Victory Capital Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1. ORGANIZATION AND NATURE OF BUSINESS
Victory Capital Holdings, Inc., a Delaware corporation (along with its wholly-owned subsidiaries, collectively referred to as the “Company,” “Victory,” or in the first-person notations of “we,” “us,” and “our”) provides specialized investment strategies to institutions, intermediaries, retirement platforms and individual investors. With 11 autonomous Investment Franchises and a Solutions Platform, the Company offers a wide array of investment products, including actively and passively managed mutual funds, rules-based and active exchange traded funds (“ETFs”), institutional separate accounts, variable insurance products (“VIPs”), alternative investments, private closed end funds, and a 529 Education Savings Plan. The Company’s strategies are also offered through third-party investment products, including mutual funds, third-party ETF model strategies, retail separately managed accounts (“SMAs”) and unified managed accounts (“UMAs”) through wrap account programs, Collective Investment Trusts (“CITs”), and undertakings for the collective investment in transferable securities (“UCITs”).
Victory Capital Management Inc. (“VCM”), a wholly-owned subsidiary of the Company, is a registered investment adviser and provides mutual fund administrative services for the Victory Portfolios, Victory Variable Insurance Funds, the mutual fund series of the Victory Portfolios II and the Victory Portfolios III (collectively, the “Victory Funds”), a family of open-end mutual funds, and the VictoryShares (the Company’s ETF brand). Additionally, VCM employs all of the Company’s United States investment professionals across its Franchises and Solutions, which are not separate legal entities. VCM’s wholly-owned subsidiaries include RS Investment Management (Singapore) Pte. Ltd., RS Investments (UK) Limited and NEC Pipeline LLC.
Victory Capital Services, Inc. (“VCS”), a wholly-owned subsidiary of the Company, is registered with the SEC as an introducing broker-dealer and serves as distributor and underwriter for the Victory Funds, which includes the mutual funds of the Victory Portfolios III (the “Victory Funds III”) and a 529 Education Savings Plan. VCS offers brokerage services to individual investors through an open architecture brokerage platform. VCS is also the placement agent for certain private funds managed by VCM. Victory Capital Transfer Agency, Inc. (“VCTA”) is registered with the SEC as a transfer agent for the Victory Funds III.
WestEnd Advisors, LLC (“WestEnd”) is an ETF strategist adviser that provides financial advisers with a turnkey, core model allocation strategy for either a holistic solution or complementary source of alpha. WestEnd is a wholly-owned subsidiary of Victory Capital Holdings, Inc. and is the Company’s second registered investment adviser.
On April 1, 2025, the Company completed the acquisition of Amundi US and reintroduced the brand Pioneer Investments ("Pioneer" or "Pioneer Investments") for the acquired business and investment products. VCM will serve as the investment adviser and provide mutual fund administration services for the Pioneer mutual funds under Victory Portfolios IV and Victory Variable Insurance Funds II. VCS will serve as the distributor to Victory Portfolios IV and Victory Variable Insurance Funds II. Refer to Note 4, Acquisitions and Note 17, Subsequent Events for further details related to the acquisition.
NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for complete annual financial statements. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
In the opinion of management, the consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial condition, results of operations, and cash flows for the interim periods presented. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the operations of the Company and its wholly-owned subsidiaries, after elimination of all intercompany balances and transactions. Our involvement with non-consolidated variable interest entities (“VIEs”) includes sponsored investment funds.
The following table presents balances of receivables:
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(in thousands) |
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March 31, 2025 |
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|
December 31, 2024 |
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Customer receivables |
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|
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|
Mutual funds (Victory Funds) |
|
$ |
56,084 |
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|
$ |
59,247 |
|
ETFs (VictoryShares) |
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|
3,773 |
|
|
|
3,029 |
|
Separate accounts and other vehicles |
|
|
34,685 |
|
|
|
37,045 |
|
Receivables from contracts with customers |
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|
94,542 |
|
|
|
99,321 |
|
Non-customer receivables |
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|
1,281 |
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|
|
1,346 |
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Total receivables |
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$ |
95,823 |
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|
$ |
100,667 |
|
Revenue
The Company’s revenue includes fees earned from providing;
•investment management services,
•fund administration services,
•fund transfer agent services, and
•fund distribution services.
Revenue is recognized for each distinct performance obligation identified in customer contracts when the performance obligation has been satisfied by transferring services to a customer either over time or at the point in time when the customer obtains control of the service. Revenue is recognized in the amount of variable or fixed consideration allocated to the satisfied performance obligation that Victory expects to be entitled to in exchange for transferring services to a customer. Variable consideration is included in the transaction price only when it is probable that a significant reversal of such revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Investment management, fund administration and fund distribution fees are generally considered variable consideration as they are typically calculated as a percentage of AUM. Fund transfer agent fees are also considered variable consideration as they are calculated as a percentage of AUM or based on the number of accounts in the fund. In such cases, the amount of fees earned is subject to factors outside of the Company’s control including customer or underlying investor contributions and redemptions and financial market volatility. These fees are considered constrained and are excluded from the transaction price until the asset values or number of accounts on which the customer is billed are calculated and the value of consideration is measurable.
The Company has contractual arrangements with third parties to provide certain advisory, administration, transfer agent and distribution services. Management considers whether we are acting as the principal service provider or as an agent to determine whether revenue should be recorded based on the gross amount payable by the customer or net of payments to third-party service providers, respectively. Victory is considered a principal service provider if we control the service that is transferred to the customer. We are considered an agent when we arrange for the service to be provided by another party and do not control the service.
Investment Management Fees
Investment management fees are received in exchange for investment management services that represent a series of distinct incremental days of investment management service. Control of investment management services is transferred to the customers over time as these customers receive and consume the benefits provided by these services. Investment management fees are calculated as a contractual percentage of AUM and are generally paid in arrears on a monthly or quarterly basis.
AUM represents the financial assets the Company manages for clients on either a discretionary or non-discretionary basis. In general, AUM reflects the valuation methodology that corresponds to the basis used for determining revenue such as net asset value for the Victory Funds and certain other pooled funds and account market value for separate accounts. For the Company’s private closed-end alternative investment products, AUM represents limited partner capital commitments during the commitment period of the fund. Following the earlier of the termination of the commitment period and the beginning of any commitment period for a successor fund, AUM generally represents, depending on the fund, the lesser of a) the net asset value of the fund and b) the aggregated adjusted cost basis of each unrealized portfolio investment or the limited partner capital commitments reduced by the amount of capital contributions used to make portfolio investments that have been disposed.
Investment management fees are recognized as revenue using a time-based output method to measure progress. Revenue is recorded at month end or quarter end when the value of consideration is measured. The amount of investment management fee revenue varies from one reporting period to another as levels of AUM change (from inflows, outflows and market movements) and as the number of days in the reporting period change.
The Company may waive certain fees for investment management services provided to the Victory Funds, VictoryShares and other pooled investment vehicles and may subsidize certain share classes of the Victory Funds, VictoryShares and other pooled investment vehicles to ensure that specified operating expenses attributable to such share classes do not exceed a specified percentage. These waivers and reimbursements reduce the transaction price allocated to investment management services and are recognized as a reduction to investment management fees revenue. The amounts due to the Victory Funds, VictoryShares and other pooled investment vehicles for waivers and expense reimbursements represent consideration payable to customers, which is recorded in accounts payable and accrued expenses in the unaudited Condensed Consolidated Balance Sheets, and no distinct services are received in exchange for these payments.
Performance-based investment management fees, which include fees under performance fee and fulcrum fee arrangements, are included in the transaction price for providing investment management services. Performance-based investment management fees are calculated as a percentage of investment performance on a client’s account versus a specified benchmark or hurdle based on the terms of the contract with the customer. Performance-based investment management fees are variable consideration and are recognized as revenue when and to the extent that it is probable that a significant reversal of the cumulative revenue for the contractual performance period will not occur. Performance-based investment management fees recognized as revenue in the current period may pertain to performance obligations satisfied in prior periods. Fulcrum fee arrangements include a performance fee adjustment that increases or decreases the total investment management fee depending on whether the assets being managed experienced better or worse investment performance than the index specified in the customer’s contract. The performance fee adjustment arrangement with certain equity and fixed income Victory Funds III is calculated monthly based on the investment performance of those funds relative to their specified benchmark indexes over the discrete performance period ending with that month.
Fund Administration Fees
The Company recognizes fund administration fees as revenue using a time-based output method to measure progress. Fund administration fees are determined based on the contractual rate applied to average daily net assets of the Victory Funds and VictoryShares for which administration services are provided. Revenue is recorded on a monthly basis when the value of consideration is measured using actual average daily net assets and constraints are removed. The Company’s fund administration fee revenue is recorded in fund administration and distribution fees in the unaudited Condensed Consolidated Statements of Operations.
The Company has contractual arrangements with a third party to provide certain sub-administration services. We are the primary obligor under the contracts with the Victory Funds and VictoryShares and have the ability to select the service provider and establish pricing. As a result, fund administration fees and sub-administration expenses are recorded on a gross basis.
Fund Transfer Agent Fees
The Company recognizes fund transfer agent fees using a time-based output method to measure progress. Fund transfer agent fees are determined based on the contractual rate applied to either the average daily net assets of the Victory Funds III for which transfer agent services are provided or number of accounts in the Victory Funds III. Revenue is recorded on a monthly basis when the value of consideration is measured using actual average daily net assets or actual number of accounts and constraints are removed. The Company’s fund transfer agent fee revenue is recorded in fund administration and distribution fees in the unaudited Condensed Consolidated Statements of Operations.
The Company also receives fees for sub-transfer agency services under contracts with the Victory Funds for member class shares. Sub-transfer agency fees are recognized and recorded in a manner similar to fund transfer agent fees and are recorded in fund administration and distribution fees in the unaudited Condensed Consolidated Statements of Operations.
