Thanks, Deedee, and good morning, everyone. On behalf of Virtus Investment Partners, I'd like to welcome you to the discussion of our operating and financial results for the third quarter of 2025. Our speakers today are George Aylward, President and CEO, and Mike Angerthal, Chief Financial Officer. Following their prepared remarks, we'll have a Q&A period. Before we begin, please note the disclosures on page two of the slide presentation. Certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and as such, are subject to known and unknown risks and uncertainties, including those factors set forth in today's news release and discussed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those discussed in these statements.
In addition to results presented on a GAAP basis, we use certain non-GAAP measures to evaluate our financial results. Our non-GAAP financial measures are not substitutes for GAAP financial results and should be read in conjunction with them. Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in today's news release and financial supplement, which are available on our website. Now I'd like to turn the call over to George. George.
Thank you, Sean, and good morning, everyone. I'll start with an overview of the results we reported this morning, and then I'll turn it over to Mike to give a little more detail. We delivered solid financial results in the third quarter, supported by higher average assets under management and favorable market momentum. We did, however, have net outflows, as our quality-oriented strategies continue to face headwinds in a market environment that has largely favored momentum. Our focus remains on our initiatives to increase our retail separate account offerings, expand the availability of ETFs in key channels, and grow the wealth management business.
Key highlights of the quarter included higher earnings per share and operating margin, strong growth in ETF assets with our highest level of quarterly sales and net flows, positive net flows in both fixed income and alternative strategies, an increase in our quarterly dividend for the eighth consecutive year, and we completed a debt refinancing, providing significant liquidity and flexibility to invest in the business and return capital to shareholders. Our exchange-traded fund business was a particular highlight this quarter. ETF assets reached $4.7 billion, up 79% over the prior year, with a strong organic growth rate over the period. In the third quarter, ETF sales and flows reached their highest quarterly level at $0.9 billion each, benefiting from strong investment performance and demand for some of our strategies.
As of September 30th, 77% of ETF AUM were beating benchmarks over the three-year period, and 85% were outperforming peers over the same period. We continue to focus on broadening access to our ETFs in key distribution channels and introducing compelling new offerings. We currently have 21 ETFs across a variety of strategies, and we have several actively managed funds in filing that we anticipate will launch over the next few quarters, including several growth equity-oriented ETFs from Silvant, a real estate income ETF managed by Duff & Phelps, a multi-managed fixed income ETF collaboration between Newfleet and SGA, and a set of building block ETFs from Virtus Systematic. These follow the introduction of a global macro ETF from AlphaSimplex during the third quarter.
On the inorganic side, I would reiterate my comments from our last call that the environment remains very favorable with attractive opportunities to add compelling new capabilities or increase scale. As always, however, we take a highly disciplined approach to inorganic growth and will act only when an opportunity is both financially and strategically compelling. I would note that in the quarter, we did have $1 million of discrete business initiative expenses that were related to inorganic activity. Turning to investment performance, while recent equity performance reflects our quality orientation in a market that has favored momentum, we are pleased with the performance we have generated over market cycles. Over the 10-year period, 70% of our equity assets and 77% of our fixed income assets beat their benchmark. For just mutual funds, 70% of equity funds and 80% of fixed income funds outperformed the peer median.
I would also note that 25 of our retail funds are rated four and five-star funds, and 84% of our rated retail fund assets were in three, four, or five-star funds. Turning now to review the results, total assets under management were $169 billion at September 30th, modestly below the prior quarter level, as favorable market performance was offset by net outflows. Total sales of $6.3 billion increased 12% from $5.6 billion in the second quarter, with higher sales of fixed income and alternative strategies. On a product basis, we saw higher sales in institutional and ETFs. Total net outflows for the quarter of $3.9 billion were unchanged sequentially in spite of our highest level of ETF flows and positive flows in fixed income and alternative strategies, which are more than offset by outflows in quality equity strategies.
