VCTR - Earnings call transcript Q1 2019 | Victory Capital Holdings, Inc.

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Operator

Good day, ladies and gentlemen and welcome to Victory Capital First Quarter 2019 Earnings Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] And as a reminder, today’s conference call is being recorded. I’d now like to turn the conference over to Matt Dennis, Director of Investor Relations. ahead. go Please

Matt Dennis

Good Candice. Thank morning. you,

and Before I'd risk materially our I and SEC in to to factors risk Brown, projected filings differ for on could call like the as press to specific and includes, forward-looking, that over to would contains note David discussion cause from statements. refer results information turn those that release Please forward-looking uncertainties. more our such our today's actual

by on the this us statements we of will occur of update call statements reflect circumstances to any on made available these exist today, obligation were our recording made. on forward-looking that to on or that While new that this date be website, they call assumptions and make which or we information no events after forward-looking are undertake based as future

also measures enhance U.S. do non-GAAP Principles. accessed related Relations of that presentation to most measures reporting, and and not our GAAP Reconciliations our this of between these at to performance. addition We Generally conform that slide non-GAAP In certain Accounting can measures can earnings the press business are in Investor our Accepted GAAP we financial included release the in comparable accompanying Both ir.vcm.com. call. be on the the found and be measures these tables understanding our believe report website portion

David CEO. Brown, turn and to I'll back Chairman over Now, the call

David Brown

of I'm over Matt our USAA business Officer, few Thank update to to minutes our for as Mike, by also review acquisition financial Michael Financial in will it Then results discussing Policarpo, detail. Chief the Asset Officer well Dennis, of spend planned I'll our Chief XXXX more I'll an results. turn quarter Company. a who our to our Relations. you, provide Capital's today as Matt. joined Management on morning, going I'm earnings Good and welcome Administrative call. quarter Victory Investor President, Director first and

slide Capital Following take Mike, strong Total Victory year-to-date quarter results X. during and financial will and available the quarter XXXX. start Matt, remarks, first prepared I April be XXXX. achieved XX, of to increased AUM the our on questions. We'll through during

was sound strategy flows. grew margins, billion XXXX. by business but healthy Year-to-date, the quarter our industry Total of first flows year-to-date negative of a million also positive our of AUM RS platform. April performance May cash in as few Cap Growth end effectiveness following to our solutions business at funding illustrates Mid positioning April, the the and larger through the earnings The early in our net of $XX were the and rapidly of our slightly integrated distribution have We turned believe and $XXX mandates marked evolving XX, multi-boutique in platform. model

but yet While pipeline. we have sales our of seen won book, funded some it as not remains strong realization our does

economies many members. capabilities, distribution while targeted we We opportunity, the USAA momentum remains is to currently favorable July we will platform include significantly the the XXXX. The investment acquisition truly of also close enhancing and will that continue of a perspective channel will expand serve tremendous our USAA excited USAA direct the member It a AUM about planned ways. our learn which Asset in company The remainder expectations this scale. our gross diversify seeing track the will more to on transform platform, and XXXX. have flow from of meaningfully so X, further about Company business net Management through effective and we more are our and to are It

will of share factors two in begun us to to efforts have acquisition these Victory in accelerate with support solid strong a Additionally, the successful to establish intermediary marketing footprint the USAA potential greater put which and important the I Asset retail RAA as Capital's has Management very forward. an and well-established Company have on to platform. even today. we updates in All be move position distribution channels,

complete ETFs. milestone is in process This USAA the approval very shareholder acquisition Funds critical a and for is Mutual bringing close. to the First, the

we've million estimates $XXX original communicated is X months of from place timeframes. XX expected $XX be million. We close, $XX Second, of at million in The million. This be full of months the within from now to close. $XX synergy schedule of accelerated within $XXX increased from expect to expected are synergies close, our cost $XX of up million previously place million. XX up to to $XXX has million synergies the from in estimate

our on of million of unchanged. the synergies cost with onetime $XX remains realization associated Additionally, guidance the

progress to on the a this even front are be continue as as gain to I more we news hope share opportunities we finding to move As to with platform. combined integration, even able towards the efficiencies close. better we

diversification and type clients perspectives, our of business from quarter. XX% of by end Let's Approximately multiple AUM channel, institutional our by which class. from X, current the XX% is the clients from by retail the distribution turn business of including asset to of slide and product and illustrates as

