Victory Capital Holdings Stock

Good morning, and welcome to Victory Capital's webcast. I will now turn the call over to Carly Thomas, Director of Investor Relations and responsible business at Victory Capital. Please go ahead.

Good morning, everyone, and thank you for joining us. Earlier this morning, we announced that Victory Capital has entered into a definitive agreement to acquire First Eagle Investments.

The presentation we will walk through this morning and other important disclosures including our press release and First Eagle Fact Sheet are available on the Investor Relations section of our website at ir.vcm.com.

Speaking today are David Brown, our Chairman and Chief Executive Officer; and Michael Policarpo, our President, Chief Financial Officer and Chief Administrative Officer. Before I turn the call over to Dave, I would like to remind you that during today's call, we may make several forward-looking statements. Victory Capital's actual results may differ materially from these statements. Please refer to our SEC filings for a list of some of the risk factors that may cause actual results to differ materially from those expressed on today's call.

Victory Capital assumes no duty and does not undertake any obligation to update any forward-looking statements. One additional note, we will not be taking questions this morning. We have built additional detail into our prepared remarks and our presentation to account for this.

It is now my pleasure to turn the call over to David Brown, Chairman and Chief Executive Officer. Dave?

Thank you, Carly. Good morning, everyone, and thank you for joining us today.

This morning, we announced a definitive agreement to acquire First Eagle Investments. This is a transformational acquisition for us. And when we close, Victory Capital will have $571 billion in total client assets, approximately $3.2 billion in annual revenue on a combined basis and be one of the largest publicly traded traditional asset managers in the U.S.

This is the beginning of the next chapter in a story we have been purposely building for more than a decade. Every transaction we have done, we've asked ourselves the same question. Will the transaction make our company better? An expansion of our investment capabilities, increased distribution reach in all of our channels, increased size and scale across our platform, giving us the ability to invest even more in our business in important areas such as technology, artificial intelligence, product development and most importantly, in our people. The answer to this question is undoubtedly yes.

Moving to Slide 4. We are adding approximately $222 billion of assets under management. And more importantly, we're adding investment capabilities that are additive to what we have today and are managed by exceptional investment teams. We are also adding an at-scale alternatives platform that has a leading CLO business and diversified alternative credit capability with its own specialized operational infrastructure to support the entire alternative platform. The investment teams joining us will keep their brands, investment autonomy and most importantly, their investment processes.

This methodology has been consistent with every acquisition we have made for clients, the transition is seamless and how their money is managed and how they are serviced does not change. This transaction meaningfully expands our distribution reach across the U.S. intermediary channel, the U.S. institutional channel and internationally. The distribution reach we are acquiring is substantial and I will share some of the statistics on the next page.

Some of the existing relationships that First Eagle has, we already have, and those will simply get better and deeper. For the ones we do not have today, that will expand our reach to new relationships. Both are great outcomes and together, that give us a footprint materially wider than either firm has on its own. This is a very exciting element of the transaction.

Regarding international distribution, both firms work with Amundi today. First Eagle reaches international investors through the Amundi network and has been a long-time investment manager for them. Our existing strategic distribution partnership with Amundi is the foundation we will build on from here. And after closing, this becomes an even larger and stronger relationship with a broader and deeper product set to leverage the relationship with.

From a financial perspective, the transaction is accretive to earnings. We expect it to be approximately 35% accretive to our 2027 adjusted earnings per share inclusive of approximately $280 million of net expense synergies. I want to drill down on the net expense synergies because I do not want it to be misunderstood. Synergies are never the reason we do a transaction. They are a byproduct of the strategic elements of the acquisition. They are not the strategic elements. The word net matters here as well.

This is not a plan to cut our way to earnings. We will continue investing in our investment franchises, technology, distribution, operations and in client experience as this is what makes our platform better every time we do an acquisition. The net expense synergy number you see, in this case, the projected $280 million is what remains after we do all of that. This transaction gives us even more size and scale, which is important as the industry continues to require investments as well as operational and distribution breadth to remain competitive.

We are acquiring a business that is growing and has been for several years. First Eagle has had positive net flows in each of the last 3 years and year-to-date in 2026. This speaks to the quality of their product offerings and the distribution system across the multiple channels they have built. Slide 5 covers the profile of the business. They have approximately $222 billion in assets under management and approximately $1.5 billion of expected 2026 revenue.

As I said previously, they have 3 consecutive years of positive net flows continuing year-to-date in 2026. 92% of their rated mutual funds and ETF assets are rated 4 or 5 stars overall by Morningstar as of July 31, 2026. This is a fantastic statistic. The flagship Global Value multi-asset strategy is top decile over 1, 3 and 5 years. They also have a strong investment performance in their fixed income suite. This is a firm with long history founded in 1864 and headquartered in New York since 1937 with an investment-led culture and 195 investment professionals. It offers its capabilities in multiple vehicle formats to allow clients to access them in structures that work for them.

The distribution reach is substantial and especially in the U.S. intermediary channel. Their products are used today by approximately 103,000 U.S. financial advisers and roughly 3 million end investors. They reached 83% of the Barron's top 1,500 financial advisers and approximately 740 institutional clients around the world. On Slide 6, you will see that we are acquiring a number of distinct investment capability sets.

I would like to first highlight the Global Value multi-asset platform. At approximately $135 billion, it is a very scaled investment platform. The product and the investment process are unique and differentiated. It is organized around downside mitigation rather than benchmark relative returns and they invest across asset classes, and it has a 4 decade-plus track record. This is very different than any product we have on our platform today. There are also municipal bond in U.S. small-cap equity platforms under the First Eagle name that are high quality, very differentiated and managed by excellent investment professionals that have long track records in the industry.

Under the brand Diamond Hill, which was acquired by First Eagle recently, there's a well-developed value equities platform as well as the fixed income platform. Both will be complementary to the offerings that we currently have on our platform in their own unique way. Under the brand Napier Park, the CLO business is approximately $27 billion and has been in place since 2013 and is active in the U.S. and in Europe.

Additionally, and also under the Napier Park brand is the alternative credit business. It is very well diversified by underlying asset class, vehicle and structure. We've been evaluating alternative credit for several years and understand these asset class as well and believe they will deliver sustained growth with unique and value-added product set. This is an established team with a proven track record with institutional relationships already in place and the full operational infrastructure to support this business. You can also see the vehicle mix at the bottom of the page. It is well diversified and the vehicles are set up to reach a wide range of clients.

Turning to Slide 7. I would like to highlight that our business becomes even more diversified than it is today. You will see that the combined business will now span across even more asset classes and that no specific asset class will account for more than 27%. Our business becomes stronger more durable and is set up to perform well in all market environments and cycles.

Before I hand it over to Mike, I want to close on execution. We have integrated acquisitions onto our platform repeatedly, and we have done it ourselves. Our teams have done the work over the years in every phase of the process. Integration is not something we hand to a third party and hope it goes well. It is a core competency of our firm. Our senior management team averages roughly 30 years of industry experience.

Approximately 80% of our current employees own the VCTR stock, and they have more than $400 million of their own money invested in Victory products as of the end of June 2026. All by choice. So when I say the team doing this work is invested in the outcome, I mean that literally. The Victory Capital platform was purposely designed to be efficient and scalable, and built on technology and smart strategic outsourcing.

On our second quarter call, we reported that the Pioneer Investments integration was complete with the full $110 million of net expense synergies realized within 15 months of close. I also said that we are ready for the next acquisition, and we are. This transaction is larger than anything we've done in the past. But the work is the work we know how to do done by the people who have experience doing it and on a platform built for exactly this. That is why we are so excited about this transaction and all that it will bring. With that, I will turn it over to Mike. Mike?

Thanks, Dave, and good morning, everyone. Turning to Slide 8, we expect to realize approximately $280 million of net expense synergies on a full run rate basis, and we expect those synergies to be fully recognized within 2 years of closing. With a substantial portion achieved in the first year.

Let me put the $280 million in two contexts that matter. It represents approximately 27% of the First Eagle expense base and approximately 14% of the pro forma combined expense base. Both of those denominators are on a 2027 estimated basis. The 27% figure is the one I would anchor on because it is directly comparable to what we have done before, and the table on this page sets that comparison out.

In 2014, we announced the Munder transaction with $15 million of synergies and realized $23 million at 38% of the acquired expense base. In 2015, we announced the RS Investments transaction with $40 million of synergies and realized $51 million at 50% of the acquired expense base. In 2018, we announced the USAA investments transaction with $100 million of synergies and realized $120 million at 38% of the acquired expense base. And most recently, in 2024, we announced the Pioneer Investments transaction with $100 million of synergies and realized $110 million at 27% of the expense base acquired.

The average across those transactions is 38% of the acquired expense base. The pattern here is simple. We have never announced a net expense synergy target that we did not deliver. Before we sign, we build the target number from the bottom up, function by function and line by line, and we build it with the people who will own it afterwards. Against that history, the 27% we are targeting here sits at the low end of our own range, which is where we think it belongs on a transaction of this size.

We also have not assumed any revenue synergies in the accretion math. We are deploying an already optimized infrastructure across a materially larger asset and revenue base without a commensurate increase in the underlying cost structure. Our scale reduces redundant costs and improves our pricing power with our vendors. That work is scope, it is owned internally and it is the same work we completed on the Pioneer transaction within 15 months.

The final number at the top of the page is the one that ties it together. We expect this transaction to be approximately 35% accretive to our 2027 estimated adjusted earnings per share. That accretion is measured against 2027 and because we expect to close by the end of the first quarter of 2027, and it is inclusive of the full run rate synergies. This is the power of our strategic inorganic growth model at work.

Turning to the terms on Slide 9. Total consideration is approximately $7 billion or 100% of First Eagle. The mix consists of $2 billion of newly issued Victory Capital equity, the assumption of a $575 million of First Eagle senior secured notes carrying a 7.25% coupon and the remainder paid in cash.

On the financing, we have fully committed financing in place from two global banks. It is comprised of a new $3.5 billion term loan B and approximately $950 million of new secured notes. Together with an upsizing of our revolving credit facility from $100 million to $200 million. Our existing term loan B is expected to remain in place. On the equity, approximately 14.6% of total economic interest will be issued to Genstar, made up of common stock and nonvoting convertible preferred stock. Genstar's voting interest will be capped at 4.9%, and the remainder will be issued in nonvoting preferred stock the same economic rights as the common stock. Genstar will be subject to a 3-year lockup on all of their holdings.

On governance, our Board will expand to 11 directors, including two designated by Genstar and Dave will continue as Chairman of the Board and Chief Executive Officer. We ended the second quarter with a net leverage ratio of 1x adjusted EBITDA, $70 million of cash and an undrawn $100 million revolver.

At closing, we expect net leverage of approximately 3.2x pro forma adjusted EBITDA, inclusive of the full run rate of net expense synergies. The deleveraging pace is rapid due to the free cash flow characteristics of the combined entity. We think that the net leverage will decline to approximately 2x by the end of 2028 and continuing to decline from there. On the pro forma earnings profile, combined annual revenue was approximately $3.2 billion.

As a reminder, on our second quarter call, we updated our long-term adjusted EBITDA margin guidance from 49% to 50%. Nothing in this transaction changes that view. The acquired business carries a higher average fee rate than our platform average and a lower margin than our platform average. And the combination of those two facts is precisely where the synergy opportunity comes from.

Finally, on approvals and timing, closing is subject to approval by our shareholders of the equity issuance, certain regulatory approvals and client consents. We expect to close by the end of the first quarter of 2027. I would note that shareholder approval of the share issuance is not a condition of closing. We have an alternative funding structure available in the form of perpetual preferred securities, which gives us certainty of close. Further details will be in our filings.

Stepping back, our capital allocation philosophy has not changed. It remains grounded in flexibility and discipline. Our primary objective is the execution of accretive strategic acquisitions that make our business better. And this is the clearest expression of that objective we have had. The balance sheet is in excellent shape, and our free cash flow generation gives us the ability to fund this transaction, delever on the time line I described and continue returning capital to shareholders simultaneously. With that, I will turn it back to Dave for final comments.

Thank you, Mike. Let me highlight four things I would like you to take away this morning: First, the transaction will make Victory Capital an even better company. Over $570 billion in client assets, approximately $3.2 billion in revenue, a balanced platform across multiple asset classes and a scaled CLO and alternative credit capability.

Second, we are acquiring growth, and we are acquiring excellent investment performance, positive net flows for 3 consecutive years and continuing into 2026. 92% of rated fund and ETF assets in 4- and 5-star strategies.

Third, the acquisition will increase our distribution reach across all of our channels. On distribution, it's just that simple.

Fourth, the acquisition is expected to be highly accretive, 35% accretive to earnings per share and a powerful addition to our platform that has the potential to increase our earnings in the future.

Lastly, I want to close by thanking two groups. To the team at First Eagle, we have enormous respect for what you have built and for the way you have built it, and we are looking forward to working alongside you.

And to the Victory employees, thank you. The opportunity is a direct result of the excellent work you have all done over many years. Thank you all for joining us. As Carly noted, we will not be taking questions this morning, but our Investor Relations team is available should you have any questions. Have a wonderful day.

And that concludes today's webcast. You may now disconnect. Thank you.

Good morning, and welcome to the Victory Capital Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now turn the call over to Ms. Carly Thomas, Director of Investor Relations and Responsible Business. Please go ahead, Ms. Thomas.

Thank you, operator, and good morning, everyone. Before I turn the call over to Chairman and CEO, David Brown, I would like to remind you that during today's conference call, we may make several forward-looking statements. Victory Capital's actual results may differ materially from these statements. Please refer to our SEC filings for a list of some of the risk factors that may cause actual results to differ materially from those expressed on today's call. Victory Capital assumes no duty and does not undertake any obligation to update any forward-looking statements.

Our press release, which was issued after the market closed yesterday disclosed both GAAP and non-GAAP financial results. We believe the non-GAAP measures enhance the understanding of our business and our performance. Reconciliations between these non-GAAP measures and the most comparable GAAP measures are available in the 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?

Thanks, Carly. Good morning, everyone, and welcome to Victory Capital's Second Quarter 2026 Earnings Call. I'm also joined today by Michael Policarpo, our President, Chief Financial and Administrative Officer. I will start with an overview of our second quarter results, which I am pleased to say were exceptional, setting new records across multiple dimensions of our business. After that, I will turn the call over to Mike to review the financial results in greater detail. Following our prepared remarks, we will be available to answer your questions.

On Slide 5, you will see that Q2 2026 was the strongest quarter in our history. Total client assets reached $346 billion, up 11% from Q1 and 15% higher than at the end of the same period last year. Long-term gross flows of $22 billion were up 17% quarter-over-quarter and 43% versus the same quarter last year. We generated record net long-term inflows of $4.2 billion, reflecting the strategic investments we have made, the momentum we have built across all our distribution channels and the strength of our investment performance by our investment franchises and our solutions platform.

From a financial perspective, adjusted EBITDA reached $243 million, and our adjusted EBITDA margin expanded to 55.8%. Adjusted earnings per share was $2.21, up 21% from last quarter and 41% higher than Q2 of last year, all were records for our company. Moreover, the Pioneer integration is now complete and the full $110 million in net run rate expense synergies have been fully realized.

Turning to Slide 6. Investment performance remains a source of great pride for our organization, and it continues to be the foundation of what we do. Strong investment performance is not incidental to what we do. It is the reason clients hire us and the reason they stay with us. In an industry where trust is earned through long-term investment results, we believe our track record speaks for itself.

As of June 30, 2026, 57 of our mutual funds and ETFs earned 4- or 5-star overall ratings from Morningstar, which is 60% of our rated AUM. This represents over half of our Morningstar-rated funds. By comparison, only about 1/3 of Morningstar-rated funds industry-wide carry a 4- or 5-star rating. When we look at performance against benchmarks, the picture is equally compelling. 71% of our AUM outperformed over the 1-year period, 68% over 3 years, 65% over 5 years and an impressive 81% over the 10-year period.

On a strategy count basis, 66%, 64%, 67% and 69% of strategies outperformed their benchmarks over those same time horizons. This breadth of outperformance across time periods, asset classes and investment styles reflects the talent and discipline of our investment professionals across our platform. We remain deeply committed to delivering excellent investment outcomes for our clients.

Slide 7 is the one that I find particularly compelling when you step back and look at how far we have come as a company. When we completed our MBO in 2013, Victory Capital was at its core, a U.S. equity manager with $18 billion in AUM. At the time, approximately 80% of our AUM was in U.S. equity strategies with fixed income and global equity each making up about 10%. We were excellent at what we did, but we were highly concentrated in U.S. equities. That picture had already begun to evolve by our IPO in 2018 when we had grown to over $60 billion in AUM.

U.S. equity had moved to about 73% of AUM with fixed income at 12%, global equity at 7% and solutions at 5%, which included the ETF business in its infancy through a small acquisition. The seeds of diversification had been planted, but the transformation was still in its early stages.

Fast forward to today, and that story is almost unrecognizable in the best possible way. U.S. equity now represents just 31% of our $346 billion in total client assets. Our solutions business, which now includes over $23 billion in ETFs, represents 32%. Fixed income has grown to 24% and global and non-U.S. equity stands at 11%. This did not happen by accident as we have been very purposeful and strategic in the growth of our business. Before every acquisition we've made over the past 13 years, we asked ourselves a simple question beyond the stand-alone financial merits. Will this make our company better, more competitive, more resilient and more capable of servicing clients across different market cycles? Our answer has been yes, in every case, an intentional approach to building our exceptional platform into what it is today.

We also recognize that self-reflection and our relentless willingness to make our company better is essential to our continued growth. We are constantly reassessing areas of potential growth, guided by our disciplined approach to strengthening our entire business from strategically refining our already diverse product mix, expanding our distribution capabilities to enabling our investment professionals with best-in-class tools and resources.

Turning to Slide 8. Our ETF platform continues to be one of the most exciting and consequential growth stories in our business. ETF AUM ended the quarter at $23.2 billion, up 24% year-to-date and 54% year-over-year. Net flows of $1.2 billion in Q2 bring our year-to-date total to $2.5 billion, representing an annualized organic growth rate of 27%. The momentum here is sustained, broad-based and is accelerating as we move through the back half of this year and look forward into the future.

I want to spend a moment on how we think about this business because I think it is important context. Back in 2015, we made a deliberate forward-looking decision to acquire the ETF capabilities and infrastructure that form the foundation of what VictoryShares is today. The acquisition included just a few hundred million dollars of ETF assets. But the real story of this business has been what we have built from there.

We have never treated this as a static platform. The growth of VictoryShares has been driven by a consistent commitment to product innovation and a disciplined ongoing evaluation of our investment capabilities relative to what we have heard from clients around what they want and need.

What distinguishes us in the marketplace is that we are not in the race to 0. Our average fee rate of 34 basis points reflects the fact that we have built a diversified ETF platform, featuring active and rules-based strategies that are organized around innovative investment themes, not a passive product suite competing on price. Importantly, the margins of our ETF business adhere to our firm-wide standards.

Our free cash flow ETF series continues to generate strong and consistent inflows. Our flagship free cash flow ETF, VFLO, closed the quarter at $7.8 billion in AUM. In its 3 years since launch, VFLO has outperformed the S&P 500 Russell 1000 Growth and Russell 1000 Value, all with 0 MAG 7 exposure and has earned a Morningstar 5-star overall rating, and we are seeing strong demand from financial advisers throughout our intermediary channel.

Across the product suite, we are winning new home office recommendations, deepening relationships with key platform partners and are continuing to add dedicated ETF distribution resources to support that momentum. In addition, our ETFs are now available for sale across Asia and as of this quarter, in Latin America, a new geography that we believe represents a significant long-term growth opportunity. We will continue to leverage our partnership with Amundi and expand our ETF distribution globally.

Slide 9 covers our international business, which continues to gain real and meaningful traction. The Amundi partnership is performing exactly as expected and trending above our initial financial expectations. At quarter end, we had $62.6 billion in AUM from clients outside the United States across 61 countries, with 35 of those countries now having more than $100 million in Victory Capital AUM. Importantly, our international business was net flow positive again in the quarter and is year-to-date and has been net flow positive cumulatively since we closed the Pioneer acquisition.

Year-to-date, a vast majority of Amundi's client roadshows have been focused on Victory Capital products, a clear reflection of the priority they have placed on bringing our capabilities to their global client base. Amundi has also maintained several Victory Capital strategies on their concentrated focus list across client segments and geographies, providing important structural support for flows.

We now sub-advised 23 UCITS spanning equities, fixed income and global multi-asset strategies. Additional UCITS launches are planned in 2026, driven by bottom-up demand signals from Amundi's local distribution teams. The product set is continuing to expand. The sales teams are becoming more familiarized with our product set and the momentum in this channel is increasing materially.

Turning to Slide 10. I want to highlight our growth strategy since it is central to how we think about creating long-term value for our shareholders. Since our management buyout in 2013, we have grown AUM by 1,834% from $17.9 billion to $346.1 billion. Every step of that journey has been intentional, a deliberate disciplined decision to build something bigger and better than what existed before. That is what this slide shows.

We set out from day 1 with a clear thesis, that the asset management industry was ripe for consolidation, that the right acquirer with the right model could create extraordinary value and that we had both the capability and the conviction to execute on that thesis to create a unique platform.

I want to be very clear about one point. This growth did not come from a single deal. It came from building a repeatable institutional quality capability, a model that works, that scales and that we now have executed across multiple transactions of varying size, complexity and in different periods within a market cycle. We know how to identify the right opportunities. We know how to integrate them, and we know how to make the whole organizational platform stronger as a result.

We are often asked whether there are enough acquisition targets out there to sustain our strategy. The answer is yes. There are more than 110 investment firms managing between $50 billion and $200 billion in assets and more than 35 firms in the $200 billion to $500 billion range. That is a deep and fragmented opportunity set. The structural forces driving consolidation, regulatory complexity, technology requirements, distribution scale and the economics of running a competitive investment platform are only intensifying. That creates a compelling environment for a proven acquirer like Victory Capital.

Our balance sheet is strong, and our execution track record gives me great confidence in our ability to continue delivering transformational growth as we work toward our goal of $1 trillion in assets under management. We remain extremely active from an acquisition perspective, evaluating potential significant opportunities. These kinds of opportunities are never done until they are done, but this is the right time for our company given the strength of our balance sheet and the completion of the Pioneer integration.

Slide 11 outlines our capital allocation framework. Strategic acquisitions are and will remain our primary and best use of capital. Over the last 13 years, we have successfully closed 8 acquisitions. Our inorganic growth strategy has helped us deliver over 800% of total shareholder returns since our IPO in 2018. This has also enabled us to grow earnings per share at a 23% compound annual growth rate. This track record is in part a result of a disciplined, consistent approach to inorganic growth that has guided us since the day we started.

Second to strategic acquisitions, our commitment to returning capital to shareholders is real and ongoing. Since our IPO, we have returned $1.6 billion in capital to shareholders with $1 billion in shares repurchased. Year-to-date, we have repurchased 3.2 million shares, which is more than we repurchased in all of 2025. This is a meaningful statement about both our conviction in the value of our stock and the strength of our free cash flow generation. In addition, our dividend provides a consistent and reliable return to shareholders.

Looking ahead, I am as excited about the future of this company today as I ever have been. We have the people, the platform and the strategy, and in many ways, we are just getting started.

I will now turn the call over to Mike to walk through the financial results in more detail. Mike?

Thanks, Dave, and good morning, everyone. The financial results review begins on Slide 13. This was a record quarter across the board. Revenue came in at $435 million, up 12% from Q1 and 24% higher than Q2 of last year. Adjusted EBITDA reached $243 million, and our adjusted EBITDA margin was 55.8%. Adjusted net income with tax benefit was $183 million or $2.21 per diluted share, up 21% from last quarter and 41% versus Q2 2025.

To put that EPS figure in context, since our IPO in February 2018, our adjusted earnings per diluted share with tax benefit has grown at a compound annual rate of approximately 23%. And on a quarterly basis, EPS is up more than 450% since Q1 2018. That is a remarkable track record of value creation and it reflects the earnings power of our platform.

I also would like to take this opportunity to update our long-term adjusted EBITDA margin guidance. Given the demonstrated earnings power of our platform and the completion of the Pioneer integration, we are updating long-term adjusted EBITDA margin guidance from 49% to 50%. This reflects our view of an appropriate normalized margin for this business through a full market cycle, one that accounts for the inherent variability in certain revenue items while reflecting the structural efficiency gains we have made.

