10-Q: Victory Capital Holdings Reports Strong Q3 Earnings Amidst Amundi US Acquisition

Victory Capital Holdings reported a significant increase in net income for the third quarter of 2024, alongside progress on its acquisition of Amundi US.

Summary

• Victory Capital Holdings reported a net income of $82 million for the third quarter of 2024, a substantial increase from $52 million in the same period last year.
• Total revenue for the quarter reached $225.6 million, up from $209.7 million in Q3 2023.
• Assets under management (AUM) increased to $176.1 billion as of September 30, 2024, a 4.4% increase from the previous quarter, driven by market appreciation of $10.1 billion and net outflows of $2.6 billion.
• The company generated $6.1 billion in gross flows and experienced $2.6 billion in net outflows for the quarter.
• Adjusted EBITDA for the quarter was $121.3 million, representing 53.7% of revenue, compared to $107.2 million in Q3 2023.
• The company is progressing with its acquisition of Amundi US, with shareholder approval obtained on October 11, 2024, and the transaction expected to close in the first quarter of 2025.

Sentiment

Score: 7

Explanation: The document presents a positive outlook with strong financial results and progress on a major acquisition, but the net outflows and potential risks temper the overall sentiment.

Positives

• The company experienced a significant increase in net income and revenue compared to the same quarter last year.
• AUM saw a healthy increase due to market appreciation.
• Adjusted EBITDA margin improved year-over-year.
• The Amundi US acquisition is progressing as planned.

Negatives

• The company experienced net outflows of $2.6 billion during the quarter.
• Personnel compensation and benefits decreased by $11.3 million, or 20.7%, from $54.5 million for the same period in 2023 mostly attributable to a decrease in acquisition and transaction-related compensation.

Risks

• The company's revenue is heavily dependent on AUM, which is subject to market fluctuations and client withdrawals.
• The company faces risks associated with integrating acquired companies, including the Amundi US business.
• The company is exposed to interest rate risk due to its substantial indebtedness.
• The company is exposed to exchange rate risk due to non-US investments.

Future Outlook

The company expects the Amundi US acquisition to close during the first quarter of 2025, subject to customary closing conditions and regulatory approvals.

Management Comments

• Management utilizes Adjusted EBITDA and Adjusted net income to measure the operating profitability of the business.
• 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.

Industry Context

The announcement reflects a trend of consolidation in the asset management industry, with Victory Capital seeking to expand its reach and capabilities through strategic acquisitions like Amundi US.

Comparison to Industry Standards

• Victory Capital's AUM growth of 4.4% this quarter is solid, but it is important to compare this to peers such as T. Rowe Price, which has seen similar growth in AUM, and BlackRock, which has seen higher growth in AUM.
• The adjusted EBITDA margin of 53.7% is competitive, but it is important to compare this to peers such as Franklin Resources, which has seen similar margins, and Invesco, which has seen lower margins.
• The net outflows of $2.6 billion are a concern, and it is important to compare this to peers such as Janus Henderson, which has seen similar outflows, and AllianceBernstein, which has seen lower outflows.
• The company's investment performance, with 67% of its fund and ETF AUM rated four or five stars by Morningstar, is strong, but it is important to compare this to peers such as Capital Group, which has seen similar ratings, and Fidelity, which has seen higher ratings.

Legal Proceedings

• Two complaints have been filed in the Supreme Court of the State of New York, New York County by purported Victory stockholders against Victory and the members of the Victory board of directors in connection with the Amundi US acquisition.
• The complaints allege that the defendants caused to be filed a materially incomplete and misleading Proxy Statement with the SEC relating to the proposed acquisition.

Related Party Transactions

• The company has various related-party transactions with the Victory Funds, VictoryShares, and other sponsored investment vehicles, including investment management, administration, and distribution fees.

Stakeholder Impact

• Shareholders will benefit from the increased profitability and potential growth from the Amundi US acquisition.
• Employees may experience changes due to the integration of Amundi US.
• Clients will have access to a broader range of investment products and services.

Next Steps

• The company will continue to work towards closing the Amundi US acquisition in the first quarter of 2025.
• The company will focus on managing client flows and maintaining strong investment performance.

Key Dates

Keywords

Victory Capital Holdings, Amundi US, asset management, AUM, net income, EBITDA, acquisition, financial results, investment management, quarterly report