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Victory Capital Holdings Inc
Victory Capital Posts Record Fourth Quarter and Full Year 2019 Financial Results (Businesswire)

2020-02-12 22:30
Victory Capital Posts Record Fourth Quarter and Full Year 2019 Financial Results

Victory Capital Holdings, Inc. (NASDAQ: VCTR) (“Victory Capital” or “the Company”) today reported record financial results for the three-months and full-year ended December 31, 2019.

“The past year was transformational on a number of levels for Victory Capital,” said David Brown, Chairman and Chief Executive Officer. “We significantly increased our size, scale, asset class and client diversification while continuing to deliver outstanding financial results for our shareholders.

“We posted record results for the fourth quarter and full-year 2019. Compared with last year, revenue rose 128% in the quarter, and by 48% during the year; while adjusted net income with tax benefit, increased 170%, and 67%, respectively. Adjusted EBITDA margin also set a record high at 46.8% in the final quarter of 2019, up 890 basis points from last year’s fourth quarter.

“Total AUM grew to $151.8 billion as of December 31, 2019. Quarter over quarter, our average fee rate was steady at 58.7 basis points. Long-term net inflows were positive for the year at $1.8 billion. We experienced long-term net outflows of $1.5 billion for the fourth quarter, due in part to client reallocations resulting from positive market momentum. This type of client rebalancing activity is cyclical in nature and reinforces the importance of diversification and taking a long-term view of our business. Our recently acquired fixed income and Solutions products made a significant contribution to the positive organic growth we achieved during 2019.

“Our outlook for 2020 is very positive. We continue to make steady progress on our integration efforts following the close of the acquisition of USAA Asset Management Company, and we remain ahead of schedule on the achievement of our previously disclosed cost synergies. We expect to begin realizing the growth opportunities available through the direct channel for USAA members as we progress through the coming year.

“Looking more broadly at our overall business, we intend to continue to grow organically by leveraging our diverse product platform and strong distribution capabilities across all our business channels. We also remain excited and committed to pursuing inorganic growth through acquisitions. We believe our integrated business model, which combines focus, operating scale and investment boutique-like qualities, makes us a compelling acquirer for investment firms in today’s environment.”

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

The table below presents AUM, and certain GAAP and non-GAAP (“adjusted”) financial results. Due to rounding, AUM values and other amounts in this press release may not add up precisely to the totals provided.

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

 

For the Three Months Ended

 

For the Year Ended

December 31,

 

September 30,

 

December 31,

 

December 31,

 

December 31,

2019

 

2019

 

2018

 

 

2019

 

2018

Assets Under Management
Ending

$

151,832

 

$

145,832

 

$

52,763

 

$

151,832

 

$

52,763

 

Average

147,867

 

145,904

 

58,474

 

102,719

 

61,390

 

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

$

5,284

 

$

7,456

 

$

4,028

 

$

23,293

 

$

14,130

 

Long-term Net(2)

(1,474

)

726

 

(1,019

)

1,840

 

(2,427

)

 
Money Market Flows
Money Market Gross

$

4,371

 

$

4,449

 

$

$

8,820

 

$

Money Market Net

85

 

(65

)

20

 

 
Total Flows
Total Gross

$

9,655

 

$

11,905

 

$

4,028

 

$

32,112

 

$

14,130

 

Total Net

(1,390

)

661

 

(1,019

)

1,860

 

(2,427

)

 
Consolidated Financial Results (GAAP)
Revenue(3)

$

218.6

 

$

215.0

 

$

96.0

 

$

612.4

 

$

413.4

 

Revenue realization (in bps)(3)

58.7

 

58.5

 

65.1

 

59.6

 

67.3

 

Operating expenses(3)

154.4

 

159.4

 

70.2

 

447.8

 

298.9

 

Income from operations

64.2

 

55.6

 

25.8

 

164.6

 

114.5

 

Operating margin(3)

29.4

%

25.9

%

26.8

%

26.9

%

27.7

%

Net income

37.6

 

26.0

 

13.9

 

92.5

 

63.7

 

Earnings per diluted share

$

0.51

 

$

0.35

 

$

0.19

 

$

1.26

 

$

0.90

 

Cash flow from operations

59.7

 

118.4

 

34.4

 

227.4

 

134.3

 

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

$

102.3

 

$

96.3

 

$

36.4

 

$

268.8

 

$

160.2

 

Adjusted EBITDA margin(3)

46.8

%

44.8

%

37.9

%

43.9

%

38.7

%

Adjusted net income

66.0

 

60.5

 

23.6

 

172.8

 

102.3

 

 
Tax benefit of goodwill and acquired intangible assets

6.8

 

6.8

 

3.3

 

20.3

 

13.3

 

Adjusted net income with tax benefit

72.8

 

67.3

 

27.0

 

193.1

 

115.5

 

 
Adjusted net income with tax benefit per diluted share

$

0.99

 

$

0.91

 

$

0.38

 

$

2.63

 

$

1.64

 

____________________

 

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

 

2 Long-term AUM is defined as total AUM excluding Money Market assets.

 

3 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.

