Victory Capital - Q2 2023

Transcript

Operator (participant)

Good morning, and welcome to the Victory Capital Second Quarter 2023 Earnings Conference Call. All callers are in a listen-only mode. Following the company's prepared remarks, there will be a question and answer session. I will now turn the call over to Mr. Matthew Dennis, Chief of Staff and Director of Investor Relations. Please go ahead, Mr. Dennis.

Matthew Dennis (Chief of Staff and Director of Investor Relations)

Thank you. Before I turn the call over to David Brown, I would like to remind you that during today's conference call, we may make a number of forward-looking statements. Please note that Victory Capital's actual results may differ materially from these statements. Please refer to our SEC filings for a list of some of the risk factors that may cause actual results to differ materially from those expressed on today's call. Victory Capital assumes no duty and does not undertake any obligation to update any forward-looking statements. Our press release that was issued after the market closed yesterday disclosed both GAAP and non-GAAP financial results. We believe the non-GAAP measures enhance the understanding of our business and our performance.

Reconciliations between these non-GAAP measures and the most comparable GAAP measures are included in tables that can be found in our earnings press release and in the slide presentation accompanying this call, both of which are available on the investor relations portion of our website at ir.vcm.com. It is now my pleasure to turn the call over to David Brown, Chairman and CEO. David?

David Brown (Chairman and CEO)

Thanks, Matt. Good morning, and welcome to Victory Capital's second quarter 2023 earnings conference call. I'm joined today by Michael Policarpo, our President, Chief Financial, and Administrative Officer, as well as Matt Dennis, our Chief of Staff and Director of Investor Relations. I'll start today by providing an overview of the second quarter. After that, I will turn the call over to Mike to review the financial results in detail. Following our prepared remarks, Mike, Matt, and I will be available to take your questions. The quarterly business overview begins on slide five. We generated another quarter of strong revenue, earnings, and margins to close out the first half of the year. Long-term net flows improved for the second consecutive quarter, with outflows of $1 billion, compared with the $1.2 billion of outflows recorded in the first quarter.

This excludes the 3 basis points passive mandate redemption in April, which was previously disclosed in our April AUM release. Average AUM was essentially flat quarter-over-quarter. Our average fee realization rose to 52.1 basis points, which contributed to higher revenue compared with the first quarter of the year. Our margins remained exceptional, coming in at 50.9% this quarter, which highlights the differentiated nature of our operating platform and its highly variable expense structure. This is the 12th quarter in a row that we achieved margins above our long-term guidance of 49%. This is the 8th quarter over that period where our margins surpassed 50%. Our long-term margin guidance remains unchanged at 49%. Keep in mind, this does factor in ongoing strategic investments that will help us grow our business in the future.

Adjusted net income with tax benefit rose to $1.11 per diluted share in the quarter, up from $1.08 in the previous quarter. Substantial capital returns to shareholders continued through the first half of 2023. We repurchased a record 1.5 million of our shares this quarter versus 1.4 million in the first quarter. We allocated $47 million to share repurchases and paid out $21 million in cash dividends, for a total capital return of $68 million for the quarter. On a year-to-date basis, we've repurchased 2.9 million shares for $92 million and paid cash dividends of $43 million, for a total return of capital in the first half of $135 million. We continue to invest in our business in a number of different areas.

We launched our new brokerage platform in April. We branded the direct channel at the same time. We continue to allocate resources to data and technology and are embarking on a few new marketing and distribution initiatives as well. Turning to slide seven, investment performance remains excellent and consistent. At quarter end, 42 of our mutual funds and ETFs had four or five-star overall ratings from Morningstar. These four and five-star products account for nearly two-thirds of our AUM in mutual funds and ETFs. Approximately three-quarters of our total AUM outperformed benchmarks for the three, five, and 10-year measurement periods ended June 30th. A number of our products rose into the top quartile according to Morningstar's trailing three-year rankings.