This Best by is for clients. ranked results, long-term among consecutive are we platform honored our the to marks our best-ever XX outperformance business has investment the previously were be ended earned ranked and unique XXXX year turn we the period and to short Victory to investment and our Management investment capabilities, of working and Barron's which long-term believe enhance been often through provides top set are our and used making most distribution for expansion X years. results these Also, benchmarks. in that their fund XX X-year provides the characteristics strong fund XX, our the It year mentioned, evidence while Barron's. We as USAA second acquisition periods Slide AUM I'd time XX point top diversification culture I fifth to illustrated of X current Capital of snapshot excellent X-year Families Barron's by to a expect we performance for X of ninth that over consecutive Slide As ranking illustrates in as relative Asset scorecard, our Fund strong strategies franchises out, families. our product the and XXXX. that of a Company of is potential significantly systems. our families our our place deliver percentage have by and by benchmarks the we among outperforming respective clients, best investment best decisions. like and December continue

a X products ETFs over XX, savings after as and in basis of mutual the also member $XX on XXX Company's at invested Management full channel, is X Looking of of of economics to on AUM includes because XXXX money Management through X was USAA we AUM XX% by XX, overall provides MorningStar, XX% or product X-star invested XX, over or the platform. and AUM Capital's full $XX through March platform. billion the managed stars USAA receive direct XXXX. includes that full XX% AUM the $XX a an Slide amount. college It of on in members base, the was period suite USAA the ranked the and growth the ended funds the Victory for of XX X years, years. billion. an the the Asset billion slide $XX over AUM was Company XX offered in will close our ranked those billion Mutual AUM additional of plan XX% AUM, and snapshot Asset years, March through we're brokerage Note USAA this Funds in X that's acquisition. diversification as using intermediary This that

of However, Based and acquisition on $XXX.X entities each XX% just we significantly that we as the ensure non-U.S. and these equities March XXXX, approximately the to and transaction AUM the our is our buckets. less forma at Capital's report the to to will transaction separately pro pro AUM equities these of for continue than properly domestic mix, XX%. diversify combined, of under of XX, can expected asset be track forma Victory monitor assets both when active domestic global is will be active will make up The complete, AUM will close billion.

platform up XXX% have The the will volatility XX, rankings overall positive fixed increase our income USAA's should of XX very income performance. and platform taxable X-star XX%, of March funds a tax reducing Fixed continues solutions fixed our exempt AUM. investment and as strong to of AUM. XXXX. will which or XX% money of to deliver make X in from markets our earned impact income forma pro Importantly, MorningStar

service and as we Additionally, flow also us risk product college It fully increase specifically our should enable money with to will portfolios will a stay plan, as without USAA the retirement the because their well portfolios, will help market those our target it participants. add direct-member further we We'll connected XXX and a and to from it in penetration in net capabilities members, like well to new advisers channel which savings plans leaving our platform. business, derisk target also date believe perspective. shareholders

business Company will also is shares to to the made with outlines onto expand of income because offering addition relationship Victory including X we on the of ETFs USAA diversification expand the tolerance in type our and with based X opportunity full gives them by significantly their risk clients, USAA platform. fixed our value-added Our that XX ETF platform important Asset This options ETFs. of Slide integrating it a us have Management suite our timeframes. active progress

mutual complete, join over of complete, key channel the USAA. will professionals center approval for shareholder direct-member nearly discussed As the call earlier, is process investment XX Capital is at coming USAA ETFs additionally, employees with retained and close. XX have Staffing and from been the Victory funds for

is us because one retained to employees of The have San professionals will we which high member and be and is investment will our Additionally, XXX functions. it back headquarters. outsourcing level ensure and deliver of continuity dedicated employees, to our of in of we USAA services co-located office in The strong ways that a our will service USAA service associates with members. the important retention who outsourcing Antonio partners be partners

professionals underway channels we we in USAA institutional team Our growth strategies sales presenting into distribution Plans training on and the disruptions. leverage the represent USAA are service intend well of will to Management minimal clients a USAA to us begin undergoing The the the already be significant has to that products be intermediary to that our investment and footprint conversions to to serve. infrastructure back currently team for expand on prepared close have currently our all base USAA ensure the opportunity office large fully of instructions Asset and and strategies established. integrate to experienced is provider

to able to close headquarters be corporate close. facility our location share also in details new and post are those San our We finalizing and Antonio, for design we'll

We the months. transaction USAA are that several onto Slide past USAA ability Asset the very Management the announced what strengths our platform, We're integrate and excited seamlessly direct-member and over in we XX business the channel. work our has since all USAA been to have our learned franchise. to the of done confident of given highlights some based investment Investments welcome benefits distinct XXth we as

said past, As really other built services compared that base in of USAA financial any that the can’t member organization. we to has an be loyal extremely

experience members money announced more mutual quarter direct-member We for than the last product and members This acquisition or the the X.X USAA's impressive, This USAA's by at direct channel Asset inflows and flows has going own opportunity highlights, Management how mutual investment this loyalty over believe the one establish meaningful is the relatively X represents specially new have million a achieve of client given members, retention the fund to for who stability been growth transaction mutual shown relationships the the time. invested expand XX who Among XX USAA transaction company In fund process, investment shareholders. of investors, is into another USSA well of an the fund funds. product. a million XX% ended years. ETFs $XXX the to many to XX% strong through least do members, illustration and represents steady that business March inclusive flat and received million the time consent plan, of companies within members relationships an not For account an remaining USAA disruption close. is are automatic yet over Company who elected with between XXXX, channel opportunity further channel, the XX, is has direct fund rate achieved with attained some tremendous those consistent today already flows. years. the the an is by which members and own mutual the with average member investment market

