Good morning. My name is Dede, and I will be your conference operator today. I would like to welcome everyone to the Virtus Investment Partners Quarterly Conference Call. The slide presentation for this call is available in the Investor Relations section of the Virtus website, www.virtus.com. This call is being recorded and will be available for replay on the Virtus website. I will now turn the conference to your host, Sean Rourke.

Thank you, and good morning, everyone. On behalf of Virtus Investment Partners, I'd like to welcome you to the discussion of our operating and financial results for the second quarter of 2024. Our speakers today are George Aylward, President and CEO; and Mike Angerthal, Chief Financial Officer. Following their prepared remarks, we'll have a Q&A period. Before we begin, please note the disclosures on Page 2 of the slide presentation. Certain matters discussed in this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and as such are subject to known and unknown risks and uncertainties including, but not limited to, those factors set forth in today's news release and discussed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those discussed in the statements. In addition to results presented on a GAAP basis, we have certain non-GAAP measures to evaluate our financial results. Our non-GAAP financial measures are not substitutes for GAAP financial results and should be read in conjunction with the GAAP results. Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in today's news release and financial supplement, which are available on our website. Now I'd like to turn the call over to George. George?

Thank you, Sean, and good morning, everyone. I'll start with an overview of the results we reported this morning, and then I'll turn it over to Mike who will provide some more detail. For the second quarter, while we had net outflows, which were largely consistent with broader trends for active U.S. Retail Funds, we also had growth in strategic areas, including: Retail Separate Accounts, ETFs and Global Funds; higher earnings and operating margin both sequentially and over the prior year period; attractive investment performance across strategies; continued return of capital through share repurchases and our dividend; and we ended the quarter with a modest level of leverage and meaningful capital flexibility. One area of emerging growth to note in the quarter was our ETF platform, which surpassed $2 billion in assets under management due in large part to 45% organic growth over the past year and positive net flows each quarter. We currently have 18 ETFs across a variety of strategies and managers which have demonstrated strong performance and we have a number of new funds and solution-oriented products under development. While ETFs are still a smaller part of our business and some are not yet available at all of our intermediaries, we are focused on expanding our offerings. We've had several recent introductions, including an ETF from AlphaSimplex that we launched during the quarter, and we have several other funds under development. Similarly, Retail Separate Accounts and Global Funds have been meaningful growth areas for us and we expect them to continue to be drivers of growth as we focus on, and invest in their development and bring new strategies to market. Turning now to a review of the results. Total assets under management decreased 3% to $174 billion due to market performance in net outflows in U.S. Retail Funds and Institutional, which were partially offset by positive net flows in Retail Separate Accounts, ETFs and Global Funds. Sales of $6.1 billion declined from the strong first quarter, primarily due to Open-end Funds and Institutional, which benefited from a large mandate in the prior quarter. For Retail Separate Accounts sales of $2.2 billion were modestly lower than the prior quarter, but they were up more than 60% over the prior year period on continued strong demand. Net outflows of $2.6 billion compared with $1.2 billion in the prior quarter, with a significant majority of the net flows early in the quarter, in the month of April. For the quarter, Institutional had net outflows of $1.7 billion, as redemptions included a partial client rebalancing of a large-cap growth strategy related to strong performance. We continue to see a high level of interest in our Institutional offerings from investors across regions and managers as investors seek quality active managers with strong performance. Retail Separate Accounts generated positive net flows of $0.5 billion and have delivered 5% organic growth over the past year, due to strong investment performance and growing demand. We are focused on expanding the strategies available in Retail Separate Accounts, particularly in fixed income and non-U.S. equities, to complement our current offerings. Open-end Fund net outflows of $1.3 billion compared with $0.6 billion in the first quarter, with a higher level of net outflows in U.S. Retail Funds. Global Funds and ETFs again generated positive net flows and we saw improved net flows in alternatives, leveraged finance and international equity. In terms of the flows, we're seeing so far in July, Retail Separate Accounts, ETFs and Global Funds continue with their positive trends, and U.S. Retail Funds are tracking better than the monthly average of the second quarter, with notably stronger fixed income inflows. For Institutional activity remains broad based across strategies and managers, and known wins, which we expect to fund over the next few quarters exceed known redemptions. The sequential improvement in our financial results reflected the impact of the higher average AUM levels as well as the prior quarter seasonal expenses. The operating margin was 32.5%, up sequentially from 28.2%, which included the impact of the seasonal expenses. Earnings per share as adjusted of $6.53 increased from $5.41 in the first quarter, which included the seasonal expenses. Relative to more comparable prior year period, earnings per share as adjusted increased 20% on higher average assets and lower expenses. Turning now to capital, we maintain a strong balance sheet and generate significant cash flow that provides flexibility to take a balanced approach and to prioritize capital allocation as circumstances warrant, including returning capital to shareholders and thoughtfully investing in the growth of the business. During the quarter, we repurchased approximately 55,000 shares for $12.5 million and paid quarterly dividends that were 15% above the prior-year level. We also made a principal payment on our term loan and ended the quarter in a modest debt position at 0.2x EBITDA. So with that, I'm going to turn the call over to Mike. Mike?

Thank you, George. Good to be with you all this morning. Starting with our results on Slide 7 Assets Under Management. At June 30, assets under management were $173.6 billion down 3% from $179.3 billion at March 31, due to $2.6 billion of unfavorable market performance and $2.6 billion of net outflows. Compared with the prior year period, AUM increased 3%, driven by consistent growth in the strategic growth areas of Retail Separate Accounts, Global Funds and ETFs, which have collectively increased 18% over the period. Average assets under management in the quarter increased 1% sequentially to $175.2 billion with ending assets 1% below the quarter's average. Our assets under management continue to represent a broad range of asset classes and products. By product, Institutional is our largest category at 36% of AUM, followed by U.S. Retail Funds at 28% and Retail Separate Accounts at 26%. On an asset class basis, strong equity markets over the past year led to equities increasing to 57% of AUM from 54% a year earlier. Within equities, we are well diversified across international and domestic strategies, and domestic equities are nearly evenly split among small, mid- and large-cap strategies. We also continue to have compelling long-term relative investment performance across products and strategies. As of June 30, 61% of rated retail fund assets and 31 funds had 4 or 5 stars; and 90% were in 3, 4 or 5-star funds. In addition, 60% of fund AUM outperformed the median of their peer groups over the five-year period. ETFs have also had strong performance with 90% of ETF assets under management outperforming the median of the peer group over the three-year period; and five of our ETFs rated 4 or 5 stars. Across all products, 55% of AUM at June 30 were beating their benchmarks over the five-year period. Turning to Slide 8, asset flows. Total sales of $6.1 billion decreased 19% from $7.6 billion, largely due to lower U.S. Retail Fund and Institutional sales. On a year-to-date basis, sales were essentially flat compared with the prior year. Institutional sales of $1.2 billion declined sequentially from $1.7 billion due to the prior quarter, including a meaningful new client funding in a mid-cap equity strategy. Retail Separate Account sales continued to be strong at $2.2 billion, although they were down modestly from the prior quarter as higher private client sales were offset by lower intermediaries sold. On a year-to-date basis, Retail Separate Account sales are up 68% over the prior year period, reflecting strong demand. Open-end Fund sales of $2.8 billion declined sequentially from $3.5 billion as higher sales of large-cap and global equity were more than offset by lower small and mid-cap equity, fixed income and alternatives. On a year-to-date basis, Open-end Fund sales increased 12% from the prior year period. Total net outflows were $2.6 billion as positive net flows in Retail Separate Accounts, ETFs and Global Funds were more than offset by net outflows in Institutional and U.S. Retail Funds. Reviewing by product, Institutional net outflows of $1.7 billion compared with $1.3 billion sequentially and included a $0.7 billion partial rebalancing in April by a meaningful client and a large-cap growth strategy. As always, Institutional flows will fluctuate depending on the timing of client actions. Retail Separate Accounts continued to generate positive net flows in both the intermediaries sold and private client channels. Net flows were $0.5 billion in the quarter with 5% organic growth over the past year. For Open-end Funds, net outflows were $1.3 billion compared with $0.6 billion in the first quarter due to lower sales as redemptions were essentially unchanged. Within Open-end Funds, both ETFs and Global Funds were again positive, each with strong organic growth rates over the past year. Turning to Slide 9. Investment management fees as adjusted of $183.7 million increased $3.1 million or 2%, reflecting the 1% increase in average assets under management and a modestly higher average fee rate. The average fee rate of 42.2 basis points increased from 41.9 basis points in the prior quarter. Excluding performance fees, the average fee rate in the second quarter was 42 basis points, unchanged from the normalized first-quarter fee rate. Looking ahead, we believe the normalized average fee rate for the first and second quarter is reasonable for modeling purposes. As always, the fee rate will be impacted by markets and the mix of assets. Slide 10 shows the five-quarter trend in employment expenses. Total employment expenses as adjusted of $103.5 million decreased 7% sequentially, reflecting $10.9 million of seasonal expenses in the prior quarter, partially offset by higher variable incentives, including performance-based stock compensation. As a percentage of revenues, employment expenses were 51%, up from a seasonally adjusted 50.3% in the first quarter, primarily due to higher performance-based stock compensation. Looking ahead, we believe employment expenses as a percentage of revenues in a range of 49% to 51% remains reasonable. So as always, it will be variable based on market performance in particular as well as profits and sales. Turning to Slide 11. Other operating expenses, as adjusted, were $31.3 million with a 4% sequential increase primarily due to $0.7 million of annual grants to the Board of Directors. Compared with the prior year period, other operating expenses were modestly lower in spite of continued increases in data and service provider costs as we continue to closely manage expenses. As a percentage of revenues, other operating expenses declined 120 basis points compared with the second quarter of 2023. Looking ahead, the quarterly range of $30 million to $32 million for other operating expenses as adjusted remains reasonable. Slide 12 illustrates the trend in earnings. Operating income as adjusted of $66 million increased $9.6 million or 17% sequentially, primarily due to the prior quarter seasonal employment expenses and higher average assets. Over the more comparable prior-year period, operating income increased 7%. The operating margin as adjusted of 32.5% compared with 28.2% in the first quarter. On a year-over-year basis, the operating margin increased by 20 basis points. With respect to below the line items, interest and dividend income increased by $1.2 million, primarily reflecting interest income on our CLO investment from last year's issuance. Net income as adjusted of $6.53 per diluted share increased from $5.41 in the first quarter and increased 20% over the prior year period. In terms of GAAP results, net income per share of $2.43 compared with $4.10 per share in the first quarter and included $1.71 of realized and unrealized losses on investments, $1.04 of expenses related to the increase in fair value of minority interests and $0.36 of expenses related to an early lease termination, acquisition and integration, and restructuring. Slide 13 shows the trend of our capital, liquidity and select balance sheet items. Working capital was $143 million at June 30, up sequentially from $123.4 million as cash generated more than offset return of capital to shareholders and debt repayments. Cash and equivalents increased sequentially to $183 million from $123.9 million at March 31. During the second quarter, we repurchased 55,099 shares of common stock for $12.5 million. We also made a $5 million payment on our term loan, our first discretionary payment since mid-2022. As a reminder, we paid off the balance of our revolving credit facility in the fourth quarter of 2023. At June 30, gross debt-to-EBITDA was 0.8x, down from 0.9x at March 31. Net debt at June 30 was $69 million or 0.2x EBITDA. We generated $82 million of EBITDA in the second quarter, up sequentially due to prior quarter seasonal employment expenses and higher average AUM and up 11% from the prior year level. Looking ahead, anticipated capital uses include scheduled minority interest purchases and a potential new CLO as well as other product introductions to support the future growth of the business. With that, let me turn the call back over to George. George?

