Q2 2024 Victory Capital Holdings Inc Earnings Call

August 9, 2024

Speaker Change: Good morning and welcome to the Victory Capital 2nd Quarter 2020 4Earnings Conference Call. All callers are in a listen-only mode.

Operator: Conference call. All calls are in a listen-only mode.

Operator: 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.

Operator: Following the company's prepared remarks, there will be a question-and-answer session.

Matthew Dennis: I will now turn the call over to Mr. Matthew Dennis, Chief of Staff and Director of Investor Relations. Please go ahead, Mr. Dennis.

Speaker Change: 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.

Matthew Dennis: Thank you.

Matthew 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. Victory Capital's actual results may differ materially from these statements. Furthermore, please note that the ultimate completion of a transaction with MUNDE remains subject to certain closing conditions, as well as regulatory approvals. 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.

Matthew Dennis: Furthermore, please note that the ultimate completion of a transaction with the Monday remains subject to certain closing conditions, as well as regulatory approvals. 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.

Matthew Dennis: Furthermore, please note that the ultimate completion of a transaction with Amundi remains subject to certain closing conditions as well as regulatory approvals.

Matthew Dennis: 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.

Matthew Dennis: 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 gap 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 Brown.

Matthew Dennis: 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 slides accompanying this call, both of which are available on the Investor Relations section of our website at ir.vcm.com.

Matthew Dennis: Reconciliations between these non- GAAP measures .

Matthew Dennis: 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.

David Brown: It is now my pleasure to turn the call over to David Brown, Chairman and CEO. David?

Matthew Dennis: It is now my pleasure to turn the call over to David Brown, Chairman and CEO . David.

David Brown: Thanks, Matt.

David Brown: Good morning and welcome to Victory Capital's second quarter 2020 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 and first half of the year. 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 take your questions.

David Brown: Good morning and welcome to Victory Capital's second quarter 2024 earnings conference call. I'm joined today by Michael Telecarpo, 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 in the first half of the year. 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 take your questions. The quarterly business overview begins on slide 6. The second quarter of 2024 was highlighted by the announcement on April 16th of our intention to enter into a multi-dimensional agreement to become strategic partners with the Monday.

David Brown: Thanks, Matt.

David Brown: I will start today by providing an overview of the quarter and first half of the year.

Speaker Change: After that, I will turn the call over to Mike to review the financial results in greater detail.

Speaker Change: Following our prepared remarks, Mike, Matt, and I will be available to take your questions.

David Brown: The quarterly business overview begins on slide six. The second quarter of 2024 was highlighted by the announcement on April 16th of our intention to enter into a multidimensional agreement to become strategic partners with Amundi. We worked through the rest of the quarter to complete due diligence and negotiate the definitive agreement, which was signed in early July.

Speaker Change: The quarterly business overview begins on slide six.

Speaker Change: The second quarter of 2024 was highlighted by the announcement on April 16th of our intention to enter into a multidimensional agreement to become strategic partners with Amundi.

David Brown: We worked through the rest of the quarter to complete diligence and negotiate the definitive agreement, which was signed in early July. We do not have much additional news to report since our conference call on July 9th, discussing the formal signing. We are currently developing integration plans that will allow us to provide guidance in areas such as the pace of achieving the projected $100 million of expense synergies post-closing, which is expected to occur late in the fourth quarter of this year or in the first quarter of 2025. We are also targeting to incorporate the potential revenue synergies from the reciprocal exclusive global distribution agreement in our guidance prior to closing.

Speaker Change: We work through the rest of the quarter to complete diligence and negotiate the definitive agreement, which was signed in early July .

David Brown: We do not have much additional news to report since our conference call on July 9th discussing the formal signing. We are currently developing integration plans that will allow us to provide guidance on areas such as the pace of achieving the projected $100 million of expense synergies post-closing, which is expected to occur late in the fourth quarter of this year or in the first quarter of 2025. We're also targeting to incorporate the potential revenue synergies from the Reciprocal Exclusive Global Distribution Agreement in our guidance prior to closing.

Speaker Change: We do not have much additional news to report since our conference call on July 9th discussing the formal signing.

Speaker Change: We are currently developing integration plans that will allow us to provide guidance in areas such as the pace of achieving the projected $100 million of expense synergies post-closing, which is expected to occur late in the fourth quarter of this year or in the first quarter of 2025.

Speaker Change: We are also targeting to incorporate the potential revenue synergies from the Reciprocal Exclusive Global Distribution Agreement in our guidance prior to closing.

David Brown: Turning to quarterly results, we had another exceptional quarter. We ended the quarter with total client assets of $174 billion and achieved a number of quarterly records, including earnings per share, EBITDA, and adjusted EBITDA margin, which expanded to 53% in the quarter. So a minimum of our fixed income products managed by our Victory Income Investors franchise continued in the second quarter, marking the second consecutive quarter of positive net flows for that investment franchise. Additionally, our ETF platform had another positive quarter of net flows and is also net flow positive year to date. The average fee rate on our AUM was 52.6 basis points in the quarter and has been consistently within a basis point of that level over the past year.

Speaker Change: Turning to quarterly results, we had another exceptional quarter.

Speaker Change: We ended the quarter with total client assets of $174 billion and achieved a number of quarterly records, including earnings per share, EBITDA, and adjusted EBITDA margin, which expanded to 53% in the quarter.

Speaker Change: The momentum of our fixed income products managed by our Victory Income Investors franchise continued in the second quarter, marking the second consecutive quarter of positive net flows for that investment franchise.

Speaker Change: Additionally, our ETF platform had another positive quarter of net flows and is also net flow positive year to date.

Speaker Change: The average fee rate on our AUM was 52.6 basis points in the quarter and has been consistently within a basis point of that level over the past year.

David Brown: We continue to strategically invest in areas that will have a positive impact on growth, such as new products and new vehicle wrappers for existing strategies. These product launches can be very effective and efficient for us, and we have launched several new active ETFs recently and have more in our pipeline. Moreover, we are continuing to invest in our ETF platform by hiring dedicated resources and making investments in numerous distribution partnerships. In addition, we are continuing to make investments in people and technology, particularly when it comes to data and analytics across our platform. On slide 7, we have provided more detail here than in past quarters.

David Brown: We continue to strategically invest in areas that will have a positive impact on growth, such as new products and new vehicle wrappers for existing strategies. These product launches can be very effective and efficient for us, and we have launched several new active ETFs recently and have more in our pipeline. Moreover, we're continuing to invest in our ETF platform by hiring dedicated resources and making investments in numerous distribution partnerships. In addition, we are continuing to make investments in people and technology, particularly when it comes to data and analytics across our platform. On slide seven, we've provided more detail here than in past quarters.

Speaker Change: We continue to strategically invest in areas that will have a positive impact on growth such as new products and new vehicle wrappers for existing strategies.

Speaker Change: These product launches can be very effective and efficient for us. And we have launched several new active ETFs recently and have more in our pipeline.

Speaker Change: Moreover, we are continuing to invest in our ETF platform by hiring dedicated resources and making investments in numerous distribution partnerships.

Speaker Change: In addition, we are continuing to make investments in people and technology, particularly when it comes to data and analytics across our platform.

David Brown: As a growth company, it should come as no surprise that a majority of our capital is allocated to strategic, energetic growth initiatives designed to increase shareholder value. Since our IPO in 2018, we have deployed $1.6 billion for strategic acquisitions, resulting in significant growth in our earnings and free cash flow. Annual net cash generated from operations has increased from $134 million in our first calendar year as a public company to $330 million last year. Gap earnings per diluted share have more than tripled from under a dollar to more than $3 per share last year for a compound annual growth rate of 28%.

Speaker Change: On slide 7, we've provided more detail here than in past quarters. As a growth company, it should come as no surprise that a majority of our capital is allocated to strategic inorganic growth initiatives designed to increase shareholder value.

David Brown: As a growth company, it should come as no surprise that a majority of our capital is allocated to strategic inorganic growth initiatives designed to increase shareholder value. Since our IPO in 2018, we have deployed $1.6 billion for strategic acquisitions, resulting in significant growth in our earnings and free cash flow. Annual net cash generated from operations has increased from $134 million in our first calendar year as a public company to $330 million last year. Gap earnings per diluted share have more than tripled from under $1 to more than $3 per share last year, for a compound annual growth rate of 28%.

Speaker Change: Since our IPO in 2018, we have deployed 1.6 billion dollars for strategic acquisitions, resulting in significant growth in our earnings and free cash flow.

Speaker Change: Annual net cash generated from operations has increased from $134 million in our first calendar year as a public company to $330 million last year.

Speaker Change: Gap earnings per diluted share have more than tripled from under $1 to more than $3 per share last year for a compound annual growth rate of 28%.

David Brown: At the same time, we have accelerated the return of shareholder capital. As a reminder, the proceeds we received from our initial public offering totaled $156.5 million, and to date, we have returned a total of $700 million to shareholders through cash dividends and share repurchases since our listing. Starting from a position of strength today, our balance sheet will solidify even more from the plan to Monday transaction. We will have even greater capacity to execute on strategic, energetic initiatives and increase capover turn to shareholders.

David Brown: At the same time, we've accelerated the return of shareholder capital. As a reminder, the proceeds we received from our initial public offering totaled $156.5 million, and to date, we've returned a total of $700 million to shareholders through cash dividends and share repurchases since our listing. Starting from a position of strength today, our balance sheet will solidify even more from the planned Monday transaction.

Speaker Change: At the same time, we've accelerated the return of shareholder capital.

Speaker Change: As a reminder, the proceeds we received from our initial public offering totaled $156.5 million and, to date, we have returned a total of $700 million to shareholders through cash dividends and share repurchases since our listing.

Speaker Change: Starting from a position of strength today, our balance sheet will solidify even more from the planned to Monday transaction.

David Brown: We will have even greater capacity to execute on strategic inorganic initiatives and increase capital return to shareholders. Turning to slide 8, over this same period, our shareholders have been rewarded with a more than 300 percent increase in the stock price from our initial public offering price of $13 per share, which excludes the $3.85 per share returned in quarterly cash dividends. Our dividends have grown more than 700% since we began paying dividends, which was exactly five years ago this quarter.

Speaker Change: We will have even greater capacity to execute on strategic inorganic initiatives and increase capital return to shareholders.

David Brown: Turning to slide 8, over the same period, our shareholders have been rewarded with a more than 300% increase in stock price from our initial public offering price of $13 per share. Which excludes the $3.85 per share returned in quarterly cash dividends. Our dividends have grown more than 700% since we began paying dividends, which was exactly five years ago this quarter. Total shareholder return, including the impact of dividends, is 357% through the end of July. Our history of value creation is attributable to our unwavering principles and a unique and differentiated business model, coupled with industry-leading execution capability.

Speaker Change: Turning to slide 8, over this same period, our shareholders have been rewarded with a more than 300% increase in stock price from our initial public offering price of $13 per share, which excludes the $3.85 per share returned in quarterly cash dividends.

Speaker Change: Our dividends have grown more than 700% since we began paying dividends, which was exactly five years ago this quarter.

David Brown: Total shareholder return, including the impact of dividends, was 357% through the end of July. Our history of value creation is attributable to our unwavering principles and a unique and differentiated business model, coupled with industry-leading execution capabilities. The platform we have is highly scalable and provides best-in-class technology and operational systems for our investment franchises and solutions platforms. This provides our investment professionals with a platform to focus on managing portfolios and providing the best possible service to clients. On slide 10, our investment performance remains strong with 68% of our AUM and mutual funds and ETFs earning overall four or five star ratings. This is Brawley Diversified, encompassing 44 different products.

Speaker Change: Total shareholder return, including the impact of dividends, is 357% through the end of July .

Speaker Change: Our history of value creation is attributable to our unwavering principles and a unique and differentiated business model, coupled with industry-leading execution capabilities.

David Brown: The platform we have is highly scalable and provides best-in-class technology and operational systems for our investment franchises and solutions platform. This provides our investment professionals with a platform to focus on managing portfolios and providing the best possible service to clients. This is broadly diversified, encompassing 44 different products. Over the key three and five-year periods, 60% and 77% of our total AUM outperform their respective benchmarks. 15 of the 16 fixed income funds, managed by the Victory Income Investors franchise, representing 93% for about $22 billion in AUM, are rated either four or five stars overall by Morningstar.

Speaker Change: The platform we have is highly scalable and provides best-in-class technology and operational systems for our investment franchises and solutions platform.

Speaker Change: This provides our investment professionals with a platform to focus on managing portfolios and providing the best possible service to clients.

Speaker Change: On slide 10, our investment performance remains strong with 68% of our AUM and mutual funds and ETFs earning overall 4 or 5 star ratings.

Speaker Change: This is Brawley Diversified, encompassing 44 different products.

David Brown: Over the key three and five-year periods, 60% and 77% of our total AUM outperformed their respective benchmarks. Fifteen of the 16 fixed income funds managed by the Victory Income Investors franchise, representing 93% or about $22 billion in AUM, are rated either 4 or 5 stars overall by Morningstar. Stepping back for a moment and looking at the macro environment, we are encouraged by the recent market action that is potentially signaling the start of a rotation out of just a few stocks into the broader market.

Speaker Change: Over the key three and five year periods, 60% and 77% of our total AUM outperformed their respective benchmarks.

Speaker Change: Fifteen of the 16 fixed income funds managed by the Victory Income Investors franchise, representing 93% or about $22 billion in AUM, are rated either 4 or 5 stars overall by Morningstar.

