vctr_Current_Folio_8K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 8‑K


CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (date of earliest event reported): February 6, 2019


Victory Capital Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware

001‑38388

32‑0402956

(State or Other Jurisdiction

(Commission

(IRS Employer

of Incorporation)

File Number)

Identification Number)

 

 

 

 

 

 

4900 Tiedeman Road, 4th Floor; Brooklyn, OH

 

44144

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (216) 898‑2400

Not Applicable

(Former name or former address, if changed since last report)


Check the appropriate box below if the Form 8‑K filing is intended to simultaneously satisfy the filing obligation of the registrants under any of the following provisions (see General Instruction A.2. below):

☐    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐    Soliciting material pursuant to Rule 14a‑12 under the Exchange Act (17 CFR 240.14a‑12)

☐    Pre-commencement communications pursuant to Rule 14d‑2(b) under the Exchange Act (17 CFR 240.14d‑2(b))

☐    Pre-commencement communications pursuant to Rule 13e‑4(c) under the Exchange Act (17 CFR 240.13e‑4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b‑2 of the Securities Exchange Act of 1934 (§240.12b‑2 of this chapter).

Emerging growth company ☒

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

 

 

 

 


 

 

Item 2.02. Results of Operations and Financial Condition

On February 6, 2019, Victory Capital Holdings, Inc., (the “Company”) issued a press release reporting results for the three months ended December 31, 2018. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8‑K and incorporated herein by reference.

The information contained herein shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing of the Company under the Exchange Act or the Securities Act of 1933, as amended.

Item 9.01 Financial Statements and Exhibits

Exhibits. The following exhibits are filed herewith:

 

 

 

Exhibit

    

 

Number

 

Description

99.1

 

Press release dated February 6, 2019

 

- 2 -


 

 

EXHIBIT INDEX

 

 

 

Exhibit

    

 

Number

 

Description

 

 

 

99.1

 

Press release dated February 6, 2019

 

 

- 3 -


 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

VICTORY CAPITAL HOLDINGS, INC.

    

 

 

 

 

 

 

 

Dated: February 6, 2019

 

By:

/s/ Terence F. Sullivan

 

 

 

Name: Terence F. Sullivan

 

 

 

Title: Chief Financial Officer and Head of Strategy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 4 -


vctr_Ex99_1

Exhibit 99.1

 

 

Picture 2

  NEWS RELEASE

 

 

 

 

VICTORY CAPITAL REPORTS FOURTH QUARTER 2018 RESULTS

 

Fourth Quarter 2018 Highlights1

·

Assets under management (“AUM”) of $52.8 billion

·

Strong investment performance, with 57%,  68%,  74% and 88% of AUM outperforming its respective benchmarks over the trailing one year, three years, five years and 10 years, respectively

·

Gross flows of $4.0 billion; net outflows of $1.0 billion

·

Operating margin of 26.8%; adjusted EBITDA margin of 37.9%

·

$0.19 per diluted share of GAAP earnings

·

$0.38 per diluted share of adjusted net income with tax benefit

·

$34.4 million of cash flow from operations

 

Cleveland, Ohio, February 6, 2019 — Victory Capital Holdings, Inc. (NASDAQ: VCTR) (“Victory Capital” or “the Company”) today reported its results for the three months and full year ended December 31, 2018.

 

I am pleased to report that Victory Capital delivered strong investment and financial performance during the fourth quarter of 2018, a period of unprecedented volatility for the financial markets,” said David Brown, Chairman and Chief Executive Officer. “Strong operating margins, cash flows and expense control during the volatile quarter highlighted the health and sustainability of our integrated multi-boutique business model.

 

“Our model provides diversification across asset classes, product types and business channels and has enabled us to build scale in operations, administration and technology. As a result, we have been able to reinvest efficiently in the business and allocate the resources necessary to deliver superior service to our clients and Investment Franchises.

 

“Our Franchises and Solutions Platform delivered strong investment performance during the quarter, resulting in 57% of our AUM outperforming their respective benchmarks over the trailing one-year, 68% over the three-year, 74% over the five-year, and 88% over the 10-year periods. 

