Victory Capital Holdings, Inc. (VCTR)·Q2 2024 Earnings Summary

Executive Summary

• Q2 2024 delivered record profitability: revenue $219.6M, GAAP diluted EPS $1.12, operating margin 50.4%, and adjusted EBITDA margin 53.0% driven by lower non-cash operating expenses and compensation, with average AUM up 2% sequentially to $167.5B .
• Organic flows remained mixed: long-term net outflows of $1.7B offset by positive net flows in fixed income (Victory Income Investors) and ETFs; fee rate stayed stable at 52.6 bps, within a 1-bp band over the past year .
• Strategic catalyst: definitive Amundi agreement signed; management reaffirmed $100M net expense synergies, targeted low-double-digit EPS accretion within a year of closing, and maintained long-term 49% adjusted EBITDA margin guidance; expected closing late Q4 2024 or early 2025 .
• Balance sheet and capital return strengthened: cash rose to $119M, net leverage ~1.9x; quarterly dividend raised 11% to $0.41; revolver pricing cut by 50 bps and remains undrawn—providing optionality for buybacks once permitted .
• Near-term stock reaction catalysts: monthly AUM updates and Amundi-related milestones (proxy, closing timeline, synergy guidance) could drive sentiment and estimate revisions .

What Went Well and What Went Wrong

What Went Well

• Record profitability: “We generated the highest adjusted earnings per diluted share with tax benefit, adjusted EBITDA, and adjusted EBITDA margin, for any quarter in our history.” (Adjusted EPS $1.31; adjusted EBITDA $116.5M; margin 53.0%) .
• Strong investment performance: 60%/77%/79% of AUM outperformed benchmarks over 3/5/10 years; 68% of AUM in mutual funds/ETFs rated 4 or 5 stars by Morningstar .
• Fixed income and ETF momentum: second consecutive quarter of positive net flows for Victory Income Investors; ETF platform positive net flows in Q2 and YTD .

What Went Wrong

• Net outflows: long-term net outflows of $1.7B and total net outflows of $1.74B, with equity redemptions tied to client rebalancing activity .
• End-of-period AUM declined: point-to-point total client assets fell to $173.8B from $175.5B at March-end due to net outflows, despite positive average AUM .
• Fee rate optics: headline fee rate ticked down slightly on product/channel mix, though management emphasized stability within ~1 bp and no unusual pricing pressure .

Financial Results

Consolidated Metrics vs prior year, prior quarter, and estimates

Note: S&P Global consensus data was unavailable due to an API rate limit; estimates comparisons cannot be provided.

Segment Breakdown (AUM by Asset Class – Ending AUM)

KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Our most significant development… was forging the long-term agreement to become strategic partners with Amundi… reciprocal global exclusive 15-year distribution agreements… anticipated double-digit earnings accretion within a year.” — David Brown, CEO .
• “We ended the quarter with total client assets of $174 billion and achieved a number of quarterly records, including earnings per share, EBITDA and adjusted EBITDA margin.” — David Brown, CEO .
• “Adjusted net income with tax benefit rose 5%… $1.31 per diluted share… cash grew to $119 million… net leverage just below 1.9x.” — Michael Policarpo, President & CFO .
• “Our ETF platform had another positive quarter of net flows and is also net flow positive year-to-date.” — David Brown, CEO .
• “Average fee rate on our AUM was 52.6 basis points… consistently within a basis point of that level over the past year.” — David Brown, CEO .

Q&A Highlights

• Product launches and ETF focus: Management highlighted recent ETF VFLO and a robust pipeline across active, smart beta, and clones of existing strategies; sales force and distribution partnerships being ramped to support ETFs .
• Capital allocation and buybacks: Post-Amundi close, expect flexible balance sheet enabling larger M&A and resumption of buybacks when permitted; dividend strategy sustained alongside acquisitions .
• Amundi update and synergies: Reiterated $100M net expense synergies (majority within year one), Amundi U.S. AUM ~$104–106B, revenue realization high-40s bps, EBITDA margins mid-20s; long-term margin guidance at 49% maintained .
• Organic growth drivers: Expect acceleration in ETFs, fixed income, and global products; institutional fundings delayed but expected to pick up in H2; equity outflows largely rebalancing, clients retained .
• Channels and fee rate: Institutional rebalancing drove outflows; intermediary channel mixed with mutual fund outflows but ETF momentum; fee rate variation driven by mix, not pricing pressure .

Estimates Context

• S&P Global consensus estimates for Q2 2024 revenue and EPS were unavailable at the time of request due to an API rate limit; therefore, we cannot assess beats/misses versus Wall Street estimates for this quarter.
• Given record EPS and margins, sell-side models may need to incorporate non-cash expense dynamics (earn-out valuation changes) and sustained fee rate stability, alongside monthly AUM trajectory and Amundi synergies .

Key Takeaways for Investors

• Record profitability was aided by non-cash reductions and lower compensation, but core adjusted margins expanded to 53%, suggesting durable operating leverage; watch the sustainability of margin drivers in H2 .
• Organic flow recovery is uneven: equity rebalancing headwinds continue, but fixed income and ETFs are positive; a broadening market and potential Fed easing could add tailwinds to mid/small-cap and active strategies .
• The Amundi deal is the primary medium-term catalyst: closing late 2024/early 2025, with $100M net expense synergies and low-1s leverage target; expect incremental guidance on revenue synergies pre-close .
• Capital deployment optionality is increasing: revolver repriced lower, cash up 49% QoQ to $119M, dividend raised to $0.41; buybacks to resume when permitted—supportive for TSR .
• Near-term trading setup: monitor monthly AUM releases (flows and market action) and any proxy filings/milestones on Amundi; headlines on ETF product launches and institutional funding could move sentiment .
• Fee rate stability and mix management: with fee rates steady within ~1 bp historically, margin lens remains more relevant than fee rate optics; mix shifts across vehicles and channels will drive quarterly variation .
• Execution risks: integration of Amundi U.S., timing of institutional fundings, and equity market rotation assumptions are key variables; management’s integration track record and reiterated margin guidance mitigate some risk .