Good morning, and welcome to the Victory Capital First Quarter 2024 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Mr. Matthew Dennis, Chief of Staff and Director of Investor Relations. Please go ahead, Mr. Dennis.

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. 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. Reconciliation 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. 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 first quarter 2024 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. I will start today by providing an overview of the quarter. After that I will provide a quick summary of the Memorandum of Understanding with Amundi that we announced last month, before I turn the call over to Mike to review the financial results in greater detail. Following our prepared remarks, Mike, Matt and I will be available to take your questions. The quarterly business overview begins on Slide 5. During our last earnings call, we commented on our improving business dynamics, and the beginning of a constructive environment we were seeing in sales activity as 2023 came to a close. This momentum continued through the first quarter with both gross and net sales reaching their best levels in more than a year during the first quarter of 2024. Our net long-term flows are positive in March and total client assets rose more than 5% in the first quarter, aided by positive market action. We ended the quarter with a little more than $175 billion in client assets, providing us a good jump-off point as we entered the second quarter. The fee rate on our AUM was 53 basis points and has been consistently within a basis point of the same level for the past year. Adjusted EBITDA margin was 52.1% for the quarter, which is industry-leading and a testament to our focused execution, combined with the efficiency and effectiveness of our operating platform. Overall, we have an optimistic outlook for our business and are beginning to realize benefits from the investments we have been making across our…

Thanks, Dave, and good morning, everyone. The financial results review begins on Slide 12. Average AUM increased 8% quarter-over-quarter and revenue rose $10.1 million to $215.9 million. Revenue realization remained steady with any quarter-over-quarter change, the result of asset and/or vehicle mix. GAAP operating income was $84.8 million and GAAP net income rose slightly to $55.7 million or $0.84 per diluted share, up from $0.82 per share in the prior quarter. Adjusted EBITDA rose 4% to $112.4 million in the quarter, marking the highest quarterly level in over a year. This was more than 13% higher than in the first quarter of last year. Margins were 52.1% for the quarter, which includes the impact of seasonally higher payroll tax and benefits that reset at the start of the year. We continue to guide to a long-term adjusted EBITDA margin of 49%. Adjusted net income with tax benefit per diluted share increased 9% from the fourth quarter and by 16% from the same quarter in 2023, reaching $1.25. We continue to hold elevated cash balances to enhance our flexibility and ended the quarter with $80 million in cash. During the quarter, we made an earnout payment of $80 million for the WestEnd acquisition, reducing the overall earnout liability on our balance sheet. Our net leverage ratio remains at a modest 2.0x at quarter end. We returned $35 million to shareholders in cash dividends and share repurchases in the quarter and announced a 10% increase in our quarterly cash dividend to $0.37 per share in the second quarter, which will be paid on June 25 to holders of record on June 10. Turning to Slide 13. Our total client assets remained balanced from a distribution channel perspective, with the channel mix remaining very consistent over time. I would highlight that approximately 97%…

Operator Instructions] Your first question comes from the line of Alex Blostein with Goldman Sachs.

This is Luke on for Alex. With the products that you're set to onboard and integrate following the partnership with Amundi, and the acquisition of the Pioneer brand, how are you thinking about the organic growth trajectory of the business longer term? And are there any areas of the Pioneer business or aspects of the agreement that most excite you as it relates to potentially underwriting and improvement in organic growth?

I'd start off by saying the business today, as it sits, the Amundi U.S. business is growing in 2024, as we showed at least on the mutual fund side on the publicly available data, is actually in a positive organic growth mode. They've got excellent investment performance and they have a lot of momentum, and I don't see that changing throughout the year. So we're pretty excited about generally the product set that they have and what they're doing today. And when you put that into our distribution network, coupled with their existing distribution network, I think that sets up to really accelerate the momentum. Specifically, their fixed income platform, given the environment that we're in and the environment, I think we're going to be in over the next couple of years, is an exciting part of what they are bringing. Additionally, 1/3 of their existing assets are outside of the U.S. So they have a pretty well-developed distribution infrastructure outside of the U.S. and then the ability for us, so the victory -- legacy Victory products to plug into that is really exciting. And then generally speaking, just having in the U.S., more distribution marketing resources and then the exclusivity outside of the U.S. through the Amundi network really sets us up for an opportunity to have really good organic growth. And I would say that given the environment that's coming around fixed income, with our existing fixed income platform, I think we see the tide turning at least from an organic growth perspective.

And one quick follow-up, if I can. Can you just give color on the asset mix and flow trends at Amundi across the data that we can't see publicly through Morningstar?

