Victory Capital Holdings, Inc. (NASDAQ: VCTR) (“Victory Capital” or
“the Company”) today reported its results for the three months
ended March 31, 2019.
“I am pleased to report that Victory Capital
achieved excellent investment and financial results during the
first quarter of 2019,” said David Brown, Chairman and Chief
Executive Officer. “Our Investment Franchises and Solutions
Platform continued to deliver strong investment performance on
behalf of our clients with 75% of AUM outperforming its respective
benchmarks over the trailing three-year period ended March 31,
2019. Firmwide AUM increased during the quarter and year to date
through April 30, 2019. The first quarter was also marked by
healthy margins, earnings and cash flows.
“Total AUM grew to $61 billion through the first
four months of 2019. Year-to-date net flows were slightly negative
at $300 million through the end of April, but have turned positive
in early May following the funding of a few large client mandates.
We believe our business performance year to date illustrates the
sound positioning of our integrated multi-boutique model in a
rapidly evolving industry and the effectiveness of our distribution
platform.
“The planned acquisition of USAA Asset
Management Company remains on track and is targeted to close
effective July 1, 2019.2 Plans to integrate the USAA business are
progressing well, and I’m pleased to report that the shareholder
approval process is complete for all of the USAA mutual funds and
ETFs. Additionally, we have increased our cost synergy estimates
from $100 million to $110 million. We now expect $60 million of
synergies to be in place at close, $95 million within six months of
close, and the full $110 million within 12 to 15 months of close.
This schedule is accelerated from previously communicated
timeframes.
“USAA Asset Management Company’s AUM as of March
31, 2019 was $80 billion. This includes $70 billion in AUM invested
through the direct member channel, the 529 college savings plan and
the intermediary platform. It also includes an additional $10
billion in AUM that is invested in USAA Mutual Funds through the
managed money product offered by USAA’s brokerage platform.
“The more we learn about USAA Asset Management
Company and the member platform, the more excited we are about this
tremendous opportunity, which will truly transform our business. It
will meaningfully diversify our AUM and investment capabilities,
while further enhancing economies of scale. It will also
significantly expand our distribution platform to include a direct
channel to serve USAA members.
“We have fully committed debt financing for the
acquisition. Our pro-forma Debt / EBITDA ratio at the close of the
transaction is expected to be ~2.9x. Additionally, strong cash flow
from operations has enabled us to continue to accumulate cash to
support the acquisition.
“Looking ahead, we remain committed to creating
long-term value for our shareholders through the disciplined
execution of our corporate vision, which combines strategic
acquisitions with organic growth. As in the past, serving the needs
of our clients remains our top priority.”
1Adjusted EBITDA and Adjusted Net Income are
non-GAAP financial measures. Reconciliation of each of Adjusted
EBITDA and Adjusted Net Income to Net Income have been provided in
the non-GAAP reconciliation tables in this press release. An
explanation of these non-GAAP financial measures is included below
under the heading “Information Regarding Non-GAAP Financial
Measures”. 2The acquisition of USAA Asset Management Company is
subject to regulatory and other customary approvals and conditions.
Victory Capital is not acquiring the USAA brokerage business.
The table below presents AUM, and certain GAAP
and non-GAAP (“adjusted”) financial results. Due to rounding, AUM
values in this press release may not add up precisely to the totals
provided.
