Victory Capital Posts Record Third Quarter 2019 Financial Results

Published

Second Consecutive Quarter of Positive Net Flows and Positive Net Flows Year-to-Date

Third Quarter 2019 Highlights

  • Total AUM of $145.8 billion
  • Long-term net inflows of $726 million; long-term gross flows of $7.5 billion
  • GAAP operating margin of 25.9%; GAAP earnings of $0.35 per diluted share
  • Adjusted net income with tax benefit per diluted share of $0.911
  • Adjusted EBITDA margin of 44.8%1
  • Debt reduced by $63 million
  • Board authorizes regular quarterly cash dividend of $0.05 per share

 

SAN ANTONIO--(BUSINESS WIRE)-- Victory Capital Holdings, Inc. (NASDAQ: VCTR) (“Victory Capital” or “the Company”) today reported financial results for the three and nine months ended September 30, 2019.

“I’m pleased to report that Victory Capital continued to deliver excellent financial results in the third quarter of 2019, our first quarter post the acquisition of USAA Asset Management Company,” said David Brown, Chairman and Chief Executive Officer. “Revenue and adjusted net income more than doubled sequentially and adjusted EBITDA margin expanded to a record 44.8%. This marks our third consecutive quarter of meaningful margin expansion, which demonstrates the power of our integrated business model.

“Total AUM grew to $145.8 billion as of September 30, 2019. Long-term net inflows were positive for the second consecutive quarter at $726 million and are $3.3 billion year to date. Long-term gross flows were $7.5 billion for the quarter.

“Our integration efforts following the close of the USAA Asset Management acquisition continue to progress well, and we expect to achieve our previously disclosed cost synergies ahead of schedule. The direct channel for USAA members was reopened on July 1, 2019, and our call center, which is staffed largely by former USAA employees, is actively serving members’ investment needs.

“We paid down $63 million of debt during the quarter. Subsequent to quarter-end, we paid down an additional $40 million, bringing our total debt reduction since July 1, 2019, to $103 million. Additionally, today, we declared a second consecutive quarterly cash dividend of $0.05 per share.

“Looking ahead, our long-term corporate vision remains focused on leveraging our full suite of strategies to drive organic growth while maintaining the capital flexibility to pursue strategic acquisitions that we believe will augment our existing business. As in the past, serving the needs of our clients remains our top priority.”

1 The Company reports its financial results in accordance with generally accepted accounting principles (“GAAP”). Adjusted EBITDA and Adjusted Net Income are not defined by GAAP and should not be regarded as an alternative to any measurement under GAAP. Please see the section “Information Regarding Non-GAAP Financial Measures” at the end of this press release for an explanation of Non-GAAP financial measures and a reconciliation to the nearest GAAP financial measure.

The financial results reflect the acquisition of the USAA Asset Management Company that closed on July 1, 2019. The acquisition significantly increased assets under management as well as the financial results for the three and nine months ended September 30, 2019. The table below presents AUM, and certain GAAP and non-GAAP (“adjusted”) financial results. Due to rounding, AUM values and other amounts in this press release may not add up precisely to the totals provided.

(in millions except per share amounts or as otherwise noted)

 

For the Three Months Ended

 

For the Nine Months Ended

September 30,

 

June 30,

 

September 30,

 

September 30,

 

September 30,

2019

 

2019

 

2018

 

2019

 

2018

Assets Under Management
Ending

$

145,832

 

$

64,077

 

$

63,640

 

$

145,832

 

$

63,640

 

Average

145,904

 

60,063

 

63,447

 

87,670

 

62,361

 

 
Long-term Flows(2)
Long-term Gross(2)

$

7,456

 

$

7,514

 

$

2,896

 

$

18,008

 

$

10,102

 

Long-term Net(2)

726

 

3,694

 

(672

)

3,314

 

(1,408

)

 
Money Market Flows
Money Market Gross

$

4,449

 

$

$

$

4,449

 

$

Money Market Net

(65

)

(65

)

 
Total Flows
Total Gross

$

11,905

 

$

7,514

 

$

2,896

 

$

22,457

 

$

10,102

 

Total Net

661

 

3,694

 

(672

)

3,249

 

(1,408

)

 
Consolidated Financial Results (GAAP)
Revenue(2)

$

215.0

 

$

91.4

 

$

108.1

 

$

393.8

 

$

317.4

 

Revenue realization (in bps)(3)

58.5

 

61.0

 

67.6

 

60.1

 

68.0

 

Operating expenses(3)

159.4

 

68.6

 

76.3

 

293.4

 

228.7

 

Income from operations

55.6

 

22.7

 

31.8

 

100.4

 

88.8

 

Operating margin(3)

25.9

%

24.9

%

29.4

%

25.5

%

28.0

%

Net income

26.0

 

14.4

 

20.6

 

54.9

 

49.8

 

Earnings per diluted share

$

0.35

 

$

0.20

 

$

0.29

 

$

0.75

 

$

0.71

 

Cash flow from operations

118.4

 

31.4

 

40.3

 

167.7

 

99.9

 