Importantly, this level also preserves our ability to continue investing in the business and our people, our platform and the future growth initiatives that will drive continued long-term value. We believe 50% is the right anchor for how investors should think about this business over time with a conservative tilt. We repurchased 1.1 million shares during the quarter and returned $138 million to shareholders in total. Our net leverage ratio was 1.0x adjusted EBITDA.

On Slide 14, total client assets at quarter end were $346 billion, well diversified across our U.S. retail, U.S. institutional, U.S. direct and international channels, with clients in 62 countries in total.

Slide 15 shows our long-term AUM flows. This is a slide we're spending some time on because what we are seeing here is not a 1-quarter phenomenon. We have real and sustained flow momentum in our business. Record long-term gross flows of $22.1 billion were up 43% from Q2 '25, the first quarter post the close of the Pioneer transaction. Net long-term flows of $4.2 billion were also a record, representing a positive swing of nearly $5 billion from the same quarter last year. We were also net flow positive for the full first half of this year, and that momentum has carried into the third quarter. I would describe it as a convergence point.

The purposeful investments we have made over the past several years in technology, data, distribution, marketing, product and people are now working together in a way that is showing up in these results. Our U.S. intermediary, U.S. institutional and international channels all contributed during the quarter. Multiple investment franchises generated positive long-term net inflows, including Pioneer Investments, RS Global, RS Value and VictoryShares ETFs. In addition, our one but not yet funded pipeline remains significant across multiple franchises and channels. We expect it to continue to support our positive flow profile as those mandates fund over the coming quarters.

Moving to Slide 16. Revenue of $435.4 million was a record, up 12% from Q1 and 24% versus Q2 of last year. This was driven by record average AUM of $331 billion and an average fee rate of 47.9 basis points, which was at the high end of our guidance range. We continue to expect the fee rate to remain in the 46 to 47 basis point range going forward, reflecting the mix of our diversified business.

I also want to note that as our platform continues to scale, we are beginning to see the revenue synergies of our expanded organization come through in these results. This represents the next phase of our integration story, where scale begins to support revenue growth.

Turning to expenses on Slide 17. Total operating expenses were $241.6 million in Q2. Cash compensation as a percentage of revenue was 22.9%, which is back at normalized levels following the seasonal payroll dynamics in Q1. On a normalized basis, we continue to expect cash compensation to run in the low to mid-20s as a percentage of revenue.

Our variable cost structure remains a key feature of our business. More than 2/3 of our total operating expenses are variable, which provides meaningful cushion and flexibility through different market environments. I am pleased to report that the full $110 million of net run rate expense synergies associated with the Pioneer Investments acquisition have now been fully recognized. Our integration is complete.

We acquired a business that significantly increased the size and scale of our company, materially expanded our product set and opened our international distribution channel, and we have fully integrated it in 5 quarters. We did all of this while also launching new products and investing in the future growth of the entire platform.

On Slide 18, the non-GAAP metrics reflect what this business is capable of delivering. Adjusted EBITDA of $242.7 million and an adjusted EBITDA margin of 55.8% are both records for the company. Adjusted net income with tax benefit of $182.9 million or $2.21 per diluted share was up 21% from Q1 and 41% from Q2 of last year. The consistency of our margins over time speaks for itself, above 49% every single quarter since 2020 and above 50% in the majority of them. This is the result of a purposefully designed, highly efficient, scalable platform and the relentless efforts of the exceptional people who run it day in and day out.

Finally, Slide 19 covers our balance sheet and capital management. We ended the quarter with $70 million in cash. We took advantage of a strong market dynamic and repriced our Term Loan B during the quarter, reducing annual interest expense by approximately $2.5 million going forward. And our $100 million revolver remains undrawn. We returned $138 million to shareholders in Q2, including the repurchase of 1.1 million shares of VCTR common stock.

Today, the Board declared a regular quarterly cash dividend of $0.50 per share, which will be paid on September 25 to shareholders of record at the close of business on September 10. The balance sheet is in excellent shape, and our strong free cash flow generation gives us the flexibility to pursue all of our capital allocation objectives, strategic acquisitions, investments in our business for long-term growth as well as shareholder returns through both share repurchases and dividends simultaneously.

With that, I will turn the call back to the operator for questions.

[Operator Instructions] Your first question comes from the line of Craig Siegenthaler with Bank of America.

My question is on the Amundi distribution agreement. How is your net flow outlook from this agreement changed since inception? And are you seeing nice net flow breadth? Or is it concentrated in 1 or 2 larger European markets? I think Amundi distributes to more than 60 countries, so there could be some breadth there.

A couple of points there. One is the -- it is coming really through 3 primary regions. If we look at Asia, that has been a really good flow area for us. Europe has been really good. And then, there are some emerging parts in the Middle East that we're hopeful given some of the distribution agreements that Amundi has just recently entered into. So those are the 3 regions, and we're seeing a lot of activity from meetings to actual fundings and opportunities as we look forward.

From a product perspective, we think fixed income has done really well. Global is another area that we are really excited about and then the multi-asset side. So it's not really coming from one product or one area. It's pretty deep and wide, and it's accelerating.

Thanks, Dave, and flipping the conversation to the other side of the deal, how has Victory helped Amundi sell its product in the U.S. to date? Can you provide color on the 2Q flow trends from that? And also, can you just remind us the underlying economics to Victory on AUM that's distributed in the United States?

Craig, it's Mike. The efforts with respect to distributing the Amundi products have continued. I would say they have been focused on UCITS offerings predominantly in Latin America, where we've been able to use our U.S. intermediary contacts to be able to drive some flow. That has been a little bit less than what we've seen for the Amundi distribution of Victory product. And the economics really are similar to that of the distribution of Amundi's products here in the U.S. with that of us -- them distributing our products outside the U.S.

We have a revenue share that we split that provides the proper incentive to align the interest both on the investment side and the distribution side. But that component pales in comparison from a size perspective. As we said, there's $62 billion of assets that are outside the U.S. through the Amundi distribution channel of Victory products. Our distribution of their offerings based on the makeup of their offerings is smaller than that.

Your next question comes from the line of Ben Budish with Barclays.

Maybe first on the results for the quarter. We sort of have this aggregate investment management fee line. I guess maybe a 2-parter. First, can you maybe talk about what may else be in there this quarter? I know in the past, you talked about periodic performance fees and fulcrum fees and things like that. And then maybe at a higher level, when we look at performance fees, it looks like in '23, '24, pretty consistently around $11 million a year. That stepped up quite a bit in '25, but obviously an outsized Q2.

And now it looks like we may have 2 outsized quarters in a row. So it does seem like that line item is structurally stepping up. And if you can maybe talk about how we should think about that going forward separate from sort of the core investment management fee rate? Are there more opportunities? Is performance picking up in a way that's driving better performance fees for the firm? Any details there would be helpful.

Sure. Ben, the fees that you see the increase, so we posted a 47.9 basis point quarter. As you know, our guidance long term, which we're comfortable with is 46 to 47 basis points. What you referenced is really some annual fees that from a GAAP perspective, we recorded in Q2. And those are kind of crystallized based on different metrics that really get us back to or slightly above kind of our wrap rates.

And so we don't consider them pure performance fees in the standpoint of an alternative type business. And so they are a little bit episodic. But again, that's where I would guide back to the 46 to 47 basis points long term over a full cycle is really how we're looking at the revenue realization of the business. That will tend to fluctuate, of course, based on asset mix, client mix, distribution channel mix. But as we sit here today, that 46% to 47% is really the way to think about it long term.

All right. Helpful. And then maybe just on the flows in the quarter and maybe what you're seeing into Q3. I think fixed income, in particular, flipped to be a very nice inflow quarter. Anything in particular to call out there, any outsized mandates? And then any color on what you've been seeing in July and maybe into August? It sounds like you're quite confident on the flow trajectory going forward, so anything that you can share would be great.

Well, let me start with the third quarter. We've actually seen an acceleration of flows into the third quarter. So it is not something that, as Mike said in his prepared remarks, it's not a 1-quarter phenomenon. It's not one client. It's not an outsized mandate. It's pretty broad and diverse.

Really, we think of it as a convergence of all of the investments we have made over the last few years, the integration of the sales forces, the opening up of the distribution outside the U.S. coming together. And we're pretty excited about what the future holds from an organic growth perspective. We now have, I think, the size and the scale and the product depth and the breadth and some of the partnerships we have invested in all coming together.

From a fixed income perspective, we're seeing really good activity with some of our shorter -- like some of our shorter-term fixed income type products. Our ETFs, our active fixed income ETFs are doing very well. It's pretty broad-based, and it's also through both 2 franchises, the Victory Income Investors and also through Pioneer. And I think that's just a product of where the client demand is. And then outside the U.S., there is demand for U.S. fixed income as well.

Your next question comes from the line of Michael Cho with JPMorgan.

I'd like to start just big picture, Dave, you gave some thoughts around the trajectory of Victory over the last dozen years. And as you noted, from an M&A perspective, there's still a lot to do, a lot of consolidation. But it also feels like there is not many that are completely additive to Victory's competitiveness in terms of what you've already built. So I know you gave some comments in the past, but can you just talk through how or where Victory may want to increase its competitiveness and in what kind of channels or client segments you'd like to be -- you'd like Victory to be more top of mind?

Yes. Thank you for the question. We approach acquisitions, I think, a little bit differently than others. We don't specifically target asset classes or go after certain areas I think we start off, and I think we articulated in the script, we start off as, does it make our company better? Can we service our clients? Does it make us more competitive? And I think there are lots of areas that we can add to that answer those questions for us, size and scale, product diversification, distribution enhancement. There's a number of different areas that we look at.

And from an acquisition standpoint on where we are today and what the opportunity set is, we couldn't be more excited. We have a lot of opportunity and have evaluated organizations where we look at them and look at them being added to our platform would enhance our business, enhance our competitiveness and move us forward.

We have $1 trillion assets under management goal that we are striving for that I think we will hit as we look to the future. And I think there's lots of opportunity in the industry from a consolidation perspective, but specifically to us to allow us to be more competitive than we are. And you can see in the results this quarter where we have fully integrated the Pioneer acquisition. And now we're really in the second piece of that through growth on a flow perspective, from a revenue perspective, I think we're able to service our clients with more products, more attention to their needs. And so there's a lot of areas where acquisitions would really, really help our platform.

Great. If I could just follow up on the expense side, Mike, you upped the guide or the long-term guide. But just one on G&A. If we just look -- and G&A remains about $20 million, $22 million a quarter. I guess this is post Pioneer despite revenues that are maybe almost $100 million higher per quarter. I recognize Victory has got a unique model with investment franchises.

But can you just flesh out trends in terms of G&A and the leverage that you're able to drive in that line? And any thoughts on kind of incremental areas of focus or investments as Victory's scale continues to expand with more clients, more channels and more assets?

Sure. I think as you think about the platform that we built, it has been built to scale. We talk about greater than 2/3 of our expenses being variable from compensation to distribution-related fees to a number of our back-office service providers that we outsource. So that really then leaves, if you will, kind of the G&A as more controllable or a little bit more from a fixed perspective where we're making some investments. That number, to your point, has been $21 million to $23 million a quarter.

We're comfortable with that at this time. It does include, and I think Dave made reference to it, we've continued to invest in the business through the Pioneer integration, the opportunity set for us to get more scale distribution to make investments in technology, in AI, to bring new products to market. All of that has kind of been over the last several years. So that was really our impetus now with the Pioneer integration complete to change the long-term margin guidance from 49% to 50%.

As you look at the trajectory that we're on, we're comfortable that we can operate the business at least 50% margins, inclusive of the investments that we've made and that we plan to make. We made a number of investments in U.S. intermediary to really bring forth more partnerships, more data usage, more sponsorships. And I think that, as Dave mentioned earlier, is bringing forth the net flows and the organic growth convergence point that we expected. So I think going forward, we'll continue to monitor it, but we're comfortable at that level from a G&A perspective, with the majority of the expenses really being variable with the AUM and revenue of the business.

Your next question comes from the line of Michael Cyprys with Morgan Stanley.

Maybe just coming back to your $1 trillion target and some of the M&A that you're thinking about in the years ahead. Maybe if you could just help unpack how those conversations are progressing, what that pipeline looks like, the types of properties that you're thinking about, how you think about all of that progressing?

Yes. Our conversations are going very well. We are making good progress in our process. And then I would also note that, as we said in our prepared remarks, we're done the Pioneer integration. This is the right time for our organization. Our balance sheet is as healthy as it's ever been with our leverage at 1.0. And so this is the right time for our organization.

I think we've proven over our history as a public company, even before that as a private company that we have been able to buy businesses that looked very different, were very different sizes, had very different owners and really integrate all of them with great success. We have a unique capability for this industry to evaluate businesses, to buy the business in a smart way to add lots of value for our shareholders and to better our platform. And I think there is a ton of opportunity going forward to repeat that many times. We're in no rush, but this is the right time for our organization.

And I also think that given what's happening in the industry, some of the pressures for firms that are staring down technology investments, regulatory issues, the need for size and scale on the distribution side, this is a really, really great time for firms like us that can add a lot of value to firms that maybe need something that they're unable to provide for themselves. So we're really encouraged, and we have a track record over a long period of time of identifying and then executing on them.

Great. And just on the margin, quite an impressive output in the quarter here. Just curious as you think about that, how do you know you're investing enough in the business to drive growth ahead in the coming years? And maybe you could speak to some of the top areas of investment that you're going to be looking to make over the next 12 to 24 months?

Yes. I think our results really answer the question of, are we investing enough to drive growth given our results around gross and net flows and kind of what our guide is going forward. And I think about where we're investing, we're investing in product development. We're investing in AI and technology. We're investing a lot in our distribution with our distribution partners. I think something that separates us from many others is I think we're good investors when we think about investing our money in getting return.

And so we have industry-leading margins. And I think you can have industry-leading margins and also have organic growth. And I think that comes down to is, where you're investing, how you're investing. And I think we're set up very nicely to continue to provide our shareholders with industry-leading margins and also with growth.

[Operator Instructions] Your next question comes from Alex Blostein with Goldman Sachs Group.

I wanted to go back, Dave, to a comment you made in your prepared remarks when you talked about a significant pipeline, and I think Mike referenced that as well. Can you help us maybe size the won-but-unfunded pipeline and flows that you see sources, strategies and kind of maybe how that compares to prior periods just to kind of help better frame the forward flow outlook?

Alex, it's one of the larger kind of won but not yet funded pipelines that we've had. The areas and then the asset classes. From an asset class perspective, again, fixed income, our ETF platform, our global and our multi-asset are areas where we're seeing a lot of strength coming from outside the U.S. through our intermediary channel and then also through our institutional channel. So it's really through all of the distribution channels that we're present in.

And all of that is supported by really good investment performance. And so part of the formula is I think we have really expanded our distribution reach, but we also have now a wider product set and that wider product set is performing really well, which is the formula to have a really nice and kind of deep and broad, won but not yet funded. We don't size it from a dollar perspective, but what I can tell you is it's probably one of the larger ones we've had organizationally.

Okay. Great. Helpful. And then from the capital management perspective, the balance sheet is in a really good place. You talked about refining the loan, which is great. How -- in the absence of, I guess, M&A or just rather keeping that aside, how should we think about the trajectory of share repurchases from these levels?

Yes. I mean our #1 priority with our balance sheet is to do strategic acquisitions. Everything else is second to that. But given where we are with our business and the size of our cash flow, we can do both. And we have said that we'll be opportunistic, and it will be around buying our shares. And I think we bought more shares in the first half of this year than we bought all of last year. So we'll be opportunistic about that.

I think that's a -- that is part of the way we're going to allocate our capital. I wouldn't necessarily run rate every quarter forward. Some of it's going to be opportunistic. Some of it's going to be around strategic acquisitions. But I would say buying shares back is our second, and then the dividend is an ancillary piece of it.

There are no further questions at this time. I will now turn the call back to David Brown for closing remarks.

Thank you. Before we close, a few items to note. We will be publishing our July monthly AUM data before the market opens on August 12. I also want to invite continued engagement with our team. We have a very busy conference and roadshow schedule in September and October, and we look forward to seeing many of you along the way.

In the meantime, we welcome your questions and are happy to connect ahead of those events. We thank you for your continued support of Victory Capital, and we look forward to speaking with you again soon.

This concludes today's call. Thank you for attending. You may now disconnect.

Okay. I think we can go ahead and get started. Thanks for staying with us here on day 1 of the Morgan Stanley Financials Conference. I'm Mike Cyprys, equity analyst covering brokers, asset managers and exchanges for Morgan Stanley Research. And for our next session, I'm thrilled to welcome Mike Policarpo, President, Chief Financial Officer and Chief Administrative Officer of Victory Capital.

Victory Capital is a diversified asset management firm with over $300 billion of assets under management. The company operates 9 autonomous investment franchises and is headquartered in San Antonio, Texas. So Mike, thanks for joining us here.

Thanks for having me.

Yes. Thanks for making out the trip, making the trip out here to New York. So why don't we start off with the market environment, which has been characterized by a lot of volatility, changing rate expectations, broadening beyond the sort of narrow leadership that drove markets over the last several years. What changes in client behavior have stood out most to you? And where are you seeing allocations shift today?

Yes. It's a good question. I think where we see opportunity from a client allocation perspective continues to be ETFs, definitely from an active ETF, rules-based ETF, passive ETFs. So from a structural perspective, there's definitely tailwinds from an ETF perspective that we see. Global, both on the equity and fixed income side, both from U.S. and non-U.S. clients. We think there's a tremendous shift in allocation from U.S. equity to global equity as well as on the fixed income side.

And then within solutions, which is a broad category, we see multi-asset offerings where clients are seeking a particular exposure, some sort of income focused, some sort of a problem solve, if you will. So I think those are the areas where we're seeing client demand in the most recent form.

And as the market leadership broadens and clients look beyond passive beta exposure, where do you see the greatest opportunity for active management to potentially regain share?

Yes. Well, Victory is definitely a believer in active management. Most of our strategies, if not all of our strategies really are active. So from that perspective, I think where we're seeing demand is across global, like I mentioned before, global equity capacity-constrained equity as well, fixed income, where it's not easy to disintermediate from a passive perspective. And then that multi-asset, which is a broad category, but where there's some sort of specific response to a need from a client, I think, is where we're seeing opportunity where we think active will continue to penetrate and continue to win business.

Why don't we shift gears to talk about flows. You had monthly AUM this morning. I think we were backing into roughly maybe about $1 billion of inflows, but you can correct me there. And I think that would be the second consecutive month now. I think April, we were also backing into modest positive flows. So maybe you can correct me on those numbers, broadly speaking, and talk about gross sales and activities and pipeline. What is it going to take for Victory to confidently inflect to sustainable positive net inflows?

Sure. Yes, I think we've been, I think, saying since the Pioneer acquisition about a year ago that we thought that was a big inflection point from an organic growth perspective for Victory. I won't comment specifically because we don't say the numbers on a monthly basis, but I think we continue to see progress towards that organic growth and feel confident where we sit today that we'll continue to drive to that organic growth perspective.

I think what has set us up and what the inflection point has been over the last year is a few things. We've made over the last several years, significant investments in product development. So we've launched a number of active and rules-based ETFs off of our solutions platform, VictoryShares. Those have garnered assets. I think that's kind of where the industry is looking for certain active components as well as rules-based. We've also made investments in our distribution. Again, pre the Pioneer acquisition, I'll talk about the Pioneer acquisition, what that brought as well. But we invested in U.S. intermediary through ETF specialists through building out an RIA team, again, really focused for our product set.

The Pioneer acquisition that we closed Q2 of last year was that inflection point. We brought on the Pioneer Investment franchise, which has a number of different products underneath it in equity, multi-asset as well as in fixed income, differentiated product from what Victory had prior to the transaction and complementary product from the standpoint of the same asset classes but managed differently. And so I think that gave us more product that was in demand from a business perspective or a market perspective.

Additionally, and we've talked about this before, we also made substantive investments in distribution with that acquisition. So we have more people in U.S. intermediary than we have ever had before. We have more boots on the ground. We're acquiring, if you will, more data, more sponsorships from an intermediary perspective than we ever have. Pioneer had certain firms that they had great success with. Victory, legacy Victory had firms that we had success with. So putting 1 plus 1 on the field was more than 2.

From a U.S. intermediary perspective, U.S. institutional, again, we have more people selling. We have more products that are defined for subchannels within institutional. Pioneer has certain fixed income and multi-asset products that are ripe for the insurance market. Legacy Victory's product set there was a little bit nascent, I would say.

And then the last component, which I think we continue to be excited about is the access to the non-U.S. distribution channel. With the acquisition of Pioneer, we have a 15-year exclusive distribution relationship with Amundi, where really we now have access to the world from a distribution and client perspective, access to Amundi's thousands of folks from a distribution perspective, geographies all throughout the world that prior to the deal, we didn't have access to. And so that's been massive for Victory, both from the existing Pioneer business plus some of the product development that we've done in just 14 months to start to bring Victory product to that platform.

And our last thing I would say with respect to the distribution is our U.S.-listed ETFs are now available outside the U.S. in a number of Asian geographies as well as Latin America, brought again by the global distribution partnership with Amundi. So when we look at all that and add all that up, I think we feel really good about where we're positioned today. And then lastly, and it probably shouldn't have been the last thing I said, but we have really good investment performance. It matters.

Fair enough. Why don't we shift and talk about SMAs, models, which have been an area of growth for the industry. So hoping you could update us on the traction you're seeing across retail SMAs, models, your WestEnd business and the steps you're taking to broaden out the capabilities and distribution there? And how do you see this part of the business evolving over the next several years?

Yes. No, I think it's a great question and definitely an area when we did the WestEnd acquisition, we are focused on from a growth perspective. WestEnd and our model delivery business is about 10% of our assets, so pretty substantive and growing. We are doing more business with more advisers today than we were when we first acquired WestEnd. We've done product development off of the West End platform. Pioneer had model delivery and SMA platform products as well that we're able to bring on to the existing intermediary distribution platform that we have. The WestEnd model delivery platform also is a further product development engine for us.

So we're thinking about tax efficiency, tax optimization off of that platform as well as we think as we think about future product development, there's an opportunity with respect to public-private hybrid product to really deliver through that chassis as well. So we're bullish on the space. We think there's opportunity beyond just what we're doing today. And we think that it's going to continue to grow and take market share as distributors and financial advisers think about how they interplay with their clients.

And how much of the SMA opportunity set would you say is really about customization and tax management versus, say, pure investment performance?

I think it's probably a combination of both. It's hard to distinguish between one or the other. But I think that's driven ultimately by the end client and the financial adviser and what they're trying to deliver to their clients. So I think tax optimization is pretty important depending upon the market environment, depending upon the client and the expectations, but investment performance still drives the day. I think you have to have the investment performance to play.

So beyond SMAs and models, ETFs, a big part of industry growth, area, you touched on a number of times already. Victory shares now exceeds $20 billion of assets, continues to grow rapidly. So what differentiates the ETF launches at scale from the dozens, if not many more, hundreds, thousands across the industry that just maybe never gain traction?

Yes. So I think it comes down to making sure the products that are launched are needed and desired from a distribution perspective. We launched -- we started in the business in 2015 with a small acquisition. We had less than a handful of ETFs. Today, we have 23. The products that we have created have been both active off of our franchises, fixed income and equity and then some rules-based products set as well. We have a free cash flow series that will come up on its 3-year track record here at the end of the month. We've raised $8 billion in that suite of products.

And I think it's because the demand has been there, the performance has been there. We've listened from a product perspective to kind of make sure it's been competitively priced, competitively positioned. And for us, as I mentioned, we made a lot of investments in ETF and RIA distribution over the last couple of years. That's allowed us to scale the product.

And you filed, I think, for 3 new ETFs that begin in the first quarter with more launches to come in '26. So I guess talk about how active this product development is today, the pipeline, the opportunities that you see? And what opportunities have you identified that can help expand the suite and align with client demand?

Yes, it's a good question. I think it's definitely an area we spent a lot of time from a product development perspective. The few products that we have filed for are active products at this point in time, active fixed income and active equity off of a couple of our franchises. So expansions of what they've been doing outside of the ETF wrapper. But bringing those to the ETF wrapper, we think that's really important.

Fixed income, we think, is a great opportunity for active fixed income ETFs, hard to do it on the passive side. So there's definitely market share opportunity there. And we'll continue to evaluate how to bring new products into the ETF space. But it really comes down to the product team working with the investment team and the sales team to see what's marketable, what makes sense, what platforms we could place the product on and how we can see them grow.

