Fourth-Quarter 2022 Highlights

• Total Assets Under Management (AUM) of $153.0 billion¹
• Long-term gross flows of $6.5 billion in the quarter; $33.3 billion for the full year
• Long-term net flows of -$4.4 billion in the quarter; and -$2.5 billion for the full year
• GAAP operating margin of 39.5%
• Adjusted EBITDA margin of 49.7% in the quarter; and 49.6% for the full year²
• GAAP net income of $0.74 per diluted share
• Adjusted net income with tax benefit of $1.05 per diluted share²
• Board increased regular quarterly cash dividend 28% to $0.32

Victory Capital Holdings, Inc. (NASDAQ: VCTR) (“Victory Capital” or “the Company”) today reported financial results for the quarter and year ended December 31, 2022.

“We achieved exceptionally strong results in 2022 in the face of historically challenging market conditions,” said David Brown, Chairman and Chief Executive Officer. “We generated record high GAAP operating income and earnings per diluted share for the year, exceeding prior records set in 2021. Moreover, our full year 2022 adjusted EBITDA margin remained healthy at 49.6% marking the second highest annual level ever achieved. These results exemplify superb execution and focus by our team.

“Our investment professionals continued to deliver excellent investment performance for clients. At year end, the percentage of our AUM outperforming benchmarks over the respective 3-, 5-, and 10-year periods was 84%, 79%, and 79%. In addition, the mutual funds and ETFs rated four- or five-stars overall represented 62% of our Fund AUM.

“We returned more capital to shareholders in 2022 than in any year since we have been a public company. Through the repurchase of 4.6 million shares and $69 million in cash dividends, we returned more than $200 million of capital to our shareholders during the year. Additionally, we reduced debt by $150 million during the year to maintain flexibility to pursue inorganic growth opportunities.

“As always, we continue to focus on serving our clients, which is our top priority.”

The table below presents AUM, and certain GAAP and non-GAAP (“adjusted”) financial results. Due to rounding, AUM values and other amounts in this press release may not add up precisely to the totals provided.

(in millions except per share amounts or as otherwise noted)

AUM, Flows and Investment Performance

Victory Capital’s total AUM increased by 3.9%, or $5.7 billion, to $153.0 billion at December 31, 2022, compared with $147.3 billion at September 30, 2022. The increase was attributable to $10.5 billion of positive market action partially offset by $4.5 billion in negative net flows.

Total gross flows were $6.7 billion in the fourth quarter and $33.9 billion for the year. Long-term AUM increased by 3.9%, or $5.6 billion, to $149.6 billion at December 31, 2022, compared with $144.0 billion at September 30, 2022. For the fourth quarter, the Company reported long-term gross flows of $6.5 billion and net long-term outflows of $4.4 billion. For the year-to-date period, the Company reported long-term gross flows of $33.3 billion and net long-term outflows of $2.5 billion.

At December 31, 2022, Victory Capital offered 128 investment strategies through its 12 autonomous Investment Franchises and Solutions Platform. The table below presents outperformance against benchmarks by AUM as of December 31, 2022.

Fourth Quarter 2022 Compared with Third Quarter 2022

Revenue decreased 2.8% to $201.5 million, in the fourth quarter, compared with $207.3 million in the third quarter, primarily due to lower average AUM, which decreased 2.7% from $158.9 billion to $154.6 billion. GAAP operating margin contracted 810 basis points in the fourth quarter to 39.5%, down from 47.6% in the third quarter. The decline was primarily driven by a non-cash $10.5 million difference in amounts recorded to change the fair value of consideration payable for acquisitions. Fourth-quarter GAAP net income decreased 28.2% to $52.3 million, down from $72.8 million in the prior quarter. Third quarter net income benefited from a lower than normal tax rate as a result of employees exercising stock options during the period. On a per-share basis, GAAP net income decreased 26.7% to $0.74 per diluted share in the fourth quarter, versus $1.01 per diluted share in the third quarter.