These included the Victory Income Investors Tax Exempt Intermediate-Term Bond Fund, Victory RS Global Fund, Victory RS Partners Fund, and the Victory RS Investors Fund, as well as the Victory Munder Mid-Cap Fund and our Emerging Markets Value Momentum ETF. In total, approximately 43% of our mutual funds and ETF AUM is ranked in the top quartile as of June 30th. Focusing specifically on the 16 fixed income products managed by our Victory Income Investors franchise that are rated by Morningstar, 14 of those 16 products, representing 95% of that AUM, ended the quarter with four or five-star overall ratings.

Given this investment performance, the trillions of dollars presently invested in money market funds, and the distribution we have built out for this franchise over the last few years, we believe we are nicely positioned to capture inflows into these products as the Fed's tightening cycle subsides, investors begin to migrate their holdings into longer-duration fixed income strategies. Turning to slide eight. We continued to generate robust excess free cash flow in the second quarter. Once again, we remain opportunistic with our share repurchase activity this quarter, given where our shares were trading during the period. While we intend to remain flexible with our capital allocation, it is important to state that we are not deviating from our proven approach of making our company better through acquisitions.

Over the long run, we believe that the best use of our excess free cash flow is to invest in both organic growth initiatives and strategic acquisitions to create shareholder value. On the organic side, in addition to what I mentioned a few slides back, we are also investing in new product development. One recent example is our VictoryShares Free Cash Flow ETF, ticker VFLO, that we launched in June. On the inorganic side, we are spending quite a bit of time conducting diligence on multiple inorganic opportunities. Although timing and getting it to a transaction close cannot be guaranteed, we are generally optimistic with what we are seeing and how things are going. That being said, we remain patient, disciplined, and selective as we evaluate opportunities aimed at enhancing shareholder value over the long term.

Before I turn the call over to Mike, I want to take a moment to highlight a significant company milestone. On Monday, we celebrated our 10th anniversary of being an independent company. In 2013, when we executed on our management buyout, employees contributed about a third of their acquired equity, and the balance of the equity was funded by Crestview Partners. Our other private equity investor, Reverence Capital Partners, began their investment in the 4th quarter of 2014. Crestview and Reverence have been long-term investors, and neither firm sold any shares leading up to or during our initial public offering in February of 2018.

For calendar year 2018, we ended the year with $53 billion of AUM, generated revenue of $413 million, and Adjusted EBITDA of $160 million, with an Adjusted EBITDA margin of 38.7%, and adjusted net income with tax benefit per diluted share of $1.64. Since then, we have more than tripled our AUM and increased our run rate revenue and earnings by more than twofold. Of most importance is we made our company better and more durable by significantly diversifying our business across investment products, asset classes, broadening distribution, and adding size and scale, which substantially increased efficiency and has allowed us to expand our margins by well over 1,000 basis points during our time of being a public company.

It wasn't until November 2021 that our private equity holders executed on their first sale of VCTR shares in a secondary offering. Since then, they've either sold or distributed more than 23 million shares, taking their combined ownership stake down from approximately 67% at the time of the IPO to approximately 32% today. The relationship with our private equity holders has been a textbook case of a genuine win-win over the past decade. We are very proud of our track record on executing on our differentiated strategy and the ability to produce an attractive return for these shareholders, who understood our strategy and believed in our vision from the very beginning. While they remain shareholders today, given the nature of their business model, we anticipate monetization of their investments will continue moving forward.

Although we anticipate it, the decision to monetize and the exact timing of that monetization are at the sole discretion of their respective organizations. With that, I will turn the call over to Mike to go through the quarter's financial results in greater detail. Mike?

Michael Policarpo (President, CFO, and Administrative Officer)

Thanks, Dave. Good morning, everyone. The financial results review begins on slide 11. Assets under management increased nearly 2% from $158.6 billion at the end of March to $161.6 billion by the end of June. While the point-to-point variance was higher, our average AUM was slightly lower than in the first quarter due to intra-quarter market volatility. The higher ending point of AUM in June gives us a nice jump-off point to start the third quarter from a revenue perspective. Revenue of $204.2 million was up in the second quarter compared with the $201.3 million of revenue in the first quarter.