AUM, Flows and Investment Performance

Victory Capital’s total AUM increased 4%, to $151.8 billion at December 31, 2019, compared with $145.8 billion at September 30, 2019. The increase was attributable to positive market action, partially offset by total net outflows of $1.4 billion. Total gross flows were $9.7 billion for the fourth quarter and $32.1 billion during the full-year period. Long-term AUM increased 4% during the quarter to $140.2 billion, at December 31, 2019, compared with $134.4 billion at September 30, 2019. For the full-year period, the Company reported long-term gross flows of $23.3 billion and long-term net inflows of $1.8 billion.

At quarter end, Victory Capital offered 116 investment strategies through its nine autonomous Investment Franchises and Solutions Platform. The table below presents outperformance against benchmarks by AUM and strategies for Legacy Victory Capital, USAA Fixed Income products and total firm-wide products as of December 31, 2019.

Trailing

Trailing

Trailing

Trailing

Percentage of AUM Outperforming Benchmark

1-Year

3-Years

5-Years

10-Years

Legacy Victory Capital

77%

 

79%

 

73%

 

92%

USAA Fixed Income

85%

 

85%

 

88%

 

95%

Total Victory Capital

67%

 

64%

 

60%

 

71%

Fourth Quarter 2019 Compared with Third Quarter 2019

Revenue increased 2% to $218.6 million, in the fourth quarter, compared with $215.0 million in the third quarter, reflecting the higher average AUM and steady average fee rate realization. GAAP operating margin expanded 350 basis points in the fourth quarter to 29.4%, up from 25.9% in the third quarter, due to improved operating leverage. This drove operating income up 16%, to a record $64.2 million, compared with the prior quarterly record of $55.6 million set in the third quarter. Fourth quarter GAAP net income rose 45% to $37.6 million, up from $26.0 million in the prior quarter. On a per-share basis, GAAP net income advanced 46% to a record $0.51 per diluted share in the fourth quarter, versus $0.35 per diluted share in the third quarter.

Adjusted net income with tax benefit increased 8% to $72.8 million in the fourth quarter, up from $67.3 million in the third quarter. Adjusted net income per diluted share increased 9% to $0.99 per diluted share in the fourth quarter, up from $0.91 per diluted share in the prior quarter. Adjusted EBITDA rose 6% to a record high $102.3 million in the fourth quarter, versus $96.3 million in the third quarter. Adjusted EBITDA margin expanded 200 basis points in the fourth quarter of 2019, reaching 46.8% compared with 44.8% in the third quarter of the year.

Fourth Quarter 2019 Compared with Fourth Quarter 2018

Year-over-year results reflect the acquisition of the USAA Asset Management Company, which closed on July 1, 2019. Revenue for the three months ended December 31, 2019, rose 128% to $218.6 million, compared with $96.0 million in the same quarter of 2018. The increase was primarily due to higher average AUM, partially offset by a lower average fee rate realization and the adoption of ASU 2014-09 in 2019.

GAAP operating margin was 29.4% in the fourth quarter, a 260 basis point increase from the 26.8% recorded in the same quarter of 2018. Operating expenses increased 120% to $154.4 million, compared with $70.2 million in last year’s fourth quarter, reflecting the Company’s larger scale and new call center dedicated to serving USAA members. The current-year quarter included $22.3 million of acquisition expenses, comprised of $19.9 million related to an increase to the fair value of contingent acquisition payments, and $2.4 million related to restructuring and acquisition expenses. In the fourth quarter of 2018, acquisition related expenses totaled $2.9 million. Adjusting for the impact of these items in both periods, year-over-year operating margin expanded 971 basis points in the fourth quarter of 2019. Last year’s fourth-quarter distribution and other asset-based expenses included $3.5 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. GAAP net income rose 171% to $37.6 million, or $0.51 per diluted share, in the fourth quarter compared with $13.9 million, or $0.19 per diluted share, in the same quarter of 2018.

Adjusted net income with tax benefit advanced 170% to $72.8 million, or $0.99 per diluted share, in the fourth quarter, compared with $27.0 million, or $0.38 per diluted share in the same quarter last year. Adjusted EBITDA rose 181% to $102.3 million, compared with $36.4 million in last year’s same quarter. Year-over-year, adjusted EBITDA margin expanded 890 basis points to 46.8% in the fourth quarter of 2019, compared with 37.9% in the same quarter last year.

