Victory Capital Posts Record Fourth Quarter and Full Year 2019 Financial Results

SAN ANTONIO--(BUSINESS WIRE)--February 12, 2020--Victory Capital Holdings, Inc. (NASDAQ: VCTR) (“Victory Capital” or “the Company”) today reported record financial results for the three-months and full-year ended December 31, 2019.

“The past year was transformational on a number of levels for Victory Capital,” said David Brown, Chairman and Chief Executive Officer. “We significantly increased our size, scale, asset class and client diversification while continuing to deliver outstanding financial results for our shareholders.

“We posted record results for the fourth quarter and full-year 2019. Compared with last year, revenue rose 128% in the quarter, and by 48% during the year; while adjusted net income with tax benefit, increased 170%, and 67%, respectively. Adjusted EBITDA margin also set a record high at 46.8% in the final quarter of 2019, up 890 basis points from last year’s fourth quarter.

“Total AUM grew to $151.8 billion as of December 31, 2019. Quarter over quarter, our average fee rate was steady at 58.7 basis points. Long-term net inflows were positive for the year at $1.8 billion. We experienced long-term net outflows of $1.5 billion for the fourth quarter, due in part to client reallocations resulting from positive market momentum. This type of client rebalancing activity is cyclical in nature and reinforces the importance of diversification and taking a long-term view of our business. Our recently acquired fixed income and Solutions products made a significant contribution to the positive organic growth we achieved during 2019.

“Our outlook for 2020 is very positive. We continue to make steady progress on our integration efforts following the close of the acquisition of USAA Asset Management Company, and we remain ahead of schedule on the achievement of our previously disclosed cost synergies. We expect to begin realizing the growth opportunities available through the direct channel for USAA members as we progress through the coming year.

“Looking more broadly at our overall business, we intend to continue to grow organically by leveraging our diverse product platform and strong distribution capabilities across all our business channels. We also remain excited and committed to pursuing inorganic growth through acquisitions. We believe our integrated business model, which combines focus, operating scale and investment boutique-like qualities, makes us a compelling acquirer for investment firms in today’s environment.”

1The Company reports its financial results in accordance with generally accepted accounting principles (“GAAP”). Adjusted EBITDA and Adjusted Net Income are not defined by GAAP and should not be regarded as an alternative to any measurement under GAAP. Please refer to the section “Information Regarding Non-GAAP Financial Measures” at the end of this press release for an explanation of Non-GAAP financial measures and a reconciliation to the nearest GAAP financial measure.

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)
		For the Three Months Ended												For the Year Ended
		December 31,				September 30,				December 31,				December 31,				December 31,
		2019				2019				2018				2019				2018
Assets Under Management
Ending		$	151,832			$	145,832			$	52,763			$	151,832			$	52,763
Average			147,867				145,904				58,474				102,719				61,390
Long-term Flows(2)
Long-term Gross(2)		$	5,284			$	7,456			$	4,028			$	23,293			$	14,130
Long-term Net(2)			(1,474	)			726				(1,019	)			1,840				(2,427	)
Money Market Flows
Money Market Gross		$	4,371			$	4,449			$	—			$	8,820			$	—
Money Market Net			85				(65	)			—				20				—
Total Flows
Total Gross		$	9,655			$	11,905			$	4,028			$	32,112			$	14,130
Total Net			(1,390	)			661				(1,019	)			1,860				(2,427	)
Consolidated Financial Results (GAAP)
Revenue(3)		$	218.6			$	215.0			$	96.0			$	612.4			$	413.4
Revenue realization (in bps)(3)			58.7				58.5				65.1				59.6				67.3
Operating expenses(3)			154.4				159.4				70.2				447.8				298.9
Income from operations			64.2				55.6				25.8				164.6				114.5
Operating margin(3)			29.4	%			25.9	%			26.8	%			26.9	%			27.7	%
Net income			37.6				26.0				13.9				92.5				63.7
Earnings per diluted share		$	0.51			$	0.35			$	0.19			$	1.26			$	0.90
Cash flow from operations			59.7				118.4				34.4				227.4				134.3
Adjusted Performance Results (Non-GAAP)(1)
Adjusted EBITDA		$	102.3			$	96.3			$	36.4			$	268.8			$	160.2
Adjusted EBITDA margin(3)			46.8	%			44.8	%			37.9	%			43.9	%			38.7	%
Adjusted net income			66.0				60.5				23.6				172.8				102.3
Tax benefit of goodwill and acquired intangible assets			6.8				6.8				3.3				20.3				13.3
Adjusted net income with tax benefit			72.8				67.3				27.0				193.1				115.5
Adjusted net income with tax benefit per diluted share		$	0.99			$	0.91			$	0.38			$	2.63			$	1.64

