Good morning. My name is Joelle and I will be your conference operator today. I would like to welcome everyone to the Virtus Investment Partners Quarterly Conference Call. The slide presentation for this call is available in the Investor Relations section of the Virtus website www.virtus.com. This call is also being recorded and will be available for replay on the Virtus website. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer period and instructions will follow at that time. I will now turn the conference to your host, Sean Rourke.

Thank you, Joelle and good morning everyone. On behalf of Virtus Investment Partners, I would like to welcome you to the discussion of our operating and financial results for the first quarter of 2019. Our speakers today are George Aylward, President and CEO of Virtus; and Mike Angerthal Chief Financial Officer. Following their prepared remarks, we will have a Q&A period. Before we begin, I direct your attention to the important disclosures on page 2 of the slide presentation that accompanies this webcast. Certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and as such are subject to known and unknown risks and uncertainties including but not limited to those factors set forth in today's news release and discussed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those discussed in the statements. In addition to results presented on a GAAP basis, we use certain non-GAAP measures to evaluate our financial results. Our non-GAAP financial measures are not substitutes for GAAP financial results and should be read in conjunction with GAAP results. Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in today's news release which is available on our website. I'd also remind you that we made a revision to certain of our non-GAAP financial measures effective with the first quarter 2019 results as described in the 8-K filed on April 10th. Mike will provide more detail on those changes in his remarks. Now, I'd like to turn the call over to George. George?

Thank you, Sean and good morning everyone. I'll start today with an overview of the quarter before turning it over to Mike to provide more detail on the financial results. The market environment in investor settlement improved significantly during the quarter compared with a very challenging additions at the end of last year. These improvements coupled with the breadth of our strong product offerings contributed to an increase in sales and sharp recovery in net flows over the course of the quarter with positive net flows in February and March. In terms of our results for the quarter, long-term assets under management increased 11% sequentially to $99.9 billion as a result of market appreciation. Total assets which include liquidity strategies ended the period at $101.7 billion. Total sales of $5.5 billion increased 24% from the prior quarter as a result of increased sales in all product categories. Net flows were essentially flat as positive net flows and structured products, ETFs, and retail separate accounts were offset by net outflows in open-end funds and institutional. Open-end fund net flows were $0.9 billion for the quarter primarily due to $0.7 billion of net outflows in bank loan strategies as that asset class remained out of favor in the quarter. -- equity mid-cap strategies at Kayne and Ceredex as well as the international small-cap strategy at Kayne. ETFs had net flows of $0.3 billion in large part due to newly issued strategies. Retail separate accounts had positive net flows of $0.3 billion from both the intermediary sold channel and the Kayne's private client business. Kayne's small-cap and SMID strategies were the key contributors to net flows in the intermediary sold channel which has now generated 13 consecutive quarters of positive net flows and Kayne's private client business was also positive. Institutional net outflows…

Thank you, George. Good morning everyone. Before I begin the review of our results, I'd like to remind you of the change in our non-GAAP financial measures effective with first quarter results. Specifically, we revised the definition of net income attributable to common stockholders as adjusted and earnings per share diluted as adjusted to include the interest in dividend income earned on seed capital and CLO investments, which previously had been excluded from these measures. It is important to note that the revision did not impact other non-GAAP financial measures. As we've discussed on prior calls, interest and dividend income earned on seed capital and CLO investments is an element of economic value and we believe the inclusion better reflects the company's financial performance given changes in the business over the past several years including the addition of the Seix CLO platform and related CLO balance sheet investments. Starting with our results on slide 7 assets under management. At March 31, long-term assets were $99.9 billion, which reflected a sequential quarter increase of $9.5 billion or 10.5%. And an increase of $12.5 billion or 14% from the prior year quarter. The sequential increase was due to $9.7 billion of market appreciation, as net flows were essentially flat. The market appreciation was reflective of strong equity markets both domestic and international as well as an improvement in credit markets, particularly leverage loans. The change in assets from the prior year, primarily reflected the addition of SGA's assets of $11.3 billion and market appreciation of $5.6 billion, partially offset by net outflows of $3 billion. Our AUM continues to be well diversified by product-type, asset class and channel. No single investment category represented more than 19% of long-term AUM and at March 31 open-end mutual fund AUM accounted for 41% of total…

Thanks, Mike. We will now take your questions. Joelle, can you open up the lines please.

Thank you. [Operator Instructions] Our first question comes from Sumeet Mody with Sandler O'Neill. Your line is now open.

Hey, good morning, guys.

Good morning,

Just one quick one for me on the index fund at ETFs looks like a pretty fast start. Can you talk a little bit about the client demand in those products and maybe how you're thinking about the gross net asset class maybe more long-term?

Sure for ETFs as we've been building out our product strategy there the – what you're seeing in this quarter Mike alluded to it as he sort of went through it is we've created ETFs in terms of providing exposure to certain asset classes that were going to be utilized in model portfolios, which we see as an important growth area. So it's a good example of partnering with an intermediary to create an ETF, that's suited for those models and we hope to see similar opportunities going forward. We continue to work on how do withstand our ETF offerings we actually just launched an ETF I believe yesterday with the loan strategies out of Seix. So we see that there is opportunities for that product class and how it can be utilized by intermediaries directly or also as part of models going forward?