Year Ended December 31, 2019 Compared with Year Ended December 31, 2018

Revenue increased 48% to $612.4 million for the year ended December 31, 2019, compared with $413.4 million in 2018, due to higher average AUM offset by a lower fee rates and the adoption of ASU 2014-09 in 2019. Revenue in 2019 includes a reduction of $16.7 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 for the same period in 2018.

GAAP net income was $92.5 million, or $1.26 per diluted share, in 2019, up 45% from $63.7 million, or $0.90 per diluted share in the prior year. GAAP operating expenses increased 50% to $447.8 million, compared with $298.9 million last year. Operating expenses in 2019 included $50.9 million of acquisition expenses, comprised of $31.0 million related to restructuring and acquisition expenses and $19.9 million related to an increase to the fair value of contingent acquisition payments. In 2018, acquisition expenses totaled $5.1 million. Adjusting for the impact of these items in both periods, year-over-year operating margin expanded by 627 basis points on a comparable basis. Year over year growth in the business was offset by these higher acquisition expenses resulting in GAAP operating margin contracting 80 basis points to 26.9% in 2019, compared with 27.7% in 2018.

Adjusted net income with tax benefit was $193.1 million, or $2.63 per diluted share, for the year ended December 31, 2019, comprised of $2.35 per diluted share in adjusted net income and $0.28 per diluted share in tax benefit. This is an increase of 67% from the prior year’s adjusted net income with tax benefit of $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. During 2019, Adjusted EBITDA and Adjusted EBITDA margin increased to $268.8 million and 43.9%, respectively, up from $160.2 million and 38.7%, respectively, in 2018.

Balance Sheet / Capital Management

On July 1, 2019, the Company entered into a new $1.1 billion seven-year term loan, and repaid $63 million during the third quarter. During the fourth quarter, the Company reduced outstanding debt by an additional $85 million. To date, the Company has reduced total debt by $171 million, since July 1, 2019. Subsequent to December 31, 2019, the Company repriced the term loan reducing its interest rate by 75 basis points for an estimated annual interest rate expense savings of approximately $7 million, or 13.5%.

Today, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable on March 25, 2020, to shareholders of record on March 10, 2020.

Conference Call, Webcast and Slide Presentation

The Company will host a conference call tomorrow morning, February 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 (877) 823-8673 (domestic) or (647) 689-4067 (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 during the conference call will be available on the Events and Presentations page of the Company’s investor relations website. For anyone who is unable to join the live event, an archive of the webcast will be available for replay shortly after the call concludes.

About Victory Capital

Victory Capital is a global investment management firm operating a next-generation, integrated multi-boutique business model with $150.3 billion in assets under management as of January 31, 2020.

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 on Twitter and LinkedIn.

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may include, without limitation, any statements preceded by, followed by or including words such as “target,” “believe,” “expect,” “aim,” “intend,” “may,” “anticipate,” “assume,” “budget,” “continue,” “estimate,” “future,” “objective,” “outlook,” “plan,” “potential,” “predict,” “project,” “will,” “can have,” “likely,” “should,” “would,” “could” and other words and terms of similar meaning or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond Victory Capital’s control, 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.

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.

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Consolidated Statements of Operations

(in thousands except per share data and percentages)

 

For the Three Months Ended

 

 

For the Year Ended

December 31,

 

September 30,

 

 

December 31,

 

 

December 31,

 

December 31,

 

2019

 

2019

 

 

2018

 

 

2019

 

2018

Revenue
Investment management fees

$

158,943

 

$

155,406

 

$

82,030

 

$

466,802

 

$

352,683

 

Fund administration and distribution fees

59,611

 

59,574

 

13,937

 

145,571

 

60,729

 

Total revenue

218,554

 

214,980

 

95,967

 

612,373

 

413,412

 

 
Expenses
Personnel compensation and benefits

54,210

 

55,556

 

33,910

 

179,809

 

145,880

 

Distribution and other asset-based expenses

57,471

 

57,202

 

21,123

 

146,622

 

94,680

 

General and administrative

14,740

 

17,654

 

6,910

 

46,568

 

30,005

 

Depreciation and amortization

5,620

 

7,768

 

5,360

 

23,873

 

23,277

 

Change in value of consideration payable for acquisition of business

19,900

 

(33

)

19,886

 

(37

)

Acquisition-related costs

367

 

16,386

 

2,900

 

22,317

 

4,346

 

Restructuring and integration costs

2,049

 

4,841

 

40

 

8,678

 

742

 

Total operating expenses

154,357

 

159,407

 

70,210

 

447,753

 

298,893

 

 
Income from operations

64,197

 

55,573

 