____________________

1 The Company reports its financial results in accordance with GAAP. Adjusted EBITDA and Adjusted Net Income are not defined by GAAP and should not be regarded as an alternative to any measurement under GAAP. Please refer to the section “Information Regarding Non-GAAP Financial Measures” at the end of this press release for an explanation of Non-GAAP financial measures and a reconciliation to the nearest GAAP financial measure.

2 Long-term AUM is defined as total AUM excluding Money Market assets.

3 On January 1, 2019, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers,” and now records all Mutual Fund and ETF waivers and expense reimbursements as a reduction of reported revenue and not as an expense item. Prior periods have not been restated, as permitted by the Financial Accounting Standards Board, due to the Company adopting the new revenue guidance using the modified retrospective method.

AUM, Flows and Investment Performance

Victory Capital’s total AUM increased 4%, to $151.8 billion at December 31, 2019, compared with $145.8 billion at September 30, 2019. The increase was attributable to positive market action, partially offset by total net outflows of $1.4 billion. Total gross flows were $9.7 billion for the fourth quarter and $32.1 billion during the full-year period. Long-term AUM increased 4% during the quarter to $140.2 billion, at December 31, 2019, compared with $134.4 billion at September 30, 2019. For the full-year period, the Company reported long-term gross flows of $23.3 billion and long-term net inflows of $1.8 billion.

At quarter end, Victory Capital offered 116 investment strategies through its nine autonomous Investment Franchises and Solutions Platform. The table below presents outperformance against benchmarks by AUM and strategies for Legacy Victory Capital, USAA Fixed Income products and total firm-wide products as of December 31, 2019.

		Trailing		Trailing		Trailing		Trailing
Percentage of AUM Outperforming Benchmark		1-Year		3-Years		5-Years		10-Years
Legacy Victory Capital		77%		79%		73%		92%
USAA Fixed Income		85%		85%		88%		95%
Total Victory Capital		67%		64%		60%		71%

Fourth Quarter 2019 Compared with Third Quarter 2019

Revenue increased 2% to $218.6 million, in the fourth quarter, compared with $215.0 million in the third quarter, reflecting the higher average AUM and steady average fee rate realization. GAAP operating margin expanded 350 basis points in the fourth quarter to 29.4%, up from 25.9% in the third quarter, due to improved operating leverage. This drove operating income up 16%, to a record $64.2 million, compared with the prior quarterly record of $55.6 million set in the third quarter. Fourth quarter GAAP net income rose 45% to $37.6 million, up from $26.0 million in the prior quarter. On a per-share basis, GAAP net income advanced 46% to a record $0.51 per diluted share in the fourth quarter, versus $0.35 per diluted share in the third quarter.

Adjusted net income with tax benefit increased 8% to $72.8 million in the fourth quarter, up from $67.3 million in the third quarter. Adjusted net income per diluted share increased 9% to $0.99 per diluted share in the fourth quarter, up from $0.91 per diluted share in the prior quarter. Adjusted EBITDA rose 6% to a record high $102.3 million in the fourth quarter, versus $96.3 million in the third quarter. Adjusted EBITDA margin expanded 200 basis points in the fourth quarter of 2019, reaching 46.8% compared with 44.8% in the third quarter of the year.

Fourth Quarter 2019 Compared with Fourth Quarter 2018

Year-over-year results reflect the acquisition of the USAA Asset Management Company, which closed on July 1, 2019. Revenue for the three months ended December 31, 2019, rose 128% to $218.6 million, compared with $96.0 million in the same quarter of 2018. The increase was primarily due to higher average AUM, partially offset by a lower average fee rate realization and the adoption of ASU 2014-09 in 2019.

