Victory Capital Holdings, Inc. (NASDAQ: VCTR) (“Victory Capital” or “the Company”) today reported financial results for the quarter ended June 30, 2023.
“Our investment performance has remained very strong during the second quarter and first half of this year,” said David Brown, Chairman and Chief Executive Officer. “Through the end of June, the percentage of our AUM outperforming benchmarks over the respective 3-, 5-, and 10-year periods was 72%, 79%, and 77%.
“Adjusted EBITDA margin expanded to 50.9% in the second quarter. This was our 12th consecutive quarter above our 49% guidance, and the 8th out of the last 12 quarters that our margins were in excess of 50%.
“Overall, excluding the previously disclosed passive low-fee redemption in April, long-term net flows improved for the second consecutive quarter. Entering the year’s second half, we are encouraged about our net flow outlook through the end of this year and into next.
“We continued our strong capital return to shareholders during the quarter with the repurchase of 1.5 million shares, which is the most for any quarter in our history and we paid out $21 million in cash dividends. Additionally, our due diligence activities remain ongoing as we continue to evaluate inorganic growth opportunities.
“As always, we continue to focus on serving our clients, which is our top priority.”
1 Total AUM includes both discretionary and non-discretionary client assets. |
2 The Company reports its financial results in accordance with generally accepted accounting principles (“GAAP”). Adjusted EBITDA and Adjusted Net Income are not defined by GAAP and should not be regarded as an alternative to any measurement under GAAP. Please refer to the section “Information Regarding Non-GAAP Financial Measures” at the end of this press release for an explanation of Non-GAAP financial measures and a reconciliation to the nearest GAAP financial measure. |
The table below presents AUM, and certain GAAP and non-GAAP (“adjusted”) financial results. Due to rounding, AUM values and other amounts in this press release may not add up precisely to the totals provided.
(in millions except per share amounts or as otherwise noted)
For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||
June 30, | March 31, | June 30, | June 30, | June 30, | ||||||||||||||||
2023 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
| Assets Under Management1 | ||||||||||||||||||||
| Ending | $ | 161,622 | $ | 158,621 | $ | 154,947 | $ | 161,622 | $ | 154,947 | ||||||||||
| Average | 157,372 | 157,817 | 165,703 | 157,595 | 171,283 | |||||||||||||||
| Long-term Flows2 | ||||||||||||||||||||
| Long-term Gross | $ | 5,591 | $ | 5,848 | $ | 9,198 | $ | 11,439 | $ | 20,210 | ||||||||||
| Long-term Net | (2,106 | ) | (1,235 | ) | (630 | ) | (3,342 | ) | 2,413 | |||||||||||
| Money Market/Short-term Flows | ||||||||||||||||||||
| Money Market/Short-term Gross | $ | 231 | $ | 241 | $ | 123 | $ | 472 | $ | 247 | ||||||||||
| Money Market/Short-term Net | (316 | ) | (9 | ) | (53 | ) | (325 | ) | (106 | ) | ||||||||||
| Total Flows | ||||||||||||||||||||
| Total Gross | $ | 5,822 | $ | 6,089 | $ | 9,321 | $ | 11,911 | $ | 20,457 | ||||||||||
| Total Net | (2,422 | ) | (1,244 | ) | (683 | ) | (3,667 | ) | 2,307 | |||||||||||
| Consolidated Financial Results (GAAP) | ||||||||||||||||||||
| Revenue | $ | 204.2 | $ | 201.3 | $ | 216.0 | $ | 405.5 | $ | 446.0 | ||||||||||
| Revenue realization (in bps) | 52.1 | 51.7 | 52.3 | 51.9 | 52.5 | |||||||||||||||
| Operating expenses | 116.7 | 126.8 | 96.7 | 243.5 | 225.2 | |||||||||||||||
| Income from operations | 87.5 | 74.6 | 119.3 | 162.1 | 220.9 | |||||||||||||||
| Operating margin | 42.9 | % | 37.0 | % | 55.2 | % | 40.0 | % | 49.5 | % | ||||||||||
| Net income | 56.7 | 49.3 | 79.2 | 105.9 | 150.5 | |||||||||||||||
| Earnings per diluted share | $ | 0.83 | $ | 0.71 | $ | 1.09 | $ | 1.53 | $ | 2.05 | ||||||||||
| Cash flow from operations | 77.4 | 64.2 | 90.2 | 141.6 | 165.1 | |||||||||||||||
| Adjusted Performance Results (Non-GAAP)3 | ||||||||||||||||||||
| Adjusted EBITDA | $ | 104.0 | $ | 99.2 | $ | 106.2 | $ | 203.2 | $ | 220.6 | ||||||||||
