Good day everyone and welcome to the Artisan Partners' Fourth Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Brennan Hughes, Head of Investor Relations. Please go ahead.

Welcome to the Artisan Partners Asset Management business update and earnings call. Today's call will include remarks from Eric Colson, CEO; Jason Gottlieb, President; and C.J. Daley, CFO. Following these remarks, we will open the line for questions. Our latest results and investor presentation are available on the Investor Relations' section of our website. Before we begin today, I would like to remind you that comments made during today's call, including responses to questions, may include forward-looking statements. These are subject to known and unknown risks and uncertainties, including, but not limited, to the factors set forth in our earnings release and detailed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those disclosed in the statement and we assume no obligation to update or revise any of these statements following the presentation. In addition, some of our remarks today will include references to non-GAAP financial measures. You can find reconciliations of these measures to the most comparable GAAP measures in the earnings release and the supplemental materials which can be found on our Investor Relations' website. Also please note that nothing on this call constitutes an offer or solicitation to purchase or sell an interest in any Artisan investment product or a recommendation for any investment service. I will now turn it over to Eric.

Thank you, Brennan and thank you everyone for joining the call or reading the transcript. We passed our 30th anniversary as a firm in December. Throughout our history, we have remained true to who we are as a high value-added investment firm designed for talent to thrive in a thoughtful growth environment. Based on those first principles, we have built an investment platform that supports, accelerates, and amplifies investment talent in order to invest differently, generate compelling returns, and build durable investment franchises. We combine autonomy, entrepreneurism, and economic alignment with the depth and breadth of resources available to a global multi-asset class investment manager with over $160 billion of assets under management. Each of our teams benefits from best of breed and customized support across people, technology, data, execution, and capital. All operations are designed for and responsive to investment team needs. Distribution includes business leaders dedicated to individual investment teams and is designed to protect investment team time and optimize the overall multichannel global distribution effort. Firm leadership is independent, has no investment responsibilities, and is dedicated to making each investment franchise successful and sustainable. We believe our investment platform is a force multiplier and compounding machine. On our platform, differentiated thinkers build durable investment franchises that seek to compound capital for decades. Slide 2 shows how our platform has expanded over time. In 2004, we had four investment teams managing seven relatively constrained public equity strategies. In 2014, after our IPO, we had six investment teams, managing 13 public equity strategies and one newly launched fixed income strategy. Today, we have 11 investment teams, managing 25 strategies spanning long-only equities, long/short equity, U.S. high yield, long/short credit, emerging market debt, global macro, and private assets. As Jason will discuss, we are firmly established in fixed income with two best-in-class investment franchises and we are gaining more traction in alternatives every day. As we have broadened our platform by geography, style, client base, and asset class, we have increased our avenues for growth. In 2024, 13 of our 25 investment strategies achieved net inflows for the year; 10 of our 25 strategies achieved net inflows in excess of $100 million, which included equities, fixed income, and alternatives, and spanned seven of our 11 investment teams. With each additional investment team, we expand the capabilities of our investment platform, demonstrate the repeatability of our process, and increase the probability of success for existing teams and new talent. I will now turn it over to Jason to speak about our two credit-oriented franchises, the success of which demonstrates the power and repeatability of the Artisan investment platform.

Thank you, Eric. A little over 10 years ago, we had no history in fixed income investing, no fixed income investment talent, and no fixed income investment operations. Today, we have two exceptional credit-oriented investment franchises. In 2024, the Denver-based credit team led by Bryan Krug, passed its 10th anniversary, raised $1.7 billion of net inflows, and now manages nearly $12 billion. The Boston-based EMsights Capital Group, led by Mike Cirami and Mike O'Brien, raised $1.9 billion of net inflow and now manages nearly $3 billion. Collectively, the two teams raised $3.6 billion in 2024 and now manage nearly $15 billion in six different strategies, including two alternative strategies. The successful business development is driven by exceptional investment performance for clients. Since inception and after fees, the high income, emerging markets debt opportunities, and emerging market local opportunities strategies have generated 174, 720, and 241 basis points, respectively, of outperformance annually versus their benchmarks. The absolute return-oriented credit opportunities and global unconstrained strategies have generated average annual returns of 10.41% and 9.76%, respectively, since inception after fees. The quality and uniqueness of these strategies is reflected in their weighted average effective fee rate, which was 67 basis points in 2024. That includes nearly $12 million in performance fees earned in the fourth quarter, which C.J. will further discuss. We are still early on our credit journey. As we have said in the earnings release, at Artisan, a decade is not that long, and three years is just a blink of an eye. When we partner with new talent, we focus on getting them up and running quickly and with high-quality support. We provide time and a distraction-free environment so that the investment team can put their time, energy, and focus into building a foundation of people and process and a track record of investing success. Only when the foundation is firmly in place, do we begin to develop a business with greater commercial breadth. That is what we have been doing with the credit team over the last several years and what we are beginning to do with the EMsights Capital Group. We aim for durable success and long-term growth, the precise form of which is unpredictable at the time talent joins Artisan. Slide 4 shows our execution of this deliberate process with the EMsights Capital Group. We have long been on the hunt for talent in emerging markets debt. It's an asset class with a large opportunity set in which investment talent can differentiate and long-term asset allocation demand exists. We had spoken with numerous EM debt managers prior to meeting Mike Cirami and Mike O'Brien in early 2021. Once we met them, we embarked on a rigorous process of getting to know them, understanding their process and track records, educating them about Artisan Partners, and determining the appropriate terms and timing for them to join our platform. They ultimately joined Artisan in September of 2021 and established the EMsights Capital Group. Once on board, it was imperative to minimize the time before they began managing capital and reestablish a track record. Seven months after they joined the firm, we launched Artisan Global Unconstrained, which has the ability to invest directly in over 89 markets and since inception has invested in sovereign debt, corporate debt, loans, equities, options, currency forwards and futures, commodity derivatives, CDS and CDX, interest rates, and repurchase agreements. A month later, we launched Artisan Emerging Market Debt Opportunities. And three months after that, we launched Artisan Emerging Markets Local Opportunities. Within a year from the leadership team joining Artisan, the EMsights Capital Group comprised 13 individuals and was managing three strategies. Mike and Mike built the team just the way they wanted it. Working with them, we delivered a customized operating stack to support their process, their execution, and their analytics. Simultaneously, we resourced the team with a dedicated business leader with previous experience building a large emerging markets debt business. In the third quarter of 2023, we accepted large strategic mandates in each of the emerging markets local opportunities and global unconstrained strategies. We accepted similar large strategic mandates in the EMDO and EMLO strategies in the third and fourth quarter of 2024, respectively. The team has a very firm foundation and is poised for further success. Each strategy will hit its third anniversary this year, which we believe will accelerate business development especially in pooled vehicles. More generally, I think the process we have undertaken over the past four years to build the EMsights Capital Group is a perfect example of the power of our investment platform. We found the right talent. We supported them for success. We focus on the investment performance. We structured distribution to work for the team and minimize distraction. We worked quickly and with high quality. We delivered results and we established the foundation for something that can be very powerful for a very long time.

Thank you, Jason. I want to expand upon your final point and broaden the lens. What we have accomplished with the EMsights Capital Group is what we have been accomplishing with investment talent repeatedly over a long period of time. Slide 5 shows AUM after one, two, and three years for the five investment teams we have established since our IPO in 2013. Within three years of joining our firm, each of these five teams reached a level of foundational capital that allowed them to execute their investment strategy, build upon initial track records, and establish the economic foundation for long-term franchise development. Capital for talent to manage is a critical component of our investment platform. We have proven our ability to deliver early foundational capital for new talent. In 2025, we will celebrate another important milestone: the 10th anniversary of the Developing World strategy. Working closely with Founding Portfolio Manager, Lewis Kaufman, we have designed and communicated the Developing World strategy as a highly differentiated means of accessing emerging markets demand opportunities via an enlarged opportunity set including firms domiciled in developed markets. Since inception and after fees, the Developing World strategy has generated a cumulative return of 157%, which is more than four times greater than the MSCI Emerging Markets Index. Lewis is an incredibly experienced, thoughtful, and differentiated investor. He is truly one of a kind, which is reflected in his performance relative to the index. As we celebrate the 10th anniversary, we are excited about the opportunity in front of Lewis and the Developing World strategy, especially in the wealth marketplace, where investors are looking for differentiation and absolute return. Approximately $95 billion of our AUM is managed for intermediated wealth clients. We have broad and deep relationships across the space. It is growing. And there is demand for differentiated absolute return-oriented strategies. We have reoriented our distribution structure to better address the wealth and alternatives marketplace. And we believe there is tremendous opportunity to bring more of our investment platform to existing and new intermediated wealth clients, in addition to the traditional institutional business. In 2025, we remain committed to building our investment platform, developing our existing franchises, adding new talent to the platform, and tapping into demand from investors around the world seeking high value-added investments. I will now turn it over to C.J. to discuss our most recent financial results.

