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Dynamic quotes 
OFFON

VICTORY CAPITAL HOLDINGS, INC.

(VCTR)
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VICTORY CAPITAL : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K)

03/15/2021 | 07:35am EDT
This Management's Discussion and Analysis of Financial Condition and Results of
Operations relates to, and should be read in conjunction with the "Selected
Financial Data" and our consolidated financial statements and related notes
thereto included elsewhere in this report. In addition to historical
information, this discussion and analysis contains forward­looking statements
that involve risks, uncertainties and assumptions, which could cause actual
results to differ materially from management's expectations. Please refer to the
sections of this report entitled "Forward­Looking Statements" and "Risk
Factors."

Overview


Our Business - We are a diversified global asset management firm with $147.2
billion in assets under management as of December 31, 2020. The Company operates
a next-generation business model combining boutique investment qualities with
the benefits of a fully integrated, centralized operating and distribution
platform.

We provide specialized investment strategies to institutions, intermediaries,
retirement platforms and individual investors. With nine autonomous Investment
Franchises and a Solutions Platform, Victory Capital offers a wide array of
investment styles and investment vehicles including, actively managed mutual
funds, separately managed accounts, rules-based, thematic and active ETFs,
multi-asset class strategies, custom-designed solutions and a 529 College
Savings Plan. Our earnings are primarily driven by asset-based fees charged for
services related to the investment strategies we deliver and consist of
investment management, fund administration and distribution fees.

Franchises - Our Franchises are operationally integrated, but are separately
branded and make investment decisions independently from one another within
guidelines established by their respective investment mandates. Our integrated
model creates a supportive environment in which our investment professionals,
largely unencumbered by administrative and operational responsibilities, can
focus on their pursuit of investment excellence. 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-Franchise and customized
solutions strategies that are primarily rules-based. We offer our Solutions
Platform through a variety of vehicles, including separate accounts, mutual
funds and VictoryShares which is our ETF brand. Like our Franchises, our
Solutions Platform is operationally integrated and supported by our centralized
distribution, marketing and operational support functions. Our approach to
rules­based investing includes single and multi­factor strategies designed to
provide a variety of outcomes, including maximum diversification, dividend
income, downside mitigation, minimum volatility, thematic and targeted factor
exposure.

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

We have grown our AUM from $17.9 billion following the management-led buyout
with Crestview GP in August 2013 to $147.2 billion at December 31, 2020. We
attribute this growth to our success in sourcing acquisitions and evolving them
into organic growers, generating strong investment returns, and developing
institutional, retail, and direct investor channels with deep penetration.



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

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loan in an aggregate principal amount of $1.1 billion. All indebtedness outstanding under the previous credit agreement was repaid and terminated as of July 1, 2019.


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

Total consideration for the USAA AMCO Acquisition was $949.4 million, comprising
of $851.3 million of cash paid at closing plus $98.8 million as the estimated
fair value of contingent consideration as of the acquisition date less $0.7
million in net working capital adjustments settled in the first quarter of 2020.
A maximum of $150.0 million ($37.5 million per year) in contingent payments is
payable to sellers based on the annual revenue of USAA Adviser attributable to
all "non-managed money"-related AUM in each of the first four years following
the closing date. In 2020, we paid $37.5 million in cash to sellers for the
first annual contingent payment.

The estimated fair value of contingent consideration arrangements as of December
31, 2020 was $92.5 million and consists of the USAA AMCO earn-out payment
liability, which is included in consideration payable for acquisition of
business in the Consolidated Balance Sheets. Refer to Note 4, Acquisitions, for
further details on the USAA AMCO Acquisition.

Business Highlights in 2020

Assets under management:

• AUM at December 31, 2020 declined by $4.6 billion, or approximately 3.0%,

to $147.2 billion from $151.8 billion at December 31, 2019, primarily

driven by net outflows of $19.4 billion (consisting of $10.9 billion in

long-term net outflows and $8.4 billion in short-term net outflows)

partially offset by positive market action of $14.8 billion. We generated

         $35.9 billion in gross flows and $19.4 billion in net outflows for the
         year ended December 31, 2020, compared to $32.1 billion in gross flows

and $1.9 billion in positive net inflows for the same period in 2019. We

         experienced $14.8 billion in market appreciation for the year ended
         December 31, 2020 compared to $16.1 billion in market appreciation for
         the same period in 2019.

Investment performance:


      •  44 of our Total Victory Capital mutual funds and ETFs had overall
         Morningstar ratings of four or five stars and 64% of our fund and ETF AUM
         were rated four or five stars overall by Morningstar. 67% of our

strategies by AUM had investment returns in excess of their respective

benchmarks over a one-year period, 67% over a three-year period, 67% over

a five-year period and 76% over a ten-year period. On an equal-weighted

basis, 47% of our strategies have outperformed their respective

benchmarks over a one-year period, 47% over a three-year period, 52% over

a five-year period and 65% over a ten-year period.

2020 ESG initiatives:

Victory Capital became a signatory to the United Nations-supported

Principles for Responsible Investment, broadening our commitment to

responsible investing and formalizing what our autonomous Investment

         Franchises and Solutions Platform have been doing for many years. Each of
         our Investment Franchises follows an approach to incorporating
         environmental, social and governance ("ESG") considerations that best
         suits its own investment process or the objectives of its clients.

• The Company launched a committee for diversity, inclusion, community and

         equity ("DICE") to promote training and events to bring awareness to
         diversity and inclusion in the workplace and to engage employees in
         diversity and inclusion conversation and training.


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• Our CEO signed the CEO Action Pledge for diversity and inclusion.

Additionally, the Company joined the SASB Alliance as a User member and

joined Ceres Investor Network on Climate Risk and Sustainability.

Financial highlights:


      •  Total revenue for the year ended December 31, 2020 was $775.4 million
         compared to $612.4 million for the year ended December 31, 2019. Net
         income was $212.5 million and $92.5 million, respectively, for the years
         ended December 31, 2020 and 2019.

• Earnings per diluted share were $2.88 for the year ended December 31,

2020 compared to $1.26 for the same period in 2019. Adjusted net income

with tax benefit per diluted share was $3.87 and $2.63, respectively, for

         the years ended December 31, 2020 and 2019. Refer to "Supplemental
         Non­GAAP Financial Information" for more information about how we
         calculate Adjusted Net Income and a reconciliation of net income to
         Adjusted Net Income.


      •  Adjusted EBITDA was $377.3 million or 48.7% for the year ended

December 31, 2020 compared to $268.8 million or 43.9% for the year ended

December 31, 2019. Refer to "Supplemental Non­GAAP Financial Information"

         for more information about how we calculate Adjusted EBITDA and a
         reconciliation of net income to Adjusted EBITDA.

• Adjusted Net Income was $258.5 million for the year ended December 31,

         2020 compared to $172.8 million for the year ended December 31, 2019.
         Refer to "Supplemental Non­GAAP Financial Information" for more
         information about how we calculate Adjusted Net Income and a
         reconciliation of net income to Adjusted Net Income.

Key Performance Indicators


The following table presents the key performance indicators we focus on when
reviewing our results:



                                                               Year Ended December 31,
($ in millions, except for basis points and
percentages)                                           2020              2019              2018
AUM at period end                                   $   147,241       $   151,832       $   52,763
Average AUM                                             136,422           102,719           61,390
Gross flows                                              35,857            32,112           14,130
Net short term flows                                     (8,441 )              20                -
Net long term flows                                     (10,911 )           1,840           (2,427 )
Net flows                                               (19,352 )           1,860           (2,427 )
Total revenue                                             775.4             612.4            413.4
Revenue on average AUM                                     56.8   bps        59.6   bps       67.3   bps
Net income                                                212.5              92.5             63.7
Adjusted EBITDA(1)                                        377.3             268.8            160.2
Adjusted EBITDA margin(1)(2)                               48.7   %          43.9   %         38.7   %
Adjusted Net Income(1)                                    258.5             172.8            102.3
Tax benefit of goodwill and acquired
intangibles(3)                                             27.0              20.3             13.3



(1) Our management uses Adjusted EBITDA and Adjusted Net Income to measure the

operating profitability of the business. These measures eliminate the

impact of one­time 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 Non­GAAP 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

intangible assets and goodwill generated from prior acquisitions in which

we received a step­up in basis for tax purposes. Acquired intangible assets

and goodwill may be amortized for tax purposes, generally over a 15­year

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 step­up 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.


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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 re­open
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.

