Victory Capital Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2025

There are 9 speakers on the call.

Operator

Good morning, and welcome to the Victory Capital First Quarter twenty twenty five Earnings Conference Call. All callers are on a listen only mode. 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.

Operator

Please go ahead, Mr. Dennis.

Speaker 1

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. Please refer to our SEC filings for a list of some of the risk factors that may cause actual results to differ materially from those expressed on today's call. Victory Capital assumes no duty and does not undertake any obligation to update any forward looking statements.

Speaker 1

Our press release, which was issued after the market closed yesterday, disclosed both GAAP and non GAAP financial results. We believe the non GAAP measures enhance the understanding of our business and our performance. 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, both of which are available on the Investor Relations section of our website at ir.vcm.com. It is now my pleasure to turn the call over to David Brown, Chairman and CEO. David?

Speaker 1

Thanks, Matt. Good morning, and welcome to Victory Capital's first quarter twenty twenty five earnings call. I'm joined today by Michael Pellacarpo, our President, Chief Financial and Administrative Officer as well as Matt Dennis, our Chief of Staff and Director of Investor Relations. I will start today with an overview of our first quarter results, then I'll provide an update regarding the closing and integration of the Amunde transaction. After that, I will turn the call over to Mike to review the financial results in greater detail.

Speaker 1

Following our prepared remarks, Mike, Matt and I will be available to answer your questions. The quarterly business overview begins on slide five. We ended March with $171,000,000,000 of total client assets that was down slightly from the start of the year and average AUM was approximately 1% lower versus the fourth quarter. Gross sales improved for a third consecutive quarter and increased 41% from the last quarter reaching $9,300,000,000 and was the highest level of quarterly gross sales in three years. Long term net flows also improved for the second quarter in a row.

Speaker 1

Our net flows were negatively impacted by two large redemptions that totaled $2,700,000,000 which were one time in nature. Without this, our net flows would have flipped to positive this quarter. We view the underlying activity around flows as extremely healthy and believe these two redemptions should not distort the continuous progress we are making around our organic growth profile. A good example of this progress is we continue to generate strong sales of our ETFs. We highlighted the history of our ETF platform on our last call and by the end of the first quarter, our total ETF AUM increased to more than $13,000,000,000 This was a 28% increase during the quarter and was up 67% versus the same time last year.

Speaker 1

Looking ahead, we see the momentum continuing with our current product lineup. We also have several ETF launches planned for 2025 and are continuing to invest in resources dedicated to accelerating momentum on this platform. Stepping back and looking at results on a year over year basis, we achieved wider margins along with higher revenue and earnings on both a GAAP and non GAAP basis. Adjusted earnings per diluted share with tax benefit was $1.36 per share, which was the second highest quarterly EPS in company history and a record high for any first quarter period. Adjusted EBITDA was $116,000,000 and adjusted EBITDA margin remained very strong at 53%.

Speaker 1

We continue to strategically invest in all distribution channels. With our enhanced scale as a result of the Amunde acquisition, we are increasing investments in areas to enhance our organic growth. In addition to more salespeople in the field selling, we are significantly increasing our investment in data, technology, marketing and intermediary partnerships. Our balance sheet continued to strengthen during the quarter and our leverage ratio improved significantly following the transactions closing on April 1, given that we brought on a sizable amount of earnings with no additional debt. This greatly increases our financial flexibility and enables us to act on additional strategic growth opportunities, which we believe is the best use of shareholder capital.

Speaker 1

Ongoing diligence activities are progressing quickly and we are very encouraged by some of our discussions. During the quarter, we accumulated cash, increased our quarterly dividend again and have the entire $200,000,000 share repurchase plan still available for our use, which we will execute on in an opportunistic way. On slide seven, we highlight the results of our acquisition and strategic partnership with Amundi. Upon closing, we are much more scaled, diversified and better positioned organization for the long term. With assets of just over $286,000,000,000 as of April 1, our fixed income AUM doubled as a percentage of our total assets from 14% to 28%.

