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Thank you. Before I turn the call over to David Brown, I would like to remind you that today's conference call, we may make a number of forward-looking statements. Please note that 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. Our press release that 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 found in our earnings press release and in the slide presentation accompanying this call, both of which are available on the Investor Relations portions of our website at ir.vcm.com. It is now my pleasure to turn the call over to David Brown, Chairman and CEO. David?

Thanks, Matt. Good morning and welcome to Victory Capital's fourth quarter 2020 earnings call. 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. I'll start off by providing the business overview for the quarter as well as an overview of the full year 2020 and an update of our pending THB acquisition. Then I will turn it over to Mike who will review our financial results in greater detail. Following our prepared remarks, Mike, Matt and I will be available to take questions. The business overview begins on slide 5. Victory Capital ended 2020 with record breaking financial performance across a number of metrics. Our business perfomed well in a very challenging operating environment. We ended the new year with strong momentum. Adjusted EBITDA margin increased to a record 52% during the fourth quarter resulting in record adjusted quarterly earnings of $1.07 per share. That’s up 7% from the third quarter of 2020. Investment performance also remained strong with 67% of AUM out performing respective benchmarks over the one, three and five year periods ended December 31. Firm wide assets under management rose to $147.2 billion at December 31, 2020 an increase of 11% relative to September 30. We ended the year with long term AUM of $143.7 billion. Long term growth flows increased 12% quarter-over-quarter to $5.7 billion. We also saw substancial improvement in our net flow picture in the fourth quarter relative to the first three quarters of the year. While we continue to see some of the same headwinds in our net flow profile in Q4 that we saw in previous quarters, it did slow an activity on intermediary and institutional size of our business was strong and included…

Thanks, Dave. And good morning, everyone. The financial results review begins on slide 14. Revenue for the fourth quarter increased 6% from the third quarter, reaching $200 million in the period. For the full year, revenues were a record $775 million, up 27% from the $612 million reported for 2019. GAAP operating margin was 39% in the fourth quarter and 41% for the full year. Our fourth quarter margin was down on a GAAP basis from the third quarter primarily due to a non-cash adjustment to the book value of the earnout liability related to the acquisition of USAA’s asset management business. In the fourth quarter, this adjustment increased operating expense by $7.5 million compared to the third quarter. This adjustment was net of the first maximum earn out payment of $37.5 million that we made to USAA during the quarter. As you may recall, these earnout payments are based on revenue retention, which was in excess of the maximum hurdle rate in our first year of ownership. GAAP net income was $54.9 million in the fourth quarter, compared with $55.7 million in the third quarter, versus the fourth quarter of 2019, GAAP net income rose by 46%. GAAP earnings per diluted share were $0.75 in the fourth quarter. That was down a penny from the third quarter and up $0.24 or 47% with the fourth quarter of 2019. For full year 2020 GAAP net income jumped 130% to $213 million while GAAP EPS rose 129% to $2.88 per diluted share, compared with $1.26 per diluted share last year. Adjusted EBITDA margin widened to a record 52% in the fourth quarter. Compounding the higher quarter-over-quarter revenue the margin expansion drove adjusted net income tax benefit to a record high $78.6 million, which was up 7% from the previous record set…

[Operator Instructions]. Your first question is from the line of Chris Shutler with William Blair.

Hi, guys, good morning. You mentioned that you're evaluating the optimal leverage level, can you just give us a little more insight on what you're thinking there at least at a high level? And should, should we read that at all is saying anything about the size of potential acquisitions you're looking at?

Good morning, Chris. A couple things. One is No, you shouldn't read that at all as the size of acquisitions we're looking at. As I've said many times, we're going to do small acquisitions, we're going to do large acquisitions, and really the key driver is going to be, is it strategic to our business. We're not going to do sized acquisitions, just to gain size and scale. I think it has to be a lot more strategic than that. As Mike and I talked about in the prepared remarks, the optimal leverage level, it will depend on facts and circumstances of the time, but we are evaluating where we are today. And when we think about the reduction of debt, the reduction of the cost of debt, and really the strengthening balance sheet, and our free cash flow and the strength of our business, it just makes sense to look at this probably through a different lens. I think we are, our balance sheet is prepared, and we're prepared to really balance it to where, we're not going to do anything that's going to prevent us from doing an acquisition, but also probably increase our ability to return capital to shareholders through buybacks and through dividends.

