Good morning, and welcome to the Victory Capital Second Quarter 2025 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 Dave Brown, I would like to remind you that during today's conference call, we may make a number of forward-looking statements. 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, which was issued after the market closed yesterday, disclose 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 be found in our earnings press release and in the slides accompanying this call. Both of which are available on the Investor Relations section 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 Second Quarter 2025 Earnings Call. I'm joined today by Mike 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 with a business overview of our second quarter. After that, I will 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 answer your questions. The quarterly business overview begins on Slide 5. Total client assets increased by 76% quarter-over-quarter, reaching more than $300 billion, which is a record high for a quarter end. Our sales momentum continued with quarterly gross long-term flows accelerating to $15.4 billion, and net outflows coming in at just $660 million. This was the third consecutive quarter of improving long-term flows on both a gross and net basis. We are encouraged by our current trajectory and further by the sustained underlying momentum we have in several products and capabilities, including our fixed income, global equity and ETF strategies. Adjusted EBITDA was $179 million in the quarter which equates to an adjusted EBITDA margin of 50.8%. This was slightly higher than anticipated due to a positive asset mix and realization of certain fees produced annually, but realized this quarter. This caused a slight increase in our revenue and fee rate. Second quarter adjusted net income with tax benefit was $133 million or $1.57 per diluted share. We successfully closed on our multifaceted strategic transaction with Amundi on April 1, which included the acquisition of the Amundi U.S. business, and the reintroduction of the Pioneer Investments brand as our newest investment franchise. This resulted in significantly increasing our size and scale while also substantially enhancing the…

Thanks, Dave, and good morning, everyone. The financial results review begins on Slide 9. This quarter's results reflect the closing of the Amundi transaction on April 1, and it is the first quarter that includes the results from the Pioneer Investments business. I will provide additional color in several areas to highlight what are permanent changes and those that are onetime in nature. Revenue increased to $351.2 million, which was up 60% from the first quarter. Average assets for the second quarter rose to $285 billion which was 64% higher quarter-over-quarter. The realized fee rate of 49.4 basis points in the quarter was down from the first quarter, which was expected, but not down as much as anticipated. This quarter's fee rate was positively impacted by a better-than- anticipated asset mix and the realization of certain annual fees this quarter. For the third quarter and beyond, we would expect the fee rate to be in the range of 46 to 47 basis points. Our second quarter GAAP results included $53 million of acquisition-related restructuring and integration costs, which was up from less than $10 million in the first quarter. This resulted in GAAP operating margin of 26.8%. Our adjusted EBITDA was $178.5 million, which is 53% higher than the first quarter. Adjusted EBITDA margin came in at 50.8%. We are still maintaining our long- term adjusted EBITDA margin guidance at 49%. Adjusted net income of tax benefit rose to $132.8 million or $1.57 per diluted share. As disclosed in yesterday's press release, the Board authorized an increase in our existing share repurchase plan to $500 million. This allows us to maintain flexibility in our capital strategy with more capacity for opportunistic open market purchases of our stock. We repurchased 439,000 shares during the second quarter. Combined with dividends, we returned…

[Operator Instructions] Thank you. Our first question comes from the line of Randy Binner with B. Riley.

I have a couple. The first is just obviously well covered good quarter. On Slide 13, and maybe this question is for Mike, but we added back those nonrecurring expenses in the quarter. I just -- I know this nets in the overall synergy guidance, but just -- can you give us a sense of like that -- how quickly some of those onetime costs wind down in the fully reported number? Is it kind of dramatic into third and fourth quarter? Or is that more of a gradual kind of ongoing expense for those items for the rest of the year?

Randy, thanks for the question. In Q2, we had, I think, the number of $53 million of acquisition, restructuring and transaction-related costs, $26 million of that is truly deal related and onetime with respect to closing the deal. So think of adviser, legal, proxy, insurance- related costs that are all onetime of nature and will not recur. And then in addition to that, we did have about $14 million of expense really associated with the extraction of the synergies to date. And I think we put a total out there of about $30 million in total. We expect to see -- to realize the synergies. So we're about halfway there. And then the other item, I think, which we mentioned in the prepared remarks, there's compensation-related expense that we back about $13 million to get to the $53 million. And that really is related to a fully-funded deferred comp plan that we inherited as part of the transaction. And that will run off over the next couple of years, but that really is truly noncash and retentive in nature. It was part of the economics of the transaction that we acquired in the balance sheet. So that one will continue for the next couple of years and will be different levels based on mark-to-market of those deferred comp plans and some amortization. So the bottom line is it will start to decline. There's definitely onetime in Q2, and then we'll start to see them decline over the next several quarters as well and not be anywhere near the...