Speaker 1

We have also further diversified our investment vehicles with $26,500,000,000 of assets under management and usage. We plan to launch several Vintage Victory strategies in this vehicle wrapper that are designed to be distributed to investors outside of The U. S. The proportion of retail assets under management in our channel mix rose and we also now have $44,000,000,000 of assets under management sourced from clients outside of The U. S, representing 15% of assets under management compared with less than 5% previously.

Speaker 1

Last month, we increased our net expense synergy projections to a total of $110,000,000 and had $50,000,000 of that goal achieved as of closing. We expect another $50,000,000 by 04/01/2026 and much of that coming before the end of twenty twenty five. The Amundi U. S. Business we acquired has continued to perform exceptionally well, generating positive net long term flows of 1,700,000,000 in the first quarter of twenty twenty five, which as a reminder is not included in our numbers given we did not close the transaction until April 1.

Speaker 1

The investment team, now branded Pioneer Investments, generated excellent investment performance on behalf of clients for the first quarter of twenty twenty five. As of March 31, more than 74% of their mutual fund assets under management had either a four five star Morningstar rating. Turning to slide eight. Our U. S.

Speaker 1

Distribution Organization is positioned well for consistent organic growth as we move forward. We have substantially augmented our institutional and intermediary sales forces with additional sales professionals allowing us to provide enhanced coverage across The U. S. Market. In addition, we have added marketing and other sales related resources to further support growth.

Speaker 1

When it comes to data, we are now able to benefit more broadly from data investments we are making. These investments will now be used by a larger sales force enhancing the results we are seeking to achieve. We are also leveraging existing intermediary platform relationships with our broader product set. For example, Amundi U. S.

Speaker 1

Had partner status relationships with certain intermediary platforms and we are now a benefactor of those which will give us the opportunity to add Vintage Victory products on these platforms. Outside of The U. S, we now have clients in more than 60 countries and our strategies are currently available for sale via Amundi's vast global distribution network. This includes sizable distribution partners within Europe and JVs in Asia and India. During the closing process, together with the Mundys distribution team, we identified several initial Vintage Victory products to launch in the usage format and other vehicle wrappers for sales by a Monday's global distribution sales force outside of The U.

Speaker 1

S. We are expeditiously working through the regulatory and registration process to get these products launched. In addition, we are utilizing our Victory shares ETF platform to develop ETFs for the Pioneer investment franchise. As many of you are aware, Pioneer has never had any of their strategies available in an ETF vehicle. Overall, we have never been so well positioned for organic growth and look forward to reporting on our progress.

Speaker 1

Moving to slide 10. Our investment performance remained strong with 67% of our assets under management in mutual funds and ETFs earning four five star overall ratings by Morningstar for the period ending on March 31. This is broadly diversified encompassing numerous distinct products. Over the key three and five year periods, 6465% of our total assets under management outperformed their respective benchmarks. We were also recognized during the first quarter with eight twenty twenty five U.

Speaker 1

S. LSEG Lipper Fund awards based on risk adjusted returns. These awards represented several categories and performance over various time periods and are a testament to our investment professionals and what we strive to deliver for clients every day. With that, I will turn the call over to Mike to go through the quarterly results in greater detail. Mike?

Speaker 1

Thanks, Dave, and

Speaker 2

good morning, everyone. The financial results review begins on slide 12. Revenue for the first quarter came in at $219,600,000 which was down approximately 5% from the fourth quarter as a result of slightly lower average AUM, fewer days in the quarter, as well as product, vehicle and channel mix shift. Year over year revenue, earnings, adjusted EBITDA and adjusted EBITDA margin were all higher in this year's first quarter versus last year. Adjusted net income with tax benefit per diluted share of $1.36 achieved in the quarter was our second highest of all time.

Speaker 2

We ended March with $176,000,000 in cash, which was up $49,000,000 from year end. At quarter end, our net leverage ratio was unchanged at 1.7 times. During the first quarter, we returned $39,000,000 to shareholders. Additionally, the Board authorized a cash dividend increase to $0.49 per share payable on June 25 to shareholders of record at the close of business on June 10. We would like to note here that going forward, we will continue to review our dividend every quarter with our Board, but anticipate moving back to an annual increase cycle with our first quarter results.