(in millions except per share amounts or as
otherwise noted)
|
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|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
December 31, |
|
March 31, |
|
|
|
2019 |
|
2018 |
|
2018 |
|
Assets Under Management |
|
|
|
|
|
|
|
|
|
|
Ending |
|
$ |
58,119 |
|
|
$ |
52,763 |
|
|
$ |
60,855 |
|
|
Average |
|
|
57,043 |
|
|
|
58,474 |
|
|
|
62,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Flows |
|
|
|
|
|
|
|
|
|
|
Gross |
|
$ |
3,038 |
|
|
$ |
4,028 |
|
|
$ |
3,685 |
|
|
Net |
|
|
(1,105 |
) |
|
|
(1,019 |
) |
|
|
(633 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Financial Results
(GAAP) |
|
|
|
|
|
|
|
|
|
|
Revenue(2) |
|
$ |
87.5 |
|
|
$ |
96.0 |
|
|
$ |
105.0 |
|
|
Revenue realization (in bps)(2) |
|
|
62.2 |
|
|
|
65.1 |
|
|
|
68.6 |
|
|
Operating expenses(2) |
|
|
65.4 |
|
|
|
70.2 |
|
|
|
77.7 |
|
|
Income from operations |
|
|
22.1 |
|
|
|
25.8 |
|
|
|
27.3 |
|
|
Operating margin(2) |
|
|
25.3 |
% |
|
|
26.8 |
% |
|
|
26.0 |
% |
|
Net income |
|
|
14.5 |
|
|
|
13.9 |
|
|
|
10.5 |
|
|
Earnings per diluted share |
|
$ |
0.20 |
|
|
$ |
0.19 |
|
|
$ |
0.16 |
|
|
Cash flow from operations |
|
|
17.9 |
|
|
|
34.4 |
|
|
|
25.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Performance Results
(Non-GAAP)(1) |
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
33.6 |
|
|
$ |
36.4 |
|
|
$ |
39.8 |
|
|
Adjusted EBITDA margin(2) |
|
|
38.4 |
% |
|
|
37.9 |
% |
|
|
37.9 |
% |
|
Adjusted net income |
|
|
21.9 |
|
|
|
23.6 |
|
|
|
23.1 |
|
|
Tax benefit of goodwill and acquired intangibles |
|
|
3.4 |
|
|
|
3.3 |
|
|
|
3.3 |
|
|
Adjusted net income with tax benefit |
|
|
25.3 |
|
|
|
27.0 |
|
|
|
26.4 |
|
|
Adjusted net income with tax benefit per diluted share |
|
$ |
0.35 |
|
|
$ |
0.38 |
|
|
$ |
0.40 |
|
|
1Adjusted EBITDA and Adjusted Net Income are
non-GAAP financial measures. Reconciliation of each of Adjusted
EBITDA and Adjusted Net Income to Net Income have been provided in
the non-GAAP reconciliation tables in this press release. An
explanation of these non-GAAP financial measures is included below
under the heading “Information Regarding Non-GAAP Financial
Measures”.2On January 1, 2019, the Company adopted ASU 2014-09 and
now records all Mutual Fund and ETF waivers and expense
reimbursements as a reduction of reported revenue and not as an
expense item. The impact in the first quarter of 2019 was a $4.1
million decrease in revenue and operating expenses, a 2.9 basis
point decrease in revenue realization, a 1.1% increase in operating
margin and a 1.7% increase in Adjusted EBITDA margin. Because the
Company adopted the new guidance using the modified retrospective
method, prior periods have not been restated.
AUM, Flows and Investment
Performance
Victory Capital’s AUM increased by $5.3 billion
to $58.1 billion at March 31, 2019, compared with $52.8 billion at
December 31, 2018. The increase was due to market appreciation of
$6.5 billion, partially offset by net outflows of $1.1 billion.
Gross flows for the first quarter were $3.0 billion. Subsequent to
quarter end, positive net flows during April resulted in
year-to-date net outflows improving to $0.3 billion, as of April
30, 2019, and AUM increasing to $61.0 billion.
As of March 31, 2019, Victory Capital offered 71
investment strategies through its nine autonomous Investment
Franchises and Solutions Platform. The table below presents
outperformance against benchmarks by AUM and strategies as of March
31, 2019.
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Trailing |
|
Trailing |
|
Trailing |
|
Trailing |
|
|
1-Year |
|
3-Years |
|
5-Years |
|
10-Years |
Percentage of AUM
Outperforming Benchmark |
|
60 |
% |
|
75 |
% |
|
74 |
% |
|
90 |
% |
Percentage of Strategies
Outperforming Benchmark |
|
55 |
% |
|
55 |
% |
|
63 |
% |
|
81 |
% |
First Quarter of 2019 Compared with Fourth
Quarter of 20181
For the quarter ended March 31, 2019, GAAP net
income rose 4% to $14.5 million, or $0.20 per diluted share,
compared with $13.9 million, or $0.19 per diluted share in the
fourth quarter of 2018. GAAP operating margin was 25.3% in the
first quarter compared to 26.8% in the fourth quarter of 2018.
Adjusted net income with tax benefit declined 6% to $25.3 million,
or $0.35 per diluted share, in the first quarter of 2019, comprised
of adjusted net income of $0.30 per diluted share and $0.05 per
diluted share of tax benefit related to acquired intangible assets.
In the fourth quarter of 2018, the Company reported adjusted net
income with tax benefit of $27.0 million or $0.38 per diluted
share.