Okay. Great. Thanks.

Thank you.

Thank you. And our next question comes from Michael Carrier with Bank of America. Your line is now open.

Thanks. Good morning.

Good morning.

First question just on the open-end fund side, I think when I look at the SMA the institutional ETF an then structured products you guys have been making good traction there. And obviously on the open-end funds that channel and that product you've got the industry headwinds and then you mentioned the bank loan but when you kind of look at the different products that Virtus can offer in those channels where maybe some of the areas where you can start to see better momentum if some of the headwinds with like the bank loan products starts to fade and anything like from like a performance standpoint because you guys gave some kind of broad performance stats but – and specific on the fund side, not sure if things are shifting around or changing that can help you?

Sure. So, well I'll start with the opening funds. It really has been a story about the bank loan category, which has been I believe the weakest performing flow category for last two quarters. So that's really overshadowing a lot of other things that are going on in the other asset classes and sort of where we saw sort of highlighted where currently you're seeing some strength is in the mid-caps, and some of the small-caps and some of the international. So really – generally, our performance across the board and Mike went through some of the stats is broadly strong across asset classes and market caps. As we look at our offerings of strategies many of them either deal with capacity constraints or high conviction types of strategies. So generally, all else being equal they'll be less susceptible to challenges from index-looking type products. So we sort of feel good about the product we line up, we have in the open-end fund space even though we acknowledge it's really a difficult – still a difficult environment for active managers, but our active managers in the strategy that they manage are very attractive. So – but you are definitely seeing the impact of the loan fund category, which has been out of favor. And that's also – the kind of category, I always remind people that, there's periods where it's the worst performer and then there's periods where it's the best performer. It has a lot of volatility in terms of its flows in demand, so we're still very bullish on that category. Hence, the launch yesterday of an ETF to also maybe attract interest but in another product form. So over the years, we've had periods where our best selling products in Multi-Sector, Short-Term Bond Fund, our best-selling fund has been an emerging market fund, we've had small-cap funds, we've had domestic equity funds. So we feel good about the diversity and the differentiation we have in our products and how they sort of compete against other things. So we really feel good about that opportunity, and as I referenced in my early remarks I truly do believe that the volatility that you had with the really challenging fourth quarter and then the transition into the first quarter in our view that's why you want to have an active manager managing your portfolio. And in all honesty, we're really proud of our managers, who actually help performed in both of those periods on average. So we really feel good that we're positioned and our sales people are out there making that story.

Okay. That's helpful. And then maybe just a quick follow-up for Michael, just on the balance sheet you gave the update on the working capital and the portion of the debt payment that's included in there. Just maybe a broader update on what you guys are thinking given the net debt-to-the-bank-EBITDA ratio where your cash ends and just priorities at this point? Whether its new affiliates the seed. It sounds like on the CLO side you're reusing the seeds so we wouldn't expect that to increase but just wanted to get an update on your priorities given to where the balance sheet is now and the cash flow that you're generating?

Sure. And this is George, and let me just pipe-in and then Mike will go through a little bit more. As we've sort of pointed to before, we really do continually evaluate the highest priorities we have as it relates to either the introduction of new products or to the maintaining adequate levels of leverage or to return of capital. I think as we demonstrated last quarter, the repurchasing of shares was a high priority for us and in terms of our new product introductions, we did I think a good job of recycling equity from a CLO to fund another CLO and then we also continue to look at that seed capital portfolio to be recycled. Generally with where I see our current product pipeline which could change, I think we're at lower end of our range Mike will probably talk about that a little bit. At the same time, even though our long-term growth strategy is not predicated upon M&A, our business model is effectively built to support and maintain the addition of new affiliated managers. So, we continue to evaluate those kinds of opportunities and again we think we have a very compelling value proposition for boutique managers who want to have good support in critical areas of their business, in particular, on the distribution side. So, we'll continue to balance all of those items and with the cash flow that we're currently generating. And including that the benefit we have some of our tax yields on a cash basis we feel very confident that we can continue to execute on all three given whatever opportunities are currently out there. Mike do you want to elaborate?

Yes, I think George covered a good deal of our priorities there and I'll just reiterate the strength of our cash flows enabled us to really balance our capital priorities among investing in the business, returning capital to shareholders, and consistently paying down debt, and maintaining the net debt to EBITDA 0.9 times below 1.0 and even gross debt to EBITDA at 1.6 times which provides capacity to continue to invest in the business throughout market cycles. I think we've been active in terms of recycling in existing investments in both the seed capital on the CLO side to continue to drive the growth there and maintaining a pretty reasonable range in both the seed capital and CLO investment lines. And then as you did indicate, the first quarter is typically the low point of the year in terms of a cash basis and then in the quarter, $142 million and through the rest of the year we would generally expect to see that cash balance increase and continue to drive that operating flexibility.

Okay. Thanks a lot.

Thank you.

Thank you. And our next question comes from Alex Blostein with Goldman Sachs. Your line is now open.