25,757

 

164,620

 

114,519

 

Operating margin

29.4

%

25.9

%

26.8

%

26.9

%

27.7

%

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

1,598

 

2,742

 

(2,627

)

6,829

 

(2,856

)

Interest expense and other financing costs

(14,901

)

(16,856

)

(4,438

)

(40,901

)

(20,694

)

Loss on debt extinguishment

(2,451

)

(7,409

)

(9,860

)

(6,058

)

Total other expense, net

(15,754

)

(21,523

)

(7,065

)

(43,932

)

(29,608

)

 
Income before income taxes

48,443

 

34,050

 

18,692

 

120,688

 

84,911

 

 
Income tax expense

(10,854

)

(8,058

)

(4,777

)

(28,197

)

(21,207

)

 
Net income

$

37,589

 

$

25,992

 

$

13,915

 

$

92,491

 

$

63,704

 

 
Earnings per share of common stock
Basic

$

0.56

 

$

0.38

 

$

0.21

 

$

1.37

 

$

0.96

 

Diluted

0.51

 

0.35

 

0.19

 

1.26

 

0.90

 

 
Weighted average number of shares outstanding
Basic

67,633

 

67,724

 

67,716

 

67,616

 

66,295

 

Diluted

73,856

 

73,671

 

71,558

 

73,466

 

70,511

 

 
Dividends declared per share

$

0.05

 

$

0.05

 

$

$

0.10

 

$

 

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 Year Ended

December 31,

 

September 30,

 

December 31,

 

December 31,

 

December 31,

2019

 

2019

 

2018

 

2019

 

2018

Net income (GAAP)

$

37,589

 

$

25,992

 

$

13,915

 

$

92,491

 

$

63,704

 

Income tax expense

(10,854

)

(8,058

)

(4,777

)

(28,197

)

(21,207

)

Income before income taxes

$

48,443

 

$

34,050

 

$

18,692

 

$

120,688

 

$

84,911

 

Interest expense

14,852

 

18,388

 

3,797

 

40,706

 

20,173

 

Depreciation

1,130

 

682

 

709

 

2,995

 

2,956

 

Other business taxes

359

 

146

 

337

 

1,484

 

1,505

 

Amortization of acquisition-related intangible assets

4,490

 

7,086

 

4,651

 

20,878

 

20,321

 

Stock-based compensation

5,724

 

4,326

 

3,943

 

14,849

 

15,238

 

Acquisition, restructuring and exit costs

24,947

 

24,452

 

3,664

 

56,751

 

6,389

 

Debt issuance costs

2,387

 

10,002

 

371

 

13,119

 

7,807

 

Pre-IPO governance expenses

138

 

(Earnings) losses from equity method investments

(2,837

)

224

 

(2,683

)

730

 

Adjusted EBITDA

$

102,332

 

$

96,295

 

$

36,388

 

$

268,787

 

$

160,168

 

Adjusted EBITDA margin

46.8

%

44.8

%

37.9

%

43.9

%

38.7

%

 
 
Net income (GAAP)

$

37,589

 

$

25,992

 

$

13,915

 

$

92,491

 

$

63,704

 

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

359

 

146

 

337

 

1,484

 

1,505

 

Amortization of acquisition-related intangible assets

4,490

 

7,086

 

4,651

 

20,878

 

20,321

 

Stock-based compensation

5,724

 

4,326

 

3,943

 

14,849

 

15,238

 

Acquisition, restructuring and exit costs

24,947

 

24,452

 

3,664

 

56,751

 

6,389

 

Debt issuance costs

2,387

 

10,002

 

371

 

13,119

 

7,807

 

Pre-IPO governance expenses

138

 

Tax effect of above adjustments

(9,477

)

(11,503

)

(3,241

)

(26,770

)

(12,849

)

Adjusted net income

$

66,019

 

$

60,501

 

$

23,640

 

$

172,802

 

$

102,253

 

Adjusted net income per diluted share

$

0.89

 

$

0.82

 

$

0.33

 

$

2.35

 

$

1.45

 

 
Tax benefit of goodwill and acquired intangible assets

$

6,801

 

$

6,802

 

$

3,320

 

$

20,324

 

$

13,278

 

Tax benefit of goodwill and acquired intangible assets per diluted share

$

0.09

 

$

0.09

 

$

0.05

 

$

0.28

 

$

0.19

 

 
Adjusted net income with tax benefit

$

72,820

 

$

67,303

 

$

26,960

 

$

193,126

 

$

115,531

 

Adjusted net income with tax benefit per diluted share

$

0.99

 

$

0.91

 

$

0.38

 

$

2.63

 

$

1.64

 

 

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Consolidated Balance Sheets

(In thousands, except for shares)