Thanks, Mike. We'll now take all your questions. Dede, would you open up the line, please?

And our first question comes from Crispin Love of Piper Sandler. Your line is open.

Thank you. Good morning, everyone. Just first off, the broader markets for several quarters have been driven by the largest U.S. stocks, especially in the tech space as shown by just the S&P meaningfully outperforming the equal weight S&P year-to-date in the last year, et cetera. But we've seen that some of that shift recently with the equal weight S&P actually outperforming? I know it's a recent shift here, but does this dynamic change anything for you what flows might look like or new sales kind of in July relative to prior quarters? Or do you expect it to make any differences over the near term?

That's an interesting question because these dynamics are not always fully understood. As you've pointed out, one significant experience in the U.S. markets has been the dominance of the S&P 500, especially among the larger caps and a limited number of names within it. To address your question, our asset base is actually more correlated with mid-caps and small-caps on the domestic side. Over the recent period, while the S&P has performed strongly, smaller caps and mid-caps have noticeably underperformed. If you examine the indices over the last six months or year-to-date, you'll see this relative underperformance compared to the large-cap indices. This has posed a slight challenge for us. However, as we anticipate a reversion in this trend, particularly with our strong position in mid-caps, we believe there are significant opportunities ahead, especially given our diversity in small caps. Another factor in the markets affecting us is the quality versus momentum dynamic. Many of our larger equity managers have a more quality-oriented approach. When quality underperforms in relation to momentum, which has been the case recently, it also creates a challenge for us. As this dynamic shifts, it can become advantageous, particularly for a couple of our managers that align closely with the quality versus momentum trend. We also advise that the performance of the S&P 500 may not effectively indicate the trends in our assets under management or revenue due to our diversity across the credit and equity sides, and among different market caps. Does that address your question?

