Victory Capital Holdings, Inc.

which they sought to expand to better satisfy demand from their clients across the globe. Victory Capital now serves as a Monday's US 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 US 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 organizations 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 standalone fee if they were selling an Amundi manufactured product, given the active nature of our product set. And that is all before factoring into 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 US 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 Amundi around their unit credit 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. In 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 rationalized 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 nine 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 Kemp, which had less than $200 billion 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 nine, our investment performance remains excellent. Nearly half of our mutual fund and ETF AUM ranks in the top quartile based on Morningstar's three-year rankings. Nearly two-thirds of our mutual fund and ETF AUM, which is rated by Morningstar, earned a four- or five-star overall rating. This encompasses a diversified set of 56 different products. The 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, which highlights our quarterly fully diluted EPS growing from 40 cents 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 and product capabilities, enhanced, expanded, and globalized our distribution capabilities, gained firm-wide size and scale, and added 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 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 SIM Fund data, there are currently more than 450 asset managers in the U.S. with more than 10 billion of assets under management. Our focus area has increased in size as we've 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've 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 have 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'll 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 49 cents that will be payable on December 23rd to shareholders of record on December 10th. 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 1.1 times. 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 US 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 flows 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. 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 Victory Shares 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.

forward, reflecting the current