 

December 31, 2019

 

December 31, 2018

Assets
Cash and cash equivalents

$

37,121

 

$

51,491

 

Investment management fees receivable

74,321

 

37,980

 

Fund administration and distribution fees receivable

19,313

 

3,153

 

Other receivables

1,459

 

2,987

 

Prepaid expenses

4,852

 

2,664

 

Available-for-sale securities, at fair value

771

 

601

 

Trading securities, at fair value

18,305

 

12,719

 

Property and equipment, net

13,240

 

8,780

 

Goodwill

404,750

 

284,108

 

Other intangible assets, net

1,175,471

 

387,679

 

Other assets

3,706

 

9,349

 

Total assets

$

1,753,309

 

$

801,511

 

 
Liabilities and stockholders' equity
Accounts payable

$

271

 

$

607

 

Accrued compensation and benefits

54,842

 

30,228

 

Accrued expenses

88,932

 

19,743

 

Consideration payable for acquisition of business

118,700

 

5,838

 

Deferred compensation plan liability

18,305

 

12,719

 

Deferred tax liability, net

5,486

 

6,212

 

Other liabilities

4,363

 

1,759

 

Long-term debt(1)

924,539

 

268,857

 

Total liabilities

1,215,438

 

345,963

 

 
Stockholders' equity:
Class A common stock, $0.01 par value per share: 2019 - 400,000,000 shares authorized, 18,099,772 shares issued and 16,414,617 shares outstanding; 2018 - 400,000,000 shares authorized, 15,280,833 shares issued and 14,424,558 shares outstanding

181

 

153

 

Class B common stock, $0.01 par value per share: 2019 - 200,000,000 shares authorized, 53,937,394 shares issued and 51,281,512 shares outstanding; 2018 - 200,000,000 shares authorized, 55,284,408 shares issued and 53,137,428 shares outstanding

539

 

553

 

Additional paid-in capital

624,766

 

604,401

 

Class A treasury stock, at cost: 2019 - 1,685,155 shares; 2018 - 856,275 shares

(21,524

)

(8,045

)

Class B treasury stock, at cost: 2019 - 2,655,882 shares; 2018 - 2,146,980 shares

(31,386

)

(21,719

)

Accumulated other comprehensive loss

(86

)

Retained deficit

(34,705

)

(119,709

)

Total stockholders' equity

537,871

 

455,548

 

Total liabilities and stockholders’ equity

$

1,753,309

 

$

801,511

1 In connection with the acquisition, the Company entered into the 2019 Credit Agreement, dated July 1, 2019. All indebtedness outstanding under the previous credit agreement was repaid and terminated as of July 1, 2019. Balances at December 31, 2019 and December 31, 2018 are shown net of unamortized loan discount and debt issuance costs in the amount of $27.5 million and $11.1 million, respectively. The gross amount of the debt outstanding was $952 million as of December 31, 2019 and $280 million as of December 31, 2018. In 2019, the Company repaid $148 million of the outstanding term loans under the 2019 Credit Agreement. Subsequent to December 31, 2019, the Company has repaid an additional $23 million of the outstanding term loans under the 2019 Credit Agreement and repriced the term loan reducing its interest rate by 75 basis points.

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management

(unaudited; in millions except for percentages)

 

For the Three Months Ended

 

% Change from

December 31,

 

September 30,

 

December 31,

 

September 30,

 

December 31,

2019

 

2019

 

2018

 

2019

 

2018

Beginning assets under management

$

145,832

 

$

64,077

 

$

63,640

 

128%

 

129%

Gross client cash inflows

9,655

 

11,905

 

4,028

 

-19%

 

140%

Gross client cash outflows

(11,045

)

(11,244

)

(5,047

)

-2%

 

119%

Net client cash flows

(1,390

)

661

 

(1,019

)

-310%

 

36%

Market appreciation (depreciation)

7,389

 

(54

)

(9,858

)

n/m

 

175%

Acquired assets / Net transfers

81,147

 

n/m

 

0%

Ending assets under management

151,832

 

145,832

 

52,763

 

4%

 

188%

Average assets under management

147,867

 

145,904

 

58,474

 

1%

 

153%

 

For the Year Ended

 

 

 

 

 

% Change from

December 31,

 

December 31,

 

 

 

 

 

December 31,

2019

 

2018

 

 

 

 

 

2018

Beginning assets under management

$

52,763

 

$

61,771

 

-15%

Gross client cash inflows

32,112

 

14,130

 

127%

Gross client cash outflows

(30,252

)

(16,557

)

83%

Net client cash flows

1,860

 

(2,427

)

177%

Market appreciation (depreciation)

16,065

 

(6,573

)

344%

Acquired assets / Net transfers

81,143

 

(8

)

n/m

Ending assets under management

151,832

 

52,763

 

188%

Average assets under management

102,719

 

61,390

 

67%

 
 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Asset Class

(unaudited; in millions)

 
For the Three Months Ended

By Asset Class

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global /

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Mid

 

U.S. Small

 

Fixed

 

U.S. Large

 

Non-U.S.