The Company has contractual arrangements with a third party to provide certain sub-transfer agent services. As the Company is the primary obligor under the transfer agency contracts with the Victory Funds III and has the ability to select the service provider and establish pricing, fund transfer agent fees and sub-transfer agent expenses are recorded on a gross basis.
Fund Distribution Fees
The Company receives compensation for sales and sales-related services promised under distribution contracts with the Victory Funds. Revenue is measured in an amount that reflects the consideration to which the Company expects to be
entitled in exchange for providing distribution services. Distribution fees are generally calculated as a percentage of average net assets in the Victory Funds. The Company’s performance obligation is satisfied at the point in time when control of the services is transferred to customers, which is upon investor subscription or redemption.
Based on the nature of the calculation, the revenue for these services is accounted for as variable consideration. The Company may recognize distribution fee revenue in the current period that pertains to performance obligations satisfied in prior periods as variable consideration is recognized only when uncertainties are resolved. The Company’s distribution fee revenue is recorded in fund administration and distribution fees in the unaudited Condensed Consolidated Statements of Operations.
The Company has contractual arrangements with third parties to provide certain distribution services. The Company is the primary obligor under the contracts with the Victory Funds and has the ability to select the service provider and establish pricing. Substantially all of the Company’s revenue is recorded gross of payments made to third parties.
Included in fund distribution fees are transaction and account-level fees paid by VCS brokerage platform customers for trade execution, cash transfer and other services.
Costs Incurred to Obtain or Fulfill Customer Contracts
The Company is required to capitalize certain costs directly related to the acquisition or fulfillment of a contact with a customer. Victory has not identified any sales-based compensation or similar costs that meet the definition of an incremental cost to acquire a contract and as such we have no intangible assets related to contract acquisitions.
Direct costs incurred to fulfill services under the Company’s distribution contracts include sales commissions paid to third party dealers for the sale of Class C Shares. The Company may pay upfront sales commissions to dealers and institutions that sell Class C shares of the participating Victory Funds at the time of such sale. Upfront sales commission payments with respect to Class C shares equal 1.00% of the purchase price of the Class C shares sold by the dealer or institution. When the Company makes an upfront payment to a dealer or institution for the sale of Class C shares, the Company capitalizes the cost of such payment, which is recorded in prepaid expenses in the unaudited Condensed Consolidated Balance Sheets and amortizes the cost over a 12-month period, the estimated period of benefit.
Valuation of AUM and fund investments
The fair value of assets under management of the Victory Funds and VictoryShares is primarily determined using quoted market prices or independent third-party pricing services or broker price quotes. In certain circumstances, a quotation or price evaluation is not readily available from a pricing service. In these cases, pricing is determined by management based on a prescribed valuation process that has been approved by the directors/trustees of the sponsored products. The same prescribed valuation process is used to price securities in separate accounts and the Company’s other non-alternative investment vehicles for which a quotation or price evaluation is not readily available from a pricing service.
The fair value of Level III assets held by alternative investment vehicles is determined under the respective valuation policy for each fund. The valuation policies address the fact that substantially all the investments of a fund may not have readily available market information and therefore the fair value for these assets is typically determined using unobservable inputs and models that may include subjective assumptions. AUM reported by the Company for alternative investment vehicles may not necessarily equal the funds’ net asset values or the total fair value of the funds’ portfolio investments as AUM represents the basis for calculating management fees.
For the periods presented, less than one percent of the Company’s total AUM were Level III assets priced without using a quoted market price, broker price quote or pricing service quotation.
NOTE 4. ACQUISITIONS
NEC Acquisition
Under the terms of the purchase agreement for New Energy Capital Partners ("NEC"), which closed on November 1, 2021, the Company will pay up to an additional $35.0 million in cash based on net revenue growth over a six-year period following the closing date on the private, closed-end alternative investment funds managed by the NEC franchise (“NEC Funds”). The maximum amount of contingent payments, less any contingent payments previously paid, is due upon the occurrence of certain specified events within a five year period following the Start Date.
The Company determined that substantially all of the contingent payments payable per the NEC purchase agreement represent compensation for post-closing services. The Company records compensation expense over the estimated service period in an amount equal to the total contingent payments currently forecasted to be paid.
As of March 31, 2025 and December 31, 2024, the Company determined that the contingent payments are no longer probable of occurring and the liability for NEC contingent payments was zero.
For the three months ended March 31, 2024, the Company recorded $1.0 million in NEC contingent payment compensation expense which is included in personnel compensation and benefits in the unaudited Condensed Consolidated Statements of Operations.
WestEnd Acquisition
Under the terms of the WestEnd purchase agreement, which closed on December 31, 2021, a maximum of $320.0 million ($80.0 million per year) of contingent payments is payable to sellers. Contingent earn-out payments are based on net revenue of the WestEnd business during each of the first four years following the close of the acquisition, subject to certain “catch-up” provisions over a five and one-half year period following the close of the acquisition.
In March 2024, the Company paid $80.0 million in cash to sellers as a catch-up payment for the first earn-out period. The estimated fair value of contingent consideration payable to sellers was $143.3 million as of March 31, 2025 and $139.9 million as of December 31, 2024, respectively.
For the three months ended March 31, 2025 and 2024, the change in the liability was an increase of $3.4 million and $12.2 million, respectively. The impact of increasing or decreasing the valuation of the contingent consideration liability is recorded in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.
The estimated fair value of contingent consideration payable to sellers is estimated using the real options method. WestEnd net revenue growth is simulated in a risk-neutral framework to calculate expected probability-weighted earn out payments, which are then discounted from the expected payment dates at the relevant cost of debt. Significant assumptions and inputs include the WestEnd net revenue projected annual growth rate, the market price of risk adjustment for revenue, which adjusts the projected revenue growth rate to a risk-neutral expected growth rate, revenue volatility and discount rate. The market price of risk adjustment for revenue and revenue volatility are based on data for comparable companies. As the contingent consideration represents a subordinate, unsecured claim of the Company, the Company assesses a discount rate which incorporates adjustments for credit risk and the subordination of the contingent consideration.
Significant inputs to the valuation of contingent consideration payable to sellers as of March 31, 2025 and December 31, 2024 are as follows and are approximate values:
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|
March 31, 2025 |
|
|
|
December 31, 2024 |
|
|
Net revenue 5 year average annual growth rate |
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|
|
11 |
|
% |
|
|
12 |
|
% |
Market price of risk adjustment for revenue (continuous) |
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|
5 |
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% |
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|
5 |
|
% |
Revenue volatility |
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|
|
19 |
|
% |
|
|
21 |
|
% |
Discount rate |
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|
|
6 |
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% |
|
|
7 |
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% |
Years remaining in earn out period |
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|
2.6 |
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|
|
|
2.8 |
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|
Undiscounted estimated remaining earn out payments $ millions |
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$153 - $240 |
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$152 - $240 |
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Pioneer Investments
On July 8, 2024, the Company, Amundi Asset Management S.A.S ("Amundi'), and, solely for certain provisions thereof, Amundi S.A., (“Amundi Parent,” and together with Amundi, the “Amundi Parties”) entered into the Contribution Agreement (the “Contribution Agreement”) to combine Amundi’s U.S. business into the Company.
On April 1, 2025, the Company completed the transactions contemplated by the Contribution Agreement. In exchange for the contribution of all the shares of the Amundi US to the Company, at the closing (the “Closing”), the Company issued to Amundi (a) 3,293,471 newly issued shares of Common Stock, representing 4.9% of the number of issued and outstanding shares of Common Stock after giving effect to such issuance, and (b) 14,305,982 newly issued shares of Preferred Stock, which, together with the shares of Common Stock issued to Amundi represented in the aggregate 21.2% of the Company’s fully diluted shares after giving effect to such share issuances. The consideration due to Amundi is subject to a customary post-closing adjustment as well as true-up payments in respect of client consents obtained in the 180 days following the Closing. True-up payments due to Amundi will be settled by adjusting the number of shares issued to Amundi at the Closing. Refer to Note 17, Subsequent Events for further details related to the Closing and Preferred Stock issuance.
Assets acquired and liabilities assumed will be recognized at their respective fair values as of the acquisition date. The process of estimating the fair values of certain tangible assets, identifiable intangible assets and assumed liabilities requires
Contingent consideration arrangements represent the WestEnd earn-out payment liability, which is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets.
Significant unobservable inputs for the option pricing model used to determine the estimated fair value of the WestEnd Acquisition earn-out payment liability include the WestEnd net revenue projected growth rate, revenue volatility, market price of risk and discount rate. An increase in the projected growth rate for revenue results in a higher fair value for the earn-out payment liability while an increase in the discount rate results in a lower fair value for the earnout payment liability. An increase in the market price of risk and revenue volatility results in a lower fair value. Refer to Note 4, Acquisitions, for further details related to the valuation of contingent consideration payable related to the WestEnd Acquisition.
Changes in the fair value of contingent consideration arrangement liabilities, realized or unrealized, are recorded in earnings and are included in change in value of consideration payable for acquisition of business in the unaudited Condensed Consolidated Statements of Operations.
The following table presents the balance of the contingent consideration arrangement liabilities for the three months ended March 31, 2025:
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(in thousands) |
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Contingent Consideration Liabilities |
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Balance, December 31, 2024 |
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$ |
139,894 |
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WestEnd change in fair value measurement |
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|
3,406 |
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Balance, March 31, 2025 |
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$ |
143,300 |
|
There were no transfers between any of the Level 1, 2 and 3 categories in the fair value measurement hierarchy from December 31, 2024 to March 31, 2025. The Company recognizes transfers at the end of the reporting period.