The higher revenue on the lower average AUM was a result of a higher quarter-over-quarter fee rate realization and one additional day in the period. GAAP operating income was $87.5 million in the quarter, and our Adjusted EBITDA was $104 million, both up from the previous quarter. Second quarter net income was $56.7 million, or $0.83 per diluted share on a GAAP basis, resulting in GAAP EPS increasing by 17% from the prior quarter. Adjusted net income with tax benefit rose quarter-over-quarter to $75.9 million, or $1.11 per diluted share. The quarterly cash dividend of $0.32 per share will be payable on September 25th, to shareholders of record on September 11th.

On slide 12, you can see a steady increase in total AUM over the trailing 12-month period, reaching $161.6 billion at the end of the second quarter. Our AUM remains well-diversified from a distribution channel and client perspective. We are also well-diversified from a vehicle perspective, with ETFs and separately managed accounts, including model delivery, representing more than a third of our total AUM. Turning to slide 13, long-term gross flows were $5.6 billion in the quarter. Industry-wide softness in gross sales has persisted, with investors remaining hesitant to enter the market, given heightened volatility and uncertainty, and holding cash has become an attractive risk-adjusted option for many investors. Five franchises, including Integrity, New Energy Capital, RS Global, Sycamore, and WestEnd, each had positive net flows for the second quarter.

In fact, WestEnd has been net flow positive since the acquisition closed at the end of 2021, for the full calendar year 2022, and to date in 2023. This is a result of not only their excellent investment performance, but also enhanced distribution reach and winning new platform placements since the acquisition. Moreover, strong industry tailwinds, such as an increasing adoption of model portfolios by financial advisors and the shift to fee-based revenue models in the industry, have reinforced our original thesis regarding the attractive growth profile of WestEnd. We also achieved positive net flows in our active ETF products during the quarter, which we believe is a very attractive vehicle wrapper with excellent growth prospects going forward. Slide 14 illustrates our revenue by quarter.

Our fee rate increased 0.4 of a basis point in the 2Q, which is the highest fee rate realization we have recorded in the past four quarters. In general, fees have remained steady. Asset class, client, and vehicle mix are the primary drivers of quarterly fee rate variations. On slide 15, we break out our expenses for the quarter. Total expenses declined by $9.9 million, or 7%, to $129.6 million from the 1Q, driven by lower operating expenses. GAAP operating expenses were down $10.1 million, or 8% in the quarter. This reflected lower compensation expense and lower non-cash expenses, including depreciation and amortization, as well as expenses associated with the change in value of consideration payable for acquisitions.

Cash compensation expense was in line with expectations, as you can see from the graphic on this slide, as a percentage of revenue, cash compensation remains in a very narrow range. Moving on to our non-GAAP results on slide 16. Adjusted net income rose to $66.4 million in the second quarter. The tax benefit in the quarter held steady at $9.5 million, resulting in ANI with tax benefit increasing to $75.9 million, or $1.11 per diluted share. Our Adjusted EBITDA margin expanded to 50.9% in the quarter. We are maintaining our long-term margin guidance of 49%, which is inclusive of continued investments in numerous areas to support our future growth. Finally, turning to slide 17.

While we did not pay down any debt in the first half of this year, our net leverage ratio improved to 2.3x at the end of June due to our growth in earnings during the quarter and slightly higher cash position. The average interest rate paid on our debt increased just 19 basis points to 5.43% in the quarter. This was the smallest quarter-over-quarter interest rate increase in the past five quarters and takes into account the $450 million hedged portion of our debt, which is fixed at 3.15%. Our $100 million revolver remains undrawn, and GAAP operating cash flow from operations was $77.4 million in the second quarter. That concludes our prepared remarks. I will now turn it back over to the operator for questions.

Operator (participant)

At this time, I would like to remind everyone, in order to ask a question, press star, then the one on your telephone keypad. Your first question comes from the line of Etienne Ricard from BMO Capital Markets. Your line is open.

Etienne Ricard (Equity Research Analyst)

Thank you and good morning. To circle back on the launch of brokerage capabilities in your direct channel, how do you think about the opportunity to cross-sell your strategies? What improvement are you expecting as it relates to the number of products held per customer?

