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Victory Capital Reports Third Quarter 2020 Financial Results

November 04, 2020

Third Quarter 2020 Highlights

  • Total Assets Under Management (AUM) of $132.7 billion
  • Long-term gross flows of $5.1 billion; long-term net outflows of $2.9 billion
  • GAAP operating margin of 43%
  • Record adjusted EBITDA margin of 51%1
  • GAAP net income of $0.76 per diluted share
  • Record adjusted net income with tax benefit of $1.00 per diluted share1
  • Board authorizes 17% increase in regular quarterly cash dividend
  • Board authorizes new $15 million share repurchase program

SAN ANTONIO--(BUSINESS WIRE)-- Victory Capital Holdings, Inc. (NASDAQ: VCTR) (“Victory Capital” or “the Company”) today reported financial results for the quarter and nine-months ended September 30, 2020.

“I am pleased to report that Victory Capital generated record financial results for the quarter and nine-month periods,” said David Brown, Chairman and Chief Executive Officer. “Our ability to achieve industry-leading operating margins while continuing to grow and invest in our business provides strong evidence of the strength and efficiency of our business model.

“Today we announced the planned acquisition of THB Asset Management, which will be our 10th Investment Franchise. THB has a 38-year history with an impressive investment performance track record. All of it strategies have consistently outperformed respective benchmarks throughout various market cycles and rank among the top tier of their strategy peer groups. THB currently manages approximately $435 million in the micro-cap, small-cap and mid-cap asset classes, including U.S., global and international strategies. These are capacity-constrained asset classes that we know well, and THB has ample room for AUM growth across its product set. Aligning with our responsible investing initiatives, all of THB’s strategies have ESG considerations fully integrated into their investment processes. In addition to serving clients in the U.S., THB has a distribution footprint in Australia and Europe and provides us with expanded opportunities in regions in which we have limited presence today. The transaction is accretive to earnings on day one and illustrates the appeal of our business model to experienced investment organizations. Moreover, our acquisition pipeline remains strong, and we continue to look for larger scale transactions that enhance our existing model.

“From a capital management perspective, we remain committed to our strategy of creating flexibility through reduction of debt so we can pursue inorganic opportunities while also returning capital to shareholders through dividends and share buybacks. During the quarter, we repaid an additional $44 million in debt, lowering our leverage ratio to 2.0x at quarter end. Additionally, we announced a 17% increase in our regular quarterly cash dividend as well as a new $15 million share repurchase program.

“Our Investment Franchises continued to deliver strong investment performance during the quarter, with 70% of total AUM outperforming benchmarks over the three-year period ending September 30, and 69% over the five-year period. As always, serving our clients remains our top priority.”

1The 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 refer to 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 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,

2020

 

2020

 

2019

 

2020

 

2019

 

Assets Under Management
Ending $

132,662

 

$

129,070

 

$

145,832

 

$

132,662

 

$

145,832

 

Average

133,096

 

128,927

 

145,904

 

135,378

 

87,670

 

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

5,067

 

$

5,166

 

$

7,456

 

$

17,506

 

$

18,008

 

Long-term Net(2)

(2,878

)

(3,466

)

726

 

(9,445

)

3,314

 

 
Money Market/Short-term Flows
Money Market/Short-term Gross $

367

 

$

4,411

 

$

4,449

 

$

12,429

 

$

4,449

 

Money Market/Short-term Net

(96

)

(8,416

)

(65

)

(8,311

)

(65

)

 
Total Flows
Total Gross $

5,433

 

$

9,577

 

$

11,905

 

$

29,935

 

$

22,457

 

Total Net

(2,974

)

(11,882

)

661

 

(17,756

)

3,249

 

 
Consolidated Financial Results (GAAP)
Revenue $

188.7

 

$

181.9

 

$

215.0

 

$

575.0

 

$

393.8

 

Revenue realization (in bps)

56.4

 

56.7

 

58.5

 

56.7

 

60.1

 

Operating expenses

108.1

 

116.1

 