GAAP operating margin was 29.4% in the fourth quarter, a 260 basis point increase from the 26.8% recorded in the same quarter of 2018. Operating expenses increased 120% to $154.4 million, compared with $70.2 million in last year’s fourth quarter, reflecting the Company’s larger scale and new call center dedicated to serving USAA members. The current-year quarter included $22.3 million of acquisition expenses, comprised of $19.9 million related to an increase to the fair value of contingent acquisition payments, and $2.4 million related to restructuring and acquisition expenses. In the fourth quarter of 2018, acquisition related expenses totaled $2.9 million. Adjusting for the impact of these items in both periods, year-over-year operating margin expanded 971 basis points in the fourth quarter of 2019. Last year’s fourth-quarter distribution and other asset-based expenses included $3.5 million of fund waivers and reimbursements that are no longer included in operating expenses following the adoption of ASU 2014-09 on January 1, 2019. GAAP net income rose 171% to $37.6 million, or $0.51 per diluted share, in the fourth quarter compared with $13.9 million, or $0.19 per diluted share, in the same quarter of 2018.

Adjusted net income with tax benefit advanced 170% to $72.8 million, or $0.99 per diluted share, in the fourth quarter, compared with $27.0 million, or $0.38 per diluted share in the same quarter last year. Adjusted EBITDA rose 181% to $102.3 million, compared with $36.4 million in last year’s same quarter. Year-over-year, adjusted EBITDA margin expanded 890 basis points to 46.8% in the fourth quarter of 2019, compared with 37.9% in the same quarter last year.

Year Ended December 31, 2019 Compared with Year Ended December 31, 2018

Revenue increased 48% to $612.4 million for the year ended December 31, 2019, compared with $413.4 million in 2018, due to higher average AUM offset by a lower fee rates and the adoption of ASU 2014-09 in 2019. Revenue in 2019 includes a reduction of $16.7 million in mutual fund waivers and reimbursements due to the adoption of ASU 2014-09 on January 1, 2019, compared with no such reduction of revenue for the same period in 2018.

GAAP net income was $92.5 million, or $1.26 per diluted share, in 2019, up 45% from $63.7 million, or $0.90 per diluted share in the prior year. GAAP operating expenses increased 50% to $447.8 million, compared with $298.9 million last year. Operating expenses in 2019 included $50.9 million of acquisition expenses, comprised of $31.0 million related to restructuring and acquisition expenses and $19.9 million related to an increase to the fair value of contingent acquisition payments. In 2018, acquisition expenses totaled $5.1 million. Adjusting for the impact of these items in both periods, year-over-year operating margin expanded by 627 basis points on a comparable basis. Year over year growth in the business was offset by these higher acquisition expenses resulting in GAAP operating margin contracting 80 basis points to 26.9% in 2019, compared with 27.7% in 2018.

Adjusted net income with tax benefit was $193.1 million, or $2.63 per diluted share, for the year ended December 31, 2019, comprised of $2.35 per diluted share in adjusted net income and $0.28 per diluted share in tax benefit. This is an increase of 67% from the prior year’s adjusted net income with tax benefit of $115.5 million, or $1.64 per diluted share, comprised of $1.45 per diluted share in adjusted net income and $0.19 per diluted share in tax benefit. During 2019, Adjusted EBITDA and Adjusted EBITDA margin increased to $268.8 million and 43.9%, respectively, up from $160.2 million and 38.7%, respectively, in 2018.

Balance Sheet / Capital Management

On July 1, 2019, the Company entered into a new $1.1 billion seven-year term loan, and repaid $63 million during the third quarter. During the fourth quarter, the Company reduced outstanding debt by an additional $85 million. To date, the Company has reduced total debt by $171 million, since July 1, 2019. Subsequent to December 31, 2019, the Company repriced the term loan reducing its interest rate by 75 basis points for an estimated annual interest rate expense savings of approximately $7 million, or 13.5%.

Today, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.05 per share payable on March 25, 2020, to shareholders of record on March 10, 2020.

Conference Call, Webcast and Slide Presentation

The Company will host a conference call tomorrow morning, February 13, 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 dial (877) 823-8673 (domestic) or (647) 689-4067 (international), shortly before 8:00 a.m. ET. 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 global investment management firm operating a next-generation, integrated multi-boutique business model with $150.3 billion in assets under management as of January 31, 2020.

Victory Capital provides specialized investment strategies to institutions, intermediaries, retirement platforms and individual investors, including USAA members through its direct member channel. Through its Investment Franchises and Solutions Platform, Victory Capital offers a diverse array of independent investment approaches and innovative investment vehicles designed to drive better investor outcomes. This includes actively managed mutual funds and separately managed accounts, rules-based and active ETFs, multi-asset class strategies, custom solutions and a 529 College Savings Plan.

For more information, please visit www.vcm.com or follow us on 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, 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; 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 dual class structure of the Company’s common stock; 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.