X the automatic invested saving attained good XX% investment XXX is move to also X we AUM been average plans number grow We there as plan rate college USAA's of opportunity a years. impressive has The XX% represent think and for that business retention plan the has XXX over to forward. direct years. USAA of Not of client place on an grow with automatic gross the the XXX plan. intend foundation put in member for on has build plans sales three key objectives. surprising, investment by focusing We USAA

retain by USAA investment of level assets members existing the First, we'll services enhancing work today. that to received

their automatic their who One among as of the work and share how grow. wallet of example plans contributions is to own encouraging have this escalate members who increase Second, incomes we mature members, achieve investment to the we'll investment product. they currently by

by center USAA, portfolio representatives, our of are expertise We available from to as online be and do expect whom contact will that this web over well by planning of as tools leveraging mobile portals. the most USAA coming the

to and the marketing do ETF currently not acquire have from an investors designed to funds in of intend members, campaigns million XX we by and account, strategies USAA among investing increase new educational products. who the investment awareness USAA mutual Finally,

likelihood in its is back do forma increase services very of delivered to USAA ensure positive members' USAA, by the to tradition review needs services. a We're with long-standing a now over would quarter investment partner work the with USAA's services that to I as first access our USAA this priority it firms. have USAA seamlessly honored The extremely experience, turn and of to makes results that as is us transaction will Mike link coordination the intend strong We first. can members products pro to including important. ensure working for which its with alongside the members organization continue other and it to will our USAA USAA's putting success. well guidance to

Michael Policarpo

Thanks, Dave.

than environment. transform The acquisition to the our we Asset start which for investor roles USAA am as AUM to USAA investment XX, succeed in in we've like that including investment relations, analytical begin, I'll Victory. remarks is opportunity our have to shown by the morning guidance I be to the transaction I'd size, I March across expect annualized filling forma in combined and a and XX. by Company this support diversification we XXXX, Before financial of profile to scale, more forma transition smooth firms deliver staffing $XXX money pro will been very page Management on pleased It's new corporate the transaction, strategy. that reviewing management pro my from when and and for AUM had component, we on enhance critical closes. both manage believe Based XXX how expect say, CFO the is role billion strategies USAA back of today's the

nearly EBITDA AUM March Please generate figures million EBITDA, expect in with mind approximately XX%. in $XXX levels. margins adjusted XXXX of than and in We XX, annual these million revenue, adjusted $XXX based are more on to keep

platform. As ahead onto continued integrate have we them. line result Asset earlier, synergy is estimates cost the business discussed of our our a our expected of to our Management for accelerated we and USAA achieving are work This time

remains onetime the unchanged. cost associated of the with guidance Our realization of million, of $XX synergies

guidance. more expect our Additionally, represent year first in from This we ownership. XXXX, an would be increase of than full is which EPS our accretion to XXX% original

expected July at EPS impact than on XX%. to X, greater XXXX the is be date, XXXX Assuming close accretion

committed acquisition. financing fully debt for We the have

be is expected to at pro net ratio close Our X.X times. of the debt-to-EBITDA approximately transaction forma

quarter return $XX.XX our of to part strategy. the X% business $X.XX, million, as conditions. accumulated basis and funding lower financing management of quarter shareholders of per EBITDA net an at at to XX, shares average operations from a XX. in XX.X%, operating adjusted repurchase some $XX.X QX share. XXXX-XX. changing was waivers longer to as cash XXXX, X of achieved of Total revenue in to X% new the increased ASU XX strong operating an QX decline for account constant mentioned enabled revenue capital the capital decreased change slide from prospective we XXXX. points our slightly support prior flow mandates, even and quarter from XXX,XXX fewer the in the acquisition expense quarter-over-quarter, quarter increased On increase seasonality. accounting of Revenue a for accumulate to repurchased to compared Adjusted QX and of and basis revenue a that markets The review impact not few has Dave in this in Note, new were XX $XXX fund cash reimbursements early for the $X.X periods prospective Additionally, days prior Adjusting flows held The to first a expenses. The continue million at our of ASU prior results of of adjusted. approximately first result quarter, of of resiliency through Victory with down EPS standard of certain constant net us share model front, the acquisition. fourth financial XXXX relative results market integrated in that strong the adoption financial were and the Capital April, May points We assets, with on of program, unprecedented the have but our begins price following realization this earlier. from negative to plan highlights quarter ongoing in the billion, the experienced as resulted margin a as and accounting, in no April we quarter, Year-to-date we as that quarter. end as positive the business XXXX, requires multi-boutique volatility turned continue The XXXX. financial $XX as adoption average was XXXX. of cash XXXX-XX during execution million, with recovered AUM

is $XX.X cash at Our debt And our balance million. year-end. million Loan $XXX up $XX.X from million, Term is B outstanding

ratio X.X a of of net stood times, as AUM the Slide the Our time. our XX of debt-to-EBITDA provides quarter. at end over snapshot

the at as $XX.X to finishing quarter up after first AUM billion. of end Our the $XX of the April billion billion was XX at $XX.X increased This XXXX, from year.

