Q4 2024 Victory Capital Holdings Inc Earnings Call
Speaker Change: Good morning and welcome to the Victory Capital fourth quarter 3 to 24 earnings conference call. All callers are in listen-only mode.
Speaker Change: Following the company's prepared remarks, there will be a question and answer session. I will now turn the call over to Mr. Matthew Dennis, Chief of Staff and Director of Investor Relations. Please go ahead, Mr. Dennis.
Speaker Change: Thank you. Before I turn the call over to David Brown, I would like to remind you that during today's conference call, we may make a number of forward-looking statements. Victory Capital's actual results may differ materially from these statements.
Speaker Change: Furthermore, please note that the ultimate completion of a transaction with Amunde remains subject to certain closing conditions.
Speaker Change: Please refer to our SEC filings for a list of some of the factors that may cause actual results to differ materially from those expressed on today's call.
Speaker Change: Victory Capital assumes no duty and does not undertake any obligation to update any forward-looking statements.
Speaker Change: Our press release that was issued after the market closed yesterday disclosed both GAAP and non-GAAP financial results.
Speaker Change: We believe the non-gap measures enhance the understanding of our business and our performance.
Speaker Change: Reconciliations between these non-GAAP measures and the most comparable GAAP measures are included in tables that can be found in our earnings press release and in the slides accompanying this call.
Speaker Change: both of which are available on the investor relations portion of our website at ir.vcm.com.
Speaker Change: It is now my pleasure to turn the call over to David Brown, chairman and CEO. David?
David Brown: Thanks, Matt. Good morning and welcome to Victory Capital's fourth quarter 2020 for earnings call.
Speaker Change: I'm joined today by Michael Policarpo, our President, Chief Financial and Administrative Officer, as well as Matt Dennis, our Chief of Staff and Director of Investor Relations.
Speaker Change: I will start today by providing an overview of the fourth quarter and the full year 2024. After that, I will turn the call over to Mike to review the financial results in greater detail.
Speaker Change: Following our prepared remarks, Mike, Matt, and I will be available to answer your questions.
The quarterly business overview begins on slide five.
Speaker Change: Long-term net flows improved in the fourth quarter, helped by accelerated gross sales.
Speaker Change: Although there was improvement, we are not at the level the organization is fully capable of.
Speaker Change: That said, we are beginning to realize success from our prior investments in several areas, with a good example being the acceleration of our growth in our ETF platform victory shares.
Speaker Change: During the fourth quarter and throughout the entire year, we achieved strong sales of our rules-based and active ETFs.
Speaker Change: These are high margin products for us that are priced competitively with reasonable cost to manufacture and distribute.
Speaker Change: We ended December with $176.1 billion of total client assets, which was up $9.5 billion, or 6%, from the end of last year.
Speaker Change: During the fourth quarter, average assets rose compared to the third quarter, and our fee rate remained strong, resulting in record revenue for the quarter and full year.
Speaker Change: Our adjusted earnings per diluted share with tax benefit rose more than 7% to $1.45 in the quarter, which was also a record high, and up 26% from $1.15 in last year's final quarter.
Speaker Change: Year-over-year adjusted earnings per diluted share rose 19% from $4.51 in 2023 to $5.36 in 2024.
Speaker Change: Adjusted EBITDA and Adjusted EBITDA Margin both set new quarterly records at $126 million.
and 54% respectively.
Speaker Change: We are very pleased with our financial results in 2024, which was driven by our differentiated business platform and superior execution.
Speaker Change: Underneath all of this is an employee base which I continue to believe is the best at what they do in the industry.
Speaker Change: Turning to our multifaceted strategic partnership with Amundi, we remain on track to close our acquisition by the end of this quarter.
Speaker Change: Based on our ongoing integration work, we are reaffirming the prior guidance of realizing 100 million dollars in cost synergies by the end of our second year of ownership.
