Victory Capital Holdings, Inc. Q4 FY2024 earnings call

Key Points

• Fourth quarter witnessed improved long term net flows, with total client assets growing 6% to $176.1 billion. Revenue and adjusted earnings per diluted share hit record highs.
• On track to close the Amundi acquisition by the end of the quarter, reaffirming the goal of realizing $100 million in cost synergies by the end of the second year. The Amundi U.S. business performed well in 2024.
• The Victory Shares ETF platform's AUM increased to nearly $12 billion, with active ETFs showing positive net flows. Plans to continue launching new products.
• Returned $132.4 million to shareholders in the fourth quarter, with the Board authorizing a new $200 million share repurchase program and a 7% dividend increase.

Total client assets ended at $176.1 billion in the fourth quarter, up $9.5 billion or 6% from the end of last year. The Victory Shares ETF platform saw AUM increase to close to $12 billion. Revenue for the quarter reached a record $232.4 million, and full-year revenue was a record $893 million. Adjusted earnings per diluted share rose more than 7% to $1.45 in the quarter, and adjusted EBITDA and margin set new quarterly records at $126 million and 54% respectively.

Guidance

• Reaffirmed the target of realizing $100 million in cost synergies by the end of the second year after the Amundi acquisition closes, with front-loading of savings.
• 2025 started strongly in terms of long term flows, and the organic growth outlook is encouraging with the closing of the Amundi transaction.
• The Board authorized a $200 million share repurchase program and increased the dividend, maintaining flexibility in capital allocation.

Risks

• The ultimate completion of the transaction with Amundi is subject to certain closing conditions, which may cause actual results to differ materially from forward-looking statements.

Q: Hey everybody, this is Anthony on for Alex. It’s nice to see the organic growth profile improving in January, and I guess as we look out into 2025, what strategies do you expect to be most in favor and contribute the most to organic growth?

A: Good morning, it’s Dave. A couple pieces to that question. The first piece, just Victory, as we said in our prepared remarks, our Victory Shares ETF platform is doing really well. We’re seeing strong growth there, and I would expect that to continue throughout the year. Additionally in our institutional channel, we’re seeing a lot of opportunities. We have a large won but not yet funded part of our pipeline is there in that channel in a few different franchises, and then bringing on Amundi and Amundi’s organic growth profile, where they have had net flow positive in ’24, they’re off to a great start in ’25 in really all of their channels, coupled with what we have--you know, the opportunities we have, we think, putting that together will be where we see the growth.

Q: I guess as a follow-up, on the Amundi deal just from a revenue perspective, what sort of revenue synergies do you expect and how soon do you expect to see the flow benefits from the distribution partnership?

A: Morning, it’s Mike. I think with respect to the distribution agreement, just a reminder, we’ve really established a 15-year exclusive distribution agreement with Amundi, where active traditional products will be pushed, if you will, through their global distribution network. As we mentioned in the prepared remarks, that channel exists today with the Amundi U.S. products and is currently organic growth positive. As we think about the addition of Victory products to that distribution network, we’re excited. We’re still working on which products will be launched and which products will be pushed through that distribution channel, but we’ve spent a lot of time really evaluating and understanding the needs of clients globally, and as we move forward, we know it will be additive to the overall growth profile, organic growth profile for Victory. We’re not in a position today to provide specifics around that, but as we close the transaction, we’ll come out with more specifics related to that; but again, we’re excited about being able to add strong Victory product through that sizeable distribution network.

Q: Hi, good morning. This is Michael Cho in for Ken. Thanks for taking my question. I just wanted to touch on margins - you know, Victory’s margins just seem to continue to rise every quarter, so without asking about the new long term targets or anything like that, I was just wondering if you could talk through any margin differences across the different products or vehicles. I think you called out in your comments that maybe the rules-based ETFs are higher margin products, so I’m just kind of curious if you can flesh that commentary out to kind of a broader perspective of maybe margin differences, or nuances we should consider in light of the 2025 flows comment you made as well. Thank you.

A: Sure Michael. As we think about our operating platform and the business structure that we have, I think we have identified and said that greater than two-thirds of our expenses are variable, and that really comes with having a single operating platform to allow us to leverage and invest really once across all franchises, all vehicles inclusive of our ETFs, mutual funds, institutional business, retail SMA and model delivery business. That single platform really allows for significant scale, and as we look at how we’ve derived that expense base with greater than two-thirds being variable, the ETF business is just as profitable as the rest of the business, despite having slightly lower revenue realization. Again, the ETFs that Dave mentioned in the prepared comments, they’re not passive ETFS, they’re active and rules-based that have a fair revenue realization to them, and when we apply, if you will, the business infrastructure across that, we still maintain very strong margins competitive to any other distribution channel and any other product vehicle that we have, so it really is that single platform and the variable expense model that we think drives the current margins that we have and continues to drive the investments that we’re making to support future growth.

Q: Hey, good morning. Thanks for taking my question. Just following up on Amundi and the potential introduction of Victory products in the non-U.S. distribution, assuming you’ve selected certain products, how rapidly in terms of time frames could you potentially introduce products? What are the key gating factors? Is there any kind of regulatory or product design or vehicle selection things that we should think about? Thanks.

