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

Third-Quarter Highlights

• Total Client Assets of $181.1 billion
• Long-term gross flows of $5.9 billion
• Long-term net flows of ($2.6) billion
• GAAP operating margin of 53.3%
• GAAP net income per diluted share of $1.24
• Adjusted EBITDA margin of 53.7%
• Adjusted net income with tax benefit per diluted share of $1.35
• Board authorizes an 7% increase in regular quarterly cash dividend to $0.44

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

"During the third quarter, we made excellent progress toward closing the Amundi transaction," said David Brown, Chairman and Chief Executive Officer. "We reached a formal agreement early in the quarter and, in October, our shareholders approved all proxy proposals on the ballot at our Special Meeting of Stockholders.

"Integration work is proceeding, and we are working with Amundi's non-U.S. distribution teams to facilitate sales of our products throughout their global networks and joint ventures upon closing, which we anticipate will occur in the first quarter of 2025. Based on work completed to date, we are maintaining our guidance of $100 million in annualized expense synergies. These expense synergies are expected to be fully realized within two years of closing with the majority achieved within the first year.

"Our business performance was strong through the first nine months of 2024. In the third quarter, we achieved the highest quarterly adjusted earnings per diluted share with tax benefit, adjusted EBITDA, and adjusted EBITDA margin in the history of our firm. Through the end of September, the percentage of our AUM outperforming benchmarks over the respective 3-, 5-, and 10-year periods was 60%, 73%, and 77%. In addition, 67% of our AUM in mutual funds and ETFs was rated four or five stars overall by Morningstar.

"Cash on the balance sheet was $188 million, up $69 million from the end of the second quarter. Our net leverage ratio declined to 1.7x due to growth in Adjusted EBITDA and our increased cash position. Additionally, the Board authorized another 7% increase in our quarterly cash dividend from $0.41 to $0.44 per share, which will be paid in December.

"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 September 30, 2024, Victory Capital had total client assets of $181.1 billion, assets under management of $176.1 billion, and other assets of $5.0 billion. Total AUM increased by $7.4 billion to $176.1 billion at September 30, 2024, compared with $168.7 billion at June 30, 2024. The increase was due to positive market action of $10.1 billion partially offset by net outflows of $2.6 billion. Total gross flows for the third quarter were $6.1 billion, including long-term gross flows of $5.9 billion.

As of September 30, 2024, Victory Capital offered 126 investment strategies through its 11 autonomous Investment Franchises and Solutions Platform. The table below presents outperformance against benchmarks by AUM as of September 30, 2024.

Third Quarter 2024 Compared with Second Quarter 2024

Revenue increased 2.7% to $225.6 million in the third quarter, compared with $219.6 million in the second quarter, primarily due to higher average AUM over the comparable period. GAAP operating margin expanded 290 basis points in the third quarter to 53.3%, up from 50.4% in the second quarter primarily due to a $12.4 million decrease in compensation related expenses partially offset by a non-cash $6.6 million difference in amounts recorded to the change in the fair value of consideration payable for acquisitions. Third quarter GAAP net income increased 10.4% to $82.0 million, or $1.24 per diluted share, up from $74.3 million, or $1.12 per diluted share, in the prior quarter.

Adjusted net income with tax benefit increased 2.8% to $89.0 million, or $1.35 per diluted share in the third quarter, up from $86.6 million, or $1.31 per diluted share, in the second quarter. Adjusted EBITDA increased 4.1% to $121.3 million in the third quarter, versus $116.5 million in the second quarter. Adjusted EBITDA margin expanded 70 basis points in the third quarter of 2024 to 53.7% compared with 53.0% in the prior quarter.

Third Quarter 2024 Compared with Third Quarter 2023

Revenue for the three months ended September 30, 2024, increased 7.6% to $225.6 million, compared with $209.7 million in the same quarter of 2023 as a result of higher average AUM over the comparable period.

Operating expenses decreased 18.8% to $105.3 million, compared with $129.6 million in last year's third quarter due to the combination of a non-cash $11.9 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. GAAP operating margin expanded 1,510 basis points to 53.3% in the third quarter, from 38.2% in the same quarter of 2023. GAAP net income increased 57.6% to $82.0 million, or $1.24 per diluted share, in the third quarter compared with $52.0 million, or $0.77 per diluted share, in the same quarter of 2023.

Adjusted net income with tax benefit increased 11.6% to $89.0 million, or $1.35 per diluted share, in the third quarter, compared with $79.8 million, or $1.18 per diluted share in the same quarter last year. Adjusted EBITDA increased 13.1% to $121.3 million, compared with $107.2 million in the same quarter of last year. Year-over-year, adjusted EBITDA margin expanded 260 basis points to 53.7% in the third quarter of 2024, compared with 51.1% in the same quarter last year.

Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023

Revenue for the nine months ended September 30, 2024, increased 7.5% to $661.1 million, compared with $615.2 million in the same period of 2023. The increase was primarily due to higher average AUM.

Operating expenses decreased 7.4% to $345.3 million for the nine months ended September 30, 2024, compared with $373.1 million in the same period in 2023 due to the combination of a non-cash $16.8 million difference in amounts recorded to the change in the fair value of consideration payable for acquisitions as well as a decreases in compensation related expense and depreciation and amortization expense, partially offsetting was an increase in acquisition-related costs. GAAP operating margin was 47.8% for the nine months ended September 30, 2024, an 840 basis point increase from the 39.4% recorded in the same period in 2023. GAAP net income increased 34.2% to $211.9 million, or $3.21 per diluted share, in the first nine months of 2024 compared with $158.0 million, or $2.30 per diluted share, in the same period in 2023.

Adjusted net income with tax benefit increased 11.7% to $258.0 million in the first nine months of 2024 compared to $230.9 million in the same period in 2023. On a per-share basis, adjusted net income with tax benefit increased 16.4% to $3.91 per diluted share for the nine months ended September 30, 2024 compared to $3.36 per diluted share in the same period in 2023. For the nine months ended September 30, 2024, adjusted EBITDA increased 12.8% to $350.1 million, compared with $310.4 million for the same period in 2023. Year-over-year, adjusted EBITDA margin expanded 250 basis points to 53.0% in the first nine months of 2024, compared with 50.5% in the same period last year.

Balance Sheet / Capital Management

The total debt outstanding as of September 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 $0.44 per share. The dividend is payable on December 23, 2024, to shareholders of record on December 9, 2024.

Conference Call, Webcast and Slide Presentation

The Company will host a conference call tomorrow morning, November 8, 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 $176.1 billion, and $181.1 billion in total client assets, as of September 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.