 
Adjusted Performance Results (Non-GAAP)(1)
Adjusted EBITDA

$

96.3

 

$

36.6

 

$

43.3

 

$

166.5

 

$

123.8

 

Adjusted EBITDA margin(3)

44.8

%

40.0

%

40.1

%

42.3

%

39.0

%

Adjusted net income

60.5

 

24.4

 

29.0

 

106.8

 

78.6

 

Tax benefit of goodwill and acquired intangible assets

6.8

 

3.4

 

3.3

 

13.5

 

10.0

 

Adjusted net income with tax benefit

67.3

 

27.7

 

32.3

 

120.3

 

88.6

 

Adjusted net income with tax benefit per diluted share

$

0.91

 

$

0.38

 

$

0.45

 

$

1.64

 

$

1.26

 

Brown added: “The 480-basis point increase in adjusted EBITDA margin this quarter, more than offset the 2.5 basis-point decline in average fee rate realization. Our next generation integrated multi-boutique model is designed to thrive in a lower-fee-rate environment. We are focused on expanding margins and profitability—more than the top-line impact from mix shift—which is being driven by increasing sales of lower-fee Solutions and Fixed Income products.”

1 The Company reports its financial results in accordance with GAAP. Adjusted EBITDA and Adjusted Net Income are not defined by GAAP and should not be regarded as an alternative to any measurement under GAAP. Please see the section “Information Regarding Non-GAAP Financial Measures” at the end of this press release for an explanation of Non-GAAP financial measures and a reconciliation to the nearest GAAP financial measure.

 

2 Long-term AUM is defined as total AUM excluding Money Market assets.

 

3 On January 1, 2019, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers,” and now records all Mutual Fund and ETF waivers and expense reimbursements as a reduction of reported revenue and not as an expense item. Prior periods have not been restated, as permitted by the Financial Accounting Standards Board, due to the Company adopting the new revenue guidance using the modified retrospective method.

AUM, Flows and Investment Performance

Victory Capital’s total AUM increased by 128%, or $81.8 billion, to $145.8 billion at September 30, 2019, compared with $64.1 billion at June 30, 2019. The increase was attributable to $81.1 billion of acquired assets and positive long-term net inflows of $726 million. Total gross flows were $11.9 billion for the third quarter and $22.5 billion for the year-to-date period. Long-term AUM increased by 110%, or $70.3 billion, to $134.4 billion at September 30, 2019, compared with $64.1 billion at June 30, 2019. For the year-to-date period, the Company reported long-term gross flows of $18.0 billion and positive net inflows of $3.3 billion.

At quarter end, Victory Capital offered 116 investment strategies through its nine autonomous Investment Franchises and Solutions Platform. The table below presents outperformance against benchmarks by AUM and strategies for Legacy Victory Capital, USAA Fixed Income products and total firm-wide products through September 30, 2019.

Trailing

 

Trailing

 

Trailing

 

Trailing

Percentage of AUM Outperforming Benchmark

1-Year

 

3-Years

 

5-Years

 

10-Years

Legacy Victory Capital

76%

83%

73%

92%

USAA Fixed Income

67%

88%

88%

95%

Total Victory Capital

59%

64%

60%

73%

Third Quarter 2019 Compared with Second Quarter 2019

Revenue increased 135% to $215.0 million, in the third quarter of 2019, compared with revenue of $91.4 million in the second quarter. The increase was due to higher average AUM in the third quarter, offset by a lower reported average fee rate related to shifting business mix. GAAP operating margin increased 100 basis points in the third quarter to 25.9%, from 24.9% in the second quarter. Third quarter GAAP net income rose 81% to $26.0 million, up from $14.4 million in the second quarter. On a per-share basis, GAAP net income grew 75% to a record $0.35 per diluted share in the third quarter, versus $0.20 per diluted share in the previous three months.

Adjusted net income with tax benefit increased 143% to $67.3 million in the third quarter, up from $27.7 million in the second quarter. Adjusted net income per diluted share increased 139% to $0.91 per diluted share in the third quarter of 2019, up from $0.38 per diluted share in the second quarter of the year. Adjusted EBITDA rose 163% to a record high $96.3 million for the year’s third quarter, versus $36.6 million in the prior quarter. Adjusted EBITDA margin expanded 480 basis points to 44.8% in the third quarter of 2019, compared with 40.0% in the second quarter of this year.

Third Quarter 2019 Compared with Third Quarter 2018

Revenue for the quarter ended September 30, 2019, advanced 99% to $215.0 million, compared with $108.1 million in the same quarter last year, due to higher average AUM, offset by a lower average fee rate realization and the adoption of ASU 2014-09 in 2019. Revenue for the third quarter of 2019 includes a reduction of $5.2 million in mutual fund waivers and reimbursements due to the adoption of ASU 2014-09, compared with no such reduction of revenue in the prior year.

