Market Overview

Victory Capital Reports Second Quarter 2018 Results

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Second Quarter 2018 Highlights1

  • Assets under management ("AUM") of $62.3 billion as of June 30, 2018, a 9% increase from June 30, 2017
  • Strong investment performance, with 83% of AUM outperforming its respective benchmarks over the trailing one-year period, 69% over three-years, 80% over five-years, and 83% over ten-years as of June 30, 2018
  • Overall net outflows of $102 million; positive net flows of $524 million into our focus asset classes
  • $104.4 million in revenue, a 3% increase from the second quarter of 2017
  • GAAP earnings of $0.26 per diluted share, compared to GAAP earnings of $0.04 per diluted share for the second quarter of 2017
  • Adjusted Net Income with tax benefit per diluted share of $0.41, a 28% increase over the Adjusted Net Income with tax benefit per diluted share for the second quarter of 2017
  • Operating margin of 28.4%, up from 19.3% in the second quarter of 2017
  • Adjusted EBITDA margin of 39.0%, up from 35.9% in the second quarter of 2017

CLEVELAND, Aug. 07, 2018 (GLOBE NEWSWIRE) -- Victory Capital Holdings, Inc. (NASDAQ:VCTR) ("Victory Capital" or the "Company") today reported its results for the three months ended June 30, 2018.

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

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

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

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

____________________
1 Adjusted measures are non-GAAP financial measures.  An explanation of these non-GAAP financial measures is included under the heading "Information Regarding Non-GAAP Financial Measures" at the end of this press release.  Please see the non-GAAP reconciliation tables.


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

(in millions except per share amounts or as otherwise noted)                
                     
    For the Three Months Ended   For the Six Months Ended
    June 30,   March 31,   June 30,   June 30,   June 30,
      2018       2018       2017       2018       2017  
Assets Under Management                   
  Ending $   62,256     $   60,855     $   56,973     $   62,256     $   56,973  
  Average     61,617         62,020         56,784         61,819         56,531  
                     
Flows                  
  Gross $   3,521     $   3,685     $   3,953     $   7,205     $   8,679  
  Net     (102 )       (633 )       (601 )       (735 )       (986 )
  Net flows excluding Diversified Equity(1)     (102 )       (633 )       (314 )       (735 )       (368 )
                     
Consolidated Financial Results (GAAP)                  
  Revenue $   104.4     $   105.0     $   100.9     $   209.4     $   201.6  
  Revenue realization (in bps)     68.0         68.6         71.3         68.3         71.9  
  Operating expenses     74.7         77.7         81.5         152.4         162.6  
  Income from operations     29.7         27.3         19.4         57.0         39.0  
  Operating margin   28.4 %     26.0 %     19.3 %     27.2 %     19.3 %
  Net income     18.7         10.5         2.4         29.2         6.8  
  Earnings per diluted share $   0.26     $   0.16     $   0.04     $   0.42     $   0.11  
                     
Adjusted Performance Results (Non-GAAP)(2)                  
  Adjusted EBITDA $   40.7     $   39.8     $   36.2     $   80.5     $   69.8  
  Adjusted EBITDA margin   39.0 %     37.9 %     35.9 %     38.4 %     34.6 %
  Adjusted net income     26.6         23.1         13.9         49.6         26.9  
  Tax benefit of goodwill and acquired intangibles      3.3         3.3         4.9         6.6         9.8  
  Adjusted net income with tax benefit     29.9         26.4         18.8         56.3         36.7  
  Adjusted net income with tax benefit per diluted share $   0.41     $   0.40     $   0.32     $   0.81     $   0.62  
                     
                     
(1) In May 2017, the Company made a  decision to exit the Diversified Equity Franchise; all remaining AUM was transferred to the Munder Capital Management Franchise to manage beginning May 15, 2017. 
(2) Adjusted EBITDA and Adjusted Net Income are non-GAAP financial measures.  Reconciliation of each of Adjusted EBITDA and Adjusted Net Income to net income have been provided in the non-GAAP reconciliation tables in this press release.  An explanation of these non-GAAP financial measures is included below under the heading "Information Regarding Non-GAAP Financial Measures". 

