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Victory Capital Reports Very Strong Second-Quarter 2021 Financial Results

Second Quarter 2021 Highlights

  • Total Assets Under Management (AUM) of $161.9 billion
  • Quarterly long-term gross flows of $10.0 billion; long-term net inflows of $0.3 billion
  • GAAP operating margin of 42.9% and adjusted EBITDA margin of 50.6%1
  • GAAP net income of $0.93 per diluted share
  • Adjusted net income with tax benefit of $1.18 per diluted share1
  • Board authorizes 25% increase in regular quarterly cash dividend

Victory Capital Holdings, Inc. (NASDAQ: VCTR) (“Victory Capital” or “the Company”) today reported financial results for the quarter ended June 30, 2021.

“During the second quarter and first half, we generated excellent investment performance for our clients and very strong financial results for our shareholders,” said David Brown, Chairman and Chief Executive Officer. “More than 70% of our AUM outperformed respective benchmarks for the 3-, 5-, and 10-year periods, and we recorded the fourth consecutive quarter of revenue and earnings growth, as well as adjusted EBITDA margin of greater than 50%.

“Our organic growth also improved quarter-over-quarter for the fourth quarter in a row reflecting healthy investor demand for our investment products. This led to record high gross sales during the second quarter and resulted in positive long-term net flows.

“Cash flow generated from operations remained robust. The cash dividend increase announced today marks the fifth consecutive quarterly increase and reflects our view of the strength of our business. Over the course of the last five quarters, we have tripled the cash dividend payable to shareholders. At the same time, we still allocated the majority of our excess cash flow to reducing debt as we paid down an additional $57 million of outstanding debt in the quarter. This was 14% more than in the first quarter of the year and resulted in our leverage ratio decreasing to 1.4 times at the end of the quarter.

“Our evaluation of acquisition targets continues and, with the strength of our balance sheet, we are financially well positioned to execute on a strategic transaction.

“We continue to make investments in the areas of technology, data, and distribution which are continuing to yield positive results. As always, serving our clients remains our top priority.”

1 The Company reports its financial results in accordance with generally accepted accounting principles (“GAAP”). Adjusted EBITDA and Adjusted Net Income are not defined by GAAP and should not be regarded as an alternative to any measurement under GAAP. Please refer to the section “Information Regarding Non-GAAP Financial Measures” at the end of this press release for an explanation of Non-GAAP financial measures and a reconciliation to the nearest GAAP financial measure.

The table below presents AUM, and certain GAAP and non-GAAP (“adjusted”) financial results. Due to rounding, AUM values and other amounts in this press release may not add up precisely to the totals provided.

(in millions except per share amounts or as otherwise noted)
 

For the Three Months Ended

 

For the Six Months Ended

June 30,

 

March 31,

 

June 30,

 

June 30,

 

June 30,

2021

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Assets Under Management(2)
Ending $

161,936

 

$

154,331

 

$

129,070

 

$

161,936

 

$

129,070

 

Average

158,471

 

151,090

 

128,927

 

154,781

 

136,519

 

 
Long-term Flows(3)
Long-term Gross $

9,973

 

$

6,726

 

$

5,166

 

$

16,698

 

$

12,439

 

Long-term Net

302

 

(983

)

(3,466

)

(681

)

(6,568

)

 
Money Market/Short-term Flows
Money Market/Short-term Gross $

102

 

$

108

 

$

4,411

 

$

209

 

$

12,063

 

Money Market/Short-term Net

(126

)

(191

)

(8,416

)

(317

)

(8,214

)

 
Total Flows
Total Gross $

10,074

 

$

6,833

 

$

9,577

 

$

16,908

 

$

24,502

 

Total Net

176

 

(1,174

)

(11,882

)

(998

)

(14,782

)

 
Consolidated Financial Results (GAAP)
Revenue $

221.9

 

$

212.9

 

$

181.9

 

$

434.9

 

$

386.3

 

Revenue realization (in bps)

56.2

 

57.2

 

56.7

 

56.7

 

56.9

 

Operating expenses

126.6

 

123.2

 

116.1

 

249.8

 

229.9

 

Income from operations

95.3

 

89.8

 

65.8

 

185.0

 

156.4

 

Operating margin

42.9

%

42.1

%

36.2

%

42.5

%

40.5

%

Net income

69.3

 

65.2

 

44.7

 

134.5

 

101.9

 

Earnings per diluted share $

0.93

 

$

0.88

 

$

0.61

 

$

1.81

 

$

1.38

 

Cash flow from operations

84.5

 

79.6

 

69.0

 

164.2

 

120.9

 

 
Adjusted Performance Results (Non-GAAP)(1)
Adjusted EBITDA $

112.2

 

$

106.8

 

$

86.3

 

$

219.1

 

$

177.8

 

Adjusted EBITDA margin

50.6

%

50.2

%

47.5

%

50.4

%

46.0

%

Adjusted net income

80.3

 

76.7

 

58.3

 

157.0

 

120.0

 

Tax benefit of goodwill and acquired intangible assets

6.9

 

6.9

 

6.7

 

13.8

 

13.5

 

Adjusted net income with tax benefit

87.2

 

83.6

 

65.1

 

170.8

 

133.5

 

Adjusted net income with tax benefit per diluted share $

1.18

 

$

1.13

 

$

0.89

 

$

2.30

 

$

1.81

 

 

1 The Company reports its financial results in accordance with GAAP. Adjusted EBITDA and Adjusted Net Income are not defined by GAAP and should not be regarded as an alternative to any measurement under GAAP. Please refer to the section “Information Regarding Non-GAAP Financial Measures” at the end of this press release for an explanation of Non-GAAP financial measures and a reconciliation to the nearest GAAP financial measure.