David Brown: Stepping back for a moment and looking at the macro environment, we are encouraged by the recent market action that is potentially signaling the start of a rotation out of just a few stocks into the broader market. The Russell 2000 index outperformed the large cap weighted indices to start the third quarter, which may reflect the anticipated easing of interest rates by the Fed, which would bode well for many of the asset classes we manage. Should small cap and mid cap sectors narrow the valuation gap with large cap issuers, it could create a nice tailwind for many of our strategies.

Speaker Change: Stepping back for a moment and looking at the macro environment, we're encouraged by the recent market action that is potentially signaling the start of a rotation out of just a few stocks into the broader market.

David Brown: The Russell 2000 Index outperformed the large-cap weighted indices to start the third quarter, which may reflect the anticipated easing of interest rates by the Fed, which would bode well for many of the asset classes we manage. Should small-cap and mid-cap sectors narrow the valuation gap with large-cap issuers, it could create a nice tailwind for many of our strategies. With that, I will turn the call over to Mike to go through the quarter's financial results in greater detail.

Speaker Change: The Russell 2000 Index outperformed the large cap weighted indices to start the third quarter, which may reflect the anticipated easing of interest rates by the Fed, which would bode well for many of the asset classes we manage.

Speaker Change: Should small-cap and mid-cap sectors narrow the valuation gap with large-cap issuers, it could create a nice tailwind for many of our strategies.

Michael Telecarpo: With that, I will turn the call over to Mike to go through the quarter's financial results in greater detail. Mike?

Speaker Change: With that, I will turn the call over to Mike to go through the quarter's financial results in greater detail. Mike?

Michael Policarpo: Thanks Dave, and good morning everyone. The financial results review begins on slide 12. Our average AUM in the quarter rose 2% from the first quarter to $167.5 billion, which resulted in revenue also growing by 2% sequentially. For the first half of the year, revenues of $436 million were 7% higher than the first half of last year.

Michael Telecarpo: Thanks, Dave, and good morning everyone. The financial results review begins on slide 12. Our average AUM in the quarter rose 2% from the first quarter to $167.5 billion, which resulted in revenue also growing by 2% sequentially. For the first half of the year, revenues of $436 million were 7% higher than the first half of last year. For the second quarter, we generated $110.6 million in GAAP operating income with a margin of 50.4%. Both of which are quarterly record highs and were supported by lower non-cash operating expenses. Removing that impact, adjust the net income with tax benefit rose 5% in the quarter to $86.6 million, and $1.31 per diluted share, which is another company record.

Mike: Thanks, Dave, and good morning, everyone.

Mike: The financial results review begins on slide 12.

Mike: Our average AUM in the quarter rose 2% from the first quarter to $167.5 billion, which resulted in revenue also growing by 2% sequentially.

Mike: For the first half of the year, revenues of $436 million were 7% higher than the first half of last year.

Michael Policarpo: For the second quarter, we generated $110.6 million in GAAP operating income with a margin of 50.4%, both of which are quarterly record highs and were supported by lower non-cash operating expenses. Removing that impact, adjusting net income with tax benefit rose 5% in the quarter to $86.6 million and $1.31 per diluted share, which is another company record. The Adjusted EBITDA margin expanded by 90 basis points to 53%. Cash grew on the balance sheet to $119 million during the quarter. This, along with our record-high quarterly EBITDA, helped reduce our net leverage ratio to just below 1.9 times. Additionally, we did not make any open market share repurchases for the second consecutive quarter.

Mike: For the second quarter, we generated $110.6 million in GAAP operating income, with a margin of 50.4%, both of which are quarterly record highs and were supported by lower non-cash operating expenses.

Mike: Removing that impact, adjusted net income with tax benefit rose 5% in the quarter to $86.6 million.

Mike: and $1.31 per diluted share, which is another company record.

Michael Telecarpo: Adjusted EBIT margin expanded by 90 basis points to 53%. Cash grew in the balance sheet to $119 million during the quarter. This, along with our record-high quarterly EBITDA, helped produce our net leverage ratio to just below 1.9 times. We did not make any open market share repurchases for the second consecutive quarter. We returned $32 million to shareholders via our quarterly cash dividend and net settlement of shares for taxes holding for employees. The dividend was increased by 10% in the prior quarter, and the board announced an 11% increase this quarter. This latest dividend of $0.41 per share will be paid on September 25th to shareholders of record at the close of business on September 10th.

Mike: Adjusted EBITDA margin expanded by 90 basis points to 53 percent.

Mike: Cash grew on the balance sheet to $119 million during the quarter. This, along with our record high quarterly EBITDA, helped reduce our net leverage ratio to just below 1.9 times.

Mike: We did not make any open market share repurchases for the second consecutive quarter.

Michael Policarpo: We return $32 million to shareholders via our quarterly cash dividend and net settlement of shares for taxes holding for our employees. The dividend was increased by 10% in the prior quarter, and the board announced an 11% increase this quarter. This latest dividend of 41 cents per share will be paid on September 25th to shareholders of record at the close of business on September 10th.

Mike: We return $32 million to shareholders via our quarterly cash dividend and net settlement of shares for taxes holding for our employees.

Mike: The dividend was increased by 10% in the prior quarter, and the board announced an 11% increase this quarter.

Mike: This latest dividend of 41 cents per share will be paid on September 25th to shareholders of record at the close of business on September 10th.

Michael Telecarpo: Turning to slide 13, while average AUM rose quarter over quarter, you can see that point-to-point AUM was lower at the end of June at $173.8 billion compared with the end of March. This is why we recently increased transparency by reporting monthly averages for AUM and total client assets when we report our month-end AUM. On slide 14, we cover long-term asset flows. Several of our investment franchises and our ETF platform generated positive net long-term flows in the second quarter. Victory Income Investors posted its second consecutive quarter of positive net flows in our global integrity, and NEC also had positive net long-term flows in the quarter.

Michael Policarpo: Turning to slide 13, while average AUM rose quarter over quarter, you can see that point-to-point AUM was lower at the end of June at $173.8 billion compared with the end of March. This is why we recently increased transparency by reporting monthly averages for AUM and total client assets when we report our month-end AUM. On slide 14, we cover long-term asset flows. Several of our investment franchises and our ETF platform generated positive net long-term flows in the second quarter.

Mike: Turning to slide 13, while average AUM rose quarter over quarter, you can see that point-to-point AUM was lower at the end of June at $173.8 billion compared with the end of March.

Mike: This is why we recently increased transparency by reporting monthly averages for AUM and total client assets when we report our month-end AUM.

Mike: On slide 14, we cover long-term asset flows.

Mike: Several of our investment franchises and our ETF platform generated positive net long-term flows in the second quarter.

Michael Policarpo: Victory Income Investors posted its second consecutive quarter of positive net flows. NRS Global, Integrity, and NEC also had positive net long-term flows in the quarter. A significant portion of redemptions in the first half of this year were out of equity strategies as investors rebalanced portfolio weighting.

Mike: Victory Income Investors posted its second consecutive quarter of positive net flows and RS Global, Integrity, and NEC also had positive net long-term flows in the quarter.

Michael Telecarpo: A significant portion of redemption in the first half of this year were out of equity strategies as investors rebound portfolio weightings. Despite this rebalancing activity, many of these equity strategies have even higher levels of AUM as a result of market action. Slide 15 shows a modest 2% uptick in sequential revenue compared with the first quarter, consistent with the higher average AUM. Our average fee rate remains steady at 52.6 basis points. Slide 16 highlights expenses recorded during the quarter. Total expenses declined by 14% to $123.8 million compared with $144 million in the first quarter. The primary driver of this was a $22 million reduction in operating expenses that was largely due to a change in the value of consideration payable for potential earn-out payments for prior acquisitions.

Mike: A significant portion of redemptions in the first half of this year were out of equity strategies as investors rebalanced portfolio weightings.

Michael Policarpo: Despite this rebalancing activity, many of these equity strategies have even higher levels of AUM as a result of market action. Slide 15 shows a modest 2% uptick in sequential revenue compared with the first quarter, consistent with the higher average AUM. Our average fee rate remains steady at 52.6 basis points. Slide 16 highlights expenses recorded during the quarter. Total expenses declined by 14% to $123.8 billion, compared with $144 million in the first quarter.

Mike: Despite this rebalancing activity, many of these equity strategies have even higher levels of AUM as a result of market action.

Mike: Slide 15 shows a modest 2% uptick in sequential revenue compared with the first quarter.

Mike: consistent with the higher average AUM.

Mike: Our average fee rate remains steady at 52.6 basis points.

Mike: Slide 16 highlights expenses recorded during the quarter.

Mike: Total expenses declined by 14% to $123.8 million, compared with $144 million in the first quarter.

Michael Policarpo: The primary driver of this was a $22 million reduction in operating expenses that was largely due to a change in the value of consideration payable for potential earn-out payments for prior acquisitions. It also reflects the return to normalized payroll tax and benefit expenses following the seasonal uptick in the first quarter of the year when minimums are reset.

Mike: The primary driver of this was a $22 million reduction in operating expenses that was largely due to a change in value of consideration payable for potential earn out payments for prior acquisitions.

Michael Telecarpo: It also reflects the return to normalized payroll tax and benefit expenses following the seasonal uptick in the first quarter of the year when minimums are reset. We've also started to incur expenses related to the Monday transaction in the first half of the year, which partially offsets some of the overall decline. On slide 17, we removed some of the accounting noise from these non-cash items as well as acquisition-related expenses and highlight our non-GAAP metrics. We reported $1.31 adjusted net income with tax benefit per diluted share, which is the highest level in our history and is up 5% from $1.25 per diluted share reported from the first quarter.

Mike: It also reflects the return to normalized payroll tax and benefit expenses following the seasonal uptick in the first quarter of the year when minimums are reset.

Michael Policarpo: We've also started to incur expenses related to the Amundi transaction in the first half of the year, which partially offsets some of the overall decline. On slide 17, we remove some of the accounting noise from these non-cash items as well as acquisition-related expenses and highlight our non-GAAP metric. We reported $1.31 adjusted net income with tax benefit per diluted share, which is the highest level in our history and is up 5% from $1.25 per diluted share we reported in the first quarter. Adjusted EBITDA and Adjusted EBITDA Margin were also company records at $116.5 million and 53%, respectively. Finally,

Mike: We have also started to incur expenses related to the Amundi transaction in the first half of the year, which partially offsets some of the overall decline.

Mike: On slide 17, we remove some of the accounting noise from these non-cash items, as well as acquisition-related expenses, and highlight our non-GAAP metrics.

Mike: We reported $1.31 adjusted net income with tax benefit per diluted share, which is the highest level in our history, and is up 5% from $1.25 per diluted share we reported from the first quarter.

Michael Telecarpo: Adjusted EBITDA and adjusted EBITDA margin were also company records at $116.5 million and 53%, respectively. Finally, turning to slide 18, we generated approximately $80 million in cash from operations during the quarter and ended June with $199 million in cash. This reduced our net debt to EBITDA leverage ratio for the second consecutive quarter. As Dave covered in detail, we carefully manage our balance sheet to maintain flexibility and have a capital allocation strategy that directly supports our gross strategy. During the quarter, we extended our $100 million revolver by two years. With the extension, we amended the agreement to reduce the draw pricing by 50 basis points.

Mike: Adjusted EBITDA and Adjusted EBITDA Margin were also company records at $116.5 million and 53% respectively.

Michael Policarpo: Turning to slide 18, we generated approximately $80 million in cash from operations during the quarter and ended June with $119 million in cash. This reduced our net debt to even a leverage ratio for the second consecutive quarter. As Dave covered in detail, we carefully manage our balance sheet to maintain flexibility and have a capital allocation strategy that directly supports our growth strategy. During the quarter, we extended our $100 million revolver by two years. With the extension, we amended the agreement to reduce the draw pricing by 50 basis points. The facility remains undrawn. That concludes our prepared remarks. I will now turn it back over to the operator for questions.

Mike: Finally, turning to slide 18, we generated approximately $80 million in cash from operations during the quarter and ended June with $119 million in cash. This reduced our net debt to EBITDA leverage ratio for the second consecutive quarter.

Mike: As Dave covered in detail, we carefully manage our balance sheet to maintain flexibility and have a capital allocation strategy that directly supports our growth strategy.

Speaker Change: During the quarter, we extended our $100 million revolver by two years.

Speaker Change: With the extension, we amended the agreement to reduce the draw pricing by 50 basis points.

Michael Telecarpo: The facility remains undrawn.

Matthew Dennis: That concludes our prepared remarks.

Speaker Change: The facility remains undrawn.

Operator: I will now turn it back over to the operator for questions. Thank you.

Speaker Change: That concludes our prepared remarks. I will now turn it back over to the operator for questions.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Your first question comes from a line of Etienne Ricard from BMO Capital Markets. Your line is open.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the key. Thank you. If you would like to withdraw your question, simply press star one again.

Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 in your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Your first question comes from a line of Etienne Ricard from BMO Capital Markets. Your line is open.

Etienne Ricard: Your first question comes from a line of Etienne Ricard from BMO Capital Markets. Your line is open.

David Brown: Thank you very much. Dave, to circle back on product development, you've been quite active in launching new products, and you plan to do more. So I'm curious, in the past, what has worked well for you in terms of product design and distribution, and how is this guiding your process for new product launches?

David Brown: Thank you very much. Dave, just recall back on product development. You've been quite active launching new products, and you plan to do more. So I'm curious in the past what has worked well for you in terms of product design and distribution, and how is this guiding your process for new product launches?