Speaker Change: These expense savings will be front-end loaded, with the majority being realized during the first year after closing.
Speaker Change: The Imandi U.S. business continues to perform very well across the board.
Speaker Change: Based on publicly available data, net long-term flows into their U.S. mutual funds totaled 2.6 billion dollars in 2024.
Speaker Change: Their institutional business in the U.S. as well as their non-U.S. business also posted very strong sales for calendar year 2024 and both were NetFlow positive.
Speaker Change: Following the transactions close, our non-US AUM is projected to total more than $45 billion.
Speaker Change: Most of the non-U.S. assets can be segmented into the following buckets.
Speaker Change: third-party distribution platforms, institutional investors, or various large banking and financial networks spread throughout the world.
Speaker Change: Moreover, these assets are sitting in primarily USITs or Institutional Separately Managed Accounts.
Speaker Change: The non-U.S. business has been a consistent, strong area of organic growth, registering positive net flows since Amundi acquired the business in 2017.
Speaker Change: With the addition of victory-managed strategies post-close to the product lineup, the broader product set is anticipated to accelerate growth of these non-U.S. assets.
Speaker Change: Investment performance at AmundiUS also remained very strong throughout the year. At year-end, 61% of mutual fund AUM was rated 4 or 5 stars overall by Morningstar.
Speaker Change: On slide 6, we provide an update on Victory Shares, our ETF platform.
Speaker Change: To date, we have increased our ETF AUM to close to $12 billion.
Speaker Change: We started with less than $200 million of ETF AUM when we acquired the capability in 2015.
Speaker Change: Since then, AUM has increased primarily as a result of organic growth as we have launched innovative new products and increased our distribution reach on various intermediary platforms over the years.
Speaker Change: You can see from the graphic on this slide that this AUM growth has accelerated recently, and we look forward to continuing accelerating this momentum.
Speaker Change: Increasing investor demand for solutions-oriented and active ETFs aligns perfectly with our core strength of delivering alpha and or targeted outcomes through proven investment capabilities.
Speaker Change: We will continue to grow AUM by leveraging the portfolio management expertise of our investment franchises and solutions platform, coupled with our deep distribution coverage, which now includes dedicated ETF sales and marketing resources.
Speaker Change: Our active ETFs provide investors with access to fixed income and equity strategies and a tax-efficient and liquid ETF structure.
Speaker Change: These active ETF products are NetFlow positive, meet our margin criteria, and we look forward to continue launching new products to maintain our momentum.
Speaker Change: Additionally, Omandi US currently has no ETF offerings and we are evaluating which of their investment strategies have the best opportunity to be successful within an ETF wrapper and view this as an additive growth opportunity post the close of the acquisition.
Speaker Change: Turning to slide seven, you can see our updated capital allocation details. During the fourth quarter, we returned a total of $132.4 million to shareholders.
Speaker Change: In December, our board authorized a new $200 million share repurchase program, thereby allowing us to remain flexible and opportunistic.
Speaker Change: Since our IPO, we have repurchased 18.2 million shares at an average price of $30.30 per share. Based on today's share price, a repurchase activity has resulted in an extremely attractive return for shareholders.
Speaker Change: We also announced a 7% increase in our quarterly cash dividend.
Speaker Change: Moving to slide 9, our investment performance remained strong with two-thirds of our AUM in mutual funds and ETFs earning overall four or five star ratings by Morningstar for the period ending on December 31.
This is Brawley Diversified, encompassing 45 distinct products.
Speaker Change: Over the key 3 and 5 year periods, 59% and 73% of our total AUM outperformed their respective benchmarks.
Speaker Change: With that I will turn the call over to Mike to go through the quarter and full-year financial results in greater detail. Mike?
Mike: Thanks, Dave, and good morning, everyone. The financial results review begins on slide 11.
Mike: Average assets under management rose 2% in the fourth quarter to $176 billion, and our fee realization increased for the quarter, driving revenue up to $232.4 million, which is the highest quarterly revenue in our history.
