Exhibit 99.1

 

News Release

 

 

 

 

VICTORY CAPITAL REPORTS SECOND QUARTER 2018 RESULTS

 

Second Quarter 2018 Highlights1

 

·           Assets under management (“AUM”) of $62.3 billion as of June 30, 2018, a 9% increase from June 30, 2017

·           Strong investment performance, with 83% of AUM outperforming its respective benchmarks over the trailing one-year period, 69% over three-years, 80% over five-years, and 83% over ten-years as of June 30, 2018

·           Overall net outflows of $102 million; positive net flows of $524 million into our focus asset classes

·           $104.4 million in revenue, a 3% increase from the second quarter of 2017

·           GAAP earnings of $0.26 per diluted share, compared to GAAP earnings of $0.04 per diluted share for the second quarter of 2017

·           Adjusted Net Income with tax benefit per diluted share of $0.41, a 28% increase over the Adjusted Net Income with tax benefit per diluted share for the second quarter of 2017

·           Operating margin of 28.4%, up from 19.3% in the second quarter of 2017

·           Adjusted EBITDA margin of 39.0%, up from 35.9% in the second quarter of 2017

 

Cleveland, Ohio, August 7, 2018 — Victory Capital Holdings, Inc. (NASDAQ: VCTR) (“Victory Capital” or the “Company”) today reported its results for the three months ended June 30, 2018.

 

“I am pleased to report that Victory Capital delivered strong financial performance in the second quarter,” said David Brown, Chairman and Chief Executive Officer. “Investment results remained strong with 83% of our AUM outperforming its respective benchmarks over the trailing one-year period. AUM increased during the quarter, and we saw a measurable improvement in our net flows relative to last quarter. We also remained committed to the prudent execution of our capital management plan while achieving strong earnings growth and meaningful margin expansion.

 

“Total AUM grew to $62.3 billion as of June 30, 2018, which is the result of the improving flow picture and positive market action. Gross flows for the quarter were strong at $3.5 billion, while overall net flows were relatively flat at ($102) million. We continued to experience somewhat elevated levels of client rebalancing activity. However, that was primarily offset by positive net flows of $524 million into our focus asset classes. Our ‘won-but-not-funded’ pipeline is healthy as are our overall sales prospects.

 

“Sales momentum in our VictoryShares ETFs remained strong. Net flows into our ETFs were $200 million for the quarter and $652 million for the first six months of 2018. Our ETFs have experienced positive net flows every quarter — and in 37 of the 38 months — since we entered the ETF business via the CEMP acquisition in April 2015. Year over year as of June 30, 2018, our ETF market share has increased by 55% according to Morningstar.

 

“Looking ahead, we remain committed to creating long-term value for our shareholders through the disciplined execution of our corporate vision, which combines strategic acquisitions with organic growth. We believe our next generation, integrated multi-boutique business model is attractive to investment firms looking for a strategic partner, and we have an active pipeline of potential M&A opportunities. Our focus is on identifying and acquiring the ‘growers of the future,’ unique, innovative products that solve issues for client portfolios. As in the past, serving the needs of our clients remains our top priority.”

 


 

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.

 



 

The table below presents AUM, and certain GAAP and non-GAAP (“adjusted”) financial results.

 

(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,

 

 

 

2018

 

2018

 

2017

 

2018

 

2017

 

Assets Under Management

 

 

 

 

 

 

 

 

 

 

 

Ending

 

$

62,256

 

$

60,855

 

$

56,973

 

$

62,256

 

$

56,973

 

Average

 

61,617

 

62,020

 

56,784

 

61,819

 

56,531

 

 

 

 

 

 

 

 

 

 

 

 

 

Flows

 

 

 

 

 

 

 

 

 

 

 

Gross

 

$

3,521

 

$

3,685

 

$

3,953

 

$

7,205

 

$

8,679

 

Net

 

(102)

 

(633)

 

(601)

 

(735)

 

(986)

 

Net flows excluding Diversified Equity(1)

 

(102)

 

(633)

 

(314)

 

(735)

 

(368)

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Financial Results (GAAP)

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

104.4

 

$

105.0

 

$

100.9

 

$

209.4

 

$

201.6

 

Revenue realization (in bps)

 

68.0

 

68.6

 

71.3

 

68.3

 

71.9

 

Operating expenses

 

74.7

 

77.7

 

81.5

 

152.4

 

162.6

 

Income from operations

 

29.7

 

27.3

 

19.4

 

57.0

 

39.0

 

Operating margin

 

28.4%

 

26.0%

 

19.3%

 

27.2%

 

19.3%

 

Net income

 

18.7

 

10.5

 

2.4

 

29.2

 

6.8

 

Earnings per diluted share

 

