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

Thank you, Marie. On behalf of Virtus Investment Partners, I would like to welcome you this morning to the discussion of our operating and financial results for the first quarter of 2012. Before we begin, I direct your attention to the important disclosures on Page 2 of the slide presentation that accompanies this webcast. Certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not statements of facts or guarantees of future performance and are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those discussed in the statements. These statements may be identified by such words as expect, anticipate, believe, outlook, may and similar terms. For a discussion of these risks and uncertainties, please see the Risk Factors and Management Discussion and Analysis sections of our periodic reports that are filed with the SEC, as well as our other recent filings, which are available in the Investor Relations section of our website, www.virtus.com. In addition to the results presented on a GAAP basis, Virtus uses certain non-GAAP measures to evaluate its financial results. Our non-GAAP financial measures are not substitutes for GAAP financial results and should be read in conjunction with GAAP results. Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in our earnings press release which is available on our website. For this call, we have a presentation, including an appendix that is accessible with the webcast through the Investor Relations section of our website. This morning's call will begin with remarks from President and Chief Executive Officer, George Aylward, who will review our accomplishments and operating results for the quarter, including investment performance of our mutual funds. Mike Angerthal, Executive Vice President and Chief Financial Officer, will then discuss our financial results in further detail, and we will conclude by opening the call to your questions. Now I would like to turn the call over to George Aylward. George?

Good morning, everyone. Thank you for joining our call today. Mike and I look forward to reviewing our results for the quarter and taking your questions this morning. As Joe indicated, I want to start by discussing some of our accomplishments, and then reviewing the financial highlights. Mike will give you some additional insight into the financial results to review some balance sheet and capital items. And I will conclude with some additional perspective on the quarter and our opportunities ahead. We are pleased to report another very strong quarter of operating results and a start of what could be a very successful year. The record sales, net flows and profitability continued to execute on significant initiatives that position us for further growth. Let's start with some of our significant accomplishments in the quarter. First, we had total sales of $3.5 billion, a sequential increase of 34% over the very strong sales in the fourth quarter of 2011. The financial markets were generally strong during the quarter, and we benefited as investors were willing to invest in riskier asset classes. We also had positive net flows of $1.9 billion, which is significantly higher than the prior quarters and represented an annualized organic growth rate of 22%. Sales and flows included the raise from our eighth closed-end fund. Operating income, as adjusted, increased to our highest level yet, $16 million. In addition to solid financial results, we completed several initiatives that we expect will contribute to continued growth of our business. The most important item was the launch of the Virtus Global Multi-Sector Income closed-end fund, which ended the quarter with $274 million of assets following its IPO and the addition of financial leverage. The launch of the fund, which is managed by the Newfleet Multi-Sector team demonstrates our ability to…

Thank you, George, good morning, everyone. The first quarter was a very strong start to the year. And this morning, I will provide some additional perspective on how we achieved these results. Let's start with operating income as adjusted. We delivered increased operating income, as adjusted, as a result of the cumulative benefit of positive net flows, market appreciation and the successful completion of growth initiatives. As a reminder, operating income, as adjusted, is the non-GAAP measure management uses to illustrate the ongoing earnings of the company. These measures are not substitutes for GAAP and should be read in conjunction with the GAAP results. In the first quarter, operating income, as adjusted, was $16 million, an increase of 18% from $13.6 million in the fourth quarter of 2011 and a year-over-year increase of 130%. Operating margin, as adjusted, grew to 34% representing a sequential increase of 190 basis points and an increase of 1,260 basis points from the prior year quarter. Significant increase from the prior year reflects the incremental earnings from the successful growth initiatives, specifically the 3 new closed-end funds and the internalization of the Newfleet team. This quarter, slightly more than 50% of the incremental revenue fell to the bottom line, which is within the range of the capture ratio that we expect and consistent with the levels we have discussed in the past. When evaluating our capture ratio and ultimately our margin, I would point out that the results included $1.7 million of payroll taxes related to annual incentive compensation payments made this quarter. The higher payroll taxes, which occur in the first quarter each year, reduced our margin by approximately 350 basis points. Concerning the GAAP result, net income increased to $5.5 million or $0.68 per fully diluted common share compared with $4.3 million or…