GAAP operating margin was 25.9% in the quarter, compared with 29.4% in the third quarter of 2018. Operating expenses increased 109% to $159.4 million, compared with $76.3 million in the prior-year quarter. The current-year quarter included $21.2 million of acquisition, restructuring, and integration operating expenses—compared with $1.5 million of similar costs in the third quarter of 2018—reducing GAAP operating margin by 987 basis points in the current year. Last year’s third-quarter distribution and other asset based expenses included $3.1 million of fund waivers and reimbursements that are no longer included in operating expenses following the adoption of ASU 2014-09 on January 1, 2019. GAAP net income rose 26% to $26.0 million, or $0.35 per diluted share, in the third quarter compared with $20.6 million, or $0.29 per diluted share, in the same quarter last year.

Adjusted net income with tax benefit more than doubled to $67.3 million, or $0.91 per diluted share, in the third quarter, compared with $32.3 million, or $0.45 per diluted share in the same quarter of 2018. Adjusted EBITDA rose 122% to $96.3 million, compared with $43.3 million in last year’s third quarter. Year-over-year, adjusted EBITDA margin expanded 470 basis points to 44.8% in the third quarter of 2019, compared with 40.1% in the same quarter last year.

Nine Months Ended September 30, 2019 Compared with Nine Months Ended September 30, 2018

Revenue increased 24% to $393.8 million for the nine months ended September 30, 2019, compared with $317.4 million last year’s comparable period, due to higher average AUM offset by a lower fee rates and the adoption of ASU 2014-09 in 2019. Revenue for the nine months includes a reduction of $13.4 million in mutual fund waivers and reimbursements due to the adoption of ASU 2014-09 on January 1, 2019, compared with no such reduction of revenue for the same period in 2018.

For the nine-month period, GAAP operating margin was 25.5%, compared with 28.0% in the comparable period of 2018. Operating expenses increased 28% to $293.4 million in the current year’s nine months, compared with $228.7 million in last year’s same period. Current-year operating expenses include $28.6 million of acquisition, restructuring, and integration costs, that reduced GAAP operating margin by 726 basis points in the current year, compared with $2.1 million of such costs in the same 2018 period. For the year-to-date period, GAAP net income was $54.9 million, or $0.75 per diluted share in 2019, up from $49.8 million, or $0.71 per diluted share, in the comparable period of 2018.

Adjusted net income with tax benefit was $120.3 million, or $1.64 per diluted share, for the nine months ended September 30, 2019, comprised of $1.46 per diluted share in adjusted net income and $0.18 per diluted share in tax benefit. This was up from adjusted net income with tax benefit of $88.6 million, or $1.26 per diluted share in 2018. Adjusted EBITDA and Adjusted EBITDA margin increased to $166.5 million and 42.3%, respectively, for the 2019 nine months, up from $123.8 million and 39.0%, respectively, in last year’s same period.

Balance Sheet / Capital Management

On July 1, 2019, the Company entered into a new $1.1 billion seven-year term loan, established a five-year $100 million senior secured revolving credit facility that remains undrawn and repaid and terminated the previous credit agreement. During the third quarter, the Company reduced outstanding debt by $63 million and initiated a quarterly cash dividend. Subsequent to quarter end, the Company repaid an additional $40 million of debt, reducing total debt by $103 million, since July 1.

Today, the Company’s Board of Directors declared a quarterly cash dividend of $0.05 per share cash dividend payable on December 26, 2019, to shareholders of record on December 10, 2019.

Conference Call, Webcast and Slide Presentation

The Company will host a conference call tomorrow morning, November 5, at 8:00 a.m. ET to discuss the results. Analysts and investors may participate in the question-and-answer session. To participate in the conference call, please dial (866) 465-5145 (domestic) or (409) 220-9945 (international), shortly before 8:00 a.m. ET. A live, listen-only webcast will also be available via the investor relations section of the Company’s website at https://ir.vcm.com. Prior to the call, a supplemental slide presentation that will be used during the conference call will be available on the Events and Presentations page of the Company’s investor relations website. For anyone who is unable to join the live event, an archive of the webcast will be available for replay shortly after the call concludes.

About Victory Capital

Victory Capital is a global investment management firm operating a next-generation, integrated multi-boutique business model with $145.8 billion in assets under management as of September 30, 2019.

Victory Capital provides specialized investment strategies to institutions, intermediaries, retirement platforms and individual investors, including USAA members through its direct member channel. Through its Investment Franchises and Solutions Platform, Victory Capital offers a diverse array of independent investment approaches and innovative investment vehicles designed to drive better investor outcomes. This includes actively managed mutual funds and separately managed accounts, rules-based and active ETFs, multi-asset class strategies, custom solutions and a 529 College Savings Plan.

For more information, please visit www.vcm.com or follow us on Twitter and LinkedIn.

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may include, without limitation, any statements preceded by, followed by or including words such as “target,” “believe,” “expect,” “aim,” “intend,” “may,” “anticipate,” “assume,” “budget,” “continue,” “estimate,” “future,” “objective,” “outlook,” “plan,” “potential,” “predict,” “project,” “will,” “can have,” “likely,” “should,” “would,” “could” and other words and terms of similar meaning or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond Victory Capital’s control, as discussed in Victory Capital’s filings with the SEC, that could cause Victory Capital’s actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements.