Mike: For the full year, we generated record high revenue of $893 million, which was a 9% increase from 2023.
Mike: Fourth quarter GAAP operating income was $111.7 million, which was up 29% from the same quarter last year.
Mike: Gap earnings per diluted share was $1.17 for the fourth quarter and $4.38 for the full year.
Mike: Year over year, GAAP earnings rose more than 40% from $3.12 per diluted share for 2023.
Mike: Adjusted net income with tax benefit rose to a record $95.1 million in the quarter.
Mike: This was up 7% from the 3rd quarter and 24% higher than last year's 4th quarter.
Mike: For the full year, we generated adjusted net income with tax benefit of $353.1 million, which was up 15% from the prior year.
Turning to the balance sheet.
Mike: Our cash balance at the end of the year was $127 million following the return of $132.4 million to shareholders in the form of share repurchases and cash dividends in the fourth quarter.
Mike: Our net leverage ratio was unchanged at 1.7 times from Q3, driven by growth and earnings and a modest debt paydown of $20 million in December.
Mike: Finally, yesterday we also announced that the board authorized a 7% dividend increase, raising the quarterly dividend to $0.47 per share.
Mike: The first quarter dividend will be paid on March 10th to shareholders of record at the close of business on February 18th.
Mike: Turning to slide 12, you can see that while average assets rose from the third quarter, total client assets declined by just under 3% during the period, driven primarily by market action to end the year at $176.1 billion.
Mike: Our AUM continues to be diversified from both a distribution channel perspective, as well as by investor type within each channel, and by asset class and investment vehicle.
Mike: Post-closing of the Amundi transaction, we intend to add a new category here that breaks out the non-US client portion of our AUM.
Mike: We believe having a significant portion of AUM from investors outside the U.S. provides another dimension of diversification and potential growth for our business.
On slide 13, we cover long-term asset flows.
Mike: Several of our investment franchises and our VictoryShares ETF platform continue to generate positive long-term net flows in the quarter.
Mike: Victory Income Investors posted its fourth consecutive quarter of positive net flows and its eighth consecutive quarter of positive net flows in the intermediary channel where we have been gaining shelf space for the past several years.
Mike: For the full year, Integrity, NEC, RS Global, and our VictoryShares ETF platform also achieved positive net long-term flows.
Mike: 2025 is off to a strong start. Our long-term flows for the month of January have improved substantially and has flipped to be slightly positive. And our one but not yet funded pipeline is as large as it has ever been as we look forward.
Mike: The majority of the one but not yet funded pipeline should fund in 2025, and it is well diversified from a franchise and channel perspective.
Mike: Our outlook for organic growth is encouraging as we consider current business momentum and the closing of the Monday transaction and what that will contribute to our organic growth profile.
Mike: Slide 14 shows a steady increase in sequential revenue during 2024.
Mike: Our average fee rate was 52.5 basis points in the fourth quarter, which is up four-tenths of a basis point from the third quarter and remains within our expected range.
For the full year, revenue rose by 9% from 2023.
Slide 15 highlights expenses recorded during the quarter.
Mike: Total GAAP expenses were $133.8 million for the quarter. The increase from the third quarter was driven primarily by the reversal of earn-out accruals in the third quarter.
Mike: excluding this non-cash adjustment in Q3, total expenses increased less than 1 million dollars quarter over quarter and variable expenses calibrated with our increase in AUM and revenues.
Mike: We incurred $2.8 million in acquisition-related expenses in the fourth quarter, predominantly related to the Mundy transaction.
Mike: On a cash basis, our compensation expense was 23.8% which is in line with our guidance.
Mike: Our average interest rate declined by 33 basis points from 5.25% in the third quarter to 4.92% in the fourth quarter.
On slide 16, we highlight our non-GAP metrics.
