VCTR - Earnings call 3 2023 | Victory Capital Holdings, Inc.

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Operator

Good morning, and welcome to the Victory Capital Third Quarter 2023 Earnings Conference Call. [Operator Instructions]I'll now turn the call over to Mr. Matthew Dennis, Chief of Staff and Director of Investor Relations. Please go ahead.

Matthew Dennis

Thank you.

forward-looking call you David call, that make number the like I we turn a remind to during of I over Brown, to would may Before statements. today's conference actual Please note statements. may materially from results that these differ Capital's Victory SEC those to a for call. expressed risk on our of results to list cause that today's may Please actual some differ the filings refer of factors materially from not was undertake statements.Our Victory after any to Capital and assumes yesterday forward-looking that no update and results. closed press market does release GAAP non-GAAP issued duty the any both obligation disclosed financial We understanding our and believe measures the non-GAAP enhance of our the business performance. Reconciliations that pleasure David in presentation portion accompanying between ir.vcm.com.It's GAAP tables can comparable be which most this call, found now at CEO. the my slide both earnings the Brown, measures over available Chairman relations these turn and investor and of on in the the release of in measures to are are website call included our to and our non-GAAP press David?

David Brown

of overview call After Director start Staff, of in to results third Thanks, to Conference Matt. Matt detail. President, as to providing our that, Third an review Relations.I'll Chief as Financial Mike by by of I today over will today Investor and Capital's the welcome Policarpo, quarter. Chief Michael well the Victory and I'm turn joined Earnings Administrative Call. Dennis, XXXX Officer, the Quarter morning Good our financial

with in and is diluted up a of and levels the margins the Advisors, third WestEnd flexibility quarter, the improved is of financial quarters.Although and and operating we that means environment share significant income the flows benefit which we our a including X. quarter, several from to EBITDA our environments. to of $X.XX it XXth far advisor perspective. to under and we from fixed over second enhance that adjusted all X% which out to the this conjunction One it.As quarterly we this X would to invest platform.We platform Investors for inorganic earnings former $X.X achieved majority rose we announced our last net reported an that investment see call $X.X long-term execute the increase that transferred and did that on many in results or Mike, metrics to was also sequentially overview robust underscores XX% prepared margin latest strong distribution with to billion XXXX.Our that We year all and we the or with brand, of significant quarter. to and our positive the achieved expansion strategies and higher.Adjusted margin, the In Income number accounts thus of either the in investment been tax EBITDA the be row a XX%, $X.XX are all from of margins income of net Income income investors in and have per are the over aspect under Revenue, net on quarter. press decision flows quarter, ninth lowest guidance per period also quarter platform margins pause the a approximately a in of have with coming Victory in with to build XX.X% ensure Slide allocation This past would strategy, quarter adjusted third professionals we shoots for your remain we market outflows green our the in totaling second during retain was management quarter to Matt, diluted specifically share have the I investment that release were a where chosen remarks, which equivalents AUM share reported associated will scalable We I quarter. fixed our the the at sold note continues our rose made business the unique the Following each the INCORE, cash available September, take highest consolidation, allocations, net begins franchise quarter in calendar strength some those cash the Investors that our we earnings on capital I in above our consolidated gross seeing income, of per questions.The franchise, franchise. Victory they the cash declining the strategies franchises. billion reported Long-term diluted in are redemptions not like with in financial franchise.

to digital in overall release, financial XX account initiatives, funds Lastly, our and to competitive and material areas. products X, ETFs strategically our X/X several to Morningstar. in of our X than our in be and our you more make these or any even efficient.Turning AUM product intelligence, enhancing for impact channel, of marketing, Slide our with performance from as our very These At that will development, of can we automation, These more ratings in not direct X strong. as data well stated quarter our continue had mutual as technology, capabilities ETFs. ongoing remains growth our investment earnings invest include star there platform see artificial platform for end, funds actions.Consistent we from investor mutual use

ended X-year Franchise.Through Investment was WestEnd's outperformed respective in the the Additionally, I bodes mentioned WestEnd momentum more our over was AUM that outperforming quarter our benchmarks than benchmarks standout the positive WestEnd AUM earlier. of net at Advisors period X-year XX% quarter One of for XX% end, for This September already accelerating flow XX. measurement the period. total well