We slightly continue flows activity, the in and net USAA expected are through positive findings relative we and $XXX growth Slide new scale May XXXX. which with April strategies. but through early due XX, completion XX quarters of one mid-cap over we evolve on AUM We last the to to beyond pushed acquisition. May our pleased and at some following discussed into million, to experience a of continue April, and the well-diversified net earlier. slight potential, were were in continue Year-to-date, negative perspective net operate to our flow and quite size platform, will Asset to the provides several our flow saw organic through performance have Management outflows as April turned end outflows

our of strategies. slowed net our the of disruption solutions shares during the with quarter $XX in first the growth some ETF consecutive experienced experienced positive and quarters ETF platform flows. We Additionally, XX following we've fourth net believe million that outflows the of momentum Victory quarter market

believe our Year-to-date distribution of during the the the Capital. business strength Trivalent were represent the are seeing to as of our RS this more we momentum, quarter. franchises Growth not that positive for growers believe of flows including competitiveness year and We strong as we April now future second progressing of $X.X Investments, the investment are of Surplus yet first gross month the were pipeline. four months experiencing trend Gross continue funded billion, one, are of Several the billion. platform and We through validates the but our flows strategies. new obtained positive amplify $X.X the a

in a is provides Slide growths flows XX revenues. net and through of favorable continued momentum of quarterly the for outlook remainder snapshot Our XXXX.

three are the decline. of First quarter XXXX. drivers decreased There revenues XXXX of quarter significant X% this from fourth

to related First, approximately half of XXXX-XX. ASU of our the adoption decline is

stated resulted adjusted. accounting quarter. Note, first held impact points of adoption the the quarter. As prior of new in have prior decline earlier, periods change XX of not relative revenue I reported Adjusting in been prospective realization in the basis accounting, for a to in $X.X this constant revenue the standard at million

net X% by average quarter-over-quarter. Second, declined assets

as impact day and majority was of weighted days balance this of Finally, representing decline. the X revenue less QX the QX, the quarterly than negative our had a had

to due adoption by of XX% XX, and ASU operational year-over-year, driven the expenses model, efficiencies Turning multi-boutique business primarily integrated XXXX-XX. slide decreased to

new that reimbursements As the method, we are reduction to included no a revenue. being result expense of longer a as expense accounting will now fund

to each deleveraging higher fourth Consolidated expenses calendar the to lower Additionally, beginning efforts or asset-based refinancing XX% by seasonally and in related the and personnel QX of net was XXXX-XX. X AUM by costs was payroll our at our model X% significantly and decreased for and distributions levels decreased to expenses integrated XXXX, $X.X This expenses, This nature quarter-over-quarter, million adoption nonoperating in reduced expenses quarter. variable tax items. expenses by relative with resulting ASU noncash partially compared driven costs driven of increase variable debt of offset decrease interest XXXX Nonoperating decreased from the a the million, operating by lowered Operating $X.X and and year. XX% benefits QX decreases expense. expenses.

margins, Finally, that the counterbalance expense management controllable to It's the effectively we our expenses has industry-leading to volatility. note strong this platform. invest continue to not model our to and in manage market integrated drive our multi-boutique impaired pressure ability with important prudent

the to manage believe advantage our in and model. distinct to We integrated continue future platform investing growth. our technology, ability effectively enhancing make as was a through capabilities to expenses operating strides great in our support marketing distribution of We

that benefit $XX resulting compared was quarter-over-quarter, EPS EPS earnings year-over-year million million, X% on last Adjusted EBITDA shown continued XXXX. a in XXXX. and downturn noted model. margin us another on our from the and $XX.X the level revenues proof metrics was the the be that and million in of lower QX EBITDA by XXXX. QX power and are and It $XX.X should for industry tax QX XX. positions adjusted XX% in to XXXX leaders EBITDA, integrated X% experienced XX%, non-GAAP our amongst Our slide margin A&I approach decreased driven scaling quarter quarterly from of provides point our down market to

Finally, against continue all slide plan to and quarter. the XX, management aligned the turning approach creation deliver to our we capital our optimizes shareholder We value in believe strategically balanced first consideration factors. taken into

have bank debt for We committed Management fully Asset financing our USAA partners the with relationship acquisition.

million, stands debt-to-EBITDA anticipation net in Our times. the debt to million USAA Management million balance by cash We ratio net increased at a $XXX the quarter of during $XX.X yielding transaction. of Asset X.X finding $XX our

share repurchased XXX,XXX repurchase We the since the share, total $X.XX We XXX,XXX program demonstrates the reflects at shares proactive shares execute believe capital continue an We in XXXX. and our quarter, program. repurchased per business thoughtful approximately to our our on and share our strategy. to approach the approximately of share in program May, price the during buyback bringing management average confidence of initiation to long-term

our With flexibility we are comfortable shareholder long-term capital have the driving with in for Management our acquisition, structure USAA pending value. Asset the very we close of

and accretive for sense. delever consider be balance shareholder the a us should capital times. our to be our structure continuously We close, at use returning to the potentially run pursue primary Post make give is after some flexibility sheet, Our free dividend capital now we'll as share the rate regularly all our monitor it in tools projected to substantial X.X be and disposal cash cash point to flow, and including future, initiating debt-to-EBITDA shareholders, we of acquisitions. repurchases, full expected this cash generating will to continue at close

to additional our operating our on to to turn portion Q&A call. like the remarks. during we of Finally, the file details the will I the later intend concludes financials Form which quarter. prepared today, now would call and XX-Q our for back operator This the performance provide

Operator

question And from Instructions] first comes our from you. Thank Sumeet Mody [Operator O'Neill. Sandler

is line open. now Your

Sumeet Mody

over Thanks. wanted guys. get in the Good just are flows inflows second thus $XXX sounds in maybe color the channel, from, to May, saw of reversal morning, flows like commentary for of million distribution where be asset there the would it I coming April, by in feel million quarter those on better helpful? a far any class, $XXX

David Brown

sub-adviser of in A coming channel, are and pockets our business. in from the the then institutional RS flows of It's different and the few ETF retail The multi-franchise. growth, franchises we we're channel. the our number channel flows a seeing seeing in of channels, really solutions Sure. flows distribution are that

Sumeet Mody

Okay, Thanks. great. it from That’s me.

Operator

B. our Binner question And comes you. Randy next Thank from from Riley FBR.

is line Your now open.

Ryan Aceto

Hey. Good Aceto This for morning, everyone. is Randy. on actually Ryan

personnel expecting Turning based? up cost the million you size synergies could that be now expecting $XX you to USAA, see, G&A guys us that where to through, or you're are help to to come is going that

David Brown

model the million, taking we'll then a as we integrated buckets. the Back will really power that some in-house Yes, get across scale will that functions. employ of corporate an we the million morning. sub-advisers office, some middle across $XXX the be have just in also and administrative across few And entire Good are office model, $XX is broad there changing. outsourcing

Ryan Aceto

a then what’s USAA rolls Perfect. be should the G&A the strictly And think acquisition good as rate run far going we line, looking in? forward as you at after

Michael Policarpo

Yes.

where expect margins the think post or we we've XX%. we – page XX% I to put realization in of the kind on the kind So synergy overall of slide put be XX,

back power - model as our that margin to perspective, the business well today I that think, have think us are business a commissions, as thirds looking we're we kind it. allows From the the think and the in operate of you distribution. compensation, it's about how variable, we at capacity. sales office middle it, of office, with expenses that's two of including And if our

fall. from standpoint at buckets those So I it of how think, looking we’re a that's where

Ryan Aceto

I’ll back hop queue. in Appreciate Thank you. that. the

Operator

you. question our Shutler comes from And next Thank Chris from William Blair.

line Your open. now is

Chris Shutler

opportunity morning. to guys. who among share a the deepening that already related opportunity do wallet using an members investment are talked you go also XX Good Hey, about USAA, an product. members, product. there's not use With to to million out There's

can little detail more but little going dig provided forward? You go-to-market in of and those you to a a you areas plan how each there, to

David Brown

Chris. Hi, Sure.

me wallet deepening share. start Let with

As those I opportunity stated, kind updating expansion, their of some education, serve retirement some is product of through think, to plans, remarks, members better in tremendous the through prepared there a through the I their call employ different plans, a savings and our really We'll there investment via have center. and then products. with number directly of also strategies members who online existing through working of already

investment really million job don't we'll of on introducing an remaining we awareness today again, call do plan, lot and On an really X.X the with a that the million way, USAA to in that we with, get number, online USAA members them have college through the help the million of members. a opportunity a but opportunity bucket think just to real XX - grow really XX approach that education. that the that to expand X.X still there's great that has done is with And savings also the we'll members, plan, our in product, help retirement again, through center. that do million the them ability to

Chris Shutler

coming synergies, ones. those quick talk then on pipeline? incremental of deal Okay. about what Thanks. maybe Maybe other of in? ones, cost And the two million the $XX There's areas