Mike: Our reported $1.45 adjusted net income with tax benefit per diluted share is the highest level in our history and is up 7% from the prior record of $1.35 per diluted share reported for the third quarter.
Mike: For the full year, adjusted net income with tax benefit per diluted share was $5.36, 19% higher than $4.51 per diluted share in 2023.
Mike: Adjusted EBITDA and Adjusted EBITDA Margin were also company records at $125.5 million and 54% respectively.
Mike: On a year-over-year basis, our adjusted EBITDA grew by 14% to $476 million in 2024.
Mike: and adjusted EBITDA margin expanded by 230 basis points to 53.2%.
Mike: Finally, turning to slide 17, we generated $92 million in cash flow from operations during the quarter, and our leverage ratio remained at 1.7 times, which is down from 2.1 times at the beginning of the year.
Mike: We paid down $20 million of debt in the quarter, and our $100 million credit facility remains undrawn.
Mike: That concludes our prepared remarks. I will now turn it back over to the operator for questions.
Speaker Change: At this time, in order to ask a question, simply press star, then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: And your first question comes from the line of Alex Plostain with Goldman Sachs. Alex, please go ahead.
Speaker Change: Hey everybody, this is Anthony on for Alex. It's nice to see the organic growth profile improving in January. And I guess as we look out into 2025, which strategies do you expect to be most in favor and contribute the most to organic growth?
Good morning, it's Dave.
Couple pieces to that question. The first piece, just victory.
Speaker Change: As we said in our prepared remarks, our VictoryShares ETF platform is doing really well. We're seeing strong growth there and I would expect that to continue throughout the year.
Speaker Change: Additionally, in our institutional channel, we're seeing a lot of opportunities. We have a large one, but not yet funded. Part of our pipeline is there in that channel in a few different franchises.
Speaker Change: And then, you know, bringing on Amundi and Amundi's, you know, organic growth profile where they have had net flow positive in 24, they're off to a great start in 25 in really all of their channels.
Speaker Change: coupled with what we have, you know, the opportunities we have, we think putting that together will be will be where we see the growth.
Speaker Change: Thanks. Yeah, that's helpful. And I guess as a follow-up, you know, on the Amundi deal, I guess from a revenue perspective, like, what sort of revenue synergies do you expect? And, you know, how soon do you expect to see, like, the flow benefits from the distribution partnership?
Speaker Change: Morning, it's Mike. I think with respect to the distribution agreement, just a reminder, we've really established a 15-year exclusive distribution agreement with Amundi where active traditional products will be pushed, if you will, through their global distribution network.
Speaker Change: As we mentioned in the prepared remarks, that channel exists today with the Amanda US products and is currently organic growth positive.
Speaker Change: As we think about the addition of Victory products to that distribution network, we're excited.
Speaker Change: We're still working on which products will be launched and which products will be pushed through that distribution channel, but we've spent a lot of time really evaluating and understanding the needs of clients globally.
Speaker Change: And as we move forward, we know it will be additive to the overall growth profile, organic growth profile for victory.
Speaker Change: We're not in a position today to provide specifics around that, but as we close the transaction we'll come out with more specifics related to that, but again we're excited about being able to add strong victory product through that sizable distribution network.
Thank you.
Speaker Change: And your next question comes from the line of Ken Warrington with J.P. Morgan. Ken, please go ahead.
Michael Cho: Hi, good morning. This is Michael Cho in for Ken. Thanks for taking my question.
Michael Cho: I just wanted to touch on margins, you know, victories, margins, just.
seem to continue to rise every quarter. So without...
Michael Cho: You know, asking about the new long term targets or anything like that. I was just wondering if you could talk through any.
Margin differences across the different products or vehicles.
I think you've called out.
Michael Cho: in your comments that, you know, maybe the rules-based ETFs are higher margin products. So I'm just kind of curious if you could flesh that commentary out into kind of broader perspective of maybe margin differences or nuances that we should consider, you know, in light of the 2025 flows comment you just made as well. So thank you.