Speaker 2

As expected, during April, sufficient consents were received from Pioneer clients, resulting in a post closing adjustment whereby we will issue an additional 5,400,000.0 shares to Amundi. This will bring their total diluted equity interest up to 26.1% with a 4.9% voting interest. Owing to the transaction, our diluted share count will increase to approximately 88,300,000.0 shares. Turning to Slide 13. Total client assets declined by less than 3% during the quarter, driven primarily by market action.

Speaker 2

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. As mentioned on a prior call and beginning next quarter, we will add a new category to this chart to illustrate the non U. S. Client portion of our total AUM. As a result of the Amundi transaction, we begin the second quarter with $44,000,000,000 of AUM from clients outside of The U.

Speaker 2

S. Having a significant portion of AUM from investors outside The U. S. Provides another dimension of diversification for our business. On Slide 14, we cover long term asset flows.

Speaker 2

2025 is off to a strong start. Gross flows were higher during the quarter, increasing by 41% over the prior quarter and 33% from Q1 twenty twenty four. RS Global and Victory Income investors have seen strong activity given their strong investment performance and asset classes they invest in. We are continuing to see great investor interest in our ETFs, which are active and rules based and carry an active type investment advisory fee for such products and also have strong margins. Through mid March, we were net flow positive for the quarter.

Speaker 2

We had two large redemptions totaling approximately $2,700,000,000 that more than offset the positive net flows up to that point. Despite these onetime items, our underlying positive flow momentum is strong, and these redemptions should not take away from that point. We are encouraged by the trajectory we are on, particularly given our newly enlarged sales force and the added resources we are dedicating to distribution efforts while also adding the Pioneer franchise products to our offerings. Our one but not yet funded pipeline remains sizable indeed from a product, franchise, and channel perspective. Finally, Pioneer Investments products generated positive long term net flows of $1,700,000,000 during the first quarter and that momentum has continued.

Speaker 2

Slide 15 shows the sequential revenue over the past four quarters. Our average fee rate was 51.2 basis points in the period. This is within our expected range, with the decrease from prior quarter primarily attributed to product, vehicle and channel mix shift. Additionally, lower average AUM from negative market action in the first quarter and two fewer days in the quarter also impacted total revenue. Keep in mind, as an organization, our focus is on margins, while our fee rate will fluctuate from quarter to quarter.

Speaker 2

On Slide 16, we detail our expenses for the quarter. Total GAAP expenses were $138,600,000 in the first quarter. The uptick in GAAP expenses is due to higher acquisition, restructuring and integration costs from the Amundi transaction, which were offset by lower distribution and other AUM based expenses, which calibrated with lower average AUM for the quarter. On a cash basis, our compensation expense was 24.3%, which is in line with our guidance and it's inclusive of seasonally higher payroll tax and employee benefits that reset at the start of each year. On Slide 17, we highlight our non GAAP metrics.

Speaker 2

We reported $1.36 adjusted net income with tax benefit per diluted share. Adjusted EBITDA and adjusted EBITDA margin were $116,400,000 and 53% respectively. These results include the impact of accelerated payroll tax and benefits that are typical for the first quarter. And I would highlight our EBITDA margin expanded 90 basis points from the first quarter of twenty twenty four. Over the next several quarters, we expect to see our adjusted EBITDA margin decline slightly from its current level as we continue with our integration work and achieve our full net expense synergy target of $110,000,000 Once fully integrated, we anticipate no change in our long term guidance of 49% margins.

Speaker 2

Finally, turning to Slide 18, we generated $81,000,000 in cash from operations during the quarter and our net leverage ratio remained steady at 1.7 times. We have positioned the balance sheet well as we enter Q2. We ended the period with $176,000,000 of cash and post the Amundi transaction on April 1, our leverage ratio is in the low one. Interest expense declined for the second consecutive quarter as our interest rate declined to 4.9%, inclusive of the benefit from the interest rate hedge we crystallized in the fourth quarter of twenty twenty three. In the first quarter of twenty twenty four, our interest rate was above 6%.