Although it is not possible to identify all such risks and factors, they include, among others, the following: reductions in AUM based on investment performance, client withdrawals, difficult market conditions and other factors; the nature of the Company’s contracts and investment advisory agreements; the Company’s ability to maintain historical returns and sustain its historical growth; the Company’s dependence on third parties to market its strategies and provide products or services for the operation of its business; the Company’s ability to retain key investment professionals or members of its senior management team; the Company’s reliance on the technology systems supporting its operations; the Company’s ability to successfully acquire and integrate new companies; the concentration of the Company’s investments in long-only small- and mid-cap equity and U.S. clients; risks and uncertainties associated with non-U.S. investments; the Company’s efforts to establish and develop new teams and strategies; the ability of the Company’s investment teams to identify appropriate investment opportunities; the Company’s ability to limit employee misconduct; the Company’s ability to meet the guidelines set by its clients; the Company’s exposure to potential litigation (including administrative or tax proceedings) or regulatory actions; the Company’s ability to implement effective information and cyber security policies, procedures and capabilities; the Company’s substantial indebtedness; the potential impairment of the Company’s goodwill and intangible assets; disruption to the operations of third parties whose functions are integral to the Company’s ETF platform; the Company’s determination that Victory Capital is not required to register as an "investment company" under the 1940 Act; the fluctuation of the Company’s expenses; the Company’s ability to respond to recent trends in the investment management industry; the level of regulation on investment management firms and the Company’s ability to respond to regulatory developments; the competitiveness of the investment management industry; the dual class structure of the Company’s common stock; the level of control over the Company retained by Crestview GP; the Company’s status as an emerging growth company and a controlled company; and other risks and factors listed under "Risk Factors" and elsewhere in the Company’s filings with the SEC.

Such forward-looking statements are based on numerous assumptions regarding Victory Capital’s present and future business strategies and the environment in which it will operate in the future. Any forward-looking statement made in this press release speaks only as of the date hereof. Except as required by law, Victory Capital assumes no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in the forward-looking statements, even if new information becomes available in the future.

Victory Capital and its affiliates are not affiliated with United Services Automobile Association or its affiliates. USAA and the USAA logo are registered trademarks and the USAA logo is a trademark of United Services Automobile Association and are being used by Victory Capital and its affiliates under license.

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands except per share data and percentages)

 

For the Three Months Ended

 

For the Nine Months Ended

September 30,

 

June 30,

 

September 30,

 

September 30,

 

September 30,

2019

 

2019

 

2018

 

2019

 

2018

Revenue
Investment management fees

$

155,406

 

$

78,042

 

$

92,525

 

$

307,859

 

$

270,653

 

Fund administration and distribution fees

59,574

 

13,318

 

15,557

 

85,960

 

46,792

 

Total revenue

214,980

 

91,360

 

108,082

 

393,819

 

317,445

 

 
Expenses
Personnel compensation and benefits

55,556

 

35,542

 

38,027

 

125,599

 

111,970

 

Distribution and other asset-based expenses

57,202

 

16,182

 

24,269

 

89,151

 

73,557

 

General and administrative

17,654

 

7,087

 

6,951

 

31,828

 

23,095

 

Depreciation and amortization

7,768

 

5,263

 

5,574

 

18,253

 

17,917

 

Change in value of consideration payable for acquisition of business

(14

)

(14

)

(4

)

Acquisition-related costs

16,386

 

2,787

 

1,451

 

21,950

 

1,446

 

Restructuring and integration costs

4,841

 

1,788

 

6,629

 

702

 

Total operating expenses

159,407

 

68,635

 

76,272

 

293,396

 

228,683

 

 
Income from operations

55,573

 

22,725

 

31,810

 

100,423

 

88,762

 

Operating margin

25.9

%

24.9

%

29.4

%

25.5

%

28.0

%

 
Other income (expense)
Interest income and other income/(expense)

2,742

 

656

 

(200

)

5,231

 

(229

)

Interest expense and other financing costs

(16,856

)

(4,520

)

(4,458

)

(26,000

)

(16,256

)

Loss on debt extinguishment

(7,409

)

(7,409

)

(6,058

)

Total other expense, net

(21,523

)

(3,864

)

(4,658

)

(28,178

)

(22,543

)

 
Income before income taxes

34,050

 

18,861

 

27,152

 

72,245

 

66,219

 

 
Income tax expense

(8,058

)

(4,478

)

(6,562

)

(17,343

)

(16,430

)

 
Net income

$

25,992

 

$

14,383

 

$

20,590

 

$

54,902

 

$

49,789

 

 
Earnings per share of common stock
Basic

$

0.38

 

$

0.21

 

$

0.30

 

$

0.81

 

$

0.76

 

Diluted

0.35

 

0.20

 

0.29

 

0.75

 

0.71

 

 
Weighted average number of shares outstanding
Basic

67,724

 

67,583

 

67,972

 

67,610

 

65,817

 

Diluted

73,671

 

73,521

 

71,864

 

73,300

 

70,168

 

 
Dividends declared per share

$

0.05

 

$

$

$

0.05

 