 

 

 

 

 

 

 

 

Total

 

Money

 

 

 

 

Cap Equity

 

Cap Equity

 

Income

 

Cap Equity

 

Equity

 

Solutions

 

Other

 

Long-term

 

Market

 

Total

December 31, 2019
Beginning assets under management

$

25,479

 

$

16,266

 

$

37,784

 

$

13,488

 

$

11,532

 

$

29,579

 

$

243

 

$

134,371

 

$

11,460

 

$

145,832

 

Gross client cash inflows

1,007

 

838

 

1,608

 

266

 

433

 

1,118

 

15

 

5,284

 

4,371

 

9,655

 

Gross client cash outflows

(1,642

)

(1,142

)

(1,684

)

(610

)

(491

)

(1,139

)

(52

)

(6,758

)

(4,286

)

(11,045

)

Net client cash flows

(635

)

(304

)

(76

)

(344

)

(58

)

(21

)

(37

)

(1,474

)

85

 

(1,390

)

Market appreciation (depreciation)

1,505

 

1,384

 

262

 

946

 

1,129

 

2,091

 

32

 

7,348

 

41

 

7,389

 

Acquired assets / Net transfers

(3

)

3

 

1

 

Ending assets under management

$

26,347

 

$

17,346

 

$

37,973

 

$

14,091

 

$

12,603

 

$

31,649

 

$

236

 

$

140,245

 

$

11,587

 

$

151,832

 

 
September 30, 2019
Beginning assets under management

$

24,203

 

$

15,278

 

$

7,300

 

$

4,108

 

$

5,498

 

$

6,919

 

$

771

 

$

64,077

 

$

$

64,077

 

Gross client cash inflows

880

 

779

 

4,071

 

166

 

326

 

1,207

 

28

 

7,456

 

4,449

 

11,905

 

Gross client cash outflows

(1,396

)

(1,069

)

(1,789

)

(497

)

(566

)

(1,296

)

(118

)

(6,730

)

(4,514

)

(11,244

)

Net client cash flows

(516

)

(290

)

2,282

 

(331

)

(240

)

(89

)

(90

)

726

 

(65

)

661

 

Market appreciation (depreciation)

(26

)

(249

)

528

 

(301

)

(192

)

225

 

(83

)

(98

)

44

 

(54

)

Acquired assets / Net transfers

1,818

 

1,527

 

27,674

 

10,012

 

6,465

 

22,523

 

(354

)

69,665

 

11,482

 

81,147

 

Ending assets under management

$

25,479

 

$

16,266

 

$

37,784

 

$

13,488

 

$

11,532

 

$

29,579

 

$

243

 

$

134,371

 

$

11,460

 

$

145,832

 

 
December 31, 2018
Beginning assets under management

$

25,014

 

$

16,438

 

$

7,149

 

$

4,644

 

$

4,738

 

$

4,224

 

$

1,433

 

$

63,640

 

$

$

63,640

 

Gross client cash inflows

1,238

 

815

 

369

 

59

 

1,068

 

406

 

73

 

4,028

 

4,028

 

Gross client cash outflows

(2,045

)

(1,235

)

(666

)

(171

)

(409

)

(281

)

(240

)

(5,047

)

(5,047

)

Net client cash flows

(807

)

(420

)

(297

)

(112

)

659

 

125

 

(167

)

(1,019

)

(1,019

)

Market appreciation (depreciation)

(4,165

)

(3,085

)

(22

)

(775

)

(787

)

(582

)

(442

)

(9,858

)

(9,858

)

Acquired assets / Net transfers

(23

)

15

 

6

 

2

 

Ending assets under management

$

20,019

 

$

12,948

 

$

6,836

 

$

3,759

 

$

4,610

 

$

3,767

 

$

824

 

$

52,763

 

$

$

52,763

 

 
 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Asset Class

(unaudited; in millions)

 
For the Year Ended

By Asset Class

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global /

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Mid

 

U.S. Small

 

Fixed

 

U.S. Large

 

Non-U.S.

