8-K: Victory Capital Reports Strong First Quarter Results, Boosts Quarterly Dividend

Victory Capital announced strong first-quarter results with increased revenue, adjusted EBITDA, and earnings per share, along with an increased quarterly cash dividend.

Summary

• Victory Capital reported its financial results for the quarter ended March 31, 2025.
• Total client assets reached $171.4 billion.
• Long-term gross flows were $9.3 billion, while long-term net flows were negative at ($1.2) billion.
• GAAP operating margin was 42.3%, with a GAAP net income per diluted share of $0.96.
• Adjusted EBITDA margin was 53.0%, and adjusted net income with tax benefit per diluted share was $1.36.
• The board authorized an increase in the regular quarterly cash dividend to $0.49 per share.
• Revenue increased 1.7% year-over-year to $219.6 million.
• Adjusted EBITDA increased 3.6% to $116.4 million compared to the same quarter last year.
• 64%, 65%, and 79% of AUM outperformed benchmarks over the 3-, 5-, and 10-year periods, respectively.
• Total AUM decreased by $4.5 billion to $167.5 billion at March 31, 2025, compared with $171.9 billion at December 31, 2024.
• The decrease was due to negative market action of $3.2 billion and net outflows of $1.2 billion.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, strategic growth initiatives, and a dividend increase, although there are some concerns about AUM decreases and market volatility.

Positives

• Revenue for the three months ended March 31, 2025, increased 1.7% to $219.6 million, compared with $215.9 million in the same quarter of 2024.
• GAAP operating margin was 42.3% in the first quarter, a 300 basis point expansion from 39.3% in the same quarter of 2024.
• Adjusted EBITDA increased 3.6% to $116.4 million, compared with $112.4 million in the same quarter of 2024.
• Adjusted EBITDA margin expanded 90 basis points to 53.0% in the first quarter of 2025, compared with 52.1% in the same quarter last year.
• The company closed on its multi-faceted transaction with Amundi on April 1, enhancing diversification and US distribution presence.
• The Board declared an increase in the quarterly cash dividend to $0.49 per share, payable on June 25, 2025.

Negatives

• Total AUM decreased by $4.5 billion to $167.5 billion at March 31, 2025, compared with $171.9 billion at December 31, 2024.
• The decrease was due to negative market action of $3.2 billion and net outflows of $1.2 billion.
• Revenue decreased $12.8 million to $219.6 million in the first quarter, compared with $232.4 million in the fourth quarter, due to a decrease in average total client assets, two less days in the quarter, and a decrease in revenue realization.
• GAAP operating margin contracted 580 basis points in the first quarter to 42.3%, down from 48.1% in the fourth quarter, due to a $6.6 million increase in acquisition-related costs and a $3.1 million increase in non-cash amounts recorded to the change in fair value of consideration payable for acquisitions.
• First quarter GAAP net income decreased 19.5% to $62.0 million, down from $76.9 million in the prior quarter.
• Adjusted EBITDA decreased $9.1 million to $116.4 million in the first quarter compared to $125.5 million in the fourth quarter.
• Adjusted EBITDA margin contracted 100 basis points in the first quarter of 2025 to 53.0% compared with 54.0% in the prior quarter primarily due to higher seasonal payroll taxes and benefits.

Risks

• Continued geopolitical uncertainty including the conflicts in Ukraine and Israel.
• Risks associated with expected benefits of the Amundi transaction, or impact on our business of the Amundi transaction including our ability to achieve expected synergies.
• Reductions in AUM based on investment performance, client withdrawals, difficult market conditions and other factors such as a pandemic.
• The nature of the Company's contracts and investment advisory agreements.
• The Company's ability to maintain historical returns and sustain its historical growth.
• The Company's dependence on third parties to market its strategies and provide products or services for the operation of its business.
• The Company's ability to retain key investment professionals or members of its senior management team.
• The Company's reliance on the technology systems supporting its operations.
• The Company's ability to successfully acquire and integrate new companies.
• The concentration of the Company's investments in long-only smalland mid-cap equity and U.S. clients.
• Risks and uncertainties associated with non-U.S. investments.
• The Company's efforts to establish and develop new teams and strategies.
• The ability of the Company's investment teams to identify appropriate investment opportunities.
• The Company's ability to limit employee misconduct.
• The Company's ability to meet the guidelines set by its clients.
• The Company's exposure to potential litigation (including administrative or tax proceedings) or regulatory actions.
• The Company's ability to implement effective information and cyber security policies, procedures and capabilities.
• The Company's substantial indebtedness.
• The potential impairment of the Company's goodwill and intangible assets.
• Disruption to the operations of third parties whose functions are integral to the Company's ETF platform.
• The Company's determination that Victory Capital is not required to register as an 'investment company' under the 1940 Act.
• The fluctuation of the Company's expenses.
• The Company's ability to respond to recent trends in the investment management industry.
• The level of regulation on investment management firms and the Company's ability to respond to regulatory developments.
• The competitiveness of the investment management industry.
• The level of control over the Company retained by Crestview GP.

Future Outlook

Victory Capital will continue to focus on strategic growth, enhancing efficiencies, and returning excess capital to shareholders via share repurchases and dividends.

Management Comments

• 'We are off to a good start in 2025 with positive momentum in a number of important areas of our business,' said David Brown, Chairman and Chief Executive Officer.
• First-quarter financial results came in strong with year-over-year increases in revenue, Adjusted EBITDA, Adjusted EBITDA margin, and earnings per share.
• 'Our operating platform, coupled with excellent execution, lets us effectively manage through volatile market environments while maintaining strong margins.'

Industry Context

Victory Capital's focus on strategic acquisitions, such as the Amundi transaction, reflects a broader trend in the asset management industry towards consolidation and diversification to achieve greater scale and efficiency. The emphasis on maintaining strong margins and returning capital to shareholders aligns with investor expectations in a competitive market.

Comparison to Industry Standards

• Victory Capital's adjusted EBITDA margin of 53.0% is competitive with other asset managers such as T. Rowe Price (historically in the 45-50% range) and BlackRock (typically in the 40-45% range), indicating efficient cost management.
• The company's AUM outperformance metrics (64%, 65%, and 79% over 3, 5, and 10 years) are strong compared to industry averages, where a majority of active managers often struggle to consistently beat benchmarks.
• The dividend increase to $0.49 per share demonstrates a commitment to returning capital to shareholders, a practice common among established asset managers like Franklin Resources and Invesco.

Stakeholder Impact

• Shareholders will benefit from the increased quarterly cash dividend.
• Clients will benefit from the company's focus on investment performance and specialized investment strategies.
• Employees may benefit from the company's strategic growth initiatives and enhanced efficiencies.

Next Steps

• The company will host a conference call on May 9, 2025, to discuss the results.
• The increased quarterly cash dividend will be payable on June 25, 2025, to holders of record on June 10, 2025.

Key Dates

Keywords

assets under management, AUM, EBITDA, financial results, investment management, Victory Capital, dividends