Yes. I mean we'll exclude it, but we still need to model it. So that's super helpful. And then actually, just a higher-level question, and maybe this is for Dave. I know we knew that fixed income was going to be a really big part of the asset mix pro forma this deal, but just looking at the model, it just gets big. And I heard the prepared remarks about some newer products that are kind of more private return oriented. But just kind of like standard fixed income, just kind of curious if you have a view of kind of how that product sets fitting in, given kind of market volatility, interest rate uncertainty, stagflation, that kind of thing. If you just have a view on like does that make those flows more? Do you think the growth there is better or worse? Or just be kind of curious because that's going to be a really important piece of the pie.

First, let me say, we love the fixed income asset class in general. I think over the years, we have acquired a lot of assets and a lot of capabilities in the fixed income asset class. We have two franchises today. You have the Victory Income Investors and then you have Pioneer Investments, which a portion of that manages fixed income. We are covering a lot of the different sleeves within fixed income. And so I really think the environment as it changes, as it evolves, we have a really good product set for any environment. I think as you know, we have active ETFs, better fixed income. We have UCITS that are fixed income, and then we have institutional separate accounts and we're also in the retirement channel as well from a fixed income perspective. So we're well covered from a product perspective, from a distribution perspective, and the performance across the board with our two franchises is excellent. So it's an area that we were very purposeful in growing. And I see that as an important piece to our growth going forward. And I think going forward, just really from an active versus passive perspective, fixed income over the years, historically, and I think as you look forward, investors have done very well being active. So we view that as an area where we have great active teams in an area where we think we can grow.

Your next question comes from the line of Michael Cho with JPMorgan.

I just wanted to start with Amundi partnership. I mean, Dave, you kind of talked through a number of different places where you're starting to either launch or in the process of launching some different products and initiatives. I was hoping you could flesh out a little bit more around your expectations here for the uplift to Victory as it relates to non-U.S. distribution, either for current products and again, as well as some of the key focus areas that you highlighted as well.

Sure. Thanks for the question. Let me start off on a higher level. The strategic partnership with Amundi really has given us the ability to sell our products outside of the U.S. to really all through Europe and also through Asia. That -- if you think about where we start with that, the Pioneer Investments franchise has a lot of their products already in Amundi's distribution system throughout Europe and throughout Asia. We're going to continue to support that, invest in it, we're launching new products off of the Pioneer Investments franchise. That has grown over the years, and we think that will continue to grow going forward. Immediately on April 1, all of Victory's, vintage Victory's products were available from an institutional perspective throughout Europe, throughout Asia really throughout all of the Amundi's distribution network institutionally. We're working with them today around marketing, RFPs, client discussions, meeting clients, and we view that as a channel where it's immediately available, we're educating, and we think that there's going to be a lot of growth there. What we're also working on in parallel with that is launching registered products outside of the U.S. for new Pioneer Investments strategies, but also for vintage Victory strategies. As I said in the prepared remarks, will complete the beginning of those registrations for the products we're going to start out with through the end of this year. And I think going into '26 is where we'll start to see some progress there. These products will be registered, a lot of them in UCITS formats. And a Amundi's distribution network is just vast all throughout Europe and really throughout Asia. So we're super excited about that. I think going forward, today, it's 16% of our client assets. I think we manage money for clients in 60 countries. I think that number is going to grow. And I think over time, as we execute, it will grow significantly. It's a big portion of our story of how we think we're going to grow our business and globalize our business. But we're in the very early stages. And you can see through our results that it's beginning -- it will begin to come through, and we're really encouraged by it.

Perfect, Dave. And if I could just follow up with a quick numbers question, just on margins. Just wondering if there was an incremental margin impact from -- during the quarter from the higher fee event that you experienced that created the uplift for the 2Q fee rate? And then just near term, as we look ahead, we have more cost synergies coming on board and a number of different initiatives. I know you reiterate the 49% long-term margin, but kind of curious how you're thinking in terms of kind of near-term margins ahead, just given the benefits coming on board soon.

Well, I think you identified our over 50% margins for the first quarter after the acquisition, which we're quite pleased with. We've kept our guidance at 49%. The margins will ebb and flow going forward as we continue to invest in the business. We have executed really well, and we have exceeded those -- that guidance, but we're going to keep our guidance at 49%. It doesn't mean that there won't be quarters where we're above. From a synergy perspective, a couple of things to note that the $70 million net expense synergy that we referenced is on a run rate basis. So not all of those costs are reflected actually in the quarter. And then the remaining $40 million of net expense synergies, we'll get $30 million of that out over the next 9 months. And after the really the 1-year anniversary, the next 12 months, we'll get the next $10 million out. We can't predict what quarter that will happen and what the margins will look like. But I think as we've talked about for a long time, our business -- we run our business looking at margins. We have set up our operating model to have 2/3 of our expense approximately be variable. So it allows us to really focus on margins. And I think the 49% guidance that we've kept really gives us the ability to continue to invest in our business.

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

Just zooming out maybe a little bit, it seems like there's lots of progress, lots of exciting things happening on the product development side as Pioneer kind of comes into the fold here. If you look at the firm's flows over the last few quarters and over the last couple of years, they've been generally slightly negative, you guys are closer to breakeven now. If all goes well, what is sort of the aspirational organic growth do you see in the business as these assets all come together?

