Victory Capital Holdings, Inc. Class A Common Stock · NASDAQ:VCTR
Victory Capital Holdings, Inc. Class A Common Stock — Q3 2019 Earnings Presentation
34 slides from Victory Capital Holdings, Inc. Class A Common Stock's earnings presentation, Nov 5, 2019
Slide 1: Third Quarter 2019 Earnings Presentation
Third Quarter 2019 Earnings Presentation November 5, 2019
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 Topics Business Overview Investment Performance USAA Asset Management Company Integration Update Third Quarter 2019 Financial Results Appendix 3
Slide 4: Business Overview
Business Overview 4
Slide 5: Business Overview
Business Overview AUM & FLOWS • AUM increased to $145.8Bn at September 30, 2019 • Positive 3Q long-term net flows of +$726MM; YTD long-term net flows of +$3.3Bn • Second consecutive quarter of positive long-term net flows 3Q FINANCIAL • $0.91 Adjusted Net Income with tax benefit per diluted share HI
Slide 6: Investment Performance
Investment Performance 6
Slide 7: Commitment to Long-Term Investment Performance
Commitment to Long-Term Investment Performance Total Mutual Total Mutual Funds 44 Funds and ETFs with 4- or 5-Star overall ratings 68% and ETFs AUM with 4- or 5-Star overall ratings Percentage of AUM that has outperformed its benchmark 100% 88% 88% 92% 95% 83% 76% 73% 73% 75% 67% 64% 59% 60% 50% 25%
Slide 8: Percentage of Strategies Outperforming Benchmarks
Percentage of Strategies Outperforming Benchmarks Legacy Victory Capital 100% 82% 75% 65% 68% 55% 50% 25% 0% USAA Fixed Income 100% 83% 83% 91% 75% 64% 50% 25% 0% Total 100% 75% 68% 52% 55% 47% 50% 25% 0% 1-Year 3-Year 5-Year 10-Year As of September 30, 2019 8
Slide 9: USAA Asset Management Company Integration Update
USAA Asset Management Company Integration Update 9
Slide 10: USAA Asset Management Acquisition Integration Update
USAA Asset Management Acquisition Integration Update Loyal USAA Members • Using multiple methods to engage with members • Strong digital connectivity among members: ˃ Majority of direct mutual fund and ETF purchases are made via self-service platforms ˃ 93% of member base was digitally active in 201
Slide 11: USAA Mutual Funds Digital Presence
USAA Mutual Funds Digital Presence USAA Mutual Funds Homepage – usaa.com Sample USAA 529 College Savings Plan Campaign Email Images are for illustrative purposes only. As of July 1, 2019, Victory Capital Management Inc. is the investment advisor for USAA Mutual Funds and the USAA 529 College Savings
Slide 12: USAA Asset Management Acquisition Integration Update
USAA Asset Management Acquisition Integration Update 50 Fixed Income and Solutions investment professionals retained from USAA • 12 fixed income mutual funds ˃ Six taxable and six tax-exempt ˃ All 12 are four or five star rated by Morningstar New distribution opportunity in existing channels • Victo
Slide 13: Fast-Growing & Competitively Priced Solutions Products
Fast-Growing & Competitively Priced Solutions Products • Competitive fee rates, yielding higher than firm-wide average margin on integrated platform RULES-BASED & FACTOR- • Total AUM of $49.1Bn at September 30, 2019 ORIENTED • Multiple mandates funded in 2019 SOLUTIONS ˃ Multi-Asset ˃ Global Dividen
Slide 14: Third Quarter 2019 Financial Results
Third Quarter 2019 Financial Results 14
Slide 15: Third Quarter 2019 Financial Results
Third Quarter 2019 Financial Results 3Q FLOWS AND • AUM increased to $145.8Bn at September 30, 2019 AUM • Positive 3Q long-term net flows of +$726MM; YTD long-term net flows of +$3.3Bn • Second consecutive quarter of positive long-term net flows RECORD • $215MM revenue, up 135% from 2Q FINANCIAL • $
Slide 16: Assets Under Management (End of Period)
Assets Under Management (End of Period) $Bn • Total AUM of $145.8Bn, at September 30 • Up 128% from ($mm) June 30, driven by acquired assets and net inflows Retail Institutional Member $145.8 • Diversified distribution channels ˃ Retail 25% ˃ Institutional 26% +128% ˃ Member 49% $64.1 $58.1 1Q19 2Q1
Slide 17: Long-Term Asset Flows
Long-Term Asset Flows • 3Q 2019 positive long-term net flows of $Bn $726MM 3/31/18 ($mm) • 6 franchises and Solutions generated YTD Gross Sales Gross Redemptions Net Flows long-term net inflows $7.5 $7.5 • Long-term net inflows of +$3.3Bn YTD through September 30 $3.0 Operating Metrics 1Q19 2Q19 3Q1
Slide 18: Revenues
Revenues ($mm) 3/31/18 9/30/17 $MM • Record quarterly and YTD revenue $215.0 ˃ QoQ revenue up 135% $105.0 ˃ YTD revenue up 24% $101.1 $92.5 +135% • Fee rate reduction in 3Q due to: ˃ Temporary waiver of fulcrum fees on acquired assets, through July 1, 2020 ˃ Mix shift to higher-margin, lower- $87.5
Slide 19: Expenses
Expenses $MM $180.9 Total expenses increased 150% QoQ, due to: 3/31/18 9/30/17 • 57% increase in personnel expense from 110+ new hires from USAA • Higher operating expenses due to increase in distribution and other asset-based expenses. • Non-operating expense increase primarily reflects higher inte
Slide 20: Non-GAAP Metrics
Non-GAAP Metrics ($mm) 3/31/18 9/30/17 $MM except per share data • 3Q19 Adjusted Net Income (ANI) with tax benefit of $0.91 per ANI Tax Benefit ANI with tax benefit per diluted share $1.00 diluted share, up 139% $100.0 $0.91 • ANI with tax benefit of $67.3MM 0.91 $0.80 ˃ $60.5MM ANI, up 148% $75.0 ˃
Slide 21: Capital Management
Capital Management ($mm) 3/31/18 9/30/17 • Cash balance increased from $51.5MM Selected Balance Sheet Items ($MM) 9/30/19 at Dec. 31, 2018, to $79.0MM at Sept 30, 2019 Cash / Cash Equivalents $79.0 • Repurchased 300K shares in 3Q19 Debt $1.037Bn • Declared second quarterly cash Stockholders' Equity
Slide 22: Enhancing Shareholder Value with Balance Sheet Flexibility
Enhancing Shareholder Value with Balance Sheet Flexibility Interest Share Repurchases Returns to Acquisitions Shareholders Dividends De-leveraging Cap Ex & Acquisitions De-leverage Enhancing Shareholder Value by: Maintaining Balance Sheet Flexibility with: • Improving platform with strategic acquisi
Slide 23: Reaffirming & Accelerating Proforma Guidance
Reaffirming & Accelerating Proforma Guidance • $120MM in total cost synergies ANNUAL • Greater than $75MM of costs removed, as of July 1 close COST SYNERGIES • $105MM of costs removed, as of Sep 30; timing faster than plan • $120MM of costs removed by 3Q 2020 • $50MM one-time cost to achieve synergi
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) 9/30/2018 12/18/2018 3/31/2019 6/30/2019 9/30/2019 GAAP Net income $ 20,590 $ 13,915 $ 14,527 $ 14,383 $ 25,992 GAAP Income tax expense (6,562) (4,777) (4,807) (4,478) (8,058) GAAP income before taxes 27,152 1
Slide 28: 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 29: Detailed Reconciliation of 2Q19 Adjusted Net Income
Detailed Reconciliation of 2Q19 Adjusted Net Income Three months ended June 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 Non-
Slide 30: Detailed Reconciliation of 3Q18 Adjusted Net Income
Detailed Reconciliation of 3Q18 Adjusted Net Income Three months ended September 30, 2018 (in thousands, except per-share amounts) Adjustments GAAP Amortization Tax Benefit of Other of Acquisition- Acquisition, Pre-IPO Goodwill and U.S. GAAP Business Related Stock-Based Restructuring and Debt Issuan
Slide 31: Detailed Reconciliation of 9-mo '19 Adjusted Net Income
Detailed Reconciliation of 9-mo ‘19 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 Issuance To
Slide 32: Detailed Reconciliation of 9-mo '18 Adjusted Net Income
Detailed Reconciliation of 9-mo ‘18 Adjusted Net Income Nine months ended September 30, 2018 (in thousands, except per-share amounts) Adjustments GAAP Amortization Tax Benefit of Other of Acquisition- Acquisition, Pre-IPO Goodwill and U.S. GAAP Business Related Stock-Based Restructuring and Debt Iss
Slide 33: Consolidated Reconciliation of Adjusted Net Income
Consolidated Reconciliation of Adjusted Net Income For the three months ended, (in thousands, except per-share data) 9/30/2018 12/18/2018 3/31/2019 6/30/2019 9/30/2019 GAAP Net Income $ 20,590 $ 13,915 $ 14,527 $ 14,383 $ 25,992 Other business taxes 350 337 555 424 146 GAAP amortization of acquisiti
Slide 34: 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, 2019. Past performance does not guarantee future results. A