$

Victory Capital Holdings, Inc. and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

(unaudited; in thousands except per share data and percentages)

 

For the Three Months Ended

 

For the Nine Months Ended

September 30,

 

June 30,

 

September 30,

 

September 30,

 

September 30,

2019

 

2019

 

2018

 

2019

 

2018

Net income (GAAP)

$

25,992

 

$

14,383

 

$

20,590

 

$

54,902

 

$

49,789

 

Income tax expense

(8,058

)

(4,478

)

(6,562

)

(17,343

)

(16,430

)

Income before income taxes

$

34,050

 

$

18,861

 

$

27,152

 

$

72,245

 

$

66,219

 

Interest expense

18,388

 

3,613

 

4,053

 

25,854

 

16,376

 

Depreciation

682

 

612

 

775

 

1,865

 

2,247

 

Other business taxes

146

 

424

 

350

 

1,125

 

1,168

 

Amortization of acquisition-related intangible assets

7,086

 

4,651

 

4,799

 

16,388

 

15,670

 

Stock-based compensation

4,326

 

3,321

 

4,005

 

9,125

 

11,295

 

Acquisition, restructuring and exit costs

24,452

 

4,575

 

1,647

 

31,804

 

2,725

 

Debt issuance costs

10,002

 

366

 

373

 

10,732

 

7,436

 

Pre-IPO governance expenses

138

 

Earnings/losses from equity method investments

(2,837

)

150

 

167

 

(2,683

)

506

 

Adjusted EBITDA

$

96,295

 

$

36,573

 

$

43,321

 

$

166,455

 

$

123,780

 

Adjusted EBITDA margin

44.8

%

40.0

%

40.1

%

42.3

%

39.0

%

 
 
Net income (GAAP)

$

25,992

 

$

14,383

 

$

20,590

 

$

54,902

 

$

49,789

 

Adjustment to reflect the operating performance of the Company
Other business taxes

146

 

424

 

350

 

1,125

 

1,168

 

Amortization of acquisition-related intangible assets

7,086

 

4,651

 

4,799

 

16,388

 

15,670

 

Stock-based compensation

4,326

 

3,321

 

4,005

 

9,125

 

11,295

 

Acquisition, restructuring and exit costs

24,452

 

4,575

 

1,647

 

31,804

 

2,725

 

Debt issuance costs

10,002

 

366

 

373

 

10,732

 

7,436

 

Pre-IPO governance expenses

138

 

Tax effect of above adjustments

(11,503

)

(3,334

)

(2,794

)

(17,293

)

(9,608

)

Adjusted net income

$

60,501

 

$

24,386

 

$

28,970

 

$

106,783

 

$

78,613

 

Adjusted net income per diluted share

$

0.82

 

$

0.33

 

$

0.40

 

$

1.46

 

$

1.12

 

 
Tax benefit of goodwill and acquired intangible assets

$

6,802

 

$

3,361

 

$

3,318

 

$

13,523

 

$

9,958

 

Tax benefit of goodwill and acquired intangible assets per diluted share

$

0.09

 

$

0.05

 

$

0.05

 

$

0.18

 

$

0.14

 

 
Adjusted net income with tax benefit

$

67,303

 

$

27,747

 

$

32,288

 

$

120,306

 

$

88,571

 

Adjusted net income with tax benefit per diluted share

$

0.91

 

$

0.38

 

$

0.45

 

$

1.64

 

$

1.26

 

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except for shares)

 
September 30, 2019 December 31, 2018
Assets
Cash and cash equivalents

$

78,963

 

$

51,491

 

Receivables

86,446

 

44,120

 

Prepaid expenses

4,606

 

2,664

 

Investments

16,993

 

13,320

 

Property and equipment, net

11,317

 

8,780

 

Goodwill

391,515

 

284,108

 

Other intangible assets, net

1,198,361

 

387,679

 

Other assets

3,441

 

9,349

 

Total assets

$

1,791,642

 

$

801,511

 

 
Liabilities and stockholders' equity
Accounts payable and accrued expenses

$

102,078

 

$

20,350

 

Accrued compensation and benefits

44,629

 

30,228

 

Consideration payable for acquisition of business

102,800

 

5,838

 

Deferred tax liability, net

9,522

 

6,212

 

Other liabilities

20,000

 

14,478

 

Long-term debt(1)

1,005,928

 

268,857

 

Total liabilities

1,284,957

 

345,963

 

 
Stockholders' equity:
Class A common stock, $0.01 par value per share: 2019 - 400,000,000 shares authorized, 17,806,125 shares issued and 16,413,700 shares outstanding; 2018 - 400,000,000 shares authorized, 15,280,833 shares issued and 14,424,558 shares outstanding

178

 

153

 

Class B common stock, $0.01 par value per share: 2019 - 200,000,000 shares authorized, 53,684,006 shares issued and 51,283,669 shares outstanding; 2018 - 200,000,000 shares authorized, 55,284,408 shares issued and 53,137,428 shares outstanding

537

 

553

 

Additional paid-in capital

617,469

 

604,401

 