Looking at flows across asset classes, the equity net outflows largely reflect our weighting towards quality-oriented strategies. While quality has historically outperformed over longer market cycles, it tends to underperform momentum in risk-on environments, which has been particularly stark over the past two years. Fixed income net flows were positive for the quarter and the trailing 12 months, supported by very strong investment performance both for the shorter and longer-term periods. For the quarter, we saw positive net flows in our fixed income strategies across several products, including ETFs, institutional, and retail separate accounts. Net flows of alternative strategies were also positive, primarily in ETFs. In terms of what we're seeing in October, flows across products and asset classes are trending similarly. ETF sales and net flows remain strong, though U.S. retail mutual fund headwinds continue.
In institutional, trends are also similar to the third quarter, with known redemptions exceeding known wins, and with the wins across a range of strategies, including such things as emerging market debt and global and domestic REIT. Turning now to our financial results, the sequential improvement reflected growth in average assets under management and stable operating expenses. The operating margin was up 170 basis points to 33%, or 33.4% without squeezed items, with an incremental margin that continues to be above 50%. Earnings per share, as suggested, of $6.69 increased from $6.25 in the second quarter. Relative to the prior year period, earnings per share, as suggested, decreased 3% on lower average assets.
In terms of our balance sheet and capital, given the nearing maturity of our previous credit agreement, we refinanced with a new $400 million term loan and $250 million revolving credit facility, increasing our financial flexibility and extending our debt maturity profile with attractive terms. On a net basis, this added $158 million of cash to our balance sheet at the end of September. We also raised our quarterly dividend, representing the eighth consecutive annual increase. Regarding share repurchases, we were not in the market in the third quarter given other considerations and priorities. As a reminder, we bought back $50 million of our shares in the first half of the year, which was higher than our full year of repurchases in each of the prior two years.
Buybacks remain an important component of our capital management strategy, and given our strong liquidity position, we intend to continue to balance return of capital shareholders with investments in the business, including inorganic opportunities. With that, I'll turn the call over to Mike. Mike.
Thank you, George. Good to be with you all this morning. Starting with our results on slide seven, assets under management. Our total assets under management at September 30 were $169.3 billion, and average assets increased 2% to $170.3 billion. Our AUM represented a broad range of products and asset classes. By product, institutional is our largest category at 33% of AUM, retail separate accounts, including wealth management, at 28%, and U.S. retail mutual funds at 27%. The remaining 12% comprises closed-end funds, global funds, and ETFs. Within open-end funds, ETF assets under management grew to $4.7 billion, up by $1 billion sequentially on continued strong net flows, and have increased 79% over the prior year. We are also diversified within asset classes. In equities, between international and domestic, and within domestic, well represented among mid, small, and large-cap strategies.
Fixed income is well diversified across duration, credit quality, and geography. Turning to Slide 8, asset flows. Sales grew 12% to $6.3 billion, with higher sales of both fixed income and alternative strategies. Reviewing by product, institutional sales of $2 billion compared with $1.3 billion last quarter, driven by fixed income and multi-asset strategies, and included the issuance of a new $0.4 billion CLO. Retail separate account sales were $1.4 billion, essentially unchanged from the prior quarter. Open-end fund sales of $2.8 billion were consistent with the prior quarter, as strong growth in ETF sales were offset by lower sales of U.S. retail funds. ETF sales were $0.9 billion, more than double the prior quarter level. Total net outflows were $3.9 billion, consistent with the prior quarter. Reviewing by product, institutional net outflows of $1.5 billion improved from $2.2 billion due to the increase in inflows into fixed income strategies.