AUM, Flows and Investment Performance

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

As of June 30, 2018, Victory Capital offered 71 investment strategies through its nine autonomous Investment Franchises and Solutions Platform. The table below presents outperformance against benchmarks by AUM and strategies as of June 30, 2018.

    Trailing   Trailing   Trailing   Trailing
    1-Year   3-Years   5-Years   10-Years
Percentage of AUM Outperforming Benchmark 83 %   69 %   80 %   83 %
Percentage of Strategies Outperforming Benchmark 74 %   67 %   71 %   72 %

Second Quarter of 2018 Compared to First Quarter of 2018

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

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

  • Revenue was $104.4 million, a decline from $105.0 million for the first quarter of 2018 due to a slight decline in average AUM and a decrease in the realized fee rate.
  • Operating expenses declined to $74.7 million, compared to $77.7 million in the first quarter of 2018 due to operational efficiencies and one-time costs associated with the debt refinancing recognized in the first quarter.

Second Quarter of 2018 Compared to Second Quarter of 2017

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

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

  • Revenue increased $3.5 million to $104.4 million, compared to $100.9 million for the second quarter of 2017, due to higher average AUM, partially offset by a decrease in the realized fee rate due to asset mix.
  • Operating expenses decreased 8% to $74.7 million, compared to $81.5 million in the second quarter of 2017, primarily due to operational efficiencies and the successful integration of RS Investments.

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

For the six months ended June 30, 2018, GAAP net income was $29.2 million, or $0.42 per diluted share, compared to $6.8 million, or $0.11 per diluted share, for the comparable six months of 2017. GAAP operating margin increased to 27.2% for the six months ended June 30, 2018 from 19.3% for six months ended June 30, 2017. Adjusted Net Income with tax benefit increased 53% to $56.3 million, or $0.81 per diluted share comprised of $0.72 per diluted share in Adjusted Net Income and $0.09 per diluted share in tax benefit for the six months ended June 30, 2018, compared to $36.7 million, or $0.62 per diluted share comprised of $0.46 per diluted share in Adjusted Net Income and $0.16 per diluted share in tax benefit, for the six months ended June 30, 2017.

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

  • Revenue increased $7.8 million to $209.4 million for the six months ended June 30, 2018, compared to $201.6 million for the six months ended June 30, 2017, due to higher average AUM, partially offset by a decrease in the realized fee rate due to asset mix.
  • Operating expenses for the six months ended June 30, 2018 decreased 6% to $152.4 million, compared to $162.6 million for the six months ended June 30, 2017, primarily due to operational efficiencies and the successful integration of RS Investments.

Balance Sheet / Capital Management

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

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

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

Conference Call, Webcast and Slide Presentation

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

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

About Victory Capital

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

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

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

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

FORWARD-LOOKING STATEMENTS 

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may include, without limitation, any statements preceded by, followed by or including words such as "target," "believe," "expect," "aim," "intend," "may," "anticipate," "assume," "budget," "continue," "estimate," "future," "objective," "outlook," "plan," "potential," "predict," "project," "will," "can have," "likely," "should," "would," "could" and other words and terms of similar meaning or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond Victory Capital's control, as discussed in Victory Capital's filings with the SEC, that could cause Victory Capital's actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements.