Michael Policarpo

the so we mentioned million really all Yes, that previously. Chris. the of Hey, is incremental buckets $XX different across coming

in the out team different as we it's we've integration when and there. that back of areas with and had done in today, But incremental the So done conservatism in really found had dug November, our we went as announced all I out again, again, coming work we And opportunities. work, bit across a we as we we've from dug USAA. numbers the little think probably our in

David Brown

In think we to starting feel potential just think of I would the the pipeline, think extremely and conversations still as to like again, with have regards to in partners. And that's is it's deal industry we say going demand. our we We it's first, to differentiated, that we begin platform, consolidate. lots discussions different accelerate

this So our pipeline, really, to super and it every I be kind continues quarter, repeated strong. just of

more would that if better if industry. coming the than excited record the the not as any to about in cadence we have we advantage deals positioned, thing well industry firm And the we the past And the take industry. and track positioned our in consolidating I just with see what be say opportunity, are we feel think I we is, given of will last pace that not accelerate. that couldn't and done the continue,

Chris Shutler

Okay. Thank you.

Operator

next Thank you. with our And Robert question Lee comes from KBW.

Your line is open. now

Robert Lee

Great, with products that be you're that you pricing with secondly, questions your was you thanks. quicker, is on kind mergers, hit sales make distribution often going of more also just of thinking attractive we or an running? maybe products, one, maybe of assume highlight, ground traction you two think Number believe the adjust doing, to something have opportunity kind in kind in could can about could plan, it but in but different the should questions, couple really well, get look little to here. Good and them USAA strategies specific morning, to income bigger best everyone. or large the fixed part is - maybe channels, I you it it's own other product some to as think you I picture to of talk you sellable the it a seen your don't accelerate acquisitions, about? maybe a which that, USAA, other And bit of the products, a intermediary I'm

David Brown

we there. set years. we've competitive. to channel, products, continue really USAA pricing, with channel, a think start you USAA, the just intermediary shareholders we've that partners. there our or income income out been consider it's have our are we evaluate not think the our I'll to excellent. the their the on USAA, are had, opportunity existing off opportunity. accrue growing a really, to really And distribution products the really the but we That question. our of the some we me on road, legacy traction We've fixed business. MorningStar We shareholders. we ETFs of of potentially mutual solutions own and the as diligenced the X-star And And USAA remind fixed where tremendous introduced and pricing tremendous We’ll also just products, is tax can pricing we pricing, then got quarter. USAA think either is do Let take to see pricing make the X When we significant. Today, side rated some some their see all that for that’s income pricing, looked or there the the on done that performance product we’ll you have on exempt will evaluate every within the for will take fixed material Where relief funds areas size will lowering of down nothing and the current or scale that few to is at

think we and of we a introduce that products have those will success that when So therewith lot that. traction

Robert Lee

it's an follow-up internal tax USAA of of and just if some the They Then equity how parties. either your that for of products, managers, mean, to I could. quick or both think And strategies that by migrating accretion, a question assuming think, USAA, EPS their with want I two fourth appropriate? are assuming there question your EPS adjusted sub-advised in follow-ups, reconfirm including related. particular so bunch - benefits, Great. Sticking that, do is is have of second them opportunity I those maybe, follow-up well, is I'm are that? to then

David Brown

with let So answer sub-adviser EPS migration then start will the me and off Mike question. the

a been we opportunity, funds. will opportunity significant mutual with in First, for think long with look the our way also to how over that the mutual would the some at participate improve thing the performance best fund get of that's will a close We've for we think But and there real end to their participate franchises mutual we a bit allocate with franchises quite we of them we'll board to the we and and makes work is investment see there's sub-advisers And think But that run, better those franchises. that managing franchises. it sense evaluate at the to fund assets our where close. in our announce shareholder. our for to participation I a working

Michael Policarpo

to numbers the USAA profile, tax profile, leverage related and reflective really accretion the with current for so are adjusted well updated And they're of provided, transaction. they they financial that kind to as current we as benefits the for of are respect tax benefit,

Robert Lee

Great. Thanks taking for my all questions.

Operator

Thank next Kenneth from question from Capital Markets. you. comes our And Lee RBC

open. now is line Your

Kenneth Lee

Hi. for taking my Thanks question.