Speaker 2

So we have seen our quarterly interest expense declined by more than $3,000,000 in the past year. Our $100,000,000 credit facility remains undrawn. That concludes our prepared remarks. I will now turn it over to the operator for questions.

Operator

Our first question comes from the line of Ken Worthington with JPMorgan. Please go ahead.

Speaker 3

Hi. Good morning, guys. This is Michael Cho in for Ken. Thanks for taking my question. I just wanted to start on kind of the top line here.

Speaker 3

You called out the development of a number of uses and to distribute victory strategies outside The US. And you also talked about, you know, maybe considering, pioneer ETFs, going forward as well. And so I was hoping you can maybe touch on maybe the the pace of these prospective rollouts and and maybe the prioritization, if any, of the product lineup that that you see out there. And if there's any strategies that you think might have more considerable adoption than than maybe some of the others. Thanks.

Speaker 2

Hey, Michael. Hey. Good morning. How are you? It's Mike.

Speaker 2

Thanks for the question. Yeah. I think as as we've said in the prepared remarks, you know, we have been working with the distribution force, at Amundi from a global perspective to identify products that are vintage victory, that we think will have success outside The US. And we've spent time with them, formulating kind of a plan with respect to the product development. There'll be a handful of usage that we will work with them to create, and they're kind of in that registration phase right now and would expect that they'll be launched towards the back half of 02/2025.

Speaker 2

And as we think about the opportunity from which products, really, if you look at the products that the Victory has and some of the opportunities that, weren't fulfilled, if you will, by the existing Pioneer product set, There's some small and mid cap products from a U. S. Domestic perspective that we think will play very well there. In addition, we've got some complementary fixed income offerings that, again, we think will play very nicely in the usage offerings for Amundi. And then there's also some pretty strong performers that we have in the global equity space that, again, we think will play very nicely in the usage offerings outside The US.

Speaker 2

And so what we've done over the last several months is really work on education of the Victory story, education of of some of those products and franchises that manage those existing offerings here in The US, and working to develop that rollout plan from a regulatory perspective to create those usage. In addition, all of our products, all the Vintage Victory products are available institutionally outside The US. And, again, we're working on education, of the Amundi global distribution sales force. Those products are available today. There's no structure needed for a large institutional client to access those.

Speaker 2

And we've had a number of conversations, really across both the existing active products that we have and some of the ETF offerings. And so we'll see momentum there as well as we move forward through 2025 and are excited about the opportunity set from the feedback that we've heard to date. So again, we're just getting going on that. But again, as we think about it, we see a tremendous opportunity in the back half of twenty twenty five as those structured products or mingle vehicles are created, and as we see momentum on the institutional side of the business.

Speaker 3

Great. Thanks, Mike. Appreciate all that color. If I could just follow-up on on the margin and expense side. I mean, Victory's margin trajectory, you know, has been solid for some time now.

Speaker 3

You know, you you noticed some initial margin headwind from Pioneer, but you also increased synergy targets, and you and you just printed 53% margins. And so I I recognize you you made a little bit of a comment during the prepared remarks on on near term margins, but just curious, you know, how you met might, you know, you'll flush out a little bit more color in terms of how that trajectory might evolve near term relative to Victory's forty nine percent long term margin target? Thanks.

Speaker 2

That's a good question, and thanks for recognizing the prepared remarks on that. I think you're right. We did publish 53% margins here in the first quarter. We have not changed our long term margin guidance of 49%. I think we have continued to say that we want to have the flexibility to make investments in the business.

Speaker 2

The M and A transaction that we did with Mundy U. S. Really provides a significant opportunity to make some of those investments. And so the net expense synergies of $110,000,000 that we referenced and confirmed really includes some additional investments that we want to make. Dave highlighted a number of areas in distribution that we're making investments and we think those will pay off longer term.