David Brown (Chairman and CEO)

Good morning. The launch of our brokerage platform, I'd start off by saying we're in the early stages. We launched it at the end of April of this year, and we're making really, really good progress on it. There will be a great opportunity to be able to cross-sell, to take your term, to cross-sell our, you know, investment strategies, to our current clients, to new clients. I think that the real opportunity is to get closer to our clients there. To offer them more product choice, to be able to work with them, you know, with their financial future, and to really be able to see, you know, what we can do to be a bigger part of their financial life through more product choice.

Part of that is going to be more of our own products, but another part of that is going to be, other firms' products sitting on our brokerage platform. That's the real goal, is just to really help our clients, and to get closer to our clients, and then ultimately, to get new clients.

Etienne Ricard (Equity Research Analyst)

Yeah, understood. Switching gears a little bit on New Energy Capital. Could you please remind us of the potential for scale in that business, as well as how investor interest is holding up in this macro backdrop, and lastly, the timeline for future fundraising?

David Brown (Chairman and CEO)

Yeah. New Energy was our first entrance into really private markets. The business, you know, is smaller relative to our overall business. Think of it as a $1 billion or sub-$1 billion platform. The opportunity there is to go out and to launch new funds. We were net flow positive for this quarter with them. It's really just the beginning of New Energy, and it's also the beginning for us in the private market part of the industry.

Etienne Ricard (Equity Research Analyst)

Thank you very much.

Operator (participant)

Your next question comes from a line of Craig Siegenthaler from Bank of America. Your line is open.

Craig Siegenthaler (Managing Director and North American Head of Diversified Financials)

Hey, good morning, Dave, Michael. Hope you're both doing well.

David Brown (Chairman and CEO)

Good morning.

Etienne Ricard (Equity Research Analyst)

Morning.

Craig Siegenthaler (Managing Director and North American Head of Diversified Financials)

Fixed income continues to be a net flow headwind for Victory, despite pretty good invest performance. I wanted your perspective into the second half into 2024. Are you expecting a large pickup in industry fixed income flows, kind of really after the Fed pauses? How do you think your bond business is positioned for this migration?

David Brown (Chairman and CEO)

We are as we said in the script, we think, the second half of this year, and then going into next year, we do think that investors are gonna pivot really from money market or very, very short-term fixed income investments to more longer duration. You know, from our perspective, and we, we articulated this in the script, we have a number of products that have really good performance, long track records, high ratings from a Morningstar perspective, and we've expanded out the distribution over the years. We think we're really well positioned. Some of the softness, to go back to the first half of the year for us, has really been in some of the non-core fixed income products that we have.

Some floating rate, high yield, and other non-core fixed income products that really we've seen those investors go into a money market type investment. When, when those investors feel comfortable, I think, you know, as we talked about with the industry, feel comfortable getting out of a money market type investment, we think we're really well positioned, and we're really excited about that. We think that that's going to be a big driver going forward of, of our organic growth opportunities.

Craig Siegenthaler (Managing Director and North American Head of Diversified Financials)

Great. For my follow-up, I want to circle back on M&A. Just given the rebounding markets here, I wanted to see what that's changed. Has there been any change in valuation multiples over the last six months? The financing side, you know, looked a little more challenged last year. Is that starting to ease a little bit, too?

David Brown (Chairman and CEO)

I, I, I think sellers have come down in their expectations. I would say that, that, that there's probably a lot more conversations happening that potentially can get to a conclusion. We have seen some activity. You know, from Victory's perspective, we're really encouraged. We're working hard. You know, part of our growth over the last decade has been through acquisitions. You know, I would anticipate that going forward. I'd also anticipate, and, and I've said this before, that coming out of some of these challenging periods, you see a lot of M&A activity in this industry, and I don't think it's gonna be any different this time.

If you assume we're coming out of a challenging period through this year and into next year, I think the M&A activity is gonna, gonna happen, and I think there's gonna be a lot of it, and we're gonna participate in it.

Craig Siegenthaler (Managing Director and North American Head of Diversified Financials)

Okay. Thank you.

Operator (participant)

Your next question comes from a line of Mike Brown from KBW. Your line is open.

Mike Brown (Equity Research Analyst)

Great. Hey, good morning, guys.