$

0.26

 

$

0.16

 

$

0.04

 

$

0.42

 

$

0.11

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Performance Results (Non-GAAP)(2)

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

40.7

 

$

39.8

 

$

36.2

 

$

80.5

 

$

69.8

 

Adjusted EBITDA margin

 

39.0%

 

37.9%

 

35.9%

 

38.4%

 

34.6%

 

Adjusted net income

 

26.6

 

23.1

 

13.9

 

49.6

 

26.9

 

Tax benefit of goodwill and acquired intangibles

 

3.3

 

3.3

 

4.9

 

6.6

 

9.8

 

Adjusted net income with tax benefit

 

29.9

 

26.4

 

18.8

 

56.3

 

36.7

 

Adjusted net income with tax benefit per diluted share

 

$

0.41

 

$

0.40

 

$

0.32

 

$

0.81

 

$

0.62

 

 

 

(1) In May 2017, the Company made a decision to exit the Diversified Equity Franchise; all remaining AUM was transferred to the Munder Capital Management Franchise to manage beginning May 15, 2017.

 

(2) Adjusted EBITDA and Adjusted Net Income are non-GAAP financial measures.  Reconciliation of each of Adjusted EBITDA and Adjusted Net Income to net income have been provided in the non-GAAP reconciliation tables in this press release.  An explanation of these non-GAAP financial measures is included below under the heading “Information Regarding Non-GAAP Financial Measures”. 

 

AUM, Flows and Investment Performance

 

Victory Capital’s AUM increased by $1.4 billion to $62.3 billion at June 30, 2018, compared to $60.9 billion at March 31, 2018. The increase was due to market appreciation of $1.5 billion that was modestly offset by net outflows of $0.1 billion. Gross flows for the second quarter were $3.5 billion.

 

As of June 30, 2018, 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, 2018.

 

 

 

Trailing

 

Trailing

 

Trailing

 

Trailing

 

 

 

1-Year

 

3-Years

 

5-Years

 

10-Years

 

Percentage of AUM Outperforming Benchmark

 

83%

 

69%

 

80%

 

83%

 

Percentage of Strategies Outperforming Benchmark

 

74%

 

67%

 

71%

 

72%

 

 

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Second Quarter of 2018 Compared to First Quarter of 2018

 

For the quarter ended June 30, 2018, GAAP net income increased 78% to $18.7 million, or $0.26 per diluted share, compared to GAAP net income of $10.5 million, or $0.16 per diluted share, for the first quarter of 2018. GAAP operating margin was 28.4% for the quarter compared to 26.0% for the first quarter of 2018. Adjusted Net Income with tax benefit increased 13% to $29.9 million, or $0.41 per diluted share comprised of $0.37 per diluted share in Adjusted Net Income and $0.04 per diluted share in tax benefit, compared to $26.4 million, or $0.40 per diluted share comprised of $0.35 per diluted share in Adjusted Net Income and $0.05 per diluted share in tax benefit, for the first quarter of 2018.

 

Adjusted EBITDA and Adjusted EBITDA margin were $40.7 million and 39.0%, respectively, for the second quarter of 2018, compared to $39.8 million and 37.9% in the first quarter of 2018. Net Income, Adjusted Net Income and Adjusted EBITDA increased due to operational efficiencies, one-time costs associated with the debt refinancing recognized in the first quarter and, specific to Net Income and Adjusted Net Income, lower interest expense in the second quarter of 2018 as a result of refinancing activities and debt pre-payments.

 

·                 Revenue was $104.4 million, a decline from $105.0 million for the first quarter of 2018 due to a slight decline in average AUM and a decrease in the realized fee rate.

·                 Operating expenses declined to $74.7 million, compared to $77.7 million in the first quarter of 2018 due to operational efficiencies and one-time costs associated with the debt refinancing recognized in the first quarter.

 

Second Quarter of 2018 Compared to Second Quarter of 2017

 

For the quarter ended June 30, 2018, GAAP net income was $18.7 million, or $0.26 per diluted share, compared to $2.4 million, or $0.04 per diluted share, in the second quarter of 2017. GAAP operating margin increased to 28.4% for the quarter from 19.3% for the second quarter of 2017. Adjusted Net Income with tax benefit increased 59% to $29.9 million, or $0.41 per diluted share comprised of $0.37 per diluted share in Adjusted Net Income and $0.04 per diluted share in tax benefit in the second quarter of 2018, compared to $18.8 million, or $0.32 per diluted share comprised of $0.24 per diluted share in Adjusted Net Income and $0.08 per diluted share in tax benefit, in the second quarter of 2017.

