Victory Capital Holdings, Inc. Class A Common Stock · NASDAQ:VCTR
Victory Capital Holdings, Inc. Class A Common Stock — Q3 2020 Earnings Presentation
36 slides from Victory Capital Holdings, Inc. Class A Common Stock's earnings presentation, Nov 5, 2020
Slide 1: Third Quarter 2020 Earnings Presentation
Third Quarter 2020 Earnings Presentation November 5, 2020
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation may contain “forward-looking” statements that are based on our beliefs and assumptions and on information currently available to us. Forward-looking statements include information concerning our possible or assumed future results of operations, business s
Slide 3: Agenda
Agenda Quarterly Business Overview Investment Performance THB Asset Management Acquisition & Alderwood Investment Third Quarter 2020 Financial Results Appendix 3
Slide 4: Quarterly Business Overview
Quarterly Business Overview 4
Slide 5: Business Overview
Business Overview • Total AUM of $132.7Bn at September 30, 2020 AUM & FLOWS ˃ Up 3% from June 30, 2020, and up 7% from March 31, 2020 • Total LT gross flows of $5.1Bn and net flows -$2.9Bn in 3Q 3Q OPERATING • Investment performance was strong in 3Q, as of September 30, 2020: & FINANCIAL ˃ 70% of AU
Slide 6: Direct-to-Consumer Digital Marketplace Update
Direct-to-Consumer Digital Marketplace Update • Multi-channel paid media campaign commenced in select geographies with large military populations ˃ Radio ˃ Digital ˃ Paid Search ˃ Social Media • To be debuting new digital experience • Referral agreement with USAA® ˃ ~100K new account registrations s
Slide 7: Investment Performance
Investment Performance 7
Slide 8: Commitment to Long-Term Investment Performance
Commitment to Long-Term Investment Performance Total Mutual Total Mutual Funds 39 Funds and ETFs with 4- or 5-Star overall ratings 67% and ETFs AUM with 4- or 5-Star overall ratings % of AUM outperforming benchmarks % of strategies outperforming benchmarks 80% 75% 80% 70% 69% 64% 60% 55% 60% 53% 50%
Slide 9: THB Asset Management Acquisition & Alderwood Investment
THB Asset Management Acquisition & Alderwood Investment 9
Slide 10: THB Asset Management Acquisition
THB Asset Management Acquisition • Victory Capital’s 10th Investment Franchise • Creative deal structure ˃ Nominal consideration paid ˃ Standard compensation agreement based on revenue sharing ˃ Immediately accretive to earnings • Full ESG integration in investment process ˃ 30-year history of manag
Slide 11: THB Asset Management Acquisition: Peer Rankings and Excess Returns
THB Asset Management Acquisition Peer Rankings and Excess Returns vs. Benchmarks, as of Sep 30, 2020 International U.S. Micro-Cap1 U.S.Small-Cap2 U.S.Mid-Cap3 Opportunities4 Peer Rank (%) 4% 30% 7% 4% QTD Excess return vs. benchmark +867 bps +123 bps +260 bps +551 bps Peer Rank (%) 24% 14% 9% 7% 1-Y
Slide 12: Strategic Investment: Alderwood Partners
Strategic Investment: Alderwood Partners • Proven M&A team ˃ Founded in 2020 by Jonathan Little ˃ Based in London ˃ Raising a PE-style fund to invest in specialized asset management businesses • VCTR acquired 15% GP ownership stake ˃ Board representation ˃ Planning to also invest at fund level • Str
Slide 13: Third Quarter 2020 Financial Results
Third Quarter 2020 Financial Results 13
Slide 14: Third Quarter 2020 Financial Results
Third Quarter 2020 Financial Results THIRD • $188.7MM revenue QUARTER ˃ Up 4% from 2Q 2020 ˃ Down 12% from 3Q 2019 FINANCIAL RESULTS • GAAP operating margin of 43% ˃ Up 650 bps from 2Q 2020 ˃ Up 1,680 bps from 3Q 2019 • Record high Adjusted EBITDA Margin of 51% • GAAP Earnings per diluted share of $