You mentioned a little bit more challenging in fixed income. Maybe you could elaborate on that. And then with the products you're launching in fixed income, but also equity, to what extent are they replicas of what's already done on the mutual fund side?

Yes. So I think on the fixed income side, because it's hard to replicate a full index, it's much easier to do an active fixed income ETF than a passive fixed income ETF. At least that's been our experience as opposed to having everything that sits within the Barclays Agg, for example. As we think about what we're bringing to market and the opportunity set, there are, I would say, close cousins to other products that are being managed already, whether it's a mutual fund or an SMA or an institutional account. We think there's opportunity to differentiate them, but still bring the same investment team, investment process and capabilities to market.

And sometimes we hear about when one brings something that's very similar, if not the same thing, can create some channel noise or conflict. Can you just talk about how you address that? And with these close cousins, are they distinct enough that it sort of navigates around any of those perceived channel-related costs?

Yes. We think they're distinct enough. And it will depend on the feedback. The different distributor partners will have different rules, different thoughts on how to bring it to market or not. Some of that, I think, continues to develop over time. But from our perspective, we've been pretty thoughtful in the development to make sure that we're creating products that can get access to shelf space.

Great. Now we spent a bunch of time on the retail intermediary side. Let's shift and talk about the institutional channel. So talk about the pipeline, how that's holding up in the current backdrop, where that stands now versus, say, earlier this year, March or coming into the year. What strategies are you seeing the most demand? And how are you positioning for Victory to win in an environment as institutions are increasingly consolidating relationships with fewer managers?

Yes. It's a good question. Our institutional pipeline is strong, continues to be strong. I think we've said that publicly on our last call, it was strong. It was very healthy. It's also not dependent on one subchannel, one client base. It's also not dependent on one franchise. It's pretty broad. The products that we see cover fixed income, our solutions, global equity is another area we're seeing demand. All the areas that we talked about probably in the first question where there's opportunity with client allocation changes. Those are areas where we're seeing success. It's pretty robust, both in the U.S. and outside the U.S. as well.

Great. Why don't we shift and talk about the Pioneer transaction, the acquisition of the Amundi U.S. business has proven to be quite a successful acquisition. And on your most recent earnings call, you noted that the international channel that came through with that has been a net flow positive territory since you closed the acquisition. So what other strengths have you seen as a result of the combined platform now that the integration is wrapping up? And beyond expense synergies, what aspects of the transaction have exceeded your expectations?

It's a great question. The Pioneer acquisition, I think, has been massively successful for Victory and our shareholders. I think we have outpaced, if you will, kind of the expected accretion from a financial perspective. We mentioned $100 million of cost savings. We revised that to $110 million within the first 2 years. I think we're well ahead from a timing perspective to realize that. So a lot of financial benefits from a business perspective to drive how we think about our inorganic growth opportunities going forward.

But besides the financial aspects, I think for us, M&A starts with making sure that you get strong investment talent. And the Pioneer franchise, as we diligence them were very strong. They have a lot of products. They have $100-plus billion in AUM across multiple disciplines and different kind of underlying product set. I would say that, that franchise has performed better than we expected it to from a diligence perspective. So high-quality investment franchise there that really has driven kind of strong investment performance, which we think is important post the transaction to really have strong investment performance continue.

I think we've got a lot of investment talent beyond just the investment franchise, but just from a business perspective, as we thought about our ability to scale to $1 trillion, which is where we want to get to from an AUM perspective. So we're able to kind of get talent in different pieces of the business, distribution, operations, administration to really allow us to kind of afford that scale. And we talked a little bit about the distribution partnership, getting access to the world, if you will, from a distribution perspective has really raised the profile of not just the Pioneer product, but the Victory product as well. So it's gone as we expected, if not better. You highlighted we'll complete the integration well ahead of time. No significant surprises there. And I think we're poised for continued growth and ready for the next opportunity.

Now with the Amundi transaction, you struck a 15-year reciprocal distribution arrangement with Amundi. Can you talk about the tangible progress that you have made since getting Victory strategies onto Amundi's global platform? And what should investors look for as evidence that the international distribution is scaling?

Yes. Great question. We mentioned in the last call that, that channel has been net flow positive since the acquisition. So I think that's some element of tangible progress, if you will. The non-U.S. client base represents roughly 17% of our total AUM. That was up from 5% pre the transaction. So diversification of the overall client base and business has been rewarded as a result of the transaction. We have seen continued growth in a number of the legacy Pioneer strategies that had been on that platform prior to the transaction.

In 2025, partnering with Amundi, they launched several UCIT offerings off of legacy Victory franchises. So that's some evidence of the continued investments for opportunities as we move forward. Our U.S.-listed ETFs are now available through the Amundi distribution network in Asia and in Latin America. So again, we're building, if you will, the product set. 2026, we'll have additional product launches through the Amundi network as well that I think will be intriguing as we think about future growth.

And as we sit here today, we're excited about the opportunity that it brings us. We now have access to thousands of distribution and marketing professionals within their network. We're working with them so that they understand the product set, they understand the business. Portfolio managers are traveling to make sure that they understand the opportunities that exist in the different geographies, and it's very connected.

So with the launch of the UCITS product on legacy Victory strategies as well as the ETFs that are now made available, can you talk about how you went about which of the strategies that you were going to make available on to this distribution channel?

Yes, a lot of that was working with Amundi, right? So getting with the heads of the different geographies to understand which of our products may have appeal in their markets, both institutionally and then from a retail perspective. So it's definitely in conjunction with the experts, if you will, that sit in the geographies to understand the client demands.

From there, we then took that back, worked with our franchises and then came up with a list of products to launch and to register with them as the first phase, if you will, and we'll continue to do that. There's constant feedback loop with the heads of the different sales groups within Amundi, heads of the different leadership within the product function, the marketing function and then our product and marketing function working as well to get kind of continued feedback with the client service team that we have.

And what were the types of strategies that were prioritized to greenlight to go first?

Yes. So a couple of the rules-based ETFs were the VFLO series was one of them that had launched it has kind of U.S. equity exposure. We also had a global equity product off of one of our franchises that was in demand. And then we also had a large cap value and a small cap value product off of a separate legacy Victory franchise just based on needs, performance and gaps in their product offering that they have.

Okay. And when you think about these distribution arrangements, I guess, how long do you think it typically takes for these new distribution partnerships when you're putting products into that to translate into meaningful flows?

Yes. I mean it will take some time, obviously, as the products get seeded and launched from a UCIT perspective, which is going to be more oriented for retail distribution through the retail networks as well as institutional from a packaged product perspective. We expect to see that kind of start to pay some dividends over the next year or so. But it will depend on the timing, the performance.

Institutionally, where we have institutional separate account mandates available for the strategies, the traction there is a little bit more quicker just because the products are out there, the performance is out there. We're in databases. We're working to respond to particular RFPs with the Amundi team. And so the institutional opportunity is probably a little bit more -- sits more in front of us. And then I think the retail will develop over time.

Got you. institutional before retail. And if we're sitting here in 3 years, I guess, what would success look like for the international distribution channel?

Yes. Hard to put an exact number on it, but I think if we have about 17% of our AUM outside the U.S. today, we want to see that grow. Obviously, we want to see the gross number itself just become larger. maybe as a percentage of the overall business, it could gain share. I also think we would love to see not just the legacy Pioneer products, but some of the other Victory products that exist in the other franchises have assets. So more assets, more clients and more product offerings to be able to put through that distribution channel as well.

Great. Why don't we shift gears. You've outlined a path to $1 trillion of AUM upwards from over $300 billion today. I guess what does Victory look like at that scale? And what do you think investors underestimate about the path from here to there? Yes.

I think we've gone from our MBO of $13 billion to $330 billion today. We've done that really with the same kind of core tenets, ownership mentality, ownership mindset, strong single platform foundation from an operational perspective, revenue share for our franchises. I think those core tenets to go from $15 billion to $330 billion, will be there from $330 billion to $1 trillion. We'll look different, obviously. We'll have more franchises. We'll have more teams, but I think we'll stay pretty consistent with what we've done to date. I think we'll also look to capitalize on the different distribution channels that we have, doing more within those distribution channels. But we hope it looks exactly like we are today, just more of it.

And your Janus bid demonstrated a willingness to pursue transformational transactions of size and scope. I guess how is your thinking around size and scale evolved?

Yes. I think we continue to have that aspiration for $1 trillion. We're not going to get there purely with organic growth in the time frame that we'd like to get there. So I do think we'll be looking at scaled size acquisitions. In our public calls, we put a pyramid where we talk about the focus from an M&A perspective of $50 billion to $200 billion in assets under management. That to us is transformative from a transaction perspective. It doesn't mean we won't go above that. There's opportunity, I think, depending upon the facts and circumstances of the transaction that we can go above that and have demonstrated that we will go above that.

It doesn't mean we won't do deals smaller than that as well. They may be more strategic product placements, something that's giving us access to different client base. But I do believe that the size and scale do matter from a business perspective where we sit today to make the investments that we want to continue to make in distribution and across the platform. And we're focused on the higher end from an M&A perspective going forward.

And how would you say those conversations are shaping up today versus like a year ago? And what characteristics define an ideal acquisition today?

Yes. So for us, I think M&A has always started with a couple of core components. One, whatever we do has to make the business better, access to new clients, access to new products, something that will make the overall business better. We're not just doing acquisitions from a financial perspective and just driving cost out and doing the deal and then living with what we have. has to make the business better, has to have investment excellence. I think it starts with making sure that the investment teams that we acquire are good at what they do. There can be overlap in product set that we have, but we want to make sure that their processes are different.

The environment today, I think, is as good as it's been. In the news just about every day, there seems to be a transaction in the space, some large, some small, some with different asset classes. And I believe for Victory, the environment is really healthy from an M&A perspective. We think what we bring to investment teams is pretty good, an opportunity to bring their team as it is, the autonomy from an investment perspective, access to 4 very deep and broad distribution channels. Revenue share allows them to participate in success from a client gathering perspective. And they get to sit on a platform where they really focus all their time managing money.

And so the environment is good. I think the cost of distribution is going up. I think the access to distribution is getting harder. And so that scale is needed. So I think you'll see continued consolidation in the industry, which has been happening for the last couple of decades.

And is that consolidation happening faster than maybe you expected or slower or...

Probably at the pace we expected. I think the who, the names and the size and the types of deals maybe a little bit different. But overall, I think it's happening as we expected it to.

And what lessons would you take away from recent acquisitions as well as from bids? And how are you using that to shape your approach on the go forward?

Yes. I think the opportunity to evaluate businesses, whether you get a deal done or not, gives you a chance to look at how things are being done and then maybe assess how you're doing things within your own business. So that gives us a chance to learn. I think we continue to evaluate firms the way we have. We've got -- our kind of business leadership does the M&A. We don't outsource that, if you will, to a particular group. So the people that are running the business are, if you will, getting into the details of an opportunity. And then we're diligencing it, we're executing on it. We're integrating it and then we're kind of operating the business. So we learned a lot of different lessons, I think, as we go through them. We try to apply that to the business going forward.

Why don't we shift gears, talk about margins. I believe you have a 49% plus EBITDA margin target, but one wouldn't know it, given you've exceeded that for many, many quarters now, you've maintained 50% plus EBITDA margins in 19, I think, of the last 23 quarters, if I'm not mistaken. So I guess what gives you confidence in the durability of profitability profile as you continue to invest in growth in the business? And why continue to have a 49% target?

Yes. Yes. I mean I think we're confident in the 49% long term. We've not changed that. As you said, we have operated above that a number of quarters over the last several years. One of the reasons why we're confident in the durability of the margins is the way we set up the business and the platform. Greater than 2/3 of our costs are variable. We have a single platform from an operating perspective. So we're one registered investment adviser. Everybody sits on the same platform from a front office perspective, middle office, technology, administration perspective. So that's scalable.

We also outsource some of our middle and back office, which really allows us to integrate and onboard new acquisitions by leveraging the relationships that we have with some of the partners. We've also variabilized the cost with them as well, and there's breakpoints. So it gives us the opportunity as we scale to get the benefit of that. And I think if you go back and look at some of the recent market downturns, our margins have been very stable and very durable. The revenue share that's paid to the investment teams goes up and down, if you will, obviously, with the revenue driven by the platforms.

And I think as we continue to do M&A, there's opportunity to look at the investments that we make through M&A. So a lot of the investments that we wanted to make over the last couple of years, we've made, especially in distribution through M&A. So that gives us the opportunity to make investments when there's a transaction, evaluate talent, evaluate where we want to spend incremental capital and make those investments through that cycle, which is why you see some step opportunity from a margin perspective.

Great. Well, we have a few minutes left, and I want to talk about AI, major topic across markets becoming a meaningful investment priority across asset management. So I guess -- where are you already seeing tangible benefits today from AI? And how should investors think about the balance between productivity gains that can be harnessed operating leverage and then reinvestment over the next several years?

Yes, it's a good question and very pertinent, I think, from some of the meetings we've had today, everyone is asking about AI. I think for Victory, we think about AI in a couple of buckets. With 49-plus percent margins, we're not looking at AI operationally to get efficiency and cut costs. I think for us, we look at the AI opportunities from an operational perspective to make our people more efficient. So really, how do we do more with the same people that we have? How do we invest in AI to make us better at the things that we're doing from an administrative and operational perspective?

Second, within operations, we also leverage an outsourced model. So a lot of the investments, I believe, that companies are making in operational efficiencies, we're getting through some of those partners. We're letting them, if you will, make some of those investments in AI for operational infrastructure for settlements, for reconciliation. So we're getting some benefit because of the model that we have that they're making those investments, and we're seeing the benefits from it.

Second, from a distribution perspective, we have and have been for the last couple of years, buying a lot of industry data from some of our distribution partners. We're taking that data. We're synthesizing it. We're putting it through tools that we haven't developed internally to really make our distribution efforts more efficient. We want to put our distribution folks, whether it's a wholesaler in the field, someone talking to a gatekeeper in the best position from a product perspective, from a financial adviser perspective to be efficient with their time and the highest success for a sale. And so that's the second way we're thinking about AI is really investing through data and analytics to support our distribution efforts.

And then lastly, with respect to our investment franchises, since they all have investment autonomy, we're not going to dictate how they should be managing money. We're not going to dictate the tools that they use. What we do with AI tools as well as every other tool that we have from an organizational perspective is we make them available to the franchises. We work with them to see how they want to use the different tools, AI in this example, how do they want to use it to make themselves more efficient from research, how to make more efficient from a portfolio construction perspective.

And so we're having those dialogues now ongoing. I don't think the franchises are going to look at it as an opportunity to displace themselves and just use AI to manage the portfolio. But to make them more efficient to get through data quicker, get summaries, I think we've seen tremendous adoption across the firm really in each of those buckets, operationally, distribution and then from an investment perspective as well.

And as you look out over the next couple of years, is it more of a productivity tool? Or does it become a genuine source of competitive advantage maybe in areas like investment research or client acquisition, portfolio construction? How do you think about that?

I think it's a combination of both. I think operationally, I think there'll be some productivity. But I do think it should be a competitive advantage to be able to put your investment professionals in the best position to manage their portfolios to access new clients from a distribution perspective. I think it will be a balance of both.

Does it just raise the bar for competition across the industry? Like what implications do you see that having for the competitive landscape?

Yes. I think everybody is going to engage in how to use AI. I think they'll do it differently. I think they'll have different intents. But I do think it will be -- it will become table stakes, I think, at some point to make sure you're being as efficient as you can and have access to as much research as you can from an investment perspective. And every firm will do it a little bit differently.

And if we revisit this discussion in 2, 3 years from now, where do you think AI's impact will be most visible in investment performance, organic growth, retention, productivity, operating leverage, where is the impact going to be greatest in 2, 3 years' time?

Interesting. I think operating leverage and distribution.

Okay. We'll have to leave it there. Mike, thanks so much.

Thank you. I appreciate it. Thanks.

Good morning, and welcome to the Victory Capital First Quarter 2026 Earnings Conference Call. [Operator Instructions] I'll now turn the call over to Mr. Matthew Dennis, Chief of Staff and Director of Investor Relations. Please go ahead, Mr. Dennis.

Thank you, operator, and good morning, everyone. As many of you know, last month, I shared that I will be retiring from Victory. It's been a true privilege to serve on this management team and to be part of the ongoing sensational growth of the firm. This will be my final earnings cycle. And while I'll certainly miss working alongside all of you, I'm excited to stay connected as an engaged shareholder and a proud enthusiastic supporter of Victory's continued success. One personal highlight for me was my first earnings call with this team and seeing the level of preparation, collaboration and care that goes into every detail. That spirit has been consistent ever since, and it's a big part of what I'll miss the most. Many of you already know Carly. And for those of you who haven't had the opportunity to meet her yet, I'm delighted to introduce her. Carly has supported me since joining Victory in 2023 as Director of Responsible Business. Prior to Victory, she led an Investor Relations team in the U.K., and she brings valuable experience and a very acute attention to detail that will serve you all well as I pass the baton. So with that, it's my pleasure to turn the call over to Carly Thomas, Director of Investor Relations and Responsible Business. Carly, we're glad to have you here. Please go ahead.

Thanks, Matt, and congratulations. I have big shoes to fill, and I'm grateful for the example you've set over the past 3 years we've worked together. I've learned a great deal from you. And to everyone on the call, on the webcast or reading along, I'm excited to work with you and continue building on the momentum Matt's helped to create. Before I turn the call over to David Brown, I would like to remind you that during today's conference call, we may make several forward-looking statements. Victory Capital's actual results may differ materially from these statements. Please refer to our SEC filings for a list of some of the risk factors that may cause actual results to differ materially from those expressed on today's call. Victory Capital assumes no duty and does not undertake any obligation to update any forward-looking statements. Our press release, which was issued after the market closed yesterday, disclosed both GAAP and non-GAAP financial results. We believe the non-GAAP measures enhance the understanding of our business and our performance. Reconciliations between these non-GAAP measures and the most comparable GAAP measures are included in tables that can be found in our earnings press release and in the 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?

Thanks, Carly, and Matt, on behalf of the entire Victory Capital team, thank you. Your dedication, your professionalism and the standard you set for how we engage with our shareholders and the investment community has been invaluable. We are deeply grateful, and we wish you all the best in this next chapter. Good morning, all, and welcome to Victory Capital's First Quarter 2026 Earnings Call. I'm joined today by Michael Policarpo, our President, Chief Financial and Administrative Officer; and of course, Matt and Carly. I will start today with an overview of our first quarter results, which I'm pleased to say were exceptional while also highlighting a few specific areas of our business. After that, I will turn the call over to Mike to review the financial results in greater detail. Following our prepared remarks, we will be available to answer your questions. The quarterly business overview begins on Slide 5. I want to start by saying that Q1 2026 was an exceptional quarter, one that set new records across multiple dimensions of our business. We achieved record long-term gross flows, record adjusted EBITDA and record adjusted earnings per share, all in the same quarter. We also progressed meaningfully in several other strategic areas of our business that are reflected in our quarterly results. The results reflect the strength of the platform and our team's ability to execute. We ended March with $313 billion in total client assets, slightly below the record quarter end level we achieved at year-end. Long-term gross flows reached $18.9 billion, which was up 11% from Q4 2025. To put that in perspective, this is 104% higher than in the same quarter last year and reflects the continued momentum of our expanded U.S. distribution platform, our growing international distribution channel and the ongoing strength of our VictoryShares ETF platform. At an annualized run-rate of approximately $76 billion or roughly 24% of long-term AUM, we believe we are generating gross sales at a level that can support positive organic growth over time as we continue to invest and integrate sales and marketing resources from our Pioneer acquisition. Long-term net flows improved meaningfully during the quarter. The trajectory here is encouraging with multiple investment franchises and VictoryShares ETFs generating positive net flows. Additionally, our international distribution channel continues to yield positive flows even as we are just beginning to get vintage Victory products launched and into the channel. From a financial perspective, adjusted EBITDA reached $204 million, and our adjusted EBITDA margin came in at 52.6%. We are particularly proud of these results because they demonstrate the resilience of our operating model and the exceptional people who run it day in and day out. The consistency of our margin speaks for itself, above 49% every single quarter since 2020 and above 50% in the majority of them. That does not happen by accident. It is the direct result of a purposely designed, highly efficient, scalable platform utilizing technology and smart strategic outsourcing, which affords us the ability to invest in the areas that matter the most for future growth while allowing us to maintain the discipline that defines how we run the business. Adjusted earnings per diluted share with tax benefit were $1.82, up 2% from Q4 and 34% higher than Q1 of last year. We also continue to return meaningfully capital to shareholders. I will cover this in more detail later, but we repurchased a quarterly record of 2 million shares of VCTR common stock during the quarter and combined with our dividend, returned $185 million to shareholders. As we step back and look at where we are as a company, Q1 2026 reflects the continued payoff of the strategic investments we have made in distribution, technology, product development and people as well as the transformational impact of the Pioneer acquisition and the Amundi distribution partnership. The integration is substantially complete. We are on track with our synergies and the benefits are evident in our results. Turning to Slide 6. I want to provide an update on our VictoryShares ETF platform, which continues to be one of the most exciting growth engines in our business. ETF AUM ended the quarter at over $20 billion, up 7% quarter-over-quarter and 53% year-over-year. That is a remarkable pace of growth and reflects both the quality of our product lineup and the investments we have made in distribution. Our ETF AUM CAGR since 2017 is 28%, and we see no signs of that momentum slowing. Net flows for the quarter were $1.3 billion, continuing the strong organic growth trajectory. Our free cash flow ETF series continues to generate consistent inflows and our fixed income ETFs remain in demand across the intermediary channel. We are winning new shelf space and home office recommendations, and our sales team continues to deepen relationships with key platform partners and financial advisers. Lastly, I would also like to remind you that our average ETF fee rate is 35 basis points with margins that meet our firm-wide requirements. Internationally, I'm pleased to report that we have commenced selling our U.S.-listed ETFs across Asia, which represents a new distribution channel for this business. The early reception has been positive. And as we develop this channel, we think there is a great opportunity to expand our client base to include investors outside the U.S. In addition, we are close to having our ETFs available for sale in certain countries in Latin America, which would represent another new geography for this platform. Looking ahead, we also filed 3 new ETF products with the SEC during the first quarter with additional launches planned throughout 2026. Product development remains active, and we continue to identify opportunities to expand our suite in ways that are aligned with client demand. Slide 7 highlights our international distribution platform, which continues to gain traction. At quarter end, we had $55 billion of assets under management from clients outside the U.S. across 60 countries with 29 of those countries now having more than $100 million in assets under management in Victory products. Importantly, our international channel was net flow positive again in Q1 '26 and is net flow positive since we closed the Pioneer acquisition. I want to take a moment to provide some context on where we are in the development of this channel because I think it is important to appreciate both the progress we have made and the significant opportunity that lies ahead. The Amundi sales force is a large and highly capable global distribution engine, and they are quickly learning about Victory Capital and our Investment franchises. Building conviction in a new product set, completing the necessary due diligence and educating platforms, financial advisers, consultants and institutional clients across dozens of markets around the world is a multiyear journey. Everything is going as planned, and the structural foundation is firmly in place, which we are building on. We have a 15-year strategic distribution agreement with Amundi, under which Victory Capital serves as their exclusive provider of U.S. manufactured traditional active investment solutions. We have a Victory Capital sales team located in major geographies supporting the Amundi sales infrastructure as well as a sales support group here in the U.S. And we now manage 23 UCITS products spanning equities, fixed income and global multi-asset strategies, giving the Amundi sales force a diversified and growing product set to work with. We are planning additional UCITS launches in 2026, including additional strategies from Vintage Victory investment franchises with priorities driven by bottom-up demand signals from Amundi's local distribution teams. The product set is expanding, the sales teams are getting up to speed and the momentum is building. We look forward to reporting on our progress here as this channel continues to grow. Turning to Slide 9. Investment performance improved during the first quarter and remains excellent across the platform. As of March 31, 2026, 58 mutual funds and ETFs earned 4- or 5-star overall ratings from Morningstar, representing 68% of our rated AUM. This performance reflects broad-based strength across our investment franchises. When we look at performance against benchmarks, the picture is equally compelling. 71% of our AUM outperformed over the 1-year period, 67% over 3 years, 68% over 5 years and an impressive 81% over the 10-year period. On a strategy count basis, 69%, 67%, 70% and 70% of strategies outperformed over those same periods. Investment performance is the foundation of everything we do. The results we are reporting today reflect the talent and discipline of our investment professionals across all our investment franchises, and we remain deeply committed to delivering excellent investment outcomes for our clients. Slide 10 covers our long-term growth and capital allocation strategy. Since our IPO in 2018, we have returned $1.4 billion to shareholders through a combination of share repurchases and dividends. That is a remarkable figure when you consider that we received just $157 million in net proceeds from the IPO back in February of 2018. During the first quarter, we repurchased 2 million shares of VCTR common stock. This reflects our conviction in the value of our stock and our commitment to returning capital to shareholders when the opportunity presents itself. Combined with our dividend, we returned $185 million to shareholders in the quarter alone. And over the trailing 12 months, we have returned $512 million of capital to shareholders, more than $6 per share. I also want to highlight that since April 1, 2025, the date we closed the Pioneer acquisition, we have repurchased approximately 5 million shares of VCTR common stock. That represents approximately 22% of the 22.9 million shares we issued to Amundi as consideration for the transaction. That said, I want to be clear about our capital allocation priorities. Strategic acquisitions remain our best and primary use of capital. Our buyback program is meaningful and ongoing, but is complementary to, not a substitute for our long-term inorganic growth strategy. We evaluate capital deployment on a facts and circumstances basis, and our flexible balance sheet gives us the ability to pursue multiple objectives simultaneously. Turning to Slide 11. I want to spend a few minutes on our acquisition strategy because it remains an important input into how we think about creating long-term value for shareholders. Inorganic growth is a strategic priority, and our pipeline of acquisition opportunities is extensive, and we are very active. The environment for transactions in our sector remains highly favorable. The structural forces driving consolidation, increasing regulatory complexity, technology requirements, distribution access and scale economics are only becoming more pronounced. That backdrop creates a compelling opportunity for a well-capitalized, proven acquirer like Victory Capital. Our approach has always been and will remain disciplined. We evaluate every opportunity against a clear set of strategic and financial criteria, and we will not compromise those standards. Every acquisition we have made has been strategically grounded, designed to improve our overall platform, enhance our distribution capabilities, diversify our client base or add complementary investment capabilities. The financial benefits are a positive outcome, not the starting point. Importantly, this remains a highly fragmented industry, and there are a lot of opportunities to better our company via acquisitions. In fact, I would stress we have more opportunities today than we have ever had as we review our pipeline and our current discussions. We have the ability to pursue multiple opportunities at the same time, and that is exactly what we have done over the years and what we are doing today. That said, we have the patience and discipline to wait for the right opportunity and the financial strength to move decisively when one presents itself. We have a tremendous business today that is positioned very well in the market to deliver for our clients and our shareholders in a very positive way. The exact timing of any given transaction is always difficult to predict, but our track record of consistent superior execution over more than a decade gives me great confidence in our ability to continue delivering transformational growth through M&A as we work our way to our $1 trillion in assets under management goal. With that, I will turn the call over to Mike, who will go through the financial results in more detail. Mike?