I can't. It wouldn't be -- it wouldn't -- I don't have full transparency into it, and it wouldn't be appropriate. One thing I would add to what I had said before is, keep in mind, the Amundi U.S. business does not have an ETF platform. One of the things we're anticipating is using our ETF platform and their investment manufacturing capabilities and bringing those things together. So I think that, that's another added component of what the opportunity is.

Your next question comes from the line of Ken Worthington with JPMorgan.

This is Michael Cho in for Ken Worthington today. I just want to touch on the Amundi distribution partnership here again. I realize they have a clear economic stake to help incentivize that partnership. But can you also just talk through how some of the sales force or the operating level incentives might be executed to just give you some confidence around that success of the 15-year partnership?

So outside of the U.S., we will be the exclusive provider of U.S. manufactured active asset management capabilities. So all of the distribution outside of the U.S. that is drawing upon U.S. manufacturing. So any of the products, any of their clients that are desiring products that are manufactured in the U.S. will come from Victory Capital, the pro forma Victory Capital. So if you think about portfolios outside of the U.S. and the allocation to the U.S. markets, going forward, we will be the exclusive provider of all those allocations. So that's pretty powerful given Amundi's $2.2 trillion and that they're in -- they've got 1,500 institutional clients, really a local presence in 35 countries around the world, and I believe they're in about 1,000 distributor network. So very, very powerful distribution and then we'll be providing them the U.S. manufactured aspect of it. As today, the Amundi U.S. businesses and others will now have the exclusive right to do that.

And then just a follow-up on some near-term trends. I think you called out net flows turned positive in March. Just curious what was kind of the key driver for that inflection exiting the quarter? And then any thoughts on flows that you saw in April and maybe into May as well.

So we've seen a turn as we highlighted in the prepared remarks on the fixed income side. So Victory Income investors, our ETF platform, VictoryShares, our institutional channel continues to be strong. And then generally speaking, our investment performance is really, really solid, and that's supporting good momentum. Looking into the second quarter, we don't give guidance quarter by quarter on flows. But we don't see any of that really changing acts any market -- change in market conditions.

Your next question comes from the line of Etienne Ricard with BMO Capital Markets.

So clearly, another strong margin quarter. As you look into closing the Amundi U.S. transaction, what gives you confidence that Victory can maintain its operating discipline and margin levels considering the meaningful increase in AUM? In other words, we typically think of scale as an advantage for margins. But in Victory's case, up to what point in scale do you believe you can maintain the culture and operating efficiency?

Well, I think we've guided towards keeping the 49% guidance we have today, and we reiterate that in the pro forma business. We've obviously exceeded the 49% guidance over the last few years, but we've also highlighted that it will ebb and flow based on the investments we're making. So we're very confident in the 49% in the pro forma organization. Our track record and history of integration, and when we talk about integration, we talk about smartly integrating, I think, is top of the industry. And we have a lot of confidence that the principles of Victory Capital are the right principles on how to run an investment management organization for the future. And we think that those principles will be able to partner with Amundi U.S. and those people that work from Amundi U.S. will adopt the principles we have to maintain our culture. I don't think that anything that we have seen, all the diligence we have done, and we have been working on this for a while, give us any reason to believe that we wouldn't be able to maintain our culture and the margins and our operating discipline going forward. And even as we think about additional acquisitions post-Amundi U.S., it would be the same story.

Great. And staying on the topic of expenses, how do you think about the pace of realizations on the $100 million of expense synergies for '25?

So I think as we had said in our prepared remarks, and Dave just highlighted, the level of the work that we've done, we're very confident in the $100 million expense synergy that we had put out there and have commented on. We also said that we expected to realize them over 2 years, really with the majority of those coming in the first year. And as Dave mentioned, our track record in our history of integration and expense realization, I think, kind of speaks for itself. And we have a pretty time-tested and well thought out plan with respect to integration, and we believe we'll execute on that with respect to the Amundi acquisition as well.

Your next question comes from the line of Michael Cyprys with Morgan Stanley.

I just wanted to circle back to the distribution agreement that you have with Amundi with respect to selling their products into the U.S. Just hoping you might be able to elaborate on how that might work? Maybe you could talk about the economics, what that can mean for Victory? And what strategies of Amundi do you think could make the most sense to sell into the U.S., over time? How many products do you envision selling? And how do you navigate prioritizing selling their products in the U.S. versus your products?

