Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Victory Capital Holdings Inc (VCTR, Financial) reported record highs in GAAP operating income, adjusted net income, and adjusted EBITDA margin for Q2 2024.
- The company ended the quarter with total client assets of $174 billion, marking significant growth.
- Victory Capital Holdings Inc (VCTR) achieved positive net flows in its fixed income products and ETF platform for the second consecutive quarter.
- The company has strategically invested in new products and vehicle wrappers, including several new active ETFs.
- Victory Capital Holdings Inc (VCTR) has returned a total of $700 million to shareholders through cash dividends and share repurchases since its IPO in 2018.
Negative Points
- The company experienced a decline in point-to-point AUM at the end of June compared to the end of March.
- There were significant redemptions in equity strategies as investors rebalanced portfolio weightings.
- Victory Capital Holdings Inc (VCTR) incurred expenses related to the Amundi transaction, which partially offset some of the overall decline in total expenses.
- The company did not make any open market share repurchases for the second consecutive quarter.
- There was a delay in institutional fundings, which is expected to pick up in the third and fourth quarters.
Q & A Highlights
Victory Capital Holdings Inc (VCTR) Q2 2024 Earnings Call Highlights
Q: Dave, to circle back on product development. You've been quite active launching new products, and you plan to do more. So I'm curious, in the past, what has worked well for you in terms of product design and distribution? And how is this guiding your process for new product launches?
A: Good morning. ETFs have really been a focus for us over the last few months and will be a focus for us going forward. We've been able to launch a few new ETFs that have really caught momentum fairly quickly. As we've designed our ETFs, we've really looked at what the market is today, what clients are looking for, and how they're trying to solve issues within their portfolios. One of the ETFs we've launched recently, VFLO, is a pretty effective vehicle for clients to get large cap exposure in this environment. We'll use the same process we've used in the past, which really is input from our clients, our sales professionals, and some of the work we do in-house to drive what kind of products we're going to launch in the future.
Q: On capital allocation, we all know the Amundi transaction will bring the leverage down. If we look over the next couple of quarters before closing, how are you thinking about the trade-offs between share repurchases versus adding to your cash position?
A: We'll use the same principles we've used in the past, and we'll balance out shareholder return with allocating capital for strategic M&A. As the quarters to come as soon as we are permitted and allowed to buy shares back, we will continue with our share repurchase program. That's an important element to our shareholder return strategy. As far as M&A, we are quite encouraged by the environment and think post the close of the Amundi transaction, we will be back really having discussions and would imagine that the environment is going to be really ripe for consolidation in the industry. In the meantime, we'll go back to share repurchases when we're permitted. We'll continue with our dividend strategy. We have pretty high levels of cash today. As you mentioned, our balance sheet will only get stronger post the Amundi transaction with more earnings and more cash flow. We feel like we're in a really good position to balance out dividends, share repurchases, and then continue on our M&A path.
Q: Can we get an update on Amundi both strategically and also get a mark-to-market on a couple of metrics that you guys highlighted in the past?
A: We are working on finalizing really the synergy plan on the revenue side. We feel really good about the expense synergies -- we are reiterating our guidance of $100 million. That to be realized within a lot within the first year and a lot within the closing timeframe, and total within two years. On the revenue side, we're developing those plans. We have a good idea, and we'll roll those out before a close. Amundi -- the US business of Amundi is having a fantastic year. They've got strong investment performance. You can see from the publicly available data on their mutual fund complex, they're in positive flows for the year. And we're quite happy with how their business is tracking and how their business is performing.
Q: On the Victory side of things, I was hoping to maybe just dig in a little bit more into the organic growth dynamics that you guys have seen. So obviously, still continued outflows. You talked about some things that are likely to improve. So on a kind of back book basis without kind of considering anything from Amundi, what seems most interesting and exciting where you guys could see an acceleration in inflows over the next couple of quarters?
A: We've seen some rebalancing from clients in some of our strategies where we have not been fired or the client has not left, but really have just rebalanced given some of the market action. We've seen a little bit of a delay in institutional fundings, which we should see a pick up in the third and fourth quarter. But where we've seen some really nice activities in our ETF business, in our fixed income business, in our global product, and we're quite excited about some of the different areas where we're seeing growth as we think the market is getting ready to change. And as the Fed is getting ready to reduce rates, we think we're going to be a beneficiary in some of those products.
Q: I think in the prepared remarks, you talked about incurring some Amundi related expenses. Just wondering if you could just quantify that and whether that's sort of like an ongoing expense to quote transaction?
A: The expenses that we've incurred to date really have been around getting the transactions to where it is today. So think about it as signing the definitive agreements. Most of that has been around adviser and legal expenses, it's been a couple of million dollars that we've incurred to date. I think we'll see some incremental costs related to the transaction as we move through the rest of the year until closing. Nothing that we expect to be significant or out of the norm with respect to transactions like this.
Q: Just one follow-up, if I may. Thanks for the color around institutional investor conversations and activity. I wonder if you could talk a little bit more about what you're hearing around fixed income allocation across the clients you're speaking with and whether we could see some increased pickup there?
A: There's a real interest from a lot of our clients, both on the intermediary side and on the institutional side around fixed income. As I think the Fed -- people anticipate the Fed is going to lower rates. And so we're pretty well positioned there with our Victory Income Investors franchise with their active ETFs. And so we're encouraged, there's a lot of discussions. And I think as we move to the next Fed meeting, I think you'll see a lot more activity there and a lot more allocations coming out of cash and going into various fixed income vehicles.
Q: You talked about the potential market rotation possibly helping Victory's mid-cap equity product valuation performance ahead. If we just look at the mid-cap product performance over the last year, how much of an impact do you think that's had on net flows into your SMid cap equity products? And I guess, conversely, when might you expect -- or if there's any lag in terms of inflection in flows, if any of those valuation gaps narrow ahead?
A: I think the market has been pretty narrow and has been focused on a large cap side, and so small caps and mid-caps have been undervalued when you look at historical multiples. We think the broadening out of the market is really encouraging. Our small and mid-cap performance when you look at it in total is really competitive. And I think when clients look at where dollars are going, where valuations are, I think small and mid-cap they become pretty appealing asset classes. So we think we're going to have some tail
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