 

As previously reported, total AUM decreased to $52.8 billion as of December 31, 2018, due primarily to market depreciation. Gross flows in the fourth quarter were strong at $4.0 billion, while resulting in net flows of ($1.0) billion as investors retreated from higher risk asset classes and rotated into cash.

 

“Overall, our pipeline for 2019 is healthy as are our sales prospects, fueled by robust investment performance and a diverse product set,” Mr. Brown continued.

 

“Momentum in VictoryShares ETFs remained strong in 2018, with net flows of $121 million for the quarter and $1.1 billion for the full year. Our ETFs have achieved positive net flows every quarter since we entered the ETF business in 2015. During 2018, our ETF market share increased 33% compared with year-end 2017, according to Morningstar.  

 

“Looking ahead, we intend to grow organically by leveraging the diverse capabilities of our Investment Franchises and Solutions Platform, supported by our well-established distribution system. In addition, we remain committed to inorganic growth through acquisitions. In the second half of 2018, we announced two strategic


1Adjusted measures are non-GAAP financial measures.  An explanation of these non-GAAP financial measures is included under the heading “Information Regarding Non-GAAP Financial Measures” at the end of this press release. Please see the non-GAAP reconciliation tables.


 

acquisitions. During the fourth quarter, we announced our agreement to purchase USAA Asset Management Company, which includes its mutual fund, ETF and 529 College Savings Plan businesses. This will greatly enhance our existing distribution platform with the addition of USAA’s direct membership channel. This announcement followed the third-quarter disclosure of our planned acquisition of Harvest Volatility Management.

 

“Together, these two acquisitions will significantly diversify our AUM and investment capabilities, while further enhancing economies of scale. Plans to integrate both businesses are on track, and we are on target to accomplish our synergy goal of $100 million for the USAA transaction.  We expect to close both transactions in the second quarter of 2019. 

 

“Our M&A pipeline remains active as we continue to seek prospects representing the ‘growers of the future’. This includes adding unique, innovative products and solutions that solve issues for client portfolios. As in the past, serving the needs of our clients remains our top priority.”

 

The table below presents AUM, and certain GAAP and non-GAAP (“adjusted”) financial results.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Year Ended

 

 

December 31, 

 

September 30, 

 

December 31, 

 

December 31, 

 

December 31, 

 

    

2018

    

2018

    

2017

    

2018

    

2017

Assets Under Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

$

52,763

 

$

63,640

 

$

61,771

 

$

52,763

 

$

61,771

Average

 

 

58,474

 

 

63,447

 

 

60,354

 

 

61,390

 

 

57,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

$

4,028

 

$

2,896

 

$

4,371

 

$

14,130

 

$

16,929

Net

 

 

(1,019)

 

 

(672)

 

 

294

 

 

(2,427)

 

 

(1,471)

Net flows excluding Diversified Equity(1)

 

 

(1,019)

 

 

(672)

 

 

294

 

 

(2,427)

 

 

(853)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Financial Results (GAAP)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

96.0

 

$

108.1

 

$

105.6

 

$

413.4

 

$

409.6

Revenue realization (in bps)

 

 

65.1

 

 

67.6

 

 

69.4

 

 

67.3

 

 

70.8

Operating expenses

 

 

70.2

 

 

76.3

 

 

78.7

 

 

298.9

 

 

319.5

Income from operations

 

 

25.8

 

 

31.8

 

 

26.9

 

 

114.5

 

 

90.2

Operating margin

 

 

26.8%

 

 

29.4%

 

 

25.5%

 

 

27.7%

 

 

22.0%

Net income

 

 

13.9

 

 

20.6

 

 

11.2

 

 

63.7

 

 

25.8

Earnings per diluted share

 

$

 0.19

 

$

 0.29

 

$

 0.19

 

$

 0.90

 

$

 0.43

Cash flow from operations

 

 

 34.4

 

 

 40.3

 

 

 36.8

 

 

 134.3

 

 

 96.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Performance Results (Non-GAAP)(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

36.4

 

$

43.3

 

$

40.0

 

$

160.2

 

$

149.1

Adjusted EBITDA margin

 

 

37.9%

 

 

40.1%

 

 

37.9%

 

 

38.7%

 

 

36.4%

Adjusted net income

 

 

23.6

 

 

29.0

 

 

18.1

 

 

102.3

 

