• Total Client Assets: Over $181 billion, second highest quarter-end level in history.
• Revenue: $225.6 million, up 3% from the second quarter.
• GAAP Operating Income: $120.4 million, up 9% from the second quarter.
• GAAP Operating Margin: 53.3%.
• Earnings Per Share (GAAP): $1.24 per diluted share.
• Adjusted Earnings Per Share: $1.35 per diluted share.
• Adjusted EBITDA: $121.3 million, 4% higher than the second quarter.
• Adjusted EBITDA Margin: 53.7%.
• Cash Balance: $188 million at the end of the quarter, up $69 million from June.
• Net Leverage Ratio: Improved to 1.7 times.
• Dividend Increase: 7% increase, quarterly dividend to $0.44 per share.
• Assets Under Management (AUM): $181.1 billion at the end of September, up from $173.8 billion in June.
• Cash from Operations: $99.8 million generated during the quarter.

• Warning! GuruFocus has detected 5 Warning Sign with VCTR.

Release Date: November 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Victory Capital Holdings Inc (NASDAQ:VCTR) achieved record earnings per share, adjusted EBITDA, and margin expansion to 53.7% in the third quarter.
• The company ended the quarter with total client assets of over $181 billion, marking the second highest quarter-end level in its history.
• Victory Capital Holdings Inc (NASDAQ:VCTR) made significant progress towards closing a strategic transaction with Amundi, expected to enhance its investment franchise.
• The company has a strong track record of successful acquisitions, enhancing its scale and diversification of investment capabilities and distribution channels.
• Victory Capital Holdings Inc (NASDAQ:VCTR) reported strong investment performance, with 67% of its AUM in mutual funds and ETFs earning four or five-star ratings from Morningstar.

Negative Points

• The company experienced net outflows in some investment franchises, despite positive fixed income flows from Victory Income Investors.
• There was a decline in the average fee rate due to product, asset class, and channel mix shifts.
• Victory Capital Holdings Inc (NASDAQ:VCTR) was prohibited from repurchasing shares during the quarter due to the proxy process, contributing to a cash buildup.
• The company faces challenges in predicting quarter-by-quarter flows, with market and industry conditions impacting organic growth prospects.
• The necessity for industry consolidation presents both opportunities and challenges, requiring careful strategic planning and execution.

Q & A Highlights

Q: Can you discuss the fixed income flows and what might be impacting net outflows in that franchise? A: David Brown, CEO, highlighted that Victory Income Investors has shown strong performance and distribution access, with positive outlooks for fixed income. Some one-off events have impacted flows, but the macro environment and investment performance remain strong, suggesting a positive future.

Q: Could you elaborate on the industry's consolidation phase and Victory's readiness for future acquisitions? A: David Brown, CEO, believes the industry is entering a significant consolidation phase due to various factors like rate environments and market challenges. Victory is well-positioned for acquisitions, with a strong track record and a robust balance sheet post-Amundi transaction.

Q: How are you and Amundi planning to distribute Victory's products in emerging economies? A: David Brown, CEO, stated that the distribution agreement with Amundi does not distinguish between geographies. They plan to approach all regions similarly, leveraging Amundi's strong distribution infrastructure, especially in Europe and emerging markets like China and India.

Q: Can you provide more details on the institutional pipeline and its potential impact on organic growth? A: David Brown, CEO, mentioned that the institutional pipeline spans multiple franchises with larger mandates. The company is focused on maintaining margins and is optimistic about organic growth, especially with the Amundi transaction enhancing distribution capabilities.

Q: What are the expectations for the Amundi transaction's accretion and any updates on their current performance? A: Michael Policarpo, CFO, reiterated guidance for low double-digit accretion post-first full year of ownership. Amundi's performance has exceeded expectations, with strong investment performance and organic growth, providing positive tailwinds for the transaction.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.