Slide 15: Assets Under Management (End of Period)
Assets Under Management (End of Period) $Bn • Total AUM of $132.7Bn at Sep. 30, 2020 ˃ Up($mm) 3% from June 30, 2020 Retail Institutional Direct ˃ Up 7% from March 31, 2020 • Diversified distribution channels $151.8 ˃ Retail $132.7 $129.1 ˃ Institutional $123.8 ˃ Direct 4Q19 1Q20 2Q20 3Q20 15
Slide 16: Long-Term Asset Flows
Long-Term Asset Flows $Bn 3Q 2020 Gross LT Sales Gross LT Redemptions • Gross LT sales of $5.1Bn 3/31/18 ($mm) • LT net outflows $2.9Bn $7.3 • Multiple franchises/strategies generated $5.3 $5.2 $5.1 long-term net inflows in 3Q & YTD 2020: ˃ INCORE ˃ Trivalent ˃ Sophus ˃ RS Global Operating Metrics 4
Slide 17: Revenues
Revenues ($mm) 3/31/18 $MM 9/30/17 • 3Q 2020 revenue $189MM $218.6 ˃ Up 4%, vs 2Q 2020 $204.4 ˃ Down 8% vs 1Q 2020 $105.0 $188.7 $181.9 • YTD 2020 revenue $575MM ˃ Up 46% vs 2019 nine months • Average YTD 2020 fee rate of 56.7bps Operating Metrics 4Q19 1Q20 2Q20 3Q20 Average AUM ($Bn) $147.9 $144.1
Slide 18: Expenses
Expenses 3/31/18 $MM • 3Q 2020 Total expenses 9/30/17 ˃ Declined 6% from 2Q $170.1 ˃ Down 36% from $181 million in 3Q 2019 $130.4 • 3Q 2020 operating expenses $122.7 down 5% vs 2Q $115.9 • Acquisition-related, restructuring and integration expenses declined 44% Operating Metrics ($MM) 4Q19 1Q20 2Q20
Slide 19: Non-GAAP Metrics
Non-GAAP Metrics ($mm) 3/31/18 9/30/17 $MM except per share data • 3Q 2020 Adjusted Net Income (ANI) with tax benefit of $1.00 per diluted $1.20 ANI Tax Benefit ANI with tax benefit per diluted share share $100.0 ˃ Up 12% from 2Q 2020 $0.99 $1.00 $1.00 ˃ Up 10% from 3Q 2019 $0.92 $0.89 • 3Q 2020 ANI
Slide 20: Capital Management
Capital Management Interest Expense and Other ($mm) 3/31/18 Debt ($MM) Financing Costs 9/30/17 ($MM) Selected Balance Sheet Items ($MM) 9/30/2020 $1,100 $16.9 Cash / Cash Equivalents $56 $14.9 $952 Debt (4Q to-date, further reduced to $817MM) $837 $914 $11.4 $881 $9.7 $837 $8.2 Stockholders' Equity
Slide 21: Successful Execution … Promises Kept
Successful Execution … Promises Kept STATED OBJECTIVES TANGIBLE RESULTS During 2018 IPO Today Make Accretive Acquisitions USAA® AMCO acquisition earnings accretion >100% Increase Scale AUM up >100%, enhancing operating efficiencies Acquired Fixed Income and Solutions capabilities, Diversify Asset Cl
Slide 22: Ongoing and Future Cash-Tax Benefits
Ongoing and Future Cash-Tax Benefits • Section 338(h)(10) Election ˃ Stepped up cost basis of acquired indefinite lived intangible assets is deductible for corporate income tax purposes over 15 years ˃ $1.8 billion in total future tax amortization ˃ $441 million in future cash tax savings, assuming
Slide 23: Enhancing Shareholder Value with Balance Sheet Flexibility
Enhancing Shareholder Value with Balance Sheet Flexibility Interest Share Repurchases De-leveraging Dividends Cap Ex Enhancing Shareholder Value by: Maintaining Balance Sheet Flexibility with: • Improving platform with every strategic acquisition • Strategic capital allocation policy • Gaining effic
Slide 24: Appendix
Appendix 24
Slide 25: Notes and Disclosures
Notes and Disclosures 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, restruct
Slide 26: Notes and Disclosures
Notes and Disclosures Information Regarding Non-GAAP Financial Measures (cont.) 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 asset
Slide 27: Consolidated Reconciliations of Adjusted EBITDA
