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

May 14, 2019

Date of Report (date of earliest event reported)


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 No.)

 

 

 

 

 

 

4900 Tiedeman Road, 4th Floor; Brooklyn, OH

 

44144

(Address of principal executive offices)

 

(Zip Code)

 

(216) 898‑2400

(Registrant’s telephone number, including area code)

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. ☐

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, Par Value $0.01

VCTR

NASDAQ

 

 

 

 


 

 

Item 2.02. Results of Operations and Financial Condition.

On May 14, 2019, Victory Capital Holdings, Inc., (the “Company”) issued a press release (the “Earnings Press Release”) reporting its financial results for the three months ended March 31, 2019. A copy of the Earnings Press Release is attached as Exhibit 99.1 to this Current Report on Form 8‑K and incorporated herein by reference.

The information set forth in this Item 2.02, including Exhibit 99.1, 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, except as shall be expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

 

 

 

Exhibit

    

 

Number

 

Description

99.1

 

Earnings Press Release dated May 14, 2019.

 

- 2 -


 

 

SIGNATURE(S)

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.

 

 

 

 

 

 

Date: May 14, 2019

 

By:

/s/ MICHAEL D. POLICARPO

 

 

 

Name: Michael D. Policarpo

 

 

 

Title: President, Chief Financial Officer and Chief Administrative Officer

 

- 3 -


vctr_Ex99_1

Adjusted 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.

 

 

 

Exhibit 99.1

Picture 2

  NEWS RELEASE

 

 

 

Victory Capital Reports First Quarter 2019 Financial Results

AUM of $61 Billion as of April 30, 2019

Acquisition Cost Synergy Estimates Increased to $110 Million and Timing Accelerated

First Quarter 2019 Highlights

·

Strong investment performance, with 60%,  75%,  74% and 90% of AUM outperforming its respective benchmarks over respective trailing one-, three-, five- and 10-year periods

·

$0.20 per diluted share of GAAP earnings

·

$0.35 per diluted share of adjusted earnings with tax benefit1

·

38.4% adjusted EBITDA margin1

Cleveland, Ohio, May 14, 2019 — 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. 

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 customer approvals and conditions. Victory Capital is not acquiring the USAA brokerage business.


 

“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.”

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

2


 

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.

 

 

 

 

 

 

 

 

 

 

 

 

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.

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”.

3


 

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.

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.

4


 

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.

5


 

Contacts

 

Investors:

Matthew Dennis, CFA

Director, Investor Relations

216-898-2412

mdennis@vcm.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 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

 

$

 

$

 

$

 

7


 

Victory Capital Holdings, Inc. and Subsidiaries

Reconciliation 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

 

 

 

8


 

 

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited 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 shares authorized, 15,663,474 shares issued and 14,684,242 shares outstanding; 2018 - 400,000,000 shares authorized, 15,280,833 shares issued and 14,424,558 shares outstanding

 

 

157

 

 

153

Class B common stock, $0.01 par value per share: 2019 - 200,000,000 shares authorized, 55,014,007 shares issued and 52,837,919 shares outstanding; 2018 - 200,000,000 shares authorized, 55,284,408 shares issued and 53,137,428 shares 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.

 

9


 

Victory Capital Holdings, Inc. and Subsidiaries

Assets 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%

 

10


 

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

  

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

 

11


 

 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Vehicle

(unaudited; in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended