Victory Capital Holdings, Inc. Class A Common Stock · NASDAQ:VCTR
Victory Capital Holdings, Inc. Class A Common Stock — Q3 2021 Earnings Presentation
39 slides from Victory Capital Holdings, Inc. Class A Common Stock's earnings presentation, Nov 5, 2021
Slide 1: Third Quarter 2021 Earnings Presentation
Third Quarter 2021 Earnings Presentation November 5, 2021
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 Launch of Alternative Investments Platform WestEnd Advisors Acquisition Quarterly Business Overview Investment Performance Third-Quarter 2021 Financial Results Appendix 3
Slide 4: Launch of Alternative Investments Platform
Launch of Alternative Investments Platform
Slide 5: Launch of Alternative Investments Platform
Launch of Alternative Investments Platform NEC • Acquired 100% of New Energy Capital Partners (NEC) ACQUISITION • Alternative Investment manager with ~$1 billion of AUM • All assets invested in clean and renewable energy sector • Substantial economic alignment through revenue sharing and earnout str
Slide 6: WestEnd Advisors Acquisition
WestEnd Advisors Acquisition
Slide 7: WestEnd Advisors – A Compelling Opportunity
WestEnd Advisors – A Compelling Opportunity • Fast growing ETF Model Strategist with approximately $18 billion in assets • Acquiring 100%; will become our 12th Investment Franchise • Broadens and diversifies product offerings and adds new investment platform • Excellent long-term investment performa
Slide 8: WestEnd Advisors – A Compelling Opportunity
WestEnd Advisors – A Compelling Opportunity Uniquely positioned to monetize powerful industry trends Strong existing distribution position with recommended shelf space at top-tier wirehouses, regional broker-dealers, banks and TAMPs Track record of delivering alpha via dynamic sector allocation and
Slide 9: Powerful Industry Tailwinds
Powerful Industry Tailwinds SECULAR TRENDS Growth in ETFs as Fast growing third-party model ETF strategist Cost-Effective Investment Unique and differentiated offerings vs. manufacturer Delivery Vehicle and home office models Increasing Financial Turnkey, core model solution for financial advi
Slide 10: Powerful Industry Tailwinds
Powerful Industry Tailwinds WestEnd Advisors is positioned to benefit from increased adoption of model portfolios and ETFs, as advisors shift to fee-based accounts and cost-effective portfolio implementation. MODEL PORTFOLIO ASSET GROWTH1 ETF ASSET GROWTH2 ($ in trillions) ($ in trillions) $30 $4.5
Slide 11: WestEnd Asset Growth ($ in Billions)
WestEnd Asset Growth ($ in Billions) $8.1 Billion of Net Flows1 2016 2017 2018 2019 2020 9mo ’21 Total Assets Market Action Net Flows 1Net flows from December 31, 2016 through September 30, 2021 2Asset growth for four-year period from December 31, 2016, through December 31, 2020. 11 Assets include a
Slide 12: Financial Structure and Accretion
Financial Structure and Accretion ($mm) 3/31/18 9/30/17 ATTRACTIVE TRANSACTION STRUCTURE • $480 million cash payment at closing • Potential for earnout paid over four years, based on significant revenue growth • Financed with incremental term loan B facility • Cost of debt expected to be comparable
Slide 13: Quarterly Business Overview
Quarterly Business Overview
Slide 14: Quarterly Business Overview
Quarterly Business Overview AUM & FLOWS • At September 30, 2021, total AUM of $160Bn Down 1% from June 30, 2021 Up 21% year-over-year • Second consecutive quarter of positive net long-term flows • YTD long-term gross flows of $22.4Bn Up 28% from same 2020 period Q3 OPERATING • Revenue up 2% fr
Slide 15: Quarterly Business Overview
Quarterly Business Overview DIRECT • Averaging >5K new account registrations per month since acquisition INVESTOR • USAA® 529 Education Savings Plan BUSINESS Positive net flows YTD and since acquiring • Continue to see improvement in Direct Investor net flow profile • Mobile app for Direct Investo
Slide 16: Investment Performance
Victory Investment Performance
Slide 17: Commitment to Long-Term Investment Performance
Commitment to Long-Term Investment Performance Total Mutual Total Mutual Funds 45 Funds and ETFs with 4- or 5-Star overall ratings 65% and ETFs AUM with 4- or 5-Star overall ratings % of AUM outperforming benchmarks % of strategies outperforming benchmarks 80% 77% 80% 72% 68% 65% 64% 64% 61% 60% 60%
Slide 18: Third-Quarter 2021 Financial Results
Third-Quarter 2021 Financial Results
Slide 19: Third-Quarter 2021 Financial Results
Third-Quarter 2021 Financial Results THIRD • $226.3MM revenue QUARTER Up 2% from Q2 2021 FINANCIAL Up 20% from Q3 2020 RESULTS • Adjusted EBITDA of $115.0MM • GAAP Net Income of $74.2MM • GAAP Net Income Per Diluted Share of $1.00 Up 8% from Q2 2021 Up 32% from Q3 2020 • Adjusted Net Income