2 The three months ended June 30, 2021 includes $250 million of seed capital that USAA liquidated and $25 million related to Victory’s closure of two mutual funds and an ETF. The three months ended March 31, 2021 includes the transfer in of $547 million of assets associated with the THB Asset Management acquisition, which closed on March 1, 2021.

3 Long-term AUM is defined as total AUM excluding Money Market and Short-term assets.

AUM, Flows and Investment Performance

Victory Capital’s total AUM increased by 4.9%, or $7.6 billion, to $161.9 billion at June 30, 2021, compared with $154.3 billion at March 31, 2021. The increase was primarily attributable to market action and positive net flows, partially offset by liquidated seed capital. Total gross flows reached a record $10.1 billion for the second quarter and $16.9 billion for the year-to-date period. Long-term AUM increased by 5.1%, or $7.7 billion, to $158.7 billion at June 30, 2021, compared with $151.0 billion at March 31, 2021. For the second quarter, the Company reported long-term gross flows of $10.0 billion and net long-term inflows of $0.3 billion. For the year-to-date period, the Company reported long-term gross flows of $16.7 billion and net long-term outflows of $0.7 billion.

At June 30, 2021, Victory Capital offered 124 investment strategies through its 10 autonomous Investment Franchises and Solutions Platform. The table below presents outperformance against benchmarks by AUM as of June 30, 2021.

 
Percentage of AUM Outperforming Benchmark

Trailing

 

Trailing

 

Trailing

 

Trailing

1-Year

 

3-Years

 

5-Years

 

10-Years

64%

 

71%

 

72%

 

71%

 

Second Quarter 2021 Compared with First Quarter 2021

Revenue increased 4.2% to $221.9 million, in the second quarter, compared with $212.9 million in the first quarter, primarily due to higher average AUM. GAAP operating margin expanded 80 basis points in the second quarter to 42.9%, up from 42.1% in the first quarter primarily due to seasonally higher compensation and benefit related items in the first quarter. Second quarter GAAP net income increased 6.2% to $69.3 million, up from $65.2 million in the prior quarter. On a per-share basis, GAAP net income increased 5.7% to $0.93 per diluted share in the second quarter, versus $0.88 per diluted share in the first quarter.

Adjusted net income with tax benefit increased 4.3% to $87.2 million in the second quarter, up from $83.6 million in the first quarter. On a per-share basis, adjusted net income with tax benefit increased 4.4% to $1.18 per diluted share in the second quarter, from $1.13 per diluted share in the prior quarter. Adjusted EBITDA increased 5.1% to $112.2 million in the second quarter, versus $106.8 million in the first quarter. Adjusted EBITDA margin expanded 40 basis points in the second quarter of 2021 to 50.6% compared with 50.2% in the prior quarter.

Second Quarter 2021 Compared with Second Quarter 2020

Revenue for the three months ended June 30, 2021, rose 22.0% to $221.9 million, compared with $181.9 million in the same quarter of 2020. The increase was primarily due to higher average AUM.

Illustrating the inherent operating leverage in the Company’s business model, operating expenses increased just 9.1% to $126.6 million, compared with $116.1 million in last year’s second quarter, reflecting variable operating expenses that rose as a result of the higher average AUM and earnings as well as continued investments to support future growth. Due to this improved operating leverage and a $2.2 million reduction in restructuring and integration costs in the current year, GAAP operating margin expanded 670 basis points to 42.9% in the second quarter, from 36.2% in the same quarter of 2020. GAAP net income rose 54.9% to $69.3 million, or $0.93 per diluted share, in the second quarter compared with $44.7 million, or $0.61 per diluted share, in the same quarter of 2020.

Adjusted net income with tax benefit advanced 34.0% to $87.2 million, or $1.18 per diluted share, in the second quarter, compared with $65.1 million, or $0.89 per diluted share in the same quarter last year. Adjusted EBITDA rose 30.0% to $112.2 million, compared with $86.3 million in last year’s same quarter. Year-over-year, adjusted EBITDA margin expanded 310 basis points to 50.6% in the second quarter of 2021, compared with 47.5% in the same quarter last year.

Six Months Ended June 30, 2021 Compared with Six Months Ended June 30, 2020

Revenue for the six months ended June 30, 2021, rose 12.6% to $434.9 million, compared with $386.3 million in the same period of 2020. The increase was primarily due to higher average AUM.