 

62.0

Tax benefit of goodwill and acquired intangibles

 

 

3.3

 

 

3.3

 

 

5.0

 

 

13.3

 

 

19.7

Adjusted net income with tax benefit

 

 

27.0

 

 

32.3

 

 

23.1

 

 

115.5

 

 

81.7

Adjusted net income with tax benefit per diluted share

 

$

 0.38

 

$

 0.45

 

$

 0.39

 

$

 1.64

 

$

 1.37


(1)

In May 2017, the Company made a  decision to exit the Diversified Equity Franchise; all remaining AUM was transferred to the Munder Capital Management Franchise to manage beginning May 15, 2017.

(2)

Adjusted 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".

 

 

 

2


 

AUM, Flows and Investment Performance

 

Victory Capital’s AUM decreased by $10.8 billion to $52.8 billion at December 31, 2018, compared to $63.6 billion at September 30, 2018. The decrease was due to market depreciation of $9.9 billion in addition to net outflows of $1.0 billion. Gross flows for the fourth quarter were $4.0 billion. 

 

As of December 31, 2018, 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 December 31, 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

Trailing

 

Trailing

 

Trailing

 

Trailing

 

    

1-Year

    

3-Years

    

5-Years

    

10-Years

Percentage of AUM Outperforming Benchmark

 

57%

 

68%

 

74%

 

88%

Percentage of Strategies Outperforming Benchmark

 

59%

 

59%

 

63%

 

75%

 

 

Fourth Quarter of 2018 Compared to Third Quarter of 2018

 

For the quarter ended December 31, 2018, GAAP Net Income decreased 33% to $13.9 million, or $0.19 per diluted share, compared to GAAP Net Income of $20.6 million, or $0.29 per diluted share, for the third quarter of 2018. GAAP operating margin was 26.8% for the quarter compared to 29.4% for the third quarter of 2018. Adjusted Net Income with tax benefit decreased 16% to $27.0 million, or $0.38 per diluted share comprised of $0.33 per diluted share in Adjusted Net Income and $0.05 per diluted share in tax benefit, compared to $32.3 million, or $0.45 per diluted share comprised of $0.40 per diluted share in Adjusted Net Income and $0.05 per diluted share in tax benefit, for the third quarter of 2018.

 

Adjusted EBITDA and Adjusted EBITDA margin were $36.4 million and 37.9%, respectively, for the quarter ended December 31, 2018, compared to $43.3 million and 40.1% in the third quarter of 2018. Net Income, Adjusted Net Income and Adjusted EBITDA decreased due to lower revenue partially offset by lower variable operating expenses.  

 

·

Revenue was $96.0 million, a decrease from $108.1 million for the third quarter of 2018 due to a decrease in average AUM and a decrease in the realized fee rate due to asset mix.

·

Operating expenses decreased to $70.2 million, compared to $76.3 million in the third quarter of 2018 primarily due to lower AUM and revenue levels which drive certain variable expenses, partially offset by an increase in acquisition costs.

 

Fourth Quarter of 2018 Compared to Fourth Quarter of 2017

 

For the quarter ended December 31, 2018, GAAP Net Income increased 24% to $13.9 million, or $0.19 per diluted share, compared to $11.2 million, or $0.19 per diluted share, in the fourth quarter of 2017. GAAP operating margin increased to 26.8% for the quarter from 25.5% for the fourth quarter of 2017. Adjusted Net Income with tax benefit increased 17% to $27.0 million, or $0.38 per diluted share comprised of $0.33 per diluted share in Adjusted Net Income and $0.05 per diluted share in tax benefit in the fourth quarter of 2018, compared to $23.1 million, or $0.39 per diluted share comprised of $0.30 per diluted share in Adjusted Net Income and $0.09 per diluted share in tax benefit, in the fourth quarter of 2017. Net Income and Adjusted Net Income increased primarily due to lower interest expense in the fourth quarter of 2018 as a result of refinancing activities and debt pre-payments.

 

Adjusted EBITDA and Adjusted EBITDA margin were $36.4 million and 37.9%, respectively, for the fourth quarter of 2018, compared to $40.0 million and 37.9%, respectively, for the fourth quarter a year ago. Adjusted EBITDA decreased due to lower revenue, partially offset by lower variable operating expenses.    