Consolidated Reconciliations of Adjusted EBITDA For the three months ended, (in thousands) 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 GAAP Net income $ 25,992 $ 37,589 $ 57,166 $ 44,720 $ 55,741 GAAP Income tax expense (8,058) (10,854) (16,823) (14,487) (17,027) GAAP income before taxes 34,0
Slide 28: Consolidated Reconciliations of Adjusted Net Income
Consolidated Reconciliations of Adjusted Net Income For the three months ended, (in thousands, except per-share data) 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 GAAP Net Income $ 25,992 $ 37,589 $ 57,166 $ 44,720 $ 55,741 Other business taxes 146 359 (3,296) 219 256 GAAP amortization of acqu
Slide 29: Detailed Reconciliation of 3Q20 Adjusted Net Income
Detailed Reconciliation of 3Q20 Adjusted Net Income (in thousands, except per-share amounts) Adjustments GAAP Amortization of Tax Benefit Other Acquisition- Acquisition, Debt of Goodwill U.S. GAAP Business Related Stock-Based Restructuring Issuance Total Non-GAAP and Acquired Basis Taxes Intangibles
Slide 30: Detailed Reconciliation of 2Q20 Adjusted Net Income
Detailed Reconciliation of 2Q20 Adjusted Net Income (in thousands, except per-share amounts) Adjustments GAAP Amortization of Tax Benefit Other Acquisition- Acquisition, Debt of Goodwill U.S. GAAP Business Related Stock-Based Restructuring Issuance Total Non-GAAP and Acquired Basis Taxes Intangibles
Slide 31: Detailed Reconciliation of 1Q20 Adjusted Net Income
Detailed Reconciliation of 1Q20 Adjusted Net Income (in thousands, except per-share amounts) Adjustments GAAP Amortization Tax Benefit of Other of Acquisition- Acquisition, Goodwill and U.S. GAAP Business Related Stock-Based Restructuring and Debt Issuance Total Non-GAAP Acquired Basis Taxes Intangi
Slide 32: Detailed Reconciliation of 4Q19 Adjusted Net Income
Detailed Reconciliation of 4Q19 Adjusted Net Income Adjustments GAAP Amortization of Tax Benefit of Acquisition- Acquisition, Goodwill and U.S. GAAP Other Business Related Stock-Based Restructuring and Debt Issuance Total Non-GAAP Acquired Basis Taxes Intangibles Compensation Exit Costs Costs Adjust
Slide 33: Detailed Reconciliation of 3Q19 Adjusted Net Income
Detailed Reconciliation of 3Q19 Adjusted Net Income Three months ended September 30, 2019 Adjustments (in thousands, except per-share amounts) GAAP Amortization of Tax Benefit of Other Acquisition- Acquisition, Debt Goodwill and U.S. GAAP Business Related Stock-Based Restructuring and Issuance Total
Slide 34: Detailed Reconciliation of Nine-Months 2020 Adjusted Net Income
Detailed Reconciliation of Nine-Months 2020 Adjusted Net Income (in thousands, except per-share amounts) Adjustments GAAP Amortization of Tax Benefit of Other Acquisition- Acquisition, Debt Goodwill and U.S. GAAP Business Related Stock-Based Restructuring Issuance Total Non-GAAP Acquired Basis Taxes
Slide 35: Detailed Reconciliation of Nine-Months 2019 Adjusted Net Income
Detailed Reconciliation of Nine-Months 2019 Adjusted Net Income Nine months ended September 30, 2019 (in thousands, except per-share amounts) Adjustments GAAP Amortization Tax Benefit of Other of Acquisition- Acquisition, Goodwill and U.S. GAAP Business Related Stock-Based Restructuring and Debt Iss
Slide 36: Notes and Disclosures
Notes and Disclosures Investing involves risk, including the potential loss of principal. There are no assurances that any fund will achieve its stated objective. All data in this presentation, unless otherwise noted, is as of September 30, 2020. Past performance does not guarantee future results. A
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