe the expectations reflected in the forward‑looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following; the Memorandum of Understanding is non-binding and there is no certainty that the negotiations will result in definitive agreements or that the currently contemplated terms will not change; risks that the conditions to closing will be satisfied and the transaction will close on the anticipated timeline, if at all; risks associated with expected benefits, or impact on our business, of the proposed transaction, including our ability to achieve any expected synergies; reductions in assets under management (“AUM”) based on investment performance, client withdrawals, difficult market conditions and other factors such as the conflicts in Ukraine and Israel or a pandemic; the nature of our contracts and investment advisory agreements; our ability to maintain historical returns and sustain our historical growth; our dependence on third parties to market our strategies and provide products or services for the operation of our business; our ability to retain key investment professionals or members of our senior management team; our reliance on the technology systems supporting our operations; our ability to successfully acquire and integrate new companies; the concentration of our investments in long only small‑ and mid‑cap equity and U.S. clients; risks and uncertainties associated with non‑U.S. investments; our efforts to establish and develop new teams and strategies; the ability of our investment teams to identify appropriate investment opportunities; our ability to limit employee misconduct; our ability to meet the guidelines set by our clients; our exposure to potential litigation (including administrative or tax proceedings) or regulatory actions; our ability to implement effective information and cyber security policies, procedures and capabilities; our substantial indebtedness; the potential impairment of our goodwill and intangible assets; disruption to the operations of third parties whose functions are integral to our exchange traded fund (“ETF”) platform; our determination that we are not required to register as an “investment company” under the 1940 Act; the fluctuation of our expenses; our ability to respond to recent trends in the investment management industry; the level of regulation on investment management firms and our ability to respond to regulatory developments; the competitiveness of the investment management industry; the level of control over us retained by Crestview Partners II GP, L.P.; and other risks and factors included, but not limited to, those listed under the caption “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on February 29, 2024, which is accessible on the SEC’s website at www.sec.gov. In light of these risks, uncertainties and other factors, the forward‑looking statements contained in this report might not prove to be accurate. All forward‑looking statements speak only as of the date made and we undertake no obligation to update or revise publicly any forward‑looking statements, whether as a result of new information, future events or otherwise.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Victory Capital Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except shares data)


	March 31, 2024			December 31, 2023
Assets
Cash and cash equivalents	$	79,937		$	123,547
Receivables		97,211			87,570
Prepaid expenses		7,269			5,785
Investments, at fair value		33,524			31,808
Property and equipment, net		17,552			19,578
Goodwill		981,805			981,805
Other intangible assets, net		1,276,500			1,281,832
Other assets		12,400			10,691
Total assets	$	2,506,198		$	2,542,616

Liabilities and stockholders' equity
Accounts payable and accrued expenses	$	62,022		$	56,477
Accrued compensation and benefits		48,521			55,456
Consideration payable for acquisition of business		149,400			217,200
Deferred tax liability, net		133,258			128,714
Other liabilities		45,658			42,499
Long-term debt, net		990,206			989,269
Total liabilities		1,429,065			1,489,615

Stockholders' equity
Common stock, $0.01 par value per share: 2024 - 600,000,000 shares authorized, 83,166,423 shares issued and 64,671,237 shares outstanding; 2023 - 600,000,000 shares authorized, 82,404,305 shares issued and 64,254,714 shares outstanding;		832			824
Additional paid-in capital		735,517			728,283
Treasury stock, at cost: 2024 - 18,495,186 shares; 2023 - 18,149,591 shares		(457,539	)		(444,286	)
Accumulated other comprehensive income		28,164			31,328
Retained earnings		770,159			736,852
Total stockholders' equity		1,077,133			1,053,001
Total liabilities and stockholders' equity	$	2,506,198		$	2,542,616

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

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Victory Capital Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)


	Three Months Ended March 31,
	2024			2023
Revenue
Investment management fees	$	169,785		$	156,836
Fund administration and distribution fees		46,072			44,484
Total revenue		215,857			201,320

Expenses
Personnel compensation and benefits		59,454			57,602
Distribution and other asset-based expenses		36,263			37,654
General and administrative		14,012			12,388
Depreciation and amortization		7,601			11,680
Change in value of consideration payable for acquisition of business		12,200			7,400
Acquisition-related costs		1,026			2
Restructuring and integration costs		492			29
Total operating expenses		131,048			126,755

Income from operations		84,809			74,565

Other income (expense)
Interest income and other income (expense)		3,565			1,544
Interest expense and other financing costs		(16,486	)		(14,239	)
Total other income (expense), net		(12,921	)		(12,695	)

Income before income taxes		71,888			61,870

Income tax expense		(16,197	)		(12,597	)

Net income	$	55,691		$	49,273

Earnings per share of common stock
Basic	$	0.86		$	0.73
Diluted	$	0.84		$	0.71

Weighted average number of shares outstanding
Basic		64,389			67,288
Diluted		65,972			69,727

Dividends declared per share of common stock	$	0.335		$	0.32

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

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Victory Capital Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)


	Three Months Ended March 31,
	2024			2023
Net income	$	55,691		$	49,273

Other comprehensive income (loss), net of tax
Net unrealized income (loss) on cash flow hedges		—			(5,088	)
Net amortization of deferred gain on terminated cash flow hedges		(3,139	)		—
Net unrealized income (loss) on foreign currency translation		(25	)		20
Total other comprehensive income (loss), net of tax		(3,164	)		(5,068	)

Comprehensive income	$	52,527		$	44,205

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

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Victory Capital Holdings, Inc. and Subsidiaries

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

(In thousands)


									Accumulated
						Additional			Other
	Common		Treasury			Paid-In			Comprehensive			Retained
	Stock		Stock			Capital			Income			Earnings			Total
Balance, December 31, 2023	$	824	$	(444,286	)	$	728,283		$	31,328		$	736,852		$	1,053,001
Issuance of common stock		—		—			75			—			—			75
Shares withheld related to net settlement of equity awards		—		(13,253	)		—			—			—			(13,253	)
Vesting of restricted share grants		4		—			(4	)		—			—			—
Exercise of options		4		—			3,193			—			—			3,197
Other comprehensive loss		—		—			—			(3,164	)		—			(3,164	)
Share-based compensation		—		—			3,970			—			—			3,970
Dividends paid		—		—			—			—			(22,384	)		(22,384	)
Net income		—		—			—			—			55,691			55,691
Balance, March 31, 2024	$	832	$	(457,539	)	$	735,517		$	28,164		$	770,159		$	1,077,133


									Accumulated
						Additional			Other
	Common		Treasury			Paid-In			Comprehensive			Retained
	Stock		Stock			Capital			Income			Earnings			Total
Balance, December 31, 2022	$	805	$	(285,425	)	$	705,466		$	35,442		$	609,122		$	1,065,410
Issuance of common stock		—		—			60			—			—			60
Repurchase of shares		—		(32,903	)		—			—			—			(32,903	)
Shares withheld related to net settlement of equity awards		—		(11,656	)		—			—			—			(11,656	)
Vesting of restricted share grants		7		—			(7	)		—			—			—
Exercise of options		3		—			1,707			—			—			1,710
Other comprehensive loss		—		—			—			(5,068	)		—			(5,068	)
Share-based compensation		—		—			4,252			—			—			4,252
Dividends paid		—		—			—			—			(22,524	)		(22,524	)
Net income		—		—			—			—			49,273			49,273
Balance, March 31, 2023	$	815	$	(329,984	)	$	711,478		$	30,374		$	635,871		$	1,048,554

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

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Victory Capital Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Three Months Ended March 31,
	2024			2023
Cash flows from operating activities
Net income	$	55,691		$	49,273
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for deferred income taxes		5,566			4,696
Depreciation and amortization		7,601			11,680
Deferred financing costs, accretion expense and derivative gains/losses		(3,097	)		1,047
Stock-based and deferred compensation		5,842			5,904
Change in fair value of contingent consideration obligations		12,200			7,400
Unrealized (appreciation) depreciation on investments		(1,306	)		(629	)
Changes in operating assets and liabilities:
Receivables		(10,459	)		(1,466	)
Prepaid expenses		(1,484	)		(3,118	)
Other assets		(240	)		(783	)
Accounts payable and accrued expenses		6,625			8,484
Accrued compensation and benefits		(7,953	)		(18,173	)
Other liabilities		(302	)		(159	)
Net cash provided by operating activities		68,684			64,156

Cash flows from investing activities
Purchases of property and equipment		(500	)		(572	)
Purchases of investments		(709	)		(2,945	)
Sales of investments		299			1,971
Net cash used in investing activities		(910	)		(1,546	)

Cash flows from financing activities
Issuance of common stock		3,272			1,770
Repurchase of common stock		(2,946	)		(34,442	)
Payments of taxes related to net share settlement of equity awards		(9,284	)		(7,687	)
Payment of dividends		(22,384	)		(22,110	)
Payment of consideration for acquisition		(80,000	)		—
Net cash used in financing activities		(111,342	)		(62,469	)

Effect of changes of foreign exchange rate on cash and cash equivalents		(42	)		23

Net (decrease) increase in cash and cash equivalents		(43,610	)		164
Cash and cash equivalents, beginning of period		123,547			38,171
Cash and cash equivalents, end of period	$	79,937		$	38,335

Supplemental cash flow information
Cash paid for interest	$	20,329		$	15,314
Cash paid for income taxes		1,125			995
Noncash items
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	2,797		$	—

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

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

Note 1. ORGANIZATION AND NATURE OF BUSINESS

Victory Capital Holdings, Inc., a Delaware corporation (along with its wholly-owned subsidiaries, collectively referred to as the “Company,” “Victory,” or in the first-person notations of “we,” “us,” and “our”), was formed on February 13, 2013 for the purpose of acquiring Victory Capital Management Inc. (“VCM”) and Victory Capital Services, Inc. (“VCS”), formerly known as Victory Capital Advisers, Inc., which occurred on August 1, 2013. On February 12, 2018, the Company completed the initial public offering (the “IPO”) of its Class A common stock, which trades on the NASDAQ under the symbol “VCTR.”