Thanks, Dave, and good morning, everyone. The financial results review begins on Slide 13. Total revenue came in at $388 million, up 4% from the fourth quarter and 77% compared to the first quarter of last year. Adjusted EBITDA reached $204 million and adjusted EBITDA margin was 52.6%. Adjusted net income with tax benefit was $153 million or $1.82 per diluted share, up 34% from the same quarter last year. With the Pioneer integration substantially complete and our distribution investments beginning to gain traction, we are starting to see the earnings power of the business. We returned $185 million to shareholders in the quarter in combination of our quarterly dividend and the repurchase of 2 million shares of VCTR common stock. The Board also approved an increase in our regular quarterly cash dividend to $0.50 per share, payable on June 25 to shareholders of record on June 10. The balance sheet is in excellent shape with a net leverage ratio of 1.1x, which gives us the flexibility to pursue all our capital allocation objectives simultaneously. On Slide 14, we show our total client assets at quarter end. We ended March with $313 billion in total client assets. Our AUM remains well diversified across the U.S. retail, U.S. institutional, U.S. direct and international channels. One data point I would like to highlight on this slide is the continued growth of our international business. We now have clients in 60 countries and 29 of those countries have more than $100 million in AUM with us. As Dave described, we are still in the early stages of developing this channel and the trajectory is very encouraging. Our long-term flows are shown on Slide 15. Long-term gross flows of $18.9 billion were the highest quarterly gross sales in our history. This marks the fourth consecutive quarter of gross flows at or above $15 billion. Net flows improved meaningfully during the quarter, coming in at negative $457 million, and we are encouraged by the trend pointing towards sustained positive organic growth as our distribution investments continue to be realized and our momentum broadens. Multiple investment franchises and platforms contributed positive net flows in the quarter, including Pioneer Investments, Trivalent, RS Global, VictoryShares ETFs and WestEnd Advisors. This breadth of positive contributors is exactly what we have been working towards, and it reflects the diversity and quality of our investment platform. And our international channel was also net flow positive in Q1 and since the Pioneer acquisition. Our firm-wide won but not yet funded pipeline remains significant, spanning multiple franchises and distribution channels. We expect this to provide additional support to our flow results as mandates fund over the coming quarters. Slide 16 provides additional detail on revenue. As I mentioned, our quarterly revenue of $388 million was a record for the company. We saw an increase of $13.9 million quarter-over-quarter. Year-over-year revenue was up 77%, a reflection of the transformational impact of the Pioneer acquisition. Our average fee rate of 47.6 basis points was at the high end of our guidance range, and we continue to expect the fee rate to remain in the 46 to 47 basis point range going forward, reflecting the current mix of our diversified business. The stability of our fee rate through significant changes in our AUM composition, including the Pioneer acquisition, the growth in our ETF platform and various product launches speaks to the quality and balance of our product, client and vehicle mix. Turning to expenses on Slide 17. Total operating expenses were $228.8 million in the first quarter, up from $220.9 million in Q4. The sequential increase was primarily driven by 2 factors: first, the seasonal reset of annual payroll taxes and employee benefits that occurs every first quarter; and second, a modest increase in acquisition, restructuring and integration costs. Cash compensation as a percentage of revenue was 24% in the quarter, reflecting the seasonal payroll dynamics I mentioned. On a normalized basis, we continue to expect cash compensation to run in the low to mid-20s as a percentage of revenue. On synergies, we have now achieved approximately $104 million of the expected $110 million in total net expense synergies from the Pioneer acquisition, which closed just 12 months ago. The integration is substantially complete, and we are well positioned to capture the remaining synergies over the course of 2026. I want to take a step back and explain what this net synergy achievement represents. We acquired a business that significantly increased the size and scale of our company and will be fully integrated in less than 2 years. And we are exceeding many of our financial objectives while also globalizing our business through the international distribution channel, which has been net flow positive since the close of the acquisition. Moreover, the Pioneer Investments franchise has been net flow positive since we closed the acquisition, and we have launched new products for the franchise, specifically the first ETF managed from the platform. Lastly, we are simultaneously investing in the future growth of the entire business by adding significant resources to our sales and marketing functions across every distribution channel. Turning to our non-GAAP metrics on Slide 18. Adjusted EBITDA of $204 million and an adjusted EBITDA margin of 52.6% represents the continued strength and consistency of our platform. As noted, 19 of the last 23 quarters have delivered margins above 50% and all have been above 49%. This consistency through different market cycles, multiple acquisitions and while making significant investments in our platform is what distinguishes our business model from many others in our industry. Adjusted net income with tax benefit of $153.2 million or $1.82 per diluted share was up 2% from Q4 and 34% from Q1 of last year. Finally, turning to Slide 19. Our balance sheet and capital management position remains strong and provide us with significant strategic flexibility. At March 31, 2026, we had $76 million of cash, $980 million of debt and a net leverage ratio of 1.1x. Our $100 million revolving credit facility remains undrawn. Cash interest expense declined again in the quarter to $14 million, reflecting the benefit of the refinancing we completed in Q3 2025 that lowered our borrowing cost by 35 basis points through reducing our interest rate. On capital return, as Dave highlighted, we repurchased 2 million shares during Q1 and combined with dividends, returned $185 million to shareholders. Over the trailing 12 months, we have returned $512 million to shareholders, more than $6 per diluted share. We believe this context is important and reflects our commitment to creating shareholder value through disciplined capital allocation. Looking ahead, our capital allocation philosophy is grounded in flexibility and discipline. We evaluate our capital deployment on an ongoing basis, informed by the facts and circumstances at any given time. Our primary objective remains the execution of accretive strategic acquisitions that make our business better. Our buyback program is active and meaningful, and our dividend provides a consistent return to shareholders. The strength of our free cash flow generation and our healthy balance sheet gives us the ability to pursue all these objectives simultaneously. With that, I will turn the call back to the operator for questions.

[Operator Instructions] Your first question comes from the line of Michael Cho with JPMorgan.

I just wanted to touch on one of the areas you highlighted during your prepared remarks on ETFs. And so it's clearly seen extremely strong growth over the years and you continue to launch. It's still less than 10% of AUM today. So the question is, are there opportunities that might further energize growth here in this successful segment that you've seen? And when we think about strategy, are there are the priorities kind of the launch over the next 12 to 18 months?

Good morning, michael, it's Dave. Let me start off and say we have seen great growth on our ETF platform. We've seen that in a number of different areas on the intermediary side. Our client base and the platforms that we're on have been expanding. And then we're also getting additional products on those platforms. In our prepared remarks, I spoke about expanding the distribution outside the U.S. Today, our ETFs are available throughout Asia, and we're opening up some countries in Latin America. So that will help us with our growth. We're launching new products. We mentioned that we launched the first ETF off the Pioneer franchise platform. We'll launch additional ones. And we will expand out some other investment strategies as well into an ETF wrapper. So we'll have product expansion and development. We're putting distribution resources from a people perspective, from investment in our distribution partners and from a marketing perspective. So it will be multifaceted on how we grow the business. We're super excited about it. There is industry tailwind as well. And then I think our product set really matches well with what's happening in the industry where people are looking for solutions and really moving away from just ETFs as beta exposure. And then lastly, and I always like to remind this is our average fee on our ETF is 30-- ETF platform is 35 basis points, which very much looks and acts like an active product. So it matches our fee rate requirements and really matches our margin requirements as well as a firm.

Great. Thanks for that, Dave. If I could just follow up on your last point or last topic around fee rates and not specific to ETFs, but just more broadly for Victory in general. Can you just talk through -- Mike, I think you gave some commentary on mix or fee rates. But I was wondering if you could just talk through what supported the fee rate expansion quarter-over-quarter and if there's any performance fees or anything like that in there? And then why would you expect it to compress from here just given the normalized range of 46 to 47 you highlighted other than the mix that you called out?

Yes. Mike, thanks for the question. I think we've said our fee rates has really been a driver based on kind of the asset class, product mix, client mix, distribution channel and vehicle mix that we have. And I think as we sit here today, we've been pretty consistent over the last 12 months post the Pioneer acquisition in the 46 to 47 basis point range, plus or minus a little bit depending upon, as you -- as I called out, the asset mix or the client mix. In Q1, we did have some annual fees that we record that really are fees that get us to our standard rack rates. There's just an accounting that we record them in the first quarter. And so we look at that over the course of a normalized period, and we're still in that long-term 46 to 47 basis point range. The areas of growth from a business perspective, we highlighted our international distribution channel. We also highlighted and you just asked the question to Dave about our ETF growth. Those fees are still supportive of our overall fee rate. And we're comfortable with that guidance as we look out based on the growth that we foresee to still have that 46 to 47 basis point range. Again, I think one thing we always highlight when we talk about our fee rate is the margin. Everything we do, channel, client, vehicle meets the margin requirements that we have. And we'll continue to look at that as we move forward, but we're really happy with where the margins have been and will continue to be.

Your next question comes from the line of Benjamin Budish with Barclays.

Hi, this is [Nathan] on for Ben. Just a follow-up on the fee rate dynamic here. Can you speak more about the annual fees that the firm has included and just the guidance around the total revenue. We understand that it has been guiding to 46 to 47 for a while now, at least from Q2 due to like asset mix and client mix. But it seems like the firm consistently outperforms this metric or the guidance. So I just want to have a little bit more color on what you guys are seeing in the annual fee portion.

Yes. We really -- it's not much more to add from the last question, I would say, the last answer that we provided. We're still comfortable with the 46 to 47 basis point range from a long-term guidance perspective. And any of the annual fees that we report in a particular quarter are pretty material to the overall business. And again, those fees are really just getting us back to kind of our standard rack rates with some of the clients that we have. So nothing to add at this point in time. I think if we continue to see changes in the dynamics from an asset class or a vehicle perspective, we can evaluate it, but we're comfortable with the 46 to 47 basis points.

Thank you, and just can you speak more about the won but unfunded channel? Is there a way to size how large that is for the business?

Yes. It's Dave. Our won but not yet funded business, we don't guide on a number, but I can tell you that it's widespread on a number of different franchises and platforms and a number of different channels. Where we're seeing strength is on the ETF side, on the global products side, both on Pioneer and from RS's perspective, Trivalent, WestEnd Advisors and then also on the Pioneer multi-asset and fixed income and also on the equity side. So all 3 of their major platforms. So we're very excited about, as we said in our prepared remarks about really the trajectory of gross and net flows -- we have excellent investment performance, and that's the beginning of it. And we've really taken the time to invest in our distribution channels. We've increased the investment. We've increased our FTE in almost all of the channels. And so we think we're pretty well positioned to continue kind of the growth in -- from a flow perspective and the won but not yet funded book really supports that.

Your next question comes from the line of Kenneth Lee with RBC.

Just one on capital management and potential for inorganic growth opportunities there. Obviously, very meaningful share repurchases in the quarter. Should we interpret that as a signal that perhaps maybe an opportunity for inorganic growth is perhaps not really imminent? Or is that not the right takeaway there? Thanks.

No, it's absolutely not the right takeaway. We are opportunistic with buying our shares. We want to own our shares. We think there's great value in owning our shares and the earnings power of our company. So when we have the cash available, and we think we have the ability to do a lot of different things with our capital, we'll buy our shares. We've done it aggressively. We have a lot of capacity and a lot of dry powder. But as I said in the prepared remarks, our #1 use of our capital is to do strategic acquisitions. And we are in a really great environment from an acquisitive perspective. There are lots of pressures on many traditional asset management firms, and we are a proven acquirer. So we're going to use our capital to buy businesses. And when we're not buying businesses or in coordination with buying businesses where we have extra capital, we will buy our shares because we think they have -- there's a lot of value in them.

Great. That's very helpful. And one follow-up, if I may. I just wanted to dig into some of the comments, I think it was in the prepared remarks about adding some more sales and marketing resources across the various channels there. Wonder if you could just flesh that out a little bit more. Is this driven more by product specialization? Or I just want to get a little bit more details around what's driving this?

It's really on a number of different fronts. First, as we see our international channel expand, we're adding resources to support the growth there. And so we're adding resources in the field and really also from a support structure. And then as we grow our intermediary distribution, we're adding resources to deal with marketing, digital marketing, support of the platform, support of different channels within the intermediary side, and that's from a technology perspective and also from a people perspective. So it's a number of different channels. And something that I think that we're going to continue to do over time. We're going to continue to invest in distribution, continue to invest in servicing clients and continue to invest in our ability to get new clients.

Your next question comes from the line of Alex Blostein.

This is Anthony on for Alex. I wanted to click into the like M&A attempt of Janus earlier in the quarter. And I guess my question is, I guess, what was the rationale behind the deal, just given the size and fairly similar overlap product mix of the 2 firms? And then maybe just as a follow-up, like on the forward pipeline, should we expect a similar size deal and maybe product mix?

So I think the Janus opportunity was well covered in the press. We thought that the Janus opportunity, buying that business would create a phenomenal business coming out the other side, and it was a business that we thought we could buy and it would make our company better. And as far as looking forward, we've guided towards a $1 trillion goal of assets under management. We are looking at larger acquisitions. We're also looking at, I'd say, smaller strategic acquisitions maybe to fill in certain products that we don't have or certain things we're trying to accomplish. But our acquisition focus is definitely on the larger side, but we're going to be opportunistic. And as I said in my prepared remarks, -- we're extremely active. We have the ability to work on multiple things at the same time, and we have significant capacity. So we're in a great spot. We can do something very large like a Janus. We can do something strategic that maybe is smaller. And we are talking to a lot of different people. But the #1 thing for us is, any acquisition we're going to do, we start off from a strategic lens, and it has to make our company better. And from there, we do our diligence and we have our KPIs that we need to hit to do an acquisition.

Thank you, that's it from me and Congratulations, Matt, on your retirement.

[Operator Instructions] There are no further questions at this time. We have reached the end of the Q&A. This concludes today's call. Thank you for attending. You may now disconnect.

Welcome to Bank of America's 34th Annual Financial Services Conference. This is Craig Siegenthaler, North American Head of Diversified Financials at Bank of America. And I'm joined on stage by Ivory Gao, who specializes in the U.S. assets under management for our team. We are both very pleased to introduce Dave Brown from Victory Capital. Dave has served as CEO of Victory Capital since 2013, and Chairman since 2014. He also chairs VCM's Investment Committee, and he joined Victory back in 2004 and previously held several senior roles, including President and COO. Dave, thank you for joining us.

Thank you for having me.

So a quick background on Victory. Victory ended 2025 with over $300 billion in assets under management, is a global diversified investment firm that operates a multi-independent investment boutique model that leverages common resources at the center, including distribution. And the asset manager seeks to combine the benefits of boutique investment companies with the scale advantages of a fully integrated and centralized operating platform.

With that, let's get started on industry consolidation. So Victory's model is capitalizing on this theme as the big get bigger and smaller firms need help with things like distribution. What is your perspective on the consolidation theme? And what is Victory's objective?

So let me start off on the consolidation theme. I think the industry has started to consolidate. I think it's going to go through a mass consolidation. And the reason for consolidation, as you mentioned, is the big need to get bigger. Size and scale is going to matter. And so when you think about consolidation and you think about how Victory is going to participate, we've done 8 acquisitions since we did our management buyout in 2013. We're just coming off of completing the Pioneer acquisition, which we announced in April of 2025, we actually closed it. And so we're close to fully integrating that.

And when I think about going forward, our role in it, I think we're going to be a consolidator. We're going to participate. We have a $1 trillion asset under management kind of objective out there. We put that out there last quarter. And the reason really for that number -- and that's 3x where we are today. The reason for that number is, I think that is going to be the level where you're going to be at to be able to compete longer term. So consolidation is going to happen. It's going to happen probably faster than people think. And the reasons for consolidation are only actually getting more and more -- the issues are not getting solved. They're actually becoming more pronounced.

So Victory has actually generated very strong EPS over the last few years. That's helped the stock a lot, but its net flows have remained negative recently. It doesn't help that last year, mutual funds, active mutual funds had $800 billion in net outflows. But does Victory really need positive flows to be successful? And do you see them turning positive anytime soon?

Yes. So our earnings -- you mentioned our earnings growth. Actually, our earnings growth since we went public is the best in the sector. I think it's a 21% cumulative annual growth rate from when we went public in '18 to today, it's by far the best in our sector. And so we've had great growth from an earnings perspective. And the closing of the Pioneer acquisition has really allowed us to invest in distribution, enlarge our distribution. We invested in our intermediary distribution. We've effectively doubled the size of our distribution efforts, entered into more partnerships with large platforms, opened up our international distribution channel kind of before that acquisition closed, we did not have a big effort outside the U.S.

And now today, managed money for clients in 60 countries. I think there's about $55 billion of assets under management. And probably most importantly is we have the Amundi 15-year distribution agreement. And that is really going to help us from a growth perspective. Your question around do we need organic growth. We want it. I think we're on the cusp of achieving it. And if you looked at our kind of our evolution of gross flows last quarter, this previous quarter, the end of 2025 was a record from a gross flow perspective, I think it was $17.1 billion. That level is enough to produce organic growth.

And we are really kind of just at the inflection point where we feel with some of the things we have going that are working really well, like our ETF platform, VictoryShares, the Pioneer investment franchise since the acquisition closed has been net flow positive every quarter. The international distribution channel has been net flow positive. VictoryShares has had great growth. We've got our WestEnd Advisors investment franchise, which is our model business, has turned to positive flows. So we have a lot of really good things, and we have really good investment performance underneath it.

A lot of good things happening. And I think we will turn the corner as we think about 2026 and forward. But for our business to work the way we want it to work, we want organic growth. We've grown earnings. We've expanded our margins. I think we've done an excellent job on capital return for shareholders, but we want organic growth. And I think we're right there.

So Dave, you mentioned a few things there, Pioneer, WestEnd, maybe even the ETF business. But what are the 2 or 3 drivers that could improve net flows to a level where you actually inflect and generate positive inflows?

Yes. I'd start off with the international channel. And for Victory, it's really all white space. So our products really -- we did not have access to clients outside the U.S. in a big way. And now today, we have our entire product set from the legacy Victory perspective, now available on the institutional side. We've launched 5 UCITS at the end of 2025. Our U.S.-listed ETFs are now being sold or getting ready to be sold in Asia by the Amundi sales group. And so this international channel is total white space for us.

The Pioneer investment franchise is already well developed in that channel and being sold. Other products are being sold. We're investing in that to do more of that. So I'd start off with the international side. Our ETF business has seen great growth. I don't see that slowing down in 2026 and forward. There's industry tailwind there. Our ETF platform is a little bit different than others. It is truly, if you think about it, an active solution, not really around beta. And you can see that in actually our average fee. Our average fees for our VictoryShares platform is about 34 basis points. We have 23 ETFs, an active fixed income group of ETFs, our free cash flow series, volatility management series. We're launching new ETFs. And so I think there's going to be great growth there.

The other area I would point to is you're seeing a lot of investors in the U.S. look outside the U.S. to allocate dollars either internationally -- international products or potentially global products. We have really strong offerings on the global side and on the international side. Super strong performance and products with scale and size on the fixed income side with 2 franchises. We offer that in mutual funds, ETFs, institutional separate accounts. I think that's going to be a driver of growth as well. And then our multi-asset offering under the Pioneer franchise, we've seen really good growth there. There's an income element to that.

And so we have a lot of things that I think are going to be positive. We will face headwinds as everyone else with active equity and mutual funds. I think there's -- you can look at the industry data and see that there's headwinds there. I do think some of that will slow down given where the market is going. I also think ETF as a share class is going to be impactful there. So when you put all that together, we think that those are going to be the drivers to our having green in the organic growth side.

And as you mentioned, for your M&A strategy, that magic number reaching that $1 trillion in AUM, historically, you've pursued a mix of cheaper consolidation deals and more strategic transactions that could enhance your net flows. So on that front, what does your M&A pipeline look like in February 2026 as we sit here today?

Yes. And we've -- I mean, our approach to M&A has always been -- since we started in 2013, it's always been a start off as does the acquisition make your company better? Does it make our platform better? And then if it does -- and really, that comes from a strategic perspective. Does it get us more access to clients? Does it expand our distribution? Does it give us size and scale? Are there an expansion of your product set? Does it get you into different investment types of products? And so we've always approached it from a strategic perspective.

And then from there, we've worked down to say, is it culturally work? Do they have investment excellence? And then the last piece of it for us really is around the financial side. Our platform is so conducive to acquisitions that the financial side or the financial element is so superior to, I think, what others are able to do that when we buy businesses that check all those boxes, we're then able to take out a lot of costs. And I think that, that's really special. And so for us, when we think about buying businesses, we care about size and scale today. And if we're going to get to $1 trillion, we're not going to get there by doing very, very small deals.

It doesn't mean that we're not going to look at those and potentially do them from a strategic perspective, but we're looking for size and scale. But we're always looking is, is it a strategic transaction that makes our business better. A good example, if you looked at the Pioneer acquisition, what we bought is we bought a business that gave us size and scale, over $100 billion, expanded our investment capabilities pretty significantly in fixed income and equities and multi-asset. It opened up a brand-new distribution channel for us outside the U.S.

And oh, by the way, we announced $100 million of net expense synergies. We upped it to $110 million. We're early on that. And we announced low double-digit accretion, and we today are close to 20% accretion on that transaction. So that's how when we look at it, we look at it strategically and then there's a financial element that our platform just allows us to execute in a way that it's really financially accretive.

And on that same front of M&A, are alt managers a big part of your M&A pipeline as they're seeing larger inflows, although the deals might be a little bit pricier? And I guess, how will Victory participate in the democratization of alts theme? And are you a believer of it?

Yes. So I would say, first, we -- when we think about pricing on transactions, either traditional alternatives, we've always, I think, been patient and tried to be smart buyers from a pricing perspective. If we're buying something, typically, we're able to synergize it down, the cost of it or using a tax asset. And so when you really get underneath it, the price that we're paying for a lot of the acquisitions we've done are well below what the market is when you're done with those kind of pieces.

Alternatives is a little bit different. We've always thought that they've been richly valued. I think you've seen a pullback in some of the valuations. We do believe at some level that the retail investor, the individual investor, the financial adviser does need some access to private markets. There's a debate on how big of the portfolio that should be, how they should access it. I think we have opinions on that. And so we will participate in it. It won't be the driver of our acquisition strategy. We'll get the manufacturing to either put in our models that will go and offer from a retail perspective or to offer products like Evergreen or Interval products, depending on how the clients want to access it.

But we're a traditional asset manager. We're not trying to buy an alternatives business, have an alternatives offering to go and hide something on the traditional side that isn't good. We love our business. We think we're well positioned for the future. And so alts will just be like as we thought about ETFs years ago, it's going to be another way for clients to go and access our products. We need that manufacturing. We'll get it in a smart way. I'd like to say we get it in a Victory way. But we're not trying to be an alternative manager. I don't think we can compete with the alternatives. And I think a lot of the acquisitions you've seen in the industry in the past, I think if you go back and really peel them back, the costs that were paid, the value that was created, I'm glad we sat on the sidelines and watched and studied and strategized.

Dave, what's the -- when you think about the M&A formula, a lot of these transactions, low valuation, you identify some cost saves, preserve the investment culture, provide them access to centralized distribution and things. Like what is the game plan? And what's kind of secret to your M&A formula?

So you laid out a lot of it. I mean, first and foremost, we are looking to not disrupt the investment franchises, the teams that we're buying. So if you're buying an investment process and a team, I think the last thing you want to do is go and disrupt what you're buying that was actually doing well. So we're very careful not to do that. I think the second piece of it is we really care about the client experience. And so if you look at, again, Pioneer, Pioneer has had organic growth since we closed the transaction to today. So we have more clients signing up with Pioneer than leaving Pioneer than -- after we've closed the deal. That's a little bit different. Usually, there's some leakage. So we really care about the client experience. It's really important to us. And so that's the starting point of the formula.

And then from there, what we do is how do you enlarge, how do you better the platform, distribution, product set. And so we then take a look at our platform, the platform that we're buying and how do we make 1&1 equal more than 2 from an effectiveness perspective, but less than 2 from a cost perspective. And that's where you get some of the cost takeout. So we eliminated all the duplication around administration, operations, technology. You don't need to do things twice. And then we also look at -- a good example, again, is on the Pioneer acquisition. We enlarged our sales force. We enlarged our partnerships with our platforms. So every single franchise on our platform benefited from the Pioneer acquisition because we have more people selling, we have more partnerships and more vehicles to sell in.

So that's part of the formula. And then I think the piece that just probably goes underappreciated is we have done this for a long time. We did -- we were doing acquisitions when they weren't mainstream. And we have the same people working on the acquisitions over the years. And so we don't hire consultants to do diligence. We don't hire consultants to do integration plans. It's part of our DNA of who we are as an organization. So our -- we don't have a separate M&A team. It is the operators of our business that are effectively evaluating, diligencing, creating the integration plan and then executing on the integration plan.

That is so underappreciated and undervalued that we are looking at this through an operator's perspective. And so that's the formula. And if you go back and look at all of our acquisitions kind of pre-IPO, post-IPO, they all really effectively are the same kind, same structured acquisition. And each one is just a little bit different, but all of them are the same, and we're still executing on the same strategy that we laid out in the middle of 2013, the same one we laid out in 2018 when an IPO. And I think the industry is starting to come to what our platform is.

With the Pioneer deal, you gained international distribution because like to date, you've only been focused on really the U.S. market. It's under 5% of the world population. But now really for the first time, you're kind of -- you have some big pipes outside the U.S. Maybe walk us through the details of that arrangement. And have you been seeing some net flow progress mainly from Europe already?

Yes. So one of the big pieces, and I think one of the real strategic pieces of the transaction was this 15-year distribution agreement with Amundi. And Amundi is a $2.7 trillion manager. I believe they're a top 10 manager in the world. And they have -- from a size perspective, and they have fabulous distribution outside the U.S., in Europe, in Asia, in the Middle East. They have an unbelievable connection into so many different geographies. And so the agreement basically says that any traditional active management product that's coming out of the U.S. has to come off of our platform, so they have to sell it.

And so effectively, what we bought with Pioneer was the U.S. manufacturing arm. So Pioneer was already into their system, already being sold under the Amundi brand. And now that's continuing to be sold, and now we're adding Victory's products to that. And we really have an exclusive on for what they can represent outside the U.S. The biggest areas that we see opportunity in is I'd start with Asia. Asia, including Japan. They have great distribution. There is a desire to buy kind of U.S. dollar-based products, fixed income, equities. And so there's great progress there.

And we have a nice base there with the Pioneer products. And we also -- Victory also has some clients in Asia preexisting the Amundi acquisition. So we see a great opportunity there. I'd say that's the immediate first and a close second is through Europe. And really through Europe, not because I believe the Europe -- and I'm generalizing because there are a lot of different geographies in Europe, but not because Europe is desiring a U.S. product. Actually, it's more global today and probably some of it is allocated away from the U.S., but because Amundi has such great distribution in Europe, and they're so well positioned, we'll benefit from that.

And I'd say third is the Middle East for us. Amundi just entered into a distribution partnership with the First Abu Dhabi Bank. And I think there is an area where there is a desire for U.S.-based strategies. And so when I look at all of that, we're really excited about it. I talked about it being white space really for Victory. We're net flow positive there since we did the acquisition. We've launched -- there's existing -- there's 22 UCITS already today. We've launched 5 at the end of '25, we'll launch more in '26.

We're selling our ETFs in Asia. We've invested in our distribution infrastructure in the U.S. to support the outside the U.S. efforts. And then we've also hired outside the U.S. to accelerate those efforts. That is an area where, again, as I said, like what's going to drive growth, that's be an area where we think is going to drive growth. And I think you're right, we were historically focused on the U.S. with a desire to globalize our business. This distribution agreement really globalized our business. And I would also say we are riding some of the progress Amundi is making when, again, they entered in this partnership in First Abu Dhabi Bank. They're growing their business and their distribution, and we're going to be beneficiaries of that as well.

So at BofA, our economists expect the Fed to cut twice this year. The Fed has been cutting with interest rates in the 3% zone, what happens when they get down to 2%, 1.5%? Could we see this record money market AUM move off the sidelines? And if it does, which of your products are you most excited about in terms of grabbing some of that money in motion?

Yes. I think your guess or your economist guess is as good as mine on what the Fed does with rates. But I think most people would think rates will come down in '26. I believe so. Whether that shakes loose this record balance of the money market assets, I don't know. But I imagine it's not going to have the money market balances increase. If anything, I don't know how much will shake loose, but what does shake loose will be more than what's happening today. And so I do think a lot of those assets will go into fixed income asset classes.

I believe our active fixed income ETFs, which have long track records, have billions of dollars of assets, are really well positioned on the platforms and also well positioned from a performance perspective to gather assets. We also have a number of kind of extended short-term type products where if a client is still looking for yield but doesn't want money market, but doesn't want to stretch. We have our ultrashort product, which is well positioned. And so I think we'll gather assets there.

And I do think some of the fixed income assets will find their way into equities and maybe not traditional asset classes like a large cap or a small cap, but different kinds of equity products, and I'll use our free cash flow series. How do I get equity exposure, but I don't want to be into the AI or the Mag 7 trade. And some of those kind of solutions that you can go like our VFLO or SFLO or free cash flow series, I think you'll see some of the assets go there. But I would imagine as rates come down, if it doesn't happen in '26, if it's '27 and '28, I think people will not keep their money in money markets if there's low yielding. And I think we've seen that over the years.

And then kind of transitioning to investment performance, your overall investment performance is excellent in aggregate. And we focus on a percent of AUM that is rated 4 or 5 stars on a 3-year basis. And within our coverage, you've been within the top 1 to 2. I guess what's exactly driving this?

Yes. It's -- I'm glad you point that out because I mean, we're pretty proud of our investment performance, and it's across so many different asset classes and so many different investment strategies. So I'd start off saying that our investment performance, the way we're set up with our franchises and our solutions platform, they don't share research. So every single one of our franchises has its own unique investment process. They do their own research. Some are more quantitative based, some are more qualitative based, some are macro-based, some are bottoms-up and they construct their own portfolios.

So truly, we have independent investment streams, performance streams all rolling up. And so when you roll all of these up, they're not correlated from actually opinion on rates or oil or whatever metric you have, but they roll up and they're all really good. So you say, how is that? And really, our whole model is about having the investment professionals spend 100% of their time managing money. Take away all of the administrative burden, take away all of the business distractions, have them spend all their time managing money, put them in the best situation to perform well, have transparent compensation systems, give them effectively no budget.

So all of our investment franchises can travel as much as they want, buy as much research as they need and do all of that, put them in the best position to be successful and then they need to be successful. And I think we've done a really nice job over the years kind of getting to the point where we have really good investment professionals, really good people that know what they're doing, and then we put them in the best position to be successful. And that's, I think, one of the reasons why we talk about our company being the acquirer of choice.

And really what's underneath that concept is we think the investment franchises want to come to our platform to do all the things I just mentioned. They want to manage money. They want to practice their craft. They don't want to have issues around cost allocations, around going to this meeting or that meeting. I think they want to just spend their time managing money and then they want to go raise assets, talk to clients and service clients.

And then going back to the UCITS that you mentioned, 5 were already launched and you're also planning to launch more in 2026. Your UCITS have been performing well. And I guess we were wondering what factors support this? And how could this maybe improve flows?

So a lot of the UCITS today are sitting -- or most of the UCITS today are sitting kind of under the Pioneer Investment franchise. And the Pioneer Investment franchise, one of the things we were extremely impressed with. And actually, as we brought them on to our platform and learned a little bit more about them, we're even more impressed is they are great investors. This is a brand that's been around for probably close to 100 years. They have such a DNA, an excellent DNA from an investment perspective. So a lot of the performance is off the Pioneer Investments platform.

There's really an equity side to it. There's a multi-asset side to it, and then there's a fixed income side. And on the equity side, there's an international global and the U.S. side. I would say that the investment performance is really just -- it is just a great team and a great environment. And I think we've only enhanced that. As I said, Pioneer is growing. I think we're putting them in a position to grow even more. We're going to launch more UCITS that are going to be off the Pioneer platform, some things that we're actually doing in the U.S. that will package up into UCITS.

And then we also have from the Victory perspective, our UCIT kind of launch time line is -- actually goes on to Amundi's time line. So we might want to launch things a little bit faster, but we're not the only UCITS Amundi is launching. They're launching their own UCITS out of their own manufacturing. So we're kind of in a line, in a queue. We've moved to the front of the queue, which is great. But I would anticipate in '26, we're going to launch more. And as those get out there, so as the Victory UCITS get out there, as we put more resources, the growth is just going to increase.

And then on top of that, not just the UCITS side, what's available every single Victory product, every single Pioneer product on the institutional side. So Amundi has institutional salespeople around the world. They don't need a UCITS structure to sell. They just need to be educated on the product, which we've done, and they're out talking to consultants, talking to relationships on selling kind of the entire Victory platform.

So David, I wanted to jump into WestEnd. So WestEnd had a better net flow result last year than '24. But is there a line of sight into positive flows here? And when you take a step back, how do you think about the total contribution of WestEnd flows in the bigger firm?

Yes. So we purchased WestEnd in 2021. Since we closed that acquisition, WestEnd is cumulative net flow positive, a few billion dollars. And so '25, as you said, was better than '24. We ended the last quarter in '25 with organic growth for that franchise. We're off to a really good start in '26. And so what we've done with WestEnd is that has been historically just a model offering business. So models on the intermediary platforms to go hand-in-hand with the home office models or maybe to replace home office models. Part of what we've done is we've increased our distribution from a number of platforms that they're available on and also the number of advisers that are doing business with them.

In addition, we launched ETFs off of their investment process. So the way they articulate their investment thesis today is they have a model and they buy underlying ETFs to express their kind of viewpoints. They don't buy VictoryShares ETFs. They buy different ETFs from different companies, and they're very active from an investment perspective on articulating kind of where they see the market going. And so what we've done is we've launched ETFs that mirror and mimic kind of what they're doing, but they do it with underlying stocks.

And so now they can go to an adviser. And instead of this adviser only accessing WestEnd in a model, they can access it now in an ETF because some of the advisers, not every single one of their clients can actually go into a model, so they want an offering, an ETF. So we've expanded that. A good example is an ETF that WestEnd manages called MODL, and we've seen good growth there. And so when I -- and then in addition, we are going to expand WestEnd's offerings to have a tax-efficient product.

And then also, I would say, as we think about product development, that would be an area maybe potentially to add private market type allocation under one of their models and give their clients and new clients a potential offering of you could buy WestEnd, here's the allocation. And also, we have a product that now has a private market offering within that allocation. So from a WestEnd perspective, we think they're going to be a contributor to our organic growth. This is a business that was growing pretty significantly, slowed down a little bit, but we have pretty high hopes for them. They're pushing on $30 billion. So as they grow, it's not going to be insignificant, but I think they can be a really good contributor to our organic growth.

So let me just pause as we run out of time a little bit. But I think we have time for one question from the audience, if there's one. I think there's one up here in row 2.

Can you give us an update on your retail SMA initiatives and how flows have been trending there?

Yes. So we have a few offerings on the retail SMA side. It's an area we want to grow. We're net flow positive, but I'd say it's not at the level we want it to be. So we're looking at launching new SMA products. We really -- and WestEnd isn't really an SMA offering, but we spent a lot of time with WestEnd in developing kind of what they're doing and then kind of our next phase is develop our retail SMA side. So I'd say that's an opportunity for us. We have a few products today, and we'll launch more as we're kind of moving through '26.

Great. Any more questions? We have one in the front row, too.

You mentioned the ETF share classes kind of been passing. I was wondering if you could expand on, first, I guess, do you envision all of the Victory mutual funds eventually having ETF share classes? And then what does that mean for flows?

Yes. So I think, first, ETF share class, I think, is going to be a great thing for firms like ours that have a sizable mutual fund complex. I think it will allow a mutual fund holder to really now not have to really exit out of a mutual fund and still get kind of the benefits of an ETF. And so for firms like us, I think it's really good innovation. And it's going to be great for the industry. I think it's also not going to happen as fast as people think it's going to. There is a lot of operational progress that needs to be made in a lot of different areas. So I don't think it's going to happen right away at the levels maybe people think it is.

That being said, for Victory, not every single one of our mutual funds will have an ETF as a share class. It just won't make sense. And there'll be different reasons why it maybe doesn't make sense to put that strategy into an ETF share class. There might be other issues around it. But I would imagine that a good amount, not all of them will turn -- will have an ETF share class. And I think the impact for us is it's going to help on flows. We have parts of our mutual fund kind of complex where we're net flow positive. You think about fixed income, you think about multi-asset and then different sleeves on the equity side.

And then we have areas where we have headwinds. And I think the areas where we have headwinds, I think that's going to be the area where it's either going to slow down the headwinds, stop the headwinds and potentially maybe -- and it's maybe optimistic to think this way, maybe you get actually tailwinds. But I do think it's going to be net better for us. I think it's going to impact pricing for many. I think because ultimately, you're going to bring some of the mutual fund pricing into ETF land. And I think there's a discrepancy for certain products, and I think for certain firms. I don't think we'll be impacted that much by it. We've guided our -- like our fee rate guide is 46 to 47 basis points going forward. We've exceeded that the last couple of quarters. Even with ETF as a share class, it's not going to impact our guide on the fee rate. But I think net -- like that firm for us, it's going to be net better. But I wouldn't expect to see every single mutual fund have an ETF share class.

Great. With that, we are out of time. So Dave, on behalf of all of us from Bank of America, thank you very much.

Thank you.

[Audio Gap] I'm the U.S. Asset Manager and Broker Analyst at UBS. I'm pleased to introduce David Brown, Chairman and CEO of Victory Capital. Victory had a very successful 2025 with record highs in gross sales revenue, EPS and AUM, which ended the year at $317 billion of AUM. So from one Brown to another, Dave, welcome.

Thank you. We [ are not related ]. Just...

Thanks for clarifying that.

Thank you for having me.

Of course, of course. Thank you for being here. So as I just mentioned, 2025 really marked a big step forward for Victory with the successful Pioneer transaction. When you look out over the next 12 to 24 months, what's the 2 or 3 biggest drivers for Victory? And kind of what's the biggest risk to that plan?

Sure. Well, so let me start off and say, when we look out 2 years, I mean, first, we really do want to complete Amundi Pioneer acquisition integration. So we're well into that. I think we had announced that we had $97 million of our planned $110 million of net expense synergies completed. That's probably a good guide on how far we are through the completion of it. So around 90% complete. So we want to complete that first of all. I think the second piece is we want to continue to build out our distribution platform from that perspective. We've integrated, we've trained. We've expanded our partnerships on the intermediary side. And so getting our distribution platform to the right level, and we're just about there. I think, is another really big step for us. I'd include the international side on that. I mean we're just in the beginning of really growing our international distribution channel. We've been net flow positive since we've bought the Pioneer business. But really, we have not sold the legacy Victory products through that channel yet. We've just launched 5 UCITS, 3 of them are legacy Victory. We're just getting ready. In '26, we just started selling our U.S.-listed ETFs through that channel. So there is a lot of excitement there. And I think getting that going is another important aspect to getting the distribution platform.

I'd say the other big driver for us is going to be M&A. We're super active. The environment today is definitely conducive to doing acquisitions. For us, specific to Victory, our leverage is at a level where we can do acquisitions. It's part of our strategy and I think that's going to be an important part of who we are over the next 2 years. We lean more towards a sizable and scaled platform to buy something that was the same kind of concept as the Pioneer acquisition.

So maybe put a little -- if you can put a little more meat on the bone on that, that my last comment, Dave. So I think you kind of talked about it's $50 billion to $200 billion in AUM? Is that kind of what you're thinking about here? Okay. And then how do you determine the right size for these deals? I mean, Pioneer seems like it's been a great success so far. But what are the qualities that you look for? And what were the qualities that made this Pioneer such a good transaction?

So the sizing, I mean, we included -- I think it's the second quarter in a row, we included a pyramid that showed actually the available -- the number of available managers within the different sizes. And we kind of kind of boxed off the $50 billion to $200 billion size manager. It does not mean that we couldn't do something larger. And it doesn't mean we wouldn't do something smaller. But I think that $50 million to $200 million is an area where I'd say is, call it our sweet spot. When we look at what are the characteristics of a good acquisition, I think Pioneer is a great one to kind of take a step back and tick through. So when we thought about Pioneer, we thought about, can we make our platform better, can we make our business better. And part of that was the global distribution agreement with Amundi. So we globalized our business. We really globalized with our client base, but also the opportunity to sell outside the U.S., which benefited all of our franchises. So when I think about doing an acquisition, I think about the strategic side of it is, can we make our company better? And then on the Pioneer one, you have this ability to go sell your products outside the U.S. So I'd say, strategically, can you make the platform better. And then the other side of it is for Pioneer, we expanded our product set. So from an investment capability perspective, we've got a lot of new fixed income products. We got some active equity products, some different vehicles. And so when I think about, we now have more products to go and square off with our clients and new clients. Again, strategically, that's what we're looking for. And that's worked out really well. And then obviously, there's a financial element to it. We had 110 -- we announced $100 million of synergies. We increased it to $110 million. So there's a real accretive kind of concept to the acquisition. We guided towards low double digit, and we're probably closer to around 20% already from an accretion standpoint. We're not even completed on all of the net expense synergies. And then for Pioneer, it's been net flow positive. And so we've been net flow positive since the acquisition every single quarter. So you think about organic growth, very accretive, expand your distribution, expand your product set, that is -- those are the things we're looking to do. You're not going to find that in every single acquisition, all of those elements. And then the other thing I'd say the last thing, which is kind of in the background is it's given us size and scale. So the ability to be larger to be more important to the distribution platforms, to be more important to the institutional consultants, that matters. And it matters as you go and make these investments in these platforms that you're able to spread those expenses over a larger asset and revenue base.

Maybe 2 follow-ups there. As you look at that $50 billion to $200 billion sized asset manager, how -- what is kind of the sentiment in the space these days, when you're looking at some of these potential targets and you're looking at meeting with these managers? Are they finding it challenging to stay as an independent player in the space? And are they really looking for that opportunity to be part of a bigger platform that can help them on a distribution standpoint and have more capabilities?

Yes. I think most -- and I think it's an evolving kind of sentiment. As time has progressed, I think firms that are of that size are challenged on the distribution side. Can they be relevant at the platforms? Can they be relevant with their product set? Do they have a deep enough product set? Can they make those investments? Those things are only getting harder. I think there's a realization of that. The investment required for operations, technology, AI, all of these things you need to do to be efficient. And the industry is changing. Obviously, ETF is a share class. ETFs, all of these things require mass investment from an operational perspective, from a product development perspective. I think those things become challenged for a manager in that size. And then I think when you look out a couple of years. And I think most people that are running these businesses understand this. I think there's just a common kind of thought that I'm going to need to be a lot bigger because there's going to be more investments to come. And what will I do? And so I think when you put all that together, most firms are either thinking about doing the acquisition or being acquired. I mean if you go back 5 years ago, I don't think those were the discussions in the boardroom, but I think now that's happening. And then a lot of the larger firms like a firm like Amundi, who had a U.S. presence that said, we have a really good business. I want to invest in other parts of the world. So I maybe want to contribute this business to another business and focus somewhere else but still be present. I think that a lot of the larger firms are looking at their strategic plans and saying, how does asset management fit? Be that if I'm -- do I want to invest? Can I invest? Or I want to spend -- does this where I want to have my strategic chips down? And so I think a lot of those discussions are happening.

And then if we go back to kind of the initial part of your answer on the aspects of what you'd be looking at as a deal? What you want to gain for the platform, maybe just narrow in on the client segmentation side. And you talked about how being bigger has made you a lot more relevant through different channels. But is there anywhere that you would want to be bigger, maybe an acquisition can help you, whether it's with institutions, intermediaries or on the retail side, maybe what's the best opportunity for you?

I don't think we have a specific client segment. I'd tell you the areas that we like. Obviously, we like the retirement side. On the institutional side, we like the insurance space. That's an area actually on the institutional side that's growing, selling products to insurance companies. The RIAs are a great channel for us, and it's an area where we'd like to be bigger. And then you think about the large platforms, the Morgans, the Merrills, the UBS', and even the second tiers, you need to be there. You need to be invested there. There is just so much volume go through the and there's a lot that goes into there. So of course, going into those channels matter. And then outside the U.S., we have invested a lot in our infrastructure in the U.S. to support outside the U.S. or international. But that's an area we'd like to -- when we think about client segmentation. We love -- and it's all white space. We love the opportunity of now being able to sell our products outside the U.S. because we didn't have that access before.

Maybe if we double click a little on that, Dave. And you just talked about at the beginning, you launched -- it was 5 UCITS in Europe, and you've brought some of your listed ETFs there as well. Maybe just expand on that a little bit and give me a little bit of a color about how quickly can some of those products start to ramp, do you need some sort of kind of performance track record? Or do they already have some of that built in?

So What's -- let me start off saying we have probably, I think, 22 UCITS today that are being sold throughout Europe and really throughout the world. And those UCITS are primarily kind of the legacy Pioneer strategies, equities, fixed income, multi-asset, well distributed, well established on a lot of different kind of platforms. Our strategy there is we are bringing the legacy Victory on to those same channels, same platforms, kind of same sales forces are selling those. Those will take some time. We've launched those at the end of '25. They will take some time to kind of get into the system to be kind of educated, put on platforms. We'll start to see the benefit of that piece through the end of '26. And then the U.S.-listed ETFs really have the track record, they have the scale. That's really just a product of is how quickly we can educate the sales force and get them out to market, which we're doing right now. So I anticipate that will add to the Victory shares momentum that we have and kind of growing that business, but that will be a faster kind of growth. All of that said, institutionally, we have access to all of outside the U.S. that Amundi sales group is selling. Those are available now. We don't need to launch any specific products, but those are available today and can -- and are being sold.