Victory Capital and its affiliates are not affiliated with United Services Automobile Association or its affiliates. USAA and the USAA logo are registered trademarks and the USAA logo is a trademark of United Services Automobile Association and are being used by Victory Capital and its affiliates under license.

Victory Capital Holdings, Inc. and Subsidiaries Unaudited Consolidated Statements of Operations (in thousands except per share data and percentages)
		For the Three Months Ended												For the Year Ended
		December 31,				September 30,				December 31,				December 31,				December 31,
		2019				2019				2018				2019				2018
Revenue
Investment management fees		$	158,943			$	155,406			$	82,030			$	466,802			$	352,683
Fund administration and distribution fees			59,611				59,574				13,937				145,571				60,729
Total revenue			218,554				214,980				95,967				612,373				413,412
Expenses
Personnel compensation and benefits			54,210				55,556				33,910				179,809				145,880
Distribution and other asset-based expenses			57,471				57,202				21,123				146,622				94,680
General and administrative			14,740				17,654				6,910				46,568				30,005
Depreciation and amortization			5,620				7,768				5,360				23,873				23,277
Change in value of consideration payable for acquisition of business			19,900				—				(33	)			19,886				(37	)
Acquisition-related costs			367				16,386				2,900				22,317				4,346
Restructuring and integration costs			2,049				4,841				40				8,678				742
Total operating expenses			154,357				159,407				70,210				447,753				298,893
Income from operations			64,197				55,573				25,757				164,620				114,519
Operating margin			29.4	%			25.9	%			26.8	%			26.9	%			27.7	%
Other income (expense)
Interest income and other income (expense)			1,598				2,742				(2,627	)			6,829				(2,856	)
Interest expense and other financing costs			(14,901	)			(16,856	)			(4,438	)			(40,901	)			(20,694	)
Loss on debt extinguishment			(2,451	)			(7,409	)			—				(9,860	)			(6,058	)
Total other expense, net			(15,754	)			(21,523	)			(7,065	)			(43,932	)			(29,608	)
Income before income taxes			48,443				34,050				18,692				120,688				84,911
Income tax expense			(10,854	)			(8,058	)			(4,777	)			(28,197	)			(21,207	)
Net income		$	37,589			$	25,992			$	13,915			$	92,491			$	63,704
Earnings per share of common stock
Basic		$	0.56			$	0.38			$	0.21			$	1.37			$	0.96
Diluted			0.51				0.35				0.19				1.26				0.90
Weighted average number of shares outstanding
Basic			67,633				67,724				67,716				67,616				66,295
Diluted			73,856				73,671				71,558				73,466				70,511
Dividends declared per share		$	0.05			$	0.05			$	—			$	0.10			$	—

Victory Capital Holdings, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Measures (unaudited; in thousands except per share data and percentages)
		For the Three Months Ended												For the Year Ended
		December 31,				September 30,				December 31,				December 31,				December 31,
		2019				2019				2018				2019				2018
Net income (GAAP)		$	37,589			$	25,992			$	13,915			$	92,491			$	63,704
Income tax expense			(10,854	)			(8,058	)			(4,777	)			(28,197	)			(21,207	)
Income before income taxes		$	48,443			$	34,050			$	18,692			$	120,688			$	84,911
Interest expense			14,852				18,388				3,797				40,706				20,173
Depreciation			1,130				682				709				2,995				2,956
Other business taxes			359				146				337				1,484				1,505
Amortization of acquisition-related intangible assets			4,490				7,086				4,651				20,878				20,321
Stock-based compensation			5,724				4,326				3,943				14,849				15,238
Acquisition, restructuring and exit costs			24,947				24,452				3,664				56,751				6,389
Debt issuance costs			2,387				10,002				371				13,119				7,807
Pre-IPO governance expenses			—				—				—				—				138
(Earnings) losses from equity method investments			—				(2,837	)			224				(2,683	)			730
Adjusted EBITDA		$	102,332			$	96,295			$	36,388			$	268,787			$	160,168
Adjusted EBITDA margin			46.8	%			44.8	%			37.9	%			43.9	%			38.7	%
Net income (GAAP)		$	37,589			$	25,992			$	13,915			$	92,491			$	63,704
Adjustment to reflect the operating performance of the Company
Other business taxes			359				146				337				1,484				1,505
Amortization of acquisition-related intangible assets			4,490				7,086				4,651				20,878				20,321
Stock-based compensation			5,724				4,326				3,943				14,849				15,238
Acquisition, restructuring and exit costs			24,947				24,452				3,664				56,751				6,389
Debt issuance costs			2,387				10,002				371				13,119				7,807
Pre-IPO governance expenses			—				—				—				—				138
Tax effect of above adjustments			(9,477	)			(11,503	)			(3,241	)			(26,770	)			(12,849	)
Adjusted net income		$	66,019			$	60,501			$	23,640			$	172,802			$	102,253
Adjusted net income per diluted share		$	0.89			$	0.82			$	0.33			$	2.35			$	1.45
Tax benefit of goodwill and acquired intangible assets		$	6,801			$	6,802			$	3,320			$	20,324			$	13,278
Tax benefit of goodwill and acquired intangible assets per diluted share		$	0.09			$	0.09			$	0.05			$	0.28			$	0.19
Adjusted net income with tax benefit		$	72,820			$	67,303			$	26,960			$	193,126			$	115,531
Adjusted net income with tax benefit per diluted share		$	0.99			$	0.91			$	0.38			$	2.63			$	1.64