Etienne Ricard: Thank you very much. Dave, to circle back on product development, you've been quite active launching new products and you plan to do more.

Etienne Ricard: So I'm curious, in the past, what has worked well for you in terms of product design and distribution and how is this guiding your process for new product launches?

David Brown: Good morning. ETFs have really been a focus for us over the last few months and will be a focus for us going forward. We've been able to launch a few new ETFs that have really caught momentum fairly quickly. And as we've designed our ETFs, we've really looked at what the market is today, what clients are looking for, and how they're trying to solve issues within their portfolios. One of the ETFs we've launched recently, V Flow, V F L O, is a pretty effective vehicle for clients to get large cap exposure in this environment. And so we'll use the same process we've used in the past, which really is input from our clients, our sales professionals, and some of the work we do in-house to drive what kind of products we're going to launch in the future.

David Brown: Good morning. ETFs have really been a focus for us over the last few months and will continue to be a focus for us going forward. We've been able to launch a few new ETFs that have really picked up momentum fairly quickly. And as we've designed our ETFs, we've really looked at what the market is today, what clients are looking for, and how they're trying to solve issues within their portfolios. One of the ETFs we launched recently, VFLO, is a pretty effective vehicle for clients to get large cap exposure in this environment.

Speaker Change: Good morning.

Dave: ETFs have really been a focus for us.

Dave: over the last few months and will be a focus for us going forward.

Dave: We've been able to launch a few new ETFs that have

Dave: really caught momentum fairly quickly.

Dave: And as we've designed...

Dave: our ETFs, we've really looked at

Dave: what the market is today, what clients are looking for and how they're

Dave: trying to solve issues within their portfolios. One of the ETFs we've launched recently, VFLO, V-F-L-O, is...

Dave: you know a pretty effective

Dave: vehicle for clients to get large-cap exposure in this environment and so we'll use the same process we've used in the past which really is input from

David Brown: And so we'll use the same process we've used in the past, which really is input from our clients, our sales professionals, and some of the work we do in-house to drive what kind of products we're going to launch in the future.

Dave: our clients, our sales professionals, and some of the work we do in-house to drive what kind of products we're going to launch in the future.

David Brown: Okay, and on capital location, we all know the Amundi transaction will bring leverage down. If we look over the next couple quarters before closing, how are you thinking about the trade off between share report, share repurchases versus adding to your cash position? And the reason I'm asking is I presume another Amundi transaction is more of a late 2025 story given the near term focus on the integration of Amundi.

David Brown: Okay, and on capital allocation. We all know the Amundi transaction will bring leverage down. If we look over the next couple quarters before closing, how are you thinking about the tradeoff? between share repurchases versus adding to your cash position. And the reason I'm asking is, I presume another M&A transaction is more of a late 2025 story given the near-term focus on the integration of Amundi.

Dave: i

Dave: Okay, and on capital allocation, we all know the Amundi transaction will bring leverage down.

Speaker Change: If we look over the next couple quarters before closing, how are you thinking about the tradeoff?

Operator: Conference Call. All calls are in a listen-only mode.

Operator: Following the company's prepared remarks, there will be a question and answer session.

Speaker Change: between share repurchases versus adding to your cash position. And the reason I'm asking is,

Matthew Dennis: 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.

Speaker Change: I presume another M&A transaction is more of a late 2025 story given the near-term focus on the integration of Amundi. Thank you.

Matthew Dennis: 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. Victory Capital's actual results may differ materially from these statements. Furthermore, please note that the ultimate completion of a transaction with the Monday remains subject to certain closing conditions as well as regulatory approvals. 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.

David Brown: Thank you. So we'll use the same principles we've used in the past, and we'll balance out shareholder return with allocating capital for strategic MNA. You know, at the quarters to come, as soon as we are permitted and allowed to buy shares back, we will continue with our share repurchase program. That's an important element to our shareholder return strategy. As far as MNA, we are quite encouraged by the environment and think want post the close of the Amundi transaction, we will be back really having discussions and would imagine that, you know, the environment is going to be really ripe for consolidation in the industry.

David Brown: So we'll use the same principles we've used in the past, and we'll balance out shareholder return with allocating capital for strategic M&A. In the quarters to come, as soon as we are permitted and allowed to buy shares back, we will continue with our share repurchase program. That's an important element of our shareholder return strategy. As far as M&A is concerned, we are quite encouraged by the environment and think, post the close of the Monday transaction, we will be back really having discussions and would imagine that, you know, the environment is going to be really ripe for consolidation in the industry and, as I've said in the past, I think we are a great partner. We're still having conversations like we always have, and we are quite encouraged by those.

Speaker Change: So we'll use the same principles we've used in the past and we'll balance out shareholder return with allocating capital for strategic

Speaker Change: M&A

Speaker Change: You know, at the quarters to come, as soon as we are permitted and allowed to buy shares back,

Speaker Change: We will continue with our share repurchase program. That's an important element to our shareholder return strategy.

Speaker Change: As far as M&A, we are quite encouraged by the environment and think post the close of the Monday transaction, we will be back really having discussions and

Matthew Dennis: Our press release that was issued after the market closed yesterday disclosed both GAP and non-GAP financial results. We believe the non-GAP measures enhance the understanding of our business and our performance. Reconciliation between these non-GAP measures and the most comparable GAP 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.

Speaker Change: would imagine that, you know, the environment's going to be really ripe for consolidation.

David Brown: And, as I said in the past, I think we are a great partner. We're still having conversations as we've always had, and we are quite encouraged by those. But in the meantime, we'll go back to share repurchases when we're permitted. We'll continue with our dividend strategy. We have pretty high levels of cash today. As you mentioned, our balance sheet will only get stronger, you know, post the Amundi transaction with more earnings and more cash flow. And so we feel like we're in a really good position to balance out dividends, share repurchases, and then continue on our M&A path.

Speaker Change: in the industry, and as I've said in the past, I think we are a great partner. We're still having conversations, as we've always had.

David Brown: In the meantime, we'll go back to share repurchases when we're permitted. We'll continue with our dividend strategy. We have pretty high levels of cash today. As you mentioned, our balance sheet will only get stronger, post the Monday transaction with more earnings and more cash flow. And so we feel like we're in a really good position to balance out dividends, share repurchases, and then continue on our M&A path.

Speaker Change: and we are quite encouraged by those, but in the meantime, we'll go back to share repurchases when we're permitted. We'll continue with our dividend strategy. We have pretty high levels of cash today.

David Brown: It is now my pleasure to turn the call over to David Brown, Chairman, and CEO. David? Thanks, Matt.

David Brown: Good morning and welcome to Victory Capital's second quarter, 2024 Earnings Conference call. I'm joined today by Michael Telecarpo, our President, Chief Financial and Administrative Officer, as well as Matt Dennis, our Chief of Staff and Director of Investor Relations.

Speaker Change: As you mentioned, our balance sheet will only get stronger, you know, post the Monday transaction with more earnings and more cash flow. And so we feel like we're in a really good position to balance out dividends.

David Brown: I will start today by providing an overview of the quarter in first half of the year.

Speaker Change: share repurchases, and then continue on our M&A path.

David Brown: And when would you expect to be allowed to resume share purchases? That's to be determined; when we're permitted to and allowed to, we will.

David Brown: And when would you expect to be allowed to resume share repurchase? That's to be determined.

David Brown: 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 take your questions.

Speaker Change: And when would you expect to be allowed to resume share repurchases?

David Brown: That's to be determined. When we're permitted to and allowed to, we will.

Speaker Change: That's to be determined. When we're permitted to and allowed to, we will.

David Brown: Thank you very much. Thank you guys highlighted in the past.

Operator: Your next question comes from the line of Alex Blostein from Goldman Sachs. Your line is open.

Speaker Change: Thank you very much.

David Brown: The quarterly business overview begins on slide 6. The second quarter of 2024 was highlighted by the announcement on April 16th of our intention to enter into a multi-dimensional agreement to become strategic partners with the Monday. We worked through the rest of the quarter to complete diligence and negotiate the definitive agreement, which was signed in early July. We do not have much additional news to report since our conference call on July 9th, discussing the formal signing.

Speaker Change: Your next question comes from the line of Alex Blostein from Goldman Sachs. Your line is open.

David Brown: Hi, good morning, everybody. Can we get an update on Amundi, both kind of strategically and also get a mark to market on a couple of metrics that you guys highlighted in the past? So one, I guess, are you able to start to pursue any of the cross-revenue synergies and distribution opportunities you talked about ahead of the deal? And if so, kind of how's that tracking? And then secondly, you pointed out and gave pretty, pretty explicit guidance and kind of where the EBITDA for Amundi run rates back when you announced the deal. So maybe you can help us update kind of where things stand today on the revenue and EBITDA perspective. Thanks.

Alex Blostein: Hi, good morning, everybody. Can we get an update on Amundi, both kind of strategically and also get a mark to market on a couple of metrics that you guys highlighted in the past? So one, I guess, are you able to start to pursue any of the cross revenue synergies and distribution opportunities you talked about ahead of the deal? And if so, kind of, how's that tracking? And then secondly, you pointed out and give pretty, pretty explicit guidance and kind of where the EBITDA for Amundi run rates back when you announced the deal. So maybe you can help us update kind of where things stand today on the revenue and EBITDA perspective. Thanks.

David Brown: So, one, I guess, are you able to start to pursue any of the cross revenue synergies and distribution opportunities you talked about? How do the deal and if so, kind of how's that tracking? And then secondly, you pointed out and give pretty explicit guidance and kind of where the EBITDA for among the run rates back when you announced the deal.

David Brown: We are currently developing integration plans that will allow us to provide guidance in areas such as the pace of achieving the projected $100 million of expense synergies post-closing, which is expected to occur late in the fourth quarter of this year or in the first quarter of 2025. We are also targeting to incorporate the potential revenue synergies from the reciprocal exclusive global distribution agreement in our guidance prior to closing.

David Brown: So maybe you could help us update kind of where things done today on the revenue and EBITDA perspective. Thanks.

David Brown: Good morning, Alex. I'll take the first part, and then I'll have Mike take the second part. We are working on finalizing really the synergy plan on the revenue side. We feel really good about the expense synergies. We are reiterating our guidance of a hundred million dollars. That to be, you know, realized within a lot within the first year and a lot within the closing time frame and total within two years. So we've reiterated that on the revenue side. We're developing those plans. We have a good idea, and we'll roll those out before close. Monday, the US business of a Monday is having a fantastic year.

David Brown: Good morning, Alex. I'll take the first part, and then I'll have Mike take the second part. We are working on finalizing the synergy plan on the revenue side. We feel really good about the expense synergies. We are reiterating our guidance of $100 million, to be realized in a lot within the first year and a lot within the closing time frame, and total within two years. So we've reiterated that. On the revenue side, we're developing those plans. We have a good idea, and we'll roll those out before we close.

Speaker Change: Good morning, Alex. I'll take the first part, and then I'll have Mike take the second part. We are working on finalizing, really, the synergy plan on the revenue side. We feel really good about the expense synergies.

Speaker Change: We are reiterating our guidance of a hundred million dollars that to be, you know, realized.

Mike: within, a lot within the first year and a lot within

Mike: closing time frame and total within two years. So we've reiterated that on the revenue side we're developing those plans we have a good idea and we'll roll those out before close.

Michael Policarpo: A Monday, the U.S. business of a Monday, is having a fantastic year. They've got strong investment performance. You can see from the publicly available data on their mutual fund complex, they're in positive flows for the year. And we're quite happy with how their business is tracking and how their business is performing.

Mike: A Monday, the U.S. business of a Monday is having a fantastic year. They've got strong investment performance.

David Brown: They've got strong investment performance. You can see from the publicly available data on their mutual fund complex. They're in positive flows for the year. And they're were quite happy with how their business is tracking and how their business is performing.

Mike: You can see from the publicly available data.

David Brown: Additionally, our ETF platform had another positive quarter of net flows and is also net flow positive year to date. The average fee rate on our AUM was 52.6 basis points in the quarter and has been consistently within a basis point of that level over the past year. We continue to strategically invest in areas that will have a positive impact on growth such as new products and new vehicle wrappers for existing strategies.

Mike: on their mutual fund complex. They're in positive flows for the year. And we're quite happy with how their business is tracking and how their business is performing.

Michael Telecarpo: And I'll add to that with respect to kind of an update on kind of a market market. The AUM for a Monday US is in the 104 to 106 billion dollar range based on the last available information that we've provided. We've also mentioned that their revenue realization is in the high 40s from a basis point perspective and that their current margins are in the mid 20s from an even a perspective that frames out at least where they are today. As they mentioned, we're reaffirming the hundred million dollar synergies that we went out with and are working with.

Michael Policarpo: And I'll add to that with respect to kind of an update on kind of a mark to market. The AUM for Monday US is in the $104 to $106 billion range, based on the last available information that we've provided. We've also mentioned that their revenue realization is in the high 40s from a basis point perspective and that their current margins are in the mid-20s from an EBITDA perspective. So that frames out at least where they are today.

Speaker Change: And I'll add to that with respect to kind of an update on kind of a mark-to-market. The AUM for Mundy U.S. is in the $104 to $106 billion range, based on kind of the last available information that we've provided.

David Brown: These product launches can be very effective and efficient for us and we have launched several new active ETFs recently and have more in our pipeline. Moreover, we are continuing to invest in our ETF platform by hiring dedicated resources and making investments in numerous distribution partnerships. In addition, we are continuing to make investments in people and technology, particularly when it comes to data and analytics across our platform.