Sure, Michael.
David Brown: As we think about our operating platform and the business structure that we have, I think we've identified and said that greater than two-thirds of our expenses are variable, and that really comes with having a single operating platform to allow us to leverage and invest.
David Brown: retail SMA and model delivery business. So that single platform really allows for significant scale.
and as we look at
how we've derived that expense base.
with greater than two-thirds being variable.
David Brown: The ETF business is just as profitable as the rest of the business, despite having slightly lower revenue realization. And again, the ETFs that Dave mentioned in the prepared comments...
They're not passive ETFs
David Brown: a fair revenue realization to them. And when we apply, if you will, the business infrastructure across that, we still maintain very strong margins competitive to any other distribution channel and any other product vehicle that we have. So it really is that single platform and the variable expense model that we think drives.
David Brown: the current margins that we have and continue to drive the investments that we're making to support future growth.
Thank you.
David Brown: one not yet funded pipeline in terms of kind of the largest ever. I was wondering if you can kind of provide any context or color around the pipeline as it sits today and any color on the composition of that institutional pipeline. Thank you.
David Brown: Sure, it's Mike. We don't necessarily provide the specifics, but I think in Dave's comments he mentioned it's as large as we've ever seen it in the history of the business.
David Brown: which is very compelling as we sit here today. It's also not just a particular product or franchise, it stems across a number of different franchises.
David Brown: as well as different channels, so both intermediary and institutional business, and then within institutional, the sub-channels are also represented.
David Brown: We expect that the pipeline, from a OneNotFunded perspective, most if not all of that will fund in 2025. And it, again, is broad-based across a number of different franchises and products within franchises.
Great. Thank you.
Speaker Change: And your next question comes from the line of Kenneth Lee with RBC Capital Markets. Kenneth, please go ahead.
Kenneth Lee: Hey, good morning. Thanks for taking my question. Just following up on the Amundi and the potential introduction of Victory products in the non-U.S. distribution, assuming you've selected certain products, how rapidly, in terms of time frames,
Kenneth Lee: Could you potentially introduce products or the key gating factors? Is there any kind of regulatory or product design or vehicle selection? Things that we should think about. Thanks.
Speaker Change: Yeah, that that will happen really throughout 2025 and into 26 for the Victory products.
Speaker Change: I would expect after we close most of the flow will come through the existing or the legacy of Monday US products that are already into the channels already have the products
registered, established, Salesforce.
Speaker Change: educated on them and so that will continue and accelerate with our investment in that channel and then as 25 moves through
Speaker Change: I would anticipate that we have the Legacy Victory products registered, educating the sales force, and then getting momentum in the different geographies and really seeing a benefit as we end 25 and go into 26.
Speaker Change: Each geography is going to have its own set of regulatory rules.
will be registering different products.
on the institutional side.
Speaker Change: It'll be educating the sales force, so it'll be a large effort around that. But the great part about this is, today, as a Monday U.S. stands, they have the infrastructure, they're successful in selling their products outside the U.S. It has been growing, I think I referenced in my prepared remarks.
Speaker Change: since the acquisition of Amundi in 2017, Amundi US. They have been, you know, positive from a sales perspective. So we'll just be plugging into that and really accelerating that and then introducing our products.
Speaker Change: But as we look out and we get out of the quarters and we start to look in the future.
Speaker Change: from a year's perspective, we think it's going to be a really compelling growth.
opportunity for us.
Speaker Change: diversify our business and really differentiate us from many other U.S. managers to have this kind of distribution channel outside the U.S. for a U.S.-based manager.
Speaker Change: Great, very helpful there. And then just changing over to another topic and on the M&A opportunity there
Speaker Change: you previously mentioned that there could be some additional opportunities over the near term. I just wanted to get a little bit more color in terms of how active is the discussions pipeline that you're having and what are your thoughts in terms of the outlook for potential M&A this year.