geopolitical ever.Turning continues the well, there offerings positioning anticipation and to in. cash of to trillions the gain that suite distribution rates, fixed interest to of X, channels Moreover, million as income Slide investors swap we our the to are in different in we see given around continue eventually cash have positioned at is very we around inorganic distribution performance point opportunities. and investment equivalents, flow well quarter. floating this positioning. quarter discussions our is to in adds are only in robust third the produced cash dollars end, our generate when flexibility, to financial as the of swap cycle.We as numerous benefit economic of to With within continuing excess $XX well is to fixed products now strong re-risking that perform real as the cash we that flexibility generated invested the in equity conditions, our locked into and visibility our more portfolios direction our currently and Converting and free Subsequent cash our also and monetized to exceptionally in is

greater go As opportunities remain value.With enhancing the end mind, I disciplined, over times, with that Mike are presenting turn in through the exact difficult more evaluate is but to are quarter's quite the I timing predict, this shareholder many attractive, believe With themselves to becoming that, results opportunities environment that we have as we detail. call financial and said will long-term goal in to plentiful of patient, selective the that in executable. I do and

Michael Policarpo

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

Assets billion. third assets quarter. in the X.X% management under quarter quarter with were Average $XXX.X compared end under management second rose at the

form net million swaps X income basis higher $XXX EBITDA the This as and our quarter-over-quarter cash of as share swap million quarter. this XX.X in Our locking adjusted end floating XX interest to which our income net million $X.XX compared decrease point, $XX.X and in The diluted the the Dave another day $XX in in basis. standpoint, or covered in quarter.Quarterly income rate extra generated be in And diluted monetized on basis second expense October, million, accumulating to From rate margin improved interest million enhance from that to GAAP XXXX.Our fee our shareholders We quarter straight-line quarter. the $XXX.X the and to will AUM adjusted steady up with ratio XX.X% second $XX the quarter. as gains end gain basis on the million X.X% term adjusted points $XX was at was at returned to up expanded to tax the quarter fixed in of share the the the a our accounting we to $X at rose the the to adjusted benefit adjusted rose of end.Further of already an average share, from balance million GAAP million, flexibility in realized or accumulation X% EBITDA $XX a in quarter. revenue resulted to debt. was and was growth during cash points.Revenue arrangement, in a strengthen to X.Xx $X.XX in to increasing sheet higher cash. repurchases. third reflecting million EBITDA from of well in quarter EBITDA per third debt September, per cash as and $XXX.X net the dividends operating lower July the net through benefited the

you record of the $X.XX Slide first share. be driven in Our in the reduced on December half can XX Directors will by of increase was the next dividend This billion another declared by $X.X steady period. in the on payable Board XX.On AUM of quarterly shareholders reversed see This market dividend primarily XX, cash per total to AUM quarter. negative action, which in third the December

channel a Gross to more diversified model flows representing billion than were and lowest accounts, becoming were distribution negative managed net improved well Long-term remains $X.X XX. perspective and channel. gross separately ETFs the with our more AUM.Turning long-term total X $X.X and AUM perspective in of from Our We're years. from diversified redemptions from client now each quarter delivery, a also to billion. including in X/X a vehicle level flows their Slide within

gross made they franchises content investors and to higher very third had industry in are the we WestEnd's when landscape platform term beginning not performance to positive has in to the being we New net flows Capital, of delay to as Global, the allocations the this Energy We growth asset WestEnd. RS quarter, are hold had including cash the strong, immune we Trivalent, longer and acquisition. sales, reflecting with classes.Several investment risk muted been and current environment, and vision for realize business

Global, of periods quarters. benchmarks rated September as for noting in top according XX well consecutive Another RS decile which is by ticker Fund, the flow to Morningstar has for revenue X positive illustrates and XX-year net Star over X, outperformed ranked periods.Slide XX franchise as those has been The RSGGX, the Five Global overall quarter. XX and worth RS same

and average resulted in achieved under quarterly revenues in between You revenue can correlation assets management, past see level of the year. close the the highest which

Our fee rate decreased slightly in the quarter. third

$X.X the was management As fee In and consideration second year. the some fees, such expenses, as fund recall, in the our quarterly vehicle third rose contingent net structure our prior noncash you due asset-based present to have the XX.X% fee class Cash remained higher variations.On rate quarter-over-quarter and as of broker-dealer the our constant recorded million in charge to Slide reflected of steady fees administration, revenue to expenses related quarter, was rose at platform realization to rate the the and held from client related $XX.X increase up due and significant are average cost of percentage for quarter.Additionally, primary break out the is expenses. in we and XX, compensation primarily may quarter. second drivers acquisitions. the the middle the highest in increase variable for revenue asset mix the a general, operating quarter in million, investment GAAP of value in expenses higher and office for a quarter. This to AUM