On July 1, 2019, the Company completed the acquisition (the “USAA AMCO Acquisition” or “USAA AMCO”) of USAA Asset Management Company and Victory Capital Transfer Agency, Inc. (“VCTA”), formerly known as the USAA Transfer Agency Company d/b/a USAA Shareholder Account Services. The USAA AMCO Acquisition included USAA’s mutual fund and ETF businesses and its 529 Education Savings Plan.

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

VCM is a registered investment adviser and provides mutual fund administrative services for the Victory Portfolios, Victory Variable Insurance Funds, the mutual fund series of the Victory Portfolios II and the Victory Portfolios III (collectively, the “Victory Funds”), a family of open-end mutual funds, and the VictoryShares (the Company’s ETF brand). Additionally, VCM employs all of the Company’s United States investment professionals across its Franchises and Solutions, which are not separate legal entities. VCM’s wholly-owned subsidiaries include RS Investment Management (Singapore) Pte. Ltd., RS Investments (UK) Limited, Victory Capital Digital Assets, LLC and NEC Pipeline LLC. VCM’s other wholly-owned subsidiary, RS Investments (HK) Limited, ceased operations in May 2023.

VCS is registered with the SEC as an introducing broker-dealer and serves as distributor and underwriter for the Victory Funds, which includes the mutual funds of the Victory Portfolios III (the “Victory Funds III”) and a 529 Education Savings Plan. VCS offers brokerage services to individual investors through an open architecture brokerage platform launched in April 2023. VCS is also the placement agent for certain private funds managed by VCM. VCTA is registered with the SEC as a transfer agent for the Victory Funds III.

On November 1, 2021, the Company completed the acquisition of 100% of the equity interests in New Energy Capital Partners (“NEC”). Founded in 2004 and based in Hanover, New Hampshire, NEC is an alternative asset management firm focused on debt and equity investments in clean energy infrastructure projects and companies through private closed-end funds (the “NEC Funds”). AUM acquired in the NEC acquisition totaled $0.8 billion as of November 1, 2021.

On December 31, 2021, the Company completed the acquisition (“WestEnd Acquisition”) of 100% of the equity interests in WestEnd Advisors, LLC (“WestEnd”). Founded in 2004, and headquartered in Charlotte, North Carolina, WestEnd is an ETF strategist advisor that provides financial advisors with a turnkey, core model allocation strategy for either a holistic solution or complementary source of alpha. The firm offers four primary ETF strategies and one large cap core strategy, all in tax efficient Separately Managed Account (SMA) structures. AUM acquired in the WestEnd Acquisition totaled $19.3 billion on December 31, 2021. WestEnd is a wholly-owned subsidiary of Victory Capital Holdings, Inc. and is the Company’s second registered investment adviser.

NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

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conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

In the opinion of management, the consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial condition, results of operations, and cash flows for the interim periods presented. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the operations of the Company and its wholly-owned subsidiaries, after elimination of all intercompany balances and transactions. Our involvement with non-consolidated variable interest entities (“VIEs”) includes sponsored investment funds.

For further discussion regarding VIEs, refer to Note 2, Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Use of Estimates and Assumptions

The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements and the notes. Actual results may ultimately differ materially from those estimates.

New Accounting Pronouncements

Recently Issued Accounting Standards

•

Segment Reporting: In November 2023, the FASB issued ASU 2023-07, "Segment Reporting: Improvements to Reportable Segment Disclosures" ("ASU 2023-07"). ASU 2023-07 expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. We are currently evaluating the impact that ASU 2023-07 will have on the Company's consolidated financial statement disclosures.

•

Income Taxes: In December 2023, the FASB issued ASU 2023-09, "Income Taxes: Improvements to Income Tax Disclosures" ("ASU 2023-09"). ASU 2023-09 revises income tax disclosures primarily related to the rate reconciliation and income taxes paid information as well as the effectiveness of certain other income tax disclosures. The new standard is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The standard should be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the impact that ASU 2023-09 will have on the Company's consolidated financial statement disclosures.

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NOTE 3. REVENUE RECOGNITION

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


	Three Months Ended March 31,
(in thousands)	2024		2023
Investment management fees
Mutual funds (Victory Funds)	$	115,173	$	108,416
ETFs (VictoryShares)		5,179		5,441
Separate accounts and other vehicles		47,312		42,582
Performance-based fees
Mutual funds (Victory Funds III)		2,023		690
Separate accounts and other vehicles		98		(293	)
Total investment management fees		169,785		156,836

Fund administration and distribution fees
Administration fees
Mutual funds (Victory Funds)		26,334		24,376
ETFs (VictoryShares)		744		710
Distribution fees
Mutual funds (Victory Funds)		5,583		5,740
Transfer agent fees
Mutual funds (Victory Funds III)		13,411		13,658
Total fund administration and distribution fees		46,072		44,484

Total revenue	$	215,857	$	201,320

The following table presents balances of receivables:


(in thousands)	March 31, 2024		December 31, 2023
Customer receivables
Mutual funds (Victory Funds)	$	58,200	$	55,858
ETFs (VictoryShares)		2,213		2,079
Separate accounts and other vehicles		36,099		28,189
Receivables from contracts with customers		96,512		86,126
Non-customer receivables		699		1,444
Total receivables	$	97,211	$	87,570

Revenue

The Company’s revenue includes fees earned from providing;

•

investment management services,

•

fund administration services,

•

fund transfer agent services, and

•

fund distribution services.

Revenue is recognized for each distinct performance obligation identified in customer contracts when the performance obligation has been satisfied by transferring services to a customer either over time or at the point in time when the customer obtains control of the service. Revenue is recognized in the amount of variable or fixed consideration allocated to the satisfied performance obligation that Victory expects to be entitled to in exchange for transferring services to a customer. Variable consideration is included in the transaction price only when it is probable that a significant reversal of such revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

Investment management, fund administration and fund distribution fees are generally considered variable consideration as they are typically calculated as a percentage of AUM. Fund transfer agent fees are also considered variable consideration as they are calculated as a percentage of AUM or based on the number of accounts in the fund. In such cases, the amount of fees earned is subject to factors outside of the Company’s control including customer or underlying investor contributions

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and redemptions and financial market volatility. These fees are considered constrained and are excluded from the transaction price until the asset values or number of accounts on which the customer is billed are calculated and the value of consideration is measurable.

The Company has contractual arrangements with third parties to provide certain advisory, administration, transfer agent and distribution services. Management considers whether we are acting as the principal service provider or as an agent to determine whether revenue should be recorded based on the gross amount payable by the customer or net of payments to third-party service providers, respectively. Victory is considered a principal service provider if we control the service that is transferred to the customer. We are considered an agent when we arrange for the service to be provided by another party and do not control the service.

Investment Management Fees

Investment management fees are received in exchange for investment management services that represent a series of distinct incremental days of investment management service. Control of investment management services is transferred to the customers over time as these customers receive and consume the benefits provided by these services. Investment management fees are calculated as a contractual percentage of AUM and are generally paid in arrears on a monthly or quarterly basis.

AUM represents the financial assets the Company manages for clients on either a discretionary or non-discretionary basis. In general, AUM reflects the valuation methodology that corresponds to the basis used for determining revenue such as net asset value for the Victory Funds and certain other pooled funds and account market value for separate accounts. For the NEC Funds, AUM represents limited partner capital commitments during the commitment period of the fund. Following the earlier of the termination of the commitment period and the beginning of any commitment period for a successor fund, AUM generally represents, depending on the fund, the lesser of a) the net asset value of the fund and b) the aggregated adjusted cost basis of each unrealized portfolio investment or the limited partner capital commitments reduced by the amount of capital contributions used to make portfolio investments that have been disposed.

Investment management fees are recognized as revenue using a time-based output method to measure progress. Revenue is recorded at month end or quarter end when the value of consideration is measured. The amount of investment management fee revenue varies from one reporting period to another as levels of AUM change (from inflows, outflows and market movements) and as the number of days in the reporting period change.

The Company may waive certain fees for investment management services provided to the Victory Funds, VictoryShares and other pooled investment vehicles and may subsidize certain share classes of the Victory Funds, VictoryShares and other pooled investment vehicles to ensure that specified operating expenses attributable to such share classes do not exceed a specified percentage. These waivers and reimbursements reduce the transaction price allocated to investment management services and are recognized as a reduction to investment management fees revenue. The amounts due to the Victory Funds, VictoryShares and other pooled investment vehicles for waivers and expense reimbursements represent consideration payable to customers, which is recorded in accounts payable and accrued expenses in the unaudited Condensed Consolidated Balance Sheets, and no distinct services are received in exchange for these payments.

Performance-based investment management fees, which include fees under performance fee and fulcrum fee arrangements, are included in the transaction price for providing investment management services. Performance-based investment management fees are calculated as a percentage of investment performance on a client’s account versus a specified benchmark or hurdle based on the terms of the contract with the customer. Performance-based investment management fees are variable consideration and are recognized as revenue when and to the extent that it is probable that a significant reversal of the cumulative revenue for the contractual performance period will not occur. Performance-based investment management fees recognized as revenue in the current period may pertain to performance obligations satisfied in prior periods. Fulcrum fee arrangements include a performance fee adjustment that increases or decreases the total investment management fee depending on whether the assets being managed experienced better or worse investment performance than the index specified in the customer’s contract. The performance fee adjustment arrangement with certain equity and fixed income Victory Funds III is calculated monthly based on the investment performance of those funds relative to their specified benchmark indexes over the discrete performance period ending with that month.