Valuation of Assets Under Management


The fair value of assets under management of the Victory Funds, USAA Funds and
VictoryShares is primarily determined using quoted market prices or independent
third party pricing services or broker price quotes. In limited circumstances, a
quotation or price evaluation is not readily available from a pricing service.
In these cases, pricing is determined by management based on a prescribed
valuation process that has been approved by the directors/trustees of the
sponsored products. The same prescribed valuation process is used to price
securities in separate accounts and other vehicles for which a quotation or
price evaluation is not readily available from a pricing service. For the
periods presented, a de minimis amount of the AUM was priced in this manner.



AUM by Asset Class - the following table presents our AUM by asset class as of
the dates indicated:




                                                                        As of December 31,
(in millions)                                   2020           2019(1)          2018           2017         2016(2)
Fixed Income                                 $    36,599     $    37,973     $    6,836     $    7,551     $    7,726
Solutions                                         34,041          31,649          3,767          3,028          1,575
U.S. Mid Cap Equity                               26,230          26,347         20,019         25,185         20,083
U.S. Small Cap Equity                             18,368          17,346         12,948         15,308         14,090
U.S. Large Cap Equity                             14,230          14,091          3,759          4,789          5,921
Global / Non-U.S. Equity                          13,982          12,603          4,610          4,105          3,460
Other                                                257             236            824          1,805          2,111
Total Long-Term Assets                       $   143,707     $   140,245     $   52,763     $   61,771     $   54,966
Money Market & Short-Term Assets                   3,534          11,587              -              -              -
Total                                        $   147,241     $   151,832     $   52,763     $   61,771     $   54,966



(1) Includes the impact of the USAA AMCO Acquisition, which closed on July 1,

2019, increasing our AUM by $81.1 billion inclusive of managed portfolio

      assets invested through USAA's brokerage business. We did not acquire the
      USAA brokerage business.

(2) Includes the impact of the RS Acquisition, which closed on July 29, 2016,

      and increased our AUM by $16.7 billion.




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Asset Flows by Asset Class - the following table summarizes our asset flows by asset class for the periods indicated:



                                                         U.S.                          U.S.
                                        U.S. Mid        Small                         Large         Global /                                                         Money
                                          Cap            Cap           Fixed           Cap          Non-U.S.                                       Total            Market /
(in millions)                            Equity         Equity         Income         Equity         Equity        Solutions        Other        Long-term         Short-term           Total
Year Ended December 31, 2020
Beginning AUM                          $   26,347     $   17,346     $   

37,973 $ 14,091 $ 12,603 $ 31,649 $ 236 $ 140,245 $ 11,587 $ 151,832 Gross client cash inflows

                   4,144          4,458          6,499            695          2,467           4,898            40          23,201             12,656            35,857
Gross client cash outflows                 (7,605 )       (5,201 )       

(9,140 ) (2,631 ) (2,501 ) (6,974 ) (60 ) (34,112 ) (21,097 ) (55,209 ) Net client cash flows

                      (3,460 )         (742 )       

(2,641 ) (1,936 ) (34 ) (2,076 ) (21 ) (10,911 )

           (8,441 )         (19,352 )
Market appreciation / (depreciation)        3,436          1,959          1,505          1,935          1,403           4,457            40          14,736                 58            14,794
Net transfers                                 (93 )         (195 )         (239 )          139             10              10             3            (364 )              331               (33 )
Ending AUM                             $   26,230     $   18,368     $   36,599     $   14,230     $   13,982     $    34,041     $     257     $   143,707       $      3,534       $   147,241
Year Ended December 31, 2019
Beginning AUM                          $   20,019     $   12,948     $    6,836     $    3,759     $    4,610     $     3,767     $     823     $    52,763       $          -       $    52,763
Gross client cash inflows                   5,663          3,338          6,489            480          1,457           5,696           171          23,293              8,820            32,112
Gross client cash outflows                 (6,663 )       (4,194 )       (4,186 )       (1,419 )       (1,538 )        (3,079 )        (375 )       (21,453 )           (8,800 )         (30,252 )
Net client cash flows                      (1,000 )         (856 )        2,303           (939 )          (81 )         2,617          (204 )         1,840                 20             1,860

Market appreciation / (depreciation) 5,511 3,728 1,158 1,263 1,609

           2,739           (29 )        15,980                 85            16,065
Net transfers                               1,817          1,526         

27,677 10,007 6,465 22,525 (356 ) 69,662

             11,482            81,143
Ending AUM                             $   26,347     $   17,346     $   37,973     $   14,091     $   12,603     $    31,649     $     236     $   140,245       $     11,587       $   151,832
Year Ended December 31, 2018
Beginning AUM                          $   25,185     $   15,308     $    7,551     $    4,789     $    4,105     $     3,028     $   1,805     $    61,771       $          -       $    61,771
Gross client cash inflows                   4,530          3,198          1,514            259          2,488           1,713           428          14,130                  -            14,130
Gross client cash outflows                 (7,207 )       (3,762 )       (2,303 )         (848 )       (1,003 )          (588 )        (846 )       (16,557 )                -           (16,557 )
Net client cash flows                      (2,677 )         (564 )         (789 )         (589 )        1,485           1,125          (418 )        (2,427 )                -            (2,427 )

Market appreciation / (depreciation) (2,485 ) (1,792 )

 67           (455 )         (972 )          (426 )        (510 )        (6,573 )                -            (6,573 )
Net transfers                                  (4 )           (4 )            7             14             (8 )            40           (53 )            (8 )                -                (8 )
Ending AUM                             $   20,019     $   12,948     $    6,836     $    3,759     $    4,610     $     3,767     $     824     $    52,763       $          -       $    52,763



AUM by Distribution Channel - the following table presents our AUM by distribution channel as of the dates indicated:



                                                     As of December 31,
                            2020                             2019                            2018

(in millions) Amount % of total Amount % of total Amount % of total Investor $ 68,749

               46   % $    74,118               49   % $        -                -   %
Institutional        40,840               28   %      39,851               26   %     29,731               56   %
Retail               37,651               26   %      37,863               25   %     23,032               44   %
Total AUM(1)    $   147,241              100   % $   151,832              100   % $   52,763              100   %



(1) The allocation of AUM by distribution channel involves the use of estimates

      and the exercise of judgment.


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Assets Flows by Vehicle - the following table summarizes our asset flows by vehicle for the periods indicated:

                                                                         Separate Accounts
                                                                             and Other
(in millions)                   Mutual Funds(1)         ETFs(2)             Vehicles(3)             Total
Year Ended December 31, 2020
Beginning AUM                  $          118,605     $      4,213     $              29,014     $    151,832
Gross client cash inflows                  31,172              492                     4,192           35,857
Gross client cash outflows                (48,398 )           (913 )                  (5,898 )        (55,209 )
Net client cash flows                     (17,226 )           (420 )                  (1,705 )        (19,352 )
Market appreciation /
(depreciation)                             11,746              183                     2,864           14,794
Net transfers                                (127 )              -                        94              (33 )
Ending AUM                     $          112,998     $      3,976     $              30,267     $    147,241
Year Ended December 31, 2019
Beginning AUM                  $           30,492     $      2,956     $              19,315     $     52,763
Gross client cash inflows                  21,560              843                     9,709           32,112
Gross client cash outflows                (25,239 )           (914 )                  (4,099 )        (30,252 )
Net client cash flows                      (3,679 )            (71 )                   5,610            1,860
Market appreciation /
(depreciation)                             10,990              544                     4,531           16,065
Net transfers                              80,802              782                      (441 )         81,143
Ending AUM                     $          118,605     $      4,213     $              29,014     $    151,832
Year Ended December 31, 2018
Beginning AUM                  $           37,967     $      2,250     $              21,555     $     61,771
Gross client cash inflows                   9,629            1,401                     3,100           14,130
Gross client cash outflows                (12,781 )           (341 )                  (3,435 )        (16,557 )
Net client cash flows                      (3,152 )          1,060                      (335 )         (2,427 )
Market appreciation /
(depreciation)                             (4,312 )           (354 )                  (1,907 )         (6,573 )
Net transfers                                 (11 )              -                         3               (8 )
Ending AUM                     $           30,492     $      2,956     $              19,315     $     52,763



(1) Includes institutional and retail share classes and Variable Insurance

Products or VIP funds.

(2) Excludes assets managed for other proprietary product (i.e. funds of funds)

in order to adjust for double counting.

(3) Includes collective trust funds, wrap program separate accounts and unified

managed accounts or UMAs.