Displaying the inherent operating leverage in the Company’s business model, operating expenses increased just 8.7% to $249.8 million for the six months ended June 30, 2021, compared with $229.9 million in the same period in 2020, reflecting the Company’s variable operating expenses that rose as a result of the higher average AUM and earnings as well as continued investments to support future growth. GAAP operating margin was 42.5% for the six months ended June 30, 2021, a 200 basis point increase from the 40.5% recorded in the same period in 2020 primarily due to improved operating leverage. GAAP net income rose 32.0% to $134.5 million, or $1.81 per diluted share, in the first six months of 2021 compared with $101.9 million, or $1.38 per diluted share, in the same period in 2020.

Adjusted net income with tax benefit advanced 27.9% to $170.8 million, or $2.30 per diluted share, in the first six months of 2021, compared with $133.5 million, or $1.81 per diluted share in the same period in 2020. For the six months ended June 30, 2021, adjusted EBITDA rose 23.2% to $219.1 million, compared with $177.8 million for the same period in 2020. Year-over-year, adjusted EBITDA margin expanded 440 basis points to 50.4% in the first six months of 2021, compared with 46.0% in the same period last year.

Balance Sheet / Capital Management

During the second quarter, the Company reduced outstanding debt by an additional $57.0 million. Subsequent to June 30, 2021, the Company reduced outstanding debt by $35.0 million, for a total of $453.8 million, since July 1, 2019.

The 10b-5 plan expired on May 12, 2021 as it reached its authorized share repurchase limit of $15 million. On May 13, 2021, the Company announced that its Board of Directors approved a new 10b-5 plan authorizing the repurchase of up to $15 million of Class A common stock through December 31, 2022. During the second quarter, the Company repurchased 288 thousand shares.

Today, the Company’s Board of Directors declared a $0.15 per share quarterly cash dividend, a 25% increase over the dividend declared in the prior quarter. The dividend is payable on September 27, 2021, to shareholders of record on September 10, 2021.

Conference Call, Webcast and Slide Presentation

The Company will host a conference call tomorrow morning, August 6, at 8:00 a.m. ET to discuss the results. Analysts and investors may participate in the question-and-answer session. To participate in the conference call, please call (877) 823-8673 (domestic) or (647) 689-4067 (international), shortly before 8:00 a.m. ET and reference the Victory Capital Conference Call. A live, listen-only webcast will also be available via the investor relations section of the Company’s website at https://ir.vcm.com. Prior to the call, a supplemental slide presentation that will be used during the conference call will be available on the Events and Presentations page of the Company’s investor relations website. For anyone who is unable to join the live event, an archive of the webcast will be available for replay shortly after the call concludes.

About Victory Capital

Victory Capital is a diversified global asset management firm with $161.9 billion in assets under management as of June 30, 2021. The Company operates a next-generation business model combining boutique investment qualities with the benefits of a fully integrated, centralized operating and distribution platform.

Victory Capital provides specialized investment strategies to institutions, intermediaries, retirement platforms and individual investors. With 10 autonomous Investment Franchises and a Solutions Platform, Victory Capital offers a wide array of investment styles and investment vehicles including, actively managed mutual funds, separately managed accounts, rules-based and active ETFs, multi-asset class strategies, custom-designed solutions and a 529 College Savings Plan.

For more information, please visit www.vcm.com or follow us on: Twitter and LinkedIn.

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may include, without limitation, any statements preceded by, followed by or including words such as “target,” “believe,” “expect,” “aim,” “intend,” “may,” “anticipate,” “assume,” “budget,” “continue,” “estimate,” “future,” “objective,” “outlook,” “plan,” “potential,” “predict,” “project,” “will,” “can have,” “likely,” “should,” “would,” “could” and other words and terms of similar meaning or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond Victory Capital’s control such as the COVID-19 pandemic and its effect on our business, operations and financial results going forward, 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 such as a pandemic; the nature of the Company’s contracts and investment advisory agreements; the Company’s ability to maintain historical returns and sustain its historical growth; the Company’s dependence on third parties to market its strategies and provide products or services for the operation of its business; the Company’s ability to retain key investment professionals or members of its senior management team; the Company’s reliance on the technology systems supporting its operations; the Company’s ability to successfully acquire and integrate new companies; the concentration of the Company’s investments in long-only small- and mid-cap equity and U.S. clients; risks and uncertainties associated with non-U.S. investments; the Company’s efforts to establish and develop new teams and strategies; the ability of the Company’s investment teams to identify appropriate investment opportunities; the Company’s ability to limit employee misconduct; the Company’s ability to meet the guidelines set by its clients; the Company’s exposure to potential litigation (including administrative or tax proceedings) or regulatory actions; the Company’s ability to implement effective information and cyber security policies, procedures and capabilities; the Company’s substantial indebtedness; the potential impairment of the Company’s goodwill and intangible assets; disruption to the operations of third parties whose functions are integral to the Company’s ETF platform; the Company’s determination that Victory Capital is not required to register as an "investment company" under the 1940 Act; the fluctuation of the Company’s expenses; the Company’s ability to respond to recent trends in the investment management industry; the level of regulation on investment management firms and the Company’s ability to respond to regulatory developments; the competitiveness of the investment management industry; the dual class structure of the Company’s common stock; the level of control over the Company retained by Crestview GP; the Company’s status as an emerging growth company and a controlled company; and other risks and factors listed under "Risk Factors" and elsewhere in the Company’s filings with the SEC.