The net carrying value of accounts receivable and accounts payable approximates fair value due to the short‑term nature of these assets and liabilities. The fair value of our long-term debt as of March 31, 2025 is considered to be its carrying value as the interest rate on the bank debt is variable and approximates current market rates. As a result, Level 2 inputs are utilized to determine the fair value of our long‑term debt.
NOTE 6. Related-Party Transactions
The Company considers certain funds that it manages, including the Victory Funds, the VictoryShares, collective trust funds that it sponsors (the “Victory Collective Funds”), the NEC Funds and other pooled investment vehicles that it sponsors, to be related parties as a result of its advisory relationship.
The Company receives investment management, administrative, distribution and compliance fees in accordance with contracts that VCM and VCS have with the Victory Funds and has invested a portion of its balance sheet cash in the Victory Treasury Money Market Trust and earns interest on the amount invested in this fund.
The Company receives investment management, administrative and compliance fees in accordance with contracts that VCM has with the VictoryShares.
We also receive investment management fees from the Victory Collective Funds, the NEC Funds and other pooled investment vehicles under VCM’s advisory contracts with these funds. In addition, VCTA receives fees for transfer agency services under contracts with the Victory Funds III and sub-transfer agency services under contracts with the Victory Funds for member class shares.
Director fees payable by the Company in cash and contributions made under the Director Deferred Compensation Plan for non-employee members of our Board of Directors are included in general and administrative expenses in the unaudited Condensed Consolidated Statements of Operations.
Fees payable to Amundi US for sub-advisory services provided to certain Victory Funds are included in distribution and other asset-based expenses in the unaudited Condensed Consolidated Statements of Operations.
The table below presents balances and transactions involving related parties included in the unaudited Condensed Consolidated Balance Sheets and unaudited Condensed Consolidated Statements of Operations.
•Included in cash and cash equivalents is cash held in the Victory Treasury Money Market Trust.
•Included in receivables (investment management fees) are amounts due from the Victory Funds, the VictoryShares, the Victory Collective Funds, the NEC Funds and other pooled investment vehicles for investment management services.
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Shares of Common Stock Issued |
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Shares of Treasury Stock |
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Balance, December 31, 2023 |
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82,404 |
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(18,150 |
) |
Issuance of shares |
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2 |
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|
|
— |
|
Vesting of restricted share grants |
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|
382 |
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|
|
— |
|
Exercise of options |
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378 |
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|
|
— |
|
Shares withheld related to net settlement of equity awards |
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|
— |
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|
|
(345 |
) |
Balance, March 31, 2024 |
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|
83,166 |
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|
(18,495 |
) |
Share Repurchased and Withheld
Share Repurchase Programs
In December 2024, the Company’s Board of Directors approved a new share repurchase program (the “2025 Share Repurchase Program”) authorizing the repurchase of up to $200.0 million of the Company’s Common Stock through December 31, 2026. Under the 2025 Share Repurchase Program, which took effect in December 2024, the Company may purchase its shares from time to time in privately negotiated transactions, through block trades, pursuant to open market purchases, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the SEC. The amount and timing of purchases under the 2025 Share Repurchase Program will depend on a number of factors including the price and availability of the Company’s shares, trading volume, capital availability, Company performance and general economic and market conditions. The 2025 Share Repurchase Program can be suspended or discontinued at any time.
No shares were repurchased by the Company during the three months ended March 31, 2025 and 2024. As of March 31, 2025, $200.0 million was available for future repurchases under the 2025 Share Repurchase Program.
Shares Withheld for Net Settlement of Employee Equity Awards
During the three months ended March 31, 2025 and 2024, the Company net settled 0.2 million shares and 0.3 million shares of Common Stock, respectively, to satisfy employee tax obligations.
Dividend Payments
Dividends paid for the three months ended March 31, 2025 and 2024 totaled $29.9 million and $21.6 million, respectively, relating to quarterly dividends declared by the Company's Board of Directors. Dividends paid or payable related to dividends previously declared upon vesting of restricted stock totaled $1.0 million and $0.8 million at March 31, 2025 and 2024, respectively.
NOTE 11. Share‑Based Compensation
Current Period Activity
Stock option award and restricted stock award activity during the three months ended March 31, 2025 and 2024 was as follows:
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Shares Subject to Stock Option Awards |
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Three Months Ended March 31, |
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2025 |
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2024 |
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Avg wtd |
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Avg wtd |
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Avg wtd |
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Avg wtd |
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grant-date |
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exercise |
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grant-date |
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exercise |
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fair value |
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price |
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Units |
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|
fair value |
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|
price |
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Units |
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Outstanding at beginning of period |
|
$ |
5.08 |
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|
$ |
9.94 |
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|
720,415 |
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$ |
4.68 |
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$ |
8.76 |
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1,801,853 |
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Forfeited |
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|
— |
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— |
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|
— |
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— |
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— |
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— |
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Exercised |
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|
5.27 |
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|
10.62 |
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|
(42,651 |
) |
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|
4.41 |
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|
8.45 |
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|
(378,149 |
) |
Outstanding at end of period |
|
$ |
5.07 |
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|
$ |
9.90 |
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|
677,764 |
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|
$ |
4.76 |
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|
$ |
8.84 |
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|
|
1,423,704 |
|
Vested |
|
$ |
5.14 |
|
|
$ |
10.13 |
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|
|
501,566 |
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|
$ |
4.74 |
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|
$ |
8.79 |
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|
|
1,247,506 |
|
Unvested |
|
|
4.85 |
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|
|
9.23 |
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|
176,198 |
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|
|
4.85 |
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|
9.23 |
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176,198 |
|
distributes in the United States. The Distribution and Services Agreements will continue until the 15th anniversary of the date of the Closing, and automatically renew thereafter and remain effective for successive five-year terms. The Distribution and Services Agreements may be terminated under certain limited circumstances.
Shareholder Agreement
In connection with the Closing, the Company and Amundi also entered into a shareholder agreement (the “Shareholder Agreement”). Pursuant to the terms of the Shareholder Agreement, Amundi was granted certain resale shelf and piggyback registration rights in respect of the Common Stock and any shares of the Common Stock issuable by the Company upon the conversion of Preferred Stock, in each case, to the extent the Preferred Stock and the Common Stock was issued to Amundi under the Contribution Agreement or acquired pursuant to Amundi’s participation rights under the Shareholder Agreement. In addition, for a period of three years following the Closing, Amundi remains subject to a customary “lock-up” of the Common Stock and Preferred Stock (subject to certain exceptions) and a standstill, which among other things, prohibits Amundi from acquiring additional equity securities of the Company (subject to certain exceptions).
Preferred Stock
At the Closing, the shares of Preferred Stock issued to Amundi under the Contribution Agreement were issued pursuant to the terms of the Certificate of Designations, Powers, Preferences and Rights of Series A Non-Voting Convertible Preferred Stock of the Company. Holders of Preferred Stock do not have any voting rights, except as required by applicable law. The Preferred Stock is economically equivalent to Common Stock (including with respect to dividends), except that, upon liquidation of the Company (but not a consolidation, merger or reorganization), holders of the Preferred Stock would be entitled to a liquidation preference equal to $0.01 per share, plus the amount of any declared but unpaid dividends thereon as of the applicable date.
The shares of Preferred Stock are not convertible to shares of Common Stock at the option of the holder. Upon specified transfers of the Preferred Stock to third parties, the shares of Preferred Stock will automatically convert into shares of Common Stock in the hands of the transferee on an equivalent basis. Conversion will only occur in the event of a transfer of shares to an entity that is not an affiliate of Amundi in certain specified transfer scenarios.
Quarterly Cash Dividends
On May 8, 2025, the Company’s Board of Directors approved a regular quarterly cash dividend of $0.49 per share. The dividend is payable on June 25, 2025, to shareholders of record on June 10, 2025.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “Company,” “Victory,” or in the first-person notations of “we,” “us,” and “our” shall mean Victory Capital Holdings, Inc., a Delaware corporation, and its wholly-owned subsidiaries.
Objective
The objective of this section of the Quarterly Report on Form 10-Q is intended to provide a discussion and analysis, from management’s perspective, of the key performance indicators and material information necessary to assess our financial condition and results of operations for the three months ended March 31, 2025 and 2024 and cash flows for the three months ended March 31, 2025 and 2024. In addition, we also discuss the Company’s contractual and off-balance sheet arrangements. This discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2024. This discussion and analysis contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q and in “Item 1A. Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2024.
Overview
Our Business – Victory is a diversified global asset management firm with total client assets of $171.4 billion, assets under management of $167.5 billion and other assets of $4.0 billion as of March 31, 2025. The Company operates a next-generation business model combining boutique investment qualities with the benefits of an integrated, centralized operating and distribution platform.
The Company provides specialized investment strategies to institutions, intermediaries, retirement platforms and individual investors with 11 autonomous Investment Franchises and a Solutions Platform. Victory Capital offers a wide array of investment products, including actively and passively managed mutual funds, rules-based and active exchange traded funds (“ETFs”), institutional separate accounts, variable insurance products (“VIPs”), alternative investments, private closed end funds, and a 529 Education Savings Plan. Victory Capital’s strategies are also offered through third-party investment products, including mutual funds, third-party ETF model strategies, retail separately managed accounts (“SMAs”) and unified managed accounts (“UMAs”) through wrap account programs, Collective Investment Trusts (“CITs”), and undertakings for the collective investment in transferable securities (“UCITs”). As of March 31, 2025, our Franchises and our Solutions Platform collectively managed a diversified set of 125 investment strategies for a wide range of institutional and retail clients and direct investors.