Fund Administration Fees

The Company recognizes fund administration fees as revenue using a time-based output method to measure progress. Fund administration fees are determined based on the contractual rate applied to average daily net assets of the Victory Funds and VictoryShares for which administration services are provided. Revenue is recorded on a monthly basis when the value of consideration is measured using actual average daily net assets and constraints are removed. The Company’s

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fund administration fee revenue is recorded in fund administration and distribution fees in the unaudited Condensed Consolidated Statements of Operations.

The Company has contractual arrangements with a third party to provide certain sub-administration services. We are the primary obligor under the contracts with the Victory Funds and VictoryShares and have the ability to select the service provider and establish pricing. As a result, fund administration fees and sub-administration expenses are recorded on a gross basis.

Fund Compliance Fees

The Company has an agreement to provide compliance design, administration and oversight services for the Victory Funds and the VictoryShares in accordance with Rule 38a-1 under the Investment Company Act. The Company furnishes a VCM employee to serve as the Chief Compliance Officer and provides other compliance personnel and resources reasonably necessary to perform the services under this agreement. The Company earns a fixed annual fee for these compliance services which is recorded in fund administration and distribution fees in the unaudited Condensed Consolidated Statements of Operations.

Fund Transfer Agent Fees

The Company recognizes fund transfer agent fees using a time-based output method to measure progress. Fund transfer agent fees are determined based on the contractual rate applied to either the average daily net assets of the Victory Funds III for which transfer agent services are provided or number of accounts in the Victory Funds III. Revenue is recorded on a monthly basis when the value of consideration is measured using actual average daily net assets or actual number of accounts and constraints are removed. The Company’s fund transfer agent fee revenue is recorded in fund administration and distribution fees in the unaudited Condensed Consolidated Statements of Operations.

The Company also receives fees for sub-transfer agency services under contracts with the Victory Funds for member class shares. Sub-transfer agency fees are recognized and recorded in a manner similar to fund transfer agent fees and are recorded in fund administration and distribution fees in the unaudited Condensed Consolidated Statements of Operations.

The Company has contractual arrangements with a third party to provide certain sub-transfer agent services. As the Company is the primary obligor under the transfer agency contracts with the Victory Funds III and has the ability to select the service provider and establish pricing, fund transfer agent fees and sub-transfer agent expenses are recorded on a gross basis.

Fund Distribution Fees

The Company receives compensation for sales and sales-related services promised under distribution contracts with the Victory Funds. Revenue is measured in an amount that reflects the consideration to which the Company expects to be entitled in exchange for providing distribution services. Distribution fees are generally calculated as a percentage of average net assets in the Victory Funds. The Company’s performance obligation is satisfied at the point in time when control of the services is transferred to customers, which is upon investor subscription or redemption.

Based on the nature of the calculation, the revenue for these services is accounted for as variable consideration. The Company may recognize distribution fee revenue in the current period that pertains to performance obligations satisfied in prior periods as variable consideration is recognized only when uncertainties are resolved. The Company’s distribution fee revenue is recorded in fund administration and distribution fees in the unaudited Condensed Consolidated Statements of Operations.

The Company has contractual arrangements with third parties to provide certain distribution services. The Company is the primary obligor under the contracts with the Victory Funds and has the ability to select the service provider and establish pricing. Substantially all of the Company’s revenue is recorded gross of payments made to third parties.

Included in fund distribution fees are transaction and account-level fees paid by VCS brokerage platform customers for trade execution, cash transfer and other services.

Costs Incurred to Obtain or Fulfill Customer Contracts

The Company is required to capitalize certain costs directly related to the acquisition or fulfillment of a contact with a customer. Victory has not identified any sales-based compensation or similar costs that meet the definition of an incremental cost to acquire a contract and as such we have no intangible assets related to contract acquisitions.

Direct costs incurred to fulfill services under the Company’s distribution contracts include sales commissions paid to third party dealers for the sale of Class C Shares. The Company may pay upfront sales commissions to dealers and institutions that sell Class C shares of the participating Victory Funds at the time of such sale. Upfront sales commission payments with

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respect to Class C shares equal 1.00% of the purchase price of the Class C shares sold by the dealer or institution. When the Company makes an upfront payment to a dealer or institution for the sale of Class C shares, the Company capitalizes the cost of such payment, which is recorded in prepaid expenses in the unaudited Condensed Consolidated Balance Sheets and amortizes the cost over a 12-month period, the estimated period of benefit.

Valuation of AUM and fund investments

The fair value of assets under management of the Victory Funds and VictoryShares is primarily determined using quoted market prices or independent third-party pricing services or broker price quotes. In certain circumstances, a quotation or price evaluation is not readily available from a pricing service. In these cases, pricing is determined by management based on a prescribed valuation process that has been approved by the directors/trustees of the sponsored products. The same prescribed valuation process is used to price securities in separate accounts and the Company’s other non-alternative investment vehicles for which a quotation or price evaluation is not readily available from a pricing service.

The fair value of Level III assets held by alternative investment vehicles is determined under the respective valuation policy for each fund. The valuation policies address the fact that substantially all the investments of a fund may not have readily available market information and therefore the fair value for these assets is typically determined using unobservable inputs and models that may include subjective assumptions. AUM reported by the Company for alternative investment vehicles may not necessarily equal the funds’ net asset values or the total fair value of the funds’ portfolio investments as AUM represents the basis for calculating management fees.

For the periods presented, less than one percent of the Company’s total AUM were Level III assets priced without using a quoted market price, broker price quote or pricing service quotation.

NOTE 4. ACQUISITIONS

USAA AMCO Acquisition

In the fourth quarter of 2023, the Company made the fourth and final earn-out payment due to sellers under the terms of the USAA AMCO purchase agreement.

For the three months ended March 31, 2023, the increase in the USAA AMCO contingent consideration liability of $4.3 million was recorded in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.

NEC Acquisition

Under the terms of the NEC purchase agreement, the Company will pay up to an additional $35.0 million in cash based on NEC’s net revenue growth over a six-year period following the closing date. The purchase agreement specifies net revenue and payment targets for the 36-month, 48-month and 60-month periods beginning on November 30, 2021 (the “Start Date”) for the contingent payments. It also provides for advance payments and catch-up payments to be made based on actual NEC net management fee revenue, as defined in the purchase agreement, as measured at the end of each 12-month anniversary of the Start Date over a six year period. The maximum amount of contingent payments, less any contingent payments previously paid, is due upon the occurrence of certain specified events within a five year period following the Start Date.

The Company determined that substantially all of the contingent payments payable per the NEC purchase agreement represent compensation for post-closing services. The Company records compensation expense over the estimated service period in an amount equal to the total contingent payments currently forecasted to be paid.

For the three months ended March 31, 2024 and 2023, the Company recorded $1.0 million and $1.6 million in NEC contingent payment compensation expense, respectively, which is included in personnel compensation and benefits in the unaudited Condensed Consolidated Statements of Operations.

The liability for NEC contingent payments totaled $14.6 million and $13.7 million as of March 31, 2024 and December 31, 2023, respectively, which is included in accrued compensation and benefits in the unaudited Condensed Consolidated Balance Sheets.

WestEnd Acquisition

Under the terms of the WestEnd purchase agreement, a maximum of $320.0 million ($80.0 million per year) of contingent payments is payable to sellers. 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.

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In March 2024, the Company paid $80.0 million in cash to sellers as a catch-up payment for the first earn-out period. The estimated fair value of contingent consideration payable to sellers was $149.4 million as of March 31, 2024 and $217.2 million as of December 31, 2023, respectively.

For the three months ended March 31, 2024 and 2023, the change in the liability was an increase of $12.2 million and $3.1 million, respectively. The impact of increasing or decreasing the valuation of the contingent consideration liability is recorded in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.

The estimated fair value of contingent consideration payable to sellers is estimated using the real options method. WestEnd net revenue growth is simulated in a risk-neutral framework to calculate expected probability-weighted earn out payments, which are then discounted from the expected payment dates at the relevant cost of debt. Significant assumptions and inputs include the WestEnd net revenue projected annual growth rate, the market price of risk adjustment for revenue, which adjusts the projected revenue growth rate to a risk-neutral expected growth rate, revenue volatility and discount rate. The market price of risk adjustment for revenue and revenue volatility are based on data for comparable companies. As the contingent consideration represents a subordinate, unsecured claim of the Company, the Company assesses a discount rate which incorporates adjustments for credit risk and the subordination of the contingent consideration.

Significant inputs to the valuation of contingent consideration payable to sellers as of March 31, 2024 and December 31, 2023 are as follows and are approximate values:



	March 31, 2024			December 31, 2023
Net revenue 5 year average annual growth rate		24	%		22	%
Market price of risk adjustment for revenue (continuous)		7	%		7	%
Revenue volatility		21	%		21	%
Discount rate		7	%		7	%
Years remaining in earn out period		3.6			3.8
Undiscounted estimated remaining earn out payments $ millions	$252 - $320			$243 - $320

NOTE 5. Fair Value Measurements

The Company determines the fair value of certain financial and nonfinancial assets and liabilities. Fair value is determined based on the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value determinations utilize a valuation hierarchy based upon the transparency of inputs used in the valuation of an asset or liability.

