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

August 12, 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))

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

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 August 12, 2019, Victory Capital Holdings, Inc., (the “Company”) issued a press release (the “Earnings Press Release”) reporting its financial results for the three and six months ended June 30, 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 August 12, 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: August 12, 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 Second Quarter 2019 Financial Results

and Initiates Quarterly Cash Dividend

Second Quarter 2019 Highlights

·

Assets under management (“AUM”) of $64.1 billion as of June 30, 2019

·

Positive net flows of $3.7 billion; gross flows of $7.5 billion

·

Strong investment performance, with 74% of AUM outperforming its respective benchmarks over the trailing one-year period, 81% over three-years, 84% over five-years, and 89% over ten-years

·

GAAP earnings of $0.20 per diluted share

·

Adjusted net income with tax benefit per diluted share of $0.381

·

GAAP operating margin of 24.9%

·

Adjusted EBITDA margin of 40.0%1

San Antonio, Texas, August 12, 2019 — Victory Capital Holdings, Inc. (NASDAQ: VCTR) (“Victory Capital” or “the Company”) today reported its results for the three and six months ended June 30, 2019, and announced the initiation of a quarterly cash dividend. The first dividend of $0.05 per share will be payable on September 25, 2019, to shareholders of record on September 10, 2019.

“The decision by our Board of Directors to initiate a dividend exemplifies the confidence we have in the strength and durability of our business and underscores our commitment to enhancing shareholder value,” said David Brown, Chairman and Chief Executive Officer. “The addition of a cash dividend adds another component to our capital allocation strategy while maintaining a primary focus on creating the capital flexibility needed to participate in the consolidation of our industry.

 

“I am also pleased to report that Victory Capital’s investment and financial results were excellent in the second quarter. Our Investment Franchises and Solutions Platform continued to deliver impressive investment performance with 84% of AUM outperforming respective benchmarks over the trailing five-year period ended June 30, 2019. Additionally, net flows were positive at $3.7 billion for the quarter and $2.6 billion through the first six months of the year. Gross flows were also robust for the quarter at $7.5 billion.

“AUM for Victory Capital grew to $64.1 billion as of June 30, 2019. The Company’s AUM as of July 31, 2019, inclusive of the USAA Asset Management Company acquisition, was $147.8 billion.

“The completion of the USAA Asset Management Company acquisition marks a significant milestone for Victory Capital. It significantly broadens our investment capabilities, increases our size and scale and expands our distribution platform with the introduction of a new direct channel focused on USAA members. Our integration efforts are progressing well, and we remain on target to achieve total annual cost synergy estimates of $120 million. This includes $75 million of synergies that were realized as of July 1, 2019, an additional $25 million expected to be realized by year-end, and the balance in 2020.

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 see the section “Information Regarding Non-GAAP Financial Measures” at the end of this press release for an explanation of Non-GAAP financial measures and a reconciliation to the nearest GAAP financial measure.

“We believe our growth and evolution as an organization since becoming a public company demonstrates the strength of our integrated multi-boutique business model as well as our ability to successfully execute against our long-term strategic vision. We intend to continue to grow organically by leveraging our full suite of products and inorganically through strategic acquisitions. 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 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 Six Months Ended

 

 

June 30,

 

March 31,

 

June 30,

 

June 30,

 

June 30,

 

    

2019

    

2019

    

2018

    

2019

    

2018

Assets Under Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

$

64,077

 

$

58,119

 

$

62,256

 

$

64,077

 

$

62,256

Average

 

 

60,063

 

 

57,043

 

 

61,617

 

 

58,553

 

 

61,819

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

$

7,514

 

$

3,038

 

$

3,521

 

$

10,552

 

$

7,205

Net

 

 

3,694

 

 

(1,105)

 

 

(102)

 

 

2,589

 

 

(735)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Financial Results (GAAP)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue(2)

 

$

91.4

 

$

87.5

 

$

104.4

 

$

178.8

 

$

209.4

Revenue realization (in bps)(2)

 

 

61.0

 

 

62.2

 

 

68.0

 

 

61.6

 

 

68.3

Operating expenses(2)

 

 

68.6

 

 

65.4

 

 

74.7

 

 

134.0

 

 

152.4

Income from operations

 

 

22.7

 

 

22.1

 

 

29.7

 

 

44.9

 

 