How M&A about? can do other a you a particular potential, there capabilities about strategies you or think distribution the investment for that geographic the as potential Just or follow-up in be or on looking what new thinking opportunities. reach opportunity, such would you be are

David Brown

might our don't than do at little asset start concept we is a necessarily look a It better. of we to cannot make M&A company different focus we a We or How financial-only be to with on a any others. specific talk a fit bit are Where be be product. client class to is strategically would less We where us. products passes. beneficial From by be we has at that perspective, clients, in that it product matter tomorrow, transition, really looking for the can to products portfolios, we disintermediated win. about likely to acquisition products

people are of fit about from there think those as number what geography in opportunities, in in standpoint, looking directed is perspective – characteristics to say, And would classes. when of that can of around the have are earlier think those going around we're I those as our demand, I out adhering From a efforts evaluating so and have are really really outside and platform, opportunities we given to choice you different opportunities. we're that - industry some we top speak we is I product interested opportunities and a many for. our our it's said, also U.S., So of the the where the really a characteristics there to more asset

Kenneth Lee

of beta And beta well for competitive current Solutions client environment as smart demand you one the characterize as smart just Great. ETFs, How ETFs? the environment Thanks. follow-up for on would business. in terms

David Brown

more competitors successful. and competitive. more beta see It be But said, few is right right more the the little bit it getting is That being the is are the that years systems and a record ours early, than product, I can like distribution as still right was it with with still firms getting the firms exposure if a competitive. you ETFs, track like think, servicing, will, it definitely competitors, competitive with ago. ours the but I gotten don't and

Kenneth Lee

Got you. Thanks. helpful. Very

Operator

Thank from our from And JPMorgan. Worthington you. question next Ken comes

line now open. Your is

Ken Worthington

for with Hi, talk but this represents Thanks. sees you, either a and good distribution where still distribution We're maybe clearly, cutting relationships? opportunities list product distribution some And XXXX, expand then to are or seeing penetration you cut down Victory stabilized. in morning. distribution about, has list new platforms, else manager increased seeing or larger existing their USAA maybe expanded

David Brown

Hi, Ken.

the of been material the real that to we number pretty the by level. partners. larger far as any platforms, experienced reducing with As We’ve stable not our partners have

side. we progress And The partners. really our we other opportunity through we direct with are on USAA a as a we come close distribution starts buyers expanding from have evaluate Our It with onto USAA, to distribution acquisition that's material partners we’ll We getting platform well it a as is go with strategy to grow direct product distribution of good the is distribution. well our we'll with USAA direct the number to side, is pretty as about an institutional other new our retail also model. to think retirement direct, as is We are strategic where of and think the where Its of from product as think can and to deeper larger standpoint really some channel. from we opportunity the think about our distribution of deeper be deep see channel. in get covered our and partners. it's just work partners business that think a to existing really that opportunities of set. third channels going is there our those outside That our

Ken Worthington

much a rate? recognition run the we’ve driving is in then you. great. I public, decline right been there guess, is slower you've any something not one quarter XQ think it's – seen, stock based Okay, new since than changes little comp real just And if and I else revenue this this or the was was Thank revenue was recognition, on in

Michael Policarpo

QX that we been QX stock you in saw rate - some stock The compensation reduced closer that [ph] run to taken. there of were what forward. is going No in Ken. really Yes, had forfeiture

Ken Worthington

Okay, Thank you. awesome.

Operator

comes our Bank question Thank Carrier of you. Mike from next America. And from

open. is now line Your

Mike Carrier

Good questions. morning and thanks the for taking

team is flow know demand the backdrop, ‘XX, on changes, on gave or driving latter just that's increased on it driving the is confidence it. you and if been same doubt performance the initiatives, sale your that improved no clients have in side, your is color any this, seeing First I distribution question, from since I or in else positive, the mean, you're that's or and the just anything in redemptions? it lower it

David Brown

talked a it some professionals. a our anything between actually platform It We've a realization and of and funding distribution contact distribution eventually times working work about working the bit. hard through is that's some really investments and are our what client new. quite seen. isn't with think There long lead and we then I have by

Mike both as to remarks is an I make organization performance forward. And have prepared the momentum going a turned expect And clear. I continue strong. we from corner I's investment a think flow we Our we that think perspective that and

Mike Carrier

want going you a down deleveraging the the higher you closing so versus gauge a whether focus the that where post there more be deal, activity to just maybe the deal, of is when times, in positioning X.X leverage do which makes management, you're capital mentioned And end for on how Okay. low capacity manage activity could now we question, sense like and second over paying if it's so like time, on lot not go? to on ratio that Mike from just, future - delivering then you deals, buyback it's debt, just you're versus can

Michael Policarpo

Yes.

opportunities. balance used the said sheet will going our support the sheet what go where have is balance our the overall have use of to be here growth as leverage which And the driven think management I is – capital effectively, to of strategy, in we we will So such include, business up. inorganic already kind

able with for is I would then forward, really out We we set want shareholder balance margin a do our opportunity flexibility come multi-boutique we the I cost us that integrate, So maintain integrated to accretive the with deals. strong. to to range, think our be synergies sheet, and but pretty think allows and expect capital us structure the to going and business model, sustainability extract haven't

flow a So significant generate of amount continue use able to cash to should deleverage. to free to we be

I well-balanced So a will We'll about organization than the as were X.X think, said times, to we quarter. to we itself more ago, balanced it, with really year be our platform as is of make have he perspective of and we and we the delivered multiple becoming since model we the forward, solutions. end asset very and mix equities when don't bigger a fixed IPO-ed to income times across X more integrated. going expenditure well where between from Dave down be much to it much sustain investments capital durable is

trying so the we think, deliver forward, we’re be going would the USAA question, want that think, answering deal. very comfortable not use we'll quickly to we've the we I cash operated the in to post and maintain with I the ranges but flexibility evasive to on So

Mike Carrier

a Thanks Okay. lot.