Okay. Great. And then if we go back to the Pioneer deal, and maybe if you could talk about the kind of 2 to 3 metrics that you would use internally to judge the success of the transition over the next 12 to 18 months. You already talked about the net positive flows. You're 90% way through the retention that you -- or the synergy that you've actually raised. So maybe just what are some of the other things to kind of think through there?

So I'd start off with investment performance. I mean one of the things I think we've done well as a firm over the years is as we've done acquisitions and brought businesses onto our platform. We have not disrupted the client experience or the investment performance. So we're looking at investment performance. We said in our last earnings call that the investment performance for Pioneer under Amundi's ownership was good. Under our ownership, it's as good, if not better, depending on the product and the time period. So we'll be looking at investment performance. We'll still look at that synergy number. We want to get to that $110 million, and we'll complete that through calendar year '26, the remaining $13 million. We will look at gross flows and net flows on the Pioneer side. I mentioned that we are net flow positive. I don't expect that to change. They have a lot of good momentum and a lot of good products that are in demand. We will also look at the international channel. And so that's another -- even though going through that channel will be Pioneer and the legacy Victory products, we'll look at the performance of that channel. We're now flow positive there since we've done the transaction. We'll look at that going forward. And then the other thing we're going to look at, and we've done this is we'll look at product development on the Pioneer side. We've launched 1 ETF already. We'll launch more down the road, but we'll look at product development as another important KPI. And I think that's -- if I think about my top tier of things that are important to us, that's the list.

Got it. Got it. Great. That was really helpful. And then if we -- you talked about a lot on your earnings call, you talked about the real success on the gross sales side, and that was a really impressive result for the year. So the long-term net outflows have improved. But how would you think through the specific drivers of what gets you to kind of that positive firm-wide net flows?

Yes. And I think they've improved, but we're not happy with just being negative. I think our goal as an organization is to have organic growth. If you think about the different levers for our business around fee rate and margins and capital and gross flows. I mean, net flows, the net flows are the last KPI that needs for us to be green. And I think we're right on the cusp of that. And so you think about our are areas where we think we have strength to get us there. I think of our VictoryShares platform, the ETF business, it's growing nicely. We've seen great growth there. We've got a really good diversified group of ETFs that have good performance that are really solving issues within portfolios. And it's -- and by the way, the fee rate on those are an average, I think, of 34 basis points. So this is not passive type ETFs that need into your margins or your fee rates. So I look at VictoryShares as a driver for us. I also look at our international distribution channel, which, again, I said this a couple of times, is really white space for us. So that's going to be an area that's going to help us grow. Fixed income, we have 2 really high-performing fixed income franchises is the Pioneer portion and then the Victory Income Investors. And we have active -- we have ETFs, we have mutual funds, we have collective trust funds. And then we have, obviously, the institutional separate accounts. So I look at fixed income as an asset class, and we have a lot of different offerings there as another area. Our global products, we have really competitive global products, 1 under RS and 1 under Pioneer. And then our multi-asset products, we have a multi-asset income product, which has done really well and some of our solutions offerings. And so I look at all of that, and I think that, that is a lot of momentum that we should be able to capitalize on. And we'll have some headwinds like everybody else on the active equities side. The good thing about that is what's underlying our active equities is pretty good investment performance. I think some of the asset classes, we were penalized for in '25 and back have come back a little bit. Small-cap is 1 of them that we have a sizable amount of assets. I think you're seeing people allocate there now a little bit, and you're seeing some of the returns and a little bit of the market shift go away from maybe the AI trade or the Mag 7 trade, and there's definitely a rotation going on. So I think we'll benefit from there. But -- and then I see the last part is, we have invested quite significantly into distribution through the partnerships. So on the intermediary side, we've entered into probably half a dozen new partnerships at the end of '25 and into '26 where we have either become a premier partner, bought data packs, marketing support, conference support, which are super important to getting close to the buyers of the products. And then 1 more thing is we did in '25, really double the size of our intermediary sales force through the acquisition. And so having more people selling -- and that group, it will take time as we've gotten them educated as we've gotten them up to speed on the products from their organization. So the Pioneer people know the Victory products, the Victory products people know the Pioneer products. it takes time to get to the buyers and eventually for them to buy. So we're just in that phase. So I think all of those things gives us a lot of kind of tailwind into this organic growth mode.

So a lot going on the organic growth side. A lot of levers as you mentioned.

And it's super important for us.

Yes. That's great. Maybe a couple of things I wanted to kind of follow up on there. So you were starting to talk a little bit about the -- you might see a bit of a rotation from kind of the U.S. and the Mag 7 and probably a bit more in the kind of international markets. We've been seeing that in some of the flows. I'd love to hear your view on that, maybe a little bit more. What are you hearing and seeing from clients and seeing client behavior?

And then the second part I wanted to ask you about, too, is just when you talk a lot about some of the non-U.S. growth and the opportunities there that you're still -- you're just early days in tapping into. Where specifically are you talking about?

Yes. So to answer the first part of your question around really asset classes, where we're seeing a little bit of a rotation from a performance perspective, out of some of the winners of '25 and maybe the end of '24, where it was a tech in the AI and some of the companies we all know, I think you're seeing that move into small-caps and you're seeing it to move to different types of sectors away from there. It doesn't mean that the AI and technology trade is not going to work, but I think you're seeing a broadening out of the market, which is super healthy. We're seeing clients allocate outside the U.S. I think there's a good article in the Journal this morning about that. You're seeing clients allocate to outside the U.S. to international products, to global products, we have fantastic offerings there. And I think the average U.S. retail investors under allocated outside their portfolio outside the U.S. So you're starting to see that. And I think you're seeing is the U.S. market potentially -- does that have the same growth prospects over the next year or 2 as some of the outside the U.S. markets. And so I think we're seeing a little bit of that. I think fixed income depending on what happens with the Fed and rates. I still think people really, really like fixed income. You're going to see people allocating to fixed income. I don't think that's going to change. So that's what we're seeing. Outside the U.S., the buyers, where we're positioned, and it's really through Amundi sales force, our best and biggest opportunity is in Asia. If you think of Asia and the Asia ex Japan and Japan. So I'd say Japan and the rest of Asia, we think is our best opportunity from an asset gathering perspective, from where we're positioned from a product perspective. So we're super excited about Asia. Europe, but Europe really not because there's so much of a desire to buy U.S. manufactured or product but just because Amundi is well positioned in Europe. And so Amundi's distribution in Europe is as good as it gets. And so we have great distribution there through Amundi and we have great partnerships there and long kind of deep rooted partnership. So we think Europe is going to be a good driver for us. And then the Middle East, we -- Amundi has a number of partnerships there, and they have good relationships there. And I think one of the things that we bring to the Amundi business when they go and they talk to their clients is a U.S. listed manage -- a U.S. listed investment manager, which I think is desirable for Middle East investors. They want to invest in the U.S. They want to invest. Historically, they've been in private markets. Historically, if they wanted to access the public markets, it's been very beta like. I think there's a little bit of a shift away from that we're seeing. And so we think we're going to benefit from that.

Interesting. Okay. Great. Why don't we switch gears to the active ETF side of the industry. That's been a big industry shift. And following the success of the VictoryShares platform, which you've touched on a few times, how do you continue to think you'll take share in that space? We've seen obviously a lot of the larger players also leaning into this industry shift. So how do you continue to separate yourself from them?

I mean we're approaching the active -- we have a number of active ETFs on the fixed income side and some on the equity side. We'll continue to do what we're doing. We're really creating differentiated product. We're not creating me-too products. If you looked at our -- like our free cash flow series is another one that I think is very differentiated. But we're going to create product off of our franchises and then off of our solutions platform and then wrap those obviously in an ETF structure and then go and sell those really as active management.

They're priced like active management. They're sold like active management. But we're going back and saying, how do we solve problems in the portfolio. Our sales infrastructure, our marketing infrastructure, our client service infrastructure is totally integrated on the ETF side. So we don't have -- we have separate ETF sales specialists, but our entire infrastructure is set to basically support the ETF business.

And so we're able to kind of use data and analytics on selling and servicing the ETFs, where we have our salespeople trained on ETFs. And so from that perspective, it's somewhat business as usual. But we're not trying to compete on the kind of the beta side, where there's a race to 0. And we're not trying to create products that everyone else is doing either.

Right. So MODL portfolios is another really fast-moving trend in the space, you're seeing a lot of good growth from that segment of the wealth market. Can you maybe just talk a little bit about the opportunity that you see there for Victory? Kind of what's your place in the market? What's the opportunities for growth there? And how is competition there?

So we've owned a MODL provider, since 2021 in WestEnd Advisors. It's got -- it's approaching close to $30 billion of assets, very well distributed on all the large platforms, a number of products, a number of different products. And we're net flow positive on that platform, since we did the acquisition. We've launched ETFs -- so we've taken their investment kind of process and put it into an ETF.

MODL is an example of it. And so what we'll do on that platform is we'll evolve the WestEnd platform to potentially do some tax-efficient products that you've seen. We'll probably evolve their models to include some private market exposure as well. There is -- we have a 10-person MODL sales specialist team that today sells mostly or if not on exclusively WestEnd products. So we have people that just sell the WestEnd product and service it. And then the rest of our sales force also sells it, but really then is helped by this sales -- this MODL sales force.

So we view that as a big part of our growth going forward. I think at the point of sale, the advisers like the MODLs. It allows them to do a lot of different things and allows them to kind of give their clients access in the right way and then for the advisers to go on and do different things, either servicing clients or getting new clients.

Can you maybe unpack a little bit about where WestEnd has had most of its success, either specific platforms or certain areas within the wealth management space?

So the larger platforms, so they've done well on the larger platforms. They've also -- when we've launched their ETF, they've seen a lot of demand on the ETF side because historically, they've only been able to offer advisers MODLs. Sometimes the advisers have clients that don't -- can't go into the MODLs and they want other structures.

In the past, they've not been able to kind of say, I want WestEnd across my book. I'd like to buy an ETF. We're now -- in the past, they couldn't do it, where now they can put their clients into MODLs and then also put them in ETFs, so you can kind of get the complete package. So we've seen success there. But I think from a platform perspective, if you thought about the larger intermediary platforms, that's where they've seen the most success.

Okay. Great. And you did touch on 2 really interesting points there in terms of adding this tax efficiency element. Any view on kind of timing on that or maybe what's involved on the investment side to get there? And then adding privates is kind of an interesting angle. That's certainly something that we starting to see some products come to market with BlackRock and they have Partners Group. So maybe talk a little bit about how you would approach that from a partnership perspective.

On the tax side, that's a '26 kind of product launch. And I think that one, we're well down the path on that. On the MODLs from adding the private market exposure, we're working on that. And we're working back from what we think the clients want and need. We're also thinking about the retirement side of that as well. And so offering that through the retirement channel.

How we get the private market kind of manufacturing, we're working on that as well. I think there's a lot of different options, and we're exploring all of them. But I think when you really take a step back, I think one of the ways we'll deliver those MODLs will be you'll have access to public market allocation. And then potentially, if you like, you can have a private market allocation within there, be it fixed income or real estate and -- or secondaries or private equity. And it will depend on the buyer, it will depend on the channel, but that's how we're thinking of it.

Really interesting. Okay. I'll just remind folks in the room and on the web that if you want to submit a question, you can do so through the app. You can submit a question through the web. You can ask any questions live here in the room. We'll see if any come through the web there.

But -- so Dave, if we move to the margin side, which again was another really impressive result in 2025. And as I see a strong margin like that come through, I still kind of wonder, is that the ceiling here? Or how do you kind of think about what's the puts and takes to the margin going forward?

Yes. I mean our official guidance, it has been for a while, it has been 49%. And I think if you followed our company, we've exceeded that quite significantly even during kind of the integration period with Pioneer. And so we're looking at our margins, what the right level is on -- at least from a guidance perspective, today, it's 49%.

I think from a ceiling perspective, our last quarter was 52.8%. I think the quarter before was 52.7%. I think we're at -- it doesn't mean we can't exceed it, but I think we're at where we think we can -- where it's a full margin. We have really spent a lot of time with our vendors. We spent a lot of time around technology. Instead of hiring people, we've tried to put scalable technology in.

And if you think about a lot of the firms in our space, I think that they are investing a lot of money to try to get to the platform that we already have built. And so when I think about it, our margin expansion is going to be marginal from where it is today, if you will.

Okay. Yes, that makes a lot of sense. So if we take a step back and go a little more high level, you have talked about a public goal of reaching $1 trillion in AUM. And so you took a big step forward this year, still talking about more M&A in the space. How do you kind of bridge the gap in getting there from, call it, the $320 billion level now to the $1 trillion? How much will be organic? How much will be inorganic?

Yes. So I mean, it does seem like a lot to go from $300 billion plus to $1 trillion, but just a quick walk down memory lane. I mean, we did the MBO or management buyout from KeyCorp in July of 2013, we're under $15 billion. And then we went public in 2018, we had $60 billion. And so when you put in perspective to go from $15 billion to $60 billion and $60 billion to $300 billion plus, it doesn't -- it doesn't seem like that high of a hurdle, when you put it in perspective.

How we're going to get there primarily is going to be through M&A. I would love to say that we could get there through organic growth in the next X amount of years, but that's not going to happen. I don't think that's possible in our industry. But it will be through inorganic growth. It will be through low single-digit organic growth and whatever the market gives us.

But it will be through larger M&A, maybe smaller strategic M&A, but it will be through larger M&A. And as we discussed earlier, I think we -- that $50 million to $200 million range, and it can be higher than the $200 million. And I think that is -- if you go back and look since we did our MBO, I think we have averaged a transaction every 1.5 years is about the cadence.

And so if you think about that, it's probably 3, 4 -- 2, 3, 4, 5 years out, depending on the size of M&A to get to that number. The number is important for us. We put it out there publicly because we think that, that is the size you need to be able to compete long term, kind of in perpetuity. The $1 trillion number is those firms will be big enough and scaled enough to go and have the depth of the product to have the resources to basically get access to clients, to service clients, to service the platforms to reinvest in your business. We think that's the number.

I think -- if you go to the other side, there's going to be a smaller kind of sized manager that maybe will be a specialist, maybe have a few products, very different profile. And then everyone in between that small manager and large manager is going to be challenged. And I think that's -- I think -- I've said this for a while, I think consolidation is going to happen a lot faster than we all think. You think about some of the recent transactions over the last couple of years of public companies either getting bought or going private and all the transactions that are happening, I think it's only going to accelerate.

As we think about that kind of $1 trillion level for Victory, what does the firm look like at that point in time? Because at that point, yes, you are talking about a significant amount of scale of AUM. But when you think about what the team on the ground looks like versus today, what's going to be the biggest change?

Well, I think it's $1 trillion, just from what it looks like financially, it's a $1 trillion manager with $5 billion in revenue and probably $2.5 billion of earnings. I think that -- and everything that goes from there, I think that's very, very much like we look today. But I think when you think about the product set, I think you'll have a fully built out kind of public market offering, fixed income, multi-asset equities, very similar to what we have today, maybe deeper in a few areas.

You'll have a sizable ETF business. You'll have a sizable outside the U.S. business. You'll have a number of UCITS. You'll have a sizable institutional business. Part of that will be private market -- I hate to use the term alternatives, I'll say, private market investing. So some of the products that we'll have in that $1 trillion, they will either be specifically private market -- so some of them.

But then also, you'll have models or you'll have kind of very much like a target date fund, where you're going to have basically risk profiles and time lines and you're going to have private markets investing in those models. So we'll look like that. And then our business will be -- I mean, today, 17% of it is outside the U.S. I expect that number to be more. So maybe it's 25% or 30% and the rest probably inside the U.S.

So on the -- you kind of spark a thought in my mind as you talk about the private markets and that probably becomes a bigger piece of your business. We have, of course, observed that the public valuations for a lot of those names have been coming down. It's kind of a more recent phenomenon. But curious what you have observed maybe over the last 6 months as some of the opportunities in the private market space from an M&A standpoint improved at all? Is that getting a little more interesting to you?

I think -- well, I think the valuations coming down probably are well justified. I think they probably got ahead of themselves on where the businesses were. They're fantastic businesses. But on the other side, I look at a traditional asset manager, I think that the valuations are probably too low.

And I think there's probably a coming together of those valuations. For us, we have -- one of the things we have done over the years, we have stuck to what we do really well. We've stuck to managing money in public markets, which I think we've done really well. We know how to sell, service, operate, reconcile all the things that go with selling public market type products.

And also, we have stuck to doing acquisitions in areas where I think we have felt really good about being able to execute on them. I mean one of the things we've done really well is just consistently done acquisitions, where we hadn't been able to add value, been able to better our platform. They've been accretive. Some of them had lots of synergies, some of like a WestEnd has had revenue synergies. We're going to continue to do those.

The private market acquisitions for us, we have studied and watched that space for a long, long time. I'm happy we have not done anything. It doesn't mean we wouldn't do something in the future. But I think we have made our way sticking to what we know best. And there's a lot of different ways to access private market manufacturing. You can get it through distributions, distribution partnerships. You can get it through minority stakes.

There's lots of different ways you can do you build it yourself. So there's a lot of different ways to do it, and we're exploring those ways. But I think the alts and the private side, I think the valuations coming down is probably pretty justified.

Got it. Got it. Okay. While we're on the topic of M&A and capital allocation, maybe just touch base on -- just touch on quickly the view on kind of buybacks and dividends, and you talked about leverage levels are now kind of at a lower level. So I'm assuming debt paydown is not as high on the list, but maybe just give us a quick update on your priorities?

Yes. First and foremost is we want to make sure our balance sheet supports our strategic desires of doing acquisitions. And so we're always going to default to that first, make sure we have a balance sheet that supports that.

I think today, leverage at the lowest it's been as a public company around 1x. We're in a really good spot from that perspective. And so when I think about the second level, what's #2, and it's a little bit of a shift for us, I'd say we lean more into buybacks. And we have bought back a significant amount of our stock, since our IPO, but -- and we've started to buy back more, and I think we were pretty clear on the call to say that we're going to buy back our stock aggressively.

And I think the way we articulated on our call was we're at ground zero between the underappreciation of our industry and then the underappreciation specifically of Victory. So I can only think of -- if we're not buying a company, I want to use our dollars to buy our stock because I think it's a tremendous value for our shareholders. So we're going to use our capital to do that.

We're not going to abandon the dividend. Our dividend has gone up every year, every quarter from when we were doing it quarterly. That's not going to change. But I think our use of -- primary use of capital is going to be acquisitions. And then second, we will be buying our stock back.

Great. Great. So maybe just kind of one to close out here as we get closer to the end. As you think about the next 3 to 5 years, and we're kind of sitting here back in [ Kerrville ] and we assess the asset management landscape, what do you think will kind of be the observations in terms of the folks that have separated themselves as kind of the true winners and maybe the laggards in the space?

Well, we've talked about size and scale. I think consolidation is going to happen. And I think the folks that are able to work their way through either consolidating or to be consolidated, I think will be winners. But I think what will be -- what type of firm will be a winner is you're going to have to be either a small specialist firm that's offering a product or 2, not going to be us.

But for us and for the industry, it's going to have to be that $1 trillion type manager that has a really broad and deep product set that obviously adds value to their clients' portfolios, offers their manufacturing in all different kinds of vehicles, whether it's an ETF, an active ETF share class, whether it's a collective trust fund, whether it's a UCIT, you're going to have to be able to offer a model, SMA, you have to be able to offer your clients or every single vehicle, however they want to access, you're going to have to have that.

And you're going to have to have the size and scale to service them. And then the other thing I think you're going to need to do is you're going to have to be up to speed operationally, technologically from an AI perspective, have to invest in your business.

Great. That's a great spot to end. Dave -- thanks so much. Everyone, please join me in thanking Dave.

Thank you.

Good morning, and welcome to the Victory Capital Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]

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

Thank you. Before I turn the call over to David Brown, I would like to remind you that during today's conference call, we may make several forward-looking statements. Victory Capital's actual results may differ materially from these statements. Please refer to our SEC filings for a list of some of the risk factors that may cause actual results to differ materially from those expressed on today's call. Victory Capital assumes no duty and does not undertake any obligation to update any forward-looking statements.

Our press release, which was issued after the market closed yesterday, disclose both GAAP and non-GAAP financial results. We believe the non-GAAP measures enhance the understanding of our business and our performance. Reconciliations between these non-GAAP measures and the most comparable GAAP measures are included in tables that can be found in our earnings press release and in the 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?

Thanks, Matt. Good morning, and welcome to Victory Capital's Fourth Quarter 2025 Earnings 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'll begin today by reviewing the fourth quarter, which capped off a transformational year for Victory Capital, one marked by significant operating and financial milestones. Most notably, we successfully closed our strategic partnership with Amundi and integrated Pioneer Investments onto our platform. From a financial perspective, 2025 was a landmark year. We surpassed $1 billion in annual revenue for the first time in our company's history, while also delivering record earnings, milestones that underscore the strength of our diversified platform and the momentum we've built as we look forward to 2026.

Following my remarks, I'll turn the call over to Mike, who will provide a detailed review of our fourth quarter and full year financial results. After that, we will be available to answer your questions.

The quarterly business overview begins on Slide 5. We had an excellent final quarter to end 2025. We achieved record high AUM in the quarter and ended the year with $317 billion in total client assets. Client engagement remained exceptionally strong with long-term gross flows of $17.1 billion, representing our highest level ever of quarterly gross sales.

We generated very strong sales momentum in our international distribution channel, our VictoryShares ETF platform and multiple investment franchises. This momentum was supported by new products and creating vehicles for distribution outside of the U.S. as well as our recently enlarged U.S. sales force and increasing investments in our distribution partners.

Long-term net flows of minus $2.1 billion were off trend and reflected several onetime items during the quarter. The one-off outflows were primarily attributable to one large platform redeeming one of our strategies, which was close to $1 billion and several larger year-end client reallocation redemptions where clients redeemed to get back in their investment policy guidelines, but still have sizable accounts and remain our clients.

Profitability remained excellent to end the year with record adjusted EBITDA of $197.5 million, supported by a strong fee rate that increased quarter-over-quarter, and the achievement on a run rate basis of $97 million of the targeted $110 million in net expense synergies at year-end.

The adjusted EBITDA margin of 52.8% in the quarter is up from last quarter and is a result of our continued superb execution. We continue to have one of the highest, if not the highest, EBITDA margins of any publicly traded traditional asset manager.

These strong results translated to record quarterly adjusted earnings per diluted share with tax benefit of $1.78. When you look at our long-term EPS growth chart, which is in the appendix of this presentation on Slide 21, you can see our 21% compounded annual growth rate in EPS since our IPO. This steady progression demonstrates the resilience and quality of our differentiated platform in many different market environments and significant changes in the industry. As we look to the future, we see the same growth trajectory as we have experienced since our IPO in 2018 for the upcoming years.

Stepping back for a moment, when we look at our full year accomplishments, we achieved record financial performance across a broad spectrum of key metrics. Today, Victory Capital offers a more comprehensive suite of investment capabilities and manages more assets for a larger and more diversified client base than at any point in our company's history. Our reach now extends across multiple U.S. distribution channels and internationally, it spans over 60 countries with 17% of our AUM currently coming from clients outside of the U.S.

While we are certainly proud of our long-term success, our strategy has never been simply to grow for growth's sake alone. Rather, we are purposely focused on strategically expanding and deepening our relationships with intermediary platforms, financial advisers, institutional investors, consultants and direct investors. This approach ensures that our growth is sustainable, profitable and aligned with delivering value to both our clients and our shareholders.

The acquisition of the Amundi U.S. business, Pioneer Investments, was truly transformational. It was not about only enhancing scale. It was a multifaceted transaction that brought us strong investment capabilities, a well-known brand at Pioneer, globalization of our company by significantly expanding our presence outside the U.S., and it provided us with a deeper platform to accelerate our company-wide growth strategy.

It is also worth noting that under our ownership, Pioneer Investments, investment performance has remained extremely strong. If you compare Morningstar data from the end of this year versus the end of last year when they were under Amundi ownership, the overall investment performance metrics have been steady or in many cases, improved. Pioneer Investments has also continued to experience organic growth and is net flow positive in each quarter since the transaction's closing. This is a good example of our ability to enhance acquired businesses without disrupting the investment process or client experience.

Our integration efforts are close to complete. We are on track to reach the full $110 million target during the 2026 calendar year. Beyond the numbers, we're continuing to integrate our sales forces in the different channels. As we fully integrate our sales forces, we anticipate our current sales momentum will increase.