It does. It does. I appreciate that, George. And then just one other for me. And I know Institutional flows can be lumpy, but I'm curious, anything so far in the third quarter that you expect over the course of the quarter that could drive flow trends specifically in Institutional, if that's worth calling out. I think you mentioned some known wins over the next few quarters, but any way to kind of size that or time it? How you might expect it? And is it looking more positive rather than negative as well? That's kind of the sense that I got from your comments, but curious if I'm thinking about that correctly.

Yes, yes. So I'll give some thoughts and then Mike can expand upon those. So as you pointed out, the lumpiness is always a little frustrating, right? So in Mike's comments, he referred to the fact that in the first quarter, we had a meaningful inflow, and that was on the mid-cap side. And then we referenced in April, in the early part of this quarter, there was a rebalancing, which, again, those generally relate to areas where we have mandates that might have, say, a target allocation and performance can actually pull you above that. So there's always going to be that volatility in the business. And the trends of where our clients are ultimately interested can vary a bit. And in terms of the diversity that we have. So again, we can have in one period, a mid-cap opportunity; another period of large-cap. And as you know, we've previously spoken to global REIT as well as fixed income mandates. So there always will be that variability. I'll let Mike go into some of the forward-looking comments.

Thank you, George. I want to emphasize that our pipeline remains in a strong position for the future. While it's challenging to pinpoint the timing, whether in the third or fourth quarter, we're also seeing significant interest in AlphaSimplex, our latest manager added to our offerings. We have a diverse pipeline across affiliates and regions, and we're encouraged that the known wins continue to surpass any redemptions we are aware of. Forecasting the exact timeline for these results is a bit tricky, but we are pleased with the level of activity and diversity among our managers.

Thank you. I appreciate the call, George and Mike.

Thank you.

Thank you. Our next question comes from Bradley Hays of TD Cowen. Your line is open.

Hi. Good morning. It's Bradley Hays on for Bill Katz. Could you dig in a bit more on the M&A pipeline and perhaps give some color on what you're seeing in the market in terms of both deal opportunities and the conversations you're having?

Sure. In terms of mergers and acquisitions, the activity is ongoing. The discussions are increasingly centered around the strategic aspects of the relationships rather than just the valuation. While valuation remains an important factor, we are actively exploring opportunities that we believe will provide strategic value to shareholders. Our focus is on areas where we have strong representation, particularly in traditional loan-only capabilities. Our latest acquisitions have been in the liquid alternative sector, and we see potential for further opportunities in private markets and related areas. We are diligently assessing these opportunities and will proceed only if we find them to be valuable for our shareholders.

Okay. Great. Thank you. And then just following up on that, are there any particular verticals within liquid alts that you're looking at?

Each of these areas has its unique characteristics. They are grouped together due to their private and illiquid nature. We believe that for investors to meet their long-term financial goals, it is essential to include a portion of less liquid investments in their portfolios. The private credit sector has shown considerable strength, and we anticipate continued interest in it, given the demand for income and yield. However, it's crucial to balance this with private equity and real assets, as these contribute to portfolio diversification and should be part of the overall strategy. Concerns can arise when one area is favored excessively over another, which is why we see value in all these sectors and are interested in exploring them.

Okay. Thank you. And then on fee rate and flows, you've pretty consistently maintained your fee rate within the provided range. Could you maybe give us some detail on how you're thinking about pricing versus attracting new flows?

In terms of pricing, yes. I'll let Mike elaborate, but as we assess both pricing and the impact on margins from various strategies, we recognize that a higher fee product does not always equate to a higher-margin product. We aim to remain competitive in the market and typically provide strategies that are either capacity constrained, distinctive, or somehow differentiated. Our fee rate tends to be higher than a standard book of business that includes more beta-like capabilities. However, we approach this thoughtfully. Our goal is to generate profitability for the company while staying competitive with the fees offered by others. Mike?

Yes. I think I would just add, and I alluded to it in the prepared remarks, I think the markets and the mix of our assets will certainly impact the fee rate. And we've been pleased as the Institutional business has grown as the Retail Separate Account business has grown, that we've been able to maintain our fee rate in that tight range. And we're pleased with the incremental margins that we experienced from the different product areas remain in that 50% to 55% level. So it's something we focus on, but will again be impacted by the mix of the assets and markets.

Okay. Thank you.

Thank you. Our next question comes from Michael Cyprys of Morgan Stanley. Your line is open.