Okay, got it. And then one more specific, just regarding the rollout of separately managed accounts at USAA, are you able as part of your relationship to become more of a, I guess, a managed accounts provider, there building goals based portfolios that incorporate both proprietary and third party funds and ETFs. I'm just not sure exactly what the line is between what you're allowed to do and what Schwab can do as part of the relationship.

So, if you start about, start with our direct investor business, we have the ability to offer our current clients, which are which a good amount of them are USAA members, some are not. We can offer them any product that we'd like. The referral agreement from USAA, they are referring members that inquire about USAA mutual funds over to us. They inquire through a call or through digitally, and they'll refer those to us. Once we're speaking to a USAA member, we have the ability to offer them really any product that's that we have in our American investor business. And as we talked about, we have mutual funds, we've expanded to mutual funds to add some victory funds, we can offer them a portfolio planning tool. We have the fixed income estimates we talked about, and we'll be expanding that. So we have the ability to really offer them any product. What you're probably referring to is the referral agreement of how things are referred over and we get the referrals in reference to the USAA mutual funds.

Okay, got it. Thanks, Dave.

Your next question is from the line of Randy Binner with B Riley.

Oh, hey, good morning. Good quarter. I said a kind of couple of clean up questions. I guess first on Solutions. Dave you highlighted in your script at the top 29 was good. And it was, but I think flows were maybe a little bit slower there. So just asking, Is it -- is there a slowdown in that business? Or is that just kind of normal fluctuation we'd see there and, just looking for kind of that the outlook, you see from flow perspective for solutions in 2021.

The solutions business for us is really going to be a grower. It's a grow -- has been a grower. And when we look forward what we have to offer there were the solutions business really is an engine, an investment engine for us. So you think about the Victory shares, the ETFs you think about some of the customized portfolios that we do and some of the other products, we think that's going to be a grower especially as investors are thinking about outcome based portfolios and more custom based portfolios. If there's a slowdown quarter-to-quarter, or if one quarter is, slower than another that that's really just an ebb and flow of just natural market swings.

Okay, got it. And then, Mike, can you can you please review the some of your comments around the compensation line? I, I think you said maybe the stock base comp aspect of the personal comp benefits line gets offset and operating. But I just, I just wanted to understand what the offset you've referred to is in the income statement?

Sure, Randy good morning. Yes. So it, it relates to, we have a deferred compensation plan offered to employees, and the asset and the liability, those sit on the balance sheet. So when there's a mark-to-market, and we saw strong market appreciation in Q4, we recorded $3.4 million of a markup of that plan that goes through the compensation line item. And that same $3.4 million is offset in non-operating expenses as a reduction of non-operating expense. So it gives the inflation if you will, of our personnel expense, which is really offset 100%, by the decline in non-operating expense that we show. It has no impact at all to the bottom line, but it's really a geography.

Okay, understood. And then on just on USAA, is there are there any further earn outs that are notable expected for 2021?

Sure, it's Mike again. So that the structure of the earn outs with respect to the USAA acquisition was over four years. So on an annual basis, there's a maximum payment of $37.5 million annually. And as we said in our prepared remarks, we met exceeded the maximum revenue threshold from a retention perspective in 2020, and made the first of those payments in the fourth quarter. So we would expect going forward, we'll evaluate the on-going levels of revenue based on the contractual obligations that we have. And we have up to three additional payments that we will make over the next three years really, really Q3, Q4 timeframe close the computations on the evaluation.

Okay, yes. So we have it in the third quarter, but I guess this year, it's slipped more to the fourth quarter, is that right?

Yes, just the timing. It will I mean, the anniversary if you will of the close was July 1. By the time you'd make the computations and the payments, it'll be Q3 Q4, on-going. It just was in Q4 this year.

All right. That's great. Thanks a lot.

Sure.

Your next question is from the line of Kenneth Worthington with JPMorgan.

Good morning. This is Will Cuddy filling in for Ken. So Dave, you mentioned several intermediary wins in your prepared remarks. Can you help us understand the progression from initial intermediary placement to flows? How long does it typically take to get traction on a new intermediary platform? And how does that timeline vary depending on the intermediary?

Good morning. So it really does vary based on each platform. I think a rule we kind of use internally is from the time you're, have or approved, it’s probably a year before you see significant flows. Some of the platforms are sooner, some of them are longer. It also depends on exactly what you're being approved and where you're being approved. But I think a good rule of thumb is probably 12 months. And so, we're seeing a lot of traction, the strong investment performance plus, our ability to just continue to work into our pre-existing relationships and new relationships. So we're building the pipes today. And, we know when you look over the horizon, six to 12 months out, we know that it's going to follow with flows.

