Victory Capital Reports Strong Second Quarter Results and Record Earnings Per Share

Second-Quarter Highlights

• Total Client Assets of $173.8 billion
• Long-term gross flows of $5.8 billion
• Long-term net flows of ($1.7) billion
• GAAP operating margin of 50.4%
• GAAP net income per diluted share of $1.12
• Adjusted EBITDA margin of 53.0%
• Adjusted net income with tax benefit per diluted share of $1.31
• Board authorizes an 11% increase in regular quarterly cash dividend to $0.41

Victory Capital Holdings, Inc. (NASDAQ:VCTR) ("Victory Capital" or "the Company") today reported financial results for the quarter ended June 30, 2024.

"Our most significant development during the first half of 2024 was forging the long-term agreement to become strategic partners with Amundi," said David Brown, Chairman and Chief Executive Officer. "Upon closing, we will be combining Amundi's US business into Victory Capital and have reciprocal global exclusive 15-year distribution agreements. This transaction is extremely compelling with multiple strategic elements that will make our Company even better. It is also financially attractive with anticipated double-digit earnings accretion within a year, and it will immediately provide us with greater financial flexibility resulting from the strengthening of our balance sheet.

"During the second quarter, our business continued to perform exceptionally well. We generated the highest adjusted earnings per diluted share with tax benefit, adjusted EBITDA, and adjusted EBITDA margin, for any quarter in our history.

"Our Investment Franchises continued to deliver excellent investment performance for our clients. Through the end of June, the percentage of our AUM outperforming benchmarks over the respective 3-, 5-, and 10-year periods was 60%, 77%, and 79%. In addition, 68% of our AUM in mutual funds and ETFs was rated four or five stars overall by Morningstar.

"As a result of our strong cash flow generation, the amount of cash on our balance sheet increased by 49% during the quarter, reaching $119 million at the end of June. This combined with the higher earnings resulted in our net debt to EBITDA ratio declining to 1.9X. In addition, the Board authorized another 11% increase in our quarterly cash dividend from $0.37 to $0.41, which will be paid in September.

"As always, we continue to focus on serving our clients, which is 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.

AUM, Flows and Investment Performance

At June 30, 2024, Victory Capital had total client assets of $173.8 billion, assets under management of $168.7 billion, and other assets of $5.1 billion. Total AUM decreased by $1.7 billion to $168.7 billion at June 30, 2024, compared with $170.3 billion at March 31, 2024. The decrease was due to net outflows of $1.7 billion. Total gross flows for the second quarter were $6.1 billion, including long-term gross flows of $5.8 billion.

As of June 30, 2024, Victory Capital offered 122 investment strategies through its 11 autonomous Investment Franchises and Solutions Platform. The table below presents outperformance against benchmarks by AUM as of June 30, 2024.

Second Quarter 2024 Compared with First Quarter 2024

Revenue increased 1.7% to $219.6 million in the second quarter, compared with $215.9 million in the first quarter, primarily due to higher average AUM over the comparable period. GAAP operating margin expanded 1,110 basis points in the second quarter to 50.4%, up from 39.3% in the first quarter primarily due to the combination of a non-cash $20.4 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 33.3% to $74.3 million, or $1.12 per diluted share, up from $55.7 million, or $0.84 per diluted share, in the prior quarter.

Adjusted net income with tax benefit increased 5.3% to $86.6 million, or $1.31 per diluted share in the second quarter, up from $82.3 million, or $1.25 per diluted share, in the first quarter. Adjusted EBITDA increased 3.7% to $116.5 million in the second quarter, versus $112.4 million in the first quarter. Adjusted EBITDA margin expanded 90 basis points in the second quarter of 2024 to 53.0% compared with 52.1% in the prior quarter.

Second Quarter 2024 Compared with Second Quarter 2023

Revenue for the three months ended June 30, 2024, increased 7.5% to $219.6 million, compared with $204.2 million in the same quarter of 2023 as a result of higher average AUM over the comparable period.

Operating expenses decreased 6.6% to $109.0 million, compared with $116.7 million in last year's second quarter due to the combination of a non-cash $9.7 million difference in amounts recorded to the change in the fair value of consideration payable for acquisitions as well as a decrease in depreciation and amortization expense, partially offset by an increase in acquisition-related costs. GAAP operating margin expanded 750 basis points to 50.4% in the second quarter, from 42.9% in the same quarter of 2023. GAAP net income increased 31.0% to $74.3 million, or $1.12 per diluted share, in the second quarter compared with $56.7 million, or $0.83 per diluted share, in the same quarter of 2023.

Adjusted net income with tax benefit increased 14.1% to $86.6 million, or $1.31 per diluted share, in the second quarter, compared with $75.9 million, or $1.11 per diluted share in the same quarter last year. Adjusted EBITDA increased 12.0% to $116.5 million, compared with $104.0 million in the same quarter of last year. Year-over-year, adjusted EBITDA margin expanded 210 basis points to 53.0% in the second quarter of 2024, compared with 50.9% in the same quarter last year.

Six Months Ended June 30, 2024 Compared with Six Months Ended June 30, 2023

Revenue for the six months ended June 30, 2024, increased 7.4% to $435.5 million, compared with $405.5 million in the same period of 2023. The increase was primarily due to higher average AUM.

