Victory Capital Reports Strong Second Quarter Earnings

Second-Quarter 2023 Highlights

• Total Assets Under Management (AUM) of $161.6 billion¹
• Long-term gross flows of $5.6 billion
• Long-term net flows of ($2.1) billion
• GAAP operating margin of 42.9%
• Adjusted EBITDA margin of 50.9%²
• GAAP net income of $0.83 per diluted share
• Adjusted net income with tax benefit of $1.11 per diluted share²
• Board authorizes regular $0.32 quarterly cash dividend

Victory Capital Holdings, Inc. (NASDAQ: VCTR) (“Victory Capital” or “the Company”) today reported financial results for the quarter ended June 30, 2023.

“Our investment performance has remained very strong during the second quarter and first half of this year,” said David Brown, Chairman and Chief Executive Officer. “Through the end of June, the percentage of our AUM outperforming benchmarks over the respective 3-, 5-, and 10-year periods was 72%, 79%, and 77%.

“Adjusted EBITDA margin expanded to 50.9% in the second quarter. This was our 12th consecutive quarter above our 49% guidance, and the 8th out of the last 12 quarters that our margins were in excess of 50%.

“Overall, excluding the previously disclosed passive low-fee redemption in April, long-term net flows improved for the second consecutive quarter. Entering the year’s second half, we are encouraged about our net flow outlook through the end of this year and into next.

“We continued our strong capital return to shareholders during the quarter with the repurchase of 1.5 million shares, which is the most for any quarter in our history and we paid out $21 million in cash dividends. Additionally, our due diligence activities remain ongoing as we continue to evaluate inorganic growth opportunities.

“As always, we continue to focus on serving our clients, which is our top priority.”

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)

AUM, Flows and Investment Performance

Victory Capital’s total AUM increased by 1.9%, or $3.0 billion, to $161.6 billion at June 30, 2023, compared with $158.6 billion at March 31, 2023. The increase was attributable to positive market action of $5.5 billion partially offset by net outflows of $2.4 billion. Total gross flows were $5.8 billion for the second quarter and $11.9 billion for the year-to-date period. For the second quarter and year-to-date periods, the Company reported total net outflows of $2.4 billion and $3.7 billion, respectively.

As of June 30, 2023, Victory Capital offered 126 investment strategies through its 12 autonomous Investment Franchises and Solutions Platform. The table below presents outperformance against benchmarks by AUM as of June 30, 2023.

Second Quarter 2023 Compared with First Quarter 2023

Revenue increased 1.4% to $204.2 million in the second quarter, compared with $201.3 million in the first quarter, primarily due to an increase in revenue realization and one extra day in the quarter. GAAP operating margin expanded 590 basis points in the second quarter to 42.9%, up from 37.0% in the first quarter primarily due to the combination of a non-cash $5.9 million difference in amounts recorded to the change in the fair value of consideration payable for acquisitions as well as a decrease in compensation related expenses. Second quarter GAAP net income increased 15.0% to $56.7 million, up from $49.3 million in the prior quarter. On a per-share basis, GAAP net income increased 17.1% to $0.83 per diluted share in the second quarter, versus $0.71 per diluted share in the first quarter.

Adjusted net income with tax benefit increased 1.0% to $75.9 million in the second quarter, up from $75.2 million in the first quarter. On a per-share basis, adjusted net income with tax benefit increased 2.8% to $1.11 per diluted share in the second quarter, from $1.08 per diluted share in the prior quarter. Adjusted EBITDA increased 4.9% to $104.0 million in the second quarter, versus $99.2 million in the first quarter. Adjusted EBITDA margin expanded 160 basis points in the second quarter of 2023 to 50.9% compared with 49.3% in the prior quarter.

Second Quarter 2023 Compared with Second Quarter 2022

Revenue for the three months ended June 30, 2023, declined 5.5% to $204.2 million, compared with $216.0 million in the same quarter of 2022 as a result of lower average AUM over the comparable period.

