Victory Capital Holdings, Inc.

to the Victory Capital first quarter 2021 earnings conference call. All callers are in listen-only mode. Following the company's prepared remarks, there will be a question and answer session. To ask a question during the session, please press star one on your telephone. I will now turn the call over to Matt Dennis, Chief of Staff and Director of Investor Relations. Please go ahead, Mr. Dennis.

Thank you, and good morning. 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. 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.bcm.com. It's now my pleasure to turn the call over to David Brown, Chairman and CEO. David?

Thank you, Matt. Good morning and welcome to Victory Capital's first quarter 2021 earnings call. I am joined today by Michael Pellicarpo, our President, Chief Financial and Administrative Officer, as well as Matt Dennis, our Chief of Staff and Director of Investor Relations. I'll start by providing an overview of the strong operating and investment performance we achieved to start the new year. Then I will expand on our improving organic growth outlook with some detailed information. After that, I will turn it over to Michael who will review our first quarter financial results in greater depth. Following our prepared remarks, Michael, Matt, and I will be available to take your questions. The business overview begins on slide five. Victory Capital began 2021 much the same way we ended 2020. Net asset flows continued their improving trajectory that began in the middle of last year. investment excellence persisted with the vast majority of our assets under management continuing to outperform respected benchmarks and achieve very competitive rankings relative to their applicable peer groups while the efficiency of our platform also resulted in robust profit margins and record earnings for our shareholders we ended the quarter with total aum of 154.3 billion as well as long-term aum of 151 billion both of which were records Net flows improved again for the quarter, as well as during the quarter, culminating in positive net flows in the month of March. We've maintained the momentum we had in March thus far in the second quarter as of today's call. Revenues improved quarter over quarter by 6% on the higher AUM and improving average fee rate, which was the highest realized average fee rate in more than a year. Adjusted earnings per share included tax benefit rose in line with revenues and also grew by 6%. Moreover, adjusted EBITDA margins came in above 50% for the third quarter in a row. Consistent with our stated capital allocation strategy, we deployed most of our excess cash flow to further reducing debt and paid down an additional $50 million during the first quarter, reducing our net debt to annualized adjusted EBITDA leverage ratio to 1.6 times. Our ancillary uses of excess cash flow included raising the quarterly dividend and continuing to repurchase shares in the open market. With the $0.12 per share cash dividend declared yesterday, we've increased our cash dividend by 140% since this time last year. Turning to page six, investment performance continued to be excellent, which is a testament to our unique operating platform and culture. The majority of AUM has outperformed benchmarks for all standard measurement periods, and a majority of our strategies have also outpaced the respective benchmarks on an equal weighted basis. We provide our investment franchises with a centralized and fully integrated operating platform featuring best-in-class tools, which enables our investment professionals to focus their time on managing assets and servicing clients. With the closing of our most recent acquisition, THB Asset Management, on March 1st, we added their five-star rated THB micro-cap fund to our lineup. Our total number of mutual funds in ETS was four five-star ratings by Morningstar, Together, these 45 products represent 62% of our AUM in mutual fund and ETF wrappers. Moving to slide eight, I'd like to provide some color on why we are optimistic about our long-term outlook for organic growth. I will start with our recent acquisition of THB and our investment in Alderwood. Between the various strategies offered by THB, we have approximately $15 billion of open capacity. These are micro, small, and mid-cap strategies in the U.S. and international markets. These are capacity-constrained asset classes where active management is relevant, and with THB's exceptional long-term investment track records and the added feature of a long history of ESG integration, we anticipate steadily filling that available capacity over time. In September of 2020, we made our strategic investment in Alderwood, which provided us with an entry into alternatives. Alderwood received formal FCA authorization in the first quarter and has plans to begin fundraising for their initial fund in the second half of this year. We will be assisting Alderwood in their fundraising and will be including their net flows. As a reminder, Alderwood will be charging fees similar to other private closed-end funds. Alderwood is targeting the size of their initial fund to be between $1 and $2 billion with a total life of 10 years. Next, we are well positioned to provide investors with highly rated products built for the current and quickly evolving interest rate environment. One example is our five-star rated, Refinitiv LIPA award-winning floating rate fund that has been accumulating assets with strong positive net flows and currently has approximately $1.3 billion in AUM. This product is selling very well across a number of large intermediary platforms in our AAs. We expect this positive momentum to continue given many investors views on the future direction of interest rates. Our high yield fund is also rated five stars and is a recent Refinitiv LIPR award winner. Our market neutral income fund, which is managed by our solutions team, has consistently been one of our top performing products from an organic growth standpoint over the past several quarters. This product is unique and generates an attractive income yield for investors without using bonds. As investors reevaluate their traditional 60-40 portfolios, they are attracted to differentiated income projects such as this, which is currently the third best-selling market-neutral income fund in the country, according to Morningstar. It offers an attractive yield, low volatility and risk characteristics similar to traditional fixed income products with low correlation to both the equity and bond markets. On top of that, it has a lower fee than many traditional fixed income products and provides a majority of its income in the form of qualified dividend income. With the rotation from growth to value, as well as into mid and smaller capitalization stocks, we have a host of highly rated products and strategies that could benefit from a continuation of this rotation and that are managed by a number of our franchises. Those franchises are Sycamore, Integrity, and THB to name a few. Additionally, active global and international strategies are also in demand with investors. We have a sizable amount of open capacity in these asset classes supported by high-performing investment franchises with RS and Trivalent to highlight two of them. Our Victory Shares ETF platform