00:03 Good morning, and welcome to the Victory Capital Fourth Quarter 2021 Earnings Conference Call. All callers are in a listen-only mode. Following the company's prepared remarks there will be a question-and-answer session. 00:20 I will now turn the call over to Mr. Matthew Dennis Chief of Staff and Director of Investor Relations. Please go ahead, Mr. Dennis.

00:31 Thank you. Before I turn the call over to David Brown, I'd like to remind you that during 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. 01:01 Our press release that was issued after the market close yesterday disclose both GAAP and non-GAAP financial results. We believe that 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 slide presentation accompanying this call, both of which are available on the Investor Relations portion of our website at ir.vcm.com. 01:33 It is now my pleasure to turn the call over to David Brown, Chairman and CEO. David?

01:39 Thanks, Matt. Good morning, and welcome to Victory Capital's fourth Quarter 2021 earnings conference 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. 01:58 I'll start today by providing a quick overview of the final quarter of 2021, then I will step back to provide a longer-term perspective on our growth, capital allocation strategy, accomplishment since becoming a public company in 2018 and where we are headed. After that I will cover our investment performance metrics before turning the call over to Mike, who will review the fourth quarter and full-year financial results in greater detail. Following our prepared remarks Mike, Matt, and I will be available to take your questions. 02:31 The quarterly overview begins on Slide 5. 2021 was a transformative year for Victory Capital in a number of different ways. In the final quarter of the year we closed 2 strategic growth acquisitions, New Energy Capital and WestEnd Advisors. With the New Energy Capital acquisition that closed in November, we launched another growth vertical by the creation of our alternative investments platform. The launching of this platform has many characteristics we like, including strong investor demand and healthy fees and margins. Additionally, the alternatives allocation plays an important long-term role in a well-diversified portfolio. 03:10 We've been looking for the right opportunity to enter this part of the industry for a number of years and began laying the ground work well in advance of last year. For example, we made investments to enhance our distribution resources, including investments in technology and procuring new datasets as well as recruiting a team of experienced professionals, focusing specifically on RIAs and family offices, which are both buyers of these products.…

13:51 Thanks, Dave, and good morning everyone. The financial results review begins on Slide 13. Total AUM increased $24 billion or 15% from the end of the third quarter to $183.7 billion at year-end. This increase was largely attributable to assets acquired in the WestEnd Advisors and New Energy Capital acquisitions that totaled $20 billion. In addition, positive market action was partially offset by net outflows in the quarter. Q4 revenue rose 1% sequentially from the third quarter, reaching $229.1 million, which is a 14% increase from the prior year. Keep in mind the WestEnd Advisors acquisition closed on December 31. So there is no P&L impact in either the quarterly or full year period. None of the operating results in this presentation include any WestEnd Advisors financials. 14:50 For the year, revenue reached a record $890 million, which was 15% higher than in 2020. Adjusted EBITDA was $114.9 million in the fourth quarter and $449 million for the full year period. The fourth quarter of 2021 represented our 6th consecutive quarter generating margins greater than 50% with an adjusted EBITDA margin at 50.2%. For the full-year, adjusted EBITDA margin was 50.4%, which was up 170 basis points from the 2020 full-year period. 15:31 Our GAAP net income was $69.7 million in the quarter or $0.94 per diluted share. This was a decrease from $74.2 million or $1 per diluted share in the third quarter and was primarily due to higher acquisition related restructuring and integration costs. We also had higher compensation expenses in Q4, reflecting $1.9 million of transaction-related compensation, as well as higher variable comp expense. 16:03 Moving to some of the accounting noise, Q4 adjusted net income with tax benefit increased to a record $93.7 million or $1.27 per diluted share, up 1% sequentially from the third…

25:18 Thank you, sir. Your first question comes from the line of Craig Siegenthaler of Bank of America Securities.

25:36 Good morning, David and Michael. Hope you both doing well. So my first question is on WestEnd Advisors. Can you update us on the very early progress in that acquisition? And if you're finding new cross-sell opportunities given really their unique relationships with RIAs, which I know isn’t very easy for many active managers to break into.

26:02 It's Dave. Thanks for the question. The acquisition is going phenomenally. WestEnd kind of pre-acquisition was a fantastic company, they had great products, great investment performance and great relationships. We are really just highlighting a lot of that. The cross selling is working as we're going through and working with them. We're exploring other platforms to get their products on and that's going very well. And I would just say the momentum going into the close of the acquisition has continued as they become part of our company. 26:42 And as we look forward, the thesis has always been that we were going to accelerate what they had already started doing through accelerated distribution opportunities through cross-selling and through really allowing them to focus on serving clients and then getting more clients. So we couldn't be happier with what we've seen in the first month and a half the acquisition.

