Victory Capital Holdings, Inc.

Good morning and welcome to the Victory Capital second quarter 2023 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. 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. 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. 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 2023 earnings conference call. I'm 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 today by providing an overview of the second quarter. After that, I will turn the call over to Mike to review the financial results in detail. Following our prepared remarks, Mike, Matt, and I will be available to take your questions. The quarterly business overview begins on slide five. We generated another quarter of strong revenue, earnings, and margins to close out the first half of the year. Long-term net flows improved for the second consecutive quarter with outflows of $1 billion, compared with the $1.2 billion of outflows recorded in the first quarter. This excludes the three basis points passive mandate redemption in April, which was previously disclosed in our April AUM release. Average AUM was essentially flat, quarter over quarter, and our average fee realization rose to 52.1 basis points, which contributed to higher revenue compared with the first quarter of the year. Our margins remained exceptional, coming in at 50.9% this quarter, which highlights the differentiated nature of our operating platform and its highly variable expense structure. This is the 12th quarter in a row that we achieved margins above our long-term guidance of 49%, and this is the 8th quarter over that period where our margins surpassed 50%. Our long-term margin guidance remains unchanged at 49%, and keep in mind, this does factor in ongoing strategic investments that will help us grow our business in the future. Adjusted net income with tax benefit rose to $1.11 per diluted share in the quarter, up from $1.08 in the previous quarter. Substantial capital returns to shareholders continued through the first half of 2023. We repurchased a record $1.5 million of our shares this quarter versus $1.4 million in the first quarter. We allocated $47 million to share repurchases and paid out $21 million in cash dividends for a total capital return of $68 million for the quarter. On a year to day basis, we've repurchased 2.9 million shares for $92 million and paid cash dividends of $43 million for a total return of capital in the first half of $135 million. We continue to invest in our business in a number of different areas. We launched our new brokerage platform in April and we branded the direct channel at the same time. Additionally, We continue to allocate resources to data and technology and are embarking on a few new marketing and distribution initiatives as well. Turning to slide seven, investment performance remains excellent and consistent. At quarter end, 42 of our mutual funds and ETFs had four or five-star overall ratings from Morningstar. These four and five-star products account for nearly two-thirds of our AUM and mutual funds and ETFs. Additionally, approximately three-quarters of our total AUM outperformed benchmarks for the three, five, and ten-year measurement periods ended June 30th. A number of our products rose into the top quartile according to Morningstar's trailing three-year rankings. These included the Victory Income Investors Tax-Exempt Intermediate Term Bond Fund, Victory RS Global Fund, Victory RS Partners Fund, and the Victory RS Investors Fund, as well as the Victory Munder MidCap Fund, and our Emerging Markets Value Momentum ETF. In total, approximately 43% of our mutual funds in ETF AUM is ranked in the top quartile as of June 30th. Focusing specifically on the 16 fixed income products managed by our Victory Income Investors franchise that are rated by Morningstar, Fourteen of those 16 products, representing 95% of that AUM, ended the quarter with four or five-star overall ratings. Given this investment performance, the trillions of dollars presently invested in money market funds, and the distribution we have built out for this franchise over the last few years, we believe we are nicely positioned to capture inflows into these products as the Fed's tightening cycle subsides and investors begin to migrate their holdings into longer-duration fixed income strategies. Turning to slide eight, we continued to generate robust excess free cash flow in the second quarter. Once again, we remain opportunistic with our share repurchase activities quarter, given where our shares were trading during the period. While we intend to remain flexible with our capital allocation, it is important to state that we are not deviating from our proven approach of making our company better through acquisitions. Over the long run, we believe that the best use of our access free cash flow is to invest in both organic growth initiatives and strategic acquisitions to create shareholder value. On the organic side, in addition to what I mentioned a few slides back, we are also investing in new product development. One recent example is our Victory Shares Free Cash Flow ETF, ticker VFLO, that we launched in June. On the inorganic side, we are spending quite a bit of time conducting diligence on multiple inorganic opportunities. Although timing and getting to a transaction close cannot be guaranteed, we are generally optimistic with what we are seeing and how things are going. That being said, we remain patient, disciplined, and selective as we evaluate opportunities aimed at enhancing shareholder value over the long term. Before I turn the call over to Mike, I want to take a moment to highlight a significant company milestone. On Monday, we celebrate our 10th anniversary of being an independent company. In 2013, when we executed on our management buyout, employees contributed about a third of the required equity, and the balance of the equity was funded by Crestview Partners. Our other private equity investor, Reverence Capital Partners, began their investment in the fourth quarter of 2014. Crestu and Reverence have been long-term investors, and neither firm sold any shares leading up to or during our initial public offering in February of 2018. For calendar year 2018, we ended the year with $53 billion of AUM, generated revenue of $413 million, and adjusted EBITDA of $160 million, with an adjusted EBITDA margin of 38.7%. and adjusted net income with tax benefit per diluted share of $1.64. Since then, we have more than tripled our AUM and increased our run rate revenue and earnings by more than twofold. But of most importance is we made our company better and more durable by significantly diversifying our business across investment products, asset classes, broadening distribution, and adding size and scale. with substantially increased efficiency and has allowed us to expand our margins by well over a thousand basis points during our time of being a public company. It wasn't until November of 2021 that our private equity holders executed on their first sale of VCTR shares in a secondary offering. Since then, They've either sold or distributed more than 23 million shares, taking their combined ownership stake down from approximately 67% at the time of the IPO to approximately 32% today. The relationship with our private equity holders has been a textbook case of a genuine win-win over the past decade. We are very proud of our track record on executing on our differentiated strategy. and the ability to produce an attractive return for these shareholders, who understood our strategy and believed in our vision from the very beginning. While they remain shareholders today, given the nature of their business model, we anticipate modernization of their investments will continue moving forward. Although we anticipate it, the decision to monetize and the exact timing of that monetization are at the sole discretion of their respective organizations. With that, I will turn the call over to Mike to go through the quarter's financial results in greater detail. Mike?