57.0

Operating margin(2)

 

 

24.9%

 

 

25.3%

 

 

28.4%

 

 

25.1%

 

 

27.2%

Net income

 

 

14.4

 

 

14.5

 

 

18.7

 

 

28.9

 

 

29.2

Earnings per diluted share

 

$

 0.20

 

$

 0.20

 

$

 0.26

 

$

 0.40

 

$

 0.42

Cash flow from operations

 

 

31.4

 

 

 17.9

 

 

 33.7

 

 

49.3

 

 

 59.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Performance Results (Non-GAAP)(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

36.6

 

$

33.6

 

$

40.7

 

$

70.2

 

$

80.5

Adjusted EBITDA margin(2)

 

 

40.0%

 

 

38.4%

 

 

39.0%

 

 

39.2%

 

 

38.4%

Adjusted net income

 

 

24.4

 

 

21.9

 

 

26.6

 

 

46.3

 

 

49.6

Tax benefit of goodwill and acquired intangible assets

 

 

3.4

 

 

3.4

 

 

3.3

 

 

6.7

 

 

6.6

Adjusted net income with tax benefit

 

 

27.7

 

 

25.3

 

 

29.9

 

 

53.0

 

 

56.3

Adjusted net income with tax benefit per diluted share

 

$

 0.38

 

$

 0.35

 

$

 0.41

 

$

 0.73

 

$

 0.81

 

 


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

 

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

 

2

AUM, Flows and Investment Performance

Victory Capital’s AUM increased by 10.3%, or $6.0 billion, to $64.1 billion at June 30, 2019, compared with $58.1 billion at March 31, 2019. The increase was due to positive net flows of $3.7 billion, compounded by market appreciation of $2.3 billion. Gross flows for the second quarter were $7.5 billion. For the year-to-date period ended June 30, 2019, the Company reported positive net flows of $2.6 billion.

 

As of June 30, 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 June 30, 2019.

 

 

 

 

 

 

 

 

 

 

 

Trailing

 

Trailing

 

Trailing

 

Trailing

 

    

1-Year

    

3-Years

    

5-Years

    

10-Years

Percentage of AUM Outperforming Benchmark

 

74%

 

81%

 

84%

 

89%

Percentage of Strategies Outperforming Benchmark

 

46%

 

62%

 

70%

 

81%

Second Quarter of 2019 Compared to First Quarter of 2019

Revenue increased 4.5% to $91.4 million, in the second quarter of 2019, compared with revenue of $87.5 million in the first quarter. The increase was due to higher average AUM in the second quarter. Excluding restructuring and integration costs, operating expenses in the second quarter of 2019 increased 2.3%, despite average AUM increasing 5.3%, from the first quarter of the year.

 

Second quarter GAAP net income was $14.4 million, or $0.20 per diluted share, compared with $14.5 million, or $0.20 per diluted share, in the first quarter of 2019. GAAP operating margin was 24.9% for the quarter, compared with 25.3% in the first quarter of 2019. The decrease was driven by higher restructuring and integration costs in the year’s second quarter.

 

Adjusted net income with tax benefit increased 9.5% to $27.7 million, or $0.38 per diluted share, in the second quarter, up from $25.3 million, or $0.35 per diluted share, in the first quarter. Adjusted EBITDA and Adjusted EBITDA margin were $36.6 million and 40.0%, respectively, for the second quarter of 2019, up from $33.6 million and 38.4%, respectively, in the first quarter of the year.

 

Second Quarter of 2019 Compared to Second Quarter of 2018

Revenue for the quarter ended June 30, 2019, decreased $13.0 million to $91.4 million, compared with $104.4 million in the second quarter of 2018. Current-year revenue was negatively impacted by lower average AUM and a lower reported average fee rate—related to change in business mix and the adoption of ASU 2014-09 in 2019.

 

Operating expenses declined 8.2% in the second quarter of 2019 to $68.6 million, compared with $74.7 million in the prior-year quarter. This year’s second quarter operating expenses included $4.6 million of acquisition, restructuring, and integration costs, compared with $0.4 million of acquisition, restructuring, and integration costs in the same year-ago quarter. The year-over-year improvement resulted from lower personnel expenses, reflecting the Company’s variable cost structure and sharply lower distribution and other asset-based expenses, which declined $7.9 million, or 32.9%, compared with last year, due to the mix of mutual fund assets and share classes and lower average AUM. Last year’s second-quarter distribution and other asset-based expenses included $3.3 million of fund waivers and reimbursements that are no longer included in operating expenses following the adoption of ASU 2014-09 on January 1, 2019.