27:12 Thank you, David. And just for my follow-up, given the elimination of the dual share-class structure that you guys just decided at the special meeting. Can you update us on the potential for large index ETF and fund buying over the near term? And I'm thinking the big one is like, Russell 2000, Vanguard (ph).

27:36 Yeah. Hi, Craig, this is Matt. Yeah, we definitely think that the objects that inhibited us from the Russell and some of the S&P indexes have been removed. The Russell does their reconstitution once a year and so we anticipate in the second quarter that we would be eligible for inclusion in that and then we would obviously be also in the Russell 2000 if we got into the larger universe. As far as S&P and some of the other ones, they do those on an adhoc basis and they have a committee structure that does it. We know that we have removed the impediment. And it's really kind of up to the committees on timing, but we do believe that the net result will include a lot of index funds that will be buying our shares on a net basis in the next year.

28:28 That's great news. Thanks for taking my questions.

28:33 Your next question comes from the line of Ken Worthington of JPMorgan.

28:39 Hi, good morning. It looks like maybe one or both of the unusual outflows in October were in the direct channel, maybe even out of the USAA Income Fund. And I'm trying to understand how this works in the direct channel. So can you give us a bit more color here?

28:57 I'll start off, Ken. It's Dave and then I'll let Mike to finish off. We're not going to go into the details of where the 2 large outflows were and kind of what products, we don't give that level of detail. I would just direct you to say that they were one-time in nature. And as we've moved into 2022 we have a lot of momentum. I think in the script, I talked about that we were net flow positive as of today. And I think we have a ton of momentum going into 2002. And I look at those outflows really as we said, one-time in nature. And Mike, I don't know if you want to add anything to that.

29:43 Yeah. I think you picked it up. I think if you look at, you can see where the asset classes are, in kind of a roll forward and it was in mid-cap and in fixed income, that's all I would add.

29:53 Okay, great. And I know you gave us some color on M&A, but just given the market volatility, has anything changed in -- has the volatility been pronounced enough to have any impact at all on conversations just yet? Or is everything sort of continuing normally as you would expect in sort of the beginning of the calendar year.

30:19 It's Dave, Ken. I would start off by saying if you really think about why there are conversations happening with M&A and the consolidation that's going to occur. None of those core issues have changed. So the conversations are around making businesses better, giving business access to additional distribution, the ability to scale and reinvest and the market volatility hasn't really impacted that. Our discussions typically are over a longer periods of time, so some of the groups we've been talking to, we've been talking to for longer periods and they've been through good times and through volatile times. 31:05 I would -- I guess some saying that we haven't seen an impact. We have done 4 transactions in 4 years as a public company, plus a minority investment. We've guided that we don't see any difference going forward from a cadence perspective. And I think we stand by that. And I think the market volatility in a way might actually cause firms to want to do more or do more from an acquisition standpoint as opposed to less.

31:43 Great. Thank you very much.

31:45 Your next question comes from the line of Cullen Johnson of B. Riley.

31:52 Hey, good morning and thanks for taking my questions. Just sticking with the topic of M&A, is there a leverage level above which maybe you would consider another large debt finance acquisition, I guess recognizing the pace of M&A could slow some from the heightened pace we saw last year in the short term, but if we think longer term, does there exist a threshold under which a larger transformational acquisition again becomes more viable and your perspective?

32:23 It's Dave. Thanks for the question. We have so many levers to pull on financing acquisitions from debt, as you referenced from cash on hand, from generating cash from announce to close, from structuring around revenue share and earn. And each transaction is really around the current facts and circumstances, we are mindful of our leverage level, we are at 2.2 times at the end of the year, and I think we have disclosed that we have started to pay down that debt pretty aggressively. We are going to use most of our free cash flow, excess capital to pay down debt to give our balance sheet flexibility to do additional deals. 33:14 I don't really see any constraints going forward. We're doing a large transformational deal and also keeping leverage at an acceptable level, we have not come out and said, we will not do a deal above a certain level of leverage, but we're mindful of it. We understand that leverage is -- the leverage levels are important and we're going to be mindful of it, but we don't have a cap on it, but by no means, does it mean that we are going to go to absorb it in that leverage levels.

33:49 Got it. Thank you. That's helpful. And then kind of looking at some of the crypto related assets that were introduced in the last couple of quarters, do you guys break out the level of AUM in that line item specifically or the level of growth or do you can have any visibility into how that's going to taken off in the last couple of quarters?