Speaker 2

But as we think about the margin profile going forward, the expense synergies will take a year to two years to recognize all $110,000,000 We mentioned we had about 50,000,000 as of closing. We'll have another $30,000,000 over the next six months. Expect $100,000,000 in total in the first twelve months of ownership and then the remaining $10,000,000 to get to 110,000,000 over the two years post close. So if you look logically at some of that math as we phase some of that in, there's going to be some integration work in some different areas over the next several quarters that will see a small decline, an immaterial decline in our margins as we work through some of those integration efforts. Again, I think we're still bullish on the 49% long term.

Speaker 2

As you mentioned, we've produced well above that over the last several quarters. But any decline in the short term until we complete the integration will be immaterial to the margins going forward.

Speaker 3

Great. Thank you so much.

Speaker 1

Our

Operator

next question comes from the line of Alexander Blostein with Goldman Sachs. Please go ahead.

Speaker 4

Hey. Good morning, guys. It's Friday. Maybe just building on that last question around expense trajectory. You mentioned increased pace of investments.

Speaker 4

I was hoping you can just provide us with sort of an all in expense growth algorithm from here, you know, with Amundi now, in the fold. In the past, I think Victory had quite a variable expense model. So curious kinda to what extent does integrated money changes that? Kinda what's the mix between fixed and variable expense base from here? And at what pace, the fixed piece is likely to grow, over time, as you kind of phase out some of the synergies?

Speaker 2

Yes, Alex, it's Mike. Good morning. Good question. I think with respect to Victory's operating model, there will be no change. So as we think about the integration of the Pioneer Investments franchise and the Amundi U.

Speaker 2

S. Business, it fits very well into the existing operating model. The Pioneer Investments team will be on a revenue share. We maintain a single operating platform. We maintain a centralized distribution sales force selling all of the product that Victory has.

Speaker 2

So there really is no change in the operating model for Victory post the completion of the integration. And so as you think about the model, we've been pretty clear that greater than two thirds of our expenses are variable. We expect that to continue as we move forward. There's no disruption in that as we think about how we're operating the business. We've got a highly scaled middle and back office that is a variable cost.

Speaker 2

We've got distribution and other AUM expenses again that are tied to the AUM and revenue of the business. And then the compensation, the cash compensation will continue to be variable as a component of revenue, as it has in the past. So, we really see no difference in the expense makeup going forward. The scale will obviously increase as the business and the AUM and the revenue have increased, but there really is no significant change from a modeling perspective with greater than two thirds of the expense being variable and then the other items being fixed components around some of the G and A.

Speaker 4

Yeah. Okay. Great. And then, Dave, you mentioned, you know, the the balance sheet capacity has obviously improved significantly with this deal. Your leverage level is quite low, and it sounds like the deal pipeline remains quite active.

Speaker 4

Maybe just give us a bit of a mark to market in the state of affairs and kinda how your acquisition pipelines have evolved over the last, you know, six to nine months since the time you announced the Monday deal, and also the composition of what's more sort of probable either in terms of asset classes or size of a transaction? Thanks.

Speaker 1

Sure. Good morning, Alex. Let me start off with capacity to do a transaction. With the close, what we've done is we brought earnings on and we have not brought on additional debt. So our leverage level has reduced quite significantly.

Speaker 1

We have a lot of cash on our balance sheet as you can see at the end of the quarter. And we are in as good a position as we've ever been to really execute on a sizable transaction. And that's by design. Our discussions have been very productive. We are really excited about the opportunities we're seeing and we are leaning towards larger scaled opportunities to continue to keep our business competitive and be ahead of the curve.

Speaker 1

I would not be surprised for a 2025 event for us from another acquisition perspective at least announcing. That's what we're planning for. Our balance sheet is ready for it. Obviously, you can't plan the timing of a transaction. But based on discussions and our capabilities to execute, I would anticipate that something in the shorter medium term as opposed to a longer term perspective assuming markets are calm and the environment is conducive, which we are encouraged by what we're seeing lately.