As always, institutional flows will fluctuate depending on the timing of client actions. Retail separate accounts had net outflows of $1.2 billion, driven by small and mid-cap strategies, while large-cap and fixed income generated positive net flows. We also continue to see positive net flows in our style-agnostic, high-conviction, large-cap growth offerings. For open-end funds, net outflows of $1.1 billion compared with $1 billion in the prior quarter were driven by equity strategies within U.S. retail funds, which more than offset positive net flows in ETFs. ETFs continue to generate strong double-digit organic growth rates with $0.9 billion of positive net flows. Turning to Slide 9, investment management fees as adjusted of $176.6 million increased 3%, reflecting a consistent average fee rate and an increase in average assets under management. The average fee rate, excluding performance fees, was 41.1 basis points, unchanged from the prior quarter.
Looking ahead, we believe this fee rate is reasonable for the fourth quarter modeling purposes. As always, the fee rate will be impacted by markets and the mix of assets. Slide 10 shows the five-quarter trend in employment expenses. Total employment expenses as adjusted of $98.7 million increased slightly due to higher variable incentive compensation. As a percentage of revenues, employment expenses as adjusted declined by 70 basis points to 50.2%. Looking ahead, it is reasonable to anticipate employment expenses as a percentage of revenues will remain within our recent 49%-51% range. Turning to Slide 11, other operating expenses as adjusted were $31.1 million, down from $32 million due to lower rent expense from office consolidation and the prior quarter impact of the annual equity grants to the board of directors, partially offset by $1 million of discrete business initiative expenses.
As a percentage of revenue, other operating expenses were 15.8%, down from 16.7%. For modeling purposes, our range of $30 million-$32 million per quarter remains appropriate. Slide 12 illustrates the trend in earnings. Operating income as adjusted of $65 million increased 9% sequentially due to higher revenues and relatively stable operating expenses. The operating margin as adjusted of 33% increased 170 basis points from the second quarter. Excluding the discrete business initiative expenses, the operating margin was 33.4%. With respect to non-operating items, interest and dividend income of $4.1 million declined sequentially due to elevated CLO interest income in the prior quarter. Looking ahead to the fourth quarter, it would be reasonable to anticipate a higher level of interest income given increased cash balances at the end of the quarter as a result of the recent debt refinancing, offset partially by lower CLO interest income.
Interest expense was $4.8 million in the third quarter. It would be reasonable to assume that will increase in the fourth quarter given the higher debt level. Non-controlling interests, which reflect minority interests in one of our managers, were modestly lower, primarily due to the increase in our ownership late in the quarter. A reasonable run rate for the fourth quarter is approximately $2 million. Net income as adjusted of $6.69 per diluted share, which included $0.11 of discrete expenses, increased 7% from $6.25 in the second quarter. In terms of GAAP results, net income per share of $4.65 decreased from $6.12 per share in the second quarter due to $1.54 of unrealized losses on investments, partially offset by $0.42 of fair value adjustments to minority interests. Slide 13 shows the trend of our capital liquidity and select balance sheet items.
On September 26, we completed the refinancing of our credit agreement, increasing the company's financial flexibility and extending the maturity profile. The new $400 million term loan has a seven-year maturity, and the revolver provides $250 million of capacity through 2030, each bearing interest at SOFR +225 basis points. Cash and equivalents at September 30 were $371 million. In addition, we had $300 million of other investments, including seed capital, to support growth initiatives. During the third quarter, we raised our quarterly common dividend by 7% to $2.40 per share. Other uses of capital during the quarter included $29.7 million to sponsor the new CLO, as well as $14.8 million for a planned increase in equity of our majority-owned affiliate. The last of the scheduled equity purchases of the affiliate will be approximately $7 million in the fourth quarter.
At September 30th, gross debt to EBITDA was 1.3x, up from 0.7x at June 30th due to the upsizing of our credit facility, and we ended the quarter with $29 million of net debt, or 0.1x EBITDA, which declined from 0.2x at June 30th. Our strong levels of liquidity, including the undrawn revolver and modest net leverage, provide meaningful financial flexibility to continue to invest in the business and return capital. With that, let me turn the call back over to George. George.
Thank you, Mike. We will now take your questions. Deedee, would you open up the lines, please?