Hello and thank you for standing by. My name is Chad, and I will be your conference operator today. At this time, all participants are in a listen-only mode. After the prepared remarks, management will conduct a question-and-answer session and conference participants will be given instructions at that time. As a reminder, this conference call is being recorded. At this time, I will turn the call over to Makela Taphorn, Director, Investor Relations, at Artisan Partners.

Thank you. Welcome to the Artisan Partners Asset Management Business Update and Earnings Call. Today's call will include remarks from Eric Colson, Chairman and CEO; and C.J. Daley, CFO. Our latest results and investor presentation are available on the Investor Relations section of our website. Following these remarks, we will open the line for questions. Before we begin, I'd like to remind you that our comments made on today's call, including responses to your questions, may deal with forward-looking statements, which are subject to risks and uncertainties that are presented in the earnings release and detailed in our filings with the SEC. We undertake no obligation to revise these statements following the date of this conference call. In addition, some of our remarks made today will include reference to non-GAAP financial measures. You can find reconciliations of those measures to the most comparable GAAP measures in the earnings release. I will now turn the call over to Eric Colson.

Thanks Makela. At the end of 2018, the market drawdown, volatility and industrywide outflows dominated attention. Our AUM declined by more than 17%, and our stock price declined by more than 30%. Since December 31, our AUM has appreciated 9% to approximately $105 billion, due to investment returns, including alpha and net inflows in January. We understand that markets will be volatile and price can become dislocated from fundamentals. We have designed our P&L and capital structure to maintain our business integrity, to periods of volatility, and we constantly repeat our long-term mantra. Stability and a long-term mindset position our investment teams and business to take advantage of opportunities during periods of dislocation and disruption. Despite the fourth quarter, 2018 was one of our most successful years ever from a financial perspective. We generated $828.6 million in revenue. We maintained a 36.8% operating margin, while continued to reinvest in talent, technology and new investment capabilities. We generated $2.94 of adjusted EPS, and we paid or declared a total of $3.39 per share of dividends with respect to 2018. Our run rate cash generation yield is approximately 12%, and as I will discuss in a minute, we have numerous embedded options to drive future growth and capital value. We're not trying to be all things to all people, and we're not trying to solve for short-term periods. We don't design our launch strategies to smooth cash flow outcomes, we avoid the wrong relationships, and we maintain our investment integrity and pricing power. We don't guess with our balance sheet, investment decisions or capital management policy. We simply remain focused on providing the best home for talent to deliver high value-added outcomes for clients. We aim to be the ultimate investment and client-focused firm, the ideal home for unique investment talent, and…

Thanks, Eric. Financial highlights for the quarter and year are presented on Slide 7. I will focus as I always do my comments on adjusted results which we utilize to evaluate our business results and operations. During the fourth quarter sharp global equity market declines, drove assets that we manage from $117 billion at the beginning of the quarter to $96 billion at December 31. Markets have since rebounded and our AUM was up 9% to $105 billion as of the end of January. The market declines in the December quarter provided a great example of the transparency and predictability of our financial model. December quarter-end AUM of $96.2 billion was down 17%, due to the lower equity markets and $4.9 billion of net client cash outflows during the quarter. Average AUM and revenues were down 10% from the September quarter and our largest expenses, which vary directly with revenue, were also down in line with revenues. Fixed operating expenses this quarter included the anticipated onetime onboarding costs for personnel additions related to the Non-U.S. Small-Mid Growth strategy. Our operating margin was 33.5%, driven down from previous quarters mostly because of the sharp declines in revenues. Adjusted earnings per adjusted share were $0.61. In contrast for the year and despite lower AUM in the December quarter, average AUM grew 5%, primarily due to strong markets and modest outflows leading into the last quarter of the year. Revenues also grew 4% as the related variable expenses. Fixed costs were up over 2017 by 5% and included the onboarding costs related to the Non-U.S. Small Mid-Cap strategy, cost related to the relocation to new office space for two of our investment teams, and higher compensation costs related to additional headcount and the January 2018 equity-based compensation grant. Adjusted operating margin was 36.8%…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question will come from Chris Shutler with William Blair. Please go ahead.

Hi guys. Good morning. This is actually Andrew Nicholas on for Chris. Eric, you made a comment about larger firms shifting towards solutions-based investing, and it sounds like you view that as a positive for Artisan. So I'm curious, are you seeing materially more opportunities today to bring on new talent versus a year ago? And what areas are you most interested in?

Hi, Andrew. It's Eric. With respect to talent in the marketplace and providing a home for talent that wants to aligned to our structure of investing in a pure sense and in the manner and approach that the individual wants to utilize, I believe that the marketplace has given us a better opportunity, as I said, it's very difficult to start your own firm and go at it alone, and it's also more difficult to navigate inside of a large integrated firm define your own space to invest to your philosophy and process. Given those two trends, we believe that it's going to be an uptake in opportunity for talent. We have seen a variety of individuals over the last year, and we just believe our model will provide that home. And with regards to the types of strategies, again, we remain focused on high-value added strategies with high degrees of freedom, and we're not too specific about, are we looking in equity or credit or asset allocation products, or are we looking in the illiquid private markets, so we're fairly open to strategy.