December 31, 2020 AUM - Our total AUM at December 31, 2020 was $147.2 billion, a
decrease of $4.6 billion, or 3.0%, compared to $151.8 billion at December 31,
2019. The decrease in AUM during 2020 is due to net outflows of $19.4 billion
partially offset by $14.8 billion in positive market movement. Short-term money
market assets accounted for $3.5 billion, or 2.4% of the total AUM at December
31, 2020.

The net outflows were driven by $8.4 billion in money market and short-term
strategies, $3.5 billion in our U.S. mid cap equity strategies, $2.6 billion in
our fixed income strategies, $2.1 billion in our Solutions Platform, $1.9
billion in our large cap equity strategies and $0.7 billion in our U.S. small
cap equity strategies.

December 31, 2019 AUM - Our total AUM at December 31, 2019 was $151.8 billion,
an increase of $99.1 billion, or 187.8%, compared to $52.8 billion at
December 31, 2018. The change in AUM during 2019 reflects $81.1 billion of
acquired assets, $1.9 billion of positive net inflows, as well as $16.1 billion
in positive market movement. Short-term money market assets accounted for $11.6
billion, or 7.6% of the total AUM at December 31, 2019.

The net inflows were driven by $2.6 billion in our Solutions Platform and $2.3
billion in our fixed income strategies, partially offset by net outflows of $1.0
billion in our U.S. mid cap equity strategies, $0.9 billion in our U.S. large
cap equity strategies, $0.9 billion in our U.S. small cap equity strategies,
$0.2 billion in other and $0.1 billion in our global/non-U.S equity strategies.

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December 31, 2018 AUM - Our total AUM at December 31, 2018 was $52.8 billion, a
decrease of $9.0 billion, or 14.6%, compared to $61.8 billion at December 31,
2017, reflected by $2.4 billion of negative net outflows and $6.6 billion in
negative market movement.

The net outflows were primarily a result of $2.7 billion in our U.S. mid cap
equity strategies, $0.8 billion in our fixed income strategies, $0.6 billion in
our U.S. large cap equity strategies, $0.6 billion in our U.S. small cap equity
strategies and $0.4 billion in our other strategies, partially offset by net
inflows of $1.5 billion in our global non-U.S. equity strategies and $1.1
billion in our Solutions Platform.

GAAP Results of Operations


Our GAAP revenues principally consist of: (i) investment management fees, which
are based on our overall weighted average fee rate charged to our clients and
our level of AUM and (ii) fund administration and distribution fees, which are
asset­based fees earned from open­end mutual funds for administration and
distribution services. Fund administration and fund distribution fees also
include fund transfer agent fees (related to the USAA Funds), which are based on
a contractual rate applied to average AUM or the number of accounts in these
funds.

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

Investment Management Fees - Investment management fees are earned from managing
clients' assets. Our investment management fee revenue fluctuates based on a
number of factors, including the total value of our AUM, the composition of AUM
across investment strategies and vehicles, changes in the investment management
fee rates on our products and the extent to which we enter into fee arrangements
that differ from our standard fee schedule as well as the extent to which our
fund expenses exceed fund caps. Investment management fees are earned based on
a percentage of AUM as delineated in the respective investment management
agreements. Our investment management fees are calculated based on daily average
AUM, monthly average AUM or point in time AUM.

Fund Administration and Distribution Fees - Fund administration fees are primarily asset­based fees earned from open­end funds for administration services. Fund administration fees fluctuate based on the level of average open­end fund AUM and the fee rates charged for these services.


Fund distribution fees are asset­based fees earned from open­end funds for
distribution services. Fund distribution fees fluctuate based on the level of
average open­end fund AUM and the composition of those assets across share
classes that pay varying levels of fund distribution fees.

The Company has contractual arrangements with a third party to provide certain
sub-administration services. We are the primary obligor under the contracts with
the Victory Funds, USAA Funds and VictoryShares and have the ability to select
the service provider and establish pricing. As a result, fund administration
fees and sub-administration expenses are recorded on a gross basis. VCS has
contractual arrangements with third parties to provide certain distribution
services. VCS is the primary obligor under the contracts with the Victory Funds
and USAA Funds and has the ability to select the service provider and establish
pricing. Substantially all of VCS's revenue is recorded gross of payments made
to third parties.

Fund transfer agent fees are earned for providing mutual fund shareholder services. Transfer agent fees fluctuate based on the level of average AUM and the number of accounts in the USAA Funds.


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

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GAAP Expenses


Our GAAP expenses principally consist of: (i) personnel compensation and
benefits; (ii) distribution and other asset­based expenses; (iii) general and
administrative expenses; (iv) depreciation and amortization charges; and (v)
acquisition­related expenses comprising of changes in the fair value of
contingent acquisition payments and restructuring and acquisition costs.

Personnel Compensation and Benefits - Personnel compensation and benefits is our
most significant category of expense. Personnel compensation and benefits
consists of (i) salaries, payroll related taxes and employee benefits,
(ii) incentive compensation, (iii) sales­based compensation, (iv) compensation
expense related to equity awards granted to employees and directors and
(v) acquisition­related compensation in the form of cash retention bonuses.

Incentive compensation is the largest component of the total compensation of our
employees. The aggregate amount of cash incentive compensation is funded by a
pool that is based on a percentage of total Company earnings (before taking into
account incentive compensation). This incentive pool is used to pay the
investment teams a percentage of the revenue earned by their respective
Franchise on a quarterly basis. This incentive pool is also used to pay
incentive compensation to senior management and other non­investment employees
on an annual basis. Incentive compensation paid to senior management and to
other non­investment employees is discretionary and subjectively determined
based on Company and individual performance and the total amount of the
incentive compensation pool.

Distribution and Other Asset­based Expenses - Distribution and other asset­based expenses consists of: (i) broker­dealer distribution fees and platform distribution fees, (ii) fund expense reimbursements to affiliates and (iii) sub­administration, sub-transfer agent, sub­advisory expenses and middle­office expenses.


Broker­dealer distribution fees are paid by VCS as the broker­dealer for the
Victory Funds and USAA Funds to third­party distributors. The Victory Funds and
USAA Funds pay VCS for distribution services and VCS, in turn, pays third­party
distributors.

Platform distribution fees are paid by VCM as the investment adviser to the
Victory Funds and USAA Funds. Platform distribution fees are paid to financial
advisors, retirement plan providers and intermediaries for servicing and
administering accounts invested in shares of the Victory Funds and USAA Funds.
Distribution fees typically vary based on the level of AUM and the composition
of those assets across share classes.

Fund expense reimbursements (contra revenue) result from VCM, as investment
adviser for the Victory Funds, VictoryShares and USAA Funds, agreeing to cap the
annual operating expenses for certain share classes of the Victory Funds, USAA
Funds and VictoryShares. VCM has contractually agreed to reimburse the Victory
Funds, USAA Funds and VictoryShares for expenses in excess of these caps but may
recoup these reimbursements for a period of time if the applicable Fund's share
class expenses and/or VictoryShares ETF expenses fall below the cap. Following
the Company's adoption of Accounting Standards Update ("ASU") 2014-09 on January
1, 2019, mutual fund and ETF waivers and expense reimbursements ($31.3 million
in 2020 and $18.7 million in 2019) are recorded as a reduction to investment
management fees. The comparative period of 2018 has not been restated and
continues to be reported under the legacy guidance, as permitted by the
Financial Accounting Standards Board (the "FASB").

Sub­administration, sub-transfer agent, sub­advisory and middle­office expenses
consist of fees paid to our sub­administrators of the Victory Funds,
VictoryShares and USAA Funds, fees paid to our sub-transfer agent for the USAA
Funds, fees paid to sub­advisers on certain Victory Funds and USAA Funds and
fees paid to vendors to which we outsource middle­office functions.

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• VCM acts as the administrator to the Victory Funds, VictoryShares and

USAA Funds. VCM has hired a sub­administrator, the fees for which are

captured in sub­administration expense. As administrator, VCM supervises

the operations of the Victory Funds, VictoryShares and USAA Funds,

including the services provided by the sub­administrators. The

sub­administrators are paid through a contractual arrangement based on

a percentage of the average fund AUM.

• VCTA acts as the transfer agent to the USAA Funds. VCTA has hired a

sub-transfer agent, the fees for which are captured in sub-administration

expense. As transfer agent, VCTA oversees the services provided by the

sub-transfer agent. The sub-transfer agent is paid through a contractual

arrangement based on a percentage of average fund AUM.

• VCM, as the investment adviser for the Victory Funds and USAA Funds, has

hired unaffiliated sub­advisers to manage funds for which we do not have

in­house capabilities. The fees paid to the sub­advisers are contractual

         based on a percentage of assets that they manage or based upon a
         percentage of revenue.