Victory Capital Holdings, Inc. and Subsidiaries Unaudited Consolidated Balance Sheets (In thousands, except for shares)
		December 31, 2019				December 31, 2018
Assets
Cash and cash equivalents		$	37,121			$	51,491
Investment management fees receivable			74,321				37,980
Fund administration and distribution fees receivable			19,313				3,153
Other receivables			1,459				2,987
Prepaid expenses			4,852				2,664
Available-for-sale securities, at fair value			771				601
Trading securities, at fair value			18,305				12,719
Property and equipment, net			13,240				8,780
Goodwill			404,750				284,108
Other intangible assets, net			1,175,471				387,679
Other assets			3,706				9,349
Total assets		$	1,753,309			$	801,511
Liabilities and stockholders' equity
Accounts payable		$	271			$	607
Accrued compensation and benefits			54,842				30,228
Accrued expenses			88,932				19,743
Consideration payable for acquisition of business			118,700				5,838
Deferred compensation plan liability			18,305				12,719
Deferred tax liability, net			5,486				6,212
Other liabilities			4,363				1,759
Long-term debt(1)			924,539				268,857
Total liabilities			1,215,438				345,963
Stockholders' equity:
Class A common stock, $0.01 par value per share: 2019 - 400,000,000 shares authorized, 18,099,772 shares issued and 16,414,617 shares outstanding; 2018 - 400,000,000 shares authorized, 15,280,833 shares issued and 14,424,558 shares outstanding			181				153
Class B common stock, $0.01 par value per share: 2019 - 200,000,000 shares authorized, 53,937,394 shares issued and 51,281,512 shares outstanding; 2018 - 200,000,000 shares authorized, 55,284,408 shares issued and 53,137,428 shares outstanding			539				553
Additional paid-in capital			624,766				604,401
Class A treasury stock, at cost: 2019 - 1,685,155 shares; 2018 - 856,275 shares			(21,524	)			(8,045	)
Class B treasury stock, at cost: 2019 - 2,655,882 shares; 2018 - 2,146,980 shares			(31,386	)			(21,719	)
Accumulated other comprehensive loss			—				(86	)
Retained deficit			(34,705	)			(119,709	)
Total stockholders' equity			537,871				455,548
Total liabilities and stockholders’ equity		$	1,753,309			$	801,511

1 In connection with the acquisition, the Company entered into the 2019 Credit Agreement, dated July 1, 2019. All indebtedness outstanding under the previous credit agreement was repaid and terminated as of July 1, 2019. Balances at December 31, 2019 and December 31, 2018 are shown net of unamortized loan discount and debt issuance costs in the amount of $27.5 million and $11.1 million, respectively. The gross amount of the debt outstanding was $952 million as of December 31, 2019 and $280 million as of December 31, 2018. In 2019, the Company repaid $148 million of the outstanding term loans under the 2019 Credit Agreement. Subsequent to December 31, 2019, the Company has repaid an additional $23 million of the outstanding term loans under the 2019 Credit Agreement and repriced the term loan reducing its interest rate by 75 basis points.