I'd start off by saying that they have a good manufacturing investment manufacturing capability outside of the U.S. There are a few products that today, we think there's an opportunity to sell, one maybe example would be an emerging market debt product, or maybe a product that is like debt, may be through an institutional channel. So there will be a number of products that they have based on the market conditions that will move through different channels. As far as priorities, our sales force is used to selling and has come up with a system of selling multiple products, different asset classes. So it isn't really about what the prioritization is, it's really about accepting what the client demand is. So we're well -- this is really part of what we do today. So we're well-schooled on how to do that. The economics of it will be very similar to what -- from our perspective, very similar to what we have today of selling our own products. So the margin requirements we have with products of our own will be the same, really will be the same margins with products that we sell into the U.S. And it really just gives us another avenue to get closer to different clients by being able to offer them a wider range of investment solutions and capabilities.

Great. And just a follow-up question on the margin profile. I hear you on reiterating the synergies coming through, you're sticking to the 49% margin profile. But just curious, as you think about this large transaction, it seems like it can enhance your scale and revenues coming on at high incremental margins. So just hoping maybe you could elaborate on some of the moving pieces there and offset that lead you to maintain the margin outlook. Maybe you could talk about how much you're looking to spend? It seems like maybe there's an underlying net spend. How much you're looking to invest back in the business and what are the top areas?

Yes. So we've guided towards $100 million of synergies and then the 49%. The $100 million of synergies is a net number. We will invest a significant amount of money into the platform, and a lot of that will be into the U.S. intermediary portion of our business, distribution portion of our business. And so we will continue to invest on our platform. I think one of the major advantages we have is the way our platform is set up, is we have the ability to invest and invest in a way where it's very efficient. And I think you can see that by the margins. So a lot of what we're going to be doing is investing even though you see $100 million of cost synergies, it will be a net number, and we will be investing heavily back into the platform as we are today.

[Operator Instructions] Your next question comes from the line of Adam Beatty with UBS.

First, I wanted to focus in on solutions a little bit. Obviously, WestEnd doing well. The Amundi U.S. business had positive flows in their solutions business. So hoping to get maybe a fuller picture of the solutions business that Amundi U.S. will bring in, the complementary nature of it versus what Victory already has, and whether or not those businesses will be kind of integrated into one sort of solutions provider or remain somewhat separate?

The solutions business for the Amundi U.S. business, it's really a multi-asset offering, so very similar to the offering -- some of the offerings that Victory has. Within Victory, our solutions include multi-asset. It also includes some risk-based as well as target date product as well as our rules-based ETF business. We don't envision consolidating the Amundi U.S. solutions business into our platform. They are distinct enough and will remain under the kind of current Amundi U.S. investment team platform. We are excited about the opportunity to take on additional solutions offerings, and we think there's an opportunity, as Dave had mentioned earlier, to take some of the product set that Amundi U.S. offers and package those into ETF offerings that we think will have a tremendous opportunity to see organic growth going forward as they currently don't have an ETF offering.

Great. That's helpful. That fills it out. And then just as a follow-up, kind of the reverse of Mike's question around distribution. In terms of Victory and Amundi U.S. products being distributed through Amundi outside the U.S. Just wondering, you mentioned that a lot of those products right now obviously come from Amundi U.S., but that there are also other providers. So just wanted to get a sense of kind of the asset mix within those other providers where Victory might be kind of taking some share there.

I think there's a couple of elements to it. First is there's probably an under-allocation from the Amundi client in the U.S. product. So part of this is actually open space that we'll be taking. And you think about the evolving platform that they have, where they are in China, they are in India, and what's happening in some of those countries around allocation to U.S. markets over a longer period of time. So some of this is prospective on what is we anticipate happening. So that's the first piece. I think the second piece is there are other solutions that are on their platform outside the U.S. I would say that we'll probably take some of that market share, I would presume. And they'll have an economic incentive to want to do that because they'll have a 26.1% economic stake in our business. And I would also just reiterate that the Amundi U.S. business, if you average it over the last 5 years, it's $12 billion a year in gross flows. That part of their business has been net flow positive over the last 5 years. And then I think with our added product set and then as I mentioned before, our desire and ability to reinvest in the platform, I would imagine that would only accelerate as we think about going forward. And then you put just underneath all of that is we have excellent investment performance from a firm-wide perspective. So the products we would be able to offer the Amundi clients would have really good investment performance. And then we also have the ability to create new product and go out and acquire new product.

Great. So it sounds like more of a bigger pie situation than straight substitute.

Correct.

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

Thank you. And again, thank you for your interest in Victory Capital. We look forward to keeping you updated on the Amundi transaction as we move forward and to the definitive agreement that we anticipate by the end of the second quarter. Have a wonderful day.

This concludes today's call. Thank you all for joining, and you may now disconnect your lines.