159.4

 

337.9

 

293.4

 

Income from operations

80.6

 

65.8

 

55.6

 

237.0

 

100.4

 

Operating margin

42.7

%

36.2

%

25.9

%

41.2

%

25.5

%

Net income

55.7

 

44.7

 

26.0

 

157.6

 

54.9

 

Earnings per diluted share $

0.76

 

$

0.61

 

$

0.35

 

$

2.14

 

$

0.75

 

Cash flow from operations

61.8

 

69.0

 

118.4

 

182.7

 

167.7

 

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

95.6

 

$

86.3

 

$

96.3

 

$

273.5

 

$

166.5

 

Adjusted EBITDA margin

50.7

%

47.5

%

44.8

%

47.6

%

42.3

%

Adjusted net income

66.7

 

58.3

 

60.5

 

186.7

 

106.8

 

Tax benefit of goodwill and acquired intangible assets

6.7

 

6.7

 

6.8

 

20.2

 

13.5

 

Adjusted net income with tax benefit

73.4

 

65.1

 

67.3

 

206.9

 

120.3

 

Adjusted net income with tax benefit per diluted share $

1.00

 

$

0.89

 

$

0.91

 

$

2.81

 

$

1.64

 

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 refer to 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 and short-term assets.

AUM, Flows and Investment Performance

Victory Capital’s total AUM increased by 2.8%, or $3.6 billion, to $132.7 billion at September 30, 2020, compared with $129.1 billion at June 30, 2020. The increase was attributable to positive market action of $6.6 billion, partially offset by net outflows of $3.0 billion. Total gross flows were $5.4 billion for the third quarter and $29.9 billion for the year-to-date period. Long-term AUM increased by 2.9%, or $3.7 billion, to $129.0 billion at September 30, 2020, compared with $125.3 billion at June 30, 2020. For the year-to-date period, the Company reported long-term gross flows of $17.5 billion and net long-term outflows of $9.4 billion.

At September 30, 2020, Victory Capital offered 118 investment strategies through its nine autonomous Investment Franchises and Solutions Platform. The table below presents outperformance against benchmarks by AUM as of September 30, 2020.

Percentage of AUM Outperforming Benchmark
Trailing Trailing Trailing Trailing
1-Year 3-Years 5-Years 10-Years

55%

70%

69%

75%

Third Quarter 2020 Compared with Second Quarter 2020

Revenue increased 4% to $188.7 million, in the third quarter, compared with $181.9 million in the second quarter, reflecting an increase in average AUM. GAAP operating margin expanded 650 basis points in the third quarter to 42.7%, up from 36.2% in the second quarter. The increase was attributable to a combination of improved operating leverage and a $3.3 million reduction in expense recorded in the change in the fair value of contingent acquisition payments from $5.3 million expense in the second quarter compared to $2.0 million expense in the third quarter. Third quarter GAAP net income increased 25% to $55.7 million, up from $44.7 million in the prior quarter. On a per-share basis, GAAP net income increased 25% to $0.76 per diluted share in the third quarter, versus $0.61 per diluted share in the second quarter.

Adjusted net income with tax benefit increased 13% to $73.4 million in the third quarter, up from $65.1 million in the second quarter. On a per-share basis, adjusted net income with tax benefit increased 12% to $1.00 per diluted share in the third quarter, from $0.89 per diluted share in the prior quarter. Adjusted EBITDA increased 11% to $95.6 million in the third quarter, versus $86.3 million in the second quarter. Adjusted EBITDA margin expanded 320 basis points in the third quarter of 2020 to 50.7% compared to 47.5% in the prior quarter.

Third Quarter 2020 Compared with Third Quarter 2019

Revenue for the three months ended September 30, 2020, decreased 12% to $188.7 million, compared to $215.0 million in the same quarter of 2019. The decrease was primarily due to lower average AUM. GAAP operating margin was 42.7% in the third quarter, a 1,680 basis point increase from the 25.9% recorded in the same quarter of 2019 primarily due to improved operating leverage. Operating expenses decreased 32% to $108.1 million, compared with $159.4 million in last year’s third quarter. GAAP net income rose 115% to $55.7 million, or $0.76 per diluted share, in the third quarter compared to $26.0 million, or $0.35 per diluted share, in the same quarter of 2019.