Although it is not possible to identify all such risks and factors, they include, among others, the following: reductions in AUM based on investment performance, client withdrawals, difficult market conditions and other factors; the nature of the Company's contracts and investment advisory agreements; the Company's ability to maintain historical returns and sustain its historical growth; the Company's dependence on third parties to market its strategies and provide products or services for the operation of its business; the Company's ability to retain key investment professionals or members of its senior management team; the Company's reliance on the technology systems supporting its operations; the Company's ability to successfully acquire and integrate new companies; the concentration of the Company's investments in long-only small- and mid-cap equity and U.S. clients; risks and uncertainties associated with non-U.S. investments; the Company's efforts to establish and develop new teams and strategies; the ability of the Company's investment teams to identify appropriate investment opportunities; the Company's ability to limit employee misconduct; the Company's ability to meet the guidelines set by its clients; the Company's exposure to potential litigation (including administrative or tax proceedings) or regulatory actions; the Company's ability to implement effective information and cyber security policies, procedures and capabilities; the Company's substantial indebtedness; the potential impairment of the Company's goodwill and intangible assets; disruption to the operations of third parties whose functions are integral to the Company's ETF platform; the Company's determination that Victory Capital is not required to register as an "investment company" under the 1940 Act; the fluctuation of the Company's expenses; the Company's ability to respond to recent trends in the investment management industry; the level of regulation on investment management firms and the Company's ability to respond to regulatory developments; the competitiveness of the investment management industry; the dual class structure of the Company's common stock; the level of control over the Company retained by Crestview GP; the Company's status as an emerging growth company and a controlled company; and other risks and factors listed under "Risk Factors" and elsewhere in the Company's filings with the SEC.

Such forward-looking statements are based on numerous assumptions regarding Victory Capital's present and future business strategies and the environment in which it will operate in the future. Any forward-looking statement made in this press release speaks only as of the date hereof. Except as required by law, Victory Capital assumes no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in the forward-looking statements, even if new information becomes available in the future.

INVESTOR RELATIONS WEBSITE

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

Contacts
Investors:
Lauren Crawford, 310-622-8239
lcrawford@finprofiles.com

Media:
Tricia Ross, 310-622-8226
tross@finprofiles.com

                   
 Victory Capital Holdings, Inc. and Subsidiaries 
Unaudited Condensed Consolidated Statements of Operations
(unaudited; in thousands except shares)
                   
  For the Three Months Ended   For the Six Months Ended
  June 30,    March 31,    June 30,    June 30,    June 30, 
    2018       2018       2017       2018       2017  
Revenue                  
Investment management fees $   88,998     $   89,130     $   84,474     $   178,128     $   168,589  
Fund administration and distribution fees     15,401         15,834         16,460         31,235         33,006  
Total revenue     104,399         104,964         100,934         209,363         201,595  
                   
Expenses                  
Personnel compensation and benefits     37,140         36,803         35,025         73,943         70,675  
Distribution and other asset-based expenses     24,127         25,161         26,544         49,288         53,425  
General and administrative     7,088         9,056         8,261         16,144         17,182  
Depreciation and amortization     5,931         6,412         8,131         12,343         16,285  
Change in value of consideration payable for acquisition of business     (4 )       -          (25 )       (4 )       (25 )
Acquisition-related costs     (5 )       -          228         (5 )       591  
Restructuring and integration costs     438         264         3,331         702         4,461  
Total operating expenses     74,715         77,696         81,495         152,411         162,594  
                   
Income from operations     29,684         27,268         19,439         56,952         39,001  
Operating margin   28.4 %     26.0 %     19.3 %     27.2 %     19.3 %
                   
Other income (expense)                  
Interest income and other income/(expense)     8         (37 )       (1,914 )       (29 )       (1,569 )
Interest expense and other financing costs     (4,706 )       (7,092 )       (13,843 )       (11,798 )       (26,471 )
Loss on debt extinguishment     -          (6,058 )       -          (6,058 )       -   
Total other income (expense), net     (4,698 )       (13,187 )       (15,757 )       (17,885 )       (28,040 )
Income before income taxes     24,986         14,081         3,682         39,067         10,961  
                   