 

 

3

GAAP net income of $14.4 million, or $0.20 per diluted share, in the second quarter of 2019 compared with $18.7 million, or $0.26 per diluted share, in the same quarter last year. GAAP operating margin was 24.9% in the quarter, compared with 28.4% in the second quarter of 2018. The lower operating margin was due to higher acquisition related costs and higher restructuring and integration costs in 2019. 

 

Adjusted net income with tax benefit was $27.7 million, or $0.38 per diluted share, in the second quarter of 2019, compared with $29.9 million, or $0.41 per diluted share in the prior year’s second quarter. Adjusted EBITDA and Adjusted EBITDA margin were $36.6 million and 40.0%, respectively, for the second quarter of 2019, compared with $40.7 million and 39.0%, respectively, for the second quarter one year ago.  

 

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

 

Revenue declined to $178.8 million for the six months ended June 30, 2019, compared with $209.4 million for the comparable period ended June 30, 2018, due to lower average AUM and a decrease in the realized fee rate. Revenue for the first half of 2019 includes a reduction of $8.2 million in mutual fund waivers and reimbursements due to the adoption of ASU 2014-09 on January 1, 2019, compared with no such reduction of revenue in the prior year. Operating expenses, for the six months ended June 30, 2019, declined to $134.0 million, compared with $152.4 million for the same period in 2018, due to the Company’s variable cost structure and adoption of ASU 2014-09. All expense categories declined in 2019, except for acquisition related costs and restructuring and integration costs.  

 

For the six months ended June 30, 2019, GAAP net income was $28.9 million, or $0.40 per diluted share, compared with $29.2 million, or $0.42 per diluted share, in the comparable six months of 2018. GAAP operating margin was 25.1% for the six months ended June 30, 2019, versus 27.2% for six months ended June 30, 2018. Current-year operating results include $7.4 million in acquisition, restructuring, and integration costs, compared with $0.7 million for these same costs in the comparable 2018 period. In addition, last year’s results include $1.9 million of costs related to debt issued in the first quarter of 2018.

 

Adjusted net income with tax benefit was $53.0 million, or $0.73 per diluted share, in the first half of 2019, and comprised of $0.63 per diluted share in adjusted net income and $0.09 per diluted share in tax benefit. This was down 5.9% from adjusted net income with tax benefit of $56.3 million, or $0.81 per diluted per diluted share, comprised of $0.72 per diluted share in adjusted net income and $0.09 per diluted share in tax benefit, for the same period in 2018.  

 

Adjusted EBITDA and Adjusted EBITDA margin were $70.2 million and 39.2%, respectively, for the six months ended June 30, 2019, compared with $80.5 million and 38.4%, respectively, for last year’s comparable period.

 

Balance Sheet / Capital Management

Cash and cash equivalents, inclusive of restricted cash, increased $43.8 million, to $95.3 million at June 30, 2019. This was up from $51.5 million at December 31, 2018. On June 28, 2019, the Company placed $71.9 million into escrow to partially fund its USAA Asset Management Company acquisition. These funds are categorized as restricted cash on the Company’s June 30, 2019 balance sheet. During the second quarter, the Company repurchased an additional 113,297 shares, at an average price of $17.19 per share, for a total cost of $1.9 million.  

 

After quarter end, on July 1, the Company closed its previously announced acquisition of the USAA Asset Management Company and entered into a new $1.1 billion seven-year term loan. The interest rate on the term loan was set at LIBOR plus 325 basis points. In addition, the Company established a five-year $100 million senior secured revolving credit facility that remains undrawn. Since July 1, the

4

Company has reduced outstanding debt with principal repayments totaling $20.0 million and announced the initiation of a $0.05 per share quarterly cash dividend.

Conference Call, Webcast and Slide Presentation

The Company will host a conference call tomorrow morning, August 13, 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 $147.8 billion in assets under management as of July 31, 2019.