Class A treasury stock, at cost: 2019 - 1,392,425 shares; 2018 - 856,275 shares

(16,440

)

(8,045

)

Class B treasury stock, at cost: 2019 - 2,400,337 shares; 2018 - 2,146,980 shares

(26,161

)

(21,719

)

Accumulated other comprehensive loss

(45

)

(86

)

Retained deficit

(68,853

)

(119,709

)

Total stockholders' equity

506,685

 

455,548

 

Total liabilities and stockholders’ equity

$

1,791,642

 

$

801,511

 

(1)

In connection with the acquisition, the Company entered into the 2019 Credit Agreement, dated July 1, 2019. All indebtedness outstanding under the previous credit agreement was repaid and terminated as of July 1, 2019. Balances at September 30, 2019 and December 31, 2018 are shown net of unamortized loan discount and debt issuance costs in the amount of $31.1 million and $11.1 million, respectively. The gross amount of the debt outstanding was $1,037.0 million as of September 30, 2019 and $280.0 million as of December 31, 2018.

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management

(unaudited; in millions except for percentages)

 

For the Three Months Ended

 

% Change from

September 30,

 

June 30,

 

September 30,

 

June 30,

 

September 30,

2019

 

2019

 

2018

 

2019

 

2018

Beginning assets under management

$

64,077

 

$

58,119

 

$

62,256

 

10%

 

3%

Gross client cash inflows

11,905

 

7,514

 

2,896

 

58%

 

311%

Gross client cash outflows

(11,244

)

(3,819

)

(3,568

)

194%

 

215%

Net client cash flows

661

 

3,694

 

(672

)

-82%

 

198%

Market appreciation (depreciation)

(54

)

2,269

 

2,056

 

-102%

 

-103%

Acquired assets / Net transfers

81,147

 

(4

)

n/m

 

n/m

Ending assets under management

145,832

 

64,077

 

63,640

 

128%

 

129%

Average assets under management

145,904

 

60,063

 

63,447

 

143%

 

130%

 

For the Nine Months Ended

 

 

 

 

% Change from

September 30,

 

September 30,

 

 

 

 

September 30,

2019

 

2018

 

 

 

 

2018

Beginning assets under management

$

52,763

 

$

61,771

 

-15%

Gross client cash inflows

22,457

 

10,102

 

122%

Gross client cash outflows

(19,208

)

(11,510

)

67%

Net client cash flows

3,249

 

(1,408

)

331%

Market appreciation (depreciation)

8,675

 

3,285

 

164%

Acquired assets / Net transfers

81,143

 

(8

)

n/m

Ending assets under management

145,832

 

63,640

 

129%

Average assets under management

87,670

 

62,361

 

41%

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Asset Class

(unaudited; in millions)

 
For the Three Months Ended By Asset Class

Global /

U.S. Mid

 

U.S. Small

 

Fixed

 

U.S. Large

 

Non-U.S.

 

 

 

 

 

 

 

Total

 

Money

 

 

 

Cap Equity

 

Cap Equity

 

Income

 

Cap Equity

 

Equity

 

Solutions

 

Other

 

Long-term

 

Market

 

Total

September 30, 2019
Beginning assets under management

$

24,203

 

$

15,278

 

$

7,300

 

$

4,108

 

$

5,498

 

$

6,919

 

$

771

 

$

64,077

 

$

$

64,077

 

Gross client cash inflows

880

 

779

 

4,071

 

166

 

326

 

1,207

 

28

 

7,456

 

4,449

 

11,905

 

Gross client cash outflows

(1,396

)

(1,069

)

(1,789

)

(497

)

(566

)

(1,296

)

(118

)

(6,730

)

(4,514

)

(11,244

)

Net client cash flows

(516

)

(290

)

2,282

 

(331

)

(240

)

(89

)

(90

)

726

 

(65

)

661

 

Market appreciation (depreciation)

(26

)

(249

)

528

 

(301

)

(192

)

225

 

(83

)

(98

)

44

 

(54

)

Acquired assets / Net transfers

1,818

 

1,527

 

27,674

 

10,012

 

6,465

 

22,523

 

(354

)

69,665

 

11,482

 

81,147

 

Ending assets under management

$

25,479

 

$

16,266

 

$

37,784

 

$

13,488

 

$

11,532

 

$

29,579

 

$

243

 

$

134,371

 

$

11,460

 

$

145,832

 

 
June 30, 2019
Beginning assets under management

$

22,169

 

$

14,714

 

$

6,973

 

$

4,117

 

$

5,234

 

$

3,996

 

$

918

 

$

58,119

 

$

$

58,119

 

Gross client cash inflows

2,784

 

729

 

506

 

22

 

333

 

3,092

 

48

 

7,514

 

7,514

 

Gross client cash outflows

(1,840

)

(924

)

(330

)

(128

)

(205

)

(295

)

(97

)

(3,819

)

(3,819

)

Net client cash flows

944

 

(195

)

176

 

(106

)

128

 

2,797

 

(49

)

3,694

 

3,694

 

Market appreciation (depreciation)

1,090

 

760

 

152

 

101

 

137

 