Income tax expense     (6,311 )       (3,557 )       (1,328 )       (9,868 )       (4,194 )
Net income $    18,675     $    10,524     $    2,354     $    29,199     $    6,767  
Earnings per share - basic $   0.27     $   0.17     $   0.04     $   0.45     $   0.12  
Earnings per share - diluted     0.26         0.16         0.04         0.42         0.11  
Weighted average shares outstanding - basic     67,948,732         61,599,057         54,825,386         64,791,435         54,819,604  
Weighted average shares outstanding - diluted     72,135,290         66,283,621         58,985,367         69,352,895         58,872,192  
Dividends declared per share $   -      $   -      $   -      $   -      $   2.19  
                   


                   
 Victory Capital Holdings, Inc. and Subsidiaries 
Reconcilation of GAAP to Non-GAAP Measures
(unaudited; in thousands except shares)
                   
  For the Three Months Ended   For the Six Months Ended
  June 30,   March 31,   June 30,   June 30,   June 30,
    2018       2018       2017       2018       2017  
Net income  $    18,675     $    10,524     $    2,354     $    29,199     $    6,767  
GAAP income tax expense     (6,311 )       (3,557 )       (1,328 )       (9,868 )       (4,194 )
Income before taxes $    24,986     $    14,081     $    3,682     $    39,067     $    10,961  
Interest expense     4,229         8,094         12,757         12,323         24,353  
Depreciation      736         736         893         1,472         1,808  
Other business taxes      443         375         390         818         840  
GAAP amortization of acquisition-related intangibles      5,195         5,676         7,238         10,871         14,477  
Stock-based compensation      3,968         3,322         3,651         7,290         5,952  
Acquisition, restructuring and exit costs      560         518         5,195         1,078         7,798  
Debt issuance costs      361         6,702         1,914         7,063         2,828  
Pre-IPO governance expenses      (3 )       141         312         138         600  
Earnings/losses from equity method investments     202         137         173         339         173  
Adjusted EBITDA $    40,677     $    39,782     $    36,205     $    80,459     $    69,790  
Adjusted EBITDA margin   39.0 %     37.9 %     35.9 %     38.4 %     34.6 %
                   
                   
Net income $    18,675     $    10,524     $    2,354     $    29,199     $    6,767  
Adjustment to reflect the operating performance of the Company                  
Other business taxes      443         375         390         818         840  
GAAP amortization of acquisition-related intangibles      5,195         5,676         7,238         10,871         14,477  
Stock-based compensation      3,968         3,322         3,651         7,290         5,952  
Acquisition, restructuring and exit costs      560         518         5,195         1,078         7,798  
Debt issuance costs      361         6,702         1,914         7,063         2,828  
Pre-IPO governance expenses      (3 )       141         312         138         600  
Tax effect of above adjustments      (2,631 )       (4,183 )       (7,106 )       (6,814 )       (12,348 )
Adjusted net income $    26,568     $    23,075     $    13,948     $    49,643     $    26,914  
Adjusted net income per diluted share $    0.37     $    0.35     $    0.24     $    0.72     $    0.46  
                   
Tax benefit of goodwill and acquired intangibles  $    3,320     $    3,320     $    4,901     $    6,640     $    9,792  
Tax benefit of goodwill and acquired intangibles per diluted share $    0.04     $    0.05     $    0.08     $    0.09     $    0.16  
                   
Adjusted net income with tax benefit $    29,888     $    26,395     $    18,849     $    56,283     $    36,706  
Adjusted net income with tax benefit per diluted share $    0.41     $    0.40     $    0.32     $    0.81     $    0.62  
                   


 
 Victory Capital Holdings, Inc. and Subsidiaries 
Unaudited Condensed Consolidated Balance Sheets 
(In thousands, except for shares)
       