Victory Capital Holdings, Inc. and Subsidiaries Assets Under Management (unaudited; in millions except for percentages)
		For the Three Months Ended												% Change from
		December 31,				September 30,				December 31,				September 30,		December 31,
		2019				2019				2018				2019		2018
Beginning assets under management		$	145,832			$	64,077			$	63,640			128%		129%
Gross client cash inflows			9,655				11,905				4,028			-19%		140%
Gross client cash outflows			(11,045	)			(11,244	)			(5,047	)		-2%		119%
Net client cash flows			(1,390	)			661				(1,019	)		-310%		36%
Market appreciation (depreciation)			7,389				(54	)			(9,858	)		n/m		175%
Acquired assets / Net transfers			—				81,147				—			n/m		0%
Ending assets under management			151,832				145,832				52,763			4%		188%
Average assets under management			147,867				145,904				58,474			1%		153%
		For the Year Ended												% Change from
		December 31,				December 31,								December 31,
		2019				2018								2018
Beginning assets under management		$	52,763			$	61,771							-15%
Gross client cash inflows			32,112				14,130							127%
Gross client cash outflows			(30,252	)			(16,557	)						83%
Net client cash flows			1,860				(2,427	)						177%
Market appreciation (depreciation)			16,065				(6,573	)						344%
Acquired assets / Net transfers			81,143				(8	)						n/m
Ending assets under management			151,832				52,763							188%
Average assets under management			102,719				61,390							67%

Victory Capital Holdings, Inc. and Subsidiaries Assets Under Management by Asset Class (unaudited; in millions)
For the Three Months Ended		By Asset Class
																		Global /
		U.S. Mid				U.S. Small				Fixed				U.S. Large				Non-U.S.												Total				Money
		Cap Equity				Cap Equity				Income				Cap Equity				Equity				Solutions				Other				Long-term				Market				Total
December 31, 2019
Beginning assets under management		$	25,479			$	16,266			$	37,784			$	13,488			$	11,532			$	29,579			$	243			$	134,371			$	11,460			$	145,832
Gross client cash inflows			1,007				838				1,608				266				433				1,118				15				5,284				4,371				9,655
Gross client cash outflows			(1,642	)			(1,142	)			(1,684	)			(610	)			(491	)			(1,139	)			(52	)			(6,758	)			(4,286	)			(11,045	)
Net client cash flows			(635	)			(304	)			(76	)			(344	)			(58	)			(21	)			(37	)			(1,474	)			85				(1,390	)
Market appreciation (depreciation)			1,505				1,384				262				946				1,129				2,091				32				7,348				41				7,389
Acquired assets / Net transfers			(3	)			—				3				—				—				1				—				—				—				—
Ending assets under management		$	26,347			$	17,346			$	37,973			$	14,091			$	12,603			$	31,649			$	236			$	140,245			$	11,587			$	151,832
September 30, 2019
Beginning assets under management		$	24,203			$	15,278			$	7,300			$	4,108			$	5,498			$	6,919			$	771			$	64,077			$	—			$	64,077
Gross client cash inflows			880				779				4,071				166				326				1,207				28				7,456				4,449				11,905
Gross client cash outflows			(1,396	)			(1,069	)			(1,789	)			(497	)			(566	)			(1,296	)			(118	)			(6,730	)			(4,514	)			(11,244	)
Net client cash flows			(516	)			(290	)			2,282				(331	)			(240	)			(89	)			(90	)			726				(65	)			661
Market appreciation (depreciation)			(26	)			(249	)			528				(301	)			(192	)			225				(83	)			(98	)			44				(54	)
Acquired assets / Net transfers			1,818				1,527				27,674				10,012				6,465				22,523				(354	)			69,665				11,482				81,147
Ending assets under management		$	25,479			$	16,266			$	37,784			$	13,488			$	11,532			$	29,579			$	243			$	134,371			$	11,460			$	145,832
December 31, 2018
Beginning assets under management		$	25,014			$	16,438			$	7,149			$	4,644			$	4,738			$	4,224			$	1,433			$	63,640			$	—			$	63,640
Gross client cash inflows			1,238				815				369				59				1,068				406				73				4,028				—				4,028
Gross client cash outflows			(2,045	)			(1,235	)			(666	)			(171	)			(409	)			(281	)			(240	)			(5,047	)			—				(5,047	)
Net client cash flows			(807	)			(420	)			(297	)			(112	)			659				125				(167	)			(1,019	)			—				(1,019	)
Market appreciation (depreciation)			(4,165	)			(3,085	)			(22	)			(775	)			(787	)			(582	)			(442	)			(9,858	)			—				(9,858	)
Acquired assets / Net transfers			(23	)			15				6				2				—				—				—				—				—				—
Ending assets under management		$	20,019			$	12,948			$	6,836			$	3,759			$	4,610			$	3,767			$	824			$	52,763			$	—			$	52,763