Great. So, there's a second question. So there's been a renewed recent interest in asset manager consolidation. As you look at your M&A opportunity set, how is the uptick and asset manager M&A interest impacted your outlook to source attractive and strategic firms at the valuations?

So, really, this is the busiest we've ever been from sourcing and speaking to potential acquisition candidates. For us, it's not an issue of having the volume we have, we've had plenty of volume and we have plenty of volume today. It's really finding the right partner for us. We are selective. We've been doing acquisitions for a long time. We are not in a rush. But that being said, it is pretty it is pretty fruitful out there talking to people. And we are, we're looking at things that are going to be strategic to our business. As far as valuations go, they're in line, some, some are rightfully more expensive than others based on quality. But for us, we have the means, the resources and the balance sheet to really, to get things done that we think would make sense. But for us, it's not a volume issue. It's really about a selection issue.

Right, thanks Dave. And just as a quick cleanup, Mike. And apologies if I missed this. But what was the impact of the fee waivers and Vulcan fees for the quarter?

So our basis points in the fourth quarter was 57.1. And the increase, if you will quarter-over-quarter was a combination of enhanced fulcrum fees, as well as asset and client mix, just with the market appreciation and seeing a little bit more towards equities. And then we're offset a little bit with increased waivers on money markets, the yield support with respect to money markets is still present. And then the we had a little bit of a dragon admin and service fees to offset that. So you kind of look at that and that's out to a point seven basis point increase quarter-over-quarter. The annual performance fees that we booked are immaterial. So overall to the business, there was less than 1% of revenue for the quarter. So really, it was driven by slight improvement in fulcrum fees quarter-over- quarter. Not not significant. We're still we still have upside with that, as we look out, it's still a negative impact to the business.

Okay, thank you for taking our questions.

Your next question is from the line of Kenneth Lee with RBC Capital Markets.

Hi, good morning. Thanks for taking my question. Just one follow up in terms of potentially seeing some increased capital returns, realizing that you can still allocate the majority to delivering. Wonder if you could just talk further about considerations that could bias the additional capital returns either to share repurchases or dividends? Thanks.

Good morning. We have not decided really the avenue on how we're going to deliver that be an increase in dividends or be an increase in the buybacks. We have increased our dividend over the last few quarters. I wouldn't anticipate that changing. But as far as the real capital allocation, it'll really depend on the facts and circumstances at the time. What we know is, is we're generating more free cash flow, we know our cost of debt has come down. We know our business has strengthened, our balance sheet is strong, we have a really positive outlook for the growth of our business. So we'll figure out at the time, working with our board, what the right avenue is to increase and it doesn't have to be through one it could be through increased buybacks or it could be through increased dividends and a combination thereof.

Great, very helpful. And just one follow up, if I may. You mentioned the prepared remarks seeing some contribution from previously awarded mandates being funded in the fourth quarter. I wonder if you could just give us a little more detail how much of a contribution that was in terms of net flows and then relatedly in terms of the unfunded pipeline being funded in in the first half this year, wondering if you could just help us quantify a rough ballpark, there? Thanks.

So it contributed to the fourth quarter, I would say it wasn't a material amount. When I think about the first half of this year. We have a sizable amount that has been awarded to us but not funded yet. And that's building that's going to lean very heavily to the first half of the year. A lot of that is going to be through our institutional channel and some of our smaller amount in our kind of retail and retirement channel. We don't -- we as you know, we don't really give guidance on flows into the quarter and a lot can change quarter-to-quarter. But we have a -- we have a book that's building, and it's really, founded on, we have really strong investment performance across the board. We have some products that I think are, are starting to see traction through, really through, a desire for investors to use these products in their portfolios. And then we've also added a few sales professionals that we talked about in the prepared remarks to focus on registered investment advisors. And that's a new focus for us, and we're starting to see some benefits there. And then we're rolling out our fixed income estimates commercially in the next few weeks, so we're excited about that as well. So put all that together and I think we have a more positive outlook, around flows as we think about from a growth perspective.

Great. That's very helpful. Thanks again.

Your next question is from the line of Alex Blostein from Goldman Sachs.

Hi, this is [Indiscernible] filling in for Alex. Appreciate the color on the M&A front, if you can provide more details on the pipeline in the sense what kind of asset classes and what kind of channels you guys are you guys are targeting and how the conversations progressing on the front?

