Earnings call transcript Q1 2023

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Operator

Good morning, and welcome to the Victory Capital First Quarter 2023 Earnings Conference Call. All callers are in a listen-only mode.

Following the company's prepared remarks, there will be a question-and-answer session.

I will now turn the call over to Mr. Matthew Dennis, Chief of Staff and Director of Investor Relations. Mr. ahead, go Please Dennis.

Matthew Dennis

you. Thank

Please turn refer would the no conference David I from forward-looking over we results Capital's may differ call to remind I materially statements. from of factors cause actual like assumes results number to our list today's statements. and make Brown, that a you Victory Victory may for may duty on actual of some call. Please differ undertake that to Before materially these a those to note not SEC filings that of expressed call, today's during the statements. any risk any update does to Capital obligation forward-looking

results. in that Our these measures closed our accompanying after and non-GAAP can disclosed Investor measures our that We enhance was be our are GAAP the market understanding financial and Relations call, and measures portion the between both in believe issued this Reconciliations press the included in our performance. available of the both of ir.vcm.com. release which most yesterday, the of business found on comparable at non-GAAP are release non-GAAP the GAAP tables and slide press website earnings presentation

David pleasure the my to It's now and call Brown, over turn CEO. to Chairman David?

David Brown

Matt welcome Thanks, Financial Chief Chief our President, Relations. quarter XXXX as Matt. and joined Investor Director Capital's Dennis, Victory Michael and Administrative and Good our as Policarpo, earnings well today morning, first to of conference by of call. Officer; Staff I'm

to financial in of I'll to turn quarter. call After the start first that, results the Mike will overview the an providing I over detail. today by review

your available and to Matt, Following our Mike, prepared I questions. take will remarks, be

flow three improvement quarter. results out compared as significant Slide with prior the overview rebounded in The strong generated the entering and net XXXX Average for modestly is in markets time the the to also second business flows trajectory continued long-term begins year. X. achieved We quarterly improving increased quarter. AUM we The quarters start first the on financial net

a single April, $X.X In billion. we had approximately totaled that institutional client from redemption an

the impact our This basis invested fee specific AUM our team consequently April passive managed than of not margin by which with any was for measurable see was You'll in less in a points, and is of a next strategy scheduled solutions this contribution. purely week. redemption release, it making three

flat After net as far relatively long-term the thus this in we've redemption second today. flows achieved of quarter

Our environment. quarter, margins defensibility margins demonstrates stayed coming industry the our which leading XX.X% this of market challenging strong this in and at is in

our with durability the execution differentiated of combined Our daily operating the team. margin platform result is determined our by

up to share net robust Return of share with year. to the $X.XX Adjusted in in capital diluted continue diluted rose the to income tax the previous quarter from start per shareholders benefit be quarter. $X.XX to per

last quarter First, of quarter. paid $XX $XX more we cash versus return spent VCTR $XX the million capital repurchased on repurchases and this million quarter. We dividend out shares a the in total for million approximately in share

in the As Board quarter quarter. which dividend maintained current cash XX%, the reminder, the a by first was the increased in

Our XX%. remains guidance long-term margin unchanged at

in ongoing we Our our into continue make. strategic account investments guidance to takes business, which

a future, are business and operating marketing adding associated an example choice and Victory make is also clients. product brokerage to We're more launched new strategic brokerage we continuing which our good significantly investor is other open A provides new going This business InVest, distribution all last to enhancing direct our at continuing guidance margins us current and technology and new in better which these this Capital All in platform. data the will of capabilities, marketplace in platform, of investments is flexibility the areas month harnessing forward. existing help talent. costs to our and our resources, hire and investments the aimed our grow architecture

Turning At star our quarter. or of of account or end, of the clients to was Morningstar. with funds from first our sustained XX the in performance overall X, and ratings ETFs. stars products during behalf four mutual excellent ETFs under investment had five quarter four These our on deliver for mutual five we Slide management two-thirds funds and assets

