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.

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.

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.

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

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.

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.

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.

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.