due tax slightly results the or Adjusted investments resulting support of to million, on net $XX.X ongoing in diluted in was which million quarters. to our $X.XX The rose timing cash quarter, past Slide growth.Moving expenses ANI quarter on non-GAAP the income our the G&A with to was XX. million Finally, to growing benefit per level the to $XX.X benefit unchanged highest at the tax in share. $X.X X in rose

basis which past over points rose our the from XX XX% Our achieved achieved quarter.We EBITDA XXXX. year, in the benefit share growth expanded margin level final in quarter adjusted per the in third steady XX.X% including cash the earnings to tax adjusted of

this of year. turning the guidance debt in inclusive margin long-term our of down in quarters maintaining numerous investments are we forward, to any is Looking of continued first X We which to our XX. did areas support future XX%, Slide pay not the growth.Finally,

However, quarter. our leverage quarter-over-quarter earnings. improved to in on paid XX past sheet the and reflecting rate net years. rate on The average the debt in the our our increased was the ratio cash balance This to of end interest higher the September, higher points increase at X.Xx X.X% interest basis X.X smallest balance

Our revolver operator million our I concludes $XX.X over undrawn was turn cash flow third the to for it million operating questions. will $XXX quarter.That remains and in GAAP back now prepared the remarks.

Operator

[Operator Craig Siegenthaler from line the of of Instructions] of Your first comes question America. Bank

Craig Siegenthaler

is My M&A. first on one

would So with on after X months ago? holding And any multiples you on can helpful, be $XXX fixed you though? million hand of us today floating more to Prospects And are with monetization, cash meetings commentary the than pipeline? today valuation the update M&A on swap

David Brown

I to last we've the What close us I meetings execute meetings. like First, is very so is we the year pipeline. feel building how And say and start to has that been are increased. I off and doing are better ability nothing also pretty pipeline having would being cash strategy we is, has or prepared we we gotten this opportunistically. for the hedge been potentially said our really in and of full. remarks, reflection our where at let a a transaction.That the wouldn't the in I say us of that lots think have me on a and monetizing lot cycle and imminent, capital look said, our The

to this a pay had dividend. back balance timely a of to wouldn't really forward, a make going flexible I be say buying year, we a manner. lot shares to wouldn't least we And but continue we so and shares back execute that that we historically, at want bought sure in sheet have that's

Craig Siegenthaler

follow-up $XXX as flows other quarter. Just my million the in on SMA the of and

if trust, nice other or you XXXX? the Within then wondering between because provide the of some which been a that expect flow wraps, mix sort could missing UCITS, one for do that's engine in I And UMA, was guys. biggest you the I be $XXX million, color any vehicles contributor have be may those within you growth to sub-buckets,

David Brown

purchased was And WestEnd, the increase happened. we when that was that Advisors the bought that It's that going -- we is that all the the well positioned, industry, really business our is within large primarily WestEnd we to they and really, -- business, in model franchise. that's thought thesis platforms were and

And it's all think going think be on where model to we so forward we primarily, the going is side.

Operator

BMO comes question next Markets. line the Your from of Etienne of Capital Ricard

Etienne Ricard

to fixed So potential lots return net the flows across of discussion the in income to on industry. positive

this you across fixed both direct about income and in think So strategies, promoting environment, retail your how do channels? the

David Brown

into spent also franchise. we the really, best gaining good our excellent have if I think brand of to board. for really it. really perspective from you have really out last the that's brand, we've our add, it's look the at and efforts Investors So platforms at come spent Victory the one we the Investors of the of the Income we really over franchise where fixed one INCORE franchise.And Victory And distribution few to really to And platform. of to to think decide in for and from traditional us channels to shoring our scalability to Victory really the years, all different we build Income the Investors is time allocate performance, brand income. look best the having from marketing, that consolidate help up the and preparation into when these least it were the a or our time the that at remarks, And brand prepared will as and get said consolidating ways did cash a under for franchise I'd sidelines performance. And back investors Income out some of prepare off investment access across

Etienne Ricard

transactions your potential stick you're a to prefer to on would per would just Or And transactions size maybe relatively willing to Okay. And record? give can transaction be close to historical of multiple you of back year the sense you a of period circle time? short track us one looking you in at? M&A,