Thank you, Eric. An overview of financial results begins on Slide 7. Fourth quarter results reflect the outcome of our quality business model, which drives durable growth and long-term returns for clients and shareholders. Compared to the September quarter, revenues rose 6%, adjusted operating income was up 12%, and our adjusted operating margin improved by 180 basis points. More specifically, assets under management ended the December quarter at $161 billion, down 4% from last quarter and up 7% from the end of 2023. Net client cash outflows during the December quarter were approximately $800 million and included an outflow from a client rebalance on a $1.1 billion sub-advised mandate. Full year net client cash outflows improved slightly to $3.7 billion. Fourth quarter and full year 2024 represents the 10th consecutive quarter and 11th consecutive year of positive flows for our fixed income business. Average AUM for the quarter was up 2% sequentially and up 18% compared to the December 2023 quarter, while full year average AUM improved 15%. In the fourth quarter, the equity Artisan funds completed their annual income and capital gain distributions. The amount of distributions not reinvested in the Artisan funds totaled $795 million for the quarter and $1.2 billion for the full year. This amount is presented separately from client cash outflows. Our complete GAAP and adjusted results are presented in our earnings release. Revenues for the quarter increased 6% compared to the September 2024 quarter and up 19% compared to the prior year fourth quarter. The December 2024 quarter reflects approximately $17 million of performance fees from seven different strategies. Included in that amount is a $2.4 million performance fee earned on a consolidated investment product, which is reflected in non-operating income as required by accounting rules. As of the end of 2024, approximately 3% of our AUM is subject to performance fees, and the majority of those arrangements are annual fees with measurement dates at the end of December. Our weighted average recurring fee rate for the quarter, excluding performance fees, was 68 basis points reflecting the growing portion of our AUM and lower fee fixed income strategies. Inclusive of our performance fees, our weighted average fee rate for the fourth quarter was 72 basis points. Adjusted operating expenses for the quarter were up 3% from the third quarter of 2024 and 11% for the same quarter last year, primarily from higher incentive compensation expense due to increased revenues. Adjusted operating income increased 12% sequentially and 37% compared to the same quarter last year, as a result of revenue growth outpacing increases in operating expenses. Adjusted net income per adjusted share improved 14% compared to last quarter and 35% compared to the December 2023 quarter. Full year 2024 revenues were up 14% compared to 2023 on higher average AUM. Adjusted operating expenses increased 10% from 2023, primarily from higher incentive compensation on elevated revenues. Also contributing to the increase in compensation and benefits was higher fixed compensation expenses from an increase in the number of full-time associates and annual base salary merit increases. Additionally, amortization of long-term incentive compensation expense increased primarily from the $6 million impact of the retirement acceleration clause, discussed during the first quarter 2024 call, and the net increase from the impact of the addition of the January 2024 long-term incentive award grants. Higher revenues in 2024 led to a 22% improvement in adjusted operating income and a 23% improvement in adjusted net income per adjusted share over 2023. In calculating our non-GAAP measures, non-operating income includes only interest expense and interest income. Although valuation changes on our seed investments impact shareholder economics, we fully exclude these valuation changes from our adjusted results to provide transparency into our core business operations. Turning to Slide 11, our balance sheet remains strong. We currently have $155 million of seed capital in our investment products with significant capacity. As strategies reach scale and our seed investments are redeemed, any gains realized are included in the cash available for corporate purposes, seed investment, or as in addition to our year-end special dividend. In addition, our $100 million revolving credit facility remains unused. $60 million of our senior notes will mature in August 2025. We currently expect to refinance the maturing amounts of new series of long-term senior notes. We continue to return capital to shareholders on a consistent and predictable basis, through quarterly cash dividend payments and a year-end special dividend. Consistent with our dividend policy, our Board of Directors declared a quarterly dividend of $0.84 per share, with respect to the December 2024 quarter and an additional $0.50 for the year-end special dividend. Dividends declared with respect to 2024 cash generated totaled $3.48 per share, an increase of 25% from the dividends declared with respect to 2023 cash generation. The special dividend declared with respect to 2024 was 47% larger than the previous year-end special dividend as a result of higher earnings and realized gains on seed capital redemptions. Dividends declared with respect to 2024 represent an 8% dividend yield, calculated based on the closing price of APAM common stock on December 31, 2024. Consistent with prior years, a portion of cash available for the special dividend has been retained for future growth initiatives. Looking ahead to 2025, our Board approved the 2025 annual long-term incentive award of approximately $66 million, consisting of $47 million of cash-based franchise capital awards and $19 million of restricted stock awards. Approximately 85% of the awards are awarded to our investment talent. Generally, 50% of the award vest pro rata over five years, and the remaining 50% vests on or 18 months after a qualified retirement. We expect long-term incentive amortization to be approximately $75 million for 2025, excluding the mark-to-market impact. Excluding long-term incentive compensation, fixed expenses are expected to increase mid- to low single digits in 2025. The majority of the increase reflects 2025 merit increases and the absorption of a full year of expense for full-time employees hired in 2024. As a reminder, our compensation and benefits expenses are generally higher in the first quarter of each year due to seasonal expenses. We estimate those seasonal expenses will be approximately $6 million higher in the first quarter of 2025 compared to the fourth quarter of 2024. That concludes my prepared remarks, and I will now turn the call back to the operator.