• We have outsourced middle­office operations to achieve a scalable

operational infrastructure that utilizes a variable­cost model. We have

selected to partner with top­tier vendors who perform trade operations,

portfolio accounting and performance measurement with oversight from our

operations team. The fees paid to these vendors are variable and

structured based on the number of accounts, assets and specific services

performed.

General and Administrative Expenses - General and administrative expenses primarily consist of investment research and technology costs, professional and marketing fees, travel, rent and insurance expenses.


Depreciation and Amortization - Depreciation and amortization expense consists
primarily of the depreciation of property and equipment as well as the
amortization of acquired intangibles that have a definite life. These
intangibles include customer relationships, investment advisory contracts,
intellectual property and non­compete clauses acquired in connection with a
business or asset acquisition. Both depreciation and amortization are recorded
ratably over the assets' useful lives.

Acquisition­Related Costs - Acquisition­related costs include legal fees, advisory services, mutual fund proxy voting costs and other one­time expenses related to acquisitions.


Restructuring and Integration Costs - Restructuring and integration costs
include costs incurred in connection with business combinations, including the
increase in the fair value of contingent acquisition payments, asset purchases
and changes in business strategy. These include severance expenses related to
one­time benefit arrangements, contract termination and other costs to integrate
investment platforms, products and personnel into existing systems, processes
and service provider arrangements and restructuring the business to capture
operating expense synergies.

Other non­operating items of income and expense consist of: (i) interest income
and other income (expense); (ii) interest expense and other financing costs;
(iii) loss on debt extinguishment; and (iv) income tax expense.

Interest Income and Other Income (Expense) - Interest income and other income
(expense) consists primarily of interest income, gains (losses) on investments
and dividend income on investments.

Interest Expense and Other Financing Costs - Interest expense and other financing costs consists primarily of interest expense attributable to long­term debt. Refer to "Liquidity and Capital Resources" for more information.


Loss on Debt Extinguishment - Loss on debt extinguishment consists of the
write-off of unamortized debt issuance costs and unamortized debt discount as a
result of debt refinancing, the acceleration of the paydown of debt principal
and debt repurchased and retired in open market transactions.

Income Tax Expense - The provision for income taxes includes U.S. federal, state
and local taxes, and foreign income taxes payable by certain of our
subsidiaries. The effective tax rate is primarily driven by state and local
taxes and excess tax benefits on share-based compensation, and for 2019, expense
related to recording a liability for uncertain tax positions. The portion of the
effective income tax rate attributable to state and local income taxes varies
from year to year depending on amounts of income apportioned to each
jurisdiction, whether we file income tax returns on a unitary or separate return
basis and with changes in tax laws.

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The following table presents our GAAP results of operations for the years ended December 31, 2020, 2019 and 2018.



                                                Year Ended            Year Ended            Year Ended
                                               December 31,          December 31,          December 31,
                                                   2020                  2019                  2018
Revenue
Investment management fees                   $         562,036     $         466,802     $         352,683
Fund administration and distribution fees              213,315               145,571                60,729
Total revenue                                          775,351               612,373               413,412

Expenses
Personnel compensation and benefits                    197,158               179,809               145,880
Distribution and other asset-based expenses            175,687               146,622                94,680
General and administrative                              51,218                46,568                30,005
Depreciation and amortization                           16,381                23,873                23,277
Change in value of consideration payable for
acquisition of business                                 11,300                19,886                   (37 )
Acquisition-related costs                                1,108                22,317                 4,346
Restructuring and integration costs                      7,786                 8,678                   742
Total operating expenses                               460,638               447,753               298,893
Income from operations                                 314,713               164,620               114,519

Other income (expense)
Interest income and other income (expense)               3,703                 6,829                (2,856 )
Interest expense and other financing costs             (37,005 )             (40,901 )             (20,694 )
Loss on debt extinguishment                             (2,871 )              (9,860 )              (6,058 )
Total other income (expense), net                      (36,173 )             (43,932 )             (29,608 )

Income before income taxes                             278,540               120,688                84,911

Income tax expense                                     (66,018 )             (28,197 )             (21,207 )

Net income                                   $         212,522     $          92,491     $          63,704

Earnings per share of common stock
Basic                                        $            3.14     $            1.37     $            0.96
Diluted                                      $            2.88     $            1.26     $            0.90

Weighted average number of shares
outstanding
Basic                                                   67,710                67,616                66,295
Diluted                                                 73,719                73,466                70,511

Dividends declared per share of common stock $            0.23     $            0.10     $               -




Investment Management Fees

2020 compared to 2019 - Investment management fees increased $95.2 million, or
20.4%, to $562.0 million in 2020 from $466.8 million in 2019 due to an increase
in average AUM year over year, partially offset by a decrease in the realized
fee rate due to a shift in asset mix. Average AUM was $136.4 billion in 2020
compared to $102.7 billion in 2019, mostly attributable to the acquired assets
in the USAA AMCO Acquisition.

2019 compared to 2018 - Investment management fees increased $114.1 million, or
32.4%, to $466.8 million in 2019 from $352.7 million in 2018 due to an increase
in average AUM year over year, partially offset by a decrease in the

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realized fee rate due to a shift in asset mix. Average AUM was $102.7 billion in 2019 compared to $61.4 billion in 2018, mostly attributable to the acquired assets in the USAA AMCO Acquisition.


The Company adopted Accounting Standards Update ("ASU") 2014-09 on January 1,
2019. Mutual fund and ETF waivers and expense reimbursements are recorded as a
reduction to investment management fees under the new standard ($31.3 million
and $18.7 million in 2020 and 2019, respectively). The comparative period has
not been restated and continue to be reported under the legacy guidance, as
permitted by the Financial Accounting Standards Board (the "FASB").

Fund Administration and Distribution Fees


2020 compared to 2019 - Fund administration and distribution fees totaled $213.3
million in 2020, an increase of $67.7 million, or 46.5%, from $145.6 million in
2019. Fund administration fees increased by $41.0 million, or 57.0%, due to an
increase in average AUM year over year, mostly attributable to the USAA AMCO
Acquisition and the addition of $74.0 million in transfer agent fees with the
USAA Funds, partially offset by a decline in distribution fee realization due to
a shift in the mix of assets to lower 12b-1 paying share classes.

2019 compared to 2018 - Fund administration and distribution fees totaled $145.6
million in 2019, an increase of $84.8 million, or 139.7%, from $60.7 million in
2018. Fund administration fees increased by $48.7 million, or 210.2%, due to an
increase in average AUM year over year, mostly attributable to the USAA AMCO
Acquisition and the addition of $42.8 million in transfer agent fees with the
USAA Funds, partially offset by a reduction in fund distribution fees due to a
shift in the mix of assets to lower 12b-1 paying share classes. Transfer agent
fees represented a new revenue stream for VCTA in 2019 in accordance with a
contract with the USAA Funds.

Personnel Compensation and Benefits

The following table presents the components of GAAP compensation expense for the year ended December 31, 2020, 2019 and 2018:



                                                         Year Ended December 31,
(in thousands)                                    2020             2019             2018
Salaries, payroll related taxes and
employee benefits                             $     76,304     $     62,298     $     45,820
Incentive compensation                              87,412           85,614           71,273
Sales-based compensation(1)                         14,158           13,973           13,549
Equity awards granted to employees and
directors(2)                                        18,096           16,303 

15,238

Acquisition and transaction-related
compensation                                         1,188            1,621                -
Total personnel compensation and benefits
expense                                       $    197,158     $    179,809     $    145,880



(1) Represents sales­based commissions paid to our distribution teams.

Sales­based compensation varies based on gross and net client cash flows

      and revenue earned on sales.


(2)   Share-based compensation typically vests over several years based on

service and the achievement of specific business and financial targets. The

value of share-based compensation is recognized as compensation expense

over the vesting period.



2020 compared to 2019 - Personnel compensation and benefits were $197.2 million
in 2020, an increase of $17.3 million, or 9.6%, from $179.8 million in 2019
primarily attributable to an increase in headcount due to the USAA AMCO
Acquisition. Salaries, payroll related taxes and employee benefits were $76.3
million and $62.3 million, respectively, for the years ended December 31, 2020
and 2019. Incentive compensation and equity awards granted to employees and
directors were $87.4 million and $18.1 million, respectively, for the year ended
December 31, 2020, compared to $85.6 million and $16.3 million, respectively,
for the same period in 2019.