 

Adjusted EBITDA and Adjusted EBITDA margin were $40.7 million and 39.0%, respectively, for the second quarter of 2018, compared to $36.2 million and 35.9%, respectively, for the second quarter a year ago. Net Income, Adjusted Net Income and Adjusted EBITDA increased due to higher revenue coupled with operational efficiencies, the successful integration of RS Investments and, specific to Net Income and Adjusted Net Income, lower interest expense in the second quarter of 2018 as a result of refinancing activities and debt pre-payments.

 

·                 Revenue increased $3.5 million to $104.4 million, compared to $100.9 million for the second quarter of 2017, due to higher average AUM, partially offset by a decrease in the realized fee rate due to asset mix.

·                 Operating expenses decreased 8% to $74.7 million, compared to $81.5 million in the second quarter of 2017, primarily due to operational efficiencies and the successful integration of RS Investments.

 

Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017

 

For the six months ended June 30, 2018, GAAP net income was $29.2 million, or $0.42 per diluted share, compared to $6.8 million, or $0.11 per diluted share, for the comparable six months of 2017. GAAP operating margin increased to 27.2% for the six months ended June 30, 2018 from 19.3% for six months ended June 30, 2017. Adjusted Net Income with tax benefit increased 53% to $56.3 million, or $0.81 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 six months ended June 30, 2018, compared to $36.7 million, or $0.62 per diluted share comprised of $0.46 per diluted share in Adjusted Net Income and $0.16 per diluted share in tax benefit, for the six months ended June 30, 2017.

 

3



 

Adjusted EBITDA and Adjusted EBITDA margin were $80.5 million and 38.4%, respectively, for the six months ended June 30, 2018, compared to $69.8 million and 34.6%, respectively, for the comparable six months a year ago. Net Income, Adjusted Net Income and Adjusted EBITDA increased due to higher revenue coupled with operational efficiencies, the successful integration of RS Investments and, specific to Net Income and Adjusted Net Income, lower interest expense in the second quarter of 2018 as a result of refinancing activities and debt pre-payments which were partially offset by one-time write-offs of debt issuance and debt discount costs.

 

·      Revenue increased $7.8 million to $209.4 million for the six months ended June 30, 2018, compared to $201.6 million for the six months ended June 30, 2017, due to higher average AUM, partially offset by a decrease in the realized fee rate due to asset mix.

·      Operating expenses for the six months ended June 30, 2018 decreased 6% to $152.4 million, compared to $162.6 million for the six months ended June 30, 2017, primarily due to operational efficiencies and the successful integration of RS Investments.

 

Balance Sheet / Capital Management

 

Cash and cash equivalents were $15.2 million at June 30, 2018, compared to $12.9 million at December 31, 2017. During the quarter, the Company pre-paid $23.0 million of debt with cash on hand and increased its revolving credit facility to $100.0 million. The term loan balance at June 30, 2018 was $300.0 million, a 7% reduction during the quarter.  The $100.0 million revolving credit facility had $100.0 million undrawn as of June 30, 2018.

 

Subsequent to quarter-end, the Company paid down an additional $20.0 million of debt, bringing its term loan balance to $280.0 million at August 7, 2018.

 

On May 22, 2018, the Company announced a $15.0 million share repurchase program of Class A Common Stock effective through December 31, 2019.  During the quarter, the Company repurchased 66,112 shares at an average price of $10.89 per share for a total of $720,259.

 

 

Conference Call, Webcast and Slide Presentation

 

The Company will host a conference call and webcast at 10:00 a.m. Eastern Time today, August 7, 2018, to discuss its financial results. Analysts and investors may participate in the question-and-answer session. The call can be accessed via telephone at (866) 465-5145 (domestic) or (409) 220-9945 (international).  Please reference the Victory Capital Conference Call. A recorded replay of the conference call will be available shortly after the conclusion of the live call and can be accessed through August 21, 2018 by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international), and enter the Conference ID Number 2391246.

 

A slide presentation relating to the second quarter 2018 results will be accessible prior to the scheduled conference call. The slide presentation and webcast of the conference call can be accessed on the Events and Presentations page of the Company’s investor relations website at https://ir.vcm.com.

 

 

About Victory Capital

 

Victory Capital is a global investment management firm operating a next-generation, integrated multi-boutique business model with $62.3 billion in assets under management as of June 30, 2018.

 

Victory Capital’s differentiated model is comprised of nine Investment Franchises, each with an independent culture and investment approach. Additionally, the Company offers a rules-based Solutions Platform, featuring the VictoryShares ETF brand, as well as custom and multi-asset class solutions. The Company’s Investment Franchises and Solutions Platform are supported by a centralized distribution, marketing and operational environment, in which the investment professionals can focus on the pursuit of investment excellence.