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

 

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Consolidated Statements of Operations

(in thousands except per share data and percentages)

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

June 30,

 

March 31,

 

June 30,

 

June 30,

 

June 30,

 

 

2021

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue
Investment management fees $

168,033

 

$

160,284

 

$

130,032

 

$

328,317

 

$

276,913

 

Fund administration and distribution fees

53,871

 

52,665

 

51,854

 

106,536

 

109,394

 

Total revenue

221,904

 

212,949

 

181,886

 

434,853

 

386,307

 

 
Expenses
Personnel compensation and benefits

57,462

 

59,006

 

49,105

 

116,468

 

96,676

 

Distribution and other asset-based expenses

44,223

 

42,103

 

41,630

 

86,326

 

96,490

 

General and administrative

13,713

 

13,310

 

13,289

 

27,023

 

25,177

 

Depreciation and amortization

4,694

 

4,385

 

4,166

 

9,079

 

8,216

 

Change in value of consideration payable for acquisition of business

5,700

 

2,500

 

5,300

 

8,200

 

(200

)

Acquisition-related costs

422

 

(164

)

(23

)

258

 

(92

)

Restructuring and integration costs

422

 

2,053

 

2,605

 

2,475

 

3,603

 

Total operating expenses

126,636

 

123,193

 

116,072

 

249,829

 

229,870

 

 
Income from operations

95,268

 

89,756

 

65,814

 

185,024

 

156,437

 

Operating margin

42.9

%

42.1

%

36.2

%

42.5

%

40.5

%

 
Other income (expense)
Interest income and other income (expense)

1,932

 

2,734

 

2,966

 

4,666

 

(1,206

)

Interest expense and other financing costs

(6,155

)

(6,845

)

(9,710

)

(13,000

)

(21,118

)

Gain (loss) on debt extinguishment

(1,146

)

(2,781

)

137

 

(3,927

)

(917

)

Total other expense, net

(5,369

)

(6,892

)

(6,607

)

(12,261

)

(23,241

)

 
Income before income taxes

89,899

 

82,864

 

59,207

 

172,763

 

133,196

 

 
Income tax expense

(20,629

)

(17,662

)

(14,487

)

(38,291

)

(31,310

)

 
Net income $

69,270

 

$

65,202

 

$

44,720

 

$

134,472

 

$

101,886

 

 
Earnings per share of common stock
Basic $

1.02

 

$

0.96

 

$

0.66

 

$

1.98

 

$

1.50

 

Diluted

0.93

 

0.88

 

0.61

 

1.81

 

1.38

 

 
Weighted average number of shares outstanding
Basic

67,776

 

67,761

 

67,821

 

67,769

 

67,806

 

Diluted

74,166

 

74,108

 

73,204

 

74,155

 

73,818

 

 
Dividends declared per share $

0.12

 

$

0.09

 

$

0.05

 

$

0.21

 

$

0.10

 

 

Victory Capital Holdings, Inc. and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures1

(unaudited; in thousands except per share data and percentages)

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

June 30,

 

March 31,

 

June 30,

 

June 30,

 

June 30,

 

 

2021

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income (GAAP) $

69,270

 

$

65,202

 

$

44,720

 

$

134,472

 

$

101,886

 

Income tax expense

(20,629

)

(17,662

)

(14,487

)

(38,291

)

(31,310

)

Income before income taxes $

89,899

 

$

82,864

 

$

59,207

 

$

172,763

 

$

133,196

 

Interest expense

6,086

 

7,310

 

8,267

 

13,396

 

18,795

 

Depreciation

1,524

 

1,246

 

746

 

2,770

 

1,630

 

Other business taxes

524

 

374

 

219

 

898

 

(3,077

)

Amortization of acquisition-related intangible assets

3,171

 

3,138

 

3,420

 

6,309

 

6,586

 

Stock-based compensation

3,124

 

4,636

 

3,068

 

7,760

 

8,440

 

Acquisition, restructuring and exit costs

6,544

 

4,389

 

10,105

 

10,933

 

8,563

 

Debt issuance costs

1,304

 

2,793

 

1,312

 

4,097

 

3,701

 

Losses from equity method investments

65

 

92

 

 

157

 

 

Adjusted EBITDA $

112,241

 

$

106,842

 

$

86,344

 

$

219,083

 

$

177,834

 

Adjusted EBITDA margin

50.6

%

50.2

%

47.5

%

50.4

%

46.0

%

 
 
Net income (GAAP) $

69,270

 

$

65,202

 