David Brown

back grown how that's X.XX if has back Historically, the and and we the smaller of we've we have transactions such at how say, and we done have had closed we've the how on position medium -- think we're then small at X it us basis. the an XXXX have the side also XXXX, the end we it's last years be platform, because least into you beginning and have situations then between. and over historically, go back the you have acquisition, great X, a said ago, years built a we And opportunistic to would in I'd nicely done of looking go small. in in look at it. really in business years.From that at the Where had We larger benefit few of large have size we've on And where we've not or look the what many a we have I really if many, at always was I'm our a which looking the size very multiple transactions, been how sized impacted where half and ETF transactions, quickly, on done side. year. of really say year, a one been

Operator

Beatty Your from of comes next of question UBS. the Adam line

Adam Beatty

realistic used of on of words. of potential follow-up those valuation. on it too a spread, is tighter the much, maybe Just couple times. are Dave more kind to And that bid-ask sort interpretation harp of on but a M&A, my executable not getting sellers But word

space M&A no curious, in the one out well asset as just probably there as Victory. management executes I'm So

in more you what cycle? by curious stage the executable this just at meant So

David Brown

you do think up what spread is structuring. summed that it the valuation think and and sellers bid much are realistic more nicely. And ask open tightened. buyers the I of I think to being has I and potentially

so to And word my reference in executable that. of really is

Adam Beatty

mid-cap small turning And then just equities. to and

the scale have guys good on significant market. You view there, a

see you non-moves? given the the climate moves outlook for how wondering and and recent now Just the small some of or Fed right investing mid-cap

David Brown

is So equivalents. a dollars sitting investor generally and in there speaking, cash of cash lot

over $X I in think money there's markets. trillion

into cash, decided go lot a asset so leave to return. higher b, have or going and either small look fixed Midcap.I and will has. also the assets, think cycle forward U.S. at the the a go investors believe lot overall point mid-cap you put of that least where income this money including not performed to get into higher-risk of small cap, those dollars indices, And they at have type the and in the at I to market including up that U.S. do class if to market

We So we'll very when really assets some those and mid-cap investments in multiple those gather and good I reallocation to of of happen cap think well fall they returns. like asset will with occurs, that feel into have be classes, like some the assets. look good and positioned franchises those U.S. I think And there. potential small we're able to

pretty opportunity. that So about we're excited

Operator

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

Kenneth Lee

view financing there? a What's out potential discussion M&A your you for Just challenge as to of in do environment on round the -- the M&A. the cost view potential

David Brown

we all think think ability I'd we the that of to by cash our really we you have that off where of we when saying the structure. generation, have start have, tools financing,

and be how job creative structure costs course, transactions. can a we cash benefit also we we for And our we a of over us forward, of did financing we it that nice the transaction, then we past then for execute we'll balance don't feel, And the flow. are transaction. really the the to financing.As we look for being way about hedge. are as financing look The And at accumulate hurdle done cash transaction, think, to costs markets. the have, go generates out us, Of we the monetized the over the free I if a the go isn't and But this transactions on platform quarter, obviously, at is the we up, hurdle lot the how said, executing a I us, of debt to on do least excess way which we But a a X.X to cost the going last that. having years.

Kenneth Lee

It latest -- Wondering if organic New follow-up, And Capital I positive just if in organic quarter. had your us long-term of outlook some in going flows net forward? growth terms in just franchise sounds like that one update an Energy may. potential give you the could or

Michael Policarpo

Ken, had in third did we mention the flows quarter. we positive yes,

also had quarter. second flows We the positive in

opportunity pleased think with we we're a we was forward. to kind that has do We I and the the progress for challenging.However, in with we from private think renewable Energy Fundraising New us the really thesis We're out. our see that the XXXX, the product have around thesis excited the in hold. private to we've made unique acquisition about look as that they bullish of a been I to great opportunity as continues of side And the as industry move in and markets did have of the we're continue they the set is acquisition. energy growth what respect about to space. date, Capital perspective, think kind they to

opportunities to with of And to respect the well as excited sit private raising, the continues that about So we'll of we're industry in us. asset there. front participate loosen kind

Operator

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

Michael Brown

Great.

current the still more on trends potential growth And and The more wanted to added you the potential to some continues to on growth there. us to And forward. be of Do get some ramp strong how ask platforms platforms for today? I give franchises here. on recent room going maybe update WestEnd there that really expand an platforms? Can about just WestEnd? is there the you on many So just see