Classification within the fair value hierarchy contains three levels:

•

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

•

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

•

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

The following table presents assets and liabilities measured at fair value on a recurring basis:


	As of March 31, 2024
(in thousands)	Total			Level 1		Level 2		Level 3
Financial Assets
Money market fund	$	64,465		$	64,465	$	-	$	-
Investments in proprietary funds		572			572		-		-
Deferred compensation plan investments		32,952			32,952		-		-
Total Financial Assets	$	97,989		$	97,989	$	-	$	-
Financial Liabilities
Contingent consideration arrangements	$	(149,400	)	$	-	$	-	$	(149,400	)
Total Financial Liabilities	$	(149,400	)	$	-	$	-	$	(149,400	)

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	As of December 31, 2023
(in thousands)	Total			Level 1		Level 2		Level 3
Financial Assets
Money market fund	$	109,183		$	109,183	$	-	$	-
Investments in proprietary funds		534			534		-		-
Deferred compensation plan investments		31,274			31,274		-		-
Total Financial Assets	$	140,991		$	140,991	$	-	$	-
Financial Liabilities
Contingent consideration arrangements	$	(217,200	)	$	-	$	-	$	(217,200	)
Total Financial Liabilities	$	(217,200	)	$	-	$	-	$	(217,200	)

Level 1 assets consist of money market funds and open-end mutual funds. The fair values for these assets are determined utilizing quoted market prices for identical assets.

Contingent consideration arrangements represent the WestEnd earn-out payment liability, which is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets.

Significant unobservable inputs for the option pricing model used to determine the estimated fair value of the WestEnd Acquisition earn-out payment liability include the WestEnd net revenue projected growth rate, revenue volatility, market price of risk and discount rate. An increase in the projected growth rate for net revenue results in a higher fair value for the earn-out payment liability while an increase in the discount rate results in a lower fair value for the earnout payment liability. An increase in the market price of risk and revenue volatility results in a lower fair value. Refer to Note 4, Acquisitions, for further details related to the valuation of contingent consideration payable related to the WestEnd Acquisition.

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

The following table presents the balance of the contingent consideration arrangement liabilities for the three months ended March 31, 2024:


(in thousands)	Contingent Consideration Liabilities
Balance, December 31, 2023	$	217,200
WestEnd earn-out payment		(80,000	)
WestEnd change in fair value measurement		12,200
Balance, March 31, 2024	$	149,400

There were no transfers between any of the Level 1, 2 and 3 categories in the fair value measurement hierarchy from December 31, 2023 to March 31, 2024. The Company recognizes transfers at the end of the reporting period.

The net carrying value of accounts receivable and accounts payable approximates fair value due to the short‑term nature of these assets and liabilities. The fair value of our long-term debt as of March 31, 2024 is considered to be its carrying value as the interest rate on the bank debt is variable and approximates current market rates. As a result, Level 2 inputs are utilized to determine the fair value of our long‑term debt.

NOTE 6. Related-Party Transactions

The Company considers certain funds that it manages, including the Victory Funds, the VictoryShares, collective trust funds that it sponsors (the “Victory Collective Funds”), the NEC Funds and other pooled investment vehicles that it sponsors, to be related parties as a result of its advisory relationship.

The Company receives investment management, administrative, distribution and compliance fees in accordance with contracts that VCM and VCS have with the Victory Funds and has invested a portion of its balance sheet cash in the Victory Treasury Money Market Trust and earns interest on the amount invested in this fund.

The Company receives investment management, administrative and compliance fees in accordance with contracts that VCM has with the VictoryShares.

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We also receive investment management fees from the Victory Collective Funds, the NEC Funds and other pooled investment vehicles under VCM’s advisory contracts with these funds. In addition, VCTA receives fees for transfer agency services under contracts with the Victory Funds III and sub-transfer agency services under contracts with the Victory Funds for member class shares.

Director fees payable by the Company in cash and contributions made under the Director Deferred Compensation Plan for non-employee members of our Board of Directors are included in general and administrative expense in the unaudited Condensed Consolidated Statements of Operations.

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

•

Included in cash and cash equivalents is cash held in the Victory Treasury Money Market Trust.

•

Included in receivables (investment management fees) are amounts due from the Victory Funds, the VictoryShares, the Victory Collective Funds, the NEC Funds and other pooled investment vehicles for investment management services.

•

Included in receivables (fund administration and distribution fees) are amounts due from the Victory Funds for fund administration services and compliance services, amounts due from the VictoryShares for fund administration services, amounts due from the Victory Funds III for transfer agent services and amounts due from the Victory Funds for sub-transfer agent services.

•

Included in prepaid expenses are amounts paid by VCM that will be invoiced to the NEC Funds in subsequent periods.

•

Included in revenue (investment management fees) are amounts earned for investment management services provided to the Victory Funds, the VictoryShares, the Victory Collective Funds, the NEC Funds and other pooled investment vehicles.

•

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

•

Realized and unrealized gains and losses and dividend income on investments in the Victory Funds classified as investments in proprietary funds and deferred compensation plan investments and dividend income on investments in the Victory Treasury Money Market Trust are recorded in interest income and other income (expense) in the unaudited Condensed Consolidated Statements of Operations.

•

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


(in thousands)	March 31, 2024		December 31, 2023
Related party assets
Cash and cash equivalents	$	64,465	$	109,183
Receivables (investment management fees)		48,279		46,217
Receivables (fund administration and distribution fees)		15,094		14,238
Prepaid expenses		1,147		730
Investments (investments in proprietary funds, fair value)		572		534
Investments (deferred compensation plan investments, fair value)		32,810		31,143
Total	$	162,367	$	202,045

Related party liabilities
Accounts payable and accrued expenses (fund reimbursements)	$	5,482	$	5,641

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	Three Months Ended March 31,
(in thousands)	2024		2023
Related party revenue
Investment management fees	$	128,335	$	119,983
Fund administration and distribution fees		46,072		44,484
Total	$	174,407	$	164,467

Related party expense
General and administrative	$	112	$	122

Related party other income (expense)
Interest income and other income (expense)	$	3,286	$	1,464

NOTE 7. Investments

As of March 31, 2024 and December 31, 2023, the Company had investments in proprietary funds and deferred compensation plan investments. Investments in proprietary funds consist entirely of seed capital investments in certain Victory Funds. Deferred compensation plan investments are held under deferred compensation plans and include Victory Funds and third party mutual funds.

Unrealized and realized gains and losses on investments in proprietary funds and deferred compensation plan investments are recorded in earnings as interest income and other income (expense).

Investments in Proprietary Funds

The following table presents a summary of the cost and fair value of investments in proprietary funds:


			Gross Unrealized					Fair
(in thousands)	Cost		Gains		(Losses)			Value
As of March 31, 2024	$	570	$	77	$	(75	)	$	572
As of December 31, 2023		569		55		(90	)		534

There were no sales of investments in proprietary funds during the three months ended March 31, 2024 and 2023.

Deferred Compensation Plan Investments

The following table presents a summary of the cost and fair value of deferred compensation plan investments:


			Gross Unrealized					Fair
(in thousands)	Cost		Gains		(Losses)			Value
As of March 31, 2024	$	30,535	$	2,639	$	(222	)	$	32,952
As of December 31, 2023		30,109		1,610		(445	)		31,274

The following table presents proceeds from sales of deferred compensation plan investments and realized gains and losses recognized during the three months ended March 31, 2024 and 2023:


	Sale		Realized
(in thousands)	Proceeds		Gains		(Losses)
For the three months ended March 31, 2024	$	299	$	22	$	(5	)
For the three months ended March 31, 2023		1,971		1		(201	)

NOTE 8. Income Taxes

The effective tax rate for the three months ended March 31, 2024 and 2023 differs from the United States federal statutory rate primarily as a result of state and local income taxes, excess tax benefits on share-based compensation and certain non-deductible expenses.

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For the three months ended March 31, 2024 and 2023, the provision for income taxes was $16.2 million and $12.6 million, or 22.5% and 20.4%, of pre-tax income respectively. The effective tax rate for the three months ended March 31, 2024 was higher than the effective tax rate for the same period in 2023 due primarily to changes in the levels of excess tax benefits on share-based compensation and non-deductible expenses.

No valuation allowance was recorded for deferred tax assets in the period ended March 31, 2024 and 2023.

NOTE 9. Debt

The following table presents the components of long-term debt in the unaudited Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023.


	March 31,			December 31,			Interest Rate		Effective Interest Rate
(in thousands)	2024			2023			2024	2023	2024	2023
Term Loans
Due July 2026	$	630,680		$	630,680		7.68%	7.77%	8.08%	8.17%
Due December 2028		371,028			371,028		7.68%	7.77%	8.00%	8.10%
Term loan principal outstanding		1,001,708			1,001,708
Unamortized debt issuance costs		(8,118	)		(8,753	)
Unamortized debt discount		(3,384	)		(3,686	)
Long-term debt, net	$	990,206		$	989,269

The Company elects to use three-month Term SOFR plus a ten-point credit spread adjustment plus the margin on SOFR required by the 2019 Credit Agreement to pay interest on its debt.

The 2019 Credit Agreement contains customary affirmative and negative covenants, including covenants that affect, among other things, the ability of the first lien leverage ratio, measured as of the last day of each fiscal quarter on which outstanding borrowings under the revolving credit facility exceed 35.0% of the commitments thereunder (excluding certain letters of credit), of no greater than 3.80 to 1.00. As of March 31, 2024, there were no outstanding borrowings under the revolving credit facility and the Company was in compliance with its financial performance covenant.

There were no repayments of outstanding term loans under the 2019 Credit Agreement during the three months ended March 31, 2024 and 2023. Refer to Note 15, Subsequent Events, for information related to term loan activity subsequent to March 31, 2024.

The following table presents the components of interest expense and other financing costs on the unaudited Condensed Consolidated Statements of Operations for the periods ended March 31, 2024 and 2023.


