Victory Capital Holdings, Inc. — Q1 2024 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2024; comparisons are primarily with Q1 2023. Victory Capital is an asset manager operating 11 investment franchises and a Solutions Platform. At quarter-end, it reported $170.3 billion of AUM and $175.5 billion of total client assets.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Revenue | $215.9 million | $201.3 million; up 7.2% |
| Operating income | $84.8 million | $74.6 million; operating margin 39.3% vs. 37.0% |
| Net income | $55.7 million | $49.3 million; up 13.0% |
| Diluted EPS | $0.84 | $0.71 |
| Adjusted EBITDA (non-GAAP) | $112.4 million; 52.1% margin | $99.2 million; 49.3% margin |
| Adjusted net income (non-GAAP) | $72.6 million | $65.6 million |
| Operating cash flow | $68.7 million | $64.2 million |
Investment management fees rose 8.3% to $169.8 million, mainly reflecting higher average AUM ($163.5 billion vs. $152.5 billion). Administration and distribution fees rose 3.6% to $46.1 million. Revenue yield on average AUM was 53.0 basis points, compared with 53.4 basis points.
AUM increased $9.0 billion, or 5.6%, from year-end 2023 to $170.3 billion. Market appreciation of $10.2 billion more than offset $1.1 billion of net outflows. Gross flows were $7.2 billion, including $7.0 billion of long-term gross flows. Q1 2023 had $1.1 billion of net outflows and $6.1 billion of gross flows.
Cash and cash equivalents were $79.9 million, down from $123.5 million at December 31, 2023. Long-term debt, net, was $990.2 million, against $1.002 billion of term-loan principal; the loans carry variable rates and reported rates of 7.68%. The $100 million revolving facility was undrawn, and the company reported compliance with its financial covenant. Financing cash outflows were $111.3 million, including an $80.0 million WestEnd earn-out payment and $22.4 million of dividends. Cash paid for interest was $20.3 million.
Material changes and unusual items
- Net income improved, while the effective tax rate increased to 22.5% from 20.4%, principally due to changes in share-based compensation tax benefits and nondeductible expenses.
- Interest expense and other financing costs increased to $16.5 million from $14.2 million, reflecting higher average interest rates. A deferred gain from the terminated interest-rate swap reduced Q1 2024 financing costs by $4.2 million; $37.5 million of the pre-tax deferred gain remained at quarter-end.
- The company recorded a $12.2 million increase in the estimated fair value of WestEnd contingent consideration as expense. It paid $80.0 million toward that earn-out; the remaining estimated liability was $149.4 million, based on assumptions including projected revenue growth and volatility.
- Depreciation and amortization fell to $7.6 million from $11.7 million, mainly because of lower amortization of acquired intangibles. Acquisition-related costs were $1.0 million, and restructuring and integration costs were $0.5 million.
- The company declared dividends of $0.335 per share in Q1. After quarter-end, the board approved a regular $0.37-per-share dividend, payable June 25, 2024.
Outlook, commentary and risks
No specific earnings or AUM guidance was provided. Management noted that Q1 operating results are not necessarily indicative of full-year results. On April 16, 2024, Victory announced a non-binding memorandum of understanding with Amundi to combine Amundi US with Victory, make Amundi a strategic shareholder, and establish long-term global distribution agreements. Definitive agreements, closing, timing, and anticipated benefits are uncertain.
Results are sensitive to market valuations and client flows because most revenue is tied to AUM. The filing estimates that a 10% across-the-board AUM change would affect annualized revenue by approximately $90.1 million at the quarter’s weighted-average fee rate. Other risks include net outflows, fee-rate and asset-mix changes, investment performance, key-person retention, acquisitions and integration, cybersecurity and third-party dependencies, regulation, litigation, and substantial debt with variable interest rates. The company reported no material legal proceedings and no material changes to the risk factors in its 2023 Form 10-K.
Key facts for investors to verify
- Whether net outflows persist and how market-driven AUM gains compare with organic flows.
- The trajectory of effective fee yield, particularly given the decline to 53.0 basis points.
- WestEnd earn-out assumptions, future payments, and the effect of fair-value changes on reported earnings.
- Debt repayment plans, variable-rate exposure, covenant headroom, and cash available after dividends and acquisition obligations.
- Whether the Amundi MOU leads to definitive agreements, and the terms, closing conditions, costs, and expected benefits if it does.
- Reconciliation of non-GAAP measures: adjusted net income was $72.6 million, while the filing’s “adjusted net income with tax benefit” was $82.3 million, including a stated $9.7 million tax benefit from acquired goodwill and intangibles.