$

44,720

 

$

134,472

 

$

101,886

 

Adjustment to reflect the operating performance of the Company
Other business taxes

524

 

374

 

219

 

898

 

(3,077

)

Amortization of acquisition-related intangible assets

3,171

 

3,138

 

3,420

 

6,309

 

6,586

 

Stock-based compensation

3,124

 

4,636

 

3,068

 

7,760

 

8,440

 

Acquisition, restructuring and exit costs

6,544

 

4,389

 

10,105

 

10,933

 

8,563

 

Debt issuance costs

1,304

 

2,793

 

1,312

 

4,097

 

3,701

 

Tax effect of above adjustments

(3,667

)

(3,832

)

(4,531

)

(7,499

)

(6,053

)

Adjusted net income $

80,270

 

$

76,700

 

$

58,313

 

$

156,970

 

$

120,046

 

Adjusted net income per diluted share $

1.08

 

$

1.03

 

$

0.80

 

$

2.12

 

$

1.63

 

 
Tax benefit of goodwill and acquired intangible assets $

6,918

 

$

6,918

 

$

6,745

 

$

13,836

 

$

13,473

 

Tax benefit of goodwill and acquired intangible assets per diluted share $

0.09

 

$

0.09

 

$

0.09

 

$

0.19

 

$

0.18

 

 
Adjusted net income with tax benefit $

87,188

 

$

83,618

 

$

65,058

 

$

170,806

 

$

133,519

 

Adjusted net income with tax benefit per diluted share $

1.18

 

$

1.13

 

$

0.89

 

$

2.30

 

$

1.81

 

1 Refer to page 15 for further information regarding the Company’s non-GAAP financial measures.

 

Victory Capital Holdings, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except for shares)

 

 

 

June 30,

2021

 

December 31, 2020

Assets
Cash and cash equivalents $

31,622

 

$

22,744

 

Receivables

98,684

 

88,182

 

Prepaid expenses

6,230

 

6,082

 

Investments, at fair value

29,566

 

23,493

 

Property and equipment, net

24,290

 

18,747

 

Goodwill

404,750

 

404,750

 

Other intangible assets, net

1,156,919

 

1,162,641

 

Other assets

4,014

 

4,090

 

Total assets $

1,756,075

 

$

1,730,729

 

 
Liabilities and stockholders' equity
Accounts payable and accrued expenses $

51,153

 

$

42,144

 

Accrued compensation and benefits

38,885

 

47,278

 

Consideration payable for acquisition of business

100,700

 

92,500

 

Deferred tax liability, net

51,022

 

37,684

 

Other liabilities

30,620

 

34,573

 

Long-term debt, net1

667,539

 

769,009

 

Total liabilities

939,919

 

1,023,188

 

 
Stockholders' equity
Class A common stock, $0.01 par value per share:

2021 - 400,000,000 shares authorized, 19,816,767 shares issued and 16,059,105 shares

outstanding; 2020 - 400,000,000 shares authorized, 19,388,671 shares issued and 16,205,689

shares outstanding

198

 

194

 

Class B common stock, $0.01 par value per share:

2021 - 200,000,000 shares authorized, 55,782,820 shares issued and 51,761,697

shares outstanding; 2020 - 200,000,000 shares authorized, 54,766,934 shares issued and 51,336,177

shares outstanding

558

 

548

 

Additional paid-in capital

659,920

 

647,602

 

Class A treasury stock, at cost: 2021 - 3,757,662 shares; 2020 - 3,182,982 shares

(63,290

)

(47,844

)

Class B treasury stock, at cost: 2021 - 4,021,123 shares; 2020 - 3,430,757 shares

(62,925

)

(47,080

)

Accumulated other comprehensive income (loss)

351

 

(7,460

)

Retained earnings

281,344

 

161,581

 

Total stockholders' equity

816,156

 

707,541

 

Total liabilities and stockholders' equity $

1,756,075

 

$

1,730,729

 

1 Balances at June 30, 2021 and December 31, 2020 are shown net of unamortized loan discount and debt issuance costs in the amount of $13.7 million and $19.2 million, respectively. The gross amount of the debt outstanding was $681.2 million as of June 30, 2021 and $788.2 million as of December 31, 2020.

 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management

(unaudited; in millions except for percentages)

 

 

 

For the Three Months Ended

 

% Change from

 

 

June 30,

 

March 31,

 

June 30,

 

March 31,

 

June 30,

 

 

2021

 

 

2021

 

 

2020

 

 

2021

 

2020

Beginning assets under management $

154,331

 

$

147,241

 

$

123,779

 

5

%

25

%

Gross client cash inflows

10,074

 

6,833

 

9,577

 

47

%

5

%

Gross client cash outflows

(9,898

)

(8,007

)

(21,459

)

24

%

-54

%

Net client cash flows

176

 

(1,174

)

(11,882

)

N/A

 

N/A

 

Market appreciation (depreciation)

7,703

 

7,718

 

17,173

 

0

%

-55

%

Acquired assets / Net transfers1

(275

)