Sure. So let me start off and say that anything we do is going to be strategic. We're not interested in just doing something for size sake, or scale sake. I think we have the size and scale and the operating leverage, as you could see with our margins for the year in this quarter. We're looking, we start off with products, we're looking for products that fit within, a portfolio, a well-diversified portfolio, a portfolio of the future. And when you think about that, you think about products that generate income products that potentially are in private markets, products that offer solutions, have an ESG tool to it or outcome based. I mean, we're really looking at those kinds of products when we think about acquisitions. And then from there, we're also looking at, do these acquisitions bring us more distribution, do they bring us access to new clients, new geographies, geographies and distribution, and also in manufacturing. The sizing of the pipeline, acquisition pipeline really ranges from small and very strategic, to large and strategic. We've done acquisitions, the latest one we've done THB is small, but very strategic, and is going to be a grower. It’s going to bring us positive flows on great investment performance, great asset classes, it fits, you know, what we've been looking for. You go back to USAA, it was very large in size. And it was very strategic for us. It brought us great fixed income offering. It brought us a new distribution channel, a new business in the direct investor business. So we built our business really now to have a platform where we can do something that's small and something that's large, and we're talking really to, to all ranges and size.

Got it. Thank you. And one more for Mike. On the 49% sustainable margin going forward, can you help us understand the sensitivity to that if the markets kind of just keep going higher? Or if at all, we see a decline in the markets in 2021?

Yes. So we did guide to kind of our full year margins as kind of sustainable and foundational as, as we, as we look ahead. I think margins will ebb and flow quarterly, depending upon seasonality of expenses at the level and timing of investments that we're making, as well as kind of on-going asset and product mix, if you will, with two thirds of our expenses being variable, we have tried to design the expense base of the business, to flow with markets. In Q2, we had seen some market depreciation and some recovery, the early part of 2020, and we sustained margins that have since expanded since then. So we think that the business is set up pretty well to flex with margin, and market appreciation. But the 49% is where we feel comfortable running the business where we are today inclusive of the investments that we highlighted in our prepared remarks and kind of where we're thinking going forward.

Got it. Thank you so much.

Your next question is from the line of Jeremy Campbell with Barclays.

Hey, guys, so maybe just a higher level one, Dave. You and Mike have gone through a rigmarole of different kind of positive things from declining headwind for USAA, a strong pipeline, new products, new channels, good performance, new markets, etcetera. David, I know, you're going to want to say all of the above, but if we're sitting here in Feb 22, and we're looking back over the year, and flows of inflected from out to in what are the one or two aspects of the giant menu, you've laid out here that you have the highest conviction that helped drive that inflection.

So I would say, the fixed income traction we're making today is going to drive flows. If you look at what's happening, just generally speaking, what from investors and looking for income and the quality of that franchise, and, and really, today, when you think about today, backwards, we have not been rewarded with flows, yet we're building distributions. So I think the fixed income flows will be very impactful. And then I think, we have a number of, franchises that had been building great track records. And you think about, franchises with lots of capacity, and I can go through a number of them and add THB to it as well. That group will drive flows as well. That doesn't mean that the direct investor business, that doesn't mean some of the other things we're doing, I don't have high conviction in or I don't think we'll be big contributors. But when I stand here today, and with my crystal ball, that's still pretty blurry. Those are the two big buckets, I would say that where we go from out to in.

Great. And then just maybe just a follow up on THB and I apologize if I missed this one. But I know these are capacity constrained, as you guys noted, what's the headroom in that in that business between where they're at and where you're either hard or soft cap would be?

So today, they're at, at the end of January, there are about $555 million that are higher than that, actually today. We think easily it's a $15 billion franchise. So if you think about $600 million to $15 billion. That would be the open capacity will evaluate capacity as we hit as we do with every franchise when we get to 2 billion to 5 billion to 10 billion, but from what we know, today, probably $15 billion of capacity at the top end.

Great, thanks, guys.

The next question is from a lot of Robert Lee with KBW.

Hi, good morning. This is Jeff Dresner on for Rob Lee. Quick question on ESG. You mentioned that THB has full ESG integration in the investment process. And I'm just wondering, going forward on any acquisitions, how important would that kind of integration be in terms of ESG? And any, any plans to perhaps join to become signatories on to the SASB or sub standards like that? Thanks.