       
  June 30, 2018   December 31, 2017
ASSETS      
Cash and cash equivalents  $   15,162     $   12,921  
Receivables     51,813         55,917  
Prepaid expenses     2,855         5,441  
Investments     13,466         11,336  
  Property and equipment, net      8,975         8,844  
  Goodwill      284,108         284,108  
  Other intangible assets, net      397,130         408,000  
  Other assets      7,735         6,055  
Total assets  $    781,244     $    792,622  
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
Accounts payable and accrued expenses $   17,356     $   21,996  
Accrued compensation and benefits    23,771       29,305  
  Consideration payable for acquisition of business     10,133         9,856  
  Deferred tax liability, net     4,409         4,068  
Other liabilities     16,929         12,989  
Long-term debt(1)     287,907         483,225  
Total liabilities     360,505         561,439  
       
Stockholders' equity:       
Common stock, $0.01 par value per share: 2018 - no shares authorized,      –         572  
     issued and outstanding; 2017 - 78,837,300 shares authorized, 57,182,730      
     issued and 55,118,673 shares outstanding      
Class A common stock, $0.01 par value per share: 2018 - 400,000,000     130         –  
     shares authorized, 12,971,510 shares issued and 12,905,398 shares       
     outstanding; 2017 - no shares authorized, issued and outstanding      
Class B common stock, $0.01 par value per share: 2018 - 200,000,000     570         –  
     shares authorized, 57,059,845 shares issued and 54,995,788 shares      
     outstanding; 2017 - no shares authorized, issued and outstanding      
Additional paid-in capital      595,191         435,334  
Class A treasury stock, at cost: 2018 - 66,112 shares; 2017 - no shares     (720 )       –  
Class B treasury stock, at cost: 2018 and 2017 - 2,064,057 shares     (20,899 )       (20,899 )
Accumulated other comprehensive income     47         64  
Retained deficit     (153,580 )       (183,888 )
Total stockholders' equity      420,739         231,183  
Total liabilities and stockholders' equity  $    781,244     $    792,622  
       
       
(1) Balance at June 30, 2018 is shown net of unamortized loan discount and debt issuance costs in the amount of $12.1 million.  The gross amount of the debt outstanding  was $300.0 million.


                     
 Victory Capital Holdings, Inc. and Subsidiaries
Assets Under Management
(unaudited; in millions)
                     
    For the Three Months Ended   % Change from
    June 30,   March 31,   June 30,   March 31,   June 30,
      2018       2018       2017     2018     2017  
Beginning assets under management $   60,855     $   61,771     $   56,622     -1 %   7 %
  Gross client cash inflows     3,521         3,685         3,953     -4 %   -11 %
  Gross client cash outflows     (3,623 )       (4,318 )       (4,554 )   -16 %   -20 %
Net client cash flows     (102 )       (633 )       (601 )   -84 %   -83 %
Market appreciation (depreciation)     1,503         (275 )       952              n/m   58 %
Net transfers     -          (8 )       -               n/m         n/m
Ending assets under management     62,256         60,855         56,973     2 %   9 %
Average assets under management     61,617         62,020         56,784     -1 %   9 %
Net client cash flows excluding Diversified Equity     (102 )       (633 )       (314 )   -84 %   -68 %
                     
                     
    For the Six Months Ended       % Change from    
    June 30,   June 30,       June 30,    
      2018       2017         2017      
Beginning assets under management $   61,771     $   54,965         12 %    
  Gross client cash inflows     7,205         8,679         -17 %    
  Gross client cash outflows     (7,940 )       (9,665 )       -18 %    
Net client cash flows     (735 )       (986 )       -25 %    
Market appreciation (depreciation)     1,228         2,994         -59 %    
Net transfers     (8 )       -                    n/m    
Ending assets under management     62,256         56,973         9 %    
Average assets under management     61,819         56,531         9 %    
Net client cash flows excluding Diversified Equity     (735 )       (368 )       100 %    


                                         
 Victory Capital Holdings, Inc. and Subsidiaries  
Assets Under Management by Asset Class  
(unaudited; in millions)  
                                         