Great, thank you. Good morning. Just wanted to come back to your commentary on capital uses. I was hoping you could elaborate a bit on some of these other product introductions that you were alluding to. How much would you anticipate allocating there the seed book today? How do you see that expanding, if at all? How are you thinking about recycling? And then more broadly, if you could just talk a little bit about some of these opportunities that you see to introduce new products into the marketplace. Where do you see some white space? And where might it make the most sense?

Sure. There's a lot to cover, so I'll address several points, and then Mike can add more. Regarding capital, we take a balanced approach that includes consistent share repurchases and dividend increases, as well as paying down debt, which Mike mentioned. We also invest in growth, both organically and through acquisitions. This connects to our reference to seed capital. In our prepared remarks, we indicated that future capital uses might involve potential CLOs and new product introductions, which we believe are strong capital uses under the right circumstances. We have an allocation for seed capital, including CLO capital, and we’ve kept this as an investment area, as many of our growing products and revenue sources have originated from prior seed investments. Investing in the future of our business is crucial, and we constantly recycle capital. The capacity we've designated for seed capital has been consistently rebalanced according to our investment strategy. We hope it grows enough to attract third-party assets, allowing us to reallocate it. While there haven't been significant changes to our seed capital level, we continue to look for recycling opportunities. In certain cases, like a CLO with a good internal rate of return, we may consider utilizing that when it meets our criteria. Regarding new products, we've been active in launching various actively managed fixed-income ETFs, which particularly require seed capital. This has been significant for Global Funds, where we've allocated a large portion. We see a great opportunity in this area, as well as with Retail Separate Accounts, especially in fixed income. We're cautious in our approach, but it is a key focus. Mike, do you want to add anything?

I would just add, I think you alluded to it, the seed portfolio we introduced maybe 10 years ago, and we've sort of fluctuated within a relatively narrow range. Sometimes it ticks a little higher when investment opportunities require expanding the seed portfolio, but there's a balance and a discipline around recycling wherever possible, and we actively manage that. So when you see changes in the seed portfolio, they're typically market-based where recycling has been prominent, but we can expand on that as our product needs and requirements call for that as a priority of our capital, and it's part of our balanced approach of investing in the business and returning capital and paying down debt. So I think you'll see that as a continued strategic priority for us.

Great. Thank you for that. Maybe just to follow up on the capital return. I think it was about $12.5 million of buybacks in the quarter, debt pay down around just under $6 million or so. Just curious how we should think about the cadence and pace of that over the next couple of quarters? Do you think that this quarter is a good run rate? We do anticipate it accelerating as we look out from here or decelerating? How should we think about the cadence and pace of buybacks and debt pay down? Thank you.

Yes. And again, we evaluate all of those. And that actually connects, obviously, to your previous question in terms of opportunities for seeds. So again, we maintain a strong balance sheet and generate a lot of cash flow, which gives us that flexibility to continue to do things that we think are critical. And so, our consistency in terms of share buybacks has been pretty consistent in terms of how we look at the number will fluctuate, depending upon the cash utilization for other purposes during that month. We're beginning to start to have the cash after having paid down the outstanding balance on the revolver on the debt, and we have commented on that. So every quarter, it will vary depending upon the timing of the quarter, the level of cash, the trading level of our stock in terms of that, but we continue to balance all three of those within a reasonable range.

In the upcoming quarter, we have planned affiliate minority purchases that will be a priority for capital use. Last year, this amounted to over $20 million, and while that figure may vary, it will remain a key capital use. We are also keeping an eye on potential CLO issuances as we monitor the market. Overall, we aim to balance our investments with other capital priorities.

Great. Sorry, just one other if I could follow up on that $20 million minority purchase. Just if you could help us with the next couple of years, how much do you anticipate in terms of other uses from a strategic angle like that? Any earnouts to be aware of to have on the radar screen?

Yes. The timing of the minority purchases is linked to the original transaction in which we acquired a majority interest, and this is part of the staged purchases. There will be one more year of staged purchases after 2024, with expectations set for the middle of 2025. Additionally, we often discuss the contingent consideration, and a significant portion of that balance is paid off each first quarter. There will be a payment in the first quarter of 2025, followed by another significant payment in the first quarter of 2026. These three additional payments are likely to be our more critical capital priorities, along with the payment in the third quarter of this year that I mentioned.

Great. Thanks so much.

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

I just want to thank everyone for joining us today. And as we always do, we do encourage you to reach out if there's any other further questions. Thank you so much.

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