Victory Capital(VCTR)2023-11-05 10:13Financial Data and Key Metrics Changes - Revenue for Q3 2023 was $209.7 million, up 2.7% from Q2 2023, benefiting from higher average AUM and one extra day in the quarter [20] - Adjusted EBITDA margin was 51.1%, marking the 13th consecutive quarter above the long-term guidance of 49% [7][32] - Adjusted net income rose to $1.18 per diluted share, a 6% increase from $1.11 in the previous quarter [8][21] - Assets under management (AUM) at quarter end were $153.5 billion, with average AUM increasing by 2.4% compared to Q2 2023 [19] Business Line Data and Key Metrics Changes - Long-term gross flows were $5.3 billion, while net long-term flows were negative $1.7 billion, indicating a decline in net flows [25] - WestEnd Advisors franchise reported positive net flows and significant distribution expansion, contributing to overall performance [10][14] - RS Global franchise has been net flow positive for 10 consecutive quarters, with strong performance metrics [27] Market Data and Key Metrics Changes - The overall market environment has seen many investors opting for cash and cash equivalents, impacting gross sales and allocations to higher-risk asset classes [25][46] - The company noted that 98% of WestEnd's AUM outperformed respective benchmarks over the five-year period, indicating strong market positioning [15] Company Strategy and Development Direction - The company is focusing on strategic investments in product development, technology, and digital marketing to enhance competitiveness [13] - There is an ongoing emphasis on inorganic growth opportunities, with a disciplined approach to evaluating potential acquisitions [17] - The consolidation of the INCORE franchise under the Victory Income Investors brand aims to enhance scalability and brand recognition [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for positive net flows in fixed income as investors may eventually reallocate from cash to traditional assets [40][46] - The company remains patient and selective regarding M&A opportunities, with a strong pipeline and improved execution capabilities [36][41] - Management highlighted the importance of strong investment performance as a key factor in attracting future investments [40] Other Important Information - The company generated $43 million in cash from monetizing a floating to fixed interest rate swap, enhancing financial flexibility [16][22] - Cash increased to $108 million at quarter end, reflecting a strategy to build cash reserves for future opportunities [21] Q&A Session Summary Question: Update on M&A pipeline and valuation multiples - Management indicated a full pipeline with improved execution capabilities, but no imminent transactions are expected [36] Question: Details on SMA and other flows - The growth in flows is primarily attributed to the WestEnd Advisors franchise, with expectations for continued growth in model business [37] Question: Promoting fixed income strategies - Management has built out distribution channels for the Victory Income Investors franchise and emphasized strong investment performance [40] Question: Potential size of transactions for M&A - Management is open to various transaction sizes and remains opportunistic in evaluating potential deals [41] Question: Impact of financing costs on M&A - Financing costs are not seen as a hurdle for executing transactions, given the company's strong cash generation capabilities [50] Question: Update on New Energy Capital's organic growth - Positive flows were noted, with optimism for continued growth in the renewable energy space [51] Question: Update on WestEnd's growth and platforms - WestEnd has expanded its platform presence and product offerings, showing strong growth potential [53]