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

For more information, please visit www.vcm.com or follow us. cid:image002.png@01D521EF.D5F018C0cid:image003.png@01D521EF.D5F018C0

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

5

tax proceedings) or regulatory actions; the Company’s ability to implement effective information and cyber security policies, procedures and capabilities; the Company’s substantial indebtedness; the potential impairment of the Company’s goodwill and intangible assets; disruption to the operations of third parties whose functions are integral to the Company’s ETF platform; the Company’s determination that Victory Capital is not required to register as an "investment company" under the 1940 Act; the fluctuation of the Company’s expenses; the Company’s ability to respond to recent trends in the investment management industry; the level of regulation on investment management firms and the Company’s ability to respond to regulatory developments; the competitiveness of the investment management industry; the dual class structure of the Company’s common stock; the level of control over the Company retained by Crestview GP; the Company’s status as an emerging growth company and a controlled company; and other risks and factors listed under "Risk Factors" and elsewhere in the Company’s filings with the SEC.

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

Contacts

 

Investors:

Matthew Dennis, CFA

Director, Investor Relations

216-898-2412

mdennis@vcm.com 

Media:
Tricia Ross

310-622-8226

tross@finprofiles.com 

 

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

 

 

 

 

 

 

6

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands except per share data and percentages)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

June 30,

 

March 31,

 

June 30,

 

June 30,

 

June 30,

 

    

2019

    

2019

    

2018

    

2019

    

2018

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

78,042

 

$

74,411

 

$

88,998

 

$

152,453

 

$

178,128

Fund administration and distribution fees

 

 

13,318

 

 

13,068

 

 

15,401

 

 

26,386

 

 

31,235

Total revenue

 

 

91,360

 

 

87,479

 

 

104,399

 

 

178,839

 

 

209,363

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personnel compensation and benefits

 

 

35,542

 

 

34,501

 

 

37,140

 

 

70,043

 

 

73,943

Distribution and other asset-based expenses

 

 

16,182

 

 

15,767

 

 

24,127

 

 

31,949

 

 

49,288

General and administrative

 

 

7,087

 

 

7,087

 

 

7,088

 

 

14,174

 

 

16,144

Depreciation and amortization

 

 

5,263

 

 

5,222

 

 

5,931

 

 

10,485

 

 

12,343

Change in value of consideration payable for acquisition of business

 

 

(14)

 

 

 —

 

 

(4)

 

 

(14)

 

 

(4)

Acquisition-related costs

 

 

2,787

 

 

2,777

 

 

(5)

 

 

5,564

 

 

(5)

Restructuring and integration costs

 

 

1,788

 

 

 —

 

 

438

 

 

1,788

 

 

702

Total operating expenses

 

 

68,635

 

 

65,354

 

 

74,715

 

 

133,989

 

 

152,411

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

22,725

 

 

22,125

 

 

29,684

 

 

44,850

 

 

56,952

Operating margin

 

 

24.9%

 

 

25.3%

 

 

28.4%

 

 

25.1%

 

 

27.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income and other income/(expense)

 

 

656

 

 

1,833

 

 

 8

 

 

2,489

 

 

(29)

Interest expense and other financing costs

 

 

(4,520)

 

 

(4,624)

 

 

(4,706)

 

 

(9,144)

 

 

(11,798)

Loss on debt extinguishment

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(6,058)

Total other income (expense), net

 

 

(3,864)

 

 

(2,791)

 

 

(4,698)

 

 

(6,655)

 

 

(17,885)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

18,861

 

 

19,334

 

 

24,986

 

 

38,195

 

 

39,067

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(4,478)

 

 

(4,807)

 

 

(6,311)

 

 

(9,285)

 

 

(9,868)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

14,383

 

$

14,527

 

$

18,675

 

$

28,910

 

$

29,199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 0.21

 

$

 0.22

 

$

 0.27

 

$

 0.43

 

$

 0.45

Diluted

 

 

 0.20

 

 

 0.20

 

 

 0.26

 

 

 0.40

 

 

 0.42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

67,583

 

 

67,521

 

 

67,949

 

 

67,552

 

 

64,791

Diluted

 

 

73,521

 

 

72,282

 

 

72,135

 

 

72,962

 

 

69,353

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share of common stock

 

$

 

$

 

$

 

$

 

 

$

7

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 Six Months Ended

 

 

June 30,

 

March 31,

 

June 30,

 

June 30,

 

June 30,

 

    

2019

    

2019

    

2018

    

2019

    

2018

Net income (GAAP)

 