Hey good morning everybody. You guys had a pretty decent momentum this quarter on the retail separate accounts side of things and I was hoping you could expand a little bit on which distribution channels does that come in through? Which affiliates in particular are seeing more traction? Sort of which products we should be really watching from a retail side of things? And then secondly on the institutional side again you guys highlighted pretty healthy pipeline so maybe a minute on the timing? When you think that could come in and the affiliates that are trying most of it? Thanks.

Sure. Sure. Now, on retail separate accounts which over many quarters we've sort of been highlighting it because we really, really think that retail separate accounts are a product type that is it provides great opportunity and as we sort of said in our remarks, it's now been 13 quarters for positive flows in the intermediary sold retail separate accounts and then separately the private client business at Kayne Anderson Rudnick is also positive. So, we sort of feel very good about that channel. So, on the intermediary sold, where we sell-through the intermediaries as opposed directly to our own private clients, we have seen strength across different distribution partners. The strategies that resonate best there from what we offer has been the mid-caps to small-cap to SMIDs, some of those but we also offer certain fixed income strategies as well as other larger cap. So, again, getting back to the distinctive nature of some of our managers either being quality oriented or high conviction, those are the kinds of strategies where we believe that in -- people who utilize retail separate accounts in lieu of funds because of the size of their ability to invest which are lower costs for those clients. We see a lot of growth in that opportunity and we think a lot of financial advisers who don't currently use a lot of retail separate accounts may consider expanding their utilization of retail separate accounts versus open-end funds and separately ETFs because we think they can all fit into a good book of business for our clients. So, we're very focused in on retail separate accounts and any other opportunities we have for other strategies or capabilities to make available. On the institutional side, we did reference couple of things. One thing I'd like to point…

Great. Thank you.

Thank you.

[Operator Instructions] Our next question comes from Michael Cyprys with Morgan Stanley. Your line is now open.

Hey, good morning. Thanks for taking the question. Just wanted to follow-up on the seed and CLO portfolio. Just curious how much excess is in there today? What should we expect in terms of those balances trending from here? I know you mentioned some recycling so should we expect those balances to be largely, I guess, flat from here? Or how much gross new ads would you be expecting to contribute to the CLO portfolio and the seed book from here?

Well, I'll talk a little bit about the seed and let Mike talk about the CLO portfolio. So for the seed, again it changes based upon where we are in terms of our product development and product introductions. So I made an illusion to I think where we are literally today we might be at the lower end of the range we have given before which I think the last time we gave a range was $100 million to $150 million. Right now you're sort of seeing we're hovering around that $100 million kind of a level. So I think right now at -- so we said that we've been introducing products we do have other that had to mature that we were able to recycle it. So our needs could change going forward, but I think that would be a general way to sort of think about in the short term where we are with seed capital. Mike in terms of CLOs?

Yes, I think, on the CLOs we've also kept that within a pretty tight range over the last four quarters or so as the risk potential rules were appealed early 2018. Certainly, our preference is to fund new CLOs as well by recycling existing investments as we did with the Seix new CLO issuance this quarter. As well as co-sponsoring alongside third-party capital, which Seix has been able to attract. So over the next several years it may moderately increase or decrease the level of investments, but certainly that depends on market conditions and if there's any meaningful change we would certainly update you as appropriate.

Okay. Great. And then just a follow-up on the institutional channel. It seems like you guys are seeing some traction here buying in some of the pipeline. But just curious given the some of the trends that we're seeing in the institutional channel across the industry in terms of asset owners wanting fewer but more strategic relationships wanting thought leadership solutions just given all these challenge changes going on the institutional challenge just curious how you're thinking about evolving your approach to the institutional channel? How multi-affiliate that are going after the multi-affiliate -- coming after the institutional channel are -- could exceptionally succeed in that channel? How you're thinking about evolving your platform to benefit from these trends?

Sure. Well I mean it really starts with the underlying managers, right? Even if you look at the whole institutional marketplace as a whole -- ultimately gets down to what is the individual opportunity for Duff & Phelps, for Kayne, for Ceredex SGA and it's a big world of institutional assets there. So the primary focus is really each of them executing on their highest invest opportunities of those who want either global equity strategies or small international -- small-cap strategies or global real estate strategies. So it's really primarily focused in on what are the opportunities and institutional asset mandates are available for each of those affiliates and then separate -- maybe this gets to the other part of your question which is sort of what are the ways that we can do to help facilitate that and to fit into some of the growing trends. And we continue to work with them to make sure that we're providing the support and the direction that could add value to what they're doing, but I always like think about it -- the institutional market is a huge market and there are trillions of dollars that are out there and we just need to execute on an affiliate-by-affiliate basis on where the opportunity set is. We can bring in money into categories that out of favor in the institutional market as long as our managers are better than the managers that we hopefully would like to replace.

Great. Thank you.

Okay. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Aylward.

Well, I want to thank everyone for joining us today and we certainly encourage you to give us -- calls if you have any further questions. Have a great day. Thank you.

That concludes today's call. Thank you for participating. You may disconnect.