Franchises – Our Franchises are largely operationally integrated but are separately branded and make investment decisions independently from one another within guidelines established by their respective investment mandates. Our largely integrated model creates a supportive environment in which our investment professionals, largely unencumbered by administrative and operational responsibilities, can focus on their pursuit of investment excellence. VCM employs all of our U.S. investment professionals across our Franchises, which are not separate legal entities.
Solutions – Our Solutions Platform consists of multi‑asset, multi-manager, quantitative, rules-based, factor-based, and customized portfolios. These strategies are designed to achieve specific return characteristics, with products that include values-based and thematic outcomes and exposures. We offer our Solutions Platform through a variety of vehicles, including separate accounts, mutual funds, UMA accounts, and rules-based and active ETFs under our VictoryShares ETF brand. Like our Franchises, our Solutions Platform is operationally integrated and supported by our centralized distribution, marketing, and operational support functions.
Professionals within our institutional and retail distribution channels, direct investor business and marketing organization sell our products through our centralized distribution model. Our institutional sales team focuses on cultivating relationships with institutional consultants, who account for the majority of the institutional market, as well as asset allocators seeking sub-advisers. Our retail sales team offers intermediary and retirement platform clients, including broker-dealers, retirement platforms and RIA networks, mutual funds and ETFs as well as SMAs through wrap fee programs and access to our investment models through UMAs. Our direct investor business serves the investment needs of individual clients.
We have grown our total client assets from $17.9 billion following the management-led buyout with Crestview GP in August 2013 to $171.4 billion at March 31, 2025. We attribute this growth to our success in sourcing acquisitions and evolving them into organic growers, generating strong investment returns, and developing institutional, retail, and direct investor channels with deep penetration.
Business Highlights
Assets under management:
•AUM at March 31, 2025 decreased by $4.5 billion, or 2.6%, to $167.5 billion from $171.9 billion at December 31, 2024, driven by negative market action of $3.2 billion net outflows of $1.2 billion. Total gross flows for the first quarter were $9.5 billion, including long-term gross flows of $9.3 billion.
•AUM at March 31, 2025 and 2024 was $167.5 billion and $170.3 billion, respectively. We experienced $3.2 billion in negative market action for the three months ended March 31, 2025 compared to $10.2 billion in market appreciation for the same period in 2024. We generated $9.5 billion in gross sales, including $9.3 billion in long-term gross sales, and $1.2 billion in total net outflows for the three months ended March 31, 2025 compared to $7.2 billion in gross sales, including $7.0 billion in long-term gross sales, and $1.1 billion in total net outflows for the same period in 2024.
Investment performance:
•45 of our Victory Capital mutual funds and ETFs had overall Morningstar ratings of four or five stars and 67% of our fund and ETF AUM were rated four or five stars overall by Morningstar. 47% of our strategies by AUM had investment returns in excess of their respective benchmarks over a one-year period, 64% over a three-year period, 65% over a five-year period and 79% over a ten-year period. On an equal-weighted basis, 48% of our strategies have outperformed their benchmarks over a one-year period, 63% over a three-year period, 59% over a five-year period and 64% over a ten-year period.
Financial highlights:
•Total revenue for the three months ended March 31, 2025 was $219.6 million compared to $215.9 million for the same period in 2024.
•Net income was $62.0 million for the three months ended March 31, 2025 compared to $55.7 million for the same period in 2024.
•Adjusted EBITDA was $116.4 million for the three months ended March 31, 2025, or 53.0% of revenue, compared to $112.4 million, or 52.1% of revenue, for the same period in 2024. Refer to “Supplemental Non-GAAP Financial Information” for further information about the Adjusted EBITDA calculation and reconciliation of generally accepted accounting principles (“GAAP”) net income to Adjusted EBITDA.
•Adjusted Net Income with tax benefit was $88.1 million for the three months ended March 31, 2025 compared to $82.3 million for the three months ended March 31, 2024. Refer to “Supplemental Non-GAAP Financial Information” for further information about the Adjusted Net Income calculation and reconciliation of GAAP net income to Adjusted Net Income.
Key Performance Indicators
The following table is a summary of key performance indicators utilized by management to assess results of operations:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
($ in millions, except for basis points and percentages) |
|
2025 |
|
|
2024 |
|
AUM at period end |
|
$ |
167,468 |
|
|
$ |
170,342 |
|
Average AUM |
|
|
173,789 |
|
|
|
163,533 |
|
Gross flows |
|
|
9,486 |
|
|
|
7,187 |
|
AUM net short term flows |
|
|
(44 |
) |
|
|
(99 |
) |
AUM net long term flows |
|
|
(1,205 |
) |
|
|
(1,028 |
) |
AUM net flows |
|
|
(1,249 |
) |
|
|
(1,127 |
) |
Total revenue |
|
|
219.6 |
|
|
|
215.9 |
|
Revenue realization on average AUM |
|
51.2 bps |
|
|
53.0 bps |
|
Net income |
|
|
62.0 |
|
|
|
55.7 |
|
Adjusted EBITDA(1) |
|
|
116.4 |
|
|
|
112.4 |
|
Adjusted EBITDA Margin(2) |
|
|
53.0 |
% |
|
|
52.1 |
% |
Adjusted Net Income(1) |
|
|
78.0 |
|
|
|
72.6 |
|
Tax benefit of goodwill and acquired intangibles(3) |
|
|
10.1 |
|
|
|
9.7 |
|
(1)Management utilizes Adjusted EBITDA and Adjusted Net Income to measure the operating profitability of the business. These measures eliminate the impact of one‑time acquisition, restructuring and integration costs and demonstrate the ongoing operating earnings metrics of the business. These measures are explained in more detail and reconciled to net income calculated in accordance with GAAP in “Supplemental Non‑GAAP Financial Information.”
(2)Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of total revenue.
(3)Represents the tax benefits associated with deductions allowed for intangibles and goodwill generated from prior acquisitions in which we received a step-up in basis for tax purposes. Acquired intangible assets and goodwill may be amortized for tax purposes, generally over a 15-year period. The tax benefit from amortization on these assets is included to show the full economic benefit of deductions for all acquired intangibles with a step-up in tax basis. Due to our acquisitive nature, tax deductions allowed on acquired intangible assets and goodwill provide us with a significant supplemental economic benefit.
The following table presents a reconciliation of our total client assets(1) as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in millions) |
|
2025 |
|
|
2024 |
|
Beginning AUM |
|
$ |
171,930 |
|
|
$ |
161,322 |
|
Beginning other assets |
|
|
4,165 |
|
|
|
5,289 |
|
Beginning total client assets |
|
|
176,096 |
|
|
|
166,611 |
|
|
|
|
|
|
|
|
AUM net cash flows |
|
|
(1,249 |
) |
|
|
(1,127 |
) |
Other assets net cash flows |
|
|
(277 |
) |
|
|
(524 |
) |
Total client assets net cash flows |
|
|
(1,526 |
) |
|
|
(1,651 |
) |
|
|
|
|
|
|
|
AUM market appreciation (depreciation) |
|
|
(3,172 |
) |
|
|
10,178 |
|
Other assets market appreciation (depreciation) |
|
|
78 |
|
|
|
352 |
|
Total client assets market appreciation (depreciation) |
|
|
(3,094 |
) |
|
|
10,529 |
|
|
|
|
|
|
|
|
AUM realizations and distributions |
|
|
(21 |
) |
|
|
— |
|
Acquired & divested assets / Net transfers |
|
|
(20 |
) |
|
|
(31 |
) |
|
|
|
|
|
|
|
Ending AUM |
|
|
167,468 |
|
|
|
170,342 |
|
Ending other assets |
|
|
3,967 |
|
|
|
5,117 |
|
Ending total client assets |
|
|
171,435 |
|
|
|
175,459 |
|
Average total client assets |
|
|
177,849 |
|
|
|
168,865 |
|
(1)Includes low-fee (2 to 4 bps) institutional assets, previously reported in the Solutions asset class within the by asset class table and in Separate Accounts and Other Pooled Vehicles within the by vehicle table. These assets are included as part of Victory’s Regulatory Assets Under Management reported in Form ADV Part 1.
The following table presents a reconciliation of our total AUM(1) as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in millions) |
|
2025 |
|
|
2024 |
|
Beginning AUM |
|
$ |
171,930 |
|
|
$ |
161,322 |
|
Gross client cash inflows |
|
|
9,486 |
|
|
|
7,187 |
|
Gross client cash outflows |
|
|
(10,736 |
) |
|
|
(8,314 |
) |
Net client cash flows |
|
|
(1,249 |
) |
|
|
(1,127 |
) |
Market appreciation (depreciation) |
|
|
(3,172 |
) |
|
|
10,178 |
|
Realizations and distributions |
|
|
(21 |
) |
|
|
— |
|
Acquired & divested assets / Net transfers |
|
|
(20 |
) |
|
|
(31 |
) |
Ending AUM |
|
|
167,468 |
|
|
|
170,342 |
|
Average AUM |
|
|
173,789 |
|
|
|
163,533 |
|
(1)Total AUM includes both discretionary assets under management and non-discretionary assets under advisement and excludes other assets.
The following table presents a reconciliation of our other assets (institutional)(1) as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in millions) |
|
2025 |
|
|
2024 |
|
Beginning other assets (institutional) |
|
$ |
4,165 |
|
|
$ |
5,289 |
|
Gross client cash inflows |
|
|
— |
|
|
|
— |
|
Gross client cash outflows |
|
|
(277 |
) |
|
|
(524 |
) |
Net client cash flows |
|
|
(277 |
) |
|
|
(524 |
) |
Market appreciation (depreciation) |
|
|
78 |
|
|
|
352 |
|
Realizations and distributions |
|
|
— |
|
|
|
— |
|
Acquired & divested assets / Net transfers |
|
|
— |
|
|
|
— |
|
Ending other assets (institutional) |
|
|
3,967 |
|
|
|
5,117 |
|
Average other assets (institutional) |
|
|
4,060 |
|
|
|
5,332 |
|
(1)Includes low-fee (2 to 4 bps) institutional assets, previously reported in the Solutions asset class within the by asset class table and in Separate Accounts and Other Pooled Vehicles within the by vehicle table. These assets are included as part of Victory’s Regulatory Assets Under Management reported in Form ADV Part 1.