Thanks, Mike. Before we take your questions, I wanted to summarize a few key takeaways from the quarter and provide some thoughts on opportunities going forward. Strong results for the quarter follow a trend of continued and progressive growth in sales and profitability since we became an independent company. Achievements over the past few years are the direct results of the strengths of the business, our flexible model, our breadth of products and our strong distribution capabilities. They also reflect the effective execution of select and thoughtful initiatives designed to dramatically increase our growth opportunities. We started down the path 3 years ago with a clearer vision and strategy for the company, and that has continued as our focus. We move from taking foundational actions to identifying and pursuing select growth opportunities. Now with the success that we've had over the past years, our opportunity set to take advantage of our existing business strengths has significantly increased. In some ways, we have more opportunities than we can possibly take advantage of. And that's a high-class problem, and we are very grateful for it. We are determined to do everything we can to make sure we are positioned and prepared to take advantage of those opportunities. All of us here at Virtus believe we are only in the early stages and we describe our achievements as a good start. We are all looking forward to the next phase. And with that, we'll take some questions. [Operator Instructions] Marie, can you open it up, please?

[Operator Instructions] And we have our first question and it comes from the line of Michael Kim from Sandler O'Neill.

First question, I know you talked about sort of the pickup in sales in the RIA channel, but how are you thinking about continuing to broaden your distribution footprint going forward? And then maybe any update on leveraging your performance across non-U.S. markets perhaps via partnership with a firm that has sort of existing overseas distribution capabilities?

Sure. In terms of the breadth of our distribution access, we currently have -- again, we believe one of our greatest strengths is the breadth of the access we have over 1,500 selling agreements and basically do business in every firms. But we are a smaller firm, so we have a smaller sales force and a lot of our growth in the last few years has been by being very successful in getting great penetration in the wire houses. And for us, it's really a calculation of where is the highest probabilities of successes, and with the strength that we've had, we've had a lot of success there. And it was late last year and in the beginning of this year when we made the decision to set up a separate sales force and have a more dedicated focus outside of the wire houses in the independents and RIAs, where we've always participated and always have good flows, but we wanted to have a distinct sales force that would really focus on their needs which -- there are some differences between the financial advisors and each of those types of firms. So essentially, we have very good assets and have the ability to sell in multiple firms. We've been very judicious in terms of our sales force. I think we've generally had one of the highest productivity per wholesaler rates in the industry. We just recently made the expansion because we wanted to have the dedicated focus where we see an incredible opportunity in terms of continuing to not only increase the penetration in the wire houses but to get the same kind of penetration in some of the independents, as well as in the RIAs. In terms of outside of the U.S., obviously, as we think long term, that will be an area that will have to be considered. I think right now, our priority and focus really has been on the domestic, the U.S. opportunity set. Just because we still believe there is an incredible opportunity for us here, as we look outside the U.S. though, we would be very thoughtful in terms of doing it in a way that makes sense, and generally people do it either by investing and building it themselves or by partnering with others. And I guess, essentially a fundamental basis of our model is partnering, so we would certainly be looking at those types of opportunities as we look forward. But right now, we still see incredible opportunities here in the U.S. and are very focused on those in the short term.

Okay. and then maybe just a question for Mike. Your adjusted operating margin looks pretty competitive even as you sort of continue to deal with upfront costs related to the strong sales. So assuming the sales strain normalizes over time, what kind of margins do you think you can deliver? And then on the flip side, would you maybe start to think about reinvesting a bit more to deploy some of that free cash flow, if you will?

Yes. Thanks for the question. The margin -- we talked about 2 things to this quarter's margin and we agreed to moving into the mid-30s as a good testament is we're moving within the industry averages especially as you consider our business model, where we're a multi-manager model and the way we distribute so you have to take that into consideration as you think about our margin. This quarter had the effect of the payroll item, the annual incentive payments made of approximately $1.7 million. I think I noted it had the effect of 350 basis points all else being equal on the quarterly margin, which would move us squarely into the upper or mid-30s. And as you think about the sales strain, I think we certainly had incremental sales costs on both a sequential basis and on a year-over-year basis. So that is something that's normalizing as we look at the incremental revenue that we're getting in the quarter from those sales. We also look at that as our sales rate, which was 69% in the quarter, has been significantly above industry averages when we look at our margin. So when we say we were just selling at an industry average rate, that could potentially have an effect of approximately another 150 to 200 basis points on the margin. So we're focused and continue to focus on growth. And I think, redeploying the capital, to your point, we've invested in additional wholesalers and feet on the street and the independent RIA channel and we'll continue to be judicious about opportunities and distribution. We had some announcement this quarter about institutional sales resources that had been added so it's a real strong focus that we have and we'll continue to look at all those areas as we look forward.