Additionally, approximately measurement XX. five our three quarters outperformed of total XX assets the March management under for and year as of three, benchmarks period

income This to During stars. Morningstar. assets funds income as management the quartile funds moved USAA tax current by Victory former our under have four into top Victory investments rebranded group the peer the that diversified their several In the of to fund managed well franchise These of five fund. is short-term our XX mutual as quarter, earned investors. relative overall included debt bond fund total, is or XX% ratings Victory of across according

coupled into Net products improved first the quarter performance, what with a flows income. believe fixed better excellent for these significantly we in flow with environment emerging be investment to

Across XXXX, exciting. for quite asset half the under growth our for assets into in quartile ranked fund and ETF year top here this the trailing XX-month through period. of move opportunity we all and mutual management the classes, As is

to XX% longer time investment activities professionals performance Over fund relieving in of five performance our at our top over periods top enable excellent This these, investment XX% time. assets. ranked of which majority another enhances the than the the decile. operating investment with quartile a and client under removes this highlights the management in ranked differentiated investment managing model, believe all XX our assets more them level. We we of investment By year period, of spend non-core of franchise their advantage

believe to flow cash quarter with given Turning share specifically this opportunistic price. current We We again strong a activity the is and remained of that reflected year. market in share share there our overall amount currently price. to X, is repurchase our Slide start our not remain significant generation the value

capital that allocation quarter XXXX. our down with strategy additional any and not through pay plan in and we we mind, chose flexible remain move as in With nimble debt to to the

It multiple as value selective from We we are deviating that diligence our we acquisition opportunities. to long-term. company evaluate acquisitions. We opportunities state remain important not through to are proven enhance approach of that shareholder better also and continuing patient make conduct our the is on

I'll turn quarter's details to Mike? Mike financials. that, on it for the With over more

Michael Policarpo

Thanks XX. on good The morning and begins Dave, review Slide results everyone. financial

the $XXX $XXX.X in management XXXX. end. billion the increased $XXX.X $XXX.X X.X% quarter the under million revenue with compared quarter the first million Assets of recorded of beginning from Revenue flat quarter of at at year was to essentially of in fourth billion the

the quarter flat, period. in first the average fourth the the was from fee quarter quarter-over-quarter compared up with were fourth fewer AUM While there was days in X% rate quarter and quarter

our with income and $XX.X million. or and the GAAP capital Net in to first million diluted benefits $XX.X to adjusted $XX.X or EBITDA diluted a of ahead quarter, which $XX We net million, shareholders income was million of per million on average. last was was year's $X.XX income per adjusted rose tax basis was share returned GAAP $XX.X operating $X.XX share. quarterly

Lastly, quarter last on of share, rate Board we same XXth by increased $X.XX that XXth. dividend shareholders record was to on payable quarter. dividend our June again to our quarterly June will for declared and That second be per cash the

distribution of from any can total mitigate clients. AUM This at is perspective. and the segments see channel a deliberate diversification Slide of diversified particular of and end you volatility from On quarter the client billion designed remains well XX, $XXX.X to

classes flows This Long-term investment the top hesitant given the enter current growth XX. in to investors sales become have were industry-wide uncertainty, asset reflects the heightened reasonable $X.X to holding to cash as most Turning risk billion environment. alternative market has volatility, rate quarter. and in been interest Slide and a

net U.S. flows small and equity products RS strategies. quarter, Global, we cap and long-term U.S. positive Sophus, active flows for our in had in with strength the each positive mid and net achieved particular Sycamore first domestic

Slide the note to is One on our year. that held the basis revenue first quarter, fourth consistent of our points is with at illustrates XX rate which the by make quarter in slide last steady XX.X fee quarter.

Moving consolidated for and rate will business. mix, forward, primarily see influenced general as vehicle we be rate our fee assets, by steady our fee client,

quarter-over-quarter. was On for $X.X associated $X.X X% expenses, expenses offsetting we Partially due the expenses. value and was of operating total Slide million break acquisitions, our This in $XXX.X as quarter. by the Flat first or taxes to payable expense by and employment increased despite expenses expenses, entirely non-cash and well G&A higher to higher this non-cash quarter. change for million. million compensation the benefits the increase prior with distributions set out asset-based in consideration were lowered other seasonal rose which XX, we've lower as GAAP that

very quarter-over-quarter includes revenue. investment QX and of graph the in was line of that from employment reset our see in and increase expense revenue, remains comp compensation benefits the this platform. operating calibrating as for tight a a compensation nature with share accounted can range reflecting as franchise be as component the you cash should in Cash percentage of a of of It percentage that noted the cash certain taxes annual revenue expectations,