Assets Under Management
Our profitability is largely affected by the level and composition of our AUM (including asset class and distribution channel) and the effective fee rates on our products. The amount and composition of our AUM are, and will continue to be, influenced by a number of factors, including; (i) investment performance, including fluctuations in the financial markets and the quality of our investment decisions; (ii) client flows into and out of our various strategies and investment vehicles; (iii) industry trends toward products or strategies that we either do or do not offer; (iv) our ability to attract and retain high quality investment, distribution, marketing and management personnel; (v) our decision to close strategies or limit growth of assets in a strategy when we believe it is in the best interest of our clients or conversely to re‑open strategies in part or entirely; and (vi) general investor sentiment and confidence. Our goal is to establish and maintain a client base that is diversified by Franchise and Solutions, asset class, distribution channel and vehicle. Due to rounding, AUM numbers presented in the tables below may not add up precisely to the totals provided.
The following table presents our total AUM by asset class as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
March 31, |
|
(in millions) |
|
2025 |
|
|
2024 |
|
Solutions |
|
$ |
63,378 |
|
|
$ |
57,833 |
|
U.S. Mid Cap Equity |
|
|
28,964 |
|
|
|
32,918 |
|
Fixed Income |
|
|
24,157 |
|
|
|
24,481 |
|
Global / Non-U.S. Equity |
|
|
18,334 |
|
|
|
18,200 |
|
U.S. Small Cap Equity |
|
|
13,182 |
|
|
|
16,297 |
|
U.S. Large Cap Equity |
|
|
13,104 |
|
|
|
13,895 |
|
Alternative Investments |
|
|
2,945 |
|
|
|
3,465 |
|
Total Long-Term Assets |
|
$ |
164,064 |
|
|
$ |
167,089 |
|
Money Market & Short-Term Assets |
|
|
3,404 |
|
|
|
3,253 |
|
Total AUM(1) |
|
$ |
167,468 |
|
|
$ |
170,342 |
|
(1)Total AUM includes both discretionary assets under management and non-discretionary assets under advisement and excludes other assets.
The following tables summarize our total AUM asset flows by asset class for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mid |
|
|
U.S. Small |
|
|
|
|
|
U.S. Large |
|
|
Global / |
|
|
|
|
|
|
|
|
|
|
|
Money |
|
|
|
|
|
|
Cap |
|
|
Cap |
|
|
Fixed |
|
|
Cap |
|
|
Non-U.S. |
|
|
|
|
|
Alternative |
|
|
Total |
|
|
Market / |
|
|
|
|
(in millions) |
|
Equity |
|
|
Equity |
|
|
Income |
|
|
Equity |
|
|
Equity |
|
|
Solutions |
|
|
Investments |
|
|
Long-term |
|
|
Short-term |
|
|
Total AUM(1) |
|
For the Three Months Ended March 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AUM |
|
$ |
30,584 |
|
|
$ |
14,785 |
|
|
$ |
24,402 |
|
|
$ |
14,148 |
|
|
$ |
19,095 |
|
|
$ |
62,593 |
|
|
$ |
2,980 |
|
|
$ |
168,586 |
|
|
$ |
3,344 |
|
|
$ |
171,930 |
|
Gross client cash inflows |
|
|
1,098 |
|
|
|
445 |
|
|
|
928 |
|
|
|
82 |
|
|
|
2,137 |
|
|
|
4,363 |
|
|
|
256 |
|
|
|
9,309 |
|
|
|
177 |
|
|
|
9,486 |
|
Gross client cash outflows |
|
|
(1,733 |
) |
|
|
(847 |
) |
|
|
(1,545 |
) |
|
|
(469 |
) |
|
|
(3,251 |
) |
|
|
(2,318 |
) |
|
|
(351 |
) |
|
|
(10,514 |
) |
|
|
(222 |
) |
|
|
(10,736 |
) |
Net client cash flows |
|
|
(635 |
) |
|
|
(402 |
) |
|
|
(617 |
) |
|
|
(386 |
) |
|
|
(1,114 |
) |
|
|
2,045 |
|
|
|
(96 |
) |
|
|
(1,205 |
) |
|
|
(44 |
) |
|
|
(1,249 |
) |
Market appreciation / (depreciation) |
|
|
(979 |
) |
|
|
(1,194 |
) |
|
|
328 |
|
|
|
(630 |
) |
|
|
396 |
|
|
|
(1,202 |
) |
|
|
79 |
|
|
|
(3,202 |
) |
|
|
30 |
|
|
|
(3,172 |
) |
Realizations and distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(21 |
) |
|
|
(21 |
) |
|
|
— |
|
|
|
(21 |
) |
Acquired & divested assets / Net transfers |
|
|
(6 |
) |
|
|
(7 |
) |
|
|
44 |
|
|
|
(27 |
) |
|
|
(44 |
) |
|
|
(57 |
) |
|
|
2 |
|
|
|
(94 |
) |
|
|
75 |
|
|
|
(20 |
) |
Ending AUM |
|
$ |
28,964 |
|
|
$ |
13,182 |
|
|
$ |
24,157 |
|
|
$ |
13,104 |
|
|
$ |
18,334 |
|
|
$ |
63,378 |
|
|
$ |
2,945 |
|
|
$ |
164,064 |
|
|
$ |
3,404 |
|
|
$ |
167,468 |
|
For the Three Months Ended March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AUM |
|
$ |
30,604 |
|
|
$ |
15,959 |
|
|
$ |
24,355 |
|
|
$ |
12,635 |
|
|
$ |
16,772 |
|
|
$ |
54,296 |
|
|
$ |
3,431 |
|
|
$ |
158,051 |
|
|
$ |
3,271 |
|
|
$ |
161,322 |
|
Gross client cash inflows |
|
|
1,371 |
|
|
|
507 |
|
|
|
1,298 |
|
|
|
68 |
|
|
|
1,090 |
|
|
|
2,165 |
|
|
|
452 |
|
|
|
6,952 |
|
|
|
236 |
|
|
|
7,187 |
|
Gross client cash outflows |
|
|
(1,845 |
) |
|
|
(925 |
) |
|
|
(1,367 |
) |
|
|
(332 |
) |
|
|
(751 |
) |
|
|
(2,410 |
) |
|
|
(349 |
) |
|
|
(7,980 |
) |
|
|
(335 |
) |
|
|
(8,314 |
) |
Net client cash flows |
|
|
(474 |
) |
|
|
(418 |
) |
|
|
(69 |
) |
|
|
(264 |
) |
|
|
339 |
|
|
|
(245 |
) |
|
|
103 |
|
|
|
(1,028 |
) |
|
|
(99 |
) |
|
|
(1,127 |
) |
Market appreciation / (depreciation) |
|
|
2,795 |
|
|
|
801 |
|
|
|
176 |
|
|
|
1,555 |
|
|
|
1,133 |
|
|
|
3,749 |
|
|
|
(75 |
) |
|
|
10,135 |
|
|
|
42 |
|
|
|
10,178 |
|
Realizations and distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Acquired & divested assets / Net transfers |
|
|
(7 |
) |
|
|
(45 |
) |
|
|
18 |
|
|
|
(31 |
) |
|
|
(44 |
) |
|
|
33 |
|
|
|
5 |
|
|
|
(69 |
) |
|
|
38 |
|
|
|
(31 |
) |
Ending AUM |
|
$ |
32,918 |
|
|
$ |
16,297 |
|
|
$ |
24,481 |
|
|
$ |
13,895 |
|
|
$ |
18,200 |
|
|
$ |
57,833 |
|
|
$ |
3,465 |
|
|
$ |
167,089 |
|
|
$ |
3,253 |
|
|
$ |
170,342 |
|
(1)Total AUM includes both discretionary assets under management and non-discretionary assets under advisement and excludes other assets.
The following table presents our total AUM by distribution channel as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, |
|
|
|
2025 |
|
|
2024 |
|
(in millions) |
|
Amount |
|
|
% of total |
|
|
Amount |
|
|
% of total |
|
Retail |
|
$ |
71,143 |
|
|
|
43 |
% |
|
$ |
66,700 |
|
|
|
39 |
% |
Direct |
|
|
57,170 |
|
|
|
34 |
% |
|
|
59,893 |
|
|
|
35 |
% |
Institutional |
|
|
39,155 |
|
|
|
23 |
% |
|
|
43,749 |
|
|
|
26 |
% |
Total AUM(1)(2) |
|
$ |
167,468 |
|
|
|
100 |
% |
|
$ |
170,342 |
|
|
|
100 |
% |
(1)The allocation of AUM by distribution channel involves the use of estimates and the exercise of judgment.
(2)Total AUM includes both discretionary assets under management and non-discretionary assets under advisement and excludes other assets.