Adjusted net income with tax benefit advanced 9% to $73.4 million, or $1.00 per diluted share, in the third quarter, compared to $67.3 million, or $0.91 per diluted share in the same quarter last year. Adjusted EBITDA was relatively flat, decreasing 1% to $95.6 million, compared with $96.3 million in last year’s same quarter. Year-over-year, Adjusted EBITDA margin expanded 590 basis points to 50.7% in the third quarter of 2020, compared with 44.8% in the same quarter last year.

Nine Months Ended September 30, 2020 Compared with Nine Months Ended September 30, 2019

Year-over-year results reflect the acquisition of the USAA Asset Management Company, which closed on July 1, 2019. The acquisition significantly impacted our financial results for the year-to-date period ended September 30, 2020 when compared to the year-to-date period ended September 30, 2019. Revenue for the nine months ended September 30, 2020, rose 46% to $575.0 million, compared with $393.8 million in the same period of 2019. The increase was primarily due to higher average AUM as a result of the acquisition.

GAAP operating margin was 41.2% for the nine months ended September 30, 2020, a 1,570 basis point increase from the 25.5% recorded in the same period in 2019 primarily due to improved operating leverage. Operating expenses increased 15% to $337.9 million for the first nine months of 2020, compared with $293.4 million in the same period in 2019, reflecting the Company’s larger scale and new call center dedicated to serving our direct channel. GAAP net income rose 187% to $157.6 million, or $2.14 per diluted share, in the first nine months of 2020 compared with $54.9 million, or $0.75 per diluted share, in the same period in 2019.

Adjusted net income with tax benefit advanced 72% to $206.9 million, or $2.81 per diluted share, in the first nine months of 2020, compared with $120.3 million, or $1.64 per diluted share in the same period in 2019. For the nine months ended September 30, 2020, adjusted EBITDA rose 64% to $273.5 million, compared with $166.5 million for the same period in 2019. Year-over-year, adjusted EBITDA margin expanded 530 basis points to 47.6% in the first nine months of 2020, compared with 42.3% in the same period last year.

Balance Sheet / Capital Management

During the first nine months of 2020, the Company reduced outstanding debt by an additional $114.8 million. Subsequent to September 30, 2020, the Company reduced outstanding term loan principal by $20.0 million, for a total debt reduction of $282.8 million since July 1, 2019.

During the third quarter, the Company repurchased 529,349 shares, at an average price of $17.72 per share, for a total cost of $9.4 million. Today, the Company announced that its Board of Directors approved a new common stock repurchase program authorizing the repurchase of up to $15 million of its Class A Common Stock through December 31, 2022. Under the new program, the Company may purchase its shares from time to time in the open market or in privately negotiated transactions. The amount and timing of the purchases will depend on a number of factors including the price and availability of the Company’s shares, trading volume, capital availability, Company performance and general economic and market conditions. The share repurchase program may be suspended or discontinued at any time.

Today, the Company’s Board of Directors declared a $0.07 per share quarterly cash dividend, an increase of 17% and 40%, respectively, over the third quarter 2020 and second quarter 2020. The dividend is payable on December 28, 2020, to shareholders of record on December 10, 2020.

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 call (877) 823-8673 (domestic) or (647) 689-4067 (international), shortly before 8:00 a.m. ET and reference the Victory Capital Conference Call. 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 diversified global asset management firm with $132.7 billion in assets under management as of September 30, 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.