A: Yes, that will happen really throughout 2025 and into ’26 for the Victory products. I would expect after we close, most of the flow will come through the existing or the legacy Amundi U.S. products that are already into the channels, already have the products registered, established, sales force educated on them, and so that will continue and accelerate with our investment in that channel. Then as ’25 moves through, I would anticipate that we have the legacy Victory products registered, educating the sales force, and then getting momentum in the different geographies and really seeing a benefit as we end ’25 and go into ’26. Each geography is going to have its own set of regulatory rules. We’ll be registering different products. On the institutional side, it will be educating the sales force, so there will be a large effort around that. But the great part about this is today as Amundi U.S. stands, they have the infrastructure, they’re successful in selling the products outside the U.S. It has been growing, I think I referenced in my prepared remarks, since the acquisition of Amundi in 2017 - Amundi U.S., they have been positive from a sales perspective, so we’ll just be plugging into that and really accelerating that, and then introducing our products. But as we look out and we get out of the quarter and we start to look in the future from a year’s perspective, we think it’s going to be a really compelling growth opportunity for us, diversify our business, and really differentiate us from many other U.S. managers that have this kind of distribution channel outside the U.S. for a U.S.-based manager.

Q: Okay, thank you and good morning. Just to circle back on operating margins, I’m curious to hear relative to the 49% target that you have, in what areas of the organization have you seen better than expected operating leverage, and just to circle back on Amundi, what’s giving you the confidence that current systems in place can handle a much larger AUM base? Thank you.

A: Hey Etienne, good morning, it’s Mike. Yes, I would say we are--as I mentioned before, kind of the single operating platform that we run, it is world-class, it is highly scalable in the nature of how we have designed it. We leverage significant partner relationships that allow us to on-board and integrate M&A and have done so since the beginning of the business model back in 2013. That gives us the confidence, along with the people and the experience that we have, that we can and have assessed, if you will, the current Amundi U.S. business to be able to put that onto the platform, make the investments that we need to for areas where there is differentiation from a product perspective or a client perspective, and continue to operate the business long term at the margins that we’ve identified, that are robust and probably at the top of the industry. That long term 49% guidance is still something that we’re confident in, even post on-boarding the Amundi transaction. There’s really nothing in the Amundi U.S. business that is significantly differentiated - you know, we’re a traditional active asset management business, and so we feel very confident that post the integration, we’ll be able to operate the business at the long term margins, still making the investments in areas that we believe will provide long term organic growth. Those investments that we’ve made and continue to make support data, Dave mentioned ETF specialists with respect to distribution and marketing, technology support. We’re continuing to invest in the intermediary distribution channel, and really all of those investments that we’re making and will continue to make through the Amundi U.S. transaction will continue to position us to be--to be well positioned for continued M&A as well as organic growth.

Q: Okay, thank you and good morning. Just to circle back on net flows, you’ve seen demand for some of your global strategies on the non-U.S. side. Can you share more details as to what explains this relatively stronger performance?

A: Yes, so where we’ve seen strength in the global equity and international equity segment of our business really has been with respect to the RS Global product. That product has outstanding short and long term investment performance. They’ve got a very differentiated investment process that has allowed them to continue to perform excellently throughout all market cycles over the last decade-plus, and we’re seeing significant opportunities, both on the institutional side as well as on the intermediary side with respect to that product offering because of the strong performance, because of the depth of the team, because of the strength of the team, and really they’ve just continued to perform very well, which has led to a significant amount of opportunities.

Q: Good morning, this is Mason on for Ben. Can you provide a mark-to-market on Amundi since our last update? What does AUM look like, and how are flows trending?

A: Yes, as Dave mentioned in the prepared remarks, the Amundi U.S. business was net flow positive in 2024. Publicly, their mutual fund business had roughly $2.6 billion in net positive flows across fixed income, multi-asset, and equity products. Their other distribution channel, the global network, also had positive organic growth, and these trends continued into January. At year end, Amundi U.S. had approximately $114 billion in AUM, and its performance in 2024 outpaced expectations.

Q: Can you also provide an update on flows at Sycamore in particular? I recall that the franchise was the source of some your outflows last year, so can you just remind us of some of the dynamics there? Thank you.

A: We don’t provide specific flows on each franchise. Sycamore is a large franchise with excellent long term investment performance and a big client following. It has had some outflows, but in the long term, we are not concerned. It has an excellent investment team and process, and any outflows are a small cycle in a longer positive cycle.

Q: Hi, thanks for taking my questions. My first one is on the ETF business. Victory Shares had over $1 billion of flows in the fourth quarter, stronger than recent quarters and 2024 overall, which you called out in your prepared remarks. I’m just curious what products or strategies are driving that improvement, and then also, what are your expectations for active ETFs going into 2025? Thank you.

A: Sure, in 2024, several ETFs did well, including fixed income active ETFs run by the Victory Income Investors franchise, which were net flow positive. The launch of the free cash flow series ETFs, like VFLO and SFLO, also contributed. Four of the top five sellers in 2024 were active ETFs. In 2025, the ETF side is off to a strong start, and we expect acceleration with market tailwinds and increased sales efforts.

Q: Hey, this is Annaleigh on for Mike. Just a question on capital allocation - how should we think about this going forward, just given the raised dividend and also with the new buyback program? How should we think about timing of completion of the program and how are you also thinking about debt pay-down and scope for the dividend over time? Thanks.

A: First, our primary use of capital is for accretive acquisitions, which we believe offer the highest shareholder return. We balance this with dividend increases and stock buybacks. Both buybacks and dividends are ancillary ways to return capital. We love buying back stock as we think it's undervalued. The Board authorized a $200 million share repurchase program, and we'll be opportunistic in executing it. We'll continue to consider dividend increases while balancing acquisitions.

Q: Okay, thank you and good morning. Just a question on WestEnd, can you just update us on how the investment performance is trending there and how that’s contributing to flows, and then also maybe on how you’re expanding wallet with existing advisors and how that’s evolving. Thanks.

A: Since acquiring WestEnd, it has had positive net flows. Its 2024 performance wasn't up to standard but is improving in 2025. We've expanded the number of advisors and platforms it works with. We've launched new products, including an ETF that's gaining traction, and we're bullish on WestEnd's growth potential.