One of the most exciting outcomes of this transaction is how it has globalized our business. We now have 17% of our AUM coming from clients outside of the U.S. across 60 countries. This international diversification is significant strategically and represents a tremendous growth opportunity. Our business outside the United States is net flow positive since closing and in the fourth quarter and continues to ramp up in 2026.

We have added resources to handle the influx of international RFPs and continue to make other investments in this area. International geographies provide us with new distribution channels and client segments that were not previously accessible to us. As we continue to expand and integrate our international sales force and launch products suitable for these markets, we expect this to be a sustainable source of growth going forward.

To support our international expansion, Amundi launched 5 new UCITS products during the fourth quarter specific to Victory Capital. These registered products are designed for distribution outside the U.S. and include 3 UCITS that are managed by our RS Global and RS Value investment teams and 2 are managed by Pioneer Investments. These product launches set us up well for 2026 and beyond and as we continue to build out our international shelf space, and we are planning for more UCITS launches in 2026.

Turning to Slide 6. Our ETF platform delivered another strong quarter with $1 billion in positive net flows, bringing year-end assets to nearly $19 billion. This growth shows no sign of slowing as we are off to a nice start in 2026. We are winning new shelf space at multiple U.S. intermediary platforms and Amundi's sales force began selling our U.S.-listed ETFs overseas at the start of this year. This adds a new distribution engine to the growth story.

The consistency of our progress here is particularly noteworthy. Our Free Cash Flow ETF series generated positive net flows every single month in 2025, while our active fixed income ETFs also produced strong net inflows throughout the year. This is not sporadic success. It is sustained due to demand for our value-added product lineup.

Our recent platform wins validate this outlook. For example, at Morgan Stanley, our VictoryShares Core Intermediate Bond ETF, ticker UITB and the VictoryShares Short-Term Bond ETF, ticker USTB, broke through as the first active fixed income ETFs on their Morgan Stanley wealth management focus list.

Our VictoryShares Free Cash Flow ETF, ticker VFLO continues to be highlighted in the single factor subcategory as the top-rated quality ETF option on Merrill's platform. Meanwhile, USTB has also earned recommended list status at Wells Fargo, RBC and LPL. These are just a few of our recent wins that demonstrate broad-based recognition of our capabilities. The economics of this business remain compelling as well. With an average fee rate of 34 basis points across our 23 ETF suite, this business contributes meaningfully to both organic growth and profitability.

Turning to Slide 9. I'm pleased to report improvements in investment performance across both short- and long-term periods. 54 mutual funds and ETFs, representing 65% of our rated fund AUM achieved 4- or 5-star overall ratings from Morningstar. According to Morningstar, nearly half of our fund AUM ranked in the top quartile over the trailing 3-year period.

It's important to note that these figures represent only our products with Morningstar ratings. Many of our newer high-growth products, including several from our expanding VictoryShares platform, have yet to reach their 3-year anniversary and therefore, aren't eligible for Morningstar ratings.

When we look at our entire AUM against benchmarks, picture is strong, well over 60% is outperforming across key time periods. This broad-based investment performance strength across our platform gives us confidence in our ability to continue winning new mandates and retaining existing client relationships over a long-term horizon.

Turning to capital allocation on Slide 10. Our #1 priority is to ensure that our balance sheet can support our inorganic growth strategy. Over the last year, we have materially brought down net leverage to the lowest level for the company since we went public in 2018. Additionally, given that our earnings are at the highest levels they have ever been, we are now generating the most cash we ever have as a company. This puts us in an excellent position to execute inorganically and to execute with size and scale, which is our preference.

We continue to be extremely busy from an acquisition standpoint. In fact, I would say the busiest we ever have been. Add this to a very conducive environment for acquisitions in our sector, where the issues on why the consolidation is happening are becoming more pronounced.

Factoring the aforementioned, I could not be more encouraged about the acquisition opportunity set. The exact timing of an acquisition is always hard to predict and patience is an asset when sourcing and diligencing opportunities. That said, our cadence of executing quite frequently has been consistent over the last decade plus, and I see no reason for that to change as we look forward.

Our second priority with our capital is the buyback of our stock. We think the sector is underappreciated and undervalued and our company is ground zero for this. We have a 21% EPS CAGR since our IPO 8 years ago, over 50% margins that have expanded materially over the years to be best-in-class, strong cash flow with a sizable cash tax benefit supported by strong diversified recurring revenue stream and an expense base that is 2/3 variable and is well tested during multiple market environments.

Moreover, our firm-wide investment performance is excellent, and we are just beginning to see the benefits of the globalization of our business through the opening of the distribution channels outside the U.S. Within the U.S., we've increased the size of our sales force significantly throughout our different channels.

Lastly, we recorded the highest level of gross sales we ever have had in the history of our company this past quarter. All of this makes us extremely excited to be buyers of our stock through our buyback program given the current value ascribed to our business by the market.

To be even clearer, we will buy our stock back even more aggressively, we're working on executing on our next transformational acquisition. We think using our capital to purchase our stock or to execute on a transformational acquisition are great outcomes for our shareholders.

With that, I will turn the call over to Mike, who will go through the financial results in more detail. Mike?

Thanks, Dave, and good morning, everyone. The financial results review begins on Slide 13. Our financial results demonstrate the strength of our integrated platform and the operating efficiency in our business. Revenue reached $374.1 million, up 3.6% sequentially from the third quarter, driven by a 3.1% increase in average AUM to $312.9 billion. At the same time, our revenue realization rate increased slightly, reflecting the diversified mix of our product suite and client base.

GAAP operating income was $153 million and GAAP net income was $1.32 per diluted share. Both metrics were up sharply from the third quarter and the same period last year. Adjusted EBITDA reached a record $197.5 million, up $7 million or 3.7% from the prior quarter. This marks continued growth as we get closer to the full realization of our projected net expense synergies.

Our adjusted EBITDA margin increased to 52.8%, demonstrating our ability to maintain profitability while simultaneously investing in our platform. With 88% of our net expense synergies now realized on a run rate basis, we are on track to achieve our full $110 million target during 2026, which is ahead of our original time line. Adjusted net income with tax benefit totaled $151.7 million or $1.78 per diluted share, representing strong cash generation that supports our capital allocation strategy that Dave mentioned earlier.

In the fourth quarter, we repurchased 814,000 shares under our repurchase plans, deploying $51.6 million at an average price of approximately $63 per share. At year-end, we had more than $300 million in remaining capacity under our current $500 million authorization. In total, we returned $93 million to shareholders in the fourth quarter through a combination of share repurchases and dividends. For the full year 2025, we returned $366 million to shareholders, underscoring the cash-generative nature of our business and our commitment to delivering shareholder value.

The Board declared our regular quarterly cash dividend of $0.49 per share, which will be paid on March 25 to shareholders of record at the close of business on March 10. Our net leverage ratio was 1.0x as we end the quarter with $164 million in cash on the balance sheet, and our revolver remains undrawn.

Total client assets reached $316.6 billion, as you can see on Slide 14. This is up from $176.1 billion at the beginning of 2025, an increase of $140.5 billion or 80% for the year. On an average AUM basis, fourth quarter average AUM rose 3.1% to $312.9 billion. For the full year 2025, average AUM was $268.8 billion, reflecting the end of the first quarter closing of the Pioneer acquisition. The composition of our AUM reflects a well-diversified platform across asset classes, distribution channels, investment vehicles and geographies.

On Slide 15, we show the gross and net flows of our long-term AUM. Long-term gross sales reached an all-time high of $17.1 billion in the fourth quarter, up slightly from the third quarter. This marked the sixth consecutive quarter of higher gross sales. Year-over-year, gross sales increased by 159% from $6.6 billion in the final quarter of 2024. At an annualized run rate of approximately $68 billion or 22% of long-term AUM, we believe gross sales are sufficient to drive positive organic growth over the longer term.

Long-term net outflows were $2.1 billion in the fourth quarter compared to $244 million in Q3. Q4 was an off-trend quarter from a net flow perspective, as Dave explained earlier in the presentation. We did realize strong underlying positive net flows in key growth areas in the fourth quarter, including Pioneer's multi-asset and fixed income strategies, validating the strength of the Pioneer franchise and our integration efforts.

Our international channel was also net flow positive, and there is substantial runway ahead as Victory products become more widely available in new geographies and in packaging suited for sales outside of the U.S. Our VictoryShares ETFs had net inflows along with multiple other franchises in 2025.

Our one but not yet funded book remains strong, spanning across numerous franchises and distribution channels. We expect this to help us in the first half of 2026 as most mandates will fund during this time frame. Looking ahead, we remain confident in achieving consistent positive net flows as we now have the product set, the distribution reach and the investment performance to support this.

As illustrated on Slide 16, revenue for the fourth quarter was $374.1 million, up $12.9 million or 3.6% sequentially from $361.2 million in the third quarter. Our revenue realization rate was 47.4 basis points in the fourth quarter. This is at the high end of our guidance range of 46 to 47 basis points and reflects the favorable product mix we are seeing across our diversified platform.

For the full year 2025, total revenue surpassed the $1 billion mark at $1.3 billion, a substantial increase from the previous year. The stability of our revenue realization rate is noteworthy. Despite significant changes to our AUM composition throughout the year, including the Pioneer acquisition, VictoryShares nearly doubling in size and various franchise rationalizations, we have maintained revenue realization within a tight range. This speaks to the quality and diversification of our product mix. For 2026, we expect our revenue realization rate to remain consistent within our 46 to 47 basis point guidance.

On Slide 17, you can see total GAAP operating expenses of $221 million were essentially flat with $223 million in the third quarter. The decrease in operating expenses was due to lower acquisition, restructuring and integration costs, which peaked in the second quarter and should continue to decline in future periods as we complete the final stages of the Pioneer integration. This was partially offset by slightly higher compensation expenses, which are correlated to revenue and earnings. Including nonoperating expenses, total expenses of $232.5 million were in line with the prior quarter's $231.9 million.

Our GAAP tax rate was 20.4% in the fourth quarter, below our long-term guidance of 24% to 25% because of onetime state tax apportionment adjustments related to the pro forma business incorporating the Pioneer Investments business. While we see no material changes to our long-term guidance for taxes, this did have a few cents positive impact on our ANI EPS in the fourth quarter.

Our expense discipline is reflected in our industry-leading margins. Looking at the expense trajectory throughout 2025, we've shown consistent progress on integration and net expense synergy realization while continuing to make investments to drive future growth.

Turning to our non-GAAP results on Slide 18. You can see the upward trajectory of our business over the past 4 quarters. This chart illustrates consistent profitable growth in both adjusted net income and earnings per diluted share with tax benefit, demonstrating the quality and sustainability of our earnings. The sharp year-over-year growth metrics detailed in the sidebar tell an important story.

Our ability to drive earnings and cash flow expansion. This is the power of our strategic M&A model at work. We're actively building a more valuable and profitable platform. We believe our track record of consistently achieving stepwise growth through strategic acquisitions remains significantly underappreciated by the market.

We have demonstrated a repeatable playbook for identifying, acquiring, integrating and creating shareholder value from transformational transactions. The Pioneer acquisition is the latest proof point. We are ahead of schedule on net expense synergies.

And at the same time, we nearly doubled the size of our VictoryShares platform. Enhanced our organic profile with additional high-performing products and access to new clients, and we are generating industry-leading margins while simultaneously investing for growth. These results, just 9 months post the closing have exceeded our original accretion estimates of low double digits. This is not just about one successful deal. It's about a proven inorganic growth strategy that creates compounding value over time.

Turning to capital management on Slide 19. We continue to be disciplined stewards of our shareholder capital. At the end of the third quarter, we combined our original term loans into a single credit facility of $985 million. This new consolidated Term Loan B has a 7-year term, effectively pushing out our debt maturity to 2032, eliminating any near-term refinancing risk and simplified our capital structure. This provides us with significant strategic flexibility, and we also lowered our borrowing costs.

The new facility is priced at SOFR plus 200 basis points, which represents a 35 basis point reduction from our pre-refinancing rate. This improvement translates to approximately $3.5 million in annual interest savings, a meaningful reduction that flows directly to our bottom line. At the same time, we extended our $100 million revolving credit facility for an additional 5 years. The revolver, which remains undrawn, now matures in 2030 and provides us with additional liquidity and financial flexibility.

At year-end, our leverage position was very strong and supportive of our inorganic growth strategy. Our Term Loan B balance stood at $982.5 million, down $2.5 million from the refinancing. Combined with $164 million in cash on the balance sheet and our undrawn $100 million revolver, we have substantial liquidity and a net leverage ratio of 1x.

With that, I will turn the call back to the operator for questions.

[Operator Instructions] Your first question comes from the line of Craig Siegenthaler with Bank of America.

This is Ivory on for Craig. As legacy Victory strategies begin to be registered into UCITS vehicles and distributed through Amundi's global network in 2026, what should we expect in terms of UCITS product additions and platform approvals? And how quickly could these contribute to an improvement in non-U.S. flows?

I'd first start off to say that we did highlight in the script that we had launched a few new UCITS, I think, 5 of them. 3 of them were kind of legacy Victory and 2 of them were Pioneer. And so we've already started on that journey of launching products into the system. We plan to launch more in 2026. And the impact of the new launches will probably take effect as we move through the year and more towards the end of the year.

There are a lot of products today that are in the system that are selling. We did highlight that outside the U.S., we have been net flow positive since we closed the acquisition in April, and we're pretty excited about the international distribution channel. But I'd say over -- not just '26, but over the years to come, we'll be launching a lot more product into the system.

And for a follow-up, as you evaluate a pipeline that stands well above and below the $50 billion to $200 billion target range, what characteristics would make a larger deal actionable for you in the near term versus one you prefer to defer?

I think when we think of acquisitions, we look at what's available, and we also look -- we start off with the concept of does it make our company better? Does it enhance our platform from a distribution perspective, from a product perspective, from a size and scale perspective. And so we look at all of those characteristics. And if it fits well, all of those, we'll execute on it. I don't think that we're in the position to want to defer an acquisition or not. I think it's kind of what's in front of us and what's available and does it fit the things that we're thinking about that betters our company.

Your next question comes from the line of Benjamin Budish with Barclays.

Maybe just following up on the M&A discussion. It sounded like after the Amundi transaction, you guys were quite operationally ready to do something again. I think in the prepared comments, you talked about sort of sticking with your historical cadence, but you're also -- do you see more opportunities, you're going to be very aggressive here. Just curious how should we be thinking about the potential cadence of M&A? Could things be happening more frequently given the -- what you see as an urgency kind of building across the industry and your own sort of appetite? Or is Amundi a little bit different since it's not -- it's a different type of acquisition and a kind of traditional straightforward transaction would require more internal integration. So just curious how we should think about that cadence going forward?

I'd start off to say that we are almost complete with the integration of Amundi/Pioneer Investments. And you can see that through the progression of the net expense synergies almost getting to the complete target that we have out there. And so we're very comfortable with where we sit today that we are ready to do an acquisition. And I think from there, we highlighted that a larger sized acquisition makes a lot of sense for us for a lot of the reasons we've articulated over the last few years with what's happening in the industry.

And the cadence, we have been very active. If you go back to when we did our management buyout in 2013 and even when you look at when we did our IPO in 2018, we have averaged an acquisition every 1.5 years is really what the cadence is. And I don't think there's any reason to think that, that's going to change. It could be a little bit faster, it could be a little bit slower. But when you look at it over a longer period of time, I think that's a good cadence. Of course, there are lots of external factors that impact that.

But what I would leave you with is that we are ready to do an acquisition. We're very busy. I think there's a lot of great opportunities out there that would make our company a lot better and also would allow us to create a lot of shareholder value. And I would -- last thing I would say is our balance sheet is ready as well as we've brought down our leverage to the lowest it's been since we've been a public company.

Understood. Very helpful. Maybe just a follow-up. You've been talking about the build-out of Victory's sales force in addition to sort of the preparation being done with the Amundi sales force. Can you maybe talk about where you are in that process? How much more hiring needs to be done or training? Obviously, you sound like you're very confident on the near-term outlook, but just what else is required to be done internally? Or is it sort of -- in addition to those synergies, the pieces are in place and it's sort of a matter of time before your confidence in the inflow outlook starts to come to fruition?

So we're about 10 months in since we've closed the acquisition. We are done with the hiring and the integration. The teams are set and the training is happening. I would say that really in all of our distribution channels, I think our team is trained well. I think they understand the products. I think it's getting out in the field and educating clients and platforms inside the U.S. and outside the U.S. about our different products. So we're well into the journey.

I think as we look out in '26, we think that a lot of the investments we've made from a training, from a marketing, from a partnership perspective are going to pay us back in 2026. So I think a lot of the hard work has been done, and now we're really ready to reap the benefits of it.

[Operator Instructions] Your next question comes from the line of Michael Cho with JPMorgan.

I just wanted to touch on the commentary, Dave, you made about the ETFs and the various intermediary partnership. I was hoping you could flesh out some of the comments you made earlier and maybe the benefits you see these partnerships providing Victory, including any market share dynamics that you've observed, and really how that's relative or how that's evolved relative to the traditional mutual fund side?

Michael. So let me start off and say that our ETF platform, VictoryShares, I think, is quite unique. It averages about 34 basis points across the platform, and we have 23 ETFs. And we have, over the last few years, really invested into the distribution platforms through partnerships, through partnering on marketing and education and a lot of other areas where we think we're adding value to the platforms and also to the advisers. And so with those investments, we're seeing a lot of great results. And I think as time goes on, we're going to do more of them. And I think those types of partnerships are going to be super important for the future, and I think they're going to be table stakes to be able to be competitive in selling and servicing ETFs.

We're seeing more opportunities. A lot more of the platforms have come up with different kinds of partnerships that are unique to their own platforms. The ones that we like are ones that have more of a selection perspective as opposed to partnering with everybody, and those are the areas that we're investing that have more of a limited set of managers they're partnering with. But I see it as a big part of the future. They are similar to mutual fund platform partnerships. They are not so different, but there are some unique characteristics from an ETF perspective.

Great. I appreciate all that color. I guess if I could just follow up just along the same topic with more partnerships, more selective and more nuances to come. Now how would we think about maybe an extension of these types of partnerships, maybe as it relates to private markets, right? I mean does that give Victory an edge when thinking about shelf space for any prospective private markets partners that may be out there?

I think it does. If you have a partnership or you're close with a platform, I think it makes it a lot easier to introduce new products, be it private market products or other types of products. We have seen that over the years as we've come into partnerships, as we've built relationships with the platforms and the home offices and a lot of the advisers, it's much easier to introduce new products off of an existing relationship and partnership.

And so as we evolve our business and I think as the industry evolves to buying different types of products, again, private markets and other products, I think these partnerships and these relationships are super valuable to us. And I think it just gives comfort to the platforms of who they're doing business with, how we do business, how we service. And I think there's a real long-term relationship opportunity that you can maximize as you develop new products.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good morning, and welcome to the Victory Capital Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

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

Thank you. before I turn the call over to David Brown, I would like to remind you that during today's conference call, we may make a number of forward-looking statements. Victory Capital's actual results may differ materially from these statements. Please refer to our SEC filings for a list of some of the risk factors that may cause actual results to differ materially from those expressed on today's call. Victory Capital assumes no duty and does not undertake any obligation to update any forward-looking statements.

Our press release, which was issued after the market closed yesterday, disclose both GAAP and non-GAAP financial results. We believe the non-GAAP measures enhance the understanding of our business and our performance. Reconciliations between these non-GAAP measures and the most comparable GAAP measures are included in tables that can be found in our earnings press release and in the 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?

Thanks, Matt. Good morning, and welcome to Victory Capital's Third Quarter 2025 Earnings 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'll start today with an overview of the quarter, after which I will expand on our distribution opportunity outside of the U.S., update you on Victory shares our fast-growing ETF business, then I will provide some perspective on the depth of the M&A opportunities that we have before us. 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 answer your questions.

The quarterly business overview begins on Slide 5. We had an excellent third quarter. We achieved record high gross flows, and our net flows continue to improve and finished just under flat for the quarter.

We ended the quarter with total assets of $313 billion. Long-term gross flows rose 10% quarter-over-quarter to $17 billion, reflecting our expanded U.S. distribution team that is continuing to coalesce and gain traction. And we also had strong sales outside of the U.S. at an annualized rate of $68 billion or 23% of long-term AUM. We are in the best position we have ever been into execute on consistent long-term organic growth.

Adjusted EBITDA set a new all-time quarterly high at $191 million, resulting in an adjusted EBITDA margin of 52.7%. Adjusted earnings per diluted share rose to a record $1.63, up 4% from the second quarter and 20% higher than the quarter immediately preceding the Amundi transaction. We've already exceeded our low double-digit accretion guidance for this transaction, achieving these results even before capturing the complete benefit of our targeted net expense synergies.

During the third quarter, we repurchased 1.8 million shares. At quarter end, we still have $355 million of capacity on our existing repurchase authorization. We will remain opportunistic and flexible with future repurchases, factoring in the current facts and circumstances.

Turning to our integration process of Pioneer Investments. We are slightly ahead of plan on the timing of achieving our net expense synergy goals. At the end of the third quarter, we achieved approximately $86 million of net expense synergies on a run rate basis. There is a clear line of sight for the remaining $24 million of net expense synergies to reach the previously disclosed total of $110 million.

Our U.S. distribution teams have been integrated and cross-trained with the territories being reconfigured to optimize coverage. As with all our previous acquisitions, the investment team remained uninterrupted, and there has been little to no impact on the client experience during the integration process.

Turning to Slide 6. As we look at the distribution opportunity outside of the U.S., we are very encouraged by our position as essentially Amundi's U.S. manufacturing arm for traditional active asset management products. We currently have $52 billion of AUM from clients outside the U.S. from 60 countries where net flows remain positive. The Pioneer Investment's U.S. sales infrastructure that was present before we closed the transaction remains intact and is operating well and coordinating with Amundi's distribution teams in their local geographies throughout the world. We are investing in this area to increase capacity for more sales outside of the U.S., which will include legacy Victory products going forward.

We currently manage 19 usage and are working on several new ones that we will be launching in the next quarter or so. These new UCITS will be a mix of Pioneer investment and legacy Victory franchise strategies. Priorities for the launch of new products outside of the U.S. were established through a bottom-up approach with Amundi's distribution teams advising on which products have the greatest demand.

Another immediate opportunity identified relates to the current demand from their clients in Asia for U.S. exchange listed ETF products. The investment performance of our existing UCITS is excellent. The average performance ranking is in the top quartile for all periods and year-to-date average ranking is in the 11th percentile per Morningstar rankings. What makes this partnership unique is its structural design compared to historical and typical industry cross-border distribution agreements. When Amundi contributed its U.S. business to Victory, it was their in-house U.S. investment manufacturing arm, which they sought to expand to better satisfy demand from their clients across the globe.

Victory Capital now serves as Amundi's U.S. manufacturing platform. which includes the legacy Pioneer Investments product set, but also includes the legacy Victory product set. Most of the other cross-border distribution deals are not set up this way. Essentially, we took over an efficient and highly productive U.S. investment manufacturing arm that was deeply ingrained in the Amundi distribution system, and we are now adding legacy Victory products to it. Think of a freight train moving forward on the tracks, and we are just adding the Victory freight cars to an already fast-moving and fully operational train. This is why we are so excited about the opportunity over the long term.

The economic alignment is there for the organization as well in addition to Amundi's 26.1% economic ownership. There is a sharing of the fees by both organizations at the point of sale. Amundi earns fees if they sell Victory products and Victory earns fees for being the investment manager. In a lot of cases, the Amundi point-of-sale fee exceeds the stand-alone fee if they were selling in Amundi manufactured product, given the active nature of our product set, and that is all before factoring in the 26.1% economic ownership.

As far as the opportunity set goes, we are very excited about the entire Asia region where there is a high demand for U.S. dollar-denominated products. The Middle East is another market that has caught our attention. Amundi has a great distribution network in both regions. In Europe, Amundi enjoys a dominant position in many distribution channels and geographies that are very difficult to penetrate. I also want to make a point here with some of the recent news reported from Monday around their UniCredit distribution relationship that this is not a material part of our business and we don't expect this to impact the momentum outside of the U.S. Through Amundi's international networks, joint ventures and third-party distributors, they have one of the industry's most effective and deep global distribution engines. The combination of our expanded U.S. product set, Amundi's existing infrastructure, aligned incentives at the point of sale and Amundi's global competitive positioning creates a transformational opportunity for Victory. We look forward to reporting on our progress in these markets as sales begin to ramp up in 2026.