Victory Capital provides 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 and active ETFs, multi-asset class strategies, custom-designed 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 such as the COVID-19 pandemic and its effect on our business, operations and financial results going forward, 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 such as a pandemic; 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 Holdings, Inc. and Subsidiaries

Unaudited 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,

2020

 

2020

 

2019

 

2020

 

2019

 

Revenue
Investment management fees $

137,240

 

$

130,032

 

$

155,406

 

$

414,153

 

$

307,859

 

Fund administration and distribution fees

51,416

 

51,854

 

59,574

 

160,810

 

85,960

 

Total revenue

188,656

 

181,886

 

214,980

 

574,963

 

393,819

 

 
Expenses
Personnel compensation and benefits

47,375

 

49,105

 

55,556

 

144,051

 

125,599

 

Distribution and other asset-based expenses

39,123

 

41,630

 

57,202

 

135,613

 

89,151

 

General and administrative

13,196

 

13,289

 

17,654

 

38,373

 

31,828

 

Depreciation and amortization

3,936

 

4,166

 

7,768

 

12,152

 

18,253

 

Change in value of consideration payable for acquisition of business

2,000

 

5,300

 

 

1,800

 

(14

)

Acquisition-related costs

1,148

 

(23

)

16,386

 

1,056

 

21,950

 

Restructuring and integration costs

1,285

 

2,605

 

4,841

 

4,888

 

6,629

 

Total operating expenses

108,063

 

116,072

 

159,407

 

337,933

 

293,396

 

 
Income from operations

80,593

 

65,814

 

55,573

 

237,030

 

100,423

 

Operating margin

42.7

%

36.2

%

25.9

%

41.2

%

25.5

%

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

1,120

 

2,966

 

2,742

 

(86

)

5,231

 

Interest expense and other financing costs

(8,187

)

(9,710

)

(16,856

)

(29,305

)

(26,000

)

Gain (loss) on debt extinguishment

(758

)

137

 

(7,409

)

(1,675

)

(7,409

)

Total other expense, net

(7,825

)

(6,607

)

(21,523

)

(31,066

)

(28,178

)

 
Income before income taxes

72,768

 

59,207

 

34,050

 

205,964

 

72,245

 

 
Income tax expense

(17,027

)

(14,487

)

(8,058

)

(48,337

)

(17,343

)

 
Net income $

55,741

 

$

44,720

 

$

25,992

 

$

157,627

 

$

54,902

 

 
Earnings per share of common stock
Basic $

0.82

 

$

0.66

 

$

0.38

 

$

2.33

 

$

0.81

 

Diluted

0.76

 

0.61

 

0.35

 

2.14

 

0.75

 

 
Weighted average number of shares outstanding
Basic

67,743

 

67,821

 

67,724

 

67,785

 

67,610

 

Diluted

73,437

 

73,204

 

73,671

 

73,703

 

73,300

 

 
Dividends declared per share $

0.06

 

$

0.05

 

$

0.05

 

$

0.16

 

$

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,

2020

 

2020

 

2019

 

2020

 

2019

 

Net income (GAAP) $

55,741

 

$

44,720

 

$

25,992

 

$

157,627

 

$

54,902

 

Income tax expense

(17,027

)

(14,487

)

(8,058

)

(48,337

)

(17,343

)

Income before income taxes $

72,768

 

$

59,207

 

$

34,050

 

$

205,964

 

$

72,245

 

Interest expense

7,497

 

8,267

 

18,388

 

26,292

 

25,854

 

Depreciation

814

 

746

 

682

 

2,444

 

1,865

 

Other business taxes

256

 

219

 

146

 

(2,821

)

1,125

 

Amortization of acquisition-related intangible assets

3,122

 

3,420

 

7,086

 

9,708

 

16,388

 

Stock-based compensation

2,806

 

3,068

 

4,326

 

11,246

 

9,125

 

Acquisition, restructuring and exit costs

6,996

 

10,105

 

24,452

 

15,559

 

31,804

 

Debt issuance costs

1,386

 

1,312

 

10,002

 

5,087

 

10,732

 

Earnings from equity method investments

 

 

(2,837

)

 

(2,683

)

Adjusted EBITDA $

95,645

 

$

86,344

 

$

96,295

 

$

273,479

 

$

166,455

 