2019 compared to 2018 - Personnel compensation and benefits were $179.8 million
in 2019, an increase of $33.9 million, or 23.3%, from $145.9 million in 2018
primarily attributable to an increase in headcount due to the USAA AMCO
Acquisition, as well as a year over year increase in deferred compensation plan
liabilities from favorable market action. The increase in incentive compensation
was due to higher pre-incentive compensation earnings while performance award
vestings in 2019 contributed to the increase in share-based compensation. The
Company incurred $1.6 million in acquisition and transaction-related
compensation expense in 2019 with no such expense incurred during the previous
year.

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Distribution and Other Asset­based Expenses

The following table presents the components of distribution and other asset­based expenses for the year ended December 31, 2020, 2019 and 2018:



                                                         Year Ended December 31,
(in thousands)                                    2020             2019             2018
Broker-dealer distribution fees               $     22,936     $     27,753     $     34,423
Platform distribution fees                         115,614           90,706           27,177
Fund expense reimbursements                              -                -           12,902
Sub-administration                                  15,144           11,115            6,763
Sub-advisory                                        12,174            8,399            6,452
Middle-office                                        9,820            8,649            6,963
Total distribution and other asset-based
expenses                                      $    175,687     $    146,622     $     94,680




2020 compared to 2019 - Distribution and other asset­based expenses are
primarily based on AUM. Distribution and other asset-based expenses were $175.7
million in 2020, an increase of $29.1 million, or 19.8%, from $146.6 million in
2019, primarily due to the USAA AMCO Acquisition which closed on July 1, 2019.
The acquisition introduced new operating expenses that the Company did not incur
prior to the acquisition, such as platform distribution costs paid to third
parties and USAA, sub-transfer agent service costs and 529 College Savings Plan
expenses. Also contributing to the overall change, but to a lesser extent, was
the decrease in broker-dealer distribution fees due to the shift in the mix of
assets to lower and non 12b-1 paying share classes.

2019 compared to 2018 - Distribution and other asset-based expenses were $146.6
million in 2019, an increase of $51.9 million, or 54.9%, from $94.7 million in
2018, primarily due to the USAA AMCO Acquisition. The acquisition introduced new
operating expenses that the Company did not incur prior to the acquisition, such
as platform distribution costs paid to third parties and USAA, sub-transfer
agent service costs and 529 College Savings Plan expenses.

Fund expense reimbursements declined by $12.9 million due to the change in the
classification of such reimbursements with the adoption of ASU 2014-09 on
January 1, 2019. Mutual fund and ETF waivers and expense reimbursements are
recorded as a reduction to investment management fees under ASU 2014-09, whereas
under legacy revenue recognition guidance these were recorded as a distribution
and other asset-based expense. The comparative periods have not been restated
and continue to be reported under the legacy guidance, as permitted by the FASB.
Broker-dealer distribution fees decreased due to the shift in the mix of assets
to lower and non 12b-1 paying share classes.

General and Administrative Expenses


2020 compared to 2019 - General and administrative expenses were $51.2 million
in 2020 compared to $46.6 million in 2019. The increase of $4.7 million, or
10.0%, was primarily due to the addition of transition service agreement costs
related to the USAA AMCO Acquisition. Also contributing, but to a lesser extent,
were increases in facility, technology and professional fees mainly related to
the USAA AMCO Acquisition.

2019 compared to 2018 - General and administrative expenses were $46.6 million
in 2019 compared to $30.0 million in 2018. The increase of $16.6 million, or
55.2%, was primarily due to the addition of transition service agreement costs
related to the USAA AMCO Acquisition, as well as one-time debt repricing
expenses related to the 2019 Credit Agreement.

Depreciation and Amortization


2020 compared to 2019 - Depreciation and amortization decreased by $7.5 million,
31.4%, to $16.4 million in 2020, from $23.9 million in 2019, due to a reduction
in amortization expense related to definite-lived intangible assets in
connection with the Munder Capital Management acquisition that became fully
amortized in the fourth quarter of 2019.

2019 compared to 2018 - Depreciation and amortization increased by $0.6 million,
or 2.6%, to $23.9 million in 2019, from $23.3 million in 2018, due to the
addition of definite-lived intangible assets acquired in connection with the
USAA

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AMCO Acquisition, partially offset by definite-lived assets acquired in connection with the CEMP Acquisition and the management-led buyout with Crestview GP becoming fully amortized in 2018.

Change in Value of Consideration Payable for Acquisition of Business


2020 compared to 2019 - The fair value of the contingent consideration
associated with the USAA AMCO acquisition decreased by $8.6 million, resulting
in a change in the estimated fair value of consideration payable of $8.6 million
for the year ended December 31, 2020. Refer to Note 4, Acquisitions, for further
details on the fair value of contingent consideration payable.

2019 compared to 2018 - The $19.9 million of expense in 2019 relates to the fair
value of the contingent consideration associated with the USAA AMCO acquisition.
Refer to Note 4, Acquisitions, for further details on the fair value of
contingent consideration payable.

Acquisition­Related Costs


2020 compared to 2019 - Acquisition-related costs decreased $21.2 million, or
95%, to $1.1 million for the year ended December 31, 2020 compared to $22.3
million in the prior year. The decrease is due to the USAA AMCO Acquisition
which closed on July 1, 2019. The 2019 acquisition-related expenses include
various transaction costs such as legal and filing fees and other professional
fees. On April 22, 2019, the Company and Harvest Volatility Management, LLC
("Harvest") entered into an agreement to mutually terminate the purchase
agreement entered into on September 21, 2018. Neither the Company nor Harvest
was responsible for any termination fee to the other party as a result of the
termination.

2019 compared to 2018 - Acquisition-related costs were $22.3 million and $4.3
million, respectively, in 2019 and 2018, with the increase primarily due to the
USAA AMCO Acquisition which closed on July 1, 2019. The acquisition-related
expenses include various transaction costs such as legal and filing fees and
other professional fees. On April 22, 2019, the Company and Harvest Volatility
Management, LLC ("Harvest") entered into an agreement to mutually terminate the
purchase agreement entered into on September 21, 2018. Neither the Company nor
Harvest was responsible for any termination fee to the other party as a result
of the termination.

Restructuring and Integration Costs


2020 compared to 2019 - Restructuring and integration costs decreased $0.9
million, or 10.3%, to $7.8 million for the year ended December 31, 2020 compared
to $8.7 million in the prior year. The 2020 and 2019 expenses related to
severance costs and integration and conversion costs associated with the USAA
AMCO Acquisition.

2019 compared to 2018 - Restructuring and integration costs were $8.7 million
and $0.7 million, respectively, in 2019 and 2018, with the increase due to
severance costs and integration and conversion costs related to the USAA AMCO
Acquisition.

Interest Income and Other Income (Expense)


2020 compared to 2019 - Interest income and other income (expense) was income of
$3.7 million in 2020, compared to income of $6.8 million in 2019. The decrease
was due to the combination of a gain on sale of an equity method investment in
Cerebellum of $2.9 million and higher yields on our cash invested in money
market accounts in 2019.

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2019 compared to 2018 - Interest income and other income (expense) was income of
$6.8 million in 2019, compared to expense of $2.9 million in 2018. The increase
was collectively due to a (i) gain on sale of an equity method investment in
Cerebellum of $2.9 million, (ii) higher yields on our cash invested in money
market accounts and (iii) net unrealized gains on deferred compensation plan
investments.

Interest Expense and Other Financing Costs


2020 compared to 2019 - Interest expense and other financing costs decreased by
$3.9 million, or 9.5%, to $37.0 million in 2020, from $40.9 million in 2019. The
expense decrease is primarily due to a decrease in interest expense as a result
of a lower debt principal balance over the comparable period.

2019 compared to 2018 - Interest expense and other financing costs increased by
$20.2 million, or 97.6%, to $40.9 million in 2019, from $20.7 million in 2018
due to the Company entering into the 2019 Credit Agreement, dated July 1, 2019,
in conjunction with the USAA AMCO Acquisition. All indebtedness outstanding
under the previous credit agreement was repaid and terminated as of July 1,
2019. Refer to Note 11, Debt, to the audited financial statements for further
details on the 2019 Credit Agreement.

Loss on Debt Extinguishment


2020 compared to 2019 - Loss on debt extinguishment decreased $7.0 million, or
70.9%, to $2.9 million in 2020 compared to $9.9 million in the prior year. The
decrease is due to the 2019 write-off of unamortized debt issuance costs and
unamortized debt discount due to (i) the termination of the previous credit
agreement, dated February 2018 ($5.5 million) and (ii) accelerating the paydown
of debt principal under the 2019 Credit Agreement ($4.4 million).