34:12 We don't break it out, but what I can tell you is, we have a lot of interest from potential investors, it's a lot of education at this point to really educate the market on how this fits into a well-diversified portfolio. We're encouraged by the interest, the interest has not yet converted into large level of assets. I think that will be over time as the institutional investor, the retail investor really get comfortable with it as an allocation in the portfolio. We love our product that we're offering today and we think over time there's a real chance for it to grow, but we're spending a lot of time with investors around education today.

35:00 Great. Thanks. That's helpful. Those are all my questions.

35:05 Your next question comes from the line of Kenneth Lee of RBC.

35:16 Hi, good morning and thanks for taking my question. Just one on capital deployment priorities, how should we interpret the meaningful dividend increase? Should we think of this as a potential change in dividend policy going forward. Thanks.

35:34 Hi, Ken, it's Dave. No, you shouldn't interpret it as a change in our dividend policy. Our use of our excess capital and free cash flows again going to primarily go towards paying down our debt. The increase in the dividend, the share repurchases is really just a reward to our shareholders for our business becoming more scaled, stronger, more competitive. It's still an ancillary part of our capital and deployment. And if we go back our capital strategy has been consistent since we've been a public company. We have a capital strategy that’s going to support our overall corporate strategy which is a big part of that or a part of that is around acquisitions.

36:26 Great. And just one follow-up if I may, on the WestEnd Advisors. How should we think about incremental margins for the business. Thanks.

36:40 Hi, Ken. Good morning. It's Mike. Yeah, I think what we've said in kind of our prepared remarks was that, the fee rate on WestEnd was about 30 basis points. However, I think what we've also said is that, as we think about the integration onto our platform the margins will be at parity or even higher than our current margins. It's a very scalable platform. We have the leverage point of our existing distribution force coupled with WestEnd’s distribution force. So most of the investments that we've been making in the RIA space and the multifamily office space will be leverage for WestEnd as well.

37:22 Got you. Thank you very much.

37:27 Your next question comes from the line of Alex Murray of KBW.

37:32 Hey, good morning guys. Thanks for taking my questions. It seems like the year is off to a good start in terms of flows. But I'm curious if you expect the recent turbulence in the market to affect demand for any of the products, WestEnd products as well?

37:49 Yeah. I don't think that the recent volatility or I'd say, some of the changing of leadership from a stock perspective has really impacted our overall business. We have a really wide range of products from active equities to alternative income to international and US. So what we're seeing is, we're seeing that a lot of investors are rethinking their portfolios, and they are putting assets in motion and we are capturing some of those assets in motion. I actually think the current environment today is excellent for active managers and also has somewhat of a value tilt, if you will, which I think our firm is tilted a little bit towards value. But the assets in motion is a great thing for our company. And I also think the volatility today is a great thing for active managers.

38:51 Great. Thanks. And one more if I may. Would you be able to provide any guidance on expense trends as we hopefully start to emerge out of the pandemic.

39:03 Hi, Alex, it's Mike. Yeah. I think we see really with our business model and we've guided to the 49% margins in 2021 and we ended up slightly above that. And again, we're maintaining that 49% kind of EBITDA margin guidance for 2022 as well. What we've talked about is, because of the model that we have with 2/3 of our expenses being variable tied to AUM and revenues, that provides a really good look as we think about the expense projections and the business, the acquisitions that we've done have been really folded into our business model from a business and financial structure perspective. And I think if you think about what we've done in 2021 and 2020 we'll continue on that same pace from an expense trajectory. And I think it's pretty consistent when you look at the different pieces of our expenses, whether they be compensation or operating expenses. They're pretty well mapped out for us as we look into the future. 40:13 So really no change in our overall expense guidance, no change in our margin guidance as we look out. We are making investments in the business and we've spoken about where we're investing in the business, really to further the growth through distribution, data technology and our -- really our people. But again, those investments that we're making are baked into our margin guidance. It doesn't mean we won't see quarters or even years where we could be above or below those margins we've set up, but I think we're mindful of that and are managing those investments that we're making with the pretty keen eye towards growth.

40:48 Great. Thank you. Extremely helpful.

40:51 Sure.

40:53 This concludes today's Q&A session. I will now turn the call back over to Mr. Brown for closing remarks.

41:01 Thank you for joining this morning. We look forward to reporting our progress as the New Year unfolds. Next month, we will be attending the RBC Financial Services Conference and hope to see all of you there virtually. Have a great day.

41:16 Thank you for participating in today's conference call. You may now disconnect.