Slide 7 showcases Victory shares, our rapidly expanding ETF platform. The beginning of 2023, we saw a market opportunity and evaluated our ETF product mix and positioning. We began investing more in marketing and distribution resources, specifically dedicated to growing sales of our ETFs. Since then, we have launched several new active and rules-based ETFs and rationalize others to optimize our offerings. We also began hiring dedicated ETF sales professionals and entered into several strategic distribution partnerships. The result has been an acceleration of growth with year-to-date positive net flows of $5.4 billion, which represents a 53% organic growth rate through the first 9 months of this year. On an annualized basis, this is tracking at a greater than 70% organic rate of growth.

We currently have a suite of 26 ETFs, spanning from active to rules based with an average fee rate of 35 basis points. We entered this business 10 years ago when we acquired CEMP Temp which had less than $200 million of ETF AUM. Since that time, we have grown this part of our business at a 29% compound annual growth rate with AUM currently approaching $18 billion. Moreover, our operating platform enhances the benefits of scale and reduces the cost of manufacturing ETFs, which results in margins that meet our firm requirements. Our expectation is that this strong sales momentum will continue to accelerate in the U.S. and that it will be compounded by the non-U.S. sales of our ETF products that I just covered.

Turning to Slide 9. Our investment performance remains excellent. Nearly half of our mutual fund and ETF AUM ranks in the top quartile based on Morningstar's 3-year rankings. Nearly 2/3 of our mutual fund and ETF AUM, which is rated by Morningstar, earned a 4- or 5-star overall rating. This encompasses a diversified set of 56 different products. Majority of our AUM continues to outpace respective benchmarks over all measurement periods.

On Slide 10, we highlight our capital allocation strategy. Our deployment of capital is primarily targeted at both organic and inorganic growth opportunities. As a growth company, reinvesting in the business and pursuing strategic acquisitions represents our most compelling use of shareholder capital.

Given our growing earnings and cash flow, we can also return capital to shareholders. This flywheel effect has resulted in returns to shareholders of more than $1 billion since we went public, which is particularly noteworthy when you consider that the company received just $156 million in net proceeds from the initial public offering. This demonstrates our ability to create substantial shareholder value through disciplined capital allocation, coupled with consistently excellent execution.

Our presentation deck includes a chart showing our industry-leading earnings growth on Slide 21 and which highlights our quarterly fully diluted EPS growing from $0.40 to $1.63 for a compound annual growth rate of 21% since our initial public offering in 2018.

When we discussed our acquisition strategy, we are often asked about industry fragmentation and our ability to continue executing on our strategy, given we have grown so quickly as we are a much larger company now.

On Slide 11, we highlight the opportunity set that we see before us. It is important to note that our core strategy has not changed since the management buyout in 2013. We built a unique platform that is ideally suited to thrive given the secular trends challenging the industry. It is also especially conducive to creating value and growing earnings from acquisitions.

Considering that every deal starts with a strategic foundation to it, our company has become much better positioned over the years from a competitive perspective. Each of the acquisitions listed on the left-hand side of the slide was highly strategic. We diversified our investment in product capabilities, enhanced expanded and globalized our distribution capabilities, gained firm-wide size and scale and add a leadership talent with each of these transactions. The financial benefits were a positive outcome, allowing us to generate growing cash flow, increase earnings and perpetuate our strategy for creating shareholder value.

Our runway is very long. We intend to increase further in size and scale, not for growth's sake alone, but to enhance our competitive position in our distribution channels by investment and adding complementary investment capabilities to optimally position us at the point of sale with our diverse set of clients.

As the industry remains very fragmented, the reason for joining forces with a larger partner have only intensified over the years, increasing complexity, regulatory burdens, technology requirements and access to distribution are all becoming more difficult for asset managers that are not mega sized. Even with the large acquisition universe, we will always remain selective, disciplined and strategic. As you can see from the graphic on this slide, the opportunity set is vast. According to Simfund data, there are currently more than 450 asset managers in the U.S. with more than $10 billion of assets under management. Our focus areas increased in size that we have grown over the years, and we are focused on evaluating firms with between $50 billion and $200 billion of assets under management, where there are more than 110 prospective targets, managing $11.1 trillion.

In the event we execute on a transaction on the smaller side, it would necessitate being something highly strategic in the areas of investment capabilities or distribution access. We are also routinely asked about our views on adding alternative investments to our product range. While we do not aspire to become a full-on alternatives manager, we do want to have a curated alternatives product set as we are projecting that some of our clients will increase allocations to alternative investments. Over the years, we have actively evaluated opportunities to acquire, partner or organically add alternatives. We have been disciplined and avoided rushing into this space. However, we do remain attracted to the principles associated with alternative investments around diversification for clients' portfolios.

We've never tried to offer every product in every asset class and instead centered around where we have expertise. For alternatives, we will center around specific investment themes, such as income, for example. Our strategy here is consistent with our broader approach of selective expansion, and we will continue to maintain focus on our core strengths as a firm.

With that, I will turn the call over to Mike, who will go through the financial results in more detail. Mike?

Thanks, Dave, and good morning, everyone. The financial results review begins on Slide 13. Revenue increased 3% from the second quarter to $361.2 million. Average assets for the quarter rose 7% quarter-over-quarter, and our fee rate was 47.2 basis points. GAAP results include approximately $21 million of transaction-related compensation, restructuring and integration costs, which was down from $54 million in the prior quarter. As a result, GAAP operating income was $138 million, a 47% increase from the second quarter.

On an adjusted basis, we delivered adjusted EBITDA of $190.5 million, which yields an adjusted EBITDA margin of 52.7%. Adjusted net income with tax benefit grew to $141.3 million or $1.63 per diluted share, up 6% and 4%, respectively, from the prior quarter.

Our weighted average shares rose in the period due to having a full quarter of the shares issued to Amundi from the acquisition outstanding. If you recall, we delivered the share consideration to Amundi in multiple tranches during the second quarter.

Our capital allocation strategy remains active and disciplined. We opportunistically repurchased 1.8 million shares during the quarter as we took advantage of market conditions to return capital to shareholders.

The Board also declared the regular quarterly cash dividend of $0.49 that will be payable on December 23 to shareholders of record on December 10. Combined with our regular quarterly dividend, we returned a total of $163 million to shareholders in the quarter, which was an all-time high.

Our balance sheet remains strong with $116 million of cash and a net leverage ratio of 1.1x, providing us with financial flexibility to continue pursuing our inorganic growth objectives.

On Slide 14, you can see the diversification in our $313.4 billion in total client assets. In addition to diversification in the U.S. across channels, client types and asset classes, our mix of business continues to benefit from meaningful diversification into non-U.S. geographies. As of quarter end, 17% of our AUM was from investors outside the United States.

Our long-term asset flows continue to improve on all metrics, as you can see on Slide 15. We've now achieved our fourth consecutive quarter of improving net long-term flows with net outflows of $244 million. Annualized, this is just 33 basis points of our AUM.

Gross sales of $17 billion represent a 10% increase from Q2, displaying the growing traction of our expanded distribution platform. Particularly encouraging is the breadth of positive contributors during the quarter.

Multiple investment franchises generated positive net long-term flows, including Victory income investors, Pioneer Investments, RS Global, Trivalent and our VictoryShares ETF platform. This diversification across franchises demonstrates the strength of our platform and successful distribution across all channels.

Our revenue performance on Slide 16 reflects the enhanced scale of our platform and higher average AUM in the quarter. We expect the fee rate to remain in the 46 to 47 basis point range moving forward, reflecting the current mix of our business.

On Slide 17, you can see our expense details for the quarter. Overall, expenses declined from the second quarter. Recall that we incurred several onetime expenses associated with the Amundi transaction in the previous quarter. Compensation expense on a cash basis was 22.8% of revenue. To date, we have achieved $86 million of net expense synergies on a run rate basis and should have $100 million of net expenses removed by the end of the first quarter of 2026, the first full year of ownership. After which, the final $10 million in net expense reduction will be realized over the course of the next 12 months.

Turning to Slide 18, we cover our non-GAAP metrics. Our adjusted metrics highlight the underlying strength of our business platform. Adjusted net income with tax benefit increased 6% quarter-over-quarter to a record $141.3 million. Earnings per share grew 4% to $1.63, also a new record high. It is worth highlighting the power of our unique and successful inorganic growth strategy to deliver significant earnings growth. Adjusted EBITDA has grown 57% when comparing Q3 2025 to Q3 2024. Similarly, adjusted net income with tax benefit grew 59% over the same period. These metrics demonstrate our ability to generate strong cash flow and maintain strong, consistent margins even while we are integrating a new business.

Wrapping up on Slide 19, the balance sheet continues to strengthen and provides us with enhanced financial flexibility. We successfully refinanced our term loans during the quarter. We combined them into a single loan, lowered our interest rate by 35 basis points and extended the maturity out 7 years to 2032.

Our net leverage ratio is at our lowest level since our initial public offering. This deleveraging, combined with our strong cash generation, positions us with significant financial flexibility to execute on inorganic growth opportunities.

Our capital allocation strategy remained active during the quarter. We opportunistically repurchased 1.8 million shares as we see tremendous value in our stock at current prices. Combined with our regular quarterly dividend, we have now returned over $272 million to shareholders year-to-date. And during the quarter, we surpassed a total of $1 billion returned to shareholders since becoming a public company in 2018, which is a gratifying milestone. We ended September with $160 million in cash on the balance sheet and our $100 million revolver remains undrawn. When we refinanced our term loan, we also extended the maturity on our revolver by 5 years to 2030.

Looking ahead, we expect to continue to return capital via buybacks and dividends while simultaneously pursuing growth initiatives and investing in the business. Our ability to generate robust cash flow puts us in the enviable position to effectively balance investments, pursue strategic and transformational inorganic opportunities and deliver ever-increasing shareholder returns without compromising our financial strength.

With that, I will turn the call back to the operator for questions.

[Operator Instructions] Your first question comes from the line of Craig Siegenthaler with Bank of America.

Dave, Mike, [indiscernible] is doing well, and congrats on the 21% annual EPS growth since the IPO.

Thank you.

So we wanted to start with an open-end question on M&A. And I heard some of your commentary on the different size ranges of targets and how the larger focus today is in the $50 billion to $200 billion AUM range. But can you refresh us on your views on pursuing more cheap consolidation transactions that are highly earnings accretive versus strategic and organic growth synergistic deals? It sounds like maybe you might be leaning towards larger deals to that.

Well, let me start off and say that, as an organization, we aspire to be a $1 trillion firm. That is our internal goal from a size perspective. And we think eventually, that you will need to be that size to effectively be able to compete over the long term. So our goal is to be a $1 trillion under management. We're $313 billion today at the end of the quarter. And to get there, we'll do a number of different things. The first will be everything we'll do will be strategic. So we are not interested in just doing financial transactions where you're buying businesses, consolidating and there's no strategic element to it. So everything starts for us, does it make our company better? Does it satisfy one of the strategic elements that we're trying to satisfy?

And so a lot of that will come with the size and scale transactions. So we will move up. If you think about that triangle, we'll be at the top of that triangle. And we could do something larger than the $200 billion focus area. Anything on the smaller side would be highly strategic. It could be a product perspective. It could be a distribution or something else. But for us, it starts off with strategy. And then what comes from it because of our platform are really the ability to create shareholder value through earnings growth, through margin expansion and through organic growth. And I think we can satisfy all of those things with our acquisition strategy.

And lastly, I'd say is we really believe that the industry is going to go through an even more intense consolidation phase as we look forward. All of the reasons firms want to partner to get larger to deal with issues such as technology, regulatory access for distribution. Those things are intensifying. So we're going to go through a phase where there's going to be lots of consolidation. And we think we have an unbelievable platform to be a really good partner to those firms. And I think we have a great track record and history of executing on them.

Our follow-up question is on the Pioneer acquisition. You're running ahead of even the more recently revised synergy target. So we're curious what is driving that? Is it conservatism? Is it use of AI and other technologies that have improved operating efficiencies? Did you find more redundancies in certain functions? And I heard your commentary that it's not from the investment team. So just curious on that.

Craig, it's Mike. Yes, I think as we approach every acquisition and evaluate the opportunity to consolidate operations and administrative functions onto our platform. As you said, it does not impact the investment teams. And so that's our #1 goal. I don't impact the investment teams, their process, leave them alone, let them have all the tools that they need to manage money and continue down the path that they're on from a strong investment performance perspective, and we've accomplished that with the Pioneer Investment integration.

Of course, as we look at planning, we go through the exercise and spend time, figuring out where the opportunities lie. We probably tend to be conservative as we go through that because there's always unknowns as you're going through an integration. But as we've gone through the Pioneer integration, I think we found opportunities around technology, we found opportunities in kind of investment operational areas to provide technology to alleviate some additional costs that we anticipated. So I think it's really just the opportunity set to go through an integration. We've got highly skilled people that have done this for a number of years, and we're able to find opportunities as we go through the process.

So I think, again, conservatism and then execution has allowed us to kind of achieve quicker and then higher than we had originally anticipated from a net expense synergy. But we are making investments. I just want to reiterate that, that these expense synergies are net of investments that we're making in areas of the business Dave's comments on the non-U.S. distribution in the prepared remarks, I think, is an area we're making investments because we see a tremendous opportunity there, product development, data, technology, distribution partnerships. So as we think about all of that bundled together, I think we've just been in a position where we've been able to accelerate some of the recognition and be a little bit higher than we anticipated as well.

Yes. And I'd like to add to that. I think the other perspective is we are in the investment management business, but we're also in the acquisition business. And I think unlike many other investment managers, who are in the investment management business that have decided to do acquisitions because they need to grow, we are in the investment management business. But we've also developed a skill over a long period of time on doing acquisitions. And so part of the success we've had in synergies, the ability to invest while we do acquisitions on our platform and the ability to exceed some of the goals we put out there maybe from a numbers perspective and from a timing perspective, really comes down to as we have a second part of our business, which is doing acquisitions.

Your next question comes from the line of Michael Cho with JPMorgan.

I just want to start on the non-U.S. business, you walked through some commentary verified positive net sales in third quarter since close. Wondering if you could give some color on the magnitude of the flows and maybe the strategy that help drive those inflows. And Dave, you talked through a -- talked about sales ramp in this segment into '26. And so maybe some more color on your expectations on the magnitude of uplift for Victory in the segment?

Sure. Thank you for the question. So a lot of the sales because of the infrastructure that has been set up has come through really the Pioneer franchise. The Pioneer franchise is well distributed within the Amundi distribution network. So since acquisition -- since we've closed the acquisition, most of the sales have come through the Pioneer side. That will change going into '26. We'll still have strong sales within the Pioneer side. And we did note on our prepared remarks how good the investment performance is within the UCITS platform.

But what will happen in '26 is as we launch kind of the legacy Victory products into the platform through UCITS, through the U.S. listed ETFs, you'll start to see flows into the legacy Victory products. We've also invested in the infrastructure around selling RFPs and marketing and servicing for the non-U.S. side.

As far as sizing, we don't really disclose what the size of the flows are. But I think we did put in our prepared remarks that we do think it's a transformational opportunity, which would lead you to believe that over '26 and forward, we think it's going to be an important sizable part of our growth. It's white space for legacy Victory. We have some distribution outside the U.S. pre the close, but nothing to the scale and nothing to the depth that we have with Amundi.

Great. And if I could just ask a follow-up on the acquisition opportunity set discussion. I mean on the slide and your comments, I mean, it's a pretty wide set of opportunity out there, and I guess that's not -- hasn't changed in years, and it's an attractive segment and strategy. But you have a $100 billion integration going on with Pioneer at the moment. I don't want to rule out mega deals. But are there segments that maybe you're more focused on near term when you look at that triangle chart? And as it relates to -- you called out income, and I don't know if you meant it, called out in a specific way, but are there classes or themes that you think would maybe fit better with Victory's current platform?

On the first part, as far as in the middle of the integration, we're well through the integration and you can kind of see that the way the numbers, the net expense synergies have progressed and what our projection is. And so we're really doing well with the integration. And we're getting close to being at a point where we'll be wrapped up. And so we are fully kind of open for business from an acquisition side.

I would not rule out a mega size deal. We have the $50 million to $200 million as the focused area, but that doesn't preclude us from going above $200 million, and that doesn't include us from going below $50 million either. And I'd say as far as areas of focus, as I said, we really do start off with the strategic side. We're interested in high-performing products. We're interested in products that have demand today and that we think we'll have demand in the future. We know we have to offer a larger set of products for our distribution partners. And so we'll be focused on all of those things.

From an alternative perspective or private markets perspective, the themes that we're interested in income is an example, but not the only one. There are other areas that we think fit nicely with us. And they really do span across different asset classes. And I'd say, I don't want to focus on one of them. But income is an important one. I think income is something that has lasted over time. We have income products today. They're selling well. We know how to sell them. There's lots of demand for them. And so income is one of the themes.

But for us, around the private markets and alternatives, we don't want to be all things to all people. We want to do certain things really well, and we want to matter for those certain things, and that's how we'll approach the private market/alternative side.

Next question comes from the line of Alex Blostein with Goldman Sachs.

Dave, just building on that last thread, thinking about the private markets and the alt opportunity, in what form do you guys see yourself partnering with somebody in the alt space? We've seen various structures out there, so just curious to think about how, whether it's explicit M&A or potentially equity stake in you guys by some of the old managers or some form of like investment outsourcing agreements that could be coming up in the next several quarters? Kind of how do you see that volume because clearly, that's -- it's a big part of the market, and it's important part of the sort of toolkit for the wealth advisers that you guys don't penetrate fully?

Alex, thanks for the question. I would start off saying that we probably are not interested in investment outsourcing. I think that's challenging. I think all of the other scenarios you laid out around ownership investment, acquisition are within our universe. And I think we're exploring all of them. In our prepared remarks, we have talked about how we have not done a transaction. But over the years, we have been very involved in discussions, analyzing and so we feel really good about our understanding of the space.

We feel really good about what we think our clients are desiring and what they will desire down the road. When alts and private markets opens up, especially on the RIA side, on the intermediary side on the retirement side, I think we have a really good understanding. And I'd say from different versions of M&A is how we will approach it.

All right. And just to clean up modeling. Fee rate, so I remember there was a bit of a down size. I think performance fee benefit last quarter. So you kind of saw that step down a bit this quarter. How are you thinking about sort of the go forward on the fee rate relative to the kind of mid- to high 40s where you guys have been and ultimately, given the mix shift in the business, anything notable you would think about over the next sort of 12 months as the fee rate evolves?

Yes. Thanks, Alex. It's Mike. Yes, I think we I've kind of said our fee rate should be in the 46 to 47 basis point range long term. We don't anticipate any significant fee pressures. Clearly, the mix of business will impact that. But as we look out for the next 12 months, we feel pretty confident of the 46 to 47 basis points from an ongoing perspective from a fee rate.

Your next question comes from the line of Ben Budish with Barclays.

Maybe just following up on that last question from Alex. I think you mentioned the performance fees, which we saw in your Q were quite outsized in Q2. I'm just curious, when we look at the maybe quarterly run rate over the last few years, it's kind of been like the low single digit amount. Is there anything different about the Pioneer assets that you acquired where performance fees might be higher on a run rate basis or should be structurally higher? Anything like that to call out? And I guess what a lot of investors are trying to figure out.

Yes. I think the fee rates, again, the 46 to 47 kind of includes how we think about any kind of annualized or annual performance-related fees. The Pioneer funds do have a couple of mutual funds that have fulcrum fees, much like the legacy USA mutual fund business that we acquired. There's a couple of fulcrum fees there that are classified as performance fees. But nothing that I would say is unique or specific. I think as you mentioned, they've been in the 1 to 2 basis point range on an annualized basis for us, and that's probably the same level going forward.

It will vary based on business mix again. If we see opportunities to risk share pricing with institutional clients, there could be a component of those fees that are more based on performance. But I think as we look at the business, it's a pretty small amount overall. And again, the way we've built the business, while we are very -- when we look at fee rate, we're very focused on the margin. And so as you think about the way we've structured the expense base of the business with being greater than 2/3 variable, we expect to kind of continue to hold our margins with respect to all the fee rates that we have.

Dave mentioned in the prepared remarks, our ETF business, those are, on average, 35 basis points, so a little bit below our fee rate. But again, the margins on that business are strong and contribute to our overall margin base. So that's how we think about it. The performance fees are pretty immaterial from a business perspective. But we focus really on the bottom line, the margin components.

Okay. Understood. Maybe just another follow-up too on the M&A and alt discussion. When we listen to a lot of the large cap alt managers, we kind of hear this theme of GP consolidation of more LPs wanted to do more with less. In the credit space, we kind of hear that you need to have really massive sourcing capabilities in order to be effective. Just curious your response to that early. How do you think about what makes sense given the magnitude of what you might be able to acquire in that space?

Yes. I think for us, we always have been focused on areas where we can win and compete. I think a lot of the large cap alt managers are focused on very large areas, and we're not looking to really compete exactly with them in a lot of those different areas. I also think there is a new kind of area in the market that they're trying to penetrate. And I think traditional managers are there today, which is a lot of the intermediary market, the retirement market, a lot of parts of the RIA market. And I think to win there, there will be different selling strategies that we have used on the traditional side that we'll use on the private side.

From an acquisition standpoint, we will approach if we do an acquisition on the alternative side. We'll approach it as we've always approached traditional acquisitions. I think we've been very value conscious. We focus on shareholder value. We focused on acquiring excellent products. And we focus on products that we think we can help grow. And we'll do the same thing there. And I think we have a really good track record. And I think we are an excellent partner for private market investors and also traditional market investors.

Question comes from the line of Michael Cyprus with Morgan Stanley.

Maybe just continuing along the themes on the inorganic topic. I was hoping maybe you could elaborate a bit on the inorganic pipeline, how that composition looks today? How would you sort of characterize that size, quantity types of properties? How that's evolving now versus the or even 6 months ago? And anything you would mention in terms of how close you might be on any of those?

Our pipeline is full. We're very active in discussions. I don't think that there's anything that we want to talk about today on timing or different types of acquisitions that we would do. But we're having lots of discussions. I think the environment has gotten progressively better over the last couple of quarters from an acquisition standpoint. I think there's a lot of things happening in the industry. The industry is going through a lot of change very quickly because of technology, because of regulatory changes, because of the ability to access distribution is getting harder by the day. And so we've had a lot of discussions, and we're really active.

And as I said earlier, we are well through the Pioneer-Amundi integration. So that sets us up to when the opportunity presents itself, we'll be able to execute on it.

Great. And then just a follow-up on that. As you think about executing on this M&A pipeline over the next 12, 18 months, maybe you could elaborate on what sort of risks that you see that might result in not much getting done there over the next 12, 18 months? And when you're speaking with prospective targets, what is it that may hold them back from looking to transact?

I think the risks become very unique to the acquisition. So I don't think there's a general thing that I'm concerned about. I think the risks are very focused on the exact target the type of transaction, the structure of the transaction. Most of the risks could be mitigated restructuring and especially with the way we approach acquisitions where it's really around partnering and growing forward as opposed to succession-type planning acquisitions. But as we look at it today, we think the environment is really conducive. And like I said, we're coming to the end of our integration with the Pioneer-Amundi. So we're ready to go.

Your next question comes from the line of Kenneth Lee with RBC Capital Markets.

Just following up on the theme of inorganic opportunities, specifically on alternatives. How do you think about the challenge integrating potentially very different cultures or mindsets between traditional and alternative as you look at some of these opportunities? That's huge one of the potential for today.

Thanks for the question. We think about it a lot, and we think about it very carefully. It's probably one of the driving factors why we have decided over the years to just sit back and watch and observe and learn. I think there are different strategies that you can employ to mitigate some of those challenges. You can do that through structuring, you can do that through the types of product sets you talk about. But private market and alternative businesses are different than traditional. And I think that's the challenge. And I think it's why we have sat back and kind of studied and learned and been very patient. And so anything that we do going forward in this space, we will address that issue. We recognize it, and we're glad that we have been able to observe what others have done in the space.

Got you. Very helpful there. And just one follow-up if I may, a little bit more housekeeping. Global non-U.S. equity net inflows pretty positive there. Anything to call out either outsized mandates or things of that nature?

Not specifically in the global asset class, we are seeing a lot of demand for that asset class inside the U.S. and outside the U.S. We have excellent products with 2 different franchises there. So we have good performance, and we also have really, really good distribution around this asset class inside and outside the U.S. So it's just in demand by clients wanting to get access to a global portfolio.

And that is all for the Q&A session for today. This concludes today's conference call. You may now disconnect your lines. Have a pleasant day, everyone.