Operating expenses decreased 1.4% to $240.1 million for the six months ended June 30, 2024, compared with $243.5 million in the same period in 2023 due to the combination of a non-cash $4.9 million difference in amounts recorded to the change in the fair value of consideration payable for acquisitions as well as a decrease in depreciation and amortization expense, partially offsetting was an increase in acquisition-related costs. GAAP operating margin was 44.9% for the six months ended June 30, 2024, a 490 basis point increase from the 40.0% recorded in the same period in 2023. GAAP net income increased 22.7% to $129.9 million, or $1.97 per diluted share, in the first six months of 2024 compared with $105.9 million, or $1.53 per diluted share, in the same period in 2023.

Adjusted net income with tax benefit increased 11.8% to $169.0 million in the first six months of 2024 compared to $151.1 million in the same period in 2023. On a per-share basis, adjusted net income with tax benefit increased 16.9% to $2.56 per diluted share for the six months ended June 30, 2024 compared to $2.19 per diluted share in the same period in 2023. For the six months ended June 30, 2024, adjusted EBITDA increased 12.6% to $228.9 million, compared with $203.2 million for the same period in 2023. Year-over-year, adjusted EBITDA margin expanded 250 basis points to 52.6% in the first six months of 2024, compared with 50.1% in the same period last year.

Balance Sheet / Capital Management

The total debt outstanding as of June 30, 2024 was approximately $992 million and consisted of an existing term loan balance of $625 million and the 2021 Incremental Term Loans balance of $367 million.

The Company's Board of Directors approved a regular quarterly cash dividend of $0.41 per share. The dividend is payable on September 25, 2024, to shareholders of record on September 10, 2024.

Conference Call, Webcast and Slide Presentation

The Company will host a conference call tomorrow morning, August 9, 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 call (888) 330-3571 (domestic) or (646) 960-0657 (international), shortly before 8:00 a.m. ET and reference the Victory Capital Conference Call. 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 diversified global asset management firm with total assets under management of $168.7 billion, and $173.8 billion in total client assets, as of June 30, 2024. The Company employs a next-generation business strategy that combines boutique investment qualities with the benefits of a fully integrated, centralized operating and distribution platform.

Victory Capital provides specialized investment strategies to institutions, intermediaries, retirement platforms and individual investors. With 11 autonomous Investment Franchises and a Solutions Business, Victory Capital offers a wide array of investment products and services, including mutual funds, ETFs, separately managed accounts, alternative investments, third-party ETF model strategies, collective investment trusts, private funds, a 529 Education Savings Plan, and brokerage services.

Victory Capital is headquartered in San Antonio, Texas, with offices and investment professionals in the U.S. and around the world. To learn more please visit www.vcm.com or follow Victory Capital on Facebook, Twitter, and LinkedIn.

FORWARD-LOOKING STATEMENTS

This earnings release may contain forward-looking statements within the meaning of applicable U.S. federal and non-U.S. securities laws. 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 and include, but are not limited to, statements regarding the proposed transaction and the outlook for Victory Capital's or Amundi's future business and financial performance. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond Victory Capital's and Amundi's control and could cause Victory Capital's and Amundi'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: continued geopolitical uncertainty including the conflicts in Ukraine and Israel, risks that the conditions to closing the transaction with Amundi US will be satisfied and the transaction will close on the anticipated timeline, if at all; risks associated with expected benefits, or impact on our business, of the proposed transaction, including our ability to achieve any expected synergies; reductions in AUM based on investment performance, client withdrawals, difficult market conditions and other factors such as a pandemic; 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 level of control over the Company retained by Crestview GP; 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.

Important Additional Information and Where to Find It

This communication discusses the proposed acquisition of Amundi Holdings US, Inc. ("Amundi US") by the Company. In connection with the transaction, the Company intends to file a proxy statement and certain other documents regarding the transaction with the SEC. The definitive version of the proxy statement (if and when available) will be mailed to the Company's stockholders.

INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS THAT ARE FILED OR WILL BE FILED WITH THE SEC, CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE TRANSACTIONS CONTEMPLATED BY THE CONTRIBUTION AGREEMENT AND RELATED MATTERS.

Investors and security holders may obtain, free of charge, copies of the proxy statement (when it is available) and other documents that are filed or will be filed with the SEC by the Company through the website maintained by the SEC at www.sec.gov or the Investor Relations portion of the Company's website at https://ir.vcm.com.

Participants in the Solicitation

The Company and certain of its directors, executive officers and other employees may be deemed to be "participants" in the solicitation of proxies from the Company's stockholders with respect to the special meeting of stockholders that will be held to consider and vote upon the approval of the share issuance in connection with the proposed acquisition of Amundi US by the Company. Additional information regarding the identity of the participants, and their respective direct and indirect interests in the transaction, by security holdings or otherwise, will be set forth in the proxy statement and other materials to be filed with the SEC in connection with the transaction (if and when they become available). Information relating to the Company's executive officers and directors can also be found in the Company's proxy statement for its 2024 annual meeting of stockholders, which was filed with the SEC on March 28, 2024. Investors and security holders may obtain free copies of these documents using the sources indicated above.