Alex, it's Dave. So I think first, you've seen the improvement over the last few quarters. And this quarter, we were net outflow $660 million, which is 23 basis points or 92 basis points on an annualized basis, which has improved. It's not where we want to be. We had $15.4 billion of gross flows, which is quite significant. Quarter-over-quarter, it's the highest amount of gross flows we've ever had, as an organization. So when we look forward, as we globalize our business as we continue to expand our product set, we want to be able to grow the business organically. That is our goal. I think we are in best position we've ever been in our organization's history to do that. The industry has some headwinds but there are a lot of areas with tailwinds, and I think we have products that are in the areas with tailwinds. So our goal is to consistently grow quarter-over-quarter organically. I think we've made big, big steps to getting there. One of the things we mentioned in our prepared remarks is we've increased the size and the scale of our U.S. intermediary sales efforts, and that comes from a marketing from an FTE, from purchasing data, from entering into partnerships with important providers. And then on the institutional side, we've increased the size of our team there. So we are investing in distribution. I think you're starting to see some of that in the numbers. And I think as we move forward, also factoring in our efforts outside of the U.S. and that kind of getting -- speeding up over time, I think we're going to be in a great position to grow our business organically.

Great. All right. Fair enough. Mike, one quick cleanup question for you. Can you just specify the amount of benefit in revenues you guys got from a onetime or the seasonal performance fee benefit that you mentioned? I know you said the fee rate improved because of the mix shift as well as the seasonal realization event. Can you just classify the dollar amount of that event?

Yes. Alex, it's hard to do because there's a bunch of different components that factor into it, right? So it's not just -- there's asset mix, there's client mix, there's channel mix that I think as we look at Q2, we're actually all positive factors in leading ahead of the 46 to 47 basis point guidance. And then we did have some revenue realization that was, if you will, onetime in nature. I would think if you look at all of those things, we're going to have some ebb and flow going forward. So not easy to quantify. It's immaterial ultimately, to the nature of what we saw at the 49.4 basis points. But again, we just kept guiding to the 46, 47. But even that, I think we'll have some upside based on asset mix. The equity markets were strong. We saw some more retail flow and retail assets that we had anticipated that guide higher from a basis point perspective. So I think we're not able to easily break that out for you.

Your next question comes from the line of Ben Budish with Barclays.

I just wanted to maybe press on that last point a little bit more, you did mention that there was a specific onetime kind of realization related fee. Could you maybe talk about the nature of -- if you're not able to quantify what the number was, could you maybe talk about like the nature of what that was exactly? I think in your prepared remarks, you mentioned that it's something that kind of happens annually, but happened to crystallize this quarter? And any color on what the margin benefit might have been in the quarter would be helpful.

Sure. Yes. So I think, as we said, it's really about how we are able to recognize certain revenue and revenue realization associated with certain products that we have. So that's the nature, if you will, Ben, of kind of what we highlighted. Again, there's an element of asset mix, I would point to as well that leans positively as well for the quarter. So it really has to do with accounting from a revenue realization perspective. We've highlighted in the past we have some fulcrum fees. We've highlighted that there are some annual fees that we receive that are not necessarily tied to performance. That's how I would categorize these. And then your second question with respect to impact to margins, I think I would highlight our operating model. We talked that we are very margin focused. And so from a low-fee product to a high-fee product to annualized revenue, asset mix, all of that calibrates with our variable cost structure that we have. So there really wasn't a significant impact to our overall margins as a result because of how the expenses are offset to any change in revenue.

Okay. That's helpful. Maybe just a separate follow-up. You talked a lot about confidence in the flows. Can you maybe talk about what flows look like maybe sequentially through the quarter? How is July shaping up? What the kind of most recent momentum looks like just coming into Q3 here?

Thanks for the question, Ben. We are still integrating our sales teams. So on the intermediary side, that's going to be a buildup. Same thing on the institutional side. And as I discussed earlier on the call, really the same thing on the international side. So as every week and every month goes forward, we're getting more integrated, more educating of our sales force. And so I anticipate the ramp-up to continue to occur. Maybe another way of saying it is we're not hitting on all cylinders today, yet we still have really, really good results. I'd say we're ahead of where I thought we would be, but we've got a lot of work to do. And this quarter was a pretty volatile quarter starting in April, where we started off to where we ended. So there's a lot of volatility. And I think we worked our way through it really, really nicely. As far as the third quarter, it's too early to tell. We don't get into kind of monthly or updates from a flow perspective as you see a lot of things happen on a weekly basis. So I would say, bigger picture, as we end the year, and go through the rest of this year. I think we're going to ramp up our sales efforts. And I'd leave you with that I think we're ahead of where we thought we would be. And I think the outlook is -- we're really, really excited about the outlook from a flow and organic growth perspective over the short, medium and long term.

Seeing as we have no further questions for today. This concludes the Q&A session and today's conference call. We would like to thank everyone for their participation. You may now disconnect your lines. Have a pleasant day.