Operator

next your from And you. Cyprys Michael comes Stanley. Thank Morgan question from

line open. now Your is

Michael Cyprys

the good Hey, Thanks question. morning. taking for

incremental in on post think expense sort bit that to underlying would post what markets outlook little are a expense then if in say, dig if the And the growth about how thinking integration, the it integration? be right to the there, flat. be wanted expense rise, Just growth should we from about markets of

Michael Policarpo

Yes.

said with business. we expenses, grow AUM are variable of our thirds will that two and So, revenue plus as the size of overall

two reinvest fair. we costs going that in to post think, then low way as some that costs growing are base think and USAA that a the probably of fair remaining percent the have is you expense couple business the And about think growth. it of like, our in growth level forward transaction. with of the the the probably of thirds Thinking about fixed fixed, business capacity can business I a look So we we feel at grows, to ability that's

David Brown

margins that our are from inclusive going that. sustainable. platform other continue a mid-XXs a out add USAA. I distribution one basis, I technology perspective and those And a come add to reinvest areas. with Michael, go-forward sustainable thing to would We've margins we're of We and would kind on And in think to of

So even number off. with the is to reinvestment model the of margin a mid-XXs good

not probably there up I likely, think how given we’re about environment is that's from at Going - least think should the and in you growth. not significantly expense

Michael Cyprys

And follow-up you. then capital Thank a management. on Great. just

sense. it the mentioned cash a You make the at potentially point future, of in some dividend idea initiating if

a what you'd that sense, curious dividend? such if magnitude about would also what could dividend and factors scenario that Just talk in of would how and around initiating just you consider the make could approach

David Brown

company with inclusive profile. close, our we with It capital be First, sense quarter of a our lot given transformed a policy USAA a totally evaluate different post financial management we'll Board, transaction dividend. of the that makes every a

So execute levels to feel flexibility to at look look - balance thing we're today, our look a appropriate having our at environment like most capital management sheet, to we in a the will pretty leverage dividend strategy at management, on said, flexible acquisitions. closely. our being the on and That really the and we important execute our capital is to with

cash in put and flow. it So fit a place, our dividend have sheet were those if our to within constraints would balance to on we

Michael Cyprys

you. Thank Great.

Operator

of KBW. Thank Robert the And time now question. you. for we one from And final line Lee our have question comes from

open. now is line Your

Robert Lee

follow-up Great, the flow. a just have question thanks. I on

to like the improvement, it? hit up just X a also am April towards of of turned kind course clearly kind is start I kind this mean, about pattern on, as April. [indiscernible] I April, progression to over of just QX, curious seen point of hat you we got May and - the of sharp of of So to the How so kind something that build tipping kind is and we the should April curious leading wasn't

David Brown

I our decide yet what delays not won [ph] clients we but when experienced brokerage, think don't realization control funded to of from we were anticipating, had it was some fund.

we think has did little investment been quarter And impact in realization I bit of the there of of we and of a that disruption lot pretty too. at our we have things, asset comeback you a fourth the a what and - all manage. April, through that spoken of people performance, us kind the really together the think the active think fourth picture. the – in flow our we horizon, see strategies on from classes the And I also quarter the put about least good May feel I in now then and over and

Operator

I’d concludes that for session turn remarks. back And closing for over conference you. our like to Thank today. to David Brown the question-and-answer

David Brown

you. in person appreciate Victory Thank interest Capital, weeks. to you your see We and the hope many of over next in several

for the attending meeting be we'll investors Growth XX, Conference. year May and Next time taking our the Capital, exciting look at week, updated Investor be June William New June we'll – we'll B. XX, York forward Thank Chicago, Los we'll call. Angeles you in participate in again, Conference. KBW the in Financials Conference. Stock June following New Victory Riley Stanley XX the is Morgan Asset be back on be attending Management an York week you, we for in Conference. X, On the to And Blair's with progress. really in This on On to our and keeping Institutional Annual

additional any Thank questions, contact you. you As Matt. always, to please if don't have hesitate

Operator

the you does now Everyone, program. participating have a thank today's Ladies great day. may for and gentlemen, in conference. This And all disconnect. you conclude

Victory Capital (VCTR) 15 May 192019 Q1 Earnings call transcript