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 Net85
(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 income37.6
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 income66.0
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 Benchmark1-Year
3-Years
5-Years
10-Years
Legacy Victory Capital77%
79%
73%
92%
USAA Fixed Income85%
85%
88%
95%
Total Victory Capital67%
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 costs367
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 taxes48,443
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' equity537,871
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 inflows9,655
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 management151,832
145,832
52,763
4%
188%
Average assets under management147,867
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 inflows32,112
14,130
127%
Gross client cash outflows(30,252
)
(16,557
)
83%
Net client cash flows1,860
(2,427
)
177%
Market appreciation (depreciation)16,065
(6,573
)
344%
Acquired assets / Net transfers81,143
(8
)
n/m
Ending assets under management151,832
52,763
188%
Average assets under management102,719
61,390
67%
Victory Capital Holdings, Inc. and Subsidiaries
Assets Under Management by Asset Class
(unaudited; in millions)
For the Three Months EndedBy 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 transfers1,818
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 EndedBy 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 EndedBy 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 transfers80,806
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 EndedBy 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.
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