| Adjusted EBITDA margin | 50.9 | % | 49.3 | % | 49.2 | % | 50.1 | % | 49.5 | % | ||||||||||
| Adjusted net income | 66.4 | 65.6 | 71.4 | 132.1 | 152.5 | |||||||||||||||
| Tax benefit of goodwill and acquired intangible assets | 9.5 | 9.5 | 9.3 | 19.1 | 18.6 | |||||||||||||||
| Adjusted net income with tax benefit | 75.9 | 75.2 | 80.7 | 151.1 | 171.1 | |||||||||||||||
| Adjusted net income with tax benefit per diluted share | $ | 1.11 | $ | 1.08 | $ | 1.11 | $ | 2.19 | $ | 2.34 | ||||||||||
| _______________________ |
1 Total AUM includes both discretionary and non-discretionary client assets. |
2 Long-term AUM is defined as total AUM excluding Money Market and Short-term assets. |
3 The Company reports its financial results in accordance with GAAP. Adjusted EBITDA and Adjusted Net Income are not defined by GAAP and should not be regarded as an alternative to any measurement under GAAP. Please refer to the section “Information Regarding Non-GAAP Financial Measures” at the end of this press release for an explanation of Non-GAAP financial measures and a reconciliation to the nearest GAAP financial measure. |
AUM, Flows and Investment Performance
Victory Capital’s total AUM increased by 1.9%, or $3.0 billion, to $161.6 billion at June 30, 2023, compared with $158.6 billion at March 31, 2023. The increase was attributable to positive market action of $5.5 billion partially offset by net outflows of $2.4 billion. Total gross flows were $5.8 billion for the second quarter and $11.9 billion for the year-to-date period. For the second quarter and year-to-date periods, the Company reported total net outflows of $2.4 billion and $3.7 billion, respectively.
As of June 30, 2023, Victory Capital offered 126 investment strategies through its 12 autonomous Investment Franchises and Solutions Platform. The table below presents outperformance against benchmarks by AUM as of June 30, 2023.
| Percentage of AUM Outperforming Benchmark | ||||||
Trailing | Trailing | Trailing | Trailing | |||
1-Year | 3-Years | 5-Years | 10-Years | |||
63% | 72% | 79% | 77% | |||
Second Quarter 2023 Compared with First Quarter 2023
Revenue increased 1.4% to $204.2 million in the second quarter, compared with $201.3 million in the first quarter, primarily due to an increase in revenue realization and one extra day in the quarter. GAAP operating margin expanded 590 basis points in the second quarter to 42.9%, up from 37.0% in the first quarter primarily due to the combination of a non-cash $5.9 million difference in amounts recorded to the change in the fair value of consideration payable for acquisitions as well as a decrease in compensation related expenses. Second quarter GAAP net income increased 15.0% to $56.7 million, up from $49.3 million in the prior quarter. On a per-share basis, GAAP net income increased 17.1% to $0.83 per diluted share in the second quarter, versus $0.71 per diluted share in the first quarter.
Adjusted net income with tax benefit increased 1.0% to $75.9 million in the second quarter, up from $75.2 million in the first quarter. On a per-share basis, adjusted net income with tax benefit increased 2.8% to $1.11 per diluted share in the second quarter, from $1.08 per diluted share in the prior quarter. Adjusted EBITDA increased 4.9% to $104.0 million in the second quarter, versus $99.2 million in the first quarter. Adjusted EBITDA margin expanded 160 basis points in the second quarter of 2023 to 50.9% compared with 49.3% in the prior quarter.
Second Quarter 2023 Compared with Second Quarter 2022
Revenue for the three months ended June 30, 2023, declined 5.5% to $204.2 million, compared with $216.0 million in the same quarter of 2022 as a result of lower average AUM over the comparable period.
Operating expenses increased 20.7% to $116.7 million, compared with $96.7 million in last year’s second quarter due to a non-cash $28.1 million difference in amounts recorded to the change in the fair value of consideration payable for acquisitions, partially offset by a reduction in compensation expense as well as distribution and other asset-based expenses. GAAP operating margin contracted 1,230 basis points to 42.9