Great. Thanks. That's helpful. And then looking two Mid-Cap strategies, there have been outflows – will it be possible to break down their AUM by channel, and give us a sense, if the flow pressure is more specific to one channel versus another? I'm just trying to understand, if there is a level, where – in those two strategies, where you'd expect AUM to level off or to bottom? Thanks.

Sure. I can give you the direction in the channel, with regards to the exact leveling off number, it would be a little bit more difficult, but both of those strategies in the early 2000s built up a nice client base and a defined contribution space, primarily due to the open architecture that was utilized during that time period, and as the shift moved into proprietary closed structures of target date, we've seen the majority of the outflow come from the defined contribution marketplace. With regards to exactly where that'll settle at, we're unable to give you a specific number until that – until we see some settling. I think we're probably getting a little closer on the Mid-Cap Value, and we're experiencing some flows last year in Mid-Cap Growth, unable to give you an exact number.

Thanks. I appreciate it.

The next question comes from Bill Katz of Citi. Please go ahead.

Hi, good morning. This is actually Kendall Marthaler on for Bill Katz. Thanks for taking the question. So just given the flow or the AUM update, would you be able to give a quantity on the flows year-to-date, and also any color on what strategies are driving that rebound?.

Yes. So the flow number for January was just a little over $0.5 billion, a lot of that, we saw some flows for people that had done some tax loss selling in December, and a good portion of flows were International Value strategy, where we saw a good portion of that tax loss selling in the fourth quarter.

Okay, great. Thanks. And then just a quick follow-up. So given the uptick in the total comp ratio due to the benefits and payroll expense increase and the seasonality expected in 1Q, how should we be thinking about a more normalized ratio going forward into 2019 and 2020?

Yes. I think our ratio has been fairly consistent. We have on Slide 11, you can see the history, and so it's generally been running around 48% to 50%. So I think that's sort of a good run rate as revenues grow, it ticks down a little bit, but as you saw in the fourth quarter when revenues declined, because of declines in AUM, it ticks up a little more to the 50% to 51%. Just the impact of those fixed portions of the comps costs.

Okay, great. Thank you.

The next question comes from Kenneth Lee with RBC Capital Markets.

Hi, good morning. Thanks for taking my question. Just in terms of the – when you look across the investment strategy, it looks as if you – the investment constraints have been lifted across many of them. Maybe you could comment on how you think about the additional investment capacity that's available across these strategies? And whether – what you think about in terms of potential changes in terms of profile of net flows given the reopenings? Thanks.

Certainly, we've reopened two strategies recently with regards to the U.S. Mid-Cap Growth strategy and Non-U.S. Growth strategy. And last year, I believe we did the U.S. Mid-Cap Value strategy. And we have been taking a look at the dynamics of capacity, in all three of those cases, you've seen some outflows in the strategies and we've also seen increased degrees of freedom. And so the combination of the markets expanding for us with degrees of freedom, as well as capacity, opening up because of outflows, we've reopened those strategies and believe that we have good opportunity for growth on a go forward basis with them.

Great. And then just one quick follow-up, just in terms of the potential sources of funding for the dividend this year, any latest update on potential excess cash on balance sheet that could be available. And whether in terms of market volatility, how much that could potentially change in terms of either holding onto an additional cash buffer or things of that nature? Thanks.

Yes. We've had a very consistent balance sheet policy since becoming public, and we've always maintained about $100 million of excess cash on our balance sheet. So when you look at our balance sheet, everything above $100 million is either available or – is either spoken forward through accrued payables or taxes or dividends that we would expect to pay or declare in the future. That $100 million of excess, we utilize that for seed investments we currently have about $40 million of that $100 million in seed products currently, and that's been pretty much the majority of this year. And then, but that will eventually come back and restore that $100 million of cash. And so there really has been no change in the way we think about that.

Okay. Great. Thank you.

The next question will be from Daniel Fannon with Jefferies. Please go ahead.

Hi. This is actually James Steele filling in Dan Fannon. Just curious on the flow trends by channel. It looks like the separately managed accounts held up a little bit better then funds in the fourth quarter. Is that just due to the funds being more susceptible to tax loss harvesting? Is there something more encouraging going on in the accounts business?

No. I don't think it's anything more than what you suggest, I mean, we were through the first three quarters of the year, flows were quite muted compared to the prior year. And as you saw, it picked up quite a bit in the fourth quarter and that was we believe both the – sort of the risk off as well as the tax loss selling.

Understood. Thank you.

The next question comes from Mike Carrier with Bank of America. Please go ahead.

Hey guys. This is actually Sean Callan on for Mike. Just a quick one on flows. So despite the net outflows last quarter, it looks like gross client inflows were actually very strong, and I was hoping you could give us a little more detail on what you think may have driven that?

Yes. I think 3Q was quite low due to the seasonality that we typically see, and we – the first and fourth quarters historically are much greater on a gross basis. So other than that, there really isn't anything that we're aware of on the inflow side.

Okay, thanks. And then one more on the reopening in the funds. Can you just give us a quick update on which ones or what percent of AUM are fully open versus soft closed and hard closed?

Certainly. Sean on Page 4, of our deck, where we have embedded optionality on the far right, we list out what's opened and what's partially open there. And that will give you a good indication there with regards to partial open being similar to a soft close there.

Okay. Thanks.

Ladies and gentlemen, this concludes the question-and-answer session, and thus concludes today’s call. We thank you very much for attending today’s presentation. At this time, you may now disconnect. Take care.