8-K: Victory Capital Reports Strong Q4 and Full-Year 2023 Results, Boosts Dividend

Victory Capital announced positive fourth-quarter and full-year 2023 results, highlighted by increased AUM, improved flows, and a dividend increase.

Summary

• Victory Capital reported its financial results for the fourth quarter and full year of 2023.
• Total Assets Under Management (AUM) reached $166.6 billion at the end of 2023, an increase of 8.5% compared to the end of 2022.
• Long-term gross flows were $6.6 billion in the fourth quarter, with net outflows of $1.1 billion.
• The company's GAAP operating margin was 41.9% for the quarter and 40.0% for the full year.
• Adjusted EBITDA margin was 52.3% for the quarter and 50.9% for the full year.
• GAAP net income was $0.82 per diluted share for the quarter and $3.12 for the full year.
• Adjusted net income with tax benefit was $1.15 per diluted share for the quarter and $4.51 for the full year.
• The board increased the regular quarterly cash dividend by 5% to $0.335 per share.
• The company repurchased 1.8 million shares in the fourth quarter, bringing the total capital returned to shareholders in 2023 to $243 million, a 21% increase over the previous year.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to strong AUM growth and improved flows in Q4, but tempered by the full-year declines in revenue and net income. The dividend increase and share repurchases are positive signals, but the negative net flows and increased operating expenses are concerning.

Positives

• Total AUM increased by 8.5% year-over-year to $166.6 billion.
• Long-term gross flows improved to their best levels in more than a year.
• The company's adjusted EBITDA margin expanded to 50.9% for the full year, a 130 basis point increase.
• The company returned $243 million to shareholders in 2023, a 21% increase over the previous year.
• A significant portion of AUM is outperforming benchmarks over various time periods.
• The company is optimistic about executing on a strategic M&A transaction.
• The board increased the regular quarterly cash dividend by 5%.

Negatives

• Long-term net flows were negative at ($1.1) billion for the quarter and ($6.2) billion for the year.
• Revenue decreased by 4.0% for the full year compared to 2022.
• GAAP net income decreased by 22.6% for the full year compared to 2022.
• Adjusted net income with tax benefit decreased by 7.0% for the full year compared to 2022.
• Operating expenses increased by 8.1% for the full year compared to 2022.

Risks

• The company faces risks related to reductions in AUM due to investment performance, client withdrawals, and market conditions.
• The company is dependent on third parties to market its strategies and provide products or services.
• The company's ability to retain key investment professionals is a risk.
• The company's substantial indebtedness is a risk.
• The company is exposed to potential litigation or regulatory actions.
• The company faces risks related to cyber security.
• The company's ability to successfully acquire and integrate new companies is a risk.

Future Outlook

The company is optimistic about the prospects for executing on an M&A transaction aligned with its strategic growth objectives and will continue to focus on serving its clients.

Management Comments

• We made significant progress in our strategic growth initiatives during 2023 and continued to validate the effectiveness and resiliency of our unique operating platform, said David Brown, Chairman and Chief Executive Officer.
• In the final quarter of 2023, both long-term gross and net flows improved to their best levels in more than a year, which is encouraging as we begin 2024.

Industry Context

The asset management industry is facing challenges such as market volatility and fee compression, but Victory Capital's results show resilience and strategic growth initiatives. The company's focus on M&A and product development aligns with industry trends of consolidation and diversification.

Comparison to Industry Standards

• Victory Capital's adjusted EBITDA margin of 50.9% for the year is competitive with other asset managers such as T. Rowe Price (TROW) which reported an operating margin of 35.8% for 2023, and Franklin Resources (BEN) which reported an operating margin of 25.8% for their fiscal year 2023.
• The company's AUM growth of 8.5% year-over-year is a positive sign, although it is important to compare this to the growth rates of peers such as BlackRock (BLK) which reported a 16% increase in AUM in 2023, and Invesco (IVZ) which reported a 10% increase in AUM in 2023.
• The company's focus on returning capital to shareholders through dividends and share repurchases is a common practice in the industry, but the 21% increase in capital returned is notable.
• The company's outperformance of benchmarks across various time periods is a key indicator of investment performance, and the 70% of AUM in mutual funds and ETFs rated four or five stars by Morningstar is a strong result.

Stakeholder Impact

• Shareholders will benefit from the increased dividend and share repurchases.
• Clients will benefit from the company's investment performance and product offerings.
• Employees may be impacted by the company's strategic growth initiatives and M&A activities.
• Creditors will be interested in the company's debt levels and financial performance.

Next Steps

• The company will host a conference call on February 9, 2024, to discuss the results.
• The company will continue to focus on strategic growth initiatives and M&A opportunities.
• The company will pay a quarterly cash dividend on March 25, 2024.

Key Dates

Keywords

Asset Management, AUM, Investment Management, Financial Results, Dividend, EBITDA, Net Income, Share Repurchase, Flows, Operating Margin