126

 

(97

)

2,269

 

2,269

 

Acquired assets / Net transfers

(1

)

(4

)

(4

)

(4

)

Ending assets under management

$

24,203

 

$

15,278

 

$

7,300

 

$

4,108

 

$

5,498

 

$

6,919

 

$

771

 

$

64,077

 

$

$

64,077

 

 
September 30, 2018
Beginning assets under management

$

24,485

 

$

15,971

 

$

6,978

 

$

4,577

 

$

4,705

 

$

3,815

 

$

1,725

 

$

62,256

 

$

$

62,256

 

Gross client cash inflows

964

 

740

 

449

 

42

 

307

 

321

 

73

 

2,896

 

2,896

 

Gross client cash outflows

(1,660

)

(860

)

(346

)

(179

)

(193

)

(61

)

(269

)

(3,568

)

(3,568

)

Net client cash flows

(696

)

(120

)

103

 

(137

)

114

 

260

 

(196

)

(672

)

(672

)

Market appreciation (depreciation)

1,225

 

587

 

67

 

204

 

(81

)

149

 

(95

)

2,056

 

2,056

 

Acquired assets / Net transfers

1

 

(1

)

Ending assets under management

$

25,014

 

$

16,438

 

$

7,149

 

$

4,644

 

$

4,738

 

$

4,224

 

$

1,433

 

$

63,640

 

 

$

$

63,640

 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Asset Class

(unaudited; in millions)

 
For the Nine Months Ended By Asset Class
Global /

U.S. Mid

 

U.S. Small

 

Fixed

 

U.S. Large

 

Non-U.S.

 

 

 

 

 

 

 

Total

 

Money

 

 

 

Cap Equity

 

Cap Equity

 

Income

 

Cap Equity

 

Equity

 

Solutions

 

Other

 

Long-term

 

Market

 

Total

September 30, 2019
Beginning assets under management

$

20,019

 

$

12,948

 

$

6,836

 

$

3,759

 

$

4,610

 

$

3,767

 

$

823

 

$

52,763

 

$

$

52,763

 

Gross client cash inflows

4,656

 

2,500

 

4,880

 

214

 

1,024

 

4,578

 

155

 

18,008

 

4,449

 

22,457

 

Gross client cash outflows

(5,021

)

(3,052

)

(2,502

)

(809

)

(1,048

)

(1,940

)

(321

)

(14,694

)

(4,514

)

(19,208

)

Net client cash flows

(365

)

(552

)

2,378

 

(595

)

(24

)

2,638

 

(166

)

3,314

 

(65

)

3,249

 

Market appreciation (depreciation)

4,006

 

2,345

 

896

 

316

 

480

 

649

 

(60

)

8,631

 

44

 

8,675

 

Acquired assets / Net transfers

1,820

 

1,526

 

27,674

 

10,007

 

6,465

 

22,525

 

(354

)

69,661

 

$

11,482

 

81,143

 

Ending assets under management

$

25,479

 

$

16,266

 

$

37,784

 

$

13,488

 

$

11,532

 

$

29,579

 

$

243

 

$

134,371

 

$

11,460

 

$

145,832

 

 
September 30, 2018
Beginning assets under management

$

25,185

 

$

15,308

 

$

7,551

 

$

4,789

 

$

4,105

 

$

3,028

 

$

1,805

 

$

61,771

 

$

$

61,771

 

Gross client cash inflows

3,292

 

2,383

 

1,145

 

200

 

1,420

 

1,307

 

355

 

10,102

 

10,102

 

Gross client cash outflows

(5,162

)

(2,527

)

(1,637

)

(677

)

(594

)

(307

)

(606

)

(11,510

)

(11,510

)

Net client cash flows

(1,870

)

(144

)

(492

)

(477

)

826

 

1,000

 

(251

)

(1,408

)

(1,408

)

Market appreciation (depreciation)

1,680

 

1,293

 

89

 

320

 

(185

)

156

 

(68

)

3,285

 

3,285

 

Acquired assets / Net transfers

19

 

(19

)

1

 

12

 

(8

)

40

 

(53

)

(8

)

(8

)

Ending assets under management

$

25,014

 

$

16,438

 

$

7,149

 

$

4,644

 

$

4,738

 

$

4,224

 

$

1,433

 

$

63,640

 

$

$

63,640

 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Vehicle

(unaudited; in millions)

 
For the Three Months Ended

By Vehicle

Separate

Accounts

Mutual

and Other

Funds(1)

ETFs

Vehicles(2)

Total

September 30, 2019
Beginning assets under management

$

34,258

 

$

3,093

 

$

26,726

 

$

64,077

 

Gross client cash inflows

8,383

 

245

 

3,277

 

11,905

 

Gross client cash outflows

(9,643

)

(258

)

(1,343

)

(11,244

)

Net client cash flows

(1,260

)

(13

)

1,934

 

661

 

Market appreciation (depreciation)

267

 

4

 

(325

)

(54

)

Acquired assets / Net transfers

80,806

 

782

 

(441

)

81,147

 

Ending assets under management

$

114,071

 

