Victory Capital(VCTR)2022-11-04 17:21Financial Data and Key Metrics Changes - Total AUM decreased by $7.7 billion or 5% in the quarter to $147.3 billion, primarily driven by over $7 billion of negative market action [24] - Revenue of $207 million in the third quarter was down 4% from the second quarter due to lower AUM [25] - Adjusted EBITDA was $103.6 million in the third quarter, a 2% decline from the second quarter, resulting in an adjusted EBITDA margin of 50% [26][33] - GAAP net income was $72.8 million or $1.01 per diluted share, with adjusted net income increasing to $85.6 million or $1.19 per diluted share, up from $80.7 million or $1.11 per diluted share in the second quarter [26][33] Business Line Data and Key Metrics Changes - Gross long-term sales in the quarter totaled $6.6 billion, which is 16% higher than the same quarter last year [11] - Net long-term flows improved to a positive year-to-date net long-term flow of $1.9 billion, with WestEnd Advisors having positive long-term flows every month since the acquisition [13][30] - The VictoryShares ETF business recorded its eighth consecutive quarter of positive long-term flows [13] Market Data and Key Metrics Changes - The equity and debt markets continued to decline in the third quarter, with investors experiencing the largest drawdown since 1937 [8] - 81% and 79% of total AUM outperformed benchmarks for the critical three- and five-year measurement periods as of September 30 [18] Company Strategy and Development Direction - The company is focused on increasing capital return to shareholders while maintaining a flexible balance sheet for acquisitions [22] - The digital marketplace is being developed to enhance products and services available to direct investors, with enhancements expected to roll out next year [17] - The company is actively evaluating acquisition opportunities despite the current market environment [23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in capturing market share once interest rates stabilize, particularly in the fixed income sector [15] - The company believes that the current market volatility presents opportunities for growth and acquisition [23] - Management anticipates a significant shift back into fixed income once bond prices stabilize, positioning the company favorably to capture those assets [50] Other Important Information - The company reduced debt by $30 million and returned a total of $67 million of capital to shareholders in the quarter, including share repurchases [27] - The cash dividend was maintained at $0.25 per share, representing an additional $17.4 million of capital return to shareholders [28] Q&A Session Summary Question: Performance of WestEnd in the current environment - Management noted that WestEnd has had positive net flows every month and has outperformed in a challenging asset class [42] Question: Capital deployment strategy moving forward - Management emphasized a flexible approach to capital deployment, balancing debt reduction and share repurchases based on market conditions [44] Question: Outlook for fixed income in 2023 - Management expects a significant shift back into fixed income once bond prices stabilize, highlighting the strong performance of their fixed income team [50] Question: M&A environment comparison to last year - Management indicated that while financing costs have risen, they remain open to acquisitions that enhance the company [52] Question: Willingness of companies to engage in M&A discussions - Management observed an increase in discussions, though the pace of transactions has slowed due to market volatility [58] Question: Expansion of VictoryShares ETF business - Management confirmed ongoing growth in the ETF franchise and plans for new product launches in the near term [60]