was net flow positive for the second quarter in a row. With the continued industry-wide momentum of the ETFs and now with the emergence of thematic ETFs, we believe we are well-positioned to be a beneficiary of this trend and Our CDC and CSB ETFs are five-star rated and provide unique investment characteristics, and both are resonating well with clients. We have also had success with our NASDAQ Next 50 product, Triple QN, which was launched in September of last year. Lastly, our new VTRN product is a good example of our thematic capability with its focus on veterans. This product is just being rolled out with a new digital marketing campaign and is very applicable to our direct investor client base. Lastly, as we look out beyond the next several months, we have a number of emerging opportunities to drive organic growth in fixed income products managed by our USAA investment franchise. These include our newly launched SMAs and two active fixed income ETFs that have excellent investment performance and are highly rated. Our SMAs are now live at Fidelity and Schwab, and we are in advanced discussions for these offerings with top tier WRAP sponsors. We are also winning excellent shelf space for our USAA fixed income mutual funds, which is building the pipeline for the future. I will review this point in more detail later in the presentation. Turning to slide nine, we present a different view with specific in-demand asset classes coupled with franchises that manage products within those asset classes. As you can see, we have multiple franchises with multiple products in most of these asset classes. If market leadership continues to rotate from momentum and in a company to a strong fundamentals and sectors poised for earnings growth, as well as into capacity-constrained asset classes that make up a relatively larger portion of our parent AUM and opportunity. It bodes well for not only continued strong investment performance, but also enhances our potential to further accelerate our improving net flow trajectory. Turning to slide 10, our institutional book of one but not yet funded mandates continues to grow. While a few mandates did fund since the start of this the funding of new mandates will accelerate as we progress through the year. These wins have been achieved by many of our franchises, and they have been awarded to us by a well-diversified set of clients across our institutional footprint. To give you an example of the solid positioning of our institutional strategies, we had 15 different strategies that ranked in the top courts of our investment over both the three- and five-year periods ending March 31st. Given the aforementioned, we are optimistic that we will continue additional new mandates as the year progresses. Starting on slide 11, I will review our direct investor business and then our USAA investments franchise. We've increased the products available to our direct investors to 56 mutual funds, which are made up of both USAA and Victory Mutual Funds. We also have launched a digital portfolio planner that offers investors a self-guided tool that can assist them in their financial planning. We also now offer a customized fixed income SMA to this client base. Our referral agreement with USAA continues to produce new account registrations, many of which have automatic investment plans associated with them, which are beginning to bring in meaningful asset flows. As a reminder, the direct channel was closed prior to our acquisition, so we are very pleased with the traction we are beginning to see. Our 529 college savings plan remains since the close of the USAA acquisition, and AUM has reached approximately $5 billion. Many of our 529 plan participants utilize the automatic investment plan option as well, which brings in a steady flow of assets. Lastly, the fixed income products managed by our USAA investments franchise continue to post excellent investment performance, and we've been accelerating the reach of these products with our distribution partners, which is covered on slide 12. Our retail retirement and national accounts distribution teams have made great progress in winning new shelf space for the fixed income products managed by our USA Investments franchise. You have heard us refer to this as installing the distribution pipes that will help drive future organic growth in these products. 100% of these fixed-income products outperformed their respective benchmarks for the one-year period, and 94% of them outperformed for the three-, five-, and ten-year periods, creating meaningful tailwinds for this initiative. Our progress was somewhat impeded last year by COVID, as approving new product placements took a backseat with many of our intermediary partners, who turned their focus to navigating the pandemic. That situation has evolved, and a more normalized environment is beginning to emerge. We've significantly expanded the depth and breadth of our distribution reach for these products with new and expanded relationships at a very well-diversified set of leading defined contribution and national retail platforms. Many of them are also adding these products to their respective recommended lists. We have executed brand new agreements with Ameriprise, Ascensus, ADP, Broadridge, Lincoln Retirement, American Funds, TIA, Principal, and Empower, which just acquired Mass Mutual's retirement plan business, where we also had a new agreement. The same goes for Principal Retirement, which just acquired Wells Fargo Retirement, where we also had secured a new agreement. On the retail side of Prudential, we now have multiple products on their Prue Choice platform. We also recently added Morningstar, which came with the benefit of being included in Morningstar's fiduciary product offered through Voya. At Voya Retirement, we achieved inclusion on their closed menu product. We have likewise secured space on Transamerica's closed menu product, which is similar to a focus list. RBC Wealth Management added the Victory Shares USAA Active Fixed Income ETFs, and Fidelity Direct added 15 USAA funds to their Fidelity Personal Investors Channel no-transaction fee platform. Edward Jones added multiple USAA mutual funds, including the USAA Intermediate-Term and Short-Term Bond funds to their approved and research list, as well as their guided solution fund and flex advisory platform. This is the first time these products have been available to EverJones brokerage and advisor accounts. We see great opportunity for the USAA investments franchise as we are bringing together excellent investment performance with expanded distribution. Lastly, I would like to mention that we continue to be extremely active in our pursuit of acquisitions. We are in various stages of our evaluation process with a number of potential opportunities with some getting into the very final stages. The environment for us is better than at any time I can remember. We are very well positioned to participate in the consolidation of the industry given our track record at success acquiring companies. We have purposefully used the majority of our free cash flow to reduce our leverage so we would have the flexibility to execute, which is where I believe we are today. With that, I will turn it over to Michael for a more in-depth discussion of our financial results.