For the Three Months Ended   By Asset Class  
      U.S. Mid Cap Equity   U.S. Small Cap Equity   Fixed Income   U.S. Large Cap Equity   Global / Non-U.S. Equity   Solutions   Commodity   Other   Total  
June 30, 2018                                      
Beginning assets under management   $   24,205     $   15,095     $   7,311     $   4,635     $   4,334     $   3,563     $   1,298     $   414     $   60,855    
  Gross client cash inflows       1,125         867         303         103         669         381         46         27         3,521    
  Gross client cash outflows       (1,422 )       (745 )       (652 )       (287 )       (182 )       (169 )       (133 )       (33 )       (3,623 )  
Net client cash flows       (297 )       122         (349 )       (184 )       487         212         (87 )       (6 )       (102 )  
Market appreciation (depreciation)       558         773         16         113         (116 )       40         80         39         1,503    
Net transfers       19         (19 )       -          13         -          -          -          (13 )       -     
Ending assets under management       24,485         15,971         6,978         4,577         4,705         3,815         1,291         434         62,256    
                                         
March 31, 2018                                      
Beginning assets under management   $   25,185     $   15,308     $   7,551     $   4,789     $   4,105     $   3,028     $   1,419     $   386     $   61,771    
  Gross client cash inflows       1,203         776         394         55         443         606         127         81         3,685    
  Gross client cash outflows       (2,080 )       (922 )       (640 )       (211 )       (220 )       (77 )       (146 )       (22 )       (4,318 )  
Net client cash flows       (877 )       (146 )       (246 )       (156 )       223         529         (19 )       59         (633 )  
Market appreciation (depreciation)       (103 )       (67 )       6         3         14         (34 )       (102 )       8         (275 )  
Net transfers       -          -          -          (1 )       (8 )       40         -          (39 )       (8 )  
Ending assets under management       24,205         15,095         7,311         4,635         4,334         3,563         1,298         414         60,855    
                                         
                                         
June 30, 2017                                      
Beginning assets under management   $   21,555     $   14,556     $   7,756     $   5,285     $   3,482     $   1,970     $   1,770     $   248     $   56,622    
  Gross client cash inflows       2,307         652         387         69         155         299         70         14         3,953    
  Gross client cash outflows       (1,841 )       (1,036 )       (486 )       (523 )       (303 )       (56 )       (275 )       (34 )       (4,554 )  
Net client cash flows       466         (384 )       (99 )       (454 )       (148 )       243         (205 )       (20 )       (601 )  
Market appreciation (depreciation)       369         281         122         -          271         48         (159 )       20         952    
Net transfers       -          -          (71 )       (6 )       -          (34 )       15         96         -     
Ending assets under management       22,390         14,453         7,708         4,825         3,605         2,227         1,421         344         56,973    


                                         
 Victory Capital Holdings, Inc. and Subsidiaries  
Assets Under Management by Asset Class  
(unaudited; in millions)  
                                         
For the Six Months Ended   By Asset Class  
      U.S. Mid Cap Equity   U.S. Small Cap Equity   Fixed Income   U.S. Large Cap Equity   Global / Non-U.S. Equity   Solutions   Commodity   Other   Total  
June 30, 2018                                      
Beginning assets under management   $   25,185     $   15,308     $   7,551     $   4,789     $   4,105     $   3,028     $   1,419     $   386     $   61,771    
  Gross client cash inflows       2,328         1,643         696         158         1,113         986         173         108         7,205    
  Gross client cash outflows       (3,502 )       (1,667 )       (1,291 )       (498 )       (402 )       (245 )       (279 )       (56 )       (7,940 )  
Net client cash flows       (1,174 )       (24 )       (595 )       (340 )       711         741         (106 )       52         (735 )  
Market appreciation (depreciation)       455         706         22         116         (103 )       6         (22 )       48         1,228    
Net transfers       19         (19 )       -          12         (8 )       40         -          (52 )       (8 )  
Ending assets under management       24,485         15,971         6,978         4,577         4,705         3,815         1,291         434         62,256    
                                         