Operating expenses in the first quarter of 2019
declined 7% to $65.4 million, compared with $70.2 million in the
fourth quarter of the prior year. Despite higher seasonal first
quarter personnel expenses, total expenses declined due to lower
variable expenses associated with lower average AUM and the
reclassification of $4.1 million of fund waivers and expense
reimbursements, which are now being recorded as reductions to
reported revenue due to the adoption of new revenue recognition
guidance (ASU 2014-09) on January 1, 2019. Due to the fact that the
Company adopted the new revenue recognition guidance using the
modified retrospective method, prior periods have not been
restated. The adoption of this new revenue recognition guidance
contributed to the 9% decline in reported revenue to $87.5 million
in the first quarter of 2019, compared with $96.0 million in the
fourth quarter of 2018. Adjusted EBITDA in 2019’s first quarter was
$33.6 million, down 8% from $36.4 million in the quarter ended
December 31, 2018. Adjusted EBITDA margin expanded in the first
quarter of 2019 to 38.4%, up from 37.9% in the fourth quarter of
2018, due to the adoption of the new revenue recognition guidance
and lower AUM.
First Quarter of 2019 Compared
with First Quarter of 20181
GAAP net income increased 38% to $14.5 million
in the quarter ended March 31, 2019, from $10.5 million in the same
quarter in 2018. On a per share basis, GAAP net income
advanced 25% to $0.20 per diluted share in the first quarter of
2019, compared with $0.16 per diluted share in 2018’s first
quarter. The increase reflects lower asset-based expenses in the
current year, partially offset by higher acquisition related costs,
and a $6.1 million expense in last year’s first quarter related to
debt extinguishment.
Adjusted net income with tax benefit decreased
4% to $25.3 million, in the first quarter of 2019, versus $26.4
million in the comparable 2018 quarter. First quarter adjusted net
income with tax benefit was $0.35 per diluted share in 2019, down
from $0.40 in the prior year. Adjusted EBITDA and Adjusted EBITDA
margin were $33.6 million and 38.4%, respectively, in 2019’s first
quarter, compared with $39.8 million and 37.9%, respectively, in
the first quarter of 2018. The declines were associated with lower
revenue, which was $87.5 million in the current-year quarter,
versus $105.0 million in the same period of 2018. The decrease in
reported revenue resulted from adopting the new revenue recognition
guidance in 2019, which lowered the fee realization rate, and lower
AUM.
First quarter 2019 operating expenses decreased
in all categories except for acquisition-related costs. Operating
expenses were $65.4 million in the first quarter of 2019, compared
to $77.7 million in the same quarter last year. Reflecting the
Company’s variable cost structure, distribution and other
asset-based expenses declined by 37%, and general and
administrative expenses were 22% lower, than in last year’s first
quarter. The adoption of the new revenue recognition guidance also
contributed to the decline in distribution and other asset-based
expenses in the first quarter of 2019.
1Adjusted EBITDA and Adjusted Net Income are
non-GAAP financial measures. Reconciliation of each of Adjusted
EBITDA and Adjusted Net Income to Net Income have been provided in
the non-GAAP reconciliation tables in this press release. An
explanation of these non-GAAP financial measures is included below
under the heading “Information Regarding Non-GAAP Financial
Measures”.
Balance Sheet / Capital
Management
Cash and cash equivalents rose to $66.3 million
at March 31, 2019, compared with $51.5 million at December 31,
2018. The term loan balance at March 31, 2019, was $280.0 million,
unchanged from December 31, 2018. During the quarter, the Company
repurchased 122,957 shares at an average price of $10.93 per
share.
Conference Call, Webcast and
Slide Presentation
The Company will host a conference call tomorrow
morning, May 15, 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 for 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 $61.0 billion in assets under
management as of April 30, 2019.
Victory Capital’s differentiated model is
comprised of nine Investment Franchises, each with an independent
culture and investment approach. Additionally, the Company offers a
rules-based Solutions Platform, featuring the VictoryShares ETF
brand, as well as custom and multi-asset class solutions. The
Company’s Investment Franchises and Solutions Platform are
supported by a centralized distribution, marketing and operational
environment, in which the investment professionals can focus on the
pursuit of investment excellence.
Victory Capital provides institutions, financial
advisors and retirement platforms with a variety of asset classes
and investment vehicles, including separately managed accounts,
collective trusts, mutual funds, ETFs, UCITs and UMA/SMA
vehicles.
For more information, please visit www.vcm.com.
Go to www.victorysharesliterature.com for ETF prospectuses or
www.victoryfundliterature.com for mutual fund prospectuses.
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.
Contacts
Investors:Matthew Dennis,
CFADirector, Investor Relations216-898-2412mdennis@vcm.com
Media: Tricia Ross310-622-8226tross@finprofiles.com
Victory Funds are distributed by Victory Capital
Advisers, Inc. (VCA). VictoryShares ETFs are distributed by
Foreside Fund Services, LLC. Victory Capital Management Inc. (VCM)
is the adviser to VictoryShares ETFs and Victory Funds. VCM and VCA
are affiliated. They are not affiliated with Foreside Fund
Services, LLC.