David Brown

purchased to they're them, that platforms we're have those currently deeper when on platforms. The we to been on go -- we able

were independent. higher than platforms they So doing of with they're expanded were doing we're they the business We've significantly -- a when on. of that we're number advisers number today,

ticker platforms, actually models, only the relationships set. ETF, the deepening we've WestEnd. product MODL, not managed sales to the but the just with now then also not the the number an of platforms.And people symbol out allows by an which launched also So expanding ETF offer the expanded but We

so franchise. for there an standpoint that opportunity from growth And is of amount tremendous a

you current think taking positive to and flow X really distribution of making scaling about and we that performance I every was tremendous we're of time we've And the purchased really and have the has well, the grow. a transaction set and coming investment on end you net we're good upside a move is assets franchise to in some And business desire being that have really period, great be which add that platform.And better and and year, or owned think as cash the environment the a was and If culture positioned, again, out what in, since inception, just of just that is only them that And franchise out we've it. of the again, opportunity. these that that the it go also great expand it there years. to will to when and platform out well product will opportunity this tells at for since that remarkable up thesis

Michael Brown

quick a just maybe Michael, then one for me. modeling And

impact the is that will of monetization off with jumping gain the Following through? now the come the hedge, that point right interest the of what for expense

Michael Policarpo

Yes.

at look kind is the of in QX think rate. locked it the simple we really to I at way

the So think going about interest I combined forward, based is mentioned kind we of X.X% on rates. current rate

Operator

question comes line [Operator Ken the from Instructions] Worthington Our JPMorgan. next of of

Y. Cho

well. ask go Ken. to I'm in going This one, first is Cho Michael My as cash the question just and for

investments. just term. comfortable in holding guess Just event level an fruition and of in come elevated things the long -- near you into how don't talked cash? you are about guess I M&A I

David Brown

I opportunistically. are at and It the would to be circumstances. look going levels our will we say facts very that based on cash

history, going down We strategies. would very aggressively on -- forward, And period debt buyback we'll -- then I our our pivoted in very to time, at have happening buying at pivoted depending different and We be back paid to opportunistic. what's the one we imagine shares. quickly

do utilize. current flexibility still over that. going fact we're that the it $XX still have to or We then circumstances. We program we can And have as buyback the on from our Board always from take our off have to the we -- really authorization but with million

Y. Cho

Okay. you out kind gears, on opportunity. organic particular what G&A, I'm just the just then switching of just elevated Perfect. just And I do And think every slightly curious for I'm that investment organic called investment in before. heard quarter the organic then number you quarter, sure as that opportunity I a you think listed not of areas but drove I quarter? was AI

as what So curious you're AI just also doing with well?

Michael Policarpo

Yes. significant in is Yes. -- we Thanks, There one really no investment significant Mike. that made the quarter.

ebb making we've I think we're really investments always and said flow. that the that timing of will

really continue that was a them utilizing we're the the analytics, Those from just to digital and our proprietary dealers. in investor we databases invested around in any capturing direct really the team. market field saw is that are increase Where timing of our marketing. in kind in to changes see that business and elevation development, is or just the aspect. We're continuing product you areas are really we G&A channel. really data in bit and quarter-over-quarter to with more timing So analytics respect invest that you we've making from are and to a investing AI, made of data certain in intermediary with respect I that.And retail some about the investments that distribution for think our in the effective talked data and little the we've some invest We've

investment well using an them distribution efforts our as from we're data. that perspective, reference information it's to the more AI that's and providing support just So franchises supporting with more really as the

David Brown

think as see Yes. think so pretty platform add can the are to efficient we is scaled and the things how the we've multiple you really and our our these is applicable And we're a from very in is I unique, industry distribution and and way anybody of Dave. the I'd multiple we're performed at margins one size which we're dollars as XX%. one industry investments tough given to I the parts are in making that unique at.And it's But at like guidance platform our thing how the environment is having in we're that business. channels invest, our think structured investments to we of

isn't really group the X culture. I platform of are of above that quarters And we XX.X%, our it great of have I unique this with through margins executing a employees or them and a Our XX, straight platform XX% think quarter went more. great XX a just complex. with statistics

when we to getting we love will. buck, just of invest. lot So about think lots There's if our of invest. you to investing, for a bang We're places

Operator

further over There are call David will questions now the no I Brown for turn to closing time. remarks. at this

David Brown

Thank and Capital. interest in Victory your for thanks you,

month, a York I and attending New some Services you. the be day, to which Financial Next Sachs look Conference great X, forward Goldman of seeing Have City, is you thank December we'll in there. on and

Operator

This concludes today's conference call.

now may You disconnect.

Victory Capital (VCTR) 3 Nov 232023 Q3 Earnings call transcript