$X.X to benefit benefit or on quarter tax Adjusted in quarter. steady on the the $XX.X per XX. our ANI $X.XX results share. Moving or income rose tax diluted first The million net Slide with million non-GAAP million in held of to at $XX.X

EBIDA quarter. XX.X% in at margin the strong adjusted remains Our

which future are maintaining numerous XX% We continued growth. guidance long-term is investments margin of inclusive for XXXX, support areas our of that our in

average X.X million which increasing times any not net the resulted does the debt in remained did other $XXX Slide Finally, quarter. fixed at interest debt, and The in on expense points our quarter. in is hedge down quarter, the rose to $XXX,XXX X.XX% to debt interest rate our financing paid the XX of X.XX%. portion our to factor turning first our XX, This leverage ratio in fourth which as pay we basis from

million Our undrawn from was the GAAP $XXX operations quarter. $XX.X operating cashflow revolver and first million remains in

operator That I over will turn back the to it remarks. questions. for now concludes our prepared

Operator

Instructions]. [Operator

Capital first Your Kenneth from Markets. of comes line RBC from question Lee the

open. Your line is

Kenneth Lee

taking morning and Hi, good thanks my for question.

client in terms on anything net flows areas. in are there's positive the you U.S. one you're cap to small midcap, seeing out trends seeing the Thanks. there? if What there. of call Wondering Just

David Brown

Ken. Good morning. question, the for Thanks

our the asset far and seen that channel institutional some nice seeing is some specifically few with franchises, others. As where pickup. a we're as Sycamore in class, then we've And strength of

Kenneth Lee

you. you more nimble Very Got this being in flow, talked free helpful priorities then terms about And cash for of year. there.

purchase prioritizing Sounds there's like now you're authorization. a and new little also a a bit share more

this you terms be could repurchases in how Just potentially of Thanks. active share year? wondering

David Brown

good Yes, question.

overall I not around First our is capital would changed. has allocation strategy say

that is circumstances. sure to a current have is down and Our facts With debt we whether buy whether ancillary do acquisitions. sheet pay or flexible part we first the and balance highest around priority we make in it, mind, the to shares really of

portion have did of of our you in $XXX remind quarters, would and we So we debt, a the sizable last million still purchased which XXXX, was but down of flow. shares cash two a lot pay

forward, look debt price. of isn't we of have our and reflected said As in a in the that going share think like, We portion our remarks, to And our stock we're nimble today that that's be opportunistic. we a good prepared lot as we feel hedged. also do we then has value

current quarter take I at a circumstances. share market take and could as to wouldn't evolve. quarter last could look the more really as and opportunities it we'll it buy necessarily We're the from We done or the we've forward. we So less roll shares. going this what buy shares, purchase

Kenneth Lee

there. you. again. Got Very helpful Thanks

Operator

comes KBW. question from the Mike line Your from Brown of next

open. is line Your

Michael Brown

great. Okay, Thanks, operator.

on trends lot here. Dave, dig in money I a to income motion And just right into flow prepared touched wanted So now, and of some in your you remarks. clearly your fixed of

net bit quarter what we're and business which past seeing some saw but divergent a this is money as I trends. noticed also had that markets, in industry a that here, the had your of outflows big from outflows. It's you So we not

saw haven't outflows sales just the Redemptions fixed you higher can So up really running like markets specifically money why some on income little of it the yet. side, picked bit touch pace then are and still looks on the a net a at gross there.

we improve So through the what causes really do year? think those as progress trends to you

David Brown

for the Thanks morning. Good question.

our market direct in money the in on captive really markets, our business. offered our money Specifically is channel,

in it's of for not our available readily some we outside channel. not have the So because direct the of industry participated inflows