$

14,383

 

$

14,527

 

$

18,675

 

$

28,910

 

$

29,199

Income tax expense

 

 

(4,478)

 

 

(4,807)

 

 

(6,311)

 

 

(9,285)

 

 

(9,868)

Income before income taxes

 

$

18,861

 

$

19,334

 

$

24,986

 

$

38,195

 

$

39,067

Interest expense

 

 

3,613

 

 

3,853

 

 

4,229

 

 

7,466

 

 

12,323

Depreciation

 

 

612

 

 

571

 

 

736

 

 

1,183

 

 

1,472

Other business taxes

 

 

424

 

 

555

 

 

443

 

 

979

 

 

818

Amortization of acquisition-related intangible assets

 

 

4,651

 

 

4,651

 

 

5,195

 

 

9,302

 

 

10,871

Stock-based compensation

 

 

3,321

 

 

1,478

 

 

3,968

 

 

4,799

 

 

7,290

Acquisition, restructuring and exit costs

 

 

4,575

 

 

2,777

 

 

560

 

 

7,352

 

 

1,078

Debt issuance costs

 

 

366

 

 

364

 

 

361

 

 

730

 

 

7,063

Pre-IPO governance expenses

 

 

 —

 

 

 —

 

 

(3)

 

 

 —

 

 

138

Earnings/losses from equity method investments

 

 

150

 

 

 4

 

 

202

 

 

154

 

 

339

Adjusted EBITDA

 

$

36,573

 

$

33,587

 

$

40,677

 

$

70,160

 

$

80,459

Adjusted EBITDA margin

 

 

40.0%

 

 

38.4%

 

 

39.0%

 

 

39.2%

 

 

38.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (GAAP)

 

$

14,383

 

$

14,527

 

$

18,675

 

$

28,910

 

$

29,199

Adjustment to reflect the operating performance of the Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other business taxes

 

 

424

 

 

555

 

 

443

 

 

979

 

 

818

Amortization of acquisition-related intangible assets

 

 

4,651

 

 

4,651

 

 

5,195

 

 

9,302

 

 

10,871

Stock-based compensation

 

 

3,321

 

 

1,478

 

 

3,968

 

 

4,799

 

 

7,290

Acquisition, restructuring and exit costs

 

 

4,575

 

 

2,777

 

 

560

 

 

7,352

 

 

1,078

Debt issuance costs

 

 

366

 

 

364

 

 

361

 

 

730

 

 

7,063

Pre-IPO governance expenses

 

 

 —

 

 

 —

 

 

(3)

 

 

 —

 

 

138

Tax effect of above adjustments

 

 

(3,334)

 

 

(2,456)

 

 

(2,631)

 

 

(5,790)

 

 

(6,814)

Adjusted net income

 

$

24,386

 

$

21,896

 

$

26,568

 

$

46,282

 

$

49,643

Adjusted net income per diluted share

 

$

 0.33

 

$

 0.30

 

$

0.37

 

$

 0.63

 

$

 0.72

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax benefit of goodwill and acquired intangible assets

 

$

3,361

 

$

3,361

 

$

3,320

 

$

6,722

 

$

6,640

Tax benefit of goodwill and acquired intangible assets per diluted share

 

$

 0.05

 

$

 0.05

 

$

0.04

 

$

 0.09

 

$

 0.09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net income with tax benefit

 

$

27,747

 

$

25,257

 

$

29,888

 

$

53,004

 

$

56,283

Adjusted net income with tax benefit per diluted share

 

$

 0.38

 

$

 0.35

 

$

 0.41

 

$

 0.73

 

$

 0.81

 

 

8

 

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except for shares)

 

 

 

 

 

 

 

 

 

 

 

June 30,2019

 

December 31,2018

Assets

 

 

  

 

 

  

Cash and cash equivalents

 

$

23,410

 

$

51,491

Restricted cash

 

 

71,917

 

 

 —

Receivables

 

 

44,184

 

 

44,120

Prepaid expenses

 

 

3,738

 

 

2,664

Investments

 

 

16,825

 

 

13,320

Property and equipment, net

 

 

9,438

 

 

8,780

Goodwill

 

 

284,108

 

 

284,108

Other intangible assets, net

 

 

378,378

 

 

387,679

Other assets

 

 

9,097

 

 

9,349

Total assets

 

$

841,095

 