2019 compared to 2018 - Loss on debt extinguishment was $9.9 million in 2019.
The Company wrote-off unamortized debt issuance costs and unamortized debt
discount due to (i) the termination of the previous credit agreement, dated
February 2018 ($5.5 million) and (ii) accelerating the paydown of debt principal
under the 2019 Credit Agreement ($4.4 million). The Company also paid down
$148.0 million of debt in 2019 under the 2019 Credit Agreement. Refer to Note
11, Debt, to the audited financial statements for further details on the 2019
Credit Agreement. The Company incurred a $6.1 million loss on debt
extinguishment in 2018 due to the termination of a previous credit agreement,
dated October 2014.

Income Tax Expense

2020 compared to 2019 - Our effective tax rate was relatively flat increasing
0.4% from 23.4% in 2019 to 23.7% in 2020. Refer to Note 10, Income Taxes, to the
audited financial statements for further details on income taxes.

2019 compared to 2018 - Our effective tax rate was 23.4% and 25.0% in 2019 and
2018, respectively. The decrease in the effective tax rate was primarily due to
higher excess tax benefits on share-based compensation net of expense related to
recognizing a liability for unrecorded tax benefits. Refer to Note 10, Income
Taxes, to the audited financial statements for further details on income taxes.

Effects of Inflation


Inflation did not have a material effect on our consolidated results of
operations. Inflationary pressures can result in increases to our cost
structure, especially to the extent that large expense components such as
compensation are impacted. To the degree that these expense increases are not
recoverable or cannot be counterbalanced through price increases due to the
competitive environment, our profitability could be negatively impacted. In
addition, the value of the fixed income assets that we manage may be negatively
impacted when inflationary expectations result in a rising interest rate
environment. Declines in the values of AUM could lead to reduced revenues as
investment management fees are generally earned as a percentage of AUM.

Supplemental Non­GAAP Financial Information


We report our financial results in accordance with GAAP. Our management uses
non­GAAP performance measures to evaluate the underlying operations of our
business. Non­GAAP financial measures are used to supplement GAAP results to
provide a more complete understanding of the factors and trends affecting our
business than GAAP results alone. Due to our acquisitive nature, there are a
number of acquisition and restructuring related expenses included in GAAP
measures that we believe distort the 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 non­GAAP measures to provide investors with the same financial metrics
used by management to assess the operating performance of our Company.

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Non­GAAP measures should be considered in addition to, and not as a substitute
for, financial measures prepared in accordance with GAAP. Our non­GAAP measures
may differ from similar measures at other companies, even if similar terms are
used to identify these measures. Specifically, we make use of the non­GAAP
financial measures "Adjusted EBITDA" and "Adjusted Net Income."

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



                                                                     Year Ended December 31,
(in thousands)                                                2020            2019            2018
Reconciliation of non-GAAP financial measures:
Net income (GAAP)                                          $   212,522     $    92,491     $    63,704
Income tax expense                                             (66,018 )       (28,197 )       (21,207 )
Income before income taxes                                 $   278,540     $   120,688     $    84,911
Interest expense(1)                                             33,724          40,706          20,173
Depreciation(2)                                                  3,551           2,995           2,956
Other business taxes(3)                                         (2,556 )         1,484           1,505

Amortization of acquisition-related intangible assets(4) 12,830

     20,878          20,321
Share-based compensation(5)                                     15,020          14,849          15,238
Acquisition, restructuring and exit costs(6)                    29,463          56,751           6,389
Debt issuance costs(7)                                           6,546          13,119           7,807
Pre-IPO governance expenses(8)                                       -               -             138
Losses (earnings) from equity method investments(9)                193          (2,683 )           730
Adjusted EBITDA                                            $   377,311     $   268,787     $   160,168




                                                                Year Ended December 31,
(in thousands)                                           2020            2019            2018
Reconciliation of non-GAAP financial measures:
Net income (GAAP)                                     $   212,522     $    92,491     $    63,704
Adjustments to reflect the operating performance of
the Company:
i.    Other business taxes(3)                              (2,556 )         1,484           1,505
ii.    Amortization of acquisition-related
intangible assets(4)                                       12,830          20,878          20,321
iii.   Share-based compensation(5)                         15,020          

14,849 15,238 iv. Acquisition, restructuring and exit costs(6) 29,463 56,751

           6,389
v.    Debt issuance costs(7)                                6,546          13,119           7,807
vi.   Pre-IPO governance expenses(8)                            -               -             138
Tax effect of above adjustments(10)                       (15,326 )       (26,769 )       (23,678 )
viii.        Remeasurement of net deferred taxes
(11)                                                            -               -          (2,422 )
Adjusted Net Income                                   $   258,499     $   172,803     $    89,002
Tax benefit of goodwill and acquired
intangibles(12)                                       $    26,992     $    20,324     $    13,278



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 acquisition­related intangible assets.



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(5) Adding back share-based compensation associated with equity awards issued

from pools created in connection with the management­led buyout and various

acquisitions and as a result of equity grants related to the initial public

offering of our Class A common stock (the "IPO").

(6) Adding back direct incremental costs of acquisitions and the IPO, including

restructuring costs.

(7) Adding back debt issuance cost expense.


(8)   Adding back pre-IPO governance expenses paid to the Company's private
      equity partners that terminated as of the completion of the IPO.

(9) Adjusting for losses (earnings) on equity method investments.


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

(11) Remeasurement of our U.S. net deferred taxes resulting in a one-time income

tax expense of $2.4 million in 2017 due to the Tax Act enacted on December

      22, 2017.


(12)  Represents the tax benefits associated with deductions allowed for

intangibles and goodwill generated from acquisitions in which we received a

step­up in basis for tax purposes. Acquired intangible assets and goodwill

may be amortized for tax purposes, generally over a 15­year 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 step­up

      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 the components of acquisition, restructuring and exit costs for the periods indicated:



                                                              Year Ended December 31,
(in thousands)                                           2020           2019          2018
Acquisition-related costs                             $    1,108     $   22,317     $   4,346
Change in value of consideration payable for
acquisition of business                                   11,300         19,886             -
Restructuring and integration costs                        7,786          8,678           742
General and administrative                                 8,081          4,249           303
Personnel compensation and benefits                        1,188          1,621             -
Interest income and other income                               -              -           998

Total acquisition, restructuring and exit costs $ 29,463 $ 56,751 $ 6,389

Liquidity and Capital Resources


Sources and Uses of Cash - We generate strong cash flows from operations that
allow us to meet our cash requirements. Our primary uses of cash include: (i)
repayment of our debt obligations, (ii) funding of acquisitions, (iii) payment
of contingent consideration for previous acquisitions, and (iv) working capital
needs. Cash flows from operations also allow us to meet certain other cash
requirements such as quarterly cash dividends and the repurchase of our Class A
common stock. We believe we have sufficient liquidity and capital resources to
continue to paydown our debt obligations as well as to continue focusing on
acquisition candidates that increase our size, scale, asset class and client
diversification.

The following table presents our liquidity position as of December 31, 2020 and
2019:



                                                         December 31,        December 31,
(in thousands)                                               2020                2019
Cash and cash equivalents(1)                           $         22,744     $        37,121
Accounts and other receivables(2)                                88,182     

95,093

Undrawn commitment on revolving credit facility(3)              100,000     

100,000

Accounts and other payables(4)                                  (89,422 )          (144,045 )



(1) We manage our cash balances in order to fund our day-to-day operations and

      invest excess cash into money market funds and other short-term
      investments.


(2)   Our accounts receivables consist primarily of investment management, fund
      administrative and distribution fees that have been earned but not yet

received from clients. We perform a review of our receivables on a monthly

basis to access collectability.

(3) Revolving credit facility of $100.0 million at December 31, 2020 and 2019,

which had $100.0 million undrawn as of both periods.

(4) Accounts and other payables consist primarily of various payables related

to operations, transaction costs and interest payable on the term loan, as

      well as accrued compensation and benefits.


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Excludes long-term debt, net due to the Company satisfying the required principal amortization of 1.00% per annum through the term loan, July 2026.


As previously noted, the USAA AMCO Acquisition introduced additional personnel
expenses and new and additional operating expenses such as expenses related to a
transfer services agreement with USAA, 529 College Savings Plan, and direct
member channel expenses that the Company did not incur prior to the acquisition.