Adjusted net income with tax benefit decreased 12.9% to $74.5 million in the fourth quarter, down from $85.6 million in the third quarter. On a per-share basis, adjusted net income with tax benefit decreased 11.8% to $1.05 per diluted share in the fourth quarter, from $1.19 per diluted share in the prior quarter. Adjusted EBITDA was $100.1 million in the fourth quarter, compared to $103.6 million in the third quarter. Adjusted EBITDA margin contracted 30 basis points in the fourth quarter of 2022 to 49.7%, compared with 50.0% in the prior quarter.

Fourth Quarter 2022 Compared with Fourth Quarter 2021

Revenue for the three months ended December 31, 2022 decreased 12.0% to $201.5 million, compared with $229.1 million in the same quarter of 2021. The decrease was primarily due to lower average AUM, which decreased 4.7% to $154.6 billion, compared with $162.3 billion in the same quarter last year. Also contributing was a slight decrease in revenue realization due to a change in asset mix as a result of the impact of the WestEnd acquisition.

Operating expenses decreased 12.5% to $121.9 million, compared with $139.3 million in last year’s fourth quarter primarily due to a decrease in acquisition-related costs related to the WestEnd and NEC acquisitions that closed in the fourth quarter of 2021 as well as a decrease in variable operating expenses from lower average AUM and earnings. GAAP operating margin expanded 30 basis points to 39.5% in the fourth quarter, from 39.2% in the same quarter of 2021. GAAP net income decreased 25.1% to $52.3 million, or $0.74 per diluted share, in the fourth quarter compared with $69.7 million, or $0.94 per diluted share, in the same quarter of 2021.

Adjusted net income with tax benefit decreased 20.4% to $74.5 million, or $1.05 per diluted share, in the fourth quarter, compared with $93.7 million, or $1.27 per diluted share in the same quarter last year. Adjusted EBITDA decreased 12.9% to $100.1 million in the fourth quarter, compared with $114.9 million in last year’s same quarter. Year-over-year, adjusted EBITDA margin declined slightly by 50 basis points to 49.7% in the fourth quarter of 2022, compared with 50.2% in the same quarter last year.

Year Ended December 31, 2022 Compared with Year Ended December 31, 2021

Revenue for the year ended December 31, 2022, declined 4.0% to $854.8 million, compared with $890.3 million in the same period of 2021. The decrease was primarily due to lower average AUM and a decrease in revenue realization due to a change in asset mix, partially offset by a full-year of revenue from businesses acquired in 2021.

Operating expenses decreased 11.8% to $455.7 million for year ended December 31, 2022, compared with $516.4 million in 2021 primarily due to a decrease in variable operating expenses from lower average AUM, a decrease in acquisition-related costs related to the WestEnd, NEC and THB acquisitions that closed in 2021, and a non-cash $54.4 million benefit in amounts recorded from the change in fair value of consideration payable for acquisitions. GAAP operating margin was 46.7% for the year ended December 31, 2022, a 470 basis point increase from the 42.0% recorded in 2021. GAAP net income declined 1.0% to $275.5 million for the year ended 2022 compared with $278.4 million in the prior year. GAAP net earnings per share increased to $3.81 per diluted share in 2022, up from $3.75 per diluted share in 2021 as a result of fewer weighted average shares outstanding in 2022.

Adjusted net income with tax benefit decreased 7.2% to $331.2 million, or $4.58 per diluted share, for the year ended December 31, 2022, compared with $357.1 million, or $4.82 per diluted share in 2021. For the year ended December 31, 2022, adjusted EBITDA declined 5.5% to $424.2 million, compared with $449.0 million in 2021. Year-over-year, adjusted EBITDA margin declined 80 basis points to 49.6% for the year ended December 31, 2022, compared with 50.4% in the previous year.

Balance Sheet / Capital Management

Total debt outstanding as of December 31, 2022 was approximately $1,002 million. For the year ended December 31, 2022, the Company reduced outstanding debt on the 2021 Incremental Term Loans by $150 million.

During the fourth quarter, the Company repurchased 1.3 million shares under the 10b-5 plan and net settled 0.1 million shares. For the year ended December 31, 2022, the Company repurchased 3.0 million shares under the 10b-5 plan and net settled 1.6 million shares.

The Company’s Board of Directors also approved a regular quarterly cash dividend of $0.32 per share. The dividend is payable on March 27, 2023, to shareholders of record on March 10, 2023.