	For the Three Months Ended March 31,
(in thousands)	2024			2023
Interest expense	$	19,463		$	17,277
Amortization of debt issuance costs		755			748
Amortization of debt discount		302			298
Interest rate swap (income) expense		—			(4,206	)
Amortization of deferred gain on terminated interest rate swap		(4,154	)		—
Other		120			122
Total	$	16,486		$	14,239

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NOTE 10. Equity

Shares Rollforward

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


	Shares of Common Stock Issued		Shares of Treasury Stock
Balance, December 31, 2023		82,404		(18,150	)
Issuance of shares		2		—
Repurchase of shares		—		—
Vesting of restricted share grants		382		—
Exercise of options		378		—
Shares withheld related to net settlement of equity awards		—		(345	)
Balance, March 31, 2024		83,166		(18,495	)


	Shares of Common Stock Issued		Shares of Treasury Stock
Balance, December 31, 2022		80,528		(13,203	)
Issuance of shares		3		—
Repurchase of shares		—		(1,032	)
Vesting of restricted share grants		680		—
Exercise of options		295		—
Shares withheld related to net settlement of equity awards		—		(390	)
Balance, March 31, 2023		81,506		(14,625	)

Share Repurchased and Withheld

Share Repurchase Programs

In December 2023, the Company’s Board of Directors approved a new share repurchase program (the “2024 Share Repurchase Program”) authorizing the repurchase of up to $100.0 million of the Company’s Common Stock through December 31, 2025. Under the 2024 Share Repurchase Program, which took effect in December 2023, the Company may purchase its shares from time to time in privately negotiated transactions, through block trades, pursuant to open market purchases, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the SEC. The amount and timing of purchases under the 2024 Share Repurchase Program will depend on a number of factors including the price and availability of the Company’s shares, trading volume, capital availability, Company performance and general economic and market conditions. The 2024 Share Repurchase Program can be suspended or discontinued at any time.

No shares were repurchased by the Company during the three months ended March 31, 2024. For the same period in 2023, the Company repurchased 1.0 million shares of Common Stock at a total cost of $32.9 million, which included $0.2 million of excise taxes payable on shares repurchased, for an average price of $31.88 per share.

As of March 31, 2024, $95.2 million was available for future repurchases under the 2024 Share Repurchase Program, and a cumulative total of 11.3 million shares of Common Stock had been repurchased under programs authorized by the Company’s Board of Directors at a total cost of $295.8 million for an average price of $26.26 per share.

Shares Withheld for Net Settlement of Employee Equity Awards

During the three months ended March 31, 2024, the Company net settled 0.3 million shares of Common Stock for $13.3 million to satisfy $10.3 million in employee tax obligations and $3.0 million in employee stock option exercise prices. During the same period in 2023, 0.4 million shares of Common Stock were net settled for $11.7 million to satisfy $10.0 million in employee tax obligations and $1.7 million in employee stock option exercise prices.

Dividend Payments

Dividends paid or payable for the three months ended March 31, 2024 totaled $22.4 million and included quarterly dividends of $21.6 million and $0.8 million in cash bonuses and distributions related to dividends previously declared upon vesting of restricted stock. For the three months ended March 31, 2023, dividends paid or payable totaled $22.5 million and included

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quarterly dividends of $21.4 million and $1.1 million in cash bonuses and distributions related to dividends previously declared upon vesting of restricted stock.

As of March 31, 2024 and December 31, 2023, the amount of cash bonuses and distributions related to dividends previously declared on unvested and outstanding restricted share awards and stock options totaled $0.7 million and $1.2 million, respectively, which was not recorded as a liability as of the balance sheet date. A liability will be recorded for these cash bonuses and dividends when the restricted shares and options vest.

NOTE 11. Share‑Based Compensation

Current Period Activity

During the three months ended March 31, 2024, the Company issued restricted stock awards for 465,972 shares of Common Stock, of which awards for 8,349 shares were fully vested on the grant date, awards for 72,400 shares vest over two years, awards for 92,875 shares vest over three years, awards for 291,334 shares vest over four years and awards for 1,014 shares cliff vest after 2 years.

Stock option award and restricted stock award activity during the three months ended March 31, 2024 and 2023 was as follows:


	Shares Subject to Stock Option Awards
	Three Months Ended March 31,
	2024							2023
	Avg wtd		Avg wtd					Avg wtd		Avg wtd
	grant-date		exercise					grant-date		exercise
	fair value		price		Units			fair value		price		Units
Outstanding at beginning of period	$	4.68	$	8.76		1,801,853		$	4.31	$	7.57		2,884,180
Forfeited		—		—		—			—		—		—
Exercised		4.41		8.45		(378,149	)		3.63		5.80		(294,892	)
Outstanding at end of period	$	4.76	$	8.84		1,423,704		$	4.39	$	7.77		2,589,288
Vested	$	4.74	$	8.79		1,247,506		$	4.35	$	7.67		2,413,090
Unvested		4.85		9.23		176,198			4.85		9.23		176,198


	Restricted Stock Awards
	Three Months Ended March 31,
	2024					2023
	Avg wtd grant-					Avg wtd grant-
	date fair value		Units			date fair value		Units
Unvested at beginning of period	$	30.39		853,748		$	25.38		1,153,515
Granted		40.03		465,972			29.72		436,754
Vested		30.66		(382,099	)		22.45		(680,423	)
Forfeited		30.49		(3,419	)		27.27		(2,413	)
Unvested at end of period	$	35.09		934,202		$	29.66		907,433

Share-Based Compensation Expense

The Company recorded $4.0 million and $4.3 million of share-based compensation expense during the three months ended March 31, 2024 and 2023, respectively, in personnel compensation and benefits in the unaudited Condensed Consolidated Statements of Operations.

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NOTE 12. Earnings Per Share

The following table sets forth the reconciliation of basic earnings per share and diluted earnings per share from net income for the three months ended March 31, 2024 and 2023:


	Three Months Ended March 31,
(in thousands except per share amounts)	2024		2023
Net income	$	55,691	$	49,273
Shares:
Basic: Weighted average number of shares outstanding		64,389		67,288
Plus: Incremental shares from assumed conversion of dilutive instruments		1,583		2,439
Diluted: Weighted average number of shares outstanding		65,972		69,727
Earnings per share
Basic:	$	0.86	$	0.73
Diluted:	$	0.84	$	0.71

For the three months ended March 31, 2024, 0.5 million of unvested share-based compensation awards were excluded from the computation of weighted average shares for diluted earnings per share because the effect would be anti-dilutive (2023: 0). Holders of unvested share-based compensation awards do not have rights to receive nonforfeitable dividends on the shares covered by the awards.

NOTE 13. Accumulated Other Comprehensive Income (Loss)

The following table presents changes in accumulated other comprehensive income (loss) by component for the three months ended March 31, 2024 and 2023.


				Cumulative
	Cash Flow			Translation
(in thousands)	Hedges (1)(2)			Adjustment			Total
Balance, December 31, 2023	$	31,460		$	(132	)	$	31,328
Other comprehensive income before reclassification and tax		—			(33	)		(33	)
Tax impact		—			8			8
Reclassification adjustments, before tax		(4,154	)		—			(4,154	)
Tax impact		1,015			—			1,015
Net current period other comprehensive income (loss)		(3,139	)		(25	)		(3,164	)
Balance, March 31, 2024	$	28,321		$	(157	)	$	28,164
Balance, December 31, 2022	$	35,614		$	(172	)	$	35,442
Other comprehensive income (loss) before reclassification and tax		(2,502	)		27			(2,475	)
Tax impact		604			(7	)		597
Reclassification adjustments, before tax		(4,206	)		—			(4,206	)
Tax impact		1,016			—			1,016
Net current period other comprehensive income (loss)		(5,088	)		20			(5,068	)
Balance, March 31, 2023	$	30,526		$	(152	)	$	30,374

(1)

Reclassifications out of accumulated other comprehensive income (loss) related to cash flow hedges are recorded in interest expense and other financing costs.

(2)

On October 30, 2023, the Company terminated the Swap. The termination resulted in a $44.4 million deferred gain recorded in AOCI, before tax, which is being amortized on a straight-line basis over the remaining term of the hedged debt (through July 1, 2026). Please refer to Note 14, Derivatives, for further information on the monetization of the gain on the Swap.

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NOTE 14. DERIVATIVES

Interest Rate Swaps

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

The deferred gain on the termination of the Swap is being amortized on a straight-line basis through July 1, 2026 and is included in interest expense and other financing costs on the unaudited Condensed Consolidated Statements of Operations. As of March 31, 2024 and December 31, 2023, the unamortized deferred gain on Swap monetization was $37.5 million and $41.6 million, respectively, before tax.

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

The following tables summarize the classification of the Swap in our consolidated financial statements (in thousands):


		Three Months Ended
		March 31,
Statement of Operations	Description	2024		2023
Interest income (expense) and other financing costs	Reclassification from AOCI – Swap income/expense	$	—	$	4,206
Interest income (expense) and other financing costs	Reclassification from AOCI – Amortization of Swap deferred gain		4,154		—
Total		$	4,154	$	4,206


		Three Months Ended
		March 31,
Statements of Comprehensive Income	Description	2024			2023
Other comprehensive income (loss)	Income (loss) recognized in AOCI(L), net of tax	$	—		$	(5,088	)
Other comprehensive income (loss)	Amortization of deferred gain on terminated Swap, net of tax		(3,139	)		—
Total		$	(3,139	)	$	(5,088	)

NOTE 15. SUBSEQUENT EVENTS

Subsequent to March 31, 2024, the Company reduced outstanding debt by $9.5 million.

On April 16, 2024, the Company announced that it had entered into a non-binding Memorandum of Understanding (MOU) with Amundi to combine Amundi US into the Company, for Amundi to become a strategic shareholder of the Company, and to establish long-term global distribution agreements.

