Victory Capital Holdings, Inc. Q3 FY2025 earnings call

• Achieved record high gross flows with net flows finishing just under flat for the quarter. Total assets stood at $313 billion.
• Long-term gross flows rose 10% QoQ to $17 billion, driven by an expanded U.S. distribution team. Strong sales outside the U.S. at an annualized $68 billion.
• Adjusted EBITDA was $191 million, margin 52.7%; adjusted earnings per diluted share at $1.63, a record.
• Pioneer Investments integration slightly ahead of plan, achieving ~$86 million of net expense synergies with $110 million target in sight.
• Distribution opportunity outside the U.S. with $52 billion AUM from 60 countries, positive net flows. Launching new UCITS products mixing Pioneer and Victory strategies.
• ETF business growing with $5.4 billion YTD net flows, 53% organic growth rate, 26 ETFs with average fee rate 35 basis points.
• Investment performance excellent: nearly half of mutual fund and ETF AUM in top quartile, ~2/3 rated 4-5 stars by Morningstar.
• Capital allocation strategy focused on organic and inorganic growth, returned over $1 billion to shareholders since IPO.
• M&A opportunities with industry fragmentation, focusing on strategic acquisitions to diversify, globalize distribution, and enhance capabilities.

Total assets ended the quarter at $313 billion. Long-term gross flows rose 10% quarter-over-quarter to $17 billion, representing 23% of long-term AUM from outside the U.S. at an annualized rate of $68 billion. Adjusted EBITDA set a new all-time quarterly high at $191 million, with an adjusted EBITDA margin of 52.7%. Adjusted earnings per diluted share reached a record $1.63, up 4% from the second quarter. Non-US AUM accounted for 17% of total client assets as of quarter end.

• Expect to continue returning capital via buybacks and dividends while pursuing growth initiatives.
• Fee rate expected to remain in the 46 to 47 basis point range.
• Confident in achieving net expense synergies from Pioneer integration as planned.
• Anticipate continued strong performance of ETF business and growth in non-US distribution.

• Actual results may differ materially from forward-looking statements due to various risk factors.
• Integration challenges or unforeseen issues in M&A activities could impact performance.
• Market conditions and regulatory changes may affect distribution and growth prospects.

Q: Congrats on the 21% annual EPS growth since the IPO.

A: David Brown thanked the questioner and discussed M&A strategy focusing on strategic acquisitions.

Q: On M&A, views on cheap consolidation vs strategic deals.

A: David Brown emphasized strategic focus, aiming for $1 trillion AUM, with acquisitions driven by strategic fit.

Q: On Pioneer acquisition synergy, what's driving ahead of target?

A: Michael Policarpo mentioned conservative planning, finding redundancies in administrative functions without impacting investment teams, and leveraging technology.

Q: On non-US business, color on flows and uplift.

A: David Brown said sales from Pioneer franchise so far, with legacy Victory products to drive uplift in 2026, seeing it as transformational.

Q: On fee rate go forward.

A: Michael Policarpo said fee rate expected to remain in 46-47 basis point range, performance fees immaterial.

Q: On M&A in alt space, form of partnership.

A: David Brown said exploring various M&A forms, not interested in investment outsourcing.

Q: On M&A risks and targets holding back.

A: David Brown said risks unique to each acquisition, environment conducive, nearing end of Pioneer integration.

Q: On integrating alt cultures.

A: David Brown said carefully considering, observing and learning due to cultural differences.

Q: On global non-US equity inflows.

A: David Brown said strong demand for global equity products, good performance and distribution.