Victory Capital Holdings, Inc. (VCTR) Earnings & Analysis

Latest quarter

Victory Capital reported third-quarter revenue of $396.6 million, below the consensus of $415.8 million. Adjusted earnings per share of $1.98 also missed the consensus of $2.00. Revenue rose from $361.2 million a year earlier, while diluted earnings per share were unchanged at $1.11.

The company’s filing attributed higher investment management fees to an increase in average assets under management. Assets under management ended September at $351.9 billion, up from $342.5 billion at the end of June, as $11.7 billion in net inflows more than offset negative market action.

Operating margin fell to 34.7% from 38.2% a year earlier. The filing said personnel compensation and benefits increased, partly because of performance-stock award vesting, while acquisition-related costs rose because of legal and professional fees. Victory Capital reported adjusted EBITDA of $212.1 million, or 53.5% of revenue, compared with $190.5 million, or 52.7% of revenue, a year earlier.

Free cash flow was $222.4 million, compared with $164.8 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO David Brown attributed the quarter’s inflows partly to years of investment in distribution, including salespeople, technology, data, marketing and product development. After the Pioneer acquisition, he said, Victory combined its sales organizations and trained them across the product range. “Relationships in our industry take time to season,” Brown said.

Brown said U.S. intermediary, U.S. institutional and international channels all generated positive long-term net flows. When asked about sales by channel, he declined to provide gross-sales figures, but said the channels had grown quarter over quarter and that the pipeline of business won but not yet funded extended across them. He said demand outside the U.S. was mainly for fixed income and global equity, with some emerging demand for U.S. equities.

In ETFs, Brown said assets ended the quarter at $27.7 billion, with $3.9 billion in third-quarter net inflows. He said Victory launched two municipal ETFs during the quarter and continued to develop its product range.

President and CFO Michael Policarpo said the average fee rate was 44.8 basis points in the quarter. Responding to an analyst’s question, he attributed the decline from the prior quarter chiefly to annual fees recorded in Q2; he also said demand was concentrated in products and channels with fee rates modestly below the firm average. “This is about asset and channel mix. It has nothing to do with reducing fees on our products,” he said.

Policarpo said the adjusted EBITDA margin was 53.5% and that acquisition-related expenses rose to $17.1 million, primarily on First Eagle transaction costs. Brown said the pending acquisition would add global value multi-asset and alternative credit capabilities, and that the teams were planning the integration.

Guidance

Policarpo said he expects fee-rate guidance to rise to the low to mid-50s in basis points after the First Eagle acquisition closes, reflecting its higher fee rate. He said Victory would provide more guidance closer to closing. Brown said the company was working toward a close by the end of the first quarter of 2027, subject to customary conditions.