On May 9, 2024, the Company’s Board of Directors approved a regular quarterly cash dividend of $0.37 per share. The dividend is payable on June 25, 2024, to shareholders of record on June 10, 2024.

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

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

Objective

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

Overview

Our Business – Victory is a diversified global asset management firm with total client assets of $175.5 billion, assets under management of $170.3 billion and other assets of $5.1 billion as of March 31, 2024. The Company operates a next-generation business model combining boutique investment qualities with the benefits of an integrated, centralized operating and distribution platform.

The Company provides specialized investment strategies to institutions, intermediaries, retirement platforms and individual investors with 11 autonomous Investment Franchises and a Solutions Platform. Victory Capital offers a wide array of investment products, including actively and passively managed mutual funds, rules-based and active exchange traded funds (“ETFs”), institutional separate accounts, variable insurance products (“VIPs”), alternative investments, private closed end funds, and a 529 Education Savings Plan. Victory Capital’s strategies are also offered through third-party investment products, including mutual funds, third-party ETF model strategies, retail separately managed accounts (“SMAs”) and unified managed accounts (“UMAs”) through wrap account programs, Collective Investment Trusts (“CITs”), and undertakings for the collective investment in transferable securities (“UCITs”). As of March 31, 2024, our Franchises and our Solutions Platform collectively managed a diversified set of 121 investment strategies for a wide range of institutional and retail clients and direct investors.

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

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

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

We have grown our total client assets from $17.9 billion following the management-led buyout with Crestview GP in August 2013 to $175.5 billion at March 31, 2024. We attribute this growth to our success in sourcing acquisitions and evolving them into organic growers, generating strong investment returns, and developing institutional, retail, and direct investor channels with deep penetration.

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

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

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

Business Highlights

Assets under management:

•

AUM at March 31, 2024 increased by $9.0 billion, or 5.6%, to $170.3 billion from $161.3 billion at December 31, 2023, driven by market appreciation of $10.2 billion partially offset by net outflows of $1.1 billion. Total gross flows for the first quarter were $7.2 billion, including long-term gross flows of $7.0 billion.

•

AUM at March 31, 2024 and 2023 was $170.3 billion and $153.4 billion, respectively. We experienced $10.2 billion in market appreciation for the three months ended March 31, 2024 compared to $6.7 billion in market action for the same period in 2023. We generated $7.2 billion in gross sales, including $7.0 billion in long-term gross sales, and $1.1 billion in total net outflows for the three months ended March 31, 2024 compared to $6.1 billion in gross flows inclusive of $5.8 billion in long-term gross sales and $1.1 billion in total net outflows for the same period in 2023.

Investment performance:

•

45 of our Victory Capital mutual funds and ETFs had overall Morningstar ratings of four or five stars and 69% of our fund and ETF AUM were rated four or five stars overall by Morningstar. 54% of our strategies by AUM had investment returns in excess of their respective benchmarks over a one-year period, 61% over a three-year period, 85% over a five-year period and 80% over a ten-year period. On an equal-weighted basis, 63% of our strategies have outperformed their benchmarks over a one-year period, 63% over a three-year period, 64% over a five-year period and 65% over a ten-year period.

Financial highlights:

•

Total revenue for the three months ended March 31, 2024 was $215.9 million compared to $201.3 million for the same period in 2023.

•

Net income was $55.7 million for the three months ended March 31, 2024 compared to $49.3 million for the same period in 2023.

•

Adjusted EBITDA was $112.4 million for the three months ended March 31, 2024, or 52.1% of revenue, compared to $99.2 million, or 49.3% of revenue, for the same period in 2023. Refer to “Supplemental Non-GAAP Financial Information” for further information about the Adjusted EBITDA calculation and reconciliation of generally accepted accounting principles (“GAAP”) net income to Adjusted EBITDA.

•

Adjusted Net Income with tax benefit was $82.3 million for the three months ended March 31, 2024 compared to $75.2 million for the three months ended March 31, 2023. Refer to “Supplemental Non-GAAP Financial Information” for further information about the Adjusted Net Income calculation and reconciliation of GAAP net income to Adjusted Net Income.

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Key Performance Indicators

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


	Three Months Ended March 31,
($ in millions, except for basis points and percentages)	2024			2023
AUM at period end	$	170,342		$	153,356
Average AUM		163,533			152,533
Gross flows		7,187			6,089
AUM net short term flows		(99	)		(9	)
AUM net long term flows		(1,028	)		(1,140	)
AUM net flows		(1,127	)		(1,149	)
Total revenue		215.9			201.3
Revenue on average AUM	53.0 bps			53.4 bps
Net income		55.7			49.3
Adjusted EBITDA(1)		112.4			99.2
Adjusted EBITDA Margin(2)		52.1	%		49.3	%
Adjusted Net Income(1)		72.6			65.6
Tax benefit of goodwill and acquired intangibles(3)		9.7			9.5

(1)

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

(2)

Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total revenue.

(3)

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

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


	Three Months Ended March 31,
(in millions)	2024			2023
Beginning AUM	$	161,322		$	147,762
Beginning other assets		5,289			5,190
Beginning total client assets		166,611			152,952

AUM net cash flows		(1,127	)		(1,149	)
Other assets net cash flows		(524	)		(95	)
Total client assets net cash flows		(1,651	)		(1,244	)

AUM market appreciation (depreciation)		10,178			6,744
Other assets market appreciation (depreciation)		352			170
Total client assets market appreciation (depreciation)		10,529			6,914

AUM realizations and distributions		—			—
Acquired & divested assets / Net transfers		(31	)		—

Ending AUM		170,342			153,356
Ending other assets		5,117			5,265
Ending total client assets		175,459			158,621
Average total client assets		168,865			157,817

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(1)

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

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


	Three Months Ended March 31,
(in millions)	2024			2023
Beginning AUM	$	161,322		$	147,762
Gross client cash inflows		7,187			6,089
Gross client cash outflows		(8,314	)		(7,238	)
Net client cash flows		(1,127	)		(1,149	)
Market appreciation (depreciation)		10,178			6,744
Realizations and distributions		—			—
Acquired & divested assets / Net transfers		(31	)		—
Ending AUM		170,342			153,356
Average AUM		163,533			152,533

(1)

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

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


	Three Months Ended March 31,
(in millions)	2024			2023
Beginning other assets (institutional)	$	5,289		$	5,190
Gross client cash inflows		—			—
Gross client cash outflows		(524	)		(95	)
Net client cash flows		(524	)		(95	)
Market appreciation (depreciation)		352			170
Realizations and distributions		—			—
Acquired & divested assets / Net transfers		—			—
Ending other assets (institutional)		5,117			5,265
Average other assets (institutional)		5,332			5,284

(1)

Assets Under Management

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

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


	As of
	March 31,
(in millions)	2024		2023
Solutions	$	57,833	$	49,151
Fixed Income		24,481		26,535
U.S. Mid Cap Equity		32,918		29,035
U.S. Small Cap Equity		16,297		15,648
Global / Non-U.S. Equity		18,200		14,868
U.S. Large Cap Equity		13,895		11,425
Alternative Investments		3,465		3,317
Total Long-Term Assets	$	167,089	$	149,979
Money Market & Short-Term Assets		3,253		3,377
Total AUM(1)	$	170,342	$	153,356

(1)

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

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



	U.S. Mid			U.S. Small						U.S. Large			Global /												Money
	Cap			Cap			Fixed			Cap			Non-U.S.						Alternative			Total			Market /
(in millions)	Equity			Equity			Income			Equity			Equity			Solutions			Investments			Long-term			Short-term			Total AUM(1)
For the Three Months Ended March 31, 2024
Beginning AUM	$	30,604		$	15,959		$	24,355		$	12,635		$	16,772		$	54,296		$	3,431		$	158,051		$	3,271		$	161,322
Gross client cash inflows		1,371			507			1,298			68			1,090			2,165			452			6,952			236			7,187
Gross client cash outflows		(1,845	)		(925	)		(1,367	)		(332	)		(751	)		(2,410	)		(349	)		(7,980	)		(335	)		(8,314	)
Net client cash flows		(474	)		(418	)		(69	)		(264	)		339			(245	)		103			(1,028	)		(99	)		(1,127	)
Market appreciation / (depreciation)		2,795			801			176			1,555			1,133			3,749			(75	)		10,135			42			10,178
Realizations and distributions		—			—			—			—			—			—			—			—			—			—
Acquired & divested assets / Net transfers		(7	)		(45	)		18			(31	)		(44	)		33			5			(69	)		38			(31	)
Ending AUM	$	32,918		$	16,297		$	24,481		$	13,895		$	18,200		$	57,833		$	3,465		$	167,089		$	3,253		$	170,342
For the Three Months Ended March 31, 2023
Beginning AUM	$	27,892		$	15,103		$	26,353		$	10,973		$	14,160		$	46,317		$	3,663		$	144,460		$	3,302		$	147,762
Gross client cash inflows		1,600			986			1,187			84			378			1,217			397			5,848			241			6,089
Gross client cash outflows		(1,092	)		(873	)		(1,571	)		(384	)		(544	)		(1,683	)		(840	)		(6,988	)		(250	)		(7,238	)
Net client cash flows		508			113			(385	)		(300	)		(166	)		(466	)		(444	)		(1,140	)		(9	)		(1,149	)
Market appreciation / (depreciation)		637			423			615			822			920			3,196			96			6,709			34			6,744
Realizations and distributions		—			—			—			—			—			—			—			—			—			—
Acquired & divested assets / Net transfers		(1	)		9			(48	)		(69	)		(46	)		104			2			(50	)		50			—
Ending AUM	$	29,035		$	15,648		$	26,535		$	11,425		$	14,868		$	49,151		$	3,317		$	149,979		$	3,377		$	153,356