Victory Capital Holdings, Inc.
and SubsidiariesUnaudited
Condensed Consolidated Statements of
Operations(in thousands except
shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
December 31, |
|
March 31, |
|
|
|
2019 |
|
2018 |
|
2018 |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
Investment management fees |
|
$ |
74,411 |
|
|
$ |
82,030 |
|
|
$ |
89,130 |
|
|
Fund administration and distribution fees |
|
|
13,068 |
|
|
|
13,937 |
|
|
|
15,834 |
|
|
Total revenue |
|
|
87,479 |
|
|
|
95,967 |
|
|
|
104,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
Personnel compensation and benefits |
|
|
34,501 |
|
|
|
33,910 |
|
|
|
36,803 |
|
|
Distribution and other asset-based expenses |
|
|
15,767 |
|
|
|
21,123 |
|
|
|
25,161 |
|
|
General and administrative |
|
|
7,087 |
|
|
|
6,910 |
|
|
|
9,056 |
|
|
Depreciation and amortization |
|
|
5,222 |
|
|
|
5,360 |
|
|
|
6,412 |
|
|
Change in value of consideration payable for acquisition of
business |
|
|
— |
|
|
|
(33 |
) |
|
|
— |
|
|
Acquisition-related costs |
|
|
2,777 |
|
|
|
2,900 |
|
|
|
— |
|
|
Restructuring and integration costs |
|
|
— |
|
|
|
40 |
|
|
|
264 |
|
|
Total operating
expenses |
|
|
65,354 |
|
|
|
70,210 |
|
|
|
77,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
operations |
|
|
22,125 |
|
|
|
25,757 |
|
|
|
27,268 |
|
|
Operating
margin |
|
|
25.3 |
% |
|
|
26.8 |
% |
|
|
26.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense) |
|
|
|
|
|
|
|
|
|
|
Interest income and other income/(expense) |
|
|
1,833 |
|
|
|
(2,627 |
) |
|
|
(37 |
) |
|
Interest expense and other financing costs |
|
|
(4,624 |
) |
|
|
(4,438 |
) |
|
|
(7,092 |
) |
|
Loss on debt extinguishment |
|
|
— |
|
|
|
— |
|
|
|
(6,058 |
) |
|
Total other income (expense), net |
|
|
(2,791 |
) |
|
|
(7,065 |
) |
|
|
(13,187 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income before
income taxes |
|
|
19,334 |
|
|
|
18,692 |
|
|
|
14,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense |
|
|
(4,807 |
) |
|
|
(4,777 |
) |
|
|
(3,557 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
$ |
14,527 |
|
|
$ |
13,915 |
|
|
$ |
10,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share of common stock |
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.22 |
|
|
$ |
0.21 |
|
|
$ |
0.17 |
|
|
Diluted |
|
|
0.20 |
|
|
|
0.19 |
|
|
|
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
67,520,883 |
|
|
|
67,715,681 |
|
|
|
61,599,057 |
|
|
Diluted |
|
|
72,281,878 |
|
|
|
71,557,705 |
|
|
|
66,283,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per
share |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Victory Capital Holdings, Inc.