 

4



 

Victory Capital provides institutions, financial advisors and retirement platforms with a variety of asset classes and investment vehicles, including separately managed accounts, collective trusts, mutual funds, ETFs, UCITs and UMA/SMA vehicles.

 

For more information, please visit www.vcm.com.

 

 

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.

 

 

INVESTOR RELATIONS WEBSITE

 

Victory Capital may use the Investor Relations section of its website, https://ir.vcm.com, to disclose material information to investors and the marketplace as a means of disclosing material, non-public information and for complying with disclosure obligations under Regulation Fair Disclosure (“Reg FD”).  Victory Capital encourages investors, the media and other interested parties to visit its investor relations website regularly.

 

5



 

Contacts

Investors:

Lauren Crawford, 310-622-8239

lcrawford@finprofiles.com

 

Media:
Tricia Ross, 310-622-8226

tross@finprofiles.com

 

6



 

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(unaudited; in thousands except shares)

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30,

 

March 31,

 

June 30,

 

June 30,

 

June 30,

 

 

 

2018

 

2018

 

2017

 

2018

 

2017

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

88,998

 

$

89,130

 

$

84,474

 

$

178,128

 

$

168,589

 

Fund administration and distribution fees

 

15,401

 

15,834

 

16,460

 

31,235

 

33,006

 

Total revenue

 

104,399

 

104,964

 

100,934

 

209,363

 

201,595

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

Personnel compensation and benefits

 

37,140

 

36,803

 

35,025

 

73,943

 

70,675

 

Distribution and other asset-based expenses

 

24,127

 

25,161

 

26,544

 

49,288

 

53,425

 

General and administrative

 

7,088

 

9,056

 

8,261

 

16,144

 

17,182

 

Depreciation and amortization

 

5,931

 

6,412

 

8,131

 

12,343

 

16,285

 

Change in value of consideration payable for acquisition of business

 

(4)

 

-

 

(25)

 

(4)

 

(25)

 

Acquisition-related costs

 

(5)

 

-

 

228

 

(5)

 

591

 

Restructuring and integration costs

 

438

 

264

 

3,331

 

702

 

4,461

 

Total operating expenses

 

74,715

 

77,696

 

81,495

 

152,411

 

162,594

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

29,684

 

27,268

 

19,439

 

56,952

 

39,001

 

Operating margin

 

28.4%

 

26.0%

 

19.3%

 

27.2%

 

19.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

Interest income and other income/(expense)

 

8

 

(37)

 

(1,914)

 

(29)

 

(1,569)

 

Interest expense and other financing costs

 

(4,706)

 

(7,092)

 

(13,843)

 

(11,798)

 

(26,471)

 

Loss on debt extinguishment

 

-

 

(6,058)

 

-

 

(6,058)

 

-

 

Total other income (expense), net

 

(4,698)

 

(13,187)

 

(15,757)

 

(17,885)

 

(28,040)

 

Income before income taxes

 

24,986

 

14,081

 

3,682

 

39,067

 

10,961

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

(6,311)

 

(3,557)

 

(1,328)

 

(9,868)

 

(4,194)

 

Net income

 

$

18,675

 

$

10,524

 

$

2,354

 

$

29,199

 

$

6,767

 

Earnings per share - basic

 

$

0.27

 

$

0.17

 

$

0.04

 

$

0.45

 

$

0.12

 

Earnings per share - diluted

 

0.26

 

0.16

 

0.04

 

0.42

 

0.11

 

Weighted average shares outstanding - basic

 

67,948,732

 

61,599,057

 

54,825,386

 

64,791,435

 

54,819,604

 

Weighted average shares outstanding - diluted

 

72,135,290

 

66,283,621

 

58,985,367

 

69,352,895

 

58,872,192

 

Dividends declared per share

 

$

-

 

$

-

 

$

-

 

$

-

 

$

2.19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7



 

Victory Capital Holdings, Inc. and Subsidiaries

Reconcilation of GAAP to Non-GAAP Measures

(unaudited; in thousands except shares)

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

June 30,

 

March 31,

 

June 30,

 

June 30,

 

June 30,

 

 

 

2018

 

2018

 

2017

 

2018

 

2017

 

Net income

 

$

18,675

 

$

10,524

 

$

2,354

 

$

29,199

 

$

6,767

 

GAAP income tax expense

 

(6,311)

 

(3,557)

 

(1,328)

 

(9,868)

 

(4,194)

 

Income before taxes

 

$

24,986

 

$

14,081

 

$

3,682

 

$

39,067

 

$

10,961

 

Interest expense

 

4,229

 

8,094

 

12,757

 

12,323

 

24,353

 

Depreciation

 

736

 

736

 

893

 

1,472

 

1,808

 

Other business taxes

 

443

 

375

 

390

 

818

 

840

 