David Brown (Chairman and CEO)

Morning.

Michael Policarpo (President, CFO, and Administrative Officer)

Hi, Mike.

Mike Brown (Equity Research Analyst)

Hey, I guess a really nice margin result this quarter, and as you called out, this is the 12th consecutive quarter above your 49% guidance. Looks like lower comp was certainly helpful this quarter. Any thoughts on perhaps changing that guidance or, you know, any quick comments on how to think about maybe the coming quarters here?

David Brown (Chairman and CEO)

I'll start, and Mike will follow up. We've always talked about margin guidance from a long-term perspective. You know, quarter to quarter with the ebb and flow of investments that we're making in the business, the way the market is, and then, how we realize revenue, really, it's tough to think about it quarter by quarter. We've had a great track record of exceeding the guidance. Our guidance, you know, we're comfortable at 49%. You know, over the long run, we have a really differentiated operating platform. You know, I think this is the second highest margin, operating margin we have achieved as a public company. I think the first was, you know, Q4 of 2020.

To, to think that we would have our second highest margin, in this environment, just says a lot about our platform.

Michael Policarpo (President, CFO, and Administrative Officer)

Yeah, I would add, I think the ability for us to continue to make the investments, we highlighted a few areas where we are reinvesting. For long term, data, product, distribution, continuing to invest in those areas really pointed for the future. As Dave mentioned, those investments will ebb and flow. While this quarter we had a 50.9% margin, you know, we think that the beauty of the model is it's highly consistent. If you go back and look, you know, we've been operating at 49% margins for the last 12 quarters, and that includes those investments.

Mike Brown (Equity Research Analyst)

Okay, great. Then could you just comment on the broader investor sentiment? Just looking at your flow trends and, and a lot of your peers, it looks like the gross sales have been just remained quite soft, and that's, that's really an important part of the, the net flow trends that we've been seeing. What causes investors to really engage in a more meaningful way in your, in your view? Any green shoots that you've been seeing on this front?

David Brown (Chairman and CEO)

Yeah, I, I would agree with you that gross flows from an industry perspective have been soft. I think a lot of investors are sitting in money market investments. I, I think the last number I heard was $7 trillion, which is around a quarter of the industry, is invested in money markets. I think that there is a lack of certainty of what the future holds from a Fed perspective, from a rate perspective. I think to, to earn, you know, 5% in a money market, essentially risk-free, is a good risk adjusted return for many investors. I think as we get clarity on the Fed and the economy, I think a lot of that money will move, and I think that's what we're excited about. We do see some, some movement now.

We're seeing a pickup on our won, but not yet funded on the institutional channel. We also, we called this out, the WestEnd platform that we have, we've seen a nice pickup. I do think when we get some clarity, you're gonna see a lot of money move. It will go into various types of investments. I think until then, I think people, many, many people, many advisors, many investors, are going to be very comfortable just sitting in a money market and earning a 5% yield. When you go back two years ago, you know, you think about what money markets were yielding, it is a, it is a good risk-adjusted return, when you look at it historically.

Mike Brown (Equity Research Analyst)

Okay, great. Thanks, Dave, and congrats on the anniversary. That's a big milestone.

David Brown (Chairman and CEO)

Thank you.

Operator (participant)

Your next question comes from the line of Ken Worthington from J.P. Morgan. Your line is open.

Michael Cho (VP and Equity Research Analyst)

Hi, good morning, Dave and Mike. This is actually Michael Cho on for Ken Worthington. I just wanted to follow up on the margin discussion and organic growth, or organic investment discussion there. I mean, you listed a few, several different organic initiatives, so I guess we're thinking about kind of the 49% long-term margin target. I mean, what, what's kind of the level of annual organic investment that, that's kind of assumed in there long term?

David Brown (Chairman and CEO)

We set the 49% margin guidance over the long term, factoring in that we would make investments in our business to grow the business. We're making a lot of investments today. Mike went through a few of them, data, technology, we launched the brokerage platform, we rebranded really the direct business. We also have launched products. There's a lot of other things happening behind the scenes where we're investing in our business, and we'll continue to invest. We think the balance of investing for organic growth, and then maintaining the 49% as our long-term guidance is the right balance.