Speaker Change: Yeah, I think building on some of the comments I've made over the previous quarters, we are very busy from a discussion perspective.
Speaker Change: I think the industry is primed for a lot of consolidation and I think you're starting to see that and I think it'll accelerate in 25 and and really in the out years.
Speaker Change: And we will participate in that. After we close the acquisition, our balance sheet, our leverage will go down quite significantly. Our balance sheet will be primed.
and I would anticipate that you know
Speaker Change: We would be as active as anybody in the industry. I think our platform is super attractive
Speaker Change: for the right kind of partner and we are a willing participant in you know in the consolidation and so my anticipation is is that we are going to continue down the path we've we've had over the years.
Speaker Change: and that has been really been very acquisitive and so that's where we are today.
Speaker Change: and we're super excited about it as well. The discussions we're having, the opportunities are as compelling as I've ever seen in my career, you know, when I look at the opportunities and the discussions we're having.
Great. Very helpful there. Thanks again.
Speaker Change: And our next question comes from the line of Etienne Ricard with BMO Capital Markets. Etienne, please go ahead.
Etienne Ricard: Okay, thank you and good morning. Just to circle back on operating margins, I'm curious to hear relative to the 49% target that you have
Etienne Ricard: In what areas of the organization have you seen better-than-expected operating leverage? And just to circle back on a Monday, what's giving you the confidence that current systems
Speaker Change: in place can handle a much larger A1 base. Thank you.
Good morning, it's Mike. Yeah, I would say we are
Speaker Change: I mentioned before kind of the single operating platform that we run. You know, it is world class. It is highly scalable in the nature of how we have designed it. We leverage, you know, significant partner relationships.
Speaker Change: that allow us to onboard and integrate M&A and have done so since the beginning of the business model back in 2013.
Speaker Change: So that gives us the confidence along with the people and the experience that we have that we can and have assessed, if you will, the current Amanda U.S. business.
Speaker Change: to be able to put that onto the platform, make the investments that we need to for areas where there is differentiation from a product perspective or a client perspective.
Speaker Change: Robust and probably at the top of the industry, so that long-term 49% guidance is still something that we're confident in, even post-onboarding the Amundi transaction.
Speaker Change: There's really nothing in the Amanda U.S. business that is significantly differentiated. We're a traditional active asset management business.
Speaker Change: and so we feel very confident that post the integration we'll be able to operate the business at the long-term margins, still making the investments in areas that we believe will provide long-term organic growth.
Speaker Change: Those investments that we've made and continue to make support data. Dave mentioned ETF specialists with respect to distribution and marketing.
Speaker Change: technology support. We're continuing to invest in the intermediary distribution channel.
Speaker Change: and really all of those investments that we're making and will continue to make through the Monday U.S. transaction will continue to position us to be well positioned for continued M&A as well as organic growth.
Great, I appreciate the details. Switching on NetFlows.
Speaker Change: You've seen demand for some of your global strategies on the non-US side. Can you share more details as to what explains this relatively stronger performance?
Thank you. Thank you.
Speaker Change: So where we've seen strength in the global equity and international equity segment of our business really has been with respect to the RS Global product.
Speaker Change: That product has outstanding short and long-term investment performance. They've got a very differentiated investment process that has allowed them to continue to perform excellently throughout all market cycles over the last decade plus.
and we're seeing
significant opportunities
Speaker Change: as well as on the intermediary side with respect to that product offering because of the strong performance, because of the depth of the team, because of the strength of the team, and really they've just continued to perform very well, which has led to a significant amount of opportunities.
Thank you very much.
Speaker Change: Our next question comes from the line of Benjamin Burdesch with Barclays. Benjamin, please go ahead.
Speaker Change: Good morning, this is Mason on for Ben. Can you provide a mark to market on Amundi since our last update? What does AUM look like and how are flows trending?