GAAP amortization of acquisition-related intangibles

 

5,195

 

5,676

 

7,238

 

10,871

 

14,477

 

Stock-based compensation

 

3,968

 

3,322

 

3,651

 

7,290

 

5,952

 

Acquisition, restructuring and exit costs

 

560

 

518

 

5,195

 

1,078

 

7,798

 

Debt issuance costs

 

361

 

6,702

 

1,914

 

7,063

 

2,828

 

Pre-IPO governance expenses

 

(3)

 

141

 

312

 

138

 

600

 

Earnings/losses from equity method investments

 

202

 

137

 

173

 

339

 

173

 

Adjusted EBITDA

 

$

40,677

 

$

39,782

 

$

36,205

 

$

80,459

 

$

69,790

 

Adjusted EBITDA margin

 

39.0%

 

37.9%

 

35.9%

 

38.4%

 

34.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

18,675

 

$

10,524

 

$

2,354

 

$

29,199

 

$

6,767

 

Adjustment to reflect the operating performance of the Company

 

 

 

 

 

 

 

 

 

 

 

Other business taxes

 

443

 

375

 

390

 

818

 

840

 

GAAP amortization of acquisition-related intangibles

 

5,195

 

5,676

 

7,238

 

10,871

 

14,477

 

Stock-based compensation

 

3,968

 

3,322

 

3,651

 

7,290

 

5,952

 

Acquisition, restructuring and exit costs

 

560

 

518

 

5,195

 

1,078

 

7,798

 

Debt issuance costs

 

361

 

6,702

 

1,914

 

7,063

 

2,828

 

Pre-IPO governance expenses

 

(3)

 

141

 

312

 

138

 

600

 

Tax effect of above adjustments

 

(2,631)

 

(4,183)

 

(7,106)

 

(6,814)

 

(12,348)

 

Adjusted net income

 

$

26,568

 

$

23,075

 

$

13,948

 

$

49,643

 

$

26,914

 

Adjusted net income per diluted share

 

$

0.37

 

$

0.35

 

$

0.24

 

$

0.72

 

$

0.46

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax benefit of goodwill and acquired intangibles

 

$

3,320

 

$

3,320

 

$

4,901

 

$

6,640

 

$

9,792

 

Tax benefit of goodwill and acquired intangibles per diluted share

 

$

0.04

 

$

0.05

 

$

0.08

 

$

0.09

 

$

0.16

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net income with tax benefit

 

$

29,888

 

$

26,395

 

$

18,849

 

$

56,283

 

$

36,706

 

Adjusted net income with tax benefit per diluted share

 

$

0.41

 

$

0.40

 

$

0.32

 

$

0.81

 

$

0.62

 

 

 

8



 

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except for shares)

 

 

 

 

June 30, 2018

 

December 31, 2017

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

15,162

 

$

12,921

 

Receivables

 

51,813

 

55,917

 

Prepaid expenses

 

2,855

 

5,441

 

Investments

 

13,466

 

11,336

 

Property and equipment, net

 

8,975

 

8,844

 

Goodwill

 

284,108

 

284,108

 

Other intangible assets, net

 

397,130

 

408,000

 

Other assets

 

7,735

 

6,055

 

Total assets

 

$

781,244

 

$

792,622

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Accounts payable and accrued expenses

 

$

17,356

 

$

21,996

 

Accrued compensation and benefits

 

23,771

 

29,305

 

Consideration payable for acquisition of business

 

10,133

 

9,856

 

Deferred tax liability, net

 

4,409

 

4,068

 

Other liabilities

 

16,929

 

12,989

 

Long-term debt(1)

 

287,907

 

483,225

 

Total liabilities

 

360,505

 

561,439

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $0.01 par value per share: 2018 - no shares authorized, issued and outstanding; 2017 - 78,837,300 shares authorized, 57,182,730 issued and 55,118,673 shares outstanding

 

 

572

 

Class A common stock, $0.01 par value per share: 2018 - 400,000,000 shares authorized, 12,971,510 shares issued and 12,905,398 shares outstanding; 2017 - no shares authorized, issued and outstanding

 

130

 

 

Class B common stock, $0.01 par value per share: 2018 - 200,000,000 shares authorized, 57,059,845 shares issued and 54,995,788 shares outstanding; 2017 - no shares authorized, issued and outstanding

 

570

 

 

Additional paid-in capital

 

595,191

 

435,334

 

Class A treasury stock, at cost: 2018 - 66,112 shares; 2017 - no shares

 

(720)

 

 

Class B treasury stock, at cost: 2018 and 2017 - 2,064,057 shares

 

(20,899)

 

(20,899)

 

Accumulated other comprehensive income

 

47

 

64

 

Retained deficit

 

(153,580)

 

(183,888)

 

Total stockholders’ equity

 

420,739

 

231,183

 

Total liabilities and stockholders’ equity

 

$

781,244

 

$

792,622

 

 

(1)  Balance at June 30, 2018 is shown net of unamortized loan discount and debt issuance costs in the amount of $12.1 million.  The gross amount of the debt outstanding was $300.0 million.