Speaker Change: We've also mentioned that their revenue realization is in the high 40s from a basis point perspective and that their current margins are in the mid-20s.

Michael Policarpo: As Dave mentioned, we're reaffirming the $100 million synergies that we went out with and are working with, and those are net expense synergies. They're not inclusive of any revenue synergies. We will come back on that as we get closer to closing as the plans that Dave mentioned are further refined. And we've also mentioned kind of post-synergy, the long-term margin guidance that we've provided of 49% is still where we are, and we think it is highly attainable and achievable based on the growth in the business and the efficiency and the leverage that the business will have. So those are kind of the metrics that we'd kind of point to and really reiterate from kind of previous conversations. Yeah, and one more.

Speaker Change: from an even of perspective. So that frames out at least where they are today.

Speaker Change: As Dave mentioned, we're reaffirming the $100 million synergies that we went out with and are working with, and those are net expense synergies. They're not inclusive of any revenue synergies. We will come back on that as we get closer to close as the plans that Dave mentioned are further refined.

Michael Telecarpo: And those are net expense synergies. They're not inclusive of any revenue synergies.

Michael Telecarpo: We will come back on that as we get closer to close, as the plans that they mentioned are further refined. And we've also mentioned kind of post synergy. The long term margin guidance that we provided of 49% is still where we are, and we think is highly attainable and achievable based on the growth in the business and the efficiency and the leverage that the business will have. So those are kind of the metrics that we'd kind of point to and really reiterate from kind of previous conversations. And one more one more thing to add, Alex, is the leverage post.

David Brown: On slide 7, we have provided more detail here than in past quarters. As a growth company, it should come as no surprise that a majority of our capital is allocated to strategic, energetic growth initiatives designed to increase shareholder value. Since our IPO in 2018, we have deployed $1.6 billion for strategic acquisitions, resulting in significant growth in our earnings and free cash flow. Annual net cash generated from operations has increased from $134 million in our first calendar year as a public company to $330 million last year.

Speaker Change: We've also mentioned kind of post synergy. The long-term margin guidance that we provided of 49% is still where we are and we think is highly attainable and achievable based on the growth in the business and the efficiency and the leverage that the business will have.

Speaker Change: So those are kind of the metrics that we'd kind of point to and really reiterate from kind of previous conversations. Yeah, and one more thing to add, Alex, is the leverage post

Michael Policarpo: Yeah, and one more thing to add, Alex, is the leverage posts. The close of the transaction should be in the low ones, as we have talked about in the past.

Michael Telecarpo: First, the close of the transaction should be in the low ones, as we have talked about in the past. Got it. Great. That's helpful. Thanks.

Alex Blostein: The close of the transaction should be in the low ones, as we have talked about in the past.

David Brown: Gap earnings per diluted share have more than tripled from under a dollar to more than $3 per share last year for compound annual growth rate of 28%. At the same time, we have accelerated the return of shareholder capital. As a reminder, the proceeds we received from our initial public offering totaled $156.5 million, and to date, we have returned a total of $700 million to shareholders through cash dividends and share repurchases since our listing.

Operator: Got it. Great. That's helpful. Thanks.

David Brown: And then on the victory side of things, I was hoping to maybe just dig in a little bit more into the organic growth dynamics that you guys have seen. So obviously, still continued outflows. You talked about some things that are likely to improve. So on a kind of back book basis without kind of considering anything from a Monday, what seems most interesting and exciting where you guys could see an acceleration in inflows over the next couple of quarters. So we've seen some, as Mike mentioned in his prepared remarks, we've seen some rebalancing from clients in some of our strategies that where we have not been fired or where the client has not left.

Alex Blostein: Got it, great, that's helpful, thanks. And then on the victory side of things, I was hoping to maybe just dig in a little bit more into the organic growth dynamics that you guys have seen. So obviously still continued outflows, you talked about some things that are likely to improve. So on a kind of back book basis, without kind of considering anything from a Monday, what seems most interesting and exciting where you guys could see an acceleration in inflows over the next couple of quarters?

David Brown: And then on the victory side of things, I was hoping to maybe just dig in a little bit more into the organic growth dynamics that you guys have seen. So obviously, though continued outflows, you talked about some things that are likely to improve. So on a kind of back book basis, without kind of considering anything from a Monday, what seems most interesting and exciting where you guys could see an acceleration in inflows over the next couple of quarters? So, so

David Brown: So we've seen some, as Mike mentioned in his prepared remarks, we've seen some rebalancing from clients in some of our strategies where we have not been fired or the client has not left, but we really have just rebalanced given some of the market action. We've seen a little bit of a delay in institutional funding, which we should see pick up in the third and fourth quarter. But where we've seen some really nice activities in our ETF business, in our fixed income business, in our global product, and we're quite excited about some of the different areas where we're seeing growth, as we think the market is getting ready to change, and as the Fed is getting ready to reduce rates, we think we're going to be a beneficiary of some of those products.

Alex Blostein: So we've seen some, as Mike mentioned in his prepared remarks, we've seen some rebalancing from clients in some of our strategies that where we have not been fired or where the client has not left.

David Brown: Starting from a position of strength today, our balance sheet will solidify even more from the plan to Monday transaction. We will have even greater capacity to execute on strategic, energetic initiatives and increase capover turn to shareholders.

David Brown: But really have just rebalanced given some of the market action. We've seen a little bit of a delay in institutional fundings, which we should see pick up in the third and fourth quarter. But where we've seen some really nice activities in our ETF business, in our fixed income business, in our global product. And we're quite excited about some of the different areas where we're seeing growth, as we think the market is getting ready to change. And as the Fed is getting ready to reduce rates, we think we're going to be a beneficiary in some of those products.

Speaker Change: but really have just rebalanced given some of the market action. We've seen a little bit of a delay in institutional fundings.

Speaker Change: which we should see pick up in the third and fourth quarter.

Speaker Change: but where we've seen some really nice activities in our ETF business.

Speaker Change: in our fixed income business.

Speaker Change: in our global product.

Speaker Change: And we're quite excited about some of the different areas where we're seeing growth as we think the market is getting ready to change, and as the Fed is getting ready to reduce rates, we think we're going to be a beneficiary in some of those products.

David Brown: Great. Thanks so much.

David Brown: Our history of value creation is attributable to our unwavering principles and a unique and differentiated business model coupled with industry leading execution capability. The platform we have is highly scalable and provides best-in-class technology and operational systems for our investment franchises and solutions platform. This provides our investment professionals with a platform to focus on managing portfolios and providing the best possible service to clients. This is broadly diversified, encompassing 44 different products. Over the key three and five-year periods, 60% and 77% of our total AUM outperform their respective benchmarks. 15 of the 16 fixed income funds, managed by the Victory Income Investors franchise, representing 93% for about $22 billion in AUM, are rated either four or five stars overall by Morningstar.

Kenneth Lee: Your next question comes from a line of Kenneth Lee from RBC Capital Markets. Your line is open.

Operator: Your next question comes from the line of Kenneth Lee from RBC Capital Markets. Your line is open.

Speaker Change: Great. Thanks so much.

Speaker Change: Your next question comes from the line of Kenneth Lee from RBC Capital Markets. Your line is open.

Michael Telecarpo: Hey, good morning. Thanks for taking my question. I think of the prepared remarks you talked about incurring some Monday-related expenses. Just wondering if you could just quantify that and whether that's sort of like an ongoing expense into closed transaction. Thanks. Yeah, thanks, Ken. Yeah, I think the expenses that we've incurred today really have been around getting the transactions to where it is today. So think about it as signing the definitive agreement. So most of that has been around and by certainly gold expenses. It's been a couple million dollars that we've incurred today. And it will see some incremental costs related to the transaction as we move through the rest of the year until closing.

Michael Policarpo: Hey, good morning. Thanks for taking my question. I think in the prepared remarks, you talked about incurring some Monday-related expenses. Just wondering if you could just quantify that and whether that's sort of like an ongoing expense to close the transaction. Thanks.

Kenneth Lee: Hey, good morning. Thanks for taking my question. I think in the prepared remarks you talked about incurring some Monday-related expenses. Just wondering if you could just quantify that and whether that's sort of like an ongoing expense to a closed transaction. Thanks.

Michael Policarpo: Yeah, thanks, Ken. Yeah, I think the expenses that we've incurred to date really have been around getting the transaction to where it is today, so think about it as signing the definitive agreement. So most of that has been around advisor and legal expenses. It's been a couple million dollars that we've incurred to date. I think we'll see some incremental costs related to the transaction as we move through the rest of the year until closing, but nothing that we expect to be significant or out of the norm with respect to transactions like this.

Speaker Change: Yeah, thanks, Ken. Yeah, I think...

Speaker Change: The expenses that we've incurred to date really have been around getting the transaction to where it is today.

Speaker Change: think about it as signing the definitive agreement. So most of that has been

Speaker Change: I run advisor and legal expenses.

Speaker Change: It's been a couple million dollars that we've incurred to date.

Speaker Change: I think we'll see some incremental costs related to the transaction as we move through the rest of the year.

Michael Telecarpo: Nothing that we expect to be significant or out of the norm with respect to transactions like this. Gotcha. Very helpful there. And then just one follow up, if I may.

Speaker Change: until closing. Nothing that we expect to be significant or out of the norm with respect to transactions like this.

David Brown: Gotcha. Very helpful there. And then just one follow-up, if I may, thanks for the color around institutional investor conversations and activity. I wonder if you could talk a little bit more about, you know, what you're hearing around fixed income allocation across the clients you're speaking with and whether we could see some increased pickup there. Thanks.

Speaker Change: Gotcha. Very helpful there.

David Brown: Thanks for the color around institutional investor conversations and activity. One of you can talk a little bit more about what you're hearing around fixed income allocation across the clients you're speaking with. And whether we could see some some increase pick up there. Thanks. Yeah, there's a real interest from a lot of our clients post on the intermediary side and on the institutional side around fixed income. As I think the Fed, you know, people want to spate the Fed is going to lower rates. And so we're pretty well positioned there with our Victory Income Investors franchise with their active ETFs.

Speaker Change: And then just one follow-up, if I may.

Speaker Change: Thanks for the color around

Speaker Change: and Investor Conversations Ending.

Speaker Change: and activity.

Speaker Change: I wonder if you could talk a little bit more about what you're hearing around fixed income allocation across the clients you're speaking with and whether we could see some increased pickup there.

David Brown: There's a real interest from a lot of our clients, both on the intermediary side and on the institutional side, around fixed income as, you know, people anticipate the Fed is going to lower rates and so we're pretty well positioned there with our Victory Income Investors franchise and their active ETFs, and so we're encouraged. There's a lot of discussions, and I think as we move to the next Fed meeting, I think you'll see a lot more activity there and a lot more allocations coming out of cash and going into, you know, various fixed income views.

Speaker Change: There's a real interest from a lot of our clients, both on the intermediary side and on the institutional side around fixed income.

Speaker Change: as I think the Fed...

Speaker Change: You know, people anticipate the Fed is going to lower rates. And so we're pretty well positioned there with our Victory Income Investors franchise.

David Brown: And so we're encouraged. There's a lot of discussions. And I think as we move to the next Fed meeting, I think you'll see a lot more activity there and a lot more allocations coming out of cash and going into various fixed income view. Very helpful there. Thanks again.

Michael Telecarpo: With that, I will turn the call over to Mike to go through the quarters financial results in greater detail. Mike? Thanks Dave, and good morning everyone.

Speaker Change: with their active ETFs. And so we're encouraged. There's a lot of discussions, and I think as...

Speaker Change: We move to the next Fed meeting, I think you'll see a lot more activity there and a lot more allocations coming out of cash and going into various fixed income vehicles.

Michael Telecarpo: The Financial Results Review begins on slide 12. Our average AUM in the quarter rose 2% from the first quarter to $167.5 billion, which resulted in revenue also growing by 2% sequentially. For the first half of the year, revenues of $436 million were 7% higher than the first half of last year. For the second quarter, we generated $110.6 million in gap operating income with a margin of 50.4%. Both of which are quarterly record highs and were supported by lower non-cash operating expenses.

Operator: Great. Very helpful there. Thanks again.

Ken Worthington: Your next question comes from a line of Ken Worthington from JP Morgan. Your line is open.

Operator: Your next question comes from the line of Ken Worthington from J.P. Morgan. Your line is open.

Speaker Change: Great. Very helpful there. Thanks again.

Speaker Change: Your next question comes from a line of Ken Worthington from J.P. Morgan. Your line is open.

Operator: Hi, good morning, David and Mike. Thanks for taking my questions. This is Michael Cho, acting for Ken Worthington.

Michael Telecarpo: Hi, good morning, David Mike. Thanks for taking my questions. It's Michael Cho and for Ken Worthington. My first question, I just wanted to talk through and follow up on some of the comments you made. You talked about the potential market rotation possibly, you know, helping victories, Smith Kat Beckley product valuations performance ahead. I mean, if we just look at the Smith Kat product performance over the last year or so, how much of an impact do you think that's had on net flows into your Smith Kat Beckley products? And I guess conversely, when might you expect or if there's any lag in terms of inflection and flows if any of those valuation gaps narrow ahead?

Michael Cho: Hi. Good morning, David and Mike. Thanks for taking my questions. This is Michael Cho for Ken Worthington. My first question, I just wanted to talk through and follow up on some of the comments you made. You talked about...

