VCTR Q3 2026 earnings call transcript, November 5, 2026

Thanks, Carly.

Good morning, everyone, and welcome to the webinar. Welcome to Victory Capital's third quarter 2026 earnings call. I'm also joined today by Michael Pelicarpo, our president, chief financial and administrative officer. I will start with an overview of our third quarter results. Which delivered the strongest organic growth in our company's history. I will also give a brief update on our pending acquisition of First Eagle Investments. After that, I will turn the call over to Mike to review the financial results.

Finna agreement to acquire First Eagle Investments, which I'll go into in more detail later in the presentation. I want to drill down on flows to better explain what is going on in this part of our business and why we are so excited. About the future opportunities we have. What you are seeing come to fruition is the hard work and investment that began several years ago. Over that time, we've invested deliberately in distribution through people, tech. Technology, data, marketing, and product development. When we closed the Pioneer acquisition, we brought two sales organizations together. And since then, we have invested heavily in educating our sales professionals across the entire product. Today, we operate as one complete sales organization, representing all products, with every sales professional able to represent the full Vintage, Victory, Capital, and Pioneer lineup. Relationships in our industry take time to season. Clients rarely invest in the day of the first meeting. They get to know the investment team, the process, and the track record, and then they commit. We are seeing the results of a great deal of hard work over many client interactions. That is also why I want to be very clear about the breadth of this quarter's results. Our growth is not coming from one vehicle, one franchise, one client, or one asset class. Our U.S. intermediary, U.S. institutional, and international channels each generated positive long-term net flows. Multiple investment franchises and our Victory Shares ETF platform were net flow positive. And flows were positive across fixed income.

solutions, multi-asset, and global equity. The breadth is both important and intentional. The diverse nature of our product lineup spanning numerous asset classes and vehicles allows our teams to lead with a effective solutions built around client objectives. Underpinning all of this is strong investment performance, which brings me to slide seven. Investment performance remains the foundation of everything we do. It is the reason clients hire us. And the reason they stay with us. As of September 30, 2026, 56 of our mutual funds and ETFs, or about half of our rated funds, earned four or five star overall ratings from Morningstar. Compare with only about a third of rated funds industry-wide. Those funds represent 62% of our rated AUM, up from 60% last quarter. Against benchmarks, 60% of our AUM outperformed over the one year. 69% over three years, 63% over five years, and 77% over the 10-year period. On a strategy count basis, 64%, 63%, 66%. And 69% of our strategies outperform their benchmarks over those same time periods. Our clients invest with a long-term horizon, and we manage their assets the same way. Our focus remains on disciplined, repeatable investment processes, reflect... ...to trust our clients place in us every day. Slide 8 shows the diversification of our platform today. Solutions Now represents 33% of our $355.5 billion in total... ...client assets. U.S. equity, 29%, fixed income, 25%, and global and non-U.S. equity, 11%, with alternatives and money market making up the balance.

Last quarter, I walked through how far we have come since our management buyout in 2013, when approximately 80% of our AUM was in U.S. equity. This quarter, that diversification showed up directly in our flows. The areas where clients across the industry are... allocating today, including fixed income, multi-asset solutions, and ETFs, are areas where we have deliberately built depth. Having a complete product set means that when client demand shifts, we are already positioned to meet it. Turning to slide 9, our Victory Shares ETF platform had its strongest quarter to date. ETF AUM ended the quarter at $27.7 billion, up 48% year-to-date and 61% year-over-year. Positive net flows of $3.9 billion in the third quarter represent an annualized organic growth rate of 67% and bring our year-to-date total to $6.4 billion. ETF net inflows exceeded $1 billion in every month of the quarter. Last quarter, I described how we built this business from just a few hundred million dollars of ETF assets in 2015. This quarter... ...shows what the consistency produces. Our free cash flow ETF series continued to lead with our flagship VFLO, which launched just three years ago, now over $12 billion in AUM, with a morning start... ...our five-star overall rating. Our fixed-income ETFs were also meaningful contributors, contributing close to $1 billion of net inflows in the quarter, led by our Pioneer Investments and Victory Income Investors offerings.

We also continued to innovate. During the quarter, we launched two new municipal ETFs, the Victory Shares Municipal High-Yield ETF and the Victory Shares Short-Duration Municipal ETF, bringing our platform to 25 ETFs across... seven investment themes, with more to come as we continue to build out the platform and bring new products to market. Our average ETF fee rate is 33 basis points. 73% of our rated ETF AUM... ...carries a four or five star overall rating from Morningstar, and the margins of our ETF business continue to meet our firm-wide standards. In other words, the average fee rate might be lower than our firm's overall average fee rate, but the margins on these products are not lower than... ...in our firm-wide margin. Slide 10 covers our international business, which continues to build significant momentum. At quarter M, we had $65.8 billion in AUM from international clients, with clients in 62... ...countries outside the U.S., and 35 of those countries with more than $100 million in Victory Capital AUM. We sub-advised 23 USITs at quarter end, and we have since launched a fixed income USITs with Victory Capital AUM. ...income investors, bringing the current total to 24. International AUM has grown 46% in the 18 months since the Pioneer transaction closed, and our international business was net flow positive in the quarter, year-to-date, and cumulatively... ...since closing. When we announced our partnership with Amundi, we said it would take time for their distribution teams to get to know our investment teams and our capabilities. 18 months in, that familiarity is growing every quarter.