Adjusted EBITDA margin

50.7

%

47.5

%

44.8

%

47.6

%

42.3

%

 
 
Net income (GAAP) $

55,741

 

$

44,720

 

$

25,992

 

$

157,627

 

$

54,902

 

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

256

 

219

 

146

 

(2,821

)

1,125

 

Amortization of acquisition-related intangible assets

3,122

 

3,420

 

7,086

 

9,708

 

16,388

 

Stock-based compensation

2,806

 

3,068

 

4,326

 

11,246

 

9,125

 

Acquisition, restructuring and exit costs

6,996

 

10,105

 

24,452

 

15,559

 

31,804

 

Debt issuance costs

1,386

 

1,312

 

10,002

 

5,087

 

10,732

 

Tax effect of above adjustments

(3,642

)

(4,531

)

(11,503

)

(9,695

)

(17,293

)

Adjusted net income $

66,665

 

$

58,313

 

$

60,501

 

$

186,711

 

$

106,783

 

Adjusted net income per diluted share $

0.91

 

$

0.80

 

$

0.82

 

$

2.53

 

$

1.46

 

 
Tax benefit of goodwill and acquired intangible assets $

6,745

 

$

6,745

 

$

6,802

 

$

20,218

 

$

13,523

 

Tax benefit of goodwill and acquired intangible assets per diluted share $

0.09

 

$

0.09

 

$

0.09

 

$

0.27

 

$

0.18

 

 
Adjusted net income with tax benefit $

73,410

 

$

65,058

 

$

67,303

 

$

206,929

 

$

120,306

 

Adjusted net income with tax benefit per diluted share $

1.00

 

$

0.89

 

$

0.91

 

$

2.81

 

$

1.64

 

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except for shares)

 
September 30, 2020 December 31, 2019
Assets
Cash and cash equivalents $

56,284

 

$

37,121

 

Receivables

79,196

 

95,093

 

Prepaid expenses

5,335

 

4,852

 

Investments

19,617

 

19,076

 

Property and equipment, net

18,741

 

13,240

 

Goodwill

404,750

 

404,750

 

Other intangible assets, net

1,165,763

 

1,175,471

 

Other assets

4,305

 

3,706

 

Total assets $

1,753,991

 

$

1,753,309

 

 
Liabilities and stockholders' equity
Accounts payable and accrued expenses $

56,313

 

$

89,203

 

Accrued compensation and benefits

40,859

 

54,842

 

Consideration payable for acquisition of business

120,500

 

118,700

 

Deferred tax liability, net

28,117

 

5,486

 

Other liabilities

32,768

 

22,668

 

Long-term debt, net(1)

815,877

 

924,539

 

Total liabilities

1,094,434

 

1,215,438

 

 
Stockholders' equity
Class A common stock, $0.01 par value per share: 2020 - 400,000,000 shares authorized, 19,350,111 shares issued and 16,438,709 shares outstanding; 2019 - 400,000,000 shares authorized, 18,099,772 shares issued and 16,414,617 shares outstanding

193

 

181

 

Class B common stock, $0.01 par value per share: 2020 - 200,000,000 shares authorized, 54,400,113 shares issued and 51,165,503 shares outstanding; 2019 - 200,000,000 shares authorized, 53,937,394 shares issued and 51,281,512 shares outstanding

544

 

539

 

Additional paid-in capital

641,467

 

624,766

 

Class A treasury stock, at cost: 2020 - 2,911,402 shares; 2019 - 1,685,155 shares

(42,488

)

(21,524

)

Class B treasury stock, at cost: 2020 - 3,234,610 shares; 2019 - 2,655,882 shares

(42,576

)

(31,386

)

Accumulated other comprehensive loss

(8,987

)

 

Retained earnings (deficit)

111,404

 

(34,705

)

Total stockholders' equity

659,557

 

537,871

 

Total liabilities and stockholders' equity $

1,753,991

 

$

1,753,309

 

1 Balances at September 30, 2020 and December 31, 2019 are shown net of unamortized loan discount and debt issuance costs in the amount of $21.3 million and $27.5 million, respectively. The gross amount of the debt outstanding was $837.2 million as of September 30, 2020 and $952 million as of December 31, 2019.