and SubsidiariesReconciliation of
GAAP to Non-GAAP
Measures(unaudited; in thousands
except shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
December 31, |
|
March 31, |
|
|
|
2019 |
|
2018 |
|
2018 |
|
Net income
(GAAP) |
|
$ |
14,527 |
|
|
$ |
13,915 |
|
|
$ |
10,524 |
|
|
Income tax expense |
|
|
(4,807 |
) |
|
|
(4,777 |
) |
|
|
(3,557 |
) |
|
Income before
taxes |
|
$ |
19,334 |
|
|
$ |
18,692 |
|
|
$ |
14,081 |
|
|
Interest expense |
|
|
3,853 |
|
|
|
3,797 |
|
|
|
8,094 |
|
|
Depreciation |
|
|
571 |
|
|
|
709 |
|
|
|
736 |
|
|
Other business taxes |
|
|
555 |
|
|
|
337 |
|
|
|
375 |
|
|
Amortization of acquisition-related intangibles |
|
|
4,651 |
|
|
|
4,651 |
|
|
|
5,676 |
|
|
Stock-based compensation |
|
|
1,478 |
|
|
|
3,943 |
|
|
|
3,322 |
|
|
Acquisition, restructuring and exit costs |
|
|
2,777 |
|
|
|
3,664 |
|
|
|
518 |
|
|
Debt issuance costs |
|
|
364 |
|
|
|
371 |
|
|
|
6,702 |
|
|
Pre-IPO governance expenses |
|
|
— |
|
|
|
— |
|
|
|
141 |
|
|
Earnings/losses from equity method investments |
|
|
4 |
|
|
|
224 |
|
|
|
137 |
|
|
Adjusted
EBITDA |
|
$ |
33,587 |
|
|
$ |
36,388 |
|
|
$ |
39,782 |
|
|
Adjusted
EBITDA margin |
|
|
38.4 |
% |
|
|
37.9 |
% |
|
|
37.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(GAAP) |
|
$ |
14,527 |
|
|
$ |
13,915 |
|
|
$ |
10,524 |
|
|
Adjustment to reflect the
operating performance of the Company |
|
|
|
|
|
|
|
|
|
|
Other business taxes |
|
|
555 |
|
|
|
337 |
|
|
|
375 |
|
|
Amortization of acquisition-related intangibles |
|
|
4,651 |
|
|
|
4,651 |
|
|
|
5,676 |
|
|
Stock-based compensation |
|
|
1,478 |
|
|
|
3,943 |
|
|
|
3,322 |
|
|
Acquisition, restructuring and exit costs |
|
|
2,777 |
|
|
|
3,664 |
|
|
|
518 |
|
|
Debt issuance costs |
|
|
364 |
|
|
|
371 |
|
|
|
6,702 |
|
|
Pre-IPO governance expenses |
|
|
— |
|
|
|
— |
|
|
|
141 |
|
|
Tax effect of above adjustments |
|
|
(2,456 |
) |
|
|
(3,241 |
) |
|
|
(4,183 |
) |
|
Adjusted net
income |
|
$ |
21,896 |
|
|
$ |
23,640 |
|
|
$ |
23,075 |
|
|
Adjusted net
income per diluted share |
|
$ |
0.30 |
|
|
$ |
0.33 |
|
|
$ |
0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit of
goodwill and acquired intangibles |
|
$ |
3,361 |
|
|
$ |
3,320 |
|
|
$ |
3,320 |
|
|
Tax benefit of
goodwill and acquired intangibles per diluted
share |
|
$ |
0.05 |
|
|
$ |
0.05 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net
income with tax benefit |
|
$ |
25,257 |
|
|
$ |
26,960 |
|
|
$ |
26,395 |
|
|
Adjusted net
income with tax benefit per diluted share |
|
$ |
0.35 |
|
|
$ |
0.38 |
|
|
$ |
0.40 |
|
|
Victory Capital Holdings, Inc.
and SubsidiariesUnaudited
Condensed Consolidated Balance
Sheets(In thousands, except for
shares)
|
|
|
|
|
|
|
|
|
March 31, 2019 |
|
December 31, 2018 |
Assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
66,261 |
|
|
$ |
51,491 |
|
Receivables |
|
|
42,783 |
|
|
|
44,120 |
|
Prepaid expenses |
|
|
3,832 |
|
|
|
2,664 |
|
Investments |
|
|
15,742 |
|
|
|
13,320 |
|
Property and equipment, net |
|
|
8,874 |
|
|
|
8,780 |
|
Goodwill |
|
|
284,108 |
|
|
|
284,108 |
|
Other intangible assets, net |
|
|
383,029 |