547

 

 

N/A

 

N/A

 

Ending assets under management

161,936

 

154,331

 

129,070

 

5

%

25

%

Average assets under management

158,471

 

151,090

 

128,927

 

5

%

23

%

 

For the Six Months Ended

% Change from

June 30,

June 30,

June 30,

2021

 

2020

 

2020

Beginning assets under management $

147,241

 

$

151,832

 

-3

%

Gross client cash inflows

16,908

 

24,502

 

-31

%

Gross client cash outflows

(17,906

)

(39,284

)

-54

%

Net client cash flows

(998

)

(14,782

)

-93

%

Market appreciation (depreciation)

15,421

 

(7,979

)

N/A

 

Acquired assets / Net transfers2

272

 

 

N/A

 

Ending assets under management

161,936

 

129,070

 

25

%

Average assets under management

154,781

 

136,519

 

13

%

1 The three months ended June 30, 2021 includes $250 million of seed capital that USAA liquidated and $25 million related to Victory’s closure of two mutual funds and an ETF. The three months ended March 31, 2021 includes the transfer in of $547 million of assets associated with the THB Asset Management acquisition, which closed on March 1, 2021.

2 The six months ended June 30, 2021 includes the transfer in of $547 million of assets associated with the THB Asset Management acquisition, which closed on March 1, 2021 partially offset by $250 million of seed capital that USAA liquidated and $25 million related to Victory’s closure of two mutual funds and an ETF.

 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Asset Class

(unaudited; in millions)

 

For the Three Months Ended By Asset Class
Global /
U.S. Mid U.S. Small Fixed U.S. Large Non-U.S. Total Money Market /
Cap Equity Cap Equity Income Cap Equity Equity Solutions Other Long-term Short-term Total
June 30, 2021
Beginning assets under management $

29,156

 

$

20,230

 

$

36,776

 

$

14,448

 

$

14,652

 

$

35,356

 

$

341

 

$

150,958

 

$

3,373

 

$

154,331

 

Gross client cash inflows

1,412

 

1,238

 

1,750

 

91

 

1,072

 

4,370

 

40

 

9,973

 

102

 

10,074

 

Gross client cash outflows

(1,940

)

(1,428

)

(2,949

)

(407

)

(541

)

(2,380

)

(27

)

(9,671

)

(228

)

(9,898

)

Net client cash flows

(527

)

(190

)

(1,200

)

(316

)

531

 

1,991

 

13

 

302

 

(126

)

176

 

Market appreciation (depreciation)

1,745

 

616

 

677

 

1,253

 

928

 

2,419

 

62

 

7,700

 

3

 

7,703

 

Acquired assets / Net transfers1

(33

)

(39

)

156

 

(101

)

(180

)

(126

)

44

 

(278

)

3

 

(275

)

Ending assets under management $

30,340

 

$

20,617

 

$

36,410

 

$

15,284

 

$

15,931

 

$

39,640

 

$

460

 

$

158,682

 

$

3,254

 

$

161,936

 

 
March 31, 2021
Beginning assets under management $

26,230

 

$

18,368

 

$

36,599

 

$

14,230

 

$

13,982

 

$

34,041

 

$

257

 

$

143,706

 

$

3,534

 

$

147,241

 

Gross client cash inflows

1,741

 

1,072

 

2,024

 

98

 

593

 

1,143

 

55

 

6,726

 

108

 

6,833

 

Gross client cash outflows

(1,854

)

(1,696

)

(1,701

)

(432

)

(648

)

(1,350

)

(28

)

(7,709

)

(299

)

(8,007

)

Net client cash flows

(112

)

(624

)

323

 

(334

)

(55

)

(207

)

27

 

(983

)

(191

)

(1,174

)

Market appreciation (depreciation)

3,032

 

2,024

 

(219

)

604

 

700

 

1,521

 

57

 

7,720

 

(2

)

7,718

 

Acquired assets / Net transfers2

6

 

461

 

73

 

(52

)

25

 

1

 

 

515

 

32

 

547

 

Ending assets under management $

29,156

 

$

20,230

 

$

36,776

 

$

14,448

 

$

14,652

 

$

35,356

 

$

341

 

$

150,958

 

$

3,373

 

$

154,331

 

 
June 30, 2020
Beginning assets under management $

18,622

 

$

11,885

 

$

35,402

 

$

10,703

 

$

9,372

 

$

25,526

 

$

140

 

$

111,650

 

$

12,129

 

$

123,779

 

Gross client cash inflows

943

 

997

 

1,498

 

216

 

436

 

1,067

 

10

 

5,166

 

4,411

 

9,577

 

Gross client cash outflows

(1,511

)

(1,393

)

(2,775

)

(599

)

(575

)

(1,767

)

(12

)

(8,632

)

(12,826

)

(21,459

)

Net client cash flows

(568

)

(396

)

(1,278

)

(383

)

(138

)

(700

)

(3

)

(3,466

)

(8,416

)

(11,882

)

Market appreciation (depreciation)

4,428

 

2,592

 

1,503

 

2,207

 

1,898

 

4,479

 

55

 

17,159

 

14

 

17,173

 

Acquired assets / Net transfers

2

 

2

 

(4

)

(2

)

(1

)

 

3

 

 

 

 

Ending assets under management $

22,483

 

$

14,083

 

$

35,622

 

$

12,524

 

$

11,130

 

$

29,305

 

$

195

 

$

125,343

 

$

3,727

 

$

129,070

 

1 The three months ended June 30, 2021 includes $250 million of seed capital that USAA liquidated and $25 million related to Victory’s closure of two mutual funds and an ETF.