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,

2020

 

2020

 

2019

 

2020

2019

Beginning assets under management $

129,070

 

$

123,779

 

$

64,077

 

4%

101%

Gross client cash inflows

5,433

 

9,577

 

11,905

 

-43%

-54%

Gross client cash outflows

(8,408

)

(21,459

)

(11,244

)

-61%

-25%

Net client cash flows

(2,974

)

(11,882

)

661

 

-75%

-550%

Market appreciation (depreciation)

6,566

 

17,173

 

(54

)

-62%

N/M

Acquired assets / Net transfers

 

 

81,147

 

0%

-100%

Ending assets under management

132,662

 

129,070

 

145,832

 

3%

-9%

Average assets under management

133,096

 

128,927

 

145,904

 

3%

-9%

 

 

For the Nine Months Ended

% Change from

 

September 30, September 30,

September 30,

 

2020

 

2019

 

2019

 

Beginning assets under management $

151,832

 

$

52,763

 

188%

 

Gross client cash inflows

29,935

 

22,457

 

33%

 

Gross client cash outflows

(47,691

)

(19,208

)

148%

 

Net client cash flows

(17,756

)

3,249

 

-647%

 

Market appreciation (depreciation)

(1,413

)

8,675

 

-116%

 

Acquired assets / Net transfers

 

81,143

 

-100%

 

Ending assets under management

132,662

 

145,832

 

-9%

 

Average assets under management

135,378

 

87,670

 

54%

 

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 Market /
Cap Equity Cap Equity Income Cap Equity Equity Solutions Other Long-term Short-term Total
September 30, 2020
Beginning assets under management $

22,483

 

$

14,083

 

$

35,622

 

$

12,524

 

$

11,130

 

$

29,305

 

$

195

 

$

125,343

 

$

3,727

 

$

129,070

 

Gross client cash inflows

760

 

1,061

 

1,470

 

147

 

463

 

1,155

 

11

 

5,067

 

367

 

5,433

 

Gross client cash outflows

(1,890

)

(1,175

)

(1,850

)

(753

)

(568

)

(1,694

)

(16

)

(7,944

)

(463

)

(8,408

)

Net client cash flows

(1,129

)

(114

)

(380

)

(606

)

(105

)

(539

)

(5

)

(2,878

)

(96

)

(2,974

)

Market appreciation (depreciation)

1,259

 

591

 

607

 

1,141

 

948

 

2,001

 

19

 

6,566

 

1

 

6,566

 

Acquired assets / Net transfers

(73

)

(107

)

(2

)

182

 

1

 

 

(1

)

 

 

 

Ending assets under management $

22,540

 

$

14,453

 

$

35,848

 

$

13,242

 

$

11,974

 

$

30,767

 

$

207

 

$

129,031

 

$

3,631

 

$

132,662

 

 
June 30, 2020
Beginning assets under management $

18,622

 

$

11,885

 

$

35,402

 

$

10,703

 

$

9,372

 

$

25,526

 

$

140

 

$

111,650

 

$

12,129

 

$

123,779

 

Gross client cash inflows

943

 

997

 

1,498

 

216

 

436

 

1,067

 

10

 

5,166

 

4,411

 

9,577

 

Gross client cash outflows

(1,511

)

(1,393

)

(2,775

)

(599

)

(575

)

(1,767

)

(12

)

(8,632

)

(12,826

)

(21,459

)

Net client cash flows

(568

)

(396

)

(1,278

)

(383

)

(138

)

(700

)

(3

)

(3,466

)

(8,416

)

(11,882

)

Market appreciation (depreciation)

4,428

 

2,592

 

1,503

 

2,207

 

1,898

 

4,479

 

55

 

17,159

 

14

 

17,173

 

Acquired assets / Net transfers

2

 

2

 

(4

)