Speaker 1

As far as asset classes and what type of acquisitions, we always start off with does the acquisition make our company better? Does it fit culturally? Does it include investment excellence? So we always lead with those attributes and our future acquisitions will be no different. I think as Mike talked about in the last question that he answered about keeping the integrity of our model around the expense infrastructure around one integrated company, that's really important to us.

Speaker 1

We think that's part of what has made our acquisition successful in the past and we anticipate keeping that model intact.

Speaker 3

Okay, great. Thank you.

Operator

Our next question comes from the line of Randy Binner with B. Riley. Please go ahead.

Speaker 5

Good morning. Thank you. I have a couple that you know, I think kinda get to how the platform with Amundi performs from a kind of growth and flows perspective if markets remain volatile. So the the first one is on fixed income and and solutions. I think those those flows in the first quarter were kinda like, you know, kinda flat and then up for for solutions.

Speaker 5

And I, know, I can generally expect those those categories to do better in in volatile markets. So that's the is that the right way to think of it? And can you provide any kind of glimpse or update on how those types of strategies performed in this kind of pretty significant V shaped market we've had so far since the early April?

Speaker 1

So it's Dave. I'd first say, our platform now going forward from a fixed income perspective, Pioneer's capabilities around fixed income is expanded. So we now have our Victory Income Investors fixed income platform and we have the Pioneer Investments fixed income platform. Both have excellent performance and it really widens and deepens our fixed income capabilities. So in the environment we're in today, I think we're really well positioned to grow our business there.

Speaker 1

And if you looked at the first quarter for Pioneer, they had positive net flows and a good amount of those were in the fixed income portion of their business. And so we're excited about that given we have a wider and deeper offering. The Victory Income investors has ETFs, which sell really well in this environment. And so we continue to have that and we will look at launching fixed income ETFs for Pioneer as well. So I would imagine that when you think about the fixed income platform for all of Victory, we're very well positioned and better positioned today than we were before the close.

Speaker 1

As far as solutions, a lot of the growth there you're seeing is through the ETF platform, the Victory shares ETF platform. We have quite a few different offerings there. Our free cash flow series with a few ETFs have grown very nicely. We also have some other ETFs that are developed have been developed by our solutions team that continues to be in demand. And so when we look at that and we look at that going forward, again, those are really nice solutions for volatile markets.

Speaker 1

And then as markets maybe calm down moving forward, we also have other products off of the solutions platform, of our equities platform, which we think are really well positioned to satisfy investors' needs. And I think in our prepared remarks, I think there is a tone around an excitement to have a platform to potentially grow organically. We saw some really nice growth in the first quarter both through Victory and also through Pioneer and we think that will continue going forward with just a really deep product set, but also in a large sales force.

Speaker 5

Okay. That's great. But and and just if is there is there any glimpse you can give us on kinda how the stability of those two areas with the volatility in April? Like, the the flows hold up better there. You know, Were they more stable than a lot of your equity strategies, equity mutual funds?

Speaker 1

I wouldn't say more stable or less stable. I think they've performed as expected. Nothing out of the ordinary. And as I think we look forward, I think investors have been pretty calm during some of the volatile times, at least on our platform. So there's been really nothing out of the ordinary either way.

Speaker 5

Our

Operator

next question comes from the line of Craig Siegenthaler with Bank of America. Please go ahead.

Speaker 6

Good morning. This is Ivory on for Craig. On the call, you mentioned two large redemptions of the $2,700,000,000 that are one time in nature and the continued expense synergies that you're seeing. Just I'm thinking about the other side. Have you seen any dis synergy or notable redemptions from the Amundi US acquisition specifically?

Speaker 2

Good morning, Ivory. Yes. We we did denote that there were two, sizable one time outflows in the first quarter. Those were on the Victory platform. We believe very isolated to particular client events.

Speaker 2

With respect to dissynergies, no. We've we've not seen really any dissynergies. I think, as we went through the process and, and the acquisitions that we do, you have a client consent process. And so all of the clients that have joined as part of Victory have consented, and it's almost a check point for them as as you think about it. So, we've not seen any dissynergies from a revenue or a distribution perspective.