|
|
|
387,679 |
|
Other assets |
|
|
9,299 |
|
|
|
9,349 |
|
Total
assets |
|
$ |
813,928 |
|
|
$ |
801,511 |
|
|
|
|
|
|
|
|
Liabilities and
stockholders' equity |
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
24,410 |
|
|
$ |
20,350 |
|
Accrued compensation and benefits |
|
|
19,901 |
|
|
|
30,228 |
|
Consideration payable for acquisition of business |
|
|
5,921 |
|
|
|
5,838 |
|
Deferred tax liability, net |
|
|
7,575 |
|
|
|
6,212 |
|
Other liabilities |
|
|
16,636 |
|
|
|
14,478 |
|
Long-term debt(1) |
|
|
269,320 |
|
|
|
268,857 |
|
Total
liabilities |
|
|
343,763 |
|
|
|
345,963 |
|
|
|
|
|
|
|
|
Stockholders'
equity: |
|
|
|
|
|
|
Class A common stock, $0.01 par value per share: 2019 - 400,000,000
sharesauthorized, 15,663,474 shares issued and 14,684,242 shares
outstanding; 2018 -400,000,000 shares authorized, 15,280,833 shares
issued and 14,424,558shares outstanding |
|
|
157 |
|
|
|
153 |
|
Class B common stock, $0.01 par value per share: 2019 - 200,000,000
sharesauthorized, 55,014,007 shares issued and 52,837,919 shares
outstanding; 2018 -200,000,000 shares authorized, 55,284,408 shares
issued and 53,137,428shares outstanding |
|
|
550 |
|
|
|
553 |
|
Additional paid-in capital |
|
|
606,181 |
|
|
|
604,401 |
|
Class A treasury stock, at cost: 2019 - 979,232 shares; 2018 -
856,275 shares |
|
|
(9,389 |
) |
|
|
(8,045 |
) |
Class B treasury stock, at cost: 2019 - 2,176,088 shares; 2018 -
2,146,980 shares |
|
|
(22,037 |
) |
|
|
(21,719 |
) |
Accumulated other comprehensive income (loss) |
|
|
(12 |
) |
|
|
(86 |
) |
Retained deficit |
|
|
(105,285 |
) |
|
|
(119,709 |
) |
Total
stockholders' equity |
|
|
470,165 |
|
|
|
455,548 |
|
Total liabilities
and stockholders' equity |
|
$ |
813,928 |
|
|
$ |
801,511 |
|
(1) Balances at March 31, 2019 and December 31, 2018 are
shown net of unamortized loan discount and debt issuance costs in
the amount of $10.7 million and $11.1 million, respectively. The
gross amount of the debt outstanding was $280.0 million for both
periods.
Victory Capital Holdings, Inc.
and SubsidiariesAssets Under
Management(unaudited; in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
% Change from |
|
|
March 31, |
|
December 31, |
|
March 31, |
|
December 31, |
|
March 31, |
|
|
2019 |
|
2018 |
|
2018 |
|
2018 |
|
2018 |
Beginning assets under management |
|
$ |
52,763 |
|
|
$ |
63,640 |
|
|
$ |
61,771 |
|
|
-17 |
% |
|
-15 |
% |
Gross client cash inflows |
|
|
3,038 |
|
|
|
4,028 |
|
|
|
3,685 |
|
|
-25 |
% |
|
-18 |
% |
Gross client cash outflows |
|
|
(4,143 |
) |
|
|
(5,047 |
) |
|
|
(4,318 |
) |
|
-18 |
% |
|
-4 |
% |
Net client cash flows |
|
|
(1,105 |
) |
|
|
(1,019 |
) |
|
|
(633 |
) |
|
-8 |
% |
|
-75 |
% |
Market appreciation
(depreciation) |
|
|
6,460 |
|
|
|
(9,858 |
) |
|
|
(275 |
) |
|
166 |
% |
|
n/m |
|
Net transfers |
|
|
— |
|
|
|
— |
|
|
|
(8 |
) |
|
n/m |
|
|
-100 |
% |
Ending assets under
management |
|
|
58,119 |
|
|
|
52,763 |
|
|
|
60,855 |
|
|
10 |
% |
|
-4 |
% |
Average assets under
management |
|
|
57,043 |
|
|
|
58,474 |
|
|
|
62,020 |
|
|
-2 |
% |
|
-8 |
% |
Victory Capital Holdings, Inc.