The following tables summarize our asset flows by vehicle for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Separate |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and |
|
|
|
|
|
|
|
|
|
|
|
|
Other Pooled |
|
|
|
|
(in millions) |
|
Mutual Funds(1) |
|
|
ETFs(2) |
|
|
Vehicles(3) |
|
|
Total AUM(4) |
|
Three Months Ended March 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AUM |
|
$ |
113,645 |
|
|
$ |
7,508 |
|
|
$ |
50,777 |
|
|
$ |
171,930 |
|
Gross client cash inflows |
|
|
3,323 |
|
|
|
3,061 |
|
|
|
3,102 |
|
|
|
9,486 |
|
Gross client cash outflows |
|
|
(6,328 |
) |
|
|
(251 |
) |
|
|
(4,156 |
) |
|
|
(10,736 |
) |
Net client cash flows |
|
|
(3,006 |
) |
|
|
2,810 |
|
|
|
(1,053 |
) |
|
|
(1,249 |
) |
Market appreciation (depreciation) |
|
|
(2,243 |
) |
|
|
(50 |
) |
|
|
(880 |
) |
|
|
(3,172 |
) |
Realizations and distributions |
|
|
— |
|
|
|
— |
|
|
|
(21 |
) |
|
|
(21 |
) |
Acquired & divested assets / Net transfers |
|
|
(5 |
) |
|
|
(15 |
) |
|
|
— |
|
|
|
(20 |
) |
Ending AUM |
|
$ |
108,392 |
|
|
$ |
10,253 |
|
|
$ |
48,823 |
|
|
$ |
167,468 |
|
Three Months Ended March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning AUM |
|
$ |
108,802 |
|
|
$ |
4,970 |
|
|
$ |
47,551 |
|
|
$ |
161,322 |
|
Gross client cash inflows |
|
|
4,303 |
|
|
|
451 |
|
|
|
2,434 |
|
|
|
7,187 |
|
Gross client cash outflows |
|
|
(5,956 |
) |
|
|
(449 |
) |
|
|
(1,909 |
) |
|
|
(8,314 |
) |
Net client cash flows |
|
|
(1,653 |
) |
|
|
2 |
|
|
|
525 |
|
|
|
(1,127 |
) |
Market appreciation (depreciation) |
|
|
6,796 |
|
|
|
215 |
|
|
|
3,167 |
|
|
|
10,178 |
|
Realizations and distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Acquired & divested assets / Net transfers |
|
|
(48 |
) |
|
|
43 |
|
|
|
(26 |
) |
|
|
(31 |
) |
Ending AUM |
|
$ |
113,897 |
|
|
$ |
5,229 |
|
|
$ |
51,217 |
|
|
$ |
170,342 |
|
(1)Includes institutional and retail share classes, money market and Variable Insurance Products or VIP funds.
(2)Represents only ETF assets held by third parties. Excludes ETF assets held by other Victory Capital products.
(3)Includes collective trust funds, wrap program accounts, UMAs, UCITS, private funds and non-U.S. domiciled pooled vehicles.
(4)Total AUM includes both discretionary assets under management and non-discretionary assets under advisement and excludes other assets.
March 31, 2025 AUM compared to December 31, 2024 AUM. At March 31, 2025, our total AUM was $167.5 billion, a decrease of $4.5 billion, or 2.6%, from $171.9 billion at December 31, 2024, primarily due to negative market action of $3.2 billion and net outflows of $1.2 billion.
Net outflows were driven by our global non-U.S., U.S. mid cap, U.S. small cap, and U.S. large cap equity strategies as well as our fixed income strategies and Alternative investments platform of $1.1 billion, $0.6 billion, $0.4 billion, $0.4 billion, $0.6 billion, and $0.1 billion, respectively, partially offset by net inflows from our Solutions platform of $2.0 billion.
GAAP Results of Operations
The following table presents our GAAP results of operations for the three months ended March 31, 2025 and 2024.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands, except per share data) |
|
2025 |
|
|
2024 |
|
Revenue |
|
|
|
|
|
|
Investment management fees |
|
$ |
173,301 |
|
|
$ |
169,785 |
|
Fund administration and distribution fees |
|
|
46,301 |
|
|
|
46,072 |
|
Total revenue |
|
|
219,602 |
|
|
|
215,857 |
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
Personnel compensation and benefits |
|
|
56,136 |
|
|
|
59,454 |
|
Distribution and other asset-based expenses |
|
|
35,477 |
|
|
|
36,263 |
|
General and administrative |
|
|
14,328 |
|
|
|
14,012 |
|
Depreciation and amortization |
|
|
7,432 |
|
|
|
7,601 |
|
Change in value of consideration payable for acquisition of business |
|
|
3,406 |
|
|
|
12,200 |
|
Acquisition-related costs |
|
|
8,750 |
|
|
|
1,026 |
|
Restructuring and integration costs |
|
|
1,165 |
|
|
|
492 |
|
Total operating expenses |
|
|
126,694 |
|
|
|
131,048 |
|
|
|
|
|
|
|
|
Income from operations |
|
|
92,908 |
|
|
|
84,809 |
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
Interest income and other income |
|
|
704 |
|
|
|
3,565 |
|
Interest expense and other financing costs |
|
|
(13,211 |
) |
|
|
(16,486 |
) |
Total other expense, net |
|
|
(12,507 |
) |
|
|
(12,921 |
) |
|
|
|
|
|
|
|
Income before income taxes |
|
|
80,401 |
|
|
|
71,888 |
|
|
|
|
|
|
|
|
Income tax expense |
|
|
(18,426 |
) |
|
|
(16,197 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
61,975 |
|
|
$ |
55,691 |
|
|
|
|
|
|
|
|
Earnings per share of common stock |
|
|
|
|
|
|
Basic |
|
$ |
0.97 |
|
|
$ |
0.86 |
|
Diluted |
|
$ |
0.96 |
|
|
$ |
0.84 |
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding |
|
|
|
|
|
|
Basic |
|
|
63,711 |
|
|
|
64,389 |
|
Diluted |
|
|
64,714 |
|
|
|
65,972 |
|
|
|
|
|
|
|
|
Dividends declared per share of common stock |
|
$ |
0.47 |
|
|
$ |
0.335 |
|
Investment Management Fees
Three months ended March 31, 2025 compared to March 31, 2024. Investment management fees increased by $3.5 million, or 2.1%, to $173.3 million for the three months ended March 31, 2025 from $169.8 million for the same period in 2024 due to an increase in average AUM year over year. Average AUM was $173.8 billion for the three months ended March 31, 2025 compared to $163.5 billion for the same period in 2024.
Fund Administration and Distribution Fees
Three months ended March 31, 2025 compared to March 31, 2024. Fund administration and distribution fees increased by $0.2 million, or 0.5%, to $46.3 million for the three months ended March 31, 2025 from $46.1 million for the same period in 2024 mostly due to an increase in fund administration fees partially offset by a decrease in transfer agent fees.
Personnel Compensation and Benefits
The following table presents the components of GAAP personnel compensation and benefits expense for the three months ended March 31, 2025 and 2024:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2025 |
|
|
2024 |
|
Salaries, payroll related taxes and employee benefits |
|
$ |
21,745 |
|
|
$ |
24,476 |
|
Incentive compensation |
|
|
23,667 |
|
|
|
23,943 |
|
Sales-based compensation(1) |
|
|
7,220 |
|
|
|
6,079 |
|
Equity awards granted to employees and directors(2) |
|
|
3,504 |
|
|
|
3,969 |
|
Acquisition and transaction-related compensation |
|
|
— |
|
|
|
987 |
|
Total personnel compensation and benefits expense |
|
$ |
56,136 |
|
|
$ |
59,454 |
|
(1)Represents sales-based commissions paid to our distribution teams. Sales-based compensation varies based on gross and net client cash flows and revenue earned on sales.
(2)Equity awards typically vest over several years based on service and the achievement of specific business and financial targets. The value of the equity awards is recognized as compensation expense over the vesting period.
Three months ended March 31, 2025 compared to March 31, 2024. Personnel compensation and benefits were $56.1 million for the first quarter of 2025, a decrease of $3.4 million, or 5.6%, from $59.5 million for the same period in 2024. Salaries, payroll related taxes and employee benefits decreased $2.7 million primarily due lower unrealized gains relating to our deferred compensation plans. Acquisition and transaction-related compensation decreased $1.0 million due to lower contingent payment compensation expense.
Distribution and Other Asset‑Based Expenses
The following table presents the components of distribution and other asset-based expenses for the three months ended March 31, 2025 and 2024:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2025 |
|
|
2024 |
|
Broker-dealer distribution fees |
|
$ |
4,800 |
|
|
$ |
5,042 |
|
Platform distribution fees |
|
|
21,611 |
|
|
|
22,128 |
|
Sub-administration |
|
|
4,390 |
|
|
|
4,101 |
|
Sub-advisory |
|
|
1,872 |
|
|
|
2,336 |
|
Middle-office |
|
|
2,804 |
|
|
|
2,656 |
|
Total distribution and other asset-based expenses |
|
$ |
35,477 |
|
|
$ |
36,263 |
|
Three months ended March 31, 2025 compared to March 31, 2024. Distribution and other asset-based expenses were $35.5 million for the three months ended March 31, 2025, compared to $36.3 million for the same period in 2024. The decrease of $0.8 million, or 2.2% was primarily due to lower platform distribution and sub-advisory fees over the comparable period.
General and Administrative
Three months ended March 31, 2025 compared to March 31, 2024. General and administrative expenses were $14.3 million for the three months ended March 31, 2025 compared to $14.0 million for the same period in 2024. The increase of $0.3 million, or 2.3%, was primarily due to increases in technology related expenses.
Depreciation and Amortization
Three months ended March 31, 2025 compared to March 31, 2024. Depreciation and amortization decreased $0.2 million, or 2.2%, to $7.4 million for the three months ended March 31, 2025 from $7.6 million for the same period in 2024, primarily due to a decrease in depreciation expense related to information technology equipment.
Change in Value of Consideration Payable for Acquisition of Business
Three months ended March 31, 2025 compared to March 31, 2024. The change in value of consideration payable for acquisition of business decreased $8.8 million as a result of an increase of $3.4 million in the fair value of contingent
consideration associated with the WestEnd Acquisition for the three months ended March 31, 2025 compared to an increase of $12.2 million for the three months ended March 31, 2024. Refer to Note 4, Acquisitions, for further details on the fair value of contingent consideration payable.
