Victory Capital’s Q1 Earnings Show Resilience Amid Mixed Asset Flows and Strategic Momentum

Victory Capital Management (NASDAQ: VCTR) narrowly beat estimates with its Q1 2025 adjusted EPS of $1.36, just edging out the FactSet consensus of $1.35, but the results mask a more complex narrative. While the firm’s financial performance showed year-over-year growth, its asset management business faced headwinds from net outflows and market declines, even as gross sales surged and strategic initiatives like its Amundi partnership began to take shape.

The Numbers: A Beat on EPS, but Challenges in Asset Growth

Victory Capital’s adjusted EPS rose 7% year-over-year, driven by a $88.1 million adjusted net income (or $1.36 per diluted share), though this was a 7% sequential drop from Q4 2024’s $1.45. Total revenue came in at $219.6 million, slightly below the $224.2 million consensus, reflecting lower average client assets and reduced revenue realization.

The firm’s Total Client Assets dipped to $171.4 billion as of March 31, 2025, down from $175.5 billion in February, with long-term AUM net outflows of $1.2 billion. While this marked the second consecutive quarter of improving net flows (a narrowing from -$1.7 billion in Q4), the outflows were offset by $9.3 billion in gross inflows, the highest in three years. This suggests client demand is strong, but redemptions remain a hurdle.

Asset Class Declines, But Strategic Bets Pay Off

The breakdown of AUM by asset class revealed broad declines:
- U.S. Mid Cap Equity: Down 5% to $28.96 billion.
- Global/Non-U.S. Equity: Fell 11% to $18.33 billion.
- Alternatives: Grew slightly to $2.95 billion, though this remains a small slice of the portfolio.

The Solutions category, which aggregates multi-asset strategies, dropped to $63.38 billion from $65.5 billion in February, suggesting clients may be scaling back on complex portfolios amid volatility. Meanwhile, ETFs saw a 4.8% rise to $10.25 billion, a bright spot as retail investors increasingly favor passive vehicles.

Victory Bancorp: A Solid Subsidiary Performance

The subsidiary Victory Bancorp (OTCQX: VTYB) delivered strong credit metrics, with net charge-offs at just 0.01% and nonperforming assets at 0.00%, reflecting prudent risk management. Deposits grew to $416.97 million, up 9% year-over-year, allowing the bank to eliminate borrowings entirely. Its book value per share rose to $15.25, a 3% increase from Q4 2024, signaling shareholder value creation.

Strategic Moves: Amundi Partnership and Operational Efficiency

CEO David Brown emphasized positive momentum from the Amundi partnership, finalized in April 2025, which aims to boost distribution in the U.S. and globally. The deal, while dilutive to margins in the near term (contributing to higher acquisition costs), could unlock cross-selling opportunities.

Victory Capital also highlighted its next-generation business model, combining boutique investment expertise with a centralized platform. This structure helped maintain a 53% Adjusted EBITDA margin, despite sequential declines, and a 64% long-term AUM outperformance rate against benchmarks over three years.

Challenges Ahead: Debt, Outflows, and Market Headwinds

The firm’s $972 million debt load remains a concern, though management insists the Amundi transaction improved balance sheet flexibility. Meanwhile, net outflows persist in core equity categories, likely due to investor caution in a choppy market. The revenue realization rate dropped to 51.2 basis points from 52.5 bps in Q4, indicating pricing pressure.

Conclusion: A Firm on the Cusp of Turnaround?

Victory Capital’s Q1 results are a mixed bag. While the EPS beat and gross inflows suggest underlying strength, the AUM contraction and margin pressures highlight execution risks. However, strategic moves like the Amundi partnership and a record dividend hike to $0.49 per share signal confidence in long-term growth.

The firm’s $173.4 billion average AUM base and strong credit metrics from its banking arm provide a solid foundation. If Victory Capital can stabilize net flows and leverage its cross-asset capabilities, it may yet turn the tide. Investors should monitor whether Q2 sees further narrowing of outflows and whether the Amundi deal translates into tangible revenue growth. For now, the stock’s forward P/E of 12.5x (based on 2025 estimates) suggests the market is pricing in cautious optimism—a position that could shift if the firm’s momentum turns to sustained growth.

In summary, Victory Capital’s Q1 was a reminder that asset managers must balance short-term headwinds with strategic bets. The path forward hinges on execution, but the tools are in place for a comeback.