Victory Capital(US:VCTR)2023-08-05 00:26Financial Data and Key Metrics Changes - Long-term net flows improved with outflows of $1 billion compared to $1.2 billion in the first quarter, excluding a passive mandate redemption [6][8] - Average AUM was flat quarter-over-quarter, while average fee realization rose to 52.1 basis points, contributing to higher revenue [6][20] - Revenue increased to $204.2 million in the second quarter from $201.3 million in the first quarter, driven by higher fee rate realization [20] - GAAP operating income was $87.5 million, and adjusted EBITDA was $104 million, both up from the previous quarter [20] - Adjusted net income rose to $75.9 million or $1.11 per diluted share, up from $1.08 in the previous quarter [8][20] Business Line Data and Key Metrics Changes - Investment performance remained strong, with 42 mutual funds and ETFs rated four or five stars by Morningstar, accounting for nearly two-thirds of AUM [10][11] - Positive net flows were recorded in five franchises, including Integrity and New Energy Capital, with WestEnd showing consistent net flow positivity since its acquisition [22][23] - The fee rate increased by 0.4 basis points, marking the highest fee rate realization in the past four quarters [24] Market Data and Key Metrics Changes - AUM increased nearly 2% from $158.6 billion at the end of March to $161.6 billion by the end of June [19][21] - Industry-wide softness in gross sales persisted, with investors hesitant to enter the market due to volatility, leading to a preference for cash holdings [22][43] Company Strategy and Development Direction - The company continues to invest in organic growth initiatives and strategic acquisitions, with a focus on enhancing shareholder value [14][55] - The launch of a new brokerage platform aims to cross-sell investment strategies and improve client engagement [29][30] - The company is optimistic about capturing inflows into fixed income products as the Fed's tightening cycle subsides [12][35] Management's Comments on Operating Environment and Future Outlook - Management anticipates a shift from money market investments to longer-duration fixed income as investor confidence returns [35][43] - The company remains patient and selective in evaluating acquisition opportunities, with expectations of increased M&A activity in the industry [37][56] - Management noted that gross flows have been soft due to investor caution, but they expect a significant movement of funds once clarity on the Fed's direction is achieved [43][44] Other Important Information - The company celebrated its 10th anniversary as an independent entity, highlighting significant growth in AUM and revenue since its management buyout [15][16] - The net leverage ratio improved to 2.3 times at the end of June, reflecting growth in earnings and a higher cash position [27] Q&A Session Summary Question: Opportunity to cross-sell strategies with the new brokerage platform - Management expressed optimism about cross-selling investment strategies to both current and new clients, emphasizing the importance of product choice [29][30] Question: Scale potential and investor interest in New Energy Capital - Management indicated that New Energy Capital is in its early stages, with positive net flows and plans for launching new funds [31][32] Question: Expectations for fixed income flows in the second half of the year - Management believes that as investor confidence grows, there will be a pivot from money market investments to longer-duration fixed income products [34][35] Question: Changes in M&A valuation multiples and financing conditions - Management noted that sellers have adjusted their expectations, leading to more conversations about potential acquisitions [36][37] Question: Comments on margin results and future guidance - Management reaffirmed their long-term margin guidance of 49%, citing a strong operating platform and consistent performance [40][42] Question: Broader investor sentiment and flow trends - Management acknowledged soft gross flows but noted potential for movement as clarity on the Fed and the economy improves [43][44] Question: Capital allocation strategy and focus areas for inorganic growth - Management emphasized a balanced approach to capital allocation, prioritizing inorganic growth while maintaining flexibility [50][53][54]