As our product set in this channel expands, and as relationships season, the opportunity continues to grow. Turning to slide 11, I would like to provide a brief update on our pending acquisition of first... ...Eagle Investments. As we said when we announced a transaction in August, this is a transformational acquisition for Victory Capital. When we close, we will have greater size and scale across every part of our business, giving us... ...even more capacity to invest in our investment teams, our distribution, technology, data, and our people. The investment capabilities are complementary to what we have today. First Eagle adds a differentiated... ...global value multi-asset capability, complementary equity and fixed income capabilities, and a scaled CLO and alternative credit platform. First Eagle manages approximately $222 billion. ...aum, 92% of its rated mutual fund and ETF, AUM carries a four or five-star overall Morningstar rating, and has generated positive net flows in each of the last three years and year-to-date in 2000. The transaction meaningfully expands our U.S. distribution. First Eagle products are used by approximately 103,000 U.S. financial advisors and roughly 3 million end investors. Along with over 700 institutional clients. Internationally, both firms work with Amundi today, so this deepens a strategic partnership that is already working incredibly well for us.

It's also an area where our organic and inorganic growth strategies come together. We are acquiring a business that is already growing, which adds to the organic momentum I described earlier, and our business becomes more. More diversified, more durable, and more resilient across all market environments and cycles. Our teams are deeply engaged in integration planning together with the First Eagle team. We continue to work towards closing by the end of the first quarter. 2027, subject to customary closing conditions. Our special meeting of stockholders to approve the share issuance is scheduled for November 17th. As I said in August, integration is a core compensation. It is work we know how to do, done by people who have done it many times before. We are on track with our net expense synergy target of $280 million, 35% accretion target to annualize 2027. Adjusted earnings per share and timing targets in reference to close and net expense synergies we communicated at the announcement of the transaction. Slide 12 places First Eagle in the context of our longer term. Journey. Since our management buyout in 2013, every step of our growth has been intentional. On a pro forma basis, including First Eagle, our AUM will have grown by more than 3,000% since 2013. Each acquisition has made our platform stronger, more durable, and ultimately more competitive. And each one has positioned us to do the next. The opportunity set remains deep with more than 110 investment firms managing between.

50 and $200 billion and more than 35 firms between 200 and $500 billion. Our immediate focus is on closing and integrating First Eagle, and we remain committed to our goal of $1 trillion. in assets under management over time. Slide 13 outlines our capital allocation framework, which has not changed. Strategic acquisitions remain our primary and best use of capital. We have closed eight strategic acquisitions since 2013. And that discipline approach has driven our adjusted earnings per share with tax benefit to grow at a compound annual rate of approximately 21% since our IPO with quarterly adjusted EP. up nearly 400% over that period. That is what step change growth looks like in practice. And First Eagle will continue and enhance that pattern. At the same time, our commitment to returning capital to shareholders continues. In our IPO, we have returned $1.6 billion to shareholders, including $1 billion in share repurchases. In the third quarter, we returned $81 million to shareholders, including 30. $69 million in share repurchases, and we have now returned more than $400 million year to date. That reflects the strength of our free cash flow and our asset light business model. Stepping back, this quarter showed what happened. When years of investment in distribution, product, and people come together on top of strong investment performance and a highly efficient platform, all supported by an ownership culture. We have the people, the platform, and the strategy.

I'm as excited about the future of this company as I've ever been. I will now turn the call over to Mike to walk through the financial results in more detail. Mike.

Thanks, Dave, and good morning, everyone. Results review begins on slide 15. Revenue for the quarter was $396.6 million, up 10% from the same quarter last year, and the second highest in the history of our firm. On a gap base. Operating income was $137.7 million, and net income was $1.11 per diluted share. Gap results this quarter include higher acquisition-related costs. Costs associated with the first EGLE transaction. Adjusted EBITDA was $212.1 million, and our adjusted EBITDA margin was 53.5%. Adjusted net income with tax benefit was $163.2 million, or $1.98 per diluted share. Up 21% versus Q3 2025, and the second highest in the history of- our firm. Our adjusted EBITDA margin of 53.5% reflects the continued efficiency of our platform and was up 80 basis points from the same quarter last year. We ended the quarter with $208 million of cash and a net leverage ratio of 0.9 times. We returned $81 million to shareholders in the quarter, including $39.3 million. In share repurchases. On slide 16, total client assets at quarter end were a record $355.5 billion. Well diversified across our U.S. intermediary. U.S. institutional, U.S. direct, and international channels with clients in 63 countries including the United States. Slide 17 shows our long-term AUM flows.

