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Victory Capital Holdings, Inc. (VCTR)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 delivered record topline and profitability since mid‑2022: revenue $215.9M (+7.2% YoY, +$10.1M QoQ), Adjusted EBITDA $112.4M (+13.3% YoY), and Adjusted net income with tax benefit $82.3M; diluted EPS was $0.84 and Adjusted EPS $1.25 .
  • Mixed margin dynamics: GAAP operating margin contracted 260 bps QoQ to 39.3% (higher non‑cash contingent consideration and seasonal payroll taxes), but expanded 230 bps YoY; Adjusted EBITDA margin was 52.1% (‑20 bps QoQ, +280 bps YoY) .
  • Flows improved: long‑term gross sales $7.0B with long‑term net outflows of ($1.0)B; net long‑term flows turned positive in March. Total client assets ended at $175.5B (AUM $170.3B) .
  • Board raised the quarterly dividend 10% to $0.37; management reiterated long‑term Adjusted EBITDA margin guidance of 49% and highlighted strategic MOU with Amundi (15‑year reciprocal distribution, targeted $100M expense synergies in two years, low double‑digit EPS accretion by end of first full year) as a forward catalyst .

What Went Well and What Went Wrong

What Went Well

  • “Highest level of quarterly revenue, adjusted EBITDA, and Adjusted Net Income in the past six quarters” with positive momentum in March net flows turning positive .
  • Investment performance remained strong: 69% of mutual fund/ETF AUM rated 4 or 5 stars; 61%, 85%, and 80% of AUM outperformed over 3‑, 5‑, and 10‑year horizons (as of March 31) .
  • Fixed income traction: Victory Income Investors turned net flow positive; ETF lineup and distribution investments cited as growth levers into Q2 .

What Went Wrong

  • GAAP operating margin compressed QoQ to 39.3% (‑260 bps) due to an $8.2M increase in non‑cash fair value change on contingent consideration and higher personnel costs; Adjusted EBITDA margin ticked down 20 bps QoQ to 52.1% given seasonal payroll taxes/benefits .
  • Despite improved sales activity, long‑term net flows were still negative ($1.0B) for Q1 (March positive), indicating ongoing client caution and cash preference lingering from macro backdrop .
  • Operating expenses rose 3.4% YoY to $131.0M (higher non‑cash earnout valuation and acquisition‑related expense), partially offsetting revenue realization stability .

Financial Results

MetricQ1 2023Q4 2023Q1 2024
Revenue ($USD Millions)$201.3 $205.8 $215.9
GAAP Operating Margin (%)37.0% 41.9% 39.3%
GAAP Net Income ($USD Millions)$49.3 $55.2 $55.7
Diluted EPS ($)$0.71 $0.82 $0.84
Adjusted EBITDA ($USD Millions)$99.2 $107.6 $112.4
Adjusted EBITDA Margin (%)49.3% 52.3% 52.1%
Adjusted Net Income with Tax Benefit ($USD Millions)$75.2 $77.0 $82.3
Adjusted EPS ($)$1.08 $1.15 $1.25

KPIs and AUM/Flows

KPIQ1 2023Q4 2023Q1 2024
Total Client Assets ($USD Billions)N/AN/A$175.5
AUM (period‑end, $USD Billions)N/A$166.6 $170.3
Long‑term Gross Flows ($USD Billions)N/A$6.6 $7.0
Long‑term Net Flows ($USD Billions)N/A($1.1) ($1.0)
Revenue Realization (bps, total client assets)51.7 52.1 51.4

Notes:

  • Non‑GAAP measures (Adjusted EBITDA, Adjusted Net Income) are defined and reconciled in company materials; they exclude taxes, interest, D&A, stock‑based comp, acquisition and debt issuance costs, other business taxes, and include tax benefits of goodwill/intangibles for ANI with tax benefit .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA Margin (Long‑Term)Ongoing49% 49% Maintained
Quarterly Dividend per Share ($)Q2 2024 payment$0.335 $0.37 Raised

Management did not provide quarterly flows guidance; reiterated margin framework and capital return policy (dividend increase; buybacks constrained in Q1 due to Amundi negotiations, expected to resume as the year progresses) .