 

3


 

·

Revenue decreased  $9.6 million to $96.0 million, compared to $105.6 million for the fourth quarter of 2017, due to a decrease in average AUM and a decrease in the realized fee rate due to asset mix.

·

Operating expenses decreased 11% to $70.2 million, compared to $78.7 million in the fourth quarter of 2017, primarily due to lower AUM and revenue levels which drive certain variable expenses, partially offset by an increase in acquisition costs.

 

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

 

For the year ended December 31, 2018, GAAP Net Income increased 147% to $63.7 million, or $0.90 per diluted share, compared to $25.8 million, or $0.43 per diluted share, for the year ended December 31, 2017. GAAP operating margin increased to 27.7% for the year ended December 31, 2018 from 22.0% for the year ended December 31, 2017. Adjusted Net Income with tax benefit increased 41% to $115.5 million, or $1.64 per diluted share comprised of $1.45 per diluted share in Adjusted Net Income and $0.19 per diluted share in tax benefit for the year ended December 31, 2018, compared to $81.7 million, or $1.37 per diluted share comprised of $1.04 per diluted share in Adjusted Net Income and $0.33 per diluted share in tax benefit, for the year ended December 31, 2017.

 

Adjusted EBITDA and Adjusted EBITDA margin were $160.2 million and 38.7%, respectively, for the year ended December 31, 2018, compared to $149.1 million and 36.4%, respectively, for the year ended December 31, 2017. Net Income, Adjusted Net Income and Adjusted EBITDA increased due to higher revenue coupled with operational efficiencies, lower intangible amortization and reduced distribution expense related to AUM levels and, specific to Net Income and Adjusted Net Income, lower interest expense as a result of refinancing activities and debt pre-payments.

 

·

Revenue increased to $413.4 million for the year ended December 31, 2018, compared to $409.6 million for the year ended December 31, 2017, due to higher average AUM, partially offset by a decrease in the realized fee rate due to asset mix.

·

Operating expenses for the year ended December 31, 2018 decreased 6% to $298.9 million, compared to $319.5 million for the year ended December 31, 2017, primarily due to operational efficiencies, lower intangible amortization and reduced distribution expense related to AUM levels.  

 

Balance Sheet / Capital Management

 

Cash and cash equivalents were $51.5 million at December 31, 2018, compared to $12.9 million at December 31, 2017. During the quarter, the Company did not make any debt pay-downs with cash on hand. The term loan balance at December 31, 2018 was $280.0 million.

 

During the quarter, the Company repurchased 498,578 shares at an average price of $9.03 per share.

 

Conference Call, Webcast and Slide Presentation

 

The Company will host a conference call and webcast at 8:30 a.m. Eastern Time today, February 6, 2019. Analysts and investors may participate in the question-and-answer session. The call can be accessed via telephone at (866) 465-5145 (domestic) or (409) 220-9945 (international).  Please reference the Victory Capital Conference Call. A recorded replay of the conference call will be available shortly after the conclusion of the live call and can be accessed until February 20, 2019 by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) and enter the Conference ID Number 5157508.

 

The slide presentation and webcast of the conference call can be accessed on the Events and Presentations page of the Company’s investor relations website at https://ir.vcm.com.

 

 

 

4


 

About Victory Capital

 

Victory Capital is a global investment management firm operating a next-generation, integrated multi-boutique business model with $52.8 billion in assets under management as of December 31, 2018.

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.

5


 

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.

Investor Relations Website

 

Victory Capital may use the Investor Relations section of its website, https://ir.vcm.com, to disclose material information to investors and the marketplace as a means of disclosing material, non-public information and for complying with disclosure obligations under Regulation Fair Disclosure (“Reg FD”).  Victory Capital encourages investors, the media and other interested parties to visit its investor relations website regularly.

 

Contacts

Investors:

Lisa Mueller, 310-622-8231

lmueller@finprofiles.com

 

Media:
Tricia Ross, 310-622-8226

tross@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.