Victory Capital Holdings, Inc. and Subsidiaries Assets Under Management by Asset Class (unaudited; in millions)
For the Year Ended		By Asset Class
																		Global /
		U.S. Mid				U.S. Small				Fixed				U.S. Large				Non-U.S.												Total				Money
		Cap Equity				Cap Equity				Income				Cap Equity				Equity				Solutions				Other				Long-term				Market				Total
December 31, 2019
Beginning assets under management		$	20,019			$	12,948			$	6,836			$	3,759			$	4,610			$	3,767			$	823			$	52,763			$	—			$	52,763
Gross client cash inflows			5,663				3,338				6,489				480				1,457				5,696				171				23,293				8,820				32,112
Gross client cash outflows			(6,663	)			(4,194	)			(4,186	)			(1,419	)			(1,538	)			(3,079	)			(375	)			(21,453	)			(8,800	)			(30,252	)
Net client cash flows			(1,000	)			(856	)			2,303				(939	)			(81	)			2,617				(204	)			1,840				20				1,860
Market appreciation (depreciation)			5,511				3,728				1,158				1,263				1,609				2,739				(29	)			15,980				85				16,065
Acquired assets / Net transfers			1,817				1,526				27,677				10,007				6,465				22,525				(356	)			69,662				11,482				81,143
Ending assets under management		$	26,347			$	17,346			$	37,973			$	14,091			$	12,603			$	31,649			$	236			$	140,245			$	11,587			$	151,832
December 31, 2018
Beginning assets under management		$	25,185			$	15,308			$	7,551			$	4,789			$	4,105			$	3,028			$	1,805			$	61,771			$	—			$	61,771
Gross client cash inflows			4,530				3,198				1,514				259				2,488				1,713				428				14,130				—				14,130
Gross client cash outflows			(7,207	)			(3,762	)			(2,303	)			(848	)			(1,003	)			(588	)			(846	)			(16,557	)			—				(16,557	)
Net client cash flows			(2,677	)			(564	)			(789	)			(589	)			1,485				1,125				(418	)			(2,427	)			—				(2,427	)
Market appreciation (depreciation)			(2,485	)			(1,792	)			67				(455	)			(972	)			(426	)			(510	)			(6,573	)			—				(6,573	)
Acquired assets / Net transfers			(4	)			(4	)			7				14				(8	)			40				(53	)			(8	)			—				(8	)
Ending assets under management		$	20,019			$	12,948			$	6,836			$	3,759			$	4,610			$	3,767			$	824			$	52,763			$	—			$	52,763

Victory Capital Holdings, Inc. and Subsidiaries Assets Under Management by Vehicle (unaudited; in millions)
For the Three Months Ended		By Vehicle
										Separate
										Accounts
		Mutual								and Other
		Funds(1)				ETFs				Vehicles(2)				Total
December 31, 2019
Beginning assets under management		$	114,071			$	3,867			$	27,894			$	145,832
Gross client cash inflows			8,799				249				607				9,655
Gross client cash outflows			(9,835	)			(125	)			(1,085	)			(11,045	)
Net client cash flows			(1,036	)			124				(478	)			(1,390	)
Market appreciation (depreciation)			5,569				222				1,598				7,389
Acquired assets / Net transfers			—				—				—				—
Ending assets under management		$	118,605			$	4,213			$	29,014			$	151,832
September 30, 2019
Beginning assets under management		$	34,258			$	3,093			$	26,726			$	64,077
Gross client cash inflows			8,383				245				3,277				11,905
Gross client cash outflows			(9,643	)			(258	)			(1,343	)			(11,244	)
Net client cash flows			(1,260	)			(13	)			1,934				661
Market appreciation (depreciation)			267				4				(325	)			(54	)
Acquired assets / Net transfers			80,806				782				(441	)			81,147
Ending assets under management		$	114,071			$	3,867			$	27,894			$	145,832
December 31, 2018
Beginning assets under management		$	38,189			$	3,295			$	22,156			$	63,640
Gross client cash inflows			2,350				319				1,359				4,028
Gross client cash outflows			(3,857	)			(198	)			(992	)			(5,047	)
Net client cash flows			(1,507	)			121				367				(1,019	)
Market appreciation (depreciation)			(6,190	)			(460	)			(3,208	)			(9,858	)
Acquired assets / Net transfers			—				—				—				—
Ending assets under management		$	30,492			$	2,956			$	19,315			$	52,763

(1) Includes institutional and retail share classes and VIP funds.