(1)

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

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


	As of March 31,
	2024					2023
(in millions)	Amount		% of total			Amount		% of total
Retail	$	66,700		39	%	$	58,585		38	%
Direct		59,893		35	%		54,667		36	%
Institutional		43,749		26	%		40,103		26	%
Total AUM(1)(2)	$	170,342		100	%	$	153,356		100	%

(1)

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

(2)

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

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


							Separate
							Accounts and
							Other Pooled
(in millions)	Mutual Funds(1)			ETFs(2)			Vehicles(3)			Total AUM(4)
Three Months Ended March 31, 2024
Beginning AUM	$	108,802		$	4,970		$	47,551		$	161,322
Gross client cash inflows		4,303			451			2,434			7,187
Gross client cash outflows		(5,956	)		(449	)		(1,909	)		(8,314	)
Net client cash flows		(1,653	)		2			525			(1,127	)
Market appreciation (depreciation)		6,796			215			3,167			10,178
Realizations and distributions		—			—			—			—
Acquired & divested assets / Net transfers		(48	)		43			(26	)		(31	)
Ending AUM	$	113,897		$	5,229		$	51,217		$	170,342
Three Months Ended March 31, 2023
Beginning AUM	$	99,447		$	5,627		$	42,688		$	147,762
Gross client cash inflows		4,546			218			1,325			6,089
Gross client cash outflows		(5,406	)		(233	)		(1,599	)		(7,238	)
Net client cash flows		(860	)		(16	)		(274	)		(1,149	)
Market appreciation (depreciation)		4,650			(47	)		2,141			6,744
Realizations and distributions		—			—			—			—
Acquired & divested assets / Net transfers		9			(9	)		—			—
Ending AUM	$	103,246		$	5,555		$	44,554		$	153,356

(1)

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

(2)

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

(3)

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

(4)

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

March 31, 2024 AUM compared to December 31, 2023 AUM. At March 31, 2024, our total AUM was $170.3 billion, an increase of $9.0 billion, or 5.6%, from $161.3 billion at December 31, 2023, primarily due to market appreciation of $10.2 billion partially offset by net outflows of $1.1 billion.

Net outflows were driven by our U.S. mid cap, U.S. small cap, and U.S. large cap equity strategies as well as our Solutions platform of $0.5 billion, $0.4 billion, $0.3 billion, and $0.2 billion, respectively, partially offset by net inflows from our global non-U.S. equity strategies and Alternative investments platform of $0.3 billion and $0.1 billion, respectively.

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GAAP Results of Operations

The following table presents our GAAP results of operations for the three months ended March 31, 2024 and 2023.


	Three Months Ended March 31,
(in thousands, except per share data)	2024			2023
Revenue
Investment management fees	$	169,785		$	156,836
Fund administration and distribution fees		46,072			44,484
Total revenue		215,857			201,320

Expenses
Personnel compensation and benefits		59,454			57,602
Distribution and other asset-based expenses		36,263			37,654
General and administrative		14,012			12,388
Depreciation and amortization		7,601			11,680
Change in value of consideration payable for acquisition of business		12,200			7,400
Acquisition-related costs		1,026			2
Restructuring and integration costs		492			29
Total operating expenses		131,048			126,755

Income from operations		84,809			74,565

Other income (expense)
Interest income and other income (expense)		3,565			1,544
Interest expense and other financing costs		(16,486	)		(14,239	)
Total other income (expense), net		(12,921	)		(12,695	)

Income before income taxes		71,888			61,870

Income tax expense		(16,197	)		(12,597	)

Net income	$	55,691		$	49,273

Earnings per share of common stock
Basic	$	0.86		$	0.73
Diluted	$	0.84		$	0.71

Weighted average number of shares outstanding
Basic		64,389			67,288
Diluted		65,972			69,727

Dividends declared per share of common stock	$	0.335		$	0.32

Investment Management Fees

Three months ended March 31, 2024 compared to March 31, 2023. Investment management fees increased by $12.9 million, or 8.3%, to $169.8 million for the three months ended March 31, 2024 from $156.8 million for the same period in 2023 due to an increase in average AUM year over year. Average AUM was $163.5 billion for the three months ended March 31, 2024 compared to $152.5 billion for the same period in 2023.

Fund Administration and Distribution Fees

Three months ended March 31, 2024 compared to March 31, 2023. Fund administration and distribution fees increased by $1.6 million, or 3.6%, to $46.1 million for the three months ended March 31, 2024 from $44.5 million for the same period in 2023 mostly due to an increase in fund administration fees partially offset by a decrease in transfer agent fees.

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Personnel Compensation and Benefits

The following table presents the components of GAAP personnel compensation and benefits expense for the three months ended March 31, 2024 and 2023:


	Three Months Ended March 31,
(in thousands)	2024		2023
Salaries, payroll related taxes and employee benefits	$	24,476	$	24,457
Incentive compensation		23,943		21,919
Sales-based compensation(1)		6,079		5,420
Equity awards granted to employees and directors(2)		3,969		4,253
Acquisition and transaction-related compensation		987		1,553
Total personnel compensation and benefits expense	$	59,454	$	57,602

(1)

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

(2)

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

Three months ended March 31, 2024 compared to March 31, 2023. Personnel compensation and benefits were $59.5 million for the first quarter of 2024, an increase of $1.9 million, or 3.2%, from $57.6 million for the same period in 2023 attributable to an increase in variable costs such as sales commissions and the incentive compensation pool for employees.

Distribution and Other Asset‑Based Expenses

The following table presents the components of distribution and other asset-based expenses for the three months ended March 31, 2024 and 2023:


	Three Months Ended March 31,
(in thousands)	2024		2023
Broker-dealer distribution fees	$	5,042	$	5,249
Platform distribution fees		22,128		23,123
Sub-administration		4,101		3,921
Sub-advisory		2,336		2,735
Middle-office		2,656		2,626
Total distribution and other asset-based expenses	$	36,263	$	37,654

Three months ended March 31, 2024 compared to March 31, 2023. Distribution and other asset-based expenses were $36.3 million for the three months ended March 31, 2024, compared to $37.7 million for the same period in 2023. The decrease of $1.4 million, or 3.7% was primarily due to lower platform distribution fees over the comparable period.

General and Administrative

Three months ended March 31, 2024 compared to March 31, 2023. General and administrative expenses were $14.0 million for the three months ended March 31, 2024 compared to $12.4 million for the same period in 2023. The increase of $1.6 million, or 13.1%, was primarily due to increases in technology and marketing related expenses.

Depreciation and Amortization

Three months ended March 31, 2024 compared to March 31, 2023. Depreciation and amortization decreased $4.1 million, or 34.9%, to $7.6 million for the three months ended March 31, 2024 from $11.7 million for the same period in 2023, primarily due to a decrease in amortization expense related to definite-lived intangible assets in connection with the USAA and NEC acquisitions.

Change in Value of Consideration Payable for Acquisition of Business

Three months ended March 31, 2024 compared to March 31, 2023. The change in value of consideration payable for acquisition of business increased $4.8 million as a result of an increase of $12.2 million in the fair value of contingent consideration associated with the WestEnd Acquisition for the three months ended March 31, 2024 compared to increases of $4.3 million and $3.1 million in the fair value of the contingent consideration associated with the USAA AMCO and

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WestEnd Acquisitions, respectively, for the three months ended March 31, 2023. Refer to Note 4, Acquisitions, for further details on the fair value of contingent consideration payable.

Acquisition‑Related Costs

Three months ended March 31, 2024 compared to March 31, 2023. Acquisition-related costs were $1.0 million and $2 thousand for the three months ended March 31, 2024 and 2023, respectively. Acquisition-related costs for the three months ended March 31, 2024 were primarily due to legal and professional fees.

Restructuring and Integration Costs

Three months ended March 31, 2024 compared to March 31, 2023. Restructuring and integration costs for the three months ended March 31, 2024 and 2023 were $0.5 million and $29 thousand, respectively. Restructuring and integration costs for the three months ended March 31, 2024 were primarily due to personnel restructuring.

Interest Income and Other Income (Expense)

Three months ended March 31, 2024 compared to March 31, 2023. Interest income and other income/(expense) was income of $3.6 million and $1.5 million for the three months ended March 31, 2024 and 2023, respectively. The increase is primarily due to an increase in dividend income and an increase in the net unrealized fair value of deferred compensation plan investments over the comparable period.

Interest Expense and Other Financing Costs

Three months ended March 31, 2024 compared to March 31, 2023. Interest expense and other financing costs increased $2.2 million to $16.5 million for the three months ended March 31, 2024, compared to $14.2 million for the same period in 2023 due to a higher average interest rate over the comparable period.

Income Tax Expense

Three months ended March 31, 2024 compared to March 31, 2023. The effective tax rate for the three months ended March 31, 2024 and 2023 was 22.5% and 20.4%, respectively. The increase was primarily due to changes in the levels of excess tax benefits on share-based compensation and non-deductible expenses over the comparable period.