Operating expenses increased 20.7% to $116.7 million, compared with $96.7 million in last year’s second quarter due to a non-cash $28.1 million difference in amounts recorded to the change in the fair value of consideration payable for acquisitions, partially offset by a reduction in compensation expense as well as distribution and other asset-based expenses. GAAP operating margin contracted 1,230 basis points to 42.9% in the second quarter, from 55.2% in the same quarter of 2022. GAAP net income declined 28.5% to $56.7 million, or $0.83 per diluted share, in the second quarter compared with $79.2 million, or $1.09 per diluted share, in the same quarter of 2022.

Adjusted net income with tax benefit decreased 5.9% to $75.9 million, or $1.11 per diluted share, in the second quarter, compared with $80.7 million, or $1.11 per diluted share in the same quarter last year. Adjusted EBITDA decreased 2.0% to $104.0 million, compared with $106.2 million in last year’s same quarter. Year-over-year, adjusted EBITDA margin expanded 170 basis points to 50.9% in the second quarter of 2023, compared with 49.2% in the same quarter last year.

Six Months Ended June 30, 2023 Compared with Six Months Ended June 30, 2022

Revenue for the six months ended June 30, 2023, decreased 9.1% to $405.5 million, compared with $446.0 million in the same period of 2022. The decrease was primarily due to lower average AUM.

Operating expenses increased 8.1% to $243.5 million for the six months ended June 30, 2023, compared with $225.2 million in the same period in 2022 due to a non-cash $39.0 million difference in amounts recorded to the change in the fair value of consideration payable for acquisitions, partially offsetting was a decrease in variable expenses including compensation, distribution and other asset-based expenses. GAAP operating margin was 40.0% for the six months ended June 30, 2023, a 950 basis point decrease from the 49.5% recorded in the same period in 2022. GAAP net income decreased 29.6% to $105.9 million, or $1.53 per diluted share, in the first six months of 2023 compared with $150.5 million, or $2.05 per diluted share, in the same period in 2022.

Adjusted net income with tax benefit decreased 11.7% to $151.1 million, or $2.19 per diluted share, in the first six months of 2023, compared with $171.1 million, or $2.34 per diluted share in the same period in 2022. For the six months ended June 30, 2023, adjusted EBITDA declined 7.9% to $203.2 million, compared with $220.6 million for the same period in 2022. Year-over-year, adjusted EBITDA margin expanded 60 basis points to 50.1% in the first six months of 2023, compared with 49.5% in the same period last year.

Balance Sheet / Capital Management

The total debt outstanding as of June 30, 2023 was approximately $1,002 million and consisted of an existing term loan balance of $631 million and the 2021 Incremental Term Loans balance of $371 million.

During the second quarter, the Company repurchased 1.4 million shares under its current share repurchase program and net settled 0.1 million shares.

The Company’s Board of Directors approved a regular quarterly cash dividend of $0.32 per share. The dividend is payable on September 25, 2023, to shareholders of record on September 11, 2023.

Conference Call, Webcast and Slide Presentation

The Company will host a conference call tomorrow morning, August 4, 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 (888) 330-3571 (domestic) or (646) 960-0657 (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 $161.6 billion in assets under management as of June 30, 2023. It was ranked No. 55 on the Fortune 100 Fastest-Growing Companies list for 2022 and is one of only 24 companies to make the list for the second consecutive year. The Company employs a next-generation business strategy that combines 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 12 autonomous Investment Franchises and a Solutions Business, Victory Capital offers a wide array of investment products and services, including mutual funds, ETFs, separately managed accounts, alternative investments, third-party ETF model strategies, collective investment trusts, private funds, a 529 Education Savings Plan, and brokerage services.

Victory Capital is headquartered in San Antonio, Texas, with offices nationwide and investment professionals in the U.S. and abroad. To learn more please visit www.vcm.com or follow Victory Capital 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 conflict in Ukraine 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 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.

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