David Brown: My first question is, I just wanted to talk through and follow up on some of the comments you made. You talked about the potential market rotation possibly, you know, helping Victory's SMITCAP equity product valuation performance in the future. If you just look at the SMITCAP product performance over the last year or so, how much of an impact do you think that's had on net flows into your SMITCAP equity products? And, conversely, when might you expect, or whether there's any lag in terms of inflection and flows, if any of those valuation gaps narrow ahead?

Speaker Change: potential market rotation possibly helping victories mid-cap equity product valuation performance ahead. I mean if we just look at the

Michael Telecarpo: Removing that impact, adjust the net income with tax benefit rose 5% in the quarter to $86.6 million, and $1.31 per diluted share, which is another company record. Adjusted EBIT margin expanded by 90 basis points to 53%. Cash grew in the balance sheet to $119 million during the quarter. This, along with our record-high quarterly EBITDA, helped produce our net leverage ratio to just below 1.9 times. We did not make any open market share repurchases for the second consecutive quarter.

Speaker Change: SmithCat product performance over the last year or so, how much of an impact do you think that's had on

Speaker Change: net flows into your SNCCAP equity products? And I guess conversely, when might you expect, or if there's any lag in terms of inflection and flows, if any of those valuation gaps narrow ahead?

David Brown: Yeah, I think the market has been pretty narrow and has been focused on a large cap side. And so small caps and mid caps have been undervalued when you look at historical multiples. And so we think the broadening out of the market is really encouraging. Our small and mid cap performance, when you look at it in total, is really competitive. And I think when clients look at where dollars are going, where valuations are, I think small and mid cap become a pretty appealing, you know, big, become pretty appealing asset classes. So we think we're going to have some tailwinds there.

David Brown: Yeah, I think the market has been pretty narrow and focused on the large cap side, so small caps and mid-caps have been undervalued when you look at historical multiples, and so we think the broadening out of the market is really encouraging. Our small and mid-cap performance, when you look at it in total, is really competitive, and I think when clients look at where dollars are going, where valuations are, I think small and mid-capitalization become pretty appealing, you know; they become pretty appealing asset classes.

Speaker Change: I think the market has been pretty narrow and has been focused on the large cap side and so small caps

Speaker Change: and mid-caps have been undervalued when you look at historical multiples.

Michael Telecarpo: We returned $32 million to shareholders via our quarterly cash dividend and net settlement of shares for taxes holding for employees. The dividend was increased by 10% in the prior quarter, and the board announced an 11% increase this quarter. This latest dividend of $0.41 per share will be paid on September 25th to share holders of record at the close of business on September 10th.

Speaker Change: And so we think the broadening out of the market is really encouraging. Our small and mid-cap performance, when you look at it in total,

Speaker Change: is really competitive, and I think when clients look at where

Speaker Change: dollars are going, where valuations are, I think small and mid-cap become a pretty appealing

David Brown: So we think we're going to have some tailwinds there. I think with the market broadening out, I think we'll help active managers, and I think we will participate in that. But we have excellent teams. We have a number of different small and mid-cap managers that all have their own style and all have their own edge in the market, and so we're pretty encouraged by that. And we also just think generally that those are asset classes that are going to have good market action, which we should just benefit from just having assets in those asset classes.

Speaker Change: They've become pretty appealing asset classes, so we think we're going to have some tailwinds there.

David Brown: I think with the market broadening out, I think we'll help active managers. And I think we will participate in that. But we have excellent teams. We have a number of different small and mid cap managers that all have their own style and all have their own edge in the market. And so we're pretty encouraged by that. And we also just think generally that those are asset classes that are going to have good market action, which we should just benefit from just having assets in those asset classes.

Speaker Change: I think with the market broadening out, I think we'll help active managers, and I think we will participate in that. But we have excellent teams. We have a number of different small and mid-cap.

Michael Telecarpo: Turning to slide 13, while average AUM rose quarter over quarter, you can see that point to point AUM was lower at the end of June at $173.8 billion compared with the end of March. This is why we recently increased transparency by reporting monthly averages for AUM and total client assets when we report our month end AUM.

Speaker Change: managers that all have their own style and all have their own edge in the market and so we're pretty encouraged by that and we also just think generally that those are asset classes that are going to have good market action which we should just benefit from just having assets in those asset classes.

Michael Telecarpo: On slide 14, we cover long-term asset flows. Several of our investment franchises and our ETF platform generated positive net long-term flows in the second quarter. Victory income investors posted its second consecutive quarter of positive net flows in our global integrity and NEC also had positive net long-term flows in the quarter. A significant portion of redemption in the first half of this year were out of equity strategies as investors rebound portfolio weightings.

Michael Cho: Great. Now thanks for all the color. My follow up.

Operator: Okay, great. No, thanks for all the color.

Michael Telecarpo: I just want to touch on the right there. Realize there's always some nuance with mix in terms of assets and vehicle channels. But headline fee rates are down a touch again this quarter. You just offer any sort of underlying trends and curate that the product or strategy levels. Yeah, there's really no trend. It's really just asset mix and distribution channel mix. We have been pretty consistent with our fee rate within a basis point. You know, when you go back and look historically, and it's going to ebb and flow each quarter, depending on market action and where we see inflows and outflows.

Speaker Change: Great, great. No, thanks for all the color. My follow up, I just want to touch on theory. I realize there's always some nuance.

Speaker Change: with Mix in terms of assets and vehicles and channels. The headline fee rates are down a touch again this quarter. Can you just talk through any sort of underlying trends and fee rates at the product or strategy levels?

Michael Policarpo: My follow-up question, I just want to touch on fee rates. I realize there's always some nuance with mixed results in terms of assets and vehicles and channels. The headline fee rates are down a touch again this quarter. Can you just talk through any sort of underlying trends in fee rates at the product or strategy level?

Michael Policarpo: Yeah, there's really no trend, it's really just asset mix and distribution channel mix. We have been pretty consistent with our fee rate within a basis point, you know, when you go back and look historically, and it's going to ebb and flow each quarter depending on market action and where we see inflows and outflows, but there's no pricing pressure to speak about in any of parts of our business other than what's the general normal, you know, constraints of traditional asset management, but it's been within the one basis point when you go back and look historically.

Speaker Change: There's really no trend, it's really just asset.

Speaker Change: Mix and Distribution Channel Mix. We have been pretty...

Michael Telecarpo: Despite this rebalancing activity, many of these equity strategies have even higher levels of AUM as a result of market action. Slide 15 shows a modest 2% uptick in sequential revenue compared with the first quarter, consistent with the higher average AUM. Our average fee rate remains steady at 52.6 basis points.

Speaker Change: consistent with our fee rate within a basis point, you know, when you go back and look historically, and it's going to ebb and flow each quarter depending on market action and where we see inflows and outflows, but there's no pricing pressure to speak about in in any of parts of our business other than what's the general normal, you know, constraints of traditional asset management.

Michael Telecarpo: But there's no pricing pressure to speak about in any of parts of our business other than what's the general normal constraints of traditional asset management. But it's been, but it's been within the one basis point when you go back and look historically. The only change we've had really in the fee rate was when we did the West End acquisition, which just was a lower basis point type platform and really just brought our fee rate down. But you can see, I think most importantly for us the way we look at it is we are very margin focused, and you can see that our margins have held up and actually have expanded during times where a fee rate have dipped a little bit or where they've gone up.

Michael Telecarpo: Slide 16 highlights expenses recorded during the quarter. Total expenses declined by 14% to $123.8 million compared with $144 million in the first quarter. The primary driver of this was a $22 million reduction in operating expenses that was largely due to a change in value of consideration payable for potential earn out payments for prior acquisitions. It also reflects the return to normalized payroll tax and benefit expenses following the seasonal uptick in the first quarter of the year when minimums are reset. We've also started to incur expenses related to the Monday transaction in the first half of the year, which partially offsets some of the overall decline.

Michael Policarpo: The only change we've had really in the fee rate was when we did the West End acquisition, which was a lower basis point type platform and really just brought our fee rate down. But you can see, I think most importantly for us, the way we look at it is we are very margin focused, and you can see that our margins have held up and actually have expanded during times where fee rates have dipped a little bit or where they've gone up. I think we look at our business really from a margin lens and not necessarily from a fee rate lens.

Speaker Change: But it's been within the one basis point when you go back and look historically. The only change we've had really in the fee rate was when we did the West End acquisition, which just was a lower basis point.

Speaker Change: Type.

Speaker Change: platform and really just brought our fee rate down but you can see I think most importantly for us the way we look at it is we are very margin focused and you can see that our margins have held up and actually have expanded during times where a fee rates have dipped a little bit or where they've gone up. I think we we look at our business really from a margin lens and not necessarily from a fee rate lens.

Michael Telecarpo: I think we look at our business really from a margin and not necessarily from a fee rate.

Michael Telecarpo: Thank you so much.

Operator: Okay, great. Thank you so much.

Matthew Howlett: Your next question comes from a line of Matt Howlett from Be Riley Financial. Your line is open.

Operator: Your next question comes from the line of Matt Howlett from B. Reilly Financial. Your line is open.

Speaker Change: Okay, great. Thank you so much.

Michael Telecarpo: On slide 17, we removed some of the accounting noise from these non-cash items as well as acquisition related expenses and highlight our non-gap metrics. We reported $1.31 adjusted net income with tax benefit per diluted share, which is the highest level in our history and is up 5% from $1.25 per diluted share reported from the first quarter. Adjusted EBITDA and adjusted EBITDA margin were also company records at $116.5 million and 53% respectively.

Speaker Change: Your next question comes from the line of Matt Howlett from B. Riley Financial. Your line is open.

Michael Policarpo: Oh, hey, thanks. Good morning. Hey, real quick, is the pro forma fixed income for the deal still around 24%, or is that, you know, nudging up here a bit with the strong performance?

Matthew Howlett: Oh, hey, thanks. Good morning. Hey, real quick, is the pro-former fixed income for the deal still around 24% or is that, you know, nudging up here a bit with the strong performance? Yeah, really no change. It's in that same range of about a quarter of the pro-former business going forward. Gotcha. Okay. Good. I just wanted to check that out.

Matt Heller: Oh hey, thanks, good morning. Hey, real quick, is the pro forma fixed income for the deal still around 24% or is that, you know, nudging up here a bit with the strong performance?

Michael Policarpo: Yeah, really no change. It's in that same range of about a quarter of the pro forma business going forward.

Speaker Change: Yeah, really no change. It's in that same range of about a quarter of the pro forma business going forward.

Michael Policarpo: Gotcha. Okay, good. I just wanted to check that in. And then the second thing, New Energy Capital, I haven't seen that sort of pop up here, but it looked like it had a good quarter. Can you just talk about what's going on, and then, of course, what the appetite is for, you know, more alts in the portfolio. Here's how you think about that.

David Brown: And then the second thing, new energy cap. I haven't seen that sort of pop up here. We only had a good quarter. Can you just talk about what's going on? And then, of course, what the appetite is for your moral and the portfolio and just how you think about that? Yeah, I think what you saw in the quarter really was the completed arrays of their sixth fund, which was really the first fund under the Victory ownership has been completed. I think the appetite is still strong. We're seeing demand. I think some of the constraints just with respect to private markets and capital allocation are impacting that.

Speaker Change: Gotcha. Okay, good. I just wanted to check that in. And then the second thing, new energy capital, I haven't seen that sort of pop up here, but it looked like it had a good quarter. Can you just talk about what's going on and then, of course, what the appetite is for, you know, more alts in the portfolio and just how you're thinking about that.

Michael Telecarpo: Finally, turning to slide 18, we generated approximately $80 million in cash from operations during the quarter and ended June with $199 million in cash. This reduced our net debt to EBITDA leverage ratio for the second consecutive quarter. As Dave covered in detail, we carefully manage our balance sheet to maintain flexibility and have a capital allocation strategy that directly supports our gross strategy. During the quarter we extended our $100 million revolver by two years. With the extension we amended the agreement to reduce the draw pricing by 50 basis points. The facility remains undrawn.

Michael Policarpo: Yeah, I think what you saw in the quarter really was that they completed a raise of their sixth fund, which was really the first fund under the Victory ownership has been completed. Yeah, I think the appetite, you know, is still strong. We're seeing demand. I think some of the constraints just with respect to private markets and capital allocation are impacting that.

Speaker Change: Yeah, I think what you saw in the quarter really was, you know, they completed a raise of their sixth fund, which was really the first fund.

Speaker Change: under the Victory Ownership has been completed. I think the appetite is still strong. We're seeing demand.

Speaker Change: I think some of the constraints just with respect to private markets and capital allocation are impacting that, but again, they were successful in raising their

Michael Policarpo: But again, they were successful in raising their first fund underneath Victory. I think you saw that in some of the information that we provided, which was why they had a net flow positive quarter. And, you know, we're continuing to be bullish on the asset class. Their performance remains very strong. And they're doing exactly what we expected them to do. They're good investors in a really good asset class. And we're bullish on the future.

David Brown: But again, they were successful in raising their first fund underneath Victory. I think you saw that in some of the information that we provided, which was why they had a net flow as a quarter. And we're continuing to be bullish on the asset class. Their performance remains very strong. And they're doing exactly what we expected them to do. They're good investors in a really good asset class. And we're bullish on the future.

Speaker Change: First found underneath Victory.

Speaker Change: I think you saw that in some of the information that we provided, which was why they had a net flow positive quarter. And we're continuing to be bullish on the asset class. Their performance remains very strong. And they're doing exactly what we expected them to do. They're good investors.

Michael Telecarpo: That concludes our prepared remarks. I will now turn it back over to the operator for questions. Thank you.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one in your telephone keypad to raise your hand and join the key. Thank you. If you would like to withdraw your question, simply press star one again.