Excludes $36.0 million and $36.3 million at December 31, 2020 and 2019, respectively, related to the estimated fair value of the contingent consideration that is expected to be paid over the next twelve month period resulting from the USAA AMCO Acquisition


2019 Credit Agreement and 2020 and 2021 Debt Repricings - In conjunction with
the USAA AMCO Acquisition, the Company entered into the 2019 Credit Agreement,
dated July 1, 2019, and obtained a seven-year term loan in an aggregate
principal amount of $1.1 billion. All indebtedness outstanding under the
previous credit agreement was repaid and terminated as of July 1, 2019. As of
December 31, 2020, the Company has repaid or repurchased and retired $311.8
million of the outstanding term loans under the 2019 Credit Agreement. As of
December 31, 2020, we were in compliance with our financial performance
covenant. Refer to Note 4, Acquisitions, to the  consolidated financial
statements for further details on the USAA AMCO Acquisition, as well as Note 11,
Debt, for further information on the 2019 Credit Agreement.

On January 17, 2020, we entered into the First Amendment (the "First Amendment")
to the 2019 Credit Agreement with the other loan parties thereto, Barclays Bank
PLC, as administrative agent, and the Royal Bank of Canada as fronting bank.
Pursuant to the First Amendment, the Company refinanced the existing term loans
(the "2019 Term Loans") with replacement term loans in an aggregate principal
amount of $952.0 (the "2020 Term Loans"). The 2020 Term Loans provide for
substantially the same terms as the 2019 Term Loans, including the same maturity
date of July 1, 2026, except that the 2020 Term Loans provide for a reduced
applicable margin on LIBOR of 75 basis points. The applicable margin on LIBOR
under the 2020 Term Loans is 2.50%, compared to 3.25% under the 2019 Term Loans.
The Company incurred costs of $0.9 million related to the First Amendment which
were recorded in general and administrative expense in the Consolidated
Statements of Operations. Refer to Note 11, Debt, for further information on the
repricing.

In April 2020, the Company established a trading account to opportunistically
take advantage of potential short-term trading arbitrage with respect to our
term loan. An alternative to principal prepayments, this allows us to buy back
our outstanding term loan in the open market and retire the debt. This
alternative is preferable to principal prepayments when our debt trades at a
discount to par. A total of $163.8 million of the outstanding term loans under
the 2019 Credit Agreement was repaid or repurchased and retired in 2020. The
Company repaid $38.0 million in outstanding term loans in the first three months
of 2020 and recorded a $1.0 million loss on debt extinguishment. During the
three months ended June 30, 2020, the Company repaid or repurchased and retired
$33.3 million in outstanding term loans and recorded a $0.1 million gain on debt
extinguishment. During the three months ended September 30, 2020, the Company
repaid or repurchased and retired $43.5 million in outstanding term loans and
recorded a $0.8 million loss on debt extinguishment. During the three months
ended December 31, 2020, the Company repaid $49.0 million in outstanding term
loans. Subsequent to December 31, 2020, we reduced the outstanding term loan
principal by an additional $47.5 million through prepayments, for a total debt
reduction of $359.3 million since July 1, 2019.

On February 18, 2021, we entered into the Second Amendment (the "Second
Amendment") to the 2019 Credit Agreement, as amended, with the other loan
parties thereto, Barclays Bank PLC, as administrative agent, and the Royal Bank
of Canada as fronting bank. Pursuant to the Second Amendment, the Company
refinanced the 2020 Term Loans with replacement term loans in an aggregate
principal amount of $755.7 (the "Repriced Term Loans"). The Repriced Term Loans
provide for substantially the same terms as the 2020 Term Loans, including the
same maturity date of July 1, 2026, except that the Repriced Term Loans provide
for a reduced applicable margin on LIBOR of 25 basis points. The applicable
margin on LIBOR under the Repriced Term Loans is 2.25%, compared to 2.50% under
the First Amendment.

2020 Swap Transaction - On March 27, 2020, the Company executed a
floating-to-fixed interest rate swap transaction ("Swap") to effectively fix the
interest rate at 3.465% on $450 million of its outstanding Term Loan through the
Term Loan maturity date of July 2026. At December 31, 2020, the $450 million
notional value Swap had a fair value of $10.0 million, which was included in
other liabilities on the Consolidated Balance Sheets. For the three and twelve
months ended December 31, 2020, the Company recognized a (gain) loss, net of
tax, of ($1.4) million and $7.6 million, respectively, in accumulated other
comprehensive loss. For the three and twelve months ended December 31, 2020, the
Company reclassified a loss of $0.8 million and $1.0 million, respectively, from
accumulated other comprehensive loss to interest expense and other financing
costs on the Consolidated Statements of Operations. Refer to Note 12,
Derivatives, for further information on the Swap.

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Capital Requirements - VCS is a registered broker­dealer 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 non­U.S.
subsidiaries that have minimum capital requirements. As a result, such
subsidiaries of our Company may be restricted in their ability to transfer cash
to their parents. VCS and our non­U.S. subsidiaries were in compliance with
these requirements as of and for the years ended December 31, 2020, 2019 and
2018.

Cash Flows - the following table is derived from our Consolidated Statements of Cash Flows for the year ended December 31, 2020, 2019 and 2018.



                                                                  Year Ended December 31,
(in thousands)                                             2020             2019            2018
Net cash provided by operating activities              $    250,616     $    227,384     $   134,345
Net cash used in investing activities                       (12,340 )       (849,812 )       (11,549 )
Net cash (used in) provided by financing activities        (252,696 )        608,016         (84,161 )



Operating Activities


2020 compared to 2019 - Cash provided by operating activities was $250.6 million
in 2020, compared to $227.4 million in 2019. The $23.2 million net increase in
cash provided by operating activities was primarily due to a $120.0 million
increase in net income partially offset by a $113.4 million net decrease in
working capital as a result of timing of accrued expenses and compensation. Also
contributing were adjustments for certain non-cash items which contributed $16.6
million to the increase in cash provided by operating activities.

The USAA AMCO Acquisition increased revenue and introduced new operating expenses that the Company did not incur prior to the acquisition, such as distribution costs paid to third parties and USAA, sub-transfer agent service costs, 529 College Savings Plan expenses, and direct member channel expenses.


2019 compared to 2018 - Cash provided by operating activities was $227.4 million
in 2019, compared to $134.3 million in 2018. The $93.0 million net increase in
cash provided by operating activities was primarily due to a $48.2 million net
increase in working capital as a result of timing of accrued expenses and
compensation and a $28.8 million increase in net income, as well as adjustments
for certain non-cash items which contributed $16.1 million to the increase in
cash provided by operating activities.

Investing Activities


2020 compared to 2019 - Cash used in investing activities decreased by $837.5
million to $12.3 million in 2020, from $849.8 million in 2019. The decrease was
primarily due to $851.3 million paid in cash at the July 1, 2019 closing of the
USAA AMCO Acquisition.

2019 compared to 2018 - Cash used in investing activities increased by $838.3
million to $849.8 million in 2019, from $11.5 million in 2018. The increase was
primarily due to $851.3 million paid in cash at the July 1, 2019 closing of the
USAA AMCO Acquisition, partially offset by $10.6 million in proceeds from the
Company selling 100% of its equity investment in Cerebellum.

Financing Activities


2020 compared to 2019 - Cash used financing activities decreased $860.7 million
to $252.7 million in 2020 compared to cash provided of $608.0 million in 2019.
The decrease was due to $1,069.0 million of net proceeds from the 2019 Credit
Agreement received in 2019, which was partially offset by the repayment and
termination of the previous credit agreement (dated February 2018) of $280.0
million. The repurchase of our Class A common stock and payment of dividends
contributed $29.9 million and $16.2 million, respectively, in cash used in
financing activities during 2020.

2019 compared to 2018 - Cash provided by financing activities was $608.0 million
in 2019 and consisted of $1,069.0 million of net proceeds from the 2019 Credit
Agreement, partially offset by the repayment and termination of the previous
credit agreement (dated February 2018) of $280.0 million and repayment of
long-term debt under the 2019 Credit Agreement in the third and fourth quarter
of 2019 of $148.0 million. The repurchase of our Class A common

                                       67

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stock and payment of dividends contributed $15.5 million and $7.4 million, respectively, in cash used in financing activities during 2019.


Cash used in financing activities was $84.2 million in 2018 and consisted of the
repayment of $499.7 million of term loans under a previous credit agreement
(dated October 2014) and the repayment of long-term debt under a previous credit
agreement (dated February 2018) of $80.0 million, partially offset by $360.0
million of net proceeds from a previous credit agreement (dated February 2018)
and the generation of $156.5 million of net IPO proceeds.