2 The three months ended March 31, 2021 includes the transfer in of $547 million of assets associated with the THB Asset Management acquisition, which closed on March 1, 2021.

 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Asset Class

(unaudited; in millions)

 

For the Six Months Ended By Asset Class
Global /
U.S. Mid U.S. Small Fixed U.S. Large Non-U.S. Total Money Market /
Cap Equity Cap Equity Income Cap Equity Equity Solutions Other Long-term Short-term Total
June 30, 2021
Beginning assets under management $

26,230

 

$

18,368

 

$

36,599

 

$

14,230

 

$

13,982

 

$

34,041

 

$

257

 

$

143,706

 

$

3,534

 

$

147,241

 

Gross client cash inflows

3,154

 

2,310

 

3,774

 

189

 

1,664

 

5,513

 

95

 

16,698

 

209

 

16,908

 

Gross client cash outflows

(3,794

)

(3,124

)

(4,651

)

(839

)

(1,188

)

(3,729

)

(55

)

(17,379

)

(526

)

(17,906

)

Net client cash flows

(640

)

(814

)

(877

)

(650

)

476

 

1,784

 

40

 

(681

)

(317

)

(998

)

Market appreciation (depreciation)

4,777

 

2,641

 

458

 

1,857

 

1,628

 

3,940

 

119

 

15,420

 

1

 

15,421

 

Acquired assets / Net transfers1

(27

)

423

 

229

 

(152

)

(155

)

(125

)

44

 

236

 

36

 

272

 

Ending assets under management $

30,340

 

$

20,617

 

$

36,410

 

$

15,284

 

$

15,931

 

$

39,640

 

$

460

 

$

158,682

 

$

3,254

 

$

161,936

 

 
June 30, 2020
Beginning assets under management $

26,347

 

$

17,346

 

$

37,973

 

$

14,091

 

$

12,603

 

$

31,649

 

$

236

 

$

140,245

 

$

11,587

 

$

151,832

 

Gross client cash inflows

2,416

 

2,230

 

3,449

 

454

 

1,107

 

2,762

 

21

 

12,439

 

12,063

 

24,502

 

Gross client cash outflows

(3,776

)

(2,703

)

(5,665

)

(1,406

)

(1,259

)

(4,161

)

(36

)

(19,007

)

(20,277

)

(39,284

)

Net client cash flows

(1,360

)

(473

)

(2,217

)

(952

)

(152

)

(1,399

)

(15

)

(6,568

)

(8,214

)

(14,782

)

Market appreciation (depreciation)

(2,479

)

(2,733

)

142

 

(621

)

(1,347

)

(956

)

(32

)

(8,027

)

48

 

(7,979

)

Acquired assets / Net transfers

(25

)

(57

)

(276

)

7

 

26

 

12

 

6

 

(307

)

307

 

 

Ending assets under management $

22,483

 

$

14,083

 

$

35,622

 

$

12,524

 

$

11,130

 

$

29,305

 

$

195

 

$

125,343

 

$

3,727

 

$

129,070

 

1 The six months ended June 30, 2021 includes the transfer in of $547 million of assets associated with the THB Asset Management acquisition, which closed on March 1, 2021 partially offset by $250 million of seed capital that USAA liquidated and $25 million related to Victory’s closure of two mutual funds and an ETF.

 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Vehicle

(unaudited; in millions)

 

For the Three Months Ended By Vehicle

Separate

Accounts

Mutual

and Other

Funds1

ETFs2

Vehicles3

Total

June 30, 2021
Beginning assets under management $

117,830

 

$

4,441

 

$

32,061

 

$

154,331

 

Gross client cash inflows

5,060

 

239

 

4,775

 

10,074

 

Gross client cash outflows

(5,376

)

(169

)

(4,353

)

(9,898

)

Net client cash flows

(317

)

70

 

423

 

176

 

Market appreciation (depreciation)

5,879

 

218

 

1,606

 

7,703

 

Acquired assets / Net transfers4

(229

)

(375

)

329

 

(275

)

Ending assets under management $

123,164

 

$

4,354

 

$

34,418

 

$

161,936

 

 
March 31, 2021
Beginning assets under management $

112,998

 

$

3,976

 

$

30,267

 

$

147,241

 

Gross client cash inflows

5,465

 

240

 

1,128

 

6,833

 

Gross client cash outflows

(6,293

)

(117

)

(1,598

)

(8,007

)