So first, on, you know, ESG integration into our investment processes. I think it's important. It's where the industry is going. For us, it's going to be unique to each franchise that that is with us today. And then you need to the businesses that will buy I don't think there's one way to integrate ESG. But it is important, it's a factor. And I don't think it's a trend that's changing. I think it's a trend that's accelerating. We've made a lot of progress on our ESG. Internally, we've talked about the UN PRI. I've signed a CEL action pledge, and we have a number of other initiatives and we're evaluating another a number of other signatory forums to get involved in, but it's important to our company, it's important to our employees. It's important to me personally, and it's important to our clients, most importantly and we've really, it'll be part of who we are going forward. I'd also say in our prepared remarks we talked about launching the USAA sustainable world growth fund. And, I would anticipate there's more of those kinds of products that we're going to launch over the next quarters and years.

Great. And….

I was going to just follow up on that real quick, Jeff. We did just join the SASB Alliance as a user member. And that's happened earlier this quarter in 2021.

Okay, okay, thank you. And then if I could just apologize if you mentioned this already, but maybe your outlook is on the fee rate, and it was kind of picked up, quarter-over-quarter. And I'm just curious how you're thinking about that going forward?

So our full year fee rate last year is 56.8 basis points. I think that's a good rate that we're looking at going out. It will ebb and flow based on asset mix and channel mix. But as we look out that 56.8 seems to be pretty consistent. And again, looking back at ebbs and flows a little bit based on fulcrum fees, asset channel money market and build support, but we're looking at that as the rate going forward.

Great, thank you.

And your next question is from the line of Michael Cyprys with Morgan Stanley.

Hi, good morning. This is Stephanie on for Mike. Can you update us on the flow dynamics in the USAA channel? And what in your view is leading to the continued drag on flows? What actions if any, can you take to stem this drag and any sense on the timeframe for when this could stabilize?

Good morning. I think where we're at with the drag on flows, we're seeing it subside. We've done a lot from bettering our investment performance, to working with clients to working with, our partners in Schwab and USAA. So I think over time, you will see that and you are seeing that slow down. I don't really have any specifics, anything more specific to add to that?

Okay, great. And then as my follow up curious, your latest thinking on the opportunity set to expand distribution outside the U.S.? What sort of initiatives are you putting in place or contemplating at this point?

So with the acquisition of THB, that will help us in Australia, and it will help us in Europe. There's a relationships that they bring. Our investment in Alderwood that we made in 2020, will help us with distribution in Europe. And those are probably the two things I'd point out. When we look at acquisitions, I talked about earlier about thinking about geography around distribution. So we have that. But that being said, I think we have a tremendous opportunity here in the U.S. to really grow our distribution talked about, adding a team to focus on registered investment advisors, building out our direct investor business. So we've got plenty to do here in the U.S. And I think we can be really successful with distribution with the line-up we have today here inside the state.

Your next question is from a lot of Sumeet Mody with Piper Sandler.

Thanks, guys. Good morning, guys. Just a high level question from me. Just wanted to get a little bit more color around kind of how you guys are leveraging technology both on on a firm wide basis, and then across the affiliates as well, through the improvements of the distribution platform. I know you guys have the new technology and the direct channel across the firm, is that something you guys have been able to kind of apply elsewhere? And then, is there inorganic, and organic growth component there? Or is it mostly just kind of inorganic for future growth?

Sure, it's Mike. I’ll start. We did mention that we did launch a new digital platform with a new digital website to benefit all of our channels. So the direct channel is clearly a focus as we came off of legacy technology as part of the USAA transaction for the direct investor business, but that will also benefit all of our investors, institutional and intermediary. And so we continue to make investments around the digitization of distribution and marketing and how we can continue to leverage digital footprint to access can service our clients across all channels. Additionally, we continue to look at data and analytics. We've talked a lot about that to be able to provide better data and analytics for the sales efforts that we have in the marketing efforts, both new and existing clients, as well as for our investment franchises. We continue to offer everything that we can to our investing franchises with respect to data and analytics to support their efforts on their investment processes, research, and execution. So those are a couple of highlights that we're looking at. So I think we're making investments that will benefit not one particular aspect of the business through technology, but the entire business.

Great, thank you.

Our final question is from the line of Chris Shutler with William Blair.

Hi, guys, my questions have been asked and answered. Thanks a lot.

Thank you. I would now like to turn the conference over to Mr. David Brown for closing remarks.

Great. Thank you. Thanks for joining us this morning. We look forward to sharing our continued progress throughout 2021. We will be attending the Credit Suisse Annual Financial Services Forum on February 25. And next month on March 10, we'll be at RBC Capital Market Conference. We hope to see all of you there virtually and everyone have a great day.

Thank you ladies and gentlemen. We ask that you now please disconnect your lines.