and SubsidiariesAssets 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. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cap Equity |
|
Cap Equity |
|
Income |
|
Cap Equity |
|
Equity |
|
Solutions |
|
Commodity |
|
Other |
|
Total |
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under
management |
|
$ |
20,019 |
|
|
$ |
12,948 |
|
|
$ |
6,836 |
|
|
$ |
3,759 |
|
|
$ |
4,610 |
|
|
$ |
3,767 |
|
|
$ |
469 |
|
|
$ |
355 |
|
|
$ |
52,763 |
|
Gross client cash inflows |
|
|
993 |
|
|
|
992 |
|
|
|
303 |
|
|
|
26 |
|
|
|
365 |
|
|
|
279 |
|
|
|
56 |
|
|
|
25 |
|
|
|
3,038 |
|
Gross client cash outflows |
|
|
(1,786 |
) |
|
|
(1,059 |
) |
|
|
(383 |
) |
|
|
(183 |
) |
|
|
(277 |
) |
|
|
(349 |
) |
|
|
(80 |
) |
|
|
(27 |
) |
|
|
(4,143 |
) |
Net client cash flows |
|
|
(793 |
) |
|
|
(67 |
) |
|
|
(79 |
) |
|
|
(158 |
) |
|
|
88 |
|
|
|
(70 |
) |
|
|
(24 |
) |
|
|
(2 |
) |
|
|
(1,105 |
) |
Market appreciation
(depreciation) |
|
|
2,942 |
|
|
|
1,834 |
|
|
|
216 |
|
|
|
516 |
|
|
|
535 |
|
|
|
297 |
|
|
|
47 |
|
|
|
73 |
|
|
|
6,460 |
|
Net transfers |
|
|
2 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
Ending assets under
management |
|
$ |
22,169 |
|
|
$ |
14,714 |
|
|
$ |
6,973 |
|
|
$ |
4,117 |
|
|
$ |
5,234 |
|
|
$ |
3,996 |
|
|
$ |
493 |
|
|
$ |
425 |
|
|
$ |
58,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under
management |
|
$ |
25,014 |
|
|
$ |
16,438 |
|
|
$ |
7,149 |
|
|
$ |
4,644 |
|
|
$ |
4,738 |
|
|
$ |
4,224 |
|
|
$ |
966 |
|
|
$ |
467 |
|
|
$ |
63,640 |
|
Gross client cash inflows |
|
|
1,238 |
|
|
|
815 |
|
|
|
369 |
|
|
|
59 |
|
|
|
1,068 |
|
|
|
406 |
|
|
|
44 |
|
|
|
29 |
|
|
|
4,028 |
|
Gross client cash outflows |
|
|
(2,045 |
) |
|
|
(1,235 |
) |
|
|
(666 |
) |
|
|
(171 |
) |
|
|
(409 |
) |
|
|
(281 |
) |
|
|
(192 |
) |
|
|
(48 |
) |
|
|
(5,047 |
) |
Net client cash flows |
|
|
(807 |
) |
|
|
(420 |
) |
|
|
(297 |
) |
|
|
(112 |
) |
|
|
659 |
|
|
|
125 |
|
|
|
(148 |
) |
|
|
(19 |
) |
|
|
(1,019 |
) |
Market appreciation
(depreciation) |
|
|
(4,165 |
) |
|
|
(3,085 |
) |
|
|
(22 |
) |
|
|
(775 |
) |
|
|
(787 |
) |
|
|
(582 |
) |
|
|
(348 |
) |
|
|
(94 |
) |
|
|
(9,858 |
) |
Net transfers |
|
|
(23 |
) |
|
|
15 |
|
|
|
6 |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
1 |
|
|
|
— |
|
Ending assets under
management |
|
$ |
20,019 |
|
|
$ |
12,948 |
|
|
$ |
6,836 |
|
|
$ |
3,759 |
|
|
$ |
4,610 |
|
|
$ |
3,767 |
|
|
$ |
469 |
|
|
$ |
355 |
|
|
$ |
52,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under
management |
|
$ |
25,185 |
|
|
$ |
15,308 |
|
|
$ |
7,551 |
|
|
$ |
4,789 |
|
|
$ |
4,105 |
|
|
$ |
3,028 |
|
|
$ |
1,419 |
|
|
$ |
386 |
|
|
$ |
61,771 |
|
Gross client cash inflows |
|
|
1,203 |
|
|
|
776 |
|
|
|
394 |
|
|
|
55 |
|
|
|
443 |
|
|
|
606 |
|
|
|
127 |
|
|
|
81 |
|
|
|
3,685 |
|
Gross client cash outflows |
|
|
(2,080 |
) |
|
|
(922 |
) |
|
|
(640 |
) |
|
|
(211 |
) |
|
|
(220 |
) |
|
|
(77 |
) |
|
|
(146 |
) |
|
|
(22 |
) |
|
|
(4,318 |
) |
Net client cash flows |
|
|
(877 |
) |
|
|
(146 |
) |
|
|
(246 |
) |
|
|
(156 |
) |
|
|
223 |
|
|
|
529 |
|
|
|
(19 |
) |
|
|
59 |
|
|
|
(633 |
) |
Market appreciation
(depreciation) |
|
|
(103 |
) |
|
|
(67 |
) |
|
|
6 |
|
|
|
3 |
|
|
|
14 |
|
|
|
(34 |
) |
|
|
(102 |
) |
|
|
8 |
|
|
|
(275 |
) |
Net transfers |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
(8 |
) |
|
|
40 |
|
|
|
— |
|
|
|
(39 |
) |
|
|
(8 |
) |
Ending assets under
management |
|
$ |
24,205 |
|
|
$ |
15,095 |
|
|
$ |
7,311 |
|
|
$ |
4,635 |
|
|
$ |
4,334 |
|
|
$ |
3,563 |
|
|
$ |
1,298 |
|
|
$ |
414 |
|
|
$ |
60,855 |
|
Victory Capital Holdings, Inc.