Speaker 2

Actually, quite the opposite. I think as Dave highlighted, we've we've made more investments in distribution. We've expanded the platform, and we're having more discussions today across the entire product scope, in different regions, globally, in different partners on the intermediary side, and in different vehicles that really have have driven an opportunity set that we think is, as Dave mentioned just now, as exciting as we've seen. And I think it's definitely, you know, very, know, telling that the Pioneer Investments business was net flow positive, as we mentioned in the first quarter. So, that obviously with knowledge that the transaction was occurring and they were positive in all of 02/2024 as well.

Speaker 2

So, we think the the combined business going forward has resonated well from a market perspective and a client perspective and are excited about the opportunities that lay ahead.

Speaker 6

Great. Thank you. And just as a follow-up, could you give us an update on West End? The macro backdrop has certainly evolved over the last couple of months. So what are you anticipating for net flows in the business going forward?

Speaker 2

Yes. Good question. So as we mentioned, West End is net flow positive since we've acquired them. They did have some softer performance in 2024. As we look at the first quarter, some of the market dislocation and their positioning has actually allowed their performance to be very strong.

Speaker 2

And so we're excited as we move forward. Obviously, the macro backdrop with respect to clients and they're accessing different asset classes right now is a little bit volatile. But their performance has come back very nicely. And we're excited. We are continue to be very bullish on the asset classes that they manage, the type of models that they deliver, the access to distribution.

Speaker 2

I think we've said a number of times we're doing business now on more platforms with more advisers. So not to project kind of what we think, but we're excited about the opportunity set with the pickup in performance that we've seen with West End.

Speaker 1

Thank you so much. I would add one thing, Mike, on that is we have we've launched additional products off of their platform. So we've launched a number of ETFs and we've seen growth on their ETFs. And so now if you're looking to access West End, you can access it through their model delivery, but you can also access them through a number of ETFs as well.

Speaker 6

Thank you.

Operator

And our next question comes from the line of Michael Cyprys with Morgan Stanley. Please go ahead.

Speaker 7

Hey, good morning. Thanks for taking the question. You you mentioned in your prepared remarks that you're making some investments to enhance organic growth. In particular, you mentioned investments in data technology marketing. Was hoping maybe you could elaborate on the steps that you're taking there, the quantum of investments that you're making and how you'll be measuring success.

Speaker 1

Hi, Michael. It's Dave. It's a great question. I appreciate you asking it. On the intermediary side for The U.

Speaker 1

S, we have added a significant number of salespeople. So think of them as external facing salespeople, people supporting our external facing salespeople. We've added a sizable number of marketing professionals of dedicated data professionals. And then we are purchasing more data programs from certain platforms. And we have also increased the number of partnerships platform partnerships we have from the past.

Speaker 1

So we have made a pretty significant investment in really intermediary distribution. All of those numbers are in our net expense synergy numbers. So when you hear the number of 110,000,000 it's netted into those numbers, all of those investments. We've done us on a smaller level, we've done the same thing on The U. S.

Speaker 1

Institutional side, we've added people and client service as well. And then the ultimate judge of our investments are going to be our organic growth profile. We want to be in a position where we grow our business organically. And I think we are in as good a position as we've ever been to do that. And these investments that we're making ultimately the goal is to have organic growth.

Speaker 1

Pretty simple from that perspective.

Speaker 7

Great. Thanks. And then just a follow-up question. As you've broadened out the platform and and have further scaled it, just curious how you're thinking about alternative investment products. How important is that for you as you're thinking about m and a going forward to have that on the platform?

Speaker 7

Imagine it would be more of an acquisition. Maybe just talk about the pipeline for alternative investment related acquisitions, how those sort of conversations are progressing, and how you're thinking about some of the puts and takes there as it does add a bit more complexity. Do you feel that the organization, the platform is at a place to accommodate, that sort of a product set at this point?