Ladies and gentlemen, at this time, we will begin the question-and-answer session. And our first question today comes from Bill Katz from TD Cowen. Please go ahead with your question.

Thank you very much. I appreciate the commentary and I'm happy to ask a question. I'm considering the relationship between what appears to be an increase in the organic growth rate and the fee rate. I'm curious if this could be related to the initial capital you've allocated to the fixed income platform more broadly. Can you discuss how you can continue to expand the credit platform and the EMsights team, and how this might affect the sub-advisory fee rate, which seems to have dropped significantly? Additionally, I'm interested in your perspective on the rest of the business, particularly the international value fund, which is performing very well and now constitutes about 25% of the platform. Where do you stand regarding risk management and capacity for further growth of that platform? Thank you.

Hi, Bill, it's Eric Colson. Thanks for the questions. I'll address them in reverse order. The international value strategy has reached a point similar to what we've experienced in the early days of our international equity, growth, and value platforms. Over the past 30 years, we've seen various teams develop these strategies, and we've had to manage capacity because our firm's values strongly emphasize performance. We believe that focusing more on performance and betting on it leads to long-term success. Many of our competitors have turned into asset-gathering firms that prioritize maximizing the funds they can bring in each year. We are actively managing capacity with several of our strategies. This means we continuously evaluate asset velocity, asset mix, and total asset capacity. We will manage international value with a proactive approach, ensuring that we don't let assets grow uncontrollably to protect our performance record, which has proven effective over the last 30 years. Regarding organic growth and fee rates, we've seen a noticeable increase over the past year, particularly in the fourth quarter, in what we refer to as foundational assets. You've mentioned sub-advisory, and these foundational assets have been larger than those from previous teams due to our strategies in emerging market debt and Global Unconstrained. All three strategies have incorporated foundational assets, some of which carry performance-based fees, leading to a slight reduction in the overall fee rate, particularly when contrasting it with fixed income. The decrease you observed is attributed to the foundational assets over the last couple of quarters.

Okay. That was my suspicion. And then maybe one for C.J., and thanks for taking my questions; the payout rate this year was much higher on the dividend. I think it sounds like it was a realization of some gains on seed capital. So maybe a two-part question, where are you in terms of seed capital needs versus maybe repatriating that? And then secondarily, how we should be thinking about payout rate for 2025? Thank you.

Sure. Thanks for the question, Bill. The payout ratio has seen a slight increase, and you've made a good point. We realized some gains from seed capital investments that we redeemed this year. We anticipate seeing more of that in 2025, particularly regarding our private fund, credit opportunities, in which we've invested for the last seven to ten years. Most of the rest of the seed capital is in EMsights, which, as Eric mentioned, is still in the foundational phase. At some stage, that will be harvested, but we do not have a specific timeframe for it. Regarding the payout ratio, we've maintained it in the mid-90s for the past three years, holding back some cash to support seed capital needs, which we did again this year. I would expect the payout ratio to remain similar in the mid-90% range when calculated on adjusted EPS.

Our next question comes from Alex Blostein from Goldman Sachs. Please go ahead with your question.

Good afternoon, Eric, and everyone else. I appreciate the questions. I have a broader question regarding global and international emerging markets equity strategies. We've observed substantial volatility in those markets compared to U.S. markets for a while now, and political uncertainty remains high. I'm interested in how you're perceiving the end market's response to this situation, specifically regarding institutional interest in non-U.S. businesses—whether it's increasing, stable, or decreasing—as well as any observations from the retail side that might influence interest in these strategies. If there is a change and interest increases, which products are best positioned to accommodate new assets in terms of capacity? Thank you.