Contractual Obligations


The following summarizes our contractual obligations as of December 31, 2020:



                                                                  Payments Due
                                                                                                     2026 and
(in thousands)                        Total            2021         2022-2023       2024-2025       Thereafter
Principal payments on
borrowings(1)                     $     788,239     $        -     $         -     $         -     $    788,239
Interest payable(1)(2)                  142,083         21,850          43,700          43,760           32,775
Contingent consideration
payable for acquisition(3)               97,740         37,225          60,515               -                -
Lease obligations(4)                     16,668          4,958           6,499           3,426            1,785
Total                             $   1,044,730     $   64,033     $   110,714     $    47,186     $    822,799




(1)   The total principal payments on borrowings reflects the gross amount of

principal outstanding on the term loans under the 2019 Credit Agreement as

of December 31, 2020. The Company has satisfied the required principal

amortization of 1.00% per annum through the term of the loan, July 2026.

Subsequent to December 31, 2020, the Company has repaid an additional $47.5

million of principal outstanding on the term loans under the 2019 Credit

Agreement.

(2) The total interest payable reflects the interest obligation over the life

of the loans calculated based on the principal amount of the term loans

outstanding under the 2019 Credit Agreement as of December 31, 2020 using

the 2.73400% interest rate in effect on that date.



The Company entered into the First Amendment to the Credit Agreement on January
17, 2020. Pursuant to the First Amendment, the Company refinanced the Existing
Term Loans with Repriced Term Loans in an aggregate principal amount of $952.0
million. The Repriced Term Loans provide for a reduced applicable margin on
LIBOR of 75 basis points (2.50% compared to 3.25%).

(3) Represents the undiscounted contingent consideration that is estimated to

be payable over the next three years resulting from the USAA AMCO

Acquisition. At December 31, 2020, the estimated fair value of these

payments was $92.5 million, and a maximum of $112.5 million ($37.5 million

per year) is potentially payable to the sellers.

(4) Operating leases include the minimum rent commitments under non-cancelable

operating leases, net of cash expected to be received under the sub-lease.

Off­Balance Sheet Arrangements


In connection with dividends declared in February 2017 and December 2017,
holders of restricted stock awards that were unvested at the time such dividends
were declared are entitled to be paid the dividends as and when the restricted
stock vests. Holders of stock options that were unvested at the time the
December 2017 dividend was declared are entitled to receive a cash bonus
equivalent of the December 2017 dividend as and when their stock options vest.
These amounts are not recorded as a liability until and unless the awards vest
in accordance with their respective agreements.

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

As of December 31, 2020, the cash bonuses and distributions related to dividends
on restricted shares and options that are expected to vest in the future totaled
$1.2 million.

On September 20, 2020, the Company acquired, through a wholly owned subsidiary,
a 15% interest in Alderwood and made a capital contribution of $1.5 million in
cash. Alderwood's operating entity, Alderwood Capital, is a London-based
investment advisory firm focused on taking minority stakes in specialist
boutique asset management businesses. The Company has commitments to contribute
additional capital of $4.5 million to Alderwood and $50 million to a private
fund to be launched by Alderwood, upon the satisfaction of certain conditions.
Until these conditions are satisfied, the Company does not have an obligation to
contribute the additional capital and has not met the recognition criteria for a
liability. Refer to Note 13, Equity Method Investment, for further discussion
regarding the investment.

Critical Accounting Policies and Estimates


The preparation of our consolidated financial statements in accordance with GAAP
is based on the selection and application of accounting policies that require us
to make significant estimates and assumptions that in certain circumstances
affect amounts reported in the audited consolidated financial statements. In
preparing these financial statements, our estimates and judgements are based on
historical experience, information from third-party valuation professionals and
various other assumptions, giving due consideration to materiality. We consider
the accounting policies discussed below to be critical to the understanding of
our consolidated financial statements. Actual results could differ from our
estimates and assumptions, and any such difference could be material to our
consolidated financial statements. Significant accounting policies are described
more fully in Note 2, Significant Accounting Policies, to the audited
consolidated financial statements.

Business Combinations - We recognize and measure identifiable assets acquired
and liabilities assumed in business combinations as of the acquisition date at
fair value. The process of determining the fair value of identifiable intangible
assets at the date of acquisition utilizes an income approach and requires
significant estimates and judgment as to expectations for earnings on the
related managed assets acquired, redemption rates, growth rates from sales
efforts, the effects of market conditions and a discount rate. The process for
estimating the fair value of acquired trade names considers comparable royalty
rates and projected revenue streams. We typically utilize an independent
valuation expert to assist with these valuations.

We recognize and measure contingent consideration liabilities at fair value as
of the acquisition date using an option pricing model and Monte Carlo
simulation. These valuations require significant estimates and judgments related
to projected revenue growth rates, adjustments for market-based risk, volatility
and discount rates. The fair value of contingent consideration liabilities is
remeasured at each reporting period, typically using the same methodology used
to determine the acquisition date fair value. Any change in the fair value
estimate subsequent to the acquisition date is recorded in the earnings of that
period.

Goodwill and Indefinite­lived Intangible Assets - The accounting for goodwill
and indefinite­lived intangible assets requires significant estimates and
judgment in the ongoing evaluation for impairment, and for indefinite-lived
intangible assets, reconsideration of an asset's useful life. Changes in these
assumptions or estimates could materially affect the determination of the fair
value of goodwill and indefinite-lived intangible assets.

Goodwill and indefinite­lived intangible assets are reviewed for impairment
annually as of October 1 using a qualitative approach which requires the
weighing of positive and negative evidence collected through the consideration
of various factors to determine whether it is more likely than not that the
asset is impaired.

For goodwill, we consider the Company's performance relative to historical or
projected future operating results, significant changes in the Company's use of
the acquired assets in a business combination or strategy for the Company's
overall business, market cap and significant industry or economic trends. If,
after considering various factors, management determines that it is more likely
than not that goodwill is impaired, a two-step process to test for and measure
impairment is performed which begins with a quantitative assessment to estimate
the fair value of the Company. The assumptions used to estimate fair value for
goodwill include management's estimates of future growth rates, operating cash
flows, discount rates and terminal value.

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Because the advisory, distribution and transfer agent contracts are with the
funds, renewable annually and have a history of being renewed, industry practice
under GAAP is to consider the contract lives to be indefinite and, as a result,
not amortizable. For these fund contracts as well as the trade name
indefinite-lived intangible assets, we consider (i) macroeconomic and
entity­specific factors, including changes to legal, regulatory or contractual
provisions of the renewable advisory and distribution contracts, (ii) the
effects of obsolescence, demand, competition and other economic factors that
could impact the funds' projected performance and (iii) the existence or
expectation of significant changes in the level and mix of managed assets.

In addition, for indefinite-lived intangible assets, we consider whether events or circumstances continue to support an indefinite useful life. Indicators monitored by us that may indicate an indefinite useful life is no longer supported generally include (i) changes in the use of the asset, (ii) a significant decline in the level of managed assets and (iii) significant reductions in underlying operating cash flows.


Indefinite-lived intangible assets are combined into a single unit of accounting
for purposes of testing impairment if they operate as a single asset and
represent as a group the highest and best use of the assets. If actual changes
in the underlying managed assets or other conditions, such as redemption rates
or changes to contractual provisions, indicate that it is more likely than not
that the asset is impaired, or if the estimated useful life is reduced, we
perform a quantitative approach to estimate the fair value of the intangible
asset. The process of estimating the fair value of the intangible asset requires
us to estimate the level and mix of managed assets, considering future
redemption rates, growth rates, market appreciation/depreciation and a discount
rate. If the carrying value of the intangible asset exceeds its fair value, we
recognize an impairment charge equal to that excess.

In January 2017, the FASB issued ASU 2017-04 which simplifies the test for
goodwill impairment. ASU 2017-04 eliminates the requirement to calculate the
implied fair value of goodwill (step two) to measure a goodwill impairment
charge and requires a prospective approach to adoption. Goodwill impairment will
be based upon the results of step one of the impairment test, which is defined
as the excess of the carrying amount of a reporting unit over its fair value,
not to exceed the carrying amount of goodwill allocated to that reporting unit.
The effective date for calendar-year public business entities was January 1,
2020. The Company adopted ASU 2017-04 on January 1, 2021. There was no impact to
the Company's consolidated financial statements on the adoption date; the future
impact of the new guidance will depend upon the performance of our one reporting
unit and the market conditions impacting its fair value.

© Edgar Online, source Glimpses

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