I it's there, So really those direct would from accommodation an for investors. say

banks the utilized markets the market Some really have utilize our of in other ways that money many brought some money don't dollars to us industry. are from in but

a little of us. to situation a, unique that's a So bit

having With the our as going we being think then spent building Income corner. net have not in income pipes built, Investors, what's the really now a at been far were. ones pickup where pipes. the that the market. also the really the last in being point flows distribution years few We Victory built our As from and quite has seen We're distribution fixed forward turned happening side, new also team and we where we've with the then

that got amount with trajectory track we're assets, script, change. to going future think which We our look think as the in performance, They've will highlighted forward, we participate of excellent record, we and long-term investment sizeable team. the we in

Michael Brown

expect for Victory to announced looks great. there. I incremental that to we like you you're later that crowded a there any Okay, platform investment Thanks year. of I it a that this investing is you expense sounds And like launching if isn't come maybe offering thoughts just the It space. in hear the launching, sounds into change stand out Did heard year? there to how you and are it right, really marketing gears, baked or expand bit a like correct investment. Can you then just And then you should expect on already guys really later little incremental this expense digital field? through

David Brown

Let the me last of take question first. the part

Our guidance in investment making XX% the forward we're factors and going made. have at

the think that platform the not And we're structured. power net making gives just it's you the is investment. of the So that that investment, our way it isn't I of the we're and XX%

investing, So it guidance going in be forward. but will we our is

call, our brokerage we Capital end which expand expanding will it's products a we last open as we're at it there. Victory far Invest. to platform, As new is launched what set, direct the architecture month, We platform and we and where an that branded business, launched really platform, continue product of the

We're existing and choice clients, a it's product beginning out around be And around it. we're points will to expansion for market centering and service, different around few today product go choice. of just really our an

that the go we're you road, that digital And of longer-term in a something investing -- there. make we make what this to excited going business to of we're will and and evolution next Robot. a market kind out have down product progress platform can and to that's call a would pretty equivalent what expect part step in of this going growing an be We will really our that see we we're offering

Michael Brown

Thanks for thoughts. exciting. those Very Okay. sharing

Operator

Your question the next from Ken of Worthington from JPMorgan. comes line

Your line is open.

Michael Cho

touch I David good This and wanted again. to morning, on Hey, actually Sycamore Ken. Mike. just is Cho Michael just for

back. I positive and You flows mentioned slide the in the think you called

recall, how continuing then but just I flow. big a driver for be strength constrained flows it's You're strong there. some guess were to capacity see of it had those just Sycamore. the driver one to into Sycamore somewhat And of continues time, two, if I a been

can have So, the at investment the point, you some at continue Thanks. you to to of close kind fund or indefinitely? space do it

David Brown

or wouldn't input It I say was it's material, an our that it significant one was to called we out. flows.

call wouldn't, I material I And wouldn't franchise-by-franchise, it so it significant. we don't but or break out

then it we new are selectively to primarily new on effectively but investors. and today platforms dollars, As is closed new existing investment, new is closed with platforms. accepting far to investors as and it is Sycamore, It clients,

Michael Cho

you. well Thank and choice. headed new And you change gears once out in cadence just just as of I or curious of forward types the Investment kind understood. products talked roll with kind Victory and first quickly, to about and kind kind that of going of looking platform? expansion Okay, product you're just terms where of the you're marketplace of of Thanks. the of then to guess the

David Brown

the addition trade offers And and well platform ETFs then to and ability So mutual then stocks commission all almost almost that, funds, offers as of to products. the all free. new offers, all Victory's it the today in third-party

it brokerage open very about it, architecture think platform. an you looks like much if So

funds. the So any you you could buy ETFs, buy Victory shares, could Victory mutual

ability You funds sell can buy any part, it buy or mutual for third-party the ETFs, the most third-party any then stocks. and and to

Michael Cho

Okay. Thank you.

Operator

final you And no turn this closing there for over Mr. questions. call time, Brown, will further to are David At back remarks. I some the

David Brown

hope for Institutional Los we this XXrd some Later in see of attending in Thank Annual to month, thank Investor Riley And you. will you be the we you your And Conference Angeles. Capital. Victory B. there. interest

Operator

concludes conference for This call. Thank your participation. today's you

now You may disconnect.

Victory Capital (VCTR) 5 May 232023 Q1 Earnings call transcript