 

 

9



 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management

(unaudited; in millions)

 

 

 

For the Three Months Ended

 

% Change from

 

 

June 30,

 

March 31,

 

June 30,

 

March 31,

 

June 30,

 

 

2018

 

2018

 

2017

 

2018

 

2017

Beginning assets under management

 

$

60,855

 

$

61,771

 

$

56,622

 

-1%

 

7%

Gross client cash inflows

 

3,521

 

3,685

 

3,953

 

-4%

 

-11%

Gross client cash outflows

 

(3,623)

 

(4,318)

 

(4,554)

 

-16%

 

-20%

Net client cash flows

 

(102)

 

(633)

 

(601)

 

-84%

 

-83%

Market appreciation (depreciation)

 

1,503

 

(275)

 

952

 

n/m

 

58%

Net transfers

 

-

 

(8)

 

-

 

n/m

 

n/m

Ending assets under management

 

62,256

 

60,855

 

56,973

 

2%

 

9%

Average assets under management

 

61,617

 

62,020

 

56,784

 

-1%

 

9%

Net client cash flows excluding Diversified Equity

 

(102)

 

(633)

 

(314)

 

-84%

 

-68%

 

 

 

 

For the Six Months Ended

 

% Change from

 

 

June 30,

 

June 30,

 

June 30,

 

 

2018

 

2017

 

2017

Beginning assets under management

 

$

61,771

 

$

54,965

 

12%

Gross client cash inflows

 

7,205

 

8,679

 

-17%

Gross client cash outflows

 

(7,940)

 

(9,665)

 

-18%

Net client cash flows

 

(735)

 

(986)

 

-25%

Market appreciation (depreciation)

 

1,228

 

2,994

 

-59%

Net transfers

 

(8)

 

-

 

n/m

Ending assets under management

 

62,256

 

56,973

 

9%

Average assets under management

 

61,819

 

56,531

 

9%

Net client cash flows excluding Diversified Equity

 

(735)

 

(368)

 

100%

 

 

10



 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Asset Class

(unaudited; in millions)

 

For the Three Months Ended

 

By Asset Class

 

 

U.S. Mid
Cap Equity

 

U.S. Small
Cap Equity

 

Fixed
Income

 

U.S. Large
Cap Equity

 

Global /
Non-U.S.
Equity

 

Solutions

 

Commodity

 

Other

 

Total

June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets under management

 

$

24,205

 

$

15,095

 

$

7,311

 

$

4,635

 

$

4,334

 

$

3,563

 

$

1,298

 

$

414

 

$

60,855

Gross client cash inflows

 

1,125

 

867

 

303

 

103

 

669

 

381

 

46

 

27

 

3,521

Gross client cash outflows

 

(1,422)

 

(745)

 

(652)

 

(287)

 

(182)

 

(169)

 

(133)

 

(33)

 

(3,623)

Net client cash flows

 

(297)

 

122

 

(349)

 

(184)

 

487

 

212

 

(87)

 

(6)

 

(102)

Market appreciation (depreciation)

 

558

 

773

 

16

 

113

 

(116)

 

40

 

80

 

39

 

1,503

Net transfers

 

19

 

(19)

 

-

 

13

 

-

 

-

 

-

 

(13)

 

-

Ending assets under management

 

24,485

 

15,971

 

6,978

 

4,577

 

4,705

 

3,815

 

1,291

 

434

 

62,256

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets under management

 

$

25,185

 

$

15,308

 

$

7,551

 

$

4,789

 

$

4,105

 

$

3,028

 

$

1,419

 

$

386

 

$

61,771

Gross client cash inflows

 

1,203

 

776

 

394

 

55

 

443

 

606

 

127

 

81

 

3,685

Gross client cash outflows

 

(2,080)

 

(922)

 

(640)

 

(211)

 

(220)

 

(77)

 

(146)

 

(22)

 

(4,318)

Net client cash flows

 

(877)

 

(146)

 

(246)

 

(156)

 

223

 

529

 

(19)

 

59

 

(633)

Market appreciation (depreciation)

 

(103)

 

(67)

 

6

 

3

 

14

 

(34)

 

(102)

 

8

 

(275)

Net transfers

 

-

 

-

 

-

 

(1)

 

(8)

 

40

 

-

 

(39)

 

(8)

Ending assets under management

 

24,205

 