Speaker Change: So, as Dave mentioned in our prepared remarks, the Monday U.S. business for 2024 was NetFlow positive.
Speaker Change: In what you can see publicly in their mutual fund business, the flows were roughly $2.6 billion net flow positive across their fixed income multi-asset and equity products.
Speaker Change: We also highlighted that there are other distribution channels, which really was that global network with positive organic growth as well, and those trends have continued into January.
Speaker Change: At year-end the AUM was approximately 114 billion dollars for a Monday US.
Speaker Change: which, again, as we mentioned, the performance of the Imandi U.S. business throughout 2024 really outpaced our expectations and what we diligence, so we're super excited.
Speaker Change: to have tailwinds in that business as it comes onto our platform and we continue to look at organic growth opportunities post the transaction.
Speaker Change: And I would add, it's Dave. I would add a few more things. I'd say one, you know, going into 25, they still have that net flow positive.
Speaker Change: It's net flow positive on the mutual fund side. You can see that publicly for January. The investment performance is still strong. And I would reiterate what Mike said, which is this is a business.
that has really picked up.
Speaker Change: momentum in 24 and going into 25, and it is exceeding what we anticipated.
So, from our perspective...
When we diligence the business, we thought it was great.
Speaker Change: and it has now exceeded that and we're super excited about that and really excited to bring it onto our platform, Combined Forces.
Speaker Change: and really, I think, provide a trajectory that's much more positive from a NetFlow perspective, putting our organizations together. One of the great benefits...
Speaker Change: of this transaction is we are going to have a larger U.S. intermediary sales effort.
Speaker Change: and from a from a FTE perspective, from a partnership with platform perspective, from a marketing perspective, and that should benefit our entire platform, not just the legacy among the U.S. and not just a few products, but we should see that across our entire platform.
Speaker Change: Thank you. Can you also provide an update on flows at Sycamore in particular? I recall that the franchise was the source of some of your outflows last year, so can you just remind us of some of the dynamics there? Thank you.
Speaker Change: We don't provide specific flows on each franchise. Sycamore is one of our larger franchises. It is an excellent long-term investment performance and it has a really big client following on the intermediary side and on the institutional side. It is a franchise that,
Speaker Change: has had some outflows, but long term we're not concerned with the franchise at all. It is an excellent investment team.
Speaker Change: they have an excellent investment process it's a deep team you know and I'd say anything that's going on at Sycamore is really just a small cycle in a much longer term positive cycle for them.
Thank you.
Bench Rubin: Our next question comes from the line of Bench Rubin with UBS. Bench, please go ahead.
Bench Rubin: Hi, thanks for taking my questions. My first one is on the ETF business. Victory Shares had over $1 billion of flows in fourth quarter, stronger than your recent quarters, and a much better 2024 overall, which you talked about in your prepared remarks. So I'm just curious, what products or strategies are driving that improvement? And then also, what are your expectations for active ETFs going into 2025? Thank you.
Sure.
Bench Rubin: So, in 24, we had a few ETFs that really did well and I think started to emerge. And I would bucket them first, our group of fixed income active ETFs.
run by our Victory Income Investors franchise.
Bench Rubin: There are a number of ETFs there that were NetFlow positive and really with the market tailwinds and our ability to get them across our distribution system have really started to pay back and I expect that to continue in 2025. The launch really of our free cash flow series, a group of ETFs.
Bench Rubin: led by what we call vFlow, which is V-F-L-O, S-F-L-O, which is SFlow, and then also a few other ones that we've just launched and will be launching around our free cash flow series. We've had seen very good flows from that perspective.
Bench Rubin: four of our five top sellers in 24 were actually active and even our passive ETFs
Bench Rubin: really are not passive from a beta replication perspective. Our passive ETFs are really rules based and thematic type ETFs that really compete with active products.
Bench Rubin: A good example is VFLOW, it's a 50 stock portfolio, it's priced like an active product, acts like an active, we just use rules to express our investment thesis.