Net client cash flows

(828

)

123

 

(469

)

(1,174

)

Market appreciation (depreciation)

5,575

 

343

 

1,801

 

7,718

 

Acquired assets / Net transfers5

85

 

 

462

 

547

 

Ending assets under management $

117,830

 

$

4,441

 

$

32,061

 

$

154,331

 

 
June 30, 2020
Beginning assets under management $

98,305

 

$

3,177

 

$

22,296

 

$

123,779

 

Gross client cash inflows

8,621

 

90

 

866

 

9,577

 

Gross client cash outflows

(19,726

)

(214

)

(1,519

)

(21,459

)

Net client cash flows

(11,104

)

(124

)

(653

)

(11,882

)

Market appreciation (depreciation)

13,229

 

409

 

3,535

 

17,173

 

Acquired assets / Net transfers

 

 

 

 

Ending assets under management $

100,430

 

$

3,462

 

$

25,179

 

$

129,070

 

1 Includes institutional and retail share classes, money market and VIP funds.

2 Excludes assets managed for other proprietary product (i.e. funds of funds) in order to adjust for double counting.

3 Includes collective trust funds, wrap program accounts, UMAs, UCITS, private funds and non-U.S. domiciled pooled vehicles.

4 The three months ended June 30, 2021 includes $250 million of seed capital that USAA liquidated and $25 million related to Victory’s closure of two mutual funds and an ETF.

5 The three months ended March 31, 2021 includes the transfer in of $547 million of assets associated with the THB Asset Management acquisition, which closed on March 1, 2021.

 

Victory Capital Holdings, Inc. and Subsidiaries

Assets Under Management by Vehicle

(unaudited; in millions)

 

For the Six Months Ended By Vehicle
Separate
Accounts
Mutual and Other
Funds1 ETFs2 Vehicles3 Total
June 30, 2021
Beginning assets under management $

112,998

 

$

3,976

 

$

30,267

 

$

147,241

 

Gross client cash inflows

10,525

 

479

 

5,904

 

16,908

 

Gross client cash outflows

(11,669

)

(286

)

(5,950

)

(17,906

)

Net client cash flows

(1,145

)

193

 

(46

)

(998

)

Market appreciation (depreciation)

11,454

 

561

 

3,406

 

15,421

 

Acquired assets / Net transfers4

(144

)

(375

)

791

 

272

 

Ending assets under management $

123,164

 

$

4,354

 

$

34,418

 

$

161,936

 

 
June 30, 2020
Beginning assets under management $

118,605

 

$

4,213

 

$

29,014

 

$

151,832

 

Gross client cash inflows

22,366

 

345

 

1,790

 

24,502

 

Gross client cash outflows

(35,357

)

(675

)

(3,252

)

(39,284

)

Net client cash flows

(12,990

)

(330

)

(1,462

)

(14,782

)

Market appreciation (depreciation)

(5,185

)

(421

)

(2,374

)

(7,979

)

Acquired assets / Net transfers

 

 

 

 

Ending assets under management $

100,430

 

$

3,462

 

$

25,179

 

$

129,070

 

1 Includes institutional and retail share classes, money market and VIP funds.

2 Excludes assets managed for other proprietary product (i.e. funds of funds) in order to adjust for double counting.

3 Includes collective trust funds, wrap program accounts, UMAs, UCITS, private funds and non-U.S. domiciled pooled vehicles.

4 The six months ended June 30, 2021 includes the transfer in of $547 million of assets associated with the THB Asset Management acquisition, which closed on March 1, 2021 partially offset by $250 million of seed capital that USAA liquidated and $25 million related to Victory’s closure of two mutual funds and an ETF.

Information Regarding Non-GAAP Financial Measures

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

Adjusted EBITDA

Adjustments made to GAAP Net Income to calculate Adjusted EBITDA, as applicable, are:

  • Adding back income tax expense;
  • Adding back interest paid on debt and other financing costs, net of interest income;
  • Adding back depreciation on property and equipment;
  • Adding back other business taxes;
  • Adding back amortization expense on acquisition-related intangible assets;
  • Adding back stock-based compensation expense associated with equity awards issued from pools created in connection with the management-led buyout and various acquisitions and as a result of equity grants related to the IPO;
  • Adding back direct incremental costs of acquisitions, including restructuring costs;
  • Adding back debt issuance cost expense;
  • Adjusting for earnings/losses on equity method investments.

Adjusted Net Income

Adjustments made to GAAP Net Income to calculate Adjusted Net Income, as applicable, are:

  • Adding back other business taxes;
  • Adding back amortization expense on acquisition-related intangible assets;
  • Adding back stock-based compensation expense associated with equity awards issued from pools created in connection with the management-led buyout and various acquisitions and as a result of any equity grants related to the IPO;
  • Adding back direct incremental costs of acquisitions, including restructuring costs;
  • Adding back debt issuance cost expense;
  • Subtracting an estimate of income tax expense applied to the sum of the adjustments above.

Tax Benefit of Goodwill and Acquired Intangible Assets

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

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