Speaker Change: in a really good asset class, and we're bullish on the future.

David Brown: You're going to have a lot of access capital here coming out of the deal. When you think about doing future deals, David, I mean, how do you think about, you know, the interplay by doing, you can issue debt, your currency is going to have a much higher evaluation presumably. I mean, what do you think about how you look at the balance sheet for M&A going forward? And then can I ask sort of what you're targeting now with that distribution agreement?

David Brown: You're going to have a lot of excess capital here coming out of the deal. When you think about doing future deals, David, I mean, I mean, how do you think about, you know, the interplay between, I mean, you can issue debt; your currency is going to have a much higher valuation, presumably. I mean, what do you think about how you look at the balance sheet for M&A going forward? And then, I mean, can I ask sort of what you're targeting now with the distribution agreement?

Speaker Change: You're going to have a lot of excess capital here coming out of the deal when you think about doing future deals, David.

Etienne Ricard: Your first question comes from a line of Etienne Ricard from BMO Capital Markets. Your line is open. Thank you very much.

Speaker Change: I mean, how do you think about, you know, the interplay between, I mean, you can issue debt, you can offseed your currency, it's going to have a much higher valuation, presumably. I mean, what do you think about how you look at the balance sheet for M&A going forward? And then, I mean, can I ask sort of what you're targeting now with that distribution agreement?

David Brown: Dave, just recall back on product development, you've been quite active launching new products and you plan to do more. So I'm curious in the past what has worked well for you in terms of product design and distribution and how is this guiding your process for new product launches? Good morning. ETFs have really been a focus for us over the last few months and will be a focus for us going forward. We've been able to launch a few new ETFs that have really caught momentum fairly quickly.

David Brown: I think post the close of the Monday acquisition, the environment is going to be, you know, I think it's going to be the golden era of consolidation in the asset management business. I think you're going to see an acceleration of consolidation, and we are going to have a really flexible balance sheet where our leverage will be low, we'll be generating a lot of cash, and we have lots of different tools to make acquisitions.

David Brown: Yeah, I think post the close of the Monday acquisition, the environment is going to be, you know, I think it's going to be the golden era of consolidation in the asset management business. I think you're going to see an acceleration of consolidation. And we're going to have a really flexible balance sheet where leverage will be low. We'll be generating a lot of cash. And we have lots of different tools to do acquisitions. I think we've shown that, over the years, where we've done. And we've issued debt. We've issued equity with the Monday transaction. We've done earnouts.

Speaker Change: I think post the close of the Monday acquisition, the environment is going to be, you know, I think it's going to be the golden era of consolidation in the asset management business. I think you're going to see an acceleration of consolidation.

Speaker Change: and we are going to have a really flexible balance sheet where our leverage will be low, we'll be generating a lot of cash, and we have lots of different tools to do acquisitions. I think we've shown that over the years where we've done

David Brown: I think we've shown that over the years where we've done, we've issued debt, we've issued equity with the Monday transaction, we've done earnouts, and I think we're going to be in a great position to do acquisitions, and we are, you know, as part of our strategic plan to be part of the consolidation. We're going to be targeting larger transactions, as you've seen over the years, where the transactions have grown as our business has grown, and I think we'll continue to do that, and that'll be our focus.

David Brown: And as we've designed our ETFs, we've really looked at what the market is today, what clients are looking for and how they're trying to solve issues within their portfolios. One of the ETFs we've launched recently, V flow, V F L O is a pretty effective vehicle for clients to get large cap exposure in this environment. And so we'll use the same process we've used in the past, which really is input from our clients, our sales professionals and some of the work we do in house to drive what kind of products we're going to launch in the future.

Speaker Change: We've issued debt, we've issued equity with the Ibande transaction, we've done earnouts, and I think we're going to be in a great position to do acquisitions and we're, you know, as part of our strategic plan.

David Brown: And I think we're going to be in a great position to do acquisitions. And we're, you know, as part of our strategic plan to be part of the consolidation. We're going to be targeting larger transactions. As you've seen over the years, where the transactions have grown as our business has grown. And I think we'll continue to do that. And that'll be your focus.

Speaker Change: to be part of the consolidation.

Speaker Change: We're going to be targeting larger transactions as you've seen over the years where the transactions have grown as our business has grown and I think we'll continue to do that and that'll be our focus. You know the distribution agreement that we have with the Monday outside the U.S.

David Brown: You know, the distribution agreement that we have with Monday outside the U.S., I think will make us a really desirable partner for many, because it'll open up not just a sizable U.S. intermediary effort, which we will have, but it'll open up the rest of the world.

David Brown: The distribution agreement that we have with the Monday outside the US, I think will make us a really desirable partner for many, because it'll open up not just a sizable US intermediary effort, which we'll have, but it'll open up the rest of the world. And any sort of target now, you're just looking for the best value, or is there any geography or any type of asset class you'd want to target off the alternatives, you know, could be a big area for you guys over time. Yeah, I think we always start off with, we're looking for great companies that fit with us and that make our company better and that match us culturally.

Speaker Change: I think will make us a really desirable partner for many because it'll open up not just, you know, a sizable U.S. intermediary effort, which we'll have, but it'll open up the rest of the world.

David Brown: Okay, and on capital location, we all know the amundi transaction will bring leverage down. If we look over the next couple quarters before closing, how are you thinking about the trade off between share report, share repurchases versus adding to your cash position? And the reason I'm asking is I presume another amundi transaction is more of a late 2025 story given the near term focus on the integration of amundi. Thank you. So we'll use the same principles we've used in the past and we'll balance out shareholder return with allocating capital for strategic MNA.

David Brown: And any sort of target now, you're just looking for the best value or any, you know. Geography or any type of asset class you'd want to target, obviously alternatives, you know, could be a big area for you guys over time.

Speaker Change: and any any sort of target now you're just looking for the best value or any you know

Speaker Change: geography or any type of asset class you'd want to target. Obviously, alternatives, you know, could be a big area for you guys over time.

David Brown: Yeah, I think we always start off by looking for great companies that fit with us and that make our company better and that match us culturally. Monday is a great example of that.

Speaker Change: Yeah, I think we always start off with, we're looking for great companies.

Speaker Change: that fit with us.

David Brown: A Monday is a great example of that. The USAA Investment Management Business was a great example of that. The RS Investment Business was a great example of that. And so, you know, so we'll continue down the path we have. We never start with a specific asset class we're looking at. We're really looking at can we do a transaction that's going to make our business better, create shareholder value, and that'll be the guiding principles for us going forward. You only got a great playbook.

Speaker Change: and that make our company better.

Speaker Change: and Match Us Culturally.

David Brown: The USAA Investment Management Business was a great example of that. The RS Investment Business was a great example of that. And so we'll continue down the path we have. We never start with a specific asset class we're looking at. We're really looking at can we do a transact and that's going to make our business better, create shareholder value, and that'll be the guiding principles for us going forward.

Speaker Change: Monday is a great example of that. The USAA investment management business was a great example of that. The RS investments business was a great example of that and so, you know, so we'll continue down the path we have. We never start with a specific

David Brown: You know, at the quarters to come as soon as we are permitted and allowed to buy shares back, we will continue with our share repurchase program. That's an important element to our shareholder return strategy. As far as MNA, we are quite encouraged by the environment and think want post the close of the amundi transaction, we will be back really having discussions and would imagine that, you know, the environment is going to be really ripe for consolidation in the industry.

Speaker Change: asset class we're looking at, we're really looking at can we do a transact and that's going to make our business better, create shareholder value, and that'll be the guiding principles for us going forward.

Operator: Jim, we've got a great playbook. Thanks a lot.

David Brown: Thanks a lot.

Michael Cyprys: Your next question comes from a line of Michael Cyprys from Morgan Stanley.

Operator: Your next question comes from the line of Michael Cyprys from Morgan Stanley. Your line is open.

Speaker Change: You certainly got a great playbook. Thanks a lot.

Michael Cyprys: Your line is open. Hey, good morning. Thanks for taking the question.

Speaker Change: Your next question comes from a line of Michael Cyprys from Morgan Stanley . Your line is open.

Michael Policarpo: Hey, good morning. Thanks for taking the time to answer the question. Maybe just circling back on ETFs, just hoping you could maybe update us a little bit on your ETF strategy, how you're thinking about potentially launching new products and putting marketing muscle behind that. And as you think about new products to launch, how are you thinking about smart beta versus active versus even clones of existing strategies that you have, including maybe even introducing an ETF share class for existing strategies and funds? Thank you.

David Brown: Maybe just circling back on ETFs, but just hope that you could maybe update us a little bit on your ETF strategy, how you're thinking about potentially launching new products and marketing muscle behind that. And as you think about new products to launch, how are you thinking about smart data versus active versus even clones of existing strategies that you have, including maybe even introducing an ETF share class for existing strategies in funds. Thank you. So we are investing in our ETF platform. We've hired some dedicated resources around the sales side of it. We're partnering with different distribution platforms to be exclusive or premier ETF providers.

Michael Cypress: Hey, good morning. Thanks for taking the question. Maybe just circling back on ETFs, but just hoping you could maybe update us a little bit on your ETF strategy, how you're thinking about potentially launching new products and putting marketing muscle behind that, and as you think about new products to launch, how are you thinking about smart beta versus active versus even clones of existing strategies that you have, including maybe even introducing an ETF share class for existing strategies and funds. Thank you.

David Brown: And as I said in the past, I think we are a great partner. We're still having conversations as we've always had and we are quite encouraged by those. But in the meantime, we'll go back to share repurchases when we're permitted. We'll continue with our dividend strategy. We have pretty high levels of cash today. As you mentioned, our balance sheet will only get stronger, you know, post the amundi transaction with more earnings and more cash flow. And so we feel like we're in a really good position to balance out dividends, share repurchases, and then continue on our MNA path.

David Brown: So we are investing in our ETF platform. We've hired some dedicated resources around the sales side of it. We're partnering with different distribution platforms to be exclusive or premier ETF providers. We've really leaned into training our sales group as well.

Speaker Change: So we are investing in our ETF platform. We've hired some dedicated resources around the sales

Speaker Change: side of it. We're partnering with different distribution platforms.

Speaker Change: to be exclusive or premier ETF providers.

David Brown: We've really leaned into training our sales group as well. So it's an area of focus for us because we think that we have a great platform. We think we have a great product set. As far as product launches going forward, I think all of the categories you just listed are all within the queue of things that we're evaluating. Each one of those areas has its own nuances that we will look at. Some of those things we'll just come out with. We want to make sure that we do our work, and we want to make sure that we don't do anything that's not saleable.

David Brown: So it's an area of focus for us because we think that we have a great platform, and we think we have a great product set. As far as product launches go forward, I think all of the categories you just listed are all within the queue of things that we're evaluating. Each one of those areas has its own nuances that we will look at. Some of those things we'll just come up with. We wanna make sure that we do our work, and we wanna make sure that we don't do anything that's not saleable.

Speaker Change: We've really leaned into training our sales group as well. So it's an area of focus for us because we think that we have a great platform, we think we have a great product set.

David Brown: And when would you expect to be allowed to resume share purchases? That's to be determined when we're permitted to and allowed to, we will. Thank you very much. Thank you guys highlighted in the past.

Speaker Change: As far as product launches going forward, I think all of the categories you just

Speaker Change: listed are all within, you know, the queue of things that we're evaluating.

Speaker Change: Each one of those areas has its own nuances that we will look at. Some of those things we'll just come out with. We want to make sure that, you know, we do our work and we want to make sure that, you know, we don't...

David Brown: But there really isn't anything I'm willing to share on in kind of an open forum on what exactly we're going to do. But I would tell you, all of those items you listed out are things that we're evaluating.

David Brown: But there really isn't anything I'm willing to share on in kind of an open forum on what exactly we're going to do. But I would tell you all of those items you listed out are things that we're evaluating.

Alex: So one, I guess are you able to start to pursue any of the cross revenue synergies and distribution opportunities you talked about? How do the deal and if so kind of how's that tracking? And then secondly, you pointed out and give pretty explicit guidance and kind of where the EBITDA for among the run rates back when you announced the deal. So maybe you could help us update kind of where things done today on the revenue and EBITDA perspective. Thanks.

Speaker Change: do anything that's not saleable. But there really isn't anything I'm willing to share on in kind of an open forum on what exactly we're going to do but I would tell you all of those items you listed out are things that we're evaluating.

David Brown: Okay, great.

Michael Policarpo: Okay, great. And then just a follow-up question on capital management. So, you hiked the dividend. I think that implies around a 30-32% payout or so on at least this quarter's earnings. So, just curious how you're thinking about sizing the dividend here, and particularly as you look forward, in the pro-former theme, when did you hire, thinking about capital allocation? Clearly, the dividend has moved up significantly over the years. I remember in years past, there was a view to skew more of the capital towards either buybacks or even M&A. So, I'd be curious how you're thinking about that.

David Brown: And then just a follow-up question on capital management. So you hike the dividend. I think that applies around a 30, 32% payout or so on at least this quarter is running. So just curious how you're thinking about sizing the dividend here. And particularly as you look forward, a pro-former theme when did you hire you thinking about capital allocation? Clearly, the dividend has moved up significantly over the years. I remember in years past there was a view to skew more of the capital towards either buybacks or even M&A. So just curious how you're thinking about that.

Speaker Change: Okay, great. And then just a follow-up question on capital management.