Supplemental Non‑GAAP Financial Information

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

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


	Three Months Ended March 31,
(in thousands)	2024			2023
Reconciliation of non-GAAP financial measures:
Net income (GAAP)	$	55,691		$	49,273
Income tax expense		(16,197	)		(12,597	)
Income before income taxes	$	71,888		$	61,870
Interest expense(1)		15,711			13,482
Depreciation(2)		2,269			1,971
Other business taxes(3)		369			384
Amortization of acquisition-related intangible assets(4)		5,332			9,709
Stock-based compensation(5)		1,327			2,004
Acquisition, restructuring and exit costs(6)		14,705			8,984
Debt issuance costs(7)		755			748
Adjusted EBITDA	$	112,356		$	99,152

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	Three Months Ended March 31,
(in thousands)	2024			2023
Reconciliation of non-GAAP financial measures:
Net income (GAAP)	$	55,691		$	49,273
Adjustments to reflect the operating performance of the Company:
i. Other business taxes(3)		369			384
ii. Amortization of acquisition-related intangible assets(4)		5,332			9,709
iii. Stock-based compensation(5)		1,327			2,004
iv. Acquisition, restructuring and exit costs(6)		14,705			8,984
v. Debt issuance costs(7)		755			748
Tax effect of above adjustments(8)		(5,621	)		(5,457	)
Adjusted Net Income	$	72,558		$	65,645
Tax benefit of goodwill and acquired intangibles(9)	$	9,748		$	9,524

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

(1)

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

(2)

Adding back depreciation on property and equipment.

(3)

Adding back other business taxes.

(4)

Adding back amortization expense on acquisition‑related intangible assets.

(5)

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

(6)

Adding back direct incremental costs of acquisitions, including restructuring costs.


	Three Months Ended March 31,
(in thousands)	2024		2023
Acquisition-related costs	$	1,026	$	2
Restructuring and integration costs		492		29
Change in value of consideration payable for acquisition of business		12,200		7,400
Personnel compensation and benefits		987		1,553
Total acquisition, restructuring and exit costs	$	14,705	$	8,984

(7)

Adding back debt issuance costs.

(8)

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

(9)

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

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

Liquidity and Capital Resources

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

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


	March 31,			December 31,
(in thousands)	2024			2023
Cash and cash equivalents	$	79,937		$	123,547
Accounts and other receivables		97,211			87,570
Undrawn commitment on credit facility(1)		100,000			100,000
Accounts and other payables		(110,543	)		(111,933	)

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(1)

The balance at March 31, 2024 represents the Company’s $99.9 million revolving credit facility and a $0.1 million standby letter of credit used as collateral for THB’s real estate location.

We manage our cash balances in order to fund our day-to-day operations. Our accounts receivable consists primarily of investment management fees that have been earned but not yet received from clients, income and other taxes receivable, and amounts receivable from the funds. We perform a review of our receivables on a monthly basis to assess collectability. We maintained a $100.0 million revolving credit facility at March 31, 2024 and December 31, 2023 (under the 2019 Credit Agreement) which had approximately $100.0 million undrawn as of March 31, 2024 and December 31, 2023.

2021 Debt Repricing

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

2021 Incremental Term Loans

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

2022 LIBOR to Term SOFR Rate Transition

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

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

2020 Swap Transaction

For the three months ended March 31, 2023, the Company reclassified income of $4.2 million, respectively, from accumulated other comprehensive income (loss) to interest expense and other financing costs on the unaudited Condensed Consolidated Statements of Operations as a result of changes in the fair value of the Swap.

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

Contingent Consideration

At March 31, 2024, the Company had $149.4 million in contingent consideration that is estimated to be payable over the next year and three years resulting from the WestEnd Acquisition. For the three months ended March 31, 2024, the Company recorded an increase of $12.2 million in the contingent payment liability associated with the WestEnd Acquisition, which is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets. In March 2024, the Company paid $80.0 million in cash to sellers for the first WestEnd earn out period payment. At March 31, 2024, the estimated fair value of the WestEnd Acquisition contingent payments was $149.4 million, and a maximum of $240.0 million in contingent consideration ($80.0 million per year) is potentially payable to sellers.

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

Capital Requirements

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

Cash Flows

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


	Three Months Ended March 31,
(in thousands)	2024			2023
Net cash provided by operating activities	$	68,684		$	64,156
Net cash used in investing activities		(910	)		(1,546	)
Net cash used in financing activities		(111,342	)		(62,469	)

Operating Activities – Cash provided by operating activities during the three months ended March 31, 2024 was $68.7 million, compared to $64.2 million of cash provided by operating activities for the same period in 2023. The $4.5 million increase in cash provided by operating activities was primarily due to increases of $6.4 million and $1.4 million in net income and working capital items, respectively, partially offset by a decrease of $3.3 million in non-cash items.

Cash provided by operating activities during the three months ended March 31, 2023 was $64.2 million and consisted of $49.3 million of net income and $30.1 million of non-cash items, partially offset by $15.2 million in working capital items.

Investing Activities – Cash used in investing activities during the three months ended March 31, 2024 was $0.9 million and consisted of net trading activity of $0.4 million and $0.5 million of property and equipment purchases. The nature of our trading activities is further described in Note 2, Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Cash used in investing activities during the three months ended March 31, 2023 was $1.5 million and consisted of net trading activity of $1.0 million and $0.6 million of property and equipment purchases.

Financing Activities – Cash used in financing activities during the three months ended March 31, 2024 was $111.3 million and was mostly attributable to payment of consideration for acquisition, payment of dividends, payment of taxes related to net share settlements, and repurchases of common stock of $80.0 million, $22.4 million, $6.0 million, and $2.9 million, respectively.

Cash used in financing activities during the three months ended March 31, 2023 was $62.5 million and was mostly attributable to repurchases of common stock, payment of dividends, and payment of taxes related to net share settlements of $34.4 million, $22.1 million, and $7.7 million, respectively.

Critical Accounting Policies and Estimates

Our consolidated financial statements and the notes are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates. Actual results will vary from these estimates. A discussion of our critical accounting policies and estimates is included in Management’s Discussion and Analysis of

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Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K. A complete description of our significant accounting policies is included in our Annual Report on Form 10-K.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk

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

The value of our AUM was approximately $170 billion at March 31 2024. A 10% increase or decrease in the value of our AUM, if proportionately distributed over all of our strategies, products and client relationships, would cause an annualized increase or decrease in our revenues of approximately $90.1 million at our weighted-average fee rate of 53 basis points for the quarter ended March 31, 2024. Because of declining fee rates from larger relationships and differences in our fee rates across investment strategies, a change in the composition of our AUM, in particular, an increase in the proportion of our total AUM attributable to strategies, clients or relationships with lower effective fee rates, could have a material negative impact on our overall weighted-average fee rate. The same 10% increase or decrease in the value of our total AUM, if attributed entirely to a proportionate increase or decrease in the AUM of the Victory Funds, to which we provide a range of services in addition to those provided to institutional separate accounts, would cause an annualized increase or decrease in our revenues of approximately $102.0 million at the Victory Funds’ aggregate weighted-average fee rate of 60 basis points for the quarter ended March 31, 2024. If the same 10% increase or decrease in the value of our total AUM was attributable entirely to a proportionate increase or decrease in the assets of our institutional separate accounts, it would cause an annualized increase or decrease in our revenues of approximately $69.7 million at the weighted-average fee rate across all of our institutional separate accounts of 41 basis points for the quarter ended March 31, 2024.

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

Exchange Rate Risk

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

We have not adopted a corporate-level risk management policy to manage this exchange rate risk. Assuming 11% of our AUM are invested in securities denominated in currencies other than the U.S. dollar and excluding the impact of any hedging arrangement, a 10% increase or decrease in the value of the U.S. dollar would decrease or increase the fair value of our AUM by approximately $1.9 billion, which would cause an annualized increase or decrease in revenues of approximately $9.9 million at our weighted-average fee rate for the business of 53 basis points for the quarter ended March 31, 2024.

Interest Rate Risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. On March 27, 2020, the Company executed the Swap, a floating-to-fixed interest rate swap transaction, to effectively fix the interest rate at 3.465% on $450 million of its outstanding Term Loan through the Term Loan maturity date of July 2026. On February 18, 2021, pursuant to the Second Amendment, the Company lowered the spread on the Term Loan by 0.25% resulting in a new fixed rate of 3.215% on the $450 million of Term Loan subject to the Swap. On September 26, 2022, the Company and the Swap counterparty executed an amendment to the Swap to update LIBOR conventions to SOFR conventions and to modify the fixed rate for the change from three-month LIBOR to three-month Term SOFR effective on October 6, 2022. On October 30, 2023, the Company monetized the gain on the Swap and entered into

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an agreement to terminate the Swap, which was effective on October 30, 2023. Refer to Note 14, Derivatives, for further information on the Swap. At March 31, 2024, we were exposed to interest rate risk as a result of the amounts outstanding under the 2019 Credit Agreement, as amended. Refer to Note 9, Debt, for a description of the amounts outstanding as of such date and the applicable interest rate.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) at March 31, 2024. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

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

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. The Company is not currently a party to any material legal proceedings.

Item 1A. Risk Factors

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

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

The following table sets out information regarding purchases of equity securities by the Company for the three months ended March 31, 2024.


							Approximate Dollar Value
	Total Number of				Total Number of Shares of		That May Yet Be Purchased
	Shares of		Average Price		Stock Purchased as Part of		Under Outstanding
	Common Stock		Paid Per Share		Publicly Announced		Plans or Programs
Period	Purchased		of Common Stock		Plans or Programs		(in millions)
Jan 1-31, 2024		—	$	—		—	$	95.2
Feb 1-29, 2024		—		—		—		95.2
March 1-31, 2024		—		—		—		95.2
Total		—	$	—		—

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

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Item 5. Other Information

None of the Company’s directors or officers adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended March 31, 2024, as such terms are defined under Item 408(a) of Regulation S-K.

Item 6. Exhibits

EXHIBIT INDEX



Exhibit No.		Description
31.1		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
31.2		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002
32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002
101		The following information formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023, (ii) Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023, (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023, (v) Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2024 and 2023; (vi) Notes to Unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2024 and 2023.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 10th day of May, 2024.


VICTORY CAPITAL HOLDINGS, INC.


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