Total Client Assets: $171 billion as of March, down slightly from the start of the year. Gross Sales: Increased 41% from the last quarter, reaching $9.3 billion. ETF AUM: Increased to more than $13 billion, a 28% increase during the quarter and up 67% year-over-year. Adjusted EPS: $1.36 per diluted share, second highest in company history. Adjusted EBITDA: $116 million with a margin of 53%. Revenue: $219.6 million for the first quarter, down approximately 5% from the fourth quarter. Cash: Ended March with $176 million, up $49 million from year-end. Net Leverage Ratio: Unchanged at 1.7 times. Dividend: Increased to $0.49 per share, payable on June 25. Interest Rate: Declined to 4.9%, down from above 6% in the first quarter of 2024. Amundi Transaction: Assets increased to over $286 billion as of April 1, with fixed income AUM doubling to 28% of total assets. Net Expense Synergy Projections: Increased to $110 million, with $50 million achieved as of closing. Long-term Net Flows: Negatively impacted by two large redemptions totaling $2.7 billion. Non-US Client AUM: $44 billion, representing 15% of total AUM. Cash from Operations: Generated $81 million during the quarter.

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Release Date: May 09, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Victory Capital Holdings Inc (NASDAQ:VCTR) reported a significant increase in gross sales, reaching $9.3 billion, marking the highest level of quarterly gross sales in three years. The company's ETF platform saw substantial growth, with total ETF AUM increasing by 28% during the quarter and 67% year-over-year. Adjusted earnings per diluted share with tax benefit was $1.36, the second highest quarterly EPS in company history and a record high for any first quarter period. The acquisition and integration of Amundi US has doubled the company's fixed income AUM and expanded its global reach, with $44 billion of assets under management sourced from clients outside of the US. Victory Capital Holdings Inc (NASDAQ:VCTR) increased its quarterly dividend and has a $200 million share repurchase plan available, indicating strong financial flexibility and shareholder return potential.

Negative Points

Total client assets declined by less than 3% during the quarter, primarily due to market action. The company experienced two large redemptions totaling $2.7 billion, which negatively impacted net flows. Revenue for the first quarter was down approximately 5% from the fourth quarter due to slightly lower average AUM and fewer days in the quarter. The integration of Amundi US is expected to cause a slight decline in adjusted EBITDA margins over the next several quarters. The average fee rate decreased due to product, vehicle, and channel mix shifts, impacting total revenue.

Story Continues

Q & A Highlights

Q: Can you discuss the development and rollout of UCITS and the potential for Pioneer ETFs? A: Michael Policarpo, President and CFO, explained that Victory Capital is working with Amundi's global distribution to identify and develop UCITS products, expected to launch in the latter half of 2025. They are focusing on small and mid-cap US products, complementary fixed income offerings, and strong global equity performers. Additionally, Victory's existing products are available institutionally outside the US, and they are educating Amundi's sales force to leverage these opportunities.

Q: How do you see the margin trajectory evolving, considering the Pioneer acquisition and synergy targets? A: Michael Policarpo noted that while Victory Capital achieved a 53% margin in Q1, they maintain a long-term margin target of 49%. The integration of Pioneer will involve some short-term margin declines due to integration costs, but they expect to achieve $110 million in expense synergies over two years, supporting long-term margin stability.

Q: How does the integration of Amundi affect Victory's expense model and growth trajectory? A: Michael Policarpo stated that Victory's operating model remains unchanged, with over two-thirds of expenses being variable. The integration of Amundi fits well into this model, maintaining a centralized distribution force and a single operating platform. The expense structure will continue to be predominantly variable, supporting scalable growth.

Q: Can you provide an update on the acquisition pipeline and balance sheet capacity? A: David Brown, CEO, highlighted that Victory Capital is well-positioned for a sizable acquisition, with reduced leverage and strong cash reserves. They are focusing on larger, scaled opportunities that enhance the company's competitiveness. Brown anticipates a potential acquisition announcement in 2025, contingent on market conditions.

Q: How have fixed income and solutions strategies performed amid market volatility? A: David Brown noted that Victory's fixed income platform has expanded with the addition of Pioneer, enhancing their capabilities. Both Victory Income Investors and Pioneer have shown strong performance, with positive net flows in Q1. The solutions segment, particularly through ETFs, continues to perform well, offering stability in volatile markets.

Q: Have there been any dis-synergies or notable redemptions from the Amundi US acquisition? A: Michael Policarpo confirmed that there have been no dis-synergies or significant redemptions following the Amundi acquisition. The client consent process ensured a smooth transition, and the Pioneer Investments business was net flow positive in Q1, indicating strong market and client reception.

Q: What investments are being made to enhance organic growth, and how will success be measured? A: David Brown explained that Victory is investing in intermediary distribution by adding salespeople, marketing professionals, and data experts. They are also expanding platform partnerships. These investments are included in the net expense synergy targets, and success will be measured by improved organic growth.

Q: How important are alternative investment products to Victory's strategy, and how are you approaching this area? A: David Brown emphasized the importance of alternatives, noting client interest and the potential for distribution through existing channels. Victory is evaluating acquisitions and partnerships to introduce alternative products, aiming to integrate them into their platform to meet client demand.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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