Speaker 1

Yeah. Alternatives are important to us. When we speak with our clients, Certain clients at certain levels inquire about it. We have great relationships from an intermediary and institutional perspective. And so over time, we will have those products for our salespeople to deliver to those clients and potentially new clients.

Speaker 1

Whether we access that through acquisitions or partnerships, we are evaluating. I think there's pros and cons with each structure. But as we think about moving forward in our access from a distribution perspective and how deep we are into the various channels, we will absolutely have an alternatives offerings. And we're going to work through different ways of accomplishing that. And I think there have been a number of acquisitions in the industry.

Speaker 1

There have been a number partnerships in the industry and we have studied all of them. And we're going to execute in a way that's going to make the most sense for our platform. But when we think about the world going forward and look out that is a product that we will absolutely be dialoguing and selling to our with our clients.

Speaker 7

Great. Thank you.

Operator

And our final question comes from the line of Kenneth Lee with RBC Capital Markets. Please go ahead.

Speaker 8

Hey, good morning. Thanks for taking my question. You mentioned in the prepared remarks around the common dividend and it sounds as if it's going be a slight change in terms of more of an annual review and sort of a quarterly review. Wondering if you could just remind us again, you've been increasing the dividend at a pretty clip more recently. What's driving the change there?

Speaker 8

And then perhaps could you give us an update if there is any in terms of longer term priorities around capital deployment? Thanks.

Speaker 1

It's Dave. Let me start with the back end of that question. Our best use of capital we think to grow the business is really to think about capital from an acquisition perspective. We want to make sure that we can execute on our strategic plan of growing through acquisitions and we want to make sure that our balance sheet accommodates that. So we start there.

Speaker 1

And I think as our business has grown over the years, we have also been able to balance that along with an equity buyback program and also a dividend. And so I would look at dividends and our buyback program as ancillary. But our ability to execute on them in a larger way is really a reward for us growing our business. So we'll continue to have that same viewpoint of capital. And then from a dividend perspective, we have over the last few years, we have gone from an annual an anticipated annual increase to more quarterly increases just to be more opportunistic as our business has evolved as we've done acquisitions.

Speaker 1

I think as we think about going forward, we'll look at it every quarter, but the anticipation is that we will increase once a year. That doesn't stop us from doing it quarterly. It's just really the guide to say that this is how we're going to look at it. But if you really take a step back, we are going to first and foremost make sure that we can execute on inorganic growth through our balance sheet, through our cash flow. And then secondarily, it will be buybacks and dividends.

Speaker 1

But with the way our business looks and the cash flow that we anticipate and the margins we have and our earnings potential, we think we can satisfy the dividend and the buyback pretty nicely and balance all that out.

Speaker 8

Great. Very helpful there. Just one follow-up, if I may. In terms of the Victory ETF net flows in the quarter very solid. I wonder if could just talk a little bit more about the cadence of newer ETF products that are expected to be launched later on this year?

Speaker 8

Thanks.

Speaker 1

Sure. We have had really nice growth for the last few quarters on our ETF platform. We have launched a number of products over the last few years and they have worked. And we have plans and are in the process of launching additional ETFs. We'll also launch ETFs off of the Pioneer platform in the future.

Speaker 1

And we have a dedicate we have our entire U. S. Intermediary sales force can sell ETFs, but we also have a portion of our sales force that only sells ETFs. We have a group that also trains on our ETFs. So we're well armed in the field.

Speaker 1

I think we have a really nice diversified existing ETF product set and we'll continue to expand that. And we think it's going to be an area for our business that's going to see accelerated growth. And so we evaluate where we think the market's going from an ETF perspective and launch products to satisfy that. But I think our existing lineup today is pretty wholesome and has done pretty well and I don't see that changing going forward.

Speaker 8

Great. Very helpful there. Thanks again.

Operator

I will now turn the call back over to David Brown for closing remarks.

Speaker 1

Thank you. We hope to see you next month when we'll be attending the Morgan Stanley U. S. Financials Conference in New York and look forward to keeping you updated on our progress. Again, thank you for joining us this morning.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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Earnings Conference Call
Victory Capital Q1 2025
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