Speaker Change: So you hike the dividend, I think that implies around a 30, 32% payout or so on at least this quarter's earnings. So just curious how you're thinking about sizing the dividend here, and particularly as you look forward, pro-former theme, when you deal higher, you're thinking about capital allocation. You know, clearly the dividend has moved up significantly over the years. I remember in years past, there was a view to skew more of the capital towards either buybacks or even M&A. So just curious how you're thinking about that. And then on buybacks, you mentioned that you'd resume once permitted. Can you just elaborate on what the restriction is that you have in place and what would cause that restriction to lapse and any thoughts on the timeframe for when you'd expect that restriction to lapse? Thank you.

David Brown: Good morning, Alex. I'll take the first part and then I'll have Mike take the second part. We are working on finalizing really the synergy plan on the revenue side. We feel really good about the expense synergies. We are reiterating our guidance of a hundred million dollars. That to be, you know, realized within a lot within the first year and a lot within the closing time frame and total within two years. So we've reiterated that on the revenue side. We're developing those plans. We have a good idea and we'll roll those out before close.

David Brown: And then on buybacks, you mentioned that you'd resume once permitted. You just elaborate on what the restriction is you have in place and what would cause that restriction to lapse in any thoughts on the timeframe from when you'd expect that restriction to lapse. So, let me start off with the dividend. I don't think we're targeting a specific payout ratio. We look at it every quarter; we look at the facts and circumstances. The dividend has grown as our stock prices grown, as we listed out on our presentation. So, I think it's grown kind of in line with that.

Michael Policarpo: And then on buybacks, you mentioned that you'd resume once permitted. Can you just elaborate on what the restriction is that you have in place and what would cause that restriction to lapse? And any thoughts on the timeframe for when you'd expect that restriction to lapse? Thank you.

Michael Policarpo: Yeah, so let me start off with the dividend. I don't think we're targeting a specific payout ratio. We look at it every quarter. We look at the facts and circumstances. The dividend has grown as our stock price has grown, as we list out in our presentation. So I think it's grown kind of in line with that.

David Brown: Monday, the US business of a Monday is having a fantastic year. They've got strong investment performance. You can see from the publicly available data on their mutual fund complex. They're in positive flows for the year. And they're we're quite happy with how their business is tracking and how their business is performing. And I'll add to that with respect to kind of an update on kind of a market market. The AUM for a Monday US is in the 104 to 106 billion dollar range based on the last available information that we've provided.

Speaker Change: Yeah, so let me start off with the dividend. I don't think we're targeting a specific payout ratio.

Speaker Change: We look at it every quarter. We look at the facts and circumstances.

Speaker Change: The dividend has grown as our stock price has grown, as we listed out on our presentation. So I think it's grown kind of in line with that.

Michael Policarpo: And then, as far as the repurchases are concerned, we have balanced out repurchasing our stock and our dividends, I think, quite nicely over the years. The primary use of our balance sheet and our capital is to make strategic acquisitions. I think we referenced the $1.6 billion number that we've allocated to strategic acquisitions since our IPO. So the capital allocation is really still to balance out strategic acquisitions, where most of the capital will go, and then dividends and share repurchases.

David Brown: And then, as far as the repurchases, we have balanced out repurchasing our stock and our dividends, I think, quite nicely over the years. The primary use of our balance sheet and our capital is to do strategic acquisitions. I think we referenced a $1.6 billion number that we've allocated to strategic acquisitions since our IPO. So, the capital allocation is really still to balance out strategic acquisitions, where most of the capital will go, and then dividends and sharey purchases. The sharey purchases and their strics around sharey purchases is really around the ability to buy shares when you're closing a transaction.

Speaker Change: And then as far as the repurchases, we have balanced out repurchasing our stock and our dividends.

Speaker Change: I think quite nicely over the years. The primary use of our balance sheet and our capital is to do...

David Brown: We've also mentioned that their revenue realization is in the high 40s from a basis point perspective and that their current margins are in the mid 20s from an even a perspective that frames out at least where they are today. As they mentioned, we're reaffirming the hundred million dollar synergies that we went out with and are working with. And those are net expense synergies. They're not inclusive of any revenue synergies. We will come back on that as we get closer to close as the plans that they mentioned are further refined.

Speaker Change: strategic acquisitions. I think we referenced a $1.6 billion number.

Speaker Change: that we've allocated to strategic acquisitions since our IPO. So the capital allocation is really still to balance out.

Speaker Change: strategic acquisitions, where most of the capital will go, and then dividends and share repurchases.

Michael Policarpo: You know, the share repurchases, the restriction around share repurchases is really around the ability to buy shares when, you know, you're closing a transaction. And so there'll be facts and circumstances when windows open up, whether we can buy shares back. You know, I don't have a date for you on that or a quarter, but as soon as we're permitted to, we will resume it.

Speaker Change: You know, the share repurchases and the restriction around share repurchases.

Speaker Change: is really around the...

Speaker Change: ability to buy shares when you know you're closing a transaction and so there'll be facts and circumstances when when windows open up whether we can buy shares back you know I don't have a date for you on that or a quarter but as soon as we're permitted to we will resume it the board has authorized a hundred million dollar plan and we're not too far into that plan so we have plenty of capacity there it is part of our capital allocation it's an important part of our capital allocation strategy as well

David Brown: And so, there will be facts and circumstances when Windows open up, whether we can buy shares back. I don't have a date for you on that or a quarter, but as soon as we're permitted to, we will resume it. The board has authorized a $100 million plan, and we're not too far into that plan, so we have plenty of capacity there. It is part of our capital allocation. It's an important part of our capital allocation strategy as well.

David Brown: And we've also mentioned kind of post synergy. The long term margin guidance that we provided of 49% is still where we are and we think is highly attainable and achievable based on the growth in the business and the efficiency and the leverage that the business will have. So those are kind of the metrics that we'd kind of point to and really reiterate from kind of previous conversations. And one more one more thing to add Alex is the leverage post. First, the close of the transaction should be in the low ones, as we have talked about in the past.

Alex: Got it. Great. That's helpful. Thanks.

Michael Policarpo: The board has authorized a $100 million plan, and we're not too far into that plan, so we have plenty of capacity there. It is part of our capital allocation strategy.

David Brown: Great, thank you.

Adam Beatty: Your next question comes from a line of Adam Beatty from UBS.

Operator: Your next question comes from the line of Adam Beatty from UBS. Your line is open.

Speaker Change: Great, thank you.

Adam Beatty: Your line is open.

Speaker Change: Your next question comes from a line of Adam Beatty from UBS. Your line is open.

David Brown: Thank you, good morning. One ask about flows by channel and the trends there. We've had some discussion around Institutional. Sound like it's been a little bit slow. It's just given some reallocations, but the clients have been retained, so maybe improving ahead. But just on the other channels, retail and direct, what the trends you've seen there are. And some of your peers have actually mentioned that retail tends to come back a little bit sooner, a little bit less friction, maybe than institutional. So, just wondering, to the extent that the rotation and broadening of the market persists, whether that's been your experience in the retail channel and whether you would expect that in future.

David Brown: Thank you, good morning. I want to ask about flows by channel and the trends there. We've had some discussion around institutional, sounds like it's been a little bit sluggish, just given some reallocations, but the clients have been retained, so maybe improving ahead. But just on the other channels, retail, and direct, what the trends you've seen there are, and some of your peers have actually mentioned that retail tends to come back a little bit sooner, a little bit less friction maybe than institutional. So just wondering, to the extent that the rotation and broadening of the market persists, whether that's been your experience in the retail channel, and whether you would expect that in the future. Thank you.

David Brown: And then on the victory side of things, I was hoping to maybe just dig in a little bit more into the organic growth dynamics that you guys have seen. So obviously still continued outflows. You talked about some things that are likely to improve.

Adam Beattie: Thank you. Good morning. I want to ask about flows by channel and the trends there. We've had some discussion around institutional. Sounds like it's been a little bit sluggish, just given some reallocations, but the clients have been retained, so maybe improving ahead. But just on the other channels, retail and direct, what the trends you've seen there are, and some of your peers have actually mentioned that retail tends to come back a little bit sooner, a little bit less friction maybe than institutional. So just wondering, to the extent that the rotation and broadening of the market persists.

David Brown: So on a kind of back book basis without kind of considering anything from a Monday, what seems most interesting and exciting where you guys could see an acceleration in inflows over the next couple of quarters. So we've seen some, as Mike mentioned in his prepared remarks, we've seen some rebalancing from clients in some of our strategies that where we have not been fired or where the client has not left. But really have just rebalanced given some of the market action.

David Brown: Thank you. A lot of the rebalancing has come out of the institutional channel. The institutional channel has historically been an organic grower for us. This year, we've seen in this quarter, we've seen a number of rebalances out of sub-larger clients. So, as you said, we've retained the client, but they rebalanced and reallocated some dollars away. We've also seen a little bit of a delay in fundings on the institutional side, which we expect to pick up in the third and fourth quarter. So, we're still pretty bullish on that channel. On the intermediary channel, we've seen some outflows in our mutual fund business.

Speaker Change: whether that's been your experience in the retail channel and and whether you would expect that in future. Thank you.

David Brown: A lot of the rebalancing has come out of the institutional channel, which has historically been an organic grower for us. This year we've seen, in this quarter, we've seen a number of rebalances out of some larger clients. So, as you said, we retained a client, but they rebalanced or reallocated some dollars away. We've also seen a little bit of a delay in funding on the institutional side, which we expect to pick up in the third and fourth quarters.

Speaker Change: A lot of the rebalancing has come out of the institutional channel.

David Brown: We've seen a little bit of a delay in institutional fundings, which we should see pick up in the third and fourth quarter. But where we've seen some really nice activities in our ETF business, in our fixed income business, in our global product. And we're quite excited about some of the different areas where we're seeing growth as we think the market is getting ready to change. And as the Fed is getting ready to reduce rates, we think we're going to be a beneficiary in some of those products.

Speaker Change: The institutional channel has historically been an organic grower for us. This year we've seen, in this quarter, we've seen a number of rebalances.

David Brown: Great.

Speaker Change: out of some larger clients. So, as you said, we've retained the client, but they've rebalanced.

David Brown: Thanks so much.

Speaker Change: reallocated some dollars away.

Speaker Change: We've also seen a little bit of a delay in funding.

David Brown: So, we're still pretty bullish on that channel. On the intermediary channel, we've seen some outflows in our mutual fund business, I think, just generally speaking, given the market environment, but we've also seen nice momentum in certain mutual funds, and we've seen nice momentum in our ETF business, and we see that picking up and gaining momentum as the year progresses. The direct business has been pretty steady from a gross and net perspective, and we really have not seen any change there.

Speaker Change: on the institutional side, which we expect to pick up in the third and fourth quarter. So we're still pretty bullish on that channel.

Speaker Change: On the intermediary channel, we've seen some outflows in our mutual fund business.

David Brown: I think, just generally speaking, giving the market environment. But we've also seen nice momentum in certain mutual funds, and we've seen nice momentum into our ETF business. And we see that picking up and gaining momentum as the year progresses. The direct business has been pretty steady from a gross and net perspective, and we really have not seen a change there. As the market broadens out, we would expect that all of the channels would grow. It is in our experience that one channel comes back faster than another. I think it's very client-specific on the institutional side.

Kenneth Lee: Your next question comes from a line of Kenneth Lee from RBC Capital Markets. Your line is open. Hey, good morning, thanks for taking my question. I think of the prepared remarks you talked about incurring some Monday related expenses. Just wondering if you could just quantify that and whether that's sort of like an ongoing expense into closed transaction. Thanks. Yeah, thanks Ken. Yeah, I think the expenses that we've incurred today really have been around getting the transactions to where it is today.

Speaker Change: I think just generally speaking, giving the market environment, but we've also seen nice momentum in certain mutual funds and we've seen nice momentum into our ETF business.

Speaker Change: and we see that picking up and gaining momentum as the year progresses.

Speaker Change: The direct business has been pretty steady.

Speaker Change: from a gross and net perspective.

David Brown: As the market broadens out, we would expect that all of the channels would grow. In our experience, one channel comes back faster than another. I think it's very client-specific on the institutional side, and then on the intermediary side, we haven't seen any real distinction between that channel versus other channels.

Speaker Change: and we really have not seen a change there. As the market broadens out...

Kenneth Lee: So think about it as signing the definitive agreement. So most of that has been around and by certainly gold expenses. It's been a couple million dollars that we've incurred today. And it will see some incremental costs related to the transaction as we move through the rest of the year until closing. Nothing that we expect to be significant or out of the norm with respect to transactions like this. Gotcha. Very helpful there.

Speaker Change: We would expect that all of the channels would grow. It is in our experience that one channel comes back faster than another. I think it's very client-specific on the institutional side. And then on the intermediary side, we haven't seen any real distinction with that channel versus other channels.

David Brown: And then on the intermediary side, we haven't seen any real distinction with that channel versus other... channels.

David Brown: That's helpful. Appreciate the detail.

David Brown: That's helpful. Appreciate the detail. And then maybe a bit of an admin check on the Monday deal. During the quarter, we had a couple of ad hoc announcements and developments.

David Brown: And then maybe a bit of an admin check on the Monday deal. During the quarter, we had a couple of ad hoc announcements and developments. So just running, you know, what the next milestone is that you would expect, and if possible, maybe broad timing around that. Thank you. So the next milestone would be the close, which we have publicly said would be the end of 24 or the early part of 2025. And that's really the next milestone for the transaction. Okay, so no more interim steps. None. Not material anyway. Yeah, correct.