(2

)

(1

)

 

3

 

 

 

 

Ending assets under management $

22,483

 

$

14,083

 

$

35,622

 

$

12,524

 

$

11,130

 

$

29,305

 

$

195

 

$

125,343

 

$

3,727

 

$

129,070

 

 
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

 

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 Market /
Cap Equity Cap Equity Income Cap Equity Equity Solutions Other Long-term Short-term Total
September 30, 2020
Beginning assets under management $

26,347

 

$

17,346

 

$

37,973

 

$

14,091

 

$

12,603

 

$

31,649

 

$

236

 

$

140,245

 

$

11,587

 

$

151,832

 

Gross client cash inflows

3,177

 

3,291

 

4,918

 

600

 

1,570

 

3,917

 

32

 

17,506

 

12,429

 

29,935

 

Gross client cash outflows

(5,666

)

(3,878

)

(7,515

)

(2,159

)

(1,827

)

(5,855

)

(52

)

(26,951

)

(20,740

)

(47,691

)

Net client cash flows

(2,489

)

(587

)

(2,597

)

(1,558

)

(256

)

(1,938

)

(20

)

(9,445

)

(8,311

)

(17,756

)

Market appreciation (depreciation)

(1,220

)

(2,142

)

749

 

520

 

(399

)

1,045

 

(13

)

(1,461

)

48

 

(1,413

)

Acquired assets / Net transfers

(99

)

(164

)

(278

)

190

 

27

 

11

 

5

 

(307

)

307

 

 

Ending assets under management $

22,540

 

$

14,453

 

$

35,848

 

$

13,242

 

$

11,974

 

$

30,767

 

$

207

 

$

129,031

 

$

3,631

 

$

132,662

 

 
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

 

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(2) Vehicles(3) Total
September 30, 2020
Beginning assets under management $

100,430

 

$

3,462

 

$

25,179

 

$

129,070

 

Gross client cash inflows

4,251

 

18

 

1,164

 

5,433

 

Gross client cash outflows

(6,847

)

(139

)

(1,421

)

(8,406

)

Net client cash flows

(2,596

)

(121

)

(257

)

(2,974

)

Market appreciation (depreciation)

5,151

 

147

 

1,269

 

6,566

 

Acquired assets / Net transfers

(63

)

 

63

 

 

Ending assets under management $

102,921

 

$

3,488

 

$

26,254

 

$

132,662

 

 
June 30, 2020
Beginning assets under management $

98,305

 

$

3,177

 

$

22,296

 

$

123,779

 

Gross client cash inflows

8,621

 

90

 

866

 

9,577

 

Gross client cash outflows

(19,726

)

(214

)

(1,519

)

(21,459

)

Net client cash flows

(11,104

)

(124

)

(653

)

(11,882

)

Market appreciation (depreciation)

13,229

 

409

 

3,535

 

17,173

 

Acquired assets / Net transfers

 

 

 

 

Ending assets under management $

100,430

 

$

3,462

 

$

25,179

 

$

129,070

 

 
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

 

(1) Includes institutional and retail share classes, money market and 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.

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(2) Vehicles(3) Total
September 30, 2020
Beginning assets under management $

118,605

 

$

4,213

 

$

29,014

 

$

151,832

 

Gross client cash inflows

26,617

 

363

 

2,954

 

29,935

 

Gross client cash outflows

(42,204

)

(814

)

(4,673

)

(47,691

)

Net client cash flows

(15,587

)

(451

)

(1,718

)

(17,756

)

Market appreciation (depreciation)

(33

)

(274

)

(1,105

)

(1,413

)

Acquired assets / Net transfers

(63

)

 

63

 

 

Ending assets under management $

102,921

 

$

3,488

 

$

26,254

 

$

132,662

 

 
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

 

(1) Includes institutional and retail share classes, money market and 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.

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, including restructuring costs;
  • Adding back debt issuance cost expense;
  • 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, including restructuring costs;
  • Adding back debt issuance cost expense;
  • 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.

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.

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