Bench Rubin: And in 25, we're off to a tremendous start on the ETF side, and I anticipate that it's going to accelerate as we move through the year. There's great market tailwinds.
Bench Rubin: And lastly, I would add we have invested from a sales perspective on the ETF side. We now have ETF sales specialists.
Bench Rubin: We're focusing some of our marketing efforts there. We're expanding our distribution Platform relationships on the ETF side. So we really believe that victory shares is going to be a big part of our future And it's going to help us drive organic growth
Great. Thanks for that, Collar.
Speaker Change: And our final question comes from the line of Michael Cypress with Morgan Stanley. Michael, please go ahead.
Speaker Change: Hey, this is Anna Leon for Mike. Just a question on capital allocation. How should we think about this going forward, just given the raised dividend and also the new buyback program? How should we think about timing of completion of the program? And how are you also thinking about debt pay down and scope for the dividend over time? Thanks.
Speaker Change: I'll start off on this and Mike can fill in afterwards. You know, first and foremost,
Speaker Change: you know our use of capital is to do accretive acquisitions. I mean that is the most important thing for us and the most strategic thing for us and I think that has the potential for the highest shareholder return. We have been able to balance that
Speaker Change: while also increasing our dividend over the years and buying back our stock.
Speaker Change: both buying back our stock and our dividend program, our ancillary ways of returning capital.
Speaker Change: We love buying our stock. We think the stock is undervalued based on today and based on the future. And we also like returning capital through dividends. And you can see through our increase in really our historic history of increasing the dividend over the years.
Speaker Change: You know, we are, as I said earlier, we are going to participate in acquisitions. We're having really compelling discussions. And our balance sheet is really the first use of our balance sheet is going to be able to execute on those acquisitions.
depending on how that goes, that will drive our buyback.
Speaker Change: program that will drive our dividend program, but we believe that we can balance all that out as we've done in the past.
Speaker Change: and I and I and I would anticipate you know looking forward our board put in a 200 million dollar program to buy our stock you know we're we're going to be opportunistic we're going to look at the facts
Speaker Change: on a daily basis and we'll execute it where it makes sense. And we'll continue to look at increasing the dividend, assuming that we can balance out the acquisition side.
Speaker Change: Great, thanks. And then maybe a follow-up on West End. Can you just update us on how the investment performance is trending there and how that's contributing to flows? And then also maybe on how you're expanding Wallet with existing advisors and how that's evolving. Thanks.
Speaker Change: Sure, so since we acquired West End they have been NetFlow positive. You know their performance in 2024 was not up to the standard that we had hoped. It is having a much better start in 2025.
Speaker Change: We have expanded quite significantly the number of advisors since we've acquired the business that they're doing business with.
Speaker Change: pretty extensively. And we've also expanded the number of platforms that they're doing business on. And so there's a great opportunity there. You know, we think with the improvement in investment performance,
the market dynamics for their products.
Speaker Change: and we've also launched a number of new products for them including an ETF that has gotten a lot of traction. The ETF is MODL.
Speaker Change: you know we we're pretty bullish on the opportunity to grow West End and we're also you know we also know from an investment perspective they're excellent at what they do and we're starting to see some of the investment performance return to the levels that we we expect of them.
Great, thank you.
Speaker Change: And that concludes our Q&A session. I will now hand it over to David Brown for any closing remarks. David.
David Brown: Thank you and thank you for your interest in Victory Capital. Next week we will be attending the UBS Financial Services Conference as well as the B of A Securities 2025 Financial Services Conference in Miami.
David Brown: And next month, we'll be at the RBC 2025 Global Financial Institutions Conference in New York.
David Brown: We hope to see you at one of those events and hope you have a great rest of the day. In the interim, please, if you have any questions, please feel free to contact us at any time. Thank you.
David Brown: This concludes the meeting. Thank you all for joining. You may now disconnect.