Slide 20: Assets Under Management
Assets Under Management • Total AUM of $159.9Bn at Sep 30, 2021 $Bn Down 1% from June 30, 2021 Retail Institutional Direct Up 21% from Sep 30, 2020 ($mm) • Diversified distribution $161.9 $159.9 Retail $154.3 $147.2 Institutional Direct Q4 '20 Q1 '21 Q2 '21 Q3 '21 Assets under management a
Slide 21: Long-Term Asset Flows
Long-Term Asset Flows • Second quarter of positive long-term $Bn net flows Gross Sales Gross Redemptions Net Flows 3/31/18 • Gross LT sales ($mm)of $5.7Bn $10.0 12% increase in Y-o-Y Sales $6.7 $5.7 • Multiple franchises/strategies and $5.7 products generated long-term net inflows in Q3 including:
Slide 22: Revenues
Revenues ($mm) 3/31/18 $MM 9/30/17 • Q3 2021 revenue of $226MM $221.9 $226.3 Up 2% vs Q2 2021 $212.9 Up 20% vs Q3 2020 $200.4 $105.0 Operating Metrics Q4 ‘20 Q1 ‘21 Q2 ‘21 Q3 ‘21 Average AUM ($Bn) $139.6 $151.1 $158.5 $162.5 Average Fee Rate (bps), as reported 57.1 57.2 56.2 55.3 22
Slide 23: Expenses
Expenses Compensation Operating Non-Operating • Q3 2021 total expenses increased $1.9MM Cash compensation, % of revenue (1%) vs Q2 2021 10 $MM Driven by $1.9MM increase in $127.8 $130.1 $132.0 $133.9 90 acquisition, restructuring and integration expense 80 Lower reported compensation 70 expenses
Slide 24: Non-GAAP Metrics
Non-GAAP Metrics ($mm) 3/31/18 9/30/17 • Q3 2021 margin is inclusive of $MM except per share data investments in: $1.40 ANI Tax Benefit ANI with tax benefit per diluted share Technology $1.25 $1.18 $1.20 Distribution $100.0 $1.13 $1.07 $92.6 Data $87.2 $6.9 Direct Investor Business $83.6 $1.
Slide 25: Balance Sheet Prepared for Growth
Balance Sheet Prepared for Growth Cost of Debt Interest Rate ($mm) 3/31/18 9/30/17 $18 7.0% • Cost of debt reduced by 65% from $16.9MM in Q3 2019 to $5.9MM in Q3 2021 $16 • Debt reduced by 41% ($454MM) to- date following the loan origination 6.0% $14 $142MM paid down YTD • Interest rate reduced 26
Slide 26: Capital Management
Capital Management Interest Expense and Other ($mm) 3/31/18 Debt ($MM) Financing Costs 9/30/17 ($MM) Selected Balance Sheet Items ($MM) 9/30/2021 Cash / Cash Equivalents $65 $788 $738 $7.7 Debt $646 $681 $6.8 $646 $6.2 $5.9 Stockholders' Equity $868 Diluted Shares Outstanding (MM) 74.1 Net Debt / Ad
Slide 27: Appendix
Appendix
Slide 28: 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 o $1.9 billion in total future tax amortization o $478MM in future cash tax savings, assuming 25% tax
Slide 29: 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 30: 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 31: Consolidated Reconciliations of Adjusted EBITDA
Consolidated Reconciliations of Adjusted EBITDA For the three months ended, (in thousands) 9/30/2020 12/31/2020 3/31/2021 6/30/2021 9/30/2021 GAAP Net income $ 55,741 $ 54,895 $ 65,202 $ 69,270 $ 74,175 GAAP Income tax expense (17,027) (17,681) (17,662) (20,629) (18,181) GAAP income before taxes 72,
Slide 32: Consolidated Reconciliations of Adjusted Net Income
Consolidated Reconciliations of Adjusted Net Income For the three months ended, (in thousands, except per-share data) 9/30/2020 12/31/2020 3/31/2021 6/30/2021 9/30/2021 GAAP Net Income $ 55,741 $ 54,895 $ 65,202 $ 69,270 $ 74,175 Other business taxes 256 265 374 524 376 GAAP amortization of acquisit
Slide 33: Detailed Reconciliation of Q3 '21 Adjusted Net Income
Detailed Reconciliation of Q3 ‘21 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 Intan
Slide 34: Detailed Reconciliation of Q2 '21 Adjusted Net Income
Detailed Reconciliation of Q2 ‘21 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 Intan
Slide 35: Detailed Reconciliation of Q1 '21 Adjusted Net Income
Detailed Reconciliation of Q1 ‘21 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 Intan
Slide 36: Detailed Reconciliation of Q4 '20 Adjusted Net Income
Detailed Reconciliation of Q4 ‘20 Adjusted Net Income 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 Intangibles Compensation Exit Costs Costs Adjustments Basi
Slide 37: Detailed Reconciliation of Q3 '20 Adjusted Net Income
Detailed Reconciliation of Q3 ‘20 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 Intangibl
Slide 38: 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, 2021. Past performance does not guarantee future results. A
Slide 39: Notes and Disclosures
Notes and Disclosures Victory Capital means Victory Capital Management Inc., the investment adviser of the Victory Capital mutual funds, USAA Mutual Funds, VictoryShares ETFs, VictoryShares USAA ETFs, and USAA 529 Education Savings Plan (Plan). Victory Capital mutual funds, USAA Mutual Funds, and th
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