And our next question comes from the line of Stephen White from RMB Capital.

Okay, so first question is, can you just confirm how many shares cumulatively have been repurchased under the current plan?

Sure. The way we think about the share repurchase is in 2 elements. What we've really repurchased in the open market under the share repurchase program that we announced which was $350,000 share repurchase program. So under that program, we've purchased 155,000 shares to date. And we talked this quarter about the next settlement of the RSUs, which happened during the first quarter and then in April. And I'll add the April grant, because that was the larger one, that was approximately 139,000 units that were repurchased. So when you look at the 155,000 plus the 139,000, that's approximately 4% of the total outstanding shares that we've repurchased when you look at basic outstanding shares at the end of the first quarter.

Okay. But then just to confirm, there's about 200,000 shares left onto the open market buyback?

Yes, it was 350,000 less 155,000. So that's 195,000.

The net settlement of RSUs don't go against the program.

That's right.

Okay, just want to make sure. Let's see the redemption rate for open-ended funds looks like it's -- been ticking down last couple of quarters. I guess, do you have expectations on where do you think that settles out, or how are you guys looking at that going forward?

When you look at the redemption rates, there's 2 things -- when you look at it, you not only look at it from us from comparable periods, but it's really in the backdrop of what's going on the industry because generally the mutual fund industry will sort of move in a certain way in terms of sales rates, as well as redemption rates, right? So we're always looking at it in terms of how do we compare like on the ITI kind of data. And for us, as you look at our rates, and I pointed out a couple of times, we have very strong performance, right? So generally, if you have strong performance, you will have a lower rate of redemptions all else being equal. The other thing is we're selling a lot of new products. And if you sort of think about the life cycle of a fund, your first sale, the next day, you're not going to have any redemptions. And generally, it will take a while for a fund to get, so you can have like us and AlphaSector kind of a fund, which is a very large fund. We've raised a lot of assets within a short period of time. People generally don't redeem in the first year or the second year. I think if you look at ICI averages, you can get average lives of funds between 2.5 to 3.5 years. And in certain channels, it's double that, and in some channels, it's shorter. So you have to sort of think about what's going on in the market, how is our performance going and what is the composition of sales in terms of mature. Redemptions basically are very low in early life of a fund, then they get to industry average and then it's usually really, when they're really old and they're no longer selling a lot where you've actually have lower redemption rates because the people that are in there, obviously, in there for the long haul. So you have to think about those. Our goal, as we -- as it is with everything, is to try to be better than industry average. And I think, we've been very pleased with our sales rates, as well as our redemption rates in the context of the type of product we offer and how we're looking.

Okay. Do you see a lot of correlation with the redemption rate and market volatility? Because you're redemption rate was extraordinarily low prior to the third quarter of last year, and then Q3 last year was hope for the market, and that's when it first picked up. And it's been coming down since. I guess, what I'm wondering is if you saw another period of high volatility, do you expect the redemption rate to move back up.

You would. I mean, I would expect that in the industry I think just if you look, the industry will have higher redemption in volatile periods. But then you have to go one step down in terms of what's going on with domestic equity, international equity as well as fixed income. And I think in several quarters, those are sometimes the more important drivers is not necessarily the overall volatility in the market, but how are people feeling about different asset classes and different strategies. So all of those things will come -- well, all things being equal, if there is more volatility, you will see increased redemptions.

[Operator Instructions] Okay, George, I'd now like to hand back to you.

All right. Well, I want to thank, everyone, for joining us this morning, and we certainly encourage you to call us if you have any additional questions. Thank you very much.

Thank you, ladies and gentlemen. This concludes your conference call this morning. Thank you for joining us, and you may all now disconnect.