Victory Capital Holdings, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter earnings report; the supplied filing text does not provide a clear set of Q4-only results.
Business context
Victory Capital is a diversified asset manager with 12 autonomous investment franchises and a centralized Solutions Platform. It managed $153.0 billion in assets at year-end across 128 strategies and served direct, retail and institutional clients. The company’s revenue is primarily asset-based, so market levels, client flows, product mix and fee rates materially influence results.
Key financial and operating metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $854.8 million | $890.3 million |
| Operating income | $399.1 million | $373.8 million |
| Net income | $275.5 million | $278.4 million |
| Diluted EPS | $3.81 | $3.75 |
| Adjusted Net Income (non-GAAP) | $293.8 million | $329.0 million |
| Adjusted EBITDA (non-GAAP) | $424.2 million | $449.0 million |
| Adjusted EBITDA margin (non-GAAP) | 49.6% | 50.4% |
| Revenue on average AUM | 52.1 basis points | 56.1 basis points |
| Operating cash flow | $335.2 million | $376.2 million |
Year-end AUM was $153.0 billion, down 16.7% from $183.7 billion. Average AUM rose to $164.0 billion from $158.6 billion. Gross flows were $33.9 billion; net outflows were $2.7 billion, comprising $2.5 billion in long-term outflows and $0.2 billion in short-term outflows. Market depreciation reduced AUM by $26.5 billion.
Cash and cash equivalents were $38.2 million at year-end. Term-loan principal was approximately $1.002 billion, reported long-term debt net of unamortized costs was $985.5 million, and the $100 million revolving facility was undrawn. Stockholders’ equity was $1.065 billion. Interest expense and other financing costs rose to $44.0 million from $24.7 million.
Material changes versus 2021
- Revenue declined 4.0%, as lower mutual-fund assets and a less favorable asset and product mix more than offset higher average AUM. Investment management fees fell 1.5%; fund administration and distribution fees fell 11.9%.
- Operating income increased to $399.1 million, despite lower revenue. A $40.6 million reduction in estimated acquisition consideration liabilities benefited 2022 operating results, compared with a $13.8 million increase in those liabilities in 2021.
- Net income declined slightly, while diluted EPS increased from $3.75 to $3.81. Adjusted Net Income and Adjusted EBITDA both declined; these are company-defined non-GAAP measures.
- AUM fell chiefly because of negative market performance, with net outflows also contributing. Solutions, alternatives and global/non-U.S. equity attracted net inflows, while fixed income and several U.S. equity categories had outflows.
- Cash from operations declined by $41.0 million. Financing activities used $360.2 million, including debt repayments, share repurchases, dividends and acquisition-related payments.
- Interest on term loans transitioned from LIBOR to Term SOFR in 2022. A $450 million interest-rate swap effectively fixed that portion of debt at 3.149% through July 2026.
Outlook, commentary and risks
The filing provides no numerical earnings, revenue or AUM guidance. Management described continued organic growth, strategic acquisitions and investment in distribution, technology and data as priorities, while stating that cash generation and available liquidity support debt repayment and continued evaluation of acquisitions. Management also said inflation had not materially affected 2022 results, though higher costs and interest rates could pressure profitability and AUM.
- Results are highly sensitive to market declines, investment performance, client redemptions and fee pressure. A 10% change in AUM, assuming the same mix, was estimated to change annualized revenue by approximately $79.6 million at the 2022 weighted-average fee rate.
- Debt service, variable interest rates and credit-agreement covenants may constrain liquidity or capital allocation. The company reported covenant compliance at year-end.
- Acquisition-related obligations remain significant: contingent consideration was $230.4 million at year-end, primarily related to WestEnd and USAA. NEC earn-out payments are treated as compensation and depend on future performance.
- Other disclosed risks include retaining key investment professionals, reliance on third-party service providers and distribution platforms, cybersecurity and operational disruptions, extensive regulation, and execution and integration risks from acquisitions.
- The company reported no material legal proceedings and said the Ukraine conflict had not materially adversely affected its business or results to date. It also entered a Spurs Sports & Entertainment naming-rights and partnership arrangement running through 2033.
The board declared a $0.32-per-share quarterly dividend in February 2023, payable in March. The company reported effective disclosure controls and internal control over financial reporting as of December 31, 2022. Ernst & Young issued an unqualified opinion on the financial statements; it did not provide an internal-control attestation because the company used the emerging-growth-company exemption.
Important facts for investors to verify
- Whether AUM and net flows stabilize, and how market returns and redemptions affect fee revenue and margins.
- The trajectory of average fee realization, particularly as lower-fee Solutions and model-strategy assets grow.
- Debt principal, interest costs, covenant headroom and the timing and amount of acquisition-related contingent payments.
- The drivers of the gap between GAAP net income and non-GAAP Adjusted Net Income and Adjusted EBITDA, including the favorable 2022 acquisition-liability remeasurement.
- Capital returns and liquidity: reconcile management’s statement that more than $200 million was returned to shareholders with the amounts separately reported for dividends and share repurchases.
- Progress in implementing the expanded direct-investor brokerage business and the related regulatory, operational and investment requirements.