15,095

 

7,311

 

4,635

 

4,334

 

3,563

 

1,298

 

414

 

60,855

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets under management

 

$

21,555

 

$

14,556

 

$

7,756

 

$

5,285

 

$

3,482

 

$

1,970

 

$

1,770

 

$

248

 

$

56,622

Gross client cash inflows

 

2,307

 

652

 

387

 

69

 

155

 

299

 

70

 

14

 

3,953

Gross client cash outflows

 

(1,841)

 

(1,036)

 

(486)

 

(523)

 

(303)

 

(56)

 

(275)

 

(34)

 

(4,554)

Net client cash flows

 

466

 

(384)

 

(99)

 

(454)

 

(148)

 

243

 

(205)

 

(20)

 

(601)

Market appreciation (depreciation)

 

369

 

281

 

122

 

-

 

271

 

48

 

(159)

 

20

 

952

Net transfers

 

 

-

 

 

-

 

 

(71)

 

 

(6)

 

 

-

 

 

(34)

 

 

15

 

 

96

 

-

Ending assets under management

 

22,390

 

14,453

 

7,708

 

4,825

 

3,605

 

2,227

 

1,421

 

344

 

56,973

 

 

11



 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Asset Class

(unaudited; in millions)

 

For the Six Months Ended

 

By Asset Class

 

 

U.S. Mid
Cap Equity

 

U.S. Small
Cap Equity

 

Fixed
Income

 

U.S. Large
Cap Equity

 

Global /
Non-U.S.
Equity

 

Solutions

 

Commodity

 

Other

 

Total

June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets under management

 

$

25,185

 

$

15,308

 

 $

7,551

 

$

4,789

 

$

4,105

 

$

3,028

 

$

1,419

 

$

386

 

 $

61,771

Gross client cash inflows

 

2,328

 

1,643

 

696

 

158

 

1,113

 

986

 

173

 

108

 

7,205

Gross client cash outflows

 

(3,502)

 

(1,667)

 

(1,291)

 

(498)

 

(402)

 

(245)

 

(279)

 

(56)

 

(7,940)

Net client cash flows

 

(1,174)

 

(24)

 

(595)

 

(340)

 

711

 

741

 

(106)

 

52

 

(735)

Market appreciation (depreciation)

 

455

 

706

 

22

 

116

 

(103)

 

6

 

(22)

 

48

 

1,228

Net transfers

 

19

 

(19)

 

-

 

12

 

(8)

 

40

 

-

 

(52)

 

(8)

Ending assets under management

 

24,485

 

15,971

 

6,978

 

4,577

 

4,705

 

3,815

 

1,291

 

434

 

62,256

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets under management

 

$

20,083

 

$

14,090

 

 $

7,726

 

$

5,921

 

$

3,460

 

$

1,602

 

$

1,882

 

$

202

 

 $

54,965

Gross client cash inflows

 

4,516

 

1,901

 

890

 

137

 

363

 

646

 

178

 

48

 

8,679

Gross client cash outflows

 

(3,714)

 

(2,237)

 

(1,074)

 

(1,234)

 

(775)

 

(103)

 

(480)

 

(48)

 

(9,665)

Net client cash flows

 

802

 

(336)

 

(184)

 

(1,097)

 

(412)

 

543

 

(302)

 

-

 

(986)

Market appreciation (depreciation)

 

1,504

 

699

 

239

 

7

 

557

 

116

 

(174)

 

46

 

2,994

Net transfers

 

1

 

-

 

(73)

 

(6)

 

-

 

(34)

 

15

 

97

 

-

Ending assets under management

 

22,390

 

14,453

 

7,708

 

4,825

 

3,605

 

2,227

 

1,421

 

344

 

56,973

 

 

12



 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Vehicle

(unaudited; in millions)

 

For the Three Months Ended

 

By Vehicle

 

 

Mutual
Funds
(1)

 

ETFs

 

Separate
Accounts
and Other
Vehicles
(2)

 

Total

June 30, 2018

 

 

 

 

 

 

 

 

Beginning assets under management

 

$

36,989

 

$

2,674

 

$

21,192

 

$

60,855

Gross client cash inflows

 

2,555

 

296

 

670

 

3,521

Gross client cash outflows

 

(2,708)

 

(96)

 

(819)

 

(3,623)

Net client cash flows

 

(153)

 

200

 

(149)

 

(102)

Market appreciation (depreciation)

 

963

 

32

 

508

 

1,503

Net transfers

 

19

 

-

 

(19)

 

-

Ending assets under management

 

$

37,818

 

$

2,906

 

$

21,532

 

$

62,256

 

 

 

 

 

 

 

 

 

March 31, 2018

 

 

 

 

 

 

 