Hey, Alex, it's Eric. I'll give a start, and probably Jason will jump in a bit too. But just on the big picture, it's that time of the year where people roll in to looking at capital market forecasts, revisiting asset allocation. I think the direction there has been really an eye on inflation and a lot of the volatility in the global macro markets. I think the output we've been seeing from clients is a bit of a hesitation though, given the macro environment and honestly what's going on with the tariff news, and inflation, and the Fed. I don't think we are going to see as much tactical movement, as we thought. I think it will be more strategic in nature. I think people are a little frozen on which direction things are going to go, given all the news in the marketplace. So we're expecting some moderate strategic moves in asset allocation, but not wholesale changes that some people talk about of big moves this year. I think if there's – if we start getting a clearer picture of the direction of some policies and regulation and where the markets are digesting the news, you might see some shifts but we're expecting just some modest changes in the marketplace when we looked at our product mix.

Yes. The only thing I would add, Alex, it's Jason Gottlieb, is we've seen continued progress and stability in the alpha profile of a number of those strategies. And it tends to make sense to us. The uncertainty drives volatility in those markets and volatility is basically the gas in an active manager's tank. And our team's ability to capture that volatility has proven out pretty nicely across the platform. We're seeing it in the global equity team, the international value team, global value, sustainable emerging markets, and developing world. So we feel like we're really well positioned in that regard for what is an active management opportunity set. I think it's really just more a question of when that tide turns, we'll certainly be very well positioned for it.

Great. Yes. No, that all makes sense. C.J one for you. I heard the comments around compensation and the guidance for 2025. Sorry if I missed any color on non-comp as well if we can run through your expectations for expense growth in those buckets in total and as well by line if you have that.

Yes sure. So if you were to assume flat markets, I mean I would expect expenses to be up low-single digits a couple of percent. If you were to really focus in on fixed, controllable, given the variable nature of our P&L, obviously revenues are going to dictate variable expenses. But on the fixed side, I mean you're really looking at probably mid-single digits. I'd say two-thirds of it is the long-term incentive comp, which we highlighted in the prepared remarks. And then we have some increases in salary and benefits primarily some muted new roles over last year and then merit increases and the full impact of new hires net new hires of about 10 or 11 folks last year in 2025. The rest of the buckets are relatively flat per our projections.

Our next question comes from John Dunn from Evercore ISI. Please go ahead with your question.

Hey, thank you. You guys talked about two EMsights strategies hitting three-year track records. Can you remind us maybe any other strategies getting to significant milestones in 2025?

International Explorer is – I think it's March of this year. They're going to be hitting their three-year milestone. That's the smaller cap strategy that's sitting in the international value franchise. And that's clearly going to I think springboard them into greater opportunities. Their alpha profile is exceptional. Their absolute return profile is quite compelling. As we had mentioned in our earnings commentary, the Developing World fund is going to be hitting its 10-year anniversary. And by all accounts, most relevant time periods look extremely compelling. And certainly, the short-term numbers that Lewis and the Developing World team have been able to produce have been catching a lot of attention and a lot of forward lean in the emerging market space as well.

Got it. And then at your Investor Day, you guys had talked about not needing to be first movers to do anything in like private markets alts. Now that we're a little further away from that, any kind of perspectives observations, learnings, updated about going down that direction at some point?

Yes. I'll take that. This is Jason again. Ultimately, we're going to be measured by the opportunities we bring to the platform. That being said, behind the scenes, Eric and I have been methodically building out the investment strategy group. I think if you were there, you saw the co-heads of investment strategy, which are led by Keegan O'Brien and Chris Nicolaou, talking about the platform and what we're developing. Together with Eric and I, we're evaluating more opportunities than we ever have. Our bias has been towards alts, but we have an open-door policy. We're looking at anything and everything. We learn a lot by doing that. And as I had mentioned last quarter, we're looking primarily in the real estate credit and equity across privates, but also credit more broadly. There's still plenty of opportunity for us. Talent is looking for a new home everywhere and anywhere. Lift-out and acquisition formats still remain quite strong. Our goal will continue to remain focused on talent and partnering with the right individuals. We do have later-stage opportunities we're working through. But as I said last quarter, until the team or individual has joined, uncertainty remains extremely high. I think it's important to point out that there are several of our current franchises that have embraced degrees of freedom and we continue to work across the platform to develop new capabilities that intersect with the team's passion, asset allocation, and commercial application. Look no further than the international value team and the launch of Global Special Situations, which we expect to be in fund format in late Q1 of this year. We believe that Artisan in general is a highly attractive home and that we provide an autonomous, distraction-free investment environment. It's aligned economics and it's a platform that is built to build a business. So we're going to be patient. We're going to swing on pitches that we think are akin to success for our platform, but we do have plenty of opportunities where we can grow and expand.

Thank you.

And ladies and gentlemen, with that, we will be ending today's question-and-answer session, as well as today's presentation and conference call. We do thank you for attending. You may now disconnect your lines.