Acquisition‑Related Costs
Three months ended March 31, 2025 compared to March 31, 2024. Acquisition-related costs were $8.8 million for the three months ended March 31, 2025, compared to $1.0 million for the same period in 2024. The increase of $7.7 million was primarily due to legal, professional, and proxy solicitation related to the Amundi US acquisition.
Restructuring and Integration Costs
Three months ended March 31, 2025 compared to March 31, 2024. Restructuring and integration costs for the three months ended March 31, 2025 and 2024 were $1.2 million and $0.5 million, respectively. Restructuring and integration costs for the three months ended March 31, 2025 and 2024 were primarily due to personnel restructuring.
Interest Income and Other Income (Expense)
Three months ended March 31, 2025 compared to March 31, 2024. Interest income and other income/(expense) was income of $0.7 million and $3.6 million for the three months ended March 31, 2025 and 2024, respectively. The decrease is primarily due to a decrease in the net unrealized fair value of deferred compensation plan investments over the comparable period.
Interest Expense and Other Financing Costs
Three months ended March 31, 2025 compared to March 31, 2024. Interest expense and other financing costs decreased $3.3 million to $13.2 million for the three months ended March 31, 2025, compared to $16.5 million for the same period in 2024 as a result of a lower debt principal balance and lower average interest rate over the comparable period.
Income Tax Expense
Three months ended March 31, 2025 compared to March 31, 2024. The effective tax rate for the three months ended March 31, 2025 and 2024 was 22.9% and 22.5%, respectively. The higher effective tax rate in 2025 is mainly due to lower excess tax benefits on share-based compensation when compared to the comparable period.
Supplemental Non‑GAAP Financial Information
We use non-GAAP performance measures to evaluate the underlying operations of our business. Due to our acquisitive nature, there are a number of acquisition and restructuring related expenses included in GAAP measures that we believe distort the economic value of our organization and we believe that many investors use this information when assessing the financial performance of companies in the investment management industry. We have included these non-GAAP measures to provide investors with the same financial metrics used by management to assess the operating performance of our Company. The non-GAAP measures we report are Adjusted EBITDA and Adjusted Net Income.
The following table sets forth a reconciliation from GAAP financial measures to non-GAAP measures for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2025 |
|
|
2024 |
|
Reconciliation of non-GAAP financial measures: |
|
|
|
|
|
|
Net income (GAAP) |
|
$ |
61,975 |
|
|
$ |
55,691 |
|
Income tax expense |
|
|
(18,426 |
) |
|
|
(16,197 |
) |
Income before income taxes |
|
$ |
80,401 |
|
|
$ |
71,888 |
|
Interest expense(1) |
|
|
12,521 |
|
|
|
15,711 |
|
Depreciation(2) |
|
|
2,168 |
|
|
|
2,269 |
|
Other business taxes(3) |
|
|
922 |
|
|
|
369 |
|
Amortization of acquisition-related intangible assets(4) |
|
|
5,264 |
|
|
|
5,332 |
|
Stock-based compensation(5) |
|
|
1,053 |
|
|
|
1,327 |
|
Acquisition, restructuring and exit costs(6) |
|
|
13,321 |
|
|
|
14,705 |
|
Debt issuance costs(7) |
|
|
749 |
|
|
|
755 |
|
Adjusted EBITDA |
|
$ |
116,399 |
|
|
$ |
112,356 |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2025 |
|
|
2024 |
|
Reconciliation of non-GAAP financial measures: |
|
|
|
|
|
|
Net income (GAAP) |
|
$ |
61,975 |
|
|
$ |
55,691 |
|
Adjustments to reflect the operating performance of the Company: |
|
|
|
|
|
|
i. Other business taxes(3) |
|
|
922 |
|
|
|
369 |
|
ii. Amortization of acquisition-related intangible assets(4) |
|
|
5,264 |
|
|
|
5,332 |
|
iii. Stock-based compensation(5) |
|
|
1,053 |
|
|
|
1,327 |
|
iv. Acquisition, restructuring and exit costs(6) |
|
|
13,321 |
|
|
|
14,705 |
|
v. Debt issuance costs(7) |
|
|
749 |
|
|
|
755 |
|
Tax effect of above adjustments(8) |
|
|
(5,327 |
) |
|
|
(5,621 |
) |
Adjusted Net Income |
|
$ |
77,957 |
|
|
$ |
72,558 |
|
Tax benefit of goodwill and acquired intangibles(9) |
|
$ |
10,141 |
|
|
$ |
9,748 |
|
Adjustments made to GAAP Net Income to calculate Adjusted EBITDA and Adjusted Net Income, as applicable, are:
(1)Adding back interest paid on debt and other financing costs, net of interest income.
(2)Adding back depreciation on property and equipment.
(3)Adding back other business taxes.
(4)Adding back amortization expense on acquisition‑related intangible assets.
(5)Adding back share-based compensation associated with equity awards issued from pools created in connection with the management‑led buyout and various acquisitions and as a result of equity grants related to the IPO.
(6)Adding back direct incremental costs of acquisitions, including restructuring costs.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2025 |
|
|
2024 |
|
Acquisition-related costs |
|
$ |
8,750 |
|
|
$ |
1,026 |
|
Restructuring and integration costs |
|
|
1,165 |
|
|
|
492 |
|
Change in value of consideration payable for acquisition of business |
|
|
3,406 |
|
|
|
12,200 |
|
Personnel compensation and benefits |
|
|
— |
|
|
|
987 |
|
Total acquisition, restructuring and exit costs |
|
$ |
13,321 |
|
|
$ |
14,705 |
|
(7)Adding back debt issuance costs.
(8)Subtracting an estimate of income tax expense applied to the sum of the adjustments above.
(9)Represents the tax benefits associated with deductions allowed for intangible assets and goodwill generated from prior acquisitions in which we received a step-up in basis for tax purposes. Acquired intangible assets and goodwill may be amortized for tax purposes, generally over a 15-year period. The tax benefit from amortization on these assets is included to show the full economic benefit of deductions for all acquired intangible assets with a step-up in tax basis. Due to our acquisitive nature, tax deductions allowed on acquired intangible assets and goodwill provide us with a significant supplemental economic benefit.
Non-GAAP measures should be considered in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. Our non-GAAP measures may differ from similar measures at other companies, even if similar terms are used to identify these measures.
Liquidity and Capital Resources
Our primary uses of cash relate to repayment of our debt obligations, funding of acquisitions and working capital needs, repurchasing of shares and payment of dividends, which are all expected to be met through cash generated from our operations and available capital resources.
The following table shows our liquidity position as of March 31, 2025 and December 31, 2024.
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|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in thousands) |
|
2025 |
|
|
2024 |
|
Cash and cash equivalents |
|
$ |
175,607 |
|
|
$ |
126,731 |
|
Accounts and other receivables |
|
|
95,823 |
|
|
|
100,667 |
|
Undrawn commitment on credit facility(1) |
|
|
100,000 |
|
|
|
100,000 |
|
Accounts and other payables |
|
|
(113,425 |
) |
|
|
(109,599 |
) |
(1)The balance at March 31, 2025 represents the Company’s $99.9 million revolving credit facility and a $0.1 million standby letter of credit used as collateral for THB’s real estate location.
We manage our cash balances in order to fund our day-to-day operations. Our accounts receivable consists primarily of investment management fees that have been earned but not yet received from clients, income and other taxes receivable, and amounts receivable from the funds. We perform a review of our receivables on a monthly basis to assess collectability. We maintained a $100.0 million revolving credit facility at March 31, 2025 and December 31, 2024 (under the 2019 Credit Agreement) which had approximately $100.0 million undrawn as of March 31, 2025 and December 31, 2024.
2021 Debt Repricing
On February 18, 2021, the Company entered into the Second Amendment (the “Second Amendment”) to the 2019 Credit Agreement with the other loan parties thereto, Barclays Bank PLC, as administrative agent, and the Royal Bank of Canada as fronting bank. Pursuant to the Second Amendment, the Company repriced the existing term loans with replacement term loans in an aggregate principal amount of $755.7 million (the “Repriced Term Loans”). The Repriced Term Loans have substantially the same terms as the previously existing term loans, including the same maturity date of July 2026, except that the Repriced Term Loans provided for a reduced applicable margin on LIBOR of 25 basis points. After the Second Amendment, the applicable margin on LIBOR under the Repriced Term Loans was 2.25%.
2021 Incremental Term Loans
On December 31, 2021, the Company entered into the Third Amendment (the “Third Amendment”) to the 2019 Credit Agreement with the guarantors party thereto, Barclays Bank PLC, as administrative agent, and the lenders party thereto from time to time. Pursuant to the Third Amendment, the Company obtained incremental term loans (the “2021 Incremental Term Loans”) in an aggregate principal amount of $505.0 million and used the proceeds to fund the WestEnd Acquisition and to pay fees and expenses incurred in connection therewith. The 2021 Incremental Term Loans mature in December 2028 and bear interest at an annual rate equal to, at the option of the Company, either LIBOR (adjusted for reserves and subject to a 50 basis point floor) plus a margin of 2.25% or an alternate base rate plus a margin of 1.25%.
2022 LIBOR to Term SOFR Rate Transition
On September 23, 2022, the Company entered into the Fourth Amendment (the “Fourth Amendment”) to the 2019 Credit Agreement to change the interest rate on the Repriced Term Loans and 2021 Incremental Term Loans from LIBOR to a rate based on SOFR plus a ten-basis point credit spread adjustment. There was no change to the applicable margin on the referenced rate as a result of the Fourth Amendment.