 

 

 

 

 

 

 

Total

 

Money

 

 

 

 

Cap Equity

 

Cap Equity

 

Income

 

Cap Equity

 

Equity

 

Solutions

 

Other

 

Long-term

 

Market

 

Total

 

December 31, 2019
Beginning assets under management

$

20,019

 

$

12,948

 

$

6,836

 

$

3,759

 

$

4,610

 

$

3,767

 

$

823

 

$

52,763

 

$

$

52,763

 

Gross client cash inflows

5,663

 

3,338

 

6,489

 

480

 

1,457

 

5,696

 

171

 

23,293

 

8,820

 

32,112

 

Gross client cash outflows

(6,663

)

(4,194

)

(4,186

)

(1,419

)

(1,538

)

(3,079

)

(375

)

(21,453

)

(8,800

)

(30,252

)

Net client cash flows

(1,000

)

(856

)

2,303

 

(939

)

(81

)

2,617

 

(204

)

1,840

 

20

 

1,860

 

Market appreciation (depreciation)

5,511

 

3,728

 

1,158

 

1,263

 

1,609

 

2,739

 

(29

)

15,980

 

85

 

16,065

 

Acquired assets / Net transfers

1,817

 

1,526

 

27,677

 

10,007

 

6,465

 

22,525

 

(356

)

69,662

 

11,482

 

81,143

 

Ending assets under management

$

26,347

 

$

17,346

 

$

37,973

 

$

14,091

 

$

12,603

 

$

31,649

 

$

236

 

$

140,245

 

$

11,587

 

$

151,832

 

 
December 31, 2018
Beginning assets under management

$

25,185

 

$

15,308

 

$

7,551

 

$

4,789

 

$

4,105

 

$

3,028

 

$

1,805

 

$

61,771

 

$

$

61,771

 

Gross client cash inflows

4,530

 

3,198

 

1,514

 

259

 

2,488

 

1,713

 

428

 

14,130

 

14,130

 

Gross client cash outflows

(7,207

)

(3,762

)

(2,303

)

(848

)

(1,003

)

(588

)

(846

)

(16,557

)

(16,557

)

Net client cash flows

(2,677

)

(564

)

(789

)

(589

)

1,485

 

1,125

 

(418

)

(2,427

)

(2,427

)

Market appreciation (depreciation)

(2,485

)

(1,792

)

67

 

(455

)

(972

)

(426

)

(510

)

(6,573

)

(6,573

)

Acquired assets / Net transfers

(4

)

(4

)

7

 

14

 

(8

)

40

 

(53

)

(8

)

(8

)

Ending assets under management

$

20,019

 

$

12,948

 

$

6,836

 

$

3,759

 

$

4,610

 

$

3,767

 

$

824

 

$

52,763

 

$

$

52,763

 

 
 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Vehicle

(unaudited; in millions)

 
For the Three Months Ended

By Vehicle

 

 

 

 

 

 

 

 

Separate

 

 

 

 

 

 

 

 

 

 

 

 

Accounts

 

 

 

 

Mutual

 

 

 

 

 

and Other

 

 

 

 

Funds(1)

 

ETFs

 

Vehicles(2)

 

Total

December 31, 2019
Beginning assets under management

$

114,071

 

$

3,867

 

$

27,894

 

$

145,832

 

Gross client cash inflows

8,799

 

249

 

607

 

9,655

 

Gross client cash outflows

(9,835

)

(125

)

(1,085

)

(11,045

)

Net client cash flows

(1,036

)

124

 

(478

)

(1,390

)

Market appreciation (depreciation)

5,569

 

222

 

1,598

 

7,389

 

Acquired assets / Net transfers

Ending assets under management

$

118,605

 

$

4,213

 

$

29,014

 

$

151,832

 

 
September 30, 2019
Beginning assets under management

$

34,258

 

$

3,093

 

$

26,726

 

$

64,077

 

Gross client cash inflows

8,383

 

245

 

3,277

 

11,905

 

Gross client cash outflows

(9,643

)

(258

)

(1,343

)

(11,244

)

Net client cash flows

(1,260

)

(13

)

1,934

 

661

 

Market appreciation (depreciation)

267

 

4

 

(325

)

(54

)

Acquired assets / Net transfers

80,806

 

782

 

(441

)

81,147

 

Ending assets under management

$

114,071

 

$

3,867

 

$

27,894

 

$

145,832

 

 
December 31, 2018
Beginning assets under management

$

38,189

 

$

3,295

 

$

22,156

 

$

63,640

 

Gross client cash inflows

2,350

 

319

 

1,359

 

4,028

 

Gross client cash outflows

(3,857

)

(198

)

(992

)

(5,047

)

Net client cash flows

(1,507

)

121

 

367

 

(1,019

)

Market appreciation (depreciation)

(6,190

)

(460

)

(3,208

)

(9,858

)

Acquired assets / Net transfers

Ending assets under management

$

30,492

 

$

2,956

 

$

19,315

 

$

52,763

 

(1) Includes institutional and retail share classes and VIP funds.