June 30, 2017                                      
Beginning assets under management   $   20,083     $   14,090     $   7,726     $   5,921     $   3,460     $   1,602     $   1,882     $   202     $   54,965    
  Gross client cash inflows       4,516         1,901         890         137         363         646         178         48         8,679    
  Gross client cash outflows       (3,714 )       (2,237 )       (1,074 )       (1,234 )       (775 )       (103 )       (480 )       (48 )       (9,665 )  
Net client cash flows       802         (336 )       (184 )       (1,097 )       (412 )       543         (302 )       -          (986 )  
Market appreciation (depreciation)       1,504         699         239         7         557         116         (174 )       46         2,994    
Net transfers       1         -          (73 )       (6 )       -          (34 )       15         97         -     
Ending assets under management       22,390         14,453         7,708         4,825         3,605         2,227         1,421         344         56,973    


   
   Victory Capital Holdings, Inc. and Subsidiaries
  Assets Under Management by Vehicle
  (unaudited; in millions)
                     
For the Three Months Ended   By Vehicle  
      Mutual
Funds(1)
  ETFs   Separate
Accounts
and Other
Vehicles(2)
  Total  
June 30, 2018                  
Beginning assets under management   $   36,989     $   2,674     $   21,192     $   60,855    
  Gross client cash inflows       2,555         296         670         3,521    
  Gross client cash outflows       (2,708 )       (96 )       (819 )       (3,623 )  
Net client cash flows       (153 )       200         (149 )       (102 )  
Market appreciation (depreciation)       963         32         508         1,503    
Net transfers       19         -          (19 )       -     
Ending assets under management   $   37,818     $   2,906     $   21,532     $   62,256    
                     
March 31, 2018                  
Beginning assets under management   $   37,967     $   2,250     $   21,555     $   61,771    
  Gross client cash inflows       2,626         481         578         3,685    
  Gross client cash outflows       (3,266 )       (29 )       (1,023 )       (4,318 )  
Net client cash flows       (640 )       452         (445 )       (633 )  
Market appreciation (depreciation)       (307 )       (28 )       60         (275 )  
Net transfers       (31 )       -          22         (8 )  
Ending assets under management   $   36,989     $   2,674     $   21,192     $   60,855    
                     
June 30, 2017                  
Beginning assets under management   $   35,640     $   1,267     $   19,715     $   56,622    
  Gross client cash inflows       2,954         278         721         3,953    
  Gross client cash outflows       (3,024 )       -          (1,530 )       (4,554 )  
Net client cash flows       (70 )       278         (809 )       (601 )  
Market appreciation (depreciation)       563         33         356         952    
Net transfers       -          -          -          -     
Ending assets under management   $   36,133     $   1,578     $   19,262     $   56,973    
                     
(1) Includes institutional and retail share classes and VIP funds.            
(2) Includes collective trust funds, wrap program separate accounts and unified managed accounts or UMAs.  
 


                     
 Victory Capital Holdings, Inc. and Subsidiaries  
Assets Under Management by Vehicle  
(unaudited; in millions)  
                     
For the Six Months Ended   By Vehicle  
      Mutual
Funds(1)
  ETFs   Separate
Accounts
and Other
Vehicles(2)
  Total  
June 30, 2018                  
Beginning assets under management   $   37,967     $   2,250     $   21,555     $   61,771    
  Gross client cash inflows       5,181         777         1,247         7,205    
  Gross client cash outflows       (5,974 )       (125 )       (1,841 )       (7,940 )  
Net client cash flows       (793 )       652         (594 )       (735 )  
Market appreciation (depreciation)       655         4         569         1,228    
Net transfers       (11 )       -          3         (8 )  
Ending assets under management   $   37,818     $   2,906     $   21,532     $   62,256    
                     