 

Beginning assets under management

 

$

37,967

 

$

2,250

 

$

21,555

 

$

61,771

Gross client cash inflows

 

2,626

 

481

 

578

 

3,685

Gross client cash outflows

 

(3,266)

 

(29)

 

(1,023)

 

(4,318)

Net client cash flows

 

(640)

 

452

 

(445)

 

(633)

Market appreciation (depreciation)

 

(307)

 

(28)

 

60

 

(275)

Net transfers

 

(31)

 

-

 

22

 

(8)

Ending assets under management

 

$

36,989

 

$

2,674

 

$

21,192

 

$

60,855

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

 

 

 

 

 

 

Beginning assets under management

 

$

35,640

 

$

1,267

 

$

19,715

 

$

56,622

Gross client cash inflows

 

 

2,954

 

 

278

 

 

721

 

 

3,953

Gross client cash outflows

 

 

(3,024)

 

 

-

 

 

(1,530)

 

 

(4,554)

Net client cash flows

 

 

(70)

 

 

278

 

 

(809)

 

 

(601)

Market appreciation (depreciation)

 

 

563

 

 

33

 

 

356

 

 

952

Net transfers

 

 

-

 

 

-

 

 

-

 

 

-

Ending assets under management

 

$

36,133

 

$

1,578

 

$

19,262

 

$

56,973

 

(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.

 

 

13



 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Vehicle

(unaudited; in millions)

 

For the Six Months Ended

 

By Vehicle

 

 

Mutual
Funds
(1)

 

ETFs

 

Separate
Accounts
and Other
Vehicles
(2)

 

Total

June 30, 2018

 

 

 

 

 

 

 

 

Beginning assets under management

 

$

37,967

 

$

2,250

 

$

21,555

 

$

61,771

Gross client cash inflows

 

5,181

 

777

 

1,247

 

7,205

Gross client cash outflows

 

(5,974)

 

(125)

 

(1,841)

 

(7,940)

Net client cash flows

 

(793)

 

652

 

(594)

 

(735)

Market appreciation (depreciation)

 

655

 

4

 

569

 

1,228

Net transfers

 

(11)

 

-

 

3

 

(8)

Ending assets under management

 

$

37,818

 

$

2,906

 

$

21,532

 

$

62,256

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

 

 

 

 

 

 

Beginning assets under management

 

$

33,975

 

$

906

 

$

20,085

 

$

54,965

Gross client cash inflows

 

6,899

 

596

 

1,184

 

8,679

Gross client cash outflows

 

(6,659)

 

(2)

 

(3,004)

 

(9,665)

Net client cash flows

 

240

 

594

 

(1,820)

 

(986)

Market appreciation (depreciation)

 

1,923

 

78

 

993

 

2,994

Net transfers

 

(5)

 

-

 

5

 

-

Ending assets under management

 

$

36,133

 

$

1,578

 

$

19,262

 

$

56,973

 

(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.

 

 

14



 

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 business.  These measures eliminate the impact of one-time acquisition, restructuring and integration costs and demonstrate the ongoing operating earnings metrics of the business. 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 are:

 

·     Adding back GAAP income tax;

·     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 GAAP amortization of acquisition-related intangibles;

·     Adding back the expense associated with stock-based compensation associated with equity issued from pools that were created in connection with the management-led buyout with Crestview GP from KeyCorp, the Munder Acquisition and the RS Acquisition and as a result of any equity grants related to the IPO;

·     Adding back direct incremental costs of acquisitions and the IPO, including expenses associated with third-party advisors, proxy solicitations of mutual fund shareholders for transaction consents, vendor contract early termination costs, impairment of receivables recorded in connection with an acquisition and severance, retention and transaction incentive compensation;

·     Adding back debt issuance costs;

·     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 are:

 

·     Adding back other business taxes;

·     Adding back GAAP amortization of acquisition-related intangibles;

·     Adding back the expense associated with stock-based compensation associated with equity issued from pools that were created in connection with the management-led buyout with Crestview GP from KeyCorp, the Munder Acquisition and the RS Acquisition and as a result of any equity grants related to the IPO;

·     Adding back direct incremental costs of acquisitions and the IPO, including expenses associated with third-party advisors, proxy solicitations of mutual fund shareholders for transaction consents, vendor contract early termination costs, impairment of receivables recorded in connection with an acquisition and severance, retention and transaction incentive compensation;

·     Adding back debt issuance costs;

·     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 on the adjustments.

 

15



 

Tax Benefit of Goodwill and Acquired Intangibles

 

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 intangibles represents the tax benefits associated with deductions allowed for intangibles and goodwill generated from prior acquisitions in which the Company received a stepup 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 intangibles with a stepup in tax basis.

 

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