Speaker Change: That's helpful. I appreciate the detail. And then maybe a bit of an admin check on the Monday deal. During the quarter, we had a couple of ad hoc announcements and developments. So just wondering, you know, what the next milestone is that you would expect, and if possible, maybe broad timing around that. Thank you.

Michael Telecarpo: And then just one follow up if I may. Thanks for the color around institutional investor conversations and activity. One of you can talk a little bit more about what you're hearing around fixed income allocation across the clients you're speaking with. And whether we could see some some increase pick up there. Thanks. Yeah, there's a real interest from a lot of our clients post on the intermediary side and on the institutional side around fixed income.

David Brown: So just wondering, you know, what the next milestone is that you would expect, and, if possible, maybe broad timing around that. Thank you. So the next milestone would be the close, which we have publicly said would be the end of 24 or the early part of 2025, and that's really the next milestone for the transaction. Okay, so no more interims. None. Not material, anyway.

Speaker Change: So the next milestone would be the close which we have publicly said would be the end of 24 or the early part of 2025 and that's really the next milestone for the transaction.

David Brown: Yeah, yeah, correct. Okay, thank you very much. I appreciate it.

Speaker Change: Okay, so no more interim steps.

David Brown: Okay, thank you very much. Appreciate it.

Speaker Change: None. Not material, anyway. Yeah. Yeah, correct. Okay. Thank you very much. Appreciate it.

Michael Telecarpo: As as I think the Fed, you know, people want to spate the Fed is going to lower rates. And so we're pretty well positioned there with our victory income investors franchise with their active ETFs. And so we're encouraged. There's a lot of discussions. And I think as we move to the next Fed meeting, I think you'll see a lot more activity there and a lot more allocations coming out of cash and going into various fixed income view. Very helpful there. Thanks again.

Operator: And that concludes our question-and-answer session.

David Brown: And that concludes our question and answer session. I will now turn the call back over to Mr. David Brown for some final closing remarks.

David Brown: I will now turn the call back over to Mr. David Brown for some final closing remarks. Thank you. And thank you for your interest in Victory Capital. We look forward to keeping you updated during the second half of the year on the business, as well as the progress we're making as we work towards closing the Monday transaction.

Speaker Change: And that concludes our question and answer session. I will now turn the call back over to Mr. David Brown for some final closing remarks.

David Brown: Thank you, and thank you for your interest in Victory Capital. We look forward to keeping you updated during the second half of the year on the business, as well as the progress we're making as we work towards closing the Amundi Transact. Have a wonderful day.

David Brown: Thank you and thank you for your interest in Victory Capital. We look forward to keeping you updated during the second half of the year on the business as well as the progress we're making as we work towards closing the Monday transaction.

David Brown: Have a wonderful day. Thank you.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: Have a wonderful day. Thank you.

Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Michael Cho: Your next question comes from a line of Ken Worthington from JP Morgan. Your line is open. Hi, good morning, David Mike. Thanks for taking my questions. It's Michael Cho and for Ken Worthington. My first question, I just wanted to talk through and follow up on some of the comments you made. You talked about the potential market rotation possibly, you know, helping victories, Smith Kat Beckley product valuations performance ahead. I mean, if we just look at the Smith Kat product performance over the last year or so, how much of an impact do you think that's had on net flows into into your Smith Kat Beckley products?

Michael Cho: And I guess conversely, when might you expect or if there's any lag in terms of inflection and flows if any of those valuation gaps narrow ahead? Yeah, I think the market has been pretty narrow and has been focused on a large cap side. And so small caps and mid caps have been undervalued when you look at historical multiples. And so we think the broadening out of the market is really encouraging our small and mid cap performance when you look at it in total is really competitive.

Michael Cho: And I think when clients look at where dollars are going, where valuations are, I think small and mid cap become a pretty appealing, you know, big, become pretty appealing asset classes. So we think we're going to have some tailwinds there. I think with the market broadening out, I think we'll help active managers. And I think we will participate in that. But we have excellent teams. We have a number of different small and mid cap managers that all have their own style and all have their own edge in the market.

Michael Cho: And so we're pretty encouraged by that. And we also just think generally that those are asset classes that are going to have good market action, which we should just benefit from just having assets in those asset classes.

Michael Telecarpo: Great. Now thanks for all the color. My follow up. I just want to touch on the right there. Realize there's always some nuance with with mix in terms of assets and vehicle channels. But headline fee rates are down a touch again, this quarter. You just offer any sort of underlying trends and curate that the product or strategy levels. Yeah, there's really no trend. It's really just asset mix and distribution channel mix.

Michael Telecarpo: We have been pretty consistent with our fee rate within a basis point. You know, when you go back and look historically, and it's going to ebb and flow each quarter, depending on market action and where we see inflows and outflows. But there's no pricing pressure to speak about in any of parts of our business other than what's the general normal constraints of traditional asset management. But it's been but it's been within the one basis point when you go back and look historically.

Michael Telecarpo: The only change we've had really in the fee rate was when we did the West end acquisition, which which just was a lower basis point type platform and really just brought our fee rate down. But you can see, I think most importantly for us the way we look at it is we are very margin focused and you can see that our margins have held up and actually have expanded during times where a fee rate have dipped a little bit or where they've gone up. I think we look at our business really from a margin and not necessarily from a fee rate.

Michael Cho: Thank you so much.

Matt Howlett: Your next question comes from a line of Matt Howlett from Be Riley Financial. Your line is open. Oh, hey, thanks. Good morning. Hey, real quick, is the pro-former fixed income for the deal still around 24% or is that, you know, nudging up here a bit with the strong performance? Yeah, really no change. It's in that same range of about a quarter of the pro-former business going forward. Gotcha. Okay. Good. I just wanted to check that out.

Matt Howlett: And then the second thing, new energy cap. I haven't seen that sort of pop up here. We only had a good quarter. Can you just talk about what's going on? And then of course, what the appetite is for your moral and the portfolio and just how you think about that? Yeah, I think what you saw in the quarter really was the completed arrays of their sixth fund, which was really the first fund under the victory ownership has been completed.

Matt Howlett: I think the appetite is still strong. We're seeing demand. I think some of the constraints just with respect to private markets and capital allocation are impacting that. But again, they were successful in raising their first fund underneath victory. I think you saw that in some of the information that we provided, which was why they had a net flow as a quarter. And we're continuing to be bullish on the asset class. Their performance remains very strong.

Matt Howlett: And they're doing exactly what we expected them to do. They're good investors in a really good asset class. And we're bullish on the future. You're going to have a lot of access capital here coming out of the deal. When you think about doing future deals, David, I mean, how do you think about, you know, the interplay by doing, you can issue debt, your currency is going to have a much higher evaluation presumably. I mean, what do you think about how you look at the balance sheet for M&A going forward? And then can I ask sort of what you're targeting now with that distribution agreement?

David Brown: Yeah, I think post the close of the Monday acquisition, the environment is going to be, you know, I think it's going to be the golden era of consolidation in the asset management business. I think you're going to see an acceleration of consolidation. And we're going to have a really flexible balance sheet where a leverage will be low. We'll be generating a lot of cash. And we have lots of different tools to do acquisitions.

David Brown: I think we've shown that over the years where we've done. And we've issued debt. We've issued equity with the Monday transaction. We've done earnouts. And I think we're going to be in a great position to do acquisitions. And we're, you know, as part of our strategic plan to be part of the consolidation. We're going to be targeting larger transactions. As you've seen over the years where the transactions have grown as our business has grown.

David Brown: And I think we'll continue to do that. And that'll be your focus. The distribution agreement that we have with the Monday outside the US, I think will make us a really desirable partner for many, because it'll open up not just a sizable US intermediary effort, which we'll have, but it'll open up the rest of the world. And any sort of target now, you're just looking for the best value, or is there any geography or any type of asset class you'd want to target off the alternatives, you know, could be a big area for you guys over time.

David Brown: Yeah, I think we always start off with, we're looking for great companies that fit with us and that make our company better and that match us culturally. A Monday is a great example of that. The USAA Investment Management Business was a great example of that. The RS Investment Business was a great example of that. And so, you know, so we'll continue down the path we have. We never start with a specific asset class we're looking at. We're really looking at can we do a transaction that's going to make our business better, create shareholder value, and that'll be the guiding principles for us going forward. You only got a great playbook.

David Brown: Thanks a lot.

Michael Telecarpo: Your next question comes from a line of Michael Cyprys from Morgan Stanley. Your line is open. Hey, good morning. Thanks for taking the question. Maybe just circling back on ETFs, but just hope that you could maybe update us a little bit on your ETF strategy, how you're thinking about potentially launching new products and marketing muscle behind that. And as you think about new products to launch, how are you thinking about smart data versus active versus even clones of existing strategies that you have, including maybe even introducing an ETF share class for existing strategies in funds. Thank you.

Michael Telecarpo: So we are investing in our ETF platform. We've hired some dedicated resources around the sales side of it. We're partnering with different distribution platforms to be exclusive or premier ETF providers. We've really leaned into training our sales group as well. So it's an area of focus for us because we think that we have a great platform. We think we have a great product set. As far as product launches going forward, I think all of the categories you just listed are all within the queue of things that we're evaluating.

Michael Telecarpo: Each one of those areas has its own nuances that we will look at. Some of those things we'll just come out with. We want to make sure that we do our work and we want to make sure that we don't do anything that's not saleable.

Michael Telecarpo: But there really isn't anything I'm willing to share on in kind of an open forum on what exactly we're going to do. But I would tell you all of those items you listed out are things that we're evaluating.

Michael Telecarpo: Okay, great.

Michael Telecarpo: And then just a follow-up question on capital management. So you hike the dividend. I think that applies around a 30, 32% payout or so on at least this quarter is running. So just curious how you're thinking about sizing the dividend here. And particularly as you look forward, a pro-former theme when did you hire you thinking about capital allocation? Clearly the dividend has moved up significantly over the years. I remember in years past there was a view to skew more of the capital towards either buybacks or even M&A. So just curious how you're thinking about that.

David Brown: And then on buybacks you mentioned that you'd resume once permitted. You just elaborate on what the restriction is you have in place and what would cause that restriction to lapse in any thoughts on the timeframe from when you'd expect that restriction to lapse.

David Brown: So, let me start off with the dividend. I don't think we're targeting a specific payout ratio. We look at it every quarter, we look at the facts and circumstances. The dividend has grown as our stock prices grown, as we listed out on our presentation. So, I think it's grown kind of in line with that. And then as far as the repurchases, we have balanced out repurchasing our stock and our dividends, I think quite nicely over the years.

David Brown: The primary use of our balance sheet and our capital is to do strategic acquisitions. I think we referenced a $1.6 billion number that we've allocated to strategic acquisitions since our IPO. So, the capital allocation is really still to balance out strategic acquisitions, where most of the capital will go and then dividends and sharey purchases. The sharey purchases and their strics around sharey purchases is really around the ability to buy shares when you're closing a transaction.

David Brown: And so, there will be facts and circumstances when Windows open up, whether we can buy shares back. I don't have a date for you on that or a quarter, but as soon as we're permitted to, we will resume it. The board has authorized a $100 million plan and we're not too far into that plan, so we have plenty of capacity there. It is part of our capital allocation. It's an important part of our capital allocation strategy as well.

David Brown: Great, thank you.

Adam Beatty: Your next question comes from a line of Adam Beatty from UBS. Your line is open. Thank you, good morning.

David Brown: One ask about flows by channel and the trends there. We've had some discussion around institutional. Sound like it's been a little bit slow. It's just given some reallocations, but the clients have been retained, so maybe improving ahead. But just on the other channels, retail and direct, what the trends you've seen there are. And some of your peers have actually mentioned that retail tends to come back a little bit sooner, a little bit less friction, maybe than institutional. So, just wondering, to the extent that the rotation and broadening of the market persists, whether that's been your experience in the retail channel and whether you would expect that in future.

David Brown: Thank you. A lot of the rebalancing has come out of the institutional channel. The institutional channel has historically been an organic grower for us. This year, we've seen in this quarter, we've seen a number of rebalances out of sub-larger clients. So, as you said, we've retained the client, but they rebalanced a reallocated some dollars away. We've also seen a little bit of a delay in fundings on the institutional side, which we expect to pick up in the third and fourth quarter.

David Brown: So, we're still pretty bullish on that channel. On the intermediary channel, we've seen some outflows in our mutual fund business. I think just generally speaking, giving the market environment. But we've also seen nice momentum in certain mutual funds, and we've seen nice momentum into our ETF business. And we see that picking up and gaining momentum as the year progresses. The direct business has been pretty steady from a gross and net perspective, and we really have not seen a change there.

David Brown: As the market broadens out, we would expect that all of the channels would grow. It is in our experience that one channel comes back faster than another. I think it's very client-specific on the institutional side. And then on the intermediary side, we haven't seen any real distinction with that channel versus other.., channels.

David Brown: That's helpful. Appreciate the detail.

Adam Beatty: And then maybe a bit of an admin check on the Monday deal. During the quarter, we had a couple of ad hoc announcements and developments. So just running, you know, what the next milestone is that you would expect and if possible, maybe broad timing around that.

David Brown: Thank you. So the next milestone would be the close, which we have publicly said would be the end of 24 or the early part of 2025. And that's really the next milestone for the transaction. Okay, so no more interim steps. None. Not material anyway. Yeah, correct.

Adam Beatty: Okay, thank you very much. Appreciate it.

David Brown: And that concludes our question and answer session.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Q2 2024 Victory Capital Holdings Inc Earnings Call

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