June 30, 2017                  
Beginning assets under management   $   33,975     $   906     $   20,085     $   54,965    
  Gross client cash inflows       6,899         596         1,184         8,679    
  Gross client cash outflows       (6,659 )       (2 )       (3,004 )       (9,665 )  
Net client cash flows       240         594         (1,820 )       (986 )  
Market appreciation (depreciation)       1,923         78         993         2,994    
Net transfers       (5 )       -          5         -     
Ending assets under management   $   36,133     $   1,578     $   19,262     $   56,973    
                     
(1) Includes institutional and retail share classes and VIP funds.            
(2) Includes collective trust funds, wrap program separate accounts and unified managed accounts or UMAs.  
 
                     


Information Regarding Non-GAAP Financial Measures

Victory Capital uses non-GAAP financial measures referred to as Adjusted EBITDA and Adjusted Net Income to measure the operating profitability of the business.  These measures eliminate the impact of one-time acquisition, restructuring and integration costs and demonstrate the ongoing operating earnings metrics of the business. The Company has included these non-GAAP measures to provide investors with the same financial metrics used by management to assess the operating performance of the Company.

Adjusted EBITDA

Adjustments made to GAAP Net Income to calculate Adjusted EBITDA are:

  • Adding back GAAP income tax;
  • Adding back interest paid on debt and other financing costs net of interest income;
  • Adding back depreciation on property and equipment;
  • Adding back other business taxes;
  • Adding back GAAP amortization of acquisition-related intangibles;
  • Adding back the expense associated with stock-based compensation associated with equity issued from pools that were created in connection with the management-led buyout with Crestview GP from KeyCorp, the Munder Acquisition and the RS Acquisition and as a result of any equity grants related to the IPO;
  • Adding back direct incremental costs of acquisitions and the IPO, including expenses associated with third-party advisors, proxy solicitations of mutual fund shareholders for transaction consents, vendor contract early termination costs, impairment of receivables recorded in connection with an acquisition and severance, retention and transaction incentive compensation;
  • Adding back debt issuance costs;
  • Adding back pre-IPO governance expenses paid to the Company's private equity partners that terminated as of the completion of the IPO; and
  • Adjusting for earnings/losses on equity method investments.

Adjusted Net Income

Adjustments made to GAAP Net Income to calculate Adjusted Net Income are:

  • Adding back other business taxes;
  • Adding back GAAP amortization of acquisition-related intangibles;
  • Adding back the expense associated with stock-based compensation associated with equity issued from pools that were created in connection with the management-led buyout with Crestview GP from KeyCorp, the Munder Acquisition and the RS Acquisition and as a result of any equity grants related to the IPO;
  • Adding back direct incremental costs of acquisitions and the IPO, including expenses associated with third-party advisors, proxy solicitations of mutual fund shareholders for transaction consents, vendor contract early termination costs, impairment of receivables recorded in connection with an acquisition and severance, retention and transaction incentive compensation;
  • Adding back debt issuance costs;
  • Adding back pre-IPO governance expenses paid to the Company's private equity partners that terminated as of the completion of the IPO; and
  • Subtracting an estimate of income tax expense on the adjustments.

Tax Benefit of Goodwill and Acquired Intangibles

Due to Victory Capital's acquisitive nature, tax deductions allowed on acquired intangible assets and goodwill provide it with additional significant supplemental economic benefit.  The tax benefit of goodwill and intangibles represents the tax benefits associated with deductions allowed for intangibles and goodwill generated from prior acquisitions in which the Company received a step-up in basis for tax purposes. Acquired intangible assets and goodwill may be amortized for tax purposes, generally over a 15-year period. The tax benefit from amortization on these assets is included to show the full economic benefit of deductions for all acquired intangibles with a step-up in tax basis.

 

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