And this is the slide that best captures the momentum in our business. Record long-term gross flows of $30.5 billion were up 38% from Q2 and 78% from the fourth quarter of 2000. On an annualized basis, gross flows are running at approximately 36% of current long-term AUM. That is a level of long-term gross flows that we believe is more than... ...sufficient to drive sustainable organic growth over the longer term. Record net long-term flows of $11.7 billion represents 13.8% annualized organic growth. And every month... ...of the quarter was net flow positive. In Q2, I described what we are seeing as a convergence point, where the investments we have made in technology, data, distribution, marketing, product, and people were starting. ...to work together. The third quarter is what that convergence looks like when it continues to build. The breadth is what stands out. Positive long-term net flows came from multiple... ...investment franchises, including Pioneer Investments, RS Global, Victory Income Investors, and West End Advisors, as well as our Victory Shares ETFs. They came from multiple... ...channels, with our U.S. intermediary, U.S. institutional, and international channels all contributing. Our one but not yet funded pipeline also remains significant across multiple... ...franchises and channels, both in the U.S. and internationally. Moving to slide 18, revenue was $396.6 million on record average AUM of $350.6 billion.

Our average fee rate for the quarter was 44.8 basis points. As a reminder, a single-digit percentage of our annual revenue comes from certain annual fees that are recognized. At specific points in the year, rather than evenly each quarter. The amount recognized in Q3 was significantly lower than in Q2, which accounts for the majority of the change in both revenue and fee rate. Quarter over quarter. Additionally, our sales are in line with where client demand is across the industry. Fixed income, multi-asset, and ETFs, along with continued growth from our internet. International clients. Those areas carry fee rates modestly below our total firm average. This is about asset and channel mix. It has nothing to do with reducing fees on our products. We are selling very strong. in exactly the areas where clients are allocating and they are choosing the products we have built. Looking through the quarterly timing, the full year picture is unchanged. Year to date, including annual fees, our average fee rate is 46.3 basis points, squarely in line with our full year guidance of 46 to 47 basis points, which I am reiterating as we look forward. Most importantly, we manage this business for margin and earnings growth, not for fee rate in isolation because of the efficiency of our platform and our highly variable expense base. The growth we are generating in these areas comes with. Strong margins, and that is evident in our 53.5% margin this quarter. Turning to expenses on slide 19. Total operating expenses were 258.9.

$1 million in Q3. Cash compensation as a percentage of revenue was 21.7% within our expected range, and we continue to expect cash compensation to run in the low to mid-20s as a percentage of revenue on a normalized basis. Our variable cost structure remains a key feature of our business. More than two-thirds of our total operating expenses are variable, which provides meaningful flexibility through different market environments. Two items increased this quarter, and both are non-recurring in nature. Acquisition related expenses rose to $17.1 million on transaction costs primarily associated with First Eagle. In non-cash equity compensation, increased on the accelerated performance share vesting as two vesting hurdles were achieved in the quarter. On slide 20, adjusted EBITDA of $212.1 million was up 11% year-over-year, and our adjusted EBITDA margin was 53.5%. Adjusted net income with tax benefit of $163.2 million was up 16% year-over-year, and $1.98 per diluted share was up 21%. We are maintaining our long-term adjusted EBITDA margin guidance of 50%, a level we have now met or exceeded for 14 consecutive quarters. That consistency is the result of a purposely designed, highly efficient, scalable platform and the exceptional people who run it every day. Finally, slide 21 covers our balance. We ended the quarter with $208 million in cash and $975 million of debt with a net leverage ratio of 0.9 times adjusted EBITDA and our $100 million revolver remains undrawn.

We returned $81 million to shareholders in Q3. We enter the first Eagle transaction from a position of strength. Our leverage is below one times. We have fully committed financing in place and the free cash flow characteristics of our business give us the ability to fund the transaction. deliver at a quick pace and continue returning capital to shareholders along the way. The board declared our regular quarterly cash dividend of 50 cents per share, which will be paid. on December 23rd to shareholders of record at the close of business on December 10th. With that, I will turn the call back to the operator for questions.

Your first question comes from the line of Craig Siegenthaler with Bank of America. Your line is open. Please go ahead.

There are no further questions at this time. I will now turn the call back to David Brown for closing remarks.

Thank you for your continued support of Victory Capital, and we look forward to speaking with you. with all of you again soon.