6


 

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Consolidated Statements of Operations

(in thousands except shares)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Year Ended

 

 

December 31, 

 

September 30, 

 

December 31, 

 

December 31, 

 

December 31, 

 

    

2018

    

2018

    

2017

    

2018

    

2017

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

82,030

 

$

92,525

 

$

89,206

 

$

352,683

 

$

343,811

Fund administration and distribution fees

 

 

13,937

 

 

15,557

 

 

16,440

 

 

60,729

 

 

65,818

Total revenue

 

 

95,967

 

 

108,082

 

 

105,646

 

 

413,412

 

 

409,629

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personnel compensation and benefits

 

 

33,910

 

 

38,027

 

 

37,339

 

 

145,880

 

 

144,111

Distribution and other asset-based expenses

 

 

21,123

 

 

24,269

 

 

25,213

 

 

94,680

 

 

103,439

General and administrative

 

 

6,910

 

 

6,951

 

 

7,947

 

 

30,005

 

 

33,996

Depreciation and amortization

 

 

5,360

 

 

5,574

 

 

6,570

 

 

23,277

 

 

29,910

Change in value of consideration payable for acquisition of business

 

 

(33)

 

 

 —

 

 

(269)

 

 

(37)

 

 

(294)

Acquisition-related costs

 

 

2,900

 

 

1,451

 

 

659

 

 

4,346

 

 

2,094

Restructuring and integration costs

 

 

40

 

 

 —

 

 

1,261

 

 

742

 

 

6,205

Total operating expenses

 

 

70,210

 

 

76,272

 

 

78,720

 

 

298,893

 

 

319,461

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

25,757

 

 

31,810

 

 

26,926

 

 

114,519

 

 

90,168

Operating margin

 

 

26.8%

 

 

29.4%

 

 

25.5%

 

 

27.7%

 

 

22.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income and other income/(expense)

 

 

(2,627)

 

 

(200)

 

 

(2,097)

 

 

(2,856)

 

 

(2,913)

Interest expense and other financing costs

 

 

(4,438)

 

 

(4,458)

 

 

(10,308)

 

 

(20,694)

 

 

(48,467)

Loss on debt extinguishment

 

 

 —

 

 

 —

 

 

 —

 

 

(6,058)

 

 

(330)

Total other income (expense), net

 

 

(7,065)

 

 

(4,658)

 

 

(12,405)

 

 

(29,608)

 

 

(51,710)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

18,692

 

 

27,152

 

 

14,521

 

 

84,911

 

 

38,458

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(4,777)

 

 

(6,562)

 

 

(3,312)

 

 

(21,207)

 

 

(12,632)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

13,915

 

$

20,590

 

$

11,209

 

$

63,704

 

$

25,826

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 0.21

 

$

 0.30

 

$

 0.20

 

$

 0.96

 

$

 0.47

Diluted

 

 

 0.19

 

 

 0.29

 

 

 0.19

 

 

 0.90

 

 

 0.43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

67,715,681

 

 

67,972,313

 

 

55,119,711

 

 

66,295,240

 

 

54,930,852

Diluted

 

 

71,557,705

 

 

71,863,566

 

 

59,768,134

 

 

70,510,536

 

 

59,577,348

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

$

 

$

 

$

 0.23

 

$

 

$

 2.42

7


 

Victory Capital Holdings, Inc. and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

(unaudited; in thousands except shares)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Year Ended

 

 

December 31, 

 

September 30, 

 

December 31, 

 

December 31, 

 

December 31, 

 

    

2018

    

2018

    

2017

    

2018

    

2017

Net income (GAAP)

 

$

13,915

 

$

20,590

 

$

11,209

 

$

63,704

 

$

25,826

Income tax expense

 

 

(4,777)

 

 

(6,562)

 

 

(3,312)

 

 

(21,207)

 

 

(12,632)

Income before taxes

 

$

18,692

 

$

27,152

 

$

14,521

 

$

84,911

 

$

38,458

Interest expense

 

 

3,797

 

 

4,053

 

 

9,328

 

 

20,173

 

 

44,330

Depreciation

 

 

709

 

 

775

 

 

895

 

 

2,956

 

 

3,561

Other business taxes

 

 

337

 

 

350

 

 

428

 

 

1,505

 

 

1,887

Amortization of acquisition-related intangibles

 

 

4,651

 

 

4,799

 

 

5,676

 

 

20,321

 

 

26,349

Stock-based compensation

 