$

3,867

 

$

27,894

 

$

145,832

 

 
June 30, 2019
Beginning assets under management

$

33,786

 

3,123

 

21,210

 

58,119

 

Gross client cash inflows

1,998

 

107

 

5,409

 

7,514

 

Gross client cash outflows

(2,874

)

(231

)

(714

)

(3,819

)

Net client cash flows

(876

)

(124

)

4,694

 

3,694

 

Market appreciation (depreciation)

1,352

 

94

 

823

 

2,269

 

Acquired assets / Net transfers

(4

)

(4

)

Ending assets under management

$

34,258

 

$

3,093

 

$

26,726

 

$

64,077

 

 
September 30, 2018
Beginning assets under management

$

37,818

 

$

2,906

 

$

21,532

 

$

62,256

 

Gross client cash inflows

2,098

 

305

 

493

 

2,896

 

Gross client cash outflows

(2,950

)

(18

)

(600

)

(3,568

)

Net client cash flows

(852

)

287

 

(107

)

(672

)

Market appreciation (depreciation)

1,223

 

102

 

731

 

2,056

 

Acquired assets / Net transfers

Ending assets under management

$

38,189

 

$

3,295

 

$

22,156

 

$

63,640

(1)

Includes institutional and retail share classes, money market and VIP funds.

(2)

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

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Vehicle

(unaudited; in millions)

 
For the Nine Months Ended

By Vehicle

Separate

Accounts

Mutual

and Other

Funds(1)

ETFs

Vehicles(2)

Total

September 30, 2019
Beginning assets under management

$

30,492

 

$

2,956

 

$

19,315

 

$

52,763

 

Gross client cash inflows

12,760

 

594

 

9,103

 

22,457

 

Gross client cash outflows

(15,403

)

(789

)

(3,016

)

(19,208

)

Net client cash flows

(2,643

)

(195

)

6,087

 

3,249

 

Market appreciation (depreciation)

5,421

 

323

 

2,931

 

8,675

 

Acquired assets / Net transfers

80,802

 

782

 

(441

)

81,143

 

Ending assets under management

$

114,071

 

$

3,867

 

$

27,894

 

$

145,832

 

 
September 30, 2018
Beginning assets under management

$

37,967

 

$

2,250

 

$

21,555

 

$

61,771

 

Gross client cash inflows

7,279

 

1,082

 

1,741

 

10,102

 

Gross client cash outflows

(8,924

)

(143

)

(2,443

)

(11,510

)

Net client cash flows

(1,645

)

939

 

(702

)

(1,408

)

Market appreciation (depreciation)

1,878

 

106

 

1,301

 

3,285

 

Acquired assets / Net transfers

(11

)

3

 

(8

)

Ending assets under management

$

38,189

 

$

3,295

 

$

22,156

 

$

63,640

 

(1)

Includes institutional and retail share classes, money market and VIP funds.

(2)

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

Information Regarding Non-GAAP Financial Measures

Victory Capital uses non-GAAP financial measures referred to as Adjusted EBITDA and Adjusted Net Income to measure the operating profitability of the Company. These measures eliminate the impact of one-time acquisition, restructuring and integration costs and demonstrate the ongoing operating earnings metrics of the Company. The Company has included these non-GAAP measures to provide investors with the same financial metrics used by management to assess the operating performance of the Company.

Adjusted EBITDA

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

  • Adding back income tax expense;
  • Adding back interest paid on debt and other financing costs, net of interest income;
  • Adding back depreciation on property and equipment;
  • Adding back other business taxes;
  • Adding back amortization expense on acquisition-related intangible assets;
  • Adding back stock-based compensation expense associated with equity awards issued from pools created in connection with the management-led buyout and various acquisitions and as a result of equity grants related to the IPO;
  • Adding back direct incremental costs of acquisitions and the IPO, including restructuring costs;
  • Adding back debt issuance cost expense;
  • Adding back pre-IPO governance expenses paid to the Company’s private equity partners that terminated as of the completion of the IPO; and
  • Adjusting for earnings/losses on equity method investments.

Adjusted Net Income

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

  • Adding back other business taxes;
  • Adding back amortization expense on acquisition-related intangible assets;
  • Adding back stock-based compensation expense associated with equity awards issued from pools created in connection with the management-led buyout and various acquisitions and as a result of any equity grants related to the IPO;
  • Adding back direct incremental costs of acquisitions and the IPO, including restructuring costs;
  • Adding back debt issuance cost expense;
  • Adding back pre-IPO governance expenses paid to the Company’s private equity partners that terminated as of the completion of the IPO; and
  • Subtracting an estimate of income tax expense applied to the sum of the adjustments above.

Tax Benefit of Goodwill and Acquired Intangible Assets

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

View source version on businesswire.com: https://www.businesswire.com/news/home/20191104005877/en/

Investors: Matthew Dennis, CFA Chief of Staff Director, Investor Relations 216-898-2412 mdennis@vcm.com

Media: Tricia Ross 310-622-8226 tross@finprofiles.com

Source: Victory Capital Holdings, Inc.

In This Story

VCTR