and SubsidiariesAssets 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 |
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under
management |
|
$ |
30,492 |
|
|
$ |
2,956 |
|
|
$ |
19,315 |
|
|
$ |
52,763 |
|
Gross client cash inflows |
|
|
2,379 |
|
|
|
242 |
|
|
|
417 |
|
|
|
3,038 |
|
Gross client cash outflows |
|
|
(2,887 |
) |
|
|
(299 |
) |
|
|
(957 |
) |
|
|
(4,143 |
) |
Net client cash flows |
|
|
(508 |
) |
|
|
(58 |
) |
|
|
(540 |
) |
|
|
(1,105 |
) |
Market appreciation
(depreciation) |
|
|
3,801 |
|
|
|
224 |
|
|
|
2,435 |
|
|
|
6,460 |
|
Net transfers |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Ending assets under
management |
|
$ |
33,786 |
|
|
$ |
3,123 |
|
|
$ |
21,210 |
|
|
$ |
58,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under
management |
|
$ |
38,189 |
|
|
|
3,295 |
|
|
|
22,156 |
|
|
|
63,640 |
|
Gross client cash inflows |
|
|
2,350 |
|
|
|
319 |
|
|
|
1,359 |
|
|
|
4,028 |
|
Gross client cash outflows |
|
|
(3,857 |
) |
|
|
(198 |
) |
|
|
(992 |
) |
|
|
(5,047 |
) |
Net client cash flows |
|
|
(1,507 |
) |
|
|
121 |
|
|
|
367 |
|
|
|
(1,019 |
) |
Market appreciation
(depreciation) |
|
|
(6,190 |
) |
|
|
(460 |
) |
|
|
(3,208 |
) |
|
|
(9,858 |
) |
Net transfers |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Ending assets under
management |
|
$ |
30,492 |
|
|
$ |
2,956 |
|
|
$ |
19,315 |
|
|
$ |
52,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets under
management |
|
$ |
37,967 |
|
|
$ |
2,250 |
|
|
$ |
21,555 |
|
|
$ |
61,771 |
|
Gross client cash inflows |
|
|
2,626 |
|
|
|
481 |
|
|
|
578 |
|
|
|
3,685 |
|
Gross client cash outflows |
|
|
(3,266 |
) |
|
|
(29 |
) |
|
|
(1,023 |
) |
|
|
(4,318 |
) |
Net client cash flows |
|
|
(640 |
) |
|
|
452 |
|
|
|
(445 |
) |
|
|
(633 |
) |
Market appreciation
(depreciation) |
|
|
(307 |
) |
|
|
(28 |
) |
|
|
60 |
|
|
|
(275 |
) |
Net transfers |
|
|
(31 |
) |
|
|
— |
|
|
|
22 |
|
|
|
(8 |
) |
Ending assets under
management |
|
$ |
36,989 |
|
|
$ |
2,674 |
|
|
$ |
21,192 |
|
|
$ |
60,855 |
|
(1) Includes institutional and retail share
classes 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 are:
- Adding back income tax;
- 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 of
acquisition-related intangibles;
- Adding back the expense associated
with stock-based compensation associated with equity issued from
pools that were created in connection with the management-led
buyout with Crestview GP from KeyCorp, the Munder Acquisition and
the RS Acquisition and as a result of any equity grants related to
the IPO, exclusive of expense related to director stock-based
compensation;
- Adding back direct incremental
costs of acquisitions and the IPO, including expenses associated
with third-party advisors, proxy solicitations of mutual fund
shareholders for transaction consents, loss on other receivable
recorded in connection with an acquisition and severance;
- Adding back debt issuance
costs;
- 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 are:
- Adding back other business
taxes;
- Adding back amortization of
acquisition-related intangibles;
- Adding back the expense associated
with stock-based compensation associated with equity issued from
pools that were created in connection with the management-led
buyout with Crestview GP from KeyCorp, the Munder Acquisition and
the RS Acquisition and as a result of any equity grants related to
the IPO, exclusive of expense related to director stock-based
compensation;
- Adding back direct incremental
costs of acquisitions and the IPO, including expenses associated
with third-party advisors, proxy solicitations of mutual fund
shareholders for transaction consents, loss on other receivable
recorded in connection with an acquisition and severance;
- Adding back debt issuance
costs;
- 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 on the adjustments.
Tax Benefit of Goodwill and Acquired Intangibles
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 intangibles
represents the tax benefits associated with deductions allowed for
intangibles 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 intangibles with a step-up in tax
basis.
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