The LIBOR rate loans outstanding as of the Fourth Amendment’s effective date continued as LIBOR rate loans until the end of their then current interest periods. The 2021 Incremental Term Loans converted into Term SOFR loans on September 30, 2022, while the Repriced Term Loans converted into Term SOFR loans on October 6, 2022. Also on October 6, 2022, the interest periods for the Repriced Term Loans and 2021 Incremental Term Loans were aligned and the three-month Term SOFR rate was elected for all the Company’s term loans.
Fifth Amendment
On June 7, 2024, the Company entered into the Fifth Amendment (the "Fifth Amendment") to the 2019 Credit Agreement, extending the maturity date of the $100.0 million senior secured first lien revolving facility from July 1, 2024 to March 31, 2026, and decreasing the drawn interest rate margin by 0.50% per annum. The revolving facility otherwise remains subject to substantially the same terms as those set forth in the 2019 Credit Agreement. The Company incurred $1.0 million in upfront fees, arranger fees and other third party costs related to the Fifth Amendment to the 2019 Credit Agreement, which were recorded to revolving credit facility debt issuance cost in other assets.
On July 1, 2024, the Company executed an agency succession agreement, by and among Barclays Bank PLC as the resigning administrative agent and collateral agent under the 2019 Credit Agreement and Royal Bank of Canada, as the successor administrative agent and collateral agent.
2020 Swap Transaction
In the fourth quarter of 2023, the Company monetized the gain on the floating-to-fixed interest rate swap transaction (“Swap”) entered into in 2020 to effectively fix the interest rate on $450 million of its outstanding Term Loan through the Term Loan maturity date of July 2026.
The deferred gain on the termination of the Swap is being amortized on a straight-line basis through July 1, 2026 and is included in interest expense and other financing costs on the unaudited Condensed Consolidated Statements of Operations.
For the three months ended March 31, 2025 and 2024, the Company recorded $4.1 million and $4.2 million, respectively, in amortization of deferred gain on Swap monetization. As of March 31, 2025 and December 31, 2024, the unamortized deferred gain on Swap monetization was $20.8 million and $24.9 million, respectively, before tax.
The Swap was designated as a cash flow hedge. Prior to its termination, the Swap was measured at fair value with mark-to-market gains or losses deferred and included in AOCI(L), net of tax, to the extent the hedge was determined to be effective. Gains or losses were reclassified to interest expenses and other financing costs on the unaudited Condensed Consolidated Statements of Operations in the same period during which the hedged transaction affected earnings.
Due to the termination of the Swap, there was no amount receivable from the Swap counterparty at March 31, 2025 and December 31, 2024. Refer to Note 14, Derivatives, for further information on the Swap.
Contingent Consideration
At March 31, 2025, the Company had $143.3 million in contingent consideration that is estimated to be payable over the next year and two years resulting from the WestEnd Acquisition. For the three months ended March 31, 2025, the Company recorded an increase of $3.4 million in the contingent payment liability associated with the WestEnd Acquisition, which is included in consideration payable for acquisition of business in the unaudited Condensed Consolidated Balance Sheets. At March 31, 2025, the estimated fair value of the WestEnd Acquisition contingent payments was $143.3 million, and a maximum of $240.0 million in contingent consideration ($80.0 million per year) is potentially payable to sellers.
There were no other significant changes to our contractual obligations as reported in our Annual Report on Form 10-K for the year ended December 31, 2024.
Capital Requirements
Victory Capital Services is a registered broker-dealer subject to the Uniform Net Capital requirements under the Exchange Act, which requires maintenance of certain minimum net capital levels. In addition, we have certain non-U.S. subsidiaries that have minimum capital requirements. As a result, such subsidiaries of our Company may be restricted in their ability to transfer cash to their parents.
Cash Flows
The following table is derived from our unaudited Condensed Consolidated Statements of Cash Flows:
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|
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|
|
Three Months Ended March 31, |
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(in thousands) |
|
2025 |
|
|
2024 |
|
Net cash provided by operating activities |
|
$ |
81,094 |
|
|
$ |
68,684 |
|
Net cash used in investing activities |
|
|
(1,684 |
) |
|
|
(910 |
) |
Net cash used in financing activities |
|
|
(30,713 |
) |
|
|
(111,342 |
) |
Operating Activities – Cash provided by operating activities during the three months ended March 31, 2025 was $81.1 million, compared to $68.7 million of cash provided by operating activities for the same period in 2024. The $12.4 million increase in cash provided by operating activities was primarily due to increases of $6.3 million and $12.6 million in net income and working capital items, respectively, partially offset by a decrease of $8.8 million in the change in the fair value of contingent consideration.
Investing Activities – Cash used in investing activities during the three months ended March 31, 2025 was $1.7 million and consisted of net trading activity of $0.1 million and $1.6 million of property and equipment purchases. The nature of our trading activities is further described in Note 2, Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024.
Financing Activities – Cash used in financing activities during the three months ended March 31, 2025 was $30.7 million, compared to $111.3 million of cash used in financing activities for the same period in 2024. The $80.6 million decrease was primarily due to timing of payment relating to WestEnd contingent consideration.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
Substantially all of our revenues are derived from investment management, fund administration and distribution fees, which are primarily based on the market value of our AUM. Accordingly, our revenues and net income may decline as a result of our AUM decreasing due to depreciation of our investment portfolios. In addition, such depreciation could cause our clients to withdraw their assets in favor of other investment alternatives that they perceive to offer higher returns or lower risk, which could cause our revenues and net income to decline further.
The value of our AUM was approximately $167 billion at March 31 2025. A 10% increase or decrease in the value of our AUM, if proportionately distributed over all of our strategies, products and client relationships, would cause an annualized increase or decrease in our revenues of approximately $85.2 million at our weighted-average fee rate of 51 basis points for the quarter ended March 31, 2025. Because of declining fee rates from larger relationships and differences in our fee rates across investment strategies, a change in the composition of our AUM, in particular, an increase in the proportion of our total AUM attributable to strategies, clients or relationships with lower effective fee rates, could have a material negative impact on our overall weighted-average fee rate. The same 10% increase or decrease in the value of our total AUM, if attributed entirely to a proportionate increase or decrease in the AUM of the Victory Funds, to which we provide a range of services in addition to those provided to institutional separate accounts, would cause an annualized increase or decrease in our revenues of approximately $98.5 million at the Victory Funds’ aggregate weighted-average fee rate of 59 basis points for the quarter ended March 31, 2025. If the same 10% increase or decrease in the value of our total AUM was attributable entirely to a proportionate increase or decrease in the assets of our institutional separate accounts, it would cause an annualized increase or decrease in our revenues of approximately $65.1 million at the weighted-average fee rate across all of our institutional separate accounts of 39 basis points for the quarter ended March 31, 2025.
As is customary in the investment management industry, clients invest in particular strategies to gain exposure to certain asset classes, which exposes their investment to the benefits and risks of those asset classes. We believe our clients invest in each of our strategies in order to gain exposure to the portfolio securities of the respective strategies and may implement their own risk management program or procedures. We have not adopted a corporate‑level risk management policy regarding client assets, nor have we attempted to hedge at the corporate level or within individual strategies the market risks that would affect the value of our overall AUM and related revenues. Some of these risks, such as sector and currency risks, are inherent in certain strategies, and clients may invest in particular strategies to gain exposure to particular risks. While negative returns in our strategies and net client cash outflows do not directly reduce the assets on our balance sheet (because the assets we manage are owned by our clients, not us), any reduction in the value of our AUM would result in a reduction in our revenues.
Exchange Rate Risk
A portion of the accounts that we advise hold investments that are denominated in currencies other than the U.S. dollar. To the extent our AUM are denominated in currencies other than the U.S. dollar, the value of that AUM will decrease with an increase in the value of the U.S. dollar or increase with a decrease in the value of the U.S. dollar. Each investment team monitors its own exposure to exchange rate risk and makes decisions on how to manage that risk in the portfolios they manage. We believe many of our clients invest in those strategies in order to gain exposure to non‑U.S. currencies, or may implement their own hedging programs. As a result, we generally do not hedge an investment portfolio’s exposure to non‑U.S. currency.
We have not adopted a corporate-level risk management policy to manage this exchange rate risk. Assuming 11% of our AUM are invested in securities denominated in currencies other than the U.S. dollar and excluding the impact of any hedging arrangement, a 10% increase or decrease in the value of the U.S. dollar would decrease or increase the fair value of our AUM by approximately $1.8 billion, which would cause an annualized increase or decrease in revenues of approximately $9.4 million at our weighted-average fee rate for the business of 51 basis points for the quarter ended March 31, 2025.
Interest Rate Risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. On March 27, 2020, the Company executed the Swap, a floating-to-fixed interest rate swap transaction, to effectively fix the interest rate at 3.465% on $450 million of its outstanding Term Loan through the Term Loan maturity date of July 2026. On February 18, 2021, pursuant to the Second Amendment, the Company lowered the spread on the Term Loan by 0.25% resulting in a new fixed rate of 3.215% on the $450 million of Term Loan subject to the Swap. On September 26, 2022, the Company and the Swap counterparty executed an amendment to the Swap to update LIBOR conventions to SOFR conventions and to modify the fixed rate for the change from three-month LIBOR to three-month Term
SOFR effective on October 6, 2022. On October 30, 2023, the Company monetized the gain on the Swap and entered into an agreement to terminate the Swap, which was effective on October 30, 2023. Refer to Note 14, Derivatives, for further information on the Swap. At March 31, 2025, we were exposed to interest rate risk as a result of the amounts outstanding under the 2019 Credit Agreement, as amended. Refer to Note 9, Debt, for a description of the amounts outstanding as of such date and the applicable interest rate.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow for timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) at March 31, 2025. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