You know, I do think that our model is different, and I think when you compare us to other firms in the industry, we just have a different operating model, where, a good portion of our expenses are variable. Then we have, you know, the ability to, to really scale up and to scale down during tough markets and maintain our margins. So the balance of the investments and the 49%, we really think that's that, that's a, that's a really, you know, that's threading the needle and getting both of those things right.

Michael Cho (VP and Equity Research Analyst)

Okay, great. Thank you so much.

Operator (participant)

Again, if you would like to ask a question, press star, then one on your telephone keypad. Your next question comes from the line of Alex Blostein from Goldman Sachs. Your line is open.

Speaker 9

Hey, guys. Luke here on for Alex. Thanks for taking the question. Can you just provide a quick update on capital allocation strategy? Obviously, you know, buybacks have continued to be very healthy and are encouraging, but how are you balancing that with debt paydown and inorganic activity? On the inorganic side, are there any specific areas of focus you guys are thinking about as you do your due diligence? Thanks.

Michael Policarpo (President, CFO, and Administrative Officer)

Sure. good morning. I think our capital management strategy has really remained consistent and is unchanged. We want to maintain balance sheet flexibility, really, to execute our differentiated strategy, which really includes, as you highlight, kind of the inorganic opportunities that we see. you know, the strong financial performance that we've delivered, the business diversification, you know, that's really been driven by those organic investments that we've made in inorganic investments have kind of provided us that, that ability to remain flexible. really, as we think about, you know, the, the, the level of buybacks that we've done in the first half of the year, and balancing that versus the other capital management, elements and pillars, you know, we've been opportunistic, and, and really, those decisions are based on facts and circumstances.

Yeah, we've leaned in the past several quarters on shareholder return. We think that's been, you know, the right pivot from an allocation perspective. We've got a very advantageous debt stack. As we've talked about, we've got a hedge on about $450 million of the debt that it really allows us to kind of have a lower interest cost, and it really is something that we think about kind of going forward. We've also leaned in on the share buyback because we think there's a, you know, a statement with respect to the value of the stock as well there.

I think as we think about going forward, you know, the priority and the best use of our, of our excess cash will continue to be, inorganic growth. We want to make sure that we've got the right capacity from a, and tools to be able to deliver on that.

David Brown (Chairman and CEO)

Yeah, then I-I'll take the what kind of inorganic growth opportunities we're looking at. You know, I mean, first, anything we do, we start off that has to make the company better. You know, a lot of what we have done in the past has made, you know, very, very, you know, great strides financially. Everything, the constant has been that we've made the company better. We start off, you have to make the company better. The different types of transactions that, you know, we're interested in, I'd put them into, you know, a transformational transaction where it's going to be large in size and scale, going to have multiple levers of value that you can create, products, opening up distribution channels. We have done some of those in the past.

Another area we're interested in is, is really, you know, acquiring products that are part of the future portfolio of our investors. A WestEnd type acquisition, a New Energy, a THB. These are acquisitions that have fantastic products that are part of the future of portfolios and where, you know, where we're hearing from our clients, the type of products that they want and desire. We're looking at those kinds of opportunities. And, and from a sizing perspective, you know, the range really is something very small to something very large. And as Mike has said, you know, we have a lot of different levers to do acquisitions. Part of that has been debt in the past. You know, we have, we generate cash, we have structuring, and we've done a number of different things.

You know, we feel today that we have the, the balance sheet, and then we have the other tools that we can use to really execute on M&A.

Speaker 9

No, it's powerful. I appreciate the color there, and maybe a nice segue into a follow-up. WestEnd has obviously been just like a very successful acquisition for you guys. Can you help frame for us how significant of a driver it has been, and you expect it to be maybe for, for the quantum of flows? Is there anything, anything specific that you can speak to that's driven the recent pickup in activity here? Thank you.