 

3,943

 

 

4,005

 

 

1,740

 

 

15,238

 

 

11,752

Acquisition, restructuring and exit costs

 

 

3,664

 

 

1,647

 

 

6,001

 

 

6,389

 

 

15,041

Debt issuance costs

 

 

371

 

 

373

 

 

788

 

 

7,807

 

 

6,035

Pre-IPO governance expenses

 

 

 —

 

 

 —

 

 

347

 

 

138

 

 

1,248

Earnings/losses from equity method investments

 

 

224

 

 

167

 

 

319

 

 

730

 

 

427

Adjusted EBITDA

 

$

36,388

 

$

43,321

 

$

40,043

 

$

160,168

 

$

149,088

Adjusted EBITDA margin

 

 

37.9%

 

 

40.1%

 

 

37.9%

 

 

38.7%

 

 

36.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (GAAP)

 

$

13,915

 

$

20,590

 

$

11,209

 

$

63,704

 

$

25,826

Adjustment to reflect the operating performance of the Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other business taxes

 

 

337

 

 

350

 

 

428

 

 

1,505

 

 

1,887

Amortization of acquisition-related intangibles

 

 

4,651

 

 

4,799

 

 

5,676

 

 

20,321

 

 

26,349

Stock-based compensation

 

 

3,943

 

 

4,005

 

 

1,740

 

 

15,238

 

 

11,752

Acquisition, restructuring and exit costs

 

 

3,664

 

 

1,647

 

 

6,001

 

 

6,389

 

 

15,041

Debt issuance costs

 

 

371

 

 

373

 

 

788

 

 

7,807

 

 

6,035

Pre-IPO governance expenses

 

 

 —

 

 

 —

 

 

347

 

 

138

 

 

1,248

Tax effect of above adjustments

 

 

(3,241)

 

 

(2,794)

 

 

(5,692)

 

 

(12,849)

 

 

(23,678)

Remeasurement of net deferred taxes

 

 

 —

 

 

 —

 

 

(2,422)

 

 

 —

 

 

(2,422)

Adjusted net income

 

$

23,640

 

$

28,970

 

$

18,075

 

$

102,253

 

$

62,038

Adjusted net income per diluted share

 

$

 0.33

 

$

 0.40

 

$

0.30

 

$

 1.45

 

$

 1.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax benefit of goodwill and acquired intangibles

 

$

3,320

 

$

3,318

 

$

4,998

 

$

13,278

 

$

19,691

Tax benefit of goodwill and acquired intangibles per diluted share

 

$

 0.05

 

$

 0.05

 

$

0.09

 

$

 0.19

 

$

 0.33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net income with tax benefit

 

$

26,960

 

$

32,288

 

$

23,073

 

$

115,531

 

$

81,729

Adjusted net income with tax benefit per diluted share

 

$

 0.38

 

$

 0.45

 

$

 0.39

 

$

 1.64

 

$

 1.37

 

 

 

 

 

 

 

 

 

 

8


 

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Consolidated Balance Sheets

(In thousands, except for shares)

 

 

 

 

 

 

 

 

 

    

December 31, 2018

    

December 31, 2017

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

51,491

 

$

12,921

Investment management fees receivable

 

 

37,980

 

 

42,264

Fund administration and distribution fees receivable

 

 

3,153

 

 

3,925

Other receivables

 

 

2,987

 

 

9,728

Prepaid expenses

 

 

2,664

 

 

5,441

Available-for-sale securities, at fair value

 

 

601

 

 

677

Trading securities, at fair value

 

 

12,719

 

 

10,659

Property and equipment, net

 

 

8,780

 

 

8,844

Goodwill   

 

 

284,108

 

 

284,108

Other intangible assets, net

 

 

387,679

 

 

408,000

Other assets

 

 

9,349

 

 

6,055

Total assets

 

$

801,511

 

$

792,622

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Accounts payable

 

$

607

 

$

327

Accrued compensation and benefits

 

 

30,228

 

 

29,305

Accrued expenses

 

 

19,743

 

 

21,669

Deferred compensation plan liability

 

 

12,719

 

 

10,659

Consideration payable for acquisition of business

 

 

5,838

 

 

9,856

Deferred tax liability, net

 