Conference Call, Webcast and Slide Presentation

The Company will host a conference call tomorrow morning, February 10, 2023, at 8:00 a.m. ET to discuss the results. Analysts and investors may participate in the question-and-answer session. To participate in the conference call, please call 1-888-330-3571 (domestic) or 1-646-960-0657 (international), shortly before 8:00 a.m. ET and reference the Victory Capital Conference Call. A live, listen-only webcast will also be available via the investor relations section of the Company’s website at https://ir.vcm.com. Prior to the call, a supplemental slide presentation that will be used during the conference call will be available on the Events and Presentations page of the Company’s investor relations website. For anyone who is unable to join the live event, an archive of the webcast will be available for replay shortly after the call concludes.

About Victory Capital

Victory Capital is a diversified global asset management firm with $153.0 billion in assets under management as of December 31, 2022. It was ranked No. 55 on the Fortune 100 Fastest-Growing Companies list for 2022 and is one of only 24 companies to make the list for the second consecutive year. The Company operates a next-generation business model combining boutique investment qualities with the benefits of a fully integrated, centralized operating and distribution platform.

Victory Capital provides specialized investment strategies to institutions, intermediaries, retirement platforms and individual investors. With 12 autonomous Investment Franchises and a Solutions Platform, Victory Capital offers a wide array of investment products, including mutual funds, ETFs, separately managed accounts, alternative investments, third-party ETF model strategies, collective investment trusts, private funds, and a 529 Education Savings Plan.

For more information, please visit www.vcm.com or follow us: Twitter and LinkedIn.

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may include, without limitation, any statements preceded by, followed by or including words such as “target,” “believe,” “expect,” “aim,” “intend,” “may,” “anticipate,” “assume,” “budget,” “continue,” “estimate,” “future,” “objective,” “outlook,” “plan,” “potential,” “predict,” “project,” “will,” “can have,” “likely,” “should,” “would,” “could” and other words and terms of similar meaning or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond Victory Capital’s control such as the conflict in Ukraine and the COVID-19 pandemic and its effect on our business, operations and financial results going forward, as discussed in Victory Capital’s filings with the SEC, that could cause Victory Capital’s actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements.

Although it is not possible to identify all such risks and factors, they include, among others, the following: reductions in AUM based on investment performance, client withdrawals, difficult market conditions and other factors such as a pandemic; the nature of the Company’s contracts and investment advisory agreements; the Company’s ability to maintain historical returns and sustain its historical growth; the Company’s dependence on third parties to market its strategies and provide products or services for the operation of its business; the Company’s ability to retain key investment professionals or members of its senior management team; the Company’s reliance on the technology systems supporting its operations; the Company’s ability to successfully acquire and integrate new companies; the concentration of the Company’s investments in long-only small- and mid-cap equity and U.S. clients; risks and uncertainties associated with non-U.S. investments; the Company’s efforts to establish and develop new teams and strategies; the ability of the Company’s investment teams to identify appropriate investment opportunities; the Company’s ability to limit employee misconduct; the Company’s ability to meet the guidelines set by its clients; the Company’s exposure to potential litigation (including administrative or tax proceedings) or regulatory actions; the Company’s ability to implement effective information and cyber security policies, procedures and capabilities; the Company’s substantial indebtedness; the potential impairment of the Company’s goodwill and intangible assets; disruption to the operations of third parties whose functions are integral to the Company’s ETF platform; the Company’s determination that Victory Capital is not required to register as an "investment company" under the 1940 Act; the fluctuation of the Company’s expenses; the Company’s ability to respond to recent trends in the investment management industry; the level of regulation on investment management firms and the Company’s ability to respond to regulatory developments; the competitiveness of the investment management industry; the level of control over the Company retained by Crestview GP; the Company’s status as an emerging growth company and a controlled company; and other risks and factors listed under "Risk Factors" and elsewhere in the Company’s filings with the SEC.

Such forward-looking statements are based on numerous assumptions regarding Victory Capital’s present and future business strategies and the environment in which it will operate in the future. Any forward-looking statement made in this press release speaks only as of the date hereof. Except as required by law, Victory Capital assumes no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in the forward-looking statements, even if new information becomes available in the future.

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