(2) Includes collective trust funds, wrap program separate accounts and unified managed accounts or UMAs.

Victory Capital Holdings, Inc. and Subsidiaries Assets Under Management by Vehicle (unaudited; in millions)
For the Year Ended		By Vehicle
										Separate
										Accounts
		Mutual								and Other
		Funds(1)				ETFs				Vehicles(2)				Total
December 31, 2019
Beginning assets under management		$	30,492			$	2,956			$	19,315			$	52,763
Gross client cash inflows			21,560				843				9,709				32,112
Gross client cash outflows			(25,239	)			(914	)			(4,099	)			(30,252	)
Net client cash flows			(3,679	)			(71	)			5,610				1,860
Market appreciation (depreciation)			10,990				544				4,531				16,065
Acquired assets / Net transfers			80,802				782				(441	)			81,143
Ending assets under management		$	118,605			$	4,213			$	29,014			$	151,832
December 31, 2018
Beginning assets under management		$	37,967			$	2,250			$	21,555			$	61,771
Gross client cash inflows			9,629				1,401				3,100				14,130
Gross client cash outflows			(12,781	)			(341	)			(3,435	)			(16,557	)
Net client cash flows			(3,152	)			1,060				(335	)			(2,427	)
Market appreciation (depreciation)			(4,312	)			(354	)			(1,907	)			(6,573	)
Acquired assets / Net transfers			(11	)			—				3				(8	)
Ending assets under management		$	30,492			$	2,956			$	19,315			$	52,763

(1) Includes institutional and retail share classes and VIP funds.

(2) Includes collective trust funds, wrap program separate accounts and unified managed accounts or UMAs.

Information Regarding Non-GAAP Financial Measures

Victory Capital uses non-GAAP financial measures referred to as Adjusted EBITDA and Adjusted Net Income to measure the operating profitability of the Company. These measures eliminate the impact of one-time acquisition, restructuring and integration costs and demonstrate the ongoing operating earnings metrics of the Company. The Company has included these non-GAAP measures to provide investors with the same financial metrics used by management to assess the operating performance of the Company.

Adjusted EBITDA

Adjustments made to GAAP Net Income to calculate Adjusted EBITDA, as applicable, are:

• Adding back income tax expense;
• Adding back interest paid on debt and other financing costs, net of interest income;
• Adding back depreciation on property and equipment;
• Adding back other business taxes;
• Adding back amortization expense on acquisition-related intangible assets;
• Adding back stock-based compensation expense associated with equity awards issued from pools created in connection with the management-led buyout and various acquisitions and as a result of equity grants related to the IPO;
• Adding back direct incremental costs of acquisitions and the IPO, including restructuring costs;
• Adding back debt issuance cost expense;
• Adding back pre-IPO governance expenses paid to the Company’s private equity partners that terminated as of the completion of the IPO; and
• Adjusting for earnings/losses on equity method investments.

Adjusted Net Income

Adjustments made to GAAP Net Income to calculate Adjusted Net Income, as applicable, are:

• Adding back other business taxes;
• Adding back amortization expense on acquisition-related intangible assets;
• Adding back stock-based compensation expense associated with equity awards issued from pools created in connection with the management-led buyout and various acquisitions and as a result of any equity grants related to the IPO;
• Adding back direct incremental costs of acquisitions and the IPO, including restructuring costs;
• Adding back debt issuance cost expense;
• Adding back pre-IPO governance expenses paid to the Company’s private equity partners that terminated as of the completion of the IPO; and
• Subtracting an estimate of income tax expense applied to the sum of the adjustments above.

Tax Benefit of Goodwill and Acquired Intangible Assets

Due to Victory Capital’s acquisitive nature, tax deductions allowed on acquired intangible assets and goodwill provide it with additional significant supplemental economic benefit. The tax benefit of goodwill and intangible assets represent the tax benefits associated with deductions allowed for intangible assets and goodwill generated from prior acquisitions in which the Company received a step-up in basis for tax purposes. Acquired intangible assets and goodwill may be amortized for tax purposes, generally over a 15-year period. The tax benefit from amortization on these assets is included to show the full economic benefit of deductions for all acquired intangible assets with a step-up in tax basis.