 

6,212

 

 

4,068

Other liabilities

 

 

1,759

 

 

2,330

Long-term debt(1)

 

 

268,857

 

 

483,225

Total liabilities

 

 

345,963

 

 

561,439

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.01 par value per share: 2018 - no shares authorized, issued and outstanding; 2017 - 78,837,300 shares authorized, 57,182,730 issued and 55,118,673 shares outstanding

 

 

 —

 

 

572

Class A common stock, $0.01 par value per share: 2018 - 400,000,000 shares authorized, 15,280,833 shares issued and 14,424,558 shares outstanding; 2017 - no shares authorized, issued and outstanding

 

 

153

 

 

 —

Class B common stock, $0.01 par value per share: 2018 - 200,000,000 shares authorized, 55,284,408 shares issued and 53,137,428 shares outstanding; 2017 - no shares authorized, issued and outstanding

 

 

553

 

 

 —

Additional paid-in capital

 

 

604,401

 

 

435,334

Class A treasury stock, at cost: 2018 - 856,275 shares; 2017 - no shares

 

 

(8,045)

 

 

 —

Class B treasury stock, at cost: 2018 - 2,146,980 shares; 2017 - 2,064,057 shares

 

 

(21,719)

 

 

(20,899)

Accumulated other comprehensive income (loss)

 

 

(86)

 

 

64

Retained deficit

 

 

(119,709)

 

 

(183,888)

Total stockholders' equity

 

 

455,548

 

 

231,183

Total liabilities and stockholders’ equity

 

$

801,511

 

$

792,622


(1)

Balance at December 31, 2018 is shown net of unamortized loan discount and debt issuance costs in the amount of $11.1 million. The gross amount of the debt outstanding was $280.0 million.

 

9


 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management

(unaudited; in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

% Change from

 

 

December 31, 

 

September 30, 

 

December 31, 

 

September 30, 

 

December 31, 

 

    

2018

    

2018

    

2017

    

2018

    

2017

Beginning assets under management

 

$

63,640

 

$

62,256

 

$

58,997

 

2%

 

8%

Gross client cash inflows

 

 

4,028

 

 

2,896

 

 

4,371

 

39%

 

-8%

Gross client cash outflows

 

 

(5,047)

 

 

(3,568)

 

 

(4,077)

 

41%

 

24%

Net client cash flows

 

 

(1,019)

 

 

(672)

 

 

294

 

-52%

 

-447%

Market appreciation (depreciation)

 

 

(9,858)

 

 

2,056

 

 

2,575

 

n/m

 

-483%

Net transfers

 

 

 —

 

 

 —

 

 

(95)

 

n/m

 

n/m

Ending assets under management

 

 

52,763

 

 

63,640

 

 

61,771

 

-17%

 

-15%

Average assets under management

 

 

58,474

 

 

63,447

 

 

60,354

 

-8%

 

-3%

Net client cash flows excluding Diversified Equity

 

 

(1,019)

 

 

(672)

 

 

294

 

-52%

 

-447%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Year Ended

 

 

 

 

% Change from

 

 

 

 

December 31, 

 

December 31, 

 

 

 

 

December 31, 

 

 

 

 

2018

 

2017

 

 

 

 

2017

 

 

Beginning assets under management

 

$

61,771

 

$

54,965

 

 

 

 

12%

 

 

Gross client cash inflows

 

 

14,130

 

 

16,929

 

 

 

 

-17%

 

 

Gross client cash outflows

 

 

(16,557)

 

 

(18,400)

 

 

 

 

-10%

 

 

Net client cash flows

 

 

(2,427)

 

 

(1,471)

 

 

 

 

-65%

 

 

Market appreciation (depreciation)

 

 

(6,573)

 

 

8,372

 

 

 

 

-179%

 

 

Net transfers

 

 

(8)

 

 

(95)

 

 

 

 

n/m

 

 

Ending assets under management

 

 

52,763

 

 

61,771

 

 

 

 

-15%

 

 

Average assets under management

 

 

61,390

 

 

57,823

 

 

 

 

6%

 

 

Net client cash flows excluding Diversified Equity

 

 

(2,427)

 

 

(853)

 

 

 

 

-185%

 

 

 

10


 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by A