$

801,511

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

  

 

 

  

Accounts payable and accrued expenses

 

$

29,879

 

$

20,350

Accrued compensation and benefits

 

 

21,559

 

 

30,228

Consideration payable for acquisition of business

 

 

6,017

 

 

5,838

Deferred tax liability, net

 

 

9,286

 

 

6,212

Other liabilities

 

 

17,616

 

 

14,478

Long-term debt(1)

 

 

269,787

 

 

268,857

Total liabilities

 

 

354,144

 

 

345,963

 

 

 

 

 

 

 

Stockholders' equity

 

 

  

 

 

  

Class A common stock, $0.01 par value per share: 2019 - 400,000,000 shares authorized, 16,473,628 shares issued and 15,381,099 shares outstanding; 2018 - 400,000,000 shares authorized, 15,280,833 shares issued and 14,424,558 shares outstanding

 

 

165

 

 

153

Class B common stock, $0.01 par value per share: 2019 - 200,000,000 shares authorized, 54,359,620 shares issued and 52,175,783 shares outstanding; 2018 - 200,000,000 shares authorized, 55,284,408 shares issued and 53,137,428 shares outstanding

 

 

544

 

 

553

Additional paid-in capital

 

 

610,685

 

 

604,401

Class A treasury stock, at cost: 2019 -1,092,529 shares; 2018 - 856,275 shares

 

 

(11,337)

 

 

(8,045)

Class B treasury stock, at cost: 2019 - 2,183,837 shares; 2018 - 2,146,980 shares

 

 

(22,160)

 

 

(21,719)

Accumulated other comprehensive income (loss)

 

 

(20)

 

 

(86)

Retained deficit

 

 

(90,926)

 

 

(119,709)

Total stockholders' equity

 

 

486,951

 

 

455,548

Total liabilities and stockholders' equity

 

$

841,095

 

$

801,511

 


(1)

Balances at June 30, 2019 and December 31, 2018 are shown net of unamortized loan discount and debt issuance costs in the amount of $10.2 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 except for percentages)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

% Change from

 

 

June 30,

 

March 31,

 

June 30,

 

March 31,

 

June 30,

 

    

2019

    

2019

    

2018

    

2019

    

2018

Beginning assets under management

 

$

58,119

 

$

52,763

 

$

60,855

 

10%

 

-4%

Gross client cash inflows

 

 

7,514

 

 

3,038

 

 

3,521

 

147%

 

113%

Gross client cash outflows

 

 

(3,819)

 

 

(4,143)

 

 

(3,623)

 

-8%

 

5%

Net client cash flows

 

 

3,694

 

 

(1,105)

 

 

(102)

 

n/m

 

n/m

Market appreciation (depreciation)

 

 

2,269

 

 

6,460

 

 

1,503

 

-65%

 

51%

Net transfers

 

 

(4)

 

 

 —

 

 

 —

 

n/m

 

n/m

Ending assets under management

 

 

64,077

 

 

58,119

 

 

62,256

 

10%

 

3%

Average assets under management

 

 

60,063

 

 

57,043

 

 

61,617

 

5%

 

-3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended

 

 

 

 

% Change from

 

 

 

 

June 30,

 

June 30,

 

 

 

 

June 30,

 

 

 

 

2019

 

2018

 

 

 

 

2018

 

 

Beginning assets under management

 

$

52,763

 

$

61,771

 

 

 

 

-15%

 

 

Gross client cash inflows

 

 

10,552

 

 

7,205

 

 

 

 

46%

 

 

Gross client cash outflows

 

 

(7,963)

 

 

(7,940)

 

 

 

 

0%

 

 

Net client cash flows

 

 

2,589

 

 

(735)

 

 

 

 

n/m

 

 

Market appreciation (depreciation)

 

 

8,729

 

 

1,228

 

 

 

 

611%

 

 

Net transfers

 

 

(4)

 

 

(8)

 

 

 

 

n/m

 

 

Ending assets under management

 

 

64,077

 

 

62,256

 

 

 

 

3%

 

 

Average assets under management

 

 

58,553

 

 

61,819

 

 

 

 

-5%

 

 

 

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

June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets under management

 

$

22,169

 

$

14,714

 

$

6,973

 

$

4,117

 

$

5,234

 

$

3,996

 

$

493

 

$

425

 

$

58,119