(2) Includes collective trust funds, wrap program separate accounts and unified managed accounts or UMAs.

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Vehicle

(unaudited; in millions)

 
For the Year Ended

By Vehicle

 

 

 

 

 

 

Separate

 

 

 

 

 

 

 

 

 

Accounts

 

 

 

Mutual

 

 

 

 

and Other

 

 

 

Funds(1)

 

ETFs

 

Vehicles(2)

 

Total

December 31, 2019
Beginning assets under management

$

30,492

 

$

2,956

 

$

19,315

 

$

52,763

 

Gross client cash inflows

21,560

 

843

 

9,709

 

32,112

 

Gross client cash outflows

(25,239

)

(914

)

(4,099

)

(30,252

)

Net client cash flows

(3,679

)

(71

)

5,610

 

1,860

 

Market appreciation (depreciation)

10,990

 

544

 

4,531

 

16,065

 

Acquired assets / Net transfers

80,802

 

782

 

(441

)

81,143

 

Ending assets under management

$

118,605

 

$

4,213

 

$

29,014

 

$

151,832

 

 
December 31, 2018
Beginning assets under management

$

37,967

 

$

2,250

 

$

21,555

 

$

61,771

 

Gross client cash inflows

9,629

 

1,401

 

3,100

 

14,130

 

Gross client cash outflows

(12,781

)

(341

)

(3,435

)

(16,557

)

Net client cash flows

(3,152

)

1,060

 

(335

)

(2,427

)

Market appreciation (depreciation)

(4,312

)

(354

)

(1,907

)

(6,573

)

Acquired assets / Net transfers

(11

)

3

 

(8

)

Ending assets under management

$

30,492

 

$

2,956

 

$

19,315

 

$

52,763

 

(1) Includes institutional and retail share classes and VIP funds.

(2) Includes collective trust funds, wrap program separate accounts and unified managed accounts or UMAs.

Information Regarding Non-GAAP Financial Measures

Victory Capital uses non-GAAP financial measures referred to as Adjusted EBITDA and Adjusted Net Income to measure the operating profitability of the Company. These measures eliminate the impact of one-time acquisition, restructuring and integration costs and demonstrate the ongoing operating earnings metrics of the Company. The Company has included these non-GAAP measures to provide investors with the same financial metrics used by management to assess the operating performance of the Company.

Adjusted EBITDA

Adjustments made to GAAP Net Income to calculate Adjusted EBITDA, as applicable, are:

  • Adding back income tax expense;
  • Adding back interest paid on debt and other financing costs, net of interest income;
  • Adding back depreciation on property and equipment;
  • Adding back other business taxes;
  • Adding back amortization expense on acquisition-related intangible assets;
  • Adding back stock-based compensation expense associated with equity awards issued from pools created in connection with the management-led buyout and various acquisitions and as a result of equity grants related to the IPO;
  • Adding back direct incremental costs of acquisitions and the IPO, including restructuring costs;
  • Adding back debt issuance cost expense;
  • Adding back pre-IPO governance expenses paid to the Company’s private equity partners that terminated as of the completion of the IPO; and
  • Adjusting for earnings/losses on equity method investments.

Adjusted Net Income

Adjustments made to GAAP Net Income to calculate Adjusted Net Income, as applicable, are:

  • Adding back other business taxes;
  • Adding back amortization expense on acquisition-related intangible assets;
  • Adding back stock-based compensation expense associated with equity awards issued from pools created in connection with the management-led buyout and various acquisitions and as a result of any equity grants related to the IPO;
  • Adding back direct incremental costs of acquisitions and the IPO, including restructuring costs;
  • Adding back debt issuance cost expense;
  • Adding back pre-IPO governance expenses paid to the Company’s private equity partners that terminated as of the completion of the IPO; and
  • Subtracting an estimate of income tax expense applied to the sum of the adjustments above.

Tax Benefit of Goodwill and Acquired Intangible Assets

Due to Victory Capital’s acquisitive nature, tax deductions allowed on acquired intangible assets and goodwill provide it with additional significant supplemental economic benefit. The tax benefit of goodwill and intangible assets represent the tax benefits associated with deductions allowed for intangible assets and goodwill generated from prior acquisitions in which the Company received a step-up in basis for tax purposes. Acquired intangible assets and goodwill may be amortized for tax purposes, generally over a 15-year period. The tax benefit from amortization on these assets is included to show the full economic benefit of deductions for all acquired intangible assets with a step-up in tax basis.


Investors:
Matthew Dennis, CFA
Chief of Staff
Director, Investor Relations
216-898-2412
mdennis@vcm.com

Media:
Tricia Ross
310-622-8226
tross@finprofiles.com

Copyright Business Wire 2020

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