Earnings Call Themes & Trends

TopicQ3 2023 (Prior‑2)Q4 2023 (Prior‑1)Q1 2024 (Current)Trend
Flows momentumNet LT outflows improved vs Q2; highest quarterly revenue in >1 year Best gross and net LT flows in >1 year; cautious client sentiment; set strong jump‑off for 2024 LT gross $7.0B; net LT outflows ($1.0)B; net LT turned positive in March Improving; inflection signs in fixed income
Margin discipline13th straight quarter above 49%; Adjusted EBITDA margin 51.1% Adjusted EBITDA margin 52.3%; reiterated 49% LT guidance Adjusted EBITDA margin 52.1%; maintain 49% LT guidance Stable high‑50s/low‑50s with planned reinvestment
ETF strategyN/ABuilding ETF‑only sales force; more ETF launches planned Focus on ETF lineup, staffing, positioning; product innovation cited Expanding platform and distribution
Fixed incomeN/AExpect pivot to longer‑duration FI; strong VI Investors performance VI Investors turned net flow positive; retail and retirement channels strong Positive momentum
Strategic M&ABuilding cash; monetized swap; diligence on multiple opportunities Expect strategic deal in 2024; optimistic on execution MOU with Amundi: 15‑year reciprocal distribution; low double‑digit EPS accretion; $100M expense synergies over 2 years Transformational; accelerates globalization
Distribution/GeographyN/ABalanced channels; retirement/CIT push ~97% AUM U.S. clients; pro forma ~15% non‑U.S. post‑Amundi; exclusive U.S. manufacturing to Amundi ex‑US Broader non‑U.S. reach post‑deal
Direct brokerageN/ABrokerage platform launched; capability build focus Continued investment in tech/data and client service; long‑term build Building capabilities

Management Commentary

  • “We achieved very strong results to start 2024… momentum accelerated toward the end of the quarter, with our long‑term net flows turning positive in March… highest level of quarterly revenue, adjusted EBITDA, and Adjusted Net Income in the past six quarters.” — David Brown, CEO .
  • “Adjusted EBITDA margin was 52.1% for the quarter… we continue to guide to a long‑term adjusted EBITDA margin of 49%.” — Michael Policarpo, President & CFO .
  • “The strategic transaction [Amundi MOU]… exclusive 15‑year global and reciprocal distribution agreements… low double‑digit EPS accretion by the end of the first full year… $100 million of expense synergies within the first 2 years.” — David Brown .
  • “Victory Income Investors… turned net flow positive in the first quarter… momentum carried over to the second quarter.” — David Brown .

Q&A Highlights

  • Amundi partnership economics and scope: Victory will be exclusive provider of U.S.‑manufactured active strategies for Amundi’s ex‑U.S. distribution; Amundi becomes exclusive distributor of VC products ex‑U.S.; 26.1% economic interest with 4.9% voting aligns incentives; expected $100M expense synergies over 2 years, majority year one .
  • Flow trends: March net LT flows positive; strength in fixed income, ETFs, institutional channel; no quarterly flow guidance .
  • Margin and reinvestment: Maintain 49% LT margin; synergy target is net of reinvestment; plan to invest heavily in U.S. intermediary distribution and platform .
  • Solutions and ETF packaging: Amundi U.S. solutions to remain distinct; opportunity to package Amundi strategies into ETFs using VC’s platform .
  • Capital returns and leverage: Dividend increase; buybacks were constrained in Q1 due to ongoing negotiations but expected to resume; net leverage ~2.0x; comfortable to expand for right deal .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 2024 Revenue and EPS was unavailable due to data access limits at the time of analysis. As a result, we do not state beat/miss versus consensus for this quarter. If desired, we can refresh with SPGI consensus when access is restored and update the comparisons.

Key Takeaways for Investors

  • Revenue and profitability trajectory strengthened, with records across revenue, Adjusted EBITDA, and Adjusted ANI in the last six quarters, despite non‑cash items compressing GAAP margins QoQ .
  • Flow dynamics are improving with fixed income and ETFs gaining traction; March net long‑term flows turned positive, suggesting environment tailwinds as cash reallocates to risk assets .
  • The Amundi MOU is a potential multi‑year catalyst: reciprocal distribution, broader global reach, complementary capabilities (notably fixed income), expected low double‑digit EPS accretion and $100M cost synergies .
  • Capital return remains supportive: dividend raised to $0.37; buybacks likely to resume post definitive agreement, with net leverage at ~2.0x providing flexibility .
  • Maintain awareness of seasonality and non‑cash valuation impacts (contingent consideration) on GAAP margins; underlying Adjusted margin framework (49% LT) reiterated .
  • Near‑term trading implications: watch for definitive Amundi agreement timing, any incremental details on product packaging into ETFs, and continued monthly AUM/flow updates (May total client assets $173.4B as context) .
  • Medium‑term thesis: enhanced distribution reach, product innovation (ETF/CIT/direct brokerage), disciplined margin/expense synergy execution, and a more diversified geographic client base post‑Amundi .