David Brown (Chairman and CEO)

I, I'll take the back half of that question. I think the recent pickup is really just a general market environment. WestEnd has had excellent investment performance, but, but even deeper is they really do provide a solution to advisors and to clients. And so none of that has changed. It's really just been, a general market sentiment, and I think the, the group that, you know, that's out servicing and selling, the product, does an excellent job. You know, WestEnd, since we closed the acquisition, really the beginning of 2022, we've had organic growth.

If you think about the beginning of 2022 to today, to have a product that has grown organically, really at every time period that we measure, so all of 2022, year to date in 2023, both grow, both periods they've grown and then then cumulatively, they've grown. It's been excellent. We have big expectations for them going forward. We think they're going to be a big part of our organic growth opportunity. As the general investor sentiment gets better, we think that that their organic growth will increase. If you remember, when we did the acquisition, this was a double-digit organic, annual organic grower, percentage-wise. They have experienced great growth in the past, and I don't see in a normal market environment, why why we can't reproduce that.

Operator (participant)

Your next question comes from the line of Matthew Howlett from B. Riley Securities. Your line is open.

Matthew Howlett (Senior Managing Director and Senior Equity Research Analyst)

Oh, hey, good morning, and thanks for taking my question. Most of my questions have been answered. Dave, I wanted to ask you, on the 12 platforms, how often do you feel a need to get involved, you know, from a management strategy? Remind us again, you know, sort of how often in the past you step in on the day-to-day and so forth?

David Brown (Chairman and CEO)

Our, our model really is all about an independent, autonomous investment franchises, is how we describe it. You have investment professionals really every day researching and managing a portfolio as they see fit. They do it on a platform which we think is best of class. Really the investment professionals are driving building the portfolios and deciding how the portfolios are positioned. That's how we have built our business, and we think that that's the best way to get, you know, great investment performance.

You can see from our investment performance, how excellent it's been, how consistent it's been, and it's really because we've got, as you said, 12 investment franchises where you have, you know, groups developing their own portfolios and then, you know, and, and the ability to articulate those portfolios without any interruption from, you know, non-investment professionals. And, and I think that's been consistent over the last decade, as, as being an independent company.

Matthew Howlett (Senior Managing Director and Senior Equity Research Analyst)

There's no need to step in and sort of guide someone that, that may not be up to what the others are doing. You just sort of let them run. It, it's worked for you in the past, and that's the way it stands, and let them run the company.

David Brown (Chairman and CEO)

Yeah. It, it, it's all about providing them all of the necessary tools that they need to build portfolios, and to manage, and to manage client assets. Our focus is on providing them all the tools to do that. They take those tools, they build the portfolios, our job as well is to go out and make sure that we secure them clients and that we service those clients, and we let them focus as much of their time as possible on the portfolio and making the decisions around the portfolio.

Matthew Howlett (Senior Managing Director and Senior Equity Research Analyst)

Makes a lot of sense. That leads into my next question. You run the gamut in terms of what you, what you're looking at in terms of M&A. How do you, how do you narrow it down? Does it come down to sort of you know, the best value out there, the needs of the company or a geography where you'd like to be in? I mean, you're gonna presumably see a lot of potential deals out there. I mean, what can you tell us in terms of how you prioritize, you know, all, all that's out there?

David Brown (Chairman and CEO)

Yeah, I, I think we have a really good track record with our M&A over the last decade. How we prioritize isn't really around asset class or size or scale or even financial accretion. It's really around the best fit for the, for the company. You know, this industry is gonna go through, in my opinion, gonna go through continued consolidation for the foreseeable future. There's going to be a lot of opportunity, and I do think sorting out the best fit for your organization is, is one of the challenges for, for leadership teams. And so part of that is science, and you can go through all of the investment performance, analytics, and other things. And then the other part is art, and I think we draw upon our experience, you know, doing acquisitions.

Matthew Howlett (Senior Managing Director and Senior Equity Research Analyst)

Yeah, absolutely. Thank you so much.

Operator (participant)

There are no further questions at this time. Mr. Dave Brown, I turn the call back over to you for some final closing remarks.

David Brown (Chairman and CEO)

Thank you. We appreciate everybody's interest in Victory Capital. We look forward to keeping you posted on our progress as we execute on our strategy through the second half of the year. Thanks for attending, and have a great day.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now disconnect.